SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7234
GP STRATEGIES CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-1926739
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(State of Incorporation) (I.R.S. Employer Identification No.)
9 West 57th Street, New York, NY 10019
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 826-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered:
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Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of March 22, 2002, 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
$46,782,000, and $1,219,000, respectively, based on the closing price of the
Common Stock on the New York Stock Exchange on March 22, 2002. 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 22, 2002
- ----- -----------------------------
Common Stock, par value $.01 per share 12,780,285 shares
Class B Capital Stock, par value $.01 per share 900,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 2002 Annual
Meeting of Stockholders are incorporated by reference into Part III hereofdeleted paragraph
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
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 28
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 75
PART III
Item 10. Directors and Executive Officers of the Registrant*Registrant 75
Item 11. Executive Compensation*Compensation 75
Item 12. Security Ownership of Certain
Beneficial Owners and Management*Management 75
Item 13. Certain Relationships and Related Transactions*Transactions 75
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 76
*to be incorporated by reference from the Proxy Statement for the Registrant's
2002 Annual Meeting of Stockholders.
PART I
ITEM 1. BUSINESS
General Development of Business
GP Strategies Corporation (the "Company"), a leader in workforce
developmentItem 10. Directors and technical and soft skills training, was incorporated in Delaware
in 1959. The Company is a New York Stock Exchange listed company traded under
the symbol GPX. The Company's principal operating subsidiary is General Physics
Corporation ("General Physics"). The Company has four operating business
segments. Two of these segments, the Manufacturing & Process Group and the
Information Technology Group, are managed through General Physics. The third
segment is the Optical Plastics Group, comprisedExecutive Officers of the Company's subsidiary MXL
Industries, Inc. ("MXL")Registrant
Jerome I. Feldman is founder and since 1959 has been Chief Executive
Officer and a Director of the fourth segment isCompany. He has also been Chairman of the Hydro Med Sciences Group.
General Physics is a workforce development company that improves the
effectivenessBoard of organizations by providing training, management systems and
engineering services to meet the specific needs of clients. Programs have been
developed for service managers and executives, engineers, sales associates,
plant operators, the maintenance and purchasing workforces and information
technology professionals in the public and private sectors in North and South
America, Europe and Asia. Clients include Fortune 1,000 companies,
manufacturing, process and energy companies, and other commercial and
governmental customers. Additional information about General Physics may be
found at www.gpworldwide.com.
MXL manufactures and distributes coated and molded optical products,
such as shields and face masks and non-optical products. In addition,
the Company holdssince 1999. He was President of the Company from 1959 until June
2001. He has been a numberDirector of investments in publicly held companies, including
Millennium Cell Inc., Five Star Products, Inc. and GSE Systems, Inc. and an
investment in a private company, Hydro Med Sciences, Inc. (effective December
27, 2001).
GENERAL PHYSICS CORPORATION
Organization and Operations
General Physics, with approximately 1,400 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 equipment and process 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.
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.("Five Star"), 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 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. Subsequent to the changes, the IT project work returned to
profitability in 2001.
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. The systems became operational in the first quarter of
2002.
During the second half of 2001, the Company's operations were
negatively impacted by the downturn in the economy, in particular the
manufacturing sectors. This resulted in decreased revenue which was offset by
cost cutting efforts, including a reduction in the use of consultants, a program
to reduce indirect expenses, and a reduction in employees.
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 either the United States or the UK could have
a material adverse effect on General Physics' business, financial condition and
results of operations, as was the case in the latter half of 2001.
Customers
General Physics currently provides services to more than 500 customers.
Significant customers include multinational automotive manufacturers, such as
General Motors Corporation, Ford Motor Company, Mercedes-Benz and Daimler
Chrysler Corporation; commercial electric power utilities, such as Consolidated
Edison Company of New York, Public Service Electric & Gas Company, ComEd,
Entergy Operations, Inc. and Alliant Energy Corporation; governmental agencies,
such as the U.S. Departments of Defense, Energy and Treasury, 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 Cablevision, SBC
Communications 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, The Coca-Cola Company and PepsiCo.;
petro-chemical companies, such as ExxonMobil and Lyondell-Citgo; steel
producers, such as AK Steel, USX Corporation, Ameristeel Corporation and Dofasco
Steel; and other large multinational companies, such as Fluor Daniel, PPG
Industries, Inc., General Electric Company and Computer Sciences Corporation.
Revenue from the United States Government accounted for approximately
29% of General Physics' revenue for the year ended December 31, 2001. 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 2001, revenue from the Department of the Army accounted
for approximately 12% of General Physics' revenue, which is included in total
U.S. Government revenue, and General Motors Corporation accounted for
approximately 11% of General Physics' revenue. No other customers 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 and 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. 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, process and energy 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,
Learning Resource Management (LRM) training outsourcing, engineering and
technical support services to clients, whether involving workforce development,
product, process and 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 are e-Learning services, which function 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.
A representative list of this Group's customers allowing disclosure
includes: General Motors Corporation, Ford Motor Company, Lockheed Martin, USX,
Ameristeel Corporation, Nalco Chemical Co., Anheuser-Busch, Pepsi-Cola, CN Rail,
SBC Communications, Applied Materials, the U.S. Postal Service, Royal Mail
Consignia, the U.S. Army, Navy and Air Force, Merck & Co., ExxonMobil,
Omnitrans, Pharmacia-Upjohn, General Electric, Pennsylvania Power & Light,
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, Eli-Lilly and Company, Department of
Defense, Anheuser-Busch, Fluor Daniel, CN Rail, Canada Post, Accenture,
Accu-Sort Systems, Inc., Louisiana State University Shreveport, and Computer
Sciences Corporation. As a result of the continued operating losses incurred by
the IT Group in 1999 and 2000, General Physics closed its open enrollment IT
business in the UK and Canada during the third quarter of 2000. Subsequent to
these changes, this group returned to profitability in 2001.
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, products,
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 has
available an extensive existing curriculum of business and technical courses and
also is involved in the management of the training business operations at
several of its customers. Training products include instructor and student
training manuals, instructional material on CD-ROM and PC-based simulators.
Training projects include the following:
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.
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 1999 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, 2001:
Fixed-Price............................................... 58%
Time and Materials........................................ 31
Cost-Reimbursable......................................... 11
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. 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. In 2000, there were a number of small start-up companies that
entered the e-Learning marketplace. Because of market conditions many of them
have ceased operations, though a number remain. 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, 2001, General Physics employed
approximately 1,400 employees and 200 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 (the Company's
internal training organization) 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, sales personnel 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, press releases, 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, 2001 was approximately $90,637,000.
General Physics anticipates that most of its backlog as of December 31,
2001 will be recognized as revenue during fiscal year 2002, 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, in the
area of alternative fuel construction management 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 32,470 square
feet of an office building at that address, and approximately 451,800 square
feet of office space at other locations in the United States, Canada, the United
Kingdom, Mexico, Brazil and Malaysia. General Physics has 54 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 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 three customers accounted for approximately 47% of MXL's
total sales in 2001.
MXL's sales and marketing effort concentrates on industry trade shows.
In addition, MXL employs one marketing and sales executive and one sales
engineer.
Hydro Med Sciences Group
Hydro Med Sciences, Inc. ("HMS") is a specialty pharmaceutical company
engaged in the development and commercialization of prescription pharmaceuticals
principally utilizing Hydro Med's patented Hydron drug delivery technology. The
Hydron drug delivery system is a subcutaneous implant that controls the amount,
timing and location of the release of drug compounds into the body (the "Hydron
Implant"). The lead application of the Hydron technology is a twelve-month
implant that delivers the luteinizing hormone releasing hormone ("LHRH")
histrelin for the treatment of metastatic prostate cancer (the "Histrelin
Implant").
Prior to June 2000, HMS operated as a division of the Company, however,
in connection with an offering of the Company's 6% Convertible Subordinated
Exchangeable Notes due 2003, (the "HMS Notes"), HMS was incorporated as a
separate company and became a wholly-owned subsidiary of the Company. The HMS
Notes, at the option of the holders, may be exchanged for 19.9% of the
outstanding common stock of HMS on a fully diluted basis.
On December 27, 2001 HMS completed a $7 million private placement of
HMS Series A Convertible Preferred Stock (the "Preferred Stock") to certain
institutional investors. HMS intends to use the proceeds of the offering to fund
the Phase 3 clinical studies of its histrelin implant for the treatment of
metastatic prostate cancer, as well as to fund its general research and
development and other operating expenses.
The Company currently owns 100% of HMS's common stock but no longer has
financial and operating control of HMS. As a condition of the private placement,
the Company contractually gave up operating control over HMS through an
Investors Rights Agreement. Therefore, through December 27, 2001, the operating
results of HMS are consolidated within the Consolidated Statements of
Operations. However, subsequent to that date, the Company accounts for its
investment in HMS under the equity method.
The Preferred Stock is convertible at any time at the option of holder
into approximately 41% of HMS's common stock and participates in dividends with
HMS common stock on an as converted basis. Certain of the Preferred Stock
holders hold the HMS Notes which may be exchanged for 19.9% of the outstanding
common stock of HMS common stock on a fully diluted basis. If such holders
exercise the exchange right and the Preferred Stock is converted to common stock
of HMS, the Company's ownership of HMS would then be reduced to approximately
47%.
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 a private and certain publicly traded corporations.
Millennium Cell ("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 the Company's subsequent sales of its Millennium stock holdings,
the Company's holdings in Millennium decreased from approximately 27% to
approximately 13.5 % as of December 31, 2001.
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. At December 31, 2001, the Company's investment in GSES was
approximately $3,004,000 and the Company owned approximately 20.2 % of the
outstanding shares of common stock of GSES.
Five Star Products, Inc. ("FSP") is a leading distributor in the United
States of home decorating, hardware and finishing products. At December 31,
2001, the Company's investment in FSP was approximately $1,238,000 and the
Company owned approximately 37.1% of the outstanding shares of common stock of
FSP. In addition, FSP is indebted to the Company in the amount of $5,000,000
pursuant to an 8% senior unsecured Note due September 30, 2004, as amended. The
Amendment, which extended the due date of the Note until September 30, 2004,
also provides that the Company can receive quarterly payments of principal from
FSP, if FSP achieves certain financial performance benchmarks.
Employees
At December 31, 2001, the Company and its subsidiaries employed
approximately 1,476 persons, including 10 in the Company's headquarters, 1,400
at General Physics and 66 in the Optical Plastics Group. 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. Foreign
operations and export sales represent less than 10% of the Company's total net
sales.
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. General Physics leases approximately
32,470 square feet for an office building in Columbia, Maryland and
approximately 451,800 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, both of
which are subject to mortgages.
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 3, 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. Although discovery has not yet been completed, defendants have made a
motion for summary judgment which is scheduled to be submitted on April 5, 2002.
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 a
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
2001 First $5.00 $3.50
Second 5.39 3.20
Third 5.14 3.05
Fourth 4.10 2.40
Quarter High Low
2000 First $7.00 $4.13
Second 5.75 3.06
Third 7.13 3.63
Fourth 6.38 3.63
The number of shareholders of record of the Common Stock as of March
22, 2002 was 2,114 and the closing price of the Common Stock on the New York
Stock Exchange on that date was $3.68.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Item 6. Selected Financial Data
Operating Data (in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Sales $186,611 $197,467 $224,810 $284,682 $234,801
Gross margin 22,577 19,789 26,379 41,993 35,229
Interest expense 4,733 5,616 4,922 3,896 4,075
Income (loss) before taxes 1,570 (34,265) (21,293) (695) 2,730
Net (loss) income (945) (25,392) (22,205) (2,061) 3,423
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share:
Basic (.09) (2.04) (1.95) (.19) .33
Diluted (.09) (2.04) (1.95) (.19) .31
- ----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
December 31, 2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Cash, cash equivalents and trading securities $ 1,705 $ 11,317 $ 4,068 $ 7,548 $ 13,725
Short-term borrowings 32,338 36,162 40,278 30,723 23,945
Working capital (deficit) (2,750) 1,834 (146) 13,989 34,797
Total assets 163,891 212,578 197,118 210,905 190,612
Long-term debt 6,863 17,612 18,490 21,559 6,588
Stockholders' equity 95,943 112,518 99,982 120,335 126,583
- ----------------------------------------------------------------------------------------------------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
RESULTS OF OPERATIONS
Overview
The Company's primary operating entity is General Physics, which 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' operations were resegmented in 2000 to two segments: the Manufacturing
& Process Group and the IT Group. In addition to General Physics, the Company
has a third segment, MXL Industries, which manufactures molded and coated
optical products and a fourth operating segment, Hydro Med Sciences Group. The
Company also holds a number of investments in publicly held companies, including
Millennium, GSES and FSP and a private company Hydro Med Sciences ("HMS").
In 2001, the Company had income before income taxes of $1,570,000 compared to a
loss of $34,265,000 in 2000. The increase in income before income taxes in 2001,
as compared to 2000, was primarily due to the negative impact on the Company's
2000 results of the closing of the open enrollment IT business in the third
quarter of 2000. The results of 2000 also included an asset impairment charge of
$19,245,000, a restructuring charge of $8,630,000, 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, believing 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 decided to close the open
enrollment IT business in the UK and Canada in the third quarter of 2000.
In 2001, the Company had a net gain of $4,294,000 on marketable securities,
primarily relating to the Company's sale of 2,081,000 shares of Millennium,
861,000 of which were trading securities and 1,220,000 of which were available-
for- sale. The Company received gross proceeds of $14,624,000 from these sales.
In addition, the Company recorded a $2,370,000 credit to compensation expense
related to a deferred compensation plan offered to certain of its employees,
which is included as a credit to Selling, general and administrative expense
(see Note 3 to the Consolidated Financial Statements). The Company also had
restructuring charge reversals of $1,174,000 primarily relating to favorable
settlements on certain lease and contractual obligations. These items were
offset by an operating loss from HMS of approximately $3,400,000 and a $320,000
write-down on investments, of which $200,000 related to FSP. In addition, the
Company recorded charges of approximately $1,050,000 relating to financial
consulting services (of which $750,000 is a non-cash stock based award) and
$400,000 relating to a potential new credit agreement which was not consummated.
The Company also incurred in excess of $500,000 relating to legal fees relating
to the Company's litigation against MCI Communications Corporation, Systemhouse
and Electronic Data System Corporation, as successor to Systemhouse (see Note
19).
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 FSP
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.
Sales
Years ended December 31, (in thousands) 2001 2000 1999
- -------------------------------------------------------------------------------
Manufacturing & Process $164,361 161,859 160,326
Information Technology 11,061 24,593 53,619
Optical Plastics 11,184 10,998 10,353
Hydro Med Sciences 5 17 512
- ------------------------------------------------------------------------------
$186,611 197,467 224,810
- ------------------------------------------------------------------------------
The increased sales of $2,502,000 achieved by the Manufacturing & Process Group
in 2001 compared to 2000 was the result of increased sales in the government
sector, offset by decreased sales in the automotive, telecommunications and
advanced manufacturing sectors. These decreases were due to the continued
downturn in the economy compounded by the effects of the events of September 11,
2001. The decrease in sales of $13,532,000 in the IT Group in 2001 was primarily
the result of the shut-down of the open enrollment IT business in the third
quarter of 2000.
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 as compared to 1999 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.
In 2001 and 2000, the sales in the Optical Plastics Group (MXL) increased 2% and
6%, respectively. In 2001 MXL's major customer comprised 27% of the segment's
net sales and in 2000, MXL's major customer comprised 34% of the segment's net
sales.
Gross margin
Years ended December 31, (in thousands) 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------
% % %
--- --- ---
Manufacturing & Process $18,551 11.3 $22,277 13.8 $24,976 15.6
Information Technology 1,781 16.1 (4,645) - (1,085) -
-------- -------- --------
General Physics 20,332 11.6 17,632 9.5 23,891 11.2
------- ------- -------
Optical Plastics 2,816 25.2 2,888 26.3 2,719 26.3
HMS (571) - (731) - (231) -
- ----------------------------------------------------------------------------------------------------------
$22,577 12.1 $19,789 10.0 $26,379 11.7
- ----------------------------------------------------------------------------------------------------------
General Physics total gross margin increased from $17,632,000 to $20,332,000
from 2000 to 2001. This increase was primarily attributable to the turnaround of
the Company's IT operations which returned to profitability in 2001.
The gross margin of $18,551,000 by the Manufacturing & Process Group in 2001
decreased both in terms of dollars and percent of sales as compared to 2000.
This decrease was due to the continued downturn in the higher margin automotive
and advanced manufacturing sectors. This decrease was offset by an increase in
revenues for the lower margin government sectors. In addition, there was
increased investment in the e-Learning business and increased expenses due to
staff reduction in the third and fourth quarters due to the events of September
11, 2001 and the continued downturn in the economy.
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 1999, as
the result of significant investment in the e-Learning business and reduced
business in certain areas of the automotive sector, which typically generates
higher margins.
The increase in the IT Group gross margin in 2001 was due to the Company's
renewed focus on its contract IT operations. 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 gross margin earned by the Optical Plastics Group remained relatively stable
in 2001, 2000 and 1999.
Investment and other income (loss), loss on investments, and gains on marketable
securities, net,
Years ended December 31, (in thousands) 2001 2000 1999
-----------------------------------------------------------------------------
Investment and other income, (loss) $ 496 $ (1,306) $ 223
Loss on investments (320) (3,400) (1,662)
Gains on marketable securities, net 4,294 10,111 3,016
-----------------------------------------------------------------------------
The investment and other income, (loss) in 2001 was primarily related to
interest income on loans receivables. The investment and other income (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 2001, 2000 and 1999 was due to write-downs of
$320,000, $3,400,000 and $1,662,000, respectively, in the carrying value of the
Company's equity investments.
The gain on marketable securities, net in 2001, was primarily due to the
Company's disposal of trading securities and available-for-sale securities in
Millennium. 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 on 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.
Selling, general, and administrative expenses
The decrease in SG&A of $4,050,000 in 2001 as compared to 2000 was primarily
attributable to a deferred compensation credit of $2,370,000 in 2001 as opposed
to a charge of $3,809,000 in 2000 due to fluctuations in the share price of
Millennium. However, this decrease was offset by increased SG&A expenses at HMS
as a result of increased costs incurred by HMS for phase 3 clinical trials of
its prostate cancer product. Selling, general and administrative expenses (SG&A)
decreased from $36,953,000 in 1999 to $25,968,000 in 2000 and again decreased to
$21,918,000 in 2001. The decrease in SG&A of $10,985,000 in 2000 from 1999 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.
The decrease in SG&A in 2000 as compared to 1999 was attributable to decreases
within the Manufacturing & Process Group, primarily as a result of $4,437,000 in
write-offs in 1999 of certain assets related to certain revenue producing
activities, which were exited as part of the restructurings, and costs incurred
by the IT Group. In addition, in 1999 the Company incurred $2,747,000 of costs
related to the terminated merger agreement with VS&A.
Interest expense
Interest expense was $4,733,000 in 2001, $5,616,000 in 2000 and $4,922,000 in
1999. The reduction in interest expense in 2001 was the result of lower debt
levels towards the end of 2001, as well as lower interest rates, offset however
by an increase in bank fees. The increased interest expense in 2000 was the
result of increased interest rates.
Income taxes
Income tax (expense) benefit for 2001, 2000 and 1999 was $(2,515,000),
$8,873,000 and $(912,000), respectively.
For the year ended December 31, 2001, the current income tax provision of
$723,000 represents state taxes of $537,000, and foreign taxes of $186,000. The
increase of $533,000 in the valuation allowance in 2001 was attributable
primarily to foreign net operating losses for which no tax benefit has been
provided.
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.
The Company had an effective tax rate of 160% for the year ended December 31,
2001. This rate was primarily due to the tax treatment for financial statement
purposes of the sale by the Company in 2001 of certain shares of
available-for-sale securities accounted for pursuant to SFAS 115 "Accounting for
Certain Investments in Debt and Equity Securities."
The Company had an effective tax rate of 26% for the year ended December 31,
2000, which was primarily due to net losses from foreign operations for which no
tax benefit has been provided, offset by an increase in the valuation
allowance.
At December 31, 2001, the Company had a net deferred tax asset of $4,289,000,
which management believes will more likely than not be realized.
Liquidity and capital resources
At December 31, 2001, the Company had cash and cash equivalents totaling
$1,705,000.
The Company believes that cash generated from operations, borrowing availability
under its credit agreement and cash generated from its sale of marketable
securities will be sufficient to fund the working capital and other needs of the
Company. The Company entered into an amended three-year $40 million Revolving
Credit Facility in December 2001 with a syndicate of three banks. At December
31, 2001, there is approximately $7,800,000 available under the facility (see
Note 5). The Company was in compliance with all financial covenants as of
December 31, 2001.
The Company has guaranteed $1,800,000 of GSES' debt through March 2003, and has
also guaranteed the leases for two of FSP's warehouses totaling approximately
$1,513,000 per year through 2007 (see Note 17).
For the year ended December 31, 2001, the Company's working capital decreased by
$4,584,000 to a deficit of $2,750,000. The working capital decrease was
primarily due to the sale of trading securities of $8,830,000, the reduction of
accounts receivables of $4,778,000 and the reduction of costs and estimated
earnings in excess of billings of $3,936,000, offset by a reduction in
short-terms borrowings of $3,824,000 and accounts payable and accrued expenses
of $8,145,000.
In addition, of the remaining restructuring charges of $2,726,000, $1,162,000 is
currently due. In connection with the reserves established for the restructuring
charges in 2000 and 1999, $2,965,000 has been utilized and $1,174,000 has been
reversed during the year ended December 31, 2001.
The decrease in cash and cash equivalents of $782,000 for the year ended
December 31, 2001 resulted from cash used in investing activities of $3,888,000
and financing activities of $8,105,000, primarily offset by cash provided by
operations of $11,187,000. Net cash used in investing activities of $3,888,000
includes $6,700,000 due to the deconsolidation of HMS, $1,451,000 of additions
to property, plant and equipment, $822,000 of additions to intangible assets,
and a $482,000 increase to investments and other assets, offset by proceeds from
the sale of marketable securities of $5,567,000. Net cash used in financing
activities consisted primarily of repayments of short-term borrowings and
long-term debt, offset by net proceeds from HMS's preferred stock and by
proceeds from issuance of long-term debt.
Management discussion of critical accounting policies
The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States of America requires us 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. Our estimates, judgments and assumptions are
continually evaluated based on available information and experience. Because of
the use of estimates inherent in the financial reporting process, actual results
could differ from those estimates.
Certain of our accounting policies require higher degrees of judgment than
others in their application. These include contract revenue and cost
recognition, valuation of accounts receivables, impairment of long-lived and
intangible assets and income tax recognition of deferred tax items which are
summarized below. In addition, Note 1 to the Consolidated Financial Statements
includes further discussion of our significant accounting policies.
Contract revenue and cost recognition.
The Company provides services under time-and-materials, cost-plus-fixed fee and
fixed-price contracts. Under time-and-material and certain costs-plus-fixed fee
and fixed-price contracts under which costs are generally incurred in proportion
with contracted billing schedules, revenue is recognized as costs are incurred
and includes estimated fees at predetermined rates when the customer may be
billed. Such method is expected to result in reasonably consistent profit
margins over the contract term. For certain cost-plus-fixed-fee and fixed price
contracts, the Company follows the guidance contained in AICPA Statement of
Position ("SOP") 81-1, Accounting for Performance of Construction-Type and
Certain Production-Type Contracts. SOP 81-1 requires the use of
percentage-of-completion accounting for long-term contracts that contain
enforceable rights regarding services to be provided and received by the
contracting parties, consideration to be exchanged, and the manner and terms of
settlement, assuming reasonably dependable estimates of revenue and expenses can
be made. The percentage-of-completion methodology generally results in the
recognition of reasonably consistent profit margins over the life of a contract.
Amounts recognized in revenue are calculated using the percentage of services
completed, on a current cumulative cost to total cost basis. Cumulative revenues
recognized may be less or greater than cumulative costs and profits billed at
any point in time during a contract's term. The resulting difference is
recognized as unbilled or deferred revenue. 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 or uncompleted contracts are recorded as a current
liability. Generally contracts provide for the billing of costs incurred and
estimated earnings on a monthly basis.
Any estimation process, including that used in preparing contract accounting
models, involves inherent risk. We reduce the inherent risk relating to revenue
and cost estimates in percentage-of-completion models through corporate policy,
approval and monitoring processes. Risks relating to service delivery, usage,
productivity and other factors are considered in the estimation process. If
sufficient risk exists, a zero-profit methodology is applied to a specific
client contract's percentage-of-completion model whereby the amount of revenue
recognized is limited to the amount of costs incurred until such time as the
risks have been partially or wholly mitigated through performance. Our estimates
of revenues and expenses on client contracts change periodically in the normal
course of business, occasionally due to modifications of our contractual
arrangements. In addition, the implementation of cost saving initiatives and
achievement of productivity gains generally results in a reduction of estimated
total contract expenses on affected client contracts. For all client contracts,
provisions for estimated losses on individual contracts are made in the period
in which the loss first become apparent. There is no certainty that events
beyond anyone's control such as economic downturns or significant prolonged
decreases in performance improvement services could occur.
Valuation of accounts receivables
Provisions for allowance for doubtful accounts are made based on historical loss
experience adjusted for specific credit risks. Measurement of such losses
requires consideration of the Company's historical loss experience, judgments
about customer credit risk, and the need to adjust for current economic
conditions.
Impairment of long-lived tangible and intangible assets
Impairment of long-lived tangible and intangible assets result in a charge to
operations whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of long-lived
tangible assets to be held and used is measured by a comparison of the carrying
amount of the asset to future undiscounted net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by determining the amount by which the
carrying amount of the assets exceeds the fair value of the asset.
The measurement of the future net cash flows to be generated is subject to
management's reasonable expectations with respect to the Company's future
operations and future economic conditions which may affect those cash flows.
The Company periodically assesses the recoverability of intangible assets by
determining whether the amount of related intangible assets can be recovered
through undiscounted future operating cash flows of the acquired entities. The
amount of 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 intangible assets will be
impacted if estimated future operating cash flows are not achieved.
The Company will adopt SFAS 142 in 2002 which requires that goodwill and
intangible assets with indefinite lives will no longer be amortized but will be
subject to impairment review. Long lived tangible assets and intangible assets
with definite lives will be subject to impairment under SFAS No. 144.
Income tax recognition
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for 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. In
assessing the realizability of the deferred tax assets, the Company considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized.
Restructuring reserves
The Company adopted restructuring plans, primarily related to its open
enrollment IT business, in 2000 and 1999. In order to identify and calculate the
associated costs to exit this business, management makes assumptions regarding
estimates of future liabilities for operating leases and other contractual
obligations, severance costs and the net realizable value of assets. Management
believes its estimates, which are reviewed quarterly, to be reasonable and
considers its knowledge of the industry, its previous experience in exiting
activities and valuations from independent third parties if necessary, in
calculation of such estimates.
Recent accounting pronouncements
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.
As of the date of adoption, the Company had unamortized goodwill in the amount
of approximately $56,000,000 and unamortized identifiable intangible assets in
the amount of approximately $1,500,000 both of which will be subject to the
transition provisions of Statements 141 and 142. Amortization expense related to
goodwill was approximately $2,700,000 and $2,800,000 for the years ended
December 31, 2001 and 2000. Because of the extensive effort needed to comply
with adopting Statements 141 and 142, it is not practicable to reasonably
estimate the impact of adopting these Statements on the Company's financial
statements at the date of this report, including whether any transitional
impairment losses will be required to be recognized as the cumulative effect of
a change in accounting principle.
In October 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it
retains many of the fundamental provisions of that Statement.
Statement No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
However, it retains the requirement in Opinion 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. By broadening the presentation of
discontinued operations to include more disposal transactions, the FASB has
enhanced management's ability to provide information that helps financial
statement users to assess the effects of a disposal transaction on the ongoing
operations of an entity. Statement No. 144 is effective for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years.
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, 2001, the Company had approximately $35,000,000 of variable
rate borrowings. The Company estimates that for every 1% fluctuation in general
interest rates, assuming debt levels at December 31, 2001, interest expense
would vary by $350,000.
The Company's net investment in its foreign subsidiaries, including intercompany
balances, at December 31, 2001, was in a net asset position with respect to such
subsidiaries of approximately $1,739,000, 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
those risks and uncertainties detailed in the Company's periodic reports and
registration statements filed with the Securities and Exchange Commission.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF GP STRATEGIES CORPORATION
AND SUBSIDIARIES:
Independent Auditors' Report 30
Consolidated Balance Sheets - December 31, 2001 and 2000 31
Consolidated Statements of Operations - Years ended December 31,
2001, 2000, and 1999 33
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 2001, 2000, and 1999 34
Consolidated Statements of Cash Flows - Years ended December 31,
2001, 2000, and 1999 35
Notes to Consolidated Financial Statements 37
SUPPLEMENTARY DATA (Unaudited)
Selected Quarterly Financial Data 74
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, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
New York, New York
March 28, 2002
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and par value per share)
December 31, 2001 2000
- -------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 1,705 $ 2,487
Trading securities 8,830
Accounts and other receivables (of which
$8,145 and $11,413 are from government
contracts) less allowance for doubtful
accounts of $529 and $859 41,610 46,388
Inventories 1,734 1,688
Costs and estimated earnings in excess of billings on
uncompleted contracts, of which $797 and $532
relate to government contracts 8,579 12,515
Prepaid expenses and other current assets 3,780 3,955
- ------------------------------------------------------------------------------
Total current assets 57,408 75,863
- ------------------------------------------------------------------------------
Investments, advances and marketable securities 30,400 62,093
- ------------------------------------------------------------------------------
Property, plant and equipment, net 8,718 9,787
- ------------------------------------------------------------------------------
Intangible assets, net of accumulated
amortization of $35,162 and $31,618
Goodwill 55,988 58,246
Patents, licenses and deferred charges 2,035 1,746
- ------------------------------------------------------------------------------
58,023 59,992
Deferred tax asset 4,289
Other assets 5,053 4,843
- ------------------------------------------------------------------------------
$163,891 $212,578
- ------------------------------------------------------------------------------
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, 2001 2000
- -------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities
Current maturities of long-term debt $ 637 $ 1,311
Short-term borrowings 32,338 36,162
Accounts payable and accrued expenses 17,089 25,234
Billings in excess of costs and estimated
earnings on uncompleted contracts 10,094 11,322
- ------------------------------------------------------------------------------------------
Total current liabilities 60,158 74,029
- ------------------------------------------------------------------------------------------
Long-term debt less current maturities 6,226 16,301
Deferred tax liability 6,504
Other non-current liabilities 1,564 3,226
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 12,788,743 and 12,491,417
shares (of which 54,373 and 334,937 shares are held in
treasury) 128 125
Class B common stock, authorized 2,800,000 shares, par
value $.01 per share, issued and outstanding 900,000 and
800,000 shares 9 8
Additional paid-in capital 180,078 179,955
Accumulated deficit (87,939) (86,994)
Accumulated other comprehensive income 8,364 27,237
Notes receivable from stockholder (4,095) (4,095)
Treasury stock at cost (602) (3,718)
- ------------------------------------------------------------------------------------------
Total stockholders' equity 95,943 112,518
- ------------------------------------------------------------------------------------------
$163,891 $212,578
- ------------------------------------------------------------------------------------------
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, 2001 2000 1999
- -------------------------------------------------------------------------------------------------
Sales $186,611 $197,467 $224,810
Cost of sales 164,034 177,678 198,431
- ------------------------------------------------------------------------------------------------
Gross margin 22,577 19,789 26,379
- ------------------------------------------------------------------------------------------------
Selling, general and administrative (21,918) (25,968) (36,953)
Interest expense (4,733) (5,616) (4,922)
Investment and other income (loss)
(including interest income of $16,
$142 and $193) 496 (1,306) 223
Loss on investments (320) (3,400) (1,662)
Gains on marketable securities, net 4,294 10,111 3,016
Asset impairment charge (19,245)
Restructuring reversal (charge) 1,174 (8,630) (7,374)
- ------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,570 (34,265) (21,293)
Income tax (expense) benefit (2,515) 8,873 (912)
- ------------------------------------------------------------------------------------------------
Net loss $ (945) (25,392) $ (22,205)
- ------------------------------------------------------------------------------------------------
Net loss per share
Basic $ (.09) (2.04) $ (1.95)
Diluted (.09) (2.04) (1.95)
- -----------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 2001, 2000, and 1999
(in thousands, except for par value per share)
Accumulated Notes re
Class B other Compre- reivable 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) (loss) holder cost equity
- ------------------------------------------------------------------------------------------------------------------------------------
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 income 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
- ----------------------------------------------------------------------------------------------------------------------------------
Other comprehensive loss (18,873) (18,873) (18,873)
Net loss (945) (945) (945)
- -----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss (19,818) (19,818)
Issuance and sale of common
stock and warrants 3 3 2,924 2,930
Issuance of treasury stock
in ex change for class B
common stock (2) (2,801) 3,116 313
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $128 $ 9 $180,078 $(87,939) $ 8,364 $ $(4,095) $ (602) $95,943
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
- ----------------------------------------------------------------------------------------------------------
Years ended December 31, 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------
Cash flows from operations:
Net loss $ (945) $(25,392) $(22,205)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 5,902 6,628 7,794
Issuance of stock for profit incentive plan 1,780 1,668 1,345
Restructuring (reversal) charge (1,174) 8,630 7,374
Gains on trading securities, net (4,294) (10,111) (3,016)
Loss on investments 320 3,400 1,662
Non-cash consultant fees 750
Loss on equity investments and other, net 7 2,389 535
Deferred income taxes 1,112 (9,649) (700)
Non-cash compensation charge (credit) (2,370) 3,809
Asset impairment charge 19,245
Proceeds from sale of trading securities 9,141 2,031 872
Changes in other operating items,
net of effect of acquisitions and disposals:
Accounts and other receivables 4,285 8,997 146
Inventories (197) (177) 474
Costs and estimated earnings in excess of
billings on uncompleted contracts 3,936 1,723 1,157
Prepaid expenses and other current assets (74) 1,030 1,491
Accounts payable and accrued expenses (5,764) (12,899) (1,981)
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,228) 1,324 (4,201)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations $11,187 $ 2,646 $ (9,253)
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
- ----------------------------------------------------------------------------------------------------------
Years ended December 31, 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and
equipment, net $ (1,451) $ (1,040) $ (2,959)
Additions to intangible assets (822) (429) (3,153)
Proceeds from sale of marketable securities 5,567 668 4,185
Deconsolidation of HMS (6,700)
Reduction of (increase to) investments
and other (482) (2,119) 1,381
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,888) (2,920) (546)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of Class B Shares 900 1,200
Net proceeds from issuance of HMS Preferred Stock 6,700
Repayments of short-term borrowings (3,824) (4,116)
Proceeds from short-term borrowings 9,555
Deferred financing costs (1,132)
Proceeds from issuance of long-term debt 3,131 2,640
Repayment of long-term debt (13,880) (1,343) (2,385)
Exercise of common stock
options and warrants 234 940
Repurchase of treasury stock (1,129)
- ----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (8,105) (1,385) 6,981
- ----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents 24 78 79
- ----------------------------------------------------------------------------------------------------------
Net decrease in cash and
cash equivalents (782) (1,581) (2,739)
Cash and cash equivalents at
beginning of year 2,487 4,068 6,807
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year 1,705 $ 2,487 $ 4,068
- ----------------------------------------------------------------------------------------------------------
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 3,958 $ 5,447 $ 5,078
Income taxes $ 407 $ 557 $ 1,097
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 or General Physics). 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 because of continued operating losses 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.
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 Company's fourth
segment is the Hydro Med Sciences Group. In addition, as of December 31, 2001,
the Company has investments in Millennium Cell Inc. (Millennium), Hydro Med
Sciences (HMS) (see Note 3), Five Star Products, Inc. (FSP), GSE Systems, Inc.
(GSES), GTS Duratek, Inc. (Duratek) and Interferon Sciences, Inc. (ISI) (see
Note 3).
Principles of consolidation and investments. The consolidated financial
statements include the operations of the Company and, except for HMS as
discussed below, its majority-owned subsidiaries. Investments in 20% - 50% owned
companies are generally accounted for by the equity method of accounting.
Although the Company owns 100% of the common stock of HMS it no longer has
financial and operating control of the entity and accordingly, effective
December 27, 2001 accounts for its investment in HMS as an equity investment
(see Note 3). All significant intercompany balances and transactions have been
eliminated.
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 $1,705,000 and
$2,487,000 at December 31, 2001 and 2000, respectively, consist of cash and
highly liquid debt instruments with original maturities of three months or less.
Marketable securities. Marketable securities at December 31, 2001 and 2000
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, 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. During the years ended December 31, 2000 and 1999, the Company
realized foreign currency transaction gains of $58,000 and $245,000,
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.
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 adjustments.
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)
The Company has investments in land of approximately $2.6 million, included in
other assets in the Consolidated Balance Sheet, which are currently held for
sale. Management believes the fair value of these investments exceed their
carrying value.
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 a
straight line 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, except in
circumstances where the realization of the gain is not reasonably assured or the
sale relates to issuance of preferred stock.
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 20% 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 public and private
equity securities, including HMS, Millennium, ISI, FSP and GSES.
Reclassification. Certain prior year amounts in the financial statements and
notes thereto have been reclassified to conform 2001 classifications.
1. Description of business and summary of significant accounting policies
(Continued)
Recent Accounting Pronouncements: In July 2001, the FASB issued Statement No.
141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible
Assets. Statement 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001 as well as all
purchase method business combinations completed after June 30, 2001. Statement
141 also specifies criteria intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce may
not be accounted for separately. Statement 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized but
instead tested for impairment at least annually in accordance with the
provisions of Statement 142. Statement 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of.
As of the date of adoption (January 1, 2002), the Company had unamortized
goodwill in the amount of $56 million and unamortized identifiable intangible
assets in the amount of $1.5 million, all of which will be subject to the
transition provisions of Statements 141 and 142. Amortization expense related to
goodwill was $2.7 million and $2.8 million for the years ended December 31, 2001
and 2000, respectively.
In October 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it
retains many of the fundamental provisions of that Statement 121.
Statement No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
However, it retains the requirement in Opinion 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. Statement No. 144 is effective for
fiscal years beginning after December 15, 2001 and interim periods within those
fiscal years. The Company has not yet determined the impact of adopting this
pronouncement on its financial statements.
2. Goodwill
(a) Learning Technologies
In 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. The Company accounted for this transaction
under the purchase method of accounting, and recorded $23,216,000 of goodwill,
which is being amortized over 30 years.
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 (see Note 15). The
Company believes that the remaining unamortized goodwill of approximately
$5,000,000, which relates to the IT project business, is recoverable from future
operations.
(b) Deltapoint Corporation
In 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 under the
purchase method of accounting and has recorded approximately $4,858,000 of
goodwill, which is being amortized over 20 years. Pursuant to the terms of the
future earnout, General Physics agreed to pay a percentage of revenues earned
for each of the three years following acquisition provided minimum revenue and
earnings goals are achieved. These amounts will be recorded as additional
purchase price and as additional goodwill when incurred. Based upon the goals
reached by Deltapoint in 1999, General Physics paid an additional $1,836,000 of
consideration, which was recorded as goodwill. There were no payments required
in 2001 and 2000.
(c) General Physics Corporation
The Company has goodwill resulting from the acquisition of General Physics of
$31,275,000, net of accumulated amortization of $7,125,000, which is being
amortized over 30 years.
3. Investments, advances and marketable securities
Investment and advances
At December 31, 2001 and 2000, Investments and advances were comprised of the
following:
December 31,
2001 2000
---------- ----------
Five Star Products, Inc. $ 6,238 $ 6,507
GSE Systems, Inc. 3,004 3,021
Hydro Med Sciences, Inc. 1,296 -
Other 419 817
------- --------
$10,957 $10,345
======= =======
(a) Five Star Products, Inc.
FSP is awholesale distributor of home decorating, hardware and finishing products, in the
northeast. In 1998, the Company sold substantially all operating assetssince
1994, a Director of its
wholly-owned subsidiary, Five Star Group, Inc., to FSP for $16,476,000 and a
$5,000,000 senior unsecured 8% note. The Note, as amended, is due in 2004, with
interest due quarterly. The amendment, which extended the due date of the Note
until September 30, 2004, also provides that the Company can receive quarterly
payments of principal from FSP, if FSP achieves certain financial performance
benchmarks. At December 31, 2001, the Company owned approximately 37.1% of FSP
and accounts for its investment in FSP using the equity method. At December 31,
2001, the Company's investment in FSP was $6,238,000, including the $5,000,000
senior unsecured 8% note. The Company recorded write-downs on this investment of
$200,000 and $2,400,000 in 2001 and 2000, respectively, which are included in
Loss on investments. The Company is amortizing, over 10 years, the excess of its
investment in FSP over its basis of the underlying net assets, which was
approximately $330,000 at December 31, 2001.
(a) Five Star Products, Inc. (Continued)
Information relating to the Company's investment in FSP is as follows (in
thousands):
2001 2000
----------------------------------------------------------------------
Long-term note receivable $ 5,000 $ 5,000
Number of shares 4,882 4,882
Carrying amount of shares $ 1,238 $ 1,494
Equity income included in
Investment and other income, net $ 155 $ 291
----------------------------------------------------------------------
Condensed financial information for FSP as of December 31, 2001 and 2000 and for
the years then ended is as follows (in thousands):
December 31,
-----------------------
2001 2000
---- ----
Current assets $35,045 $35,112
Non current assets 1,139 1,205
Current liabilities 28,762 29,312
Non current liabilities 5,000 5,000
Stockholders' equity 2,422 2,005
Sales 94,908 93,878
Gross profit 16,054 16,506
Net income 417 775
(b) GSE Systems, Inc. GSES designs, develops("GSE"), a software design and delivers businessdevelopment
company, since 1994, and technology solutions by
applying high technology-related process control, data acquisition, simulation,
and business software, systems and services to the energy, process and
manufacturing industries worldwide. At December 31, 2001, the Company owned
approximately 20.2% of GSES and accounts for its investment in GSES using the
equity method. The Company recorded write-downs on investments of $1,000,000
during both 2000 and 1999, which are included in Loss on investments. The
Company is amortizing, over 15 years, the excess of its investment in GSES over
its share of GSES's underlying net assets, which was approximately $994,000 at
December 31, 2001.
(b) GSE Systems, Inc. (Continued)
Information relating to the Company's investment in GSES is as follows (in
thousands):
2001 2000
- --------------------------------------------------------------------------------
Included in Investments, advances and marketable securities:
Number of shares 1,159 1,159
Carrying amount $ 3,004 $ 3,016
Equity income (loss) included in Investment
and other income, net 83 (1,936)
- -------------------------------------------------------------------------------
Condensed financial information for GSES as of December 31, 2001 and 2000 and
for the years then ended is as follows (in thousands):
- -------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------
Current assets $19,622 $20,368
Non current assets 14,052 15,581
Current liabilities 12,604 14,846
Non current liabilities 7,218 12,390
Stockholders' equity 13,852 8,713
Revenue 50,331 55,715
Gross profit 13,950 14,893
Net (loss) income 259 (8,814)
- -------------------------------------------------------------------------------
(c) Hydro Med Sciences, Inc.
HMS is a specialty pharmaceutical company engaged in the development and
commercialization of prescription pharmaceuticals principally utilizing HMS's
patented Hydron drug delivery technology. The Hydron drug delivery system is a
subcutaneous implant that controls the amount, timing and locationChairman of the releaseBoard of drug compounds into the body. The lead applicationGSE since 1997. Mr. Feldman is
also Chairman of the Hydron
technology isNew England Colleges Fund and a twelve-month implant that delivers the luteinizing hormone
releasing hormone histrelin for the treatmentTrustee of metastatic prostate cancer (the
"Histrelin Implant").
Prior to June 2000, HMS operated asNorthern
Westchester Hospital. Age 73
Scott N. Greenberg has been a divisionDirector of the Company however, in
connection with an offeringsince 1987 and
President and Chief Financial Officer since June 2001. He was Executive Vice
President and Chief Financial Officer from 1998 to June 2001, Vice President and
Chief Financial Officer from 1989 to 1998, and Vice President, Finance from 1985
to 1989. He has been a Director of Five Star since 1998 and a director of GSE
since 1999. Age 45
John C. McAuliffe has been a Director of the Company's convertible subordinated
exchangeable notes (see Note 7(a)Company since 1997, Senior
Vice President of the Company since 1998, and President of General Physics
Corporation ("GPC"), HMS was incorporated as a separate company
and became a wholly-owned subsidiary of the Company, since 1997. He
was Executive Vice President and Chief Operating Officer of GPC from 1994 to
1997; Senior Vice President from 1993 to 1994; Chief Financial Officer and
Treasurer from 1992 to 1993; and Vice President, Finance from 1991 to 1992. Age
43
Marshall S. Geller has been a Director of the Company since February
2002. He is Co-Founder and Senior Manager of St. Cloud Capital Partners LP, a
Small Business Investment Company formed in 2001, and Chairman of the Board,
Chief Executive Officer, and Founding Partner of Geller & Friend Capital
Partners, Inc., a private merchant bank formed in November 1995. From 1991 to
October 1995, Mr. Geller was the Senior Managing Partner of Golenberg & Geller,
Inc., a merchant banking investment company. Mr. Geller has spent more than
thirty years in corporate finance and investment banking, including twenty years
as Senior Managing Director for Bear, Stearns and Company, with oversight of all
operations in Los Angeles, San Francisco, Chicago, Hong Kong and the Far East.
Mr. Geller is also a director of Hexcel Corporation, ValueVision International,
Inc., Ballantyne of Omaha, Inc., and Concepts Direct, Inc. Mr. Geller serves on
the Dean's Advisory Council for the College of Business & Economics at
California State University, Los Angeles. Age: 63.
Sheldon L. Glashow, Ph.D. has been a Director of the Company since
1997. Dr. Glashow has been the Arthur G. B. Metcalf Professor of Science and
University Professor at Boston University since 2000. Prior to that he was the
Higgins Professor of Physics and the Mellon Professor of the Sciences at Harvard
University. He was the recipient of the Nobel Prize in Physics in 1979. He has
been a Director of GSE since 1995 and a Director of Interferon Sciences, Inc., a
biopharmaceutical company, since 1991. Dr. Glashow is a foreign member of the
Russian Academy of Sciences. Age 69
Roald Hoffmann, Ph.D. has been a Director of the Company since 1988. He
has been the John Newman Professor of Physical Science at Cornell University
since 1974. Dr. Hoffmann is a member of the National Academy of Sciences and the
American Academy of Arts and Sciences. In 1981, he shared the Nobel Prize in
Chemistry with Dr. Kenichi Fukui. Age 64
Bernard M. Kauderer has been a Director of the Company since 1997. He
retired from the United States Navy in 1986 as Vice Admiral. He was Former
Commander, Submarine Force, United States Atlantic and Pacific Fleets. He has
been a consultant to industry and government since 1986. Age 70
Ogden R. Reid has been a Director of the Company since 1979. Mr. Reid
had been Editor and Publisher of the New York Herald Tribune and of its
International Edition; United States Ambassador to Israel; a six-term member of
the United States Congress and a New York State Environmental Commissioner. Age
76
Gordon Smale has been a Director of the Company since 1997. He has been
President and a Director of Atlantic Oil Corporation, a producing oil and gas
company, since 1970; President of Atmic, Inc., an oil and gas management
company, since 1983; Chairman of the Board of CamWest Inc., an oil and gas
exploration and development company, since 1992; and Manager of Cedar Ridge LLC,
a methane coal gas exploration and development company, since 1994. Age 70
Andrea D. Kantor has been Vice President and General Counsel since
2001, Vice President and Corporate Counsel from 1999 to 2001, and Associate
General Counsel from 1988 to 1999. Ms. Kantor is a member of the Association of
the Bar of the City of New York and a member of the Corporate and Securities Law
Committee of the American Corporate Counsel Association. Age 45
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's securities, to file reports of ownership and changes in ownership with
the SEC and the New York Stock Exchange. Officers, directors and greater than
10% shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of copies of such forms received by it and
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during the period January
1, 2001 to April 15, 2002, all filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with.
Item 11. EXECUTIVE COMPENSATION
The following table and notes present the compensation paid by the
Company and subsidiaries to its Chief Executive Officer and the Company's other
executive officers.
Summary Compensation Table
Annual Long Term
Compensation Compensation
Other
Annual Securities All Other
Salary Bonus Compensation Underlying Compensation
Name and Principal Position Year ($) ($) ($) Options(#) ($)
- --------------------------- ---- --- --- --- ---------- ---
Jerome I. Feldman................... 2001 413,915 -- -- -- 82,622(1)
Chairman and Chief 2000 425,000 -- -- -- 100,472(2)
Executive Officer 1999 450,899 -- -- 100,000(3) 74,067(4)
Scott N. Greenberg.................. 2001 233,158 -- -- 7,121(5)
President and Chief 2000 234,233 -- 65,560(6) -- 6,146(7)
Financial Officer 1999 235,300 -- -- 100,000(3) 28,888(8)
John C. McAuliffe................... 2001 271,541(9) -- -- -- 6,818(10)
Senior Vice President 2000 259,039(9) -- 8,906(6) 5,000(3) 6,033(11)
President, General Physics 1999 241,313(9) 410,000(9) -- 120,000(3) 26,239(12)
Corporation
Andrea D. Kantor.................... 2001 192,410 -- -- 6,841(13)
Vice President and 2000 189,920 -- 8,906(6) -- 6,012(14)
General Counsel 1999 178,113 -- -- 15,000(3) 3,961(15)
(1) Includes $50,000 for services rendered to GPC; a $4,589 matching
contribution to General Physics Corporation Profit Investment Plan (the
"GPC PIP Plan); $19,752 for split dollar life insurance premiums; and
$8,281 for group term life insurance premiums.
(2) Includes $62,500 for services rendered to GPC; a $5,250 matching
contribution to GPC PIP Plan; $24,441 for split dollar life
insurance premiums; and $8,281 for group term life insurance premiums.
(3) Consists of options to purchase shares of Common Stock granted pursuant
to the Company's 1973 Non-Qualified Stock Option Plan, as amended
(the "Plan").
(4) Includes $49,000 in cash and Common Stock received in connection with
the merger of the Company and GPC in 1997 (the "Merger"); a $4,000
matching contribution to the Company's 401(k) Savings Plan (the "401(k)
Savings Plan"); and $21,067 for split dollar life insurance premiums.
(5) Includes a $5,985 matching contribution to the GPC PIP Plan; $533 for
split dollar life insurance premiums; and $603 group term life
insurance premiums.
(6) Grant date present values of options to purchase shares of common stock
of Millennium Cell Inc. ("Millennium Cell") owned by the Company, which
options were granted on February 11, 2000 pursuant to the terms of the
GP Strategies Millennium Cell, LLC Plan. Such options have an exercise
price of $.91 per share (the Company's estimate of the fair market
value on the date of grant is $.70), were either fully exercisable on
the date of grant or 50% exercisable on the date of grant and 50%
exercisable on the first anniversary of the date of grant, and have an
expiration date of September 30, 2002. Grant date present values were
determined using the Black-Scholes option pricing model, using the
following assumptions: (a) time of exercise is May 11, 2002, (b) stock
price volatility is 75%, (c) the risk-free rate of return is 5.75%, and
(d) the dividend yield is 0%. No discount was applied to the option
values to account for the facts that the options are not freely
transferable and are subject to the risk of forfeiture. Includes
options to purchase 241,919, 32,865 and 32,865 shares of Millennium
Cell common stock ("Millennium Common Stock") owned by the Company,
granted to Mr. Greenberg, Mr. McAuliffe and Ms. Kantor, respectively.
(7) Includes a $5,250 matching contribution to the GPC PIP Plan; $494 for
split dollar life insurance premiums; and $402 group term life
insurance premiums.
(8) Includes $24,500 in cash and Common Stock received in connection with
the Merger; a $4,000 matching contribution to the 401(k) Savings
Plan; and $388 for split dollar life insurance premiums.
(9) Paid by GPC for services rendered solely to GPC.
(10) Includes a $5,985 matching contribution to the GPC PIP Plan; $533 for
split dollar life insurance premiums; and $300 for group term life
insurance premiums.
(11) Includes a $5,250 matching contribution to the GPC PIP Plan; $483
for split dollar life insurance premiums; and $300 for group term life
insurance premiums.
(12) Includes $20,134 in cash and Common Stock received in connection with
the Merger; $5,700 contributed by GPC under the GPC Plan; and $405
for split dollar life insurance premiums paid by GPC.
(13) Includes a $6,043 matching contribution to the GPC PIP Plan; $396 for
split dollar life insurance premiums; and $402 for group term life
insurance premiums.
(14) Includes a $5,250 matching contribution to the GPC PIP Plan; $360 for
split dollar life insurance premiums; and $402 for group term life
insurance premiums.
(15) Includes a $3,245 matching contribution to the 401(k) Savings Plan;
$289 for split dollar life insurance premiums; and $427 for group term
life insurance premiums.
Option Grants in 2001
No options were granted to the named executive officers in 2001.
Aggregate Option Exercises in 2001
And Fiscal Year-End Option Values
The following table and notes contain information concerning the
exercise of stock options under the Plan during 2001 and unexercised options
under the Plan held at the end of 2001 by the named executive officers. Unless
otherwise indicated, options are to purchase shares of Common Stock.
Shares Exercisable/Unexercisable Value of Unexercised
Acquired on Value Options at In-the-Money Options at
Exercise Realized December 31, 2001(#) December 31, 2001($)(1)
-------------------- -----------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --- --- ----------- ------------- ----------- -------------
Jerome I. Feldman.......... -0- -0- 13,623 40,000 -0- -0-
Scott N. Greenberg......... -0- -0- 145,875 40,000 -0- -0-
John C. McAuliffe.......... -0- -0- 122,570 72,430 -0- -0-
Andrea D. Kantor........... -0- -0- 21,500 6,000 -0- -0-
...........
(1) Calculated based on $3.80, which was the closing price of the Common
Stock as reported by the New York Stock Exchange on December 31, 2001,
which was below the exercise price of the stock options.
During 2001, Scott N. Greenberg exercised all 1,000 of his remaining
options granted under the GTS Duratek, Inc. Stock Option Plan of the Company and
realized $2,800 of value, and Andrea D. Kantor exercised all 5,000 of her
remaining options granted under the GTS Duratek, Inc. Stock Option Plan of the
Company and realized $5,655 of value, based in each case on the difference
between the exercise price of the options and the market price of Duratek common
stock on the exercise date.
During 2001, John C. McAuliffe exercised 16,433 of his options granted
under the GP Strategies Millennium Cell, LLC Plan and realized $185,360 of
value, and Andrea D. Kantor exercised 10,000 of her options granted under the GP
Strategies Millennium Cell, LLC Plan and realized $90,000 of value, based in
each case on the difference between the exercise price of the options and the
market price of Millennium Common Stock on the exercise date.
Compensation Committee Report on Executive Compensation
The Compensation Committee is responsible for administering the
compensation program for the executive officers of the Company. The Compensation
Committee consists of Gordon Smale.
The Compensation Committee's executive compensation policies are
designed to offer competitive compensation opportunities for all executives
which are based on personal performance, individual initiative, and achievement,
as well as assisting the Company in attracting and retaining qualified
executives. The Compensation Committee also endorses the position that stock
(c)ownership by management and stock-based compensation arrangements are beneficial
in aligning management's and stockholders' interests in the enhancement of
stockholder value.
Compensation paid to the Company's executive officers generally
consists of the following elements: base salary, annual bonus, and long-term
compensation in the form of stock options and the GPC PIP Plan. The compensation
for the executive officers of the Company is determined by a consideration of
each officer's initiative and contribution to overall corporate performance and
the officer's managerial abilities and performance in any special projects that
the officer may have undertaken. Competitive base salaries that reflect the
individual's level of responsibility are important elements of the Company's
executive compensation philosophy. Subjective considerations of individual
performance are considered by the Compensation Committee in establishing annual
bonuses and other incentive compensation.
The Company has certain broad-based employee benefit plans in which all
employees, including the named executives, are permitted to participate on the
same terms and conditions relating to eligibility and subject to the same
limitations on amounts that may be contributed. In 2001, the Company also made
matching contributions to the GPC PIP Plan for those participants.
Mr. Feldman's 2001 Compensation
Mr. Feldman's compensation in 2001 was determined principally by the
terms of his employment agreement with the Company, which was negotiated with
the Compensation Committee of the Board of Directors. Effective June 1, 1999,
the Company and Mr. Feldman entered into a five-year employment agreement, which
is described below. In considering Mr. Feldman's compensation and the terms of
the employment agreement, the Compensation Committee considered Mr. Feldman's
significant contribution to the strategic redirection of the Company over the
last several years and his role with respect to the divestiture of the Company's
non-core assets. Mr. Feldman was instrumental in achieving a $17.2 million
reduction since December 2000 in the Company's outstanding debt under its
revolving credit facilities, primarily through the receipt of gross proceeds of
$14,624,000 in 2001 from the sale of 2,081,000 shares of the Company's
Millennium Common Stock. In addition, Mr. Feldman led management's efforts in
securing a new three-year, $40 million revolving credit agreement. However,
based on the Company's disappointing financial performance in 2001, the
Compensation Committee did not believe that a bonus for Mr. Feldman was
warranted in 2001.
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934 that might incorporate future filings make by the Company
under those statutes, in whole or in part, this report shall not be deemed to be
incorporated by reference into any such filings, nor will this report be
incorporated by reference into any future filings make by the Company under
those statutes.
Gordon Smale
Directors Compensation
Directors who are not employees of the Company or its subsidiaries
receive an annual fee of $5,000, payable quarterly equally in cash and stock,
and $1,000 for each meeting of the Board of Directors attended, and generally do
not receive any additional compensation for service on the committees of the
Board of Directors other than the Audit Committee. Employees of the Company or
its subsidiaries do not receive additional compensation for serving as
directors. During 2001, Mr. Reid, Admiral Kauderer, and Dr. Glashow each
received $1,000 for service on the Audit Committee. Mr. Reid also received
$10,000 for his role in obtaining financing for the Company's Hydro Med
Sciences, Inc. (Continued)
On December 27, 2001, HMS completed a $7 million private placement of HMS Series
A Convertible Preferred Stock (the "Preferred Stock") to certain institutional
investors. The financing was led by Sanders Morris Harris, an experienced life
sciences investor. HMS intends to use the proceedssubsidiary.
Each of the offering to fund the
Phase 3 clinical studiesdirectors of the Histrelin Implant for the treatment of
metastatic prostate cancer, as well as to fund its general research and
development and other operating expenses.
The Company currently owns 100% of HMS's common stock but no longer has
financial and operating control of HMS. As a conditionwho are not employees of the
private placement,
the Company contractually gave up operating control over HMS through an
Investors Rights Agreement. Therefore, through December 27, 2001, the operating
results of HMS are consolidated within the Consolidated Statements of
Operations. However, subsequent to that date the Company accounts foror its investment in HMSsubsidiaries have been granted options under the equity method.
The PreferredGP Strategies
Millennium Cell, LLC Plan to purchase 10,955 shares of Millennium Common Stock
is convertible at any time atowned by the optionCompany. During 2001, Mr. Reid exercised 5,000 of his options and
realized $41,203 of value, and Mr. Smale exercised 1,600 of his options and
realized $13,904 of value, in each case based on the difference between the
exercise price of the holder into
approximately 41% of HMS's common stock and participates in dividends with HMS
common stock on an as converted basis. Certain of the Preferred Stock holders
hold the HMS Notes which can be exchanged for 19.9% of the outstanding common
stock of HMS common stock on a fully diluted basis. If such holders exercise the
exchange rightoptions and the Preferredmarket price of Millennium Common Stock is converted to common stock of HMS,on
the Company's ownership of HMS would then be reduced to approximately 47%.
Condensed financial information for HMS as of December 31, 2001 (unaudited) is
as follows:
2001
Total assets $ 8,266
Stockholders' equity $ 8,266
------------------------------------------------------------------------
Marketable securities
At December 31, 2001 and 2000, Marketable securities were comprised of the
following:
December 31,
2001 2000
-------- -------
Millennium Cell, Inc. $19,341 $51,500
GTS Duratek, Inc. 22 135
Interferon Sciences, Inc. 80 113
-------- -------
$19,443 $51,748
======= =======
(a) Millennium Cell Inc.
Millennium is a development stage company, which is engaged in the development
of a patented and proprietary chemical process that converts sodium borohydride
to hydrogen.exercise date.
Employment Agreements
Jerome I. Feldman. As of December 31, 2001June 1, 1999, Jerome I. Feldman and 2000, the Company had a 14% and 22%
ownership interest, respectively, representing approximately 3,703,000 and
5,900,000 shares, including approximately 446,000 and 547,000 shares of common
stock subject to options, which were granted to the Company's employees to
acquire Millennium shares from the Company's holdings. Prior to August 14, 2000,
the Company had accounted for this investment under the equity method of
accounting.
On August 14, 2000, Millennium completed an IPO of 3,000,000 shares of common
stock at a price of $10 per share. Based upon the consummation of the IPO, which
reduced the Company's holdings in Millennium from approximately 27% to
approximately 22%, and certain organizational changes, including lack of board
representation, the Company believed that it did not have significant influence
on the operating and financial policies of Millennium and as such believed that
it was appropriate to account for this investment under the cost method of
accounting.
In connection with the IPO in 2000, the Company recorded an increase of
approximately $7,114,000 in its investment in Millennium, which was credited,
net of taxes of $2,600,000, to additional paid-in capital.
The majority of the Company's shares of common stock in Millennium were subject
to a lock-up provision until April 6, 2001, and accordingly could not be sold by
the Company before that date, unless the provision was waived by the
underwriter. In addition, the Company's shares (excluding the 446,000 shares
subject to options) have been pledged to its bank to secure its credit facility.
(a) Millennium Cell Inc. (Continued)
On August 23, 2000, the
Company entered into an employment agreement pursuant to which Morgan Keegan & Company, on behalf of allMr. Feldman is
employed as Chief Executive Officer of the underwriters, provided its
consent forCompany until May 31, 2004, unless
sooner terminated. The Employment Agreement also provides that Mr. Feldman is
employed as President of the Company, to engage in a private salebut effective June 12, 2001, Mr. Feldman
resigned as President of 1,000,000 shares of
common stock of Millennium. As the Company intendedand Scott Greenberg was elected to disposethat
office.
Commencing June 1, 1999, Mr. Feldman's base annual salary is $400,000,
with annual increases of these shares
within the near term, the underwriters agreed to waive the lock-up provisions on
these shares. Accordingly, the Company classified these shares as trading
securities. During the fourth quarter of 2000, GP sold 138,500 shares of
Millennium. As a result of the sale of the shares, the Company recognized a gain
of $1,818,434. Therefore, at December 31, 2000, the Company owned 861,500 shares
included in trading securities with a value of $8,830,375.
In 2001, the Company sold the remaining 861,500 shares for proceeds of
$9,141,440. In addition, the Company sold approximately 1,220,000 shares from
available for sale securities for $5,482,216. For the year ended December 31,
2001, the Company has recognized a net gain of $4,294,000, which is included in
gain on marketable securities, net. The approximately 3,703,000 shares remaining
are classified as available for sale securities. At December 31, 2001, these
shares had a fair value of approximately $19,341,000.
On February 11, 2000, the Company granted options to certain of its employees
pursuant to the GP Strategies Corporation Millennium Cell, LLC Option Plan (the
"Millennium Option Plan") to purchase an aggregate of approximately 547,000 of
its shares of Millennium common stock, of which there are currently
approximately 446,000 options outstanding. These options vest over either a one
year or two year period and expire on September 30, 2002, as amended. The
Company may receive approximately $500,000 (of which approximately $93,000 was
received in 2001) upon exercise of all options pursuant to the Millennium Option
Plan. At December 31, 2001 and 2000, the Company recorded net deferred
compensation of $30,000 and $1,097,000, to be amortized over the remaining
vesting period of the options, and a liability to employees of $2,008,000 and $
5,406,000, respectively. These amounts are included in Prepaid expenses and
other current assets and Accounts payable and accrued expenses, respectively, in
the accompanying Consolidated Balance Sheets. Pursuant to the vesting provisions
of the Millennium Option Plan, the Company recorded a non-cash compensation
(credit) expense of $(2,370,000) and $3,809,000 for the years ended December 31,
2001 and 2000, respectively, which is included in Selling, general and
administrative expenses in the accompanying Consolidated Statement of
Operations.
(a) Millennium Cell Inc. (Continued)
Information relating to the Company's investment in Millennium is as follows at
December 31, 2001 and 2000 (in thousands):
2001 2000
- --------------------------------------------------------------------------------
Included in Trading securities:
Number of shares $ - 862
Market value of shares - $ 8,830
Included in Investments, advances and marketable securities:
Number of shares 3,703 5,024
Available-for-sale equity securities,
at market $19,341 $51,500
Total number of shares owned 3,703 5,886
Market value of shares $19,341 $60,330
- --------------------------------------------------------------------------------
(b) GTS Duratek, Inc.
At December 31, 2001 and 2000, the Company owned approximately 5,000 and 25,000
shares, respectively, of the common stock of Duratek. Duratek implements
technologies and provides services, many of which are related to managing
remediation and treating radioactive and hydrocarbon waste.
In 2000, the Company recognized a gain of $82,000 related to the sale of 38,422
shares of Duratek common stock, for proceeds of $170,767.
In 1999, the Company recognized a gain of $3,016,000 related to the sale of
927,000 shares of Duratek common stock, which generated net proceeds of
$5,022,000.
Information relating to the Company's investment in Duratek is as follows (in
thousands):
2001 2000
- -----------------------------------------------------------------------------
Number of shares 5 20
Available-for-sale equity securities, at market $ 22 $126
Number of shares 5
Securities held for long-term investment, at cost $ $ 9
Total carrying amount $ 22 $135
Total number of shares owned 5 25
Market value of shares $ 22 $153
- -----------------------------------------------------------------------------
(c) Interferon Sciences, Inc.
ISI is a biopharmaceutical company engaged in the manufacture and sale of
pharmaceutical products based on its highly purified, natural source
multispecies alpha interferon. During 2001 and 2000, the Company recorded
(losses) gains on investments of $(55,000) and $432,112 related to the sale of
approximately 118,000 and 311,000 shares, respectively, of ISI. During 1999, the
Company recorded losses on investment of $1,057,000 to recognize "an other than
temporary" decline in value of its investment in ISI.
In an agreement dated March 25, 1999, the Company agreed to lend ISI $500,000
(the "ISI Debt"). In return, ISI granted the Company (i) a first mortgage on
ISI's real estate, (ii) a two-year option to purchase ISI's real estate,
provided that ISI has terminated its operations and certain other specified ISI
debt has been repaid, and (iii) a two-year right of first refusal in the event
ISI desires to sell its real estate. ISI issued the Company 500,000 shares of
ISI common stock and a five-year warrant to purchase 500,000 shares of ISI
common stock at a price of $1 per share as a loan origination fee. Pursuant to
the agreement, as amended, ISI issued a note due March 15, 2002, to the Company
for $500,000 of which approximately $400,000 is outstanding as of December 31,
2001. Interest accrues at the rate of 6% per annum. The Company received an
additional repayment of $100,000 in January 2002. The terms of the note are
currently being renegotiated. The Company's rights and collateral under the ISI
Debt remain in effect.
Information relating to the Company's investment in ISI is as follows (in
thousands):
2001 2000
- --------------------------------------------------------------------------------
Number of shares 181 299
Available-for-sale equity securities, at market $ 80 $ 113
- --------------------------------------------------------------------------------
4. Property, plant and equipment
Property, plant and equipment consists of the following (in thousands):
December 31, 2001 2000
- -------------------------------------------------------------------------------
Land $ 915 $ 915
Buildings and improvements 3,515 3,511
Machinery and equipment 12,849 13,799
Furniture and fixtures 16,111 17,355
Leasehold improvements 4,147 4,853
- -------------------------------------------------------------------------------
37,537 40,433
Accumulated depreciation and amortization (28,819) (30,646)
- -------------------------------------------------------------------------------
$ 8,718 $ 9,787
- -------------------------------------------------------------------------------
5. Short-term borrowings$25,000. The Company and certain of its wholly owned subsidiaries entered intoMr. Feldman have agreed to
negotiate in good faith to formulate an Amended
and Restated secured $40,000,000 Revolving Credit (the "Amended Agreement") with
various banksannual incentive based compensation
arrangement based on December 14, 2001 which amended in its entirety the Company's former credit facility discussed below. The Amended Agreement reduced the
commitment pursuantachieving certain financial milestones which
will be fair and equitable to the revolving facility to $40,000,000 (subject to
borrowing base limitations specified in the Amended Agreement). The current
amount outstanding under the revolving credit agreement is $32,100,000. The
interest rates on the revolving credit facility are currently at prime plus
1.50%Mr. Feldman and Eurodollar plus 3.00%, at the Company's option. Based upon the
financial performance of the Company, the interest rates can be reduced. The
Amended Agreement is secured by all of the receivables and inventory of the
Company as well as the common stock of the Company's material domestic
subsidiaries and 65% of the common stock of the Company's foreign subsidiaries.
The Amended Agreement also provides for additional security consisting of
certain real property, personal property and substantially all marketable
securities owned by the Company and its subsidiaries. The Amended Agreement
contains revised minimum consolidated net worth, fixed charge coverage, leverage
ratio and interest coverage ratio. The Amended Agreement also contains certain
restrictive covenants, includingstockholders.
Each December, the prohibition on future acquisitions, and
providesBoard of Directors is required to determine Mr. Feldman's
bonus for mandatory prepaymentthe year then ending, based upon the occurrenceCompany's revenues, profits or
losses, financing activities, and such other factors deemed relevant by the
Board of certain events. At
December 31, 2001,Directors. Mr. Feldman did not receive a bonus for the year 2001.
Pursuant to the employment agreement entered into in 1999, the Company had approximately $7,800,000 available to be
borrowedgranted
Mr. Feldman under the Amended Agreement. At December 31, 2001, the Company was in
compliance with all of its financial covenants.
The Company and General Physics Canada Ltd. (GP Canada), a wholly-owned
subsidiary of General Physics, had previously entered into a credit agreement,
dated as of June 15, 1998, with various banks providing for a secured credit
facility of $80,000,000 (the "Credit Facility") comprised of a revolving credit
facility of $65,000,000 expiring on June 15, 2001 and a five-year term loan of
$15,000,000. The five year term loan was payable in quarterly installments of
$187,500 commencing on October 1, 1998 with a final payment of $11,250,000 due
on June 15, 2003. All amounts outstanding under the term loan were repaid in
2001 in connection with the Company's Amended Agreement.
Dueoption plan, options to the Company's restructuring charges and operating losses in 1999 and the
restructuring charges, operating losses and asset impairment changes in 2000,
primarily related to General Physics' IT Group, the Company was not in
compliance with respect to the financial covenants in the Credit Facility as of
September 30, 1999, December 31, 1999, March 31, 2000 and June 30, 2000. The
Company and its lenders entered into agreements dated as of April 12, 2000 and
July 31, 2000 providing for waivers of compliance with such covenants at each of
those four dates. The Company was in compliance with all covenants under the
facility in December 31, 2000.
5. Short-term borrowings (Continued)
On August 29, 2000, the Company and certain of its wholly owned subsidiaries
entered into an Amended and Restated secured $63,500,000 Revolving Credit and
Term Agreement (the "2000 Amended Agreement") which amended in its entirety the
Credit Facility. The Amended Agreement reduced the commitment pursuant to the
revolving Credit Facility to $49,700,000. The interest rates increased on both
the revolving credit facility and the term loan to prime plus 1.25% (increased
from .50%) and Eurodollar plus 2.75% (increased from 2.00%), respectively. The
2000 Amended Agreement contained revised minimum net worth, fixed charge
coverage, EBITDA and consolidated liabilities to tangible net worth covenants.
6. Accounts payable and accrued expenses
Accounts payable and accrued expenses are comprised of the following (in
thousands):
December 31, 2001 2000
- ----------------------------------------------------------------------------
Accounts payable $ 6,661 $ 8,110
Payroll and related costs 2,340 2,690
Restructuring reserve 1,162 3,652
Other 6,926 10,782
- ----------------------------------------------------------------------------
$ 17,089 $ 25,234
- ----------------------------------------------------------------------------
7. Long-term debt
Long-term debt is comprised of the following (in thousands):
December 31, 2001 2000
- ----------------------------------------------------------------------------
Term loan (Note 5) $ $13,313
6%Convertible Exchangeable Notes (a) 2,640 2,640
Senior Subordinated Debentures (b) 641 758
MXL Pennsylvania Mortgage (c) 1,605
MXL Illinois Mortgage (d) 1,237
Other 740 901
- ----------------------------------------------------------------------------
$ 6,863 $17,612
Less current maturities (637) (1,311)
- ----------------------------------------------------------------------------
$ 6,226 $16,301
- ----------------------------------------------------------------------------
7. Long-term debt (Continued)
(a) On July 2000, the Company in a private placement transaction with two
institutional investors, received $2,640,000 for 6% Convertible Exchangeable
Notes due June 30, 2003 (the "HMS Notes"). The HMS Notes, at the option of the
holders, may be exchanged for 19.9% of the outstanding capital stock of HMS on a
fully diluted basis, as defined in the HMS Notes, or intopurchase 100,000 shares
of the Company's Common Stock at a conversion ratean exercise price of $7.50$8.00 per share, subjectthe
market price on the date of grant. Such options vested 20% immediately and 20%
on each June 1 commencing June 1, 2000 and terminate on May 31, 2004. The
Company is required to adjustment, as provided inprovide Mr. Feldman with an automobile, to pay for
country club dues, which membership is to be used primarily to further the
HMS Notes.Company's business, and to maintain the existing life and disability insurance
covering Mr. Feldman. The holdersmaturity date of the HMS NotesCompany's presently outstanding
loans to Mr. Feldman was extended to May 31, 2004, and all contractual
restrictions imposed by the Company on the disposition by Mr. Feldman of shares
of Class B Stock were terminated.
The Company may terminate the employment agreement for Cause, which is
defined as (i) the willful and continued failure by Mr. Feldman to substantially
perform his duties or obligations or (ii) the willful engaging by Mr. Feldman in
misconduct which is materially monetarily injurious to the Company. If the
employment agreement is terminated for Cause, the Company is required to pay Mr.
Feldman his full salary through the date his employment is terminated. If Mr.
Feldman's employment is terminated by his death, the Company is required to pay
to his heirs, in a lump sum, an amount equal to his full salary for the period
ending May 31, 2004. If, as a result of Mr. Feldman's incapacity due to physical
or mental illness, he is absent from his duties on a full-time basis for the
entire period of six consecutive months, and he does not return within 30 days
of notice, the Company may terminate his employment. Mr. Feldman is entitled to
receive his full salary during the disability period until his employment is
terminated.
Mr. Feldman can convertterminate the employment agreement for Good Reason,
which is defined to include (i) a change in control of the Company or exchange(ii) a
failure by the Company to comply with any material provision of the employment
agreement which has not been cured within ten days after notice. A "change in
control" of the Company is defined as (i) a change in control of a nature that
would be required to be reported in response to Item 1(a) of Current Report on
Form 8-K ("Form 8-K") pursuant to Section 13 or 15(d) of the Exchange Act, other
than a change of control resulting in control by Mr. Feldman or a group
including Mr. Feldman, (ii) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), other than Mr. Feldman or a group including Mr.
Feldman, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities, or (iii) at any time individuals who were either
nominated for election or elected by the Board of Directors of the Company cease
for any reason to constitute at least a majority of the Board.
If the Company wrongfully terminates the employment agreement or Mr.
Feldman terminates the employment agreement for Good Reason, then (i) the
Company is required to pay Mr. Feldman his full salary through the termination
date; (ii) the Company is required to pay as severance pay to Mr. Feldman an
amount equal to (a) Mr. Feldman's average annual cash compensation received from
the Company during the three full calendar years immediately preceding the
termination date, multiplied by (b) the greater of (i) the number of years
(including partial years) that would have been remaining in the employment
period if the employment agreement had not so terminated and (ii) three, such
payment to be made (c) if termination is based on a change of control of the
Company, in a lump sum or (d) if termination results from any other cause, in
substantially equal semimonthly installments payable over the number of years
(including partial years) that would have been remaining in the employment
period if the employment agreement had not so terminated; (iii) all options to
purchase the Company's Common Stock granted to Mr. Feldman under the Company's
option plan or otherwise immediately become fully vested and terminate on such
date as they would have terminated if Mr. Feldman's employment by the Company
had not terminated and, if Mr. Feldman's termination is based on a change of
control of the Company and Mr. Feldman elects to surrender any or all of such
options to the Company, the Company is required to pay Mr. Feldman a lump sum
cash payment equal to the excess of (a) the fair market value on the termination
date of the securities issuable upon exercise of the options surrendered over
(b) the aggregate exercise price of the options surrendered; (iv) the Company is
required to maintain in full force and effect, for a number of years equal to
the greater of (a) the number of years (including partial years) that would have
been remaining in the employment period if the employment agreement had not so
terminated and (b) three, all employee benefit plans and programs in which Mr.
Feldman was entitled to participate immediately prior to June 30, 2003.
(b) In 1994, GP issued $15 millionthe termination date;
and (v) if termination of 6% Senior Subordinated Debenturesthe employment agreement arises out of whicha breach by the
Company, owned approximately 92.7%. The Debentures are subordinated to
borrowings under the Amended Agreement. During the fourth quarter of 2000, the Company converted itsis required to pay all other damages to which Mr. Feldman
may be entitled as a result of such breach.
Notwithstanding the foregoing, the Company shall not be obligated to
pay any portion of GP's Senior Subordinated Debenturesany amount otherwise payable to stockholder's equityMr. Feldman if the Company
could not reasonably deduct such portion solely by operation of GP. At December 31, 2001, the remaining carrying value
of the Debentures outstanding was $641,000.
(c) On March 8, 2001, MXL entered into a loan in the amount of $1,680,000,
secured by a mortgage covering the real estate and fixtures on its property in
Pennsylvania. The loan requires monthly repayments of $8,333 plus interest at
2.5% above the one month LIBOR rate and matures on March 8, 2011, when the
remaining amount outstanding of approximately $680,000 is due in full. The loan
is guaranteed by the Company. The proceeds of the loan were used to repay a
portion of the Company's short-term borrowings pursuant to the 2000 Amended
Agreement described in Note 5.
(d) On July 3, 2001, MXL entered into a loan in the amount of $1,250,000,
secured by a mortgage covering the real estate and fixtures on its property in
Illinois. The loan requires monthly payments of principal and interest in the
amount of $11,046 with interest at a fixed rate of 8.75% per annum, and matures
on June 26, 2006, when the remaining amount outstanding of approximately
$1,100,000 is due in full. The loan is guaranteed by the Company. The proceeds
of the loan were used to repay a portion of the Company's term loan pursuant to
the 2000 Amended Agreement described in Note 5.
Aggregate annual maturities of long-term debt at December 31, 2001 are as
follows (in thousands):
2002 $ 637
2003 3,159
2004 523
2005 175
2006 1,224
Thereafter 1,145
--------------------------------------------------
8. Employee benefit plans
The Company has a 401(k) Savings Plan (the Savings Plan) available to employees
who have completed one year of service. The Company's expense associated with
the Savings Plan was $83,000 in 1999. In 2000, the Company's participants in the
Savings Plan transferred into the General Physics Plan.
GP, which since 2000 includes the Company's employees, maintains a Profit
Investment Plan (the Plan) for employees who have completed ninety days of
service with GP. The Plan permits pre-tax contributions to the Plan by
participants pursuant to Section 401(k)280G
("Section 280G") of the Internal Revenue Code of 1%1986, as amended.
Scott N. Greenberg. As of July 1, 1999, Scott N. Greenberg and the
Company entered into an employment agreement pursuant to 14%which Mr. Greenberg is
employed as the Executive Vice President of the Company. Effective June 12, 2001
Mr. Greenberg was elected President of the Company. Unless sooner terminated
pursuant to its terms, the employment agreement terminates on June 30, 2004,
provided that if the employment agreement has not been terminated prior to June
30, 2002, the employment agreement is extended on June 30, 2002 to June 30,
2005.
Commencing July 1, 1999, Mr. Greenberg's base compensation. GP matches participants' contributionsannual salary is
$250,000, with annual increases to be determined by the Board of Directors of
not less than the greater of (i) 3% and (ii) the percentage increase in the
Consumer Price Index. The Company agreed to pay Mr. Greenberg a signing bonus of
$300,000, which Mr. Greenberg waived. Mr. Greenberg is entitled to an annual
bonus based upon the percentage increase in GPC's earnings before interest,
taxes, depreciation and amortization, excluding extraordinary or unusual
nonrecurring items of income and expense ("EBITDA"), from GPC's EBITDA for the
prior year, up to 50% of his base salary, however Mr. Greenberg did not receive
a specific percentagebonus for the year 2001 because of GPC's financial performance. Pursuant to
the first 7% of base compensation contributed for
employees who have completed one year of service with GP and may make additional
matching contributions at its discretion. In 2001, 2000 andemployment agreement entered into in 1999, the Company did
not make any discretionary matching contributions. The Company matches
participants' contributions inhas granted Mr.
Greenberg under the Company's option plan, options to purchase 100,000 shares of
the Company's Common Stock at an exercise price of $8.00 per share, the market
price on the date of grant. Such options vest 20% immediately and 20% on each
July 1 commencing July 1, 2000 and terminate on June 30, 2004. The Company is
required to provide Mr. Greenberg with an automobile and to maintain the
existing life and disability insurance covering Mr. Greenberg.
The Company may terminate the employment agreement for Cause, which is
defined as (i) the willful and continued failure by Mr. Greenberg to
substantially perform his duties or obligations or (ii) the willful engaging by
Mr. Greenberg in misconduct which is materially monetarily injurious to the
Company. If the employment agreement is terminated for Cause, the Company is
required to pay Mr. Greenberg his full salary through the date his employment is
terminated. If Mr. Greenberg's employment is terminated by his death, the
Company is required to pay to his spouse or estate his full salary for a period
of one year. If, as a result of Mr. Greenberg's incapacity due to physical or
mental illness, he is absent from his duties on a full-time basis for the entire
period of six consecutive months, and he does not return within 30 days of
notice, the Company may terminate his employment. Mr. Greenberg is entitled to
receive his full salary during the disability period until his employment is
terminated.
Mr. Greenberg can terminate the employment agreement for Good Reason,
which is defined to include (i) a change in control of the Company, (ii) a
management change in control of the Company, or (iii) a failure by the Company
to comply with any material provision of the employment agreement which has not
been cured within ten days after notice. A "change in control" of the Company is
defined as any of the following, but only if not approved by the Board of
Directors, (i) a change in control of a nature that would be required to be
reported in response to Item 1(a) of Form 8-K, other than a change of control
resulting in control by Mr. Feldman or Mr. Greenberg or a group including Mr.
Feldman or Mr. Greenberg, (ii) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than Mr. Feldman or Mr. Greenberg or
a group including Mr. Feldman or Mr. Greenberg, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities, (iii) the
Company and its affiliates owning less than a majority of the voting stock of
GPC, (iv) the sale of all or substantially all of the assets of GPC, or (v) at
any time when there has not been a management change of control of the Company,
individuals who were either nominated for election or elected by the Board of
Directors of the Company cease for any reason to constitute at least a majority
of the Board. A "management change in control" of the Company is defined as (i)
an event that would have constituted a change of control of the Company if it
had not been approved by the Board of Directors or (ii) a change in control of
the Company of a nature that would be required to be reported in response to
Item 1(a) of Form 8-K, resulting in control by a buy-out group including Mr.
Feldman but not Mr. Greenberg.
If the Company wrongfully terminates the employment agreement or Mr.
Greenberg terminates the employment agreement for Good Reason (other than as a
result of a management change of control), (i) the Company is required to pay
Mr. Greenberg his full salary and provide him his benefits through the
termination date, and pay him his full annual bonus for the calendar year in
which termination occurs; (ii) the Company is required to pay as severance pay
to Mr. Greenberg an amount equal to (a) Mr. Greenberg's average annual cash
compensation received from the Company during the three full calendar years
immediately preceding the termination date, multiplied by (b) the greater of (I)
the number of years (including partial years) that would have been remaining in
the employment period if the employment agreement had not so terminated but was
not subsequently extended and (II) three, such payment to be made (c) if
termination is based on a change of control of the Company, in a lump sum or (d)
if termination results from any other cause, in substantially equal semimonthly
installments payable over the number of years (including partial years) that
would have been remaining in the employment period if the employment agreement
had not so terminated but was not subsequently extended; (iii) all options to
purchase the Company's Common Stock granted to Mr. Greenberg under the Company's
option plan or otherwise immediately become fully vested and terminate on such
date as they would have terminated if Mr. Greenberg's employment by the Company
had not terminated and, if Mr. Greenberg's termination is based on a change of
control of the Company and Mr. Greenberg elects to surrender any or all of such
options to the Company, the Company is required to pay Mr. Greenberg a lump sum
cash payment equal to the excess of (a) the fair market value on the termination
date of the securities issuable upon exercise of the options surrendered over
(b) the aggregate exercise price of the options surrendered; (iv) the Company is
required to maintain in full force and effect, for a number of years equal to
the greater of (a) the number of years (including partial years) that would have
been remaining in the employment period if the employment agreement had not so
terminated but was not subsequently extended and (b) three, all employee benefit
plans and programs in which Mr. Greenberg was entitled to participate
immediately prior to the termination date; and (v) if termination of the
employment agreement arises out of a breach by the Company, the Company is
required to pay all other damages to which Mr. Greenberg may be entitled as a
result of such breach.
If Mr. Greenberg terminates the employment agreement for Good Reason as
a result of a management change of control, (i) the Company is required to pay
Mr. Greenberg his full salary and provide him his benefits through the
termination date, and pay him his full annual bonus for the calendar year in
which termination occurs; (ii) the Company is required to pay as severance pay
to Mr. Greenberg a lump sum amount equal to twice Mr. Greenberg's average annual
cash compensation received from the Company during the three full calendar years
immediately preceding the termination date; (iii) all options to purchase the
Company's Common Stock granted to Mr. Greenberg under the Company's option plan
or otherwise immediately become fully vested and terminate on such date as they
would have terminated if Mr. Greenberg's employment by the Company had not
terminated and, if Mr. Greenberg elects to surrender any or all of such options
to the Company, the Company is required to pay Mr. Greenberg a lump sum cash
payment equal to the excess of (a) the fair market value on the termination date
of the securities issuable upon exercise of the options surrendered over (b) the
aggregate exercise price of the options surrendered; and (iv) the Company is
required to maintain in full force and effect for two years all employee benefit
plans and programs in which Mr. Greenberg was entitled to participate
immediately prior to the termination date.
Notwithstanding the foregoing, the Company shall not be obligated to
pay any portion of any amount otherwise payable to Mr. Greenberg if the Company
could not reasonably deduct such portion solely by operation of Section 280G.
John C. McAuliffe. As of July 1, 1999, John C. McAuliffe and GPC
entered into an employment agreement pursuant to which Mr. McAuliffe is employed
as President of GPC. Unless sooner terminated pursuant to its terms, the
employment agreement terminates on June 30, 2004, provided that if the
employment agreement has not been terminated prior to June 30, 2002, the
employment agreement is extended on June 30, 2002 to June 30, 2005, and if the
employment agreement has not been terminated prior to June 30, 2003, the
employment agreement is extended on June 30, 2003 to June 30, 2006.
Commencing July 1, 1999, Mr. McAuliffe's base annual salary is
$250,000, with annual increases to be determined by the Board of Directors of
GPC of not less than 5%. GPC paid Mr. McAuliffe a signing bonus of $300,000. In
addition, Mr. McAuliffe was given the right to allocate bonuses in an aggregate
amount of up to 57%$800,000 to other GPC employees, provided that such employees
agreed to return their bonus if their employment with GPC terminated prior to
July 1, 2002. Mr. McAuliffe is entitled to an annual bonus based upon the
percentage increase in GPC's EBITDA from GPC's EBITDA for the prior year, up to
50% of monthly employeehis base salary, deferral contributions. Inhowever, Mr. McAuliffe did not receive a bonus for the
year 2001 2000, andbecause of GPC's financial performance. Pursuant to the employment
agreement entered into in 1999, the Company contributed 291,185 shares, 308,000 shares and 141,063has granted Mr. McAuliffe under the
Company's option plan, options to purchase 100,000 shares of the Company's
common stock directly
Common Stock at an exercise price of $8.00 per share, the market price on the
date of grant. Such options vest 20% immediately and 20% on each July 1
commencing July 1, 2000 and terminate on June 30, 2004. GPC is required to
provide Mr. McAuliffe with an automobile, to pay up to $10,000 for country club
dues, which membership is to be used primarily to further GPC's business, and to
maintain the Plan with a value of approximately
$1,151,000, $1,340,000existing life and $1,345,000, respectively.
9. Income taxes
The components of income tax expense (benefit) are as follows (in thousands):
Years ended December 31, 2001 2000 1999
- -------------------------------------------------------------------------------
Current
State and local $ 537 $ 717 $ 481
Foreign 186 198 454
- ------------------------------------------------------------------------------
Total current 723 915 935
- ------------------------------------------------------------------------------
Deferred
Federal 1,392 (9,322)
State and local 400 (459) (70)
Foreign - (7) 47
- ------------------------------------------------------------------------------
Total deferred 1,792 (9,788) (23)
- ------------------------------------------------------------------------------
Total income tax expense (benefit) $ 2,515 $ (8,873) $ 912
- ------------------------------------------------------------------------------
The deferred expense (benefit) excludes activity indisability insurance covering Mr. McAuliffe.
GPC may terminate the net deferred tax assets
relating to tax on appreciation (depreciation) in available-for-sale securities,employment agreement for Cause, which is recorded directlydefined
as (i) the willful and continued failure by Mr. McAuliffe to stockholders' equity.
9. Income taxes (Continued)
The difference betweensubstantially
perform his duties or obligations or (ii) the expense (benefit)willful engaging by Mr. McAuliffe
in misconduct which is materially monetarily injurious to GPC. If the employment
agreement is terminated for income taxes computed atCause, GPC is required to pay Mr. McAuliffe his full
salary through the statutory ratedate his employment is terminated. If Mr. McAuliffe's
employment is terminated by his death, GPC is required to pay to his spouse or
estate his full salary for a period of one year. If, as a result of Mr.
McAuliffe's incapacity due to physical or mental illness, he is absent from his
duties on a full-time basis for the entire period of six consecutive months, and
he does not return within 30 days of notice, GPC may terminate his employment.
Mr. McAuliffe is entitled to receive his full salary during the reported amountdisability
period until his employment is terminated.
Mr. McAuliffe can terminate the employment agreement for Good Reason,
which is defined to include (i) a change in control of tax expense (benefit) is as follows:
- --------------------------------------------------------------------------------------------------
December 31, 2001 2000 1999
- --------------------------------------------------------------------------------------------------
Federal income tax rate 35.0% (35.0%) (35.0%)
Foreign, State and local taxes net of Federal benefit 32.6 1.0 1.2
Items not deductible - primarily
amortization of goodwill 23.8 2.0 3.7
Valuation allowance adjustment (6.9) (13.7) 9.1
Net losses from foreign operations for which
no tax benefit has been provided 41.2 18.9 23.4
Tax effect recorded in stockholders' equity for
sale of available for sale securities 32.0
Other 2.5 0.9 1.9
- --------------------------------------------------------------------------------------------------
Effective tax rate expense (benefit) 160.2% (25.9%) 4.3%
- --------------------------------------------------------------------------------------------------
In 2001, the Company recorded income tax expense of $2,515,000. The current
income taxor (ii) a
failure by GPC to comply with any material provision of $723,000 represents estimated state taxesthe employment agreement
which has not been cured within ten days after notice. A "change in control" of
$537,000the Company is defined as (i) a change in control of a nature that would be
required to be reported in response to Item 1(a) of Form 8-K, other than a
change of control resulting in control by Mr. Feldman or Mr. McAuliffe or a
group including Mr. Feldman or Mr. McAuliffe, (ii) a change in control of a
nature that would be required to be reported in response to Item 1(a) of Form
8-K, resulting in control by a buy-out group including Mr. Feldman but not Mr.
McAuliffe, (iii) any "person" (as such term is used in Sections 13(d) and foreign taxes4(d)
of $186,000. The deferred income tax expensethe Exchange Act), other than Mr. Feldman or Mr. McAuliffe or a group
including Mr. Feldman or Mr. McAuliffe, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
$1,792,000
represents future estimated federal and state taxes.
In 2000,securities of the deferred income tax benefitCompany representing 20% or more of $9,788,000 primarily represents a
benefit for the future utilizationcombined voting power
of the Company's domestic net operating
losses.
Thethen outstanding securities, (iv) the Company had an effective tax rateand its
affiliates owning less than a majority of 160%the voting stock of GPC, (v) the sale
of all or substantially all of the assets of GPC, or (vi) at any time
individuals who were either nominated for election or elected by the Board of
Directors of the Company cease for any reason to constitute at least a majority
of the Board.
If GPC wrongfully terminates the employment agreement or Mr. McAuliffe
terminates the employment agreement for Good Reason, (i) GPC is required to pay
Mr. McAuliffe his full salary and provide him his benefits through the
termination date, and pay him his full annual bonus for the calendar year ended December 31,
2001. This ratein
which termination occurs; (ii) GPC is required to pay as severance pay to Mr.
McAuliffe an amount equal to (a) Mr. McAuliffe's average annual cash
compensation received from GPC during the three full calendar years immediately
preceding the termination date, multiplied by (b) the greater of (I) the number
of years (including partial years) that would have been remaining in the
employment period if the employment agreement had not so terminated but was primarily duenot
subsequently extended and (II) three, such payment to the tax treatment for financial statement
purposesbe made (c) if termination
is based on a change of the sale bycontrol of the Company, in 2001a lump sum or (d) if
termination results from any other cause, in substantially equal semimonthly
installments payable over the number of certain shares of
available-for-sale securities accounted for pursuant to SFAS 115 "Accounting for
Certain Investments in Debt and Equity Securities."
The Company had an effective tax rate of 26% for the year ended December 31,
2000, which was primarily due to net losses from foreign operations for which no
tax benefit hasyears (including partial years) that
would have been provided offset by an increaseremaining in the valuation
allowance.
Asemployment period if the employment agreement
had not so terminated but was not subsequently extended; (iii) all options to
purchase the Company's Common Stock granted to Mr. McAuliffe under the Company's
option plan or otherwise immediately become fully vested and terminate on such
date as they would have terminated if Mr. McAuliffe's employment by GPC had not
terminated and, if Mr. McAuliffe's termination is based on a change of December 31, 2001,control
of the Company has approximately $20,700,000 of U.S.
Federal net operating loss carryforwards. These carryforwards expire in the
years 2005 through 2020. Foreign net operating losses at December 31, 2001 were
approximately $34,500,000. In addition, the Company has approximately $1,492,000
of available credit carryovers of which approximately $520,000 expires in 2002
and 2003, and approximately $972,000, which may be carried over indefinitely.
9. Income taxes (Continued)
The tax effects of temporary differences between the financial reporting and tax
bases of assets and liabilities that are included in the net deferred tax
(liability) asset are summarized as follows:
December 31, 2001 2000
Deferred tax assets:
Allowance for doubtful accounts $ 208 $ 220
Accrued liabilities 1,071 2,070
Net operating loss carryforwards 18,425 20,787
Tax credit carryforwards 1,492 1,593
Restructuring reserves 1,032 1,817
Property and equipment, principally dueMr. McAuliffe elects to difference in depreciation and amortization 225
- -----------------------------------------------------------------------------
Deferred tax assets 22,228 26,712
- -----------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment, principally due to
difference in depreciation and amortization 249
Investment in partially owned companies 6,825 22,884
- -----------------------------------------------------------------------------
Deferred tax liabilities 7,074 22,884
- -----------------------------------------------------------------------------
Net deferred tax assets 15,154 3,828
Less valuation allowance (10,865) (10,332)
- -----------------------------------------------------------------------------
Net deferred tax (liability) asset $ 4,289 $ (6,504)
- -----------------------------------------------------------------------------
The increase of $533,000 and $1,785,000 in the valuation allowance in 2001 and
2000, respectively, was attributable to foreign net operating losses for which
no tax benefit has been provided.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portionsurrender any or all of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which temporary differences are deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon these factors,
management believes it is more likely than not that the Company will realize the
benefits of deferred tax assets, net of the valuation allowance. As of December
31, 2001, the Company has recorded a net deferred tax asset of $4,289,000.
10. Comprehensive income (loss)
The following are the components of comprehensive income (loss) (in thousands):
Year ended December 31,
-----------------------------------------------
2001 2000 1999
--------- --------- ---------
Net loss $ (945) $(25,392) $(22,205)
Other comprehensive (loss) income,
before tax:
Net unrealized gain (loss) on
available-for-sale-securities (30,802) 45,667 (1,753)
Foreign currency translation adjustment 24 78 79
------------ ----------- ----------
Comprehensive (loss) income before tax (31,723) 20,353 (23,879)
Income tax benefit (expense) related to
items of other comprehensive
income (loss) 11,905 (17,691) 758
-------- -------- ----------
Comprehensive income (loss), net of tax $(19,818) $ 2,662 $(23,121)
======== ======== ========
The components of accumulated other comprehensive income (loss) are as follows:
December 31, 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on
available-for-sale-securities $ 14,810 $ 45,612 $ (55)
Foreign currency translation adjustment (657) (681) (759)
--------- --------- ---------
Accumulated other comprehensive
income (loss) before tax 14,153 44,931 (814)
Accumulated income tax expense related
to items of other comprehensive
loss (5,789) (17,694) (3)
--------- --------- -----------
Accumulated other comprehensive
income (loss), net of tax $ 8,364 $ 27,237 $ (817)
======== ======== ========
11. Common Stock, stock options and warrants
(a) Under the Company's non-qualified stock option plan, employees and certain
other parties may be grantedsuch options
to purchase sharesGPC, GPC is required to pay Mr. McAuliffe a lump sum cash payment equal to
the excess of common stock.
Although the Plan permits options to be granted at a price not less than 85% of(a) the fair market value on the Plantermination date of the
securities issuable upon exercise of the options primarily aresurrendered over (b) the
aggregate exercise price of the options surrendered; (iv) GPC is required to
maintain in full force and effect, for a number of years equal to the greater of
(a) the number of years (including partial years) that would have been remaining
in the employment period if the employment agreement had not so terminated but
was not subsequently extended and (b) three, all employee benefit plans and
programs in which Mr. McAuliffe was entitled to participate immediately prior to
the termination date; and (v) if termination of the employment agreement arises
out of a breach by GPC, GPC is required to pay all other damages to which Mr.
McAuliffe may be entitled as a result of such breach.
Notwithstanding the foregoing, GPC shall not be obligated to pay any
portion of any amount otherwise payable to Mr. McAuliffe if GPC could not
reasonably deduct such portion solely by operation of Section 280G.
The Company guaranteed the performance by GPC of its obligations under
Mr. McAuliffe's employment agreement.
Andrea D. Kantor. As of May 1, 2001, Andrea D. Kantor and the Company
entered into an employment agreement pursuant to which Ms. Kantor is employed as
the Vice President and General Counsel of the Company. Unless sooner terminated
pursuant to its terms, the employment agreement terminates on June 30, 2004,
provided that if the employment agreement has not been terminated prior to June
30, 2002, the employment agreement is extended on June 30, 2002 to June 30,
2005.
Commencing May 1, 2001, Ms. Kantor's base annual salary is $190,000,
with annual increases to be determined by the Board of Directors of not less
than the greater of (i) 3% and (ii) the percentage increase in the Consumer
Price Index. Ms. Kantor is entitled to an annual bonus, as determined by the
Board based upon the Company's revenues, profits or losses, financing
activities, and such other factors deemed relevant by the Board. Ms. Kantor did
not receive a bonus for the year 2001.
The Company may terminate the employment agreement for Cause, which is
defined as (i) the willful and continued failure by Ms. Kantor to substantially
perform her duties or obligations or (ii) the willful engaging by Ms. Kantor in
misconduct which is materially monetarily injurious to the Company. If the
employment agreement is terminated for Cause, the Company is required to pay Ms.
Kantor her full salary through the date her employment is terminated. If Ms.
Kantor's employment is terminated by her death, the Company is required to pay
to her spouse or estate her full salary for a period of one year. If, as a
result of Ms. Kantor's incapacity due to physical or mental illness, she is
absent from her duties on a full-time basis for the entire period of six
consecutive months, and she does not return within 30 days of notice, the
Company may terminate her employment. Ms. Kantor is entitled to receive her full
salary during the disability period until her employment is terminated.
Ms. Kantor can terminate the employment agreement for Good Reason,
which is defined to include (i) a change in control of the Company, (ii) a
management change in control of the Company, or (iii) a failure by the Company
to comply with any material provision of the employment agreement which has not
been cured within ten days after notice. A "change in control" of the Company is
defined as any of the following, but only if not approved by the Board of
Directors, (i) a change in control of a nature that would be required to be
reported in response to Item 1(a) of Form 8-K, other than a change of control
resulting in control by Mr. Feldman or Mr. Greenberg or a group including Mr.
Feldman or Mr. Greenberg, (ii) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than Mr. Feldman or Mr. Greenberg or
a group including Mr. Feldman or Mr. Greenberg, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities, (iii) the
Company and its affiliates owning less than a majority of the voting stock of
GPC, (iv) the sale of all or substantially all of the assets of GPC, or (v) at
any time when there has not been a management change of control of the Company,
individuals who were either nominated for election or elected by the Board of
Directors of the Company cease for any reason to constitute at least a majority
of the Board. A "management change in control" of the Company is defined as (i)
an event that would have constituted a change of control of the Company if it
had not been approved by the Board of Directors or (ii) a change in control of
the Company of a nature that would be required to be reported in response to
Item 1(a) of Form 8-K, resulting in control by a buy-out group including Mr.
Feldman but not Mr. Greenberg.
If the Company wrongfully terminates the employment agreement or Ms.
Kantor terminates the employment agreement for Good Reason (other than as a
result of a management change of control), (i) the Company is required to pay
Ms. Kantor her full salary and provide her benefits through the termination
date, and pay her full annual bonus for the calendar year in which termination
occurs; (ii) the Company is required to pay as severance pay to Ms. Kantor an
amount equal to (a) Ms. Kantor's average annual cash compensation received from
the Company during the three full calendar years immediately preceding the
termination date, multiplied by (b) the greater of (I) the number of years
(including partial years) that would have been remaining in the employment
period if the employment agreement had not so terminated but was not
subsequently extended and (II) three, such payment to be made (c) if termination
is based on a change of control of the Company, in a lump sum or (d) if
termination results from any other cause, in substantially equal semimonthly
installments payable over the number of years (including partial years) that
would have been remaining in the employment period if the employment agreement
had not so terminated but was not subsequently extended; (iii) all options to
purchase the Company's Common Stock granted atto Ms. Kantor under the Company's
option plan or otherwise immediately become fully vested and terminate on such
date as they would have terminated if Ms. Kantor's employment by the Company had
not terminated and, if Ms. Kantor's termination is based on a change of control
of the Company and Ms. Kantor elects to surrender any or all of such options to
the Company, the Company is required to pay Ms. Kantor a lump sum cash payment
equal to the excess of (a) the fair market value ofon the common stock at thetermination date of the
grantsecurities issuable upon exercise of the options surrendered over (b) the
aggregate exercise price of the options surrendered; (iv) the Company is
required to maintain in full force and are exercisable over
periodseffect, for a number of years equal to
the greater of (a) the number of years (including partial years) that would have
been remaining in the employment period if the employment agreement had not exceeding ten yearsso
terminated but was not subsequently extended and (b) three, all employee benefit
plans and programs in which Ms. Kantor was entitled to participate immediately
prior to the termination date; and (v) if termination of the employment
agreement arises out of a breach by the Company, the Company is required to pay
all other damages to which Ms. Kantor may be entitled as a result of such
breach.
If Ms. Kantor terminates the employment agreement for Good Reason as a
result of a management change of control, (i) the Company is required to pay Ms.
Kantor her full salary and provide her benefits through the termination date,
and pay her full annual bonus for the calendar year in which termination occurs;
(ii) the Company is required to pay as severance pay to Ms. Kantor a lump sum
amount equal to twice Ms. Kantor's average annual cash compensation received
from the Company during the three full calendar years immediately preceding the
termination date; (iii) all options to purchase the Company's Common Stock
granted to Ms. Kantor under the Company's option plan or otherwise immediately
become fully vested and terminate on such date as they would have terminated if
Ms. Kantor's employment by the Company had not terminated and, if Ms. Kantor
elects to surrender any or all of such options to the Company, the Company is
required to pay Ms. Kantor a lump sum cash payment equal to the excess of (a)
the fair market value on the termination date of grant. Sharesthe securities issuable upon
exercise of common stock
are also reservedthe options surrendered over (b) the aggregate exercise price of the
options surrendered; and (iv) the Company is required to maintain in full force
and effect for issuance pursuanttwo years all employee benefit plans and programs in which Ms.
Kantor was entitled to other agreements. Changes in optionsparticipate immediately prior to the termination date.
Notwithstanding the foregoing, the Company shall not be obligated to
pay any portion of any amount otherwise payable to Ms. Kantor if the Company
could not reasonably deduct such portion solely by operation of Section 280G.
Performance Graph
The following table compares the performance of the Common Stock for
the periods indicated with the performance of the NYSE Market Index and warrants outstanding during 1999, 2000the MG
Group Index/Education and 2001, and options and warrants
exercisable and shares reserved for issuance atTraining Services assuming $100 were invested on
December 31, 2001, 2000,1996 in the Common Stock, the NYSE Market Index and 1999the MG Group
Index/Education and Training Services. Values are as follows:of December 31 of the
specified year assuming that all dividends were reinvested:
Common Stock
Options and warrants Price Range Number Weighted-Average
outstanding per share of shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------------------ ---------------- ------------- --------------- -------------- -------------- -------------
Company/Index Name Base Period
Dec 1996 Dec 1997 Dec 1998 Dec 1999 Dec 2000 Dec 2001
- ----------------------------- ---------------- ------------- --------------- -------------- -------------- -------------
- ----------------------------- ---------------- ------------- --------------- -------------- -------------- -------------
December 31, 1998 $4.59GP Strategies $100.00 $180.49 $195.12 $ 79.67 $ 56.10 $ 49.43
- 24.00 2,748,490 $9.09----------------------------- ---------------- ------------- --------------- -------------- -------------- -------------
- -------------------------------------------------------------------------------------------------------------------
Granted 8.00----------------------------- ---------------- ------------- --------------- -------------- -------------- -------------
NYSE Market Index 100.00 132.37 148.86 95.90 152.64 167.56
- 17.25 793,825 9.91
Exercised 6.80----------------------------- ---------------- ------------- --------------- -------------- -------------- -------------
- 14.625 (122,352) 8.08
Terminated 7.69----------------------------- ---------------- ------------- --------------- -------------- -------------- -------------
MG Group Index/Education 100.00 131.56 156.55 171.42 175.51 159.87
and Training Services
- 24.00 (613,948) 9.80
- -------------------------------------------------------------------------------------------------------------------
December 31, 1999 4.59 - 24.00 2,806,015 9.21
- -------------------------------------------------------------------------------------------------------------------
Granted 3.375 - 6.00 666,133 4.66
Exercised 3.375 - (69,200) 3.38
Terminated 5.375 - 17.25 (897,600) 10.46
- -------------------------------------------------------------------------------------------------------------------
December 31, 2000 3.375 - 24.00 2,505,348 7.74
- -------------------------------------------------------------------------------------------------------------------
Granted 3.00 - 4.61 452,000 4.47
Terminated 4.61 - 24.00 (166,683) 7.85
- -------------------------------------------------------------------------------------------------------------------
December 31, 2001 3.00 - 15.375 2,790,665 7.37
- -------------------------------------------------------------------------------------------------------------------
Options and warrants exercisable
December 31, 1999 4.59 - 24.00 1,254,033 8.88
- -------------------------------------------------------------------------------------------------------------------
December 31, 2000 4.59 - 24.00 1,464,106 7.64
- -------------------------------------------------------------------------------------------------------------------
December 31, 2001 3.00 - 15.375 2,058,096 7.12
- -------------------------------------------------------------------------------------------------------------------
Shares reserved for issuance
December 31, 1999 3,375,234
- -------------------------------------------------------------------------------------------------------------------
December 31, 2000 3,816,571
- -------------------------------------------------------------------------------------------------------------------
December 31, 2001 3,638,303
- -------------------------------------------------------------------------------------------------------------------
At December 31, 2001, the weighted average remaining contractual life of all
outstanding options was 3.9 years.----------------------------- ---------------- ------------- --------------- -------------- -------------- -------------
11. Common Stock, stock optionsItem 12. Security Ownership of Certain Beneficial Owners and warrants (Continued)Management
The following table summarizes information aboutsets forth the Plan's options outstanding
at December 31, 2001:
Weighted
Range Number Average Weighted
Of Outstanding Years Average
Exercise Prices Remaining Exercise Price
- -------------------------------------------------------------------------------
$3.00 - $ 7.75 1,619,980 4.6 $6.54
$8.00 - $10.41 650,525 2.4 $8.42
$11.15 - $24.00 208,600 2.9 $14.56
- -------------------------------------------------------------------------------
$ 3.00 - $24.00 2,479,105 3.9 $ 7.71
- --------------------------------------------------------------------------------
The following table summarizes thenumber of shares of Class B Stock
and Common Stock optionsbeneficially owned as follows:of April 15, 2002, by each person who is
known by the Company to own beneficially more than 5% of the Company's
outstanding Class B Stock or Common Stock.
Amount and
Name and Address Nature of Percent of
Title of Class of Beneficial Owner Beneficial Ownership Class(1)
- -------------- ------------------- -------------------- --------
Class B Stock Jerome I. Feldman 568,750 shares(2) 63.2%
c/o GP Strategies Corporation
9 West 57th Street
Suite 4170
New York, NY 10019
Class B Stock Bedford Oak Partners, L.P. 300,000 shares(3)(4) 33.3%
100 South Bedford Road
Mt. Kisco, NY 10549
Common Stock Jerome I. Feldman 636,755 shares(2)(5) 4.8%
Common Stock Bedford Oak Partners, L.P. 1,231,500 shares(3)(6) 9.4%
100 South Bedford Road
Mt. Kisco, NY 10549
Common Stock Caxton International Limited 1,210,100 shares(7) 9.5%
315 Enterprise Drive
Plainsboro, NJ 08536
Common Stock Dimensional Fund Advisors, Inc. 949,355 shares(8) 7.4%
1299 Ocean Avenue
Santa Monica, CA 90401
Common Stock Liberty Wanger Asset Management L.P. 820,000 shares(9) 6.4%
227 West Monroe Street
Chicago, IL 60606
Common Stock General Physics Corporation Profit 972,264 shares(10) 7.6%
Investment Plan
6700 Alexander Bell Drive
Columbia, Maryland 21046
(1) The percentage of class calculation for Class B Stock assumes for each
beneficial owner that no shares of Class B Stock are converted into
Common Stock - --------------------------------------------------------------------------------
Options Price Range Number Weighted-Average
outstanding per shareby the named beneficial owner or any other stockholder.
The percentage of shares Exercise Price
- -------------------------------------------------------------------------------
December 31, 1999 $8.50 - 8.69 500,000 $8.64
- -------------------------------------------------------------------------------
Exercised 8.50 - 8.69 (150,000) 8.53
- -------------------------------------------------------------------------------
December 31, 2000 8.69 350,000 8.69
- -------------------------------------------------------------------------------
Terminated 8.69 (350,000) 8.69
- -------------------------------------------------------------------------------
December 31, 2001 -0-
- -------------------------------------------------------------------------------
Options exercisable
December 31, 1999 8.50 -9.00 500,000 8.64
- -------------------------------------------------------------------------------
December 31, 2000 8.69 350,000 8.69
- -------------------------------------------------------------------------------
December 31, 2001 -0-
- -------------------------------------------------------------------------------
The Company reserved 950,000class calculation for Common Stock assumes for each
beneficial owner that (i) all options are exercised in full and all
shares of itsClass B Stock are converted into Common Stock for issuanceonly by the
named beneficial owner and (ii) no other options are exercised and no
other shares of Class B Stock are converted by any other stockholder.
(2) On December 29, 1998, Martin M. Pollak granted certain rights of first
refusal with respect to his Class B Stock and options to purchase Class
B Stock to Mr. Feldman and his family, and Mr. Feldman granted certain
tag-along rights with respect to Class B Stock and options to purchase
Class B Stock to Mr. Pollak and his family. In addition, Mr. Pollak
agreed that, until May 31, 2004, during any period commencing on the
date any person or group commences or enters into, or publicly
announces an intention to commence or enter into, and ending on the
date such person abandons a tender offer, proxy fight, or other
transaction that may result in a change in control of the Company, he
will vote his shares of Common Stock and Class B Stock on any matter in
accordance with the recommendation of the Board of Directors. Mr.
Pollak retired as the Executive Vice President and Treasurer of the
Company on May 31, 1999.
(3) Based on a information provided to the Company by Bedford Oak Partners,
L.P. ("Bedford Oak").
(4) Pursuant to an agreement, dated October 19, 2001 (the "Bedford Oak
Agreement"), between the Company and Bedford Oak, Bedford Oak is
required to exercise its right to convert its shares of Class B Stock
into Common Stock (i) upon the transfer of such shares to an unrelated
party and (ii) at the request of the Board of Directors of the Company.
(5) Includes (i) 1,173 shares of Common Stock held by members of Mr.
Feldman's family, (ii) 568,750 shares of Common Stock issuable upon
conversion of Class B Stock held by Mr. Feldman, (iii) 46,956 shares of
Common Stock at eachissuable upon exercise of currently exercisable stock
options held by Mr. Feldman and (iii) 2,976 shares of Common Stock
allocated to Mr. Feldman's account pursuant to the provisions of the
years ended December 31, 2000
and 1999. The Company reserved an additionalGPC PIP Plan. Mr. Feldman disclaims beneficial ownership of the 1,173
shares of Common Stock held by members of his family.
(6) Includes 300,000 shares for a private
placement transaction (see Note 11(e)) bringing the total to 1,250,000 shares
reserved for issuanceof Common Stock issuable upon conversion of
Class B Stock held by Bedford Oak.
(7) Based on a Schedule 13D/A filed jointly by Caxton International
Limited, Caxton Equity Growth (BVI) Ltd., Caxton Equity Growth, LLC,
and Caxton Associates, L.L.C. with the SEC on June 22, 2001.
(8) Based on a Schedule 13G filed by Dimensional Fund Advisors Inc.
("Dimensional") with the SEC on January 30, 2002. Dimensional has
informed the Company that the shares are owned by advisory clients of
Dimensional and that Dimensional disclaims beneficial ownership of such
shares.
(9) Based on a Schedule 13G filed by Liberty Wanger Asset Management, L.P.
("LWAM") with the SEC on February 14, 2002. LWAM has informed the
Company that the shares have been acquired by LWAM on behalf of its
discretionary clients.
(10) Shares may be voted and disposed of by Plan participants.
SECURITY OWNERSHIP OF DIRECTORS AND NAMED EXECUTIVE OFFICERS
The following table sets forth, as of April 15, 2002, the beneficial
ownership of Common Stock, at December 31,
2001.
At December 31, 2001, 2000,Class B Stock, and 1999,voting stock by each director and
nominee for director, each of the named executive officers, and all directors
and executive officers as a group.
Total Number of Total Number of
Shares of Percent of Shares of Percent of Percent of
Common Stock Common Stock Class B Stock Class B Voting
Beneficially Owned Owned(1) Beneficially Owned Stock(2) Stock(3)
Jerome I. Feldman(4)................ 636,755(5) 4.8% 568,750(6) 63.2% 26.4%
Scott N. Greenberg(4)............... 203,954(7) 1.6%
John C. McAuliffe................... 146,048(8)(9) 1.1% -- -- --
Marshall S. Geller.................. 108,161(8) * -- -- --
Sheldon L. Glashow(10).............. 16,796(8) * -- -- --
Roald Hoffmann(4)(10)............... 16,617(8) * -- -- --
Bernard M. Kauderer(10)............. 16,796(8) * -- -- --
Ogden R. Reid(10)................... 20,046(8) * -- -- --
Gordon Smale(11).................... 18,617(8) * -- -- --
Andrea D. Kantor.................... 38,404(8)(12) * -- -- --
Directors and Executive Officers as
a Group (10 persons)........... 1,222,194(13) 8.9% 568,750 63.2% 28.5%
*The number of shares owned is less than one percent of the outstanding shares
or voting stock.
(1) The percentage of class calculation for Common Stock assumes for each
beneficial owner and directors and executive officers as a group that
(i) all options outstanding includedare exercised in full and all shares of Class B Stock
are converted into Common Stock only by the named beneficial owner or
members of the group and (ii) no other options are exercised and no
other shares of Class B Stock are converted by any other stockholder.
(2) The percentage of class calculation for 239,498, 239,498Class B Stock assumes for each
beneficial owner and 150,790directors and executive officers as a group that
no shares respectively, for certain executive
officers.of Class B Stock are converted into Common Stock by the named
beneficial owner, members of the group, or any other stockholder.
(3) The percentage of voting stock calculation sets forth the percentage of
the aggregate number of votes of all holders of Common Stock and Class
B Stock represented by the Common Stock and Class B Stock beneficially
owned by each beneficial owner and directors and executive officers as
a group and assumes for each beneficial owner and directors and
executive officers as a group that (i) all options are entitledexercised in
full only by the named beneficial owner or members of the group, (ii)
no other options are exercised by any other stockholder, and (iii) no
shares of Class B Stock are converted into Common Stock by the named
beneficial owner, members of the group, or any other stockholder.
(4) Member of the Executive Committee.
(5) See footnotes 2 and 5 to one votePrincipal Stockholders Table.
(6) See footnote 2 to Principal Stockholders Table.
(7) Includes (i) 179,208 shares of Common Stock issuable upon exercise of
currently exercisable stock options held by Mr. Greenberg, (ii) 3,028
shares of Common Stock allocated to Mr. Greenberg's account pursuant to
the provisions of the GPC PIP Plan and (iii) 4,000 shares of Common
Stock held by members of his family. Mr. Greenberg disclaims beneficial
ownership of the 4,000 shares held by members of his family.
(8) Includes 127,570 shares for Mr. McAuliffe, 15,000 shares for each
of Messrs. Glashow, Hoffmann, Kauderer and Smale, 5,000 shares for Mr.
Geller, 18,000 shares for Mr. Reid, and 35,166 shares for Ms. Kantor
issuable upon exercise of currently exercisable stock options.
(9) Includes 6,322 shares of Common Stock allocated to Mr. McAuliffe's
account pursuant to the provisions of the GPC PIP Plan.
(10) Member of the Audit Committee.
(11) Member of the Compensation Committee.
(12) Includes 3,238 shares of Common Stock allocated to Ms. Kantor's
account pursuant to the provisions of the GPC PIP Plan.
(13) Includes (i) 471,900 shares of Common Stock issuable upon exercise of
currently exercisable stock options, (ii) 568,750 shares of Common
Stock issuable upon conversion of Class B Stock, and (iii) 15,564
shares of Common Stock allocated to accounts pursuant to the provisions
of the GPC PIP Plan.
Item 13. Certain Relationships and Related Transactions
On May 16, 2001, the Company sold 200,000 shares of its Millennium
Common Stock at $8.50 per share, and on September 28, 2001, the holdersCompany sold
300,000 shares of its Millennium Common Stock at $3.50 per share, to affiliated
entities of LWAM in private placement transactions.
On October 19, 2001, the Company sold 300,000 shares of Class B Common Stock are entitled to ten votes per share on all matters
without distinction between classes, except when approval of a majority of each
class is required by statute. The Class B Common Stock is convertible at any
time, at the option of the holders of such stock, into shares of common stock on
a share-for-share basis. At December 31, 2001, 2000, and 1999, shares reserved
for issuance were primarily related to options and warrants and the conversion
of long-term debt.
11. Common Stock, stock options and warrants (Continued)
(b) Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been reduced to the pro forma amounts indicated below (in thousands,
except per share amounts):
2001 2000 1999
---- ---- ----
Net loss As reported $ (945) $(25,392) $(22,205)
Pro forma (4,203) (28,435) (24,363)
Basic loss per share
As reported (.09) (2.04) (1.95)
Pro forma (.34) (2.28) (2.14)
Diluted loss per share
As reported (.09) (2.04) (1.95)
Pro forma (.34) (2.28) (2.14)
Pro forma net loss reflects only options granted since 1995. Therefore, the full
impact of calculating compensation cost for stock options under SFAS No. 123 is
not reflected in the pro forma net loss amounts presented above because
compensation cost is reflected over the options' vesting period and compensation
cost for options granted prior to January 1, 1995 is not considered.
At December 31, 2001, 2000 and 1999, the per share weighted-average fair value
of stock options granted was $2.98, $2.82 and $8.32, respectively on the date of
grant using the modified Black Scholes option-pricing model with the following
weighted-average assumptions: 2001 - expected dividend yield 0%, risk-free
interest rate of 4.78%, expected volatility of 66.13% and an expected life of
3.7 years; 2000 - expected dividend yield 0%, risk-free interest rate of 6.45%,
expected volatility of 57.11% and an expected life of 4.7 years; 1999 - expected
dividend yield 0%, risk-free interest rate of 5.49%, expected volatility of
43.82%, and an expected life of 3.54 years.
(c) Loss per share (EPS) for the years ended December 31, 2001, 2000 and 1999
are as follows (in thousands, except per share amounts):
2001 2000 1999
---- ---- ----
Basic EPS
Net loss $ (945) $(25,392) $(22,205)
Weighted average shares
outstanding 13,209 12,468 11,401
Basic loss per share (e) $ (.09) $ (2.04) $ (1.95)
11. Common Stock, stock options and warrants (Continued)
2001 2000 1999
---- ---- ----
Diluted EPS
Net loss $ (945) $(25,392) $(22,205)
Weighted average shares
outstanding 13,209 12,468 11,401
Weighted average shares
outstanding, diluted 13,209 12,468 11,401
Diluted loss
per share (i)(e) $ (.09) $ (2.04) $ (1.95)
Basic loss per share are based upon the weighted average number of common shares
outstanding, including Class B common shares, during the period. Class B common
stockholders have the same rights to share in profits and losses and liquidation
values as common stock holders. Diluted loss per share are based upon the
weighted average number of common shares outstanding during the period, assuming
the issuance of common shares for all dilutive potential common shares
outstanding.
(i) For the years ended December 31, 2001, 2000 and 1999, presentation of the
dilutive effect of stock options and warrants, which totaled 24,000, 204,000 and
821,000, respectively, are not included since they are anti-dilutive.
(d) On May 5, 1999, the Company announced that its Board of Directors had
authorized the purchase of up to 500,000 shares of the Company's common stock.
During the year ended December 31, 1999, the Company repurchased 107,516 shares
of its Common Stock.
(e) Pursuant to an agreement dated as of October 19, 2001 (the "Stock Purchase
Agreement"), the Company has sold to an institutional investor (the "Investor")
300,000 shares
(the "Shares") of Class B Common Stockthe Company for $900,000.an aggregate purchase price of $900,000 to
Bedford Oak in a private placement transaction pursuant to the Bedford Oak
Agreement. Upon the disposition of any of the Shares (other than to an affiliate
of the InvestorBedford Oak who agrees to be bound by the provisions of the Stock PurchaseBedford Oak
Agreement) or at the request of the Board of Directors of the Company, the InvestorBedford
Oak is required to exercise the right to convert all of the Shares then owned by
the InvestorBedford Oak into an equal number of shares of common stockCommon Stock of the Company (the
"Underlying Shares").
11. Common Stock, stock options and warrants (Continued)
The Company is required, at its expense, to file a
registration statement (the "Registration Statement") to register under the
Securities Act of 1933 (the "Securities Act") the resale by the InvestorBedford Oak of the
Underlying Shares.Shares, and to use its commercially reasonable efforts to cause the
Registration Statement to become effective under the Securities Act on the
earliest possible date. On any date prior to October 19, 2003 during which the
InvestorRegistration Statement is not able to reselleffective under the Underlying Shares pursuant to such
registration statement, the InvestorSecurities Act, Bedford Oak
has the right to require the Company to purchase from Bedford Oak all, but not
less than all, of the Shares and Underlying Shares then held by the InvestorBedford Oak for
a purchase price (the "Put Price") equal to the product of (i) the number of
Shares and Underlying Shares owned by the InvestorBedford Oak and (ii) the then current market
price per share of common stock.Common Stock of the Company. The Company may pay the Put
Price by delivering to the Investor, at the option of the Company, in (i) cash,
(ii) shares of Millennium Common Stock owned by the Company with a current
market price equal to the Put Price, or (iii) a combination of cash and
shares of Millennium.
At December 31, 2001, the Company had a put option obligation of $240,000. This
amount has been recorded in additional paid in capital in the accompanying
Consolidated Balance Sheet and is deemed to be a dividend for purposes of the
basic and diluted loss per share calculation.
(f) In June, 2001, the Company entered into an agreement with a financial
consulting firm to provide certain services for which the Company, in addition
to cash payments, agreed to issue warrants to purchase 300,000 shares of the
Company's common stock at an exercise price of $4.60 per share. In connection
with the issuance of these warrants, the Company recorded an expense of $750,000
for these warrants which is included in Selling, General and Administrative
expense in the Consolidated Statement of Operations.
12. Business segments
The operations of the Company currently consist of the following four business
segments, by which the Company is managed.
The Company's principal operating subsidiary is GP. GP operates in two business
segments. The Manufacturing & Process Group provides technology based training,
engineering, consulting and technical services to leading companies in the
automotive, steel, power, oil and gas, chemical, energy, pharmaceutical and food
and beverage industries, as well as to the government sector. The Information
Technology Group provides IT training programs and solutions, including
Enterprise Solutions and comprehensive career training and transition programs.
The Optical Plastics Group, which consists of MXL, manufactures coated and
molded plastic products. The Company's fourth segment is the Hydro Med Sciences
and Other Group.
12. Business segments (Continued)
The management of the Company does not allocate the following items by segment:
Investment and other income, interest expense, selling, general and
administrative expenses, depreciation and amortization expense, income tax
expense, significant non-cash items and long-lived assets. Inter-segment sales
are not significant.
The following tables set forth the sales and operating results attributable to
each line of business and includes a reconciliation of the segments sales to
consolidated sales and operating results to consolidated income (loss) before
income taxes (in thousands):
- -----------------------------------------------------------------------------------------
Years ended December 31, 2001 2000 1999
- ------------------------------------------------------------------------------------------
Sales
Manufacturing & Process $164,361 $161,859 $160,326
Information Technology 11,061 24,593 53,619
Optical Plastics 11,184 10,998 10,353
HMS 5 17 512
- -----------------------------------------------------------------------------------------
$186,611 $197,467 $224,810
- -----------------------------------------------------------------------------------------
Operating results
Manufacturing & Process $ 8,679 $ 10,870 $ 13,166
Information Technology 1,596 (7,331) (11,856)
Optical Plastics 1,192 1,272 1,215
HMS (3,285) (2,131) (1,832)
- -----------------------------------------------------------------------------------------
Total operating profit 8,182 2,680 693
Interest expense (4,733) (5,616) (4,922)
Corporate general and administrative
expenses, amortization of goodwill,
and Investment and other
income, net (1,879) (31,329) (17,064)
Income (loss) from operations before
income taxes 1,570 $ (34,265) $ (21,293)
- -----------------------------------------------------------------------------------------
12. Business segments (Continued)
Operating profits represent sales less operating expenses. In computing
operating profits, none of the following items have been added or deducted:
general corporate expenses at the holding company level, restructuring charges,
foreign currency transaction gains and losses, investment income, loss on
investments, loss on sale of assets, amortization of goodwill and interest
expense. General corporate expenses at the holding company level, which are
primarily salaries, occupancy costs, professional fees and costs associated with
being a publicly traded company, totaled approximately $3,033,000 (net of a
credit to compensation expense of $2,370,000 relating to a non-cash deferred
compensation plan), $7,632,000 (including a non-cash compensation expense of
$3,809,000) and $4,300,000 for the years ended December 31, 2001, 2000 and 1999,
respectively. For the years ended December 31, 2001, 2000 and 1999, sales to the
United States government and its agencies represented approximately 29%, 24% and
21%, respectively, of sales and are included in the Manufacturing & Process and
Information Technology segments.
Additional information relating to the Company's business segments is as follows
(in thousands):
December 31, 2001 2000 1999
- --------------------------------------------------------------------------------
Identifiable assets
Manufacturing & Process $ 74,587 $ 78,761 $ 52,924
Information Technology 5,039 9,283 20,171
Optical Plastics 9,929 9,807 9,835
HMS & Corporate 74,336 114,727 114,188
- -------------------------------------------------------------------------------
$163,891 $212,578 $197,118
- -------------------------------------------------------------------------------
Years ended December 31, 2001 2000 1999
- -------------------------------------------------------------------------------
Additions to property,
plant, and equipment, net
Manufacturing & Process $ 557 $ 530 $ 745
Information Technology 38 58 1,081
Optical Plastics 693 255 856
HMS & Corporate 163 197 277
- -------------------------------------------------------------------------------
$ 1,451 $ 1,040 $ 2,959
- -------------------------------------------------------------------------------
12. Business segments (Continued)
Years ended December 31, 2001 2000 1999
- ---------------------------------------------------------------------------
Depreciation
Manufacturing & Process $ 1,322 $1,432 $1,954
Information Technology 231 835 1,260
Optical Plastics 474 489 487
HMS & Corporate 81 115 74
- ---------------------------------------------------------------------------
$ 2,108 $2,871 $3,775
- ---------------------------------------------------------------------------
Identifiable assets by industry segment are those assets that are used in the
Company's operations in each segment. Corporate and other assets are principally
cash and cash equivalents, marketable securities and intangibles, including
goodwill.
Information about the Company's net sales in different geographic regions, which
are attributed to countries based on location of customers, is as follows (in
thousands):
Year ended December 31,
2001 2000 1999
--------- --------- ---------
United States $173,008 $174,462 $175,185
Canada 2,756 7,181 25,309
United Kingdom 6,962 11,028 17,127
Latin America and other 3,885 4,796 7,189
-------- ---------- ----------
$186,611 $197,467 $224,810
-------- -------- --------
Information about the Company's identifiable assets in different geographic
regions is as follows (in thousands):
December 31,
2001 2000 1999
------------ ----------- -------------
United States $155,694 $205,797 $180,057
Canada 3,653 3,371 9,533
United Kingdom 2,821 1,928 5,087
Latin America and other 1,723 1,482 2,441
---------- --------- ----------
$163,891 $212,578 $197,118
-------- -------- --------
All corporate intangible assets of the Company, as well as other corporate
assets, are assumed to be in the United States.
13. Fair value of financial instruments
The carrying value of financial instruments including cash and cash equivalents,
marketable securities, accounts receivable, accounts payable and short-term
borrowings approximate estimated market values because of short maturities and
interest rates that approximate current rates.
The carrying values of investments, other than those accounted for on the equity
basis, approximate fair values based upon quoted market prices. The investments
for which there is no quoted market price are not significant.
The estimated fair value for the Company's debt is as follows (in thousands):
December 31, 2001 December 31, 2000
Carrying Estimated Carrying Estimated
amount fair value amount fair value
Term Loan $ - $ - $ 13,313 $ 13,313
Other long-term debt 6,863 6,863 4,299 4,299
Limitations. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
14. Accounting for certain investments in equity securities
The gross unrealized holding gains (losses) and fair value for
available-for-sale securities were as follows (in thousands):
Gross Unrealized Holding
Cost Gains Losses Fair Value
Available-for-sale equity securities:
December 31, 2001 $ 4,633 $14,810 $ - $ 19,443
- -------------------------------------------------------------------------------------------------
December 31, 2000 $ 6,136 45,619 $ (7) $51,748
- -------------------------------------------------------------------------------------------------
December 31, 1999 $ 502 $ 6 $ (61) $ 447
- -------------------------------------------------------------------------------------------------
Differences between cost and market, net of taxes, of $9,021,000, $27,918,000
and $(58,000) and at December 31, 2001, 2000 and 1999, respectively, were
credited (debited) to a separate component of shareholders' equity called
Accumulated other comprehensive income (loss).
15. Asset Impairment Charge and Restructuring Charge
During 1999, the Company adopted restructuring plans, primarily related to its
IT Business segment.Millennium Common Stock.
The Company took steps in order to change the focus of the
IT group from open enrollment information technology training courses to project
oriented work for corporations, which was consistent with the focus of GP's
current business. In connection with the restructuring, the Company closed,
downsized, or consolidated 7 offices in the United States, 10 offices in Canada
and 5 offices in the United Kingdom (UK), and terminated approximately 156
employees.
In connection with the restructuring, the Company recorded a charge of
$7,374,000 in 1999, of which $2,754,000 had been utilized through December 31,
1999. During 2000, the Company utilized $2,501,000 of the reserve and reversed
$180,000. As of December 31, 2000, $707,000 is included in accounts payable and
accrued expenses and $1,232,000 is included in other non-current liabilities in
the accompanying Consolidated Balance Sheet.
During 2001, the Company utilized $663,000 of the reserve and reversed $202,000.
As of December 31, 2001, $330,000 is included in accounts payable and accrued
expenses and $744,000 is included in other non-current liabilities in the
accompanying Consolidated Balance Sheet.
The Company believed at the time the restructuring plan was adopted that the
strategic initiatives and cost cutting moves taken in 1999 and the first quarter
of 2000 would enable the IT Group to return to profitability in the last six
months of 2000. However, those plans were not successful, and the Company
determined that it could no longer bring the open enrollment IT business to
profitability. Additionally there had been further impairment to intangible and
other assets. In July 2000, as a result of the continued operating losses
incurred by the IT Group, as well as the determination that revenues would not
increase to profitable levels, the Company decided to close its open enrollment
IT business in the third quarter of 2000.
As a result, for the year ended December 31, 2000, the Company recorded asset
impairment charges of $19,245,000 related to the IT Group. The charges are
comprised of a write-off of intangible assets of $16,663,000 as well as
write-offs of property, plant and equipment and other assets relating to the
closed offices, totaling $2,582,000.
The Company believes that the remaining unamortized goodwill from its
acquisition of Learning Technologies of approximately $5,000,000, which relates
to the IT project business, is recoverable from future operations. However, if
the remaining IT operations do not achieve profitable operating results, there
can be no assurance that a further impairment charge will not be required.
15. Asset Impairment Charge and Restructuring Charge (Continued)
In addition, the Company recorded an $8,630,000 restructuring charge, net of a
$180,000 reversal of the 1999 restructuring plan, in 2000. Of this charge,
$3,884,000 had been utilized through December 31, 2000. Of the remaining
$4,926,000 balance as of December 31, 2000, $2,932,000 was included in Accounts
payable and accrued expenses and $1,994,000 was included in Other non-current
liabilities in the Consolidated Balance Sheet. During 2001, the Company utilized
$2,302,000 of the reserve and reversed $972,000 as a result of favorable
settlements on certain leases and contractual obligations. As of December 31,
2001 $832,000 is included in accounts payable and accrued expenses and $820,000
is included in other non-current liabilities in the Consolidated Balance Sheet.
The components of the 2000 restructuring charge are as follows (in thousands):
Severance Lease and Other facility
and related related Contractual related
benefits obligations obligations costs Total
- --------------------------------------------------------------------------------------------------------------------
Restructuring
charges during 2000 $ 1,825 $ 5,185 $ 1,590 $ 210 $ 8,810
Utilization 1,683 1,826 165 210 3,884
- --------------------------------------------------------------------------------------------------------------------
Balance December 31, 2000 $ 142 $ 3,359 $ 1,425 $ - $ 4,926
- --------------------------------------------------------------------------------------------------------------------
Utilization 142 1,484 676 2,302
Reversal of Restructuring
charges during 2001 575 397 972
- --------------------------------------------------------------------------------------------------------------------
Balance December 31, 2001 $ - $ 1,300 $ 352 $ - $ 1,652
- --------------------------------------------------------------------------------------------------------------------
15. Asset Impairment Charge and Restructuring Charge (Continued)
The components of the 1999 restructuring charge are as follows (in thousands):
Severance Lease and Other facility
and related related related
benefits obligations costs Total
- ---------------------------------------------------------------------------------------------------------------
Restructuring charges
during 1999 $1,555 $5,237 $582 $7,374
Utilization 1,266 1,031 457 2,754
- ---------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 $ 289 $ 4,206 $ 125 $ 4,620
Utilization 184 2,264 53 2,501
Reversal of restructuring charges
during 2000 105 3 72 180
- ---------------------------------------------------------------------------------------------------------------
Balance December 31, 2000 $ - $ 1,939 $ - $ 1,939
- ---------------------------------------------------------------------------------------------------------------
Utilization 663 663
Reversal of Restructuring
charges during 2001 202 202
- ---------------------------------------------------------------------------------------------------------------
Balance December 31, 2001 $ - $ 1,074 $ - $ 1,074
- ---------------------------------------------------------------------------------------------------------------
The remaining amounts that have been accrued for contractual obligations will be
expended by December 31, 2002. Lease obligations are presented at their present
value, net of assumed sublets.
In connection with the 1999 restructuring, the Company had incurred write-offs
of inventory and other assets related to certain revenue producing activities
which were exited as part of the restructuring ($3,984,000), which were included
in Cost of sales in the Consolidated Statement of Operations. In addition, GP
had incurred charges related to write-offs of assets related to certain revenue
producing activities which were being exited as a result of the restructuring
($4,437,000), which were included in Selling, general and administrative
expenses in the Consolidated Statement of Operations.
16. Related party transactions
(a) In 2000, the Companyhas made loans to an officer who wasJerome I. Feldman, the PresidentChairman of the
Board and Chief Executive Officer as well as a director of the Company totaling
approximately $1,278,000 to purchase an aggregate of 150,000 shares of Class B
Stock. At December 31, 2001 and 2000, the Company had total loans receivable
from such officer in the amount of approximately $4,095,000,Company. Mr. Feldman primarily utilized
the proceeds of which were usedsuch loans to exercise options to purchase an aggregate of 537,500 shares of Class B Common Stock. Such
loans bear interest at the prime rate of Fleet Bank and are secured by the
purchased Class B Common Stock and certain other assets. All principal onAs of March 31, 2002, the
loans and accrued interest of $881,000 and $594,000 at December 31, 2001 and
2000, respectively, are due on May 31, 2004. In prior years, the Company made
unsecured loans to such officer in theaggregate amount of approximately $334,000,indebtedness outstanding was $5,442,158, which unsecured loans primarily bear interest atwas the
prime rate of Fleet Bank.
(b) In 1999, the Company purchased 43,593 shares of Common Stock from such
officer for a purchase price of approximately $828,000. The officer utilized the
proceeds from such sale to reduce his outstanding indebtedness to the Company.
(c) On February 11, 2000, an affiliate of Andersen, Weinroth & Co., L.P.
("Andersen Weinroth") purchased 200,000 shares of Class B Common Stock for
$1,200,000. In addition, a general partner of Andersen Weinroth joined the Board
of Directors of the Company. On October 11, 2001, this general partner resigned
from the Board of Directors of the Company and pursuant to an agreement dated as
of February 11, 2000, on October 11, 2001, this general partner converted the
200,000 shares of Class B Common Stock into an equal number of shares of Common
Stock.
17. Commitments and contingencies
(a) The Company has several noncancellable leases for real property and
machinery and equipment. Such leases expire at various dates with, in some
cases, options to extend their terms. Lease commitments related to facilities
closed as part of the restructuring (see Note 15) are not included below.
Minimum rentals under long-term operating leases are as follows (in
thousands):
Real Machinery &
property equipment Total
- ---------------------------------------------------------------------------
2002 $3,855 $1,026 $4,881
2003 1,901 818 2,719
2004 962 158 1,120
2005 720 18 738
2006 446 446
Thereafter 18 18
- ---------------------------------------------------------------------------
Total $7,902 $2,020 $9,922
- ---------------------------------------------------------------------------
Several of the leases contain provisions for rent escalation based primarily on
increases in real estate taxes and operating costs incurred by the lessor. Rent
expense was approximately $5,349,547, $9,565,038 and $12,842,000 for 2001, 2000
and 1999, respectively.
(b) The Company has guaranteed $1,800,000 of GSES' debt through March 2003 in
return for warrants to purchase 150,000 shares of GSES common stock at an
exercise price of $2.38 per share, which expire August 17, 2003.
(c) As part of the 1998 transaction discussed in Note 3(a), the Company
guaranteed the leases for two of Five Star's warehouses totaling approximately
$1,513,000 per year through 2007.
(d) The Company is party to several lawsuits and claims incidental to its
business, including a claim regarding an environmental matter. Management
believes that the ultimate liability, if any, of theses lawsuits and claims,
will not have a material adverse effect on the Company's consolidated financial
statements.
18. Termination of Merger Agreement
On February 11, 2000, the Company terminated its previously announced merger
agreement with VS&A Communications Partners III, L.P. ("VS&A"), an affiliate of
Veronis, Suhler & Associates Inc. To induce VS&A to agree to the immediate
termination of the merger agreement and to give the Company a general release,
on February 11, 2000, the Company issued to VS&A, as partial reimbursement of
the expenses incurred by it in connection with the merger agreement, 83,333
shares of the Company's Common Stock and an 18-month warrant to purchase 83,333
shares of the Company's Common Stock at a price of $6.00 per share (which has
now expired). The consideration was valued at $686,000, and is included in
Selling, General and administrative expenses in the December 31, 1999
Consolidated Statement of Operations.
19. Litigation
On January 3, 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 thelargest aggregate 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. Although
discovery has not yet been completed, defendants have made a motion for summary
judgment which is scheduled to be submitted on April 5, 2002.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
GP Strategies Supplementary Data
Corporation
and Subsidiaries
SELECTED QUARTERLY FINANCIAL DATA
(unaudited) (in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------------------
three months ended
- ---------------------------------------------------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
2001 2001 2001 2001 2000 2000 2000 2000
- --------------------------------------------------------------------------------------------------------------------------------
Sales $49,114 $50,347 $44,713 $42,437 $47,800 $50,328 $50,786 $48,553
Gross margin 6,359 6,974 4,683 4,561 4,362 4,949 4,821 5,657
Net income (loss) (244) 734 847 (2,282) (1,753) (22,566) 6,549 (7,622)
Net income (loss)
per share:
Basic (.02) .06 .06 (.19) (.15) (1.85) .52 (.59)
Diluted (.02) .06 .06 (.19) (.15) (1.85) .52 (.59)
- -------------------------------------------------------------------------------------------------------------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the directors of the Company is incorporated herein
by reference to the Company's definitive proxy statement pursuant to Regulation
14A, which proxy statement will be filed not later than 120 days after the end
of the fiscal year covered by this Report.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, which proxy statement will be filed not later than 120 days after the end
of the fiscal year covered by this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Security Ownership of Certain Beneficial Owners is
incorporated herein by reference to the Company's definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed not later than
120 days after the end of the fiscal year covered by this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related Transactions is
incorporated herein by reference to the Company's definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed not later than
120 days after the end of the fiscal year covered by this Report.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K:
(a)(1)The following financial statements are included in Part II, Item 8.
Financial Statements and Supplementary Data:
FINANCIAL STATEMENTS OF GP STRATEGIES CORPORATION
AND SUBSIDIARIES:
Page
Independent Auditors' Report 30
Financial Statements:
Consolidated Balance Sheets -
December 31, 2001 and 2000 31
Consolidated Statements of Operations -
Years ended December 31, 2001, 2000 and 1999 33
Consolidated Statements of Changes in Stockholders' Equity -
Years ended December 31, 2001, 2000 and 1999 34
Consolidated Statements of Cash Flows -
Years ended December 31, 2001, 2000 and 1999 35
Notes to Consolidated Financial Statements 37
(a)(2) Financial Statement Schedules
Schedule II - Validation and Qualifying Accounts i
Independent Auditor's Report ii
(a)(3) Exhibits
Consent of KPMG LLP, Independent Auditors *
(b) There were no reports filed on Form 8-K by the Registrant during the
last quarter covered by this report.
* Filed herewithindebtedness outstanding since January 1, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GP STRATEGIES CORPORATION
Jerome I. Feldman
Chief Executive Officer
Dated: April 4,30, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title
Jerome I. Feldman Chief Executive Officer and Director
(Principal Executive Officer)
Scott N. Greenberg President and
Chief Financial Officer and Director
Ogden R. Reid Director
John C. McAuliffe Director
Sheldon L. Glashow Director
Roald Hoffmann Director
DATED: April 4, 2002
GP STRATEGIES CORPORATION AND SUBSIDIARIES
SCHEDULE II
Valuation and qualifying accounts (in thousands)
- -------------------------------------------------------------------------------------------------------------------
Additions
Balance at Charged to Balance at
Beginning Costs & End of
of Period Expenses Deductions(a) Period
Year ended December 31, 2001:
Allowance for doubtful accounts (b) $ 859 $ 102 $ (432) $ 529
Year ended December 31, 2000:
Allowance for doubtful accounts (b) $ 2,905 $ 139 $(2,185) $ 859
Year ended December 31, 1999:
Allowance for doubtful accounts (b) $ 1,733 $ 2,630 $(1,458) $ 2,905
(a) Write-off of uncollectible accounts, net of recoveries.
(b) Deducted from related asset on Balance Sheet.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GP Strategies Corporation
Under date of March 28, 2002, we reported on the consolidated balance sheets of
GP Strategies Corporation and subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 2001, as contained in the Annual Report on Form 10-K for the year
ended December 31, 2001. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedule as listed in Item 14. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.
In our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
New York, New York
March 28, 2002
The following is a list of all exhibits filed as part of this Report.
SEQUENTIAL EXHIBIT NO. DOCUMENT PAGE NO.
3.1 Amendment to the Registrant's Restated
Certificate of Incorporation filed on March
5, 1998. Incorporated herein by reference to
Exhibit 3.1 of the Registrant's Annual Report
on Form 10-K for the year ended December 31,
1998.
3.2 Amended and Restated By-Laws of the
Registrant. Incorporated herein by
reference to Exhibit 1 of the Registrant's
Form 8-K filed on September 1, 1999.
10.1 1973 Non-Qualified Stock Option Plan of the
Registrant, as amended on June 26, 2000.
Incorporated herein by reference to Exhibit
10.1 of the Registrant's Annual Report on
Form 10-K for the year ended December 31,
2000.
10.2 GP Strategies' Millennium Cell, LLC Option
Plan.*
10.3 Employment Agreement, dated as of June 1,
1999, between the Registrant and Jerome I.
Feldman. Incorporated herein by reference
to Exhibit 10 of the Registrant's Form 10-Q
for the second quarter ended June 30, 1999.
10.4 Employment Agreement, dated as of July 1,
1999, between the Registrant and Scott N.
Greenberg. Incorpo-rated herein by
reference to Exhibit 10.1 of the
Registrant's Form 10-Q for the third
quarter ended September 30, 1999
10.5 Employment Agreement, dated as of July 1,
1999, between the General Physics
Corporation and John C. McAuliffe.
Incorporated herein by reference to Exhibit
10.2 of the Registrant's Form 10-Q for the
third quarter ended September 30, 1999
10.6 Employment Agreement dated as of May 1,
2001 between the Registrant and Andrea D.
Kantor. Incorporated herein by reference
to Exhibit 10 of the Registrant's Form 10-Q
for the second quarter ended June 30, 2001.
10.7 Termination of Merger Agreement, dated
February 11, 2000, to the Agreement and
Plan of Merger dated as of October 6, 1999,
by and among the Registrant, VS&A
Communica- tions Partners III, L.P., VS&A
Communications Parallel Partners III, L.P.,
VS&A-GP, L.L.C. and VS&A-GP Acquisitions,
Inc. Incorporated herein by reference to
Exhibit 10 of the Registrants Form 8-K
filed on February 14, 2000.
10.8 Registrant's 401(k) Savings Plan, dated
January 29, 1992, effective March 1, 1992.
Incorporated herein by reference to Exhibit
10.12 of the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1991.
10.9 Asset Purchase Agreement, dated as of June
3, 1998, by and among SHL Systemhouse Co.,
MCI Systemhouse Corp., SHL Computer
Innovations Inc., SHL Technology Solutions
Limited and General Physics Corporation.
Incorporated herein by reference to Exhibit
10.1 of the Registrant's Form 8-K dated
June 29, 1998.
10.10 Preferred Provider Agreement, dated as of
June 3, 1998, by and among SHL Systemhouse
Co., MCI Systemhouse Corp., SHL Computer
Innovations Inc., SHL Technology Solutions
Limited and General Physics Corporation.
Incorporated herein by reference to Exhibit
10.2 of the Registrant's Form 8-K dated
June 29, 1998.
10.11 Second Amended and Restated Credit
Agreement dated as of December 14, 2001, by
an among the Registrant, General Physics
Corporation, as the Borrowers, LaSalle
Business Credit Inc. and Dime Savings Bank
of New York, FSB, the Lenders and Fleet
National Bank, as Agent, as Issuing Bank
and as Lead Arranger.*
10.12 Asset Purchase Agreement dated as of July
13, 1998, between the Registrant's
wholly-owned subsidiary, General Physics
Corporation and The Deltapoint
Corporation. Incorporated herein by
reference to the Registrant's Form 8-K
dated July 27, 1998.
10.13 Rights Agreement, dated as of June 23,
1997, between National Patent Development
Corporation and Harris Trust Company of New
York, as Rights Agent, which includes, as
Exhibit A thereto, the Resolution of the
Board of Directors with respect to Series A
Junior Participating Preferred Stock, as
Exhibit B thereto, the form of Rights
Certificate and as Exhibit C thereto the
form of Summary of Rights. Incorporated
herein by reference to Exhibit 4.1 of the
Registrant's Form 8-K filed on July 17,
1997.
10.14 Amendment, dated as of July 30, 1999, to
the Rights Agreement dated as of June 23,
1997, between the Registrant and Harris
Trust Company of New York, as Rights
Agent. Incorporated herein by reference to
Exhibit 4.2 of the Company's report on Form
8-A12B/A filed on August 2, 1999.
10.15 Amendment, dated as of December 16, 1999,
to the Rights Agreement dated as of June
23, 1997, between the Registrant and Harris
Trust Company of New York, as Rights
Agent. Incorporated herein by reference to
Exhibit 4.2 of the Company's report on From
8-A12B/A filed on December 17, 1999.
10.16 Consulting and Severance Agreement dated
December 29, 1998 between the Registrant
and Martin M. Pollak. Incorporated herein
by reference to Exhibit 10.10 of the
Registrant's Form 10K for the year ended
December 31, 1998.
10.17 Agreement dated, December 29, 1998, among
the Registrant, Jerome I. Feldman and
Martin M. Pollak. . Incorporated herein by
reference to Exhibit 10.11 of the
Registrant's Form 10K for the year ended
December 31, 1998.
10.18 Amendment No. 1, dated March 22, 1999, to
Agreement dated December 29, 1998 among the
Registrant, Jerome I. Feldman and Martin M.
Pollak. . Incorporated herein by reference
to Exhibit 10.12 of the Registrant's Form
10K for the year ended December 31, 1998.
10.19 Agreement dated September 22, 1999 among GP
Strategies Corporation, Jerome I. Feldman
and Martin M. Pollak. Incorporated herein
by reference to Exhibit 9 of Jerome I.
Feldman's Amendment No. 1 to Schedule 13D
filed on September 27, 1999.
10.20 Stockholders Agreement dated February 11,
2000, among the Registrant, Andersen
Weinroth & Co., L.P. and Jerome I.
Feldman. Incorporated herein by reference
to Exhibit 16 of Jerome I. Feldman's
Amendment No. 5 to Schedule 13D filed on
February 23, 2000
10.21 Subscription Agreement dated as of October
19, 2001 between the Registrant and Bedford
Oak Partners, L.P.*
10.22 6% Convertible Exchangeable Note Agreement
dated June 30, 2000 between the Registrant
and SMM Corporate Management LLC.*
10.23 Investor Rights Agreement dated as of
December 27, 2001 among the Registrant,
Hydro Med Sciences and certain
Institutional Investors.*
10.24 Stock Purchase Agreement dated as of
December 27, 2001 among the Registrant,
Hydro Med Sciences and certain
Institutional Investors.*
10.25 Right of First Refusal Co-Sale Agreement
dated as of December 27, 2001 among the
Registrant, Hydro Med Sciences and certain
Institutional Investors.*
10.26 Termination Agreement dated as of December
21, 2001 between Hydro med Sciences and
Shire US Inc.*
10.27 Amended Noted dated November, 2001 in the
amount of $5,000,000 payable by Five Star
Products, Inc. to JL Distributors, a wholly
owned subsidiary of the Registrant.*
18 Not Applicable
19 Not Applicable
20 Not Applicable
21 Subsidiaries of the Registrant*
22 Not Applicable
23 Consent of KPMG LLP, Independent Auditors*
28 Not Applicable
* Filed herewith.