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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, 1999
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:
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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 April 3, 2000, the aggregate market value of the outstanding shares of the
Registrant's Common Stock, par value $.01 per share, held by non-affiliates
(assuming for this calculation only that all officers and directors are
affiliates) was approximately $50,591,097 based on the closing price of the
Common Stock on the New York Stock Exchange on April 3, 2000. None of the Class
B Capital Stock, par value $.01 per share, was held by non-affiliates.
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 April 3, 2000
- ----- ----------------------------
Common Stock, par value $.01 per share 11,273,824 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 2000 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 16
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 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 72
PART III
Item 10. Directors and Executive Officers of the Registrant* 73
Item 11. Executive Compensation* 73
Item 12. Security Ownership of Certain
Beneficial Owners and Management* 73
Item 13. Certain Relationships and Related Transactions* 73
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 74 *to be incorporated by reference
from the Proxy Statement for the Registrant's 1999 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 several years and has divested a number of its
holdings to focus on becoming a performance improvement company, through its
wholly-owned subsidiary, General Physics Corporation ("General Physics"). The
Company's Hydro Med Sciences division is focusing its efforts to obtain Food and
Drug Administration ("FDA") approval for its prostate cancer drug delivery
system. GP e-Learning Technologies, Inc. ("GP e-Learning") was recently
organized to provide Global 2000 corporations and other organizations with a
single source solution for their e-learning needs. GP e-Learning is expected to
offer a wide range of consulting and implementation services needed to help
clients implement web-deployed training. In addition, the Company has passive
investments in the stock of certain publicly traded and private corporations.
GP Strategies Corporation (the Company) has four operating business
segments. Three of the Company's segments are managed through the Company's
principal operating subsidiary which is General Physics Corporation (General
Physics) and the fourth through its operating subsidiary MXL Industries, Inc.
(MXL). In addition, the Company holds a number of investments in public and
privately held companies.
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 500 companies, government, utilities and other
commercial customers. General Physics consists of three segments; the
Information Technology (IT) Group, the Manufacturing Services Group and the
Process & Energy Group. The Optical Plastics Group, which comprises MXL
manufactures molded and coated optical products, such as shields and face masks
and non-optical plastic products.
The Manufacturing Services Group provides technology based training to
leading companies in the automotive, steel and food and beverage industries, as
well as to the government sector. The Process & Energy Group provides
engineering, consulting and technical training to the power, chemical, energy
and pharmaceutical industries as well as government facilities. The Information
Technology Group provides information training programs and solutions, including
Enterprise Solutions and comprehensive career training and transition programs.
The Company's Optical Plastics Group, through its wholly owned subsidiary MXL
manufactures molded and coated optical products, such as shields and face masks
and non-optical plastic products.
The Company was incorporated in Delaware in 1959 and is a New York
Stock Exchange listed company.
Manufacturing Services Group
Process & Energy Group
Information Technology Group
GENERAL PHYSICS CORPORATION
Organization and Operations
General Physics, with approximately 1,800 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. For individuals, General
Physics provides instructional courses and self-paced learning products. 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 resources
management; e-learning consulting and systems implementation; and development
and delivery of information technology (IT) training on an individual and
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.
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.
On January 24, 1997, stockholders of each of the Company and General
Physics voted to approve the merger of a wholly-owned subsidiary of the Company
with General Physics, pursuant to which General Physics became a wholly-owned
subsidiary of the Company (the "Merger"). Under the terms of the Merger
Agreement, holders of General Physics Common Stock received shares of the
Company's Common Stock in exchange for their shares of General Physics common
stock.
During 1998, General Physics embarked upon a strategy to expand
globally, further diversify its clientele, and acquire additional performance
improvement capabilities through acquisitions. During the year, 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 are 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.
Since January 1, 1999, General Physics also has taken steps to bring
costs more in line with lower revenues in its information technology business.
More than 100 jobs have been eliminated; 17 offices downsized, closed or
consolidated with other offices; and more than 110,000 square feet of office
space has been subleased to third parties or returned to landlords in connection
with the expiration or negotiated termination of leases.
In 2000, General Physics expects to make a substantial investment in
upgrading its financial, accounting and human resources systems by implementing
an Enterprise Resource Planning software package that will better integrate
those functions and streamline support for its business operations.
General Physics' performance is significantly affected by the timing of
performance on contracts. Results of operations are not seasonal, since
contracts are performed throughout the year. However, demand for open enrollment
courses may fluctuate with student demand, and General Physics' revenues and
profitability are related to general levels of economic activity and employment
in the United States, Canada and the United Kingdom. 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 800 customers,
exclusive of individual students who attend General Physics' open enrollment
courses. Significant customers include multinational automotive manufacturers,
such as General Motors Corporation, Ford Motor Company and DaimlerChrysler
Corporation; commercial electric power utilities, such as Consolidated Energy
Company of New York, Public Service Electric & Gas Company, Commonwealth Edison
Company, Entergy Operations, Inc., Southern California Edison Company, National
Power PLC, Ontario Hydro and National Power Corporation (Philippines);
governmental agencies, such as the U.S. Departments of Defense, Energy and
Justice, 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., Pharmacia-Upjohn and Johnson & Johnson;
communications companies, such as Lucent Technologies, British Telecom PLC,
Electronic Data Systems and PageNet; software vendors, such as Oracle
Corporation, The Baan Company, JetForm, PeopleSoft Inc. and Microsoft
Corporation; aerospace companies, such as Boeing Corporation and Aerojet General
Corporation; computer, electronics, and semiconductor companies, such as IBM
Corporation and Sun Microsystems; food and beverage companies, such as
Anheuser-Busch Company and PepsiCo.; petro-chemical companies, such as
ExxonMobil, Lyondell-Citgo and Huntsman Chemical; steel producers, such as AK
Steel, USX Corporation, Inspat Inland Steel, National Steel and Dofasco Steel;
an automobile association, the California State Automobile Association and other
large multinational companies, such as Fluor Daniel, Xerox Corporation, PPG
Industries, Inc., Barclays Bank PLC, General Electric Company, Westinghouse
Electric Company and Kimberly Clark Corp.
Revenue from the United States Government accounted for approximately
22% of General Physics' revenue for the year ended December 31, 1999. 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 1999, except for General Motors Corporation,
which accounted for approximately 12% 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.
Business development, communications, market research, accounting, and other
administrative services are organized at the corporate level. The corporate
business development and sales resources are aligned with operating units to
support existing customer accounts and new customer development. General Physics
manages its business in three business segments: Manufacturing Services, Process
& Energy and Information Technology.
Manufacturing Services Group
The Manufacturing Services Group focuses on developing long-term
relationships with manufacturing sector Fortune 1000 companies and their
suppliers. The Group builds these relationships by gaining a thorough
understanding of a company's competitive strategies and business objectives,
analyzing their human, technical, and organization issues, and recommending
viable human performance and learning resources management solutions. The Group
then works with its customers in implementing the recommended solutions, moving
the organization toward achieving business objectives and improving competitive
advantage. Manufacturing units frequently support 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. A representative list of the Group's customers includes: General
Motors Corporation, Ford Motor Company, DaimlerChrysler, Lockheed Martin,
Boeing, Raytheon, USX, AK Steel, Inland Steel, AT&T, Lucent Technologies,
Advanced Micro Devices, Anheuser-Busch, Pepsi-Cola, Frito-Lay, Unilever,
Kimberly-Clark, Willamette Industries, and Champion International.
Information Technology Group
The Information Technology (IT) Group's services fall into six business
areas: instructor-led training, customized education, System Technology
Accelerated Training (START), product sales, enterprise solutions, and
information technology service support. Specific services include help desk
support, software applications training, vendor certifications, change
management, and courseware development. The IT Group has significant operations
in the United Kingdom and Canada. A representative list of the Group's customers
includes: Pfizer, Johnson & Johnson Professional, Ethicon-Endo Surgery, EDS,
Anheuser-Busch, National Steel, Fluor Daniel, IBM, British Telecom PLC, Barclays
Bank, CN Rail, Canada Post, Oracle and GE Capital.
Process & Energy Group
General Physics' Process and Energy Group provides training,
engineering and technical support services to clients to help them
cost-effectively realize their goals, whether involving workforce development,
plant launch, new designs, modification of existing facilities and systems,
regulatory compliance, or improved operations and maintenance. With over thirty
years of training, applied engineering and management experience in helping
clients improve performance, increase efficiency and reduce risk, the 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. A
representative list of the Group's customers allowing disclosure includes: NASA,
the U.S. Postal Service, the U.S. Army, Navy and Air Force, PPG, BFGoodrich,
ExxonMobil, Pharmacia-Upjohn, General Electric, Consolidated Edison,
Commonwealth Edison, Boeing and Aerojet General.
International
General Physics conducts its business outside the United States primarily
through 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' business Groups provides training services
and products. 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, analyzing their human
performance and learning resources 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, as well as an equally extensive list of computer software courses
using its network of offices and classrooms in Canada and the United Kingdom, as
well as the United States. Training products include instructor and student
training manuals, instructional material on CD-ROM, Taskmaster(TM) software and
PC-based simulators. Through its START program (System Technology Accelerated
Training) General Physics partners with colleges and universities in the U.S.
and Canada to provide information technology training to individuals seeking
certification by IT industry leaders such as Microsoft and Oracle. Examples of
current training projects include:
o General Physics is a full-service training provider for the
automotive industry. 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.
Additionally, training and consulting services are provided on a project basis
to many divisions of GM, including GM North America and GM Overseas operations
in China, Europe, Southeast Asia, South America and Central America. General
Physics also provides management and training services to Ford Motor Company's
North American Training and Development Organization, and training and
consulting services to DaimlerChrysler, as well as many of the automotive
supplier companies.
o General Physics operates the training center in Edgewood, Maryland
supporting the United States Army's chemical weapons demilitarization program.
General Physics provides training for personnel who will operate and maintain
demilitarization plants at seven locations across the country. General Physics
has trained chemical demilitarization specialists from Russia as part of an
effort to introduce U.S. technology and approaches for Russian chemical
munitions demilitarization programs.
o General Physics is providing training services to an approximately
6,000 employee company in support of an initiative to adopt a standard corporate
computer desktop, including Microsoft Office applications, as well as some
client proprietary applications. Services encompass training material
development and classroom instruction on a national basis.
Consulting. Consulting services are available from all of General Physics'
Groups 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
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.
Examples of recent consulting projects include:
o A national wireless services company with more than 5,000 employees
spread over 100 offices needed a dramatic increase in their operational
efficiencies along with a decrease in cost. The solution they devised involved
upgrading their IT systems and integrating the key operations functions into
Centers of Excellence while reducing headcount and square footage by
approximately 50%. A major problem was that the offices were operating in a
relatively independent manner and did not have common processes. General Physics
helped them define the major processes that would be transferred to the Centers
of Excellence, develop a plan to document the processes, improve process
efficiency, and transition the processes to the new Centers of Excellence. This
was accomplished in three months.
o A department of the finance organization supporting a multinational
manufacturer's dealerships and customers sought to restructure to be more
effective, build a new image, redesign processes and procedures, and improve
morale in conjunction with a leadership change in the organization. General
Physics designed and developed a Value-Based Strategic Plan to identify
organizational issues, develop a strategy to address them, and implement the
strategy as designed.
o General Physics provides Enterprise Resource Planning in the form of
change management, documentation, end-user training and maintenance engineering
support related to Enterprise Wide Software Applications, including support for
products developed by the Baan Company, Oracle Corp. and SAP. General Physics is
a Baan Education Alliance Program member and an Oracle Education Partner.
Technical Support and Engineering. General Physics' business Groups are each
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. Examples
of projects include:
o General Physics has provided technical support services to virtually
all of the commercial nuclear power plants in the United States, including
development and upgrade of operations and maintenance procedures; development
and implementation of preventative maintenance programs; plant configuration
management; training simulator maintenance and modification; staff augmentation;
and computer based training (CBT) development and implementation.
o General Physics is currently providing help-desk support to a
multinational pharmaceutical company for its standard and proprietary desktop
software applications.
o General Physics provides facility management services in Canada to
ensure the availability and readiness of modern high technology training
equipment and classrooms for a major software vendor providing end-user
training, as well as providing training to General Physics own computer
technology training customers.
o As an outgrowth of its work for NASA and the U.S. Air Force, General
Physics provides design, analysis, inspection and test services for systems and
equipment used for rocket engine development and testing for certain aerospace
companies.
o General Physics provides systems engineering and computer science
services for military combat systems being developed at The Johns Hopkins
University Applied Physics Laboratory.
o General Physics provides technical services in support of the U.S.
Department of Justice's Domestic Preparedness Program. Contracts
General Physics is currently performing under approximately 1,500
contracts, providing charges on a time-and-materials, a fixed-price or a
cost-reimbursable basis. 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 1997 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, 1999:
Fixed-Price 60%
Time and Materials 27
Cost-Reimbursable 13
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 labor rates of the employees
performing the services and the actual expenses incurred, each 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.
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.
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, 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. 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 into
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 March 1, 2000, General Physics employed
approximately 1,800 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 up-date 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 was 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 officers and
other employees. General Physics believes its relations with its employees are
good.
Marketing
General Physics has more than 40 employees dedicated primarily to
marketing its services and products through Corporate Sales and Business
Development initiatives at both the corporate and Business Unit levels. In
addition, the Company has approximately 35 commissioned salespeople focused on
selling its products and services worldwide. Salespeople in Canada and the
United Kingdom are compensated on a commission basis. Corporate 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 extensively in the United States,
Canada and the United Kingdom, 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 formal proposals to
the client for evaluation. The period between submission 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, experience web-based training, 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, 1999 was $111,000,000. This amount does not
meaningfully reflect the training services anticipated to be provided to
students who enroll in General Physics' open enrollment courses, since
enrollment occurs throughout the year and the period between enrollment and
course completion is generally relatively short.
General Physics anticipates that most of its backlog as of December 31,
1999 will be recognized as revenue during fiscal year 2000; 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. As of January 1, 1996,
General Physics' insurance was 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 565,000 square
feet of office space at other locations in the United States, Canada, the United
Kingdom, Mexico, Brazil and Malaysia. General Physics has 66 offices worldwide,
including 34 offices in the United States, 9 offices in Canada, and 18 offices
in the United Kingdom, as well as offices in Kuala Lumpur, Sao Paulo and Mexico
City. 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 23% of MXL's total
sales and three other customers accounted for approximately 47 % of MXL's sales
in 1999.
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.
Other
HYDRO MED SCIENCES
Hydro Med Sciences ("HMS"), a division of the Company, 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, for human and veterinary applications.
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 ("LHRH") analog, histrelin, for the
treatment of prostate cancer for a 12-month period (the "Histrelin Hydron
Implant"). HMS and its licensee, Shire Pharmaceutical Group are presently
commencing Phase III clinical studies 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 two 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 and private corporations.
GSE Systems, Inc. ("GSES") develops and delivers business and
technology solutions by applying process control and simulation software,
systems and services to the pharmaceutical and chemical research and
development, energy, process and manufacturing industries worldwide. As of
December 31, 1999, the Company owned approximately 22% of the outstanding shares
of common stock of GSES.
Milleninum Cell, LLC ("Millenium") invented, developed and has the
proprietary rights to a chemical process that can generate energy by producing
hydrogen, an environmentally "clean" high energy element. The Company owns
approximately 28% of the membership interests in Millenium.
Five Star Group, Inc. ("Five Star"), a wholly-owned subsidiary of Five
Star Products, Inc. (formerly, American Drug Company), is a leading distributor
in the United States of home decorating, hardware and finishing products. At
December 31, 1999, the Company's investment in Five Star was $8,287,00. 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 37.1% of the outstanding shares of common stock of Five Star.
Employees
At December 31, 1999, the Company and its subsidiaries employed
approximately 1,906 persons, including 12 in the Company's headquarters, 1,799
in the Physical Science Group, 77 in the Optical Plastics Group and 18 at Hydro
Med Sciences. Of these, 6 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. The Company's Physical Sciences Group leases approximately
32,470 square feet of an office building in Columbia, Maryland and approximately
530,000 square feet of office space at various other locations throughout the
United States, Canada, the United Kingdom, Mexico, Brazil and Malaysia.
The Optical Plastics Group 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
The Company is not a party to any 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, was traded on the American
Stock Exchange, Inc. ("AMEX") and the Pacific Stock Exchange, Inc. ("Pacific")
until March 27, 1998. On March 27, 1998 the Company's Common Stock commenced
trading on the New York Stock Exchange. The following tables present 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
1999 First $19.13 $13.63
Second 17.75 8.25
Third 11.63 6.88
Fourth 12.50 5.75
1998 First 17.38 12.25
Second 17.69 14.13
Third 14.69 9.13
Fourth 15.38 9.38
The number of shareholders of record of the Common Stock as of April 3,
2000 was 2,977. On April 3, 2000, the closing price of the Common Stock on the
New York Stock Exchange was $4.50.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Item 6. Selected Financial Data
Operating Data (in thousands, except per share data)
Years ended December 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Sales $224,810 $284,682 $234,801 $203,800 $185,025
Gross margin 26,379 41,993 35,229 30,242 28,322
Interest expense 4,922 3,896 4,075 4,358 5,019
Income (loss) before discontinued operation
and extraordinary items (22,205) (2,061) 3,423 11,380 4,032
Net income (loss) (22,205) (2,061) 3,423 11,380 1,012
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share before discontinued
operation and extraordinary items:
Basic $(1.95) $(.19) $.33 $1.55 $.60
Diluted (1.95) (.19) .31 1.54 .60
Earnings (loss) per share:
Basic (1.95) (.19) .33 1.55 .15
Diluted (1.95) (.19) .31 1.54 .15
- ----------------------------------------------------------------------------------------------------------------------------------
Cash dividends declared per share
Balance Sheet Data
- ------------------
December 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Cash, cash equivalents and marketable securities $ 4,068 $ 7,548 $ 13,725 $ 25,927 $ 11,657
Short-term borrowings 40,278 30,723 23,945 20,281 18,043
Working capital (146) 13,989 34,797 41,691 32,949
Total assets 197,118 210,905 190,612 176,027 151,720
Long-term debt 18,490 21,559 6,588 20,116 23,932
Stockholders' equity 99,982 120,335 126,583 94,029 70,998
- ----------------------------------------------------------------------------------------------------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
RESULTS OF OPERATIONS
Overview
GP Strategies Corporation (the Company) has four operating business segments.
Three of the Company's segments are managed through the Company's principal
operating subsidiary which is General Physics Corporation (General Physics) and
the fourth through its operating subsidiary MXL Industries, Inc. (MXL). In
addition, the Company holds a number of investments in public and privately held
companies.
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 500 companies, government, utilities and other commercial customers.
General Physics consists of three segments the Information Technology (IT)
Group, the Manufacturing Services Group and the Process & Energy Group. The
Optical Plastics Group, which comprises MXL manufactures molded and coated
optical products, such as shields and face masks and non-optical plastic
products.
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. In 1998, the IT Group had an operating
loss of $857,000. 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 Company has taken 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 is
consistent with the focus of General Physics' core business.
These steps included closing open enrollment training facilities and reducing
the related workforce. As a result, the Company incurred restructuring charges
in June and December 1999, primarily related to the IT Group, totaling
$7,374,000 (see Note 15 to the Consolidated Financial Statements). The
restructuring charges are 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.
Management believes that the restructuring plan, together with other strategic
initiatives, will enable the IT business segment to return to profitability. If
such plans are not successful, the Company may need to take other steps as yet
not determined. The Company continues to assess the recoverability of intangible
assets and other long-lived assets related to its IT business segment and does
not currently believe an impairment has occurred. However, in the event the
Company's plans are not successful, there cannot be any assurance that an
impairment charge will not be required.
During 1999, the Process & Energy Group had operating profits of $3,060,000, or
a reduction of $7,139,000 from 1998, due to the combination of reduced sales and
gross margin percentage, as well as increased Selling, general and
administrative expenses. The Manufacturing Services Group had an operating
profit of $10,106,000 or a reduction of $6,000, compared to 1998. The marginal
decrease was due to increased Selling, general and administrative expenses
incurred, offset by increased gross margin earned in 1999. The Optical Plastics
Group, MXL, had an operating profit of $1,215,000 in 1999, compared to an
operating profit of $1,500,000 in 1998, due to reduced sales and gross margin.
In 1999, as a result of the sale of substantially all the assets of the Five
Star Group, Inc (Five Star) to Five Star Products, Inc. (FSP), formerly American
Drug Company, on September 30, 1998, the Company no longer operates in the
Distribution segment. This segment contributed operating profit of $1,773,000 in
1998.
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 GSE Systems, Inc. (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, as compared to a $2,205,000 gain
in 1998.
In 1998, the Manufacturing Services Group achieved an operating profit of
$10,100,000 as compared to $4,348,000 in 1997, as a result of both increased
sales and gross margin percentage. In addition, in 1998, the Process & Energy
Group, achieved an operating profit of $10,199,000, as compared to an operating
profit of $5,531,000 in 1997, as a result of both increased sales and gross
margin percentage. These increases were partially offset by an operating loss of
$857,000 incurred by the IT Group in 1998, compared to an operating profit of
$932,000 in 1997, due to losses incurred by the Company's UK operations in 1998.
The Optical Plastics Group had reduced operating profits of $364,000 due to
reduced gross margin percentages earned in 1998. The Distribution Group had a
$515,000 decrease in operating profits in 1998, as a result of the sale of
substantially all the operating assets of Five Star to FSP on September 30,
1998. Therefore, the results of operations of Five Star were only consolidated
with the Company for the first three quarters of the year.
In 1998, the loss before income taxes was $695,000 as compared to income before
income taxes of $2,730,000 in 1997. The loss in 1998 was due to several
non-recurring items, partially offset by a 105% increase in operating profits
generated by the Manufacturing Services and Process & Energy Groups. The Company
recognized a $6,225,000 loss on the sale of substantially all the assets of Five
Star to FSP 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 (see
Note 16 (b) to the Consolidated Financial Statements). The above non-recurring
losses and expense were also partially offset by a $2,205,000 net gain on
trading securities in 1998, compared to a $689,000 gain in 1997. In addition,
the Company had reduced Investment and other income, net in 1998, due to reduced
consulting fees earned by FSP for the nine months ended September 30, 1998, and
reduced marketing income earned by Five Star, since its results of operations
were only consolidated for the first nine months of 1998, partially offset by
reduced equity losses recognized during the year.
Sales
Years ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------
Manufacturing Services $ 86,759 $ 85,605 $ 56,211
Process & Energy 73,567 79,526 65,897
Information Technology 53,619 43,709 18,512
Distribution 64,148 82,300
Optical Plastics 10,353 10,581 10,362
Other 512 1,113 1,519
- ------------------------------------------------------------------------------
$224,810 $284,682 $234,801
- ------------------------------------------------------------------------------
The increased sales of $1,154,000 achieved by the Manufacturing Services Group
in 1999 as compared to 1998 was the result of increased revenues earned by the
Group's UK and Latin American subsidiaries. The reduction in sales of $5,959,000
by the Process & Energy Group in 1999, was the result of reduced product sales
and the sale in 1998 of GP's Environmental Lab, which accounted for
approximately $2,800,000 of sales in 1998. The increased sales of $9,910,000
earned by the IT Group in 1999 was the result of increased IT revenue earned in
the US, as well as increased sales in the UK and Canada. In 1999, due to a full
year of sales for Learning Technologies, which was acquired in June 1998, sales
increased in Canada by $8,851,000, although they were flat in the UK.
The increased sales of $29,394,000 and $13,629,000 achieved by the Manufacturing
Services and Process & Energy Groups, respectively, in 1998 as compared to 1997
were attributable to the continuing focus of General Physics' marketing efforts
to expand its range of performance improvement services to Fortune 500
companies, manufacturing and process industries, electric power utilities and
other commercial and governmental customers, as well as the acquisition of
Deltapoint in July 1998, which earned $7,221,000 of sales in 1998. In addition,
the Manufacturing Services Group had increased foreign sales, related to the UK
and Latin America of approximately $7,250,000 in 1998. The IT Group had
increased sales of $25,197,000 in 1998, which were attributable to $30,706,000
of sales resulting from the acquisition of Learning Technologies in June 1998
offset by reduced sales in the United States (see Note 2 to the Consolidated
Financial Statements).
The reduced sales within the Distribution Group in 1998 were the result of the
sale of substantially all the operating assets of Five Star to FSP on September
30, 1998. For the nine months ended September 30, 1998, Five Star had sales of
$64,148,000 as compared to sales of $82,300,000 for 1997, which included sales
of $66,363,000 for the nine months ended September 30, 1997
In 1999, the reduced sales in the Optical Plastics Group was primarily the
result of decreased sales from existing customers, partially offset by sales
within new accounts. In 1998, MXL had reduced sales from their major customer,
offset by increased sales to new and existing customers. In 1999, 1998 and 1997,
MXL's major customer comprised 23%, 23% and 34%, respectively, of the segment's
net sales.
Gross margin
Years ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
% % %
--- --- --
Manufacturing Services $ 16,151 18.6 $ 13,831 16.2 $ 7,175 12.8
Process & Energy 8,825 12.0 14,261 17.9 9,106 13.8
Information Technology (1,085) - 97 .2 1,665 9.0
Distribution 10,454 16.3 13,722 16.7
Optical Plastics 2,719 26.3 2,894 27.3 3,449 33.2
Other (231) - 456 40.8 112 7.3
- ----------------------------------------------------------------------------------------------------------
$ 26,379 11.7% $ 41,993 15.8% $ 35,229 15.0%
- ----------------------------------------------------------------------------------------------------------
The gross margin of $16,151,000 earned by the Manufacturing Services Group in
1999 increased, as compared to 1998, as the result of increased revenues as well
as an increased gross margin percentage. The improved gross margin percentage
was due to several factors, including an increased percentage of fixed price
contracts as well as larger projects, which are more consulting oriented and
generate higher gross margin percentages. The gross margin earned by the Process
& Energy Group of $8,825,000 in 1999 decreased, as compared to 1998, as the
result of reduced sales and gross margin percentage. The reduced gross margin
percentage was due to reduced product sales, which historically generated higher
gross margins, and contract losses which totaled approximately $1,580,000 in
1999. 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.
The gross margins achieved by the Manufacturing Services and Process & Energy
Groups of $13,831,000 and $14,261,000, respectively, in 1998, as compared to
1997, increased as a result of increased sales, as well as the continued
improvement in the gross margin percentage. The increased gross margin
percentage resulted from the continued focus on the commercial side of the
business, as well as positive contributions generated by General Physics
investments in international markets. In addition, the acquisition of Deltapoint
in 1998, contributed to higher gross margin percentages due to the higher gross
margins earned by Deltapoint's consulting business. The reduced gross margin and
gross margin percentage earned by the IT Group in 1998, was the result of losses
incurred within the UK IT operations, partially offset by profits earned by the
enterprise wide solutions business.
The reduced gross margin earned by the Distribution Group in 1998, as compared
to 1997, was the result of the sale of substantially all the operating assets of
Five Star to FSP on September 30, 1998. For 1997, Five Star had gross margin of
$13,722,000, which included gross margin of $10,617,000 for the nine months
ended September 30, 1997.
The reduced gross margin earned by the Optical Plastics Group of $175,000 in
1999 and $555,000 in 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. In 1999, even though sales from
MXL's largest customer remained practically unchanged, there was a growth in
sales among several large customers which generate lower gross margin
percentages. In 1998, MXL had reduced sales from their major customer, which
historically generated higher gross margins than their remaining customer base.
Investment and other income, net
Investment and other income, net was $223,000 in 1999, $1,735,000 in 1998 and
$2,389,000 in 1997. The reduced investment income in 1999 was primarily
attributable to marketing income of $913,000 earned by Five Star in 1998. In
addition, the Company's Hydro Med Sciences division had reduced other income,
due to a $625,000 license fee received in 1998. The reduced Investment and other
income, net in 1998 compared to 1997 was primarily due to a reduction in
consulting revenue earned by FSP, as well reduced marketing income of $530,000
earned by Five Star in 1998, due to the sale of substantially all the operating
assets of Five Star. The reduced income in 1999 was partially offset by reduced
equity losses recorded in Investment and other income, net relating to the
Company's equity investments.
At December 31, 1998 and 1999, Investments and advances were comprised of the
following:
As of December 31, 1999 1998
- --------------------------------------------------------------------
GTS Duratek, Inc. $ 318 $ 4,276
Interferon Sciences, Inc. 183 661
Five Star Products, Inc. 8,827 8,893
GSE Systems, Inc. 6,084 6,738
Other 1,145 2,503
- --------------------------------------------------------------------
$16,557 $23,071
- --------------------------------------------------------------------
Selling, general, and administrative expenses
Selling, general and administrative expenses (SG&A) increased from $31,502,000
in 1997 to $31,883,000 in 1998 and to $36,953,000 in 1999. The increased SG&A of
$5,070,000 in 1999 was attributable to increases primarily within the
Manufacturing Services, Process & Energy and IT Groups, primarily as a result of
$4,437,000 in the write-offs of certain assets related to certain revenue
producing activities which are being exited as part of the restructurings, and
costs incurred by the IT Group in particular, which were higher than normal
relative to revenue generated. 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. In addition, 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.
The increase of $381,000 in SG&A in 1998 was the result of increased costs
incurred by the Manufacturing Services, Process & Energy and IT Groups,
partially offset by reduced costs within the Distribution Group. The increased
costs incurred by the Manufacturing Services, Process & Energy and IT Groups,
were primarily the result of costs directly attributable to the acquisitions of
Learning Technologies and Deltapoint in 1998. The reduced costs within the
Distribution Group are the result of the sale of substantially all the operating
assets of Five Star to FSP on September 30, 1998. In addition, included in SG&A
in 1998 is a $1,500,000 expense relating to the termination agreement with an
executive of the Company (see Note 16 (b) to the Consolidated Financial
Statements).
Interest expense
Interest expense was $4,075,000 in 1997, $3,896,000 in 1998 and $4,922,000 in
1999. In 1998, the reduced interest expense was the result of reduced long-term
debt at the corporate level and reduced interest expense related to the
repayment of Five Star's Line of Credit Agreement (see Note 3 (c) to the
Consolidated Financial Statements) in September 1998. These reductions were
partially offset by increased interest expense due to short-term borrowings and
long-term debt relating to the acquisitions by General Physics of Deltapoint and
Learning Technologies. The increased interest expense in 1999 was the result of
increased short-term borrowing, due to the operating losses, as well as
increased interest rates.
Income taxes
Income tax (expense) benefit for 1999, 1998 and 1997 was $(912,000),
$(1,366,000) and $693,000, respectively.
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
$8,113,000 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.
In 1997, the Company recorded an income tax benefit of $693,000. For the year
ended December 31, 1997,the current income tax provision of $1,335,000
represents the estimated taxes payable by the Company . The deferred income tax
benefit of $2,028,000 results primarily from the utilization of net operating
loss carryovers and a reduction in the valuation allowance. The decrease of
$3,153,000 in the valuation allowance in 1997 was attributable in part to the
utilization of the Company's net operating loss carryforwards, and to the
Company's expectation of generating sufficient taxable income that will allow
for the realization of a portion of its deferred tax assets.
Liquidity and capital resources
At December 31, 1999, the Company had cash and cash equivalents totaling
$4,068,000. The Company has sufficient cash and cash equivalents, marketable
long-term investments and borrowing availability under existing and potential
lines of credit as well as the ability to obtain additional funds from its
operating subsidiaries in order to fund its working capital requirements. At
December 31, 1999, approximately $24,722,000 was available to the Company under
its credit agreements (see Note 5 to the Consolidated Financial Statements).
For the year ended December 31, 1999, the Company's working capital decreased by
$14,135,000 to a working capital deficiency of $146,000, primarily reflecting
the effect of increased short-term borrowings.
The decrease in cash and cash equivalents of $2,739,000 for the year ended
December 31, 1999 resulted from cash used in operations of $5,068,000, and
investing activities of $4,731,000 partially offset by cash provided by
financing activities of $6,981,000. Cash provided by financing activities
consisted primarily of proceeds from short-term borrowings, partially offset by
repayments of long-term debt and repurchases of treasury stock. Net cash used in
investing activities of $4,731,000 includes $2,959,000 of additions to property,
plant and equipment, and additions to intangible assets of $3,153,000.
Due to the Company's restructuring charges and operating losses in 1999, the
Company is in default with respect to the financial covenants in its credit
agreements. The Company and its lenders entered into an agreement dated as of
April 12, 2000, providing for waivers of compliance with such covenants as of
September 30, 1999, December 31, 1999 and March 31, 2000. Effective April 12,
2000, the Company and its lenders entered into a binding commitment to enter
into an Amended and Restated Credit Agreement (the "Amended Agreement") on the
terms and conditions described below. The Amended Agreement will reduce the
commitment pursuant to the revolving facility to $50,000,000 (subject to
borrowing base limitations specified in the Amended Agreement), however the
Amended Agreement did not change the payment terms or expiration date of the
Company's current outstanding term loan in the amount of $14,063,000. The
interest rates increased on both the revolving 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 provides for additional security consisting of
certain real property and all marketable securities owned by the Company and its
subsidiaries. The Amended Agreement contains certain restrictive covenants,
including the prohibition on future acquisitions, and provides for mandatory
prepayment upon the occurrence of certain events. The Amended Agreement contains
revised minimum net worth, fixed charge coverage, EBITDA and consolidated
liabilities to tangible /net worth covenants. Although there can be no
assurance, the Company anticipates that it will satisfy the revised covenants.
If the amended agreement has been in effect at December 31, 1999, the Company
would have had approximately $6,500,000 available to be borrowed under the
Amended Agreement, as opposed to the $24,722,000 available at December 31,1999,
under the original agreement.
The Company does not anticipate having to replace major facilities in the near
term. As of December 31, 1999, the Company has not contractually committed
itself for any major capital expenditures.
Recent accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standard No. 133
(SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." This
Statement establishes accounting and reporting standards for derivatives as
either assets or liabilities. It requires that an entity recognizes all
derivatives as either assets or liabilities in the statement of financial
position and measures those instruments at fair value. This Statement as amended
by SFAS 137 is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. The Company will adopt SFAS 133, when effective, which is
currently anticipated to be by January 1, 2001. The Company is still evaluating
its position with respect to the use of derivative instruments.
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 beginning in
1999 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.
Year 2000 Update
As described in the Company's public filings with the Securities and Exchange
Commission during 1999, the Company had developed plans to address the possible
exposures related to the impact on its computer systems of the Year 2000. Since
entering the Year 2000, the Company has not experienced any significant
disruptions to its business nor is it aware of any significant Year 2000 related
disruptions impacting its third-party suppliers, trading partners and vendors.
The Company will continued to monitor its critical systems over the next several
months but does not anticipate any significant impacts due to Year 2000
exposures from its internal systems as well as from the activities of its
third-party suppliers, trading partners and vendors.
Costs incurred to achieve Year 2000 readiness were charged to expense as
incurred. Such costs totaled approximately $200,000 in 1999, excluding payroll
costs of the Company's internal personnel. The total amount expended on the
project from inception was $200,000.
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. To achieve these objectives, the Company
refinances debt when advantageous and maintains fixed rate debt on a majority of
its borrowings. The Company is exposed to the impact of currency fluctuations
because of its international operations.
The Company's net investment in foreign subsidiaries, including intercompany
balances, at December 31, 1999 was approximately $7,450,000 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 GP Strategies'
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 GP Strategies, including, but not limited to,
the risk that qualified personnel will not continue to be available,
technological risks, risks associated with the Company's acquisition strategy
and its ability to manage growth, risks associated with changing economic
conditions, risks of conducting international operations, the Company's ability
to comply with financial covenants in connection with various loan agreements
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
Page
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF GP STRATEGIES CORPORATION
AND SUBSIDIARIES:
Independent Auditors' Report 31
Consolidated Balance Sheets - December 31, 1999 and 1998 32
Consolidated Statements of Operations - Years ended December 31,
1999, 1998, and 1997 34
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 1999, 1998, and 1997 35
Consolidated Statements of Cash Flows - Years ended December 31,
1999, 1998, and 1997 37
Notes to Consolidated Financial Statements 39
SUPPLEMENTARY DATA (Unaudited)
Selected Quarterly Financial Data 71
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 generally accepted auditing
standards. 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 at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
New York, New York
March 27, 2000, except as to the
third paragraph of Note 5
which is as of April 12, 2000.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
- -------------------------------------------------------------------------------
December 31, 1999 1998
- -------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 4,068 $ 6,807
Marketable securities 741
Accounts and other receivables (of which
$13,742 and $5,146 are from government
contracts) less allowance for doubtful
accounts of $2,905 and $1,733 55,385 55,531
Inventories 1,888 2,362
Costs and estimated earnings in excess of billings on
uncompleted contracts, of which $1,264 and $649
relate to government contracts 14,238 15,395
Prepaid expenses and other current assets 3,853 5,344
- -------------------------------------------------------------------------------
Total current assets 79,432 86,180
- -------------------------------------------------------------------------------
Investments and advances 16,557 23,071
- -------------------------------------------------------------------------------
Property, plant and equipment, net 13,658 14,474
- -------------------------------------------------------------------------------
Intangible assets, net of accumulated
amortization of $34,967 and $32,184
Goodwill 77,758 77,961
Patents, licenses and deferred charges 2,060 3,397
- -------------------------------------------------------------------------------
79,818 81,358
Deferred tax asset 3,990 3,290
- -------------------------------------------------------------------------------
Other assets 3,663 2,532
- -------------------------------------------------------------------------------
$197,118 $210,905
- -------------------------------------------------------------------------------
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, 1999 1998
- -----------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities
Current maturities of long-term debt $ 3,668 $ 3,180
Short-term borrowings 40,278 30,723
Accounts payable and accrued expenses 25,634 24,089
Billings in excess of costs and estimated
earnings on uncompleted contracts 9,998 14,199
- -----------------------------------------------------------------------------------------------
Total current liabilities 79,578 72,191
- -----------------------------------------------------------------------------------------------
Long-term debt less current maturities 14,822 18,379
Other non-current liabilities 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 11,542,450
and 11,102,767 shares (of which 427,184
and 276,075 shares are held in treasury) 115 111
Class B common stock, authorized 2,800,000 shares, par
value $.01 per share, issued and outstanding 450,000 and
256,250 shares 5 3
Additional paid-in capital 170,011 164,217
Accumulated deficit (61,602) (39,397)
Accumulated other comprehensive (loss) income (817) 99
Notes receivable from stockholder (2,817) (1,742)
Treasury stock at cost (4,913) (2,956)
- -----------------------------------------------------------------------------------------------
Total stockholders' equity 99,982 120,335
- -----------------------------------------------------------------------------------------------
$197,118 $210,905
- -----------------------------------------------------------------------------------------------
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, 1999 1998 1997
- --------------------------------------------------------------------------------------------------
Sales $224,810 $284,682 $234,801
Cost of sales 198,431 242,689 199,572
- --------------------------------------------------------------------------------------------------
Gross margin 26,379 41,993 35,229
- --------------------------------------------------------------------------------------------------
Selling, general and administrative (36,953) (31,883) (31,502)
Interest expense (4,922) (3,896) (4,075)
Investment and other income,
net (including interest income of $193,
$335 and $621) 223 1,735 2,389
Loss on investments (1,662) (4,624)
Loss on sale of assets (6,225)
Gains on trading securities, net 3,016 2,205 689
Restructuring charge (7,374)
- ----------------------------------------------------------------
Income (loss) before income taxes (21,293) (695) 2,730
Income tax benefit (expense) (912) (1,366) 693
- --------------------------------------------------------------------------------------------------
Net income (loss) $ (22,205) $ (2,061) $ 3,423
- --------------------------------------------------------------------------------------------------
Net income (loss) per share
Basic $ (1.95) $ (.19) $ .33
Diluted (1.95) (.19) .31
- --------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1999, 1998, and 1997
(in thousands, except for par value per share)
Accumulated Notes
Class B other Compre- receivable Treasury Total
Common common Additional Accu- compre- hensive from stock stock-
stock stock paid-in lated hensive income stock- at holders'
($.01 Par) ($.01 Par) capital deficit income (loss) holder cost equity
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 75 $ 1 $131,388 $(40,759) $3,324 $ $ $ $94,029
- ------------------------------------------------------------------------------------------------------------------------------
Issuance of stock in connection
with acquisition of
General Physics 30 25,198 25,228
Other comprehensive income 3,306 3,306 3,306
Net income 3,423 3,423 3,423
- ------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 6,729 6,729
Issuance and sale of common
stock 3 2,090 2,093
Purchase of treasury stock (1,496) (1,496)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 108 1 158,676 (37,336) 6,630 (1,496) 126,583
- ------------------------------------------------------------------------------------------------------------------------------
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Continued)
Years ended December 31, 1999, 1998, and 1997
(in thousands , except for par value per share)
Accumulated
Class B other compre- Compre- Notes Treasury Total
Common common Additional Accum- hensive hensive receivable stock stock-
stock stock paid-in ulated income income from at holders'
($.01 Par) ($.01 Par) capital deficit (loss) (loss) stockholder 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
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
Cash flows from operations:
Net (loss) income $ (22,205) $ (2,061) $ 3,423
Adjustments to reconcile net (loss) income
to net cash (used in) provided by operating activities:
Depreciation and amortization 7,794 5,452 5,867
Issuance of stock for profit incentive plan
and other 1,345 1,675 777
Restructuring charge 7,374
Gains on trading securities, net (3,016) (2,205) (689)
Loss on investments 1,662 4,624 700
Loss on sale of assets 6,225
Loss on equity investments and other 535 936 1,880
Deferred income taxes (700) (2,028)
Proceeds from sale of trading securities 5,057 3,964 2,589
Changes in other operating items,
net of effect of acquisitions and disposals:
Accounts and other receivables 146 (23,470) (2,087)
Inventories 474 997 (1,649)
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,157 (7,669) 1,740
Prepaid expenses and other current assets 1,491 (3,062) (103)
Accounts payable and accrued expenses (1,981) 5,133 388
Billings in excess of costs and estimated
earnings on uncompleted contracts (4,201) 6,220 (542)
- ----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operations $ (5,068) $ (3,241) $ 10,266
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
Years ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisitions of businesses, net $ $ (31,632) $ (4,533)
Additions to property, plant and
equipment, net (2,959) (4,484) (3,714)
Additions to intangible assets (3,153) (2,985) (1,233)
Reduction of (increase to) investments
and other assets 1,381 503 (156)
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,731) (38,598) (9,636)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of short-term borrowings (14,519) (4,124)
Proceeds from short-term borrowings 9,555 37,773 1,313
Proceeds from issuance of long-term debt 15,000 531
Repayment of long-term debt (2,385) (281) (7,333)
Exercise of common stock
options and warrants 940 596 177
Repurchase of treasury stock (1,129) (1,460) (1,496)
- ----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities 6,981 37,109 (10,932)
- ----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents 79 (838)
- -----------------------------------------------------------------------------------------
Net decrease in cash and
cash equivalents (2,739) (5,568) (10,302)
Cash and cash equivalents at
beginning of year 6,807 12,375 22,677
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,068 $ 6,807 $ 12,375
- ----------------------------------------------------------------------------------------------------------
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 5,078 $ 3,704 $ 3,961
Income taxes $ 1,097 $ 1,194 $ 946
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") 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 500 companies, government, utilities and other commercial
customers. GP, which through December 31, 1998 comprised the Performance
Improvement Group, has been resegmented during 1999 and now operates in three
business segments. The Manufacturing Services Group provides technology based
training to leading companies in the automotive, steel and food and beverage
industries, as well as to the government sector. The Process and Energy Group
provides engineering, consulting and technical training to the power, chemical,
energy and pharmaceutical industries as well as government facilities. The
Information Technology Group provides information training programs and
solutions, including Enterprise Solutions and comprehensive career training and
transition programs. 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. In addition, the Company owns approximately 37% of the outstanding
shares of common stock of Five Star Products, Inc. (FSP) (formerly American Drug
Company) (see Note 3). The Company also has investments in Interferon Sciences,
Inc. (ISI), GTS Duratek, Inc. (Duratek), and GSE Systems, Inc. (GSES) (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
accounted for on the equity basis. All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash and cash equivalents.