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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
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: 333-34-477
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GLOBAL DECISIONS GROUP LLC
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3963605
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
c/o MCCARTHY, CRISANTI & MAFFEI, INC.
590 MADISON AVENUE
NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
212-896-7510
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Securities registered pursuant to Section 12(b) of the Act: None
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 X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes No x
--- ---
At June 30, 1998 there were 4,838,710 Limited Liability Company units
of the Registrant outstanding. Of these, 2,095,904 Limited Liability Company
Units are held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Registration Statement on Form S-4 (Reg.
No. 333-34477) are incorporated by reference into Part IV.
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PART I
Item 1. BUSINESS
Business of Global Decisions Group LLC
Global Decisions Group LLC ("GDG") is a Delaware limited liability company which
was formed in connection with a Plan of Merger and Exchange Agreement dated as
of August 1, 1997 (the "Merger Agreement") by and among MCM Group, Inc., a
Delaware corporation ("MGI"), GDG, GDG Merger Corporation, a Delaware
corporation ("Merger Sub"), the stockholders of Cambridge Energy Research
Associates, Inc., a Massachusetts corporation ("CERA"), and The Goldman Sachs
Group, L.P., a Delaware limited partnership ("Goldman"). On February 11, 1998,
in accordance with the Merger Agreement, McCarthy, Crisanti & Maffei, Inc., a
New York corporation ("MCM, Inc.") entered into a five year revolving credit
agreement with The Chase Manhattan Bank and Bank of America National Trust and
Savings Association (the "Credit Agreement") and on the same date loaned
$25,000,000 to CERA (the "CERA Loan"). CERA used these funds to pay cash
distributions aggregating $21,510,000 to the CERA stockholders, and to purchase
a portion of the limited liability partnership interests in Cambridge Energy
Research Associates Limited Partnership ("CERA L.P.") owned by Goldman for
$2,390,000 (the "CERA Cash Distribution"). The CERA Loan was funded using
available cash and $15,000,000 in loans under the Credit Agreement.
On February 12, 1998, pursuant to the Merger Agreement, MGI merged with Merger
Sub (the "Merger"), a wholly owned subsidiary of GDG which was formed
specifically for the purpose of the Merger. MGI was the surviving corporation
and became a wholly owned subsidiary of GDG. As a result of the Merger, each
share of MGI common stock outstanding immediately prior to the Merger ceased to
be outstanding and was converted into a right to receive limited liability
company unit of GDG ("LLC Units"), as provided in the Merger Agreement. In
addition, on that date, GDG acquired all of the outstanding shares of CERA's
common stock and the remaining limited partnership interests in CERA L.P. (which
interests were immediately transferred to CERA) in exchange for LLC Units and
certain contingent options and rights (the "CERA Acquisition"). As a result,
CERA also became a wholly owned subsidiary of GDG, and CERA L.P. was dissolved
by operation of law, and its assets and liabilities were transferred to CERA.
GDG is a holding company with no substantial business operations. Its primary
assets are the common stock of MGI and CERA. Accordingly, GDG's results of
operations are dependent upon the results of operations of MGI and CERA.
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Business of MGI
Overview
The Company
MGI, through MCM, Inc. and its subsidiaries (collectively, "MCM"), provides
up-to-the-minute information and analysis relating to developments in the U.S.
and international corporate securities, fixed income and currency markets to
over 2,400 institutional clients in over 57 countries. MCM's primary services
include CorporateWatch(R), which is a leading provider of up-to-the-minute
information regarding the new issue corporate securities market; MoneyWatch(R),
which provides on-going analysis of developments in the U.S. Treasury, agency
and money markets; CurrencyWatch(R), which provides analysis of intraday
developments in the foreign exchange markets; YieldWatch(R), which analyzes
intraday developments in the European and Asia Pacific government bond and money
markets; FX OptionWatch(TM), which provides fundamental and technical analysis
of global currency option markets, and KinriWatch(TM), a Japanese language
service that provides fundamental and technical analysis of the Japanese
government bond and money markets. MGI recently introduced two new services:
MTNWatch, which provides comprehensive market news, commentary and analysis of
flows for the European Medium Term Note market; and NihongoWatch, a Japanese
language translation service of MGI's CurrencyWatch(R) and MoneyWatch(R)
services.
MCM, Inc. was established in New York in 1975 and acquired in 1985 by VK/AC
Holding, Inc.'s ("VK/AC") predecessor. In August 1996, there was a spin-off of
MGI by VK/AC to the holders of its common stock (the "Spin-Off").
In 1980, MCM, Inc. entered into an agreement with Bridge-Telerate, formerly Dow
Jones Markets ("DJM") to distribute MoneyWatch(R) on-line, a decision that
reflected the market demand for quicker updates on, and analysis of, Federal
Reserve Board policy bearing on U.S. Treasury, agency and money markets. In
1982, MCM, Inc. launched its second screen-based service, CorporateWatch(R),
which covered new issues of corporate debt and equity in the United States.
MCM, Inc. established an office in London in 1986 as the first step in a
strategy to expand its coverage of the integrating global financial markets.
Also in 1986, MCM, Inc. launched its third screen-based service, YieldWatch(R),
which provides technical analysis and trading recommendations on some of the
major non-U.S. fixed-income markets. In 1987, MCM, Inc. launched
CurrencyWatch(R), which proved very popular in large dealing rooms in London and
continental Europe. In 1988, MCM, Inc. and Fuji Xerox Co., Limited, established
MCM, Inc. Asia Pacific, 85% of which is owned by MCM, Inc., to cover the
principal financial markets in East Asia. In 1991, MCM, Inc. sold its credit
analysis and ratings division to Duff & Phelps Investment Research Co. to
concentrate on its electronic research services business, and in 1992 MCM, Inc.
purchased Fintrend, S.A. (whose name has been changed to McCarthy, Crisanti and
Maffei, S.A.), further expanding its coverage of the currency markets in Europe.
Finally, in recognition of the increasing importance of its London office, MCM,
Inc. established MCM, Inc. Europe in early 1996, where CurrencyWatch(R),
YieldWatch(R) and FX OptionWatch(TM) are managed.
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Having offices staffed with analysts in the major financial centers around the
world has been an essential part of MGI's strategy for the last decade.
Currently, MCM, Inc. and its subsidiaries produce and distribute electronic
information services worldwide, with offices in New York, Boston, London, Paris,
Tokyo, Hong Kong and Singapore.
MGI believes there are attractive growth opportunities in the financial
information services sector of the foreign exchange and global fixed income
markets and that it is well positioned to take advantage of these opportunities.
The Electronic Financial Information Services Industry
The electronic financial information services industry encompasses providers of
a range of real-time financial information delivered through digital feeds to
computer workstation screens of financial market participants that subscribe for
those services. This financial information includes basic data such as market
quotes, financial news and historical information, as well as high-value-added
information such as market and technical analyses, research, commentary and
forecasts. Providers of such high-value-added financial information first
emerged in the late 1970s and early 1980s, primarily in response to the strong
demand for analysis and interpretation of the monetary policy of the Federal
Reserve Board. Because of their independence from underwriters and brokerage
firms and the quality of their services, a small number of these providers
established credibility with the markets in the volatile interest rate
environment of the early 1980s. Their services became, for many clients, the
functional equivalent of a high-quality, inexpensive, in-house research
department. The customers for these higher-value-added services were primarily
the trading and sales desks of institutional participants in the U.S.
fixed-income markets.
Until the mid-1980s, the financial markets were focused primarily on the U.S.
fixed-income markets and Federal Reserve Board policy. Following the peak in the
relative value of the U.S. Dollar in 1985, however, the financial markets became
increasingly interested in non-U.S.-dollar-denominated assets, a trend which
has increased with time. Providers of high-value-added services responded by
offering services to meet this demand. The customer base for these services are
now primarily the trading and sales desks of institutional participants in the
global markets.
Business Strategy
Subscription revenues for MCM's services have grown at a compound annual rate of
14.7% from December 31, 1994 to December 31, 1997, which MCM attributes to the
quality of its research services, the expansion of its coverage of global fixed
income and foreign exchange markets, a shift to a multi-vendor distribution
system and a general increase in demand for financial information services
resulting from increased activity in the global financial markets.
MCM intends to maintain its strong growth in subscription revenues by
strengthening relationships with on-line telecommunications information network
firms such as DJM, Reuters Limited, Bloomberg L.P., ADP Financial Information
Services, and Kabushiki Kaisha Quick (collectively, the "Vendor Distribution
Firms"), increasing market share for its existing services, identifying new
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services to market on the strength of its brand recognition and reputation and
preparing for distribution through the Internet.
- Strengthen Relationships with Vendor Distribution Firms.
Historically, MCM distributed its research services almost
exclusively through DJM. Beginning in late 1993, MCM has pursued a
non-exclusive distribution strategy with DJM and the other Vendor
Distribution Firms, including Reuters, Bloomberg, Bridge, ADP and
Quick. MCM believes that maintaining its historical relationship
with DJM and strengthening its relationship with the other Vendor
Distribution Firms is a key component in expanding revenues and
market share. See "-- Distribution of Services" and "Item 7--
Management's Discussion and Analysis of Financial Condition and
Results of Operations -- MCM Group, Inc." below. However, there can
be no assurance that MCM's strategy will continue to be successful.
- Increase Market Share of Existing Services. In conjunction with its
strategy of increasing market penetration by strengthening its
relationships with Vendor Distribution Firms, MCM will continue to
pursue an aggressive global marketing strategy that includes using
analysts in marketing efforts and sharpening the design and content
of its services. However, there can be no assurance that MCM's
efforts to increase the market share of its primary existing
services will be successful.
- Identify Market Opportunities and Launch New Services. To
capitalize on MCM's global distribution system and coverage, MCM
has actively explored, and intends to continue to identify and
develop, new market opportunities in the continuously evolving
global financial markets and the design and launch of services that
build on MCM's success and reputation in the marketplace. MCM may
consider further strategic acquisitions (in addition to the CERA
acquisition) or further hiring of key personnel as it continues to
pursue opportunities to expand its business.
- Prepare to Expand through the Internet. In preparation for
developments in Internet-related technologies, MCM is evaluating
the distribution of MCM's existing services over the Internet and
the development of new services specifically designed for
distribution over the Internet. However, any such delivery of
services over the Internet will depend on technological
developments in the speed, reliability and security of data
transmission and the emergence of demand for such services.
Services
MGI's primary services are as follows:
- CorporateWatch(R) is the leading provider of up-to-the-minute
information relating to new issues in the corporate securities
market. It is marketed to corporate sales departments, trading
personnel and portfolio managers of financial institutions,
primarily in the United States. CorporateWatch(R) covers the U.S.
fixed income markets (fixed income filings, high-yield markets,
preferred stock issuances, U.S. agencies, fixed-income deals,
private placements, Yankee bonds), structured finance markets
(asset-backed, whole loan issues,
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collateralized mortgage obligations and commercial mortgages) and
international new issues, and provides commentary and analysis on a
number of segments of these various markets.
- CurrencyWatch(R)is made up by two research services that provide
fundamental and technical analysis of intraday developments in the
global foreign exchange markets and is marketed to foreign exchange
dealing operations worldwide. MCM recently split CurrencyWatch(R) into
two separate product offerings CurrencyWatch I and CurrencyWatch II.
Both products cover their respective markets 24 hours a day and provide
foreign exchange dealers around the world with trading recommendations,
technical and fundamental analysis and explanatory text. CurrencyWatch
I focuses on the Core Markets, which are the major industrialized
currencies, effectively the G7, and from January 1999, the Euro. The
CurrencyWatch I product includes a scrolling Bulletin Board with the
latest news on Central Bank activity, acquisitions and EMU-related
developments. CurrencyWatch II provides fundamental and technical
analysis of the global emerging and exotic currencies by combining a
continually updating scrolling Bulletin Board such as that offered by
CurrencyWatch I and regional modules for Asia, Europe/Africa and Latin
America. Each regional module contains calendar, briefing and country
analysis pages.
- YieldWatch(R) is a research service that analyzes intraday
developments in European and Asia Pacific fixed income, cash and
futures markets and is marketed primarily to dealers in non-U.S.
government bonds. YieldWatch(R) provides live commentary and
technical analysis of short-and long-term yield curve spreads,
market commentary and pre-opening market briefings.
- MoneyWatch(R) is a research service that provides ongoing
fundamental and technical analysis of developments in the U.S.
Treasury, agency and money markets, including analysis of economic
data and Federal Reserve Board policies bearing on these markets.
MoneyWatch(R) is marketed to traders, portfolio managers and
certain credit analysts and foreign exchange traders in the United
States and abroad.
- FX OptionWatch(TM) which provides fundamental and technical
analysis of global foreign exchange option markets, was launched in
the first quarter of 1996. FX OptionWatch(TM) targets participants
in the options segment of the foreign exchange markets and was
designed to complement CurrencyWatch(TM). FX OptionWatch(TM)
provides trading recommendations, strategies, moving averages and
technical checkpoints that identify the key issues bearing on
volatility in different currencies.
- KinriWatch(TM), a Japanese language service that provides
fundamental and technical analysis of Japanese government bond and
money markets, was launched in the first quarter of 1996 and was
designed to be responsive to the preferences of the Japanese
markets. Originally available only through Quick, MCM expanded the
distribution of KinriWatch(TM) recently through Reuters and intends
to expand the distribution of KinriWatch(TM) in the near term
through other Vendor Distribution Firms, including Bloomberg and
DJM.
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MCM launched two new services in the past year, which target participants in
identifiable market niches:
- MTNWatch is a real-time service providing comprehensive market
news, commentary and analysis of flows for the European Medium-Term
Note market. MTNWatch includes new issuer pipeline profiles,
program objectives, sales briefings, debt requirements and
transaction coverage. As EMU drives the folding of domestic debt
markets into a single currency credit driven market, MTNWatch will
provide timely information on new credits initiating Euro-MTN
programs.
- NihongoWatch is a Japanese-language translation service of MCM,
Inc.'s CurrencyWatch(R) and MoneyWatch(R) services.
New service launches are inherently uncertain of success, and there can be no
assurance that MCM's strategy to identify new market segments and design and
launch new services will be successful. MCM does not expect to expend material
resources in promoting the launch of these services.
Distribution of Services
The traditional distribution channels for financial information are the Vendor
Distribution Firms, which charge a basic site fee and additional fees based on
the services subscribed for and delivered to each computer screen in a financial
institutional client. For many years most financial information relating to U.S.
dollar-denominated assets was distributed over DJM, which was the first Vendor
Distribution Firm to carry services provided by MCM and its major competitors,
MMS International and Technical Data Corporation. In late 1993, MCM made the
strategic decision to develop non-exclusive distribution relationships with
every major Vendor Distribution Firm. The following chart demonstrates the
estimated number of screens available to it through the Vendor Distribution
Firms.
% OF SCREENS BY GEOGRAPHIC SEGMENT
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TOTAL
USER SCREENS AMERICAS ASIA PACIFIC EUROPE
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REUTERS 300,000 32% 19% 49%
DJM 90,000 40% 21% 39%
BLOOMBERG 85,000 52% 14% 34%
BRIDGE 85,000 87% 6% 7%
QUICK 46,000 5% 90% 5%
ADP 87,000 75% 2% 3%
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Source: MCM estimates based on publicly available information and
discussions with Vendor Distribution Firms.
MCM is also monitoring developments in the Internet-related industries, a
potentially significant distribution channel in the future that could allow
dial-up retrieval of MCM's services. See "-- Overview -- Business Strategy"
above.
Subscription Agreements
Virtually all of MCM's revenues are derived from subscription agreements with
its customers. Subscription agreements with U.S.-based customers are generally
made directly between those customers and MCM and may be either oral or written
agreements. Oral agreements with U.S.-based clients are generally terminable
upon 90 days' notice without penalty. Written agreements, which represented
approximately 36.6% of MCM's U.S. revenues in 1997, typically have a one-year
term but are not subject to early termination.
Non-U.S.-based clients subscribe by means of service agreements entered into
with the Vendor Distribution Firms, pursuant to which a subscriber can elect to
subscribe to various optional services, including MCM's services. With certain
exceptions, such agreements are written and typically have one- or two-year
terms that renew automatically unless the subscriber provides 90 days' prior
notice of non-renewal.
Marketing
MCM has an experienced team of marketing, sales and client support personnel.
The staff of 44 professionals in the United States, Europe and Asia Pacific is
responsible for securing, expanding and maintaining client relationships,
pricing, promotions and identifying new product opportunities.
Customers
No subscriber accounts for more than 2% of MCM's revenues. Subscribers to MCM's
electronic information services consist almost exclusively of institutional
clientele (e.g., major banks, brokers, dealers, government bond and financial
futures trading operations, foreign exchange trading operations, and treasury
departments of major corporations).
Employees
At June 30, 1998, MCM had 126 full-time employees (including both professional
and support staff). None of these employees is a member of a union.
Competition
MCM competes in the high-value-added segment of the financial information
services industry against both well-established and smaller companies, some of
which may have substantially greater resources
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than MCM and offer a broader array of services. The Vendor Distribution Firms
distribute numerous competing services, including their own or their affiliates'
proprietary services and the services offered by MCM's primary competitors.
Currently, MCM's primary competitors are MMS International, owned by
McGraw-Hill, and Technical Data Corporation, owned by Thomson Corporation.
Competition is based on various factors, including the breadth of coverage,
availability of both fundamental and technical analyses, the frequency and
number of intra-day updates, the range, quality, timeliness and accuracy of
information, the ability to filter, retrieve, manipulate and store information,
the level of fees charged, customer service, the success of marketing and sales
efforts and the subscribers' preference among the Vendor Distribution Firms.
Currently, there are relatively few barriers to entry by new on-line service
providers, although the lack of name recognition and access to a Vendor
Distribution Firm may make entering the business more difficult for potential
competitors.
Competition is expected to increase as technological advancements improve the
speed and reliability of delivery and retrieval of information supplied over the
Internet, which could emerge as an inexpensive distribution alternative to the
high-cost, proprietary networks offered by the Vendor Distribution Firms. At
present, the relatively slow rate of transmission of data providers' systems and
concerns over the security and integrity of data delivered over the Internet
serve as technological impediments to the effectiveness of the Internet as a
distribution channel for services such as those provided by MCM. If
technological advancements enabling faster, more reliable and secure delivery of
digital data occur, the Internet could emerge as a significant distribution
channel for financial information, including the high-value-added services such
as those provided by MCM. Because access to the Internet is inexpensive and
requires relatively inexpensive equipment and software, such technological
advancements could allow the Internet to emerge as an alternative to the Vendor
Distribution Firms and therefore reduce one of the most significant entry
barriers to start-up -- i.e., access to the Vendor Distribution Firms. While MCM
is taking preliminary steps to respond to developments in Internet-related
technologies and industries, there can be no assurance that increased
competition resulting from the emergence of the Internet as an effective,
low-cost distribution channel would not have a material adverse effect on MCM.
Business of CERA
Overview
CERA is a leading international advisory and consulting firm that focuses on the
energy industries, including markets, geopolitics, structure and strategy.
CERA's independent expertise and perspective assist its clients in making
informed strategic, investment and market decisions in the energy industry.
CERA's expertise covers major global and regional energy sectors -- oil, refined
products, natural gas and electricity. CERA delivers services through retainer
advisory services, a series of subscription-based continuous retainer advisory
services, consulting and related services that draw upon its extensive industry
expertise.
CERA's family of retainer advisory services provide a continuous analysis of
energy markets, industry trends and strategies. Each retainer advisory service
focuses on a key energy segment or region, including World Oil, Refined
Products, North American Natural Gas, North American Electric Power,
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European Natural Gas, European Electric Power, Eurasia Energy, Latin American
Energy, California Energy and Asia Pacific Energy. CERA also offers membership
services aimed at specific professional communities. These include the Global
Power Forum and the Oil and Gas Information Technology Strategy Forum, which
provide clients with dialog, interaction and collaboration in matters affecting
the power and oil and gas industries, respectively.
CERA applies its strategic knowledge and in-depth analysis expertise in the
energy industry to provide consulting and advisory services, including strategic
and scenario planning, organizational and market studies, and other focused
consulting activities. In addition, CERA multiclient studies provide assessments
of major energy developments and specific markets.
Industry Background
The energy industry is one of the world's largest industries and is essentially
a global industry. CERA believes that the global energy industry is of important
strategic significance to the international economy and is subject to
significant change and influence relating to, among other things, political
forces, globalization, privatization, environmentalism and competitive
pressures. The industry, including its oil, gas and electric power segments, is
subject to considerable volatility. In addition, CERA expects vast amounts of
capital to be expended in the energy industry, including, for example,
expenditures related to the rehabilitation of the Russian oil industry, ensuring
sufficient energy supplies and infrastructure in Asia to support economic
growth, restructuring the electric power business in the U.S. and overseas, new
technologies and compliance by oil refiners with existing and new environmental
regulations.
The pace of change around the world in both developed and developing countries
and economies makes strategic information of significant value to decision
makers. The increasingly global nature of these trends requires extensive
capabilities and expertise to obtain, assimilate and analyze critical
information and data and to develop insights into the industry's future. In
addition, CERA believes that the ability to integrate economic and political
analyses with global energy expertise is particularly useful.
CERA also believes that there is a need for the efficient development of energy
resources in an environmentally-sensitive manner to support economic growth,
which has been highlighted by the transition of the world's energy industry from
the public to the private sector in formerly state-run economies. The emerging
global private power business is an example, as is the transition in the former
Soviet Union. The trend toward privatization began in Europe in the 1980's with
the deregulation of energy markets and privatization of formerly
state-controlled enterprises. Privatization has also commenced in Latin America
as a source for financial resources and as the need for operating efficiencies
has become apparent. This is creating new companies requiring objective
information and analysis on energy. It is also creating a need among existing
industry participants for enhanced strategic knowledge and information on global
and regional energy markets. CERA believes that the growth of economic activity
in developing countries can only be sustained with access to additional energy
sources.
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CERA believes that these circumstances create a market for strategic information
that will allow businesses to make short- and long-term decisions relating to
the energy industry.
CERA Solution
CERA's products and services provide a continuous analysis of energy markets,
industry trends and strategies. This analysis creates a framework that allows
clients to identify key forces, uncertainties and price movements that may
affect certain fundamentals in key energy sectors and markets around the world.
CERA provides an assessment of the economic and geopolitical factors, as well as
key governmental policies and changes in political attitudes, affecting supply
and demand, prices and investment opportunities in the energy industry.
CERA's retainer advisory membership services provide clients with continuous
analysis of energy markets, industry trends and strategies, covering the key
energy segments and regions around the world. In addition, CERA's applications
and consulting services provide solutions to client specific needs by utilizing
strategic knowledge and in-depth analysis of the energy industry and the factors
affecting such industry. Through its membership forums, CERA promotes dialogue,
interaction and collaboration concerning developments in the energy industry.
CERA's multiclient studies provide assessments of major energy developments and
specific markets. Scenarios developed by CERA's research retainer service
provide clients with an overall framework for anticipating and understanding
change in global and regional business environments.
CERA Strategy
CERA's strategy is to become a leading provider of insights and strategic
knowledge on the global energy market. CERA seeks to do the following:
- Maintain Research and Analysis Excellence. The quality of its
research organization is critical to CERA's ability to provide
value to its customers. CERA seeks to attract, develop and retain
outstanding research professionals with expertise in a broad range
of energy industry disciplines. In order to capture a worldwide
energy industry perspective, CERA has developed a global network of
research analysts.
- Expand Client Base and Maintain High Retention Rates. CERA seeks to
increase the number of retainer advisory memberships. CERA believes
that its current offerings of products and services, and
anticipated new products and services, can continue to be
successfully marketed and sold to new clients, as well as new
constituencies within existing client companies. CERA also seeks to
maintain or improve its 90% client retention rate through continued
implementation of additional retainer advisory services and broad
research coverage. In addition, CERA's research is available via
the World Wide Web. CERA believes that improvements in distribution
technology will enable it to expand constituencies within existing
client organizations as well as to expand its client base. However,
there can be no assurance that CERA will be able to sustain such a
high client retention rate or that CERA's strategy will continue to
be successful. In addition, CERA's pricing strategy may limit the
potential market for CERA's services.
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- Identify and Define New Products. CERA seeks to position itself
ahead of other research and advisory firms by delivering strategic
research and analysis on new and emerging trends in the global
energy industry, including in-depth analysis of key fuels and all
geographical markets for energy. CERA believes that its methodology
and culture allow it to focus on the key fuels and developments in
the energy markets and enable it to expand its product and service
offerings to address these new developments. However, there can be
no assurance that CERA's strategy will be successful.
- Leverage Core Research and Applications. CERA seeks to employ
expertise gained from the research that supports retainer services
to assist clients in specific applications. In addition, CERA
intends to continue to introduce new retainer advisory membership
services that build upon its expertise and an understanding of
needs of the industry. However, there can be no assurance that
CERA's strategy will be successful.
Products and Services
CERA's products and services are as follows:
- retainer advisory membership services
- applications and consulting services
- membership forums
- multiclient studies (including scenario studies)
Each of these products and services is described below.
Retainer Advisory Membership Services. CERA's family of retainer advisory
services provides clients with a continuous analysis of energy markets, industry
trends and strategies. Each retainer advisory service focuses on a key energy
segment or region, including the following: World Oil, Global Refined Products,
North American Natural Gas, North American Electrical Power, European Natural
Gas, European Electric Power, Eurasia Energy, Latin America Energy, California
Energy and Asia Pacific Energy. Members may enroll in one or more retainer
advisory services on an annual or multi-year basis.
CERA retainer clients benefit from written and electronic research, access to
and interaction with CERA experts and peer-level gatherings of industry leaders.
The following retainer membership components are provided:
- CERA Watches -- quarterly or semiannual analyses and forecasts of
near- and medium-term markets, strategies, and critical issues and
trends.
- Private Reports -- in-depth, original thinking on key industry
developments and their implications for investment decision making.
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- Decision Briefs -- reports on current developments and their
implications for decision making.
- Fax or E-mail Alerts -- electronically distributed assessments of
short-term developments and their implications.
- Telephone and Electronic Access -- access to and contact with CERA
experts.
- Client Conference Calls -- convened periodically, as events
warrant, to provide clients with timely multiclient briefings.
- CERA Roundtables -- executive workshop sessions with CERA experts
and industry decision makers.
- On-Site Presentations and Workshops -- one-on-one interactive
sessions to present CERA analysis and discuss the implications for
the client company.
Retainer advisory service member also receive CERA's global overview research,
which is intended to provide a broad, integrative framework concerning economic
and geopolitical trends affecting the energy industries. This global research
includes Global Energy Watch, a semiannual assessment of key strategic energy
trends and interfuel interactions, and reports on the changing dynamic of the
energy business. CERA members may also attend the CERA Executive Conference --
The Global Energy Forum, which is an annual gathering of senior energy decision
makers.
Membership Forums. CERA has established three forums designed to promote
dialogue, interaction and collaboration based on a research agenda, which
includes specific research papers, that is managed and implemented by CERA.
These forums are as follows:
- The Global Power Forum. This forum brings senior decision makers
and ministers from business, government and financial communities
together for regular conferences. These conferences are designed to
promote dialogue and the exchange of views and help participants to
understand developments in the international power industry as well
as regional opportunities and related strategic implications.
- The Oil and Gas Information Technology Strategy Forum. This forum
provides a strategic framework for assessing and benchmarking
challenges and opportunities created by information technology.
Sessions also address the potential impact of information
technology on the structure of oil and gas companies as well as
competitive implications.
- CERA's Former Soviet Union (FSU) Oil Transportation Forum. This
forum creates an ongoing platform to improve cooperation and the
environment for oil transportation in the region. It does this
through focused presentations, interactive discussions, ongoing
monitoring, and senior-level meetings with FSU transportation
decision makers.
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Applications and Consulting Services. CERA provides strategic and scenario
planning services, organizational and market studies, and other focused
consulting activities. Through specific client projects, referred to as
applications, CERA applies its strategic knowledge and in-depth analysis in the
energy industry to assist individual clients with particular needs. Assignments
typically focus on the following areas: scenario planning process and
facilitation; strategy development and implementation; corporate and business
segment strategy options; future skills and competencies; market analysis
(regional or industry); organizational analysis; restructuring and deregulation;
asset valuation; value chain analysis; strategic alliance/partnership
development; company profiling; post-merger strategic alignment and integration;
privatization; country assessment; business environment and scenario
development; implications for the client; expert witness; due diligence and
critical review of strategy and plans; and executive presentations and corporate
facilitation.
Multiclient Studies. Multiclient studies provide assessment of major energy
developments and specific markets. Clients are provided with a cost-effective,
high-value, decision-oriented analysis and a framework for assessing critical
issues. CERA offers these studies as written in-depth reports, participant
workshops and one-on-one company sessions. Examples of multiclient studies
include the following: The Race to Capture Value: The Future of US Northeast Gas
Markets; Transportation Dynamics: Understanding the Future of Oil Flows in the
Former Soviet Union; Natural Gas in Southeast Asia: Scenarios for the Future of
Gas Investment, Infrastructure Development, and the Competitive Dynamics of the
Energy Marketplace; The Future of Central European Energy; and The New Energy
Frontier: The Future of the Western Gas & Power Markets.
Most of CERA's retainer services develop multiclient scenario studies to provide
a long-term framework for anticipating and understanding change in its focus
area. Scenarios assist clients in anticipating and responding to uncertainties
and change in the global and regional business environment. CERA believes that
this approach allows decision makers to explore trends and forces that will
affect their business and to incorporate new ideas and information into their
thinking and strategic processes. Current CERA multiclient scenario studies
include the following: The Future of World Oil Markets: Scenarios to 2010;
Restructuring Refining: Scenarios for Industry Structure and markets to 2010;
North American Natural Gas Markets: Scenarios to 2010; Reshaping the North
American Electric Power Industry: Scenarios to 2010; European Natural Gas:
Scenarios to 2010; and Latin America Energy: Scenarios to 2010.
Research and Analysis
CERA's research and analysis group consists of approximately 71 full-time
employees who provide ongoing research and analysis on the developments,
information and activities in the energy industry. Each of the energy products
and geographical regions covered by CERA is staffed by a team of research
analysts and associates with substantial experience and/or expertise in the
industry area covered by such products or regions.
CERA employs a consistent, disciplined research and analysis methodology across
CERA's full product line, and issues printed or electronically distributes
material using a consistent presentation format. Each energy product and
geographical region has a product line research director who is responsible for
implementing CERA's research and analysis methodology in that product area or
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geographical region. The development methodology consists of an iterative
process of research, analysis, hypothesis and testing. Analysts conduct
extensive primary research, working with CERA's client base and contacting other
sources. These activities are supplemented with searches of numerous trade,
financial and other third party source materials. From this research, analysts
identify significant patterns and trends, develop assumptions, test hypotheses
and arrive at concrete recommendations and conclusions to provide to clients.
CERA conducts its research and analysis on an ongoing basis, continually retests
its underlying assumptions and projected scenarios as developments occur and
highlights to clients material changes to the assumptions, projections,
recommendations and conclusions.
The knowledge and experience of CERA's analysts is critical to the quality of
CERA's products and services. To ensure consistency of positions and analysis
across service and research disciplines, all CERA's distributed research is
reviewed by CERA's Head of Global Research. While varying opinions, debate and
philosophical contention among services and research disciplines are encouraged,
final positions and conclusions are consistent. This practice ensures that the
analytical structure and recommendations presented in CERA's products are not
inconsistent and better enables the various elements of client organizations to
formulate integrated strategies based on coherent information and analysis.
Sales and Marketing
At June 30, 1998, CERA had 44 full-time employees in sales and marketing in
various locations worldwide. CERA's strategy is to optimize and grow resources
and coordinate sales and marketing across product lines and geographical
regions. Responsibilities among CERA's sales and marketing staff are allocated
as follows: sales staff have account-driven responsibility for renewals, new
retainer and application consulting sales within designated industry segments
and regions; marketing and product management staff have accountability for
product planning, development, pricing, promotion, quality control, commercial
database management, sales staff support and other initiatives such as
electronic distribution; and administrative and client services staff handle
processing of new clients, assistance with incoming information requests,
distribution of reports and other literature, written research to clients and
the delivery of corporate marketing materials.
Customers
As of June 30, 1998, CERA had a total retainer base of approximately 515
retainer contracts with various client organizations. Among the client
organizations that CERA serves are the following: integrated oil companies and
national oil companies; independent producers and refiners; pipelines, tanker
and transportation companies; electric and gas utilities and independent power
generators; banks, pension funds, institutional investors and other financial
institutions; manufacturing firms and large energy end-users; government and
regulatory agencies; trading, marketing and distribution firms; oil services and
supply companies; engineering and construction companies; and legal and
accounting firms servicing the energy industry. Three of CERA's customers
accounted, in the aggregate, for approximately 20% and 9% of its total revenues
for the fiscal years ended June 30, 1997 and 1998, respectively.
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Competition
CERA believes that the principal competitive factors in its industry include
independence and quality of research, breadth of product offering, depth of
expertise, relevance and timeliness of information and its efficient delivery,
attention to customer service, effectiveness of sales and marketing, credibility
and reputation, global perspective and orientation, and adaptability to the
evolving information needs of clients. CERA believes that it competes favorably
with respect to each of these factors.
CERA competes in the market for research and information on the global energy
industry. CERA believes that the principal competitors for CERA's business are
the energy practices of the major management consulting firms, independent
energy consulting firms and information providers (such as brokerage firms,
consulting firms, publishing firms and smaller boutique firms specializing in a
particular energy industry sector or region). CERA's competitors include
Petroleum Economics Limited, Petroleum Finance Company and PIRA Energy Group.
There can be no assurance that CERA will be able to continue to compete
successfully against existing or new competitors.
Employees
At June 30, 1998, CERA had 189 full-time employees (including both professional
and support staff). None of these employees is a member of a union.
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Item 2. PROPERTIES
GDG conducts its business through office space located at 590 Madison Avenue,
New York, which MCM, Inc. permits it to use.
MCM, Inc., which is headquartered in New York, New York, conducts its business
through leased office space there and in Boston, London, Paris, Tokyo, Hong Kong
and Singapore. MCM, Inc.'s lease for approximately 29,000 square feet in its New
York headquarters (the "New York Office Lease") expires in 2009. MCM, Inc. also
leases over 14,000 square feet for additional office space for its operations.
MCM, Inc. also intends to enter into a lease for an additional 3,000 square feet
of office space in London. MCM, Inc. also licenses the office space, referred to
above, from Brera Capital Partners LLC, ("Brera") and it permits GDG to use this
office facility. MCM, Inc. believes that these facilities are adequate to serve
its currently anticipated business needs.
Van Kampen American Capital Distributors, Inc., ("Distributors, Inc."),
subleases from MCM, Inc. approximately 6,400 square feet of space in MCM, Inc.'s
New York office. MCM, Inc. and Distributors, Inc. have entered into a sublease
agreement, dated as of January 3, 1995, under which the sublessor is obligated
to pay a proportionate share of rent and expenses payable by MCM, Inc. under the
New York Office Lease, and which may be terminated by either party upon 90 days'
written notice.
CERA, which is headquartered in Cambridge, Massachusetts, conducts its business
through leased office space there and in Paris, France, Oakland, California,
Moscow, Russia, and Washington, D.C. CERA's lease for approximately 22,600
square feet in its Cambridge headquarters expires on June 3, 2000. CERA also
leases over 10,000 square feet of additional office space for its operations.
CERA has entered into a new lease with the landlord of its Cambridge
headquarters with respect to the leasing of additional space by CERA for a
period of five years beginning on January 1, 1998.
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Item 3. LEGAL PROCEEDINGS
Neither GDG nor any of its subsidiaries are involved in any material legal
proceeding, other than routine litigation incidental to their business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No items were submitted to a vote of the security holders of GDG, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended June 30, 1998.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Although the LLC Units issued to the stockholders of MGI in connection with the
Merger (with the exception of LLC Units issued to "affiliates" of MGI and LLC
Units held by "affiliates" of GDG) to the stockholders of MGI are freely
transferable under the Securities Act 1933 (the "Securities Act"), there is no
public market for the LLC Units and it is not expected that there will be a
public market for the LLC Units in the foreseeable future.
In order to effect the CERA Acquisition, on February 12, 1998, the CERA
Stockholders exchanged each outstanding share of Common Stock, par value $.01
per share, and Non-Voting Common Stock, par value $.01 per share, of CERA
(collectively, the "CERA Common Stock") owned by them for 5.17956 LLC Units, the
right to receive from 0.49875 to 2.94851 additional LLC Units upon the
attainment of certain revenue growth rates by CERA (the "CERA Contingent LLC
Units") and a contingent option to purchase 0.37028 additional LLC Units, at a
per Unit exercise price equal to $34.53, upon the attainment of certain revenue
growth rates by CERA (the "Contingent Options") (all such transactions the "CERA
Exchange"). Goldman exchanged the portion of the limited partnership interest in
CERA LP owned by it after the CERA Cash Distribution for 150,000 LLC Units, the
right to receive from 14,444 to 85,389 additional LLC Units upon the attainment
of certain revenue growth rates by CERA (the "Goldman Contingent Options") and a
contingent option to purchase 9,874 additional LLC Units, at a per Unit exercise
price equal to $34.53, upon the attainment of certain revenue growth rates by
CERA (the "Goldman Contingent Options" and together with the CERA Contingent
Options the "Contingent Options") (the "Goldman Exchange"). The CERA Exchange
and the Goldman Exchange are referred to collectively as the "Exchange."
The LLC Units issued to the CERA Stockholders and Goldman in the Exchange, the
Goldman Contingent LLC Units, the Contingent Options and the LLC Units issuable
upon exercise of Contingent Options or upon exercise of the options granted to
Brera (the "Brera Options") and to Edward Jordan (the "Jordan Options") were not
registered under the Securities Act, or under any state securities or "blue-sky"
laws or foreign securities laws. As a result, such LLC Units and Contingent
Options are "restricted securities" for purposes of the federal securities laws
and may be resold only in compliance with the federal and state securities laws
governing "restricted securities."
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In addition, transfer of LLC Units issued in connection with the Merger and the
Exchange and the other transactions contemplated by the Merger Agreement,
including the CERA Contingent LLC Units, the Goldman Contingent LLC Units, the
LLC Units issuable upon exercise of Contingent Options, the Brera Options and
the Jordan Options, are substantially restricted under the Amended and Restated
Limited Liability Company Agreement of GDG, dated February 12, 1998, (the "LLC
Agreement"), and other agreements pursuant to which shares of MGI common stock
or MGI employee options were issued or granted to certain employees of MGI or
pursuant to which LLC Units or options to purchase LLC Units will be or may be
issued or granted to certain employees of or consultants to CERA or MGI and
other persons. The LLC Units are also subject to a holdback provision, the right
of first offer and "take-along" rights and participation rights set forth in the
LLC Agreement. The restrictions on transfer could limit the price that certain
investors might be willing to pay in the future for LLC Units, and could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of GDG.
Dividend Policy; Inability to Declare Dividends
GDG does not expect to declare or pay any dividends or distributions in the
foreseeable future, other than distributions to holders of LLC Units to pay
their taxes, as required by the LLC Agreement. GDG's ability to declare and pay
dividends or distributions is limited by the ability of GDG's subsidiaries to
transfer funds to GDG in the form of cash, loans or advances. An inability of
MGI and CERA to transfer funds to GDG in the form of cash, loans or advances
could prevent GDG from making the distributions required by the LLC Agreement
for the foreseeable future.
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Item 6. SELECTED FINANCIAL DATA
The following tables set forth selected historical financial data of MGI for the
five years ended December 31, 1997 and for the six month periods ended June 30,
1998 and 1997. At a Board of Directors meeting on April 21, 1998, the Boards of
GDG and MGI approved the change of year end for the predecessor company to
GDG:MGI, from December 31 to June 30. The selected historical financial data of
MGI for the five years ended December 31, 1997 were derived from the audited
Consolidated Financial Statements of MGI. The selected historical financial
data of MGI for the six month periods ended June 30, 1998 and 1997 were derived
from the audited Consolidated Financial Statements of MGI and include, in the
opinion of the management of MGI, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the data for such periods.
The following tables should also be read in conjunction with "Item 7 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Consolidated Financial Statements of GDG and accompanying
notes thereto included elsewhere in this Form 10K.
MCM GROUP, INC.
Years ended December 31,
---------------------------------------------------------------- Six Months Ended
June 30,
------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
January 1 to (unaudited)
February 16 February 17 to
(Predecessor) December 31
(a) (a)
Dollars in Thousands (except per share data)
OPERATING DATA:
Total revenues $ 2,555 $18,488 $26,596 $31,625 $36,119 $40,227 $19,834 $36,426
Income before
income tax provision 554 2,734 1,420 2,536 5,738 7,467 4,113 2,330
Income tax provision 195 1,354 692 977 2,776 3,544 1,972 1,251
Net income $ 359 $ 1,380 $ 728 $ 1,559 $ 2,962 $ 3,923 $ 2,141 $ 1,079
Income from
continuing operations
per common share $ 0.44 $ 0.23 $ 0.49 $ 0.92 $ 1.18 $ 0.65 $ 0.24
BALANCE SHEET
DATA:
Total assets $25,038 $26,558 $28,432 $34,151 $40,557 $37,542 $96,158
Total liabilities -- -- 4,773 6,555 8,958 7,040 46,446
Redeemable
common stock (b) -- -- -- 800 880 800 1,929
Common stockholders'
equity $22,007 $22,100 $23,659 $26,796 $30,719 $29,702 $47,783
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GLOBAL DECISIONS GROUP LLC
General
The following is a discussion and analysis of the historical consolidated
results of operations and financial condition of GDG and its subsidiaries and
factors affecting their financial resources for the six months ended June 30,
1998 and the years ended December 31, 1997 and 1996.
The information below should be read in conjunction with the financial
statements and the related notes to the financial statements included in this
Annual Report on Form 10-K. The results for the six-month periods for each year
are not comparable due to the CERA Acquisition on February 12, 1998. CERA's
results are included in the 1998 financial statements from that date to June 30,
1998, but its results are not included in the GDG's results for the
corresponding period in 1997.
MGI and CERA are each wholly owned subsidiaries of GDG (see "--Merger and
Exchange History" below) and are operated as separate though affiliated
businesses.
Merger and Exchange History
GDG was formed in connection with the Merger Agreement. On February 11, 1998, in
accordance with the Merger Agreement, MCM, Inc., the principal direct subsidiary
of MGI, entered into a five year revolving credit agreement with the Credit
Agreement (see "--Liquidity and Capital Resources" below), and on the same date
loaned the CERA Loan, which used the funds to pay cash distributions of
$21,510,000 to the founding CERA stockholders, and to purchase a portion of the
limited liability partnership interests in CERA L.P. owned by the Goldman Sachs
Group, L.P. for $2,390,000. The loan to CERA was funded using available cash and
$15,000,000 in loans under the Credit Agreement. On February 12, 1998, the
Merger took place. MGI was the surviving corporation and became a wholly owned
subsidiary of GDG. As a result of the Merger, each share of MGI common stock
ceased to be outstanding and was converted into rights to receive LLC Units, as
provided in the Merger Agreement. In addition, on that date, GDG acquired all of
the outstanding shares of CERA's common stock and the remaining limited
partnership interests in CERA L.P. (which interests were immediately transferred
to CERA) in exchange for LLC Units and certain contingent options and rights in
the CERA Acquisition. As a result, CERA also became a wholly owned subsidiary of
GDG, and CERA L.P. was dissolved by operation of law, and its assets and
liabilities were transferred to CERA.
The purchase price for CERA was allocated as follows:
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Identifiable intangible assets including
Customer list $10,673,000 20 year life
Proprietary Software $ 2,009,000 3 year life
Goodwill $32,883,000 20 year life
Transaction Costs $ 5,876,000 20 year life
Deferred Tax Liability $(5,707,000)
-----------
Total Transaction cost $45,734,000
-----------
MCM GROUP, INC.
MCM provides specialized on-line financial information and analysis relating to
developments in the U.S. and international corporate securities, fixed income
and currency markets. MCM distributes its services almost exclusively through
Vendor Distribution Firms to subscribers in 57 countries. Subscribers to MCM's
electronic information services consist almost exclusively of institutional
clients (e.g., major banks, brokers, dealers, government bond and financial
futures trading operations, foreign exchange trading operations, and treasury
departments of major corporations). In addition to MCM's headquarters in New
York, MCM maintains offices in Boston, London, Paris, Tokyo, Hong Kong, and
Singapore.
At June 30, 1998 nearly half of MCM's research services revenues were
attributable to customers located in the United States. European-based customers
accounted for approximately one third of total revenue and customers based in
Asia accounted for the balance. The CorporateWatch(R) service is responsible
for a substantial portion of MCM's revenue earned in the United States, while
the CurrencyWatch(R) service is responsible for a substantial portion of the
revenue earned in the European and Asian markets.
Revenue from MCM's research services has grown substantially since 1992,
principally as a result of investments made by MCM to expand its distribution
and marketing capabilities and enhance its service offerings throughout the
global financial markets. The substantial increases in revenues have been offset
to some extent by (i) increases in vendor royalties resulting from MCM's
decision in late 1993 to distribute its services on a non-exclusive basis over
various Vendor Distribution Firms and (ii) increases in compensation and
benefits resulting from MCM's hiring of personnel to expand the services offered
by its product lines.
Vendor royalties currently represent MCM's largest expense. Vendor royalties are
commissions paid to Vendor Distribution Firms, mainly DJM. Historically, MCM
provided its services, with limited exceptions exclusively through screens
provided by DJM. In late 1993 MCM exercised its option to discontinue its
exclusive distribution agreement with DJM, and as a result DJM's royalty
increased to a level substantially greater than that in effect while
distribution of MCM's services was made exclusively through DJM. Since moving to
a multi-vendor distribution system, MCM has increased its sales volume and
believes that this strategy will continue to increase revenues to more than
offset the additional vendor royalty costs. However, there can be no assurance
that MCM's strategy will continue to be successful.
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Compensation and benefits costs also have increased as MCM has invested in
additional professional staff to enhance certain product lines, particularly
CurrencyWatch(R), and YieldWatch(R), MCM's two fastest growing services. While
revenues for these two services have grown substantially, the corresponding
additional investment in personnel has kept profit margins on these services
relatively low. MCM believes that if CurrencyWatch(R) and YieldWatch(R) revenues
continue to grow, profit margins may significantly improve, although there can
be no assurance in this regard.
CAMBRIDGE ENERGY RESEARCH ASSOCIATES, INC.
Since February 12, 1998 CERA has been under common ownership with MGI (see
"--Merger and Exchange History" above). CERA's core business is research,
analysis and strategic information on energy industry developments and trends,
which is sold, primarily, on a continuous, renewable retainer basis. CERA offers
a number of different retainer advisory services, which are sold, principally,
as annual, renewable contracts. These contracts can vary in price depending on
the level of service and/or the number of advisory services purchased. The
majority of CERA's retainer clients purchase more than one service. Revenue from
retainer advisory services constitutes slightly more than half of CERA's total
revenue in the fiscal year ended June 30, 1998.
The balance of CERA's revenue is derived from custom projects and several
different activities collectively called "retainer related."
Custom projects (also described as retainer applications and consulting) are,
generally, client-specific applications of research data and knowledge derived
from the retainer advisory business. Most projects are priced on a fixed-fee
basis, plus expenses, with a limited number of projects priced on a per-diem
rate basis. The majority of project clients are also (or become) retainer
advisory clients. The revenue is less predictable than retainer advisory
revenue. It also can be more affected, year-to-year, by singular, non-recurring
large projects. The revenue is recognized on a percentage-of-completion basis
over the course of the project. Project revenue constituted slightly less than
one quarter of CERA's revenue for the fiscal year ended June 30, 1998.
Retainer-related revenue encompasses several activities, including
separately-charged presentations and consulting days, individual sales of
research reports, fees for attending CERA events, and major, multi-client
sponsored research studies. These activities are generally connected to the
retainer advisory business with respect to content, staffing and clients. This
revenue represented roughly one-quarter of CERA's total revenue for the fiscal
year ended June 30, 1998.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 compared to Six Month's Ended June 30, 1997.
GDG's results for each year are not comparable due to the CERA Acquisition on
February 12, 1998. CERA's results from that date to June 30, 1998 are included
in the information for 1998, but its results are not included in the
corresponding 1997 figures.
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Revenues
Revenue from research services grew from $19.8 million during the first six
months of 1997 to $36.4 million during the same period of 1998. The increase is
primarily due to the inclusion in the current year's results of CERA after the
CERA Acquisition. MCM's revenue grew by 7.1% during the six months ended June
30, 1998, to $21.2 million. CERA contributed an additional $15.2 million of
revenue from its retainer, applications and retainer-related businesses from the
CERA Acquisition date, February 12, 1998, through June 30, 1998. The growth in
MCM's revenues was due primarily to the expansion of MCM's international
marketing initiative and the delivery of research services through multiple
Vendor Distribution Firms.
Expenses
Total Expenses in the first six months of 1998 were $33.9 million, or $17.9
million more than the corresponding period in 1997, an increase of 89%. $16.3
million of this increase resulted from the inclusion of CERA's expenses for the
period from February 12, 1998 to June 30, 1998.
MCM'S costs increased by approximately 16.4%, reflecting higher compensation and
benefits costs, and the hiring of additional analysts and research assistants to
enhance MCM's product lines, as well as from increases in occupancy expense and
in expenses associated with the hiring of additional administrative personnel
and investments in computer system enhancements. MCM formerly had a services
agreement with Van Kampen American Capital, Inc., its former parent, for all
accounting and administrative support functions. MCM has been assuming those
functions internally, which has resulted in the increase in administrative
staffing costs. These increased costs at MCM were partially offset by overall
lower vendor royalties as a percentage of subscription revenues, reflecting
MCM's continuing success in increasing revenues through the distribution of its
services through multiple Vendor Distribution Firms.
CERA's operating costs from February 12, 1998 to June 30, 1998 were $14.6
million, of which $14.2 million were directly related to operations. The balance
was incurred as result of the purchase of LLC Units for distribution to CERA
employees as a part of the Merger and the CERA Acquisition and due to other
merger related costs. In addition, $0.4 million of GDG corporate expenses are
included in the total for the six months.
Interest expense for the six months ended June 30, 1998 was $0.4 million
compared to no interest expense in the corresponding period for the prior year.
This reflects the borrowings under the Credit Agreement of $15.0 million to
finance the CERA Loan.
Amortization expense of $1.4 million for the six months was $1.0 million higher
than for the corresponding period in 1997. This increase is due to the
additional amortization of goodwill and intangible assets associated with the
CERA Acquisition.
Other income decreased from $0.3 million in the 1997 period to $0.25 million in
1998, representing interest income on the cash maintained on MCM's books, after
the spin off from VKAC, until it made the loan to CERA in mid-February 1998.
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Income taxes were $1.3 million for the six months ended June 30, 1998 compared
to $2.0 million for the corresponding period in 1997, primarily as a result of
one time losses incurred by CERA relating to the CERA Acquisition. Although the
tax provision is lower due to the factors mentioned above, the effective tax
rate is higher because the amortization of the CERA Goodwill is not deductible
for tax purposes.
Net Income
GDG reported a net income of $1.1 million for the six months ended June 30,
1998, a decrease of $1.1 million from the net income of the prior year's period.
Net Income decreased as a result of a nonrecurring compensation charge related
to distributing LLC Units to CERA employees, increased interest expense relating
to the financing for the CERA Loan and additional amortization expense related
to the CERA Acquisition.
Year Ended December 31, 1997 versus 1996
Revenues
Revenue from research services grew from $35.9 million in 1996 to $40.2 million
in 1997, an increase of 11.9%. Revenues for all of MGI's major product lines
continued to grow, due primarily to the expansion of MGI's international
customer base and the delivery of research services through multiple Vendor
Distributions Firms to MGI's customers.
Expenses
Total expenses in 1997 were $33.5 million, or $3.1 million more than in 1996, an
increase of 10.2%. Sales, distribution and administrative and administrative
expenses totaled $32.7 million, an increase of 10.6% over 1996. This increase
resulted from substantially higher compensation and benefits costs, reflecting
the hiring of additional analysts and research assistants to enhance MGI's
product lines, as well as from increases in occupancy expense, and expenses
associated with the hiring of additional personnel, fees related to bringing
certain administrative functions previously performed by VKAC in house and
investments in computer system enhancements.
These increased costs were partially offset by lower vendor royalties,
reflecting the continuing success of MGI in increasing revenues through multiple
Vendor Distribution Firms.
Net Income
Net income for 1997 was $3.9 million, an increase of $1.0 million or 32.4% over
1996. Net income grew as a result of increased revenue realized on all of MGI's
major product lines, lower expenses from vendor royalties and increased interest
income earned on higher cash balances resulting from the retention of cash after
the spin-off.
Year Ended December 31, 1996 versus 1995
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Revenues
Revenue from research services grew from $31.1 million in 1995 to $35.8 million
in 1996, an increase of 15.1%. Revenues for all of MGI's major product lines
continued to grow, due primarily to the expansion of MGI's international
customer base and the delivery of research services through multiple Vendor
Distribution Firms to MGI's customers.
Expenses
Total expenses in 1996 were $30.4 million, or $1.3 million more than in 1995, an
increase of 4.5%. Sales, distribution and administrative expenses totaled $29.6
million, an increase of 4.6% over 1995. This increase resulted from
substantially higher compensation and benefits costs, reflecting the hiring of
additional analysts and research assistants to enhance MGI's product lines, as
well as from increases in occupancy expense and in expenses associated with the
hiring of additional personnel and investments in computer system enhancements.
These increased costs were partially offset by lower vendor royalties,
reflecting the continuing success of MGI in increasing revenues through multiple
Vendor Distribution Firms.
Net Income
Net income for 1996 was $3.0 million, an increase of $1.4 or 87.5% over 1995.
Net income grew as a result of increased revenue realized on all of MGI's major
product lines and lower expenses for vendor royalties.
LIQUIDITY AND CAPITAL RESOURCES
GDG generated cash flow from operations in the amounts of $2.5 million and $3.3
million for the six months ended June 30, 1998 and 1997, respectively. CERA
contributed $0.7 million in cash flow from operations from the date of the CERA
Acquisition to June 30, 1998.
Funds used in investment activities were $27.1 million for the six months ended
June 30, 1998 compared to $0.4 million in the prior year's period. The large
increase in investment was mostly attributable to the CERA Acquisition. In order
to finance the CERA Loan, MCM, Inc. received financing proceeds of $15,000,000
under the Credit Agreement. The Credit Agreement, which also provides for a
$10,000,000 facility to finance future acquisitions and a $5,000,000 working
capital revolving credit facility, expires on February 11, 2003. Repayments of
the term loan under the Credit Agreement are due in $750,000 quarterly
installments from March 31, 1999 through December 31, 1999, and then increase to
$1,000,000 quarterly installments through December 31, 2002. The
weighted-average interest rate on the term loan issued under the Credit
Agreement for the six month period ended June 30, 1998 was 7.03%. In addition to
funding the CERA Acquisition, investments at GDG increased because of the
investment in a new contribution and distribution platform at MCM, (see "Year
2000"). In the six months ended June 30, 1998, MCM had expended approximately
$1.5 million for hardware and software related to this capital project.
25
28
As of June 30, 1998, MCM, Inc. had no borrowings under the acquisition facility
or the revolving credit facility. Management believes that cash from operations
and the revolving credit facility will be sufficient to meet the GDG's operating
costs, capital investment needs and increased debt service costs associated with
the term loan.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the GDG adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" which establishes
standards for the reporting and display of comprehensive income in
general-purpose financial statements. No presentation of comprehensive income
has been made since the differences from net income are not material.
Effective January 1, 1998, GDG adopted SFAS No. 131 "Disclosures About Segments
of an Enterprise and Related Information" which establishes standards for the
way that public business enterprises report information about operating systems
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The adoption
did not have a material impact on GDG's disclosure.
YEAR 2000
The issues associated with the "Year 2000" computer dating changes, which are
necessary to permit correct recording of yearly dates for year 2000 and beyond,
principally apply to MCM, which creates and delivers its products to its Vendor
Distribution Firms via a system utilizing specialized software applications. MCM
is currently engaged in a capital project to upgrade the software platform and
network underlying this system. As a consequence of this technological
restructuring, MCM will not incur any Year 2000 specific costs as those issues
are being dealt with in the current implementation of the new contribution and
distribution system.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
26
29
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
27
30
GLOBAL DECISIONS GROUP LLC
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997 AND 1996, AND
FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
28
31
REPORT OF INDEPENDENT ACCOUNTANTS
September 18, 1998
To the Board of Directors of
Global Decisions Group LLC:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and members' equity and of cash flows present
fairly, in all material respects, the financial position of Global Decisions
Group LLC and Subsidiaries (the successor Company of MCM Group, Inc. see Note 1
to the consolidated financial statements) as of June 30, 1998, December 31, 1997
and 1996, and the results of their operations and their cash flows for the six
months ended June 30, 1998 and the years ended December 31, 1997 and 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
29
32
REPORT OF INDEPENDENT ACCOUNTANTS
September 18, 1998
To the Board of Directors of
Global Decisions Group LLC:
Our report on the consolidated financial statements of Global Decisions Group
LLC and subsidiaries as of June 30, 1998, and for the six months then ended and
for the years ended December 31, 1997 and 1996, is included on page (open) of
this Form 10-K. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in the index
on page 66 of this Form 10-K for the six months ended June 30, 1998 and
years ended December 31, 1997 and 1996.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PRICEWATERHOUSECOOPERS LLP
30
33
Independent Auditors' Report on Supplementary Information
---------------------------------------------------------
The Board of Directors
MCM Group, Inc.
We have audited and reported separately herein on the consolidated statements
of income, changes in stockholder's equity and cash flows of MCM Group, Inc. and
subsidiaries for the year ended December 31, 1995.
Our audit was made for the purpose of forming an opinion on the basic financial
statements of MCM Group, Inc., and subsidiaries taken as a whole. The
supplementary information for 1995 included in Schedule II is presented for the
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects, in relation to
the basic consolidated financial statements taken as a whole.
KPMG Peat Marwick LLP
Chicago, Illinois
January 26, 1996
31
34
Independent Auditors' Report
----------------------------
The Board of Directors
MCM Group, Inc.
We have audited the accompanying consolidated statements of income, changes in
stockholder's equity and cash flows of MCM Group, Inc. and subsidiaries for the
year ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance and whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of MCM Group, Inc. and subsidiaries for the year ended December 31, 1995 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 26, 1996
32
35
GLOBAL DECISIONS GROUP LLC
Consolidated Balance Sheets
(in 000's except for units and per unit amounts)
June 30, December 31, December 31,
ASSETS: 1998 1997 1996
---- ---- ----
Current assets:
Cash and cash equivalents $ 6,723 $ 15,979 $ 9,877
Accounts receivable, net of allowance for doubtful accounts
of $579 in 1998, $307 in 1997, and $200 in 1996 17,203 4,387 4,651
Prepaid expenses and other assets 1,453 397 680
-------- -------- --------
Total current assets 25,379 20,763 15,208
Furniture, equipment and leasehold improvements, net 4,780 1,842 2,046
Intangible assets, net 65,201 15,688 16,467
Other assets 798 2,264 430
-------- -------- --------
Total assets $ 96,158 $ 40,557 $ 34,151
======== ======== ========
LIABILITIES and MEMBERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 5,980 $ 687 $ 643
Accrued vendor commissions 1,568 1,683 1,517
Income taxes payable 941 2,012 314
Interest payable 122 - -
Deferred revenue 11,394 70 55
Bank loans payable 1,124 577 657
Payroll and benefit-related liabilities 4,173 2,405 1,578
-------- -------- --------
Total current liabilities 25,302 7,434 4,764
Long term debt 15,000 - -
Deferred income taxes payable 5,087 456 841
Other liabilities, including minority interest 1,057 1,068 950
-------- -------- --------
Total liabilities 46,446 8,958 6,555
Commitments and contingencies
Redeemable voting LLC units: Voting LLC units 275,530 units
issued and 264,280 outstanding in 1998, and 168,655 and
149,544 units issued and outstanding in
1997 and 1996, respectively, less notes receivable from
members of $885, $885 and $765 in 1998, 1997, and 1996,
respectively (redemption value of redeemable units and
vested options of $5,506, $1,940, and $1,740 in 1998,
1997, and 1996, respectively) 1,929 880 800
Members' equity:
Voting LLC units, 4,563,179, 3,170,054 and 3,170,054, issued
and outstanding in 1998, 1997, and 1996, respectively 38,176 22,182 22,182
Foreign currency translation (9) - -
Undistributed earnings 9,616 8,537 4,614
-------- -------- --------
Total members' equity 47,783 30,719 26,796
-------- -------- --------
Total liabilities and members' equity $ 96,158 $ 40,557 $ 34,151
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
33
36
GLOBAL DECISIONS GROUP LLC
Consolidated Statements of Income
(in 000's except for units and per unit amounts)
Six Months
Ended Years Ended December 31,
June 30, ------------------------
1998 1997 1996 1995
---- ---- ---- ----
Revenues $ 36,426 $ 40,227 $ 35,947 $ 31,110
Expenses:
Vendor commissions 6,423 11,714 11,433 12,643
Compensation and benefits 14,769 12,114 10,340 8,641
Sales, distribution and administrative 11,368 8,895 7,829 7,028
Amortization of intangible assets 1,369 779 779 777
----------- ----------- ----------- -----------
Total expenses 33,929 33,502 30,381 29,089
----------- ----------- ----------- -----------
Operating income 2,497 6,725 5,566 2,021
Interest income 261 696 111 -
Interest expense (415) (9) (13) -
Other income (expense), n et (13) 55 74 515
----------- ----------- ----------- -----------
Income before income taxes 2,330 7,467 5,738 2,536
Income taxes 1,251 3,544 2,776 977
----------- ----------- ----------- -----------
Net income $ 1,079 $ 3,923 $ 2,962 $ 1,559
=========== =========== =========== ===========
Per LLC Unit:
Net income per LLC unit:
Basic $ 0.24 $ 1.18 $ 0.89 $ 0.49
Diluted 0.23 1.18 0.89 0.49
Weighted-average units outstanding:
Basic 4,482,179 3,327,818 3,319,598 3,170,054
Diluted 4,691,505 3,327,818 3,319,598 3,170,054
The accompanying notes are an integral part of these consolidated financial
statements.
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37
GLOBAL DECISIONS GROUP LLC
Consolidated Statements of Members' Equity
(in 000's)
Foreign
Voting Undistributed Currency
LLC Units Earnings Translation Total
--------- -------- ----------- -----
Balance at December 31, 1994 $ 22,007 $ 93 $ - $ 22,100
Net income - 1,559 - 1,559
-------------- ----------- ------------- -------------
Balance at December 31, 1995 22,007 1,652 - 23,659
Issuance of units for stock of MCM Inc.
and Subsidiaries 175 - - 175
Net income - 2,962 - 2,962
-------------- ----------- ------------- -------------
Balance at December 31, 1996 22,182 4,614 - 26,796
Net income - 3,923 - 3,923
-------------- ----------- ------------- -------------
Balance at December 31, 1997 22,182 8,537 - 30,719
Issuance of units and options
to acquire CERA, Inc. 15,994 - - 15,994
Net income - 1,079 - 1,079
Foreign currency translation - - (9) (9)
-------------- ----------- ------------- -------------
Balance at June 30, 1998 $ 38,176 $ 9,616 $ (9) $ 47,783
============== =========== ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
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38
GLOBAL DECISIONS GROUP LLC
Consolidated Statements of Cash Flows
(in 000's)
Six Months
Ended Years Ended December 31,
------------------------
June 30, 1998 1997 1996 1995
------------- ---- ---- ----
Cash flows from operating activities:
Net income $ 1,079 $ 3,923 $ 2,962 $ 1,559
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,795 1,154 1,102 1,078
Grant of LLC units 1,181
Changes in assets and liabilities net of business acquired:
(Increase) decrease in receivables, net (3,843) 264 (1,854) (254)
Decrease (increase) in receivable from affiliates -- -- 4,411 (1,857)
Increase in accounts payable and accrued
expenses 700 59 93 (26)
(Decrease) increase in accrued vendor commissions (115) 166 (149) (153)
(Decrease) increase in income taxes payable (1,071) 1,698 314 --
Increase in payroll and benefit-related liabilities 372 827 1,113 66
(Decrease) increase in deferred income taxes -- (385) 364 93
Decrease in deferred revenue 3,187 -- -- --
(Decrease) increase in other, net (780) (1,433) 14 172
-------- -------- -------- --------
Total adjustments 1,426 2,350 5,408 (881)
Net cash provided by operating activities 2,505 6,273 8,370 678
-------- -------- -------- --------
Cash flows used by investing activities:
Acquisition of CERA Inc., net of cash acquired (25,379) -- -- --
Capital expenditures (1,797) (171) (19) (337)
-------- -------- -------- --------
Net cash used by investing activities (27,176) (171) (19) (337)
Cash flows from financing activities:
Net bank loan issuances (repayments) 547 (80) (72) 86
(Repurchase) issuance of redeemable LLC units, less notes receivable (132) 80 975 --
Issuance of long term debt 15,000 -- -- --
-------- -------- -------- --------
Net cash provided by financing activities 15,415 -- 903 86
Net increase in cash (9,256) 6,102 9,254 427
Cash and cash equivalents at beginning of year 15,979 9,877 623 196
-------- -------- -------- --------
Cash and cash equivalents at end of period $ 6,723 $ 15,979 $ 9,877 $ 623
======== ======== ======== ========
Supplemental information on business acquired:
Fair value of assets acquired $ 57,523
Less: Liabilities assumed (14,175)
LLC units issued (15,394)
Options issued (600)
--------
Cash paid 27,354
Less: Cash acquired (1,975)
--------
Net cash paid $ 25,379
========
Supplementary disclosure of cash flow information:
Cash paid for:
Income taxes $ 1,635 $ 2,231 $ 1,977 $ 528
Interest 293 9 13 22
The accompanying notes are an integral part of these consolidated financial
statements.
36
39
GLOBAL DECISIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
Global Decisions Group LLC ("GDG"), a Delaware limited liability
company, was formed by MCM Group, Inc., ("MGI" or the "Predecessor
Company") and McCarthy, Crisanti & Maffei, Inc. ("MCM") on June 30,
1997, for the purpose of effecting the Merger, as discussed in Note 2,
whereby a wholly owned subsidiary of GDG was merged into MGI on
February 12, 1998, with MGI as the surviving corporation. Pursuant to
this Merger each outstanding share of MGI common stock was converted
into the right to receive limited liability company units of GDG.
Therefore, the Merger has been accounted for in a manner similar to the
pooling-of-interest method due to the common ownership of MGI and GDG.
MGI, a Delaware corporation, was incorporated on August 21, 1996 as a
wholly owned subsidiary of VK/AC Holding, Inc. ("Holding"). On that
date, Holding was a majority owned subsidiary of The Clayton & Dubilier
Private Equity Fund IV Limited Partnership ("C&D Fund IV"), which is
managed by Clayton Dubilier & Rice, Inc. Prior to August 31, 1996, MCM
was a wholly owned subsidiary of Holding. On August 31, 1996, Holding's
ownership interest in MCM was transferred to MGI. On August 31, 1996,
100% of the outstanding Class A common stock of MGI was distributed to
the stockholders of record of Holding as a dividend on their shares of
Holding's common stock. Upon the distribution, MGI became a majority
owned subsidiary of C&D Fund IV. The transfer of 100% of the MCM common
stock to MGI has been accounted for in a manner similar to the
pooling-of-interests method due to the common ownership of MGI and
Holding by C&D Fund IV following the distribution.
The consolidated financial statements presented herein for the years
ended December 31, 1997, 1996 and 1995, represent the Predecessor
Company's financial position, results of operations, and cash flows
prior to the Merger, and reflect the adjustments which were made to
record the Merger. On February 12, 1998, GDG acquired all of the
outstanding common stock of Cambridge Energy Research Associates, Inc.
("CERA"), as discussed in Note 2. Accordingly, the financial statements
of the Predecessor Company for the years ended December 31, 1997, 1996
and 1995, are not comparable in all material respects with the
financial statements subsequent to the date of the Merger.
The financial statements include the accounts of GDG, MGI, CERA and MCM
and its subsidiaries (collectively, "the Company") and reflect the
exchange of MGI common stock for GDG units in the Merger. All material
intercompany accounts and transactions have been eliminated in
consolidation.
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40
GLOBAL DECISIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. MERGER AND EXCHANGE TRANSACTION:
On August 1, 1997, MGI entered into the Plan of Merger and Exchange
Agreement (the "Merger Agreement") by and among MGI, GDG, the
stockholders of CERA and The Goldman Sachs Group, L.P. ("Goldman"). On
February 12, 1998, in accordance with the Merger Agreement, GDG Merger
Corporation, a wholly owned subsidiary of GDG, which was formed
specifically for the purpose of the Merger, was merged into MGI (the
"Merger"). MGI was the surviving corporation and became a wholly owned
subsidiary of GDG. Each share of MGI Class A and Class C common stock
(redeemable - see Note 8 - and non-redeemable) ceased to be outstanding
and was converted into the right to receive 9.55555 limited liability
company units of GDG ("Units"), as provided in the Merger Agreement.
The CERA stockholders exchanged each outstanding share of Common Stock
and Non-Voting Common Stock of CERA for 5.17956 Units, 1,243,125 Units
in total, the contingent right to receive from 0.49875 to 2.94851
additional Units, and a contingent option to purchase 0.37028
additional Units. Goldman exchanged a portion of its limited
partnership interest in Cambridge Energy Research Associates Limited
Partnership ("CERA LP"), which was immediately transferred to CERA, for
150,000 Units, the contingent right to receive from 14,444 to 85,389
additional Units, and a contingent option to purchase 9,874 additional
Units. The contingent rights and the contingent options are subject to
the attainment of certain revenue growth rates by CERA. Any additional
Units or options granted, when the contingencies are resolved, will be
accounted for as additional cost of the acquired assets and amortized
over the remaining life of the assets.
On February 11, 1998, MCM entered into a five year revolving credit
agreement with Chase Manhattan Bank and Bank of America National Trust
and Savings Association which provides for a $30,000,000 facility. In
accordance with the Merger Agreement, on February 12, 1998, MCM loaned
$25,000,000 to CERA. CERA used these funds to distribute $21,510,000 to
its stockholders and to purchase a portion of the limited partnership
interest in CERA LP from Goldman for $2,390,000.
As a result of these transactions, CERA became a wholly owned
subsidiary of GDG, and CERA LP was dissolved and its assets and
liabilities transferred to CERA.
The acquisition of CERA on February 12, 1998, for approximately
$46,000,000 ($16,000,000 in Units and $30,000,000 in cash) has been
accounted for as a purchase in accordance with Accounting Principles
Board Opinion No. 16. Intangibles (principally goodwill) of
approximately $45,700,000 (including the effect of deferred tax
liabilities of $5,700,000 arising from the purchase of identifiable
intangible assets) arising on the acquisition are to be amortized over
their estimated useful lives of five to twenty-five years. The Company
capitalized approximately $6,000,000 of acquisition costs as an
addition to intangible assets. Upon the closing of the transaction,
amortization of such costs commenced.
38
41
GLOBAL DECISIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the terms of the merger Agreement, on February 23, 1998, CERA
employees were granted an aggregate of 106,875 redeemable Units in
accordance with the CERA LLC Unit Grant Plan. As a result, the Company
recorded a one-time charge of $1,716,000 against earnings, including
employees' related income tax benefits of $535,000. The Company also
granted the employees contingent rights to receive 10,291 to 60,840
Units, and options to purchase 231,500 Units (see Note 8). The
contingent rights are subject to the attainment of certain revenue
growth rates by CERA.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company as if the acquisition
of CERA occurred on January 1, 1997.
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
Revenues $40,293,000 $74,147,000
Net income 1,120,000 780,000
Net income per LLC unit - basic $ 0.25 $ 0.23
The pro forma results are based on various assumptions and are not
necessarily indicative of what would have occurred had the transaction
been consummated on January 1, 1997.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CHANGE OF FISCAL YEAR
On April 21, 1998, the Board of Directors of the Predecessor Company
voted to change MGI's fiscal accounting year to begin July 1 and end
June 30. MGI had been operating under a fiscal year that began January
1 and ended December 31.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
REVENUE RECOGNITION
MCM's research services revenue results from MCM producing and
distributing electronic information services worldwide and is
recognized when the services are provided. The life of the customers'
contract period is generally one year. CERA's retainer-services are
generally billed at the inception of the contract, and revenue is
recognized ratably over the contract term. Revenues from consulting
services are recognized on the percentage-of-completion method. Losses
are recognized when they are known. Amounts billed or collected
relating to future periods are classified as deferred revenue and
recognized as the services are provided.
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42
GLOBAL DECISIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VENDOR COMMISSIONS
Vendor commissions are royalties paid to distributors of MCM's on-line
services.
DEPRECIATION
The Company provides for depreciation of equipment using the straight
line method over three years. Leasehold improvements and furniture are
amortized over the lesser of the remaining lives of the leases or their
estimated useful lives using the straight-line method. All fixed assets
are stated at cost and related repair and maintenance charges are
expensed as incurred. When assets are sold, retired or otherwise
disposed of, the applicable costs and accumulated depreciation are
removed from the accounts and the resulting gain or loss is included in
the consolidated statement of income. Accumulated depreciation at June
30, 1998 and December 31, 1997 and 1996, was $3,788,000, $1,434,000 and
$1,027,000, respectively.
AMORTIZATION
Intangible assets, which primarily represent the excess of cost over
fair value of the net assets acquired, are being amortized over five to
twenty-five years on a straight line basis. The Company assesses
impairment of this asset based on several factors, including probable
fair market value, cash flows, and the aggregate value of the business
as a whole. Accumulated amortization at June 30, 1998 and December 31,
1997 and 1996, was $5,163,000, $3,796,000 and $3,015,000, respectively.
TRANSLATION OF FOREIGN CURRENCIES
The monetary assets and liabilities of foreign operations that are
denominated in foreign currencies are converted into U.S. dollars at
year end or historical exchange rates. Income and expense items are
converted into U.S. dollars at average rates of exchange prevailing
during the year. Translation adjustments are reported as a separate
component of members' equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
1998 presentation.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income in general-purpose financial
40
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GLOBAL DECISIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements. No presentation of comprehensive income has been made since
the differences from net income are not material.
4. INCOME TAXES:
The Company accounts for income taxes in accordance with the provisions
of SFAS No. 109, "Accounting for Income Taxes." Under this standard,
deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled.
Income tax expense (in 000's):
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1998 1997 1996 1995
Current:
U.S. Federal $ 680 $1,957 $1,521 $ 634
State, local, and foreign 481 1,499 699 250
------ ------ ------ ------
1,161 3,456 2,220 884
------ ------ ------ ------
Deferred:
U.S. Federal 55 75 389 78
State and local 35 13 167 15
------ ------ ------ ------
90 88 556 93
------ ------ ------ ------
Total $1,251 $3,544 $2,776 $ 977
====== ====== ====== ======
The deferred income tax liabilities shown on the consolidated balance
sheets at June 30, 1998 and December 31, 1997 and 1996, are due
primarily to temporary differences between tax and book amortization of
the excess of cost over fair value of net assets acquired.
The provision for income taxes is different from that which would be
computed by applying the statutory federal income tax rate to income
before taxes. The principal reasons for the differences for the six
months ended June 30, 1998 and years ended December 31, 1997, 1996 and
1995, are set forth in the table below.
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1998 ------------------------
1997 1996 1995
------------- ---- ---- ----
Federal statutory rate 34.0% 34.0% 34.0% 35.0%
State taxes, net of federal income
tax benefit 9.1 10.0 12.0 7.4
Nondeductible goodwill 10.3 -- -- --
Foreign and other, net 0.3 3.4 2.4 (3.9)
---- ---- ---- ----
Effective rate 53.7% 47.4% 48.4% 38.5%
==== ==== ==== ====
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GLOBAL DECISIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROFIT SHARING:
MCM administers a profit sharing plan qualified under the Internal
Revenue Code for all employees, as well as a non-qualified plan for
highly compensated employees who wish to defer additional income. MCM's
contribution expense for these plans was $201,000, $350,000, $273,000
and $196,000 for the six months ended June 30, 1998 and years ended
December 31, 1997, 1996 and 1995, respectively.
CERA also maintains a profit sharing plan for all employees. During the
period from February 12, 1998 (date of acquisition) through June 30,
1998 CERA's contribution expense for this plan was $190,000.
6. COMMITMENTS AND CONTINGENCIES:
Rent expense for operating leases was $1,089,000, $1,420,000,
$1,387,000, and $1,290,000, net of sublease income of approximately
$108,000, $216,000, $216,000 and $227,000 from an affiliate of Holding,
for the six months ended June 30, 1998 and the years ended December 31,
1997, 1996 and 1995, respectively. Future minimum lease commitments
under non-cancelable long-term leases are:
YEAR (000'S)
1999 $ 3,029
2000 2,838
2001 2,727
2002 2,664
2003 1,934
2004 through 2018 9,557
-------
$22,749
=======
In the ordinary course of business, certain claims arise against the
Company. Management believes such claims are without merit and will
vigorously defend its position. In the opinion of management, based on
the information currently available, the ultimate resolution of these
claims will not have a material adverse affect on the Company's
financial position or the results of its operations.
7. REDEEMABLE UNITS:
The Company issued 106,875, 19,111 and 166,267 Units in 1998, 1997 and
1996, respectively, to members of management, other key employees and
directors of the Company (the "Management Investors"). The Company
agreed to repurchase these Units outstanding and the exercisable
portion of any options for these Units held (see Note 8) at fair market
value under certain defined conditions, such as death, disability,
retirement at normal retirement age, or termination of employment
without cause. This repurchase right
42
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GLOBAL DECISIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
terminates upon the consummation of an initial equity public offering.
Fair market value is periodically estimated by the Company's board of
directors considering, among other factors, the value as determined by
an independent appraisal. In connection with the aforementioned
redemption features, the Company has classified, outside of members'
equity, an amount representing the initial fair value of the redeemable
Units, less notes receivable of $885,000 from the Management Investors.
These Units and exercisable options have not been marked to market
because the events of redemption are considered remote.
During 1998, the Company repurchased 11,250 redeemable Units from a
former employee. The Company has recorded the cost of those Units as a
reduction of the redeemable Unit amount presented on the balance sheet.
There were no redemptions prior to 1998.
8. UNIT OPTION PLANS:
OPTIONS ISSUED UNDER THE STOCK OPTION PLAN
Options to purchase 385,070 Units have been granted to the Management
Investors pursuant to the MCM Group, Inc. Stock Option Plan (the "Stock
Option Plan"). Under the terms of the Merger Agreement, the options
outstanding under the Stock Option Plan for the Predecessor Company's
Class C Common Stock were automatically converted into options to
receive Units at the closing date. One half of the options issued under
the Stock Option Plan were Service Options which will vest over a
period of time up to five years, 20% on each anniversary of the option
grant date subject to continued employment with the Company or a
subsidiary and accelerated vesting in the event of death or a change in
control of the Company. The other options issued under the Stock Option
Plan were Performance Options which will vest three years from the date
of grant subject to continued employment with the Company and the
achievement of certain financial performance objectives by MCM and
vesting in the event of death or change in control of the Company. All
of the Performance Options become exercisable nine years from the grant
date regardless of the achievement of the financial performance
objectives. The Service Options and the Performance Options expire on
the tenth anniversary of the grant date.
43
46
GLOBAL DECISIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes activity in the Stock Option Plan for the six
months ended June 30, 1998, and years ended December 31, 1997 and 1996:
WEIGHTED
AVERAGE
UNITS EXERCISE PRICE
Balance, January 1, 1996 -- --
Service Options Granted 180,973 $ 12.75
Performance Options Granted 180,973 12.75
-------- ---------
Balance, December 31, 1996 361,946 $ 12.75
======== =========
Service Options Granted 23,124 12.75
Performance Options Granted 23,124 12.75
-------- ---------
Balance, December 31, 1997 408,194 $ 12.75
======== =========
Service Options Forfeited (11,562) $ 12.75
Performance Options Forfeited (11,562) 12.75
-------- ---------
Balance, June 30, 1998 385,070 $ 12.75
======== =========
The range of exercise prices was from $10.47 to $15.03 per Unit.
As of June 30, 1998, 33,803 options were exercisable, 83,185 Units were
available for future grants, and the average contractual life remaining
was 8.38 years.
OPTIONS ISSUED UNDER THE SPECIAL STOCK OPTION PLAN
The Company's Special Stock Option Plan (the "Plan") provided for the
grant of stock options for the Predecessor Company's Class A Common
Stock on August 31, 1996, to certain current and former employees of
Holding. The options were awarded in connection with the transfer of
the ownership of MCM from Holding to MGI. Under the terms of the Merger
Agreement, the options outstanding under the Plan at the closing date
were automatically converted into options to receive Units.
As of June 30, 1998, options to purchase 459,717 Units at a weighted
average exercise price of $10.47 were outstanding, and were fully
vested and exercisable upon issuance.
As of June 30, 1998, no Units were available for future grants and the
average contractual life remaining was 3.17 years.
OPTIONS ISSUED UNDER THE CERA, INC. LLC UNIT OPTION PLAN
Options to purchase 231,500 Units were granted to employees and
directors of CERA pursuant to the CERA, Inc. LLC Unit Option Plan (the
"CERA Option Plan"). The options issued under the CERA Option Plan were
Service Options which will vest over a period of time up to five years,
20% on each anniversary of the option grant date subject to continued
employment with CERA and accelerated vesting in the event of death or a
change in control of the Company. The Service Options expire on the
tenth anniversary of the grant date.
44
47
GLOBAL DECISIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes activity in the CERA Option Plan for the six
months ended June 30, 1998:
WEIGHTED AVERAGE
UNITS EXERCISE PRICE
Balance, January 1, 1998 -- --
Service Options Granted 231,500 $ 18.31
Service Options Forfeited (17,000) 18.31
-------- ---------
Balance, June 30, 1998 214,500 $ 18.31
======== =========
At June 30, 1998, no options were exercisable and 248,199 Units were
available for future grants, and the average contractual life remaining
was 9.67 years.
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company has opted to apply Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its unit option plans. No
compensation cost has been recognized for the Company's unit option
plans. If compensation cost for the Company's stock option plans had
been determined based on the fair value method as defined by SFAS No.
123, the Company's pro forma net income for 1997 and 1996 would have
approximated $3,763,000 and $2,084,000 respectively, and the basic
earnings per Unit would have approximated $1.13 and $.63, respectively.
The weighted average fair value of options granted in 1998, 1997 and
1996 was $0, $2.05 and $2.62, respectively, per Unit. The fair value is
based on the minimum value method with the following assumptions for
1998, 1997 and 1996: risk-free interest rates of 5.51%, 6.26% and
6.24%, respectively, no dividend yield, and a weighted average expected
life of the options of 3 years for all years.
9. DEBT:
As discussed in Note 2, MCM entered into a five year revolving credit
agreement with Chase Manhattan Bank and Bank of America National Trust
and Savings Association (the "Agreement") which provides a $30,000,000
facility comprising $25,000,000 of term loans and a $5,000,000 working
capital revolving credit facility expiring on February 11, 2003. As of
June 30, 1998, $15,000,000 of the credit facility was utilized as a
term loan. Repayments of the term loan are to be made as follows,
$3,000,000 in 1999 and $4,000,000 in each of the three years ended
December 31, 2002.
45
48
GLOBAL DECISIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The credit agreement requires that GDG comply with certain covenants
including the maintenance of certain ratios, and levels of EBITDA and
net worth. In addition, GDG is subject to certain limitations on
indebtedness, sales of assets, capital expenditures and restricted
payments such as dividend payments and capital stock repurchases.
Loans under this Agreement are collateralized by the assets of MCM, a
pledge of all the capital stock of MCM's domestic subsidiaries, a
pledge of 65% of the capital stock of MCM's foreign subsidiaries, and
unconditional guarantees of GDG, MGI and its subsidiaries.
The weighted-average interest rate for the period ended June 30, 1998
was 7.03%.
Based on the borrowing rates currently available to the Company for a
credit facility with similar terms and maturities, the fair value of
the debt at June 30, 1998, is approximately $15,000,000.
A subsidiary maintains credit facilities in Japanese yen, which provide
financing availability approximating $1,000,000, with variable interest
rates. The average interest rate during the six months ended June 30,
1998 and the years ended December 31, 1997 and 1996 was 1.31%,
1.80% and 1.875% respectively. The Company is not required to pay any
commitment fees.
10. PER UNIT AMOUNTS:
In December 1997, the Company adopted SFAS No. 128, "Earnings Per
Share," which modifies the standards for computing and presenting
earnings per share (EPS) and requires the dual presentation of a basic
EPS and a diluted EPS on the face of the income statement. All prior
years presented have been restated to reflect this adoption.
1998
----
Net income $1,079,000
Weighted-average units outstanding - basic 4,482,179
Stock options 209,326
----------
Weighted-average units outstanding - diluted 4,691,505
Diluted earnings per unit $ 0.23
Options outstanding at December 31, 1997 and 1996, as shown in Note 8,
were excluded from the diluted earnings per Unit calculation because
the options' exercise prices were greater than the average fair value
during 1997 and 1996.
46
49
GLOBAL DECISIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. DISCLOSURE OF SEGMENTS:
Effective January 1, 1998, the Company adopted SFAS No. 131
"Disclosures About Segments of an Enterprise and Related Information"
which establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. MCM and CERA provide services globally in 57 countries
and represent the Company's strategic business units.
MCM and its subsidiaries are providers of specialized on-line financial
information and analysis relating to domestic and international debt
and currency markets. MCM distributes its products primarily through
on-line telecommunications information networks to institutional
clients around the world. In addition to its headquarters in New York,
MCM has offices in Boston, London, Paris, Tokyo, Hong Kong and
Singapore.
CERA is an international advisory and consulting firm that focuses on
the energy industries, including markets geopolitics, structure and
strategy. CERA delivers services through retainer advisory services, a
series of subscription-based continuous retainer advisory services,
consulting, applications, and related services that draw upon its
industry expertise. In addition to its headquarters in Cambridge,
Massachusetts, CERA has offices in Paris, Oakland, Oslo, Moscow, and
Washington, D.C.
The accounting policies for these reportable segments are the same as
those described for the consolidated entity. The Company evaluates the
performance of its segments based on revenue and income from
operations. There are no intersegment revenues; however, the Company
charges a management fee to each of its operating segments.
The table below presents information about the reported segments for
the year ended June 30, 1998. As discussed in Note 2, the Company
acquired CERA in 1998, and, accordingly, segment data has only been
presented for 1998. Amounts in thousands:
MGI CERA ADJUSTMENTS TOTAL
--- ---- ----------- -----
SIX MONTHS ENDED JUNE 30, 1998:
Revenue $ 21,195 $ 15,231 $ - $ 36,426
Depreciation and amortization 586 1,209 - 1,795
Segment operating income 2,527 (30) - 2,497
Interest income 869 41 (649)(a) 261
Interest expense 415 683 (683)(a) 415
Income (loss) before taxes 2,979 (649) - 2,330
Income taxes 1,228 23 - 1,251
Assets at June 30, 1998 57,219 69,033 (30,094)(b) 96,158
(a) Primarily the elimination of interest on intercompany debt between
CERA and MGI.
(b) Primarily the elimination of the intercompany debt between MGI and
CERA.
47
50
GLOBAL DECISIONS GROUP LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company provides research and consulting services to various
customers in foreign countries. For the six months ended June 30, 1998,
and the years ended December 31, 1997, 1996 and 1995, such revenues
amounted to $17,107,000, $19,744,000, $17,388,000 and $15,612,000,
respectively. Outside the United States, no single country would be
deemed material for separate disclosure.
The Company has no single customer representing greater than 10 percent
of its revenues.
12. TRANSITION PERIOD COMPARATIVE DATA:
The following table presents certain financial information for the six
months ended June 30, 1998 and 1997, respectively. As discussed in Note
2, the Company acquired CERA in 1998, and, as a result, the financial
information of the Predecessor Company is not comparable. Amounts in
thousands, except units and per-unit amounts:
SIX MONTHS ENDED JUNE 30,
1998 1997
(UNAUDITED)
Revenues $ 36,426 $ 19,834
Operating income 2,497 3,800
Income before income taxes 2,330 4,115
Income taxes 1,251 1,972
Net income 1,079 2,143
Net income per LLC Unit:
Basic $ 0.24 $ 0.65
Diluted 0.23 0.65
Weighted-average units outstanding:
Basic 4,482,179 3,319,548
Diluted 4,691,505 3,319,548
48
51
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the executive
officers and members of the Board of Directors of GDG, MGI and CERA as of June
30, 1998. The Boards of Directors of the three companies are comprised of the
same individuals.
NAME AGE POSITION
---- --- --------
Alberto Cribiore........................................ 52 Director; President, GDG
Gordon McMahon.......................................... 45 Director; Vice President and Secretary,
GDG
David D. Nixon.......................................... 51 Director; Vice President, GDG; President,
Chief Executive Officer, Treasurer and
Assistant Secretary, MGI
Richard J. Schnall...................................... 28 Treasurer, GDG
Chauncey G. Morgan...................................... 34 Chief Financial Officer, GDG; Senior Vice
President and Chief Financial Officer, MGI
Donald J. Gogel......................................... 49 Director; Vice President, GDG
J. Christopher Jackson.................................. 46 Vice President, GDG; Secretary, MGI
Daniel H. Yergin........................................ 51 Director; President, CERA
Philippe A. Michelon.................................... 60 Managing Director - Operations, CERA
James P. Rosenfield..................................... 41 Managing Director - Head of Business
Development, CERA
Joseph A. Stanislaw..................................... 48 Director; Managing Director - Head of
Global Research, CERA
49
52
Daniel H. Lucking, Jr................................... 51 Senior Director and Chief Financial
Officer, CERA
Malcolm A. Cook......................................... 50 Executive Vice President, MGI
Lauretta F. Gell........................................ 35 Executive Vice President, MGI
Anthony Napolitano...................................... 45 Executive Vice President, MGI
Bruce M. Kamich......................................... 47 Senior Vice President, MGI
Max C. Chapman.......................................... 55 Director
Wallace Mathai-Davis.................................... 54 Director
Dennis J. McDonnell..................................... 55 Director
Peter Derow............................................. 58 Director
Martin D. Payson........................................ 62 Director
Edward G. Jordan........................................ 69 Director
The business experience of each of the current executive officers and the
members of the Board of Directors of GDG, MGI and CERA is set forth below.
ALBERTO CRIBIORE, DIRECTOR; PRESIDENT, GDG -- Mr. Cribiore has been President
and a director of GDG since its inception in June 1997. Mr. Cribiore has been
Chairman of the Boards of Directors of MGI and MCM since August 1996.
Mr. Cribiore is also currently the Managing Principal of Brera. Mr. Cribiore was
a principal of Clayton, Dubilier & Rice, Inc. ("CD&R") from 1985 to March 1997
and was a President of CD&R from 1995 to March 1997. Mr. Cribiore was also a
general partner of Clayton & Dubilier Associates IV Limited Partnership, a
Connecticut limited partnership and the general partner of C&D Fund IV
("Associates IV"), the majority LLC Unit holder of GDG, until March 31, 1997,
and retains an equity interest in Associates IV. In December 1995 and October
1995, respectively, Mr. Cribiore became a director of Riverwood Holding, Inc.
and RIC Holding, Inc., and in March 1996 he became a director of Riverwood
International Corporation.
GORDON MCMAHON, DIRECTOR; VICE PRESIDENT AND SECRETARY, GDG -- Mr. McMahon has
been a director of CERA since the Merger in February of this year. Mr. McMahon
has been Vice President, Secretary and a director of GDG since its inception in
June 1997. Mr. McMahon has been a director of MGI and MCM since April 1997. Mr.
McMahon is a principal of Brera. Mr. McMahon was a professional employee of CD&R
from May 1996 to March 1997. Prior to joining CD&R, Mr. McMahon was a limited
partner of Goldman Sachs from 1993 to 1996 and a general partner of Goldman
Sachs from 1984 to 1993. Mr. McMahon is also a director of Automation, Inc. and
a member of the Advisory Board of Affordable Residential Communities, L.P.
50
53
DAVID D. NIXON, DIRECTOR; VICE PRESIDENT, GDG; PRESIDENT, CHIEF EXECUTIVE
OFFICER, TREASURER AND ASSISTANT SECRETARY, MGI -- Mr. Nixon has been a director
of GDG, MGI and CERA since the Merger in February of this year. Mr. Nixon has
been Vice President of GDG since its inception in June 1997. Mr. Nixon started
at MCM in September 1985 as Senior Vice President and became President in 1991.
In 1991 he left this position to serve as Executive Vice President at Fitch
Investor Services. He returned to MCM in May 1995 to be the President, Chief
Operating Officer and Director, and was appointed President and Chief Executive
Officer, Treasurer and Assistant Secretary of MGI and MCM in August 1996.
RICHARD J. SCHNALL, TREASURER, GDG -- Mr. Schnall has served as Treasurer of GDG
since its inception in June 1997. Since June 1996, Mr. Schnall has been a
professional employee of CD&R. He was formerly with Smith Barney, Donaldson,
Lufkin & Jenrette and McKinsey & Co. Mr. Schnall is a graduate of the University
of Pennsylvania and the Harvard Business School.
CHAUNCEY G. MORGAN, CHIEF FINANCIAL OFFICER, GDG; SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER, MGI -- Mr. Morgan has been Chief Financial Officer of
GDG since the Merger in February of this year. Mr. Morgan joined MCM in 1997 as
a Senior Vice President to MCM and MGI. Mr. Morgan has worldwide responsibility
for MCM's finance, accounting, budgeting, tax and treasury functions. He
previously served as a Director of Business Development and Assistant Treasurer
in the Finance Department of News Corporation.
DONALD J. GOGEL, DIRECTOR; VICE PRESIDENT, GDG -- Mr. Gogel has been a director
of CERA since the Merger in February of this year. Mr. Gogel has been Vice
President and a director of GDG since its inception in June 1997. Mr. Gogel has
been a director of MGI and MCM since August 1996. Mr. Gogel is currently
President of CD&R and has been a principal of CD&R since he joined the firm in
1989. He is a general partner of Associates IV. Mr. Gogel is also a director of
A.P.S., Inc. and its parent APS Holding, Inc., and Alliant Foodservice, Inc. and
its parent CDRF Holding, Inc., each of which is a corporation in which C&D Fund
IV has invested. Mr. Gogel also serves as a director of TurboChef, Inc. and
Kinko's, Inc.
J. CHRISTOPHER JACKSON, VICE PRESIDENT, GDG; SECRETARY, MGI -- Mr. Jackson has
served as Vice-President of GDG since December, 1997 and as Secretary of MGI and
MCM since August 1996. Mr. Jackson serves as Senior Vice President and General
Counsel of Hansberger Global Investors, Inc. in Fort Lauderdale, Florida. He
previously worked for Van Kampen American Capital, Inc. Mr. Jackson received a
B.A. Degree in Economics from Illinois Wesleyan University, his M.A. in
Economics from Northern Illinois University and his J.D. from the University of
Tulsa.
DANIEL H. YERGIN, DIRECTOR; PRESIDENT, CERA -- Dr. Yergin has been a director of
GDG and MGI since the Merger in February of this year. Dr. Yergin, a co-founder
of CERA, has been President and a director of CERA since 1983. Dr. Yergin
received the 1992 Pulitzer Prize for General Nonfiction for his work The Prize:
The Epic Quest for Oil, Money & Power. He was formerly a professor at the
Harvard Business School and the Kennedy School of Government at Harvard
University. Dr. Yergin is a graduate of Yale University and received his Ph.D.
in international relations from The University of Cambridge in England. Dr.
Yergin was a Marshall scholar. He is the co-author, with Thane Gustafson, of
Russia 2010 and, with Dr. Stanislaw, of the forthcoming The
51
54
Commanding Heights: The Battle Between Government and Markets that is Remaking
the Modern World.
PHILIPPE A. MICHELON, MANAGING DIRECTOR - OPERATIONS, CERA -- Mr. Michelon has
been a Managing Director of CERA since 1993. Mr. Michelon was formerly Corporate
Vice President of SRI International (previously Stanford Research Institute) and
Executive Director of its Process Industries Division. Mr. Michelon received a
B.S., summa cum laude, in chemical engineering from INSA, Lyons, holds an M.S.
in chemical engineering from ENSPM, Paris, and holds an M.B.A. from the
University of Pittsburgh.
JAMES P. ROSENFIELD, MANAGING DIRECTOR - HEAD OF BUSINESS DEVELOPMENT, CERA --
Mr. Rosenfield, a co-founder of CERA, has been a Managing Director and a
director of CERA since 1983. Mr. Rosenfield is responsible for CERA's worldwide
business development, new products and services and commercial operations. Mr.
Rosenfield attended Harvard College and holds an M.B.A. from Boston University.
JOSEPH A. STANISLAW, DIRECTOR; MANAGING DIRECTOR AND HEAD OF GLOBAL RESEARCH -
CERA -- Dr. Stanislaw has been a director of GDG and MGI since the Merger in
February of this year. Dr. Stanislaw, a co-founder of CERA, has been a Managing
Director and a director of CERA since 1983. Dr. Stanislaw was formerly Senior
Oil Economist at the International Energy Agency. He was also a professor at
Cambridge University. Dr. Stanislaw is a graduate of Harvard College and
received a Ph.D. in economics from Edinburgh University. He is the co-author,
with Dr. Yergin, of the forthcoming The Commanding Heights: The Battle Between
Government and Markets that is Remaking the Modern World.
DANIEL H. LUCKING, JR., SENIOR DIRECTOR AND CHIEF FINANCIAL OFFICER, CERA -- Mr.
Lucking has been Senior Director and Chief Financial Officer of CERA since 1992.
He previously was Vice President, Corporate Controller of the Forum Corporation
and prior to that, a Manager with Arthur Andersen & Co. Mr. Lucking is a
graduate of the College of the Holy Cross.
MALCOLM A. COOK, EXECUTIVE VICE PRESIDENT, MGI -- Mr. Cook started with MCM in
February 1986 as Vice President and was elected Senior Vice President of MGI in
August 1996. Mr. Cook is also the Managing Director of MCM Europe and President,
Director General of MCM S.A., with overall responsibility for European
operations.
LAURETTA F. GELL, EXECUTIVE VICE PRESIDENT, MGI -- Ms. Gell joined MCM in 1987
and was elected Senior Vice President of MGI in August 1996. Ms. Gell has
primary responsibility for CurrencyWatch,(R) YieldWatch(R) and OptionWatch(R).
ANTHONY NAPOLITANO, EXECUTIVE VICE PRESIDENT, MGI -- Mr. Napolitano joined MCM
as a market analyst in 1985 and was elected Senior Vice President of MGI in
August 1996. Mr. Napolitano has primary responsibility for CorporateWatch(R).
52
55
BRUCE M. KAMICH, SENIOR VICE PRESIDENT, MGI -- Mr. Kamich joined MCM as a
technical analyst in 1985. He was elected Senior Vice President of MGI in August
1996. Mr. Kamich oversees TradeWatch(R) and co-manages MoneyWatch(R).
MAX C. CHAPMAN, DIRECTOR -- Mr. Chapman has been a director of GDG and CERA
since the Merger in February of this year and a director of MGI since August
1996. He has been Co-Chairman of Nomura Securities International, Inc. and
Nomura Holding America Inc. since 1989, Chief Executive Officer since 1992, and
director of The Nomura Securities Co., Ltd. since 1990. Mr. Chapman is also a
member of the Board of Directors of the American Stock Exchange; a Trustee of
the Endowment Fund and Investment Fund of the University of North Carolina at
Chapel Hill; a member of the Bond Club; a Director of the Futures Industry
Association; and in May 1989, was elected to the Board of Directors of
O'Sullivan Corporation, an American Stock Exchange Company, and has served as a
director of the Chicago Mercantile Exchange. Mr. Chapman received his B.A. from
the University of North Carolina and an M.B.A. from Columbia University.
WALLACE MATHAI-DAVIS, DIRECTOR -- Mr. Mathai-Davis has been a director of GDG
and CERA since the Merger in February of this year and a director of MGI since
December 1996. Mr. Mathai-Davis is the Corporate Secretary and Chief Financial
Officer, a Managing Director, shareholder and a member of the Management
Committee of OFFITBANK. He joined OFFITBANK in 1986. Mr. Mathai-Davis graduated
with a B.A. maxima cum laude from the University of Notre Dame in 1966. He holds
both an M.A. (1972) and a Ph.D. (1974) from Princeton University. He is a member
of the New York Academy of Sciences. Currently he is the Treasurer of the Board
of Trustees of The Cathedral of St. John the Divine and a Director of the Public
Education Association.
DENNIS J. MCDONNELL, DIRECTOR -- Mr. McDonnell has been a director of GDG and
CERA since the Merger in February of this year and a director of MGI since
August 1996. Mr. McDonnell has been a director of VK/AC and VKAC, Inc. since
February 1993 and has been an Executive Vice President of VK/AC and VKAC, Inc.
since December 1993. Mr. McDonnell has been with VK/AC since 1983 and, from the
acquisition of MCM in 1985 until August 1996, served as Chairman of the Board of
MCM. Mr. McDonnell received his M.A. degree in Economic Theory for UCLA and his
B.S. degree in Economics from Loyola University of Chicago. Mr. McDonnell serves
on the Investment Advisers Committee of the Investment Company Institute.
PETER A. DEROW, DIRECTOR -- Mr. Derow has been a director of GDG, MGI and CERA
since April 1998. He also serves as a director and advisor to a number of
private corporations and non-profit organizations. From 1988 to 1997, he served
as President and Chief Executive of Institutional Investor, Inc., prior to which
he was President and Chief Executive of the CBS, Inc. Publishing Group and
Newsweek, Inc. Mr. Derow served as a director of both CBS, Inc. and the
Washington Post Company. Mr. Derow received both his AB and MBA degrees from
Harvard University.
MARTIN D. PAYSON, DIRECTOR -- Mr. Payson has been a director of GDG and CERA
since the Merger in February of this year and continues to serve as a director
of MGI and MCM. Mr. Payson has had a distinguished business career, most
recently serving as Vice President of Time Warner Inc. He serves on the board
of directors of several corporations and non-profit organizations and brings
53
56
significant expertise to MGI. Mr. Payson received his AB degree from Cornell and
his LL.B. degree Cum Laude from New York University School of Law.
EDWARD G. JORDAN, DIRECTOR -- Mr. Jordan has been a director of GDG, MGI and
CERA since the Merger in February of this year. Mr. Jordan had previously served
as a director of and consultant to CERA until June 1997. From 1975 to 1980, he
was Chairman and Chief Executive Officer of Consolidated Rail Corporation
("Conrail"). After leaving Conrail, Mr. Jordan was Dean of the Graduate School
of Business Administration at Cornell University and President of the American
College. Mr. Jordan presently serves as a director of ARA Services, the Budd
Company, Pittston Company, ACME Steel, and Mission Research Corp. and as a
member of the U.S. National Planning Association. Mr. Jordan received his B.A.
from the University of California at Berkeley and his M.B.A. from Stanford
University's Graduate School of Business.
Each officer of GDG, MGI and CERA serves at the discretion of the Board of
Directors of GDG, MGI and CERA, respectively. There are no family relationships
among any of the directors and executive officers of GDG, MGI or CERA.
BOARD COMPENSATION
The current directors of GDG do not receive any direct compensation from GDG.
MGI and CERA pay or cause to be paid to their non-employee directors who are not
C&D Fund IV Nominees $15,000 per annum and $1,000 per meeting of the Board
attended and will reimburse such directors (or cause them to be reimbursed) for
their out-of-pocket expenses incurred in attending meetings. In addition, the
non-employee directors may participate in either the CERA Option Plan or the MGI
Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of GDG does not have, and it is not currently expected
that it will have, a compensation committee. The Board of Directors of each of
MGI and CERA has a Compensation Committee, which will make recommendations
concerning salaries and incentive compensation for employees of and consultants
to MGI and CERA, respectively, and will administer and grant Units, options for
Units and awards pursuant to MGI's and CERA's, respectively, equity incentive
plans.
Compliance with Section 16(a) of the Exchange Act. Not applicable.
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Item 11. EXECUTIVE COMPENSATION
As discussed in the Business, GDG has no operations which are separate from
those of its subsidiaries, MGI and CERA. Therefore, the following table sets
forth the compensation for the fiscal year ended June 30, 1998 of MGI's
President and Chief Executive Officer, CERA's President and the four other most
highly compensated executive officers of GDG and its subsidiaries whose annual
cash compensation for such fiscal year exceeded $100,000 (collectively, the
"Named Executives"):
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
All Other
Name and Principal Position Year Salary(1) Bonus Compensation
- --------------------------- ---- --------- ----- ------------
David D. Nixon ................ 1998 $262,500 $375,000 $ 74,823(2)
President and CEO, MGI
Daniel H. Yergin .............. 1998 $336,191 -- $ 35,286(3)
President, CERA
Malcolm A. Cook ............... 1998 $199,579(4) $195,503 $ 19,958(5)
Executive Vice President, MGI
Philippe A. Michelon .......... 1998 $300,000 $ 50,000 $376,448(3)
Managing Director - Operations,
CERA
Anthony Napolitano ............ 1998 $134,000 $206,614 $ 39,950(2)
Executive Vice President, MGI
Joseph A Stanislaw ............ 1998 $320,000 -- $ 85,038(3)
Managing Director and Head of
Global Research, CERA
James P. Rosenfield ........... 1998 $320,000 -- $ 28,549(3)
Managing Director - Head of
Business Development, CERA
(1) Amounts include salary deferral contributions by Messrs. Nixon, Cook and
Napolitano to MGI's qualified and nonqualified profit sharing plans.
(2) Amounts shown are for profit sharing contributions and book entry credits
to MGI's nonqualified profit sharing plans for 1998.
(3) Amounts include the dollar value of insurance premiums paid by CERA and
401(k) matching contributions. Such amounts also include, in the case of
Mr. Stanislaw, a cost of living adjustment and
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governmental fees due to his overseas assignment and, in the case of Mr.
Michelon, a grant of LLC Units and additional cash compensation at the
time of the Merger.
(4) Amounts shown have been converted from British pounds into U.S. dollars
based on an exchange ratio of 1.65 U.S. dollars for each British pound.
(5) Amounts include book entries for certain U.K. retirement obligations.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding option grants by
GDG to each of the Named Executives during the fiscal year ended June 30, 1998:
Potential Realizable
Value of Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
--------------------------------------------------------- ------------------------------
Number of % of Total
Securities Options
Underlying Granted Exercise
Options to Employees in or Base Expiration
Name Granted Fiscal Year Price Date 5% 10%
---- ------- ----------- ----- ---- -- ---
David D. Nixon........ -- -- N/A N/A -- --
Daniel H. Yergin ..... -- -- N/A N/A -- --
Malcolm A. Cook ...... -- -- N/A N/A -- --
Philippe A. Michelon.. 17,000 6.5 $18.31 2/12/08 $195,756 $496,084
Anthony Napolitano.... -- -- N/A N/A -- --
Joseph A Stanislaw.... -- -- N/A N/A -- --
James P. Rosenfield... -- -- N/A N/A -- --
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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of June 30, 1998, the beneficial owners of
more than 5% of GDG's LLC Units.
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class
- ------------------------ -------------------- -----
Daniel H. Yergin 497,238 LLC Units 9.2%
Joseph A. Stanislaw 362,181 LLC Units 6.7%
James P. Rosenfield 362,181 LLC Units 6.7%
The Clayton and Dubilier Private Equity 2,742,806(1) LLC Units 51.0%
Fund IV Limited Partnership
Security Ownership of Management
The following table sets forth, as of June 30, 1998, the number of LLC Units
beneficially owned by all directors of GDG, the named executive officers of GDG
and the directors and executive officers as a group:
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class
- ------------------------ -------------------- -----
Alberto Cribiore (1)(2) ------------------- ----
Max C. Chapman 1,300 LLC Units *
Peter Derow ------------------- ----
Wallace Mathai-Davis 7,167 LLC Units *
Donald G. Gogel(1) ------------------- ----
Edward Jordan 14,132(3) LLC Units *
Dennis J. McDonnell 19,732 LLC Units *
Gordon McMahon 1,300 LLC Units *
David D. Nixon 34,604(3) LLC Units *
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Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class
- ------------------------ -------------------- -----
Martin D. Payson 9,556 LLC Units *
Joseph Stanislaw 362,181 LLC Units 6.7%
Daniel H. Yergin 497,238 LLC Units 9.2%
Anthony Napolitano 20,770(3) LLC Units *
Malcolm A. Cook 20,770(3) LLC Units *
Philippe A. Michelon 11,250 LLC Units *
James P. Rosenfield 362,181 LLC Units 6.7%
Directors and Executive Officers 1,362,181 LLC Units 25.3%
as a group
(1) B. Charles Ames, William A. Barbe, Donald J. Gogel, Leon J.
Hendrix, Jr., Hubbard C. Howe, Andrall E. Pearson and Joseph L.
Rice, III may be deemed to share beneficial ownership of the LLC
Units owned of record by C&D Fund IV by virtue of their status as
general partners of Associates IV, but each expressly disclaims
such beneficial ownership of the LLC Units owned by C&D Fund IV.
Messrs. Ames, Barbe, Gogel, Hendrix, Howe, Pearson and Rice share
investment and voting power with respect to securities owned by C&D
Fund IV. Mr. Cribiore has withdrawn as a general partner of
Associates IV, effective as of March 31, 1997, but retains his
economic interest in Associates IV with respect to investments by
C&D Fund IV while Mr. Cribiore was a partner of Associates IV,
including his indirect interest in the LLC Units owned of record by
C&D Fund IV.
(2) Mr. Cribiore may be deemed to share beneficial ownership of the LLC
Units which Brera will have the right to acquire upon exercise of
the Brera Options by virtue of his status as a principal of Brera,
but he expressly disclaims such beneficial ownership of the
securities owned by Brera. For purposes of this table, the LLC
Units have been allocated to Mr. Cribiore. Mr. Cribiore has
investment and voting power with respect to securities owned by
Brera.
(3) Includes LLC Units that the individuals have a right to acquire
upon exercise of currently exercisable LLC Unit Options.
Edward Jordan 11,132 Anthony Napolitano 4,048
David Nixon 6,937 Malcolm Cook 4,048
* Indicates less than 1%.
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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
C&D Fund IV, GDG's largest LLC Unit holder, is a private investment fund managed
by CD&R. Amounts contributed to C&D Fund IV by its limited partners are invested
at the discretion of Associates IV, in equity or equity-related securities of
entities formed to effect leveraged buy-out transactions and in the equity of
corporations and other entities where the infusion of capital coupled with the
provision of managerial assistance by CD&R can be expected to generate returns
on the investments comparable to returns historically achieved in leveraged
buy-out transactions. Associates IV is the general partner of C&D Fund IV.
Donald J. Gogel, President and a shareholder of CD&R and a general partner of
Associates IV, serves as a director of MGI, MCM, Inc., CERA and GDG.
CD&R provides managerial and financial advisory services to MGI and to CERA,
pursuant to a Consulting Agreement, dated as of August 31, 1996 (as amended, the
"Consulting Agreement"), among CD&R, MGI, MCM, Inc. and CERA. Under the
Consulting Agreement, CD&R is entitled to receive an annual fee of $150,000,
together with reimbursement of out-of-pocket expenses.
Pursuant to the Cribiore Services Agreement, in exchange for a fee equal to the
sum of the amount of any management fee paid to CD&R under the Consulting
Agreement (for so long as Mr. Cribiore serves as the Chairman of the Board of
each of MGI and MCM, Inc.) and certain other amounts, Brera has been providing
the services of Mr. Cribiore to assist CD&R in providing managerial and
financial consulting services under the Consulting Agreement, among other
matters. Brera has made and may continue to make other Brera employees,
including Mr. McMahon, available to assist Mr. Cribiore in providing such
services. In addition to the assistance provided pursuant to the Cribiore
Services Agreement, Brera provided financial advisory services to MCM with
respect to the structuring and negotiation of the Merger and related
transactions, including the financing thereof and certain executive compensation
arrangements. The Brera Options were granted to Brera in return for such
financial advisory services. Mr. Cribiore is managing principal of Brera and Mr.
McMahon is principal of Brera.
CD&R, C&D Fund IV, MGI and CERA are parties to an indemnification agreement,
pursuant to which MGI and CERA have agreed to indemnify CD&R, C&D Fund IV,
Associates IV and their respective directors, officers, partners, employees,
agents and controlling persons against certain liabilities arising under the
federal securities laws, other laws regulating the business of MGI and CERA and
certain other claims and liabilities.
Messrs. Yergin, Rosenfield, Stanislaw and I. C. Bupp and Mr. Raymond Vernon, a
director of CERA until June 1997, entered into an indemnification agreement,
pursuant to which Messrs. Yergin, Rosenfield, Stanislaw and Bupp agreed to
indemnify Mr. Vernon against all expenses, judgments, fines and penalties
incurred by Mr. Vernon in the event that he was or is a party, or is threatened
to be made a party, to certain actions by reason of the fact that he is or was a
director or officer of CERA or any its affiliates. The agreement also contains
certain provisions which set forth the procedures for obtaining indemnification.
The term of the agreement shall terminate no earlier than three years after the
date on which Mr. Vernon ceased to be a director or officer of CERA and any of
its affiliates.
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Messrs. Yergin, Rosenfield, Stanislaw and Bupp and Mr. Edward G. Jordan, a
director of CERA until June 1997, entered into an indemnification agreement,
pursuant to which Messrs. Yergin, Rosenfield, Stanislaw and Bupp agreed to
indemnify Mr. Jordan against all expenses, judgments, fines and penalties
incurred by Mr. Jordan in the event that he was or is a party, or is threatened
to be made a party, to certain actions by reason of the fact that he is or was a
director or officer of CERA or any its affiliates. The agreement also contains
certain provisions which set forth the procedures for obtaining indemnification.
The term of the agreement shall terminate no earlier than three years after the
date on which Mr. Jordan ceased to be a director or officer of CERA and any of
its affiliates.
CERA made loans to certain of its executive officers in amounts in excess of
$60,000 since the beginning of CERA's last fiscal year. In December 1997, CERA
made loans to Messrs. Yergin, Rosenfield and Stanislaw in the amount of
$150,000, $50,000 and $150,000, respectively. In January 1998, CERA made loans
to Messrs. Yergin, Rosenfield and Stanislaw in the amount of $375,000, $250,000
and $292,000, respectively. Each of Messrs. Yergin, Rosenfield and Stanislaw is
an executive officer of CERA. The largest aggregate amount of indebtedness to
CERA outstanding at any time since the beginning of CERA's last fiscal year was
$525,000, $300,000 and $442,000 for Messrs. Yergin, Rosenfield and Stanislaw,
respectively. These loans were made by CERA to these executive officers in order
to provide such individuals with the funds necessary to satisfy their income tax
liabilities. Each of the loans was evidenced by a short-term demand note and
bore interest at the rate of the lowest short-term applicable federal rate as
determined under Section 1274 of the Code. All of these loans were repaid by
Messrs. Yergin, Rosenfield and Stanislaw in February, 1998.
GDG conducts its business through office space located at 590 Madison
Avenue, New York, which MCM, Inc. permits it to use. MCM, Inc. licenses this
office space from Brera pursuant to a license agreement dated August 10, 1998.
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
2.1*** Plan of Merger and Exchange Agreement dated as of August 1, 1997,
among MCM Group, Inc., Global Decisions Group LLC, GDG Merger
Corporation, certain stockholders of Cambridge Energy Research
Associates, Inc., and The Goldman Sachs Group, L.P.
3.1*** Certificate of Formation of Global Decisions Group LLC.
3.2*** Limited Liability Company Agreement of Global Decisions Group
LLC, dated June 13, 1997.
3.3*** Form of Amended and Restated Limited Liability Company Agreement
of Global Decisions Group LLC.
4.1*** Form of Bailment Agreement between Global Decisions Group LLC, as
bailee thereunder, and each of the holders of Units.
10.1*** Secured Grid Note between Cambridge Trust Company and Cambridge
Energy Research Associates Limited Partnership, dated March 25,
1997.
10.2*** Inventory and Accounts Receivable Security Agreement between
Cambridge Trust Company and Cambridge Energy Research Associates
Limited Partnership, dated December 11, 1995.
10.3*** Lease agreement between the Trustees of KSA Realty Trust and
Cambridge Energy Research Associates Limited Partnership, dated
July 27, 1995 as amended by letter agreement dated September 26,
1995 and First Amendment to Lease dated September 26, 1995.
10.4*** Advisory Agreement between Cambridge Energy Research Associates
Limited Partnership and The Goldman Sachs Group, L.P., dated
November 30, 1994.
10.5*** Form of Employment Agreement to be entered into between CERA and
each of Daniel H. Yergin, James P. Rosenfield and Joseph A.
Stanislaw.
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Exhibit No. Description
- ----------- -----------
10.6*** Letter Agreement between Philippe A. Michelon and CERA dated July 2,
1993, as amended by letter agreement dated February 24, 1995.
10.7*** Severance agreement between Daniel H. Lucking, Jr. and CERA dated
September 21, 1994, as amended.
10.8*** Registration and Participation Agreement, dated as of August 31,
1996, among MGI and each of the MGI stockholders a party thereto.
10.9*** Interim Services Agreement, dated as of August 31, 1996, among VK/AC
Holding, Inc., Van Kampen American Capital Inc., MGI and MCM.
10.10*** Tax Sharing Agreement, dated as of August 31, 1996, among VK/AC
Holding, Inc., MGI and MCM.
10.11*** Indemnification Agreement, dated as of August 31, 1996, among MGI,
MCM, CD&R, and C&D Fund IV.
10.12*** Consulting Agreement, dated as of August 31, 1996, among MGI, MCM
and CD&R.
10.13*** Indemnification Agreement, dated as of August 31, 1996, made by MCM
in favor of VK/AC and Morgan Stanley Group Inc.
10.14*** Employment Agreement, dated as of August 31, 1996, among MGI, MCM,
and David D. Nixon.
10.15*** Service Agreement between MCM Europe, MGI and Malcolm Alan Cook.
10.16*** Employment Agreement, dated as of August 31, 1996, among MGI, MCM
and Anthony Napolitano.
10.17*** Service Agreement between MCM Europe, MGI and Lauretta F. Gell.
10.18*** Optional Service Delivery Agreement, dated as of January 1, 1992,
between MCM and Telerate Systems Incorporated.
10.19*** Letter Agreement, dated November 11, 1996, between Dow Jones
Telerate and MCM.
10.20*** Optional Service Delivery Agreement, dated May 1, 1991, between
Telerate Systems Incorporated and Fintrend S.A.
10.21*** Optional Service Delivery Agreement, dated July 1, 1993, between
Reuters Limited and MCM.
10.22*** Direct Feed Delivery Agreement, dated July 1, 1993, between Reuters
Limited and MCM.
10.23*** Amendment, dated as of October 31, 1995, between Reuters Limited and
MCM.
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Exhibit
No. Description
- -------- -----------
10.24*** Optional Service Delivery Agreement, dated July 1, 1993, between MCM
and Knight-Ridder Financial, Inc.
10.25*** Optional Service Delivery Agreement, dated August 18, 1993, between
MCM and Bloomberg L.P.
10.26*** Optional Service Delivery Agreement, dated February 28, 1995,
between MCM and MVIs Corporation, d/b/a Market Vision.
10.27*** Optional Service Delivery Agreement, dated April 1, 1996, between
ADP Financial Information Services, Inc. ("ADP") and MCM.
10.28*** Letter Agreement, dated April 10, 1997, between ADP and MCM,
amending the Optional Service Delivery Agreement, dated April 1,
1996, between ADP and MCM.
10.29*** Agreement to Supply Information, dated July 1, 1995, between MCM
Asia Pacific and Kabushiki Kaisha Quick.
10.30*** Service Agreement, dated as of June 1, 1993, by and between MCM and
KIS.
10.31*** Amendment to Services Agreement, dated as of July 1, 1995, by and
between MCM and KIS.
10.32*** Amendment to Service Agreement, dated as of August 16, 1996, by and
between MCM and KIS.
10.33*** Software License Agreement, dated as of June 1, 1993, by and between
MCM and KIS.
10.34*** Option Agreement, dated as of June 1, 1993, by and between MCM and
KIS.
10.35*** Lease, dated as of December 7, 1993, between The Chase Manhattan
Bank and MCM.
10.36.1*** Form of CERA LLC Unit Grant Plan to be adopted upon consummation of
the Merger and the Exchange.
10.36.2*** Form of CERA LLC Unit Grant Agreement entered into with each of the
participants in the CERA LLC Unit Grant Plan.
10.37*** Form of CERA LLC Unit Option Plan to be adopted upon consummation of
the Merger and the Exchange.
10.38*** Form of Contingent Option Agreement between Global Decisions Group
LLC and Stockholders.
10.39*** MGI Special Stock Option Plan.
10.40*** MGI Stock Option Plan.
10.41*** MCM Group, Inc. LLC Unit Option Plan.
10.42*** Form of Option Agreement to be entered into between Brera Capital
Partners, LLC and MGI.
10.43*** Form of Option Agreement to be entered into between Edward Jordan
and CERA.
10.44*** Consulting Agreement, dated as of October 1, 1997, among MGI, CERA
and Peter Derow.
10.45 License Agreement between Brera Capital Partners LLC and McCarthy,
Crisanti & Maffei, Inc. dated August 10, 1998.
10.46 Lease Agreement between the Trustees of KSA Realty Trust and
Cambridge Energy Research Associates, Inc. dated November 17, 1997.
10.47 Credit Agreement, dated February 12, 1998, among McCarthy, Crisanti
& Maffei, Inc., Global Decisions Group LLC and certain lenders
listed therein and the Chase Manhattan Bank.
10.48 Guarantee and Collateral Agreement, dated February 11, 1998 among
MCM, MGI, the Parent and the Chase Manhattan Bank.
10.49 Trademark Security Agreement, dated February 11, 1998, among MGI,
the Parent and the Chase Manhattan Bank.
10.50 CERA Revolving Note, dated February 11, 1998.
10.51 CERA Demand Term Note, dated February 11, 1998.
16*** Letter of KPMG Peat Marwick LLP concerning change in certifying
accountant.
21.1*** Subsidiaries of the Registrant.
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Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule.
- --------------------
*** Incorporated by reference to the relevant exhibit to GDG's Registration
Statement filed with the Securities and Exchange Commission (the "SEC")
on January 29, 1998, File No. 333-34477
FINANCIAL STATEMENTS
See Item 8, beginning on page 27.
REPORTS ON FORM 8-K
No report on Form 8-K has been filed by GDG during the last quarter of the
period covered by this report.
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GLOBAL DECISIONS GROUP LLC
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the six months ended June 30, 1998, and the years ended December 31, 1997,
1996 and 1995 (in 000's)
BALANCE ADDITIONS
BEGINNING CHARGED TO CHARGED BALANCE
OF COSTS & TO OTHER AT END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ------ -------- -------- ---------- -------
Allowance for doubtful accounts:
For the six months ended June 30, 1998 $ 307 $ - $ 300* $ (28)** $ 579
For the years ended December 31, 200 300 - (193)** 307
1997 159 275 - (234)** 200
1996 70 157 - (68)** 159
1995
* Amount attributable to the purchase of CERA, Inc.
** Amounts written off as uncollectable payments or recoveries.
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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, in the City of New York, State of New
York as of the 12th day of October, 1998.
GLOBAL DECISIONS GROUP LLC
By: /s/ Gordon McMahon
--------------------------------
Gordon McMahon
Vice President and Secretary
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Alberto Cribiore Director and President October 12, 1998
- ---------------------------- (Principal Executive Officer)
Alberto Cribiore
/s/ Chauncey Morgan Chief Financial Officer October 12, 1998
- ---------------------------- (Principal Financial Officer)
Chauncey Morgan
/s/ Richard J. Schnall Treasurer October 12, 1998
- ---------------------------- (Principal Financial Officer)
Richard J. Schnall
/s/ Gordon McMahon Director and Vice President, October 12, 1998
- ---------------------------- and Secretary
Gordon McMahon
/s/ David Nixon Director and Vice President October 12, 1998
- ----------------------------
David Nixon
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SIGNATURES TITLE DATE
---------- ----- ----
/s/ Donald J. Gogel Director and Vice President October 12, 1998
- ----------------------------
Donald J. Gogel
/s/ Peter Derow Director October 12, 1998
- ----------------------------
Peter Derow
/s/ Martin D. Payson Director October 12, 1998
- ----------------------------
Martin D. Payson
/s/ Wallace Mathai-Davis Director October 12, 1998
- ----------------------------
Wallace Mathai-Davis
/s/ Dennis McDonnell Director October 12, 1998
- ----------------------------
Dennis J. McDonnell
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EXHIBIT INDEX
-------------
Exhibit
No. Description
- -------- -----------
10.45 License Agreement between Brera Capital Partners LLC and McCarthy,
Crisanti & Maffei, Inc. dated August 10, 1998.
10.46 Lease Agreement between the Trustees of KSA Realty Trust and
Cambridge Energy Research Associates, Inc. dated November 17, 1997.
10.47 Credit Agreement, dated February 12, 1998, among McCarthy, Crisanti
& Maffei, Inc., Global Decisions Group LLC and certain lenders
listed therein and the Chase Manhattan Bank.
10.48 Guarantee and Collateral Agreement, dated February 11, 1998 among
MCM, MGI, the Parent and the Chase Manhattan Bank.
10.49 Trademark Security Agreement, dated February 11, 1998, among MGI,
the Parent and the Chase Manhattan Bank.
10.50 CERA Revolving Note, dated February 11, 1998.
10.51 CERA Demand Term Note, dated February 11, 1998.
27 Financial Data Schedule.