SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7234
GP STRATEGIES CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-1926739
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(State of Incorporation) (I.R.S. Employer Identification No.)
9 West 57th Street, New York, NY 10019
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 826-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered:
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Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of April 3, 2000, the aggregate market value of the outstanding shares of the
Registrant's Common Stock, par value $.01 per share, held by non-affiliates
(assuming for this calculation only that all officers and directors are
affiliates) was approximately $50,591,097 based on the closing price of the
Common Stock on the New York Stock Exchange on April 3, 2000. None of the Class
B Capital Stock, par value $.01 per share, was held by non-affiliates.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the most recent practicable date.
Class Outstanding at April 3, 2000
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Common Stock, par value $.01 per share 11,273,824 shares
Class B Capital Stock, par value $.01 per share 800,000 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 2000 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof
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TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
Item 2. Properties 15
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of
Security Holders 16
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 72
PART III
Item 10. Directors and Executive Officers of the Registrant* 73
Item 11. Executive Compensation* 73
Item 12. Security Ownership of Certain
Beneficial Owners and Management* 73
Item 13. Certain Relationships and Related Transactions* 73
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 74 *to be incorporated by reference
from the Proxy Statement for the Registrant's 1999 Annual Meeting of
Stockholders.
<PAGE>
PART I
ITEM 1. BUSINESS
General Development of Business
GP Strategies Corporation (the "Company") has engaged in a strategic
redirection over the last several years and has divested a number of its
holdings to focus on becoming a performance improvement company, through its
wholly-owned subsidiary, General Physics Corporation ("General Physics"). The
Company's Hydro Med Sciences division is focusing its efforts to obtain Food and
Drug Administration ("FDA") approval for its prostate cancer drug delivery
system. GP e-Learning Technologies, Inc. ("GP e-Learning") was recently
organized to provide Global 2000 corporations and other organizations with a
single source solution for their e-learning needs. GP e-Learning is expected to
offer a wide range of consulting and implementation services needed to help
clients implement web-deployed training. In addition, the Company has passive
investments in the stock of certain publicly traded and private corporations.
GP Strategies Corporation (the Company) has four operating business
segments. Three of the Company's segments are managed through the Company's
principal operating subsidiary which is General Physics Corporation (General
Physics) and the fourth through its operating subsidiary MXL Industries, Inc.
(MXL). In addition, the Company holds a number of investments in public and
privately held companies.
General Physics is a performance improvement company that assists
productivity driven organizations to maximize workforce performance by
integrating people, processes and technology. General Physics is a total
solution provider for strategic training, engineering, consulting and technical
support services to Fortune 500 companies, government, utilities and other
commercial customers. General Physics consists of three segments; the
Information Technology (IT) Group, the Manufacturing Services Group and the
Process & Energy Group. The Optical Plastics Group, which comprises MXL
manufactures molded and coated optical products, such as shields and face masks
and non-optical plastic products.
The Manufacturing Services Group provides technology based training to
leading companies in the automotive, steel and food and beverage industries, as
well as to the government sector. The Process & Energy Group provides
engineering, consulting and technical training to the power, chemical, energy
and pharmaceutical industries as well as government facilities. The Information
Technology Group provides information training programs and solutions, including
Enterprise Solutions and comprehensive career training and transition programs.
The Company's Optical Plastics Group, through its wholly owned subsidiary MXL
manufactures molded and coated optical products, such as shields and face masks
and non-optical plastic products.
The Company was incorporated in Delaware in 1959 and is a New York
Stock Exchange listed company.
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Manufacturing Services Group
Process & Energy Group
Information Technology Group
GENERAL PHYSICS CORPORATION
Organization and Operations
General Physics, with approximately 1,800 employees in offices
worldwide, provides performance improvement services and products to
multinational companies in manufacturing and process industries, electric power
utilities, and other commercial and governmental customers.
General Physics believes it is a global leader in performance
improvement, with over three decades of experience in providing solutions to
optimize work force performance. Since 1966, General Physics has provided
clients with the products and services they need to successfully integrate their
people, processes and technology -- the elements most critical to the successful
realization of any organization's goal to improve its effectiveness.
General Physics provides a broad range of services and products on a
global scale that are oriented toward improving the performance of individuals
and organizations throughout their productive lives. For individuals, General
Physics provides instructional courses and self-paced learning products. General
Physics' instruction delivery capabilities include traditional classroom,
structured on-the-job training (OJT), just-in-time methods, electronic
performance support systems (EPSS), and the full spectrum of e-learning
technologies. For businesses, government agencies and other organizations,
General Physics offers services and products spanning the entire lifecycle of
production facilities: plant launch assistance from both workforce training and
engineering perspectives; operations and maintenance practice training and
consulting services; curriculum development and delivery; facility and
enterprise change and configuration management; lean enterprise consulting;
plant and process engineering review and re-design; learning resources
management; e-learning consulting and systems implementation; and development
and delivery of information technology (IT) training on an individual and
enterprise-wide scale. General Physics' personnel bring a wide variety of
professional, technical and military backgrounds together to create
cost-effective solutions for modern business and governmental challenges.
Operationally, General Physics is organized globally into vertically
and horizontally integrated functional and administrative units, with the goal
of achieving a level of adaptability to match rapidly changing business
conditions and opportunities. Realignment of people, products and business units
occurs frequently to achieve the goal of exposing each of General Physics'
clients to the full menu of services and products offered.
General Physics was incorporated in 1966 to provide technical
consulting services in the field of nuclear science and engineering services to
nuclear power companies and government agencies. General Physics expanded its
operations in the late 1960's to provide, among other things, training and
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technical support services to the commercial nuclear power industry. General
Physics expanded its markets even further in the late 1980's to provide training
and technical support services to United States Government nuclear weapons
production and waste processing facilities, and environmental services to
governmental and commercial clients.
In 1994, General Physics further expanded it range of capabilities, as
well as its clients, by acquiring the design engineering, seismic engineering,
systems engineering, materials management and safety analysis businesses of
Cygna Energy Services, and by acquiring the management and technical training
and engineering consulting businesses of GPS Technologies, Inc.
On January 24, 1997, stockholders of each of the Company and General
Physics voted to approve the merger of a wholly-owned subsidiary of the Company
with General Physics, pursuant to which General Physics became a wholly-owned
subsidiary of the Company (the "Merger"). Under the terms of the Merger
Agreement, holders of General Physics Common Stock received shares of the
Company's Common Stock in exchange for their shares of General Physics common
stock.
During 1998, General Physics embarked upon a strategy to expand
globally, further diversify its clientele, and acquire additional performance
improvement capabilities through acquisitions. During the year, General Physics
acquired businesses operated by United Training Services, Inc., a provider of
training and consulting services to the U.S. automotive industry and to other
commercial customers; Specialized Technical Services Limited, a provider of
technical training services and language services to commercial and governmental
customers in the United Kingdom; SHL Learning Technologies, a leading computer
technology training and consulting organization with an established network of
offices and training facilities in Canada and the United Kingdom; and The
Deltapoint Corporation, a Seattle, Washington, based management consulting firm
focused on large systems change and lean enterprise, with primarily Fortune 500
clients operating in the aerospace, pharmaceutical, manufacturing, healthcare
and telecommunications industries.
In 1999 General Physics refocused its international strategy to
leverage its success with multinational clients by following those clients into
new venues, then expand its client base to include local suppliers and related
parties. Proposed locations are evaluated for political stability and potential
receptiveness to General Physics' products and services. General Physics has
applied this strategy to Canada, the United Kingdom, Mexico, Brazil and
Malaysia.
Since January 1, 1999, General Physics also has taken steps to bring
costs more in line with lower revenues in its information technology business.
More than 100 jobs have been eliminated; 17 offices downsized, closed or
consolidated with other offices; and more than 110,000 square feet of office
space has been subleased to third parties or returned to landlords in connection
with the expiration or negotiated termination of leases.
In 2000, General Physics expects to make a substantial investment in
upgrading its financial, accounting and human resources systems by implementing
an Enterprise Resource Planning software package that will better integrate
those functions and streamline support for its business operations.
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General Physics' performance is significantly affected by the timing of
performance on contracts. Results of operations are not seasonal, since
contracts are performed throughout the year. However, demand for open enrollment
courses may fluctuate with student demand, and General Physics' revenues and
profitability are related to general levels of economic activity and employment
in the United States, Canada and the United Kingdom. A significant economic
downturn or recession in one or more of these countries could have a material
adverse effect on General Physics' business, financial condition and results of
operations.
Customers
General Physics currently provides services to more than 800 customers,
exclusive of individual students who attend General Physics' open enrollment
courses. Significant customers include multinational automotive manufacturers,
such as General Motors Corporation, Ford Motor Company and DaimlerChrysler
Corporation; commercial electric power utilities, such as Consolidated Energy
Company of New York, Public Service Electric & Gas Company, Commonwealth Edison
Company, Entergy Operations, Inc., Southern California Edison Company, National
Power PLC, Ontario Hydro and National Power Corporation (Philippines);
governmental agencies, such as the U.S. Departments of Defense, Energy and
Justice, NASA, Canada Post, the U.S. Postal Service and various Canadian
provincial governments; U.S. government prime contractors, such as
Northrop-Grumman, Lockheed Martin, Westinghouse Savannah River Company and The
Johns Hopkins University Applied Physics Laboratory; pharmaceutical companies,
such as Pfizer, Inc., Merck & Co., Pharmacia-Upjohn and Johnson & Johnson;
communications companies, such as Lucent Technologies, British Telecom PLC,
Electronic Data Systems and PageNet; software vendors, such as Oracle
Corporation, The Baan Company, JetForm, PeopleSoft Inc. and Microsoft
Corporation; aerospace companies, such as Boeing Corporation and Aerojet General
Corporation; computer, electronics, and semiconductor companies, such as IBM
Corporation and Sun Microsystems; food and beverage companies, such as
Anheuser-Busch Company and PepsiCo.; petro-chemical companies, such as
ExxonMobil, Lyondell-Citgo and Huntsman Chemical; steel producers, such as AK
Steel, USX Corporation, Inspat Inland Steel, National Steel and Dofasco Steel;
an automobile association, the California State Automobile Association and other
large multinational companies, such as Fluor Daniel, Xerox Corporation, PPG
Industries, Inc., Barclays Bank PLC, General Electric Company, Westinghouse
Electric Company and Kimberly Clark Corp.
Revenue from the United States Government accounted for approximately
22% of General Physics' revenue for the year ended December 31, 1999. However,
such revenue was derived from many separate contracts and subcontracts with a
variety of Government agencies and contractors that are regarded by General
Physics as separate customers. In 1999, except for General Motors Corporation,
which accounted for approximately 12% of General Physics' revenue, no other
customer accounted for 10% or more of General Physics' revenue.
<PAGE>
General Physics' Operating Segments
General Physics provides services and sells products within a structure
that is integrated both vertically and horizontally. Vertically, General Physics
is organized into Strategic Business Units (SBUs), Business Units (BUs), and
Groups focused on providing a wide range of products and services to clients and
prospective clients predominantly within targeted markets. Horizontally, General
Physics is organized across SBUs, BUs and Groups to integrate similar service
lines, technology, information, work products, client management and other
resources. As a result, General Physics has evolved into a matrixed organization
in which resources can be coordinated to meet the needs of General Physics'
clients or to respond quickly and mobilize resources for new opportunities.
Business development, communications, market research, accounting, and other
administrative services are organized at the corporate level. The corporate
business development and sales resources are aligned with operating units to
support existing customer accounts and new customer development. General Physics
manages its business in three business segments: Manufacturing Services, Process
& Energy and Information Technology.
Manufacturing Services Group
The Manufacturing Services Group focuses on developing long-term
relationships with manufacturing sector Fortune 1000 companies and their
suppliers. The Group builds these relationships by gaining a thorough
understanding of a company's competitive strategies and business objectives,
analyzing their human, technical, and organization issues, and recommending
viable human performance and learning resources management solutions. The Group
then works with its customers in implementing the recommended solutions, moving
the organization toward achieving business objectives and improving competitive
advantage. Manufacturing units frequently support the introduction of new work
practices associated with lean manufacturing, self-directed work teams and
engineering. Adult learning delivery capabilities include traditional classroom,
structured on-the-job training (OJT), just in time methods, electronic
performance support systems (EPSS), and the full spectrum of e-Learning
technologies. A representative list of the Group's customers includes: General
Motors Corporation, Ford Motor Company, DaimlerChrysler, Lockheed Martin,
Boeing, Raytheon, USX, AK Steel, Inland Steel, AT&T, Lucent Technologies,
Advanced Micro Devices, Anheuser-Busch, Pepsi-Cola, Frito-Lay, Unilever,
Kimberly-Clark, Willamette Industries, and Champion International.
Information Technology Group
The Information Technology (IT) Group's services fall into six business
areas: instructor-led training, customized education, System Technology
Accelerated Training (START), product sales, enterprise solutions, and
information technology service support. Specific services include help desk
support, software applications training, vendor certifications, change
management, and courseware development. The IT Group has significant operations
in the United Kingdom and Canada. A representative list of the Group's customers
includes: Pfizer, Johnson & Johnson Professional, Ethicon-Endo Surgery, EDS,
Anheuser-Busch, National Steel, Fluor Daniel, IBM, British Telecom PLC, Barclays
Bank, CN Rail, Canada Post, Oracle and GE Capital.
<PAGE>
Process & Energy Group
General Physics' Process and Energy Group provides training,
engineering and technical support services to clients to help them
cost-effectively realize their goals, whether involving workforce development,
plant launch, new designs, modification of existing facilities and systems,
regulatory compliance, or improved operations and maintenance. With over thirty
years of training, applied engineering and management experience in helping
clients improve performance, increase efficiency and reduce risk, the Group is
called upon to help its clients meet global competitive challenges, especially
when that challenge requires significant capital investment in plants and
facilities and presents a potential risk to the workplace and the environment. A
representative list of the Group's customers allowing disclosure includes: NASA,
the U.S. Postal Service, the U.S. Army, Navy and Air Force, PPG, BFGoodrich,
ExxonMobil, Pharmacia-Upjohn, General Electric, Consolidated Edison,
Commonwealth Edison, Boeing and Aerojet General.
International
General Physics conducts its business outside the United States primarily
through wholly-owned subsidiaries: General Physics Canada Ltd., General Physics
(UK) Ltd., General Physics Corporation Mexico, S.A. de C.V., General Physics
(Malaysia) Sdn Bhd and GP Strategies do Brasil Ltda. Through these companies
General Physics is capable of providing substantially the same services and
products as are available to clients in the United States, although modified as
appropriate to address the language, business practices and cultural factors
unique to each client and country. In combination with its subsidiaries, General
Physics is able to coordinate the delivery to multi-national clients of services
and products that achieve consistency on a global, enterprise-wide basis.
General Physics Products and Services
Training. Each of General Physics' business Groups provides training services
and products. The range of services includes fundamental analysis of a client's
training needs, curriculum design, instructional material development (in hard
copy, electronic/software or other format), information technology service
support, and delivery of training using an instructor-led, on-the-job,
computer-based, web-based, video-based or other technology-based method. General
Physics focuses on developing long-term relationships with its customers. It
builds these relationships by gaining a thorough understanding of a customer's
competitive strategies and business objectives, analyzing their human
performance and learning resources management solutions. General Physics then
works with its customers in implementing the recommended solutions, moving the
organization toward achieving business objectives and improving competitive
advantage. General Physics also provides an extensive existing curriculum of
business and technical courses and management of the training business
operations, as well as an equally extensive list of computer software courses
using its network of offices and classrooms in Canada and the United Kingdom, as
well as the United States. Training products include instructor and student
<PAGE>
training manuals, instructional material on CD-ROM, Taskmaster(TM) software and
PC-based simulators. Through its START program (System Technology Accelerated
Training) General Physics partners with colleges and universities in the U.S.
and Canada to provide information technology training to individuals seeking
certification by IT industry leaders such as Microsoft and Oracle. Examples of
current training projects include:
o General Physics is a full-service training provider for the
automotive industry. Since 1987, General Physics has participated in a strategic
business partnership with General Motors Corporation (GM). General Physics is
the training partner of General Motors University (GMU). Each year several
thousand GM employees attend courses managed and conducted by General Physics.
Additionally, training and consulting services are provided on a project basis
to many divisions of GM, including GM North America and GM Overseas operations
in China, Europe, Southeast Asia, South America and Central America. General
Physics also provides management and training services to Ford Motor Company's
North American Training and Development Organization, and training and
consulting services to DaimlerChrysler, as well as many of the automotive
supplier companies.
o General Physics operates the training center in Edgewood, Maryland
supporting the United States Army's chemical weapons demilitarization program.
General Physics provides training for personnel who will operate and maintain
demilitarization plants at seven locations across the country. General Physics
has trained chemical demilitarization specialists from Russia as part of an
effort to introduce U.S. technology and approaches for Russian chemical
munitions demilitarization programs.
o General Physics is providing training services to an approximately
6,000 employee company in support of an initiative to adopt a standard corporate
computer desktop, including Microsoft Office applications, as well as some
client proprietary applications. Services encompass training material
development and classroom instruction on a national basis.
Consulting. Consulting services are available from all of General Physics'
Groups and include not only training-related consulting services, but also more
traditional business management, engineering and other disciplines. General
Physics is able to provide high-level lean enterprise consulting services, as
well as training in the concept, methods and application of lean enterprise
practices, organizational development and change management. General Physics
also provides engineering consulting services to support regulatory and
environmental compliance, modification of facilities and processes,
reliability-centered maintenance practices, and plant start-up activities.
Consulting products include copyrighted training and reference materials.
Examples of recent consulting projects include:
o A national wireless services company with more than 5,000 employees
spread over 100 offices needed a dramatic increase in their operational
efficiencies along with a decrease in cost. The solution they devised involved
upgrading their IT systems and integrating the key operations functions into
Centers of Excellence while reducing headcount and square footage by
approximately 50%. A major problem was that the offices were operating in a
relatively independent manner and did not have common processes. General Physics
helped them define the major processes that would be transferred to the Centers
of Excellence, develop a plan to document the processes, improve process
efficiency, and transition the processes to the new Centers of Excellence. This
was accomplished in three months.
<PAGE>
o A department of the finance organization supporting a multinational
manufacturer's dealerships and customers sought to restructure to be more
effective, build a new image, redesign processes and procedures, and improve
morale in conjunction with a leadership change in the organization. General
Physics designed and developed a Value-Based Strategic Plan to identify
organizational issues, develop a strategy to address them, and implement the
strategy as designed.
o General Physics provides Enterprise Resource Planning in the form of
change management, documentation, end-user training and maintenance engineering
support related to Enterprise Wide Software Applications, including support for
products developed by the Baan Company, Oracle Corp. and SAP. General Physics is
a Baan Education Alliance Program member and an Oracle Education Partner.
Technical Support and Engineering. General Physics' business Groups are each
staffed and equipped to provide technical support services and products to
clients. Technical support services include procedure writing and configuration
control for capital intensive facilities, plant start-up assistance, logistics
support (e.g., inventory management and control), implementation and engineering
assistance for facility or process modifications, facility management for high
technology training environments, staff augmentation, and help-desk support for
standard and customized client desktop applications. Technical support products
include EtaPro(TM) and PDMS(TM) General Physics software applications. Examples
of projects include:
o General Physics has provided technical support services to virtually
all of the commercial nuclear power plants in the United States, including
development and upgrade of operations and maintenance procedures; development
and implementation of preventative maintenance programs; plant configuration
management; training simulator maintenance and modification; staff augmentation;
and computer based training (CBT) development and implementation.
o General Physics is currently providing help-desk support to a
multinational pharmaceutical company for its standard and proprietary desktop
software applications.
o General Physics provides facility management services in Canada to
ensure the availability and readiness of modern high technology training
equipment and classrooms for a major software vendor providing end-user
training, as well as providing training to General Physics own computer
technology training customers.
o As an outgrowth of its work for NASA and the U.S. Air Force, General
Physics provides design, analysis, inspection and test services for systems and
equipment used for rocket engine development and testing for certain aerospace
companies.
o General Physics provides systems engineering and computer science
services for military combat systems being developed at The Johns Hopkins
University Applied Physics Laboratory.
o General Physics provides technical services in support of the U.S.
Department of Justice's Domestic Preparedness Program. Contracts
<PAGE>
General Physics is currently performing under approximately 1,500
contracts, providing charges on a time-and-materials, a fixed-price or a
cost-reimbursable basis. General Physics' subcontracts with the United States
Government have predominantly been cost-reimbursable contracts and fixed-price
contracts. General Physics is required to comply with the Federal Acquisition
Regulations and the Government Cost Accounting Standards with respect to
services provided to the United States Government and agencies thereof. These
Regulations and Standards govern the procurement of goods and services by the
United States Government and the nature of costs that can be charged with
respect to such goods and services. All such contracts are subject to audit by a
designated government audit agency, which in most cases is the Defense Contract
Audit Agency (the "DCAA"). The DCAA has audited General Physics' contracts
through 1997 without any material disallowances.
The following table illustrates the percentage of total revenue of
General Physics attributable to each type of contract for the year ended
December 31, 1999:
Fixed-Price 60%
Time and Materials 27
Cost-Reimbursable 13
Total Revenue 100%
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General Physics' fixed-price contracts provide for payment to General
Physics of pre-determined amounts as compensation for the delivery of specific
products or services, without regard to the actual cost incurred by General
Physics. General Physics bears the risk that increased or unexpected costs
required to perform the specified services may reduce General Physics' profit or
cause General Physics to sustain a loss, but General Physics has the opportunity
to derive increased profit if the costs required to perform the specified
services are less than expected. Increasingly, General Physics' contracts have
been fixed-price based on a percentage of total revenue. Fixed-price contracts
generally permit the client to terminate the contract on written notice; in the
event of such termination, General Physics would typically, at a minimum, be
paid a proportionate amount of the fixed price. No significant terminations of
General Physics' fixed-price contracts have occurred over the last five years.
General Physics' time-and-materials contracts generally provide for
billing of services based upon the hourly labor rates of the employees
performing the services and the actual expenses incurred, each multiplied by a
specified mark-up factor, up to a certain aggregate dollar amount. General
Physics' time-and-materials contracts include certain contracts under which
General Physics has agreed to provide training, engineering and technical
services at fixed hourly rates (subject to adjustment for labor costs).
Time-and-materials contracts generally permit the client to control the amount,
type and timing of the services to be performed by General Physics and to
terminate the contract on written notice. If a contract is terminated, General
Physics typically is paid for the services provided by it through the date of
termination. While General Physics' clients often modify the nature and timing
of services to be performed, no significant terminations of General Physics'
time-and-materials contracts have occurred.
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General Physics' cost-reimbursable contracts provide for General
Physics to be reimbursed for its actual costs plus a specified fee. These
contracts also are generally subject to termination at the convenience of the
client. If a contract is terminated, General Physics typically would be
reimbursed for its costs to the date of termination, plus the cost of an orderly
termination, and paid a proportionate amount of the fee. No significant
terminations of General Physics' cost-reimbursable contracts have occurred.
Competition
General Physics' services and products face a highly competitive
environment. The principal competitive factors are the experience and capability
of service personnel, performance, quality and functionality of products,
reputation and price. Consulting services such as those provided by General
Physics are performed by many of the customers themselves, large architectural
and engineering firms that have expanded their range of services beyond design
and construction activities, major suppliers of equipment and independent
service companies similar to General Physics. A significant factor determining
the business available to General Physics and its competitors is the ability of
customers to use their own personnel to perform services provided by General
Physics and its competitors. Another factor affecting the competitive
environment is the existence of small, specialty companies located at or near
particular customer facilities and dedicated solely to servicing the needs of
those particular facilities.
The training industry is highly fragmented and competitive, with low
barriers to entry and no single competitor accounting for a significant market
share. The Company's competitors include several large publicly traded and
privately held companies, vocational and technical training schools, information
technology companies, degree-granting colleges and universities, continuing
education programs and thousands of small privately held training providers and
individuals. In addition, many of General Physics' clients maintain internal
training departments. Some of General Physics' competitors offer services and
products that are similar to those of General Physics at lower prices, and some
competitors have significantly greater financial, managerial, technical,
marketing and other resources than does General Physics. Moreover, General
Physics expects that it will face additional competition from new entrants into
the training and performance improvement market due, in part, to the evolving
nature of the market and the relatively low barriers to entry. There can be no
assurance that General Physics will be successful against such competition.
Personnel
General Physics' principal resource is its personnel. General Physics'
future success depends to a significant degree upon its ability to continue to
attract, retain and integrate into its operations instructors, technical
personnel and consultants who possess the skills and experience required to meet
the needs of its clients. In order to initiate and develop client relationships
and execute its growth strategy, General Physics also must retain and continue
to hire qualified salespeople. As of March 1, 2000, General Physics employed
approximately 1,800 employees and adjunct instructors.
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General Physics' personnel have backgrounds and industry experience in
mechanical, electrical, chemical, civil, nuclear and human factors engineering;
in technical education and training; in power plant design, operation and
maintenance; in weapons systems design, operation and maintenance; in
organizational change management; in instructional technology and e-learning
technologies; in enterprise-wide resource planning and software training; and in
toxicology, industrial hygiene, health physics, chemistry, microbiology, ecology
and mathematical modeling. Many of General Physics' employees perform multiple
functions depending upon changes in the mix of demand for the services provided
by General Physics.
General Physics utilizes a variety of methods to attract and retain
personnel. General Physics believes that the compensation and benefits offered
to its employees are competitive with the compensation and benefits available
from other organizations with which it competes for personnel. In addition,
General Physics maintains and continuously improves the professional development
of its employees, both internally via General Physics University and through
third parties, and also offers tuition reimbursement for job-related educational
costs. General Physics encourages its employees to further their education,
continuously up-date their marketable skills and deliver services and products
that equal or exceed client expectations. General Physics recognizes and rewards
business success and outstanding individual performance.
Competition for qualified personnel can be intense, and General Physics
competes for personnel with its clients was well as its competitors. There can
be no assurance that qualified personnel will continue to be available to
General Physics in sufficient numbers. Any failure to attract or retain
qualified instructors, technical personnel, consultants and salespeople in
sufficient numbers could have a material adverse effect on General Physics'
business, financial condition, and results of operations.
None of General Physics' employees is represented by a labor union.
General Physics generally has not entered into employment agreements with its
employees, but has entered into employment agreements with certain officers and
other employees. General Physics believes its relations with its employees are
good.
Marketing
General Physics has more than 40 employees dedicated primarily to
marketing its services and products through Corporate Sales and Business
Development initiatives at both the corporate and Business Unit levels. In
addition, the Company has approximately 35 commissioned salespeople focused on
selling its products and services worldwide. Salespeople in Canada and the
United Kingdom are compensated on a commission basis. Corporate level marketing
is directed at long-term strategic business development with specific customers
and with multinational businesses. General Physics markets its services to
existing customers primarily through its technical personnel who have regular
direct client contact, dedicated sales personnel and client managers, and by
using senior management to aid in the planning of marketing strategies and
evaluating current and long-term marketing opportunities and business
directions. General Physics uses attendance at trade shows, presentations of
technical papers at industry and trade association conferences, public courses
<PAGE>
and workshops given by General Physics personnel to serve an important marketing
function. General Physics also advertises extensively in the United States,
Canada and the United Kingdom, and sends a variety of sales literature,
including an extensive catalog of course listings, to current and prospective
clients whose names are maintained in a computerized database which is updated
periodically.
The goal of General Physics' marketing process is to obtain awards of
new contracts and expansion of existing contracts. By staying in contact with
clients and looking for opportunities to provide further services, General
Physics sometimes obtains contract awards or extensions without having to
undergo competitive bidding. In other cases, clients request General Physics to
bid competitively. In both cases, General Physics submits formal proposals to
the client for evaluation. The period between submission of a proposal to final
award can range from 30 days or less (generally for non-competitive, short-term
contracts), to a year or more (generally for large, competitive multi-year
contracts with governmental clients).
General Physics maintains a site on the World Wide Web located at
http://www.gpworldwide.com from which prospective customers can obtain
additional information about General Physics, experience web-based training, and
find out how to contact General Physics to discuss employment or business
opportunities.
Backlog
General Physics' backlog for services under signed contracts and
subcontracts as of December 31, 1999 was $111,000,000. This amount does not
meaningfully reflect the training services anticipated to be provided to
students who enroll in General Physics' open enrollment courses, since
enrollment occurs throughout the year and the period between enrollment and
course completion is generally relatively short.
General Physics anticipates that most of its backlog as of December 31,
1999 will be recognized as revenue during fiscal year 2000; however, the rate at
which services are performed under certain contracts, and thus the rate at which
backlog will be recognized, is at the discretion of the client, and most
contracts are, as mentioned above, subject to termination by the client upon
written notice.
Insurance
By providing services to the commercial electric power industry and to
the United States Armed Forces, General Physics is engaged in industries in
which there are substantial risks of potential liability. As of January 1, 1996,
General Physics' insurance was combined with the Company's insurance in a
consolidated insurance program (including general liability coverage). However,
certain liabilities associated with General Physics' business are not covered by
these insurance policies. In addition, such liabilities may not be covered by
Federal legislation providing a liability protection system for licensees of the
Nuclear Regulatory Commission (typically utilities) for certain damages caused
by nuclear incidents, since General Physics is not such a licensee. Finally, few
of General Physics' contracts with clients contain a waiver or limitation of
liability. Thus, to the extent a risk is neither insured nor indemnified against
nor limited by an enforceable waiver or limitation of liability, General Physics
could be materially adversely affected by a nuclear incident. Certain other
<PAGE>
environmental risks, such as liability under the Comprehensive Environmental
Response, Compensation and Liability Act, as amended (Superfund), also may not
be covered by General Physics' insurance.
Environmental Statutes and Regulations
General Physics provides environmental engineering services to its
clients, including the development and management of site environmental
remediation plans. Due to the increasingly strict requirements imposed by
Federal, state and local environmental laws and regulations (including, without
limitation, the Clean Water Act, the Clean Air Act, Superfund, the Resource
Conservation and Recovery Act and the Occupational Safety and Health Act),
General Physics' opportunities to provide such services may increase.
General Physics' activities in connection with providing environmental
engineering services may also subject General Physics itself to such Federal,
state and local environmental laws and regulations. Although General Physics
subcontracts most remediation construction activities and all removal and
offsite disposal and treatment of hazardous substances, General Physics could
still be held liable for clean-up or violations of such laws as an "operator" or
otherwise under such Federal, state and local environmental laws and regulations
with respect to a site where it has provided environmental engineering and
support services. General Physics believes, however, that it is in compliance in
all material respects with such environmental laws and regulations.
Properties
General Physics' principal executive offices are located at 6700
Alexander Bell Drive, Suite 400, Columbia, Maryland 21046, and its telephone
number is (410) 290-2300. General Physics leases approximately 34,750 square
feet of an office building at that address, and approximately 565,000 square
feet of office space at other locations in the United States, Canada, the United
Kingdom, Mexico, Brazil and Malaysia. General Physics has 66 offices worldwide,
including 34 offices in the United States, 9 offices in Canada, and 18 offices
in the United Kingdom, as well as offices in Kuala Lumpur, Sao Paulo and Mexico
City. Various locations in the United States, Canada and the United Kingdom
contain classrooms or other specialized space to support General Physics'
instructor-led and distance-learning training programs. General Physics believes
that its facilities are adequate to carry on its business as currently
conducted.
<PAGE>
Optical Plastics Group
MXL INDUSTRIES, INC.
MXL Industries, Inc. ("MXL") is engaged in the manufacture of molded
and coated optical products, such as shields and face masks and non-optical
plastic products. MXL is a state-of-the-art injection molder and precision
coater of large optical products such as shields and face masks and non-optical
plastics. MXL believes that the principal strengths of its business are its
state-of-the-art injection molding equipment, advanced production technology,
high quality standards, and on time deliveries. Through its Woodland Mold and
Tool Division, MXL also designs and engineers state-of-the-art injection molding
tools as well as providing a commodity custom molding shop.
As the market for optical injection molding, tooling and coating is
focused, MXL believes that the combination of its proprietary "Anti-Fog"
coating, precise processing of the "Anti-Scratch" coatings, and precise molding
and proprietary grinding and polishing methods for its injection tools will
enable it to increase its sales in the future and to expand into related
products.
MXL uses only polycarbonate resin to manufacture shields, face masks
and lenses for over 50 clients in the safety, recreation and military
industries. For its manufacturing work as a subcontractor in the military
industry, MXL is required to comply with various federal regulations including
Military Specifications and Federal Acquisition Regulations for military end use
applications.
MXL's largest customer accounted for approximately 23% of MXL's total
sales and three other customers accounted for approximately 47 % of MXL's sales
in 1999.
MXL's sales and marketing effort concentrates on industry trade shows.
In addition, the Company employs one marketing and sales executive and one sales
engineer.
Other
HYDRO MED SCIENCES
Hydro Med Sciences ("HMS"), a division of the Company, is a drug
delivery company that develops, manufactures, markets and sells proprietary,
implantable, controlled release drug delivery products, which release drugs
directly into the circulatory system, for human and veterinary applications.
These products are based upon HMS's unique group of Hydron(TM) polymer
biomaterials. HMS's lead product in development is a patented, subcutaneous
retrievable hydrogel reservoir drug delivery device (the "Hydron(TM) Implant")
designed to allow reliable, sustained release of a broad spectrum of therapeutic
compounds continuously, at constant, predetermined rates over at least a
12-month period. The lead application of the Hydron(TM) Implant, which is
implanted below the skin (subcutaneously) in the upper arm, delivers the
luteinizing hormone releasing hormone ("LHRH") analog, histrelin, for the
treatment of prostate cancer for a 12-month period (the "Histrelin Hydron
Implant"). HMS and its licensee, Shire Pharmaceutical Group are presently
<PAGE>
commencing Phase III clinical studies for this drug delivery system for the
treatment of prostate cancer. HMS's sales currently comprise less than 1% of the
Company's revenues.
Investments
Over the last two years, the Company has taken significant steps to
focus primarily on becoming a full-service performance improvement company and
has divested many of its non-core assets. However, the Company still has
investments in the stock of certain publicly traded and private corporations.
GSE Systems, Inc. ("GSES") develops and delivers business and
technology solutions by applying process control and simulation software,
systems and services to the pharmaceutical and chemical research and
development, energy, process and manufacturing industries worldwide. As of
December 31, 1999, the Company owned approximately 22% of the outstanding shares
of common stock of GSES.
Milleninum Cell, LLC ("Millenium") invented, developed and has the
proprietary rights to a chemical process that can generate energy by producing
hydrogen, an environmentally "clean" high energy element. The Company owns
approximately 28% of the membership interests in Millenium.
Five Star Group, Inc. ("Five Star"), a wholly-owned subsidiary of Five
Star Products, Inc. (formerly, American Drug Company), is a leading distributor
in the United States of home decorating, hardware and finishing products. At
December 31, 1999, the Company's investment in Five Star was $8,287,00. In
addition, Five Star is indebted to the Company in the amount of $5,000,000
pursuant to an 8% senior unsecured Note due September 30, 2002. The Company owns
approximately 37.1% of the outstanding shares of common stock of Five Star.
Employees
At December 31, 1999, the Company and its subsidiaries employed
approximately 1,906 persons, including 12 in the Company's headquarters, 1,799
in the Physical Science Group, 77 in the Optical Plastics Group and 18 at Hydro
Med Sciences. Of these, 6 persons were engaged in research and development. The
Company considers its employee relations to be good.
Financial Information about the Foreign and Domestic operations and Export
Sales.
For financial information about the foreign and domestic operations and
export sales, see Note 12 to Notes to Consolidated Financial Statements.
Item 2. Properties
The following information describes the material physical properties
owned or leased by the Company and its subsidiaries.
<PAGE>
The Company leases approximately 10,000 square feet of space for its
New York City principal executive offices and leases approximately 15,000 square
feet in New Jersey. The Company's Physical Sciences Group leases approximately
32,470 square feet of an office building in Columbia, Maryland and approximately
530,000 square feet of office space at various other locations throughout the
United States, Canada, the United Kingdom, Mexico, Brazil and Malaysia.
The Optical Plastics Group owns 50,200 square feet of warehouse and
office space in Lancaster, PA and 55,000 square feet of warehouse and office
space in Westmont, IL.
The facilities owned or leased by the Company are considered to be
suitable and adequate for their intended uses and are considered to be well
maintained and in good condition.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, the outcome of
which are believed by management to have a reasonable likelihood of having any
material adverse effect upon the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock, $.01 par value, was traded on the American
Stock Exchange, Inc. ("AMEX") and the Pacific Stock Exchange, Inc. ("Pacific")
until March 27, 1998. On March 27, 1998 the Company's Common Stock commenced
trading on the New York Stock Exchange. The following tables present its high
and low market prices for the last two years. During the periods presented
below, the Company has not paid any dividends.
Quarter High Low
1999 First $19.13 $13.63
Second 17.75 8.25
Third 11.63 6.88
Fourth 12.50 5.75
1998 First 17.38 12.25
Second 17.69 14.13
Third 14.69 9.13
Fourth 15.38 9.38
The number of shareholders of record of the Common Stock as of April 3,
2000 was 2,977. On April 3, 2000, the closing price of the Common Stock on the
New York Stock Exchange was $4.50.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Item 6. Selected Financial Data
<TABLE>
Operating Data (in thousands, except per share data)
<CAPTION>
Years ended December 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $224,810 $284,682 $234,801 $203,800 $185,025
Gross margin 26,379 41,993 35,229 30,242 28,322
Interest expense 4,922 3,896 4,075 4,358 5,019
Income (loss) before discontinued operation
and extraordinary items (22,205) (2,061) 3,423 11,380 4,032
Net income (loss) (22,205) (2,061) 3,423 11,380 1,012
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share before discontinued
operation and extraordinary items:
Basic $(1.95) $(.19) $.33 $1.55 $.60
Diluted (1.95) (.19) .31 1.54 .60
Earnings (loss) per share:
Basic (1.95) (.19) .33 1.55 .15
Diluted (1.95) (.19) .31 1.54 .15
- ----------------------------------------------------------------------------------------------------------------------------------
Cash dividends declared per share
Balance Sheet Data
- ------------------
December 31, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Cash, cash equivalents and marketable securities $ 4,068 $ 7,548 $ 13,725 $ 25,927 $ 11,657
Short-term borrowings 40,278 30,723 23,945 20,281 18,043
Working capital (146) 13,989 34,797 41,691 32,949
Total assets 197,118 210,905 190,612 176,027 151,720
Long-term debt 18,490 21,559 6,588 20,116 23,932
Stockholders' equity 99,982 120,335 126,583 94,029 70,998
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
RESULTS OF OPERATIONS
Overview
GP Strategies Corporation (the Company) has four operating business segments.
Three of the Company's segments are managed through the Company's principal
operating subsidiary which is General Physics Corporation (General Physics) and
the fourth through its operating subsidiary MXL Industries, Inc. (MXL). In
addition, the Company holds a number of investments in public and privately held
companies.
General Physics is a performance improvement company that assists productivity
driven organizations to maximize workforce performance by integrating people,
processes and technology. General Physics is a total solution provider for
strategic training, engineering, consulting and technical support services to
Fortune 500 companies, government, utilities and other commercial customers.
General Physics consists of three segments the Information Technology (IT)
Group, the Manufacturing Services Group and the Process & Energy Group. The
Optical Plastics Group, which comprises MXL manufactures molded and coated
optical products, such as shields and face masks and non-optical plastic
products.
In 1999, the Company incurred a loss before income taxes of $21,293,000 as
compared to a loss before income taxes of $695,000 in 1998. The loss was due to
several items including a $11,856,000 operating loss incurred by the IT Group
and a $7,374,000 restructuring charge. In 1998, the IT Group had an operating
loss of $857,000. During 1999, the IT Group was negatively affected by the lack
of new software products, companies diverting training dollars to fixing Y2K
issues and heavy competition in the IT area. The Company has taken steps in
order to change the focus of the IT Group from open enrollment information
technology training courses to project oriented work for corporations, which is
consistent with the focus of General Physics' core business.
These steps included closing open enrollment training facilities and reducing
the related workforce. As a result, the Company incurred restructuring charges
in June and December 1999, primarily related to the IT Group, totaling
$7,374,000 (see Note 15 to the Consolidated Financial Statements). The
restructuring charges are comprised of expenses related to severance and related
benefit costs, as well as idle facility and related closure costs. In addition,
the Company incurred other costs to exit certain activities, totaling
approximately $8,421,000. These costs were included in Cost of sales and
Selling, general and administrative expenses and included such items as; payroll
and related benefits, facility costs, asset write-offs and contract losses.
Management believes that the restructuring plan, together with other strategic
initiatives, will enable the IT business segment to return to profitability. If
such plans are not successful, the Company may need to take other steps as yet
not determined. The Company continues to assess the recoverability of intangible
<PAGE>
assets and other long-lived assets related to its IT business segment and does
not currently believe an impairment has occurred. However, in the event the
Company's plans are not successful, there cannot be any assurance that an
impairment charge will not be required.
During 1999, the Process & Energy Group had operating profits of $3,060,000, or
a reduction of $7,139,000 from 1998, due to the combination of reduced sales and
gross margin percentage, as well as increased Selling, general and
administrative expenses. The Manufacturing Services Group had an operating
profit of $10,106,000 or a reduction of $6,000, compared to 1998. The marginal
decrease was due to increased Selling, general and administrative expenses
incurred, offset by increased gross margin earned in 1999. The Optical Plastics
Group, MXL, had an operating profit of $1,215,000 in 1999, compared to an
operating profit of $1,500,000 in 1998, due to reduced sales and gross margin.
In 1999, as a result of the sale of substantially all the assets of the Five
Star Group, Inc (Five Star) to Five Star Products, Inc. (FSP), formerly American
Drug Company, on September 30, 1998, the Company no longer operates in the
Distribution segment. This segment contributed operating profit of $1,773,000 in
1998.
During 1999, the Company also recorded a $2,747,000 loss as a result of the
terminated merger agreement with Veronis Suhler and Associates (VS&A) (see Note
18 to the Consolidated Financial Statements), as well as net losses on
investments of $1,662,000, primarily from the Company's investments in
Interferon Sciences, Inc. (ISI) and GSE Systems, Inc. (GSES). In addition, the
Company had reduced Investment and other income, net. The loss in 1999 was also
impacted by increased interest expense due to increased short-term borrowings
and higher interest rates in 1999. The above items were partially offset by a
$3,016,000 gain on trading securities in 1999, as compared to a $2,205,000 gain
in 1998.
In 1998, the Manufacturing Services Group achieved an operating profit of
$10,100,000 as compared to $4,348,000 in 1997, as a result of both increased
sales and gross margin percentage. In addition, in 1998, the Process & Energy
Group, achieved an operating profit of $10,199,000, as compared to an operating
profit of $5,531,000 in 1997, as a result of both increased sales and gross
margin percentage. These increases were partially offset by an operating loss of
$857,000 incurred by the IT Group in 1998, compared to an operating profit of
$932,000 in 1997, due to losses incurred by the Company's UK operations in 1998.
The Optical Plastics Group had reduced operating profits of $364,000 due to
reduced gross margin percentages earned in 1998. The Distribution Group had a
$515,000 decrease in operating profits in 1998, as a result of the sale of
substantially all the operating assets of Five Star to FSP on September 30,
1998. Therefore, the results of operations of Five Star were only consolidated
with the Company for the first three quarters of the year.
In 1998, the loss before income taxes was $695,000 as compared to income before
income taxes of $2,730,000 in 1997. The loss in 1998 was due to several
non-recurring items, partially offset by a 105% increase in operating profits
generated by the Manufacturing Services and Process & Energy Groups. The Company
recognized a $6,225,000 loss on the sale of substantially all the assets of Five
Star to FSP on September 30, 1998 as well as a Loss on investments of $4,624,000
for the year ended December 31, 1998. The Loss on investments resulted from
write-downs of the Company's investments in ISI and GSES. In addition, the
Company recognized a $1,500,000 expense during the fourth quarter of 1998,
<PAGE>
resulting from a termination agreement with an executive of the Company (see
Note 16 (b) to the Consolidated Financial Statements). The above non-recurring
losses and expense were also partially offset by a $2,205,000 net gain on
trading securities in 1998, compared to a $689,000 gain in 1997. In addition,
the Company had reduced Investment and other income, net in 1998, due to reduced
consulting fees earned by FSP for the nine months ended September 30, 1998, and
reduced marketing income earned by Five Star, since its results of operations
were only consolidated for the first nine months of 1998, partially offset by
reduced equity losses recognized during the year.
Sales
Years ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------
Manufacturing Services $ 86,759 $ 85,605 $ 56,211
Process & Energy 73,567 79,526 65,897
Information Technology 53,619 43,709 18,512
Distribution 64,148 82,300
Optical Plastics 10,353 10,581 10,362
Other 512 1,113 1,519
- ------------------------------------------------------------------------------
$224,810 $284,682 $234,801
- ------------------------------------------------------------------------------
The increased sales of $1,154,000 achieved by the Manufacturing Services Group
in 1999 as compared to 1998 was the result of increased revenues earned by the
Group's UK and Latin American subsidiaries. The reduction in sales of $5,959,000
by the Process & Energy Group in 1999, was the result of reduced product sales
and the sale in 1998 of GP's Environmental Lab, which accounted for
approximately $2,800,000 of sales in 1998. The increased sales of $9,910,000
earned by the IT Group in 1999 was the result of increased IT revenue earned in
the US, as well as increased sales in the UK and Canada. In 1999, due to a full
year of sales for Learning Technologies, which was acquired in June 1998, sales
increased in Canada by $8,851,000, although they were flat in the UK.
The increased sales of $29,394,000 and $13,629,000 achieved by the Manufacturing
Services and Process & Energy Groups, respectively, in 1998 as compared to 1997
were attributable to the continuing focus of General Physics' marketing efforts
to expand its range of performance improvement services to Fortune 500
companies, manufacturing and process industries, electric power utilities and
other commercial and governmental customers, as well as the acquisition of
Deltapoint in July 1998, which earned $7,221,000 of sales in 1998. In addition,
the Manufacturing Services Group had increased foreign sales, related to the UK
and Latin America of approximately $7,250,000 in 1998. The IT Group had
increased sales of $25,197,000 in 1998, which were attributable to $30,706,000
of sales resulting from the acquisition of Learning Technologies in June 1998
offset by reduced sales in the United States (see Note 2 to the Consolidated
Financial Statements).
The reduced sales within the Distribution Group in 1998 were the result of the
sale of substantially all the operating assets of Five Star to FSP on September
30, 1998. For the nine months ended September 30, 1998, Five Star had sales of
<PAGE>
$64,148,000 as compared to sales of $82,300,000 for 1997, which included sales
of $66,363,000 for the nine months ended September 30, 1997
In 1999, the reduced sales in the Optical Plastics Group was primarily the
result of decreased sales from existing customers, partially offset by sales
within new accounts. In 1998, MXL had reduced sales from their major customer,
offset by increased sales to new and existing customers. In 1999, 1998 and 1997,
MXL's major customer comprised 23%, 23% and 34%, respectively, of the segment's
net sales.
<TABLE>
Gross margin
<CAPTION>
Years ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
% % %
--- --- --
<S> <C> <C> <C> <C> <C> <C>
Manufacturing Services $ 16,151 18.6 $ 13,831 16.2 $ 7,175 12.8
Process & Energy 8,825 12.0 14,261 17.9 9,106 13.8
Information Technology (1,085) - 97 .2 1,665 9.0
Distribution 10,454 16.3 13,722 16.7
Optical Plastics 2,719 26.3 2,894 27.3 3,449 33.2
Other (231) - 456 40.8 112 7.3
- ----------------------------------------------------------------------------------------------------------
$ 26,379 11.7% $ 41,993 15.8% $ 35,229 15.0%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The gross margin of $16,151,000 earned by the Manufacturing Services Group in
1999 increased, as compared to 1998, as the result of increased revenues as well
as an increased gross margin percentage. The improved gross margin percentage
was due to several factors, including an increased percentage of fixed price
contracts as well as larger projects, which are more consulting oriented and
generate higher gross margin percentages. The gross margin earned by the Process
& Energy Group of $8,825,000 in 1999 decreased, as compared to 1998, as the
result of reduced sales and gross margin percentage. The reduced gross margin
percentage was due to reduced product sales, which historically generated higher
gross margins, and contract losses which totaled approximately $1,580,000 in
1999. The negative gross margin incurred by the IT Group in 1999 was principally
caused by (1) lower than anticipated sales levels, (2) write-offs of inventory
and other revenue producing activities which were exited as a result of the
restructuring plans, and (3) lower labor utilization.
The gross margins achieved by the Manufacturing Services and Process & Energy
Groups of $13,831,000 and $14,261,000, respectively, in 1998, as compared to
1997, increased as a result of increased sales, as well as the continued
improvement in the gross margin percentage. The increased gross margin
percentage resulted from the continued focus on the commercial side of the
business, as well as positive contributions generated by General Physics
investments in international markets. In addition, the acquisition of Deltapoint
in 1998, contributed to higher gross margin percentages due to the higher gross
margins earned by Deltapoint's consulting business. The reduced gross margin and
gross margin percentage earned by the IT Group in 1998, was the result of losses
incurred within the UK IT operations, partially offset by profits earned by the
enterprise wide solutions business.
<PAGE>
The reduced gross margin earned by the Distribution Group in 1998, as compared
to 1997, was the result of the sale of substantially all the operating assets of
Five Star to FSP on September 30, 1998. For 1997, Five Star had gross margin of
$13,722,000, which included gross margin of $10,617,000 for the nine months
ended September 30, 1997.
The reduced gross margin earned by the Optical Plastics Group of $175,000 in
1999 and $555,000 in 1998, was the result of the reduced revenues and gross
margin percentage. MXL had a reduced gross margin percentage in 1999 and 1998 as
a result of a change in their customer mix. In 1999, even though sales from
MXL's largest customer remained practically unchanged, there was a growth in
sales among several large customers which generate lower gross margin
percentages. In 1998, MXL had reduced sales from their major customer, which
historically generated higher gross margins than their remaining customer base.
Investment and other income, net
Investment and other income, net was $223,000 in 1999, $1,735,000 in 1998 and
$2,389,000 in 1997. The reduced investment income in 1999 was primarily
attributable to marketing income of $913,000 earned by Five Star in 1998. In
addition, the Company's Hydro Med Sciences division had reduced other income,
due to a $625,000 license fee received in 1998. The reduced Investment and other
income, net in 1998 compared to 1997 was primarily due to a reduction in
consulting revenue earned by FSP, as well reduced marketing income of $530,000
earned by Five Star in 1998, due to the sale of substantially all the operating
assets of Five Star. The reduced income in 1999 was partially offset by reduced
equity losses recorded in Investment and other income, net relating to the
Company's equity investments.
At December 31, 1998 and 1999, Investments and advances were comprised of the
following:
As of December 31, 1999 1998
- --------------------------------------------------------------------
GTS Duratek, Inc. $ 318 $ 4,276
Interferon Sciences, Inc. 183 661
Five Star Products, Inc. 8,827 8,893
GSE Systems, Inc. 6,084 6,738
Other 1,145 2,503
- --------------------------------------------------------------------
$16,557 $23,071
- --------------------------------------------------------------------
Selling, general, and administrative expenses
Selling, general and administrative expenses (SG&A) increased from $31,502,000
in 1997 to $31,883,000 in 1998 and to $36,953,000 in 1999. The increased SG&A of
$5,070,000 in 1999 was attributable to increases primarily within the
Manufacturing Services, Process & Energy and IT Groups, primarily as a result of
$4,437,000 in the write-offs of certain assets related to certain revenue
producing activities which are being exited as part of the restructurings, and
costs incurred by the IT Group in particular, which were higher than normal
relative to revenue generated. The IT Group also incurred increased SG&A due to
the inclusion of the operations of Learning Technologies for a full year in
1999, as opposed to six months in 1998. In addition, the Company incurred
<PAGE>
$2,747,000 of costs related to the terminated merger agreement with VS&A. These
increases were partially offset by $9,594,000 of SG&A attributable to the
Distribution Group in 1998. In 1998 and 1999, the Company continued to reduce
SG&A expenses at the corporate level.
The increase of $381,000 in SG&A in 1998 was the result of increased costs
incurred by the Manufacturing Services, Process & Energy and IT Groups,
partially offset by reduced costs within the Distribution Group. The increased
costs incurred by the Manufacturing Services, Process & Energy and IT Groups,
were primarily the result of costs directly attributable to the acquisitions of
Learning Technologies and Deltapoint in 1998. The reduced costs within the
Distribution Group are the result of the sale of substantially all the operating
assets of Five Star to FSP on September 30, 1998. In addition, included in SG&A
in 1998 is a $1,500,000 expense relating to the termination agreement with an
executive of the Company (see Note 16 (b) to the Consolidated Financial
Statements).
Interest expense
Interest expense was $4,075,000 in 1997, $3,896,000 in 1998 and $4,922,000 in
1999. In 1998, the reduced interest expense was the result of reduced long-term
debt at the corporate level and reduced interest expense related to the
repayment of Five Star's Line of Credit Agreement (see Note 3 (c) to the
Consolidated Financial Statements) in September 1998. These reductions were
partially offset by increased interest expense due to short-term borrowings and
long-term debt relating to the acquisitions by General Physics of Deltapoint and
Learning Technologies. The increased interest expense in 1999 was the result of
increased short-term borrowing, due to the operating losses, as well as
increased interest rates.
Income taxes
Income tax (expense) benefit for 1999, 1998 and 1997 was $(912,000),
$(1,366,000) and $693,000, respectively.
In 1999, the Company recorded an income tax expense of $912,000. For the year
ended December 31, 1999,the current income tax provision of $935,000 represents
state taxes of $481,000, and foreign taxes of $454,000. The increase of
$8,113,000 in the valuation allowance in 1999 was attributable primarily to net
operating losses for which no tax benefit has been provided.
In 1998, the Company recorded an income tax expense of $1,366,000. For the year
ended December 31, 1998,the current income tax provision of $1,271,000
represents the estimated state taxes.. The deferred income tax expense of
$95,000 represents future estimated state taxes payable by the Company. The
increase of $954,000 in the valuation allowance in 1998 was attributable
primarily to the decrease in the Company's deferred tax liability with respect
to Investments in partially owned companies.
In 1997, the Company recorded an income tax benefit of $693,000. For the year
ended December 31, 1997,the current income tax provision of $1,335,000
<PAGE>
represents the estimated taxes payable by the Company . The deferred income tax
benefit of $2,028,000 results primarily from the utilization of net operating
loss carryovers and a reduction in the valuation allowance. The decrease of
$3,153,000 in the valuation allowance in 1997 was attributable in part to the
utilization of the Company's net operating loss carryforwards, and to the
Company's expectation of generating sufficient taxable income that will allow
for the realization of a portion of its deferred tax assets.
Liquidity and capital resources
At December 31, 1999, the Company had cash and cash equivalents totaling
$4,068,000. The Company has sufficient cash and cash equivalents, marketable
long-term investments and borrowing availability under existing and potential
lines of credit as well as the ability to obtain additional funds from its
operating subsidiaries in order to fund its working capital requirements. At
December 31, 1999, approximately $24,722,000 was available to the Company under
its credit agreements (see Note 5 to the Consolidated Financial Statements).
For the year ended December 31, 1999, the Company's working capital decreased by
$14,135,000 to a working capital deficiency of $146,000, primarily reflecting
the effect of increased short-term borrowings.
The decrease in cash and cash equivalents of $2,739,000 for the year ended
December 31, 1999 resulted from cash used in operations of $5,068,000, and
investing activities of $4,731,000 partially offset by cash provided by
financing activities of $6,981,000. Cash provided by financing activities
consisted primarily of proceeds from short-term borrowings, partially offset by
repayments of long-term debt and repurchases of treasury stock. Net cash used in
investing activities of $4,731,000 includes $2,959,000 of additions to property,
plant and equipment, and additions to intangible assets of $3,153,000.
Due to the Company's restructuring charges and operating losses in 1999, the
Company is in default with respect to the financial covenants in its credit
agreements. The Company and its lenders entered into an agreement dated as of
April 12, 2000, providing for waivers of compliance with such covenants as of
September 30, 1999, December 31, 1999 and March 31, 2000. Effective April 12,
2000, the Company and its lenders entered into a binding commitment to enter
into an Amended and Restated Credit Agreement (the "Amended Agreement") on the
terms and conditions described below. The Amended Agreement will reduce the
commitment pursuant to the revolving facility to $50,000,000 (subject to
borrowing base limitations specified in the Amended Agreement), however the
Amended Agreement did not change the payment terms or expiration date of the
Company's current outstanding term loan in the amount of $14,063,000. The
interest rates increased on both the revolving facility and the term loan to
prime plus 1.25% (increased from .50%) and Eurodollar plus 2.75% (increased from
2.00%). The Amended Agreement provides for additional security consisting of
certain real property and all marketable securities owned by the Company and its
subsidiaries. The Amended Agreement contains certain restrictive covenants,
including the prohibition on future acquisitions, and provides for mandatory
prepayment upon the occurrence of certain events. The Amended Agreement contains
revised minimum net worth, fixed charge coverage, EBITDA and consolidated
<PAGE>
liabilities to tangible /net worth covenants. Although there can be no
assurance, the Company anticipates that it will satisfy the revised covenants.
If the amended agreement has been in effect at December 31, 1999, the Company
would have had approximately $6,500,000 available to be borrowed under the
Amended Agreement, as opposed to the $24,722,000 available at December 31,1999,
under the original agreement.
The Company does not anticipate having to replace major facilities in the near
term. As of December 31, 1999, the Company has not contractually committed
itself for any major capital expenditures.
Recent accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standard No. 133
(SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." This
Statement establishes accounting and reporting standards for derivatives as
either assets or liabilities. It requires that an entity recognizes all
derivatives as either assets or liabilities in the statement of financial
position and measures those instruments at fair value. This Statement as amended
by SFAS 137 is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. The Company will adopt SFAS 133, when effective, which is
currently anticipated to be by January 1, 2001. The Company is still evaluating
its position with respect to the use of derivative instruments.
Adoption of a Common European Currency
On January 1, 1999, eleven European countries adopted the Euro as their common
currency. From that date until January 1, 2002, debtors and creditors may choose
to pay or to be paid in Euros or in the former national currencies.
On and after January 1, 2002, the former national currencies will cease to be
legal tender.
The Company is currently reviewing its information technology systems and
upgrading them as necessary to ensure that they will be able to convert among
the former national currencies and the Euro, and process transactions and
balances in Euros, as required. The Company has sought and received assurances
from the financial institutions with which it does business that beginning in
1999 they will be capable of receiving deposits and making payments both in
Euros and in the former national currencies. The Company does not expect that
adapting its information technology systems to the Euro will have a material
impact on its financial condition or results of operations. The Company is also
reviewing contracts with customers and vendors calling for payments in
currencies that are to be replaced by the Euro, and intends to complete in a
timely way any required changes to those contracts.
Adoption of the Euro is likely to have competitive effects in Europe, as prices
that had been stated in different national currencies become directly comparable
to one another. In addition, the adoption of a common monetary policy throughout
the countries adopting the Euro can be expected to have an effect on the economy
of the region. These competitive and economic effects cannot be predicted with
certainty, and there can be no assurance that they will not have a material
effect on the Company's business in Europe.
<PAGE>
Year 2000 Update
As described in the Company's public filings with the Securities and Exchange
Commission during 1999, the Company had developed plans to address the possible
exposures related to the impact on its computer systems of the Year 2000. Since
entering the Year 2000, the Company has not experienced any significant
disruptions to its business nor is it aware of any significant Year 2000 related
disruptions impacting its third-party suppliers, trading partners and vendors.
The Company will continued to monitor its critical systems over the next several
months but does not anticipate any significant impacts due to Year 2000
exposures from its internal systems as well as from the activities of its
third-party suppliers, trading partners and vendors.
Costs incurred to achieve Year 2000 readiness were charged to expense as
incurred. Such costs totaled approximately $200,000 in 1999, excluding payroll
costs of the Company's internal personnel. The total amount expended on the
project from inception was $200,000.
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
The Company is exposed to the impact of interest rate, market risks and currency
fluctuations. In the normal course of business, the Company employs internal
processes to manage its exposure to interest rate, market risks and currency
fluctuations. The Company's objective in managing its interest rate risk is to
limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. To achieve these objectives, the Company
refinances debt when advantageous and maintains fixed rate debt on a majority of
its borrowings. The Company is exposed to the impact of currency fluctuations
because of its international operations.
The Company's net investment in foreign subsidiaries, including intercompany
balances, at December 31, 1999 was approximately $7,450,000 and accordingly,
fluctuations in foreign currency do not have a material impact on the Company's
financial position.
The forward-looking statements contained herein reflect GP Strategies'
management's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements, all of which are difficult to predict and many
of which are beyond the control of GP Strategies, including, but not limited to,
the risk that qualified personnel will not continue to be available,
technological risks, risks associated with the Company's acquisition strategy
and its ability to manage growth, risks associated with changing economic
conditions, risks of conducting international operations, the Company's ability
to comply with financial covenants in connection with various loan agreements
and those risks and uncertainties detailed in GP Strategies' periodic reports
and registration statements filed with the Securities and Exchange Commission.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF GP STRATEGIES CORPORATION
AND SUBSIDIARIES:
Independent Auditors' Report 31
Consolidated Balance Sheets - December 31, 1999 and 1998 32
Consolidated Statements of Operations - Years ended December 31,
1999, 1998, and 1997 34
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 1999, 1998, and 1997 35
Consolidated Statements of Cash Flows - Years ended December 31,
1999, 1998, and 1997 37
Notes to Consolidated Financial Statements 39
SUPPLEMENTARY DATA (Unaudited)
Selected Quarterly Financial Data 71
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GP Strategies Corporation:
We have audited the consolidated financial statements of GP Strategies
Corporation and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GP Strategies
Corporation and subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
New York, New York
March 27, 2000, except as to the
third paragraph of Note 5
which is as of April 12, 2000.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
- -------------------------------------------------------------------------------
December 31, 1999 1998
- -------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 4,068 $ 6,807
Marketable securities 741
Accounts and other receivables (of which
$13,742 and $5,146 are from government
contracts) less allowance for doubtful
accounts of $2,905 and $1,733 55,385 55,531
Inventories 1,888 2,362
Costs and estimated earnings in excess of billings on
uncompleted contracts, of which $1,264 and $649
relate to government contracts 14,238 15,395
Prepaid expenses and other current assets 3,853 5,344
- -------------------------------------------------------------------------------
Total current assets 79,432 86,180
- -------------------------------------------------------------------------------
Investments and advances 16,557 23,071
- -------------------------------------------------------------------------------
Property, plant and equipment, net 13,658 14,474
- -------------------------------------------------------------------------------
Intangible assets, net of accumulated
amortization of $34,967 and $32,184
Goodwill 77,758 77,961
Patents, licenses and deferred charges 2,060 3,397
- -------------------------------------------------------------------------------
79,818 81,358
Deferred tax asset 3,990 3,290
- -------------------------------------------------------------------------------
Other assets 3,663 2,532
- -------------------------------------------------------------------------------
$197,118 $210,905
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except shares and par value per share)
<TABLE>
<CAPTION>
December 31, 1999 1998
- -----------------------------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities
<S> <C> <C>
Current maturities of long-term debt $ 3,668 $ 3,180
Short-term borrowings 40,278 30,723
Accounts payable and accrued expenses 25,634 24,089
Billings in excess of costs and estimated
earnings on uncompleted contracts 9,998 14,199
- -----------------------------------------------------------------------------------------------
Total current liabilities 79,578 72,191
- -----------------------------------------------------------------------------------------------
Long-term debt less current maturities 14,822 18,379
Other non-current liabilities 2,736
Commitments and contingencies
Stockholders' equity
Preferred stock, authorized 10,000,000
shares, par value $.01 per share, none issued
Common stock, authorized 25,000,000 shares,
par value $.01 per share, issued 11,542,450
and 11,102,767 shares (of which 427,184
and 276,075 shares are held in treasury) 115 111
Class B common stock, authorized 2,800,000 shares, par
value $.01 per share, issued and outstanding 450,000 and
256,250 shares 5 3
Additional paid-in capital 170,011 164,217
Accumulated deficit (61,602) (39,397)
Accumulated other comprehensive (loss) income (817) 99
Notes receivable from stockholder (2,817) (1,742)
Treasury stock at cost (4,913) (2,956)
- -----------------------------------------------------------------------------------------------
Total stockholders' equity 99,982 120,335
- -----------------------------------------------------------------------------------------------
$197,118 $210,905
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
<S> <C> <C> <C> <C>
Years ended December 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------
Sales $224,810 $284,682 $234,801
Cost of sales 198,431 242,689 199,572
- --------------------------------------------------------------------------------------------------
Gross margin 26,379 41,993 35,229
- --------------------------------------------------------------------------------------------------
Selling, general and administrative (36,953) (31,883) (31,502)
Interest expense (4,922) (3,896) (4,075)
Investment and other income,
net (including interest income of $193,
$335 and $621) 223 1,735 2,389
Loss on investments (1,662) (4,624)
Loss on sale of assets (6,225)
Gains on trading securities, net 3,016 2,205 689
Restructuring charge (7,374)
- ----------------------------------------------------------------
Income (loss) before income taxes (21,293) (695) 2,730
Income tax benefit (expense) (912) (1,366) 693
- --------------------------------------------------------------------------------------------------
Net income (loss) $ (22,205) $ (2,061) $ 3,423
- --------------------------------------------------------------------------------------------------
Net income (loss) per share
Basic $ (1.95) $ (.19) $ .33
Diluted (1.95) (.19) .31
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1999, 1998, and 1997
(in thousands, except for par value per share)
<CAPTION>
Accumulated Notes
Class B other Compre- receivable Treasury Total
Common common Additional Accu- compre- hensive from stock stock-
stock stock paid-in lated hensive income stock- at holders'
($.01 Par) ($.01 Par) capital deficit income (loss) holder cost equity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 75 $ 1 $131,388 $(40,759) $3,324 $ $ $ $94,029
- ------------------------------------------------------------------------------------------------------------------------------
Issuance of stock in connection
with acquisition of
General Physics 30 25,198 25,228
Other comprehensive income 3,306 3,306 3,306
Net income 3,423 3,423 3,423
- ------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 6,729 6,729
Issuance and sale of common
stock 3 2,090 2,093
Purchase of treasury stock (1,496) (1,496)
- ------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 108 1 158,676 (37,336) 6,630 (1,496) 126,583
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Continued)
Years ended December 31, 1999, 1998, and 1997
(in thousands , except for par value per share)
<TABLE> Accumulated
<CAPTION>
Class B other compre- Compre- Notes Treasury Total
Common common Additional Accum- hensive hensive receivable stock stock-
stock stock paid-in ulated income income from at holders'
($.01 Par) ($.01 Par) capital deficit (loss) (loss) stockholder cost equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $108 $ 1 $158,676 $(37,336) $ 6,630 $ $ $(1,496) $126,583
- ------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (6,531) (6,531) (6,531)
Net loss (2,061) (2,061) (2,061)
- -----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss (8,592) (8,592)
Issuance and sale of common
stock 3 2 5,541 (1,742) 3,804
Purchase of treasury stock (1,460) (1,460)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 111 3 164,217 (39,397) 99 (1,742) (2,956) 120,335
- ------------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (916) (916) (916)
Net loss (22,205) (22,205) (22,205)
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss (23,121) (23,121)
Issuance and sale of common
stock 4 2 5,794 (1,075) 4,725
Purchase of treasury stock (1,957) (1,957)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $115 $ 5 $170,011 $(61,602) $ (817) $ $(2,817) $(4,913) $ 99,982
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(in thousands)
Years ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
Cash flows from operations:
<S> <C> <C> <C>
Net (loss) income $ (22,205) $ (2,061) $ 3,423
Adjustments to reconcile net (loss) income
to net cash (used in) provided by operating activities:
Depreciation and amortization 7,794 5,452 5,867
Issuance of stock for profit incentive plan
and other 1,345 1,675 777
Restructuring charge 7,374
Gains on trading securities, net (3,016) (2,205) (689)
Loss on investments 1,662 4,624 700
Loss on sale of assets 6,225
Loss on equity investments and other 535 936 1,880
Deferred income taxes (700) (2,028)
Proceeds from sale of trading securities 5,057 3,964 2,589
Changes in other operating items,
net of effect of acquisitions and disposals:
Accounts and other receivables 146 (23,470) (2,087)
Inventories 474 997 (1,649)
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,157 (7,669) 1,740
Prepaid expenses and other current assets 1,491 (3,062) (103)
Accounts payable and accrued expenses (1,981) 5,133 388
Billings in excess of costs and estimated
earnings on uncompleted contracts (4,201) 6,220 (542)
- ----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operations $ (5,068) $ (3,241) $ 10,266
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<CAPTION>
(in thousands)
Years ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
<S> <C> <C>
Acquisitions of businesses, net $ $ (31,632) $ (4,533)
Additions to property, plant and
equipment, net (2,959) (4,484) (3,714)
Additions to intangible assets (3,153) (2,985) (1,233)
Reduction of (increase to) investments
and other assets 1,381 503 (156)
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,731) (38,598) (9,636)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of short-term borrowings (14,519) (4,124)
Proceeds from short-term borrowings 9,555 37,773 1,313
Proceeds from issuance of long-term debt 15,000 531
Repayment of long-term debt (2,385) (281) (7,333)
Exercise of common stock
options and warrants 940 596 177
Repurchase of treasury stock (1,129) (1,460) (1,496)
- ----------------------------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities 6,981 37,109 (10,932)
- ----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents 79 (838)
- -----------------------------------------------------------------------------------------
Net decrease in cash and
cash equivalents (2,739) (5,568) (10,302)
Cash and cash equivalents at
beginning of year 6,807 12,375 22,677
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,068 $ 6,807 $ 12,375
- ----------------------------------------------------------------------------------------------------------
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 5,078 $ 3,704 $ 3,961
Income taxes $ 1,097 $ 1,194 $ 946
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Description of business and summary of significant accounting policies
Description of business. GP Strategies Corporation (the "Company") has
four operating business segments: The Company's principal operating subsidiary
is General Physics Corporation (GP). GP is a performance improvement company
that assists productivity driven organizations to maximize workforce performance
by integrating people, processes and technology. GP is a total solutions
provider for strategic training, engineering, consulting and technical support
services to Fortune 500 companies, government, utilities and other commercial
customers. GP, which through December 31, 1998 comprised the Performance
Improvement Group, has been resegmented during 1999 and now operates in three
business segments. The Manufacturing Services Group provides technology based
training to leading companies in the automotive, steel and food and beverage
industries, as well as to the government sector. The Process and Energy Group
provides engineering, consulting and technical training to the power, chemical,
energy and pharmaceutical industries as well as government facilities. The
Information Technology Group provides information training programs and
solutions, including Enterprise Solutions and comprehensive career training and
transition programs. The Company's Optical Plastics Group, through its wholly
owned subsidiary MXL Industries, Inc. (MXL), manufactures molded and coated
optical products, such as shields and face masks and non-optical plastic
products. In addition, the Company owns approximately 37% of the outstanding
shares of common stock of Five Star Products, Inc. (FSP) (formerly American Drug
Company) (see Note 3). The Company also has investments in Interferon Sciences,
Inc. (ISI), GTS Duratek, Inc. (Duratek), and GSE Systems, Inc. (GSES) (see Note
3).
Principles of consolidation and investments. The consolidated financial
statements include the operations of GP Strategies Corporation and its
majority-owned subsidiaries. Investments in 20% - 50% owned companies are
accounted for on the equity basis. All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash and cash equivalents. Cash and cash equivalents of $4,068,000 and
$6,807,000 at December 31, 1999 and 1998, respectively, consist of highly liquid
investments with original maturities of three months or less.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
1. Description of business and summary of significant accounting policies
(Continued)
Marketable securities. Marketable securities at December 31, 1999 consist of
U.S. corporate equity securities. The Company classifies its marketable
securities (investments of less than 20%), as trading or available-for-sale
long-term investments. Investments with restrictions on the amount the Company
is able to sell within a one-year period are classified as long-term
investments. A decline in the market value of any available-for-sale security
below cost, that is deemed to be other then 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 expected to be sold within one year, are included
in Marketable securities on the Consolidated Balance Sheet. Available-for-sale
securities and long-term investments are included in Investments and advances on
the Consolidated Balance Sheet. Trading and available-for-sale securities are
recorded at their fair value. Trading securities are held principally for the
purpose of selling them in the near term. Unrealized holding gains and losses on
trading securities are included in earnings. Unrealized holding gains and losses
on available-for-sale securities are excluded from earnings and are reported as
a separate component of stockholders' equity in Accumulated other comprehensive
income (loss), net of the related tax effect, until realized. Long-term
investments, not available-for-sale, are carried at cost.
Inventories. Inventories are valued at the lower of cost or market, principally
using the first-in, first-out (FIFO) method.
Foreign currency transactions. The Company's Swiss Bonds (see Note 7) are
subject to currency fluctuations and the Company has hedged portions of such
debt from time to time, but not within the three - year period ended December
31, 1999. During the years ended December 31, 1999, 1998 and 1997, the Company
realized foreign currency transaction gains (losses) of $245,000, $(75,000) and
$131,000, respectively. These amounts are included in Investment and other
income, net.
Foreign currency translation. The functional currency of the Company's
international operations is the applicable local currency. The translation of
the applicable foreign currency into U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using the weighted-average rates of exchange
prevailing during the year. The unrealized gains and losses resulting from such
translation are included as a separate component of shareholders' equity in
Accumulated other comprehensive income (loss).
<PAGE>
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, net
unrealized gains (losses) on available-for-sale securities and foreign currency
translation adjustment.
Property, plant and equipment. Property, plant and equipment are carried at
cost. Major additions and improvements are capitalized while maintenance and
repairs which do not extend the lives of the assets are expensed as incurred.
Gain or loss on the disposition of property, plant and equipment is recognized
in operations when realized.
Depreciation. The Company provides for depreciation of property, plant and
equipment primarily on a straight-line basis over the following estimated useful
lives:
CLASS OF ASSETS USEFUL LIFE
Buildings and improvements 5 to 40 years
Machinery, equipment and furniture
and fixtures 3 to 7 years
Leasehold improvements Shorter of asset life or term of lease
Long-Lived Assets. The recoverability of long-lived assets, other than goodwill,
is assessed whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable through future undiscounted
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment is measured by determining the amount
by which the carrying value of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value, less costs to sell.
<PAGE>
1. Description of business and summary of significant accounting policies
(Continued)
Intangible assets. The excess of cost over the fair value of net assets of
businesses acquired is recorded as goodwill and is amortized on a straight-line
basis generally over periods ranging from 5 to 40 years. The Company capitalizes
costs incurred to obtain and maintain patents and licenses. Patent costs are
amortized over the lesser of 17 years or the remaining lives of the patents, and
license costs over the lives of the licenses. The Company also capitalizes costs
incurred to obtain long-term debt financing. Such costs are amortized on an
effective yield basis over the terms of the related debt and such amortization
is classified as interest expense in the Consolidated Statements of Operations.
When circumstances warrant, the Company assesses the recoverability of goodwill
by determining whether the amortization of the goodwill balance over its
remaining life 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-Base 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.
<PAGE>
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 (See Note 11).
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.
Reclassification. Certain prior year amounts in the financial statements and
notes thereto have been reclassified to conform to 1999 classifications.
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 10% are related to United States government contracts, and the
remainder are dispersed among various industries, customers and geographic
regions. In addition, the Company has investments in various equity securities,
including Duratek, ISI, FSP and GSES (See Note 3).
<PAGE>
2. Acquisitions
(a) Learning Technologies
On June 16, 1998, General Physics acquired the Learning Technologies business of
Systemhouse, an MCI company. Learning Technologies is a computer technology
training and consulting organization, with offices and classrooms in Canada, the
United States and the United Kingdom. General Physics purchased Learning
Technologies for $24,000,000 in cash. The cash consideration of the purchase
price was derived from funds borrowed by the Company and General Physics,
pursuant to the Company's credit agreement dated June 15, 1998 (see Note 5).
Learning Technologies had annual revenues in 1997 of approximately $51,000,000,
and revenues totaling approximately $24,687,000 from January 1, 1998 to June
1998, with the majority of these sales attributable to operations in Canada and
the United Kingdom. From June 16, 1998 through December 31, 1998, Learning
Technologies had revenues of approximately $30,706,000. The Company has
accounted for this transaction as a purchase, and has recorded $23,216,000 of
goodwill, which is being amortized over 30 years. The results of operations for
Learning Technologies have been consolidated with the Company since June 16,
1998.
(b) Deltapoint Corporation
On July 13, 1998, General Physics completed its acquisition of substantially all
of the operations and net assets of The Deltapoint Corporation (Deltapoint).
Deltapoint is a Seattle, Washington based management consulting firm focused on
large systems change and lean-enterprise, with 500 clients primarily operating
in the aerospace, pharmaceutical, manufacturing, health care and
telecommunications industries. General Physics purchased Deltapoint for
approximately $6,300,000 in cash and a future earnout, as described in the Asset
Purchase Agreement. The Company has accounted for this transaction as a purchase
and has recorded approximately $4,858,000 of goodwill, subject to final
adjustment, which is being amortized over 20 years. Pursuant to the terms of the
future earnout, General Physics agreed to pay a percentage of revenues earned
for each of the three years following acquisition provided minimum revenue and
earnings goals are achieved. Assuming that those goals are reached in each year,
then the additional consideration for each such year would equal $1,333,440; in
addition General Physics would pay a percentage of revenues received in excess
of the goal. These amounts will be recorded as additional purchase price and as
additional goodwill when incurred. In 1999, based upon the goal reached by
Deltapoint, General Physics paid an additional $1,856,000 of consideration,
which was recorded as goodwill, to be amortized over 19 years. The initial
$6,300,000 cash consideration was paid from funds borrowed by the Company and
General Physics, pursuant to the Company's credit agreement. The results of
operations for Deltapoint have been consolidated with the Company since July 14,
1998 and Deltapoint, through December 31, 1998, had revenues of approximately
$7,221,000.
<PAGE>
(c) General Physics Corporation
On January 24, 1997, the Company acquired the remaining 5,047,623 shares (48% of
the outstanding shares) of General Physics that it did not already own, in
exchange for .60 shares of GP Strategies common stock for each share of General
Physics. The transaction has been accounted for as a purchase of a minority
interest. The Company issued an aggregate of 3,028,574 shares of its common
stock, valued at $25,228,000 in the transaction. In addition, the Company paid
$4,533,000 in cash and had accrued $1,515,000 of additional liabilities in
relation to the purchase. As a result of this transaction, the Company purchased
for a total of $31,276,000 the remaining 48% of the outstanding shares of
General Physics and recorded $21,069,000 of goodwill, which is being amortized
over 30 years.
3. Investments and advances
At December 31, 1998 and 1999, Investments and advances were comprised of the
following:
December 31,
1999 1998
---------- -------
GTS Duratek, Inc. $ 318 $ 4,276
Interferon Sciences, Inc. 183 661
Five Star Products, Inc. 8,827 8,893
GSE Systems, Inc. 6,084 6,738
Other 1,145 2,503
------- -------
$16,557 $23,071
======= =======
(a) GTS Duratek, Inc.
At December 31, 1999, the Company owned approximately 63,000 shares of the
common stock of Duratek. Duratek implements technologies and provides services,
many of which are related to managing remediation and treating radioactive and
hydrocarbon waste.
Pursuant to various agreements, the Company was restricted in its ability to
sell its shares of Duratek through December 31, 1999. As the Company had
determined to sell promptly 150,000 shares as of December 31, 1998 and 100,000
shares as of December 31, 1997, such securities were classified as trading
securities at these dates. The balance of the shares the Company was permitted
to sell at these dates, as well as at December 31, 1999, were transferred to
available-for-sale.
<PAGE>
(a) GTS Duratek, Inc. (Continued)
In 1997, the Company recognized a net $689,000 gain related to Duratek common
stock. The gain resulted from a $828,000 gain recorded on the transfer from
long-term investments to trading securities partially offset by a $139,000
realized loss on the sale of 306,000 shares of Duratek common stock, which
generated net proceeds of $2,756,000.
In 1998, the Company recognized a net gain of $2,205,000 related to Duratek
common stock. The gain resulted from a $1,708,000 realized gain recorded on the
sale of 523,900 shares of Duratek common stock, which generated net proceeds of
$3,788,000, and a $497,000 gain recorded on the transfer of shares from
long-term investments to trading securities.
In 1999, the Company recognized a gain of $3,016,000 related to the sale of
927,000 shares of Duratek common stock, which generated net proceeds of
$5,022,000.
Information relating to the Company's investment in Duratek is as follows (in
thousands):
1999 1998
- ------------------------------------------------------------------------------
Included in Marketable securities:
Number of shares 150
Value $ $ 741
Included in Investments and advances:
Number of shares 34 655
Available-for-sale equity securities, at market $ 264 $ 3,232
Number of shares 29 186
Securities held for long-term
investment, at cost $ 54 $ 303
Total carrying amount $ 318 $ 4,276
Total number of shares owned 63 991
Market value of shares $ 491 $ 4,890
- ------------------------------------------------------------------------------
<PAGE>
(b) 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. All shares and per share information of ISI have
been restated to the one for five reverse stock split of ISI effective January
1999.
During 1999 and 1998, the Company recorded Losses on investments of $1,057,000
and $3,067,000, respectively, to recognize other than temporary impairments of
its investment in ISI as a result of significant decreases in the market value
of ISI's common stock.
In an agreement dated March 25, 1999, the Company agreed to lend ISI $500,000
(the "ISI Debt"). In return, ISI granted the Company (i) a first mortgage on
ISI's real estate, (ii) a two-year option to purchase ISI's real estate,
provided that ISI has terminated its operations and certain other specified ISI
debt has been repaid, and (iii) a two-year right of first refusal in the event
ISI desires to sell its real estate. ISI issued the Company 500,000 shares of
ISI common stock and a five-year warrant to purchase 500,000 shares of ISI
common stock at a price of $1 per share (the "Warrant") as a loan origination
fee. Pursuant to the agreement, ISI issued a note to the Company in the amount
of $500,000, which was due on September 30, 1999 and bears interest, payable at
maturity at the rate of 6% per annum. On March 27, 2000, the Company and ISI
entered into an agreement pursuant to which (i) the due date of the ISI Debt was
extended until June 30, 2001 and (ii) ISI agreed to file a registration
statement prior to July 31, 2000 covering the Warrant.
Information relating to the Company's investment in ISI is as follows (in
thousands):
1999 1998
- --------------------------------------------------------------------------------
Included in Investments and advances:
Number of shares 610 302
Available-for-sale equity securities, at market $ 183 $ 661
Total number of shares owned 610 302
Market value of shares $ 183 $ 661
- --------------------------------------------------------------------------------
<PAGE>
(c) Five Star Products, Inc.
On September 30, 1998, the Company sold substantially all operating assets of
its wholly-owned subsidiary, the Five Star Group, Inc. (Five Star) to FSP for
$16,476,000, which was used to repay existing short-term borrowings, and a
$5,000,000 senior unsecured 8% note. The note is due in 2003, with interest due
quarterly. Five Star is a leading distributor of home decorating, hardware and
finishing products in the northeast. Prior to the above transaction, the Company
sold a 16.5% interest in FSP to the management of Five Star, bringing its
interest in FSP to approximately 37%. In addition, the Company recognized a
$6,225,000 loss on the transaction. As a result of these transactions, the
Company no longer consolidates FSP and its subsidiaries, but instead accounts
for FSP on the equity method. At December 31, 1999, the Company's investment in
FSP was $8,827,000, including the $5,000,000 senior unsecured 8% note. The
Company is amortizing, over 30 years, the excess of its investment in FSP over
its share of FSP's new basis of underlying net assets, which was approximately
$2,900,000 at December 31, 1999.
Information relating to the Company's investment in FSP is as follows (in
thousands):
1999 1998
- ------------------------------------------------------------------------
Included in Investments and advances:
Long-term note receivable $5,000 $5,000
Number of shares 4,882 4,882
Carrying amount of shares $3,827 $3,893
Equity income included in
Investment and other income, net $ 253 $
- ------------------------------------------------------------------------
Condensed financial information for FSP as of December 31, 1999 and 1998 and for
the years then ended is as follows (in thousands):
December 31,
1999 1998
---- ----
Current assets $32,810 $32,291
Non current assets 942 888
Current liabilities 27,598 27,596
Non current liabilities 5,000 5,000
Stockholders' equity 1,230 583
Sales 83,134 17,080
Gross profit 14,488 3,394
Net income (loss) 647 (664)
<PAGE>
(d) GSE Systems, Inc.
GSES designs, develops and delivers business and technology solutions by
applying high technology-related process control, data acquisition, simulation,
and business software, systems and services to the energy, process and
manufacturing industries worldwide. At December 31, 1999, the Company owned
approximately 22% of GSES and accounts for its investment in GSES on the equity
method. The Company determined that an impairment in the investment had occurred
and accordingly recorded losses of $1,000,000 and $1,557,000 during 1999 and
1998, respectively, which are included in Loss on investments. The Company is
amortizing the excess of its investment in GSES over its share of GSES's
underlying net assets over fifteen years.
Information relating to the Company's investment in GSES is as follows (in
thousands):
1999 1998
- ---------------------------------------------------------------------------
Included in Investments and advances:
Number of shares controlled 1,159 1,125
Total carrying amount $ 6,084 $ 6,738
Equity in income included in Investment
and other income, net 42 307
- ---------------------------------------------------------------------------
Condensed financial information for GSES as of December 31, 1999 and 1998 and
for the years then ended is as follows (in thousands):
1999 1998
- ---------------------------------------------------------------------------
Current assets $25,439 $32,362
Non current assets 17,588 16,381
Current liabilities 16,774 28,304
Non current liabilities 9,083 3,350
Stockholders' equity 17,170 17,089
Revenue 66,699 73,818
Gross profit 25,070 24,004
Net income 101 1,397
- ---------------------------------------------------------------------------
<PAGE>
4. Property, plant and equipment
Property, plant and equipment consists of the following (in thousands):
December 31, 1999 1998
- -------------------------------------------------------------------------------
Land $ 915 $ 915
Buildings and improvements 3,456 2,730
Machinery and equipment 13,611 11,767
Furniture and fixtures 22,092 21,965
Leasehold improvements 4,783 4,265
- -------------------------------------------------------------------------------
44,857 41,642
Accumulated depreciation and amortization (31,199) (27,168)
- -------------------------------------------------------------------------------
$ 13,658 $ 14,474
- -------------------------------------------------------------------------------
5. Credit agreement
The Company and General Physics Canada Ltd. (GP Canada), an Ontario corporation
and a wholly-owned subsidiary of General Physics, entered into a new credit
agreement, dated as of June 15, 1998 (the Credit Agreement), with various banks
providing for a secured credit facility of $80,000,000 (the Credit Facility)
comprised of a revolving credit facility of $65,000,000 expiring on June 15,
2001 and a five-year term loan of $15,000,000. The five year term loan is
payable in 20 quarterly installments of $187,500 commencing on October 1, 1998
with a final payment of $11,250,000 due on June 15, 2003.
The Credit Facility is secured by principally all the receivables and inventory
of the Company as well as all of the common stock of the Company's material
domestic subsidiaries and 65% of the common stock of the Company's foreign
subsidiaries. At the option of the Company or GP Canada, as the case may be, the
interest rate on any loan under the Credit Facility may be based on an adjusted
prime rate or Eurodollar rate, as described in the Credit Agreement. At December
31, 1999 $42,875,000, of which $14,063,000 relates to the five year term-loan,
was borrowed at a weighted average Eurodollar rate of 8.14% and $11,466,000 was
borrowed at 8.5% or the prime rate of interest. The credit agreement contains
certain covenants which requires among other things, the maintenance of certain
financial ratios. At December 31, 1999 the Company was not in compliance with
the covenants, however waivers were subsequently obtained. At December 31, 1999
$54,341,000 was borrowed under the Credit Facility and an additional $24,722,000
was available to be borrowed.
<PAGE>
5. Credit agreement (Continued)
Due to the Company's restructuring charges and operating losses in 1999, the
Company is in default with respect to the financial covenants in its credit
agreements. The Company and its lenders entered into an agreement dated as of
April 12, 2000, providing for waivers of compliance with such covenants as of
September 30, 1999, December 31, 1999 and March 31, 2000. Effective April 12,
2000, the Company and its lenders entered into a binding commitment to enter
into an Amended and Restated Credit Agreement (the "Amended Agreement") on the
terms and conditions described below. The Amended Agreement will reduce the
commitment pursuant to the revolving facility to $50,000,000 (subject to
borrowing base limitations specified in the Amended Agreement), however the
Amended Agreement did not change the payment terms or expiration date of the
Company's current outstanding term loan in the amount of $14,063,000. The
interest rates increased on both the revolving facility and the term loan to
prime plus 1.25% (increased from .50%) and Eurodollar plus 2.75% (increased from
2.00%). The Amended Agreement provides for additional security consisting of
certain real property and all marketable securities owned by the Company and its
subsidiaries. The Amended Agreement contains certain restrictive covenants,
including the prohibition on future acquisitions, and provides for mandatory
prepayment upon the occurrence of certain events. The Amended Agreement contains
revised minimum net worth, fixed charge coverage, EBITDA and consolidated
liabilities to tangible net worth covenants. Although there can be no assurance,
the Company anticipates that it will satisfy the revised covenants. If the
Amended Agreement had been in effect at December 31, 1999, the Company would
have had approximately $6,500,000 available to be borrowed under the Amended
Agreement, as opposed to the $24,722,000 available at December 31,1999, under
the original agreement.
6. Accounts payable and accrued expenses
Accounts payable and accrued expenses are comprised of the following (in
thousands):
December 31, 1999 1998
- -------------------------------------------------------------------------
Accounts payable $ 8,989 $ 13,324
Payroll and related costs 5,759 6,539
Restructuring reserve 1,884
Other 9,002 4,226
- -------------------------------------------------------------------------
$ 25,634 $ 24,089
- -------------------------------------------------------------------------
<PAGE>
7. Long-term debt
Long-term debt is comprised of the following (in thousands):
December 31, 1999 1998
- -------------------------------------------------------------------------
8% Swiss Bonds, due 2000 (a) $ 2,175 $ 2,359
5% Convertible Bonds due 1999 (b) 1,858
Term loan (Note 5) 14,063 14,813
Senior Subordinated Debentures (c) 844 878
Other 1,408 1,651
- -------------------------------------------------------------------------
18,490 21,559
Less current maturities (3,668) (3,180)
- -------------------------------------------------------------------------
$ 14,822 $ 18,379
- -------------------------------------------------------------------------
(a) In June 1995, the Company issued an aggregate of SFr. 3,604,000 of 8% Swiss
Bonds, due June 28, 2000 (the "8% Bonds"). The 8% Bonds were valued at
$2,340,000, at the then exchange rate (after an original issue discount of 25%).
The principal and interest on the 8% Bonds are payable either in cash or in
shares of common stock of the Company, at the option of the Company.
(b) In July 1993, the Company issued $3,340,080 principal amount of 5% Bonds
which were convertible into shares of the Company's Common Stock. The Company
recorded an original issue discount on the 5% Bonds of 10%. In April 1999,
$500,000 of the Company's 5% convertible bonds were converted into 28,751 shares
of the Company's Common Stock. In August 1999, the Company repaid the
outstanding 5% Bonds for $1,282,000.
(c) In August 1994, General Physics, as a result of an acquisition issued $15
million of 6% Senior Subordinated Debentures, which have a carrying value of
$12,540,000, net of a debt discount of $2,968,000. The debentures are unsecured
and require payments of interest only on a quarterly basis through June 30,
1999, quarterly principal installments of $525,000 plus interest through June
30, 2004 and the balance of $4.5 million on June 30, 2004. The debentures are
subordinated to borrowings under the line of credit agreement. At December 31,
1999, the carrying value of the debentures held by the Company was $11,208,000,
which was eliminated in consolidation, and the remaining $844,000 of debentures
were held by the public.
Aggregate annual maturities of long-term debt outstanding at December 31, 1999
for each of the next five years are as follows (in thousands):
2000 $3,668
2001 1,705
2002 1,587
2003 10,491
2004 1,039
<PAGE>
8. Employee benefit plans
(a) 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, $203,000 and $201,000 in 1999,
1998 and 1997, respectively.
(b) General Physics maintains a Profit Investment Plan (the Plan) for employees
who have completed ninety days of service with General Physics. The Plan permits
pre-tax contributions to the Plan by participants pursuant to Section 401(k) of
the Internal Revenue Code of 1% to 14% of base compensation. General Physics
matches participants' contributions up to a specific percentage of the first 7%
of base compensation contributed for employees who have completed one year of
service with General Physics and may make additional matching contributions. The
Company matches participants' contributions in shares of the Company's common
stock up to 57% of monthly employee salary deferral contributions. In 1999, 1998
and 1997 the Company contributed 141,063, 95,953 and 122,290 shares of the
Company's common stock directly to the Plan with a value of approximately
$1,345,000, $1,157,000 and $1,121,000, respectively.
9. Income taxes
The components of income tax expense (benefit) are as follows (in thousands):
Years ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------
Current
State and local $ 481 $ 1,271 $ 1,200
Federal 135
Foreign 454
- -------------------------------------------
Total current 935 1,271 1,335
- ------------------------------------------------------------------------------
Deferred
State and local (70) 95 11
Federal (2,039)
Foreign 47
- -------------------------------------------
Total deferred (23) 95 (2,028)
- ------------------------------------------------------------------------------
Total income tax expense (benefit) $ 912 $ 1,366 $ (693)
- ------------------------------------------------------------------------------
The deferred expense excludes activity in the net deferred tax assets relating
to tax on appreciation (depreciation) in securities available-for-sale, which is
recorded to stockholders' equity.
The difference between the expense (benefit) for income taxes computed at the
statutory rate and the reported amount of tax expense (benefit) is as follows:
<PAGE>
9. Income taxes (Continued)
December 31, 1999 1998 1997
- ----------------------------------------------------------------------------
Federal income tax rate (35.0%) (35.0%) 35.0%
State and local taxes net of Federal benefit 1.2 127.8 28.8
Items not deductible - primarily
amortization of goodwill 3.7 77.1 25.4
Net operating loss utilization (82.6)
Valuation allowance adjustment 9.1 29.1 (32.9)
Net losses from foreign operations for which
no tax benefit has been provided 23.4
Other 1.9 (2.5) .9
- ------------------------------------------------------------------------------
Effective tax rate 4.3% 196.5% (25.4%)
- --------------------------------------------------------------------------------
In 1997, the Company recorded an income tax benefit of $693,000. The current
income tax provision of $1,335,000 represents the estimated taxes payable by the
Company for the year ended December 31, 1997. The deferred income tax benefit of
$2,028,000 results primarily from the utilization of net operating loss
carryovers and a reduction in the valuation allowance. The decrease of
$3,153,000 in the valuation allowance in 1997 was attributable in part to the
utilization of the Company's net operating loss carryforwards, and to the
Company's expectation of generating sufficient taxable income that will allow
for the realization of a portion of its deferred tax assets.
In 1998, the Company recorded an income tax expense of $1,366,000. The current
income tax provision of $1,271,000 represents the estimated state taxes for the
year ended December 31, 1998. The deferred income tax expense of $95,000
represents future estimated state taxes. The increase of $954,000 in the
valuation allowance in 1998 was attributable primarily to the decrease in the
Company's deferred tax liability with respect to Investments in partially owned
companies.
In 1999, the Company recorded an income tax expense of $912,000. The current
income tax provision of $935,000 represents estimated state taxes of $481,000,
and foreign taxes of $454,000 for the year ended December 31, 1999. The increase
of $8,113,000 in the valuation allowance in 1999 was attributable primarily to
net operating losses for which no tax benefit has been provided.
As of December 31, 1999, the Company has approximately $19,452,000 of U.S.
Federal net operating loss carryovers. Foreign net operating losses at December
31, 1999 were approximately $20,541,000. These carryovers expire in the years
2005 through 2014. In addition, the Company has approximately $2,681,000 of
<PAGE>
available credit carryovers of which approximately $1,709,000 expires in the
years 2000 through 2003, and approximately $972,000 which may be carried over
indefinitely.
<PAGE>
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 assets
are summarized as follows:
December 31, 1999 1998
- ---------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts $ 404 $ 747
Accrued liabilities 171 328
Net operating loss carryforwards 13,748 4,747
Tax credit carryforwards 2,681 3,494
Restructuring reserves
and other accrued liabilities 1,523
- ----------------------------------------------------------
Deferred tax assets 18,527 9,316
- ---------------------------------------------------------------------------
Deferred tax liabilities:
Accelerated depreciation and amortization 1,588 1,579
Unrealized marketable securities gain 211
Investment in partially owned companies 1,413 820
Other 47 40
- ---------------------------------------------------------------------------
Deferred tax liabilities 3,048 2,650
- ---------------------------------------------------------------------------
Net deferred tax assets 15,479 6,666
Less valuation allowance (11,489) (3,376)
- ---------------------------------------------------------------------------
Net deferred tax asset $ 3,990 $ 3,290
- ---------------------------------------------------------------------------
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which temporary differences are deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the Company's
projection of future taxable income, management believes it is more likely than
not that the Company will realize the benefits of deferred tax assets of
$3,990,000, and has recorded this amount as an asset as of December 31, 1999.
<PAGE>
10. Comprehensive income
The following are the components of comprehensive income (in thousands):
Year ended December 31,
-------------------------------
1999 1998 1997
--------- --------- ------
Net (loss) income $(22,205) $ (2,061) $ 3,423
Other comprehensive (loss) income,
before tax:
Net unrealized gain (loss) on
available-for-sale-securities (1,753) (7,943) 5,009
Foreign currency translation adjustment 79 (838)
------- ----------
Comprehensive (loss) income before tax (23,879) (10,842) 8,432
Income tax (expense) benefit related to
items of other comprehensive income 758 2,250 (1,703)
-------- --------- --------
Comprehensive (loss) income, net of tax $(23,121) $ (8,592) $ 6,729
======== ======== ========
The components of accumulated other comprehensive income are as follows:
December 31, 1999 1998 1997
- --------------------------------------------------------------------------------
Net unrealized gain (loss) on
available-for-sale-securities $ (55) $ 1,698 $ 9,641
Foreign currency translation adjustment (759) (838)
---- -------
Accumulated other comprehensive income
before tax (814) 860 9,641
Accumulated income tax expense related
to items of other comprehensive income (loss) (3) (761) (3,011)
---- ------- -------
Accumulated other comprehensive
Income (loss), net of tax $(817) $ 99 $ 6,630
==== ======== =======
<PAGE>
11. Common Stock, stock options and warrants
(a) Under the Company's non-qualified stock option plan, employees and certain
other parties may be granted options to purchase shares of common stock.
Although the Plan permits options to be granted at a price not less than 85% of
the fair market value, the Plan options primarily are granted at the fair market
value of the common stock at the date of the grant and are exercisable over
periods not exceeding ten years from the date of grant. Shares of common stock
are also reserved for issuance pursuant to other agreements. Changes in options
and warrants outstanding during 1997, 1998 and 1999, and options and warrants
exercisable and shares reserved for issuance at December 31, 1997, 1998, and
1999 are as follows:
<TABLE>
Common Stock
<CAPTION>
Options and warrants Price Range Number Weighted-Average
outstanding per share of shares Exercise Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996 7.69 - 24.00 1,195,393 9.05
- --------------------------------------------------------------------------------------------------
Granted 4.59 - 11.15 1,578,715 7.85
Exercised 4.59 - 9.00 (21,573) 8.17
Terminated 7.59 - 12.00 (144,026) 8.87
- --------------------------------------------------------------------------------------------------
December 31, 1997 4.59 - 24.00 2,608,509 8.35
- --------------------------------------------------------------------------------------------------
Granted 10.41 - 15.375 383,900 14.44
Exercised 7.69 - 10.41 (69,863) 8.42
Terminated 7.75 - 15.375 (174,056) 9.97
- --------------------------------------------------------------------------------------------------
December 31, 1998 4.59 - 24.00 2,748,490 9.09
- --------------------------------------------------------------------------------------------------
Granted 8.00 - 17.25 793,825 9.91
Exercised 6.80 - 14.625 (122,352) 8.08
Terminated 7.69 - 24.00 (613,948) 9.80
- --------------------------------------------------------------------------------------------------
December 31, 1999 4.59 - 17.25 2,806,015 9.21
- --------------------------------------------------------------------------------------------------
Options and warrants exercisable
December 31, 1997 4.59 - 24.00 1,234,984 8.72
- --------------------------------------------------------------------------------------------------
December 31, 1998 4.59 - 24.00 1,399,454 8.77
- --------------------------------------------------------------------------------------------------
December 31, 1999 4.59 - 17.25 1,254,033 8.88
- --------------------------------------------------------------------------------------------------
Shares reserved for issuance
December 31, 1997 2,756,853
- ------------------------------------------------------------------------------
December 31, 1998 3,198,590
- ------------------------------------------------------------------------------
December 31, 1999 3,375,234
- ------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, the weighted average remaining contractual life of all
outstanding options was 4.7 years.
<PAGE>
11. Common Stock, stock options and warrants (Continued)
The following table summarizes information about the Plan's options outstanding
at December 31, 1999:
Weighted
Range Number Average Weighted
Of Outstanding Years Average
Exercise Prices Remaining Exercise Price
- -------------------------------------------------------------------------------
$6.00 - $ 7.75 1,190,680 5.6 $7.70
$8.00 - $10.41 1,137,050 3.1 $8.50
$11.15 - $17.25 456,725 6.4 $14.70
- -----------------------------------------------------------------------------
$ 6.00 - $17.25 2,784,455 4.7 $ 9.17
- -----------------------------------------------------------------------------
The following table summarizes the Class B Common Stock options as follows:
<TABLE>
<CAPTION>
Class B Common Stock
Options Price Range Number Weighted-Average
outstanding per share of shares Exercise Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997 and 1996 8.50 -9.00 887,500 8.80
Exercised 9.00 (193,750) 9.00
- --------------------------------------------------------------------------------------------------
December 31, 1998 8.50 - 9.00 693,750 8.74
- --------------------------------------------------------------------------------------------------
Exercised 9.00 (193,750) 9.00
- --------------------------------------------------------------------------------------------------
December 31, 1999 8.50 -8.69 500,000 8.64
- --------------------------------------------------------------------------------------------------
Options exercisable
December 31, 1997 8.50 -9.00 762,250 8.82
- --------------------------------------------------------------------------------------------------
December 31, 1998 8.50 -9.00 693,750 8.74
- --------------------------------------------------------------------------------------------------
December 31, 1999 8.50 -8.69 500,000 8.64
- --------------------------------------------------------------------------------------------------
</TABLE>
The Company reserved 950,000 shares of its Common Stock for issuance upon
conversion of Class B Common Stock at each of the years ended December 31, 1999,
1998 and 1997.
At December 31, 1999, the weighted average remaining contractual life of all
outstanding Class B options was less than 1.5 years.
<PAGE>
11. Common Stock, stock options and warrants (Continued)
At December 31, 1999, 1998, and 1997, options outstanding included options for
150,790, 829,334 and 829,334 shares, respectively, for certain executive
officers.
The holders of common stock are entitled to one vote per share and the holders
of Class B Common stock are entitled to ten votes per share on all matters
without distinction between classes, except when approval of a majority of each
class is required by statute. The Class B Common stock is convertible at any
time, at the option of the holders of such stock, into shares of common stock on
a share-for-share basis. At December 31, 1999, 1998, and 1997, shares reserved
for issuance were primarily related to shares reserved for options and warrants
and the conversion of long-term debt.
(b) Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income (loss) As reported $(22,205) $ (2,061) $ 3,423
Pro forma (24,363) (3,730) 1,344
Basic earnings (loss) per share
As reported (1.95) (.19) .33
Pro forma (2.14) (.34) .13
Diluted earnings (loss) per share
As reported (1.95) (.19) .31
Pro forma (2.14) (.34) .12
</TABLE>
Pro forma net income reflects only options granted since 1995. Therefore, the
full impact of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net income amounts presented above because
compensation cost is reflected over the options' vesting period and compensation
cost for options granted prior to January 1, 1995 is not considered.
<PAGE>
11. Common Stock, stock options and warrants (Continued)
At December 31, 1999, 1998 and 1997, the per share weighted-average fair value
of stock options granted was $8.32, $4.32 and $3.64, respectively on the date of
grant using the modified Black Scholes option-pricing model with the following
weighted-average assumptions: 1999 - expected dividend yield 0%, risk-free
interest rate of 5.49%, expected volatility of 45.82% and an expected life of
3.54 years; 1998 - expected dividend yield 0%, risk-free interest rate of 5.44%,
expected volatility of 44.86%, and an expected life of 9.2 years; 1997 -
expected dividend yield 0%, risk-free interest rate of 6.37%, expected
volatility of 43.1 % and an expected life of 7.7 years.
(c) Earnings (loss) per share (EPS) for the years ended December 31, 1999, 1998
and 1997 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Basic EPS
<S> <C> <C> <C>
Net income (loss) $ (22,205) $ (2,061) $ 3,423
Weighted average shares
outstanding 11,401 10,867 10,457
Basic earnings (loss) per share $ (1.95) $ (.19) $ .33
Diluted EPS
Net income (loss) $ (22,205) $ (2,061) $ 3,423
Weighted average shares
outstanding 11,401 10,867 10,457
Dilutive effect of stock options
and warrants (i) 430
-------------- -------------- ----------
Weighted average shares
outstanding, diluted 11,401 10,867 10,887
Diluted earnings (loss)
per share (i) $ (1.95) $ (.19) $ .31
</TABLE>
<PAGE>
11. Common Stock, stock options and warrants (Continued)
Basic earnings per share are based upon the weighted average number of common
shares outstanding, including Class B common shares, during the period. Class B
common stockholders have the same rights to share in profits and losses and
liquidation values as common stock holders. Diluted earnings per share are based
upon the weighted average number of common shares outstanding during the period,
assuming the issuance of common shares for all dilutive potential common shares
outstanding.
(i) For the years ended December 31, 1999 and 1998, presentation of the dilutive
effect of stock options and warrants, which totaled 821,000 and 1,229,000,
respectively, are not included since they were anti-dilutive.
(d) On May 5, 1999, the Company announced that its Board of Directors had
authorized the purchase of up to 500,000 shares of the Company's common stock.
During the year ended December 31, 1999, the Company repurchased 107,516 shares
of its Common Stock.
12. Business segments
The operations of the Company currently consist of the following four business
segments, by which the Company is managed.
The Company's principal operating subsidiary is General Physics Corporation
(GP). GP is a performance improvement company that assists productivity driven
organizations to maximize workforce performance by integrating people, processes
and technology. GP is a total solutions provider for strategic training,
engineering, consulting and technical support services to Fortune 500 companies,
government, utilities and other commercial customers. GP, which through December
31, 1998 comprised the Performance Improvement Group, has been resegmented
during 1999 and now operates in three business segments. The Manufacturing
Services Group provides technology based training to leading companies in the
automotive, steel and food and beverage industries, as well as to the government
sector. The Process and Energy Group provides engineering, consulting and
technical training to the power, chemical, energy and pharmaceutical industries
as well as government facilities. The Information Technology Group provides
information training programs and solutions, including Enterprise Solutions and
comprehensive career training and transition programs.
<PAGE>
12. Business segments (Continued)
The Optical Plastics Group, which consists of MXL, which manufactures and
distributes coated and molded plastic products. For the year ended December 31,
1997 and the nine months ended September 30, 1998, the Company also had the
Distribution Group, which included the operations of the Five Star, a
distributor of home decorating, hardware and finishing products (see Note 3(c)).
Through September 30, 1998, the "Other" segment consisted of the operations of
FSP and the Company's Hydro Med Science division. Subsequent to September 30,
1998, the "Other" segment consists solely of the operations of the Hydro Med
Sciences division.
Financial information for the years ended December 31, 1998 and 1997, has been
restated to show all sales from the Performance Improvement segment reclassified
to the Manufacturing Services, Process and Energy, and Information Technology
segments. 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. There are deminimis
inter-segment sales. The reconciliation of gross margin to net income (loss) is
consistent with the presentation on the Consolidated Condensed Statements of
Operations.
<PAGE>
12. Business segments (Continued)
The following tables set forth the sales and operating results attributable to
each line of business and include a reconciliation of the groups' sales to
consolidated sales and operating results to consolidated income (loss) from
operations before income taxes for the periods presented (in thousands):
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------
Sales
<S> <C> <C> <C>
Manufacturing Services $ 86,759 $ 85,605 $ 56,211
Process & Energy 73,567 79,526 65,897
Information Technology 53,619 43,709 18,512
Distribution 64,148 82,300
Optical Plastics 10,353 10,581 10,362
Other 512 1,113 1,519
- ----------------------------------------------------------------------------------------
$224,810 $284,682 $234,801
- ----------------------------------------------------------------------------------------
Operating results
Manufacturing Services $ 10,106 $ 10,100 $ 4,348
Process & Energy 3,060 10,199 5,531
Information Technology (11,856) (857) 932
Distribution 1,773 2,288
Optical Plastics 1,215 1,500 1,864
Other (1,832) (1,000) (691)
- -----------------------------------------------------------------------------------------
Total operating profit 693 21,705 14,272
Interest expense (4,922) (3,896) (4,075)
Corporate general and administrative
expenses, amortization of goodwill
and Investment and other
income, net (17,064) (18,514) (7,467)
- -----------------------------------------------------------------------------------------
Income (loss) from operations before
income taxes $ (21,293) $ (695) $ 2,730
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
12. Business segments (Continued)
Operating profits represent gross revenues less operating expenses. In computing
operating profits, none of the following items have been added or deducted:
general corporate expenses at the holding company level, restructuring charges,
foreign currency transaction gains and losses, investment income, loss on
investments, loss on sale of assets, amortization of goodwill and interest
expense. General corporate expenses at the holding company level, which are
primarily salaries, occupancy costs, professional fees and costs associated with
being a publicly traded company, totaled approximately, $4,300,000, $4,250,000
and $5,246,000 for the years ended December 31, 1999, 1998 and 1997
respectively. For the years ended December 31, 1999, 1998 and 1997, sales to the
United States government and its agencies represented approximately 21%, 20% and
26%, respectively, of sales and is included in the Manufacturing Services,
Process and Energy and Information Technology Segments.
Additional information relating to the Company's business segments is as follows
(in thousands):
December 31, 1999 1998 1997
- ------------------------------------------------------------------------------
Identifiable assets
Manufacturing Services $ 28,797 $ 31,453 $ 20,015
Process & Energy 24,127 23,378 15,593
Information Technology 20,171 19,821 6,700
Distribution 37,346
Optical Plastics 9,835 10,330 9,961
Corporate and other 114,188 125,923 100,997
- ------------------------------------------------------------------------------
$197,118 $210,905 $190,612
- ------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------------
Additions to property,
plant, and equipment, net
Manufacturing Services $ 368 $ 1,302 $ 1,180
Process & Energy 377 413 52
Information Technology 1,081 484 575
Distribution 87 275
Optical Plastics 856 2,077 939
Corporate and other 277 121 193
- ------------------------------------------------------------------------------
$ 2,959 $ 4,484 $ 3,714
- ------------------------------------------------------------------------------
<PAGE>
12. Business segments (Continued)
Years ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------
Depreciation
Manufacturing Services $ 1,273 $ 580 $ 590
Process and Energy 681 242 426
Information Technology 1,260 232 77
Distribution 339 676
Optical Plastics 487 300 496
Corporate and other 74 28 48
- -------------------------------------------------------------------------------
$ 3,775 $ 1,721 $ 2,313
- -------------------------------------------------------------------------------
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,
1999 1998 1997
--------- --------- -------
United States $ 175,185 $250,115 $234,702
Canada 25,309 16,458
United Kingdom 17,127 14,972
Latin America and other 7,189 3,137 99
--------- --------- ------------
$224,810 $284,682 $234,801
-------- -------- --------
Information about the Company's identifiable assets in different geographic
regions is as follows (in thousands):
December 31,
1999 1998 1997
------------ ----------- ---------
United States (a) $180,057 $191,905 $190,612
Canada 9,533 10,085
United Kingdom 5,087 6,695
Latin America and other 2,441 2,220
--------- ----------
$197,118 $210,905 $190,612
-------- -------- --------
(a) All intangible assets of the Company, as well as other corporate assets are
assumed to be in the United States.
<PAGE>
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):
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
Carrying Estimated Carrying Estimated
amount fair value amount fair value
<C> <C> <C> <C> <C> <C>
8% Swiss Bonds due 2000 $ 2,175 $ 1,957 $ 2,359 $ 2,123
5% Convertible Bonds 1,858 1,728
Other long-term debt 2,082 2,082 2,529 2,529
Term Loan 14,063 14,063 14,813 14,813
</TABLE>
Limitations. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
14. Accounting for certain investments in debt and equity securities
The gross unrealized holding gains (losses) and fair value for
available-for-sale securities were as follows (in thousands): Gross unrealized
holding
cost gains (losses) fair value
- -------------------------------------------------------------------------------
Available-for-sale equity securities:
December 31, 1999 $ 502 $ 6 $ (61) $ 447
- -------------------------------------------------------------------------------
December 31, 1998 $ 2,195 $2,183 $ (485) $ 3,893
- -------------------------------------------------------------------------------
December 31, 1997 $ 2,393 9,641 $ $ 12,034
- -------------------------------------------------------------------------------
Differences between cost and market of $(58,000), $937,000 and $6,630,000, net
of taxes at December 31, 1999, 1998 and 1997, respectively, were credited to a
separate component of shareholders' equity called Accumulated other
comprehensive income (loss).
<PAGE>
15. Restructuring
During 1999, the Company adopted restructuring plans which primarily
relate to its Information Technology (IT) Business segment. The Company has
taken the steps in order to change the focus of the IT group from open
enrollment information technology training courses to project oriented work for
corporations, which is consistent with the focus of 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 has terminated approximately 156 employees.
In connection with the restructuring, the Company has recorded a
restructuring charge of $7,374,000. During the year ended December 31, 1999, the
Company expended $2,754,000. Of the remaining unexpended amount at December 31,
1999, $1,884,000 is included in Accounts payable and accrued expenses and
$2,736,000 is included in Other non-current liabilities in the Consolidated
Balance Sheet. The components of the restructuring charge are as follows (in
thousands):
<TABLE>
<CAPTION>
Severance Present Value Other facility
and related of future lease related
benefits costs costs Total
----------- --------------- --------------- -------
<S> <C> <C> <C> <C>
Initial balance $ 1,555 $ 5,237 $ 582 $ 7,374
Utilization 1,266 1,031 457 2,754
-------- ------- --------- --------
Balance at
December 31, 1999 $ 289 $ 4,206 $ 125 $ 4,620
======== ======= ======== =======
</TABLE>
Remaining amounts that have been accrued for severance and related
benefits will be expended by March 31, 2000. The present value of future lease
obligations is net of assumed sublets. Other facility-related costs will be
expended through the remainder of 2000.
In connection with the restructuring, the Company has incurred
write-offs of inventory and other assets related to certain revenue producing
activities which are being exited as part of the restructuring ($3,984,000),
which are included in Cost of sales in the Consolidated Statement of Operations.
In addition, GP has incurred charges related to write-offs of assets related to
certain revenue producing activities which are being exited as a result of the
restructuring ($4,437,000), which are included in Selling, general and
administrative expenses in the Consolidated Statement of Operations.
<PAGE>
16. Related party transactions
(a) At December 31, 1999 and 1998, the Company had loans receivable from an
officer who is the President and Chief Executive Officer and a director of the
Company in the amount of approximately $2,817,000 and $1,742,000, respectively.
The officer primarily utilized the proceeds of such loans to exercise options to
purchase an aggregate of 408,512 shares of Class B Capital Stock. During the
first quarter of 2000, the Company made additional loans to such officer in the
amount of approximately $1,280,000 to purchase an aggregate of 150,000 shares of
Class B Capital Stock. Such loans bear interest at the prime rate of Fleet Bank
and are secured by the purchased Class B Capital Stock and certain other assets.
All the loans, and accrued interest are due on May 31, 2004. In addition, in
prior years, the Company made unsecured loans to such officer in the amount of
approximately $480,000, which unsecured loans primarily bear interest at the
prime rate of Fleet Bank.
During the first quarter of 1999, the Company purchased 43,593 shares
of Common Stock from such officer for a purchase price of approximately
$828,000. The officer utilized the proceeds from such sale to reduce his
outstanding indebtedness to the Company and the Company retired such 43,593
shares as treasury stock.
(b) In December 1998 the Company incurred a $1,500,000 expense (consisting of
cash and common stock) in connection with a termination agreement between the
Company and a senior executive officer. This amount is included in Selling,
general and administrative expense in the accompanying Consolidated Statement of
Operations.
17. Commitments and contingencies
(a) The Company has several noncancellable leases for real property, machinery
and equipment and certain manufacturing facilities. Such leases expire at
various dates with, in some cases, options to extend their terms. Lease
commitments related to facilities closed as part of the restructuring (see Note
15) are not included below.
Minimum rentals under long-term operating leases are as follows (in thousands):
Real Machinery &
property equipment Total
- ----------------------------------------------------------------------------
2000 $ 8,709 $ 1,477 $10,186
2001 7,720 646 8,366
2002 6,880 339 7,219
2003 4,122 105 4,227
2004 3,040 17 3,057
After 2004 15,250 15,250
- -----------------------------------------------------------------------------
Total $45,721 $ 2,584 $48,305
- -----------------------------------------------------------------------------
<PAGE>
17. Commitments and contingencies (Continued)
Several of the leases contain provisions for rent escalation based primarily on
increases in real estate taxes and operating costs incurred by the lessor. Rent
expense for real and personal property was approximately $12,842,000,
$10,943,000 and $7,603,000 for 1999, 1998 and 1997, respectively.
(b) Options were issued in 1994 and prior to certain officers of Duratek and the
Company for the purchase of Duratek common stock owned by the Company at prices
ranging from $1.75 to $3.50 per share. At December 31, 1999, 49,000 options are
outstanding and exercisable. These options expire through 2001.
(c) The Company had guaranteed $1,800,000 of GSES' debt pursuant to its credit
facility in return for warrants to purchase 150,000 shares of GSES common stock
which expire August 17, 2003 at an exercise price of $2.38 per share. On March
23, 2000, GSES terminated its old credit facility and obtained a new credit
facility. The Company received an additional 150,000 shares of GSES common stock
which expire on March 23, 2005 at an exercise price of $7.50 per share in
consideration of continuing its guarantee of a maximum of $1,800,000 through
March 2003.
(d) The Company has guaranteed the leases for two of Five Star's warehouses
totaling approximately $1,288,000 per year through 2007.
(e) The Company is party to several lawsuits and claims incidental to its
business, including claims regarding environmental matters, one of which is in
the early stages of investigation. Management believes that the ultimate
liability, if any, will not have a material adverse effect on the Company's
consolidated financial statements.
18. Subsequent events
(a) 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., pursuant to which holders of outstanding
shares of the Company would have received $13.75 per share, payable in cash.
VS&A had informed the Company that it believed that the Company suffered a
material adverse change in the fourth quarter of 1999 and that the conditions to
VS&A's obligation to consummate the merger contemplated by the merger agreement
therefore may not be fulfilled. VS&A also said that it did not intend to waive
the conditions to its obligation. Since certain members of the Company's
management were participating in the proposed VS&A merger, the Special
Negotiating Committee of the Board of Directors, which evaluated and recommended
the proposed VS&A merger, was empowered to consider the Company's options.
<PAGE>
18. Subsequent events (Continued)
The Committee and its advisors attempted to negotiate an alternative transaction
with VS&A, but were unable to do so on acceptable terms. The Committee also
determined that prompt action was necessary to preserve value for the Company's
stockholders and that it would be imprudent to continue with the proposed VS&A
merger given that there would be no assurance that VS&A would have an obligation
to close. Therefore, the Committee unanimously recommended that the proposed
VS&A merger be terminated. The Board of Directors agreed that this was the best
course of action for the Company's stockholders, and believed that this early
termination enabled senior management and the Board of Directors to focus their
efforts on improving core operations, as well as continuing sales of non-core
assets.
To induce VS&A to agree to the immediate termination of the merger agreement and
to give the Company a general release, on February 11, 2000, the Company issued
to VS&A, as partial reimbursement of the expenses incurred by it in connection
with the merger agreement, 83,333 shares of the Company's Common Stock and an
18-month warrant to purchase 83,333 shares of the Company's Common Stock at a
price of $6.00 per share. The consideration was valued at $686,000, and is
included in Selling, General and administrative expenses in the December 31,
1999 consolidated statement of operations.
(b) On February 11, 2000, an affiliate of Andersen, Weinroth & Co.,
L.P.("Andersen Weinroth") purchased 200,000 shares of the Company's Class B
Capital Stock for $6.00 per share pursuant to a subscription agreement for an
aggregate cost of $1,200,000. In addition, G. Chris Andersen joined the Board of
Directors of the Company. Mr. Andersen is a general partner of Andersen
Weinroth.
<PAGE>
<TABLE>
GP Strategies Supplementary Data
Corporation
and Subsidiaries
SELECTED QUARTERLY FINANCIAL DATA
(unaudited) (in thousands, except per share data)
- ------------------------------------------------------------------------------------------------
three months ended
- ----------------------------------------------------------------------------------------------
<CAPTION>
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1999 1999 1999 1999 1998 1998 1998 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $65,929 $56,766 $53,258 $48,857 $62,859 $70,910 $86,182 $64,731
Gross margin 9,857 4,914 7,236 4,372 9,465 10,663 11,510 10,355
Net income (loss) 2,612 (10,181) (1,822) (12,814) 1,791 2,263 (6,566) 451
Net income (loss)
per share:
Basic .23 (.90) (.16) (1.12) .17 .21 (.60) .04
Diluted .21 (.90) (.16) (1.12) .15 .18 (.60) .04
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
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.
<PAGE>
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 31
Financial Statements:
Consolidated Balance Sheets -
December 31, 1999 and 1998 32
Consolidated Statements of Operations -
Years ended December 31, 1999, 1998 and 1997 34
Consolidated Statements of Changes in Stockholders' Equity -
Years ended December 31, 1999, 1998 and 1997 35
Consolidated Statements of Cash Flows -
Years ended December 31, 1999, 1998 and 1997 37
Notes to Consolidated Financial Statements 39
(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) On October 7, 1999, the Registrant filed a Report on Form 8-K with
respect to the Agreement and Plan of Merger, dated as of October 6, 1999,
by and among the Registrant, VS&A Comunications Partners III, L.P.,
VS&A-GP, L.L.C. and VS&A-GP Acquisition, Inc.
* Filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
GP STRATEGIES CORPORATION
Jerome I. Feldman
President and Chief
Executive Officer
Dated: April 14, 2000
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signatures Title
Jerome I. Feldman President, Chief Executive
Officer and Director
(Principal Executive Officer)
Scott N. Greenberg Vice President and Chief
Financial Officer and Director
Ogden R. Reid Director
John C. McAuliffe Director
Sheldon L. Glashow Director
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
<TABLE>
SCHEDULE II
Valuation and qualifying accounts (in thousands)
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs & End of
of Period Expenses Deductions(a) Period
Year ended December 31, 1999:
<S> <C> <C> <C> <C>
Allowance for doubtful accounts (b) $ 1,733 $ 2,630 $(1,458) $ 2,905
Year ended December 31, 1998:
Allowance for doubtful accounts (b) $ 2,782 $ 879 $(1,928) $ 1,733
Year ended December 31, 1997:
Allowance for doubtful accounts (b) $ 2,155 $ 1,608 $ (981) $ 2,782
</TABLE>
(a) Write-off of uncollectible accounts, net of recoveries and sale of certain
assets.
(b) Deducted from related asset on Balance Sheet.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GP Strategies Corporation
Under date of March 28, 2000, except as to the third paragraph of Note 5 which
is as of April 12, 2000, we reported on the consolidated balance sheets of GP
Strategies Corporation and subsidiaries as of December 31, 1999 and 1998, 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, 1999, as contained in the Annual Report on Form 10-K for the year
ended 1999. 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 27, 2000, except as to
the third paragraph of Note 5
which is as of April 12, 2000.
<PAGE>
The following is a list of all exhibits filed as part of this Report.
SEQUENTIAL EXHIBIT NO. DOCUMENT PAGE NO.
3.1 Amendment to the Registrant's Restated
Certificate of Incorporation filed on March
5, 1998. Incorporated herein by reference to
Exhibit 3.1 of the Registrant's Form 10-K for
the year ended December 31, 1998.
3.2 Amended and Restated By-Laws of the
Registrant. Incorporated herein by
reference to Exhibit 1 of the Registrant's
Form 8-K filed on September 1, 1999.
10.1 1973 Non-Qualified Stock Option Plan of the
Registrant, as amended on October 6, 1999*.
10.2 Employment Agreement, dated as of June 1,
1999, between the Registrant and Jerome I.
Feldman. Incorporated herein by reference
to Exhibit 10 of the Registrant's Form 10-Q
for the second quarter ended June 30, 1999.
10.3 Employment Agreement, dated as of July 1,
1999, between the Registrant and Scott N.
Greenberg. Incorpo-rated herein by
reference to Exhibit 10.1 of the
Registrant's Form 10-Q for the third
quarter ended September 30, 1999
10.4 Employment Agreement, dated as of July 1,
1999, between the General Physics
Corporation and John C. McAuliffe.
Incorporated herein by reference to Exhibit
10.2 of the Registrant's Form 10-Q for the
third quarter ended September 30, 1999
<PAGE>
10.5 Agreement and Plan of Merger, dated as of
October 6, 1999, by and among the
Registrant, VS&A Communications Partners
III, L.P., VS&A-GP, L.L.C., and VS&A-GP
Acquisition, Inc. Incorporated herein by
reference to Exhibit 10 of the Registrant's
Form 8-K filed on October 7, 1999
10.6 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.
10.7 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.
10.8 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.
<PAGE>
10.9 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.
10.10 Credit Agreement dated as of June 15, 1998,
by an among the Registrant, General Physics
Canada Ltd., Key Bank, N.A., Mellon
Financial Services Corporation, Summit
Bank, The Dime Savings Bank of New York,
FSB, and Fleet Bank, National Association,
as Agent, as Issuing Bank and as Arranger.
Incorporated herein by reference to the
Registrant's Form 8-K dated June 29, 1998.
10.11 Commitment Letter dated April 12, 2000 by
an among the Registrant, General Physics
Canada Ltd., Key Bank, N.A., Mellon
Financial Services Corporation, Summit
Bank, The Dime Savings Bank of New York,
FSB, and Fleet Bank, National Association,
as Agent, as Issuing Bank and as Arranger.*
<PAGE>
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 Asset Purchase Agreement dated as of August
31, 1998, between American Drug Company and
Five Star Group, Inc. Incorporated herein
by reference to Exhibit 10 to American Drug
Company's Form 8-K dated September 15, 1998.
10.14 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.
10.15 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.
<PAGE>
10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 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.
<PAGE>
10.21 Stockholders Agreement dated February 11,
2000, among the Registrant, Andersen
Weinroth & Co., L.P. and Jerome I.
Feldman. Incorporated herein by reference
to Exhibit 16 of Jerome I. Feldman's
Amendment No. 5 to Schedule 13D filed on
February 23, 2000
18 Not Applicable
19 Not Applicable
20 Not Applicable
21 Subsidiaries of the Registrant*
22 Not Applicable
23 Consent of KPMG LLP, Independent Auditors*
27 Financial Data Schedule*
28 Not Applicable
* Filed herewith.
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction
Of
Name Incorporation
General Physics Corporation Delaware
SGLG, Inc.* Delaware
MXL Industries, Inc. Delaware
*Less than 100% owned by the Registrant
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
GP STRATEGIES CORPORATION
We consent to incorporation by reference in the Registration Statements (No.
333-20815) and (No. 33-54407) on Form S-3 and the Registration Statement (No.
33-26261) on Form S-8 of GP Strategies Corporation and subsidiaries of our
report dated March 27, 2000, except as to the third paragraph of Note 5 which is
as of April 12, 2000 relating to the consolidated balance sheets of GP
Strategies Corporation as of December 31, 1999 and 1998 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, 1999,
which report appears in Form 10-K for the year ended December 31, 1999 of GP
Strategies Corporation.
KPMG LLP
New York, New York
April 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000070415
<NAME> GP STRATEGIES CORPORATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,068,000
<SECURITIES> 0
<RECEIVABLES> 58,290,000
<ALLOWANCES> 2,905,000
<INVENTORY> 1,888,000
<CURRENT-ASSETS> 79,432,000
<PP&E> 44,857,000
<DEPRECIATION> 31,199,000
<TOTAL-ASSETS> 197,118,000
<CURRENT-LIABILITIES> 79,578,000
<BONDS> 14,822,000
0
0
<COMMON> 115,000
<OTHER-SE> 99,862,000
<TOTAL-LIABILITY-AND-EQUITY> 197,118,000
<SALES> 224,810,000
<TOTAL-REVENUES> 224,810,000
<CGS> 198,431,000
<TOTAL-COSTS> (36,953,000)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,922,000)
<INCOME-PRETAX> (21,293,000)
<INCOME-TAX> (912,000)
<INCOME-CONTINUING> (22,205,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,205,000)
<EPS-BASIC> (1.95)
<EPS-DILUTED> (1.95)
</TABLE>
Exhibit 10.1
1973 NON-QUALIFIED STOCK OPTION PLAN
OF
GP STRATEGIES CORPORATION
AS AMENDED
The purpose of the Plan is to aid GP Strategies Corporation (the
"Corporation") and its subsidiaries in attracting, retaining and motivating key
employees, directors and consultants
1. Administration
The Plan shall be administered by a Stock Option Committee (the
"Committee"), consisting of not less than two directors of the Corporation who
shall be appointed by, and serve at the pleasure of, the Board of Directors.
Subject to the provisions of the Plan, the Committee shall have full authority
to interpret the Plan, to establish and amend the rules and regulations relating
to it, and to make all other determinations necessary or advisable for its
administration.
2. Maximum Number of Shares; Source of Shares
Subject to the provisions of Section 6 hereof, the maximum number
of shares of the Corporation's $.01 par value Common Stock ("Common Stock")
which may be purchased pursuant to options granted under the Plan shall be Three
Million Seven Hundred and Thirty Seven Thousand, Five Hundred and Fifteen
(3,737,515). Such shares may be authorized and unissued shares, or issued shares
held in the Treasury of the Corporation, including issued shares reacquired by
the Corporation.
3. Participants; Grant of Options
(a) Participants and Grants. From time to time the Committee
shall, in its sole discretion, select the key employees of the Corporation or
its subsidiaries who shall be granted options under the Plan. The term
"employee," when used herein shall include, without limitation, officers,
directors and consultants. Upon making such selection, the Committee shall grant
to each such participant an option to purchase such number of shares of Common
Stock as may be determined by the Committee. In the absence of any specific
agreements to the contrary, no grant hereunder to a participant shall affect the
right of the Corporation or its subsidiaries to terminate the participant's
employment at any time, if the employee is an employee of the Corporation or a
subsidiary.
(b) Stock Option Agreement
(l) The grant of options by the Committee to any participant
shall be effective as of the date on which the Committee shall authorize the
option for such participant, but prior to the exercise thereof, such participant
shall be required to execute and deliver a Stock Option Agreement (the
"Agreement"), which shall contain such terms and conditions consistent with the
Plan as the Committee shall determine.
(2) The Committee may, in its sole discretion, require that
any employee receiving options hereunder (the "Optionee") shall, upon the
granting of options, agree that as a condition to his acquiring shares
thereunder he will remain in the employ of the Corporation and render to the
Corporation or its Subsidiaries his services for a period not to exceed one
year. Such agreement may require that the period of required services be
measures from the date of grant of the options, from the date such options are
exercised, or may require services during periods, each not to exceed one year,
measured from both the date of grant and the date of exercise of the options
granted hereunder.
(3) In any case in which required services are to be rendered
after the date of exercise of any options granted hereunder, the Corporation,
subject to the terms of this Plan, will promptly issue a certificate or
certificates for purchased shares out of either: (i) authorized but unissued
shares; or (ii) shares of its Common Stock held in the Treasury of the
Corporation, provided, however, that the Optionee shall agree to the deposit of
such shares with an escrow agent acceptable to the Corporation for the period
during which he is required, pursuant to this Plan, to render additional
services. The employee shall have all the rights of a shareholder with respect
to such shares from the time they are issued. The escrow agreement shall require
the payment to the Corporation of such amount as the Corporation shall determine
is required to be deposited, or otherwise paid over, to satisfy any withholding
liability which may be imposed upon the Corporation, including any withholding
liability which may arise by reason of the failure of the Corporation to
exercise any right it may have pursuant to Paragraph 4 of this Section 3(b).
(4) In the event that the Optionee fails to satisfy any
required period of service which he has agreed to perform, the Corporation shall
have the right to reacquire the shares deposited in escrow, pursuant to
sub-paragraph 3 of this Section 3(b), by notifying the escrow agent of such
intention and tendering, in cash or certified check, an amount equal to: (i) the
number of shares the Corporation desires to reacquire; multiplied by (ii) the
option price per share set forth in the Agreement. Such payment is to be made
within 90 days of the delivery of the notice described herein.
(5) In granting non-qualified options under the Plan to
eligible persons who hold outstanding stock options, issued by the Corporation
of any of its subsidiaries, the Committee, in its sole discretion, may condition
the grant of such non-qualified options under the Optionee's consent to the
cancellation of all or a portion of such other outstanding options.
4. Option
(a) Option Price. The option price per share of each option
granted pursuant to the Plan shall be specified in the Agreement relating to
such option, and shall be not less than 85% of the market value of Common Stock
on the date the option is granted, provided, however, in no event shall the
option price per share be less than the par value thereof.
(b) Option Period. The period during which an option may be
exercised shall not exceed fifteen years from the date such option is granted
and, subject to the foregoing, the Committee may provide that any stock option
may be exercised at such time or times as the Committee may, in its discretion,
determine.
(c) Payment for Stock. An option shall be exercised by written
notice of such exercise to either the Secretary or Treasurer of the Corporation
at its principal office. The notice shall specify the number of shares for which
the option is being exercised (which number shall be not less than twenty-five
shares at any one time) and shall be accompanied by payment in full of the
purchase price of such shares. No certificates for shares so purchased shall be
issued until full payment therefor has been made and a participant shall have
none of the rights of a stockholder with respect to such shares until such
certificates are in fact issued to such participant or to an escrow agent on
such participant's behalf. Payment of the purchase price may be made by cash,
check or in shares of Common Stock, all such shares having been held by the
Employee for at least six months. The shares of Common Stock will be valued
based on their market value, as defined in Section 8 of this Plan.
5. Exercise and Cancellation of Options Upon Termination of Employment or
Death
If an Optionee shall voluntarily or involuntarily leave the employ
of the Company or its subsidiaries, unless authorized by the Committee, the
option of such Optionee shall terminate forthwith, except that the Optionee
shall have until the end of the ninetieth day, following the cessation of
employment, and not longer, to exercise any unexercised option which he could
have exercised on the day on which he left the employ of the Company or its
subsidiaries; provided, however, that such exercise must be accomplished within
the term of such option. Notwithstanding the foregoing, if the cessation of
employment or service is due to retirement on or after attaining the age of 65
or to disability (to an extent and in a manner as shall be determined in each
case by the Committee in its sole discretion) or to death, the Optionee or the
representatives of the estate of the Optionee shall have the privilege of
exercising any options which the Optionee could have exercised at the time of
such retirement, disability, or death; provided, however, that such exercise
must be accomplished within the terms of such option, and within six months of
the Optionee's retirement, disability or death.
Nothing contained herein or in the options shall be construed to
confer on any employee any right to be continued in the employ of the Company or
derogate from any right of the Company to retire, request the resignation of or
discharge an employee or to lay off or require a leave of absence of such
employee (with or without pay), at any time, with or without cause.
6. Adjustment in Number of Shares
In the event of any subdivision or combination of the outstanding
shares of the Corporation's Common Stock, by reclassification or otherwise, or
in the event of the payment of a stock dividend, a capital reorganization, a
reclassification of shares, a consolidation or merger, the Board of Directors
shall make appropriate adjustment in the aggregate number of shares for which
grants may be made under this Plan. The Committee shall determine the
appropriate adjustment of the kind and number of shares subject to each
outstanding option, or the option price, or both, in the event of any of the
aforementioned changes in the outstanding Common Stock of the Corporation,
provided, however, that no adjustment of the option prices shall permit a
reduction in the option price per share to less than the par value thereof.
7. Non-Assignability
No options granted under the Plan shall be transferable, other
than by will or by the laws of descent and distribution, and then only to the
extent permitted by this Plan. During a participant's lifetime, options shall be
exercisable only by such participant (or in the event of his disability, by his
legal representative). Except to the extent otherwise provided by law, no
benefits under the Plan shall be subject to any legal process to levy upon, or
attach, for payment of any claim against any participant or beneficiary.
8. Definitions
As used herein, the term "subsidiary" shall have the same meaning
as "subsidiary corporation" has under Section 425(f) of the Code, "retirement"
means retirement as that word is used in the Corporation's Employees' Retirement
Plan, and "market value" when used in reference to Common Stock shall mean the
average sale price (as determined by the Committee) of such Common Stock on the
exchange, if any, where the Common Stock is traded, or if there is no other such
exchange, the average between the low-bid and high-asked prices on the date of
grant. For all purposes of the Plan, an approved leave of absence shall not
constitute interruption or termination of employment.
9. General Restrictions
The exercise of each stock option granted under the Plan shall be
subject to the condition that if at any time the Corporation shall determine, in
its sole discretion, that the satisfaction of withholding tax or other
withholding liabilities, or that the listing, registration or qualification of
any shares otherwise deliverable upon such exercise upon any securities exchange
or under any State or Federal law, or the consent or approval of any regulatory
body, is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares thereunder, then in any such
event such exercise shall not be effective unless such withholding, listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Corporation.
10. Amendment and Discontinuance
The Board of Directors at any time may terminate the Plan, or make
such changes in, or additions to the Plan as the Board of Directors, in its
discretion, deems advisable, provided, however, that subject to the provisions
of Section 6 hereof the Board of Directors may not, without further approval by
the holders of shares of the capital stock of the Corporation possessing a
majority of the voting power of such capital stock represented in person or by
proxy at a meeting of shareholders of the Corporation duly called for such
purpose, grant options to any person other than those eligible under Section 3
hereof. No termination or amendment of the Plan may, without consent of the
holders of existing options, materially affect their rights under such options.
11. Duration
Unless this Plan is sooner terminated, options may be granted
hereunder until June 27, 2013.
100699
Exhibit 10.11
FLEET BANK
April 12, 2000
GP Strategies Corporation
9 West 57th Street
Suite 4170
New York, New York 10019
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated as of June 15, 1998 and
amended as of July 21, 1998, December 31, 1998, May 7, 1999 and December 17,
1999, by and among GP Strategies Corporation, General Physics Canada Ltd., the
Lenders party thereto and Fleet Bank, National Association, as Agent, Issuing
Bank and Arranger (as so amended, the "Existing Credit Agreement"). Capitalized
terms appearing herein and not otherwise defined herein are use as defined in
the Existing Credit Agreement. You have advised the Agent that you desire to
amend the Existing Credit Agreement to restructure the credit facility
contemplated thereby and the Agent and the Lenders are willing to do so on the
terms and conditions hereinafter set forth.
The Agent and the Lenders are pleased to advise you of their commitment
to enter into an Amended and Restated Credit Agreement on the terms and
conditions set forth in the Term Sheet attached hereto as Exhibit A (the "Term
Sheet").
You agree to provide Fleet and the other Lenders, promptly upon
request, with all information reasonably deemed necessary by them to complete
successfully the Amended and Restated Credit Agreement.
You represent and warrant and covenant that (i) all information which
has been or is hereafter made available to the Agent and/or the Lenders by you
or any of your representatives in connection with the transactions contemplated
hereby is and will be complete and correct in all material respects with respect
to the matters such information purports to cover and does not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not materially
misleading in light of the circumstances under which such statements have been
or will be made and (ii) all financial projections that have been or are
hereafter prepared by you and made available to the Agent and/or the Lenders or
any other participants in the credit facilities contemplated by the Amended and
Restated Credit Agreement have been or will be prepared in good faith based upon
reasonable assumptions.
The terms and conditions of this commitment and undertaking may be
modified only by an agreement in writing signed by the Borrowers, the Required
Lenders and the Agent. This commitment and undertaking is subject to the
<PAGE>
preparation, execution and delivery of mutually acceptable loan documentation,
which would include an Amended and Restated Credit Agreement incorporating
substantially the terms and conditions outlined herein and in the Term Sheet.
Other than as set forth in the final paragraph of this letter, the Agent and the
Lenders may not terminate this commitment
The costs and expenses of the Agent (including, without limitation, the
reasonable fees and expenses of its counsel and other reasonable out-of-pocket
expenses) in connection with the preparation, execution and delivery of this
letter and the definitive financing agreements shall be for your account. You
further agree to indemnify and hold harmless the Agent and each director,
officer, employee and affiliate or control person thereof (each an "indemnified
person") from and against any and all actions, suits, proceedings (including any
investigations or inquiries), claims, losses, damages, liabilities or expenses
of any kind or nature whatsoever which may be incurred by or asserted against or
involve the Agent or any such indemnified person as a result of or arising out
of or in any way related to or resulting from this letter or any extension of
credit, and, upon demand, to pay and reimburse the Agent and each indemnified
person for any legal or other out-of-pocket expenses incurred in connection with
investigating, defending or preparing to defend any such action, suit,
proceeding (including any inquiry or investigation) or claim (whether or not the
Agent or any such person is a party to any action or proceeding out of which any
such expenses arise); provided, however, that you shall have no obligation to
indemnify any indemnified person against any loss, claim, damage, expense or
liability which resulted solely from the gross negligence or willful misconduct
of such indemnified person. Neither the Agent nor any of its affiliates shall be
responsible or liable to you for any other person or any damages which may be
alleged as a result of this letter.
By executing this letter, you acknowledge that this letter is the only
agreement among you, the Agent and Lenders with respect to the amended credit
facilities and sets forth the entire understanding of the parties with respect
thereto. Neither this letter nor the Term Sheet may be changed except pursuant
to a writing signed by each of the parties hereto.
Your obligations under this letter with respect to fees,
indemnification, costs and expenses (as set forth in the Term Sheet), and
confidentiality shall survive the expiration or termination of this letter.
This letter shall not be assignable by you without the prior written
consent of the Agent. The Agent may assign all or any portion of its obligations
hereunder to its affiliates. This letter may be executed in any number of
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one agreement. This letter shall be governed by, and
construed in accordance with, the laws of the State of New York.
If you are in agreement with the foregoing, please sign and return to
the Agent the enclosed copy of this letter no later than 5:00 P.M., New York
<PAGE>
time, on April 14, 2000. This offer shall terminate at such time unless prior
thereto we shall have received duly signed and completed copies of such letters.
We look forward to working with you on this transaction.
Very truly yours,
FLEET BANK, NATIONAL ASSOCIATION,
Individually, as Issuing Bank and
as Agent
By:___________________________
Name: David T. Sunderwirth
Title: Vice President
KEYBANK, NATIONAL ASSOCIATION
By:___________________________
Name: Brendan Sachtjen
Title: Senior Vice President
MELLON FINANCIAL SERVICES CORPORATION
Attorney-in-Fact for Mellon Bank, N.A.
By:___________________________
Name: Christine Dekajlo
Title: Vice President
SUMMIT BANK
By:___________________________
Name: Karen D. Budniak
Title: Vice President
THE DIME SAVING BANK OF
NEW YORK, FSB
By:___________________________
Name: Michael T. Brolly
Title: Vice President
<PAGE>
Accepted and agreed to as of the date first above written:
GP STRATEGIES CORPORATION
By:________________________________
Name: Scott Greenberg
Title: Chief Financial Officer
GENERAL PHYSICS CANADA LTD.
By:________________________________
Name: Scott Greenberg
Title:
<PAGE>
EXHIBIT A
AMENDED AND RESTATED CREDIT AGREEMENT
TERM SHEET OF PROPOSED CHANGES
[THIS TERM SHEET ADDRESSES PROPOSED CHANGES TO THE JUNE 15, 1998 CREDIT
AGREEMENT (AS AMENDED). IT IS CONTEMPLATED THAT EXCEPT AS INDICATED IN
THIS TERM SHEET, THE TERMS AND CONDITIONS PROVIDED IN THE EXISTING CREDIT
AGREEMENT WOULD REMAIN UNCHANGED.]
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Borrowers: GP Strategies Corporation ("Strategies") and
General Physics Canada Ltd. ("Physics").
Guarantors: Same as existing except GP Environmental
Services is no longer a Guarantor since it is
no longer a subsidiary.
Administrative
Agent: Fleet Bank, N.A. (individually, "Fleet").
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Revolving Credit Facility:
Subject to the Borrowing Base limitations
herein provided, the maximum amount at any
time outstanding ("Maximum RC Commitment")
under the Revolving Credit Facility (the
"Revolving Facility") shall be reduced to
$50,000,000. The reduced facility amount shall
be allocated to each Lender according to their
existing commitment percentages. All advances
will be made by the Lenders ratably in
proportion to their respective existing
commitment percentages.
Applicable Margin and
Applicable Fee Percentage
The Applicable Margin and Applicable Fee
Percentage shall each be replaced, subject to
adjustment only as hereinbelow provided (or as
required to be adjusted in the case of an Event
of Default), with the percentage 2.75% in the
case of the Applicable Margin for Revolving
Facility Eurodollar Advances, 1.25% in the case
of the Applicable Margin for Revolving Facility
ABR Advances, 2.75% in the case of the
Applicable Percentage for standby letters of
credit and .50% in the case of the Applicable
Percentage for the commitment fee. The interest
rate applicable to term loan ABR Advances shall
be 1.25% per annum above the Alternate Base
Rate and the interest rate applicable to term
loan Eurodollar Advances shall be 2.75% above
the Eurodollar Rate. The interest rate
applicable to the term loans shall not be
subject to further adjustment other than in the
case of an Event of Default.
If at the end of any fiscal quarter there is
not Minimum Excess Availability, each of the
rates set forth above for the Revolving
Facility applicable to loans and standby
letters of credit shall immediately increase,
on a cumulative basis, by .25% from the rate
that was theretofore in effect, provided, that,
if at the end of any subsequent fiscal quarter
<PAGE>
there is such Minimum Excess Availability, each
of such interest rates applicable to loans and
standby letters of credit for the Revolving
Facility shall immediately decrease to the
initial rates and margins provided in the
immediately prior paragraph, subject to further
increase (in the manner heretofore provided) at
the end of each fiscal quarter thereafter if
there is not maintained Minimum Excess
Availability.
To the extent that there is Prompt Compliance,
each of the foregoing interest rates for the
Revolving Facility applicable to loans and
standby letters of credit shall decrease by
.25%, which rates shall be maintained as long
as there remains Minimum Excess Availability
(when and as required); provided, that, if at
any time Minimum Excess Availability is not so
maintained, each of such interest rates shall
be immediately increased to 3.00% per annum,
subject to further increase or decrease, as the
case may be, in the manner hereinabove
provided, at the end of each fiscal quarter
thereafter as a result of adjustments due to
the Minimum Excess Availability requirements.
Amendment Fee: .25% of each Lender's reduced commitment amount
plus .25% of each Lender's outstanding term
loans.
Security: Collateral will not change except (i)
Assignments of Government Contracts will be
fully perfected and formalized, (ii) a first
priority perfected security interest granted
to Fleet, as agent for the ratable benefit of
the Lenders, in all securities owned by
Strategies and/or its subsidiaries and (iii)
a first mortgage in favor of Fleet, as agent
for the ratable benefit of the Lenders, in
all real property owned by MXL Industries,Inc.
to secure the existing guarantee of MXL
Industries, Inc, which mortgage shall not be
recorded unless, with respect to each such
property, a sale/leaseback for such property
is not consummated on or before August 31,2000.
Reporting
Requirements: Separate monthly internally prepared financial
statements of General Physics Corporation
(United States), General Physics Canada Ltd and
General Physics Corporation (UK) Limited and a
monthly detailed aging and Borrowing Base
certificate for all accounts included in the
Borrowing Base in a format satisfactory to the
Agent.
Borrowing Base: The aggregate exposure (loans and letters
of credit) outstanding under the Revolving
Facility shall not exceed the lesser of (i) the
Maximum RC Commitment (as reduced) or (ii) the
Borrowing Base, as then in effect.
<PAGE>
Additional Acquisitions: Availability for further acquisitions will
henceforth be prohibited.
Mandatory Prepayment
Due to Exceeding
Limitations: If at any time the aggregate amount of
outstanding loans and Letters of Credit under
the Revolving Facility exceeds (i) the Maximum
Commitment (as reduced) or (ii) the Borrowing
Base, within five days of the first day there
exists such excess Strategies shall prepay the
outstanding loans in an amount sufficient to
eliminate such excess (or deposit cash
collateral for Letters of Credit if there
remains such excess and all such loans
outstanding have been prepaid).
Mandatory Prepayment
and Overadvance
Reduction from
Certain Sales: As long as the Overadvance Amount is
greater than zero, with respect to each Asset
Sale, the Required Reduction Amount will each
be applied to immediately reduce the
Overadvance Amount (and henceforth
availability) as herein provided and to the
extent that after reducing such Overadvance
Amount outstanding extensions of credit exceed
the Borrowing Base, mandatory prepayment of
the Revolving Facility shall be required.
At any time the Overadvance Amount is reduced
to zero, with respect to each Asset Sale, the
Required Reduction Amount shall at the option
of Strategies, be (i) held as cash collateral
for the Revolver Facility and the term loans
(but excluded from the Borrowing Base), or
(ii) applied against the outstanding balance
of the term loans.
Financial Covenants: Unless otherwise indicated, all covenants are
applicable to Strategies on a consolidated
basis.
a.) Total Funded Debt to EBITDA - covenant
will be deleted
b.) Minimum Net Worth - 90% of Strategies
Consolidated Net Worth for the fiscal year
ended December 31, 1999 (presently estimated
at $90,164,000) plus; (i) 80% of the
Strategies' Consolidated Net Income for each
fiscal quarter commencing March 31, 2000 and;
(ii) any increase in Consolidated Net Worth
resulting from any equity issuance by the
Borrower or any of its subsidiaries.
c.) Minimum Fixed Charge Coverage - (Quarterly
test during first three fiscal quarters of
fiscal year 2000, LTM thereafter) - as to the
fiscal quarters ending on the dates set forth
below, a proportion not less than that set
forth opposite such quarter:
Quarter Ratio
March 31, 2000 > 0.45 to 1.00
June 30, 2000 > 1.25 to 1.00
September 30, 2000 > 1.50 to 1.00
and thereafter
d.) Maximum Capital Expenditure Limit -
(no change)
e.) Minimum EBITDA - with respect to the fiscal
quarters ending on the dates set forth below,
an amount not less than the amount set forth
opposite such quarter:
Quarter Amount
March 31, 2000 $1,500,000
June 30, 2000 $3,500,000
September 30, 2000 $4,500,000
December 31, 2000 $5,000,000
and thereafter
<PAGE>
f.) Total Consolidated Liabilities to Tangible
Net Worth - as to the fiscal quarters ending on
the dates set forth below, a proportion not
greater than that set forth opposite such
quarter:
Quarter Ratio
March 31, 2000 4.75 to 1.00
June 30, 2000 4.50 to 1.00
September 30, 2000 3.75 to 1.00
December 31, 2000 3.25 to 1.00
March 30, 2001 and thereafter 3.10 to 1.00
Loans and Advances: Section 8.5 of the existing Credit Agreement
shall be revised to, among other things,
prohibit any further loans or advances to
employees and to prohibit any further loans
or advances under the existing $1,500,000
(the current basket for cashless Option
Loans (as defined in the amendments to
the existing Credit Agreement) shall remain.
Fees and Expenses The Borrowers shall pay all the fees and
expenses of the Bank, including without
limitation fees related to an
examination of the Borrowers' books and
records, filing, search and recording fees and
the fees and expenses of, Emmet, Marvin &
Martin, LLP, counsel to the Agent.
Definitions
Definitions will be supplemented and more fully provided in the Amendment to the
Credit Agreement, but generally will incorporate the following:
Accounts: Those accounts receivable arising out of the sale or lease of goods or
the rendition of services by Strategies, Physics, MXL Industries, Inc.
or General Physics Corporation (UK) Limited.
Accounts Receivable Borrowing Base: 80% of Eligible Accounts of from time to
time outstanding, plus the lesser of $3,500,000 or 80% of the Eligible Foreign
Accounts of Strategies, Physics, MXL Industries, Inc. and General Physics
Corporation (UK) Limited from time to time outstanding.
Asset Sales: In addition to those currently applicable under the existing Credit
Agreement (i) sales of property and assets of a Borrower or any of its
subsidiaries (excluding sales of inventory in the ordinary course of business),
(ii) any and all equity offering(s) of any Borrower, Guarantor, or any of their
respective subsidiaries, and (iii) the sale of any investment securities owned
by any Borrower or its subsidiaries with a fair market value in excess of
$100,000 with respect to all such sales in the aggregate.
Asset Sale Reduction: Any reduction(s) in the Overadvance Amount and
outstandings under the Revolving Facility as set forth in this Term Sheet under
"Mandatory Prepayment and Overadvance Reduction from Certain Sales."
Asset Sale Reduction Amount: The amount of the reduction(s), if any, in the
Overadvance Amount and outstandings under the Revolving Facility as set forth in
this Term Sheet under "Mandatory Prepayment and Overadvance Reduction from
Certain Sales."
Availability: At any time of determination, the difference between the Borrowing
Base at such time and the aggregate amount of the total outstanding exposure
(loans and letters of credit) under the Revolving Facility at such time.
Borrowing Base: (i) Accounts Receivable Borrowing Base; plus (ii) the Marketable
Securities Borrowing Base; plus (iii) the Overadvance Amount (as reduced from
time to time).
<PAGE>
EBITDA: EBITDA shall be amended to specifically exclude any and all on-going
cash payments associated with restructuring reserves and to clarify any other
ambiguities. Only cash gains from the sale of marketable securities may be
included and only up to a maximum of $3,000,000 per four quarters (on a rolling
four quarter basis) of such sales may be included.
Eligible Accounts: Accounts (i) which result from services rendered, (ii) which
are General Eligible Accounts, (iii) which are owed by account debtors located
within the United States of America, (iv) which are due and payable within 90
days from the original date of invoice, except with respect to Government
Assigned Receivables which shall be due and payable within 120 days from the
original date of invoice and (v) which do not remain unpaid for more than 30
days past the due date stated in the original invoice.
Eligible Foreign Accounts: Accounts (i) which are owed by account debtors
located outside of the United States of America, (ii) which are General Eligible
Accounts, (iii) which are due and payable within 90 days from the original date
of invoice and (iv) which do not remain unpaid for more than 30 days past the
due date stated in the original invoice.
Eligible Securities Collateral: The following types of marketable securities
that are subject to a first priority perfected security interest in favor of the
Agent for the benefit of the Lenders and for which there can be obtained a
publicly quoted fair market value: U.S. Treasury Obligations; Municipal Bonds;
stocks and bonds listed on the New York Stock Exchange; stocks and bonds listed
on NASDAQ; and over the counter listed stocks and bonds; provided, however, that
(a) no bond shall come within this definition of "Eligible Securities
Collateral" unless it is of investment grade; which shall mean such bond has a
BBB or better rating from Standard and Poors Corporation or a BAA or better
rating from Moody's Investment Services, Inc.; and (b) no stock shall come
within this definition of "Eligible Securities Collateral" (i) unless it is
publicly traded and has a publicly reported fair market value; (ii) if it is
stock of a financial institution or stock of a securities firm (the
determination of whether the applicable stock is stock of a financial
institution or a securities firm shall be in the sole discretion of the Bank)
and (iii) if all or any part of a Loan was made for the purpose of "purchasing"
or "carrying" any "margin stock" within the respective meanings of each of the
quoted terms under Regulation U of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect.
General Eligible Accounts: Accounts that have been validly assigned to Fleet as
Agent and in which Fleet, as Agent, has a first priority perfected security
interest and otherwise comply with all of the terms, conditions, warranties and
representations made to Fleet and the Lenders, but General Eligible Accounts
shall not include the following: (a) Accounts with respect to which the account
debtor is an officer, director, employee, or agent of Strategies or an affiliate
of Strategies; (b) Accounts with respect to which the sale is on an installment
sale, lease or other extended payment basis (c) all Accounts owing by any
account debtor if fifty percent (50%) or more of the Accounts due from such
account debtor are deemed not to be General Eligible Accounts hereunder; (d)
Accounts with respect to which the account debtor is a subsidiary of, affiliate
of, or has common officers or directors with Strategies; (e) Accounts with
respect to which Fleet, as Agent, does not for any reason have a perfected first
priority lien; (f) Accounts with respect to which Strategies is or may become
liable to the account debtor for goods sold or services rendered by the account
debtor to Strategies, to the extent of Strategies' existing or potential
liability to such account debtor; (g) Accounts with respect to which the account
debtor has disputed any liability, or the account debtor has made any claim with
respect to any other Account due to Strategies, or the Account is otherwise
subject to any right of setoff, deduction, breach of warranty or other defense,
dispute or counterclaim by the account debtor; (h) that portion of the Accounts
owed by any single account Debtor which exceeds twenty five percent (25%) of all
of the Accounts; (i) that portion of any Accounts representing late fees,
service charges or interest, but only to the extent of such portion; (j)
Accounts of an account debtor where the account debtor is located in Minnesota
or New Jersey unless the payee with respect to such account (1) with respect to
such state, has received a Certificate of Authority to do business and is in
good standing in such state, or (2) has filed a Notice of Business Activities
Report with the applicable state authority in such state, as applicable, for the
then current year; (k) Accounts owed by any account debtor which is insolvent or
is the subject of an insolvency proceeding; (l) that portion or any Accounts
represented by contract rights, documents, instruments, chattel paper or general
intangibles; (m) any and all Accounts of an account debtor whose
creditworthiness is not satisfactory to Fleet in its sole credit judgment based
on information available to Fleet; (n) Accounts that have been billed but are
<PAGE>
not yet earned and (o) Accounts with respect to which the account debtor is a
federal, state, local or foreign governmental authority unless such Accounts are
Government Assigned Receivables. References to percentages of all Accounts are
based on dollar amount of Accounts, and not number of Accounts.
Government Assigned Receivables: Accounts where the account debtor is the United
States of America or any department, agency or instrumentality of the Untied
States and for which Strategies, Physics, MXL Industries, Inc. and General
Physics Corporation (UK) Limited, as the case may be, has complied with the
Assignment of Claims Act of 1940, as amended (31 U.S.C. Section 203 et seq.).
Loan Value: Shall apply to only Eligible Securities Collateral, shall be
determined based on the publicly quoted fair market value of Eligible Securities
Collateral at the time of determination thereof and shall mean the percentages
indicated below for the applicable Eligible Securities Collateral based on such
publicly quoted fair market value:
Type Of Security Loan Value
U.S. Treasury Obligations with maturities of less than 1 year 95%
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U.S. Treasury Obligations with maturities of 1 year or more 90%
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Municipal Bonds 80%
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A1/P1 Commercial Paper 80%
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Bonds listed on the New York Stock Exchange 70%
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Bonds listed on the American Stock Exchange 70%
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Publicly Traded Stocks 50%
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Marketable Securities Borrowing Base: The Loan Value of Eligible Securities
Collateral.
Minimum Excess Availability: As at the last day of each fiscal quarter of
Strategies, Availability in an amount equal to the lesser of $3,000,000 or the
Overadvance Amount (as such Overadvance Amount is reduced from time to time).
Minimum Overadvance Reduction Amount: At any time of determination, an amount
such that after giving effect to all prior reductions in the Overadvance Amount
(whether as a result of any prior Asset Sale or as a result of a prior reduction
in the Basic Overadvance Amount), would result, with respect to the fiscal
quarters ending at the dates set forth below, in the Overadvance Amount being
not more than the amount set forth below opposite such fiscal quarter (if at any
time of determination, after giving effect to such prior reductions, the
Overadvance Amount already does not exceed the amount set forth below for such
time of determination, the Minimum Overadvance Reduction Amount shall be zero
(-0-) for such time of determination):
Quarter Ending Amount
June 30, 2000 $7,500,000
September 30, 2000 $5,000,000
December 31, 2000 $2,500,000
March 31, 2001 -0-
and thereafter
Overadvance Amount: The "Overadvance Amount" shall equal the amount advanced in
excess of the Accounts Receivable Borrowing Base and the Marketable Securities
Borrowing Base. The Overadvance Amount shall be automatically reduced at the end
of each fiscal quarter of Strategies and at the time of each Asset Sale
Reduction and in any event the Overadvance Amount shall not at any time exceed,
the Basic Overadvance Amount minus, in the case of each Asset Sale, the Asset
Sale Reduction Amount for such Asset Sale. "Basic Overadvance Amount" means, in
the case of the fiscal quarter ending March 31, 2000, whether at the end of or
during such fiscal quarter, [$10,000,000], which amount shall be the Basic
Overadvance Amount until June 30, 2000 at which time the Basic Overadvance
<PAGE>
Amount shall decrease by the Minimum Overadvance Reduction Amount, which reduced
amount shall be the new Basic Overadvance Amount until the last day of the
immediately following fiscal quarter, at which time and at the last day of each
subsequent fiscal quarter it shall again decrease by the Minimum Overadvance
Reduction Amount and be maintained accordingly, until the Basic Overadvance
Amount shall be zero (-0-). [THE $10,000,000 BEGINNING OVERADVANCE AMOUNT IS
PRESENTLY AN ESTIMATE AND MAY BE REVISED (WHICH MAY ALSO RESULT IN REVISIONS TO
THE MINIMUM OVERADVANCE REDUCTION AMOUNTS) UPON RECEIPT OF MORE CURRENT
BORROWING BASE INFORMATION FROM STRATEGIES AND ITS SUBSIDIARIES.]
Prompt Compliance: If at September 30, 2000 no Default or Event of Default then
exists and Strategies has maintained Minimum Excess Availability as of June 30,
2000 and September 30, 2000.
Required Reduction Amount: With respect to Asset Sales of assets sold that were
not included in the Borrowing Base, 75% of the Net Cash Proceeds (as defined in
the existing credit agreement), and with respect to Asset Sales of assets sold
that were included in the Borrowing Base, the amount equal to an amount that
when added to the amount of the reduction in the Borrowing Base (as a result of
the sold assets no longer being included in the Borrowing Base) equals 75% of
the total Net Cash Proceeds (as defined in the existing credit agreement) (for
the avoidance of doubt, the Required Reduction Amount is determined in
accordance with the following formula: x + reduction in Borrowing Base =
(.75)(Net Cash Proceeds)); provided, that, if same would result in a negative
number the Required Reduction Amount shall be deemed zero.
Total Consolidated Liabilities: Defined and determined in accordance with GAAP.
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Tangible Net Worth: Consolidated Net Worth as defined in the existing Credit
Agreement minus deferred charges, intangibles and treasury stock, all determined
in accordance with GAAP.
<PAGE>
Exhibit I - Sample Borrowing Base Calculation
December 31, 1999
I.) Accounts Receivable Borrowing Base at December 31, 1999:
GP US 31,361
GP UK 2,736
GP Canada 5,613
MXL 1,497
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Subtotal 41,207
LESS:
GP Canada (5,613)
Commercial Receivables over 90 days (7,881)
Government Receivables over 120 days (844)
Cross-aged amounts over 50% (1,621)
Amounts Billed but Unearned (11,643)
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Subtotal (27,602)
PLUS:
Earned but Unbilled 15,378
Eligible Accounts Receivable 28,983
Advance Rate 80%
Available Accounts Receivable Borrowing Base 23,186
II.) Marketable Securities Borrowing Base at March 8, 2000:
<TABLE>
<CAPTION>
(000) % 09/30/99 3/17/00 Current 50%
Asset Type shrs. Ownership BV (000) Stock Price MV (000) Advance Rate
- ---------- ----- --------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
GSE Systems 1,158 24% $6,083 $7.75 $8,974 $4,487
Avenue Entertainment 1,067 26% $558 $1.87 $1,995 $997
Five Star 4,882 37% $3,827 $0.34 $1,660 $830
Interferon Sciences 801 18% $321 $3.37 $2,699 $1,350
Available Marketable Securities Borrowing Base $7,664
</TABLE>
III.) Overadvance Amount: $10,000
IV.) Total Available Borrowing Base:
a.) Available Accounts Receivable Borrowing Base 23,186
b.) Available Marketable Securities Borrowing Base 7,664
c.) Overadvance Amount 10,000
Total Available Borrowing Base 40,850
