Gasporox Annual Report 2008

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FY2008 Annual Report · Gasporox

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Looking Ahead to the Next Fifty Years
Looking Ahead to the Next Fifty Years

2008 annual report

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GP strategies
GP strategies

at a Glance
at a Glance

Who we are
Who we are

A global performance improvement solutions provider of custom training,
e-Learning solutions, management consulting and engineering services

An industry leader in training business process outsourcing, power plant performance
engineering and design/construction of alternative fuel station facilities

Our clients include Fortune 500 companies and other commercial and government customers

Our Mission
Our Mission

We improve an organization’s performance and competitiveness through the effective
integration of people, processes and technologies. We accomplish this by providing innovative
training, engineering and consulting solutions in long-term partnerships with our customers.

financial highlights
financial highlights

$267.9

$248.4

$19.3*

$17.3

$178.8

$12.3

$0.67*

$0.56

$0.40

2006

2007

2008

2006

2007

2008

2006

2007

2008

Revenue
Revenue
(In millions)
(In millions)

Adjusted Operating Income *
Adjusted Operating Income *
(In millions)
(In millions)

Adjusted Earnings per Share *
Adjusted Earnings per Share *

OPERATING RESULTS (in thousands, except per share data amounts)
OPERATING RESULTS (in thousands, except per share data amounts)

Revenue
Gross profit
Operating income *
Net income *
Diluted earnings per share *
Weighted average shares outstanding - diluted

BALANCE SHEET SUMMARY (in thousands)
BALANCE SHEET SUMMARY (in thousands)

Cash and cash equivalents
Working capital
Total assets
Short-term borrowings and long-term debt
Total stockholders’ equity

2006
178,783
26,566
12,304
6,642
0.40
16,731

2006
8,660
23,142
121,400
10,926
79,731

2007
248,422
36,840
17,262
9,684
0.56
17,165

2007
3,868
18,080
147,445
11,000
90,382

20082008
267,893
267,893
38,830
38,830
19,271
19,271
11,142
11,142
0.670.67
16,638
16,638

20082008
3,961
3,961
22,849
22,849
135,840
135,840
3,234
3,234
92,806
92,806

* Excludes goodwill impairment loss of $5.5 million, or $0.20 per share, in 2008.
GAAP operating income was $13.8 million, GAAP net income was $7.8 million and GAAP earnings per share was $0.47 in 2008.

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GP Strategies Corporation 2008 Annual Report

to our

sh
shareholders

Douglas E. Sharp
President

Scott N. Greenberg
Chief Executive Officer

As we write this letter, GP Strategies is celebrating its 50 th anniversary.
We are proud of what GP Strategies has accomplished since 1959, and we look forward to reaching new heights in the next fifty years.

Despite the global economic recession and recent market turmoil, we achieved record financial results for the fiscal year ended December 31, 2008,
demonstrating our stability and recurring customer base. Although we face a challenging year ahead, we are excited and optimistic about the
long-term growth potential of our business and are committed to executing our business strategy.

Delivering Strong Financial Results

We achieved record financial results for the year ended December 31, 2008, including:

Revenue of $267.9 million, up $19.5 million, or 8%, compared to 2007 revenue of $248.4 million

Operating income of $19.3 million excluding goodwill impairment charge of $5.5 million, up $2.0 million, or 12%,
compared to 2007 operating income of $17.3 million

Adjusted earnings of $0.67 per diluted share after a goodwill impairment charge of $0.20 per share, up 20% compared to
2007 earnings of $0.56 per diluted share

Cash flow from operating activities of $24.0 million, up from $8.1 million in 2007

In current economic times, having a strong balance sheet is critical, and we’re pleased to report that ours is stronger than ever. We enter 2009 with
virtually no long-term debt obligations and access to a $35 million credit facility, under which we had only $3.2 million outstanding at the end of
2008 and no outstanding borrowings in March 2009. Our strong cash flow enabled us to make strategic acquisitions, repay our long-term debt and
repurchase $8.8 million of our stock in the open market during 2008. In addition, we reported $132 million of backlog going into 2009. Our solid
customer base, the quality of our services and our dedicated employees are the foundation of our strong financial position. Despite tough economic
conditions, we continued to derive significant recurring revenue from our top customers in 2008. Over 90% of our 2008 revenue was earned from
clients that existed in 2007, and our top 25 customers have continued to provide over 60% of our revenue for the last several years.

Succeeding in a Challenging Environment

In 2008, we faced unprecedented challenges that included a steep stock market decline and global economic downturn, but the impact to our 2008
financial results was remarkably light. However, during the fourth quarter of 2008, we began to see reduced spending by customers in certain end
markets, particularly in the manufacturing sector, including the automotive, steel and electronics and semiconductor industries. In addition, while
our European operations experienced significant organic growth in 2008, this growth was offset by unfavorable changes in currency exchange rates.
We anticipate these trends will continue in 2009 and may result in reduced revenue. We have implemented a cost-management strategy to ensure
that we remain competitive when the economy recovers. We believe strong customer retention and relationships will enable the Company to emerge
from the current downturn well positioned for growth.

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Seizing Opportunities for Growth

While we’re seeing some declines in certain areas of our business due to the recession, we’re also seeing some unique opportunities that could
positively impact the Company’s future. Four areas of demand that we believe will drive organic growth in the years ahead are as follows:

Energy Products and Services – Our performance engineering services help the world’s energy facilities run cleaner and more efficiently.
Our world-class EtaPROTM performance monitoring system has now been installed at over 600 power generating units in more than 25
countries, and we believe the market in this area has just begun to be tapped. There is an increasing demand for cleaner burning fuels to
reduce carbon footprint and greenhouse gas emissions, and our products and services are well suited to help power generation companies
with these initiatives. In addition, aging workforces have increased the demand for our services to train new employees to replace retiring
workers as well as prepare the workforce for new “green” technologies such as wind and solar power. Our workforce development practice
presently supports over 25,000 learners in over 30 countries using our industry-leading, web-based training application, GPiLearnTM.

Alternative Fuels – GP is among the world’s leaders in the design and construction of liquefied natural gas (LNG), liquefied to compressed
natural gas (LCNG) and hydrogen (H2) fuel stations. We’re a dominant player in the U.S. market and believe we have a strong competitive
advantage as demand for these stations continues to grow in support of U.S. initiatives to reduce greenhouse gas emissions, improve air
quality and reduce dependence on imported oil. These projects are supported by both public and private funds and driven by environmental
as well as long-term economic factors, making them less susceptible to changes in the price of oil. In 2008, we were awarded our largest
LNG contract to date, a $10 million contract with the City of Los Angeles for the design and construction of an LNG and LCNG fueling
station. We believe there is a huge potential for winning additional large projects as demand for alternative fuels increases.

Training Outsourcing – Today’s organizations are focusing on core competencies and reducing costs, so even while companies might be
spending less in this economic recession, they are outsourcing more services. As a result, we have the potential to continue to increase our
customer base. Although some of our existing customers are reducing their spending, they continue to retain us as a supplier of choice,
and we believe that we are well positioned to grow with these customers in the future. GP has been recognized by several industry trade
organizations as a top provider of outsourced training solutions, and we believe our experience and reputation in the industry will open
the door for more outsourcing opportunities.

Product Sales Training – The introduction of new products with advanced features, combined with the growing amount and accessibility
of information available to consumers, requires companies to maintain a highly skilled and technologically current sales force. Product
sales training tends to be a continuous process, as the pace of new products and features in many cases requires year-round updating of a
global sales force. Through our acquisitions in the last three years, we’ve built what we believe to be one of the industry’s leading product
sales training platforms with the ability to serve large, multinational customers.

Looking Ahead to the Next Fifty Years – Our Strategy for Stability and Growth

We will continue to strive to deliver long-term value to our shareholders by focusing on delivering value to our customers and executing our growth
strategy through:

Continuously improving our service offerings and capabilities
Developing and maintaining strong customer relationships and cross-selling our services and capabilities within our existing client base
Remaining competitive in the current economic environment through our cost-management strategy
Investing in our business by expanding and enhancing our product and service offerings
Leveraging our BPO capabilities to expand the customers and markets we serve
Growing our international presence to support existing—and attract new—multinational customers
Acquiring strategic targets to enhance our service offerings and delivery capabilities and expand our geographic footprint

In closing, and on behalf of the entire senior management team, we thank our customers for their continued trust and confidence in partnering with
us to meet their training and performance improvement needs. We also extend our gratitude to our valued shareholders, the Board of Directors and
our employees who have collectively embraced and contributed to the positive direction of the Company. The commitment to excellence our employees
demonstrate each day has been the foundation of success for the Company. It is their hard work and dedication that will continue to drive GP Strategies
in the years ahead.

Sincerely,

Scott N. Greenberg
Chief Executive Officer

Douglas E. Sharp
President

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(cid:58) Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the fiscal year ended December 31, 2008

(cid:134) Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the transition period from

Commission File Number 1-7234

GP STRATEGIES CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware
(State of Incorporation)

6095 Marshalee Drive, Suite 300, Elkridge, MD
(Address of principal executive offices)

(I.R.S. Employer Identification No.)

13-1926739

21075
(Zip Code)

(410) 379-3600
Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Common Stock, $.01 par value

Name of each exchange on which registered:

New York Stock Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:134) No (cid:58)

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes (cid:134) No (cid:58)

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 (cid:58) No (cid:134)

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. (cid:58)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.

Large accelerated filer (cid:134)

Accelerated filer (cid:58)

Non-accelerated filer (cid:134) Smaller reporting company (cid:134)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act). Yes (cid:134) No (cid:58)

The aggregate market value of the outstanding shares of the Registrant’s Common Stock, par value $.01 per share, held by non-affiliates as of
June 30, 2008 was approximately $158,510,000.

The number of shares outstanding of the registrant’s Common Stock as of February 27, 2009:

Class
Common Stock, par value $.01 per share

DOCUMENTS INCORPORATED BY REFERENCE

Outstanding

16,131,878 shares

Portions of the registrant’s definitive Proxy Statement for its 2009 Annual Meeting of Stockholders are incorporated herein by reference into
Part III hereof.

Table of Contents

PART I

Page

Cautionary Statement Regarding Forward-Looking Statements

Item 1. Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities

Item 6. Selected Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules

Signatures

Cautionary Statement Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Private Securities Litigation
Reform Act of 1995 provides a “safe harbor” for forward looking statements. Forward–looking statements are not
statements of historical facts, but rather reflect our current expectations concerning future events and results. We use
words such as “expects,” “intends,” “believes,” “may,” “will,” “should,” “could,” “anticipates,” “estimates,” “plans”
and similar expressions to indicate forward-looking statements, but their absence does not mean a statement is not
forward-looking. Because these forward-looking statements are based upon management’s expectations and
assumptions and are subject to risks and uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking statements, including, but not limited to,
those factors set forth under Item 1A - Risk Factors and those other risks and uncertainties detailed in our periodic
reports and registration statements filed with the Securities and Exchange Commission. We caution that these risk
factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors
emerge from time to time. We cannot predict these new risk factors, nor can we assess the effect, if any, of the new
risk factors on our business or the extent to which any factor or combination of factors may cause actual results to
differ from those expressed or implied by these forward-looking statements.

If any one or more of these expectations and assumptions proves incorrect, actual results will likely differ materially
from those contemplated by the forward-looking statements. Even if all of the foregoing assumptions and expectations
prove correct, actual results may still differ materially from those expressed in the forward-looking statements as a
result of factors we may not anticipate or that may be beyond our control. While we cannot assess the future impact
that any of these differences could have on our business, financial condition, results of operations and cash flows or
the market price of shares of our common stock, the differences could be significant. We do not undertake to update
any forward-looking statements made by us, whether as a result of new information, future events or otherwise. You
are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this
report.

Company Information Available on the Internet

Our internet address is www.gpworldwide.com. We make available free of charge through our internet site, our
annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K; and any amendment to
those reports filed or furnished pursuant to the Securities Exchange Act of 1934, (the “Exchange Act”) as soon as
reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange
Commission (“SEC”).

PART I

Item 1:

Business

Introduction

GP Strategies Corporation (“GP Strategies” or the “Company”) was incorporated in Delaware in 1959. The Company
is a New York Stock Exchange (“NYSE”) listed company traded under the symbol GPX. The Company’s business
consists of its training, engineering, technical services and consulting business operated by its subsidiary, General
Physics Corporation (“General Physics” or “GP”) which was established in 1966. General Physics is a workforce
development company that seeks to improve the effectiveness of organizations by providing training, management
consulting, e-Learning solutions, engineering and technical services that are customized to meet the specific needs of
clients. References in this report to “GP Strategies,” the “Company,” “we” and “our” are to GP Strategies and its
subsidiaries, collectively.

General Development of Business

During the first four decades of our existence, we were engaged in a broad array of businesses, ranging from optical
plastics to consulting services. In June 2003, we embarked upon a plan to spin off non-core businesses and focus upon
training, consulting, engineering and technical services. On November 24, 2004, we completed the tax-free spin-off of
National Patent Development Corporation (“NPDC”), which owned all of the stock of MXL Industries, Inc. (“MXL”),

an interest in Five Star Products, Inc. (“Five Star”), and certain other non-core assets. On September 30, 2005, we
completed a taxable spin-off of our 57% interest in GSE Systems, Inc. (“GSE”), a stand alone publicly-owned
company which provides simulation solutions and services to energy, process and manufacturing industries, through a
dividend to our stockholders. On January 19, 2006, we completed a restructuring of our capital stock, which included
the repurchase of 2,121,500 shares of our common stock at a price of $6.80 per share, the repurchase of 600,000
shares of our Class B capital stock (“Class B stock”) at a price of $8.30 per share, and the exchange of 600,000 shares
of our Class B stock into 600,000 shares of common stock for a cash premium of $1.50 per exchanged share. The
repurchase and exchange transactions had the effect of eliminating all outstanding shares of our Class B stock, which
had ten votes per share.

We then began building our custom training business through internal growth and the acquisition of several
complementary businesses. On February 3, 2006, General Physics, through its wholly owned subsidiary, General
Physics (UK) Ltd. (“GPUK”), completed the acquisition of Peters Management Consultancy Ltd. (“PMC”), a
performance improvement and sales training company in the United Kingdom. On January 23, 2007, General Physics
completed the acquisition of the business of Sandy Corporation (“Sandy”), a leader in custom product sales training
primarily in the U.S. automotive industry and previously part of the ADP Dealer Services division of ADP, Inc.
(“ADP”). Subsequently, on June 1, 2007, General Physics, through its GPUK subsidiary, completed the acquisition of
Smallpeice Enterprises Limited (“SEL”), a provider of business improvement and technical and management training
services in the United Kingdom. On October 1, 2007, General Physics acquired all of the outstanding membership
interests of Via Training, LLC (“Via”), a U.S. custom e-Learning sales training company. On March 1, 2008, General
Physics completed the acquisition of Performance Consulting Services, Inc. (“PCS”), an engineering and training
company serving the power generation industry.

Company Overview

We are a leading independent provider of customized training solutions focused on performance improvement
initiatives for our clients. We also provide consulting, engineering and technical services which enhance our
customized training capabilities and diversify our service offerings. We serve a large customer base across a broad
range of industries. We serve leading companies in the automotive, steel, oil and gas, power, chemical, electronics and
technology, healthcare and food and beverage industries, as well as government agencies. We have over four decades
of experience in developing solutions to optimize workforce performance by providing services and products to our
clients that assist them in successfully integrating their employees, processes and technology.

Our training services and products support existing, as well as the launch of new, plants, products, equipment,
technologies and processes. We offer a wide range of training business process outsourcing (“BPO”) services,
including design, delivery and global management of comprehensive learning programs, to national and multinational
businesses and government organizations and can deliver our services individually or as a complete, integrated
training solution. We have global execution capabilities and currently provide custom training services in more than
30 countries to many industry leaders, such as CIGNA Corporation, Cisco Systems, Eli Lilly, ExxonMobil, General
Motors, Microsoft, Toyota and United Technologies, as well as to government agencies including the U.S. Army. Our
experience allows us to leverage our expertise across a wide variety of customer end markets ranging from heavy
manufacturing such as automotive to the high tech bio-pharmaceutical industry. In 2008, for the fifth consecutive year,
Training Industry, Inc., an industry trade organization, selected us as one of the Top 20 Companies in Training
Outsourcing from among 400 companies. In addition, in 2008 Training Industry, Inc. selected us as one of the Top
Sales Training Companies from among 200 companies.

Our consulting, engineering, and technical support services range from traditional business consulting, including lean
enterprise consulting services, to specialized engineering and technical support services, such as design and evaluation
services regarding facilities, processes and systems. Our consulting and engineering customers typically operate in
technically complex industries such as oil and gas, power, chemical, aerospace, transportation and manufacturing
industries, and include customers such as The Boeing Company, General Dynamics Corporation, Shell Oil Company,
Mid-American Energy Company and Amerenue. We have a strong reputation for providing services for leading edge
and emerging technologies and believe we are a leader in the rapidly developing field of design and construction of
alternative fuel stations, including liquefied natural gas (“LNG”) fueling and hydrogen stations. In addition, our

consulting services support regulatory and environmental compliance, modification of facilities and processes and
plant performance improvement. We have a demonstrated track record of consulting and engineering performance.

Operating Segments

During the fourth quarter of 2008, we re-evaluated our reportable business segments under Statement of Financial
Accounting Standards (“SFAS”) No. 131, Disclosures about Segments of an Enterprise and Related Information
(“SFAS No. 131”) as a result of organizational and management reporting changes that were made primarily due to
the retirement of one of our executive officers in 2008. We determined that the former Process, Energy & Government
segment should be divided into two reportable segments. Prior to this change, we operated through three reportable
business segments. As of December 31, 2008, we operated through four reportable business segments: (i)
Manufacturing & BPO, (ii) Process & Government, (iii) Energy, and (iv) Sandy Training & Marketing (“Sandy”). In
addition, during the first quarter of 2008, we transferred the management responsibility for our automotive technical
training business unit from the Manufacturing & BPO segment to the Sandy segment. As a result of these changes, all
prior period segment information has been reclassified to conform to the current year’s presentation.

We are organized by operating group, primarily based upon the markets served by each group and the services
performed. Each operating group consists of strategic business units (“SBUs”) and business units (“BUs”) which are
focused on providing specific products and services to certain classes of customers or within targeted markets. Across
operating groups, SBUs and BUs, we integrate similar service lines, technology, information, work products, client
management and other resources. Communications and market research, accounting, finance, legal, human resources,
information systems and other administrative services are organized at the corporate level. Business development and
sales resources are aligned with operating groups to support existing customer accounts and new customer
development. Two of our reportable business segments, Manufacturing & BPO and Process & Government, represent
an aggregation of certain operating groups in accordance with the aggregation criteria in SFAS No. 131, while our
Energy and Sandy groups each represent one operating segment pursuant to SFAS No. 131. Further information
regarding each business segment is discussed below.

Manufacturing & BPO. Our Manufacturing & BPO segment delivers training, curriculum design and development,
staff augmentation, e-Learning services, system hosting, integration and help desk support, training business process
outsourcing, and consulting and technical services primarily to large companies in the electronics and semiconductors,
steel, healthcare, financial and other industries as well as to government agencies. Our October 2007 acquisition of Via
has expanded our delivery capabilities and diversified our core client base in the software, electronics and
semiconductors and retail markets. Our ability to deliver a wide range of training services allows us to take over the
entire learning function for the client, including their training personnel.

Process & Government. Our Process & Government segment has over four decades of experience providing
consulting, engineering, technical and training services, including emergency preparedness, safety and regulatory
compliance, chemical demilitarization and environmental services primarily to federal and state government agencies,
large government contractors and petroleum and chemical refining companies. This segment also provides design and
construction of alternative fuel stations, including LNG fueling and hydrogen stations.

Energy. Our Energy segment provides engineering services, products and training primarily to electric power utilities.
Our proprietary EtaProTM Performance Monitoring and Optimization System provides a suite of performance solutions
for power generation plants and is installed at over 600 power generating units in over 25 countries. In addition, this
segment provides web-based training through our GPiLearnTM portal to over 25,000 power plant personnel in the U.S.
and in over 30 countries. Our March 2008 acquisition of PCS strengthened and expanded our service offering to
clients in the power generation industry.

Sandy Training & Marketing. Acquired in January 2007, Sandy is a provider of custom product sales training and
has been a leader in serving manufacturing customers in the U.S. automotive industry for over 30 years. Sandy
provides custom product sales training designed to better educate customer sales forces with respect to new product
features and designs, in effect rapidly increasing the sales force knowledge base and enabling them to address detailed
customer queries. Furthermore, Sandy helps our clients assess their customer relationship management strategy,
measure performance against competitors and connect with their customers on a one-to-one basis. As mentioned

above, our automotive technical training business unit was transferred from the Manufacturing & BPO segment
to the Sandy segment during the first quarter of 2008.

Segment Financial Information

For financial information about our business segments and geographic operations and revenue, see Note 14 to the
accompanying Consolidated Financial Statements.

Services and Products

Our personnel bring a wide variety of professional, technical and military backgrounds together to create cost-effective
solutions for modern business and governmental challenges. Our primary service and product categories are discussed
in more detail below.

Custom Training, Sales Training and Performance Improvement. We provide custom training services and
products to support existing, as well as the launch of new, plants, products, equipment, technologies and processes.
The range of services includes fundamental analysis of a client’s training needs, curriculum design, instructional
material development (in hard copy, electronic/software or other format), information technology service support and
delivery of training. Training products include custom instructor and student training manuals, and instructional
materials suitable for web-based and blended learning solutions. Our instructional delivery capabilities include
traditional classroom, structured on-the-job training (OJT), just-in-time methods, computer-based, web-based, video-
based and the full spectrum of e-Learning technologies. Our e-Learning services enable us to function as a single-
source e-Learning solutions provider through our integration services and hosting, the development and provisioning
of proprietary content and the aggregation and distribution of third party content. In addition, our Sandy segment
provides customer relationship marketing (CRM) products including brand loyalty publications and other related
products. Sandy develops personalized publications for automotive and non-automotive clients which establish a link
between the manufacturer/dealer and each customer. Sandy has also produced brand specific portfolios that are
installed in the gloveboxes of new cars and trucks at the time of vehicle assembly.

Business Process Outsourcing. We provide end-to-end business process outsourcing solutions, including the
management of our customers’ training departments, as well as administrative processes, such as tuition assistance
program management, vendor management, call center / help desk administration and learning management system
(LMS) administration. Our training BPO services encompass a wide spectrum of learning engagements from
transactional multi-week assignments focused on a single aspect of a learning process to multi-year contracts where
we manage the learning infrastructure of our customer. In addition, we automate a large amount of our customers’
tuition reimbursement programs by utilizing our own proprietary software, Tuition Outsourced Processing Services
(TOPS).

Consulting. Consulting services include not only training-related consulting services, but also more traditional
business management, engineering and other disciplines. We are able to provide high-level lean enterprise consulting
services, as well as training in the concept, methods and application of lean enterprise and other quality practices,
organizational development and change management. We also provide engineering consulting services to support
regulatory and environmental compliance, modification of facilities and processes, plant performance improvement,
reliability-centered maintenance practices and plant start-up activities. Consulting services also include operations
continuity assessment, planning, training and procedure development. Consulting products include proprietary training
and reference materials.

Technical Support and Engineering. We are staffed and equipped to provide engineering and technical support
services and products to clients. We have civil, mechanical and electrical engineers who provide consulting, design
and evaluation services regarding facilities, processes and systems. We believe that we are a leader in the design and
construction of alternative fuel stations, cryogenic systems and high pressure systems. 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 our proprietary
EtaPRO™ and Virtual PlantTM software applications that serve the power generation industry.

Competitive Strengths

We believe our key competitive strengths include:

Independent and Single-Source Custom Training Solutions Provider. We believe we are one of the largest
independent single-source custom training solutions providers in the markets in which we compete. We provide
business process outsourcing solutions spanning the full life-cycle of the training process, including the management
of training departments and administrative processes for our customers. We believe that the breadth of our service and
product offerings, which encompass fully integrated training business process outsourcing solutions as well as discrete
services, allows us to better serve the needs of our clients by providing them with a single-source solution for custom
training, consulting and technical and engineering services. We believe that the integration of our services into a single
platform, together with our international presence and delivery capabilities, allows our customers to leverage an
enterprise-wide solution to address their performance improvement needs in a way that streamlines their internal
operations, improves the speed and efficiency at which critical know-how is disseminated on a firm-wide basis, and
enables them to achieve their desired performance improvement goals.

Scalable Technology Platform. Our training programs are delivered online, in classroom settings or a combination of
both. We have the ability to work with outside information technology (IT) vendors in combination with our own
proprietary software in order to deliver a scalable technology platform capable of addressing training needs of various
size and commitment, ranging from a one-time project to a multi-year training program.

Legacy Technical Expertise. In the 1960’s, we began providing technical services to the U.S. Navy Nuclear
submarine program and nuclear power generation industry and have since maintained and expanded our reputation for
providing technically complex consulting, engineering, and training services. Many of our employees have
engineering degrees, technical training or years of relevant technical industry experience. Through repeat projects with
industry leaders, such as ExxonMobil, Applied Materials and The Boeing Company, we have acquired significant
industry experience in providing highly technical consulting services. We believe that our technical expertise allows
us to address market opportunities for complex business challenges that require in-depth expertise and certifications
typically acquired over several years of specialized training and many years of experience. We also believe that our
ability to provide both training-related and business consulting services allows us to gain insight into operations of our
customers, understand the challenges they face and develop optimal solutions to meet these challenges. We also
believe that the knowledge that we develop while working with our clients provides us with a significant competitive
advantage as those clients look to expand the scope of services outsourced to third party service providers.

Well Positioned to Capitalize on the Large Product Sales Training Market. We believe that the introduction of
new products with advanced features, combined with the growing amount and accessibility of information available to
consumers, requires companies to maintain a highly skilled and technologically current sales force to most effectively
capture customer interest and confidence. In-house implementation of product sales training programs can be
expensive and time-consuming as these programs typically involve significant levels of face-to-face training, in some
cases across a large sales force that can be located around the globe. In addition, product sales training tends to be a
continuous process, as the pace of new products and features in many cases requires year-round updating of the sales
force. We have what we believe to be one of the industry’s leading product sales training platforms, and are well
positioned to benefit from increased training outsourcing as companies look for ways to reduce costs.

Business Model Supports Visibility of Revenues. We believe the nature of our business, which includes established
relationships with our clients, average project tenure of one year, as well as many long term contracts with our
customers provides us with a platform from which to drive revenues and gives us visibility into our future
performance. We have long-standing relationships with many of our clients, with over 60% of our top 25 clients
having used our services for five or more years. Additionally, over 90% of our annual revenue is generated by
existing prior year clients. We also had a backlog for services under executed contracts of $131.7 million as of
December 31, 2008, most of which we anticipate will be recognized as revenue during 2009.

Highly Qualified and Dedicated Employees and Tenured Management Team. Our most important asset is our
people, as the diverse skill set of our workforce enables us to serve our diverse and expanding global client base. As a
result, we are committed to the continued development of our employees. We provide our employees with technical,
functional, industry, managerial and leadership skill development and training throughout their careers with us. We
seek to reinforce our employees’ commitment to our clients, culture and values through a comprehensive performance
management system and a career philosophy that rewards both individual performance and teamwork. We also benefit
from the skill and experience of our executive management team, who together have a combined 100 years experience
in the training industry and have an average tenure with our company of over 20 years.

Contracts

We currently perform under fixed price (including fixed-fee per transaction), time-and-materials and cost-
reimbursable contracts. Our contracts with the U.S. Government have predominantly been cost-reimbursable contracts
and fixed price contracts. We are required to comply with Federal Acquisition Regulations and Government Cost
Accounting Standards with respect to services provided to the U.S. Government and its agencies. These Regulations
and Standards govern the procurement of goods and services by the U.S. 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 our
contracts through 2004 without any material disallowances.

The following table illustrates the percentage of our total revenue attributable to each type of contract for the year
ended December 31, 2008:

Fixed price (including fixed-fee per transaction)
Time-and-materials, including fixed rate
Cost-reimbursable

Total revenue

71%
22
7

100%

Fixed price contracts provide for payment to us of pre-determined amounts as compensation for the delivery of
specific products or services, without regard to the actual costs incurred. We bear the risk that increased or unexpected
costs required to perform the specified services may reduce our profit or cause us to sustain a loss, but we have the
opportunity to derive increased profit if the costs required to perform the specified services are less than expected.
Fixed price contracts generally permit the client to terminate the contract on written notice; in the event of such
termination we would typically be paid a proportionate amount of the fixed price.

Time-and-materials contracts generally provide for billing of services based upon the hourly billing rates of the
employees performing the services and the actual expenses incurred multiplied by a specified mark-up factor up to a
certain aggregate dollar amount. Our time-and-materials contracts include certain contracts under which we have
agreed to provide training, engineering and technical services at fixed hourly rates. Time-and-materials contracts
generally permit the client to control the amount, type and timing of the services to be performed by us and to
terminate the contract on written notice. If a contract is terminated, we are typically paid for the services we have
provided through the date of termination.

Cost-reimbursable contracts provide for us to be reimbursed for our actual direct and indirect costs plus a fee. These
contracts also are generally subject to termination at the convenience of the client. If a contract is terminated, we are
typically reimbursed for our costs through the date of termination, plus the cost of an orderly termination and paid a
proportionate amount of the fee.

International

We conduct our business outside of the United States in over 30 countries primarily through General Physics’ wholly
owned subsidiaries located in the United Kingdom, France, Germany, Canada, Mexico, Singapore, Malaysia, China
and India. Through these subsidiaries, we are 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 our subsidiaries, we are able to coordinate
the delivery to multi-national clients of services and products that achieve consistency on a global, enterprise-wide
basis. Revenue from operations outside the United States represented approximately 13% of our consolidated revenue
for the year ended December 31, 2008 (see Note 14 to the accompanying Consolidated Financial Statements).

Customers

During 2008, we provided services to over 500 customers. Significant customers include multinational automotive
manufacturers, such as General Motors Corporation, Ford Motor Company and Hyundai Motor Company;
commercial electric power utilities, such as Bruce Power, L.P., Mid-American Energy Company and Luminant
Energy; governmental agencies, such as the U.S. Department of Defense, U.S. Department of Treasury, Office of
Personnel Management, and U.S. Social Security Administration; U.S. government prime contractors, such as Bechtel
National, Inc. and URS Corporation; and other large multinational companies, such as Cisco Systems, Inc., Texas
Instruments, Microsoft, Eli Lilly & Co., United Technologies Corporation, Agilent Technologies, Inc., CIGNA
Corporation, The Boeing Company, Exxon Mobil and United States Steel Corporation.

We have a concentration of revenue from General Motors Corporation and its affiliates (“General Motors”) as well as
a market concentration in the automotive sector. Revenue from General Motors accounted for approximately 20% of
our consolidated revenue for the year ended December 31, 2008, and revenue from the automotive industry accounted
for approximately 28% of our consolidated revenue for the year ended December 31, 2008. In addition, revenue from
the U.S. Government accounted for approximately 18% of our consolidated revenue for the year ended December 31,
2008. Revenue was derived from many separate contracts with a variety of government agencies that are regarded by
us as separate customers. No other customer accounted for more than 10% of our revenue in 2008.

Employees

Our principal resource is our personnel. As of December 31, 2008, we had 1,777 employees and access to over 100
adjunct instructors and consultants. Our future success depends to a significant degree upon our ability to continue to
attract, retain and integrate into our operations instructors, engineers, technical personnel and consultants who possess
the skills and experience required to meet the needs of our clients.

We utilize a variety of methods to attract and retain personnel. We believe that the compensation and benefits offered
to our employees are competitive with the compensation and benefits available from other organizations with which
we compete for personnel. In addition, we encourage the professional development of our employees, both internally
via GP University (our own internal training resource) and through third parties, and we also offer tuition
reimbursement for job-related educational costs. We believe that we have good relations with our employees.

Competition

We 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. The training industry is
highly fragmented and competitive, with low barriers to entry and no single competitor accounting for a significant
market share. Our competitors include several large publicly traded and privately held companies, vocational and
technical training schools, degree-granting colleges and universities, continuing education programs and thousands of
small privately held training providers and individuals. In addition, many of our clients maintain internal training
departments, which have the resources and ability to provide the same or similar services in-house. Some of our
competitors offer services and products at lower prices, and some competitors have significantly greater financial,
managerial, technical, marketing and other resources. Moreover, we expect to 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 we will be successful against such competition.

Engineering and consulting services such as those that we provide are performed by many of the customers
themselves, large architectural and engineering firms that have expanded their range of services beyond design and
construction activities, large consulting firms, information technology companies, major suppliers of equipment and
individuals and independent service companies similar to us. The engineering and construction markets are highly
competitive and require substantial resources and capital investment in equipment, technology and skilled personnel.

Many of our competitors for our engineering and technical consulting services have greater financial resources than
we do. Competition also places downward pressure on our contract prices and profit margins. We cannot provide any
assurance that we will be able to compete successfully, and the failure to do so could adversely affect our business and
financial condition.

Marketing

Business development and sales resources are aligned with our operating groups to support existing customer accounts
and new customer development. We use attendance at trade shows, presentations of technical papers at industry and
trade association conferences, press releases, webinars and workshops given by our personnel to serve an important
marketing function. We also carry out selective advertising and send a variety of sales literature to current and
prospective clients. By staying in contact with clients and looking for opportunities to provide further services, we
sometimes obtain contract awards or extensions without having to undergo competitive bidding. In other cases, clients
request us to bid competitively. In both cases, we submit 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 noncompetitive, short-term
contracts), to a year or more (generally for large, competitive multi-year contracts).

Backlog

Our backlog for services under executed contracts and subcontracts was approximately $131.7 million and $140.3
million as of December 31, 2008 and 2007, respectively. We anticipate that most of our backlog as of December 31,
2008 will be recognized as revenue during 2009. 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.

Environmental Statutes and Regulations

We provide environmental engineering services to our 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), our opportunities to
provide such services may increase.

Our activities in connection with providing environmental engineering services may also subject us to federal, state
and local environmental laws and regulations. Although we subcontract most remediation construction activities and
all removal and offsite disposal and treatment of hazardous substances, we 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 we have provided environmental engineering and support services. We believe,
however, that we are in compliance in all material respects with such environmental laws and regulations.

Item 1A: Risk Factors

The following are some of the factors that we believe could cause our actual results to differ materially from historical
results and from the results contemplated by the forward-looking statements contained in this report and other public
statements made by us. Additional risks and uncertainties not presently known to us, or that we currently see as
immaterial, may also harm our business. Most of these risks are generally beyond our control. If any of the risks or
uncertainties described below, or any such additional risks and uncertainties actually occur, our business, results of
operations and financial condition could be materially and adversely affected.

Changing economic conditions in the United States, the United Kingdom and the other countries in which we
conduct our operations could harm our business, results of operations and financial condition.

Our revenues and profitability are related to general levels of economic activity and employment primarily in the
United States and the United Kingdom. As a result, the current economic recession in both of those countries could
harm our business and financial condition, as already seen in part by a decrease in our revenue during the fourth
quarter of 2008. A significant portion of our revenues is derived from Fortune 500 companies and their international

equivalents, which historically have decreased expenditures for external training during economic downturns. If the
economies in which these companies operate remain or are further weakened in any future period, these companies
may reduce their expenditures on external training, and other products and services supplied by us, which could
materially and adversely affect our business, results of operations and financial condition. As we expand our business
globally, we might be subject to additional risks associated with economic conditions in the countries into which we
enter or in which we expand our operations.

Our revenue and financial condition could be adversely affected by the loss of business from significant customers,
including automotive manufacturers, the U.S. Government and other customers.

During the years ended December 31, 2008 and 2007, revenue from General Motors accounted for approximately 20%
and 21%, respectively, of our consolidated revenue and revenue from our customers in the automotive industry,
including General Motors, accounted for approximately 28% and 30%, respectively, of our consolidated revenue. In
addition, accounts receivable from General Motors totaled $14.4 million as of December 31, 2008. In recent periods,
General Motors and other auto manufacturers have reported a sharp reduction in vehicle sales which has resulted in
substantial losses and severe liquidity problems, leading to efforts to restructure their operations to remain solvent and
to seek government funding. Further cost-cutting, a lack of sufficient funding, potential bankruptcy or a decision to
cease or reduce contract awards to us, could adversely affect our business and financial condition. In addition, default
in payment of accounts receivable from General Motors or other significant customers could cause us to incur
substantial losses.

For the years ended December 31, 2008, 2007 and 2006, revenue from the U.S. Government represented
approximately 18%, 18% and 29% of our consolidated revenue, respectively. However, the revenue was derived from
a number of separate contracts with a variety of government agencies we regard as separate customers. Government
contracts are subject to various uncertainties, restrictions and regulations, including oversight audits by government
representatives and profit and cost controls. If we fail to comply with all of the applicable regulations, requirements or
laws, our existing contracts with the government could be terminated and our ability to seek future government
contracts or subcontracts could be adversely affected. In addition, the funding of government contracts is subject to
Congressional appropriations. Budget decisions made by the U.S. Government are outside of our control and could
result in a reduction or elimination of contract funding. A shift in government spending to other programs in which
we are not involved or a reduction in general government spending could have a negative impact on our financial
condition. The U.S. Government is under no obligation to maintain funding for or to continue to fund our contracts or
subcontracts.

Although no other customers account for more than 10% of our consolidated revenue, we experienced declines in our
revenue during the fourth quarter of 2008 from certain other customers, primarily in the manufacturing sector. A
further loss of business from these or other customers could adversely affect our revenue and financial condition. In
addition, substantially all of our contracts are subject to termination on written notice and, therefore, our operations are
dependent upon our customers’ continued satisfaction with our services and their continued inability or unwillingness
to perform those services themselves or to engage other third-parties to deliver such services.

The price of our common stock is highly volatile and could further decline regardless of our operating
performance.

The market price of our common stock could fluctuate in response to, among other things:

• changes in economic and general market conditions
• changes in the outlook and financial condition of certain of our significant customers and industries in which

we have a concentration of business

• changes in financial estimates, treatment of our tax assets or liabilities or investment recommendations by

securities analysts following our business;

• changes in accounting standards, policies, guidance or interpretations or principles
• sales of common stock by our directors, officers and significant stockholders;
• our failure to achieve operating results consistent with securities analysts’ projections; and
• the operating and stock price performance of competitors.

These factors might adversely affect the trading price of our common stock and prevent you from selling your
common stock at or above the price at which you purchased it. In addition, in recent periods, the stock market has
experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price
of securities issued by many companies, including ours and others in our industry. These changes can occur without
regard to the operating performance of the affected companies. As a result, the price of our common stock could
fluctuate based upon factors that have little or nothing to do with our company, and these fluctuations could materially
reduce our share price.

We incurred a goodwill impairment charge of $5.5 million for the year ended December 31, 2008 and may incur
further material goodwill and other intangible asset impairment charges in future periods.

We recognized a goodwill impairment loss of $5.5 million for the year ended December 31, 2008 related to the Sandy
segment primarily due to a significant decline in our market capitalization during the fourth quarter of 2008 and
uncertainty regarding the automotive industry. See the Management Discussion of Critical Accounting Policies section
in Item 7 for further discussion regarding the factors leading to the goodwill impairment and the valuation
methodologies and assumptions used in the goodwill impairment test. As of December 31, 2008 after recognizing an
impairment charge of $5.5 million, we had remaining goodwill of $60.3 million and other intangible assets of $6.7
million in connection with acquisitions. In accordance with U.S. generally accepted accounting principles, goodwill is
reviewed annually for impairment unless circumstances or events indicate that an impairment test should be performed
sooner to determine if there has been any impairment to value. The review for impairment is based on several factors
requiring judgment. A decrease in expected cash flows or change in market conditions, among other things, may
indicate potential impairment of recorded goodwill.

Our acquisitions in recent years have not involved the acquisition of significant tangible assets and, as a result, a
significant portion of the purchase price in each case was allocated to goodwill and other intangible assets. We will
continue to test for impairment on an annual basis, coinciding with our fiscal year-end, or on an interim basis if events
and circumstances indicate a possible impairment. However, we may incur further material goodwill or other
intangible asset impairment charges in the future related to past acquisitions.

Our financial results are subject to quarterly fluctuations, which may result in volatility or declines in our stock
price.

We experience, and expect to continue to experience, fluctuations in quarterly operating results. Consequently, you
should not deem our results for any particular quarter to be necessarily indicative of future results. Factors that may
affect quarterly operating results in the future include:

•
•

the overall level of services and products sold;
the volume of publications shipped by our Sandy segment each quarter, because revenue and cost of
publications contracts are recognized in the quarter during which the publications ship;
the gain or loss of material clients;
the timing, structure and magnitude of acquisitions;

•
•
• participant training volume and general levels of outsourcing demand from clients in the industries that we

•

serve;
the budget and purchasing cycles of our clients, especially of the governments and government agencies that
we serve;
the commencement or completion of client engagements or services and products in a particular quarter;

•
• currency fluctuations; and
•

the general level of economic activity.

In addition, we provide domestic preparedness and emergency management services, including hurricane and other
disaster recovery services, which can result in revenue volatility associated with the unpredictability of certain events
occurring and the need for these types of services. Accordingly, it is difficult for us to forecast our growth and results
of operations on a quarterly basis. If we fail to meet expectations of investors or analysts, our stock price may fall

rapidly and without notice. Furthermore, the fluctuation of quarterly operating results may render less meaningful
period-to-period comparisons of our operating results.

We are vulnerable to the cyclical nature of the markets we serve.

The demand for our services and products is dependent upon training and marketing budgets and the existence of
projects with training, engineering, procurement, construction or management needs. Although downturns can impact
our entire business, the automotive, construction, alternative fuels and energy markets are examples of businesses that
are cyclical in nature and have been affected from time to time by fluctuations in either national or worldwide demand
for these projects. Industries such as these and many of the others we serve have historically been and might continue
to be vulnerable to general downturns and are and might continue to be cyclical in nature. During economic
downturns, our clients might demand better terms. In addition, many of our training contracts are subject to
modification in the event of certain material changes in the business or demand for our services. Our government
clients also might face budget deficits that prohibit them from funding proposed and existing projects. As a result, our
past results have varied considerably and could continue to vary depending upon the demand for future projects in the
industries that we serve.

We may continue making acquisitions as part of our growth strategy, which subjects us to numerous risks that
could have a material adverse effect on our business, financial condition and results of operations.

As part of our growth strategy, we may continue to pursue selective acquisitions of businesses that broaden our service
and product offerings, deepen our capabilities and allow us to enter attractive new domestic and international markets.
Pursuit of acquisitions exposes us to many risks, including that:

• acquisitions may require significant capital resources and divert management’s attention from our existing

business;

• acquisitions may not provide the benefits anticipated;
• acquisitions could subject us to contingent or other liabilities, including liabilities arising from events or
conduct predating the acquisition of a business that were not known to us at the time of the acquisition;
• we may incur significantly greater expenditures in integrating an acquired business than had been initially

anticipated; and

• acquisitions may create unanticipated tax and accounting problems.

Our failure to successfully accomplish future acquisitions or to manage and integrate completed or future acquisitions
could have a material adverse effect on our business, financial condition or results of operations. We can provide no
assurances that we:

• will identify suitable acquisition candidates;
• can consummate acquisitions on acceptable terms;
• can successfully compete for acquisition candidates against larger companies with significantly greater

resources;

• can successfully integrate any acquired business into our operations or successfully manage the operations of

any acquired business; or

• will be able to retain an acquired company’s significant client relationships, goodwill and key personnel or

otherwise realize the intended benefits of any acquisition.

In addition, acquisitions might involve our entry into new businesses that might not be as profitable as we expect. We
can provide no assurances that our expectations regarding the profitability of future acquisitions will prove to be
accurate. Acquisitions might also increase our exposure to the risks inherent in certain markets or industries. For
example, Sandy’s business is heavily oriented toward providing product sales training to auto manufacturers in the
U.S. and, consequently, this acquisition increased our exposure to the risks of the auto manufacturing industry.

As a result of completed and possible future acquisitions, our past performance is not indicative of future performance,
and investors should not base their expectations as to our future performance on our historical results.

Future acquisitions may require that we incur debt or issue dilutive equity.

Future acquisitions may require us to incur debt, under our existing credit facility or otherwise, or issue equity,
resulting in additional leverage or dilution of ownership.

Difficulties in integrating acquired businesses could result in reduced revenues and income.

We might not be able to integrate successfully any business we have acquired or could acquire in the future. The
integration of the businesses will be complex and time consuming and will place a significant strain on our
management, administrative services personnel and information systems. This strain could disrupt our business.
Furthermore, we could be adversely impacted by unknown liabilities of acquired businesses. We could encounter
substantial difficulties, costs and delays involved in integrating common accounting, information and communication
systems, operating procedures, internal controls and human resources practices, including incompatibility of business
cultures and the loss of key employees and customers. Also, depending on the type of acquisition, a key element of
our strategy may include retaining management and key personnel of the acquired business to operate the acquired
business for us. Our inability to retain these individuals could materially impair the value of an acquired business.
These difficulties could reduce our ability to gain customers or retain existing customers, and could increase operating
expenses, resulting in reduced revenues and income and a failure to realize the anticipated benefits of acquisitions.

Our business and financial condition could be adversely affected by government limitations on contractor
profitability.

A significant portion of our revenue and profit is derived from contracts with the U.S. Government and subcontracts
with prime contractors of the U.S. Government. The U.S. Government places limitations on contractor profitability;
therefore, government-related contracts might have lower profit margins than the contracts we enter into with
commercial customers.

A negative audit or other actions by the U.S. Government could adversely affect our future operating performance.

As a U.S. Government contractor, we must comply with laws and regulations relating to U.S. Government contracts
and are subject to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and
other legal actions and liabilities to which companies with solely commercial customers are not subject. We are
subject to audit and investigation by the DCAA and other government agencies with respect to our compliance with
federal laws, regulations and standards. These audits may occur several years after the period to which the audit
relates. The DCAA, in particular, also reviews the adequacy of, and our compliance with, our internal control systems
and policies, including our purchasing, property, estimating, compensation and management information systems.
Any payments received by us from the U.S. Government for allowable direct and indirect costs are subject to
adjustment after audit by government auditors and repayment to the government if the payments exceed allowable
costs as defined in the government contracts, which could result in a material adjustment of the payments received by
us under such contracts. In addition, any costs found to be improperly allocated to a specific contract will not be
reimbursed. If we are found to be in violation of the law, we may be subject to civil or criminal penalties or
administrative sanctions, including contract termination, the assessment of penalties and suspension or debarment
from doing business with U.S. Government agencies. For example, many of the contracts we perform for the U.S.
Government are subject to the Service Contract Act, which requires hourly employees to be paid certain specified
wages and benefits. If the Department of Labor determines that we violated the Service Contract Act or its
implementing regulations, we could be suspended for a period of time from winning new government contracts or
renewals of existing contracts, which could materially and adversely affect our future operating performance.

Furthermore, our reputation could suffer serious harm if allegations of impropriety were made against us. If we are
suspended or prohibited from contracting with the U.S. Government, or any significant U.S. Government agency, if
our reputation or relationship with U.S. Government agencies becomes impaired or if the U.S. Government otherwise
ceases doing business with us or significantly decreases the amount of business it does with us, it could materially and
adversely affect our operating performance and could result in additional expenses and a loss of revenue.

We are a party to fixed price contracts and may enter into similar contracts in the future, which could result in
reduced profits or losses if we are not able to accurately estimate or control costs.

A significant portion of our revenue is attributable to contracts entered into on a fixed price basis, which allows us to
benefit from cost savings, but we carry the burden of cost overruns. If our initial estimates are incorrect, or if
unanticipated circumstances arise, we could experience cost overruns which would result in reduced profits or even
result in losses on these contracts. Our financial condition is dependent upon our ability to maximize our earnings
from our contracts. Lower earnings or losses caused by cost overruns could have a negative impact on our financial
results.

Under time and materials contracts, we are paid for labor at negotiated hourly billing rates and for certain expenses.
Under cost-reimbursable contracts, which are subject to a contract ceiling amount, we are reimbursed for allowable
costs and paid a fee, which may be fixed or performance based. However, if costs exceed the contract ceiling or are
not allowable under the provisions of the contract or applicable regulations, we may not be able to obtain
reimbursement for all such costs.

Our inability to successfully estimate and manage costs on each of these contract types may materially and adversely
affect our financial condition. Cost overruns also may adversely affect our ability to sustain existing programs and
obtain future contract awards.

Our revenues may be adversely affected if we fail to win competitively awarded contracts or to receive renewal or
follow-on contracts.

We obtain many of our significant contracts, including U.S. Government contracts, through a competitive bidding
process. Competitive bidding presents a number of risks, including, without limitation:

•

•
•
•

•

•
•
•

the need to compete against companies or teams of companies that may have more financial and marketing
resources and more experience in bidding on and performing major contracts than we have;
the need to compete against companies or teams of companies that may be long-term, entrenched incumbents
for a particular contract for which we are competing;
the need to compete to retain existing contracts that have in the past been awarded to us;
the expense and delay that may arise if our competitors protest or challenge new contract awards;
the need to submit proposals in advance of the completion of their design, which may result in unforeseen
cost overruns;
the substantial cost and managerial time and effort, including design, development and marketing activities
necessary to prepare bids and proposals for contracts that we may not win;
the need to develop, introduce and implement new and enhanced solutions to our customers’ needs;
the need to locate and contract with teaming partners and subcontractors; and
the need to accurately estimate the resources and cost structure that will be required to perform any fixed
price contract that we win.

There are no assurances that we will continue to win competitively awarded contracts or to receive renewal or follow-
on contracts. Renewal and follow-on contracts are important because our contracts are for fixed terms. These terms
vary from shorter than one year to over five years, particularly for contracts with extension options. The loss of
revenues from our possible failure to win competitively awarded contracts or to obtain renewal or follow-on contracts
may be significant because competitively awarded contracts account for a substantial portion of our sales.

Our backlog is subject to reduction and cancellation, which could negatively impact our future revenues or
earnings.

Our backlog for services under executed contracts (including subcontracts and purchase orders) was approximately
$131.7 million, $140.3 million and $85.3 million as of December 31, 2008, 2007 and 2006, respectively. There can be
no assurance that the revenues projected in our backlog will be realized or, if realized, will result in profits. Further,
contract terminations or reductions in the original scope of contracts reflected in our backlog might occur at any time
as discussed below in more detail.

Our backlog consists of projects for which we have signed contracts from customers. The rate at which services are
performed under contracts, and thus the rate at which backlog will be recognized, is at the discretion of the client. We
cannot predict with certainty when or if backlog will be performed. In addition, even where a project proceeds as
scheduled, it is possible that customers could default or otherwise fail to pay amounts owed to us. Material delays,
terminations or payment defaults under contracts included in our backlog could have a material adverse effect on our
business, results of operations and financial condition.

In addition, most of our contracts are subject to termination by the client upon written notice. Reductions in our
backlog due to termination by a customer or for other reasons could materially and adversely affect the revenues and
earnings we actually receive from contracts included in our backlog. If we experience terminations of significant
contracts or significant scope adjustments to contracts reflected in our backlog, our financial condition, results of
operations, and cash flow could be materially and adversely impacted.

We rely on third parties, including subcontractors, suppliers and joint venture partners, to perform a portion of the
services we must provide to our customers and disputes with or the failure to perform satisfactorily of such a third
party could materially and adversely affect our performance and our ability to obtain future business.

Many of our contracts involve subcontracts or agreements with other companies upon which we rely to perform a
portion of the services we must provide to our customers. There is a risk that we may have disputes with our
subcontractors, including disputes regarding the quality and timeliness of work performed by the subcontractor,
customer concerns about the subcontractor, our failure to extend existing task orders or issue new task orders under a
subcontract or our hiring of personnel of a subcontractor. A failure by one or more of our subcontractors to
satisfactorily provide, on a timely basis, the agreed upon services may materially and adversely impact our ability to
perform our obligations as the prime contractor. Subcontractor performance deficiencies could expose us to liability
and have a material adverse effect on our ability to compete for future contracts and orders.

Also, from time to time we have entered, and expect to continue to enter, into joint venture, teaming and other similar
arrangements which involve risks and uncertainties. These risks and uncertainties could result in reduced profits or, in
some cases, significant losses for us with respect to the joint venture, teaming and other similar arrangements.

We maintain a workforce based upon anticipated staffing needs. If we do not receive future contract awards or if
these awards are delayed or reduced in scope or funding, we could incur significant costs.

Our estimates of future staffing requirements depend in part on the timing of new contract awards. We make our
estimates in good faith, but our estimates could be inaccurate or change based upon new information. In the case of
larger projects, it is particularly difficult to predict whether we will receive a contract award and when the award will
be announced. In some cases the contracts that are awarded require staffing levels that are different, sometimes lower,
than the levels anticipated when the work was proposed. The uncertainty of contract award timing and changes in
scope or funding can present difficulties in matching our workforce size with our contract needs. If an expected
contract award is delayed or not received, or if a contract is awarded for a smaller scope of work than proposed, we
could incur significant costs associated with making or failing to make reductions in staff.

Failure to continue to attract and retain qualified personnel could harm our business.

Our principal resource is our personnel. A significant portion of our revenue is derived from services and products
that are delivered by instructors, engineers, technical personnel and consultants. Our consulting, technical training and
engineering services require the employment of individuals with specific skills, training, licensure and backgrounds.
An inability to hire or maintain employees with the required skills, training, licensure or backgrounds could have a
material adverse effect on our ability to provide quality services, to expand the scope of our service offerings or to
attract or retain customers or to accept contracts, which could negatively impact our business and financial condition.
In order to initiate and develop client relationships and execute our growth strategy, we must continue to hire and
maintain qualified salespeople. We must also continue to attract and develop capable management personnel to guide
our business and supervise the use of our resources.

Similarly, our U.S. Government contracts require employment of individuals with specified skills, work experience,
licensures, security clearances and backgrounds. An inability to hire or maintain employees with the required skills,

work experience, licensure, security clearances or backgrounds could have a material adverse effect on our ability to
win new contracts or satisfy existing contractual obligations, and could result in additional expenses or possible loss of
revenue.

In addition, certain of our contracts require our employment of skilled engineers. There is, however, a significant
shortage of skilled engineers. Certain high-growth industries, such as the oil and gas and energy industries in
particular, are experiencing significant shortages of skilled engineers due to the rapid technological advancement and
expansion in those industries coupled with minimal increases in the total number of skilled engineers. As a result, the
unemployment rate for such skilled engineers is low and it has been difficult for both us and our clients and
competitors to attract and retain qualified personnel.

Competition for qualified personnel can be intense. We cannot assure you that qualified personnel will continue to be
available to us or will be available to us when our needs arise or on terms favorable to us. Any failure to attract or
retain qualified instructors, engineers, technical personnel, consultants, salespeople and managers in sufficient
numbers could have a material adverse effect our business and financial condition.

The loss of our key personnel, including our executive management team, could harm our business.

Our success is largely dependent upon the experience and continued services of our executive management team and
our other key personnel. The loss of one or more of our key personnel and a failure to attract, develop or promote
suitable replacements for them could materially and adversely affect our business, results of operation or financial
condition.

Competition could materially and adversely affect our performance.

The training industry is highly fragmented and competitive, with low barriers to entry and no single competitor
accounting for a significant market share. Our competitors include divisions of several large publicly traded and
privately held companies, vocational and technical training schools, degree-granting colleges and universities,
continuing education programs and thousands of small privately held training providers and individuals. In addition,
many of our clients maintain internal training departments, which have the resources and ability to provide the same or
similar services in-house. Some of our competitors offer similar services and products at lower prices, and some
competitors have significantly greater financial, managerial, technical, marketing and other resources. Moreover, we
expect to 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.

The engineering and construction markets in which we compete are also highly competitive. Many of our competitors
are niche engineering and construction companies. In some instances, it is necessary for us to partner with those
competitors who meet the small business administration’s criteria for a small business in order to win contract awards.
This competition places downward pressure on our contract prices and profit margins. Intense competition is expected
to continue in our training, engineering and technical services markets, presenting us with significant challenges in our
ability to maintain strong growth rates and acceptable profit margins. If we are unable to meet these competitive
challenges, we could lose market share to our competitors and experience an overall reduction in our profits.

We cannot provide any assurance that we will be able to compete successfully in the industries or markets in which we
compete, and the failure to do so could materially and adversely affect our business, results of operations and financial
condition.

Failure to keep pace with technology and changing market needs could harm our business.

Our future success will depend upon our ability to adapt to changing client needs, to gain expertise in technological
advances rapidly and to respond quickly to evolving industry trends and market needs. Many of our clients are
demanding that our services be available across the U.S. and worldwide. We cannot assure you that we will be able to
expand our operations into all geographic areas into which our multinational clients seek to use our services or that we
will be able to attract and retain qualified personnel to provide our services in all such geographic areas. We also
cannot assure you that we will be successful in adapting to advances in technology or marketing our services and
products in advanced formats. In addition, services and products delivered in the newer formats might not provide

comparable training results. Furthermore, subsequent technological advances might render moot any successful
expansion of the methods of delivering our services and products. If we are unable to develop new means of
delivering our services and products due to capital, personnel, technological or other constraints, our business, results
of operations and financial condition could be materially and adversely affected.

We have only a limited ability to protect the intellectual property rights that are important to our success, and we
face the risk that our services or products may infringe upon the intellectual property rights of others.

Our future success depends, in part, upon our ability to protect our proprietary methodologies and other intellectual
property, including our EtaPROTM software. Existing laws of some countries in which we provide or license or intend
to provide or license our services or products may offer only limited protection of our intellectual property rights. We
rely upon a combination of trade secrets, confidentiality policies, non-disclosure and other contractual arrangements
and copyright and trademark laws to protect our intellectual property rights. The steps we take in this regard might not
be adequate to prevent or deter infringement or other misappropriation of our intellectual property, and we may not be
able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights.
Protecting our intellectual property rights might also consume significant management time and resources.

We cannot be sure that our services and products, or the products of others that we offer to our clients, do not infringe
on the intellectual property rights of third parties, and we might have infringement claims asserted against us or
against our clients. These claims might harm our reputation, result in financial liabilities and prevent us from offering
some services or products. We have generally agreed in our contracts to indemnify our clients against expenses or
liabilities resulting from claimed infringements of the intellectual property rights of third parties. In some instances,
the amount of these indemnities could be greater than the revenues we receive from the client. Any claims or
litigation in this area, whether we ultimately win or lose, could be time-consuming and costly, injure our reputation or
require us to enter into royalty or licensing arrangements. We might not be able to enter into these royalty or licensing
arrangements on acceptable terms. Any limitation on our ability to provide or license a service or product could cause
us to lose revenue-generating opportunities and require us to incur additional expenses to develop new or modified
solutions for future projects.

Our information technology systems are subject to risks that we cannot control.

Our information technology systems are dependent upon global communications providers, web browsers, telephone
systems, and other aspects of the Internet infrastructure that have experienced system failures and electrical outages in
the past. Our systems are susceptible to slow access and download times, outages from fire, floods, power loss,
telecommunications failures, break-ins, and similar events. Our servers are vulnerable to computer viruses, break-ins,
and similar disruptions from unauthorized tampering with our computer systems. The occurrence of any of these
events could disrupt or damage our information technology systems and inhibit our internal operations, our ability to
provide services to our customers, and the ability of our customers to access our information technology systems. This
could result in our loss of customers, loss of revenue or a reduction in demand for our services.

A breach of our security measures could harm our business, results of operations and financial condition.

Our databases contain confidential data of our clients and our clients’ customers, employees and vendors. A party
who is able to circumvent our security measures could misappropriate such confidential information or interrupt our
operations. Many of our contracts require us to comply with specific data security requirements. If we are unable to
maintain our compliance with these data security requirements or any person, including any of our current or former
employees, penetrates our network security or misappropriates sensitive data, we could be subject to significant
liabilities to our clients for breaching these data security requirements or other contractual confidentiality provisions.
Furthermore, unauthorized disclosure of sensitive or confidential data of our clients or other parties, whether through
breach of our computer systems, systems failure or otherwise, could also damage our reputation and cause us to lose
existing and potential clients. We may also be subject to civil actions for breaches related to such data or need to
expend significant capital and other resources to continue to protect against security breaches or to address any
problem they may cause.

Our international sales and operations expose us to various political and economic risks, which could have a
material adverse effect on our business, results of operations and financial condition.

Our revenue outside of the U.S. was approximately 13%, 11% and 12% of our total revenue for the years ended
December 31, 2008, 2007 and 2006, respectively. We conduct our business primarily in the U.S., the United Kingdom,
Canada, Mexico, Malaysia and Singapore, but also in other developed and developing countries, including India and
China. We intend to continue to expand our global operations which could involve expanding into countries other
than those in which we currently operate. It could also involve expanding into less developed countries, which may
have less political, social or economic stability and less developed infrastructure and legal systems. International sales
and operations might be subject to a variety of risks, including:

• greater difficulty in staffing and managing foreign operations;
• greater risk of uncollectible accounts;
•
•
• potential adverse changes in laws and regulatory practices, including export license requirements, trade

longer collection cycles;
logistical and communications challenges;

barriers, tariffs and tax laws;

• changes in labor conditions, burdens and costs of compliance with a variety of foreign laws;
• political and economic instability;
•
increases in duties and taxation;
• exchange rate risks;
• greater difficulty in protecting intellectual property;
• general economic and political conditions in these foreign markets;
• acts of war or terrorism or natural disasters, and limits on the ability of governments to respond to such acts;
•
• nationalization of foreign assets and other forms of governmental protectionism.

restrictions on the transfer of funds into or out of a particular country; or

As we expand our business into new countries, we may increase our exposure to the risks discussed above. An adverse
development relating to one or more of these risks could affect our relationships with our customers or could have a
material adverse effect on our business, results of operations and financial condition.

We are subject to risks associated with currency fluctuations, which could have a material adverse effect on our
results of operations and financial condition.

Approximately 13% of our revenue and costs for the year ended December 31, 2008 were denominated in foreign
currencies, including the British Pound Sterling, the Canadian Dollar and the Euro, and, to a lesser extent, the Mexican
Peso, the Malaysian Ringgit, the Indian Rupee, the Singapore Dollar and the Chinese Yuan. British Pound Sterling-
denominated revenue represented approximately 10% of our revenue for the year ended December 31, 2008. As a
result, changes in the exchange rates of these foreign currencies to the U.S. Dollar will affect our consolidated U.S.
dollar revenue, cost of revenue and operating margins and could result in exchange losses. The impact of future
exchange rate fluctuations on our results of operations cannot be accurately predicted.

Business disruptions could adversely affect our future sales, financial condition, reputation or stock price or
increase costs and expenses.

Our business, and that of our key suppliers and customers, may be impacted by disruptions including, but not limited
to, threats to physical security, information technology attacks or failures, damaging weather or other acts of nature
and pandemics or other public health crises. Such disruptions could affect our internal operations or services provided
to customers, adversely impacting our sales, financial condition, reputation or stock price or increase our costs and
expenses.

We are subject to potential liabilities which are not covered by our insurance.

We engage in activities in which there are substantial risks of potential liability. We provide services involving
electric power distribution and generation, nuclear power, chemical weapons destruction, petrochemical process

training, pipeline operations, volatile fuels such as hydrogen and liquefied natural gas (“LNG”), environmental
remediation, engineering design and construction management. We maintain a consolidated insurance program
(including general liability coverage) covering the companies we currently own, including General Physics, as well as
certain risks associated with companies we no longer own, including GSE and NPDC. Claims by or against any
covered insured could reduce the amount of available insurance coverage for the other insureds and for other
claims. In addition, certain liabilities might not be covered at all, such as deductibles, self-insured retentions, amounts
in excess of applicable insurance limits and claims that fall outside the coverage of our policies.

Although we believe that we currently have appropriate insurance coverage, we do not have coverage for all of the
risks to which we are subject and we may not be able to obtain appropriate coverage on a cost-effective basis in the
future.

Our policies exclude coverage for incidents involving nuclear liability, and we may not be covered by U.S. laws or
industry programs providing liability protection for licensees of the Nuclear Regulatory Commission (typically
utilities) for damages caused by nuclear incidents; we are not a licensee and few of our contracts with clients have
contained provisions waiving or limiting their liability. Therefore, we could be materially and adversely affected by a
nuclear incident. In addition, certain environmental risks, such as liability under the Comprehensive Environmental
Response, Compensation, and Liability Act, as amended, (“Superfund”), also might not be covered by our insurance.

Some of our policies, such as our professional liability insurance policy, provide coverage on a “claims-made” basis
covering only claims actually made during the policy period then in effect. To the extent that a risk is not insured
within our then-available coverage limits, insured under a low-deductible policy, indemnified against by a third party
or limited by an enforceable waiver or limitation of liability, claims could be material and could materially and
adversely affect our business, results of operations and financial condition.

We could incur substantial costs as a result of violations of, or liabilities under, environmental laws.

We provide environmental engineering services, including the development and management of site environmental
remediation plans. Although we subcontract most remediation construction activities, and in all cases subcontract the
removal and off-site disposal and treatment of hazardous substances, we could be subject to liability relating to the
environmental services we perform directly or through subcontracts. For example, if we were deemed under federal or
state laws, including Superfund, to be an “operator” of sites to which we provide environmental engineering and
support services, we could be subject to liability for cleanup costs or violations of applicable environmental laws and
regulations at such sites. Any incurrence of any substantial Superfund or other environmental liability could
materially and adversely affect our business, results of operations or financial condition by reducing profits, causing us
to incur losses related to the cost of resolving such liability or otherwise.

In addition, our environmental engineering services involve professional judgments about the nature of physical and
environmental conditions, including the extent to which hazardous substances are present, and about the probable
effect of procedures to mitigate or otherwise affect those conditions. If the judgments and the recommendations based
upon those judgments are incorrect, we may be liable for resulting damages incurred by our clients.

We are subject to potential liabilities related to operations we have discontinued.

In November 2004, we completed the spin-off to our stockholders of the shares of stock we owned in NPDC. Prior to
the spin-off, we provided certain financial guarantees and entered into transactions involving assets owned by NPDC
or subsequently contributed by us to NPDC. We may be contingently liable for certain lease obligations of NPDC
subsequent to the spin-off. We no longer have the assets of NPDC available to us to use to satisfy these obligations,
and if NPDC fails to satisfy obligations for which we continue to guarantee, we could be responsible for satisfying
those obligations, which could adversely impact our financial condition.

Our authorized preferred stock and certain provisions in our amended and restated by-laws could make a third
party acquisition of us difficult.

Our restated certificate of incorporation, as amended, (“restated certificate”), allows us to issue up to 10,000,000
shares of preferred stock, the rights, preferences, qualifications, limitations and restrictions of which may be fixed by
the Board of Directors without any further vote or action by the stockholders. In addition, our amended and restated
bylaws provide, among other things, that stockholders seeking to bring business before or to nominate candidates for
election as directors at an annual meeting of stockholders must provide us with timely advance written notice of their
proposal in a prescribed form. Our amended and restated bylaws also provide that stockholders desiring to call a
special meeting for any purpose, must submit to us a request in writing of stockholders representing a majority of all
of the shares of stock outstanding and entitled to vote and stating the purpose of such meeting. The ability to issue
preferred stock and such provisions in our bylaws might have the effect of delaying, discouraging or preventing a
change in control that might otherwise be beneficial to stockholders and might materially and adversely affect the
market price of our common stock.

In addition, some provisions of Delaware law, particularly the “business combination” statute in Section 203 of
Delaware General Corporation Law, might also discourage, delay or prevent someone from acquiring us or merging
with us. As a result of these provisions in our charter documents and Delaware law, the price investors might be
willing to pay in the future for shares of our common stock might be limited.

Our restated certificate allows us to redeem or otherwise dispose shares of our common stock owned by a foreign
stockholder if certain U.S. Government agencies threaten termination of any of our contracts as a result of such an
ownership interest.

The United States Departments of Energy and Defense have policies regarding foreign ownership, control or influence
over government contractors who have access to classified information, and might conduct an inquiry as to whether
any foreign interest has beneficial ownership of 5% or more of a contractor’s or subcontractor’s voting securities. If
either Department determines that an undue risk to the defense and security of the United States exists as a result of
foreign ownership, control or influence over a government contractor (including as a result of a potential acquisition),
it might, among other things, terminate the contractor’s or subcontractor’s existing contracts. Our restated certificate
allows us to redeem or require the prompt disposition of all or any portion of the shares of our common stock owned
by a foreign stockholder beneficially owning 5% or more of the outstanding shares of our common stock if either
Department threatens termination of any of our contracts as a result of such an ownership interest. These provisions
may have the additional effect of delaying, discouraging or preventing a change in control and might materially and
adversely affect the market price of our common stock.

Item 1B: Unresolved Staff Comments

None.

Item 2:

Properties

We do not own any significant real property, but we and our subsidiaries lease an aggregate of approximately 260,000
square feet of primarily office and related space at various locations throughout the United States, the United
Kingdom, Canada, Mexico, Malaysia, India and China, typically, under long-term leases. We occupy approximately
30,700 square feet in an office building in Elkridge, Maryland for our corporate headquarters under a lease which
expires in 2013, and approximately 60,000 square feet in an office building in Troy, Michigan under a sublease which
expires in 2015.

We believe that our properties have been well maintained, are suitable and adequate for us to operate at present levels
and the productive capacity and extent of utilization of the facilities are appropriate for our existing real estate
requirements. Upon expiration of these leases, we do not anticipate any difficulty in obtaining renewals or alternative
space.

Item 3:

Legal Proceedings

We discuss our legal proceedings in Note 17 to the accompanying Consolidated Financial Statements.

Item 4:

Submission of Matters to a Vote of Security Holders

On December 11, 2008, we held our annual meeting of shareholders. At that meeting, the following matters were
voted upon:

1. Our stockholders elected the Directors listed below for terms continuing until the 2009 annual meeting of

stockholders by the following votes:

Harvey P. Eisen
Marshall S. Geller
Scott N. Greenberg
Sue W. Kelly
Richard C. Pfenniger, Jr.
A. Marvin Strait
Gene A. Washington

Common Shares Cast:
For

Withheld

13,047,928
12,992,936
14,237,841
14,235,666
8,933,014
13,812,893
13,812,044

1,239,266
1,294,258
49,353
51,528
5,354,180
474,301
475,150

2. Our stockholders ratified the appointment of KPMG LLP as our independent registered public accounting firm
for the fiscal year ending December 31, 2008. Our stockholders cast 14,178,677 votes for ratification of KPMG
LLP, 96,799 votes against ratification of KPMG LLP, and there were 11,718 abstentions.

PART II

Item 5: Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

Our common stock, $0.01 par value, is traded on the New York Stock Exchange. The following table presents our
high and low market prices for the last two fiscal years. During the periods presented below, we have not paid any
cash dividends.

Quarter

First
Second
Third
Fourth

2008

High

Low

11.08 $
10.23
10.14
9.60

8.70
7.80
7.60
3.00

2007

High

Low

9.78 $

11.73
11.45
11.25

8.08
8.29
9.40
8.77

The number of shareholders of record of our common stock as of February 27, 2009 was 1,098 and the closing price of
our common stock on the New York Stock Exchange on that date was $3.39.

We have not declared or paid any cash dividends on our common stock during the two most recent fiscal years. We do
not anticipate paying cash dividends on our common stock in the foreseeable future and intend to retain future
earnings to finance the growth and development of our business. In addition, the General Physics Credit Agreement
(see Item 7) contains restrictive covenants regarding future acquisitions, incurrence of debt and the payment of
dividends. The Credit Agreement permits General Physics to provide GP Strategies up to an additional $10 million of
cash to repurchase shares of its outstanding common stock in the open market beginning on August 14, 2008. General
Physics is otherwise currently restricted under the Credit Agreement from paying dividends or management fees to GP
Strategies in excess of $1.0 million in any fiscal year, with the exception of a waiver which permitted General Physics
to provide up to $8.1 million in cash to repay debt obligations which matured in 2008 and the funding of stock
repurchases discussed above.

Performance Graph

The following graph assumes $100 was invested on January 1, 2004 in GP Strategies Common Stock, and compares
the share price performance with the Education Training Services Index (Hemscott Group Index) and the NYSE
Market Index. This chart does not reflect the dividends to our shareholders of shares of NPDC in November 2004 and
shares of GSE in September 2005 in connection with the spin-offs. Values are as of December 31 of the specified year
assuming that all dividends were reinvested.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG GP STRATEGIES CORP.,
NYSE MARKET INDEX AND HEMSCOTT GROUP INDEX

175

150

125

100

S
R
A
L
L
O
D

0
2003

2004

2005

2006

2007

2008

GP STRATEGIES CORP.
NYSE MARKET INDEX

HEMSCOTT GROUP INDEX

ASSUMES $100 INVESTED ON JAN. 1, 2004
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2008

Company / Index
Name

2003

2004

2005

2006

2007

2008

Year ended December 31,

GP Strategies Corp.

$100.00

$93.13

$102.00

$103.75

$133.13

$56.38

Education &
Training Services

100.00

105.63

92.59

80.32

124.09

122.78

NYSE Market Index

100.00

112.92

122.25

143.23

150.88

94.76

Issuer Purchases of Equity Securities

The following table provides information about our share repurchase activity for the three months ended December 31,
2008:

Issuer Purchases of Equity Securities

Month

October 1-31, 2008
November 1-30, 2008

December 1-31, 2008

Total number
of shares
purchased

115,000
158,800

64,500

Average
price paid
per share

$
$

6.27
4.74

4.64

Total number
of shares
purchased as
part of publicly
announced program (1)
115,000
158,800

Approximate
dollar value of
shares that may yet
be purchased under
the program

$
$

5,614,000
4,854,000

64,500

4,552,000

(1) Represents shares repurchased in the open market in connection with our share repurchase program
under which we may repurchase shares of our common stock from time to time in the open market
subject to prevailing business and market conditions and other factors. There is no expiration date for
the repurchase program.

Item 6:

Selected Financial Data

The selected financial data presented below should be read in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in Item 7 and our consolidated financial statements and
the notes thereto included elsewhere in this report. Our consolidated statement of operations data for the years ended
December 31, 2008, 2007, and 2006 and our consolidated balance sheet data as of December 31, 2008 and 2007 have
been derived from our audited consolidated financial statements included elsewhere in this report. Our consolidated
statement of operations data for the years ended December 31, 2005 and 2004 and our consolidated balance sheet data
as of December 31, 2006, 2005, and 2004 have been derived from audited consolidated financial statements, which are
not presented in this report.

On September 30, 2005, we completed the spin-off of our majority ownership interest in GSE, and on November 24,
2004, we completed the spin-off of NPDC. The results of operations of GSE and NPDC have been reclassified as
discontinued in the consolidated statements of operations for the years ended December 31, 2005 and 2004.

Statement of Operations Data

2008

Years ended December 31,
2007
2005
2006
(In thousands, except per share amounts)

Revenue
Gross profit
Goodwill impairment loss
Interest expense
Gain on litigation settlement, net
Gain on arbitration award, net
Income from continuing operations

before income taxes

Income from continuing operations
Income (loss) from discontinued operations,

net of income taxes

Net income

Diluted earnings per share:

Income from continuing operations
Income (loss) from discontinued operations
Diluted earnings per share

Balance Sheet Data

Cash and cash equivalents (2)
Short-term borrowings
Working capital
Total assets
Long-term debt, including current maturities
Stockholders’ equity

267,893 $
38,830
5,508
699
—
—

14,150
7,837

—
7,837

248,422 $
36,840
—
1,218
—
—

16,906
9,684

—
9,684

178,783 $
26,566
—
1,558
—
—

11,710
6,642

—
6,642

175,555 $
24,991
—
1,518
5,552
—

15,224
8,457

(1,244)
7,213

2004

164,458
19,339
—
1,937
—
13,660

14,017
22,266

(1)

254
22,520

0.47 $
—
0.47 $

0.56 $
—
0.56 $

0.40 $
—
0.40 $

0.45 $
(0.07)
0.38 $

1.22
0.01
1.23

2008

3,961 $
3,234
22,849
135,840
—
92,806

December 31,
2007
2005
2006
(In thousands, except per share amounts)

3,868 $
2,953
18,080
147,445
7,986
90,382

8,660 $
—
23,142
121,400
10,926
79,731

18,118 $
—
34,804
134,641
11,380
94,342

2004

2,417
6,068
20,601
156,035
11,051
91,620

(1)

During 2004, based upon an assessment of the realizability of our deferred tax assets, management considered it more likely than not
that its deferred tax assets would be realized and reduced its deferred tax valuation allowance by $12.2 million, resulting in a net
income tax benefit for the year ended December 31, 2004.

(2) Cash and cash equivalents include one-time cash receipts associated with the EDS arbitration award and litigation settlement in 2005.

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information we believe is relevant to an assessment and understanding
of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto for the year ended December 31, 2008 which are located in Item
8 of this report.

General Overview

Our business consists of our principal operating subsidiary, General Physics, a global training, engineering, technical
services and consulting company that seeks to improve the effectiveness of organizations by providing training,
management consulting, e-Learning solutions, engineering and technical services and products that are customized to
meet the specific needs of clients. Clients include Fortune 500 companies and manufacturing, process and energy
companies and other commercial and governmental customers. We believe we are a global leader in performance
improvement, with over four decades of experience in providing solutions to optimize workforce performance.

During the fourth quarter of 2008, we re-evaluated our reportable business segments under SFAS No. 131 as a result
of organizational and management reporting changes that were made primarily due to the retirement of one of our
executive officers in 2008. We determined that the former Process, Energy & Government segment should be divided
into two reportable segments. Prior to this change, we operated through three reportable business segments. As of
December 31, 2008, we operated through four reportable business segments: (i) Manufacturing & BPO, (ii) Process &
Government, (iii) Energy, and (iv) Sandy Training & Marketing (“Sandy”). In addition, during the first quarter of
2008, we transferred the management responsibility for our automotive technical training business unit from the
Manufacturing & BPO segment to the Sandy segment. As a result of these changes, all prior period segment
information has been reclassified to conform to the current year’s presentation.

We are organized by operating group, primarily based upon the markets served by each group and the services
performed. Each operating group consists of strategic business units (“SBUs”) and business units (“BUs”) which are
focused on providing specific products and services to certain classes of customers or within targeted markets. Across
operating groups, SBUs and BUs, we integrate similar service lines, technology, information, work products, client
management and other resources. Communications and market research, accounting, finance, legal, human resources,
information systems and other administrative services are organized at the corporate level. Business development and
sales resources are aligned with operating groups to support existing customer accounts and new customer
development. Two of our reportable business segments, Manufacturing & BPO and Process & Government, represent
an aggregation of certain operating groups in accordance with the aggregation criteria in SFAS No. 131, while our
Energy and Sandy groups each represent one operating segment pursuant to SFAS No. 131. We review our reportable
business segments on a continual basis and could change our reportable business segments from time to time in the
event of organizational changes.

Further information regarding each business segment is discussed below.

Process & Government. Our Process & Government segment has over four decades of experience providing
consulting, engineering, technical and training services, including emergency preparedness, safety and regulatory
compliance, chemical demilitarization and environmental services primarily to federal and state government agencies,
large government contractors, petroleum and chemical refining companies and electric power utilities. This segment
also provides design and construction of alternative fuel stations, including LNG fueling and hydrogen stations.

We discuss our business in more detail in Item 1.Business and the risk factors affecting our business in Item 1A. Risk
Factors.

Business Strategy

We seek to increase shareholder value by pursuing the following strategies:

Continuously enhance our service offerings and capabilities. We plan to continuously expand our services and
capabilities through organic growth initiatives based upon our technical expertise as well as through targeted
acquisitions. For example, our acquisitions of PMC, Sandy and Via in 2007 added product sales training to our
services offerings and expanded our e-Learning capabilities and our acquisition of PCS in 2008 strengthened and
enhanced our service offerings to clients in the energy industry. We believe that the breadth of our service and
product offerings allows us to effectively compete for customers by offering a comprehensive and single-source
solution for custom training, consulting, engineering and technical services. We will continue to focus on increasing
our capabilities to drive incremental growth from new, as well as existing, clients.

Develop and maintain strong customer relationships. We plan to preserve and grow our business by cross-selling
our services and capabilities across and within our existing client base. We have a successful track record of increasing
the scope of our work for a number of our clients, many of whom we estimate currently outsource only a fraction of
their training expenditures. We believe that as our clients benefit from the effective, cost-efficient and flexible
training solutions and services that we provide, many of them will find it beneficial to increase the scope of training
services that they outsource to third party providers. We believe that the strength of our relationships with our existing
clients, including the insight and knowledge into their operations that we have developed through these relationships,
when combined with the broad range of our service and product offerings, provide us with an advantage when
competing for these additional expenditures. We realize that many companies are reducing their external training
expenditures due to the current economic recession; however, we will strive to preserve our relationships and increase
our proportion of our customers’ total spend.

Remain competitive in the current economic environment. We anticipate that the changing global economy and
current recession will impact our operations in 2009, primarily due to a slow down in certain of the end market sectors
we serve, such as automotive and electronics and semiconductors, which may result in reduced expenditures by these
customers for our training and consulting services. We have implemented a cost management strategy to ensure that
we remain competitive in the current economic environment and are well positioned when the economy recovers. We
have recently taken certain cost-cutting measures to achieve this goal, including reducing the number of personnel in
certain areas of our business to re-align costs with anticipated reductions in revenue streams, restricting salary
increases, reducing our matching contribution to the Retirement Savings Plan and increasing our employees’ share of
the cost of health insurance coverage. In addition, in an effort to preserve operating cash flow, we have changed our
standard payment terms to our vendors from net thirty days to net forty-five days. We believe that these actions will

enable us to maintain a strong competitive and financial position to compete during these difficult times. We will
continue to evaluate our cost management strategy throughout the year as circumstances change.

Invest in our Energy services business. In recent years, we have experienced significant organic growth in training
and engineering services provided to customers in the energy sector and we believe there will be continued growth in
this sector due to the ever-increasing demand for products and services that help power generation plants deliver
energy in an efficient, environmentally compliant and profitable manner. To take advantage of the opportunities in the
energy sector, we plan to continue to enhance and expand our product and service offerings to this industry.

Leverage BPO capabilities. We have a demonstrated ability to provide training services across a wide spectrum of
learning engagements from transactional multi-week assignments focused on a single aspect of a learning process to
multi-year contracts where we manage the learning infrastructure of our customer. Integrated BPO engagements
typically require us to assume responsibility for the development, delivery and administration of learning functions
and are generally carried out under multi-year agreements. We intend to leverage our BPO capabilities to expand the
customers and markets we serve.

Maintain our international presence. We believe international markets offer compelling and underpenetrated growth
opportunities for our services. We intend to leverage our current international presence as well as continue pursuing
our strategy of enhancing our international platform by selectively acquiring businesses in targeted geographies and
following our current clients into new geographic markets. In our experience, many of our clients are seeking access to
these and other attractive international markets and as such we intend to enhance our international capabilities. In
order to support their business expansion we are providing employee training solutions across organizations in
different countries and different languages, while maintaining quality and consistency in the overall training program.
By moving into specific international markets with our existing clients, we are able to not only deepen our
relationships with those clients, but are also able to develop expertise in those markets that we can leverage to
additional customers. We believe that following this strategy provides us with opportunities to gain access to
international markets with established client relationships in those markets.

Continue our disciplined acquisition strategy. We plan to continue to focus on evaluating compelling strategic
acquisition targets to enhance our service offerings and delivery capabilities and to expand our geographic footprint.
We have followed a disciplined approach to target selection and have been able to acquire complementary businesses
at what we believe are attractive valuations. Since 2006, we have acquired seven businesses with annualized revenues
totaling over $85 million, expanding our e-Learning capability and adding complementary services such as product
sales training. Four of these businesses are in the United Kingdom, and have strengthened our international platform,
enabling us to meet the needs of our global clients while providing additional client opportunities. We also believe
that our current operating structure, which utilizes a centralized infrastructure of corporate services to support our
various platforms, enhances our ability to quickly and cost-effectively integrate acquisitions. We look to identify
acquisitions to augment our capabilities when we believe acquisitions are the quickest and most efficient way of
expanding our platform and service offerings.

Significant Events

Acquisitions

Below is a summary of the acquisitions we have completed since 2006. See Note 2 to the accompanying Consolidated
Financial Statements for further details, including the purchase price allocations.

Performance Consulting Services, Inc. (PCS)

two twelve-month periods following the completion of the acquisition. PCS is included in our Energy segment and the
results of its operations have been included in the consolidated financial statements for the period beginning March 1,
2008. The pro-forma impact of the PCS acquisition is not material to our results of operations for the year ended
December 31, 2008.

Other 2008 Acquisitions

During the fourth quarter of 2008, General Physics, through its wholly owned GPUK subsidiary, completed two
separate acquisitions of training and consulting companies in the United Kingdom. The total purchase price for these
businesses was approximately $0.9 million in cash. In addition, the purchase agreements require up to an additional
$1.6 million to be paid to the sellers, contingent upon the achievement of certain earnings targets, as defined in the
purchase agreements, over a four-year period subsequent to the acquisitions. The pro-forma impact of these
acquisitions is not material to our results of operations for the year ended December 31, 2008.

Via Training, LLC (Via)

On October 1, 2007, General Physics acquired Via, a U.S. custom e-Learning sales training company, for a purchase
price of $1.8 million in cash paid at closing. In addition, the purchase agreement requires up to an additional $3.3
million to be paid to the seller, contingent upon Via achieving certain earnings targets, as defined in the purchase
agreement, during the two twelve-month periods following the completion of the acquisition. No contingent
consideration was payable with respect to the first twelve-month period following completion of the acquisition as the
earnings target was not achieved. As of December 31, 2008, the maximum contingent consideration General Physics
may be required to pay is $1.7 million. Via is included in our Manufacturing & BPO segment and its results of
operations are included in our consolidated financial statements for the period beginning October 1, 2007. The pro-
forma impact of the Via acquisition is not material to our results of operations for the year ended December 31, 2007.

Smallpeice Enterprises Limited (SEL)

On June 1, 2007, General Physics, through its wholly owned GPUK subsidiary, completed the acquisition of SEL, a
provider of business improvement and technical and management training services in the United Kingdom. GPUK
acquired 100% ownership of SEL for a purchase price of approximately $3.3 million in cash. In addition, the purchase
agreement requires up to an additional $1.8 million to be paid to the seller, contingent upon SEL achieving certain
earnings targets, as defined in the purchase agreement, during the one-year period following completion of the
acquisition. During 2008, General Physics paid $0.2 million of contingent consideration based on the earnings targets
achieved during the one-year period following completion of the acquisition and was accounted for as goodwill. SEL
is included in our Manufacturing & BPO segment and its results of operations are included in our consolidated
financial statements for the period beginning June 1, 2007. The pro-forma impact of the SEL acquisition is not
material to our results of operations for the year ended December 31, 2007.

Sandy Corporation

On January 23, 2007, General Physics completed the acquisition of Sandy, a leader in custom product sales training
and part of the ADP Dealer Services division of ADP. Sandy, which is run as an unincorporated division of General
Physics, offers custom sales training and print-based and electronic publications primarily to the U.S. automotive
industry. General Physics acquired certain assets and the business of Sandy for a purchase price of approximately $4.4
million cash paid to ADP from cash on hand and the assumption of certain liabilities to complete contracts. In
addition, the purchase agreement requires up to an additional $8.0 million to be paid to ADP, contingent upon Sandy
achieving certain revenue targets during the two twelve-month periods following the completion of the acquisition.
During 2008, General Physics paid $2.5 million of contingent consideration with respect to the first twelve-month
period subsequent to the acquisition and was accounted for as goodwill. SFAS No. 141, Business Combinations
(“SFAS No. 141”), requires that earned but unpaid contingent consideration be accrued to the extent that the amount
earned is determinable beyond a reasonable doubt as of the balance sheet date. As of December 31, 2008, we accrued
$2.5 million of contingent consideration with respect to the second twelve-month period following the completion of
the Sandy acquisition based on the revenue targets achieved for the eleven-month period ended December 31, 2008.
Sandy is included in our Sandy Training and Marketing segment and the results of its operations have been included in
our consolidated financial statements for the period beginning January 23, 2007. The following unaudited pro forma

consolidated results of operations of the Company assume that the acquisition of Sandy was completed as of January 1
for each of the years shown below:

Revenue

Net income

Basic earnings per share

Diluted earnings per share

Year ended
December 31,

2007

2006

(In thousands, except per share amounts)

252,370 $

247,657

9,825

0.59

0.57

9,108

0.58

0.54

The pro forma data above may not be indicative of the results that would have been obtained had the acquisition
actually been completed at the beginning of the periods presented, nor is it intended to be a projection of future results.

Peters Management Consultancy Ltd. (PMC)

On February 3, 2006, General Physics, through its wholly owned GPUK subsidiary completed the acquisition of PMC,
a performance improvement and sales training company in the United Kingdom. GPUK acquired 100% ownership of
PMC for a purchase price of $1.3 million in cash. PMC is included in our Manufacturing & BPO segment and its
results of operations are included in our consolidated financial statements since the date of acquisition.

Share Repurchase Program

Since January 2006, our Board of Directors has authorized a total of $23 million of repurchases of our common stock
from time to time in the open market, subject to prevailing business and market conditions and other factors. During
the years ended December 31, 2008, 2007 and 2006, we repurchased approximately 1,091,000, 678,500 and 420,000
shares, respectively, of our common stock in the open market for a total cost of approximately $8.8 million, $6.5
million and $3.1 million, respectively. As of December 31, 2008, there was approximately $4.6 million available for
future repurchases under the buyback program. There is no expiration date for the repurchase program.

Results of Operations

Operating Highlights

Year ended December 31, 2008 compared to the year ended December 31, 2007

For the year ended December 31, 2008, we had income before income taxes of $14.2 million compared to $16.9
million for the year ended December 31, 2007. We incurred a goodwill impairment loss of $5.5 million during 2008
which is discussed in more detail below. Excluding the goodwill impairment loss, we had an increase in operating
income of $2.0 million, the components of which are discussed below, a decrease in interest expense of $0.5 million
and an increase in other income of $0.2 million. Net income was $7.8 million, or $0.47 per diluted share, for the year
ended December 31, 2008 compared to net income of $9.7 million, or $0.56 per diluted share, for 2007.

Diluted weighted average shares outstanding were 16.6 million for the year ended December 31, 2008 compared to
17.2 million for the same period in 2007. The decrease in shares outstanding is primarily due to repurchases of our
common stock in the open market in connection with our share repurchase program discussed above.

Revenue

Manufacturing & BPO
Process & Government
Energy
Sandy Training & Marketing

Years ended December 31,
2007
2008

(Dollars in thousands)

119,041 $
54,394
22,018
72,440

267,893 $

106,502
54,903
16,963
70,054

248,422

Manufacturing & BPO revenue increased $12.5 million or 11.8% during the year ended December 31, 2008 compared
to 2007. The increase in revenue is due to the following:

• $4.4 million increase in revenue from our operations in the UK, which consists of a $2.4 million increase
attributable to acquisitions completed in 2007 and 2008 and a $3.7 million increase in revenue primarily due
to expansion of government funded training programs in the UK and increased volume with BPO customers,
offset by a $1.7 million decrease in revenue due to unfavorable currency exchange rates;

• $4.7 million increase in revenue attributable to the acquisition of Via in October 2007;

• $3.5 million net increase in BPO and e-Learning services with new and existing U.S. customers;

• $1.0 million increase in process and maintenance reliability training services provided to a steel client; and

• $1.6 million of other net increases largely due to increased services for BPO customers provided by our

subsidiaries in the Asia Pacific region.

The above increases were offset by the following:

•

$1.7 million reduction in services for a pharmaceutical client; and

$1.0 million reduction in services for a lean consulting client during 2008 compared to 2007.

As noted above, the changes in foreign currency exchange rates negatively impacted our revenue and profit during
2008 and we expect the changes in rates which occurred primarily in the second half of 2008 to continue to negatively
impact our 2009 revenue and profit when compared to prior periods. In addition, while we experienced increases in e-
Learning and BPO services during 2008, we began to see a slow down in customer spending beginning in the fourth
quarter of 2008 for these services, particularly in the electronics and semiconductors sector, and we anticipate that this
trend could negatively impact our revenue and profit in 2009.

Process & Government revenue decreased $0.5 million or 1.0% during the year ended December 31, 2008 compared
to 2007. The decrease in revenue is primarily due to the following:

• $1.7 million net increase in technical services primarily for aerospace customers; and

• $0.8 million net increase relating to construction projects for liquefied natural gas (“LNG”) and hydrogen

fueling station facilities.

These increases in revenue in the Process & Government segment were offset by the following:

• $1.8 million net decrease in revenue primarily due to the completion of certain homeland security and first

responder training contracts during 2008 compared to 2007; and

• $1.2 million reduction in the volume of services provided to a large petrochemical client during 2008.

Energy group revenue increased $5.1 million or 29.8% during the year ended December 31, 2008 compared to 2007
due to the following:

• $2.8 million net increase in training and related products and services to energy customers, due to an increase
in contracts to provide training services for new and existing power generation customers and expanded sales
of training courses through our GPiLearnTM web-based training portal; and

• $2.3 million of revenue contributed by the PCS acquisition which was completed in March 2008.

Sandy Training & Marketing revenue increased $2.4 million or 3.4% during the year ended December 31, 2008
compared to 2007 due to the following:

• $3.9 million increase due to Sandy’s results being included for a full one-year period in 2008 compared to a

partial period in 2007, as the acquisition of Sandy was completed on January 23, 2007; and

• $1.4 million net revenue increase during 2008 primarily due to an increase in sales training services provided
to various automotive customers for new vehicle launch events and programs and expansion of publications
for an automotive customer during 2008 compared to 2007.

The increases in revenue in this segment were offset by the following:

• $1.4 million decrease in technical training services provided to automotive customers due to a reduction in
plant spending (as mentioned above, we transferred management responsibility for our automotive technical
training business unit from the Manufacturing & BPO segment to the Sandy segment during the first quarter
of 2008); and

• $1.5 million decrease in glovebox portfolio sales due to lower vehicle sales.

While the Sandy segment experienced an overall increase in revenue during 2008 compared to 2007, we anticipate that
there will be a reduction in revenue in 2009 due to the current condition of the automotive industry. However, as
discussed in the Business Strategy section above, we have implemented cost-cutting initiatives to proactively align
costs with anticipated reductions in revenue streams.

We may experience significant quarterly fluctuations in revenue and income related to Sandy’s publications business,
since revenue and cost on publication contracts are recognized in the period in which the publications ship, based on
the output method of performance. Shipments occur at various times throughout the year and the volume of
publications shipped could fluctuate from quarter to quarter. Publications revenue in the Sandy Training & Marketing
segment totaled $4.4 million during the fourth quarter of 2008, compared to $1.3 million during the third quarter of
2008, $3.6 million during the second quarter of 2008 and $4.0 million during the first quarter of 2008.

In addition, we have a concentration of revenue from General Motors as well as a market concentration in the
automotive sector. Revenue from General Motors accounted for approximately 20% of our consolidated revenue for
the year ended December 31, 2008, and revenue from the automotive industry accounted for approximately 28% of
our consolidated revenue for the year ended December 31, 2008.

Gross profit

Manufacturing & BPO

Process & Government

Energy

Sandy Training & Marketing

Years ended December 31,

2008

% Revenue

2007

% Revenue

(Dollars in thousands)

16,676

8,719

5,886

7,549

38,830

14.0%

16.0%

26.7%

10.4%

14.5%

14,362

10,921

4,074

7,483

36,840

13.5%

19.9%

24.0%

10.7%

14.8%

Manufacturing & BPO gross profit of $16.7 million or 14.0% of revenue for the year ended December 31, 2008
increased by $2.3 million or 16.1% when compared to gross profit of approximately $14.4 million or 13.5% of
revenue for the year ended December 31, 2007. The increase in gross profit is primarily attributable to increases in
revenue and gross profit for e-Learning and BPO services provided during 2008, as well as the increase in revenue and
gross profit from our UK operations. Gross profit as a percentage of revenue increased in this segment during 2008
compared to 2007, primarily due to improved labor utilization in our e-Learning and BPO organizations and improved
margins in the acquired Via business.

Process & Government gross profit of $8.7 million or 16.0% of revenue for the year ended December 31, 2008
decreased by $2.2 million or 20.2% when compared to gross profit of approximately $10.9 million or 19.9% of
revenue for the year ended December 31, 2007. The decrease in gross profit is primarily attributable to a reduction in
high margin services provided to a petrochemical customer during 2008 compared to 2007. In addition, gross profit
decreased in this segment due to a decrease in margin on certain LNG construction projects during 2008 compared to
2007.

Energy gross profit of $5.9 million or 26.7% of revenue for the year ended December 31, 2008 increased by $1.8
million or 44.5% when compared to gross profit of approximately $4.1 million or 24.0% of revenue for the year ended
December 31, 2007. This increase in gross profit is primarily due to the revenue increases discussed above.

Sandy Training and Marketing gross profit of $7.5 million or 10.4% of revenue for the year ended December 31, 2008
increased by $0.1 million or 1.0% when compared to gross profit of $7.5 million or 10.7% for the year ended
December 31, 2007.

Selling, general and administrative expenses

SG&A expenses were $19.6 million for both the years ended December 31, 2008 and 2007. While SG&A expenses
were flat year over year, there was a net increase in labor and benefits expense during 2008 due to an increase in
personnel, offset by a decrease in amortization expense associated with the backlog intangible we acquired in
connection with the Sandy acquisition which became fully amortized in the first quarter of 2008.

Goodwill impairment loss

We incurred a goodwill impairment loss of $5.5 million for the year ended December 31, 2008 related to our Sandy
segment. See the Management Discussion of Critical Accounting Policies section below for further discussion
regarding the factors leading to the goodwill impairment and the valuation methodologies and assumptions used in the
goodwill impairment test.

Interest expense

Interest expense decreased $0.5 million or 42.6% from $1.2 million for the year ended December 31, 2007 to $0.7
million for the year ended December 31, 2008. The decrease is primarily due to a decrease in interest expense related

to a reduction in long-term debt obligations which matured in 2008, as well as a decrease in interest expense related to
our credit facility primarily due to lower interest rates during 2008 compared to 2007.

Other income

Other income increased $0.2 million or 26.0% from $0.9 million for the year ended December 31, 2007 to $1.1 million
for the year ended December 31, 2008. The increase is primarily due to a $0.3 million gain, net of legal fees and
expenses, on a litigation settlement during 2008 (see Note 17 to the Consolidated Financial Statements), offset by a
decrease in interest income due to lower cash balances and interest rates during 2008 compared to 2007.

Income taxes

Income tax expense was $6.3 million for the year ended December 31, 2008 compared to $7.2 million for the year
ended December 31, 2007. The decrease in income tax expense is primarily due to a decrease in income before income
taxes in 2008 compared to 2007, largely attributable to the $5.5 million goodwill impairment loss we recognized
during 2008 which provided a $2.2 million income tax benefit. The effective income tax rate was 44.6% and 42.7%
for the years ended December 31, 2008 and 2007, respectively. The increase in the effective income tax rate is
primarily due to the decrease in income before income taxes and an increase in foreign taxes in 2008 compared to
2007 (see Note 10 to the accompanying Consolidated Financial Statements).

Year ended December 31, 2007 compared to the year ended December 31, 2006

For the year ended December 31, 2007, we had income before income taxes of $16.9 million compared to $11.7
million for the year ended December 31, 2006. The improved results are primarily due to an increase in operating
income of $5.0 million, the components of which are discussed below, and is attributable to increases in operating
income across all of our business segments as well as the Sandy and SEL acquisitions which were accretive to
earnings in 2007. Net income was $9.7 million, or $0.56 per diluted share, for the year ended December 31, 2007
compared to net income of $6.6 million, or $0.40 per diluted share, for 2006.

Diluted weighted average shares outstanding were 17.2 million for the year ended December 31, 2007 compared to
16.7 million for the same period in 2006. The increase in shares outstanding is due to the issuance of more shares in
2007 compared to 2006 for exercises of warrants and stock options. This was offset by repurchases of our common
stock in the open market. In connection with our share repurchase program, we repurchased 678,500 shares of
common stock in the open market during the year ended December 31, 2007 for approximately $6.5 million in cash.

Revenue

Manufacturing & BPO
Process & Government
Energy
Sandy Training & Marketing

Years ended December 31,
2006
2007

(Dollars in thousands)

106,502 $
54,903
16,963
70,054

97,398
62,904
14,565
3,916

248,422 $

178,783

Manufacturing & BPO revenue increased $9.1 million or 9.3% during the year ended December 31, 2007 compared to
2006. The increase in revenue is due to the following:

• $5.9 million increase in revenue from our operations in the United Kingdom, which consists of a $3.4 million
increase due to the acquisition of SEL during 2007, a $1.4 million increase attributable to the favorable
impact of foreign currency exchange rates in 2007 compared to 2006, and a net increase of $1.1 million in
training services provided to new and existing customers;

• $1.5 million increase in revenue resulting from our acquisition of Via in October 2007;

• $1.6 million increase in training and consulting services provided to steel customers;

• $1.0 million increase in training and technical services primarily to new customers; and

• $1.0 million of net increases in training services provided to BPO and e-Learning customers ($1.0 net increase
was comprised of $5.8 million of increases with new and existing customers, offset by a $4.8 million decrease
due to a reduction in scope with a BPO customer in 2007 compared to 2006).

These increases in revenue in the Manufacturing & BPO segment were offset by a $1.8 million decrease in revenue on
a lean manufacturing contract which had a reduction in scope in 2007 compared to 2006.

Process & Government revenue decreased $8.0 million or 12.7% during the year ended December 31, 2007 compared
to 2006. The decrease in revenue is primarily due to the following:

• $5.3 million decrease in revenue due to the completion of chemical demilitarization and environmental

projects with government clients;

• $4.8 million decrease in hurricane recovery services in 2007 compared to 2006 due to the work concluding in

2006; and

• $1.0 million decline in domestic preparedness and emergency awareness training services provided to

government clients.

These decreases in revenue in the Process & Government segment were offset by a $2.0 million revenue increase from
engineering and training services for petroleum and refining customers and a $2.0 million revenue increase from
technical services primarily for aerospace customers.

Energy group revenue increased $2.4 million or 16.5% during the year ended December 31, 2007 compared to 2006.
The increase in revenue is due to a $1.8 million increase in EtaProTM software sales and implementation services and a
$0.8 million increase primarily due to increased course sales through our GPiLearnTM web-based training portal and
other training services to energy customers.

Sandy Training & Marketing revenue increased $66.1 million during the year ended December 31, 2007. The
acquisition of Sandy resulted in an increase in revenue of $65.5 million during the year ended December 31, 2007. The
results of Sandy’s operations have been included in our consolidated statement of operations since the completion of
the acquisition on January 23, 2007. As noted above, during the first quarter of 2008 we transferred management
responsibility for our automotive technical training business unit to the Sandy segment and the results of operations for
that business unit have been reclassified to the Sandy segment for all periods presented.

We may experience significant quarterly fluctuations in revenue and income related to Sandy’s publications business,
since revenue and cost on publication contracts are recognized in the period in which the publications ship, based on
the output method of performance. Shipments occur at various times throughout the year and the volume of
publications shipped could fluctuate from quarter to quarter. Publications revenue in the Sandy Training & Marketing
segment totaled $4.5 million during the fourth quarter of 2007, compared to $1.4 million during the third quarter of
2007, $4.1 million during the second quarter of 2007 and $2.6 million during the first quarter of 2007.

In addition, as a result of the acquisition of Sandy, we have a concentration of revenue from General Motors as well as
a market concentration in the automotive sector. Revenue from General Motors accounted for approximately 21% of
our consolidated revenue for the year ended December 31, 2007, and revenue from the automotive industry accounted
for approximately 30% of our consolidated revenue for the year ended December 31, 2007.

Gross profit

Manufacturing & BPO

Process & Government

Energy

Sandy Training & Marketing

Years ended December 31,

2007

% Revenue

2006

% Revenue

(Dollars in thousands)

14,362

10,921

4,074

7,483

36,840

13.5%

19.9%

24.0%

10.7%

14.8%

13,512

10,592

2,596

(134)

26,566

13.9%

16.8%

17.8%

-3.4%

14.9%

Manufacturing & BPO gross profit of $14.4 million or 13.5% of revenue for the year ended December 31, 2007
increased by $0.9 million or 6.3% when compared to gross profit of approximately $13.5 million or 13.9% of revenue
for the year ended December 31, 2006. This increase in gross profit is primarily attributable to the overall revenue
growth in this segment, as discussed above, as well as increased gross profit from our operations in the United
Kingdom, primarily due to the acquisition of SEL in June 2007.

Process & Government gross profit of $10.9 million or 19.9% of revenue for the year ended December 31, 2007
increased by $0.3 million or 3.1% when compared to gross profit of approximately $10.6 million or 16.8% of revenue
for the year ended December 31, 2006. This increase in gross profit is primarily attributable to revenue and margin
increases related to contracts with petroleum and refining and aerospace customers due to both direct costs and
indirect overhead costs increasing at a lower rate than the revenue growth on these projects during 2007 compared to
2006. Costs were also reduced to re-align with the declining revenue streams experienced by the other areas within
this segment as discussed above. The gross profit increase on the petroleum and refining projects combined with these
cost reductions more than offset the revenue decreases in this segment.

Energy group gross profit of $4.1 million or 24.0% of revenue for the year ended December 31, 2007 increased by
$1.5 million or 56.9% when compared to gross profit of approximately $2.6 million or 17.8% for the year ended
December 31, 2006. The increase in gross profit is primarily due to an increase in EtaProTM software sales during 2007
compared to 2006 as well increased profitability on certain training projects during 2007 compared to 2006.

Sandy Training and Marketing gross profit of $7.5 million or 10.7% of revenue for the year ended December 31, 2007
increased $7.6 million when compared to negative gross profit of $0.1 million or -3.4% for the year ended December
31, 2006. The increase in gross profit is due to the acquisition of Sandy which contributed $7.4 million of gross profit
in 2007. As noted above, during the first quarter of 2008 we transferred management responsibility for our automotive
technical training business unit to the Sandy segment and the results of operations for that business unit have been
reclassified to the Sandy segment for all periods presented. Our automotive technical training business unit had gross
profit of $0.1 million for the year ended December 31, 2007 compared to negative gross profit of $0.1 million for the
year ended December 31, 2006.

Selling, general and administrative expenses

SG&A expenses increased $5.3 million or 37.3% from $14.3 million for the year ended December 31, 2006 to $19.6
million for the year ended December 31, 2007. The increase is primarily due to the following: an increase in
amortization expense of $1.8 million for intangible assets recorded in connection with our three acquisitions in 2007,
an increase in labor, benefits and facilities expense of $1.6 million primarily due to our acquisitions in 2007, a net
increase in a restructuring accrual of $0.6 million during 2007 compared to 2006 due to a restructuring charge of $0.3
million in 2007 compared to a reversal of a restructuring accrual of $0.3 million in 2006 relating to a facility lease for
our United Kingdom operations, an increase in accounting fees of $0.4 million primarily due to increased tax
consulting and compliance services, and an increase in general corporate overhead costs totaling $0.5 million.

Interest expense

Interest expense decreased $0.3 million or 21.8% from $1.6 million for the year ended December 31, 2006 to $1.2
million for the year ended December 31, 2007. The decrease is primarily due to a $0.4 million decrease in interest
expense related to the Gabelli Notes as a result of warrant exercises by Gabelli during 2007 and the second half of
2006 which resulted in a decrease in the principal balance of the debt (see Note 8 to the accompanying Consolidated
Financial Statements), as well as a decrease in amortization of deferred financing costs during 2007 compared to 2006.
The decrease in interest expense on the Gabelli Notes was slightly offset by an increase in interest expense due to an
increase in short-term borrowings under our credit facility during 2007 compared to 2006.

Other income

Other income decreased $0.1 million or 10.6% from $1.0 million for the year ended December 31, 2006 to $0.9
million for the year ended December 31, 2007. The decrease is primarily due to a decrease in interest income due to
lower cash balances during 2007 compared to 2006.

Income taxes

Income tax expense was $7.2 million for the year ended December 31, 2007 compared to $5.1 million for the year
ended December 31, 2006. The increase in income tax expense is primarily due to an increase in income before
income taxes in 2007 compared to 2006. As of December 31, 2007, we had federal net operating loss carryforwards of
$5.0 million, which expire during 2022 and 2023. The effective income tax rate was 42.7% and 43.3% for the years
ended December 31, 2007 and 2006, respectively (see Note 10 to the accompanying Consolidated Financial
Statements).

Liquidity and Capital Resources

Working Capital

For the year ended December 31, 2008, our working capital increased $4.7 million from $18.1 million at December
31, 2007 to $22.8 million at December 31, 2008. We believe that cash generated from operations and borrowings
available under the General Physics Credit Agreement ($19.5 million of available borrowings as of December 31,
2008), will be sufficient to fund our working capital and other requirements for at least the next twelve months.

During the year ended December 31, 2008, we used $5.1 million of cash to repay our long-term debt due to ManTech
International and $2.0 million of cash to repay our long-term debt to Gabelli (see Note 8 to the accompanying
Consolidated Financial Statements). During 2008, we also used $8.8 million of cash to repurchase approximately
1,091,000 shares of our common stock in the open market, $2.0 million of cash (including transaction costs) to
complete acquisitions in 2008 and $1.0 million of cash to acquire ownership of certain intellectual property being used
for web-based training materials in our Energy services course offering. In addition, we paid ADP, Inc. $2.5 million of
contingent consideration during the first quarter of 2008 based upon the revenue targets achieved during the first
twelve-month period following the completion of the Sandy acquisition. In August 2008, we paid $0.2 million of
contingent consideration to the seller of SEL with respect to the twelve-month period subsequent to the acquisition on
June 1, 2007, based on the earnings targets achieved during that period.

In connection with the PCS acquisition on March 1, 2008, a portion of the purchase price consists of $1.0 million of
guaranteed future payments to be paid in two equal installments on January 31, 2009 and January 31, 2010. In
addition, we may be required to pay the following additional contingent consideration in connection with the
acquisitions we completed during 2007 and 2008:

Acquisition:
Sandy Corporation*
Via Training
Performance Consulting Services
Other 2008 acquisitions in UK

Total

Potential maximum contingent consideration due in
2011

2012

2010

2009

4,000 $
1,725
1,005
326

7,056 $

— $
—
1,250
398

1,648 $

— $
—
—
470

470 $

— $
—
—
376

376 $

Total

4,000
1,725
2,255
1,570

9,550

* As of December 31, 2008, we accrued $2.5 million of contingent consideration with respect to the second twelve-
month period following the completion of the Sandy acquisition based on the revenue targets achieved for the
eleven-month period ended December 31, 2008.

Significant Customers & Concentration of Credit Risk

We have a concentration of revenue from General Motors Corporation and its affiliates (“General Motors”) as well as
a market concentration in the automotive sector. For the years ended December 31, 2008 and 2007, revenue from
General Motors accounted for approximately 20% and 21%, respectively, of our consolidated revenue. Revenue from
the automotive industry accounted for approximately 28% and 30% of our consolidated revenue for the years ended
December 31, 2008 and 2007, respectively. Accounts receivable from General Motors totaled $14.4 million as of
December 31, 2008 which is reflected in the consolidated balance sheet. As of February 28, 2009, approximately
$11.5 million of this balance had been collected and $2.8 million remained outstanding. Our accounts receivable
balance from General Motors is subject to fluctuation related to our publications business, since the volume and timing
of publications shipped varies on a quarter to quarter basis. In October 2008, General Motors and another significant
automotive customer extended their payment terms on our contracts to “net sixty”, meaning that payment to us should
be expected to be sent within sixty days from the date these customers receive our invoice, as compared to prior
payment terms which typically resulted in receipt of payment approximately thirty-five to forty-five days following
the invoice date. We anticipate that this change in payment terms may result in an increase to our accounts receivable
balance and a decrease in cash flow from operations as compared to prior reporting periods. To help offset the
potential cash flow impact of the revised payment terms by these automotive customers we have changed our standard
payment terms to our vendors from net thirty days to net forty-five days.

Cash Flows

Year ended December 31, 2008 compared to the year ended December 31, 2007

Our cash balance increased $0.1 million from $3.9 million as of December 31, 2007 to $4.0 million as of December
31, 2008. The increase in cash and cash equivalents during the year ended December 31, 2008 resulted from cash
provided by operating activities of $24.0 million, cash used in investing activities of $7.6 million, cash used in
financing activities of $15.5 million and a $0.8 million negative effect due to exchange rate changes on cash and cash
equivalents.

Cash provided by operating activities was $24.0 million for the year ended December 31, 2008 compared to $8.1
million in 2007. The increase in cash provided by operating activities compared to the prior year is primarily due to
favorable changes in operating assets and liabilities during 2008 compared to 2007, primarily due to the initial
working capital investment required in 2007 related to the Sandy acquisition which did not recur in 2008. The increase
in cash provided by operating activities is also due to an increase in income after adding back non-cash items to net
income for the year ended December 31, 2008 compared to 2007.

Cash used in investing activities was $7.6 million for the year ended December 31, 2008 compared to $13.3 million in
2007. The decrease in cash used in investing activities is primarily due to a decrease in cash used for acquisitions
during 2008 compared to 2007. We used a total of $4.7 million of cash during the year ended December 31, 2008 for
acquisitions ($1.1 million for the PCS acquisition, $0.9 million for two businesses we acquired in the UK, $2.5 million
of contingent consideration paid for the Sandy acquisition and $0.2 million of contingent consideration paid for the

SEL acquisition), compared to $10.6 million of cash during the same period in 2007 ($5.4 million for the Sandy
acquisition, $3.4 million for the SEL acquisition and $1.8 million for the Via acquisition). We also used $1.0 million
of cash in 2008 to purchase intellectual property rights for certain web-based training materials used in our Energy
services course offering.

Cash used in financing activities was $15.5 million for the year ended December 31, 2008 compared to cash provided
by financing activities of $0.4 million in 2007. The increase in cash used in financing activities is primarily due to the
following: a $2.7 million decrease in net proceeds from short-term borrowings in 2008 compared to 2007; a $7.1
million use of cash for the repayment of long-term debt during 2008; a $2.3 million increase in cash used for
repurchases of our common stock in the open market in 2008 compared to 2007; and a $1.6 million decrease in cash
received from the exercise of stock options during 2008 compared to 2007. In addition, there was a $1.8 million
decrease in the net change in our negative cash book balances during 2008 (the negative cash book balance results
from outstanding checks which had not cleared the bank at the end of the period and are classified as accounts payable
in the consolidated balance sheets and presented as a financing activity in the consolidated statements of cash flows).
These cash uses in investing activities were offset by $2.0 million of income tax benefits realized during 2008 relating
to 2008 and prior year stock option exercises and restricted stock vesting.

Year ended December 31, 2007 compared to the year ended December 31, 2006

Our cash balance decreased $4.8 million from $8.7 million as of December 31, 2006 to $3.9 million as of December
31, 2007. The decrease in cash and cash equivalents during the year ended December 31, 2007 resulted from cash
provided by operating activities of $8.1 million, cash used in investing activities of $13.3 million and cash provided by
financing activities of $0.4 million.

Cash provided by operating activities was $8.1 million for the year ended December 31, 2007 compared to $15.5
million in 2006. The decrease in cash provided by operating activities compared to 2006 was primarily due to a
significant increase in accounts receivable and costs and estimated earnings in excess of billings on uncompleted
contracts primarily as a result of the Sandy acquisition in January 2007. This decrease was offset by higher net income
of $3.0 million in 2007 compared to 2006.

Cash used in investing activities was $13.3 million for the year ended December 31, 2007 compared to $1.6 million in
2006. The increase in cash used in investing activities is primarily due to $5.4 million of cash used for the acquisition
of Sandy, $3.4 million of cash used for the acquisition of SEL and $1.8 million of cash used for the acquisition of Via,
compared to $0.6 million of cash used in 2006 for the acquisition of PMC. In addition, cash used for fixed asset
additions increased $0.8 million during the year ended December 31, 2007 compared to the same period in 2006, and
cash used for costs related to a new financial system implementation was $0.9 million during the year ended
December 31, 2007.

Cash provided by financing activities was $0.4 million for the year ended December 31, 2007 compared to cash used
in financing activities of $23.5 million in 2006. The increase in cash provided is primarily due to $20.9 million of
cash used in connection with the capital stock restructuring in 2006 which did not recur in 2007, an increase in short-
term borrowings during the year ended December 31, 2007 of $2.9 million compared to no borrowings in 2006, and a
negative cash book balance totaling $2.4 million as of December 31, 2007 resulting from outstanding checks which
had not cleared the bank as of December 31, 2007 due to the timing of payments, and are classified as accounts
payable in the consolidated balance sheet. In addition, there was an increase in cash received from the exercise of
stock options of $0.6 million during the year ended December 31, 2007 compared to 2006. These increases in cash
were offset by an increase of $3.4 million of cash used for share repurchases during 2007 compared to 2006.

Short-term Borrowings

General Physics has a $35 million Credit Agreement with a bank that expires on October 31, 2010, with annual
renewal options, and is secured by certain assets of General Physics. The maximum interest rate on borrowings under
the Credit Agreement is at the daily LIBOR Market Index Rate plus 2.25%. Based upon the financial performance of
General Physics, the interest rate can be reduced. As of December 31, 2008, the rate was LIBOR plus 1.25% which
resulted in a rate of approximately 1.69%. The Credit Agreement contains covenants with respect to General Physics’

minimum tangible net worth, total liabilities ratio, leverage ratio, interest coverage ratio and its ability to make capital
expenditures. General Physics was in compliance with all loan covenants under the amended Credit Agreement as of
December 31, 2008. The Credit Agreement also contains certain restrictive covenants regarding future acquisitions,
incurrence of debt and the payment of dividends. The Credit Agreement permits General Physics to provide GP
Strategies up to an additional $10 million of cash to repurchase shares of its outstanding common stock in the open
market beginning on August 14, 2008. General Physics is otherwise currently restricted from paying dividends or
management fees to GP Strategies in excess of $1 million in any year, with the exception of a waiver which permitted
General Physics to provide up to $8.1 million of cash to repay debt obligations which matured in 2008 in the event GP
Strategies did not have available cash (see Note 8 to the accompanying Consolidated Financial Statements) and the
funding of stock repurchases discussed above. As of December 31, 2008, there were $3.2 million of borrowings
outstanding and $19.5 million of available borrowings under the Credit Agreement, based upon 80% of eligible
accounts receivable and 80% of eligible unbilled receivables.

Long-term Debt

As of December 31, 2008, we had no outstanding long-term debt obligations except for some insignificant capital
lease obligations. During 2008, we repaid two long-term debt obligations which were previously issued in 2003 and
matured in 2008. In May 2008, we pre-paid a note obligation due to ManTech International for a total of $5.2 million,
which consisted of the principal balance of the note plus accrued interest through the payment date, less a mutually
agreed prepayment discount of $0.1 million. We recorded a gain on extinguishment of debt of $0.1 million in 2008
which is included in other income on the accompanying consolidated statement of operations. In August 2008, we
repaid the remaining principal balances of notes due to Gabelli for $2.0 million in cash. See Note 8 to the
accompanying Consolidated Financial Statements for further details.

Contractual Payment Obligations

We enter into various agreements that result in contractual obligations in connection with our business activities.
These obligations primarily relate to our financing arrangements, such as capital leases, as well operating leases and
purchase commitments under non-cancelable contracts for certain products and services. The following table
summarizes our total contractual payment obligations as of December 31, 2008 (in thousands):

Capital lease commitments
Operating lease commitments
Deferred acquisition costs
Purchase commitments *

Total

2009

26 $

4,451
500
1,680

2010 –
2011

Payments due in
2012–
2013

— $

6,288
500
1,390

5,042
—
416

After
2014

— $

2,677
—
—

Total

26
18,458
1,000
3,486

6,657 $

8,178 $

5,458 $

2,677 $

22,970

* Excludes purchase orders for goods and services entered into by the Company in the ordinary course of business,

which are non-binding and subject to amendment or termination within a reasonable notification period.

The table above excludes contingent consideration in connection with acquisitions which may be payable to the sellers
if the revenue and/or earnings targets set forth in the purchase agreements are achieved (see Note 2 to the Consolidated
Financial Statements.)

Off-Balance Sheet Commitments

Subsequent to the spin-off of NPDC, we continued to guarantee certain obligations of NPDC’s subsidiaries, Five Star
Products, Inc. (“Five Star”) and MXL Industries, Inc. (“MXL”). We guaranteed certain operating leases for Five
Star’s New Jersey and Connecticut warehouses, which totaled approximately $1.6 million per year through March 31,
2007. The leases have been extended and now expire in the first quarter of 2010. The annual rent obligations are
currently approximately $1.6 million. In connection with our spin-off of NPDC, NPDC agreed to assume our
obligation under such guarantees, to use commercially reasonable efforts to cause us to be released from each such

guaranty, and to hold us harmless from all claims, expenses and liabilities connected with the leases or NPDC’s breach
of any agreements effecting the spin-off. We have not received confirmation from the lessors that we have been
released from these guarantees. We do not expect to incur any material payments associated with these guarantees, and
as such, no liability is reflected in the consolidated balance sheets.

We also guaranteed the repayment of a debt obligation of MXL until June 2008, at which time MXL paid the
obligation in full and our guarantee expired.

As of December 31, 2008, we had six outstanding letters of credit totaling less than $0.4 million, which expire in
2009, and one outstanding performance bond for $10.3 million related to an LNG construction contract scheduled to
be completed in 2010.

We do not have any off-balance sheet financing except for operating leases and letters of credit entered into in the
normal course of business and the items disclosed above.

Management Discussion of Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting
principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Our estimates, judgments and assumptions are continually
evaluated based on available information and experience. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.

Certain of our accounting policies require higher degrees of judgment than others in their application. These include
revenue recognition, valuation of accounts receivable, stock-based compensation, impairment of intangible assets,
including goodwill, and income taxes, which are summarized below. In addition, Note 1 to the accompanying
Consolidated Financial Statements includes further discussion of our significant accounting policies.

Revenue Recognition

We provide services under time-and-materials, cost-reimbursable, fixed price and fixed-fee per transaction contracts to
both government and commercial customers. Each contract has different terms based on the scope, deliverables and
complexity of the engagement, requiring us to make judgments and estimates about recognizing revenue. Revenue is
recognized as services are performed.

Under time-and-materials contracts, as well as certain government cost-reimbursable and certain fixed price contracts,
the contractual billing schedules are based on the specified level of resources we are obligated to provide. As a result,
for these “level-of-effort” contracts, the contractual billing amount for the period is a measure of performance and,
therefore, revenue is recognized in that amount.

Revenue under government fixed price and certain commercial fixed price contracts is recognized using the
percentage-of- completion method in accordance with the American Institute of Certified Public Accountants
Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type
Contracts. Under the percentage-of-completion method, management estimates the percentage-of-completion based
upon costs incurred as a percentage of the total estimated costs.

For other commercial fixed price contracts which typically involve a discrete project, such as development of training
content and materials, design of training processes, software implementation, or engineering projects, the contractual
billing schedules are not based on the specified level of resources we are obligated to provide. These discrete projects
generally do not contain milestones or other reliable measures of performance. As a result, revenue on these
arrangements is recognized using a percentage-of-completion method based on the relationship of costs incurred to
total estimated costs expected to be incurred over the term of the contract. We believe this methodology is a
reasonable measure of proportional performance since performance primarily involves personnel costs and services
provided to the customer throughout the course of the projects through regular communications of progress toward

completion and other project deliverables. In addition, the customer typically is required to pay us for the
proportionate amount of work and cost incurred in the event of contract termination.

When total cost estimates exceed revenues, the estimated losses are recognized immediately. The use of the
percentage-of-completion method requires significant judgment relative to estimating total contract revenues and
costs, including assumptions relative to the length of time to complete the project, the nature and complexity of the
work to be performed, and anticipated changes in estimated salaries and other costs. Estimates of total contract
revenues and costs are continuously monitored during the term of the contract, and recorded revenues and costs are
subject to revision as the contract progresses. When revisions in estimated contract revenues and costs are determined,
such adjustments are recorded in the period in which they are first identified.

For certain commercial fixed-fee per transaction contracts, such as providing training courses, revenue is recognized
during the period in which services are delivered in accordance with the pricing outlined in the contracts.

For certain fixed-fee per transaction and fixed price contracts in which the output of the arrangement is measurable,
such as for the shipping of publications and print materials, revenue is recognized when the deliverable is met and the
product is delivered based on the output method of performance. The customer is required to pay for the cost incurred
in the event of contract termination.

Certain of our fixed price commercial contracts contain revenue arrangements with multiple deliverables. We apply
the separation guidance in Emerging Issues Task Force (“EITF”) 00-21, Revenue Arrangements with Multiple
Deliverables (“EITF 00-21”), for these types of contracts. Revenue arrangements with multiple deliverables are
evaluated to determine if the deliverables can be divided into more than one unit of accounting. For contracts
determined to have more than one unit of accounting, we recognize revenue for each deliverable based on the revenue
recognition policies discussed above; that is, we recognize revenue in accordance with work performed and costs
incurred, with fee being allocated proportionately over the service period. Within each multiple deliverable project,
there is objective and reliable fair value across all units of the arrangement, as discounts are not offered or applied to
one deliverable versus another, and the rates bid across all deliverables are consistent.

As part of our on-going operations to provide services to our customers, incidental expenses, which are commonly
referred to as “out-of-pocket” expenses, are billed to customers, either directly as a pass-through cost or indirectly as a
cost estimated in proposing on fixed price contracts. Out-of-pocket expenses include expenses such as airfare, mileage,
hotel stays, out-of-town meals and telecommunication charges. Our policy provides for these expenses to be recorded
as both revenue and direct cost of services in accordance with the provisions of EITF 01-14, Income Statement
Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred.

In connection with our delivery of products, primarily for publications delivered by our Sandy segment, we incur
shipping and handling costs which are billed to customers directly as a pass-through cost. Our policy provides for
these expenses to be recorded as both revenue and direct cost of revenue in accordance with the provisions of EITF
00-10, Accounting for Shipping and Handling Fees and Costs.

Valuation of Accounts Receivable

Trade accounts receivable are recorded at invoiced amounts. The allowance for doubtful accounts is estimated based
on historical trends of past due accounts, write-offs and specific identification and review of past due accounts. The
allowance for doubtful accounts was $0.9 million at December 31, 2008.

Stock-Based Compensation

Pursuant to our stock-based incentive plans, we grant stock options, restricted stock, stock units, and equity to officers,
employees, and members of the Board of Directors. We account for these awards in accordance with SFAS No. 123
Revised, Share-Based Payment (“SFAS No. 123R”), which requires us to recognize compensation expense for all
equity-based compensation awards issued to employees using the fair-value measurement method. Determining the
appropriate fair value of stock options requires judgment, including estimating stock price volatility and expected life
of the award. In addition, determining appropriate forfeiture rates requires judgment, including estimating the number
of stock-based compensation awards that are expected to vest.

Under SFAS No. 123R, we recognize compensation expense on a straight-line basis over the requisite service period
for stock-based compensation awards with both graded and cliff vesting terms. We apply a forfeiture estimate to
compensation expense recognized for awards that are expected to vest during the requisite service period, and revise
that estimate if subsequent information indicates that the actual forfeitures will differ from the estimate. We recognize
the cumulative effect of a change in the number of awards expected to vest in compensation expense in the period of
change. We do not capitalize any portion of our stock-based compensation. We estimate the fair value of our stock
options on the date of grant using the Black-Scholes option pricing model, which requires various assumptions such as
expected term, expected stock price volatility and risk-free interest rate. We estimate the expected term of stock
options granted taking into consideration historical data related to stock option exercises. For stock options granted
during 2007, we used an expected term equal to the average of the weighted average vesting period and contractual
term of the stock options, as permitted by SEC Staff Accounting Bulletin No. 107, Share-Based Payment, which
provides this simplified method for estimating the expected term of stock options when there is insufficient historical
exercise data to form an appropriate estimate. We use historical stock price data in order to estimate the expected
volatility factor of stock options granted. The risk-free interest rate for the periods within the expected life of the
option is based on the U.S. Treasury yield curve in effect at the time of grant.

Impairment of Intangible Assets, Including Goodwill

We review goodwill for impairment annually as of December 31 and whenever events or changes in circumstances
indicate the carrying value of an asset may not be recoverable in accordance with SFAS No. 142, Goodwill and Other
Intangible Assets (“SFAS No. 142”). The provisions of SFAS No. 142 require that we perform a two-step impairment
test on goodwill. In the first step, we compare the fair value of each reporting unit to its carrying value. A reporting
unit is an operating segment, or one level below an operating segment, as defined in SFAS No. 131. We determine the
fair value of our reporting units based on an income approach, whereby we calculate the fair value of each reporting
unit based on the present value of estimated future cash flows, which are formed by evaluating historical trends,
current budgets, operating plans and industry data. If the fair value of the reporting unit exceeds the carrying value of
the net assets assigned to that unit, goodwill is not impaired and we are not required to perform further testing. If the
carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must
perform the second step of the impairment test in order to determine the implied fair value of the reporting unit's
goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit’s assets
and liabilities in a manner similar to a purchase price allocation, with any residual fair value allocated to goodwill. If
the carrying value of a reporting unit's goodwill exceeds its implied fair value, then we record an impairment loss
equal to the difference. We evaluate the reasonableness of the fair value calculations of our reporting units by
reconciling the total of the fair values of all of our reporting units to our total market capitalization, and adjusting for
an appropriate control premium.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and
assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate
projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of
appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that
are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In addition, we make
certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each
of our reporting units. The timing and frequency of our goodwill impairment tests are based on an ongoing assessment
of events and circumstances that would indicate a possible impairment. We will continue to monitor our goodwill and
intangible assets for impairment and conduct formal tests when impairment indicators are present.

As of December 31, 2008, the carrying value of our Sandy reporting unit exceeded its estimated fair value, indicating
the underlying goodwill was impaired at the testing date. As a result of performing the second step of the goodwill
impairment test, we recognized an impairment loss of $5.5 million for the year ended December 31, 2008. The
goodwill impairment loss is attributable to a significant decline in our market capitalization during the fourth quarter
of 2008 and uncertainty regarding the automotive industry, which resulted in a reduction in the future cash flow
projections and comparable company multiples used in the fair value calculation as compared to the prior year.

Income Taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis 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. In addition, assessing tax
rates that we expect to apply and determining the years when the temporary differences are expected to affect taxable
income requires judgment about the future apportionment of our income among the states in which we operate.

The measurement of deferred taxes often involves an exercise of judgment related to the computation and realization
of tax basis. Our deferred tax assets and liabilities reflect our assessment that tax positions taken, and the resulting tax
basis, are more likely than not to be sustained if they are audited by taxing authorities. We establish accruals for
uncertain tax positions under FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an
Interpretation of FASB Statement No. 109 (“FIN No. 48”). FIN No. 48 requires that a position taken or expected to be
taken in a tax return be recognized in the financial statements when it is more likely than not (i.e., a likelihood of more
than fifty percent) that the position would be sustained upon examination by tax authorities that have full knowledge
of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater
than fifty percent likely of being realized upon ultimate settlement. A number of years may elapse before a particular
matter, for which we have or have not established an accrual, is audited and finally resolved. Favorable or unfavorable
adjustment of the accrual for any particular issue would be recognized as an increase or decrease to our income tax
expense in the period of a change in facts and circumstances.

In assessing the realizability of our deferred tax assets, we consider whether it is more likely than not that some
portion or all of the deferred tax assets may not be realized. The ultimate realization of the deferred tax assets is
dependent upon the generation of future income during the periods in which temporary differences are deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment. Based upon these factors, we believe it is more likely than not that we
will realize the benefits of our deferred tax assets, net of the valuation allowance. The valuation allowance relates to
both foreign and domestic net operating loss carryforwards for which we do not believe the benefits may be realized.

The above matters, and others, involve the exercise of significant judgment. Any changes in our practices or
judgments involved in the measurement of deferred tax assets and liabilities could materially impact our financial
condition or results of operations.

Accounting Standards Issued and Adopted

We discuss recently issued and adopted accounting standards in Note 1 to the accompanying Consolidated Financial
Statements.

Item 7A:

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to the impact of interest rate, market risks and currency fluctuations. In the normal course of business,
we employ internal processes to manage our exposure to interest rate, market risks and currency fluctuations. Our
objective in managing our interest rate risk is to limit the impact of interest rate changes on earnings and cash flows
and to lower our overall borrowing costs.

We are exposed to the impact of currency fluctuations because of our international operations. We are not a party to
any exchange rate hedging programs to mitigate the effect of exchange rate fluctuations. Our net investment in our
foreign subsidiaries, including intercompany balances, at December 31, 2008 was not significant and, accordingly,
fluctuations in foreign currency did not have a material impact on our financial position.

Our revenues and profitability are related to general levels of economic activity and employment, principally in the
United States and the United Kingdom. As a result, any significant economic downturn or recession in one or both of
those countries could harm our business and financial condition. A significant portion of our revenues is derived from

Fortune 500 level companies and their international equivalents, which historically have adjusted expenditures for
training and other services during economic downturns. If the economies in which these companies operate remain or
are further weakened in any future period, these companies may reduce their expenditures on training and other
services, which could adversely affect our business and financial condition.

Item 8:

Financial Statements and Supplementary Data

Page

Financial Statements of GP Strategies Corporation and Subsidiaries:

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets – December 31, 2008 and 2007

Consolidated Statements of Operations – Years ended December 31, 2008, 2007 and 2006

Consolidated Statements of Stockholders’ Equity and Comprehensive Income – Years ended

December 31, 2008, 2007 and 2006

Consolidated Statements of Cash Flows – Years ended December 31, 2008, 2007 and 2006

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
GP Strategies Corporation:

We have audited the accompanying consolidated balance sheets of GP Strategies Corporation and subsidiaries as of
December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and
comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008. In
connection with our audits of the consolidated financial statements, we also have audited the financial statement
schedule listed under item 15a(2). These consolidated financial statements and financial statement schedule are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of GP Strategies Corporation and subsidiaries as of December 31, 2008 and 2007, and the results of
their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in
conformity with U.S. generally accepted accounting principles. Also 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.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), GP Strategies Corporation and subsidiaries internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated March 4, 2009 expressed an unqualified opinion on
the effectiveness of the Company’s internal control over financial reporting.

Baltimore, Maryland
March 4, 2009

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
GP Strategies Corporation:

We have audited GP Strategies Corporation’s internal control over financial reporting as of December 31, 2008, based
on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). GP Strategies Corporation’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over
Financial Reporting (Item 9A(b)). Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

In our opinion, GP Strategies Corporation maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of GP Strategies Corporation as of December 31, 2008 and 2007, and the
related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for
each of the years in the three-year period ended December 31, 2008, and our report dated March 4, 2009, expressed an
unqualified opinion on those consolidated financial statements.

Baltimore, Maryland
March 4, 2009

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2008 and 2007
(In thousands, except shares and par value per share)

Current assets:

Cash and cash equivalents
Accounts and other receivables, less allowance for doubtful accounts

Assets

of $938 in 2008 and $865 in 2007

Inventories, net
Costs and estimated earnings in excess of billings on

uncompleted contracts

Deferred tax assets
Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net
Goodwill
Intangible assets, net
Deferred tax assets
Other assets, net

Liabilities and Stockholders’ Equity

Current liabilities:

Short-term borrowings
Current maturities of long-term debt
Accounts payable and accrued expenses
Billings in excess of costs and estimated earnings on

uncompleted contracts

Total current liabilities

Deferred tax liabilities
Other noncurrent liabilities

Total liabilities

Stockholders’ equity:

Preferred stock, par value $0.01 per share;

Authorized 10,000,000 shares; no shares issued

Common stock, par value $0.01 per share; Authorized 35,000,000

shares; issued 17,828,644 shares in 2008 and 2007

Additional paid-in capital
Accumulated deficit
Treasury stock, at cost (1,743,190 shares in 2008 and 1,118,105 shares in 2007)
Accumulated other comprehensive loss

Total stockholders’ equity

See accompanying notes to consolidated financial statements.

2008

2007

3,961 $

3,868

42,471
537

8,036
1,074
6,203

62,282

2,970
60,273
6,740
1,048
2,527

46,897
577

13,995
3,549
4,659

73,545

2,843
61,748
6,340
—
2,969

135,840 $

147,445

3,234 $
—
25,977

10,222

39,433
—
3,601

43,034

2,953
7,986
32,855

11,671

55,465
491
1,107

57,063

—

178
158,462
(48,135)
(15,070)
(2,629)
92,806

135,840 $

178
156,422
(55,972)
(9,785)
(461)
90,382

147,445

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended December 31, 2008, 2007 and 2006
(In thousands, except per share data)

Revenue
Cost of revenue

Gross profit

Selling, general and administrative expenses

Goodwill impairment loss

Operating income

Interest expense

Other income (including interest income of

$88 in 2008, $224 in 2007 and $329 in 2006)

Income before income taxes

Income tax expense

Net income

2008

2007

2006

267,893 $
229,063

248,422 $
211,582

178,783
152,217

38,830

19,559

5,508

13,763

699

1,086

14,150

6,313

36,840

19,578

—

17,262

1,218

862

16,906

7,222

7,837 $

9,684 $

26,566

14,262

—

12,304

1,558

964

11,710

5,068

6,642

15,818
16,731

Basic weighted average shares outstanding
Diluted weighted average shares outstanding

16,516
16,638

16,654
17,165

Per common share data:

Basic earnings per share
Diluted earnings per share

$
$

0.47 $
0.47 $

0.58 $
0.56 $

0.42
0.40

See accompanying notes to consolidated financial statements.

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and Comprehensive Income

Years ended December 31, 2008, 2007, and 2006
(In thousands, except for par value per share)

Common
stock
($0.01 par)

Class B
capital
stock

($0.01 par) paid-in capital

Additional Accumulated Treasury
deficit

stock at cost

Unearned
compensation

Accumulated
other
comprehensive
loss

Note
receivable
from
stockholder

Total
stockholders’
equity

Comprehensive
income

Balance at December 31, 2005

Net income
Other comprehensive income

Total comprehensive income

Cumulative effect adjustment upon initial

adoption of SAB No. 108
Capital stock restructuring
Repayment of note receivable from stockholder
Repurchases of common stock in the open market
Elimination of unearned compensation upon

adoption of SFAS No. 123R

Stock-based compensation expense
Exercise of warrants by Gabelli
Cash and net-share settlements of stock options
Net issuances of stock for exercises of stock

options and retirement savings plan and other

Balance at December 31, 2006

Net income
Other comprehensive income

Total comprehensive income

Cumulative effect adjustment upon adoption

of FASB Interpretation No. 48

Repayment of note receivable from stockholder
Repurchases of common stock in the open market
Stock-based compensation expense
Exercise of warrants
Net issuances of stock pursuant to stock

compensation and benefit plans and other

171 $

12 $

168,737 $

(71,710) $

(29) $

(1,133) $

(1,087) $

(619) $

94,342

—
—

—
6
—
—

—
—
—
—

—
—

—
(12)
—
—

—
—
—
—

—

—
—

6,642
—

—
—

—
(6,096)
—
—

(1,133)
484
(371)
(2,257)

(322)

(490)
—
—
—

—
—
—
—

—

—
(14,758)
—
(3,140)

—
34
1,370
1,441

1,915

178 $

— $

159,042 $

(65,558) $

(13,167) $

—
—

—
—
—
—
—

—

—
—

—
—
—
—
—

—

—
—

9,684
—

—
—

—
—
—
686
(2,699)

(607)

(98)
—
—
—
—

—

—
—
(6,511)
24
5,924

3,945

—
—

—
—
—
—

1,133
—
—
—

—

— $

—
—

—
—
—
—
—

—

—
452

—
—
—
—

(5)

—
—

—
—
495
—

—
—
—
—

—

6,642
452

(490)
(20,860)
495
(3,140)

—
518
999
(816)

1,589

(640) $

(124) $

79,731

—
179

—
—
—
—
—

—

—
—

—
124
—
—
—

—

9,684
179

(98)
124
(6,511)
710
3,225

3,338

Balance at December 31, 2007

178 $

— $

156,422 $

(55,972) $

(9,785) $

— $

(461) $

— $

90,382

Net income
Other comprehensive loss

Total comprehensive income

Repurchases of common stock in the open market
Stock-based compensation expense
Exercise of warrants
Income tax benefit from stock-based compensation
Net issuances of stock pursuant to stock

compensation and benefit plans and other

—
—

—
—
—
—

—

—
—

—
—
—
—

—

—
—

7,837
—

—
—

—
898
(243)
1,964

(579)

—
—
—
—

—

(8,797)
155
1,179
—

2,178

—
—

—
—
—
—

—

—
(2,168)

—
—
—
—

—

—
—

—
—
—
—

—

Balance at December 31, 2008

178 $

— $

158,462 $

(48,135) $

(15,070) $

— $

(2,629) $

— $

7,837
(2,168)

(8,797)
1,053
936
1,964

1,599

92,806

See accompanying notes to consolidated financial statements.

6,642
452

7,094

9,684
179

9,863

7,837
(2,168)

5,669

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2008, 2007, and 2006
(In thousands)

Cash flows from operating activities:

Net income
Adjustments to reconcile net income to net cash

provided by operating activities:
Goodwill impairment loss
Depreciation and amortization
Non-cash compensation expense
Gain on early extinguishment of debt
Deferred income taxes
Changes in other operating items:

Accounts and other receivables
Inventories
Costs and estimated earnings in excess of
billings on uncompleted contracts
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Billings in excess of costs and estimated
earnings on uncompleted contracts

Other

Net cash provided by operating activities

Cash flows from investing activities:

Additions to property, plant and equipment
Acquisitions, net of cash acquired
Payment of contingent consideration for acquisitions
Purchase of intellectual property
Capitalized software development costs
Other investing activities

Net cash used in investing activities

Cash flows from financing activities:

Net proceeds of short-term borrowings
Repayment of long-term debt
Change in negative cash book balance
Capital stock restructuring
Repurchases of common stock in the open market
Income tax benefit from stock-based compensation
Proceeds from issuance of common stock
Other financing activities

Net cash provided by (used in) financing activities

2008

2007

2006

7,837 $

9,684 $

6,642

5,508
3,448
2,776
(125)
66

4,941
40

6,057
(1,247)
(3,262)

(1,736)
(333)

23,970

(1,936)
(2,004)
(2,665)
(1,000)
—
—

(7,605)

281
(7,085)
(1,783)
—
(8,797)
1,964
55
(137)

(15,502)

—
4,004
2,099
—
5,837

(17,918)
206

(2,685)
161
3,209

3,112
357

8,066

(1,718)
(10,635)
—
—
(948)
—

(13,301)

2,953
—
2,378
—
(6,511)
—
1,688
(75)

433

—
2,209
1,439
—
4,070

1,213
—

230
(1,154)
2,195

(1,203)
(92)

15,549

(944)
(632)
—
—
—
21

(1,555)

—
—
—
(20,860)
(3,140)
—
1,061
(556)

(23,495)

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2008, 2007, and 2006
(In thousands)

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental disclosures of cash flow information:

Cash paid during the year for:

Interest
Income taxes

Non-cash investing and financing activities:

Reduction in carrying value of Gabelli Notes upon exercise of

detachable stock purchase warrants

Accrued contingent consideration

See accompanying notes to consolidated financial statements.

2008

2007

2006

(770)

3,868

(4,792)

8,660

3,961 $

3,868 $

(9,458)

18,118

8,660

374 $
2,430 $

716 $
1,209 $

936 $

2,500

3,225 $
2,000

744
514

859
—

$
$

(1) Description of Business and Significant Accounting Policies

Business

GP Strategies Corporation (the “Company”) was incorporated in Delaware in 1959. The Company’s business
consists of its training, engineering, technical services and consulting business operated by its subsidiary,
General Physics Corporation (“General Physics” or “GP”). General Physics is a workforce development
company that seeks to improve the effectiveness of organizations by providing training, management
consulting, e-Learning solutions, engineering and technical services that are customized to meet the specific
needs of clients.

Principles of Consolidation

The consolidated financial statements include the operations of the Company and its majority-owned
subsidiaries. All significant intercompany balances and transactions have been eliminated.

Significant Customers & Concentration of Credit Risk

The Company has a concentration of revenue from General Motors Corporation and its affiliates (“General
Motors”) as well as a market concentration in the automotive sector. Revenue from General Motors accounted
for approximately 20% and 21% of the Company’s consolidated revenue for the years ended December 31,
2008 and 2007, respectively, and revenue from the automotive industry accounted for approximately 28% and
30% of the Company’s consolidated revenue for the years ended December 31, 2008 and 2007, respectively.
Accounts receivable from General Motors totaled $14,350,000 as of December 31, 2008 which is reflected in
the consolidated balance sheet. As of February 28, 2009, approximately $11,533,000 of this balance had been
collected and $2,817,000 remained outstanding. No other single customer accounted for more than 10% of the
Company’s revenue in 2008 or accounts receivable as of December 31, 2008.

For the years ended December 31, 2008, 2007 and 2006, sales to the United States government and its agencies
represented approximately 18%, 18% and 29%, respectively, of the Company’s consolidated revenue. Revenue
was derived from many separate contracts with a variety of government agencies that are regarded by the
Company as separate customers.

Cash and Cash Equivalents

Cash and cash equivalents consist of short-term highly liquid investments with original maturities of three
months or less. Outstanding checks which have been issued but not presented to the banks for payment may
create negative book cash balances. We transfer cash on an as-needed basis to fund these items as they clear the
bank in subsequent periods. Such negative cash balances are included in accounts payable and accrued expenses
and totaled $595,000 and $2,378,000 as of December 31, 2008 and 2007, respectively. Changes in negative
book cash balances from period to period are reported as a financing activity in the consolidated statement of
cash flows.

Allowance for Doubtful Accounts Receivable

Trade accounts receivable are recorded at invoiced amounts. The allowance for doubtful accounts is estimated
based on historical trends of past due accounts, write-offs and specific identification and review of past due
accounts.

Foreign Currency Translation

The functional currency of the Company’s international operations is the respective local currency. The
translation of the 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 exchange rates prevailing during the year. The unrealized gains and losses resulting from such
translation are included as a component of other comprehensive income.

Revenue Recognition

The Company provides services under time-and-materials, cost-reimbursable, and fixed price (including fixed-
fee per transaction) contracts to both government and commercial customers. Each contract has different terms
based on the scope, deliverables and complexity of the engagement, requiring the Company to make judgments
and estimates about recognizing revenue. Revenue is recognized as services are performed.

Under time-and-materials contracts, as well as certain government cost-reimbursable and certain fixed price
contracts, the contractual billing schedules are based on the specified level of resources the Company is
obligated to provide. As a result, for these “level-of-effort” contracts, the contractual billing amount for the
period is a measure of performance and, therefore, revenue is recognized in that amount.

Revenue under government fixed price and certain commercial fixed price contracts is recognized using the
percentage-of-completion method in accordance with the American Institute of Certified Public Accountants
Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type
Contracts. Under the percentage-of-completion method, management estimates the percentage-of-completion
based upon costs incurred as a percentage of the total estimated costs.

For other commercial fixed price contracts which typically involve a discrete project, such as development of
training content and materials, design of training processes, software implementation, or engineering projects,
the contractual billing schedules are not based on the specified level of resources the Company is obligated to
provide. These discrete projects generally do not contain milestones or other reliable measures of performance.
As a result, revenue on these arrangements is recognized using a percentage-of-completion method based on the
relationship of costs incurred to total estimated costs expected to be incurred over the term of the contract. The
Company believes this methodology is a reasonable measure of proportional performance since performance
primarily involves personnel costs and services provided to the customer throughout the course of the projects
through regular communications of progress toward completion and other project deliverables. In addition, the
customer typically is required to pay the Company for the proportionate amount of work and cost incurred in the
event of contract termination.

When total cost estimates exceed revenues, the estimated losses are recognized immediately. The use of the
percentage-of-completion method requires significant judgment relative to estimating total contract revenues
and costs, including assumptions relative to the length of time to complete the project, the nature and
complexity of the work to be performed, and anticipated changes in estimated salaries and other costs. Estimates
of total contract revenues and costs are continuously monitored during the term of the contract, and recorded
revenues and costs are subject to revision as the contract progresses. When revisions in estimated contract
revenues and costs are determined, such adjustments are recorded in the period in which they are first identified.

For commercial fixed-fee per transaction contracts, such as providing training courses, revenue is recognized
during the period in which services are delivered in accordance with the pricing outlined in the contracts.

For certain fixed-fee per transaction and fixed price contracts in which the output of the arrangement is
measurable, such as for the shipping of publications and print materials, revenue is recognized when the
deliverable is met and the product is delivered based on the output method of performance. The customer is
required to pay for the cost incurred in the event of contract termination.

Certain of the Company’s fixed price commercial contracts contain revenue arrangements with multiple
deliverables. The Company applies the separation guidance in Emerging Issues Task Force (“EITF”) 00-21,
Revenue Arrangements with Multiple Deliverables (“EITF 00-21”), for these types of contracts. Revenue
arrangements with multiple deliverables are evaluated to determine if the deliverables can be divided into more
than one unit of accounting. For contracts determined to have more than one unit of accounting, the Company
recognizes revenue for each deliverable based on the revenue recognition policies discussed above; that is, the
Company recognizes revenue in accordance with work performed and costs incurred, with fee being allocated
proportionately over the service period. Within each multiple deliverable project, there is objective and reliable

fair value across all units of the arrangement, as discounts are not offered or applied to one deliverable versus
another, and the rates bid across all deliverables are consistent.

As part of the Company’s on-going operations to provide services to its customers, incidental expenses, which
are commonly referred to as “out-of-pocket” expenses, are billed to customers, either directly as a pass-through
cost or indirectly as a cost estimated in proposing on fixed price contracts. Out-of-pocket expenses include
expenses such as airfare, mileage, hotel stays, out-of-town meals and telecommunication charges. The
Company’s policy provides for these expenses to be recorded as both revenue and direct cost of services in
accordance with the provisions of EITF 01-14, Income Statement Characterization of Reimbursements Received
for “Out-of-Pocket” Expenses Incurred.

In connection with the delivery of products, primarily for publications delivered by the Sandy Training &
Marketing segment, the Company incurs shipping and handling costs which are billed to customers directly as a
pass-through cost. The Company’s policy provides for these expenses to be recorded as both revenue and direct
cost of revenue in accordance with the provisions of EITF 00-10, Accounting for Shipping and Handling Fees
and Costs.

Contract Related Assets and Liabilities

Costs and estimated earnings in excess of billings on uncompleted contracts in the accompanying consolidated
balance sheets represent unbilled amounts earned and reimbursable under contracts in progress. These amounts
become billable according to the contract terms, which usually consider the passage of time, achievement of
milestones or completion of the project. Generally, such unbilled amounts will be billed and collected over the
next twelve months.

Billings in excess of costs and estimated earnings on uncompleted contracts in the accompanying consolidated
balance sheets represent advanced billings to clients on contracts in advance of work performed. Generally,
such amounts will be earned and recognized in revenue over the next twelve months.

Comprehensive Income

Comprehensive income consists of net income and foreign currency translation adjustments, net of tax.

Inventories

Inventories are stated at lower of cost or market, with cost determined using an average cost method.

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 of property, plant and equipment is recognized on a straight-line basis over the following
estimated useful lives:

Class of assets

Buildings and improvements
Machinery, equipment, and furniture

and fixtures

Leasehold improvements

Useful life

5 to 40 years

3 to 10 years

Shorter of asset life or term of lease

Impairment of Long-Lived Assets

Long-lived assets, such as property, plant, and equipment, and intangibles subject to amortization, are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying

amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized at the
amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of
would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value
less costs to sell, and would no longer be depreciated.

Goodwill and Intangible Assets

The Company’s intangible assets include amounts recognized in connection with acquisitions, including
customer relationships, contract backlog, software and non-compete agreements. Intangible assets are initially
valued at fair market value using generally accepted valuation methods appropriate for the type of intangible
asset. Amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets,
except for contract backlog which is recognized in proportion to the projected revenue streams of the related
backlog. Intangible assets with definite lives are reviewed for impairment if indicators of impairment arise.
Except for goodwill, the Company does not have any intangible assets with indefinite useful lives.

Goodwill represents the excess of costs over fair value of assets of businesses acquired. The Company reviews
its goodwill for impairment annually as of December 31 and whenever events or changes in circumstances
indicate the carrying value of an asset may not be recoverable in accordance with SFAS No. 142, Goodwill and
Other Intangible Assets (“SFAS No. 142”). The provisions of SFAS No. 142 require that the Company perform
a two-step impairment test on goodwill. In the first step, the Company compares the fair value of each reporting
unit to its carrying value. A reporting unit is an operating segment, or one level below an operating segment, as
defined in SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS No.
131”). The Company determines the fair value of its reporting units based on an income approach, whereby it
calculates the fair value of each reporting unit based on the present value of estimated future cash flows, which
are formed by evaluating historical trends, current budgets, operating plans and industry data. If the fair value of
the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and
the Company is not required to perform further testing. If the carrying value of the net assets assigned to the
reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of
the impairment test in order to determine the implied fair value of the reporting unit's goodwill. The implied fair
value of goodwill is determined by allocating the fair value of the reporting unit’s assets and liabilities in a
manner similar to a purchase price allocation, with any residual fair value allocated to goodwill. If the carrying
value of a reporting unit's goodwill exceeds its implied fair value, then an impairment loss equal to the
difference is recorded. The Company evaluates the reasonableness of the fair value calculations of its reporting
units by reconciling the total of the fair values of all reporting units to the Company’s total market
capitalization, and adjusting for an appropriate control premium.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant
estimates and assumptions. These estimates and assumptions include revenue growth rates and operating
margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market
conditions and determination of appropriate market comparables. The Company bases its fair value estimates on
assumptions it believes to be reasonable but that are unpredictable and inherently uncertain. Actual future
results may differ from those estimates. In addition, the Company makes certain judgments and assumptions in
allocating shared assets and liabilities to determine the carrying values for each of its reporting units. The timing
and frequency of the Company’s goodwill impairment tests are based on an ongoing assessment of events and
circumstances that would indicate a possible impairment. The Company will continue to monitor its goodwill
and intangible assets for impairment and conduct formal tests when impairment indicators are present.

As of December 31, 2008, the carrying value of the Company’s Sandy reporting unit exceeded its estimated fair
value, indicating the underlying goodwill was impaired at the testing date. As a result of performing the second
step of the goodwill impairment test, the Company recognized an impairment loss of $5.5 million for the year
ended December 31, 2008. The goodwill impairment loss is attributable to a significant decline in the
Company’s market capitalization during the fourth quarter of 2008 and uncertainty regarding the automotive

industry, which resulted in a reduction in the future cash flow projections and comparable company multiples
used in the fair value calculation as compared to the prior year.

Other Assets

Other assets primarily include deferred financing costs, certain software development and implementation costs,
an investment in a joint venture and other assets obtained to fulfill customer related contract obligations.
Deferred financing costs are amortized on a straight-line basis over the terms of the related debt and such
amortization is classified as interest expense in the consolidated statements of operations. The Company
capitalizes the cost of internal-use software in accordance with Statement of Position No. 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use. These costs consist of payments made
to third parties and the salaries of employees working on such software development and implementation and
are amortized using the straight-line method over their estimated useful lives, typically three to five years. The
Company accounts for a 5% interest in a joint venture partnership under the equity method of accounting
because significant influence exists due to certain factors, including representation on the partnership’s Board of
Directors and voting rights.

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 basis 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.

As of January 1, 2007, uncertain tax positions are accounted for under Financial Accounting Standards Board
(“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB
Statement No. 109 (“FIN No. 48”). FIN No. 48 requires that a position taken or expected to be taken in a tax
return be recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than
fifty percent) that the position would be sustained upon examination by tax authorities that have full knowledge
of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is
greater than fifty percent likely of being realized upon ultimate settlement. Interest and penalties related to
income taxes are accounted for as income tax expense.

Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing earnings by the weighted average number of common
shares outstanding during the periods. Diluted EPS reflects the potential dilution of common stock equivalent
shares that could occur if securities or other contracts to issue common stock were exercised or converted into
common stock.

The Company’s dilutive common stock equivalent shares consist of stock options, restricted stock units, and
warrants to purchase shares of common stock computed under the treasury stock method, using the average
market price during the period. The following table presents instruments which were not dilutive and were
excluded from the computation of diluted EPS in each period, as well as the weighted average dilutive common
stock equivalent shares which were included in the computation of diluted EPS:

Year ended December 31,
2007

2008

2006

(In thousands)

Non-dilutive instruments
Dilutive common stock equivalents

1,168
122

994
511

577
913

Stock-Based Compensation

Pursuant to the stock-based incentive plans which are described more fully in Note 12, the Company grants
stock options, restricted stock, stock units, and equity to officers, employees, and members of the Board of
Directors. On January 1, 2006, the Company adopted SFAS No. 123 Revised, Share-Based Payment (“SFAS
No. 123R”), which requires companies to recognize compensation expense for all equity-based compensation
awards issued to employees using the fair-value measurement method.

Under SFAS No. 123R, the Company recognizes compensation expense on a straight-line basis over the
requisite service period for stock-based compensation awards with both graded and cliff vesting terms. The
Company applies a forfeiture estimate to compensation expense recognized for awards that are expected to vest
during the requisite service period, and revises that estimate if subsequent information indicates that the actual
forfeitures will differ from the estimate. The Company recognizes the cumulative effect of a change in the
number of awards expected to vest in compensation expense in the period of change. The Company does not
capitalize any portion of its stock-based compensation.

The Company estimates the fair value of its stock options on the date of grant using the Black-Scholes option
pricing model, which requires various assumptions such as expected term, expected stock price volatility and
risk-free interest rate. The Company estimates the expected term of stock options granted taking into
consideration historical data related to stock option exercises. For stock options granted during 2007, the
Company used an expected term equal to the average of the weighted average vesting period and contractual
term of the stock options, as permitted by the Securities and Exchange Commission’s (“SEC”) Staff Accounting
Bulletin No. 107, Share-Based Payment, which provides this simplified method for estimating the expected
term of stock options when there is insufficient historical exercise data to form an appropriate estimate. The
Company uses historical stock price data in order to estimate the expected volatility factor of stock options
granted. The risk-free interest rate for the periods within the expected life of the option is based on the U.S.
Treasury yield curve in effect at the time of grant.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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. On an ongoing basis, the Company
evaluates the estimates used, including but not limited to those related to revenue recognition, the allowance for
doubtful accounts receivable, impairments of goodwill and other intangible assets, valuation of intangible
assets, valuation of stock-based compensation awards, self-insurance liabilities and income taxes. Actual results
could differ from these estimates.

Fair Value of Financial Instruments

The carrying value of financial instruments including cash and cash equivalents, accounts receivable, accounts
payable and short-term borrowings approximate estimated market values because of short-maturities and
interest rates that approximate current rates.

Leases

The Company leases various office space, machinery and equipment under noncancelable operating leases
which have minimum lease obligations. Several of the leases contain provisions for rent escalations based
primarily on increases in real estate taxes and operating costs incurred by the lessor. Rent expense is charged to
operations as incurred except for escalating rents, which are charged to operations on a straight-line basis over
the terms of the leases.

Legal Expenses

The Company is involved, from time to time, in litigation and proceedings arising out of the ordinary course of
business. Legal costs for services rendered in the course of these proceedings are charged to expense as they are
incurred.

Reclassifications

Certain amounts in 2007 and 2006 have been reclassified to conform with the presentation for 2008.

Accounting Standards Issued

SFAS No. 141R

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS No. 141R”).
SFAS No. 141R establishes principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the
acquiree and the goodwill acquired. SFAS No. 141R also establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business combination. SFAS No. 141R is effective for
acquisitions in fiscal years beginning after December 15, 2008, and was adopted by the Company on January 1,
2009. The adoption of SFAS No. 141R did not have a material impact on the Company’s consolidated financial
statements.

SFAS No. 160

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements—an amendment of Accounting Research Bulletin No. 51 (“SFAS No. 160”). SFAS No. 160
establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than
the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest,
changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is
effective for fiscal years beginning after December 15, 2008, and was adopted by the Company on January 1,
2009. The adoption of SFAS No. 160 did not have a material impact on the Company’s consolidated financial
statements.

Accounting Standard Adopted

SFAS No. 157

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), which
defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value
measurements. SFAS No. 157 does not require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting pronouncements. SFAS No.157 was effective for
the Company on January 1, 2008. The adoption of SFAS No. 157 did not have a material impact on the
Company’s consolidated financial statements.

(2) Acquisitions

Below is a summary of the acquisitions we completed during the years ended December 31, 2008, 2007 and
2006.

Performance Consulting Services, Inc. (PCS)

On March 1, 2008, General Physics completed the acquisition of PCS, a company specializing in performance
engineering support, training, combustion optimization, the implementation of smart equipment condition
monitoring systems and testing services for power plants. The purchase price at closing consisted of $1,011,000
in cash paid to the sellers, subsequently reduced by a $95,000 post-closing adjustment based on the final
working capital amount set forth in the purchase agreement. The purchase price also includes $1,000,000 of
guaranteed future payments to be paid in two equal installments on January 31, 2009 and January 31, 2010. In
addition, the purchase agreement requires up to an additional $2,255,000, contingent upon the achievement of
certain revenue targets, as defined in the purchase agreement, during the two twelve-month periods following
the completion of the acquisition. The total purchase price for PCS, before considering any contingent
consideration, was $2,065,000, consisting of $916,000 in net cash paid at closing, $1,000,000 of deferred
payments and $149,000 of acquisition costs. The purchase price allocation primarily consists of $1,609,000 of
goodwill and $465,000 of customer related intangible assets to be amortized over five years from the acquisition
date. PCS is included in the Energy segment and the results of its operations have been included in the
consolidated financial statements for the period beginning March 1, 2008. The pro-forma impact of the PCS
acquisition is not material to the Company’s results of operations for the year ended December 31, 2008.

Other 2008 Acquisitions

During the fourth quarter of 2008, General Physics, through its wholly owned subsidiary, General Physics (UK)
Ltd. (“GPUK”), completed two separate acquisitions of training and consulting companies in the United
Kingdom. The total purchase price for these businesses was approximately $900,000 in cash. In addition, the
purchase agreements require up to an additional $1,600,000 to be paid to the sellers, contingent upon the
achievement of certain earnings targets, as defined in the purchase agreements, during periods subsequent to the
acquisitions. The purchase price allocations primarily consist of $788,000 of goodwill and $124,000 of
customer related intangible assets to be amortized over three years from the acquisition date. The pro-forma
impact of these acquisitions is not material to the Company’s results of operations for the year ended December
31, 2008.

Via Training, LLC (Via)

On October 1, 2007, General Physics acquired Via, a U.S. custom e-Learning sales training company, for a
purchase price of $1,775,000 in cash. In addition, the purchase agreement requires up to an additional
$3,250,000 to be paid to the seller, contingent upon Via achieving certain earnings targets, as defined in the
purchase agreement, during the two twelve-month periods following the completion of the acquisition. No
contingent consideration was payable with respect to the first twelve-month period following completion of the
acquisition as the earnings target was not achieved. As of December 31, 2008, the maximum contingent
consideration General Physics may be required to pay is $1,725,000. The total purchase price for Via was
$1,974,000, consisting of $1,775,000 in cash paid at closing and $199,000 of acquisition costs. The purchase
price allocation consists of $680,000 of tangible net assets, $120,000 of goodwill and $1,174,000 of customer
related intangible assets and software to be amortized over a weighted average period of 4.6 years from the
acquisition date. Via is included in the Company’s Manufacturing & BPO segment and its results of operations
are included in its consolidated financial statements for the period beginning October 1, 2007. The pro-forma
impact of the Via acquisition is not material to the Company’s results of operations for the year ended
December 31, 2007.

Smallpeice Enterprises Limited (SEL)

In addition, the purchase agreement requires up to an additional $1,800,000, contingent upon SEL achieving
certain earnings targets, as defined in the purchase agreement, during the one-year period following completion
of the acquisition. During 2008, General Physics paid $165,000 of contingent consideration based on the
earnings targets achieved during the one-year period following completion of the acquisition which was
accounted for as goodwill. The total purchase price for SEL was $3,591,000, consisting of $3,276,000 in cash
paid at closing, $165,000 of contingent consideration paid in 2008 and $150,000 of acquisition costs. The
purchase price allocation consists of $608,000 of tangible net assets, $2,511,000 of goodwill and $472,000 of
intangible assets for customer relationships and a favorable operating lease acquired to be amortized over a
weighted average period of 4.0 years from the acquisition date. SEL is included in the Company’s
Manufacturing & BPO segment and its results of operations are included in the consolidated financial
statements for the period beginning June 1, 2007. The pro-forma impact of the SEL acquisition is not material to
the Company’s results of operations for the year ended December 31, 2007.

Sandy Corporation

On January 23, 2007, General Physics completed the acquisition of Sandy, a leader in custom product sales
training and part of the ADP Dealer Services division of ADP, Inc (“ADP”). Sandy, which is run as an
unincorporated division of General Physics, offers custom sales training and print-based and electronic
publications primarily to the U.S. automotive industry. General Physics acquired certain assets and the business
of Sandy for a purchase price of $4,393,000 cash paid to ADP from cash on hand and the assumption of certain
liabilities to complete contracts. In addition, the purchase agreement requires up to an additional $8,000,000 of
contingent consideration to be paid to ADP based upon Sandy achieving certain revenue targets, during the two
twelve-month periods following completion of the acquisition. During 2008, General Physics paid $2,500,000
of contingent consideration with respect to the first twelve-month period subsequent to the acquisition which
was accounted for as goodwill.

SFAS No. 141 requires that earned but unpaid contingent consideration be accrued to the extent that the amount
earned is determinable beyond a reasonable doubt as of the balance sheet date. As of December 31, 2008, the
Company accrued $2,500,000 of contingent consideration with respect to the second twelve-month period
following the completion of the Sandy acquisition based on the revenue targets achieved for the eleven-month
period ended December 31, 2008.

As of December 31, 2008, the total purchase price consisted of the following (in thousands):

Cash purchase price
Contingent consideration paid in 2008
Additional contingent consideration accrued
Acquisition costs

Total purchase price

4,393
2,500
2,500
964
10,357

The Company’s purchase price allocation for the net assets acquired is as follows (in thousands):

Inventory
Prepaid expenses and other current assets
Property, plant and equipment
Amortizable intangible assets
Goodwill

Total assets

Accounts payable, accrued expenses and

other liabilities

Billings in excess of costs and estimated
earnings on uncompleted contracts

Total liabilities assumed

783
41
134
6,006
5,508

12,472

995

1,120

2,115

Net assets acquired

10,357

The Company recorded customer-related intangible assets as a result of the acquisition, which included
$4,701,000 relating to customer lists and relationships acquired with an estimated useful life of 12 years, and
$1,305,000 relating to contract backlog for future services under firm contracts which was amortized over 14
months subsequent to the acquisition in proportion to the amount of related backlog recognized in revenue.

Sandy is included in the Company’s Sandy Training and Marketing segment (see Note 14) and the results of its
operations have been included in the consolidated financial statements for the period beginning January 23,
2007. The following unaudited pro forma condensed consolidated results of operations assume that the
acquisition of Sandy was completed as of January 1 for each of the years shown below:

Revenue

Net income

Basic earnings per share

Diluted earnings per share

Year ended
December 31,

2007

2006

(In thousands, except per share amounts)

252,370 $

247,657

9,825

0.59

0.57

9,108

0.58

0.54

Peters Management Consultancy Ltd. (PMC)

On February 3, 2006, General Physics, through its wholly owned GPUK subsidiary, completed the acquisition
of PMC, a performance improvement and sales training company in the United Kingdom. GPUK acquired
100% ownership of PMC for a purchase price of $1,331,000 in cash, plus contingent payments of up to
$923,000 based upon the achievement of certain performance targets during the first year following completion
of the acquisition. No contingent payments were paid by the Company as PMC did not achieve the performance
targets specified in the purchase agreement during the first year following completion of the acquisition. The
total purchase price for PMC was $1,477,000, consisting of $1,331,000 in cash paid at closing and $146,000 of

acquisition costs. The purchase price allocation consists of $383,000 of tangible net assets, $894,000 of
goodwill and $200,000 of intangible assets for customer relationships acquired to be amortized over three years
from the acquisition date. PMC is included in the Company’s Manufacturing & BPO segment and its results are
included in the consolidated financial statements since the date of acquisition.

(3)

Intangible Assets

Goodwill

Changes in the carrying amount of goodwill by reportable business segment for the years ended December 31,
2008 and 2007 were as follows (in thousands):

Manufacturing
& BPO

Process
& Government

Energy

Sandy

Total

Balance at Dec. 31, 2006
Acquisition
Foreign currency translation
Other

Balance at Dec. 31, 2007

Acquisitions
Impairment loss
Foreign currency translation
Other

35,745 $
2,457
52
(23)

14,798 $
—
—
(58)

6,272 $
—
—
(3)

— $

2,508
—
—

56,815
4,965
52
(84)

38,231 $

14,740 $

6,269 $

2,508 $

61,748

907
—
(1,325)
(22)

—
—
—
(128)

1,609
—
—
(8)

3,000
(5,508)
—
—

5,516
(5,508)
(1,325)
(158)

Balance at Dec. 31, 2008

37,791 $

14,612 $

7,870 $

— $

60,273

The Company recognized an impairment loss of $5.5 million for the year ended December 31, 2008 related to
the Sandy segment. The goodwill impairment loss is attributable to a significant decline in the Company’s
market capitalization during the fourth quarter of 2008 and uncertainty regarding the automotive industry. See
Note 1 for further discussion regarding the factors leading to the goodwill impairment and the valuation
methodologies and assumptions used in the goodwill impairment test.

Intangible Assets Subject to Amortization

Intangible assets with finite lives are subject to amortization over their estimated useful lives. The primary
assets included in this category and their respective balances were as follows (in thousands):

Customer relationships
Contract backlog
Non-compete agreements
Software and other

December 31, 2008

Gross
Amount

Accumulated
Amortization

December 31, 2007

Gross
Amount

Accumulated
Amortization

6,607 $
1,305
1,340
1,403

10,655 $

(1,360) $
(1,305)
(1,049)
(201)

(3,915) $

6,115 $
1,305
1,340
458

9,218 $

(600)
(1,257)
(977)
(44)

(2,878)

Amortization expense for intangible assets was $1,095,000, $1,962,000, and $218,000, for the years ended
December 31, 2008, 2007 and 2006, respectively. Estimated amortization expense for intangible assets included
in the Company’s balance sheet as of December 31, 2008 is as follows (in thousands):

Fiscal year ending:
2009
2010
2011
2012
2013
Thereafter

Total

1,169
1,102
1,008
912
557
1,992

6,740

As of December 31, 2008, the Company’s intangible assets with finite lives had a weighted average remaining
useful life of 7.6 years. The Company has no intangible assets with indefinite useful lives.

(4)

Inventories

The Sandy Training & Marketing segment produces brand specific glovebox portfolios, brochures and
accessory kits for its customers, which are installed in new cars and trucks at the time of vehicle assembly.
Sandy designs these items and outsources their manufacture to suppliers that provide the raw materials, bind
and/or sew the portfolio, assemble its contents, and ship the finished product to its customers’ assembly plants.
Although the inventory is kept at third party suppliers, the Company has title to the inventory and bears the risk
of loss. As of December 31, 2008 and 2007, the Company had inventories of $537,000 and $577,000,
respectively, which primarily consisted of raw materials for the glovebox portfolios, brochures and accessory
kits.

(5) Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):

Machinery, equipment and vehicles
Furniture and fixtures
Leasehold improvements
Buildings

Accumulated depreciation and amortization

December 31,

2008

2007

7,304 $
1,447
750
355

9,856

(6,886)

2,970 $

6,899
1,365
494
—

8,758

(5,915)

2,843

Depreciation expense was $1,763,000, $1,379,000, and $916,000, for the years ended December 31, 2008, 2007
and 2006, respectively.

(6)

Short-Term Borrowings

General Physics has a $35 million Financing and Security Agreement (the “Credit Agreement”) with a bank that
expires on October 31, 2010 with annual renewal options. The Credit Agreement is secured by certain assets of
General Physics and provides for an unsecured guaranty from the Company. The maximum interest rate on the
Credit Agreement is the daily LIBOR market index rate plus 2.25%. Based upon the financial performance of
General Physics, the interest rate can be reduced. As of December 31, 2008 and 2007, the rate was LIBOR plus
1.25%, which resulted in a rate of approximately 1.69% and 5.85%, respectively. The Credit Agreement
contains covenants with respect to General Physics’ minimum tangible net worth, total liabilities ratio, leverage
ratio, interest coverage ratio and its ability to make capital expenditures. General Physics was in compliance
with all loan covenants under the amended Credit Agreement as of December 31, 2008. The Credit Agreement
also contains certain restrictive covenants regarding future acquisitions, incurrence of debt and the payment of
dividends. The Credit Agreement permits General Physics to provide the Company up to an additional
$10,000,000 of cash to repurchase shares of its outstanding common stock in the open market beginning on
August 14, 2008. General Physics is otherwise currently restricted from paying dividends or management fees
to the Company in excess of $1,000,000 in any year, with the exception of a waiver which permitted General
Physics to provide up to $8,100,000 in cash to repay debt obligations which matured in 2008 in the event the
Company did not have available cash (see Note 8).

As of December 31, 2008, there were $3,234,000 of borrowings outstanding and $19,534,000 of available
borrowings under the Credit Agreement. As of December 31, 2007, there were $2,953,000 of borrowings
outstanding under the Credit Agreement, based upon 80% of eligible accounts receivable and 80% of eligible
unbilled receivables.

(7) Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following (in thousands):

Trade accounts payable
Accrued salaries, vacation and benefits
Negative cash book balance
Accrued contingent consideration
Other accrued expenses

December 31,

2008

2007

6,385 $
9,627
595
2,500
6,870

25,977 $

8,126
10,777
2,378
2,000
9,574

32,855

(8) Long-Term Debt

Long-term debt consisted of the following (in thousands):

6% conditional subordinated notes due 2008 (a)
ManTech note (b)

Less warrant related discount, net of accretion

Less current maturities

December 31,

2008

2007

— $
—

—

— $

2,885
5,251

8,136

(150)

7,986

(7,986)

—

(a)

In August 2003, the Company issued and sold to four Gabelli Funds $7,500,000 aggregate principal
amount of 6% Conditional Subordinated Notes due August 2008 (the “Gabelli Notes”) and 937,500
warrants (“GP Warrants”), each entitling the holder thereof to purchase (subject to adjustment) one share
of the Company’s common stock at an exercise price of $8.00. The aggregate purchase price for the
Gabelli Notes and GP Warrants was $7,500,000. The Gabelli Notes bore interest at 6% per annum
payable semi-annually commencing on December 31, 2003 and matured on August 14, 2008.

Subsequent to the spin-off of National Patent Development Corporation (“NPDC”) in 2004 and GSE
Systems, Inc. (“GSE”) in 2005, and in accordance with the anti-dilution provisions of the warrant
agreement for stock splits, reorganizations, mergers and similar transactions, the number of GP Warrants
was adjusted to 984,116 and the exercise price was adjusted to $5.85 per share. The GP warrants were
exercisable at any time until August 14, 2008. The exercise price was payable in cash, by delivery of the
Gabelli Notes, or a combination of the two. During the years ended December 31, 2008, 2007 and 2006,
Gabelli exercised 161,431, 624,862 and 197,823 GP Warrants, respectively, which reduced the principal
balance of the Gabelli Notes by an aggregate of $5,541,000. The Company repaid the remaining
principal balances of the Gabelli Notes of $1,959,000 upon maturity on August 14, 2008.

The fair value of the GP Warrants at the date of issuance was $2,389,000, which reduced long-term debt
in the accompanying consolidated balance sheets and was accreted as additional interest expense using
the effective interest rate over the term of the Gabelli Notes. The Gabelli Notes had a yield to maturity of
15.436% based on the discounted value. Accretion charged as interest expense was approximately
$146,000, $257,000 and $468,000 for the years ended December 31, 2008, 2007 and 2006, respectively.
The exercises of the GP Warrants during 2008, 2007 and 2006 resulted in a decrease of $936,000,
$3,225,000 and $859,000, respectively, in the carrying value of the Gabelli Notes, which was reclassified
to equity to reflect the issuance of shares of common stock upon exercise.

(b)

In October 2003, the Company issued a five-year 5% note due in full in October 2008 in the principal
amount of $5,250,955 to ManTech International (“ManTech”). Interest was payable quarterly. Each year
during the term of the note, the holder of the note had the option to convert up to 20% of the original
principal amount of the note into common stock of the Company at the then market price of the
Company’s common stock, but only in the event that the Company’s common stock was trading at $10
per share or more. In the event that less than 20% of the principal amount of the note was converted in
any year, such amount not converted would have been eligible for conversion in each subsequent year
until converted or until the note was repaid in cash. In May 2008, the Company pre-paid the note
obligation and paid ManTech a total of $5,167,000, which consisted of the principal balance of the note
plus accrued interest through the payment date, less a mutually agreed prepayment discount of $125,000.

The Company recorded a gain on early extinguishment of debt of $125,000 in 2008 which is included in
other income on the accompanying consolidated statement of operations.

(9) Employee Benefit Plan

The Company offers a Retirement Savings Plan (the “Plan”) to its employees. Eligible employees may elect to
contribute at any time, and contributions begin as soon as administratively feasible thereafter. The Plan permits
pre-tax contributions to the Plan by participants pursuant to Section 401(K) of the Internal Revenue Code (IRC).
For the year ended December 31, 2008, the Plan required that the Company match at least 25% of the
participants’ contributions, up to the first 7% of base compensation for employees who have completed one year
of service. The Company may make additional matching contributions at its discretion. In 2008, 2007, and
2006, the Company matched 50% of participants’ contributions in cash and/or shares of its common stock, up to
the first 7% of participants’ base compensation. In 2008, 2007 and 2006, the Company contributed 234,665,
138,724, and 124,782 shares, respectively, of the Company’s common stock directly to the Plan with a value of
approximately $1,724,000, $1,390,000, and $920,000, respectively, which was recognized as expense in the
consolidated statements of operations. Effective January 1, 2009, the Company amended the Plan to no longer
require the Company to match employee contributions, and announced to its employees that matching
contributions would be reduced from 50% to 10% as part of the Company’s cost reduction strategy.

(10) Income Taxes

The components of income tax expense for the years ended December 31, 2008, 2007, and 2006 are as follows
(in thousands):

2008

Years ended December 31,
2007

2006

Current:

Federal
State and local
Foreign

Total current

Deferred:
Federal
State and local
Foreign

Total deferred

4,456 $
1,092
699

6,247

79
(30)
17

96 $
836
453

1,385

5,401
481
(45)

5,837

Total income tax expense

6,313 $

7,222 $

70
715
213

998

3,757
231
82

4,070

5,068

The deferred tax expense excludes activity in the net deferred tax assets relating to amounts recorded directly to
stockholders’ equity and goodwill. Income before income tax expense generated from foreign entities was
approximately $802,000, $872,000, and $766,000 in 2008, 2007 and 2006, respectively.

The difference between the expense for income tax expense computed at the statutory rate and the reported
amount of income tax expense is as follows:

Federal income tax rate
State and local taxes net of federal benefit
Foreign taxes, net of federal benefit
Tax impact of foreign losses for which

no U.S. tax benefit has been provided

Permanent differences
Valuation allowance adjustments
Other

Effective tax rate

2008

December 31,
2007

2006

35.0%
5.2
4.0

(2.0)
2.8
0.1
(0.5)

44.6%

35.0%
4.5
1.9

(1.8)
2.3
0.6
0.2

42.7%

35.0%
4.9
2.7

(2.3)
2.5
—
0.5

43.3%

As of December 31, 2008, the Company had $2,265,000 of available credit carryovers which may be carried
over indefinitely. In addition, as of December 31, 2008, the Company had foreign net operating loss
carryforwards of $1,694,000 which expire in 2011 and beyond.

As discussed more fully in Note 1, the Company adopted FIN No. 48 on January 1, 2007. Upon adoption on
January 1, 2007, the Company recorded a net decrease of $98,000 to accumulated deficit to reflect the
cumulative effect adjustment for FIN No. 48. As of December 31, 2008, the Company had $2,218,000 of
unrecognized tax benefits, all of which would impact the effective tax rate if recognized. The Company did not
increase or decrease the amount of unrecognized tax benefits reflected in its consolidated balance sheet during
2008 or 2007 subsequent to the adoption of FIN No. 48 on January 1, 2007, and does not expect any material
changes to its uncertain tax positions in the next twelve months. The Company recognizes interest and penalties
related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2008, the
Company had no accrued interest or penalties due to the existence of net operating loss carryforwards in the
years in which the related tax positions were taken. The Company and its subsidiaries file income tax returns in
the U.S. federal jurisdiction, and various state and foreign jurisdictions. With few exceptions, the Company is
no longer subject to U.S. federal, state and local, or non-U.S. income tax examination by tax authorities for
years prior to 2003.

The tax effects of temporary differences between the financial reporting and tax basis of assets and liabilities
that are included in the net deferred tax assets and liabilities are summarized as follows (in thousands):

December 31,

2008

2007

Deferred tax assets:

Allowance for doubtful accounts
Accrued liabilities
Stock-based compensation expense
Net federal, state and foreign operating loss carryforwards
Tax credit carryforwards

Deferred tax assets

Deferred tax liabilities:

Intangible assets, property and equipment, principally
due to difference in depreciation and amortization

Net deferred tax assets

Less valuation allowance

368 $
515
398
782
2,265

4,328

1,443

2,885

(763)

Net deferred tax assets, net of valuation allowance

2,122 $

346
1,121
542
2,266
2,009

6,284

2,786

3,498

(440)

3,058

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 may not be realized. The ultimate realization of the deferred tax
assets is dependent upon the generation of future taxable income during the periods in which temporary
differences are deductible. Management considers the scheduled reversal of deferred tax liabilities, projected
future taxable income and tax planning strategies in making this assessment. Based upon these factors,
management believes it is more likely than not that the Company will realize the benefits of deferred tax assets,
net of the valuation allowance.

(11) Comprehensive Income

The following are the components of comprehensive income (in thousands):

2008

Years ended December 31,
2007

2006

Net income

Other comprehensive income (loss)

Comprehensive income

7,837 $

9,684 $

(2,168)

179

5,669 $

9,863 $

6,642

452

7,094

Other comprehensive income (loss) consists of foreign currency translations adjustments. As of December 31,
2008 and 2007, accumulated other comprehensive loss was $2,629,000 and $461,000, respectively, and
consisted of foreign currency translation adjustments, net of tax.

(12) Stock-Based Compensation

Pursuant to the Company’s 1973 Non-Qualified Stock Option Plan, as amended (the “Non-Qualified Plan”), and
2003 Incentive Stock Plan (the “2003 Plan”), the Company may grant awards of non-qualified stock options,
incentive stock options, restricted stock, stock units, performance shares, performance units and other incentives
payable in cash or in shares of the Company’s common stock to officers, employees or members of the Board of
Directors. The Company is authorized to grant an aggregate of 4,423,515 shares under the Non-Qualified Plan
and an aggregate of 2,000,000 shares under the 2003 Plan. The Company may issue new shares or use shares
held in treasury to deliver shares to employees for its equity grants or upon exercise of non-qualified stock
options.

The following table summarizes the pre-tax stock-based compensation expense included in reported net income
(in thousands):

2008

Years ended December 31,
2007

2006

Non-qualified stock options

Restricted stock units

Board of Director stock grants

Total

477 $

433

143
1,053 $

264 $

371

75
710 $

164

308

46
518

The Company recognized a deferred income tax benefit of $364,000, $254,000 and $189,000, respectively,
during the years ended December 31, 2008, 2007, and 2006 associated with the compensation expense
recognized in its consolidated financial statements. As of December 31, 2008, the Company had non-qualified
stock options and restricted stock units outstanding under these plans as discussed below.

Non-Qualified Stock Options

Non-qualified stock options are granted with an exercise price not less than the fair market value of the
Company’s common stock at the date of grant, vest over a period up to ten years, and expire at various terms up
to ten years from the date of grant.

Summarized information for the Company’s non-qualified stock options is as follows:

Number of
options

Weighted
average
exercise price

Weighted
average
remaining
contractual
term

Aggregate
intrinsic
value

Stock Options

Outstanding at December 31, 2007

1,037,221 $

Granted
Exercised
Forfeited
Expired

Outstanding at December 31, 2008

Stock options expected to vest

Exercisable at December 31, 2008

12,600
(12,554)
(41,200)
(41,513)

954,554 $

866,364 $

191,154 $

10.22

9.66
4.38
11.06
10.13

10.26

10.17

7.05

4.22 $

64,000

4.19 $

64,000

3.21 $

64,000

Summarized information for non-qualified stock options granted to certain key personnel during the years ended
December 31, 2008 and 2007 is as follows:

Number of options granted
Exercise price
Vesting term
Contractual term
Grant-date fair value

Black-Scholes assumptions:
Expected term
Expected stock price volatility
Risk-free interest rate
Expected dividend yield

2008

2007

12,600
$9.66
3 years
5 years
$2.29

3.5 years
27.6%
2.34%
—%

880,000
$11.08
5 years
6 years
$3.14

4.75 years
22.1%
4.99%
—%

As of December 31, 2008, the Company had approximately $1,652,000 of unrecognized compensation cost
related to the unvested portion of outstanding stock options to be recognized on a straight-line basis over a
weighted average remaining service period of approximately 3.5 years.

The Company received cash for the exercise price associated with stock options exercised of $55,000,
$1,688,000, and $921,000 during the years ended December 31, 2008, 2007 and 2006, respectively. The total
intrinsic value realized by participants on stock options exercised and/or settled was $67,000, $1,751,000, and
$3,057,000 during the years ended December 31, 2008, 2007 and 2006, respectively. During 2008, the
Company realized income tax benefits of $1,964,000 related to stock option exercises and restricted stock
vesting, which are reflected as an increase to additional paid-in capital on the consolidated statement of
stockholders’ equity. These income tax benefits relate to 2008 and prior years which were not realized during
prior periods due to the existence of net operating loss carryforwards in the periods the tax deductions were
taken.

Restricted Stock Units

In addition to stock options, the Company issues restricted stock units to key employees and members of the
Board of Directors based on meeting certain service goals. The stock units vest to the recipients at various dates,
up to five years, based on fulfilling service requirements. In accordance with SFAS No. 123R, the Company
recognizes the value of the market price of the underlying stock on the date of grant to compensation expense
over the requisite service period. Upon vesting, the stock units are settled in shares of the Company’s common
stock. Summarized share information for the Company’s restricted stock units is as follows:

Outstanding and unvested, beginning of period

Granted
Vested
Forfeited

Outstanding and unvested, end of period

Restricted stock units expected to vest

Year ended
December 31,
2008
(In shares)

163,320
336,263
(48,831)
(12,300)
438,452

Weighted
average
grant date
fair value
(In dollars)
$

8.14
6.28
8.08
10.60
6.65

378,838

6.74

The total intrinsic value realized by participants upon the vesting of restricted stock units was $467,000,
$759,000 and $99,000 during the years ended December 31, 2008, 2007 and 2006, respectively. As of
December 31, 2008, the Company had unrecognized compensation cost of $2,262,000 related to the unvested
portion of its outstanding restricted stock units expected to be recognized over a weighted average remaining
service period of 3.4 years.

(13) Common Stock

The holders of common stock are entitled to one vote per share. As of December 31, 2008, there were
16,085,454 shares of common stock issued and outstanding. In addition, as of December 31, 2008, 1,393,006
shares were reserved for issuance under outstanding equity compensation awards such as stock options and
restricted stock units and an additional 492,387 shares were available for issuance for future grants of awards
under the Company’s 2003 Plan.

On January 19, 2006, the Company completed a restructuring of its capital stock, which included the repurchase
of 2,121,500 shares of its common stock at a price of $6.80 per share, the repurchase of 600,000 shares of its
Class B stock at a price of $8.30 per share, and the exchange of 600,000 shares of its Class B stock into 600,000
shares of common stock for a cash premium of $1.50 per exchanged share. The repurchase prices and exchange
premium were based on a fairness opinion rendered by an independent third party valuation firm. The
repurchase and exchange transactions were negotiated and approved by a Special Committee of the Board of
Directors and had the effect of eliminating all outstanding shares of the Company's Class B stock. The
repurchase and exchange was financed with approximately $20.9 million of cash on hand, including transaction
costs.

Prior to the restructuring, the 1,200,000 outstanding shares of Class B stock collectively represented
approximately 41% of the aggregate voting power of the Company because the Class B stock had ten votes per
share. The repurchase of a total of 2,721,500 shares represented approximately 15% of the total outstanding
shares of capital stock of the Company. Of the 600,000 Class B shares exchanged for common shares, 568,750
shares were owned by the Company’s former Chief Executive Officer.

Since January 2006, the Company’s Board of Directors has authorized a total of $23,000,000 of repurchases of
the Company’s common stock from time to time in the open market, subject to prevailing business and market
conditions and other factors. During the years ended December 31, 2008, 2007 and 2006, the Company
repurchased approximately 1,091,000, 678,500 and 420,000 shares, respectively, of its common stock in the
open market for a total cost of approximately $8,797,000, $6,511,000 and $3,140,000, respectively. As of
December 31, 2008, there was approximately $4,552,000 available for future repurchases under the buyback
program. There is no expiration date for the repurchase program.

(14) Business Segments

During the fourth quarter of 2008, the Company re-evaluated its reportable business segments under SFAS No.
131 as a result of organizational and management reporting changes that were made primarily due to the
retirement of one of its executive officers in 2008. The Company determined that the former Process, Energy &
Government segment should be divided into two reportable segments. Prior to this change, the Company
operated through three reportable business segments. As of December 31, 2008, the Company operated through
four reportable business segments: (i) Manufacturing & BPO, (ii) Process & Government, (iii) Energy, and (iv)
Sandy Training & Marketing (“Sandy”). In addition, during the first quarter of 2008, the Company transferred
the management responsibility for its automotive technical training business unit from the Manufacturing &
BPO segment to the Sandy segment. As a result of these changes, all prior period segment information has been
reclassified to conform to the current year’s presentation.

The Company is organized by operating group, primarily based upon the markets served by each group and the
services performed. Each operating group consists of strategic business units (“SBUs”) and business units
(“BUs”) which are focused on providing specific products and services to certain classes of customers or within
targeted markets. Across operating groups, SBUs and BUs, the Company integrates similar service lines,
technology, information, work products, client management and other resources. Communications and market
research, accounting, finance, legal, human resources, information systems and other administrative services are
organized at the corporate level. Business development and sales resources are aligned with operating groups to
support existing customer accounts and new customer development. Two of the Company’s reportable business
segments, Manufacturing & BPO and Process & Government, represent an aggregation of certain operating
groups in accordance with the aggregation criteria in SFAS No. 131, while the Energy and Sandy groups each
represent one operating segment pursuant to SFAS No. 131. The Company reviews its reportable business
segments on a continual basis and could change its reportable business segments from time to time in the event
of organizational changes.

Further information regarding each business segment is discussed below.

Manufacturing & BPO. The Manufacturing & BPO segment delivers training, curriculum design and
development, staff augmentation, e-Learning services, system hosting, integration and help desk support,
training business process outsourcing, and consulting and technical services primarily to large companies in the
electronics and semiconductors, steel, healthcare, financial and other industries as well as to government
agencies. The October 2007 acquisition of Via Training has expanded the Company’s delivery capabilities and
diversified its core client base in the software, electronics and semiconductors and retail markets. This
segment’s ability to deliver a wide range of training services allows it to take over the entire learning function
for the client, including their training personnel.

Process & Government. The Process & Government segment has over four decades of experience providing
consulting, engineering, technical and training services, including emergency preparedness, safety and
regulatory compliance, chemical demilitarization and environmental services primarily to federal and state
government agencies, large government contractors, petroleum and chemical refining companies and electric
power utilities. This segment also provides design and construction of alternative fuel stations, including
liquefied natural gas (“LNG”) fueling and hydrogen stations.

Energy. The Energy segment provides engineering services, products and training primarily to electric power
utilities. The Company’s proprietary EtaProTM Performance Monitoring and Optimization System provides a

suite of performance solutions for power generation plants and is installed at over 600 power generating units in
over 25 countries. In addition, this segment provides web-based training through its GPiLearnTM portal to over
25,000 power plant personnel in the U.S. and in over 30 countries. The March 2008 acquisition of PCS
strengthened and expanded the Company’s service offering to clients in the power generation industry.

Sandy Training and Marketing. Acquired in January 2007, Sandy is a provider of custom product sales
training and has been a leader in serving manufacturing customers in the U.S. automotive industry for over 30
years. Sandy provides custom product sales training designed to better educate customer sales forces with
respect to new product features and designs, in effect rapidly increasing the sales force knowledge base and
enabling them to address detailed customer queries. Furthermore, Sandy helps its clients assess their customer
relationship management strategy, measure performance against competitors and connect with customers on a
one-to-one basis. As mentioned above, the Company’s automotive technical training business unit was
transferred from the Manufacturing & BPO segment to the Sandy segment during the first quarter of 2008.

The Company does not allocate the following items to the segments: other income and interest expense; GP
Strategies selling, general and administrative expense; and income tax expense. Inter-segment revenue is
eliminated in consolidation and is not significant.

The following table sets forth the revenue and operating results attributable to each reportable segment and
includes a reconciliation of segment revenue to consolidated revenue and operating results to consolidated
income before income tax expense (in thousands):

Revenue:

Manufacturing & BPO
Process & Government
Energy
Sandy Training & Marketing

Operating income (loss):
Manufacturing & BPO
Process & Government
Energy
Sandy Training & Marketing *
Corporate and other

Interest expense
Other income

2008

Years ended December 31,
2007

2006

119,041 $
54,394
22,018
72,440

106,502 $
54,903
16,963
70,054

97,398
62,904
14,565
3,916

267,893 $

248,422 $

178,783

8,934 $
5,318
4,610
(3,210)
(1,889)

13,763

(699)
1,086

7,327 $
7,633
3,144
1,196
(2,038)

17,262

(1,218)
862

7,155
6,202
1,595
(470)
(2,178)

12,304

(1,558)
964

11,710

Income before income tax expense

14,150 $

16,906 $

*The operating loss for the Sandy segment includes a $5,508,000 goodwill impairment loss for the year ended
December 31, 2008.

Additional information relating to the Company’s business segments is as follows (in thousands):

Identifiable assets:

Manufacturing & BPO
Process & Government
Energy
Sandy Training & Marketing
Corporate and other

Total assets

December 31,

2008

2007

68,717 $
26,637
14,787
22,656
3,043

74,814
30,327
11,594
26,712
3,998

135,840 $

147,445

Identifiable assets by business segment are those assets that are used in the Company’s operations in each
segment. Corporate and other assets consist primarily of cash and cash equivalents, other assets, and deferred
tax assets and liabilities.

Additions to property, plant and equipment:

Manufacturing & BPO
Process & Government
Energy
Sandy Training & Marketing
Corporate and other

Depreciation and amortization:

Manufacturing & BPO
Process & Government
Energy
Sandy Training & Marketing
Corporate and other

2008

Years ended December 31,
2007

2006

1,034 $
100
162
332
308

1,936 $

1,447 $
53
212
636
1,100

3,448 $

762 $
139
15
150
652

1,718 $

1,070 $
90
27
1,697
1,120

4,004 $

496
65
47
—
336

944

866
163
46
—
1,134

2,209

Information about the Company’s revenue in different geographic regions, which are attributable to the
Company’s wholly owned subsidiaries located in the United Kingdom, Canada, Mexico, Singapore, Malaysia,
China and India is as follows (in thousands):

United States
United Kingdom
Other

2008

Years ended December 31,
2007

2006

233,679 $
26,485
7,729

267,893 $

220,459 $
22,483
5,480

248,422 $

156,783
16,420
5,580

178,783

Information about the Company’s total assets in different geographic regions is as follows (in thousands):

December 31,

2008

2007

120,177 $
11,586
4,077

135,840 $

130,210
13,048
4,187

147,445

United States
United Kingdom
Other

(15) Related Party Transactions

Indebtedness

On April 1, 2002, the Company entered into an incentive compensation agreement with Jerome I. Feldman,
former Chief Executive Officer and Director of the Company, pursuant to which he was eligible to receive up to
five payments of $1,000,000 each, based on the closing price of the Company’s common stock sustaining or
averaging increasing specified levels over periods of at least 10 consecutive trading days. On June 11, 2003,
July 23, 2003, December 22, 2003, November 3, 2004 and December 10, 2004, he earned incentive payments of
$1,000,000 each. The Company recorded compensation expense of $2,000,000 and $3,000,000 for the years
ended December 31, 2004 and 2003, respectively, for this incentive compensation. Under the terms of the
incentive compensation agreement, Mr. Feldman deferred payment of the incentive payments until May 31,
2007.

To the extent there were any outstanding loans from Mr. Feldman at the time an incentive payment was payable,
the Company had the right to off-set the payment of such incentive payment first against the outstanding
accrued interest under such loans and next against any outstanding principal. On May 31, 2007, the Company
applied the entire deferred incentive compensation earned by Mr. Feldman during 2004 and 2003 against the
unpaid accrued interest and principal on his outstanding loans which had been issued to him previously (in year
2000 and prior) to exercise stock options to purchase Class B stock of the Company.

As of May 31, 2007, the Company had notes receivable and accrued interest from Mr. Feldman of approximately
$207,000 after offsetting Mr. Feldman’s deferred incentive compensation earned in 2003 and 2004, as discussed
above. Mr. Feldman repaid the outstanding note receivable balance and accrued interest owed by him to the
Company in cash in June 2007.

Share Repurchases and Exchanges

On January 19, 2006, the Company purchased from (i) EGI-Fund (02-04) Investors, L.L.C. (“EGI”) 1,090,000
shares of its common stock for a price per share equal to $6.80 and 300,000 shares of its Class B stock for a
price per share equal to $8.30 and (ii) Bedford Oak 1,031,500 shares of its common stock for a price per share
equal to $6.80 and 300,000 shares of its Class B stock for a price per share equal to $8.30. Simultaneously with
such purchases, Jerome I. Feldman exchanged 568,750 shares of Class B stock for common stock, at a rate of
one share of Class B stock for one share of common stock, for a price of $1.50 per share exchanged.

Harvey Eisen, Chairman of the Board of the Company, is managing member of Bedford Oak Advisors, LLC,
investment manager of Bedford Oak. EGI had previously designated Matthew Zell as a Director of the Company.
Mr. Zell resigned from the Board of Directors of the Company simultaneously with such repurchase. Mr. Feldman
was the former Chief Executive Officer and Director of the Company. The repurchase and exchange transactions
were negotiated and approved by a Special Committee of the Board of Directors.

Management Services Agreement with NPDC

Prior to the spin-off of NPDC in 2004, NPDC was a wholly-owned subsidiary of GP Strategies. In connection
with the spin-off, the Company entered into a separate management agreement with NPDC pursuant to which

the Company provided certain general corporate services to NPDC and were reimbursed for such services. The
term of the agreement extended for three years from the date of the spin-off, or through November 24, 2007.
For the years ended December 31, 2007 and 2006, NPDC paid the Company management fees of $352,000, and
$925,000, respectively, as compensation for these services, which is reflected as a reduction of selling, general
and administrative expenses in the Company’s consolidated statements of operations. Although the management
agreement expired on November 24, 2007, the Company ceased providing such services to NPDC on May 31,
2007.

Guarantees

See Note 16 for a description of guarantees by the Company for certain related parties.

(16) Commitments, Guarantees, and Contingencies

Commitments

Operating Leases

The Company has various noncancelable leases for real property and machinery and equipment. Such leases
expire at various dates with, in some cases, options to extend their terms.

Minimum rentals under long-term operating leases are as follows (in thousands):

2009
2010
2011
2012
2013
Thereafter

Total

Real
property

Machinery and
equipment

Total

3,200 $
2,829
2,699
2,950
2,053
2,677

16,408 $

1,251 $
635
125
37
2
—

2,050 $

4,451
3,464
2,824
2,987
2,055
2,677

18,458

Certain of the leases contain provisions for rent escalation based primarily on increases in a specified Consumer
Price Index, real estate taxes and operating costs incurred by the lessor. Rent expense was approximately
$5,203,000, $5,309,000 and $3,196,000 for 2008, 2007 and 2006, respectively.

Other

As of December 31, 2008, the Company had six outstanding letters of credit totaling $367,000, which expire in
2009, and one outstanding performance bond totaling $10,300,000 related to a construction contract which is
scheduled to be completed in 2010.

Guarantees

Subsequent to the spin-off of NPDC, the Company continued to guarantee certain obligations of NPDC’s
subsidiaries, Five Star Products, Inc. (“Five Star”) and MXL Industries, Inc. (“MXL”). The Company
guaranteed certain operating leases for Five Star’s New Jersey and Connecticut warehouses, which totaled
approximately $1,589,000 per year through March 31, 2007. The leases have been extended and now expire in
the first quarter of 2010. The annual rent obligations are currently approximately $1,600,000. In connection with
the spin-off of NPDC by the Company, NPDC agreed to assume the Company’s obligation under such
guarantees, to use commercially reasonable efforts to cause the Company to be released from each such
guaranty, and to hold the Company harmless from all claims, expenses and liabilities connected with the leases
or NPDC’s breach of any agreements effecting the spin-off. The Company has not received confirmation from
the lessors that it has been released from these guarantees. The Company does not expect to incur any material

payments associated with these guarantees, and as such, no liability is reflected in the consolidated balance
sheets.

The Company also guaranteed the repayment of a debt obligation of MXL until June 2008, at which time MXL
paid the obligation in full and the Company’s guarantee expired.

(17) Litigation

In 2001, the Company initiated legal proceedings in connection with its 1998 acquisition of Learning
Technologies from various subsidiaries (“Systemhouse”) of MCI Communications Corporation (“MCI”) which
were subsequently acquired by Electronic Data Systems Corporation (“EDS”). The action against MCI was
stayed as a result of MCI’s bankruptcy filing in 2002. The Company settled its claims against EDS and
Systemhouse in 2005, but continued to have a claim in bankruptcy against MCI as an unsecured creditor. In
September 2008, the Bankruptcy Court approved a settlement between the Company and MCI which allowed
the Company a Class 6 General Unsecured Claim (as defined in MCI’s Modified Second Amended Joint Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code) in the amount of $1,700,000 (the “Allowed Claim”).
The Allowed Claim was satisfied in December 2008 through the distribution of $337,000 in cash and shares of
stock of Verizon Communications Inc. valued at $226,000 on the distribution date. The Company recognized a
net gain of $305,000 which is included in other income for the year ended December 31, 2008. The net gain
consists of $563,000 gross proceeds from the settlement less legal fees and expenses of $258,000 incurred
during 2008 in connection with the bankruptcy claim.

In connection with the spin-off of NPDC, the Company agreed to contribute to NPDC 50% of the proceeds
received, net of legal fees and taxes, with respect to the MCI claims. The Company has a payable to NPDC of
$75,000 as of December 31, 2008 for the portion of settlement proceeds owed to NPDC pursuant to the spin-off
agreement.

The Company is not a party to any legal proceeding, the outcome of which is believed by management to have a
reasonable likelihood of having a material adverse effect upon the financial condition and operating results of
the Company.

(18) Quarterly Information (unaudited)

The Company’s quarterly financial information has not been audited but, in management’s opinion, includes all
adjustments necessary for a fair presentation.

(In thousands)
2008

Revenue
Gross profit
Goodwill impairment loss
Net income (loss)

Earnings (loss) per share:

Basic

Diluted

2007

Revenue
Gross profit
Net income

Earnings per share:

Basic

Diluted

March 31

June 30

September 30

December 31

Three months ended

Year ended
December 31

66,919 $
9,757
—
2,849

72,026 $
10,332
—
2,983

65,968 $
9,611
—
2,936

62,980 $
9,130
5,508
(931)

267,893
38,830
5,508
7,837

0.17 $

0.18 $

(0.06) $

0.47

53,543 $
8,042
2,054

63,658 $
9,304
2,347

60,837 $
9,047
2,544

70,384 $
10,447
2,739

248,422
36,840
9,684

0.13 $

0.12 $

0.14 $

0.15 $

0.16 $

0.58

0.56

The sum of the quarterly earnings per share amounts may not equal the total for the year due to the effects of rounding and
dilution as a result of issuing common shares during the year.

Item 9:

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A: Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management including our Chief
Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures as of December 31, 2008 were effective.

(b) Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Exchange Act Rule 13a-15(f). Our internal control processes and procedures are designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial
statements in accordance with United States generally accepted accounting principles. Our internal control over
financial reporting includes those policies and procedures that reasonably allow us to record, process, summarize, and
report information and financial data within prescribed time periods and in accordance with Rule 13a-15(e) of the
Securities Exchange Act of 1934, as amended.

Under the supervision and with the participation of management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of internal control over financial reporting as of December 31, 2008
based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control – Integrated Framework (“COSO Framework”). Based upon our evaluation, we concluded that our internal
control over financial reporting was effective as of December 31, 2008.

Our internal control over financial reporting as of December 31, 2008 has been audited by KPMG LLP, an
independent registered public accounting firm, whose report appears in Item 8.

Except as discussed below, during the year ended December 31, 2008, there has been no change in our internal control
over financial reporting (as such term is defined in Rules 13a-15(f) and 15d—15(f) under the Exchange Act) that has
materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

On January 1, 2008, we implemented a new financial system, which included a general ledger and various sub-ledgers.
The implementation affected systems that include internal controls, and accordingly, the implementation has required
certain revisions to our internal control over financial reporting. We reviewed the function and output of the system as
it was implemented, as well as the controls affected by the implementation of the system, and made appropriate
changes to affected internal controls and deemed those controls to be effective as of December 31, 2008.

Item 9B: Other Information

None.

Part III

Item 10. Directors, Executive Officers and Corporate Governance

The additional information required by this item will be either set forth under the Election of Directors section in the
Proxy Statement for the 2009 Annual Meeting of Shareholders and incorporated herein by reference or provided in an
amendment to this Form 10-K to be filed no later than April 30, 2009.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a
registered class of our securities, to file reports of ownership and changes in ownership with the Securities and
Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”), and to furnish us with such reports.
Based solely on a review of copies of such reports for 2008, we believe that during 2008 all reports applicable to our
officers, directors and greater than 10% beneficial owners were filed on a timely basis.

Item 11. Executive Compensation

The information required by this item will be either set forth under the Executive Compensation section in the Proxy
Statement for the 2009 Annual Meeting of Shareholders and incorporated herein by reference or provided in an
amendment to this Form 10-K to be filed no later than April 30, 2009.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The additional information required by this item will be either set forth under the Principal Stockholders and Security
Ownership of Directors and Named Executive Officers sections in the Proxy Statement for the 2009 Annual Meeting
of Stockholders and incorporated herein by reference or provided in an amendment to this Form 10-K to be filed no
later than April 30, 2009.

Equity Compensation Plan information as of December 31, 2008

Plan category:

Equity compensation plans not approved by security holders:
(a) Number of securities to be issued upon exercise

of outstanding options

(b) Weighted average exercise price of outstanding

options

issuance under equity compensation plans (excluding
securities reflected in row (a)) (1)

Equity compensation plans approved by security holders:
(a) Number of securities to be issued upon exercise

of outstanding options, warrants and rights

(b) Weighted average exercise price of outstanding

options, warrants and rights

Non-Qualified
Stock Option
Plan

Incentive
Stock Plan

107,654

$ 3.93

1,425,744

846,900

$ 11.06

492,387

(1) Does not include shares of common stock that may be issued to directors of the Company in lieu of cash for

payment of quarterly director fees.

For a description of the material terms of the Company’s Non-Qualified Stock Option Plan and Incentive Stock Plan,
see Note 12 to the Consolidated Financial Statements in Item 8 of this report.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item will be either set forth in the Certain Relationships and Related Transactions
section of the Proxy Statement for the 2009 Annual Meeting of Shareholders and incorporated herein by reference or
provided in an amendment to this Form 10-K to be filed no later than April 30, 2009.

Item 14. Principal Accounting Fees and Services

The information required by this item will be either set forth in the Ratification of Independent Registered Public
Accounting Firm section of the Proxy Statement for the 2009 Annual Meeting of Shareholders and incorporated herein
by reference or provided in an amendment to this Form 10-K to be filed no later than April 30, 2009.

Part IV

Item 15: Exhibits and Financial Statement Schedules

(a)

The following documents are filed as a part of this Report:

(1)

Financial Statements of GP Strategies Corporation and Subsidiaries (Part II, Item 8):

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets – December 31, 2008 and 2007

Consolidated Statements of Operations – Years ended December 31, 2008, 2007 and 2006

Consolidated Statements of Stockholders’ Equity and Comprehensive Income –
Years ended December 31, 2008, 2007 and 2006

Consolidated Statements of Cash Flows – Years ended December 31, 2008, 2007 and
2006

Notes to Consolidated Financial Statements

(2)

Financial Statement Schedule:

Schedule II – Valuation and Qualifying Accounts

Schedules other than Schedule II are omitted as not applicable or required.

(3) Exhibits required by Item 601 of Regulation S-K.

Exhibit number

2.1

Asset Purchase Agreement, dated as of December 22, 2006, between General Physics Corporation and ADP,
Inc. Incorporated herein by reference to Exhibit 2.1 of the Registrant’s Form 8-K filed on December 29, 2006.

3.1

Composite of the Restated Certificate of Incorporation of the Registrant including all amendments through

December 10, 2007.

3.2

Amended and Restated By-Laws of the Registrant as amended through December 10, 2007.

10.1

1973 Non-Qualified Stock Option Plan of the Registrant, as amended on December 28, 2006. Incorporated by

reference to Exhibit 10.1 of the Registrant’s Form 10-K for the year ended December 31, 2006.

10.2

GP Strategies Corporation 2003 Incentive Stock Plan. Incorporated herein by reference to Exhibit 4 of the

Registrant’s Form 10-Q for the quarter ended September 30, 2003.

10.3

Employment Agreement, dated as of July 1, 1999, between the Registrant and Scott N. Greenberg.
Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 10 Q for the quarter ended
September 30, 1999.

10.4

Amendment, dated January 21, 2005, to Employment Agreement dated as of July 1, 1999 between the
Company and Scott N. Greenberg. Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form
8-K filed on January 25, 2005.

10.5

Amendment, dated June 20, 2007, to Employment Agreement dated as of July 1, 1999 between the Company
and Scott N. Greenberg. Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed
on June 26, 2007.

10.6

Amendment, dated December 30, 2008, to Employment Agreement by and between GP Strategies
Corporation and Scott N. Greenberg dated July 1, 1999. Incorporated herein by reference to Exhibit 10.1 of
the Registrant’s Form 8-K filed on January 6, 2009.

10.7

Employment Agreement, dated as of July 1, 1999, between the Registrant and Douglas E. Sharp. Incorporated
herein by reference to Exhibit 10.11 of the Registrant’s Form 10-K for the year ended December 31, 2003.

10.8

Amendment, dated January 21, 2005, to Employment Agreement dated as of July 1, 1999 between the
Company and Douglas E. Sharp. Incorporated herein by reference to Exhibit 10.2 of the Registrant’s Form 8-
K filed on January 25, 2005.

10.9

Amendment, dated June 20, 2007, to Employment Agreement dated as of July 1, 1999 between the Company
and Douglas E. Sharp. Incorporated herein by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed on
June 26, 2007.

10.10 Amendment, dated December 30, 2008, to Employment Agreement by and between General Physics

Corporation and Douglas Sharp dated July 1, 1999.

10.11 Form of Employment Agreement between the Company and certain of its executive vice presidents.
Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed on October 4, 2007.

10.12 Form of Employment Agreement between General Physics Corporation and certain of its senior vice
presidents. Incorporated herein by reference to Exhibit 10.4 of the Registrant’s Form 10-Q for the quarter
ended September 30, 2007.

10.13 Form of Stock Unit Agreement between the Registrant’s subsidiary, General Physics Corporation and certain
officers, dated April 11, 2005. Incorporated herein by reference to Exhibit 10.2 of the Registrant’s Form 10-
Q for the quarter ended June 30, 2005.

10.14 Form of Non-Qualified Stock Option Agreement between the Registrant and certain officers, dated June 26,
2007. Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 10-Q for the quarter ended
June 30, 2007.

10.15 Form of Stock Unit Agreement between the Registrant’s subsidiary, General Physics Corporation and certain

officers, dated November 7, 2008. *

10.16 Second Amended and Restated Financing and Security Agreement, dated November 5, 2008, by and between
General Physics Corporation as Borrower and Wachovia Bank, National Association, as Lender. Incorporated
herein by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed on November 7, 2008.

10.17 Guaranty of Payment Agreement dated August 13, 2003 by GP Strategies Corporation for the benefit of
Wachovia Bank, National Association. Incorporated herein by reference to Exhibit 10.11 to the Registrant’s
Form 10-Q for the quarter ended June 30, 2003.

10.18 Lease Agreement dated as of July 5, 2002 between the Registrant’s wholly owned subsidiary, General Physics
Corporation and Riggs Company. Incorporated herein by reference to Exhibit 10.36 to the Registrant’s Form
10-K for the year ended December 31, 2002.

10.19 Note and Warrant Purchase Agreement dated August 8, 2003 among GP Strategies Corporation, National
Patent Development Corporation and Gabelli Funds, LLC. Incorporated herein by reference to Exhibit 10.0 to
the Registrant’s Form 10-Q for the quarter ended June 30, 2003.

10.20 Form of GP Strategies Corporation 6% Conditional Subordinated Note due 2008 dated August 14, 2003.
Incorporated herein by reference to Exhibit 10.01 to the Registrant’s Form 10-Q for the quarter ended June
30, 2003.

10.21 Form of GP Strategies Corporation Warrant Certificate dated August 14, 2003. Incorporated herein by

reference to Exhibit 10.02 to the Registrant’s Form 10-Q for the quarter ended June 30, 2003.

10.22 Mortgage Security Agreement and Assignment of Leases dated August 14, 2003 between GP Strategies
Corporation and Gabelli Funds, LLC. Incorporated herein by reference to Exhibit 10.04 to the Registrant’s
Form 10-Q for the quarter ended June 30, 2003.

10.23 Registration Rights Agreement dated August 14, 2003 between GP Strategies and Gabelli Funds, LLC.
Incorporated herein by reference to Exhibit 10.05 to the Registrant’s Form 10-Q for the quarter ended June
30, 2003.

10.24 Indemnity Agreement dated August 14, 2003 by GP Strategies Corporation for the benefit of National Patent
Development Corporation and MXL Industries, Inc. Incorporated herein by reference to Exhibit 10.07 to the
Registrant’s Form 10-Q for the quarter ended June 30, 2003.

10.25 Subordination Agreement dated August 14, 2003 among GP Strategies Corporation, Gabelli Funds, LLC, as
Agent on behalf of the holders of the Company’s 6% Conditional Subordinated Notes due 2008 and
Wachovia Bank, National Association. Incorporated herein by reference to Exhibit 10.08 to the Registrant’s
Form 10-Q for the quarter ended June 30, 2003.

10.26 $5,250,955 Promissory Note dated October 21, 2003 of GP Strategies Corporation. Incorporated herein by

reference to Exhibit 10.3 of the Registrant’s Form 8-K dated October 23, 2003.

10.27 Code of Ethics Policy. Incorporated herein by reference to Exhibit 14.1 of the Registrant’s Annual Report on

Form 10-K for the year ended December 31, 2003.

10.28 Form of Indemnification Agreement. Incorporated herein by reference to Exhibit 10.1 of the Registrant’s

Form 8-K dated December 23, 2005.

Subsidiaries of the Registrant*

Consent of KPMG LLP, Independent Registered Public Accounting Firm*

31.1

Certification of Chief Executive Officer*

31.2

Certification of Chief Financial Officer*

32.1

Certification Pursuant to Section 18 U.S.C. Section 1350*

* Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GP STRATEGIES CORPORATION

Dated: March 4, 2009

By /s/ Scott N. Greenberg

Scott N. Greenberg
Chief Executive Officer

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

Date

/s/ Scott N. Greenberg
Scott N. Greenberg

/s/ Sharon Esposito-Mayer
Sharon Esposito-Mayer

/s/ Harvey P. Eisen
Harvey P. Eisen

/s/ Marshall S. Geller
Marshall S. Geller

/s/ Sue W. Kelly
Sue W. Kelly

/s/ Richard C. Pfenniger, Jr.
Richard C. Pfenniger, Jr.

/s/ A. Marvin Strait
A. Marvin Strait

/s/ Gene A. Washington
Gene A. Washington

Chief Executive Officer (Principal
Executive Officer and Director)

March 4, 2009

Executive Vice President and Chief
Financial Officer (Principal Financial and
Accounting Officer)

March 4, 2009

Chairman of the Board of Directors

March 4, 2009

Director

March 4, 2009

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Schedule of Valuation and Qualifying Accounts

Schedule II

(In thousands)

Allowance for doubtful accounts (A)

Year ended December 31, 2008:

Year ended December 31, 2007:

Year ended December 31, 2006:

Balance at
beginning
of year

865

665

1,166

Additions

Deductions
(B)

191

201

120

(118) $

(1) $

(621) $

Balance at
end of
year

938

865

665

(A) Deducted from accounts and other receivables on Consolidated Balance Sheets.
(B) Write-off of uncollectible accounts, net of recoveries.

S-1

Corporate Directory and Corporate Data

GP Strategies Corporation 2008 Annual Report

BOARD OF DIRECTORS

CORPORATE OFFICERS

Left to Right
Harvey P. Eisen 1 2 3

Non-Executive Chairman of the Board,
and Chairman and Managing Member
of Bedford Oak Advisors, LLC

Scott N. Greenberg 1

Chief Executive Officer

Marshall S. Geller 1 2 3

Founder and Senior Managing
Director of St. Cloud Capital

Sue W. Kelly 3 4

President and Chief Executive Officer
of Kelly Consulting LLC

Richard C. Pfenniger, Jr. 3 4

Chairman, President and Chief Executive
Officer of Continucare Corporation

A. Marvin Strait 2 4

Chairman of the Audit Committee
and Certified Public Accountant

Gene A. Washington 2 4

Retired Director of Football Operations
for the National Football League (NFL)

1 Member of the Executive Committee
2 Member of the Compensation Committee
3 Member of the Nominating/Corporate Governance Committee
4 Member of the Audit Committee

INFORMATION AVAILABLE TO SHAREHOLDERS

Copies of the Company’s Annual Report on Form 10-K, proxy statement, press
releases, committee charters, corporate governance guidelines, code of business
conduct, code of ethics and other documents are available through GP Strategies’
Investors page on the Internet at: www.gpworldwide.com. Copies of these materials
are also available without charge by request to Investor Relations at 410.379.3600
or investors@gpstrategies.com or by writing to our corporate headquarters at:

GP Strategies Corporation
6095 Marshalee Drive, Suite 300
Elkridge, MD 21075

CERTIFICATIONS REGARDING PUBLIC DISCLOSURES
AND LISTING STANDARDS

As required by the Sarbanes-Oxley Act of 2002, we have filed the Chief Executive
Officer and Chief Financial Officer certifications in our 2008 Annual Report on Form
10-K. In addition, the annual certification of the Chief Executive Officer regarding
compliance by GP Strategies with the corporate governance listing standards of the
New York Stock Exchange was submitted without qualification following the 2008
annual meeting of shareholders.

Left to Right
Scott N. Greenberg

Chief Executive Officer

Douglas E. Sharp
President

Karl Baer

Executive Vice President

Donald R. Duquette

Executive Vice President

Sharon Esposito-Mayer

Executive Vice President &
Chief Financial Officer

Fredric H. Strickland

Executive Vice President

Kenneth L. Crawford

Senior Vice President,
General Counsel & Secretary

Alan P. Tattersall

Senior Vice President

OPERATING COMPANY

General Physics Corporation
6095 Marshalee Drive, Suite 300
Elkridge, MD 21075
410.379.3600

INDEPENDENT AUDITORS

KPMG LLP
1 E. Pratt Street
Baltimore, MD 21202

REGISTRAR AND TRANSFER AGENT

Computershare Trust Company N.A.
P.O. Box 43070
Providence, RI 02940-3070
1.800.962.4284
www.computershare.com

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Looking Ahead to the Next Fifty Years

GP Strategies Corporation

6095 Marshalee Drive, Suite 300

Elkridge, MD 21075 USA

800.727.6677

www.gpworldwide.com

GPX Annual Report 2008 Page Layout 4.10.09 FINALwo print instructions.pmd

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