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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7234
GP STRATEGIES CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-1926739
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(State of Incorporation) (I.R.S. Employer
Identification No.)
9 West 57th Street, New York, NY 10019
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 826-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered:
Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of March 21, 2001, the aggregate market value of the outstanding shares of
the Registrant's Common Stock, par value $.01 per share and Class B Capital
Stock, par value $.01 per share held by non-affiliates was approximately
$48,641,000 and $800,000, respectively, based on the closing price of the Common
Stock on the New York Stock Exchange on March 21, 2001.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the most recent practicable date.
Class Outstanding at March 21, 2001
- ----- -----------------------------
Common Stock, par value $.01 per share 12,160,217 shares
Class B Capital Stock, par value $.01 per share 800,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 2001 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of
Security Holders 16
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 26
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 70
PART III
Item 10. Directors and Executive Officers of the
Registrant* 70
Item 11. Executive Compensation* 70
Item 12. Security Ownership of Certain
Beneficial Owners and Management* 70
Item 13. Certain Relationships and Related Transactions* 70
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 71
*to be incorporated by reference from the Proxy Statement for the Registrant's
2000 Annual Meeting of Stockholders.
PART I
ITEM 1. BUSINESS
General Development of Business
GP Strategies Corporation (the "Company") has engaged in a strategic
redirection over the last four years and has divested a number of its holdings
to focus primarily on becoming a leading performance improvement company,
through its wholly-owned subsidiary, General Physics Corporation ("General
Physics"). In addition, the Company's subsidiary MXL Industries, Inc. ("MXL")
manufactures optical products and Hydro Med Sciences, Inc. ("Hydro Med") is
focusing its efforts to obtain Food and Drug Administration ("FDA") approval for
its prostate cancer drug delivery system.
During the first three quarters of 2000, the Company had five operating
business segments. However, in the fourth quarter of 2000, as a result of
organizational and operational changes at General Physics and the shut down of
the IT open enrollment business in the third quarter of 2000, the Company
combined the Manufacturing Services Group with the Process and Energy Group. Two
of these segments, the Manufacturing & Process Group and the Information
Technology Group, are managed through the Company's principal operating
subsidiary General Physics, the third through its operating subsidiary MXL and
its fourth through the Hydro Med and Other Group. In addition, the Company holds
a number of investments in publicly held companies, including publicly traded
stock in Millennium Cell Inc. ("Millennium").
General Physics is a performance improvement company that assists
productivity driven organizations to maximize workforce performance by
integrating people, processes and technology. General Physics is a total
solution provider for strategic training, engineering, consulting and technical
support services to Fortune 1000 companies, government, utilities and other
commercial customers. As of the fourth quarter of 2000, General Physics
consisted of two segments; the Manufacturing & Process Group and the Information
Technology (IT) Group. The Optical Plastics Group, which includes MXL,
manufactures molded and coated optical products, such as shields and face masks
and non-optical plastic products and the fourth group primarily consists of
Hydro Med.
The Manufacturing & Process Group, including GP e-Learning Technologies,
Inc. ("GP e-Learning"), provides technology based training, including
e-Learning, engineering, consulting and technical services to leading companies
in the automotive, energy, oil and gas, pharmaceutical, steel and food and
beverage industries, as well as to the government sector. The IT Group provides
information training programs and solutions on an enterprise-wide scale. Because
of continued operating losses, the open enrollment IT business, which had been
included in the IT segment, was closed in the third quarter of 2000.
The Company was incorporated in Delaware in 1959 and is a New York Stock
Exchange listed company traded under the symbol GPX.
Manufacturing &Process Group
Information Technology Group
GENERAL PHYSICS CORPORATION
Organization and Operations
General Physics, with approximately 1,600 employees in offices worldwide,
provides performance improvement services and products to multinational
companies in manufacturing and process industries, electric power utilities, and
other commercial and governmental customers.
General Physics believes it is a global leader in performance improvement,
with over three decades of experience in providing solutions to optimize work
force performance. Since 1966, General Physics has provided clients with the
products and services they need to successfully integrate their people,
processes and technology -- the elements most critical to the successful
realization of any organization's goal to improve its effectiveness.
General Physics provides a broad range of services and products on a
global scale that are oriented toward improving the performance of individuals
and organizations throughout their productive lives. General Physics'
instruction delivery capabilities include traditional classroom, structured
on-the-job training (OJT), just-in-time methods, electronic performance support
systems (EPSS), and the full spectrum of e-learning technologies. For
businesses, government agencies and other organizations, General Physics offers
services and products spanning the entire lifecycle of production facilities;
plant launch assistance from both workforce training and engineering
perspectives; operations and maintenance practice training and consulting
services; curriculum development and delivery; facility and enterprise change
and configuration management; lean enterprise consulting; plant and process
engineering review and re-design; learning resource management; e-learning
consulting and systems implementation; and development and delivery of
information technology (IT) training on an enterprise-wide scale. General
Physics' personnel bring a wide variety of professional, technical and military
backgrounds together to create cost-effective solutions for modern business and
governmental challenges.
Operationally, General Physics is organized globally into vertically and
horizontally integrated functional and administrative units, with the goal of
achieving a level of adaptability to match rapidly changing business conditions
and opportunities. Realignment of people, products and business units occurs
frequently to achieve the goal of exposing each of General Physics' clients to
the full menu of services and products offered. In the fourth quarter of 2000,
the Manufacturing Services Group and the Process & Energy Group were combined
into one segment as a result of the Company's decision to close the IT open
enrollment business and its strategy of integrating and realigning groups to
further centralize operational functions and management personnel.
General Physics was incorporated in 1966 to provide technical consulting
services in the field of nuclear science and engineering services to nuclear
power companies and government agencies. General Physics expanded its operations
in the late 1960's to provide, among other things, training and technical
support services to the commercial nuclear power industry. General Physics
expanded its markets even further in the late 1980's to provide training and
technical support services to United States Government nuclear weapons
production and waste processing facilities, and environmental services to
governmental and commercial clients.
In 1994, General Physics further expanded it range of capabilities, as
well as its clients, by acquiring the design engineering, seismic engineering,
systems engineering, materials management and safety analysis businesses of
Cygna Energy Services, and by acquiring the management and technical training
and engineering consulting businesses of GPS Technologies, Inc.
During 1998, General Physics embarked upon a strategy to expand globally,
further diversify its clientele, and acquire additional performance improvement
capabilities through acquisitions. General Physics acquired businesses operated
by United Training Services, Inc., a provider of training and consulting
services to the U.S. automotive industry and to other commercial customers;
Specialized Technical Services Limited, a provider of technical training
services and language services to commercial and governmental customers in the
United Kingdom; SHL Learning Technologies, a leading computer technology
training and consulting organization with an established network of offices and
training facilities in Canada and the United Kingdom; and the Deltapoint
Corporation, a Seattle, Washington, based management consulting firm focused on
large systems change and lean enterprise, with primarily Fortune 500 clients
operating in the aerospace, pharmaceutical, manufacturing, healthcare and
telecommunications industries.
In 1999 General Physics refocused its international strategy to leverage
its success with multinational clients by following those clients into new
venues, then expand its client base to include local suppliers and related
parties. Proposed locations were evaluated for political stability and potential
receptiveness to General Physics' products and services. General Physics has
applied this strategy to Canada, the United Kingdom, Mexico, Brazil and
Malaysia.
During 1999, General Physics adopted restructuring plans, primarily
related to its IT Group segment, to change the focus of the IT Group from open
enrollment IT training courses to project oriented work. In connection with the
restructuring, General Physics closed, downsized, or consolidated offices in the
United States, Canada and in the United Kingdom (UK), and terminated the
employment of approximately 160 employees. General Physics believed at that time
that the strategic initiatives and cost cutting moves taken in 1999 and the
first quarter of 2000 would enable the IT Group to return to profitability in
the last six months of 2000. However, in July 2000, as a result of the continued
operating losses incurred by its IT Group, General Physics determined that it
could not bring the IT Group to profitability unless it closed its open
enrollment IT business in the UK and Canada. During the third quarter of 2000,
the open enrollment IT business was closed and substantially all of the open
enrollment facilities in the UK and Canada were surrendered in connection with
negotiated lease terminations, subleased or turned over to brokers for
disposition. General Physics terminated the employment of substantially all of
the remaining employees associated with the IT open enrollment business in the
UK and Canada.
In 2000, the Company and General Physics formed GP e-Learning to provide
global 2000 corporations and other organizations with a single source solution
for their e-Learning needs.
Also in 2000, General Physics began an upgrade to its financial,
accounting and human resources systems by contracting with an application
service provider for the use of an Enterprise Resource Planning software package
that will better integrate those functions and streamline support for its
business operations. General Physics anticipates that these systems should be
operational in the third quarter of 2001.
General Physics' performance is significantly affected by the timing of
performance on contracts. Results of operations for the first three quarters of
the year are generally not seasonal, since contracts are performed throughout
the year, however, the fourth quarter results may be negatively impacted by
plant shutdowns and fewer workdays as a result of holidays. In addition, demand
for services may fluctuate with and can be related to general levels of economic
activity and employment in the United States, Canada and the UK. A significant
economic downturn or recession in one or more of these countries could have a
material adverse effect on General Physics' business, financial condition and
results of operations.
Customers
General Physics currently provides services to more than 600 customers.
Significant customers include multinational automotive manufacturers, such as
General Motors Corporation, Ford Motor Company and DaimlerChrysler Corporation;
commercial electric power utilities, such as Consolidated Edison Company of New
York, Public Service Electric & Gas Company, ComEd, Entergy Operations, Inc.,
Southern California Edison, and National Power Corporation (Philippines);
governmental agencies, such as the U.S. Departments of Defense, Energy and
Treasury, NASA, Canada Post, the U.S. Postal Service and various Canadian
provincial governments; U.S. government prime contractors, such as
Northrop-Grumman, Lockheed Martin, Westinghouse Savannah River Company and The
Johns Hopkins University Applied Physics Laboratory; pharmaceutical companies,
such as Pfizer, Inc., Merck & Co. and Pharmacia-Upjohn; communications
companies, such as Lucent Technologies, Cablevision and British Telecom PLC;
computer, electronics, and semiconductor companies, such as IBM Corporation and
Applied Materials; food and beverage companies, such as Anheuser-Busch Company
and PepsiCo.; petro-chemical companies, such as ExxonMobil and Lyondell-Citgo;
steel producers, such as AK Steel, USX Corporation, Ispat Inland Inc., USA,
National Steel and Dofasco Steel; and other large multinational companies, such
as Fluor Daniel, PPG Industries, Inc., General Electric Company and Kimberly
Clark Corp.
Revenue from the United States Government accounted for approximately 24%
of General Physics' revenue for the year ended December 31, 2000. However, such
revenue was derived from many separate contracts and subcontracts with a variety
of Government agencies and contractors that are regarded by General Physics as
separate customers. In 2000, except for General Motors Corporation, which
accounted for approximately 14% of General Physics' revenue, no other customer
accounted for 10% or more of General Physics' revenue.
General Physics' Operating Segments
General Physics provides services and sells products within a structure
that is integrated both vertically and horizontally. Vertically, General Physics
is organized into Strategic Business Units (SBUs), Business Units (BUs), and
Groups focused on providing a wide range of products and services to clients and
prospective clients predominantly within targeted markets. Horizontally, General
Physics is organized across SBUs, BUs and Groups to integrate similar service
lines, technology, information, work products, client management and other
resources. As a result, General Physics has evolved into a matrixed organization
in which resources can be coordinated to meet the needs of General Physics'
clients or to respond quickly and mobilize resources for new opportunities.
Communications, market research, accounting, finance, legal, human resources and
other administrative services are organized at the corporate level. Business
development and sales resources are aligned with operating units to support
existing customer accounts and new customer development. As of the fourth
quarter of 2000, General Physics manages its business in two business segments:
Manufacturing & Process and Information Technology.
Manufacturing & Process Group
The Manufacturing & Process Group focuses on developing long-term
relationships with manufacturing sector Fortune 1000 companies, their suppliers
and agencies of the government. The Group builds these relationships by gaining
a thorough understanding of a client's competitive strategies and business
objectives, analyzing their human, technical, and organization issues and
recommending viable human performance and learning resource management solutions
to clients to help them improve performance, increase efficiency and reduce
risk. The Group provides training, engineering and technical support services to
clients, whether involving workforce development, plant launch, modification of
existing facilities and systems or regulatory compliance. The Group then works
with its customers in implementing the recommended solutions, moving the
organization toward achieving business objectives and improving competitive
advantage. The Group frequently supports the introduction of new work practices
associated with lean manufacturing, self-directed work teams and engineering.
Adult learning delivery capabilities include traditional classroom, structured
on-the-job training (OJT), just in time methods, electronic performance support
systems (EPSS), and the full spectrum of e-Learning technologies. In addition,
with over thirty years of training, applied engineering and management
experience in helping clients improve performance, increase efficiency and
reduce risk, this Group is called upon to help its clients meet global
competitive challenges, especially when that challenge requires significant
capital investment in plants and facilities and presents a potential risk to the
workplace and the environment. Included in this Group is GP e-Learning, which
functions as a single-source e-learning solution provider through its
integration services, the development and provisioning of proprietary content
and the aggregation and distribution of third party content. As an integrator,
GP e-Learning offers complete e-learning services solutions from planning to
hosting. As a developer of customer content, GP e-Learning creates new courses
or re-purposes existing courses for online development. As an aggregator and
distributor of third party content, GP e-Learning aggregates courses from its
partner content network and markets these courses through its knowledge portal
program, Knowledge Interchange.
A representative list of this Group's customers allowing disclosure
includes: General Motors Corporation, Ford Motor Company, Lockheed Martin,
USX, Ispat Inland Inc., USA, Nalco Chemical Co., Lucent Technologies,
Anheuser-Busch, Pepsi-Cola, CN Rail, SBC Communications, Applied Materials,
NASA, the U.S. Postal Service, the U.S. Army, Navy and Air Force, Merck &
Co., ExxonMobil, Pharmacia-Upjohn, General Electric, Consolidated Edison,
Commonwealth Edison, Fluor Daniel and Aerojet General.
Information Technology Group
The IT Group's services fall into four business areas: instructor-led and
technology based training, customized education, enterprise solutions, and
information technology service support. Specific services include software
applications training, change management, and courseware development. The IT
Group has operations in the United States and Canada. A representative list of
the Group's customers includes: Pfizer, Department of Defense, Ethicon-Endo
Surgery, Anheuser-Busch, National Steel, Fluor Daniel, IBM, CN Rail, Canada
Post, Oracle and GE Capital. As a result of the continued operating losses
incurred by the IT Group, as well as the determination that revenues would not
increase to profitable levels, General Physics closed its open enrollment IT
business in the UK and Canada during the third quarter of 2000.
International
General Physics conducts its business outside the United States primarily
through its wholly-owned subsidiaries General Physics Canada Ltd., General
Physics (UK) Ltd., General Physics Corporation Mexico, S.A. de C.V., General
Physics (Malaysia) Sdn Bhd and GP Strategies do Brasil Ltda. Through these
companies, General Physics is capable of providing substantially the same
services and products as are available to clients in the United States, although
modified as appropriate to address the language, business practices and cultural
factors unique to each client and country. In combination with its subsidiaries,
General Physics is able to coordinate the delivery to multi-national clients of
services and products that achieve consistency on a global, enterprise-wide
basis.
General Physics Products and Services
Training. Each of General Physics' Groups provides training services and
products to support existing, as well as the launch of new, plants, equipment,
technologies and processes. The range of services includes fundamental analysis
of a client's training needs, curriculum design, instructional material
development (in hard copy, electronic/software or other format), information
technology service support, and delivery of training using an instructor-led,
on-the-job, computer-based, web-based, video-based or other technology-based
method. General Physics focuses on developing long-term relationships with its
customers. It builds these relationships by gaining a thorough understanding of
a customer's competitive strategies and business objectives and analyzing their
human performance and learning resource management solutions. General Physics
then works with its customers in implementing the recommended solutions, moving
the organization toward achieving business objectives and improving competitive
advantage. General Physics also provides an extensive existing curriculum of
business and technical courses and management of the training business
operations. Training products include instructor and student training manuals,
instructional material on CD-ROM and PC-based simulators. Training projects
include:
o Since 1987, General Physics has participated in a strategic business
partnership with General Motors Corporation (GM). General Physics is
the training partner of General Motors University (GMU). Each year
several thousand GM employees attend courses managed and conducted by
General Physics. General Physics was a GM "Supplier of the Year" in
1999 and 2000.
o General Physics provides management and training services to Ford Motor
Company's North American Training and Development Organization.
o General Physics operates the United States Army's chemical weapons
demilitarization program training center in Edgewood, Maryland for
personnel who will operate and maintain demilitarization plants at
seven locations across the country.
o General Physics is providing training services to one of the world's
largest producers of semiconductor wafer fabrication equipment and
related spare parts for the worldwide semiconductor industry.
Consulting. Consulting services are available from General Physics'
Manufacturing & Process Group and include not only training-related consulting
services, but also more traditional business management, engineering and other
disciplines. General Physics is able to provide high-level lean enterprise
consulting services, as well as training in the concept, methods and application
of lean enterprise and other quality practices, organizational development and
change management. General Physics also provides engineering consulting services
to support regulatory and environmental compliance, modification of facilities
and processes, reliability-centered maintenance practices, and plant start-up
activities. Consulting products include copyrighted training and reference
materials. Consulting projects have included:
o Assisting a company with more than 5,000 employees spread over 100
offices to increase its operational efficiency while decreasing cost by
upgrading its IT systems, integrating key operations functions into
Centers of Excellence, developing a plan to document processes, improve
process efficiency, and transition the processes to the new Centers of
Excellence.
o Assisting a multinational manufacturer to redesign processes and
procedures, and improve morale in conjunction with a leadership change
in the organization.
o Providing change management, documentation, end-user training and
maintenance engineering support related to enterprise wide software
applications.
Technical Support and Engineering. General Physics' Manufacturing & Process
Group is staffed and equipped to provide technical support services and products
to clients. Technical support services include procedure writing and
configuration control for capital intensive facilities, plant start-up
assistance, logistics support (e.g., inventory management and control),
implementation and engineering assistance for facility or process modifications,
facility management for high technology training environments, staff
augmentation, and help-desk support for standard and customized client desktop
applications. Technical support products include EtaPro(TM) and PDMS(TM) General
Physics software applications. General Physics has provided:
o Technical support services to develop and upgrade operations and
maintenance procedures; develop and implement preventative maintenance
programs; facilitate plant configuration management; maintain and
modify training simulators; and develop and implement computer based
training.
o Help-desk support for standard and proprietary desktop software
applications.
o Design, analysis, inspection and test services for rocket engine
systems and equipment.
o Systems engineering and computer science services for military combat
systems under development.
Contracts
General Physics is currently performing under time-and-materials,
fixed-price and cost-reimbursable contracts. General Physics' subcontracts with
the United States Government have predominantly been cost-reimbursable contracts
and fixed-price contracts. General Physics is required to comply with the
Federal Acquisition Regulations and the Government Cost Accounting Standards
with respect to services provided to the United States Government and agencies
thereof. These Regulations and Standards govern the procurement of goods and
services by the United States Government and the nature of costs that can be
charged with respect to such goods and services. All such contracts are subject
to audit by a designated government audit agency, which in most cases is the
Defense Contract Audit Agency (the "DCAA"). The DCAA has audited General
Physics' contracts through 1998 without any material disallowances.
The following table illustrates the percentage of total revenue of General
Physics attributable to each type of contract for the year ended December 31,
2000:
Fixed-Price........................................61%
Time and Materials.................................27
Cost-Reimbursable..................................12
Total Revenue.....................................100%..
====
General Physics' fixed-price contracts provide for payment to General
Physics of pre-determined amounts as compensation for the delivery of specific
products or services, without regard to the actual cost incurred by General
Physics. General Physics bears the risk that increased or unexpected costs
required to perform the specified services may reduce General Physics' profit or
cause General Physics to sustain a loss, but General Physics has the opportunity
to derive increased profit if the costs required to perform the specified
services are less than expected. Increasingly, General Physics' contracts have
been fixed-price based on a percentage of total revenue. Fixed-price contracts
generally permit the client to terminate the contract on written notice; in the
event of such termination, General Physics would typically, at a minimum, be
paid a proportionate amount of the fixed price. No significant terminations of
General Physics' fixed-price contracts have occurred over the last five years.
General Physics' time-and-materials contracts generally provide for
billing of services based upon the hourly billing rates of the employees
performing the services and the actual expenses incurred multiplied by a
specified mark-up factor up to a certain aggregate dollar amount. General
Physics' time-and-materials contracts include certain contracts under which
General Physics has agreed to provide training, engineering and technical
services at fixed hourly rates (subject to adjustment for labor costs).
Time-and-materials contracts generally permit the client to control the amount,
type and timing of the services to be performed by General Physics and to
terminate the contract on written notice. If a contract is terminated, General
Physics typically is paid for the services provided by it through the date of
termination. While General Physics' clients often modify the nature and timing
of services to be performed, no significant terminations of General Physics'
time-and-materials contracts have occurred over the last five years.
General Physics' cost-reimbursable contracts provide for General Physics
to be reimbursed for its actual costs plus a specified fee. These contracts also
are generally subject to termination at the convenience of the client. If a
contract is terminated, General Physics typically would be reimbursed for its
costs to the date of termination, plus the cost of an orderly termination, and
paid a proportionate amount of the fee. No significant terminations of General
Physics' cost-reimbursable contracts have occurred over the last five years.
Competition
General Physics' services and products face a highly competitive
environment. The principal competitive factors are the experience and capability
of service personnel, performance, quality and functionality of products,
reputation and price. Consulting services such as those provided by General
Physics are performed by many of the customers themselves, large architectural
and engineering firms that have expanded their range of services beyond design
and construction activities, large consulting firms, major suppliers of
equipment and independent service companies similar to General Physics. A
significant factor determining the business available to General Physics and its
competitors is the ability of customers to use their own personnel to perform
services provided by General Physics and its competitors. Another factor
affecting the competitive environment is the existence of small, specialty
companies located at or near particular customer facilities and dedicated solely
to servicing the needs of those particular facilities.
The training industry is highly fragmented and competitive, with low
barriers to entry and no single competitor accounting for a significant market
share. The Company's competitors include several large publicly traded and
privately held companies, vocational and technical training schools, information
technology companies, degree-granting colleges and universities, continuing
education programs and thousands of small privately held training providers and
individuals. Recently, there have been a number of small start-up companies
entering the e-Learning marketplace. In addition, many of General Physics'
clients maintain internal training departments. Some of General Physics'
competitors offer services and products that are similar to those of General
Physics at lower prices, and some competitors have significantly greater
financial, managerial, technical, marketing and other resources than does
General Physics. Moreover, General Physics expects that it will face additional
competition from new entrants in the training and performance improvement market
due, in part, to the evolving nature of the market and the relatively low
barriers to entry. There can be no assurance that General Physics will be
successful against such competition.
Personnel
General Physics' principal resource is its personnel. General Physics'
future success depends to a significant degree upon its ability to continue to
attract, retain and integrate into its operations instructors, technical
personnel and consultants who possess the skills and experience required to meet
the needs of its clients. In order to initiate and develop client relationships
and execute its growth strategy, General Physics also must retain and continue
to hire qualified salespeople. As of December 31, 2000, General Physics employed
approximately 1,600 employees and adjunct instructors.
General Physics' personnel have backgrounds and industry experience in
mechanical, electrical, chemical, civil, nuclear and human factors engineering;
in technical education and training; in power plant design, operation and
maintenance; in weapons systems design, operation and maintenance; in
organizational change management; in instructional technology and e-learning
technologies; in enterprise-wide resource planning and software training; and in
toxicology, industrial hygiene, health physics, chemistry, microbiology, ecology
and mathematical modeling. Many of General Physics' employees perform multiple
functions depending upon changes in the mix of demand for the services provided
by General Physics.
General Physics utilizes a variety of methods to attract and retain
personnel. General Physics believes that the compensation and benefits offered
to its employees are competitive with the compensation and benefits available
from other organizations with which it competes for personnel. In addition,
General Physics maintains and continuously improves the professional development
of its employees, both internally via General Physics University and through
third parties, and also offers tuition reimbursement for job-related educational
costs. General Physics encourages its employees to further their education,
continuously update their marketable skills and deliver services and products
that equal or exceed client expectations. General Physics recognizes and rewards
business success and outstanding individual performance.
Competition for qualified personnel can be intense, and General Physics
competes for personnel with its clients as well as its competitors. There can be
no assurance that qualified personnel will continue to be available to General
Physics in sufficient numbers. Any failure to attract or retain qualified
instructors, technical personnel, consultants and salespeople in sufficient
numbers could have a material adverse effect on General Physics' business,
financial condition, and results of operations.
None of General Physics' employees is represented by a labor union.
General Physics generally has not entered into employment agreements with its
employees, but has entered into employment agreements with certain executive
officers and other employees. General Physics believes its relations with its
employees are good.
Marketing
General Physics has approximately 36 employees dedicated primarily to
marketing its services and products through Business Development initiatives at
both the Group and Business Unit levels. Group level marketing is directed at
long-term strategic business development with specific customers and with
multinational businesses. General Physics markets its services to existing
customers primarily through its technical personnel who have regular direct
client contact, dedicated sales personnel and client managers, and by using
senior management to aid in the planning of marketing strategies and evaluating
current and long-term marketing opportunities and business directions. General
Physics uses attendance at trade shows, presentations of technical papers at
industry and trade association conferences, public courses and workshops given
by General Physics personnel to serve an important marketing function. General
Physics also advertises and sends a variety of sales literature, including an
extensive catalog of course listings, to current and prospective clients whose
names are maintained in a computerized database which is updated periodically.
The goal of General Physics' marketing process is to obtain awards of new
contracts and expansion of existing contracts. By staying in contact with
clients and looking for opportunities to provide further services, General
Physics sometimes obtains contract awards or extensions without having to
undergo competitive bidding. In other cases, clients request General Physics to
bid competitively. In both cases, General Physics submits proposals to the
client for evaluation. The period between submissions of a proposal to final
award can range from 30 days or less (generally for non-competitive, short-term
contracts), to a year or more (generally for large, competitive multi-year
contracts with governmental clients).
General Physics maintains a site on the World Wide Web located at
http://www.gpworldwide.com from which prospective customers can obtain
additional information about General Physics and find out how to contact General
Physics to discuss employment or business opportunities.
Backlog
General Physics' backlog for services under signed contracts and
subcontracts as of December 31, 2000 was approximately $111,000,000.
General Physics anticipates that most of its backlog as of December 31,
2000 will be recognized as revenue during fiscal year 2001, however, the rate at
which services are performed under certain contracts, and thus the rate at which
backlog will be recognized, is at the discretion of the client, and most
contracts are, as mentioned above, subject to termination by the client upon
written notice.
Insurance
By providing services to the commercial electric power industry and to the
United States Armed Forces, General Physics is engaged in industries in which
there are substantial risks of potential liability. General Physics' insurance
is combined with the Company's insurance in a consolidated insurance program
(including general liability coverage). However, certain liabilities associated
with General Physics' business are not covered by these insurance policies. In
addition, such liabilities may not be covered by Federal legislation providing a
liability protection system for licensees of the Nuclear Regulatory Commission
(typically utilities) for certain damages caused by nuclear incidents, since
General Physics is not such a licensee. Finally, few of General Physics'
contracts with clients contain a waiver or limitation of liability. Thus, to the
extent a risk is neither insured nor indemnified against nor limited by an
enforceable waiver or limitation of liability, General Physics could be
materially adversely affected by a nuclear incident. Certain other environmental
risks, such as liability under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended (Superfund), also may not be covered
by General Physics' insurance.
Environmental Statutes and Regulations
General Physics provides environmental engineering services to its
clients, including the development and management of site environmental
remediation plans. Due to the increasingly strict requirements imposed by
Federal, state and local environmental laws and regulations (including, without
limitation, the Clean Water Act, the Clean Air Act, Superfund, the Resource
Conservation and Recovery Act and the Occupational Safety and Health Act),
General Physics' opportunities to provide such services may increase.
General Physics' activities in connection with providing environmental
engineering services may also subject General Physics itself to such Federal,
state and local environmental laws and regulations. Although General Physics
subcontracts most remediation construction activities and all removal and
offsite disposal and treatment of hazardous substances, General Physics could
still be held liable for clean-up or violations of such laws as an "operator" or
otherwise under such Federal, state and local environmental laws and regulations
with respect to a site where it has provided environmental engineering and
support services. General Physics believes, however, that it is in compliance in
all material respects with such environmental laws and regulations.
Properties
General Physics' principal executive offices are located at 6700 Alexander
Bell Drive, Suite 400, Columbia, Maryland 21046, and its telephone number is
(410) 290-2300. General Physics leases approximately 34,750 square feet of an
office building at that address, and approximately 348,000 square feet of office
space at other locations in the United States, Canada, the United Kingdom,
Mexico, Brazil and Malaysia. General Physics has 56 offices worldwide. Various
locations in the United States, Canada and the United Kingdom contain classrooms
or other specialized space to support General Physics' instructor-led and
distance-learning training programs. General Physics believes that its
facilities are adequate to carry on its business as currently conducted.
Optical Plastics Group
MXL INDUSTRIES, INC.
MXL Industries, Inc. ("MXL") is engaged in the manufacture of molded and
coated optical products, such as shields and face masks and non-optical plastic
products. MXL is a state-of-the-art injection molder and precision coater of
large optical products such as shields and face masks and non-optical plastics.
MXL believes that the principal strengths of its business are its
state-of-the-art injection molding equipment, advanced production technology,
high quality standards, and on time deliveries. Through its Woodland Mold and
Tool Division, MXL also designs and engineers state-of-the-art injection molding
tools as well as providing a commodity custom molding shop.
As the market for optical injection molding, tooling and coating is
focused, MXL believes that the combination of its proprietary "Anti-Fog"
coating, precise processing of the "Anti-Scratch" coatings, and precise molding
and proprietary grinding and polishing methods for its injection tools will
enable it to increase its sales in the future and to expand into related
products.
MXL uses only polycarbonate resin to manufacture shields, face masks and
lenses for over 50 clients in the safety, recreation and military industries.
For its manufacturing work as a subcontractor in the military industry, MXL is
required to comply with various federal regulations including Military
Specifications and Federal Acquisition Regulations for military end use
applications.
MXL's largest customer accounted for approximately 34% of MXL's total
sales and two other customers accounted for approximately 17% of MXL's sales in
2000.
MXL's sales and marketing effort concentrates on industry trade shows. In
addition, the Company employs one marketing and sales executive and one sales
engineer.
Hydro Med & Other Group
HYDRO MED SCIENCES
Hydro Med Sciences, Inc. ("HMS") is a drug delivery company that develops,
manufactures, markets and sells proprietary, implantable, controlled release
drug delivery products, which release drugs directly into the circulatory
system. These products are based upon HMS's unique group of Hydron(TM) polymer
biomaterials. HMS's lead product in development is a patented, subcutaneous
retrievable hydrogel reservoir drug delivery device (the "Hydron(TM) Implant")
designed to allow reliable, sustained release of a broad spectrum of therapeutic
compounds continuously, at constant, predetermined rates over at least a
12-month period. The lead application of the Hydron(TM) Implant, which is
implanted below the skin (subcutaneously) in the upper arm, delivers the
luteinizing hormone releasing hormone analog, histrelin, for the treatment of
prostate cancer for a 12-month period. HMS is focusing its efforts on obtaining
FDA approval for this drug delivery system for the treatment of prostate cancer.
HMS's sales currently comprise less than 1% of the Company's revenues.
Investments
Over the last several years, the Company has taken significant steps to
focus primarily on becoming a full-service performance improvement company and
has divested many of its non-core assets. However, the Company still has
investments in the stock of certain publicly traded corporations.
Millennium is an emerging technology company engaged in the development of
a patented and proprietary chemical process that converts sodium borohydride to
hydrogen. On August 14, 2000, Millennium completed an initial public offering of
3,000,000 shares of common stock at a price of $10.00 per share. Based upon the
consummation of the initial public offering and subsequent sales of stock, the
Company's holdings in Millennium decreased from approximately 27% to
approximately 22% as of December 31, 2000.
GSE Systems, Inc. ("GSES") develops and delivers business and technology
solutions by applying process control and simulation software, systems and
services to the energy, process and manufacturing industries worldwide. As of
December 31, 2000, the Company owned approximately 22% of the outstanding shares
of common stock of GSES.
Five Star Products, Inc. ("Five Star") is a leading distributor in the
United States of home decorating, hardware and finishing products. At December
31, 2000, the Company's investment in Five Star was approximately $1,494,000. In
addition, Five Star is indebted to the Company in the amount of $5,000,000
pursuant to an 8% senior unsecured Note due September 30, 2002. The Company owns
approximately 37.5% of the outstanding shares of common stock of Five Star.
Employees
At December 31, 2000, the Company and its subsidiaries employed
approximately 1,700 persons, including 12 in the Company's headquarters, 1,600
at General Physics, 75 in the Optical Plastics Group and 16 at Hydro Med
Sciences. Of these, 4 persons were engaged in research and development. The
Company considers its employee relations to be good.
Financial Information about the Foreign and Domestic operations and Export
Sales
For financial information about the foreign and domestic operations and
export sales, see Note 12 to Notes to Consolidated Financial Statements.
Item 2. Properties
The following information describes the material physical properties owned
or leased by the Company and its subsidiaries.
The Company leases approximately 10,000 square feet of space for its New
York City principal executive offices and leases approximately 15,000 square
feet in New Jersey. General Physics leases approximately 34,750 square feet of
an office building in Columbia, Maryland and approximately 348,000 square feet
of office space at various other locations throughout the United States, Canada,
the United Kingdom, Mexico, Brazil and Malaysia.
MXL owns 50,200 square feet of warehouse and office space in Lancaster, PA
and 55,000 square feet of warehouse and office space in Westmont, IL.
The facilities owned or leased by the Company are considered to be
suitable and adequate for their intended uses and are considered to be well
maintained and in good condition.
ITEM 3. LEGAL PROCEEDINGS
On January 4, 2001, the Company commenced an action alleging that MCI
Communications Corporation, Systemhouse, and Electronic Data Systems
Corporation, as successor to Systemhouse, committed fraud in connection with the
Company's 1998 acquisition of Learning Technologies from the defendants for
$24.3 million. The Company seeks actual damages in the amount of $117.9 million
plus interest, punitive damages in an amount to be determined at trial, and
costs.
The complaint, which is pending in the New York State Supreme Court,
alleges that the defendants created a doctored budget to conceal the poor
performance of the United Kingdom operation of Learning Technologies. The
complaint also alleges that the defendants represented that Learning
Technologies would continue to receive business from Systemhouse even though the
defendants knew that the sale of Systemhouse to EDS was imminent and that such
business would cease after such sale. In February 2001, the defendants filed
answers denying liability. No counterclaims against the plaintiffs have been
asserted. The case is currently in discovery.
The Company is not a party to any other legal proceedings, the outcome of
which are believed by management to have a reasonable likelihood of having any
material adverse effect upon the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock, $.01 par value, is traded on the New York
Stock Exchange. The following table presents its high and low market prices for
the last two years. During the periods presented below, the Company has not paid
any dividends.
Quarter High Low
------- ---- ---
2000 First $7.00 $4.13
Second 5.75 3.06
Third 7.13 3.63
Fourth 6.38 3.63
1999 First $19.13 $13.63
Second 17.75 8.25
Third 11.63 6.88
Fourth 12.50 5.75
The number of shareholders of record of the Common Stock as of March 21,
2001 was 2,929. On March 21, 2001, the closing price of the Common Stock on the
New York Stock Exchange was $4.00.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Item 6. Selected Financial Data
Operating Data (in thousands, except per share data)
- --------------------------------------------------------------------------------------------------------------------
Years ended December 31, 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Sales $197,467 $224,810 $284,682 $234,801 $203,800
Gross margin 19,789 26,379 41,993 35,229 30,242
Interest expense 5,616 4,922 3,896 4,075 4,358
Net income (loss) (25,392) (22,205) (2,061) 3,423 11,380
- --------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share:
Basic (2.04) (1.95) (.19) .33 1.55
Diluted (2.04) (1.95) (.19) .31 1.54
- --------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
- ------------------
December 31, 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Cash, cash equivalents and marketable securities $ 11,317 $ 4,068 $ 7,548 $ 13,725 $ 25,927
Short-term borrowings 36,162 40,278 30,723 23,945 20,281
Working capital (deficit) 1,834 (146) 13,989 34,797 41,691
Total assets 212,578 197,118 210,905 190,612 176,027
Long-term debt 17,612 18,490 21,559 6,588 20,116
Stockholders' equity 112,518 99,982 120,335 126,583 94,029
- --------------------------------------------------------------------------------------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
RESULTS OF OPERATIONS
Overview
During the first three quarters of 2000, the Company had five operating business
segments. However, in the fourth quarter of 2000, as a result of organizational
and operational changes at General Physics and the shut down of the IT open
enrollment business in the third quarter of 2000, the Company combined the
Manufacturing Services Group with the Process and Energy Group. The discussion
and disclosure that follows assumes that the Manufacturing Services Group and
the Process & Energy segments were combined as of January 1, 1998 to form the
Manufacturing & Process Group. Two of these segments, the Manufacturing &
Process Group and the IT Group, are managed through the Company's principal
operating subsidiary General Physics, the third through its operating subsidiary
MXL Industries and the fourth through its subsidiary Hydro Med Sciences. In
addition, the Company holds a number of investments in publicly held companies,
including publicly traded stock in Millennium.
General Physics is a performance improvement company that assists productivity
driven organizations to maximize workforce performance by integrating people,
processes and technology. General Physics is a total solution provider for
strategic training, engineering, consulting and technical support services to
Fortune 1000 companies, government, utilities and other commercial customers.
General Physics consists of two segments: the Manufacturing & Process Group and
the IT Group.
In 2000, the Company had a loss before income taxes of $34,265,000 compared to a
loss before income taxes of $21,293,000 in 1999. The increased operating loss in
2000 was primarily due to the closing of the Company's open enrollment IT
business in the third quarter of 2000, which included an impairment charge of
$19,245,000, a $8,630,000 restructuring charge and a loss of $7,331,000 from the
total IT operations. During 1999, the Company adopted restructuring plans,
primarily related to its IT Business segment, as they believed at that time that
the strategic initiatives and cost cutting moves taken in late 1999 and the
first quarter of 2000 would enable the IT Group to return to profitability.
However, as those plans were unsuccessful, the Company determined that it could
no longer bring the open enrollment IT Business to profitability, accordingly
these charges were the result of the continued operating losses incurred by the
IT Group, due to the trend of reduced revenue on a quarterly basis, which began
in 1999 and continued through 2000. As a result, the Company decided to close
the open enrollment IT business in the UK and Canada in the third quarter of
2000. Management believes that the remaining IT operations will be profitable in
the future.
The Company believes that the remaining unamortized goodwill of approximately
$5,400,000, which relates to the US and Canadian IT project business, is
recoverable from future operations. However, if the remaining IT operations do
not achieve profitable operating results, there can be no assurance that a
further impairment charge will not be required.
In 2000 the Company had a gain of $10,111,000 on trading securities primarily
relating to its 861,500 shares of Millennium stock held as trading securities at
December 31, 2000 and the gain on the sale of 138,500 shares of Millennium stock
sold during the fourth quarter of 2000. This was offset by equity losses of
$2,389,000, which were primarily the result of an equity loss related to GSES of
$1,936,000 in 2000, which is included in investment and other income (loss). The
Company also recorded write-downs of $2,400,000 related to its investment in
Five Star and $1,000,000 related to its investment in GSES in 2000, which is
included in Loss on investments.
In addition, the Company recorded a $3,809,000 non-cash compensation expense
related to a deferred compensation plan offered to certain of its employees
which is included in selling, general and administrative expenses (See Note 3 to
the Consolidated Financial Statements).
In 1999, the Company incurred a loss before income taxes of $21,293,000 as
compared to a loss before income taxes of $695,000 in 1998. The loss was due to
several items including a $11,856,000 operating loss incurred by the IT Group
and a $7,374,000 restructuring charge. During 1999, the IT Group was negatively
affected by the lack of new software products, companies diverting training
dollars to fixing Y2K issues and heavy competition in the IT area.
The restructuring charge in 1999 is comprised of expenses related to severance
and related benefit costs, as well as idle facility and related closure costs.
In addition, the Company incurred other costs to exit certain activities,
totaling approximately $8,421,000. These costs were included in Cost of sales
and Selling, general and administrative expenses and included such items as
payroll and related benefits, facility costs, asset write-offs and contract
losses.
During 1999, the Company also recorded a $2,747,000 loss as a result of the
terminated merger agreement with Veronis Suhler and Associates (VS&A) (see Note
18 to the Consolidated Financial Statements), as well as net losses on
investments of $1,662,000, primarily from the Company's investments in
Interferon Sciences, Inc. (ISI) and GSES. In addition, the Company had reduced
Investment and other income, net. The loss in 1999 was also impacted by
increased interest expense due to increased short-term borrowings and higher
interest rates in 1999. The above items were partially offset by a $3,016,000
gain on trading securities in 1999.
The loss before income taxes of $695,000 in 1998 was due to several
non-recurring items, partially offset by increased operating profits generated
by the Manufacturing & Process Group. The Company recognized a $6,225,000 loss
on the sale of substantially all the assets of Five Star to Five Star Products
on September 30, 1998 as well as a Loss on investments of $4,624,000 for the
year ended December 31, 1998. The Loss on investments resulted from write-downs
of the Company's investments in ISI and GSES. In addition, the Company
recognized a $1,500,000 expense during the fourth quarter of 1998, resulting
from a termination agreement with an executive of the Company. The above
non-recurring losses and expense were also partially offset by a $2,205,000 net
gain on marketable securities in 1998.
Sales
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Manufacturing & Process $161,859 160,326 $165,131
Information Technology 24,593 53,619 43,709
Distribution 64,148
Optical Plastics 10,998 10,353 10,581
Other 17 512 1,113
- ------------------------------------------------------------------------
$197,467 224,810 $284,682
- ------------------------------------------------------------------------
The increased sales of $1,533,000 achieved by the Manufacturing & Process Group
in 2000 as compared to 1999 was the result of increased sales in the automotive,
telecommunications and advanced manufacturing sectors, offset by decreases in
the aerospace and government sector. The decrease in sales of $29,026,000 in the
IT Group in 2000 was primarily the result of the decreased open enrollment IT
business in the first six months of the year and then its closing in the third
quarter.
The decreased sales of $4,805,000 in the Manufacturing & Process Group in 1999
as compared to 1998 were attributable to the decreased work with the U.S. Navy
and the disposition of the Company's environmental laboratory in late 1998. The
IT Group had increased sales of $9,910,000 in 1999 as compared to 1998, which
was primarily attributable to a full year of sales for Learning Technologies,
which was acquired in June 1998.
Due to the sale of substantially all the operating assets of Five Star to FSP on
September 30, 1998, the Distribution Group had no operations since 1998.
In 2000, the increased sales in the Optical Plastics Group (MXL) were primarily
the result of increased sales from existing customers. In 1999, MXL had reduced
sales from their major customer, offset by increased sales to new and existing
customers. In 2000 MXL's major customer comprised 34% of the segment's net
sales. In 1999, MXL's major customer comprised 23% of the segment's net sales.
Gross margin
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
% % %
--- --- --
Manufacturing & Process $22,277 13.8 $24,976 15.6 $28,092 17.0
Information Technology (4,645) (1,085) - 97 .2
Distribution 10,454 16.3
Optical Plastics 2,888 26.3 2,719 26.3 2,894 27.4
Other (731) (231) - 456 40.9
- ------------------------------------------------------------------------
$19,789 10.0 $26,379 11.7 $41,993 14.8
- ------------------------------------------------------------------------
The gross margin of $22,277,000 by the Manufacturing & Process Group in 2000
decreased both in terms of dollars and percent of sales, as compared to
$24,976,000 in 1999, as the result of significant investment in the e-Learning
business and reduced business in certain segments of the automotive area, which
typically generates higher margins. The decrease in gross margin in terms of
dollars and percent of sales from 1998 to 1999 for the Manufacturing & Process
Group is a result of decreased sales and contract losses in 1999.
The decrease in the IT Group in 2000 as compared to 1999 was the result of
operating and shutdown losses related to the IT open enrollment business in the
U.K. and Canada. The negative gross margin incurred by the IT Group in 1999 was
principally caused by (1) lower than anticipated sales levels, (2) write-offs of
inventory and other revenue producing activities which were exited as a result
of the restructuring plans, and (3) lower labor utilization, as compared to
1998.
The increased gross margin earned by the Optical Plastics Group of $2,888,000 in
2000 compared to $2,719,000 in 1999, was the result of increased revenues. MXL
had a consistent gross margin percentage in 2000 and 1999. In 2000, even though
sales from MXL's largest customer remained practically unchanged, there was a
growth in sales among several other large customers as compared to 1998.
The reduced gross margin earned by the Optical Plastics Group of $175,000 in
1999 as compared to 1998, was the result of the reduced revenues and gross
margin percentage. MXL had a reduced gross margin percentage in 1999 and 1998 as
a result of a change in their customer mix.
Investment and other income (loss), loss on investments, gains on marketable
securities, net, and loss on sale of assets
Included in the Consolidated Statements of Operations are the following:
Years ended December 31, 2000 1999 1998
---- ---- ----
Investment and other income (loss) $ (1,306,000) $ 223,000 $ 1,735,000
Loss on investments (3,400,000) (1,662,000) (4,624,000)
Gains on marketable securities, net 10,111,000 2,205,000
Loss on sale of assets (6,225,000)
The investment and other loss for 2000 was primarily due to equity losses of
$2,389,000 relating to the Company's equity investments. These losses were
offset by investment and other income of $1,083,000 relating primarily to
interest on loans receivable. The investment and other income for 1999 was
primarily due to income of approximately $884,000 related to interest on loans
receivable. This income was offset by equity losses of approximately $661,000
relating to the Company's equity investments.
The loss on investments in 2000 and 1999 was due to write-downs of $3,400,000
and $1,662,000, respectively, in the carrying value of the Company's equity
investments.
The gain on marketable securities, net for 2000 was due to a gain on Millennium
trading securities of $7,779,000 and a $1,818,000 gain related to the sale of
Millennium trading securities, along with gains on available-for-sale securities
of $432,000 and $82,000 related to ISI and Duratek, respectively. The gain on
marketable securities, net for 1999 was due to a gain on the Company's
available-for-sale securities of $3,016,000.
The loss on sale of assets in 1998 was recorded when the Company incurred a
$6,225,000 loss on the sale of the Five Star Group Inc. to FSP.
Selling, general, and administrative expenses
Selling, general and administrative expenses (SG&A) increased from $31,883,000
in 1998 to $36,953,000 in 1999 and decreased to $25,968,000 in 2000. The
decrease in SG&A of $10,985,000 in 2000 was attributable to aggressive
cost-cutting efforts, the exiting and discontinuation of the IT open enrollment
business during 2000 and write-offs in 1999 related to actions taken to
restructure the IT open enrollment business as discussed below. Also included in
the 2000 SG&A is a non-cash compensation charge of $3,809,000 related to a
deferred compensation plan.
The increase in SG&A of $5,070,000 in 1999 as compared to 1998 was attributable
to increases within the Manufacturing & Process Group, primarily as a result of
$4,437,000 in write-offs of certain assets related to certain revenue producing
activities, which were exited as part of the restructurings, and costs incurred
by the IT Group. The IT Group also incurred increased SG&A due to the inclusion
of the operations of Learning Technologies for a full year in 1999, as opposed
to six months in 1998 from its acquisition in June 1998. In addition, in 1999
the Company incurred $2,747,000 of costs related to the terminated merger
agreement with VS&A. These increases were partially offset by $9,594,000 of SG&A
attributable to the Distribution Group in 1998. In 1998 and 1999, the Company
continued to reduce SG&A expenses at the corporate level.
Interest expense
Interest expense was $5,616,000 in 2000, $4,922,000 in 1999 and $3,896,000 in
1998. The increased interest expense in 2000 was the result of increased
interest rates. The increased interest expense in 1999 was the result of
increased short-term borrowings and long-term debt, due to the operating losses
and acquisitions of Deltapoint and Learning Technologies.
Income taxes
Income tax (expense) benefit for 2000, 1999 and 1998 was $8,873,000, $(912,000),
and $(1,366,000), respectively.
In 2000, the Company recorded an income tax benefit of $8,873,000. For the year
ended December 31, 2000, the current income tax provision of $915,000 represents
state taxes of $717,000, and foreign taxes of $198,000. The increase of
$1,785,000 in the valuation allowance in 2000 was attributable primarily to
foreign net operating losses for which no tax benefit has been provided.
In 1999, the Company recorded an income tax expense of $912,000. For the year
ended December 31, 1999, the current income tax provision of $935,000 represents
state taxes of $481,000, and foreign taxes of $454,000. The increase of
$5,171,000 in the valuation allowance in 1999 was attributable primarily to net
operating losses for which no tax benefit has been provided.
In 1998, the Company recorded an income tax expense of $1,366,000. For the year
ended December 31, 1998, the current income tax provision of $1,271,000
represents the estimated state taxes. The deferred income tax expense of $95,000
represents future estimated state taxes payable by the Company. The increase of
$954,000 in the valuation allowance in 1998 was attributable primarily to the
decrease in the Company's deferred tax liability with respect to Investments in
partially owned companies.
Liquidity and capital resources
At December 31, 2000, the Company had cash and cash equivalents totaling
$2,487,000. The Company believes that it has sufficient cash and cash
equivalents, marketable securities, long-term investments and borrowing
availability under existing and potential lines of credit to fund its working
capital requirements.
For the year ended December 31, 2000, the Company's working capital increased by
$1,980,000 to working capital of $1,834,000, primarily reflecting the effect of
the increase in marketable securities as a result of the Company's investment in
Millennium offset by a decrease in accounts receivable and the reduced current
maturities of long-term debt.
The decrease in cash and cash equivalents of $1,581,000 for the year ended
December 31, 2000 resulted from cash used in investing activities of $3,588,000
and financing activities of $1,385,000 partially offset by cash provided by
operations of $3,314,000. Net cash used in investing activities of $3,588,000
includes $1,040,000 of additions to property, plant and equipment, $429,000 of
additions to intangible assets, relating primarily to deferred financing fees,
and a $2,119,000 increase to investments and other assets. Net cash used in
financing activities consisted primarily of repayments of short-term borrowings
and long-term debt, partially offset by proceeds from issuance of long-term
debt.
In connection with the reversed established for restructuring charges in 2000,
$3,884,000 had been utilized during the year ended December 31, 2000.
In connection with the reserve established for restructuring charges in 1999,
$2,501,000 had been utilized and $180,000 had been reversed during the year
ended December 31, 2000.
The Company believes that cash generated from operations and borrowing
availability under its credit agreement and marketable securities will be
sufficient to fund the working capital and other needs of the Company. The
Company is presently negotiating a refinancing of its credit facilities pursuant
to its Amended Agreement with its Bank (See Note 5). The Company has discussed
the extension of this credit facility with its current Agent bank, which has
expressed its intention to either extend the credit facility past its existing
expiration date of June 15, 2001 or enter into a new syndicated credit facility
with the Company. The decision on whether to extend or enter into a new credit
facility will be determined by the willingness of the current members of the
bank group to remain involved with the loan. As of March 27, 2001, the majority
of the bank group had indicated to management of the Company that they would
agree to either an extension or renewal of the credit facility. The Company
plans to meet with the other member banks shortly. Based upon the ongoing
discussions with its banks and the fact that the Company has been in compliance
with all financial covenants under its amended and restated agreement, the
management of the Company believes that the credit facility agreement will be
either extended or renewed.
As of December 31, 2000, the Company has not contractually committed itself for
any major capital expenditures.
Recent accounting pronouncements
In June 1998, the FASB the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 establishes accounting and reporting standards for derivatives
instruments, including derivative instruments embedded in other contracts,
and for hedging activities. During June 1999, SFAS No. 137 was issued which
delayed the effective date of SFAS No. 133 to January 1, 2001. In June 2000,
the Financial Accounting Standards Board issued SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an Amendment
of FASB Statement No 133," which intended to simplify the accounting for
derivative under SFAS No. 133 and is effective upon the adoption of SFAS No.
133. The adoption of these statements will not have a material effect on the
Company's results of operations.
Adoption of a Common European Currency
On January 1, 1999, eleven European countries adopted the Euro as their common
currency. From that date until January 1, 2002, debtors and creditors may choose
to pay or to be paid in Euros or in the former national currencies.
On and after January 1, 2002, the former national currencies will cease to be
legal tender.
The Company is currently reviewing its information technology systems and
upgrading them as necessary to ensure that they will be able to convert among
the former national currencies and the Euro, and process transactions and
balances in Euros, as required. The Company has sought and received assurances
from the financial institutions with which it does business that they will be
capable of receiving deposits and making payments both in Euros and in the
former national currencies. The Company does not expect that adapting its
information technology systems to the Euro will have a material impact on its
financial condition or results of operations. The Company is also reviewing
contracts with customers and vendors calling for payments in currencies that are
to be replaced by the Euro, and intends to complete in a timely way any required
changes to those contracts.
Adoption of the Euro is likely to have competitive effects in Europe, as prices
that had been stated in different national currencies become directly comparable
to one another. In addition, the adoption of a common monetary policy throughout
the countries adopting the Euro can be expected to have an effect on the economy
of the region. These competitive and economic effects cannot be predicted with
certainty, and there can be no assurance that they will not have a material
effect on the Company's business in Europe.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
The Company is exposed to the impact of interest rate, market risks and currency
fluctuations. In the normal course of business, the Company employs internal
processes to manage its exposure to interest rate, market risks and currency
fluctuations. The Company's objective in managing its interest rate risk is to
limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. The Company is exposed to the impact of
currency fluctuations because of its international operations.
As of December 31, 2000, the Company had approximately $40,000,000 of variable
rate borrowings. The Company estimates that for every 1% fluctuation in general
interest rates, assuming debt levels at December 31, 2000, interest expense
would vary by $400,000.
The Company's net investment in its foreign subsidiaries, including intercompany
balances, at December 31, 2000, was in a net liability position with respect to
such subsidiaries of approximately $2,779,000, as a result of restructurings
over the past two years and accordingly, fluctuations in foreign currency do not
have a material impact on the Company's financial position.
The forward-looking statements contained herein reflect the Company's
management's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements, all of which are difficult to predict and many
of which are beyond the control of the Company, including, but not limited to,
the risk that qualified personnel will not continue to be available,
technological risks, the Company's ability to comply with financial covenants in
connection with various loan agreements, the Company's ability to either extend
or refinance its existing bank facility and those risks and uncertainties
detailed in GP Strategies' periodic reports and registration statements filed
with the Securities and Exchange Commission.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF GP STRATEGIES CORPORATION AND SUBSIDIARIES:
Page
Independent Auditors' Report 28
Consolidated Balance Sheets - December 31, 2000 and 1999 29
Consolidated Statements of Operations - Years ended December 31,
2000, 1999, and 1998 31
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 2000, 1999, and 1998 33
Consolidated Statements of Cash Flows - Years ended December 31,
2000, 1999, and 1998 33
Notes to Consolidated Financial Statements 35
SUPPLEMENTARY DATA (Unaudited)
Selected Quarterly Financial Data 69
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GP Strategies Corporation:
We have audited the consolidated financial statements of GP Strategies
Corporation and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GP Strategies
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
New York, New York
March 28, 2001
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and par value per share)
December 31, 2000 1999
- ------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 2,487 $ 4,068
Trading securities 8,830
Accounts and other receivables (of which
$11,413 and $13,742 are from government
contracts) less allowance for doubtful
accounts of $859 and $2,905 46,388 55,385
Inventories 1,688 1,888
Costs and estimated earnings in excess of billings on
uncompleted contracts, of which $532 and $1,264
relate to government contracts 12,515 14,238
Prepaid expenses and other current assets 3,955 3,853
- ------------------------------------------------------------------------
Total current assets 75,863 79,432
- ------------------------------------------------------------------------
Investments, advances and marketable securities 62,093 16,557
- ------------------------------------------------------------------------
Property, plant and equipment, net 9,787 13,658
- ------------------------------------------------------------------------
Intangible assets, net of accumulated
amortization of $31,618 and $34,967
Goodwill 58,246 77,758
Patents, licenses and deferred charges 1,746 2,060
- ------------------------------------------------------------------------
59,992 79,818
Deferred tax asset 3,990
- ------------------------------------------------------------------------
Other assets 4,843 3,663
- ------------------------------------------------------------------------
$212,578 $197,118
- ------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except shares and par value per share)
December 31, 2000 1999
- ------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities
Current maturities of long-term debt $ 1,311 $ 3,668
Short-term borrowings 36,162 40,278
Accounts payable and accrued expenses 25,234 25,634
Billings in excess of costs and estimated
earnings on uncompleted contracts 11,322 9,998
- ------------------------------------------------------------------------
Total current liabilities 74,029 79,578
- ------------------------------------------------------------------------
Long-term debt less current maturities 16,301 14,822
Deferred tax liability 6,504
Other non-current liabilities 3,226 2,736
Commitments and contingencies
Stockholders' equity
Preferred stock, authorized 10,000,000
shares, par value $.01 per share, none issued
Common stock, authorized 25,000,000 shares, par
value $.01 per share, issued 12,491,417 and 11,542,450
shares (of which 334,937 and 427,184 shares are held in
treasury) 125 115
Class B common stock, authorized 2,800,000 shares,
par value $.01 per share, issued and outstanding
800,000 and 450,000 shares 8 5
Additional paid-in capital 179,955 170,011
Accumulated deficit (86,994) (61,602)
Accumulated other comprehensive (loss) income 27,237 (817)
Notes receivable from stockholder (4,095) (2,817)
Treasury stock at cost (3,718) (4,913)
- ------------------------------------------------------------------------
Total stockholders' equity 112,518 99,982
- ------------------------------------------------------------------------
$212,578 $197,118
- ------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------------
Sales $197,467 $224,810 $284,682
Cost of sales 177,678 198,431 242,689
- ------------------------------------------------------------------------------
Gross margin 19,789 26,379 41,993
- ------------------------------------------------------------------------------
Selling, general and administrative (25,968) (36,953) (31,883)
Interest expense (5,616) (4,922) (3,896)
Investment and other income, (loss)
(including interest income of $142,
$193 and $335) (1,306) 223 1,735
Loss on investments (3,400) (1,662) (4,624)
Loss on sale of assets (6,225)
Gains on marketable securities, net 10,111 3,016 2,205
Asset impairment charge (19,245)
Restructuring charge (8,630) (7,374)
- -------------------------------------------------------------------
Loss before income taxes (34,265) (21,293) (695)
Income tax benefit (expense) 8,873 (912) (1,366)
- -------------------------------------------------------------------------------
Net loss $ (25,392) $ (22,205) $ (2,061)
- -------------------------------------------------------------------------------
Net loss per share
Basic $ (2.04) $ (1.95) $ (.19)
Diluted (2.04) (1.95) (.19)
- ------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 2000, 1999, and 1998
(in thousands, except for par value per share)
Accumulated Notes
Class B other Compre- receivable Treasury Total
Common common Additional compre- hensive from stock stock-
stock stock paid-in Accumulated hensive income stock- at holders'
($.01 Par) ($.01 Par) capital deficit income (loss) holder cost equity
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $108 $ 1 $158,676 $(37,336) $ 6,630 $ $ $(1,496) $126,583
- ---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (6,531) (6,531) (6,531)
Net loss (2,061) (2,061) (2,061)
- ---------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss (8,592) (8,592)
Issuance and sale of common stock 3 2 5,541 (1,742) 3,804
Purchase of treasury stock (1,460) (1,460)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 111 3 164,217 (39,397) 99 (1,742) (2,956) 120,335
- ----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (916) (916) (916)
Net loss (22,205) (22,205) (22,205)
- ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss (23,121) (23,121)
Issuance and sale of common stock 4 2 5,794 (1,075) 4,725
Purchase of treasury stock (1,957) (1,957)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 115 5 170,011 (61,602) (817) (2,817) (4,913) 99,982
- ----------------------------------------------------------------------------------------------------------------------------
Other comprehensive income 28,054 28,054 28,054
Net loss (25,392) (25,392) (25,392)
- ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss 2,662 2,662
Issuance and sale of common stock 10 3 5,430 (1,278) 4,165
Issuance of treasury stock 1,195 1,195
Issuance of stock by equity investee 4,514 4,514
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $125 $ 8 $179,955 $(86,994) $ 27,237 $ $ (4,095) $ (3,718) $112,518
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
- --------------
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Cash flows from operations:
Net loss $ (25,392) $ (22,205) $ (2,061)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 6,628 7,794 5,452
Issuance of stock for profit incentive plan 1,668 1,345 1,675
Restructuring charge 8,630 7,374
Gains on trading securities, net (10,111) (3,016) (2,205)
Loss on investments 3,400 1,662 4,624
Loss on sale of assets 6,225
Loss on equity investments and other, net 2,389 535 936
Deferred income taxes (9,649) (700)
Non-cash compensation charge 3,809
Asset impairment charge 19,245
Proceeds from sale of securities 2,699 5,057 3,964
Changes in other operating items,
net of effect of acquisitions and disposals:
Accounts and other receivables 8,997 146 (23,470)
Inventories (177) 474 997
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,723 1,157 (7,669)
Prepaid expenses and other current assets 1,030 1,491 (3,062)
Accounts payable and accrued expenses (12,899) (1,981) 5,133
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,324 (4,201) 6,220
- -----------------------------------------------------------------------------
Net cash provided by (used in) operations $ 3,314 $ (5,068) $ (3,241)
- ------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
- --------------
Years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Cash flows from investing activities:
Acquisitions of businesses, net $ $ (31,632)
Additions to property, plant and
equipment, net (1,040) (2,959) (4,484)
Additions to intangible assets (429) (3,153) (2,985)
Reduction of (increase to) investments
and other assets (2,119) 1,381 503
- ------------------------------------------------------------------------
Net cash used in investing activities (3,588) (4,731) (38,598)
- ------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of Class B Shares 1,200
Repayments of short-term borrowings (4,116) (14,519)
Proceeds from short-term borrowings 9,555 37,773
Proceeds from issuance of long-term debt 2,640 15,000
Repayment of long-term debt (1,343) (2,385) (281)
Exercise of common stock
options and warrants 234 940 596
Repurchase of treasury stock (1,129) (1,460)
- ------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (1,385) 6,981 37,109
- ------------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents 78 79 (838)
- ------------------------------------------------------------------------
Net decrease in cash and
cash equivalents (1,581) (2,739) (5,568)
Cash and cash equivalents at
beginning of year 4,068 6,807 12,375
- ------------------------------------------------------------------------
Cash and cash equivalents at end of year$ 2,487 $ 4,068 $ 6,807
- ------------------------------------------------------------------------
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 5,447 $ 5,078 $ 3,704
Income taxes $ 557 $ 1,097 $ 1,194
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Description of business and summary of significant accounting policies
Description of business.
GP Strategies Corporation (the Company) currently has four operating
business segments. The Company's principal operating subsidiary is General
Physics Corporation (GP). GP is a performance improvement company that assists
productivity driven organizations to maximize workforce performance by
integrating people, processes and technology. GP is a total solutions provider
for strategic training, engineering, consulting and technical support services
to Fortune 1000 companies, government, utilities and other commercial customers.
During the first three quarters of 2000, GP operated under three business
segments. However in the fourth quarter of 2000, as a result of organizational
and operational changes at GP and the shut down of the IT open enrollment
business in the third quarter of 2000, the Company combined the Manufacturing
Services Group with the Process and Energy Group at GP. Therefore, GP now
operates in only two business segments. The Manufacturing & Process Group
provides technology based training, engineering and consulting to leading
companies in the automotive, steel, power, chemical, energy, pharmaceutical and
food and beverage industries, as well as to the government sector. The
Information Technology Group provides information training programs and
solutions, including Enterprise Solutions and comprehensive career training and
transition programs. Because of continued operating losses, the open enrollment
business of the Information Technology Group was shut down in the third quarter
of 2000. The Company's Optical Plastics Group, through its wholly owned
subsidiary MXL Industries, Inc. (MXL), manufactures molded and coated optical
products, such as shields and face masks and non-optical plastic products. The
fourth group, the Hydro Med and Other Group, primarily consists of Hydro Med
Sciences, which is focusing its efforts to obtain FDA approval for its prostate
cancer drug delivery system. In addition, the Company has investments in
Millennium Cell Inc. (Millennium), Five Star Products, Inc. (FSP), GSE Systems,
Inc. (GSES), Interferon Sciences, Inc. (ISI) and GTS Duratek, Inc. (Duratek)
(see Note 3).
Principles of consolidation and investments. The consolidated financial
statements include the operations of GP Strategies Corporation and its
majority-owned subsidiaries. Investments in 20% - 50% owned companies are
generally accounted for by the equity method. Although the Company has a 22%
investment in Millennium it does not have the ability to significantly influence
the entity or its operations and accordingly accounts for its investment in
Millennium on the cost basis. All significant intercompany balances and
transactions have been eliminated in consolidation.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
1. Description of business and summary of significant accounting policies
(Continued)
Cash and cash equivalents. Cash and cash equivalents of $2,487,000 and
$4,068,000 at December 31, 2000 and 1999, respectively, consist of highly liquid
debt instruments with original maturities of three months or less.
Marketable securities. Marketable securities at December 31, 2000 and 1999
consist of U.S. corporate equity securities. The Company classifies its
marketable securities as trading or available-for-sale investments. A decline in
the market value of any available-for-sale security below cost that is deemed to
be other than temporary results in a reduction in carrying amount to fair value.
The impairment is charged to earnings, and a new cost basis is established.
Gains and losses are derived using the average cost method for determining the
cost of securities sold.
Trading securities, which are generally expected to be sold within one year, are
included as such on the Consolidated Balance Sheet. Available-for-sale
securities are included in Investments, advances and marketable securities on
the Consolidated Balance Sheet. Trading and available-for-sale securities are
recorded at their fair value. Trading securities are held principally for the
purpose of selling them in the near term. Unrealized holding gains and losses on
trading securities are included in earnings. Unrealized holding gains and losses
on available-for-sale securities are excluded from earnings and are reported as
a separate component of stockholders' equity in Accumulated other comprehensive
income (loss), net of the related tax effect, until realized.
Inventories. Inventories are valued at the lower of cost or market, using
the first-in, first-out (FIFO) method.
Foreign currency transactions. The Company's Swiss Bonds, which were converted
into common shares in June 2000 (see Note 7), were subject to currency
fluctuations and the Company had hedged portions of such debt from time to time,
but not within the three - year period ended December 31, 2000. During the years
ended December 31, 2000, 1999 and 1998, the Company realized foreign currency
transaction gains (losses) of $58,000, $245,000 and $(75,000), respectively.
These amounts are included in Investment and other income (loss), net.
Foreign currency translation. The functional currency of the Company's
international operations is the applicable local currency. The translation of
the applicable foreign currency into U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using the weighted-average rates of exchange
prevailing during the year. The unrealized gains and losses resulting from such
translation are included as a separate component of shareholders' equity in
Accumulated other comprehensive income (loss).
1. Description of business and summary of significant accounting policies
(Continued)
Contract revenue and cost recognition. The Company provides services under
time-and-materials, cost-plus-fixed-fee and fixed-price contracts. Revenue is
recognized as costs are incurred and includes estimated fees at predetermined
rates. Differences between recorded costs and estimated earnings and final
billings are recognized in the period in which they become determinable. Costs
and estimated earnings in excess of billings on uncompleted contracts are
recorded as a current asset. Billings in excess of costs and estimated earnings
on uncompleted contracts are recorded as a current liability. Generally,
contracts provide for the billing of costs incurred and estimated earnings on a
monthly basis. Retainages, amounts subject to future negotiation and amounts
which are expected to be collected after one year, are not material for any
period.
Comprehensive income. Comprehensive income consists of net income (loss), net
unrealized gains (losses) on available-for-sale securities and foreign currency
translation adjustment.
Property, plant and equipment. Property, plant and equipment are carried at
cost. Major additions and improvements are capitalized while maintenance and
repairs which do not extend the lives of the assets are expensed as incurred.
Gain or loss on the disposition of property, plant and equipment is recognized
in operations when realized.
Depreciation. The Company provides for depreciation of property, plant and
equipment primarily on a straight-line basis over the following estimated
useful lives:
CLASS OF ASSETS USEFUL LIFE
Buildings and improvements 5 to 40 years
Machinery, equipment and furniture
and fixtures 3 to 7 years
Leasehold improvements Shorter of asset life or term of lease
Long-Lived Assets. The recoverability of long-lived assets, other than goodwill,
is assessed whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable through future undiscounted
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment is measured by determining the amount
by which the carrying value of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value, less costs to sell.
1. Description of business and summary of significant accounting policies
(Continued)
Intangible assets. The excess of cost over the fair value of net assets of
businesses acquired is recorded as goodwill and is amortized on a straight-line
basis over periods ranging from 5 to 40 years. The Company capitalizes costs
incurred to obtain and maintain patents and licenses. Patent costs are amortized
over the lesser of 17 years or the remaining lives of the patents, and license
costs over the lives of the licenses. The Company also capitalizes costs
incurred to obtain long-term debt financing. Such costs are amortized on an
effective yield basis over the terms of the related debt and such amortization
is classified as interest expense in the Consolidated Statements of Operations.
The Company periodically assesses the recoverability of goodwill by determining
whether the amount of related goodwill can be recovered through undiscounted
future operating cash flows of the acquired entities. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
Stock option plan. The Company applies the intrinsic value-based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for its fixed plan stock options. As such compensation expense would
be recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123.
Sales of subsidiary stock. The Company recognizes gains and losses on sales of
subsidiary stock in its Consolidated Statements of Operations.
1. Description of business and summary of significant accounting policies
(Continued)
Income taxes. Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and for operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Income (loss) per share. Basic earnings (loss) per share is based upon the
weighted average number of common shares outstanding, including Class B common
stock, during the period. Diluted earnings (loss) per share is based upon the
weighted average number of common shares outstanding during the period assuming
the issuance of common stock for all dilutive potential common shares
outstanding.
Use of estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Concentrations of credit risk. Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of
cash investments and accounts receivable. The Company places its cash
investments with high quality financial institutions and limits the amount of
credit exposure to any one institution. With respect to accounts receivable,
approximately 25% are related to United States government contracts, and the
remainder are dispersed among various industries, customers and geographic
regions. In addition, the Company has investments in various equity securities,
including Millennium, ISI, FSP and GSES.
2. Goodwill
(a) Learning Technologies
On June 16, 1998, General Physics acquired the Learning Technologies business of
Systemhouse, an MCI company. Learning Technologies is a computer technology
training and consulting organization, with offices and classrooms in Canada, the
United States and the United Kingdom. General Physics purchased Learning
Technologies for $24,000,000 in cash. From June 16, 1998 through December 31,
1998, Learning Technologies had revenues of approximately $30,706,000. The
Company accounted for this transaction as a purchase, and recorded $23,216,000
of goodwill, which is being amortized over 30 years. The results of operations
for Learning Technologies have been consolidated with the Company since June 16,
1998 (see Note 15).
In July 2000, as a result of the continued operating losses incurred by its IT
Group, as well as the determination that revenues would not increase to
profitable levels, the Company closed its open enrollment IT business in the UK
and Canada. As a result, the Company recorded asset impairment charges of
$19,245,000 of which $16,663,000 related to intangible assets. The Company
believes that the remaining unamortized goodwill of approximately $5,400,000,
which relates to the US and Canadian IT project business, is recoverable from
future operations. However, if the remaining IT operations do not achieve
profitable operating results, there can be no assurance that a further
impairment charge will not be required.
(b) Deltapoint Corporation
On July 13, 1998, General Physics completed its acquisition of substantially all
of the operations and net assets of The Deltapoint Corporation (Deltapoint).
Deltapoint is a Seattle, Washington based management consulting firm focused on
large systems change and lean-enterprise. General Physics purchased Deltapoint
for approximately $6,300,000 in cash and a future earnout, as described in the
Asset Purchase Agreement. The Company has accounted for this transaction as a
purchase and has recorded approximately $4,858,000 of goodwill, subje