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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 December 31, 2000
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 1-7234
GP STRATEGIES CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-1926739
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(State of Incorporation) (I.R.S. Employer
Identification No.)
9 West 57th Street, New York, NY 10019
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 826-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered:
Common Stock, $.01 Par Value New York Stock Exchange, Inc.
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 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. / /
As of March 21, 2001, the aggregate market value of the outstanding shares of
the Registrant's Common Stock, par value $.01 per share and Class B Capital
Stock, par value $.01 per share held by non-affiliates was approximately
$48,641,000 and $800,000, respectively, based on the closing price of the Common
Stock on the New York Stock Exchange on March 21, 2001.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the most recent practicable date.
Class Outstanding at March 21, 2001
- ----- -----------------------------
Common Stock, par value $.01 per share 12,160,217 shares
Class B Capital Stock, par value $.01 per share 800,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 2001 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of
Security Holders 16
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 26
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 70
PART III
Item 10. Directors and Executive Officers of the
Registrant* 70
Item 11. Executive Compensation* 70
Item 12. Security Ownership of Certain
Beneficial Owners and Management* 70
Item 13. Certain Relationships and Related Transactions* 70
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 71
*to be incorporated by reference from the Proxy Statement for the Registrant's
2000 Annual Meeting of Stockholders.
PART I
ITEM 1. BUSINESS
General Development of Business
GP Strategies Corporation (the "Company") has engaged in a strategic
redirection over the last four years and has divested a number of its holdings
to focus primarily on becoming a leading performance improvement company,
through its wholly-owned subsidiary, General Physics Corporation ("General
Physics"). In addition, the Company's subsidiary MXL Industries, Inc. ("MXL")
manufactures optical products and Hydro Med Sciences, Inc. ("Hydro Med") is
focusing its efforts to obtain Food and Drug Administration ("FDA") approval for
its prostate cancer drug delivery system.
During the first three quarters of 2000, the Company had five operating
business segments. However, in the fourth quarter of 2000, as a result of
organizational and operational changes at General Physics and the shut down of
the IT open enrollment business in the third quarter of 2000, the Company
combined the Manufacturing Services Group with the Process and Energy Group. Two
of these segments, the Manufacturing & Process Group and the Information
Technology Group, are managed through the Company's principal operating
subsidiary General Physics, the third through its operating subsidiary MXL and
its fourth through the Hydro Med and Other Group. In addition, the Company holds
a number of investments in publicly held companies, including publicly traded
stock in Millennium Cell Inc. ("Millennium").
General Physics is a performance improvement company that assists
productivity driven organizations to maximize workforce performance by
integrating people, processes and technology. General Physics is a total
solution provider for strategic training, engineering, consulting and technical
support services to Fortune 1000 companies, government, utilities and other
commercial customers. As of the fourth quarter of 2000, General Physics
consisted of two segments; the Manufacturing & Process Group and the Information
Technology (IT) Group. The Optical Plastics Group, which includes MXL,
manufactures molded and coated optical products, such as shields and face masks
and non-optical plastic products and the fourth group primarily consists of
Hydro Med.
The Manufacturing & Process Group, including GP e-Learning Technologies,
Inc. ("GP e-Learning"), provides technology based training, including
e-Learning, engineering, consulting and technical services to leading companies
in the automotive, energy, oil and gas, pharmaceutical, steel and food and
beverage industries, as well as to the government sector. The IT Group provides
information training programs and solutions on an enterprise-wide scale. Because
of continued operating losses, the open enrollment IT business, which had been
included in the IT segment, was closed in the third quarter of 2000.
The Company was incorporated in Delaware in 1959 and is a New York Stock
Exchange listed company traded under the symbol GPX.
Manufacturing &Process Group
Information Technology Group
GENERAL PHYSICS CORPORATION
Organization and Operations
General Physics, with approximately 1,600 employees in offices worldwide,
provides performance improvement services and products to multinational
companies in manufacturing and process industries, electric power utilities, and
other commercial and governmental customers.
General Physics believes it is a global leader in performance improvement,
with over three decades of experience in providing solutions to optimize work
force performance. Since 1966, General Physics has provided clients with the
products and services they need to successfully integrate their people,
processes and technology -- the elements most critical to the successful
realization of any organization's goal to improve its effectiveness.
General Physics provides a broad range of services and products on a
global scale that are oriented toward improving the performance of individuals
and organizations throughout their productive lives. General Physics'
instruction delivery capabilities include traditional classroom, structured
on-the-job training (OJT), just-in-time methods, electronic performance support
systems (EPSS), and the full spectrum of e-learning technologies. For
businesses, government agencies and other organizations, General Physics offers
services and products spanning the entire lifecycle of production facilities;
plant launch assistance from both workforce training and engineering
perspectives; operations and maintenance practice training and consulting
services; curriculum development and delivery; facility and enterprise change
and configuration management; lean enterprise consulting; plant and process
engineering review and re-design; learning resource management; e-learning
consulting and systems implementation; and development and delivery of
information technology (IT) training on an enterprise-wide scale. General
Physics' personnel bring a wide variety of professional, technical and military
backgrounds together to create cost-effective solutions for modern business and
governmental challenges.
Operationally, General Physics is organized globally into vertically and
horizontally integrated functional and administrative units, with the goal of
achieving a level of adaptability to match rapidly changing business conditions
and opportunities. Realignment of people, products and business units occurs
frequently to achieve the goal of exposing each of General Physics' clients to
the full menu of services and products offered. In the fourth quarter of 2000,
the Manufacturing Services Group and the Process & Energy Group were combined
into one segment as a result of the Company's decision to close the IT open
enrollment business and its strategy of integrating and realigning groups to
further centralize operational functions and management personnel.
General Physics was incorporated in 1966 to provide technical consulting
services in the field of nuclear science and engineering services to nuclear
power companies and government agencies. General Physics expanded its operations
in the late 1960's to provide, among other things, training and technical
support services to the commercial nuclear power industry. General Physics
expanded its markets even further in the late 1980's to provide training and
technical support services to United States Government nuclear weapons
production and waste processing facilities, and environmental services to
governmental and commercial clients.
In 1994, General Physics further expanded it range of capabilities, as
well as its clients, by acquiring the design engineering, seismic engineering,
systems engineering, materials management and safety analysis businesses of
Cygna Energy Services, and by acquiring the management and technical training
and engineering consulting businesses of GPS Technologies, Inc.
During 1998, General Physics embarked upon a strategy to expand globally,
further diversify its clientele, and acquire additional performance improvement
capabilities through acquisitions. General Physics acquired businesses operated
by United Training Services, Inc., a provider of training and consulting
services to the U.S. automotive industry and to other commercial customers;
Specialized Technical Services Limited, a provider of technical training
services and language services to commercial and governmental customers in the
United Kingdom; SHL Learning Technologies, a leading computer technology
training and consulting organization with an established network of offices and
training facilities in Canada and the United Kingdom; and the Deltapoint
Corporation, a Seattle, Washington, based management consulting firm focused on
large systems change and lean enterprise, with primarily Fortune 500 clients
operating in the aerospace, pharmaceutical, manufacturing, healthcare and
telecommunications industries.
In 1999 General Physics refocused its international strategy to leverage
its success with multinational clients by following those clients into new
venues, then expand its client base to include local suppliers and related
parties. Proposed locations were evaluated for political stability and potential
receptiveness to General Physics' products and services. General Physics has
applied this strategy to Canada, the United Kingdom, Mexico, Brazil and
Malaysia.
During 1999, General Physics adopted restructuring plans, primarily
related to its IT Group segment, to change the focus of the IT Group from open
enrollment IT training courses to project oriented work. In connection with the
restructuring, General Physics closed, downsized, or consolidated offices in the
United States, Canada and in the United Kingdom (UK), and terminated the
employment of approximately 160 employees. General Physics believed at that time
that the strategic initiatives and cost cutting moves taken in 1999 and the
first quarter of 2000 would enable the IT Group to return to profitability in
the last six months of 2000. However, in July 2000, as a result of the continued
operating losses incurred by its IT Group, General Physics determined that it
could not bring the IT Group to profitability unless it closed its open
enrollment IT business in the UK and Canada. During the third quarter of 2000,
the open enrollment IT business was closed and substantially all of the open
enrollment facilities in the UK and Canada were surrendered in connection with
negotiated lease terminations, subleased or turned over to brokers for
disposition. General Physics terminated the employment of substantially all of
the remaining employees associated with the IT open enrollment business in the
UK and Canada.
In 2000, the Company and General Physics formed GP e-Learning to provide
global 2000 corporations and other organizations with a single source solution
for their e-Learning needs.
Also in 2000, General Physics began an upgrade to its financial,
accounting and human resources systems by contracting with an application
service provider for the use of an Enterprise Resource Planning software package
that will better integrate those functions and streamline support for its
business operations. General Physics anticipates that these systems should be
operational in the third quarter of 2001.
General Physics' performance is significantly affected by the timing of
performance on contracts. Results of operations for the first three quarters of
the year are generally not seasonal, since contracts are performed throughout
the year, however, the fourth quarter results may be negatively impacted by
plant shutdowns and fewer workdays as a result of holidays. In addition, demand
for services may fluctuate with and can be related to general levels of economic
activity and employment in the United States, Canada and the UK. A significant
economic downturn or recession in one or more of these countries could have a
material adverse effect on General Physics' business, financial condition and
results of operations.
Customers
General Physics currently provides services to more than 600 customers.
Significant customers include multinational automotive manufacturers, such as
General Motors Corporation, Ford Motor Company and DaimlerChrysler Corporation;
commercial electric power utilities, such as Consolidated Edison Company of New
York, Public Service Electric & Gas Company, ComEd, Entergy Operations, Inc.,
Southern California Edison, and National Power Corporation (Philippines);
governmental agencies, such as the U.S. Departments of Defense, Energy and
Treasury, NASA, Canada Post, the U.S. Postal Service and various Canadian
provincial governments; U.S. government prime contractors, such as
Northrop-Grumman, Lockheed Martin, Westinghouse Savannah River Company and The
Johns Hopkins University Applied Physics Laboratory; pharmaceutical companies,
such as Pfizer, Inc., Merck & Co. and Pharmacia-Upjohn; communications
companies, such as Lucent Technologies, Cablevision and British Telecom PLC;
computer, electronics, and semiconductor companies, such as IBM Corporation and
Applied Materials; food and beverage companies, such as Anheuser-Busch Company
and PepsiCo.; petro-chemical companies, such as ExxonMobil and Lyondell-Citgo;
steel producers, such as AK Steel, USX Corporation, Ispat Inland Inc., USA,
National Steel and Dofasco Steel; and other large multinational companies, such
as Fluor Daniel, PPG Industries, Inc., General Electric Company and Kimberly
Clark Corp.
Revenue from the United States Government accounted for approximately 24%
of General Physics' revenue for the year ended December 31, 2000. However, such
revenue was derived from many separate contracts and subcontracts with a variety
of Government agencies and contractors that are regarded by General Physics as
separate customers. In 2000, except for General Motors Corporation, which
accounted for approximately 14% of General Physics' revenue, no other customer
accounted for 10% or more of General Physics' revenue.
General Physics' Operating Segments
General Physics provides services and sells products within a structure
that is integrated both vertically and horizontally. Vertically, General Physics
is organized into Strategic Business Units (SBUs), Business Units (BUs), and
Groups focused on providing a wide range of products and services to clients and
prospective clients predominantly within targeted markets. Horizontally, General
Physics is organized across SBUs, BUs and Groups to integrate similar service
lines, technology, information, work products, client management and other
resources. As a result, General Physics has evolved into a matrixed organization
in which resources can be coordinated to meet the needs of General Physics'
clients or to respond quickly and mobilize resources for new opportunities.
Communications, market research, accounting, finance, legal, human resources and
other administrative services are organized at the corporate level. Business
development and sales resources are aligned with operating units to support
existing customer accounts and new customer development. As of the fourth
quarter of 2000, General Physics manages its business in two business segments:
Manufacturing & Process and Information Technology.
Manufacturing & Process Group
The Manufacturing & Process Group focuses on developing long-term
relationships with manufacturing sector Fortune 1000 companies, their suppliers
and agencies of the government. The Group builds these relationships by gaining
a thorough understanding of a client's competitive strategies and business
objectives, analyzing their human, technical, and organization issues and
recommending viable human performance and learning resource management solutions
to clients to help them improve performance, increase efficiency and reduce
risk. The Group provides training, engineering and technical support services to
clients, whether involving workforce development, plant launch, modification of
existing facilities and systems or regulatory compliance. The Group then works
with its customers in implementing the recommended solutions, moving the
organization toward achieving business objectives and improving competitive
advantage. The Group frequently supports the introduction of new work practices
associated with lean manufacturing, self-directed work teams and engineering.
Adult learning delivery capabilities include traditional classroom, structured
on-the-job training (OJT), just in time methods, electronic performance support
systems (EPSS), and the full spectrum of e-Learning technologies. In addition,
with over thirty years of training, applied engineering and management
experience in helping clients improve performance, increase efficiency and
reduce risk, this Group is called upon to help its clients meet global
competitive challenges, especially when that challenge requires significant
capital investment in plants and facilities and presents a potential risk to the
workplace and the environment. Included in this Group is GP e-Learning, which
functions as a single-source e-learning solution provider through its
integration services, the development and provisioning of proprietary content
and the aggregation and distribution of third party content. As an integrator,
GP e-Learning offers complete e-learning services solutions from planning to
hosting. As a developer of customer content, GP e-Learning creates new courses
or re-purposes existing courses for online development. As an aggregator and
distributor of third party content, GP e-Learning aggregates courses from its
partner content network and markets these courses through its knowledge portal
program, Knowledge Interchange.
A representative list of this Group's customers allowing disclosure
includes: General Motors Corporation, Ford Motor Company, Lockheed Martin,
USX, Ispat Inland Inc., USA, Nalco Chemical Co., Lucent Technologies,
Anheuser-Busch, Pepsi-Cola, CN Rail, SBC Communications, Applied Materials,
NASA, the U.S. Postal Service, the U.S. Army, Navy and Air Force, Merck &
Co., ExxonMobil, Pharmacia-Upjohn, General Electric, Consolidated Edison,
Commonwealth Edison, Fluor Daniel and Aerojet General.
Information Technology Group
The IT Group's services fall into four business areas: instructor-led and
technology based training, customized education, enterprise solutions, and
information technology service support. Specific services include software
applications training, change management, and courseware development. The IT
Group has operations in the United States and Canada. A representative list of
the Group's customers includes: Pfizer, Department of Defense, Ethicon-Endo
Surgery, Anheuser-Busch, National Steel, Fluor Daniel, IBM, CN Rail, Canada
Post, Oracle and GE Capital. As a result of the continued operating losses
incurred by the IT Group, as well as the determination that revenues would not
increase to profitable levels, General Physics closed its open enrollment IT
business in the UK and Canada during the third quarter of 2000.
International
General Physics conducts its business outside the United States primarily
through its wholly-owned subsidiaries General Physics Canada Ltd., General
Physics (UK) Ltd., General Physics Corporation Mexico, S.A. de C.V., General
Physics (Malaysia) Sdn Bhd and GP Strategies do Brasil Ltda. Through these
companies, General Physics is capable of providing substantially the same
services and products as are available to clients in the United States, although
modified as appropriate to address the language, business practices and cultural
factors unique to each client and country. In combination with its subsidiaries,
General Physics is able to coordinate the delivery to multi-national clients of
services and products that achieve consistency on a global, enterprise-wide
basis.
General Physics Products and Services
Training. Each of General Physics' Groups provides training services and
products to support existing, as well as the launch of new, plants, equipment,
technologies and processes. The range of services includes fundamental analysis
of a client's training needs, curriculum design, instructional material
development (in hard copy, electronic/software or other format), information
technology service support, and delivery of training using an instructor-led,
on-the-job, computer-based, web-based, video-based or other technology-based
method. General Physics focuses on developing long-term relationships with its
customers. It builds these relationships by gaining a thorough understanding of
a customer's competitive strategies and business objectives and analyzing their
human performance and learning resource management solutions. General Physics
then works with its customers in implementing the recommended solutions, moving
the organization toward achieving business objectives and improving competitive
advantage. General Physics also provides an extensive existing curriculum of
business and technical courses and management of the training business
operations. Training products include instructor and student training manuals,
instructional material on CD-ROM and PC-based simulators. Training projects
include:
o Since 1987, General Physics has participated in a strategic business
partnership with General Motors Corporation (GM). General Physics is
the training partner of General Motors University (GMU). Each year
several thousand GM employees attend courses managed and conducted by
General Physics. General Physics was a GM "Supplier of the Year" in
1999 and 2000.
o General Physics provides management and training services to Ford Motor
Company's North American Training and Development Organization.
o General Physics operates the United States Army's chemical weapons
demilitarization program training center in Edgewood, Maryland for
personnel who will operate and maintain demilitarization plants at
seven locations across the country.
o General Physics is providing training services to one of the world's
largest producers of semiconductor wafer fabrication equipment and
related spare parts for the worldwide semiconductor industry.
Consulting. Consulting services are available from General Physics'
Manufacturing & Process Group and include not only training-related consulting
services, but also more traditional business management, engineering and other
disciplines. General Physics is able to provide high-level lean enterprise
consulting services, as well as training in the concept, methods and application
of lean enterprise and other quality practices, organizational development and
change management. General Physics also provides engineering consulting services
to support regulatory and environmental compliance, modification of facilities
and processes, reliability-centered maintenance practices, and plant start-up
activities. Consulting products include copyrighted training and reference
materials. Consulting projects have included:
o Assisting a company with more than 5,000 employees spread over 100
offices to increase its operational efficiency while decreasing cost by
upgrading its IT systems, integrating key operations functions into
Centers of Excellence, developing a plan to document processes, improve
process efficiency, and transition the processes to the new Centers of
Excellence.
o Assisting a multinational manufacturer to redesign processes and
procedures, and improve morale in conjunction with a leadership change
in the organization.
o Providing change management, documentation, end-user training and
maintenance engineering support related to enterprise wide software
applications.
Technical Support and Engineering. General Physics' Manufacturing & Process
Group is staffed and equipped to provide technical support services and products
to clients. Technical support services include procedure writing and
configuration control for capital intensive facilities, plant start-up
assistance, logistics support (e.g., inventory management and control),
implementation and engineering assistance for facility or process modifications,
facility management for high technology training environments, staff
augmentation, and help-desk support for standard and customized client desktop
applications. Technical support products include EtaPro(TM) and PDMS(TM) General
Physics software applications. General Physics has provided:
o Technical support services to develop and upgrade operations and
maintenance procedures; develop and implement preventative maintenance
programs; facilitate plant configuration management; maintain and
modify training simulators; and develop and implement computer based
training.
o Help-desk support for standard and proprietary desktop software
applications.
o Design, analysis, inspection and test services for rocket engine
systems and equipment.
o Systems engineering and computer science services for military combat
systems under development.
Contracts
General Physics is currently performing under time-and-materials,
fixed-price and cost-reimbursable contracts. General Physics' subcontracts with
the United States Government have predominantly been cost-reimbursable contracts
and fixed-price contracts. General Physics is required to comply with the
Federal Acquisition Regulations and the Government Cost Accounting Standards
with respect to services provided to the United States Government and agencies
thereof. These Regulations and Standards govern the procurement of goods and
services by the United States Government and the nature of costs that can be
charged with respect to such goods and services. All such contracts are subject
to audit by a designated government audit agency, which in most cases is the
Defense Contract Audit Agency (the "DCAA"). The DCAA has audited General
Physics' contracts through 1998 without any material disallowances.
The following table illustrates the percentage of total revenue of General
Physics attributable to each type of contract for the year ended December 31,
2000:
Fixed-Price........................................61%
Time and Materials.................................27
Cost-Reimbursable..................................12
Total Revenue.....................................100%..
====
General Physics' fixed-price contracts provide for payment to General
Physics of pre-determined amounts as compensation for the delivery of specific
products or services, without regard to the actual cost incurred by General
Physics. General Physics bears the risk that increased or unexpected costs
required to perform the specified services may reduce General Physics' profit or
cause General Physics to sustain a loss, but General Physics has the opportunity
to derive increased profit if the costs required to perform the specified
services are less than expected. Increasingly, General Physics' contracts have
been fixed-price based on a percentage of total revenue. Fixed-price contracts
generally permit the client to terminate the contract on written notice; in the
event of such termination, General Physics would typically, at a minimum, be
paid a proportionate amount of the fixed price. No significant terminations of
General Physics' fixed-price contracts have occurred over the last five years.
General Physics' time-and-materials contracts generally provide for
billing of services based upon the hourly billing rates of the employees
performing the services and the actual expenses incurred multiplied by a
specified mark-up factor up to a certain aggregate dollar amount. General
Physics' time-and-materials contracts include certain contracts under which
General Physics has agreed to provide training, engineering and technical
services at fixed hourly rates (subject to adjustment for labor costs).
Time-and-materials contracts generally permit the client to control the amount,
type and timing of the services to be performed by General Physics and to
terminate the contract on written notice. If a contract is terminated, General
Physics typically is paid for the services provided by it through the date of
termination. While General Physics' clients often modify the nature and timing
of services to be performed, no significant terminations of General Physics'
time-and-materials contracts have occurred over the last five years.
General Physics' cost-reimbursable contracts provide for General Physics
to be reimbursed for its actual costs plus a specified fee. These contracts also
are generally subject to termination at the convenience of the client. If a
contract is terminated, General Physics typically would be reimbursed for its
costs to the date of termination, plus the cost of an orderly termination, and
paid a proportionate amount of the fee. No significant terminations of General
Physics' cost-reimbursable contracts have occurred over the last five years.
Competition
General Physics' services and products face a highly competitive
environment. The principal competitive factors are the experience and capability
of service personnel, performance, quality and functionality of products,
reputation and price. Consulting services such as those provided by General
Physics are performed by many of the customers themselves, large architectural
and engineering firms that have expanded their range of services beyond design
and construction activities, large consulting firms, major suppliers of
equipment and independent service companies similar to General Physics. A
significant factor determining the business available to General Physics and its
competitors is the ability of customers to use their own personnel to perform
services provided by General Physics and its competitors. Another factor
affecting the competitive environment is the existence of small, specialty
companies located at or near particular customer facilities and dedicated solely
to servicing the needs of those particular facilities.
The training industry is highly fragmented and competitive, with low
barriers to entry and no single competitor accounting for a significant market
share. The Company's competitors include several large publicly traded and
privately held companies, vocational and technical training schools, information
technology companies, degree-granting colleges and universities, continuing
education programs and thousands of small privately held training providers and
individuals. Recently, there have been a number of small start-up companies
entering the e-Learning marketplace. In addition, many of General Physics'
clients maintain internal training departments. Some of General Physics'
competitors offer services and products that are similar to those of General
Physics at lower prices, and some competitors have significantly greater
financial, managerial, technical, marketing and other resources than does
General Physics. Moreover, General Physics expects that it will face additional
competition from new entrants in the training and performance improvement market
due, in part, to the evolving nature of the market and the relatively low
barriers to entry. There can be no assurance that General Physics will be
successful against such competition.
Personnel
General Physics' principal resource is its personnel. General Physics'
future success depends to a significant degree upon its ability to continue to
attract, retain and integrate into its operations instructors, technical
personnel and consultants who possess the skills and experience required to meet
the needs of its clients. In order to initiate and develop client relationships
and execute its growth strategy, General Physics also must retain and continue
to hire qualified salespeople. As of December 31, 2000, General Physics employed
approximately 1,600 employees and adjunct instructors.
General Physics' personnel have backgrounds and industry experience in
mechanical, electrical, chemical, civil, nuclear and human factors engineering;
in technical education and training; in power plant design, operation and
maintenance; in weapons systems design, operation and maintenance; in
organizational change management; in instructional technology and e-learning
technologies; in enterprise-wide resource planning and software training; and in
toxicology, industrial hygiene, health physics, chemistry, microbiology, ecology
and mathematical modeling. Many of General Physics' employees perform multiple
functions depending upon changes in the mix of demand for the services provided
by General Physics.
General Physics utilizes a variety of methods to attract and retain
personnel. General Physics believes that the compensation and benefits offered
to its employees are competitive with the compensation and benefits available
from other organizations with which it competes for personnel. In addition,
General Physics maintains and continuously improves the professional development
of its employees, both internally via General Physics University and through
third parties, and also offers tuition reimbursement for job-related educational
costs. General Physics encourages its employees to further their education,
continuously update their marketable skills and deliver services and products
that equal or exceed client expectations. General Physics recognizes and rewards
business success and outstanding individual performance.
Competition for qualified personnel can be intense, and General Physics
competes for personnel with its clients as well as its competitors. There can be
no assurance that qualified personnel will continue to be available to General
Physics in sufficient numbers. Any failure to attract or retain qualified
instructors, technical personnel, consultants and salespeople in sufficient
numbers could have a material adverse effect on General Physics' business,
financial condition, and results of operations.
None of General Physics' employees is represented by a labor union.
General Physics generally has not entered into employment agreements with its
employees, but has entered into employment agreements with certain executive
officers and other employees. General Physics believes its relations with its
employees are good.
Marketing
General Physics has approximately 36 employees dedicated primarily to
marketing its services and products through Business Development initiatives at
both the Group and Business Unit levels. Group level marketing is directed at
long-term strategic business development with specific customers and with
multinational businesses. General Physics markets its services to existing
customers primarily through its technical personnel who have regular direct
client contact, dedicated sales personnel and client managers, and by using
senior management to aid in the planning of marketing strategies and evaluating
current and long-term marketing opportunities and business directions. General
Physics uses attendance at trade shows, presentations of technical papers at
industry and trade association conferences, public courses and workshops given
by General Physics personnel to serve an important marketing function. General
Physics also advertises and sends a variety of sales literature, including an
extensive catalog of course listings, to current and prospective clients whose
names are maintained in a computerized database which is updated periodically.
The goal of General Physics' marketing process is to obtain awards of new
contracts and expansion of existing contracts. By staying in contact with
clients and looking for opportunities to provide further services, General
Physics sometimes obtains contract awards or extensions without having to
undergo competitive bidding. In other cases, clients request General Physics to
bid competitively. In both cases, General Physics submits proposals to the
client for evaluation. The period between submissions of a proposal to final
award can range from 30 days or less (generally for non-competitive, short-term
contracts), to a year or more (generally for large, competitive multi-year
contracts with governmental clients).
General Physics maintains a site on the World Wide Web located at
http://www.gpworldwide.com from which prospective customers can obtain
additional information about General Physics and find out how to contact General
Physics to discuss employment or business opportunities.
Backlog
General Physics' backlog for services under signed contracts and
subcontracts as of December 31, 2000 was approximately $111,000,000.
General Physics anticipates that most of its backlog as of December 31,
2000 will be recognized as revenue during fiscal year 2001, however, the rate at
which services are performed under certain contracts, and thus the rate at which
backlog will be recognized, is at the discretion of the client, and most
contracts are, as mentioned above, subject to termination by the client upon
written notice.
Insurance
By providing services to the commercial electric power industry and to the
United States Armed Forces, General Physics is engaged in industries in which
there are substantial risks of potential liability. General Physics' insurance
is combined with the Company's insurance in a consolidated insurance program
(including general liability coverage). However, certain liabilities associated
with General Physics' business are not covered by these insurance policies. In
addition, such liabilities may not be covered by Federal legislation providing a
liability protection system for licensees of the Nuclear Regulatory Commission
(typically utilities) for certain damages caused by nuclear incidents, since
General Physics is not such a licensee. Finally, few of General Physics'
contracts with clients contain a waiver or limitation of liability. Thus, to the
extent a risk is neither insured nor indemnified against nor limited by an
enforceable waiver or limitation of liability, General Physics could be
materially adversely affected by a nuclear incident. Certain other environmental
risks, such as liability under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended (Superfund), also may not be covered
by General Physics' insurance.
Environmental Statutes and Regulations
General Physics provides environmental engineering services to its
clients, including the development and management of site environmental
remediation plans. Due to the increasingly strict requirements imposed by
Federal, state and local environmental laws and regulations (including, without
limitation, the Clean Water Act, the Clean Air Act, Superfund, the Resource
Conservation and Recovery Act and the Occupational Safety and Health Act),
General Physics' opportunities to provide such services may increase.
General Physics' activities in connection with providing environmental
engineering services may also subject General Physics itself to such Federal,
state and local environmental laws and regulations. Although General Physics
subcontracts most remediation construction activities and all removal and
offsite disposal and treatment of hazardous substances, General Physics could
still be held liable for clean-up or violations of such laws as an "operator" or
otherwise under such Federal, state and local environmental laws and regulations
with respect to a site where it has provided environmental engineering and
support services. General Physics believes, however, that it is in compliance in
all material respects with such environmental laws and regulations.
Properties
General Physics' principal executive offices are located at 6700 Alexander
Bell Drive, Suite 400, Columbia, Maryland 21046, and its telephone number is
(410) 290-2300. General Physics leases approximately 34,750 square feet of an
office building at that address, and approximately 348,000 square feet of office
space at other locations in the United States, Canada, the United Kingdom,
Mexico, Brazil and Malaysia. General Physics has 56 offices worldwide. Various
locations in the United States, Canada and the United Kingdom contain classrooms
or other specialized space to support General Physics' instructor-led and
distance-learning training programs. General Physics believes that its
facilities are adequate to carry on its business as currently conducted.
Optical Plastics Group
MXL INDUSTRIES, INC.
MXL Industries, Inc. ("MXL") is engaged in the manufacture of molded and
coated optical products, such as shields and face masks and non-optical plastic
products. MXL is a state-of-the-art injection molder and precision coater of
large optical products such as shields and face masks and non-optical plastics.
MXL believes that the principal strengths of its business are its
state-of-the-art injection molding equipment, advanced production technology,
high quality standards, and on time deliveries. Through its Woodland Mold and
Tool Division, MXL also designs and engineers state-of-the-art injection molding
tools as well as providing a commodity custom molding shop.
As the market for optical injection molding, tooling and coating is
focused, MXL believes that the combination of its proprietary "Anti-Fog"
coating, precise processing of the "Anti-Scratch" coatings, and precise molding
and proprietary grinding and polishing methods for its injection tools will
enable it to increase its sales in the future and to expand into related
products.
MXL uses only polycarbonate resin to manufacture shields, face masks and
lenses for over 50 clients in the safety, recreation and military industries.
For its manufacturing work as a subcontractor in the military industry, MXL is
required to comply with various federal regulations including Military
Specifications and Federal Acquisition Regulations for military end use
applications.
MXL's largest customer accounted for approximately 34% of MXL's total
sales and two other customers accounted for approximately 17% of MXL's sales in
2000.
MXL's sales and marketing effort concentrates on industry trade shows. In
addition, the Company employs one marketing and sales executive and one sales
engineer.
Hydro Med & Other Group
HYDRO MED SCIENCES
Hydro Med Sciences, Inc. ("HMS") is a drug delivery company that develops,
manufactures, markets and sells proprietary, implantable, controlled release
drug delivery products, which release drugs directly into the circulatory
system. These products are based upon HMS's unique group of Hydron(TM) polymer
biomaterials. HMS's lead product in development is a patented, subcutaneous
retrievable hydrogel reservoir drug delivery device (the "Hydron(TM) Implant")
designed to allow reliable, sustained release of a broad spectrum of therapeutic
compounds continuously, at constant, predetermined rates over at least a
12-month period. The lead application of the Hydron(TM) Implant, which is
implanted below the skin (subcutaneously) in the upper arm, delivers the
luteinizing hormone releasing hormone analog, histrelin, for the treatment of
prostate cancer for a 12-month period. HMS is focusing its efforts on obtaining
FDA approval for this drug delivery system for the treatment of prostate cancer.
HMS's sales currently comprise less than 1% of the Company's revenues.
Investments
Over the last several years, the Company has taken significant steps to
focus primarily on becoming a full-service performance improvement company and
has divested many of its non-core assets. However, the Company still has
investments in the stock of certain publicly traded corporations.
Millennium is an emerging technology company engaged in the development of
a patented and proprietary chemical process that converts sodium borohydride to
hydrogen. On August 14, 2000, Millennium completed an initial public offering of
3,000,000 shares of common stock at a price of $10.00 per share. Based upon the
consummation of the initial public offering and subsequent sales of stock, the
Company's holdings in Millennium decreased from approximately 27% to
approximately 22% as of December 31, 2000.
GSE Systems, Inc. ("GSES") develops and delivers business and technology
solutions by applying process control and simulation software, systems and
services to the energy, process and manufacturing industries worldwide. As of
December 31, 2000, the Company owned approximately 22% of the outstanding shares
of common stock of GSES.
Five Star Products, Inc. ("Five Star") is a leading distributor in the
United States of home decorating, hardware and finishing products. At December
31, 2000, the Company's investment in Five Star was approximately $1,494,000. In
addition, Five Star is indebted to the Company in the amount of $5,000,000
pursuant to an 8% senior unsecured Note due September 30, 2002. The Company owns
approximately 37.5% of the outstanding shares of common stock of Five Star.
Employees
At December 31, 2000, the Company and its subsidiaries employed
approximately 1,700 persons, including 12 in the Company's headquarters, 1,600
at General Physics, 75 in the Optical Plastics Group and 16 at Hydro Med
Sciences. Of these, 4 persons were engaged in research and development. The
Company considers its employee relations to be good.
Financial Information about the Foreign and Domestic operations and Export
Sales
For financial information about the foreign and domestic operations and
export sales, see Note 12 to Notes to Consolidated Financial Statements.
Item 2. Properties
The following information describes the material physical properties owned
or leased by the Company and its subsidiaries.
The Company leases approximately 10,000 square feet of space for its New
York City principal executive offices and leases approximately 15,000 square
feet in New Jersey. General Physics leases approximately 34,750 square feet of
an office building in Columbia, Maryland and approximately 348,000 square feet
of office space at various other locations throughout the United States, Canada,
the United Kingdom, Mexico, Brazil and Malaysia.
MXL owns 50,200 square feet of warehouse and office space in Lancaster, PA
and 55,000 square feet of warehouse and office space in Westmont, IL.
The facilities owned or leased by the Company are considered to be
suitable and adequate for their intended uses and are considered to be well
maintained and in good condition.
ITEM 3. LEGAL PROCEEDINGS
On January 4, 2001, the Company commenced an action alleging that MCI
Communications Corporation, Systemhouse, and Electronic Data Systems
Corporation, as successor to Systemhouse, committed fraud in connection with the
Company's 1998 acquisition of Learning Technologies from the defendants for
$24.3 million. The Company seeks actual damages in the amount of $117.9 million
plus interest, punitive damages in an amount to be determined at trial, and
costs.
The complaint, which is pending in the New York State Supreme Court,
alleges that the defendants created a doctored budget to conceal the poor
performance of the United Kingdom operation of Learning Technologies. The
complaint also alleges that the defendants represented that Learning
Technologies would continue to receive business from Systemhouse even though the
defendants knew that the sale of Systemhouse to EDS was imminent and that such
business would cease after such sale. In February 2001, the defendants filed
answers denying liability. No counterclaims against the plaintiffs have been
asserted. The case is currently in discovery.
The Company is not a party to any other legal proceedings, the outcome of
which are believed by management to have a reasonable likelihood of having any
material adverse effect upon the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock, $.01 par value, is traded on the New York
Stock Exchange. The following table presents its high and low market prices for
the last two years. During the periods presented below, the Company has not paid
any dividends.
Quarter High Low
------- ---- ---
2000 First $7.00 $4.13
Second 5.75 3.06
Third 7.13 3.63
Fourth 6.38 3.63
1999 First $19.13 $13.63
Second 17.75 8.25
Third 11.63 6.88
Fourth 12.50 5.75
The number of shareholders of record of the Common Stock as of March 21,
2001 was 2,929. On March 21, 2001, the closing price of the Common Stock on the
New York Stock Exchange was $4.00.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Item 6. Selected Financial Data
Operating Data (in thousands, except per share data)
- --------------------------------------------------------------------------------------------------------------------
Years ended December 31, 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Sales $197,467 $224,810 $284,682 $234,801 $203,800
Gross margin 19,789 26,379 41,993 35,229 30,242
Interest expense 5,616 4,922 3,896 4,075 4,358
Net income (loss) (25,392) (22,205) (2,061) 3,423 11,380
- --------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share:
Basic (2.04) (1.95) (.19) .33 1.55
Diluted (2.04) (1.95) (.19) .31 1.54
- --------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
- ------------------
December 31, 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Cash, cash equivalents and marketable securities $ 11,317 $ 4,068 $ 7,548 $ 13,725 $ 25,927
Short-term borrowings 36,162 40,278 30,723 23,945 20,281
Working capital (deficit) 1,834 (146) 13,989 34,797 41,691
Total assets 212,578 197,118 210,905 190,612 176,027
Long-term debt 17,612 18,490 21,559 6,588 20,116
Stockholders' equity 112,518 99,982 120,335 126,583 94,029
- --------------------------------------------------------------------------------------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
RESULTS OF OPERATIONS
Overview
During the first three quarters of 2000, the Company had five operating business
segments. However, in the fourth quarter of 2000, as a result of organizational
and operational changes at General Physics and the shut down of the IT open
enrollment business in the third quarter of 2000, the Company combined the
Manufacturing Services Group with the Process and Energy Group. The discussion
and disclosure that follows assumes that the Manufacturing Services Group and
the Process & Energy segments were combined as of January 1, 1998 to form the
Manufacturing & Process Group. Two of these segments, the Manufacturing &
Process Group and the IT Group, are managed through the Company's principal
operating subsidiary General Physics, the third through its operating subsidiary
MXL Industries and the fourth through its subsidiary Hydro Med Sciences. In
addition, the Company holds a number of investments in publicly held companies,
including publicly traded stock in Millennium.
General Physics is a performance improvement company that assists productivity
driven organizations to maximize workforce performance by integrating people,
processes and technology. General Physics is a total solution provider for
strategic training, engineering, consulting and technical support services to
Fortune 1000 companies, government, utilities and other commercial customers.
General Physics consists of two segments: the Manufacturing & Process Group and
the IT Group.
In 2000, the Company had a loss before income taxes of $34,265,000 compared to a
loss before income taxes of $21,293,000 in 1999. The increased operating loss in
2000 was primarily due to the closing of the Company's open enrollment IT
business in the third quarter of 2000, which included an impairment charge of
$19,245,000, a $8,630,000 restructuring charge and a loss of $7,331,000 from the
total IT operations. During 1999, the Company adopted restructuring plans,
primarily related to its IT Business segment, as they believed at that time that
the strategic initiatives and cost cutting moves taken in late 1999 and the
first quarter of 2000 would enable the IT Group to return to profitability.
However, as those plans were unsuccessful, the Company determined that it could
no longer bring the open enrollment IT Business to profitability, accordingly
these charges were the result of the continued operating losses incurred by the
IT Group, due to the trend of reduced revenue on a quarterly basis, which began
in 1999 and continued through 2000. As a result, the Company decided to close
the open enrollment IT business in the UK and Canada in the third quarter of
2000. Management believes that the remaining IT operations will be profitable in
the future.
The Company believes that the remaining unamortized goodwill of approximately
$5,400,000, which relates to the US and Canadian IT project business, is
recoverable from future operations. However, if the remaining IT operations do
not achieve profitable operating results, there can be no assurance that a
further impairment charge will not be required.
In 2000 the Company had a gain of $10,111,000 on trading securities primarily
relating to its 861,500 shares of Millennium stock held as trading securities at
December 31, 2000 and the gain on the sale of 138,500 shares of Millennium stock
sold during the fourth quarter of 2000. This was offset by equity losses of
$2,389,000, which were primarily the result of an equity loss related to GSES of
$1,936,000 in 2000, which is included in investment and other income (loss). The
Company also recorded write-downs of $2,400,000 related to its investment in
Five Star and $1,000,000 related to its investment in GSES in 2000, which is
included in Loss on investments.
In addition, the Company recorded a $3,809,000 non-cash compensation expense
related to a deferred compensation plan offered to certain of its employees
which is included in selling, general and administrative expenses (See Note 3 to
the Consolidated Financial Statements).
In 1999, the Company incurred a loss before income taxes of $21,293,000 as
compared to a loss before income taxes of $695,000 in 1998. The loss was due to
several items including a $11,856,000 operating loss incurred by the IT Group
and a $7,374,000 restructuring charge. During 1999, the IT Group was negatively
affected by the lack of new software products, companies diverting training
dollars to fixing Y2K issues and heavy competition in the IT area.
The restructuring charge in 1999 is comprised of expenses related to severance
and related benefit costs, as well as idle facility and related closure costs.
In addition, the Company incurred other costs to exit certain activities,
totaling approximately $8,421,000. These costs were included in Cost of sales
and Selling, general and administrative expenses and included such items as
payroll and related benefits, facility costs, asset write-offs and contract
losses.
During 1999, the Company also recorded a $2,747,000 loss as a result of the
terminated merger agreement with Veronis Suhler and Associates (VS&A) (see Note
18 to the Consolidated Financial Statements), as well as net losses on
investments of $1,662,000, primarily from the Company's investments in
Interferon Sciences, Inc. (ISI) and GSES. In addition, the Company had reduced
Investment and other income, net. The loss in 1999 was also impacted by
increased interest expense due to increased short-term borrowings and higher
interest rates in 1999. The above items were partially offset by a $3,016,000
gain on trading securities in 1999.
The loss before income taxes of $695,000 in 1998 was due to several
non-recurring items, partially offset by increased operating profits generated
by the Manufacturing & Process Group. The Company recognized a $6,225,000 loss
on the sale of substantially all the assets of Five Star to Five Star Products
on September 30, 1998 as well as a Loss on investments of $4,624,000 for the
year ended December 31, 1998. The Loss on investments resulted from write-downs
of the Company's investments in ISI and GSES. In addition, the Company
recognized a $1,500,000 expense during the fourth quarter of 1998, resulting
from a termination agreement with an executive of the Company. The above
non-recurring losses and expense were also partially offset by a $2,205,000 net
gain on marketable securities in 1998.
Sales
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Manufacturing & Process $161,859 160,326 $165,131
Information Technology 24,593 53,619 43,709
Distribution 64,148
Optical Plastics 10,998 10,353 10,581
Other 17 512 1,113
- ------------------------------------------------------------------------
$197,467 224,810 $284,682
- ------------------------------------------------------------------------
The increased sales of $1,533,000 achieved by the Manufacturing & Process Group
in 2000 as compared to 1999 was the result of increased sales in the automotive,
telecommunications and advanced manufacturing sectors, offset by decreases in
the aerospace and government sector. The decrease in sales of $29,026,000 in the
IT Group in 2000 was primarily the result of the decreased open enrollment IT
business in the first six months of the year and then its closing in the third
quarter.
The decreased sales of $4,805,000 in the Manufacturing & Process Group in 1999
as compared to 1998 were attributable to the decreased work with the U.S. Navy
and the disposition of the Company's environmental laboratory in late 1998. The
IT Group had increased sales of $9,910,000 in 1999 as compared to 1998, which
was primarily attributable to a full year of sales for Learning Technologies,
which was acquired in June 1998.
Due to the sale of substantially all the operating assets of Five Star to FSP on
September 30, 1998, the Distribution Group had no operations since 1998.
In 2000, the increased sales in the Optical Plastics Group (MXL) were primarily
the result of increased sales from existing customers. In 1999, MXL had reduced
sales from their major customer, offset by increased sales to new and existing
customers. In 2000 MXL's major customer comprised 34% of the segment's net
sales. In 1999, MXL's major customer comprised 23% of the segment's net sales.
Gross margin
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
% % %
--- --- --
Manufacturing & Process $22,277 13.8 $24,976 15.6 $28,092 17.0
Information Technology (4,645) (1,085) - 97 .2
Distribution 10,454 16.3
Optical Plastics 2,888 26.3 2,719 26.3 2,894 27.4
Other (731) (231) - 456 40.9
- ------------------------------------------------------------------------
$19,789 10.0 $26,379 11.7 $41,993 14.8
- ------------------------------------------------------------------------
The gross margin of $22,277,000 by the Manufacturing & Process Group in 2000
decreased both in terms of dollars and percent of sales, as compared to
$24,976,000 in 1999, as the result of significant investment in the e-Learning
business and reduced business in certain segments of the automotive area, which
typically generates higher margins. The decrease in gross margin in terms of
dollars and percent of sales from 1998 to 1999 for the Manufacturing & Process
Group is a result of decreased sales and contract losses in 1999.
The decrease in the IT Group in 2000 as compared to 1999 was the result of
operating and shutdown losses related to the IT open enrollment business in the
U.K. and Canada. The negative gross margin incurred by the IT Group in 1999 was
principally caused by (1) lower than anticipated sales levels, (2) write-offs of
inventory and other revenue producing activities which were exited as a result
of the restructuring plans, and (3) lower labor utilization, as compared to
1998.
The increased gross margin earned by the Optical Plastics Group of $2,888,000 in
2000 compared to $2,719,000 in 1999, was the result of increased revenues. MXL
had a consistent gross margin percentage in 2000 and 1999. In 2000, even though
sales from MXL's largest customer remained practically unchanged, there was a
growth in sales among several other large customers as compared to 1998.
The reduced gross margin earned by the Optical Plastics Group of $175,000 in
1999 as compared to 1998, was the result of the reduced revenues and gross
margin percentage. MXL had a reduced gross margin percentage in 1999 and 1998 as
a result of a change in their customer mix.
Investment and other income (loss), loss on investments, gains on marketable
securities, net, and loss on sale of assets
Included in the Consolidated Statements of Operations are the following:
Years ended December 31, 2000 1999 1998
---- ---- ----
Investment and other income (loss) $ (1,306,000) $ 223,000 $ 1,735,000
Loss on investments (3,400,000) (1,662,000) (4,624,000)
Gains on marketable securities, net 10,111,000 2,205,000
Loss on sale of assets (6,225,000)
The investment and other loss for 2000 was primarily due to equity losses of
$2,389,000 relating to the Company's equity investments. These losses were
offset by investment and other income of $1,083,000 relating primarily to
interest on loans receivable. The investment and other income for 1999 was
primarily due to income of approximately $884,000 related to interest on loans
receivable. This income was offset by equity losses of approximately $661,000
relating to the Company's equity investments.
The loss on investments in 2000 and 1999 was due to write-downs of $3,400,000
and $1,662,000, respectively, in the carrying value of the Company's equity
investments.
The gain on marketable securities, net for 2000 was due to a gain on Millennium
trading securities of $7,779,000 and a $1,818,000 gain related to the sale of
Millennium trading securities, along with gains on available-for-sale securities
of $432,000 and $82,000 related to ISI and Duratek, respectively. The gain on
marketable securities, net for 1999 was due to a gain on the Company's
available-for-sale securities of $3,016,000.
The loss on sale of assets in 1998 was recorded when the Company incurred a
$6,225,000 loss on the sale of the Five Star Group Inc. to FSP.
Selling, general, and administrative expenses
Selling, general and administrative expenses (SG&A) increased from $31,883,000
in 1998 to $36,953,000 in 1999 and decreased to $25,968,000 in 2000. The
decrease in SG&A of $10,985,000 in 2000 was attributable to aggressive
cost-cutting efforts, the exiting and discontinuation of the IT open enrollment
business during 2000 and write-offs in 1999 related to actions taken to
restructure the IT open enrollment business as discussed below. Also included in
the 2000 SG&A is a non-cash compensation charge of $3,809,000 related to a
deferred compensation plan.
The increase in SG&A of $5,070,000 in 1999 as compared to 1998 was attributable
to increases within the Manufacturing & Process Group, primarily as a result of
$4,437,000 in write-offs of certain assets related to certain revenue producing
activities, which were exited as part of the restructurings, and costs incurred
by the IT Group. The IT Group also incurred increased SG&A due to the inclusion
of the operations of Learning Technologies for a full year in 1999, as opposed
to six months in 1998 from its acquisition in June 1998. In addition, in 1999
the Company incurred $2,747,000 of costs related to the terminated merger
agreement with VS&A. These increases were partially offset by $9,594,000 of SG&A
attributable to the Distribution Group in 1998. In 1998 and 1999, the Company
continued to reduce SG&A expenses at the corporate level.
Interest expense
Interest expense was $5,616,000 in 2000, $4,922,000 in 1999 and $3,896,000 in
1998. The increased interest expense in 2000 was the result of increased
interest rates. The increased interest expense in 1999 was the result of
increased short-term borrowings and long-term debt, due to the operating losses
and acquisitions of Deltapoint and Learning Technologies.
Income taxes
Income tax (expense) benefit for 2000, 1999 and 1998 was $8,873,000, $(912,000),
and $(1,366,000), respectively.
In 2000, the Company recorded an income tax benefit of $8,873,000. For the year
ended December 31, 2000, the current income tax provision of $915,000 represents
state taxes of $717,000, and foreign taxes of $198,000. The increase of
$1,785,000 in the valuation allowance in 2000 was attributable primarily to
foreign net operating losses for which no tax benefit has been provided.
In 1999, the Company recorded an income tax expense of $912,000. For the year
ended December 31, 1999, the current income tax provision of $935,000 represents
state taxes of $481,000, and foreign taxes of $454,000. The increase of
$5,171,000 in the valuation allowance in 1999 was attributable primarily to net
operating losses for which no tax benefit has been provided.
In 1998, the Company recorded an income tax expense of $1,366,000. For the year
ended December 31, 1998, the current income tax provision of $1,271,000
represents the estimated state taxes. The deferred income tax expense of $95,000
represents future estimated state taxes payable by the Company. The increase of
$954,000 in the valuation allowance in 1998 was attributable primarily to the
decrease in the Company's deferred tax liability with respect to Investments in
partially owned companies.
Liquidity and capital resources
At December 31, 2000, the Company had cash and cash equivalents totaling
$2,487,000. The Company believes that it has sufficient cash and cash
equivalents, marketable securities, long-term investments and borrowing
availability under existing and potential lines of credit to fund its working
capital requirements.
For the year ended December 31, 2000, the Company's working capital increased by
$1,980,000 to working capital of $1,834,000, primarily reflecting the effect of
the increase in marketable securities as a result of the Company's investment in
Millennium offset by a decrease in accounts receivable and the reduced current
maturities of long-term debt.
The decrease in cash and cash equivalents of $1,581,000 for the year ended
December 31, 2000 resulted from cash used in investing activities of $3,588,000
and financing activities of $1,385,000 partially offset by cash provided by
operations of $3,314,000. Net cash used in investing activities of $3,588,000
includes $1,040,000 of additions to property, plant and equipment, $429,000 of
additions to intangible assets, relating primarily to deferred financing fees,
and a $2,119,000 increase to investments and other assets. Net cash used in
financing activities consisted primarily of repayments of short-term borrowings
and long-term debt, partially offset by proceeds from issuance of long-term
debt.
In connection with the reversed established for restructuring charges in 2000,
$3,884,000 had been utilized during the year ended December 31, 2000.
In connection with the reserve established for restructuring charges in 1999,
$2,501,000 had been utilized and $180,000 had been reversed during the year
ended December 31, 2000.
The Company believes that cash generated from operations and borrowing
availability under its credit agreement and marketable securities will be
sufficient to fund the working capital and other needs of the Company. The
Company is presently negotiating a refinancing of its credit facilities pursuant
to its Amended Agreement with its Bank (See Note 5). The Company has discussed
the extension of this credit facility with its current Agent bank, which has
expressed its intention to either extend the credit facility past its existing
expiration date of June 15, 2001 or enter into a new syndicated credit facility
with the Company. The decision on whether to extend or enter into a new credit
facility will be determined by the willingness of the current members of the
bank group to remain involved with the loan. As of March 27, 2001, the majority
of the bank group had indicated to management of the Company that they would
agree to either an extension or renewal of the credit facility. The Company
plans to meet with the other member banks shortly. Based upon the ongoing
discussions with its banks and the fact that the Company has been in compliance
with all financial covenants under its amended and restated agreement, the
management of the Company believes that the credit facility agreement will be
either extended or renewed.
As of December 31, 2000, the Company has not contractually committed itself for
any major capital expenditures.
Recent accounting pronouncements
In June 1998, the FASB the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 establishes accounting and reporting standards for derivatives
instruments, including derivative instruments embedded in other contracts,
and for hedging activities. During June 1999, SFAS No. 137 was issued which
delayed the effective date of SFAS No. 133 to January 1, 2001. In June 2000,
the Financial Accounting Standards Board issued SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an Amendment
of FASB Statement No 133," which intended to simplify the accounting for
derivative under SFAS No. 133 and is effective upon the adoption of SFAS No.
133. The adoption of these statements will not have a material effect on the
Company's results of operations.
Adoption of a Common European Currency
On January 1, 1999, eleven European countries adopted the Euro as their common
currency. From that date until January 1, 2002, debtors and creditors may choose
to pay or to be paid in Euros or in the former national currencies.
On and after January 1, 2002, the former national currencies will cease to be
legal tender.
The Company is currently reviewing its information technology systems and
upgrading them as necessary to ensure that they will be able to convert among
the former national currencies and the Euro, and process transactions and
balances in Euros, as required. The Company has sought and received assurances
from the financial institutions with which it does business that they will be
capable of receiving deposits and making payments both in Euros and in the
former national currencies. The Company does not expect that adapting its
information technology systems to the Euro will have a material impact on its
financial condition or results of operations. The Company is also reviewing
contracts with customers and vendors calling for payments in currencies that are
to be replaced by the Euro, and intends to complete in a timely way any required
changes to those contracts.
Adoption of the Euro is likely to have competitive effects in Europe, as prices
that had been stated in different national currencies become directly comparable
to one another. In addition, the adoption of a common monetary policy throughout
the countries adopting the Euro can be expected to have an effect on the economy
of the region. These competitive and economic effects cannot be predicted with
certainty, and there can be no assurance that they will not have a material
effect on the Company's business in Europe.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
The Company is exposed to the impact of interest rate, market risks and currency
fluctuations. In the normal course of business, the Company employs internal
processes to manage its exposure to interest rate, market risks and currency
fluctuations. The Company's objective in managing its interest rate risk is to
limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. The Company is exposed to the impact of
currency fluctuations because of its international operations.
As of December 31, 2000, the Company had approximately $40,000,000 of variable
rate borrowings. The Company estimates that for every 1% fluctuation in general
interest rates, assuming debt levels at December 31, 2000, interest expense
would vary by $400,000.
The Company's net investment in its foreign subsidiaries, including intercompany
balances, at December 31, 2000, was in a net liability position with respect to
such subsidiaries of approximately $2,779,000, as a result of restructurings
over the past two years and accordingly, fluctuations in foreign currency do not
have a material impact on the Company's financial position.
The forward-looking statements contained herein reflect the Company's
management's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements, all of which are difficult to predict and many
of which are beyond the control of the Company, including, but not limited to,
the risk that qualified personnel will not continue to be available,
technological risks, the Company's ability to comply with financial covenants in
connection with various loan agreements, the Company's ability to either extend
or refinance its existing bank facility and those risks and uncertainties
detailed in GP Strategies' periodic reports and registration statements filed
with the Securities and Exchange Commission.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF GP STRATEGIES CORPORATION AND SUBSIDIARIES:
Page
Independent Auditors' Report 28
Consolidated Balance Sheets - December 31, 2000 and 1999 29
Consolidated Statements of Operations - Years ended December 31,
2000, 1999, and 1998 31
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 2000, 1999, and 1998 33
Consolidated Statements of Cash Flows - Years ended December 31,
2000, 1999, and 1998 33
Notes to Consolidated Financial Statements 35
SUPPLEMENTARY DATA (Unaudited)
Selected Quarterly Financial Data 69
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GP Strategies Corporation:
We have audited the consolidated financial statements of GP Strategies
Corporation and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GP Strategies
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
New York, New York
March 28, 2001
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and par value per share)
December 31, 2000 1999
- ------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 2,487 $ 4,068
Trading securities 8,830
Accounts and other receivables (of which
$11,413 and $13,742 are from government
contracts) less allowance for doubtful
accounts of $859 and $2,905 46,388 55,385
Inventories 1,688 1,888
Costs and estimated earnings in excess of billings on
uncompleted contracts, of which $532 and $1,264
relate to government contracts 12,515 14,238
Prepaid expenses and other current assets 3,955 3,853
- ------------------------------------------------------------------------
Total current assets 75,863 79,432
- ------------------------------------------------------------------------
Investments, advances and marketable securities 62,093 16,557
- ------------------------------------------------------------------------
Property, plant and equipment, net 9,787 13,658
- ------------------------------------------------------------------------
Intangible assets, net of accumulated
amortization of $31,618 and $34,967
Goodwill 58,246 77,758
Patents, licenses and deferred charges 1,746 2,060
- ------------------------------------------------------------------------
59,992 79,818
Deferred tax asset 3,990
- ------------------------------------------------------------------------
Other assets 4,843 3,663
- ------------------------------------------------------------------------
$212,578 $197,118
- ------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except shares and par value per share)
December 31, 2000 1999
- ------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities
Current maturities of long-term debt $ 1,311 $ 3,668
Short-term borrowings 36,162 40,278
Accounts payable and accrued expenses 25,234 25,634
Billings in excess of costs and estimated
earnings on uncompleted contracts 11,322 9,998
- ------------------------------------------------------------------------
Total current liabilities 74,029 79,578
- ------------------------------------------------------------------------
Long-term debt less current maturities 16,301 14,822
Deferred tax liability 6,504
Other non-current liabilities 3,226 2,736
Commitments and contingencies
Stockholders' equity
Preferred stock, authorized 10,000,000
shares, par value $.01 per share, none issued
Common stock, authorized 25,000,000 shares, par
value $.01 per share, issued 12,491,417 and 11,542,450
shares (of which 334,937 and 427,184 shares are held in
treasury) 125 115
Class B common stock, authorized 2,800,000 shares,
par value $.01 per share, issued and outstanding
800,000 and 450,000 shares 8 5
Additional paid-in capital 179,955 170,011
Accumulated deficit (86,994) (61,602)
Accumulated other comprehensive (loss) income 27,237 (817)
Notes receivable from stockholder (4,095) (2,817)
Treasury stock at cost (3,718) (4,913)
- ------------------------------------------------------------------------
Total stockholders' equity 112,518 99,982
- ------------------------------------------------------------------------
$212,578 $197,118
- ------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------------
Sales $197,467 $224,810 $284,682
Cost of sales 177,678 198,431 242,689
- ------------------------------------------------------------------------------
Gross margin 19,789 26,379 41,993
- ------------------------------------------------------------------------------
Selling, general and administrative (25,968) (36,953) (31,883)
Interest expense (5,616) (4,922) (3,896)
Investment and other income, (loss)
(including interest income of $142,
$193 and $335) (1,306) 223 1,735
Loss on investments (3,400) (1,662) (4,624)
Loss on sale of assets (6,225)
Gains on marketable securities, net 10,111 3,016 2,205
Asset impairment charge (19,245)
Restructuring charge (8,630) (7,374)
- -------------------------------------------------------------------
Loss before income taxes (34,265) (21,293) (695)
Income tax benefit (expense) 8,873 (912) (1,366)
- -------------------------------------------------------------------------------
Net loss $ (25,392) $ (22,205) $ (2,061)
- -------------------------------------------------------------------------------
Net loss per share
Basic $ (2.04) $ (1.95) $ (.19)
Diluted (2.04) (1.95) (.19)
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 2000, 1999, and 1998
(in thousands, except for par value per share)
Accumulated Notes
Class B other Compre- receivable Treasury Total
Common common Additional compre- hensive from stock stock-
stock stock paid-in Accumulated hensive income stock- at holders'
($.01 Par) ($.01 Par) capital deficit income (loss) holder cost equity
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $108 $ 1 $158,676 $(37,336) $ 6,630 $ $ $(1,496) $126,583
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (6,531) (6,531) (6,531)
Net loss (2,061) (2,061) (2,061)
- ---------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss (8,592) (8,592)
Issuance and sale of common stock 3 2 5,541 (1,742) 3,804
Purchase of treasury stock (1,460) (1,460)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 111 3 164,217 (39,397) 99 (1,742) (2,956) 120,335
- ----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (916) (916) (916)
Net loss (22,205) (22,205) (22,205)
- ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss (23,121) (23,121)
Issuance and sale of common stock 4 2 5,794 (1,075) 4,725
Purchase of treasury stock (1,957) (1,957)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 115 5 170,011 (61,602) (817) (2,817) (4,913) 99,982
- ----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income 28,054 28,054 28,054
Net loss (25,392) (25,392) (25,392)
- ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss 2,662 2,662
Issuance and sale of common stock 10 3 5,430 (1,278) 4,165
Issuance of treasury stock 1,195 1,195
Issuance of stock by equity investee 4,514 4,514
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $125 $ 8 $179,955 $(86,994) $ 27,237 $ $ (4,095) $ (3,718) $112,518
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
- --------------
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Cash flows from operations:
Net loss $ (25,392) $ (22,205) $ (2,061)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 6,628 7,794 5,452
Issuance of stock for profit incentive plan 1,668 1,345 1,675
Restructuring charge 8,630 7,374
Gains on trading securities, net (10,111) (3,016) (2,205)
Loss on investments 3,400 1,662 4,624
Loss on sale of assets 6,225
Loss on equity investments and other, net 2,389 535 936
Deferred income taxes (9,649) (700)
Non-cash compensation charge 3,809
Asset impairment charge 19,245
Proceeds from sale of securities 2,699 5,057 3,964
Changes in other operating items,
net of effect of acquisitions and disposals:
Accounts and other receivables 8,997 146 (23,470)
Inventories (177) 474 997
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,723 1,157 (7,669)
Prepaid expenses and other current assets 1,030 1,491 (3,062)
Accounts payable and accrued expenses (12,899) (1,981) 5,133
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,324 (4,201) 6,220
- -----------------------------------------------------------------------------
Net cash provided by (used in) operations $ 3,314 $ (5,068) $ (3,241)
- ------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
- --------------
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Cash flows from investing activities:
Acquisitions of businesses, net $ $ (31,632)
Additions to property, plant and
equipment, net (1,040) (2,959) (4,484)
Additions to intangible assets (429) (3,153) (2,985)
Reduction of (increase to) investments
and other assets (2,119) 1,381 503
- ------------------------------------------------------------------------
Net cash used in investing activities (3,588) (4,731) (38,598)
- ------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of Class B Shares 1,200
Repayments of short-term borrowings (4,116) (14,519)
Proceeds from short-term borrowings 9,555 37,773
Proceeds from issuance of long-term debt 2,640 15,000
Repayment of long-term debt (1,343) (2,385) (281)
Exercise of common stock
options and warrants 234 940 596
Repurchase of treasury stock (1,129) (1,460)
- ------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (1,385) 6,981 37,109
- ------------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents 78 79 (838)
- ------------------------------------------------------------------------
Net decrease in cash and
cash equivalents (1,581) (2,739) (5,568)
Cash and cash equivalents at
beginning of year 4,068 6,807 12,375
- ------------------------------------------------------------------------
Cash and cash equivalents at end of year$ 2,487 $ 4,068 $ 6,807
- ------------------------------------------------------------------------
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 5,447 $ 5,078 $ 3,704
Income taxes $ 557 $ 1,097 $ 1,194
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Description of business and summary of significant accounting policies
Description of business.
GP Strategies Corporation (the Company) currently has four operating
business segments. The Company's principal operating subsidiary is General
Physics Corporation (GP). GP is a performance improvement company that assists
productivity driven organizations to maximize workforce performance by
integrating people, processes and technology. GP is a total solutions provider
for strategic training, engineering, consulting and technical support services
to Fortune 1000 companies, government, utilities and other commercial customers.
During the first three quarters of 2000, GP operated under three business
segments. However in the fourth quarter of 2000, as a result of organizational
and operational changes at GP and the shut down of the IT open enrollment
business in the third quarter of 2000, the Company combined the Manufacturing
Services Group with the Process and Energy Group at GP. Therefore, GP now
operates in only two business segments. The Manufacturing & Process Group
provides technology based training, engineering and consulting to leading
companies in the automotive, steel, power, chemical, energy, pharmaceutical and
food and beverage industries, as well as to the government sector. The
Information Technology Group provides information training programs and
solutions, including Enterprise Solutions and comprehensive career training and
transition programs. Because of continued operating losses, the open enrollment
business of the Information Technology Group was shut down in the third quarter
of 2000. The Company's Optical Plastics Group, through its wholly owned
subsidiary MXL Industries, Inc. (MXL), manufactures molded and coated optical
products, such as shields and face masks and non-optical plastic products. The
fourth group, the Hydro Med and Other Group, primarily consists of Hydro Med
Sciences, which is focusing its efforts to obtain FDA approval for its prostate
cancer drug delivery system. In addition, the Company has investments in
Millennium Cell Inc. (Millennium), Five Star Products, Inc. (FSP), GSE Systems,
Inc. (GSES), Interferon Sciences, Inc. (ISI) and GTS Duratek, Inc. (Duratek)
(see Note 3).
Principles of consolidation and investments. The consolidated financial
statements include the operations of GP Strategies Corporation and its
majority-owned subsidiaries. Investments in 20% - 50% owned companies are
generally accounted for by the equity method. Although the Company has a 22%
investment in Millennium it does not have the ability to significantly influence
the entity or its operations and accordingly accounts for its investment in
Millennium on the cost basis. All significant intercompany balances and
transactions have been eliminated in consolidation.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
1. Description of business and summary of significant accounting policies
(Continued)
Cash and cash equivalents. Cash and cash equivalents of $2,487,000 and
$4,068,000 at December 31, 2000 and 1999, respectively, consist of highly liquid
debt instruments with original maturities of three months or less.
Marketable securities. Marketable securities at December 31, 2000 and 1999
consist of U.S. corporate equity securities. The Company classifies its
marketable securities as trading or available-for-sale investments. A decline in
the market value of any available-for-sale security below cost that is deemed to
be other than temporary results in a reduction in carrying amount to fair value.
The impairment is charged to earnings, and a new cost basis is established.
Gains and losses are derived using the average cost method for determining the
cost of securities sold.
Trading securities, which are generally expected to be sold within one year, are
included as such on the Consolidated Balance Sheet. Available-for-sale
securities are included in Investments, advances and marketable securities on
the Consolidated Balance Sheet. Trading and available-for-sale securities are
recorded at their fair value. Trading securities are held principally for the
purpose of selling them in the near term. Unrealized holding gains and losses on
trading securities are included in earnings. Unrealized holding gains and losses
on available-for-sale securities are excluded from earnings and are reported as
a separate component of stockholders' equity in Accumulated other comprehensive
income (loss), net of the related tax effect, until realized.
Inventories. Inventories are valued at the lower of cost or market, using
the first-in, first-out (FIFO) method.
Foreign currency transactions. The Company's Swiss Bonds, which were converted
into common shares in June 2000 (see Note 7), were subject to currency
fluctuations and the Company had hedged portions of such debt from time to time,
but not within the three - year period ended December 31, 2000. During the years
ended December 31, 2000, 1999 and 1998, the Company realized foreign currency
transaction gains (losses) of $58,000, $245,000 and $(75,000), respectively.
These amounts are included in Investment and other income (loss), net.
Foreign currency translation. The functional currency of the Company's
international operations is the applicable local currency. The translation of
the applicable foreign currency into U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using the weighted-average rates of exchange
prevailing during the year. The unrealized gains and losses resulting from such
translation are included as a separate component of shareholders' equity in
Accumulated other comprehensive income (loss).
1. Description of business and summary of significant accounting policies
(Continued)
Contract revenue and cost recognition. The Company provides services under
time-and-materials, cost-plus-fixed-fee and fixed-price contracts. Revenue is
recognized as costs are incurred and includes estimated fees at predetermined
rates. Differences between recorded costs and estimated earnings and final
billings are recognized in the period in which they become determinable. Costs
and estimated earnings in excess of billings on uncompleted contracts are
recorded as a current asset. Billings in excess of costs and estimated earnings
on uncompleted contracts are recorded as a current liability. Generally,
contracts provide for the billing of costs incurred and estimated earnings on a
monthly basis. Retainages, amounts subject to future negotiation and amounts
which are expected to be collected after one year, are not material for any
period.
Comprehensive income. Comprehensive income consists of net income (loss), net
unrealized gains (losses) on available-for-sale securities and foreign currency
translation adjustment.
Property, plant and equipment. Property, plant and equipment are carried at
cost. Major additions and improvements are capitalized while maintenance and
repairs which do not extend the lives of the assets are expensed as incurred.
Gain or loss on the disposition of property, plant and equipment is recognized
in operations when realized.
Depreciation. The Company provides for depreciation of property, plant and
equipment primarily on a straight-line basis over the following estimated
useful lives:
CLASS OF ASSETS USEFUL LIFE
Buildings and improvements 5 to 40 years
Machinery, equipment and furniture
and fixtures 3 to 7 years
Leasehold improvements Shorter of asset life or term of lease
Long-Lived Assets. The recoverability of long-lived assets, other than goodwill,
is assessed whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable through future undiscounted
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment is measured by determining the amount
by which the carrying value of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value, less costs to sell.
1. Description of business and summary of significant accounting policies
(Continued)
Intangible assets. The excess of cost over the fair value of net assets of
businesses acquired is recorded as goodwill and is amortized on a straight-line
basis over periods ranging from 5 to 40 years. The Company capitalizes costs
incurred to obtain and maintain patents and licenses. Patent costs are amortized
over the lesser of 17 years or the remaining lives of the patents, and license
costs over the lives of the licenses. The Company also capitalizes costs
incurred to obtain long-term debt financing. Such costs are amortized on an
effective yield basis over the terms of the related debt and such amortization
is classified as interest expense in the Consolidated Statements of Operations.
The Company periodically assesses the recoverability of goodwill by determining
whether the amount of related goodwill can be recovered through undiscounted
future operating cash flows of the acquired entities. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
Stock option plan. The Company applies the intrinsic value-based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for its fixed plan stock options. As such compensation expense would
be recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123.
Sales of subsidiary stock. The Company recognizes gains and losses on sales of
subsidiary stock in its Consolidated Statements of Operations.
1. Description of business and summary of significant accounting policies
(Continued)
Income taxes. Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and for operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Income (loss) per share. Basic earnings (loss) per share is based upon the
weighted average number of common shares outstanding, including Class B common
stock, during the period. Diluted earnings (loss) per share is based upon the
weighted average number of common shares outstanding during the period assuming
the issuance of common stock for all dilutive potential common shares
outstanding.
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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Concentrations of credit risk. Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of
cash investments and accounts receivable. The Company places its cash
investments with high quality financial institutions and limits the amount of
credit exposure to any one institution. With respect to accounts receivable,
approximately 25% are related to United States government contracts, and the
remainder are dispersed among various industries, customers and geographic
regions. In addition, the Company has investments in various equity securities,
including Millennium, ISI, FSP and GSES.
2. Goodwill
(a) Learning Technologies
On June 16, 1998, General Physics acquired the Learning Technologies business of
Systemhouse, an MCI company. Learning Technologies is a computer technology
training and consulting organization, with offices and classrooms in Canada, the
United States and the United Kingdom. General Physics purchased Learning
Technologies for $24,000,000 in cash. From June 16, 1998 through December 31,
1998, Learning Technologies had revenues of approximately $30,706,000. The
Company accounted for this transaction as a purchase, and recorded $23,216,000
of goodwill, which is being amortized over 30 years. The results of operations
for Learning Technologies have been consolidated with the Company since June 16,
1998 (see Note 15).
In July 2000, as a result of the continued operating losses incurred by its IT
Group, as well as the determination that revenues would not increase to
profitable levels, the Company closed its open enrollment IT business in the UK
and Canada. As a result, the Company recorded asset impairment charges of
$19,245,000 of which $16,663,000 related to intangible assets. The Company
believes that the remaining unamortized goodwill of approximately $5,400,000,
which relates to the US and Canadian IT project business, is recoverable from
future operations. However, if the remaining IT operations do not achieve
profitable operating results, there can be no assurance that a further
impairment charge will not be required.
(b) Deltapoint Corporation
On July 13, 1998, General Physics completed its acquisition of substantially all
of the operations and net assets of The Deltapoint Corporation (Deltapoint).
Deltapoint is a Seattle, Washington based management consulting firm focused on
large systems change and lean-enterprise. General Physics purchased Deltapoint
for approximately $6,300,000 in cash and a future earnout, as described in the
Asset Purchase Agreement. The Company has accounted for this transaction as a
purchase and has recorded approximately $4,858,000 of goodwill, subject to final
adjustment, which is being amortized over 20 years. Pursuant to the terms of the
future earnout, General Physics agreed to pay a percentage of revenues earned
for each of the three years following acquisition provided minimum revenue and
earnings goals are achieved. Assuming that those goals are reached in each year,
then the additional consideration for each such year would equal $1,333,440; in
addition General Physics would pay a percentage of revenues received in excess
of the goal. These amounts will be recorded as additional purchase price and as
additional goodwill when incurred. Based upon the goals reached by Deltapoint in
1999, General Physics paid an additional $1,856,000 of consideration, which was
recorded as goodwill. There were no payments required in 2000 or 1998.
(b) Deltapoint Corporation (Continued)
The results of operations for Deltapoint have been consolidated with the Company
since July 14, 1998, and Deltapoint through December 31, 1998, had revenues of
approximately $7,221,000.
(c) General Physics Corporation
In 1997, the Company acquired the remaining shares of General Physics that it
did not already own. The transaction has been accounted for as a purchase of a
minority interest. As a result of this transaction, the Company purchased for a
total of $31,276,000 the remaining 48% of the outstanding shares of General
Physics and recorded $21,069,000 of goodwill, which is being amortized over 30
years.
3. Investments, advances and marketable securities
Investment and advances
At December 31, 2000 and 1999, Investments and advances were comprised of the
following:
December 31,
2000 1999
---------- -------
Five Star Products, Inc. 6,507 8,827
GSE Systems, Inc. 3,021 6,084
Other 817 1,145
---------- ---------
$10,345 $16,056
(a) Five Star Products, Inc.
On September 30, 1998, the Company sold substantially all operating assets of
its wholly-owned subsidiary, the Five Star Group, Inc. (Five Star) to FSP for
$16,476,000 and a $5,000,000 senior unsecured 8% note. The note is due in 2003,
with interest due quarterly. Five Star is a distributor of home decorating,
hardware and finishing products in the northeast. Prior to the above
transaction, the Company sold a 16.5% interest in FSP to the management of Five
Star, bringing its interest in FSP to approximately 37.5%. In addition, the
Company recognized a $6,225,000 loss on the transaction. As a result of these
transactions, the Company no longer consolidates FSP and its subsidiaries, but
instead accounts for FSP on the equity method. At December 31, 2000, the
Company's investment in FSP was $6,494,000, including the $5,000,000 senior
unsecured 8% note. During 2000 the Company recorded write-downs on investment of
$2.4 million, which are included in Loss on investments. The Company is
amortizing, over 10 years, the excess of its investment in FSP over its new
basis of the underlying net assets, which was approximately $752,000 at December
31, 2000.
(a) Five Star Products, Inc. (Continued)
Information relating to the Company's investment in FSP is as follows (in
thousands):
2000 1999
- ------------------------------------------------------------------
Long-term note receivable $ 5,000 $ 5,000
Number of shares 4,882 4,882
Carrying amount of shares $ 1,494 $ 3,827
Equity income included in
Investment and other income, net $ 291 $ 253
- ------------------------------------------------------------------
Condensed financial information for FSP as of December 31, 2000 and 1999 and for
the years then ended is as follows (in thousands):
December 31,
-----------------
2000 1999
Current assets $34,983 $32,810
Non current assets 1,205 942
Current liabilities 29,183 27,598
Non current liabilities 5,000 5,000
Stockholders' equity 2,005 1,230
Sales 93,878 83,134
Gross profit 16,506 14,488
Net income 775 647
(b) GSE Systems, Inc.
GSES designs, develops and delivers business and technology solutions by
applying high technology-related process control, data acquisition, simulation,
and business software, systems and services to the energy, process and
manufacturing industries worldwide. At December 31, 2000, the Company owned
approximately 22% of GSES and accounts for its investment in GSES on the equity
method. The Company recorded write-downs on investments of $1,000,000 during
both 2000 and 1999, which are included in Loss on investments. The Company is
amortizing, over 15 years, the excess of its investment in GSES over its share
of GSES's underlying net assets, which was approximately $1,846,000 at December
31, 2000.
(b) GSE Systems, Inc. (Continued)
Information relating to the Company's investment in GSES is as follows (in
thousands):
2000 1999
- ------------------------------------------------------------------
Included in Investments, advances and marketable securities:
Number of shares controlled 1,159 1,159
Total carrying amount $ 3,016 $ 6,084
Equity in income (loss) included in Investment
and other income, net (1,936) 42
- ------------------------------------------------------------------
Condensed unaudited financial information for GSES as of December 31, 2000 and
1999 and for the years then ended is as follows (in thousands):
2000 1999
- ------------------------------------------------------------------
Current assets $20,368 $25,439
Non current assets 15,581 17,588
Current liabilities 24,120 16,774
Non current liabilities 3,116 9,083
Stockholders' equity 8,713 17,170
Revenue 55,715 66,699
Gross profit 14,893 25,070
Net (loss) income (8,814) 101
- ------------------------------------------------------------------
Marketable securities
At December 31, 2000 and 1999, Marketable securities were comprised of the
following:
December 31,
2000 1999
---------- -------
Millennium Cell $51,500 $
GTS Duratek, Inc. 135 318
Interferon Sciences, Inc. 113 183
--------- -------
$51,748 $ 501
======= ======
(a) Millennium Cell Inc.
Millennium is a development stage company, which is engaged in the development
of a patented and proprietary chemical process that converts sodium borohydride
to hydrogen. As of December 31, 2000, the Company had a 22% ownership interest
representing approximately 5,900,000 shares, including approximately 547,000
shares of common stock subject to options given to the Company's employees to
acquire Millennium shares from the Company's holdings. The Company previously
accounted for this investment under the equity method of accounting.
On August 14, 2000, Millennium completed an IPO of 3,000,000 shares of common
stock at a price of $10 per share. Based upon the consummation of the IPO, which
reduced the Company's holdings in Millennium from approximately 27% to
approximately 22% and certain organizational changes, including lack of board
representation, the Company believes that it does not have significant influence
on the operating and financial policies of Millennium and as such believes that
it is appropriate to account for this investment under the cost method of
accounting.
The majority of the Company's shares of common stock in Millennium are subject
to a lock-up provision until April 6, 2001, and accordingly could not be sold by
the Company before that date, unless the provision is waived by the underwriter.
In addition, the Company's shares (excluding the 547,000 shares subject to
options) have been pledged to its bank to secure its credit facility.
On August 23, 2000, the Company entered into an agreement pursuant to which
Morgan Keegan & Company, on behalf of all of the underwriters, provided its
consent for the Company to engage in a private sale of 1,000,000 shares of
common stock of Millennium. As the Company intended to dispose of these shares
within the near term, the underwriters agreed to waive the lock-up provisions on
these shares. Accordingly, the Company has classified these shares as trading
securities. During the fourth quarter of 2000, GP sold 138,500 shares of
Millennium. As a result of the sale of the shares, the Company recognized a gain
of $1,818,434. Therefore, at December 31, 2000, the Company owned 861,500
trading securities with a value of $8,830,375. The approximately 5,000,000
shares remaining are not expected to be sold within the near term, except in the
event of a registration statement and as such are classified as available for
sale securities. At December 31, 2000, these shares had a value of approximately
$51,500,000.
In connection with the IPO the Company recorded an increase of approximately
$7,114,000 in its investment in Millennium, which was credited, net of taxes of
$2,600,000, to additional paid-in capital.
(a) Millennium Cell Inc. (Continued)
On February 11, 2000, the Company granted options to purchase an aggregate of
approximately 547,000 of its shares of Millennium common stock to certain of its
employees pursuant to the GP Strategies Corporation Millennium Cell, LLC Option
Plan (the "Millennium Option Plan"), which options vest over either a one year
or two year period and expire on May 11, 2002. The Company will receive
approximately $500,000 upon exercise of all options pursuant to the Millennium
Option Plan. At December 31, 2000, the Company recorded net deferred
compensation of $1,097,000, to be amortized over the remaining vesting period of
the options, and a liability to employees of $ 5,406,000. These amounts are
included in Prepaid expenses and other current assets and Accounts payable and
accrued expenses, respectively, on the Consolidated Balance Sheet. Pursuant to
the vesting provisions of the Millennium Option Plan, the Company recorded a
non-cash compensation expense of $3,809,000 for the year ended December 31,
2000, which is included in Selling, general and administrative expenses in the
Consolidated Statement of Operations.
Information relating to the Company's investment in Millennium is as follows at
December 31, 2000 (in thousands):
Included in Trading securities:
Number of shares 862
Market value of shares $ 8,830
Included in Investments, advances and marketable securities:
Number of shares 5,024
Available-for-sale equity securities,
at market $51,500
Total number of shares owned 5,886
Market value of shares $60,330
- -----------------------------------------------------------------------------
At December 31, 1999, the Company's investment in Millennium, accounted for
under the equity method, was $256,000 and, as such, was included in Other
investments and advances in the Consolidated Balance Sheet.
(b) GTS Duratek, Inc.
At December 31, 2000, the Company owned approximately 25,000 shares of the
common stock of Duratek. Duratek implements technologies and provides services,
many of which are related to managing remediation and treating radioactive and
hydrocarbon waste. Pursuant to various agreements, the Company is restricted in
its ability to sell certain of its shares in Duratek through June 2001.
In 1998, the Company recognized a net gain of $2,205,000 related to Duratek
common stock. The gain resulted from a $1,708,000 realized gain recorded on the
sale of 523,900 shares of Duratek common stock, which generated net proceeds of
$3,788,000, and a $497,000 gain recorded on the transfer of shares from
long-term investments to trading securities.
In 1999, the Company recognized a gain of $3,016,000 related to the sale of
927,000 shares of Duratek common stock, which generated net proceeds of
$5,022,000.
In 2000, the Company recognized a gain of $82,000 related to the sale of 38,422
shares of Duratek common stock, for proceeds of $170,767.
Information relating to the Company's investment in Duratek is as follows (in
thousands):
2000 1999
- -----------------------------------------------------------------------------
Number of shares 20 34
Available-for-sale equity securities, at market $ 126 $ 264
Number of shares 5 29
Securities held for long-term
investment, at cost $ 9 $ 54
Total carrying amount $ 135 $ 318
Total number of shares owned 25 63
Market value of shares $ 153 $ 491
- -----------------------------------------------------------------------------
(c) Interferon Sciences, Inc.
ISI is a biopharmaceutical company engaged in the manufacture and sale of
pharmaceutical products based on its highly purified, natural source
multispecies alpha interferon.
During 2000, the Company recorded gains on investments of $432,112 related to
the sale of approximately 311,000 shares of ISI. During 1999, the Company
recorded losses on investment of $1,057,000 to recognize "an other than
temporary" decline in value of its investment in ISI as a result of significant
decreases in the market value of ISI's common stock.
(c) Interferon Sciences, Inc.(Continued)
In an agreement dated March 25, 1999, the Company agreed to lend ISI $500,000
(the "ISI Debt"). In return, ISI granted the Company (i) a first mortgage on
ISI's real estate, (ii) a two-year option to purchase ISI's real estate,
provided that ISI has terminated its operations and certain other specified ISI
debt has been repaid, and (iii) a two-year right of first refusal in the event
ISI desires to sell its real estate. ISI issued the Company 500,000 shares of
ISI common stock and a five-year warrant to purchase 500,000 shares of ISI
common stock at a price of $1 per share (the "Warrant") as a loan origination
fee. Pursuant to the agreement, ISI issued a note to the Company in the amount
of $500,000, which is due on June 30, 2001, as amended and bears interest,
payable at maturity at the rate of 6% per annum.
Information relating to the Company's investment in ISI is as follows (in
thousands):
2000 1999
- -----------------------------------------------------------------------------
Number of shares 299 610
Available-for-sale equity securities, at market $ 113 $ 183
- -----------------------------------------------------------------------------
4. Property, plant and equipment
Property, plant and equipment consists of the following (in thousands):
December 31, 2000 1999
- -----------------------------------------------------------------------------
Land $ 915 $ 915
Buildings and improvements 3,511 3,456
Machinery and equipment 13,799 13,611
Furniture and fixtures 17,355 22,092
Leasehold improvements 4,853 4,783
- -----------------------------------------------------------------------------
40,433 44,857
Accumulated depreciation and amortization (30,646) (31,199)
- ------------------------------------------------------------------------------
$ 9,787 $ 13,658
- -----------------------------------------------------------------------------
5. Short-term borrowings
The Company and General Physics Canada Ltd. (GP Canada), an Ontario corporation
and a wholly-owned subsidiary of General Physics, entered into a credit
agreement, dated as of June 15, 1998 (the Credit Agreement), with various banks
providing for a secured credit facility of $80,000,000 (the Credit Facility)
comprised of a revolving credit facility of $65,000,000 expiring on June 15,
2001 and a five-year term loan of $15,000,000. The five year term loan is
payable in 20 quarterly installments of $187,500 commencing on October 1, 1998
with a final payment of $11,250,000 due on June 15, 2003.
Due to the Company's restructuring charges and operating losses in 1999 and the
restructuring charges, operating losses and asset impairment changes in 2000,
primarily related to General Physics' IT Group, the Company was not in
compliance with respect to the financial covenants in the Credit Facility as of
September 30, 1999, December 31, 1999, March 31, 2000 and June 30, 2000. The
Company and its lenders entered into agreements dated as of April 12, 2000 and
July 31, 2000 providing for waivers of compliance with such covenants at each of
those four dates.
Effective as of August 29, 2000, the Company and certain of its wholly owned
subsidiaries entered into an Amended and Restated secured $63,500,000 Revolving
Credit and Term Agreement (the "Amended Agreement") which amended in its
entirety the Company's former Credit Facility. The Amended Agreement reduced the
commitment pursuant to the revolving facility to $49,700,000 (subject to
borrowing base limitations specified in the Amended Agreement), however the
Amended Agreement did not change the payment terms of the term loan which
currently has an outstanding balance of $13,313,000 (See Note 7) or the
expiration date on both the credit facility and the term loan. The current
amount outstanding under the revolving credit agreement is $36,162,000 and is
included in Short-term borrowings in the Consolidated Balance Sheet. The
interest rates increased on both the revolving credit facility and the term loan
to prime plus 1.25% (increased from .50%) and Eurodollar plus 2.75% (increased
from 2.00%). The Amended Agreement is secured by all of the receivables and
inventory of the Company as well as the common stock of the Company's material
domestic subsidiaries and 65% of the common stock of the Company's foreign
subsidiaries. The Amended Agreement also provides for additional security
consisting of certain real property, personal property and substantially all
marketable securities owned by the Company and its subsidiaries. The Amended
Agreement contains revised minimum net worth, fixed charge coverage, EBITDA and
consolidated liabilities to tangible net worth covenants. The Amended Agreement
also contains certain restrictive covenants, including the prohibition on future
acquisitions, and provides for mandatory prepayment upon the occurrence of
certain events. At December 31, 2000, the Company had approximately $13,538,000
available to be borrowed under the Amended Agreement. At December 31, 2000, the
Company was in compliance with all of their financial covenants.
5. Short-term borrowings (Continued)
Based upon ongoing discussions with its banks and the fact that the Company has
been in compliance with all financial covenants under its amended and restated
agreement, the management of the Company believes that the credit facility
agreement will be either extended or renewed.
6. Accounts payable and accrued expenses
Accounts payable and accrued expenses are comprised of the following (in
thousands):
December 31, 2000 1999
- ------------------------------------------------------------------
Accounts payable $ 8,110 $ 8,989
Payroll and related costs 2,690 5,759
Restructuring reserve 3,652 1,884
Other 10,782 9,002
- ------------------------------------------------------------------
$ 25,234 $ 25,634
7. Long-term debt
Long-term debt is comprised of the following (in thousands):
December 31, 2000 1999
- ------------------------------------------------------------------
Term loan (Note 5) $13,313 $14,063
Subordinated Convertible Debentures (a) 2,640
Senior Subordinated Debentures (b) 758 844
Other 901 1,408
8% Swiss Bonds, due 2000 (c) 2,175
- ------------------------------------------------------------------
$17,612 $18,490
Less current maturities (1,311) (3,668)
- ------------------------------------------------------------------
$ 16,301 $ 14,822
- ------------------------------------------------------------------
(a) On July 2000, the Company engaged in a private placement transaction with
two institutional investors and received $2,640,000 in aggregate principal
amount for 6% Convertible Exchangeable Notes due June 30, 2003 (the "Notes").
The Notes, at the option of the holders, may be exchanged for 19.9% of the
outstanding capital stock of Hydro Med, Inc., a newly formed wholly owned
subsidiary of the Company, on a fully diluted basis, as defined in the Note, or
into shares of the Company's Common Stock at a conversion rate of $7.50 per
share, subject to adjustment, as provided in the Notes. The holders of the Notes
can convert or exchange at any time prior to June 30, 2003.
7. Long-term debt (Continued)
(b) In August 1994, General Physics, as a result of an acquisition issued $15
million of 6% Senior Subordinated Debentures of which the Company owned
approximately 92.7%. The Debentures are subordinated to borrowings under the
line of credit agreement. During the fourth quarter of 2000, the Company
converted its portion (92.7%) of General Physics' Senior Subordinated Debentures
to stockholders' equity on General Physics. At December 31, 2000, the remaining
carrying value of the Debentures outstanding was $758,000.
(c) In June 1995, the Company issued an aggregate of SFr. 3,604,000 of 8% Swiss
Bonds, due June 28, 2000 (the "8% Bonds"). The 8% Bonds were valued at
$2,340,000, at the then exchange rate (after an original issue discount of 25%).
The principal and interest on the 8% Bonds were payable either in cash or in
shares of Common Stock of the Company, at the option of the Company. On June 28,
2000, the Company issued 443,097 shares of its Common Stock at a value of
$5.1625 per share, in exchange for the total principal and interest due on the
8% Bonds.
Aggregate annual maturities of long-term debt outstanding at December 31, 2000
for each of the next four years are as follows (in thousands):
2001 $1,311
2002 1,182
2003 14,766
2004 353
8. Employee benefit plans
The Company has a 401(k) Savings Plan (the Savings Plan) available to employees
who have completed one year of service. The Company's expense associated with
the Savings Plan was $83,000 and $203,000 in 1999 and 1998, respectively. In
2000, the Company's participants in the Savings Plan transferred into the
General Physics Plan.
General Physics, which in 2000, now includes the Company's employees, maintains
a Profit Investment Plan (the Plan) for employees who have completed ninety days
of service with General Physics. The Plan permits pre-tax contributions to the
Plan by participants pursuant to Section 401(k) of the Internal Revenue Code of
1% to 14% of base compensation. General Physics matches participants'
contributions up to a specific percentage of the first 7% of base compensation
contributed for employees who have completed one year of service with General
Physics and may make additional matching contributions. The Company matches
participants' contributions in shares of the Company's Common Stock up to 57% of
monthly employee salary deferral contributions. In 2000, 1999, and 1998 the
Company contributed 308,000, 141,063, and 95,953 shares of the Company's common
stock directly to the Plan with a value of approximately $1,340,000, $1,345,000,
and $1,157,000, respectively.
9. Income taxes
The components of income tax expense (benefit) are as follows (in thousands):
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Current
State and local $ 717 $ 481 $ 1,271
Foreign 198 454
- ------------------------------------------------------------------------
Total current 915 935 1,271
- ------------------------------------------------------------------------
Deferred
State and local (459) (70) 95
Federal (9,322)
Foreign (7) 47
- ------------------------------------------------------------------------
Total deferred (9,788) (23) 95
- ------------------------------------------------------------------------
Total income tax expense (benefit) $ (8,873) $ 912 $ 1,366
- ------------------------------------------------------------------------
The deferred expense excludes activity in the net deferred tax assets relating
to tax on appreciation (depreciation) in securities available-for-sale, which is
recorded directly to stockholders' equity.
9. Income taxes (Continued)
The difference between the expense (benefit) for income taxes computed at the
statutory rate and the reported amount of tax expense (benefit) is as follows:
December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Federal income tax rate (35.0%) (35.0%) (35.0%)
Foreign, State and local taxes
net of Federal benefit 1.0 1.2 127.8
Items not deductible - primarily
amortization of goodwill 2.0 3.7 77.1
Valuation allowance adjustment (13.7) 9.1 29.1
Net losses from foreign operations for
which no tax benefit has been provided 18.9 23.4
Other 0.9 1.9 (2.5)
- ---------------------------------------------------------------------------
Effective tax rate benefit (25.9%) 4.3% 196.5%
- ---------------------------------------------------------------------------
In 2000, the deferred income tax benefit of $9,788,000 primarily represents a
benefit for the future utilization of the Company's domestic net operating
losses. The increase of $1,785,000 in the valuation allowance in 2000 was
attributable primarily to foreign net operating losses for which no tax benefit
has been provided.
In 1999, the increase of $5,171,000 in the valuation allowance in 1999 was
attributable primarily to net operating losses for which no tax benefit has been
provided.
The increase of $954,000 in the valuation allowance in 1998 was attributable
primarily to the decrease in the Company's deferred tax liability with respect
to Investments in partially owned companies.
9. Income taxes (Continued)
As of December 31, 2000, the Company has approximately $28,000,000 of U.S.
Federal net operating loss carryforwards. These carryforwards expire in the
years 2005 through 2020. Foreign net operating losses at December 31, 2000 were
approximately $32,000,000. In addition, the Company has approximately $1,593,000
of available credit carryovers of which approximately $621,000 expires in the
years 2001 through 2003, and approximately $972,000, which may be carried over
indefinitely.
The tax effects of temporary differences between the financial reporting and tax
bases of assets and liabilities that are included in the net deferred tax
(liability) asset are summarized as follows:
December 31, 2000 1999
- ------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts $ 220 $ 404
Accrued liabilities 2,070 171
Net operating loss carryforwards 20,787 10,806
Tax credit carryforwards 1,593 2,681
Restructuring reserves
and other accrued liabilities 1,817 1,523
Property and equipment, principally due to
difference in depreciation and amortization 225
- ------------------------------------------------------------------
Deferred tax assets 26,712 15,585
- ------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment, principally due to
difference in depreciation and amortization 1,588
Investment in partially owned companies 22,884 1,413
Other 47
- ------------------------------------------------------------------
Deferred tax liabilities 22,884 3,048
- ------------------------------------------------------------------
Net deferred tax assets 3,828 12,537
Less valuation allowance (10,332) (8,547)
- ------------------------------------------------------------------
Net deferred tax (liability) asset $ (6,504) $ 3,990
- ------------------------------------------------------------------
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which temporary differences are deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon these factors,
management believes it is more likely than not that the Company will realize the
benefits of deferred tax assets, net of the valuation allowance. As of December
31, 2000, the Company has recorded a net deferred tax liability of $6,504,000.
10. Comprehensive income
The following are the components of comprehensive income (loss) (in thousands):
Year ended December 31,
-------------------------------
2000 1999 1998
--------- --------- ------
Net loss $(25,392) $(22,205) $ (2,061)
Other comprehensive (loss) income,
before tax:
Net unrealized gain (loss) on
available-for-sale-securities 45,667 (1,753) (7,943)
Foreign currency translation adjustment 78 79 (838)
-----------------------------------
Comprehensive (loss) income before tax 20,353 (23,879) (10,842)
Income tax (expense) benefit related to
items of other comprehensive
income (loss) (17,691) 758 2,250
-------- ------- --------
Comprehensive income (loss), net of tax $ 2,662 $(23,121) $ (8,592)
======== ======== =========
The components of accumulated other comprehensive income (loss) are as follows:
December 31, 2000 1999 1998
- ---------------------------------------------------------------------
Net unrealized gain (loss) on
available-for-sale-securities $ 45,612 $ (55) $ 1,698
Foreign currency translation adjustment (681) (759) (838)
-------- --------- ----------
Accumulated other comprehensive
income (loss) before tax 44,931 (814) 860
Accumulated income tax expense related
to items of other comprehensive
income (loss) (17,694) (3) (761)
-------- --------- ---------
Accumulated other comprehensive
Income (loss), net of tax $ 27,237 $ (817) $ 99
======== ======== =========
11. Common Stock, stock options and warrants
(a) Under the Company's non-qualified stock option plan, employees and certain
other parties may be granted options to purchase shares of common stock.
Although the Plan permits options to be granted at a price not less than 85% of
the fair market value, the Plan options primarily are granted at the fair market
value of the common stock at the date of the grant and are exercisable over
periods not exceeding ten years from the date of grant. Shares of common stock
are also reserved for issuance pursuant to other agreements. Changes in options
and warrants outstanding during 1998, 1999 and 2000, and options and warrants
exercisable and shares reserved for issuance at December 31, 2000, 1999, and
1998 are as follows:
Common Stock
- -------------------------------------------------------------------------------
Options and warrants Price Range Number Weighted-Average
outstanding per share of shares
- -------------------------------------------------------------------------------
Exercise Price
- --------------
December 31, 1997 4.59 - 24.00 2,608,509 8.35
- --------------------------------------------------------------------
Granted 10.41 - 15.375 383,900 14.44
Exercised 7.69 - 10.41 (69,863) 8.42
Terminated 7.75 - 15.375 (174,056) 9.97
- --------------------------------------------------------------------
December 31, 1998 4.59 - 24.00 2,748,490 9.09
- --------------------------------------------------------------------
Granted 8.00 - 17.25 793,825 9.91
Exercised 6.80 - 14.625 (122,352) 8.08
Terminated 7.69 - 24.00 (613,948) 9.80
- --------------------------------------------------------------------
December 31, 1999 4.59 - 24.00 2,806,015 9.21
- --------------------------------------------------------------------
Granted 3.375 - 6.00 666,133 4.66
Exercised 3.375 - (69,200) 3.38
Terminated 5.375 - 17.25 (897,600) 10.46
- --------------------------------------------------------------------
December 31, 2000 3.375 - 24.00 2,505,348 7.74
- --------------------------------------------------------------------
Options and warrants exercisable
December 31, 1998 4.59 -24.00 1,399,454 8.77
- --------------------------------------------------------------------
December 31, 1999 4.59 -24.00 1,254,033 8.88
- --------------------------------------------------------------------
December 31, 2000 4.59 - 24.00 1,464,106 7.64
- --------------------------------------------------------------------
Shares reserved for issuance
December 31, 1998 3,198,590
- -----------------------------------------------------
December 31, 1999 3,375,234
- -----------------------------------------------------
December 31, 2000 3,816,571
- -----------------------------------------------------
At December 31, 2000, the weighted average remaining contractual life of all
outstanding options was 4.5 years.
11. Common Stock, stock options and warrants (Continued)
The following table summarizes information about the Plan's options outstanding
at December 31, 2000:
Weighted
Range Number Average Weighted
Of Outstanding Years Average
Exercise Prices Remaining Exercise Price
- --------------------------------------------------------------------------------
$3.38 - $ 7.75 1,599,373 5.1 $6.70
$8.00 - $10.41 672,900 3.3 $8.41
$11.15 - $24.00 233,075 3.5 $13.84
- -------------------------------------------------------------------------------
$ 3.38 - $24.00 2,505,348 4.5 $ 7.64
- -------------------------------------------------------------------------------
The following table summarizes the Class B Common Stock options as follows:
Class B Common Stock
Options Price Range Number Weighted-Average
outstanding per share of shares Exercise Price
- ------------------------------------------------------------------------------
December 31, 1998 8.50 - 9.00 693,750 8.74
Exercised 9.00 (193,750) 9.00
- -----------------------------------------------------------------------------
December 31, 1999 8.50 - 8.69 500,000 8.64
- ---------------------------------------------------------------------------
Exercised 8.50 - 8.69 (150,000) 8.53
- -----------------------------------------------------------------------------
December 31, 2000 8.69 350,000 8.69
- -----------------------------------------------------------------------------
Options exercisable
December 31, 1998 8.50 -9.00 693,750 8.74
- -----------------------------------------------------------------------------
December 31, 1999 8.50 -9.00 500,000 8/64
- -----------------------------------------------------------------------------
December 31, 2000 8.69 350,000 8.69
- --------------------------------------------------------------------
The Company reserved 950,000 shares of its Common Stock for issuance upon
conversion of Class B Common Stock at each of the years ended December 31, 2000,
1999 and 1998.
At December 31, 2000, the weighted average remaining contractual life of all
outstanding Class B Common Stock options was less than 1 year.
11. Common Stock, stock options and warrants (Continued)
At December 31, 2000, 1999, and 1998, options outstanding included options for
239,498, 150,790 and 829,334 shares, respectively, for certain executive
officers.
The holders of common stock are entitled to one vote per share and the holders
of Class B Common stock are entitled to ten votes per share on all matters
without distinction between classes, except when approval of a majority of each
class is required by statute. The Class B Common stock is convertible at any
time, at the option of the holders of such stock, into shares of common stock on
a share-for-share basis. At December 31, 2000, 1999, and 1998, shares reserved
for issuance were primarily related to shares reserved for options and warrants
and the conversion of long-term debt.
(b) Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below (in thousands,
except per share amounts):
2000 1999 1998
---- ---- ----
Net loss As reported $(25,392) $(22,205) $ (2,061)
Pro forma (28,435) (24,363) (3,730)
Basic earnings (loss) per share
As reported (2.04) (1.95) (.19)
Pro forma (2.28) (2.14) (.34)
Diluted earnings (loss) per share
As reported (2.04) (1.95) (.19)
Pro forma (2.28) (2.14) (.34)
Pro forma net income reflects only options granted since 1995. Therefore, the
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net income amounts presented above because
compensation cost is reflected over the options' vesting period and compensation
cost for options granted prior to January 1, 1995 is not considered.
11. Common Stock, stock options and warrants (Continued)
At December 31, 2000, 1999 and 1998, the per share weighted-average fair value
of stock options granted was $2.82, $8.32 and $4.32, respectively on the date of
grant using the modified Black Scholes option-pricing model with the following
weighted-average assumptions: 2000 - expected dividend yield 0%, risk-free
interest rate of 6.45%, expected volatility of 57.11% and an expected life of
4.7 years; 1999 - expected dividend yield 0%, risk-free interest rate of 5.49%,
expected volatility of 45.82% and an expected life of 3.54 years; 1998 -
expected dividend yield 0%, risk-free interest rate of 5.44%, expected
volatility of 44.86%, and an expected life of 9.2 years.
(c) Earnings (loss) per share (EPS) for the years ended December 31, 2000, 1999
and 1998 are as follows (in thousands, except per share amounts):
2000 1999 1998
---- ---- ----
Basic EPS
Net loss $ (25,392) $(22,205) $ (2,061)
Weighted average shares
outstanding 12,468 11,401 10,867
Basic loss per share $ (2.04) $ (1.95) $ (.19)
Diluted EPS
Net loss $ (25,392) $(22,205) $ (2,061)
Weighted average shares
outstanding 12,468 11,401 10,867
Dilutive effect of stock options
and warrants (i)
Weighted average shares
outstanding, diluted 12,468 11,401 10,867
Diluted loss per share (i) $ (2.04) $ (1.95) $ (.19)
11. Common Stock, stock options and warrants (Continued)
Basic earnings per share are based upon the weighted average number of common
shares outstanding, including Class B common shares, during the period. Class B
common stockholders have the same rights to share in profits and losses and
liquidation values as common stock holders. Diluted earnings per share are based
upon the weighted average number of common shares outstanding during the period,
assuming the issuance of common shares for all dilutive potential common shares
outstanding.
(i) For the years ended December 31, 2000, 1999 and 1998, presentation of the
dilutive effect of stock options and warrants, which totaled 204,000, 821,000
and 1,229,000, respectively, are not included since they are anti-dilutive.
(d) On May 5, 1999, the Company announced that its Board of Directors had
authorized the purchase of up to 500,000 shares of the Company's common stock.
During the year ended December 31, 1999, the Company repurchased 107,516 shares
of its Common Stock.
12. Business segments
The operations of the Company currently consist of the following four business
segments, by which the Company is managed.
The Company's principal operating subsidiary is General Physics Corporation
(GP). GP is a performance improvement company that assists productivity driven
organizations to maximize workforce performance by integrating people, processes
and technology. GP is a total solutions provider for strategic training,
engineering, consulting and technical support services to Fortune 1000
companies, government, utilities and other commercial customers. GP operates in
two business segments. The Manufacturing & Process Group provides technology
based training, engineering, consulting and technical services to leading
companies in the automotive, steel, power, oil and gas, chemical, energy,
pharmaceutical and food and beverage industries, as well as to the government
sector. The Information Technology Group provides IT training programs and
solutions, including Enterprise Solutions and comprehensive career training and
transition programs.
The Optical Plastics Group, which consists of MXL, manufactures and distributes
coated and molded plastic products. For the nine months ended September 30,
1998, the Company also had the Distribution Group, which included the operations
of the Five Star, a distributor of home decorating, hardware and finishing
products (see Note 3(d)).
The Hydro Med and Other Group, consists of Hydro Med Sciences in 1998 through
2000 and other miscellaneous operations during the first nine months of 1998.
12. Business segments (Continued)
The management of the Company does not allocate the following items by segment:
Investment and other income, interest expense, selling, general and
administrative expenses, depreciation and amortization expense, income tax
expense, significant non-cash items and long-lived assets. Inter-segment sales
are not significant. The reconciliation of gross margin to net income (loss) is
consistent with the presentation on the Consolidated Condensed Statements of
Operations.
The following tables set forth the sales and operating results attributable to
each line of business and include a reconciliation of the groups' sales to
consolidated sales and operating results to consolidated income (loss) from
operations before income taxes for the periods presented (in thousands):
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Sales
Manufacturing & Process $161,859 $160,326 $165,131
Information Technology 24,593 53,619 43,709
Distribution 64,148
Optical Plastics 10,998 10,353 10,581
Hydro Med and Other 17 512 1,113
- ------------------------------------------------------------------------
$197,467 $224,810 $284,682
- ------------------------------------------------------------------------
Operating results
Manufacturing & Process $ 10,870 $ 13,166 $ 20,299
Information Technology ( 7,331) (11,856) (857)
Distribution 1,773
Optical Plastics 1,272 1,215 1,500
Hydro Med and Other (2,131) (1,832) (1,000)
- ------------------------------------------------------------------------
Total operating profit 2,680 693 21,715
Interest expense (5,616) (4,922) (3,896)
Corporate general and administrative
expenses, amortization of goodwill
and Investment and other
income, net (31,329) (17,064) (18,514)
- ------------------------------------------------------------------------
Loss from operations before
income taxes $ (34,265) $ (21,293) $ (695)
- ------------------------------------------------------------------------
12. Business segments (Continued)
Operating profits represent gross revenues less operating expenses. In computing
operating profits, none of the following items have been added or deducted:
general corporate expenses at the holding company level, restructuring charges,
foreign currency transaction gains and losses, investment income, loss on
investments, loss on sale of assets, amortization of goodwill and interest
expense. General corporate expenses at the holding company level, which are
primarily salaries, occupancy costs, professional fees and costs associated with
being a publicly traded company, totaled approximately $7,632,000 (including a
non-cash compensation expense of $3,809,000 relating to a non-cash deferred
compensation plan), $4,300,000 and $4,250,000 for the years ended December 31,
2000, 1999 and 1998, respectively. For the years ended December 31, 2000, 1999
and 1998, sales to the United States government and its agencies represented
approximately 24%, 21% and 20%, respectively, of sales and is included in the
Manufacturing & Process and Information Technology segments.
Additional information relating to the Company's business segments is as follows
(in thousands):
December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Identifiable assets
Manufacturing & Process $ 78,761 $ 52,924 $ 54,831
Information Technology 9,283 20,171 19,821
Optical Plastics 9,807 9,835 10,330
Hydro Med, Corporate and Other 114,727 114,188 125,923
- ------------------------------------------------------------------------
$212,578 $197,118 $210,905
- ------------------------------------------------------------------------
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Additions to property,
plant, and equipment, net
Manufacturing & Process $ 530 $ 745 $ 1,715
Information Technology 58 1,081 484
Distribution 87
Optical Plastics 255 856 2,077
Hydro Med, Corporate and Other 197 277 121
- ------------------------------------------------------------------------
$ 1,040 $ 2,959 $ 4,484
- ------------------------------------------------------------------------
12. Business segments (Continued)
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Depreciation
Manufacturing & Process $1,432 $1,954 $ 822
Information Technology 835 1,260 232
Distribution 339
Optical Plastics 489 487 300
Hydro Med, Corporate and Other 115 74 28
- ------------------------------------------------------------------------
$2,871 $3,775 $1,721
- ------------------------------------------------------------------------
Identifiable assets by industry segment are those assets that are used in the
Company's operations in each segment. Corporate and other assets are principally
cash and cash equivalents, marketable securities and intangibles, including
goodwill.
Information about the Company's net sales in different geographic regions, which
are attributed to countries based on location of customers, is as follows (in
thousands):
Year ended December 31,
2000 1999 1998
--------- --------- -------
United States $174,462 $175,185 $250,115
Canada 7,181 25,309 16,458
United Kingdom 11,028 17,127 14,972
Latin America and other 4,796 7,189 3,137
---------- ---------- -----------
$197,467 $224,810 $284,682
-------- -------- --------
Information about the Company's identifiable assets in different geographic
regions is as follows (in thousands):
December 31,
2000 1999 1998
------------ --------------------
United States $205,797 $180,057 $191,905
Canada 3,371 9,533 10,085
United Kingdom 1,928 5,087 6,695
Latin America and other 1,482 2,441 2,220
--------- ---------- ----------
$212,578 $197,118 $210,905
-------- -------- --------
All intangible assets of the Company, as well as other corporate assets, are
assumed to be in the United States.
13. Fair value of financial instruments
The carrying value of financial instruments including cash and cash equivalents,
marketable securities, accounts receivable, accounts payable and short-term
borrowings approximate estimated market values because of short maturities and
interest rates that approximate current rates.
The carrying values of investments, other than those accounted for on the equity
basis, approximate fair values based upon quoted market prices. The investments
for which there is no quoted market price are not significant.
The estimated fair value for the Company's debt is as follows (in thousands):
December 31, 2000 December 31, 1999
Carrying Estimated Carrying Estimated
amount fair value amount fair value
Term Loan $ 13,313 $ 13,313 $ 14,063 $ 14,063
Other long-term debt 4,299 4,299 2,082 2,082
8% Swiss Bonds due 2000 - - 2,175 1,957
Limitations. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
14. Accounting for certain investments in debt and equity securities
The gross unrealized holding gains (losses) and fair value for
available-for-sale securities were as follows (in thousands):
Gross Unrealized Holding
Cost Gains (Losses) Fair Value
- -------------------------------------------------------------------------------
Available-for-sale equity securities:
December 31, 2000 $ 6,136 45,619 $ (7) $51,748
- -------------------------------------------------------------------------------
December 31, 1999 $ 502 $ 6 $ (61) $ 447
- -------------------------------------------------------------------------------
December 31, 1998 $ 2,195 $ 2,183 $ (485) $ 3,893
- -------------------------------------------------------------------------------
Differences between cost and market, net of taxes, of $27,918,000, $(58,000) and
$937,000 at December 31, 2000, 1999 and 1998, respectively, were credited
(debited) to a separate component of shareholders' equity called Accumulated
other comprehensive income (loss).
15. Asset Impairment Charge and Restructuring Charge
During 1999, the Company adopted restructuring plans, primarily related to its
IT Business segment. The Company took steps in order to change the focus of the
IT group from open enrollment information technology training courses to project
oriented work for corporations, which was consistent with the focus of General
Physics Corporation's (GP) current business. In connection with the
restructuring, the Company closed, downsized, or consolidated 7 offices in the
United States, 10 offices in Canada and 5 offices in the United Kingdom (UK),
and terminated approximately 156 employees.
In connection with the restructuring, the Company recorded a charge of
$7,374,000 in 1999, of which $2,754,000 had been utilized through December 31,
1999. Of the $4,620,000 reserve balance as of December 31, 1999, $1,884,000 was
included in Accounts payable and accrued expenses and $2,736,000 was included in
Other non-current liabilities in the Consolidated Balance Sheet. During 2000,
the Company utilized $2,501,000 of the reserve and reversed $180,000. As of
December 31, 2000, $707,000 is included in accounts payable and accrued expenses
and $1,232,000 is included in other non-current liabilities in the Consolidated
Balance Sheet.
The Company believed at that time that the strategic initiatives and cost
cutting moves taken in 1999 and the first quarter of 2000 would enable the IT
Group to return to profitability in the last six months of 2000. However, those
plans were not successful, and the Company determined that it could no longer
bring the open enrollment IT business to profitability. Additionally there had
been further impairment to intangible and other assets. In July 2000, as a
result of the continued operating losses incurred by the IT Group, as well as
the determination that revenues would not increase to profitable levels, the
Company decided to close its open enrollment IT business in the third quarter of
2000.
As a result, for the year ended December 31, 2000, the Company has recorded
asset impairment charges of $19,245,000 related to the IT Group. The charges are
comprised of a write-off of intangible assets of $16,663,000 as well as
write-offs of property, plant and equipment and other assets relating to the
closed offices, totaling $2,582,000.
The Company believes that the remaining unamortized goodwill of approximately
$5,400,000, which relates to the US and Canadian IT project business, is
recoverable from future operations. However, if the remaining IT operations do
not achieve profitable operating results, there can be no assurance that a
further impairment charge will not be required.
15. Asset Impairment Charge and Restructuring Charge (Continued)
In addition, the Company recorded an $8,630,000 restructuring charge, net of
reversals, in 2000. Of this charge, $3,884,000 had been utilized through
December 31, 2000. Of the remaining $4,926,000 balance as of December 31, 2000,
$2,932,000 was included in Accounts payable and accrued expenses and $1,994,000
was included in Other non-current liabilities in the Consolidated Balance Sheet.
The components of the 2000 restructuring charge is as follows (in thousands):
Severance Lease and Other facility
and related related Contractual related
benefits obligations obligations costs Total
- --------------------------------------------------------------------------------
Restructuring
charges during 2000 $1,825 $ 5,185 $ 1,590 $ 210 $8,810
Utilization 1,683 1,826 165 210 3,884
- --------------------------------------------------------------------------------
Balance December 31, 2000 $ 142 $ 3,359 $ 1,425 $ - $4,926
- --------------------------------------------------------------------------------
The components of the 1999 restructuring charge is as follows (in thousands):
Severance Lease and Other facility
and related related related
benefits obligations costs Total
- -------------------------------------------------------------------------------
Restructuring charges
during 1999 $1,555 $5,237 $582 $7,374
Utilization 1,266 1,031 457 2,754
- ------------------------------------------------------------------------------
Balance December 31, 1999 $ 289 $ 4,206 $ 125 $ 4,620
Utilization 184 2,264 53 2,501
Reversal of restructuring charges
during 2000 105 3 72 180
- ----------------------------------------------------------------------------
Balance December 31, 2000 $ - $ 1,939 $ - $ 1,939
- ----------------------------------------------------------------------------
The remaining amounts that had been accrued for severance and related benefits
and contractual obligations will be expended by December 31, 2001. Lease
obligations are presented at their present value, net of assumed sublets.
15. Asset Impairment Charge and Restructuring Charge (Continued)
In connection with the 1999 restructuring, the Company had incurred write-offs
of inventory and other assets related to certain revenue producing activities
which were exited as part of the restructuring ($3,984,000), which were included
in Cost of sales in the Consolidated Statement of Operations. In addition, GP
had incurred charges related to write-offs of assets related to certain revenue
producing activities which were being exited as a result of the restructuring
($4,437,000), which were included in Selling, general and administrative
expenses in the Consolidated Statement of Operations.
16. Related party transactions
(a) During the first quarter of 2000, the Company made loans to an officer who
is the President and Chief Executive Officer as well as a director of the
Company totaling approximately $1,278,000 to purchase an aggregate of 150,000
shares of Class B Stock. In total at December 31, 2000, the Company had loans
receivable from such officer in the amount of approximately $4,095,000, the
proceeds of which were used to purchase an aggregate of 537,500 shares of Class
B Capital Stock.
Such loans bear interest at the prime rate of Fleet Bank and are secured by the
purchased Class B Capital Stock and certain other assets. All principal on the
loans and accrued interest ($594,000 at December 31, 2000) are due on May 31,
2004. In prior years, the Company made unsecured loans to such officer in the
amount of approximately $334,000, which unsecured loans primarily bear interest
at the prime rate of Fleet Bank.
(b) During the first quarter of 1999, the Company purchased 43,593 shares of
Common Stock from such officer for a purchase price of approximately $828,000.
The officer utilized the proceeds from such sale to reduce his outstanding
indebtedness to the Company and the Company holds such 43,593 shares as treasury
stock.
(c) On February 11, 2000, an affiliate of Andersen, Weinroth & Co., L.P.
("Andersen Weinroth") purchased 200,000 shares of the Company's Class B
Capital Stock for $6.00 per share for a total cost of $1,200,000. In
addition, G. Chris Andersen joined the Board of Directors of the Company.
Mr. Andersen is a general partner of Andersen Weinroth.
17. Commitments and contingencies
(a) The Company has several noncancellable leases for real property, machinery
and equipment and certain manufacturing facilities. Such leases expire at
various dates with, in some cases, options to extend their terms. Lease
commitments related to facilities closed as part of the restructuring (see Note
15) are not included below.
Minimum rentals under long-term operating leases are as follows (in thousands):
Real Machinery &
property equipment Total
- ---------------------------------------------------------------------
2001 $ 5,482 $ 876 $ 6,358
2002 4,363 638 5,001
2003 2,310 203 2,513
2004 1,395 43 1,438
2005 913 15 928
After 2005 7,542 7,542
- ----------------------------------------------------------------------
Total $22,005 $ 1,775 $23,780
- ----------------------------------------------------------------------
Several of the leases contain provisions for rent escalation based primarily on
increases in real estate taxes and operating costs incurred by the lessor. Rent
expense for real and personal property was approximately $9,565,038, $12,842,000
and $10,943,000 for 2000, 1999 and 1998, respectively.
(b) The Company had guaranteed $1,800,000 of GSES' debt pursuant to its credit
facility in return for warrants to purchase 150,000 shares of GSES common stock
which expire August 17, 2003 at an exercise price of $2.38 per share. On March
23, 2000, GSES terminated its old credit facility and obtained a new credit
facility. The Company continued its guarantee of a maximum of $1,800,000 through
March 2003.
(c) The Company has guaranteed the leases for two of Five Star's warehouses
totaling approximately $1,513,000 per year through 2007.
(d) The Company is party to several lawsuits and claims incidental to its
business, including a claim regarding environmental matters, one of which is in
the early stages of investigation. Management believes that the ultimate
liability, if any, will not have a material adverse effect on the Company's
consolidated financial statements.
18. Termination of Merger Agreement
On February 11, 2000, the Company terminated its previously announced merger
agreement with VS&A Communications Partners III, L.P. ("VS&A"), an affiliate of
Veronis, Suhler & Associates Inc. To induce VS&A to agree to the immediate
termination of the merger agreement and to give the Company a general release,
on February 11, 2000, the Company issued to VS&A, as partial reimbursement of
the expenses incurred by it in connection with the merger agreement, 83,333
shares of the Company's Common Stock and an 18-month warrant to purchase 83,333
shares of the Company's Common Stock at a price of $6.00 per share. The
consideration was valued at $686,000, and is included in Selling, General and
administrative expenses in the December 31, 1999 consolidated statement of
operations.
19. Subsequent event
On January 4, 2001, the Company commenced an action alleging that MCI
Communications Corporation, Systemhouse, and Electronic Data Systems
Corporation, as successor to Systemhouse, committed fraud in connection with the
Company's 1998 acquisition of Learning Technologies from the defendants for
$24.3 million. The Company seeks actual damages in the amount of $117.9 million
plus interest, punitive damages in an amount to be determined at trial, and
costs. In February 2001, the defendants filed answers denying liability. No
counterclaims against the plaintiffs have been asserted. The case is currently
in discovery.
The complaint, which is pending in the New York State Supreme Court,
alleges that the defendants created a doctored budget to conceal the poor
performance of the United Kingdom operation of Learning Technologies. The
complaint also alleges that the defendants represented that Learning
Technologies would continue to receive business from Systemhouse even though
defendants knew that the sale of Systemhouse to EDS was imminent and that such
business would cease after such sale.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
GP Strategies Supplementary Data
Corporation
and Subsidiaries
SELECTED QUARTERLY FINANCIAL DATA
(unaudited) (in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------
three months ended
- ----------------------------------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
2000 2000 2000 2000 1999 1999 1999 1999
- -----------------------------------------------------------------------------------------------------------------
Sales $47,800 $50,328 $50,786 $48,553 $65,929 $56,766 $53,258 $48,857
Gross margin 4,362 4,949 4,821 5,657 9,857 4,914 7,236 4,372
Net income (loss) (1,753) (22,566) 6,549 (7,622) 2,612 (10,181) (1,822) (12,814)
Net income (loss) per share:
Basic (.15) (1.85) .52 (.59) .23 (.90) (.16) (1.12)
Diluted (.15) (1.85) .52 (.59) .21 (.90) (.16) (1.12)
- ------------------------------------------------------------------------------------------------------------------
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
Information with respect to the directors of the Company is incorporated
herein by reference to the Company's definitive proxy statement pursuant to
Regulation 14A, which proxy statement will be filed not later than 120 days
after the end of the fiscal year covered by this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation is incorporated herein
by reference to the Company's definitive proxy statement pursuant to Regulation
14A, which proxy statement will be filed not later than 120 days after the end
of the fiscal year covered by this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Security Ownership of Certain Beneficial
Owners is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, which proxy statement will be filed not
later than 120 days after the end of the fiscal year covered by this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related Transactions
is incorporated herein by reference to the Company's definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed not later than
120 days after the end of the fiscal year covered by this Report.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K:
(a)(1) The following financial statements are included in Part II, Item
8. Financial Statements and Supplementary Data:
FINANCIAL STATEMENTS OF GP STRATEGIES CORPORATION
AND SUBSIDIARIES:
Page
Independent Auditors' Report 28
Financial Statements:
Consolidated Balance Sheets -
December 31, 2000 and 1999 29
Consolidated Statements of Operations -
Years ended December 31, 2000, 1999 and 1998 31
Consolidated Statements of Changes in Stockholders' Equity -
Years ended December 31, 2000, 1999 and 1998 32
Consolidated Statements of Cash Flows -
Years ended December 31, 2000, 1999 and 1998 33
Notes to Consolidated Financial Statements 35
(a)(2) Financial Statement Schedules
Schedule II - Validation and Qualifying Accounts i
Independent Auditor's Report ii
(a)(3) Exhibits
Consent of KPMG LLP, Independent Auditors *
(b) There were no reports filed on Form 8-K by the
Registrant during the last quarter covered by this report.
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GP STRATEGIES CORPORATION
Jerome I. Feldman
President and Chief
Executive Officer
Dated: April 10, 2001
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
Jerome I. Feldman President, Chief Executive
Officer and Director
(Principal Executive Officer)
Scott N. Greenberg Executive Vice President and
Chief Financial Officer and Director
Ogden R. Reid Director
John C. McAuliffe Director
Sheldon L. Glashow Director
Roald Hoffmann Director
GP STRATEGIES CORPORATION AND SUBSIDIARIES
SCHEDULE II
Valuation and qualifying accounts (in thousands)
- -------------------------------------------------------------------------------
Additions
Balance at Charged to Balance at
Beginning Costs & End of
of Period Expenses Deductions(a) Period
Year ended December 31, 2000:
Allowance for doubtful accounts(b) $ 2,905 $ 139 $(2,185) $ 859
Year ended December 31, 1999:
Allowance for doubtful accounts (b) $ 1,733 $ 2,630 $(1,458) $ 2,905
Year ended December 31, 1998:
Allowance for doubtful accounts (b) $ 2,782 $ 879 $(1,928) $ 1,733
(a) Write-off of uncollectible accounts, net of recoveries and sale of
certain assets.
(b) Deducted from related asset on Balance Sheet.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GP Strategies Corporation
Under date of March 28, 2001, we reported on the consolidated balance sheets of
GP Strategies Corporation and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 2000, as contained in the Annual Report on Form 10-K for the year
ended December 31, 2000. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedule as listed in Item 14. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.
In our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
New York, New York
March 28, 2001
The following is a list of all exhibits filed as part of this Report.
SEQUENTIAL EXHIBIT NO. DOCUMENT PAGE NO.
3.1 Amendment to the Registrant's
Restated Certificate of
Incorporation filed on March 5,
1998. Incorporated herein by
reference to Exhibit 3.1 of the
Registrant's Form 10-K for the
year ended December 31, 1998.
3.2 Amended and Restated By-Laws
of the Registrant.
Incorporated herein by
reference to Exhibit 1 of the
Registrant's Form 8-K filed on
September 1, 1999.
10.1 1973 Non-Qualified Stock
Plan of the Registrant, as amended
on June 26, 2000.
10.2 Employment Agreement, dated as
of June 1, 1999, between the
Registrant and Jerome I.
Feldman. Incorporated herein
by reference to Exhibit 10 of
the Registrant's Form 10-Q for
the second quarter ended June
30, 1999.
10.3 Employment Agreement, dated as
of July 1, 1999, between the
Registrant and Scott N.
Greenberg. Incorpo-rated
herein by reference to Exhibit
10.1 of the Registrant's Form
10-Q for the third quarter
ended September 30, 1999
10.4 Employment Agreement, dated as
of July 1, 1999, between the
General Physics Corporation
and John C. McAuliffe.
Incorporated herein by
reference to Exhibit 10.2 of
the Registrant's Form 10-Q for
the third quarter ended
September 30, 1999
10.5 Termination of Merger
Agreement, dated February 11,
2000, to the Agreement and
Plan of Merger dated as of
October 6, 1999, by and among
the Registrant, VS&A
Communica- tions Partners III,
L.P., VS&A Communications
Parallel Partners III, L.P.,
VS&A-GP, L.L.C. and VS&A-GP
Acquisitions, Inc.
Incorporated herein by
reference to Exhibit 10 of the
Registrants Form 8-K filed on
February 14, 2000.
10.6 Registrant's 401(k) Savings
Plan, dated January 29, 1992,
effective March 1, 1992.
Incorporated herein by
reference to Exhibit 10.12 of
the Registrant's Annual Report
on Form 10-K for the year
ended December 31, 1991.
10.7 Asset Purchase Agreement,
dated as of June 3, 1998, by
and among SHL Systemhouse Co.,
MCI Systemhouse Corp., SHL
Computer Innovations Inc., SHL
Technology Solutions Limited
and General Physics
Corporation. Incorporated
herein by reference to Exhibit
10.1 of the Registrant's Form
8-K dated June 29, 1998.
10.8 Preferred Provider Agreement,
dated as of June 3, 1998, by
and among SHL Systemhouse Co.,
MCI Systemhouse Corp., SHL
Computer Innovations Inc., SHL
Technology Solutions Limited
and General Physics
Corporation. Incorporated
herein by reference to Exhibit
10.2 of the Registrant's Form
8-K dated June 29, 1998.
10.9 Amended and Restated Credit
Agreement dated as of August
29, 2000, by an among the
Registrant, General Physics
Canada Ltd., Key Bank, N.A.,
Mellon Financial Services
Corporation, Summit Bank, The
Dime Savings Bank of New York,
FSB, and Fleet Bank, National
Association, as Agent, as
Issuing Bank and as Arranger.
Incorporated herein by
reference to the Registrant's
Form 10-Q for the quarter
ended March September 30, 2000.
10.11 Rights Agreement, dated as of
June 23, 1997, between
National Patent Development
Corporation and Harris Trust
Company of New York, as Rights
Agent, which includes, as
Exhibit A thereto, the
Resolution of the Board of
Directors with respect to
Series A Junior Participating
Preferred Stock, as Exhibit B
thereto, the form of Rights
Certificate and as Exhibit C
thereto the form of Summary of
Rights. Incorporated herein
by reference to Exhibit 4.1 of
the Registrant's Form 8-K
filed on July 17, 1997.
10.12 Amendment, dated as of July
30, 1999, to the Rights
Agreement dated as of June 23,
1997, between the Registrant
and Harris Trust Company of
New York, as Rights Agent.
Incorporated herein by
reference to Exhibit 4.2 of
the Company's report on Form
8-A12B/A filed on August 2,
1999.
10.13 Amendment, dated as of
December 16, 1999, to the
Rights Agreement dated as of
June 23, 1997, between the
Registrant and Harris Trust
Company of New York, as Rights
Agent. Incorporated herein by
reference to Exhibit 4.2 of
the Company's report on From
8-A12B/A filed on December 17,
1999.
10.14 Consulting and Severance
Agreement dated December 29,
1998 between the Registrant
and Martin M. Pollak.
Incorporated herein by
reference to Exhibit 10.10 of
the Registrant's Form 10K for
the year ended December 31,
1998.
10.15 Agreement dated, December 29, 1998,
among the Registrant, Jerome I.
Feldman and Martin M. Pollak.
Incorporated herein by reference to
Exhibit 10.11 of the Registrant's
Form 10K for the year ended
December 31, 1998.
10.16 Amendment No. 1, dated March 22, 1999,
to Agreement dated December 29, 1998
among the Registrant, Jerome I. Feldman
and Martin M. Pollak. Incorporated
herein by reference to Exhibit 10.12
of the Registrant's Form 10K for the
year ended December 31, 1998.
10.17 Agreement dated September 22, 1999
among GP Strategies Corporation, Jerome
I. Feldman and Martin M. Pollak.
Incorporated herein by reference to
Exhibit 9 of Jerome I. Feldman's
Amendment No. 1 to Schedule 13D filed
on September 27, 1999.
10.18 Stockholders Agreement dated February
11, 2000, among the Registrant, Andersen
Weinroth & Co., L.P. and Jerome I.
Feldman. Incorporated herein by reference
to Exhibit 16 of Jerome I. Feldman's
Amendment No. 5 to Schedule 13D filed
on February 23, 2000.
18 Not Applicable
19 Not Applicable
20 Not Applicable
21 Subsidiaries of the Registrant*
22 Not Applicable
23 Consent of KPMG LLP,
28 Not Applicable
* Filed herewith.