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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2011

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

For the transition period from             to             

Commission File Number 1-7234

GP STRATEGIES CORPORATION

(Exact name of Registrant as specified in its charter)

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

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

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 o  No x

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

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.  x

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.

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

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, 2011 was approximately $202,940,000.

The number of shares outstanding of the registrant’s Common Stock as of February 22, 2012:

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for its 2012 Annual Meeting of Stockholders are incorporated herein by reference into Part III hereof.

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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 “Exchange Act”).  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 (“SEC”).  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.gpstrategies.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 Exchange Act as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.

PART I

Item 1:           Business

Introduction

GP Strategies Corporation, which is a New York Stock Exchange (“NYSE”) listed company traded under the symbol GPX, is a global performance improvement solutions provider of sales and technical training, e-Learning solutions, management consulting and engineering services. On December 31, 2011, GP Strategies Corporation merged with and into its sole operating subsidiary, General Physics Corporation (“General Physics”), eliminating the previous holding company structure. General Physics, which was established in 1966, was the surviving legal corporation in the merger and was renamed GP Strategies Corporation when the merger became effective. Following the merger, the financial position, business operations, state of incorporation, directors, executive officers and management of the newly combined company were substantially identical to those of GP Strategies Corporation before the merger.  References in this report to “GP Strategies,” the “Company,” “we” and “our” are to GP Strategies Corporation and its subsidiaries, collectively.

General Development of Business

Over the last several years, we have focused on building our custom training business through internal growth and the acquisition of complementary businesses. We began executing our acquisition strategy in 2006 and have since completed 18 acquisitions. The primary objectives of our acquisition strategy are to strengthen our capabilities in

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specific training and technical service areas, expand our global presence, and increase our customer base and market sector reach.

We added sales training as a new capability in January 2007 through our acquisition of Sandy Corporation, a leader in custom product sales training primarily for the U.S. automotive industry. To further enhance our sales training resume in other market sectors, we subsequently purchased Via Training, LLC, a U.S. custom e-Learning sales training company, in October 2007. In December 2009, we acquired two businesses which strengthened our e-Learning and content development expertise: (i) Option Six, Inc., a provider of custom e-Learning courseware development services with expertise in the software and pharmaceutical industries; and (ii) PerformTech, Inc., a provider of e-Learning, custom courseware development and other training services primarily for the U.S. Government.

To expand our global presence and capabilities, we have completed acquisitions in the United Kingdom and Asia. In 2009, we acquired Milsom Industrial Designs Limited, a provider of technical and engineering services primarily for the aerospace sector. In 2010, we acquired Marton House Plc, a provider of custom e-Learning content development with expertise in leadership and product sales training, and Bath Consulting Group, a niche leadership and organizational development consulting firm. Another recent area of focus in the United Kingdom has been acquisitions of government funded vocational skills training providers. The Skills Funding Agency in the United Kingdom has moved to eliminate suppliers providing services under contracts valued below a minimum monetary threshold. During 2010 and 2011, we acquired four such providers, and as a result we have increased our revenue base with the Skills Funding Agency, a customer for whom we have been providing services for over ten years. In February 2011, to gain presence in the Asia Pacific region, we acquired Communication Consulting, a Hong Kong-based training and consulting company with offices in Shanghai and Beijing, China, and Haryana (New Delhi), India.

In April 2011, we acquired the consulting business of RWD Technologies, LLC (“RWD”), a provider of human capital management and IT consulting services, business transformation and lean process improvement, end-user training, change management, knowledge management and operator effectiveness management solutions in industries such as manufacturing, energy, automotive, aerospace, healthcare, life sciences, consumer products, financial, telecommunications, higher education and the public sector. The RWD acquisition expanded our market sector reach, added new customers and enhanced our service offerings through the addition of new complementary services.

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, manufacturing, software, financial, retail, 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 40 countries to many industry leaders, such as CIGNA Corporation, Bank of America, Cisco Systems, Eli Lilly, ExxonMobil, General Motors, Microsoft, Ford and United Technologies, as well as to government agencies including the U.S. Army, Office of Personnel Management and the Skills Funding Agency in the United Kingdom. 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 2011, for the eighth consecutive year, Training Industry, Inc., an industry trade organization, selected us as one of the Top 20 Companies in Training Outsourcing. Also in 2011, Training Industry, Inc. selected us as one of the Top Sales Training Companies for the fourth consecutive year. During 2011, Training Industry, Inc. also selected us as one of the Top 20 IT Training Companies, Top 20 Learning Portal Companies and Top 20 Content Development Companies. We also won several

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other industry awards including a prestigious “Learning In Practice” award from Chief Learning Officer Magazine and six Brandon Hall Excellence in Learning Awards, and were ranked a Top “Breadth of Service” Learning Provider by HRO Today.

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 Pratt & Whitney, General Dynamics Corporation, Rockwell Automation, Luminant Energy, NRG Energy and Ameren Energy. 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”) and hydrogen fueling stations. In addition, our consulting services support regulatory and environmental compliance, modification of facilities and processes and plant performance improvement.

Operating Segments

As of December 31, 2011, we operated through five reportable business segments: (i) Learning Solutions, (ii) Professional & Technical Services, (iii) Sandy Training & Marketing (“Sandy”), (iv) RWD, and (v) Energy Services. Our Learning Solutions segment represents an aggregation of two operating groups in accordance with the aggregation criteria in U.S. GAAP, while all of the other reportable segments each represent one operating segment. We are organized by operating group, primarily based upon the markets served by each group and/or the services performed. Each operating group consists of business units which are focused on providing specific products and services to certain classes of customers or within targeted markets. Marketing and communications, 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.

Effective October 1, 2011, we made two management reporting changes which resulted in a change to our reportable segments. Our Learning Solutions group and our Europe group which were both formerly part of the Manufacturing & BPO segment are aggregated into a separate segment named “Learning Solutions.” In addition, our Manufacturing group, which was also part of the Manufacturing & BPO segment, assumed management responsibility for the former Process & Government group and this newly combined group is a separate reportable segment named “Professional & Technical Services.” We have reclassified the segment financial information herein for all prior years to reflect this change and conform to the current year’s presentation. Further information regarding each business segment is discussed below. We continually review our reportable business segments and change them from time to time as appropriate to reflect organizational changes.

In connection with the acquisition of RWD on April 15, 2011, a portion of the acquired business constitutes a separate reportable segment which is named RWD, and certain other business units of RWD are included in the Professional & Technical Services and Sandy segments.

Learning Solutions. The Learning Solutions segment delivers training, curriculum design and development, e-Learning services, system hosting, training business process outsourcing and consulting services primarily to large companies in the electronics and semiconductors, healthcare, software, financial and other industries as well as to government agencies. This segment’s ability to deliver a wide range of training services on a global basis allows it to take over the entire learning function for the client, including their training personnel.

Professional & Technical Services. Consisting of our former Manufacturing and Process & Government groups, this segment has over four decades of experience providing training, consulting, engineering and technical services, including lean consulting, emergency preparedness, safety and regulatory compliance, chemical demilitarization and environmental services primarily to large companies in the manufacturing, steel, pharmaceutical and petrochemical industries,  federal and state government agencies and large government contractors. This segment also provides services to users of alternative fuels, including designing and constructing LNG and hydrogen fueling stations, as well as supplying fuel and equipment.

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Sandy Training & Marketing. The Sandy segment provides 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 vehicle 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 marketing strategy, measure performance against competitors and connect with their customers on a one-to-one basis. This segment also provides technical training services to automotive customers.

RWD. The RWD segment represents a portion of the consulting business acquired from RWD Technologies, LLC in April 2011. Certain of the other acquired RWD business units are managed within the Professional & Technical Services and Sandy segments discussed above. The RWD segment provides human capital management and IT consulting services, end-user training, change management, knowledge management and operator effectiveness management solutions in industries such as manufacturing, aerospace, healthcare, life sciences, consumer products, financial, telecommunications, services and higher education as well as the public sector.

Energy Services. The Energy Services 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 approximately 900 power generating units in over 30 countries. In addition to providing custom training solutions, this segment provides web-based training through our GPiLearnTM portal to over 30,000 power plant personnel in the U.S. and in over 40 countries.

Segment Financial Information

For financial information about our business segments and geographic operations and revenue, see Note 13 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 clients which establish a link between the manufacturer/dealer and each customer.

Training 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.

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

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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 IT consulting and ERP implementation services, 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 electric-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 Pratt & Whitney, 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

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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 durations 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 clients that existed in the prior year. We also had a backlog for services under executed contracts of $203.3 million as of December 31, 2011, most of which we anticipate will be recognized as revenue during 2012.

Highly Qualified and Dedicated Employees and Tenured Management Team. Our most important asset is our people, as their wide-ranging skill set 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 offer our employees 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 in excess of 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 and indirect rates 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, 2011:

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.

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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 40 countries primarily through our wholly owned subsidiaries located in the United Kingdom, France, Germany, Canada, Mexico, Colombia, Singapore, 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 18% of our consolidated revenue for the year ended December 31, 2011 (see Note 13 to the accompanying Consolidated Financial Statements).

Customers

During 2011, we provided services to over 500 customers. Significant customers include multinational automotive manufacturers, such as General Motors Company, Ford Motor Company, Hyundai Motor Company and Chrysler Group; governmental agencies, such as the U.S. Department of Defense, U.S. Naval Undersea Warfare Center, Office of Personnel Management, U.S. Social Security Administration and the Skills Funding Agency in the United Kingdom; U.S. Government prime contractors, such as Bechtel National, Inc. and URS Corporation; commercial electric power utilities, such as Eskom, NRG Energy and Suez Energy; and other large multinational companies, such as Microsoft, CIGNA Corporation, Rockwell Automation, Hewlett Packard Company, Network Appliance, Cisco Systems, Inc., Texas Instruments, Lowe’s Companies, Inc., Eli Lilly & Co., United Technologies Corporation, Exxon Mobil and United States Steel Corporation.

We have a market concentration of revenue in the automotive sector and in prior years had a concentration of revenue from General Motors Corporation and its affiliates and successor (“General Motors”). Revenue from the automotive industry accounted for approximately 17%, 18% and 21% of our consolidated revenue for the years ended December 31, 2011, 2010 and 2009, respectively, and revenue from General Motors accounted for approximately 9%, 12% and 16% of our consolidated revenue for the years ended December 31, 2011, 2010 and 2009, respectively.  No single customer accounted for more than 10% of our consolidated revenue in 2011 or accounts receivable as of December 31, 2011.

For the years ended December 31, 2011, 2010 and 2009, sales to the United States government and its agencies represented approximately 14%, 22% and 23%, respectively, of our consolidated revenue. Revenue was derived from many separate contracts with a variety of government agencies that are regarded by us as separate customers.

Employees

Our principal resource is our personnel. As of December 31, 2011, we had 2,523 employees. We also utilize additional adjunct instructors and consultants as needed. 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

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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 ask 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 $203.3 million and $136.1 million as of December 31, 2011 and 2010, respectively. We anticipate that most of our backlog as of December 31, 2011 will be recognized as revenue during 2012. 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 primarily to the U.S. Army in Maryland, including the development and management of site environmental remediation plans. Our activities in connection with providing environmental engineering services may also subject us to 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). 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.

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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, economic recession in both of those countries could harm our business and financial condition, as seen by a decrease in our revenue and income during 2009. A significant portion of our revenues is derived from Fortune 500 companies and their non-U.S. equivalents, which historically have decreased expenditures for external training during economic downturns.  If the economies in which these companies operate remain weak 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, 2011, 2010 and 2009, revenue from General Motors accounted for approximately 9%, 12% and 16%, respectively, of our consolidated revenue and revenue from our customers in the automotive industry, including General Motors, accounted for approximately 17%, 18% and 21%, respectively, of our consolidated revenue.  In recent years, General Motors and other auto manufacturers reported a sharp reduction in vehicle sales which resulted in substantial losses and severe liquidity problems, leading to efforts to restructure their operations to remain solvent and to seek government funding. While the condition of the automotive industry has improved in recent periods, further cost-cutting, a lack of sufficient funding 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, 2011, 2010 and 2009, revenue from the U.S. Government represented approximately 14%, 22% and 23% 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.

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.

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The price of our common stock is highly volatile and could 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;

·         factors affecting securities of companies included in the Russell 3000R Index, in which our common stock is included;

·         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.

A substantial portion of our assets consists of goodwill and intangible assets, which are subject to impairment. We could incur material asset impairment charges in future periods.

As of December 31, 2011, we had goodwill of $93.3 million and other intangible assets of $15.1 million in connection with acquisitions. In accordance with U.S. GAAP, 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. We tested our goodwill at the reporting unit level as of December 31, 2011 and 2010 and there was no indication of impairment.

We recognized a goodwill and intangible asset impairment loss of $10.2 million during the second quarter of 2009 primarily due to a significant decline in our market capitalization during 2009 and significant declines in the volume of business with customers primarily in the manufacturing industry as a result of the economic recession. 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;

·                fluctuations in project profitability;

·                the gain or loss of material clients;

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·                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.

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.

Sagard Capital Partners, L.P. (“Sagard”) may exert influence over us and could delay or deter a change of control or other business combination or otherwise cause us to take actions with which other stockholders may disagree.

As of December 31, 2011, Sagard beneficially owned 3,333,621 shares or 17.8% of our outstanding common stock. In addition, until Sagard owns less than certain specified amounts of common stock or certain other conditions have been met, Sagard is entitled to designate an individual to serve on our board of directors. As a result, Sagard may exert influence over our decision to enter into any corporate transaction or with respect to any transaction that requires the approval of stockholders, regardless of whether other stockholders believe that the transaction is in their own best interests. This could have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders.

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, electronics and semiconductors, construction, alternative fuels and energy industries are examples of sectors 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;

·               acquisitions may create unanticipated tax and accounting problems; and

·               acquisitions may result in a material weakness in our internal controls if we are not able to successfully establish and implement proper controls and procedures for the acquired business.

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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. In addition, small businesses acquired by us may have greater difficulty competing for new work as a result of being part of our larger entity. 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.

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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;

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·                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 for scopes of work 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 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 $203.3 million, $136.1 million and $125.2 million as of December 31, 2011, 2010 and 2009, 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 teaming 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.

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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.

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 on 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.

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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

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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 18%, 18% and 14% of our total revenue for the years ended December 31, 2011, 2010 and 2009, respectively. We conduct our business primarily in the U.S., the United Kingdom, Canada, Mexico, Colombia 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;

·                longer collection cycles;

·                logistical and communications challenges;

·                potential adverse changes in laws and regulatory practices, including export license requirements, trade 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;

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

·               nationalization of foreign assets and other forms of governmental protectionism.

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 18% of our revenue for the year ended December 31, 2011 was denominated in foreign currencies, including the British Pound Sterling, the Canadian Dollar and the Euro, and, to a lesser extent, the Mexican Peso, Colombian Peso, the Indian Rupee, the Singapore Dollar and the Chinese Yuan. British Pound Sterling-denominated revenue represented approximately 14% of our revenue for the year ended December 31, 2011.  As a result, changes in

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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 businesses we currently own.  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 our 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.

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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 at least 50% of the combined voting power of all issued and outstanding classes of capital stock 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. In connection with the sale of shares of common stock to Sagard in December 2009, we agreed to render these provisions, as well as other anti-takeover measures, inapplicable to Sagard.

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 431,000 square feet of primarily office and related space at various locations throughout the United States, the United Kingdom, France, Germany, Canada, Mexico, Colombia, India, Singapore and China. We occupy approximately 46,000 square feet in an office complex 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 lease which expires in 2018.

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.

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Item 3:           Legal Proceedings

On February 22, 2011, the Company was named a defendant in a complaint filed by the State of Tennessee (the “State”) in the Chancery Court for the 20th Judicial District of Tennessee. The complaint alleges that Bryan Oil Company, an executive of Bryan Oil, the Company and a former employee of the Company, violated provisions of the Tennessee Petroleum Underground Storage Tank Act (the “UST Act”) in connection with the closure of a waste oil storage tank in 1997. The Complaint seeks civil penalties not to exceed $10,000 per day for each violation of the UST Act, post-judgment interest and court costs. The State also began an administrative action requiring the Company to “show cause” why it should not be removed as an approved Corrective Action Contractor (CAC), alleging that the Company violated the UST Act in 1997 by failing to properly close the waste oil storage tank and filing false information by reporting that the tank was “emptied, filled with concrete and left in place.” The Company presented evidence (including the actual tank) showing that the tank, which in 1997 was located entirely beneath the concrete floor of a building and accessible only through a 2-inch fill pipe, was at least 90% filled with concrete, largely free of oil residue, and closed-in-place in compliance with the regulations then in effect. The Company also engaged an independent expert who determined that the tank was closed in compliance with the regulations in effect in 1997 and that there has been no measurable harm to the environment associated with the tank. The State issued a ruling that did not address the allegation of improper closure, but found that the Company had filed false information by incorrectly stating the size of the tank in a report filed in 1997. The Company appealed that decision to the State UST Board and a hearing previously set for November 16, 2011, has been re-scheduled for May 23, 2012. On September 26, 2011, the Company received a letter from the U.S. Environmental Protection Agency (“EPA”), making allegations similar to those made in February, 2011 by the State of Tennessee, requesting the Company to “show cause” why the EPA should not issue a Notice of Suspension and Proposed Debarment. The EPA has extended the date for the Company to respond to the “show cause” notice and taken no further action. On February 1, 2012, the State filed an Amended Complaint to include additional causes of action based upon alleged inaccuracies in documents filed by the defendants with the State.  The Company continues to believe that its actions complied with the UST Act and applicable regulations, that it did not file false information in violation of the law, and that it has valid defenses against the State’s and the EPA’s allegations.

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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.

The number of shareholders of record of our common stock as of February 22, 2012 was 950. Shares of our common stock that are registered in the name of a broker or other nominee are listed as a single shareholder on our record listing, even though they are held for a number of individual shareholders. As such, our actual number of shareholders is higher than the number of shareholders of record.

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, our Credit Agreement (see Item 7) contains restrictive covenants regarding future acquisitions, incurrence of debt and the payment of dividends.

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Performance Graph

The following graph assumes $100 was invested on January 1, 2007 in GP Strategies Common Stock, and compares the share price performance with the NYSE Market Index and a peer group index which consists of the companies included in Standard Industrial Classification (SIC) 8200, Educational Services.  Values are as of December 31 of the specified year assuming that all dividends were reinvested.

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Issuer Purchases of Equity Securities

The following table provides information about our share repurchase activity for the three months ended December 31, 2011:

(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.

(2)         Represents shares surrendered to satisfy tax withholding obligations on restricted stock units which vested during these periods and shares surrendered to exercise stock options and satisfy the related tax withholding obligations.

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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, 2011, 2010, and 2009 and our consolidated balance sheet data as of December 31, 2011 and 2010 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, 2008 and 2007 and our consolidated balance sheet data as of December 31, 2009, 2008, and 2007 have been derived from audited consolidated financial statements which are not presented in this report.

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, 2011 which are located in Item 8 of this report.

General Overview

We are a global performance improvement solutions provider of sales and technical training, e-Learning solutions, management consulting and engineering services that seeks to improve the effectiveness of organizations by providing services and products that are customized to meet the specific needs of clients. Clients include Fortune 500 companies and governmental and other commercial customers in a variety of industries. We believe we are a global leader in performance improvement, with over four decades of experience in providing solutions to optimize workforce performance.

As of December 31, 2011, we operated through five reportable business segments: (i) Learning Solutions, (ii) Professional & Technical Services, (iii) Sandy Training & Marketing (“Sandy”), (iv) RWD, and (v) Energy Services. Our Learning Solutions segment represents an aggregation of two operating groups in accordance with the aggregation criteria in U.S. GAAP, while all of the other reportable segments each represent one operating segment. We are organized by operating group, primarily based upon the markets served by each group and/or the services performed. Each operating group consists of business units which are focused on providing specific products and services to certain classes of customers or within targeted markets. Marketing and communications, accounting, finance, legal, human resources, information systems and other administrative services are organized at the corporate level. Business

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development and sales resources are aligned with operating groups to support existing customer accounts and new customer development.

Effective October 1, 2011, we made two management reporting changes which resulted in a change to our reportable segments. Our Learning Solutions group and our Europe group which were both formerly part of the Manufacturing & BPO segment are aggregated into a separate segment named “Learning Solutions.” In addition, our Manufacturing group, which was also part of the Manufacturing & BPO segment, assumed management responsibility for the former Process & Government group and this newly combined group is a separate reportable segment named “Professional & Technical Services.” We have reclassified the segment financial information herein for all prior years to reflect this change and conform to the current year’s presentation. Further information regarding each business segment is discussed below. We continually review our reportable business segments and change them from time to time to reflect organizational changes.

In connection with the acquisition of RWD on April 15, 2011, a portion of the acquired business constitutes a separate reportable segment which is named RWD, and certain other business units of RWD are included in the Professional & Technical Services and Sandy segments.

Learning Solutions. The Learning Solutions segment delivers training, curriculum design and development, e-Learning services, system hosting, training business process outsourcing and consulting services primarily to large companies in the electronics and semiconductors, healthcare, software, financial and other industries as well as to government agencies. This segment’s ability to deliver a wide range of training services on a global basis allows it to take over the entire learning function for the client, including their training personnel.

Professional & Technical Services. Consisting of our former Manufacturing and Process & Government groups, this segment has over four decades of experience providing training, consulting, engineering and technical services, including lean consulting, emergency preparedness, safety and regulatory compliance, chemical demilitarization and environmental services primarily to large companies in the manufacturing, steel, pharmaceutical and petrochemical industries,  federal and state government agencies and large government contractors. This segment also provides services to users of alternative fuels, including designing and constructing LNG and hydrogen fueling stations, as well as supplying fuel and equipment.

Sandy Training & Marketing. The Sandy segment provides 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 vehicle 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 marketing strategy, measure performance against competitors and connect with their customers on a one-to-one basis. This segment also provides technical training services to automotive customers.

RWD. The RWD segment represents a portion of the consulting business acquired from RWD Technologies, LLC in April 2011. Certain of the other acquired RWD business units are managed within the Professional & Technical Services and Sandy segments discussed above. The RWD segment provides human capital management and IT consulting services, end-user training, change management, knowledge management and operator effectiveness management solutions in industries such as manufacturing, aerospace, healthcare, life sciences, consumer products, financial, telecommunications, services and higher education as well as the public sector.

Energy Services. The Energy Services 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 approximately 900 power generating units in over 30 countries. In addition to providing custom training solutions, this segment provides web-based training through our GPiLearnTM portal to over 30,000 power plant personnel in the U.S. and in over 40 countries.

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

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Business Strategy

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

Continuously enhance our service offerings and capabilities.  We believe the demand for learning and development services will continue to increase. In a knowledge based economy, this demand is driven by ever increasing technology, processes, products, and attrition of personnel. The rate and effectiveness of the transfer of knowledge to the workforce of our clients, their partners, and even their customers can positively impact their performance. We plan to meet this demand by continuously expanding our services and capabilities through organic growth initiatives based upon our technical expertise as well as through targeted acquisitions.  Our acquisitions in recent years have added product sales training to our services offering, strengthened our e-Learning and custom training content development services in both the commercial and government sectors, and expanded our geographical reach. We believe that the breadth of our service and product offerings allows us to effectively compete for customers by offering a comprehensive 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 efficient, cost-effective 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 have reduced their external training expenditures due to the 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 experienced a reduction in revenue during 2009 as a result of the economic recession, primarily due to a slowdown in certain of the end market sectors we serve, such as automotive, manufacturing and electronics and semiconductors.  At the beginning of 2009, we implemented a cost management strategy to ensure that we remained competitive in this economic environment and are well positioned when the economy recovers. We have continued to manage costs to ensure we remain competitive and will continue to invest in what we believe are key areas of growth.

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 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.

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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 18 businesses which have expanded our e-Learning capabilities and added complementary services such as product sales training.  Ten 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.

Acquisitions

Below is a summary of the acquisitions we completed during 2011, 2010 and 2009. See Note 2 to the accompanying Consolidated Financial Statements for further details, including the purchase price allocations.

2011 Acquisitions

Communication Consulting

On February 1, 2011, through our wholly-owned subsidiaries in Hong Kong and Shanghai, we acquired the training business and certain related assets of Cathay/Communication Consulting Limited (“Communication Consulting”), a Hong Kong-based training and consulting company with offices in Shanghai and Beijing, China, and Haryana (New Delhi) in India. Communication Consulting designs and delivers customized training solutions and specializes in the areas of leadership, communication skills, sales and customer service training. The purchase price for the acquired business and assets was $1.5 million in cash. In addition, the purchase agreement requires us to pay up to an additional $0.7 million, which would be payable subsequent to the two twelve-month periods following completion of the acquisition, contingent upon our Shanghai operations achieving specified revenue targets during those periods, as defined in the purchase agreement. Communication Consulting is included in the Professional & Technical Services segment and the results of its operations have been included in the consolidated financial statements since February 1, 2011.

Ultra Training Ltd.

On April 1, 2011, we acquired Ultra Training Ltd., an independent skills training provider located in the United Kingdom. We acquired 100% ownership of Ultra Training Ltd. for a purchase price of $3.4 million in cash. Ultra Training Ltd. is included in the Learning Solutions segment and its results of operations have been included in the consolidated financial statements since April 1, 2011.

RWD Technologies

On April 15, 2011, we completed the acquisition of certain assets of the consulting business of RWD Technologies, LLC, a Delaware limited liability company, and certain of its subsidiaries (collectively, “RWD”). RWD is a provider of human capital management and IT consulting services, business transformation and lean process improvement, end-user training, change management, knowledge management and operator effectiveness management solutions in industries such as manufacturing, energy, automotive, aerospace, healthcare, life sciences, consumer products, financial, telecommunications, services and higher education as well as the public sector. We paid $28.0 million at closing, which was financed with $20.4 million of cash on hand and $7.6 million of borrowings under our revolving credit facility. The purchase price was subsequently adjusted based on the final determination of the working capital of the acquired business as of the closing date in accordance with the Asset Purchase Agreement. In September 2011, the seller paid us $2.2 million based on the final determination of working capital as of the acquisition date.

A portion of the acquired business is reported as a separate reportable segment named RWD, and the remaining other business units of RWD are included in the Professional & Technical Services and Sandy segments. The results of RWD’s operations have been included in the consolidated financial statements since April 16, 2011.

The following unaudited pro-forma condensed consolidated results of operations assume that the acquisition of RWD was completed as of January 1 for each of the years below:

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Beneast Training Ltd.

On August 1, 2011, we acquired the share capital of TK Holdings Ltd and its subsidiary Beneast Training Ltd. (collectively, “Beneast”), an independent skills training provider located in the United Kingdom. We acquired 100% ownership of Beneast for a purchase price of $6.8 million in cash. Beneast is included in the Learning Solutions segment and its results of operations have been included in the consolidated financial statements since August 1, 2011.

Van Hee

On July 29, 2011, we entered into an Asset Purchase Agreement with Van Hee Transport Limited (“Van Hee”), an independent skills training provider located in the United Kingdom, to acquire a contract to provide government funded training services. The purchase price was $0.8 million in cash at closing and was recorded as an intangible asset which is being amortized over an estimated useful life of three years subsequent to the acquisition date.

2010 Acquisitions

Marton House

On April 1, 2010, we completed the acquisition of Marton House Plc (“Marton House”), a provider of custom e-Learning content development with expertise in leadership and product sales training in the United Kingdom. We acquired 100% ownership of Marton House for a purchase price of $2.8 million in cash. In addition, the purchase agreement requires us to pay up to an additional $3.7 million, of which approximately $1.2 million would be payable subsequent to each of the three twelve-month periods following completion of the acquisition, contingent upon Marton House achieving certain earnings targets during those periods, as defined in the purchase agreement. We paid $1.3 million of contingent consideration in April 2011 with respect to the earnings achieved for the first twelve-month period following completion of the acquisition. Marton House is included in our Learning Solutions segment and its results of operations have been included in the consolidated financial statements since April 1, 2010.

Bath Consulting

On November 1, 2010, we completed the acquisition of Bath Consulting Group (“Bath Consulting”), a niche leadership and organizational development consulting firm in the United Kingdom. We acquired 100% ownership of Bath Consulting for a purchase price of $1.4 million in cash. In addition, the purchase agreement requires us to pay up to an additional $2.4 million, which would be payable subsequent to each of the three twelve-month periods following completion of the acquisition, contingent upon Bath Consulting achieving certain earnings targets during those periods, as defined in the purchase agreement. We expect to pay $0.3 million of contingent consideration in the first quarter of 2012 with respect to the earnings achieved for the first twelve-month period following completion of the acquisition. Bath Consulting is included in our Learning Solutions segment and its results of operations have been included in the consolidated financial statements since November 1, 2010.

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Academy of Training

On December 1, 2010, we completed the acquisition of Academy of Training Ltd. (“AoT”), an independent training provider in the United Kingdom. We acquired 100% ownership of AoT for a purchase price of $1.1 million in cash. In addition, the purchase agreement requires us to pay up to an additional $0.2 million, which would be payable subsequent to the twelve-month period following completion of the acquisition, contingent upon AoT achieving a revenue target during that period, as defined in the purchase agreement. As of December 31, 2011, we estimate that less than $0.1 million of contingent consideration is payable to the sellers of AoT with respect to the twelve-month period following completion of the acquisition. AoT is included in our Learning Solutions segment and its results of operations have been included in the consolidated financial statements since December 1, 2010.

2009 Acquisitions

Milsom

On September 1, 2009, we acquired Milsom, a provider of technical documentation, technical publications, technical recruiting and engineering design services. Milsom provides extensive technical services for aerospace and engineering companies. We acquired 100% ownership of Milsom for a purchase price of approximately $2.5 million in cash. In addition, the purchase agreement requires us to pay up to an additional $3.6 million, of which $1.2 million would be payable subsequent to each of the three twelve-month periods following completion of the acquisition, contingent upon Milsom achieving certain earnings targets during those periods, as defined in the purchase agreement. In December 2010, we paid $0.8 million of contingent consideration to the sellers based on the earnings achieved for the first twelve-month period following the completion of the acquisition. In January 2011, we paid $0.4 million of contingent consideration to the sellers based on the earnings achieved for the second twelve-month period following the completion of the acquisition. Milsom is included in our Learning Solutions segment and its results of operations have been included in the consolidated financial statements since September 1, 2009.

Option Six

On December 1, 2009, we acquired Option Six, a provider of custom e-Learning courseware development services with expertise in the software and pharmaceutical industries. Option Six, located in Bloomington, Indiana, provides blended learning courseware development. The final purchase price consisted of $4.1 million in cash paid to the sellers. In addition, the purchase agreement requires up to an additional $2.0 million to be paid to the sellers, contingent upon the achievement of certain earnings targets, as defined in the purchase agreement, during the two twelve-month periods following the completion of the acquisition. We paid $0.7 million of contingent consideration in April 2011 with respect to the earnings achieved for the first twelve-month period following completion of the acquisition. As of December 31, 2011, we estimate that $0.8 million of contingent consideration will be payable to the sellers with respect to the earnings achieved for the second twelve-month period following completion of the acquisition.  Option Six is included in our Learning Solutions segment and the results of its operations have been included in the consolidated financial statements since December 1, 2009.

PerformTech

On December 30, 2009, we acquired PerformTech, a provider of custom courseware development and other training services primarily for the U.S. Government. PerformTech, located in Alexandria, Virginia, is a leading developer of custom training solutions, with a significant presence supporting federal government priorities including border security, anti-terrorism, and highway engineering.  PerformTech leverages its extensive past performance, proprietary development tools, and technical expertise in needs analysis, curriculum development (classroom and web-based), and training delivery to address clients’ mission critical needs. The final purchase price consisted of $17.6 million in cash paid to the sellers. In addition, the purchase agreement requires up to an additional $4.5 million to be paid to the sellers, 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. No contingent consideration was paid as the revenue targets were not achieved. PerformTech is included in our Learning Solutions segment and the results of its operations have been included in the consolidated financial statements since January 1, 2010.

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Results of Operations

Operating Highlights

Year ended December 31, 2011 compared to the year ended December 31, 2010

For the year ended December 31, 2011, we had income before income taxes of $28.4 million compared to $20.9 million for the year ended December 31, 2010.  The improved results are primarily due to an increase in operating income of $7.4 million, the components of which are discussed below. Included in operating income is a $1.0 million gain on the reversal of a deferred rent liability related to the execution of a new lease for our Troy, Michigan facility during the second quarter of 2011 which is discussed in more detail below.  Also included in operating income is a $0.5 million net gain on the change in estimated fair value of contingent consideration during 2011 related to acquisitions completed, which is discussed further below and in Note 2 to the Consolidated Financial Statements. Net income was $17.9 million, or $0.94 per diluted share, for the year ended December 31, 2011 compared to $12.7 million, or $0.68 per diluted share, for 2010. Included in net income is a $0.9 million income tax benefit during the fourth quarter of 2011 on the reduction of an uncertain tax position relating to a period that is now outside the applicable statute of limitations.

Diluted weighted average shares outstanding were 19.0 million for the year ended December 31, 2011 compared to 18.7 million for the same period in 2010. The increase in shares outstanding is primarily due to the issuance of shares for stock-based compensation and the effect of the increase in our stock price compared to the prior year on the results of the calculation of diluted weighted average shares outstanding.

Revenue

Learning Solutions revenue increased $11.5 million or 9.6% during the year ended December 31, 2011 compared to 2010. The increase in revenue is due to the following:

·                  A $14.3 million increase in revenue attributable to acquisitions completed in the United Kingdom, which includes $2.8 million for Bath Consulting acquired in November 2010 and $9.2 million of revenue attributable to the UK government funded vocational skills training providers we acquired in 2010 and 2011;

·                  A $1.4 million increase in U.S. dollar revenue recognized from our operations in the United Kingdom due to the change in currency exchange rates compared to 2010; and

·                  A $0.4 million net increase in revenue primarily due to an increase in volume with existing BPO customers, partially offset by a decrease in e-Learning revenue, during the year ended December 31, 2011 compared to 2010.

The above revenue increases were offset by a $4.6 million net decrease in revenue primarily due to a decline in e-Learning development and other training services in the UK.

Professional & Technical Services revenue increased $14.4 million or 20.3% during the year ended December 31, 2011 compared to 2010. The increase in revenue is due to the following:

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·                  A $11.0 million increase in revenue attributable to acquisitions completed during 2011, which includes $9.4 million for the acquired RWD business units which are included in this segment and $1.6 million for the Communication Consulting acquisition in China;

·                  A $3.5 million net increase in revenue for technical training and lean consulting services primarily for manufacturing customers; and

·                  A $3.3 million increase in IT services for a pharmaceutical customer.

These revenue increases were offset by the following decreases:

·                  A $2.0 million net decrease relating to construction projects for liquefied natural gas (LNG) fueling station facilities due to the completion of projects in 2010; and

·                  A $1.4 million net decrease in revenue from technical services primarily for government clients.

Sandy Training & Marketing revenue increased $7.5 million or 15.8% during the year ended December 31, 2011 compared to 2010. Approximately $2.8 million of the increase is attributable to the automotive business unit of RWD which is now included in this segment as a result of the acquisition on April 15, 2011. The remainder of the revenue increase is primarily attributable to increased vehicle training programs for existing automotive customers during the year ended December 31, 2011 compared to 2010.

Revenue attributable to the RWD segment totaled $40.1 million for the year ended December 31, 2011. As noted above, a portion of the business acquired on April 15, 2011 constitutes a separate reportable segment, and certain other business units of RWD are included in the Professional & Technical Services and Sandy segments. Revenue attributable to the RWD acquisition among all segments totaled $52.3 million from April 15, 2011 through December 31, 2011.

Energy Services revenue decreased slightly by $0.2 million or less than 1.0% during the year ended December 31, 2011 compared to 2010 primarily due to a $1.4 million decrease in technical training services, partially offset by a $1.2 million increase in EtaProTM software sales and related implementation services.

Gross profit

Learning Solutions gross profit of $22.3 million or 17.1% of revenue for the year ended December 31, 2011 increased by $2.1 million or 10.5% when compared to gross profit of approximately $20.2 million or 17.0% of revenue for the year ended December 31, 2010. The increase in gross profit is primarily attributable to the acquisitions we completed in 2010 and 2011.

Professional & Technical Services gross profit of $14.3 million or 16.7% of revenue for the year ended December 31, 2011 increased by $5.2 million or 56.6% when compared to gross profit of approximately $9.1 million or 12.9% of revenue for the year ended December 31, 2010. Approximately $2.0 million of the increase in gross profit is attributable to the acquisitions completed in 2011.   In addition, this segment experienced increases in gross profit and

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margin primarily due to the revenue increases discussed above, along with improved profit margins on certain fixed price projects during 2011 compared to 2010.

Sandy Training and Marketing gross profit of $8.1 million or 14.9% of revenue for the year ended December 31, 2011 increased by $2.0 million or 32.8% when compared to gross profit of $6.1 million or 13.0% for the year ended December 31, 2010. The increase in gross profit is primarily due to the revenue growth in this segment during the year ended December 31, 2011 compared to 2010. In addition, approximately $0.7 million of the increase in gross profit is attributable to the acquired RWD automotive business unit included in this segment, which has higher gross margins than the existing business units in this segment.

Gross profit attributable to the RWD segment totaled $4.7 million, or 11.6% of revenue, for the year ended December 31, 2011.

Energy Services gross profit of $7.3 million or 31.8% of revenue for the year ended December 31, 2011 was consistent at $7.3 million or 31.6% of revenue for the year ended December 31, 2010.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $6.8 million or 28.9% from $23.5 million for the year ended December 31, 2010 to $30.2 million for the year ended December 31, 2011. The increase is primarily due to the acquisitions we completed in 2010 and 2011, which resulted in a $2.3 million increase in labor and benefits expense, a $1.4 million increase in legal expenses and a $1.2 million increase in amortization expense, as well as increases in other various costs, such as IT infrastructure, software, accounting and depreciation, during the year ended December 31, 2011 compared to 2010.

Gain on reversal of deferred rent liability

In 2008, we entered into a sublease with Lear Corporation (“Lear”) for approximately 60,000 square feet of space in an office building in Troy, Michigan for a term scheduled to end in March 2015.  Lear filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in 2009 and subsequently obtained court approval to reject both our sublease and the superior lease under which the sublease was made. In May 2010, we filed a complaint in U.S. District Court for the Eastern District of Michigan seeking a declaratory judgment regarding our status as an occupant of the space and our obligation to pay rent.  We sought unsuccessfully to enter into a direct lease with the building owner. The building owner, Osprey-Troy Officentre, LLC (“Osprey”), claimed rights through Lear and threatened legal action if we vacated the building and ceased to pay rent under the sublease.  We believed that the sublease was terminated and that we were a tenant-at-sufferance in the building, no longer bound by the sublease and obligated to pay only the reasonable rental value of the space we occupied.  Osprey asked the Court to deny the relief we requested and argued that the sublease constituted an assignment by Lear to us of Lear’s lease of the portion of the building occupied by us.  Both parties filed motions for summary judgment.

In June 2011, prior to a court ruling on this matter, we entered into a new lease directly with Osprey for a term scheduled to end in March 2018, with an option to terminate on or after May 31, 2016 with 180 days prior written notice. Prior to entering into the new lease with Osprey, we had a deferred rent liability on our balance sheet of $1.0 million, which represented the difference between the actual monthly rent owed to date and the rent expense recognized on a straight-line basis for the scheduled rent increases over the term of the original sublease. Upon entering into the new lease with Osprey, we reversed the deferred rent liability associated with the terminated sublease. As a result, we recognized a net gain of $1.0 million in the consolidated statement of operations during the quarter ended June 30, 2011.

Gain on change in fair value of contingent consideration, net

During the years ended December 31, 2011 and 2010, we recognized net gains of $0.5 million and $1.3 million, respectively, on the change in fair value of contingent consideration related to acquisitions.  Effective January 1, 2009, we adopted Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC Topic 805”), which requires that contingent consideration be recognized at fair value on the acquisition date, and re-measured each reporting period with subsequent adjustments recognized in the consolidated statement of operations. We estimate the

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fair value of contingent consideration liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. We believe our estimates and assumptions are reasonable; however, there is significant judgment involved. At each reporting date, the contingent consideration obligation will be revalued to estimated fair value and changes in fair value subsequent to the acquisitions will be reflected in operating income or expense in the consolidated statements of operations, and could cause a material impact to, and volatility in, our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. See Note 2 to the Consolidated Financial Statements for a detailed discussion of the acquisitions we completed subsequent to the adoption of ASC Topic 805 in 2009 and the changes in fair value of contingent consideration during the year ended December 31, 2011.

Interest expense

Interest expense was $0.2 million for each of the years ended December 31, 2011 and 2010.

Other income

Other income was $0.7 million and $0.6 million for the years ended December 31, 2011 and 2010, respectively, and consisted primarily of income from a joint venture, interest income and foreign currency gains and losses in both years.

Income taxes

Income tax expense was $10.5 million for the year ended December 31, 2011 compared to $8.1 million for the year ended December 31, 2010. The increase in income tax expense is primarily due to an increase in income before income taxes in 2011 compared to 2010. The effective income tax rate was 37.1% and 38.9% for the years ended December 31, 2011 and 2010, respectively. The decrease in the effective income tax rate is due to the following: (i) a $0.9 million income tax benefit related to the reduction of an uncertain tax position liability during the fourth quarter of 2011 relating to a period that is now outside the applicable statute of limitations, which resulted in a 3.1% decrease in the effective tax rate; and (ii) a decrease in foreign taxes due to a larger portion of our 2011 income being derived from foreign jurisdictions which are taxed at lower rates. These decreases in the effective income tax rate during 2011 were offset by the following items which resulted in a decrease in the effective rate in 2010 but did not recur in 2011: (i) the closure of our Malaysian operations during 2010 for which we recognized a loss on our investment for tax purposes and resulted in a 2.0% decrease in the effective tax rate in 2010; and (ii) the correction of an error in the deferred tax liabilities during 2010 which resulted in a 2.0% decrease in the effective tax rate for 2010. See Note 9 to the accompanying Consolidated Financial Statements for further information regarding income taxes.

As of December 31, 2011, we had approximately $9.2 million of accumulated undistributed earnings generated by our foreign subsidiaries. No provision has been made for income taxes that would be payable upon the distribution of such earnings since we intend to permanently reinvest these earnings. If these earnings were distributed in the form of dividends or otherwise, the distributions would be subject to U.S. federal income tax at the statutory rate of 35 percent, less foreign tax credits available to offset such distributions, if any. In addition, such distributions may be subject to withholding taxes in the various tax jurisdictions.

Year ended December 31, 2010 compared to the year ended December 31, 2009

For the year ended December 31, 2010, we had income before income taxes of $20.9 million compared to $3.4 million for the year ended December 31, 2009.  During 2009, we incurred goodwill and intangible asset impairment losses of $10.2 million. Excluding the impairment losses, we had an increase in operating income of $7.2 million, the components of which are discussed below. The increase in operating income included a $1.3 million gain on the change in estimated fair value of contingent consideration during 2010 related to acquisitions completed, which is discussed further below and in Note 2 to the Consolidated Financial Statements. Net income was $12.7 million, or $0.68 per diluted share, for the year ended December 31, 2010 compared to a net loss of $1.2 million, or ($0.07) per diluted share, for 2009. Excluding the impact of the impairment losses, net income was $7.4 million, or $0.47 per diluted share for the year ended December 31, 2009.

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Diluted weighted average shares outstanding were 18.7 million for the year ended December 31, 2010 compared to 15.9 million for the same period in 2009. The increase in shares outstanding is primarily due to the equity investment by Sagard in December 2009.

Revenue

Learning Solutions revenue increased $45.8 million or 62.5% during the year ended December 31, 2010 compared to 2009. The increase in revenue is due to the following:

·                  A $34.1 million increase in revenue attributable to acquisitions completed during 2009 and 2010, which includes $7.8 million for Milsom, $5.0 million for Option Six, $13.1 million for PerformTech, $7.2 million for Marton House, $0.7 million for Bath Consulting and $0.3 million for AoT;

·                  A $7.5 million net increase in training BPO revenue primarily due to new projects with existing BPO clients in 2010; and

·                  A $4.5 million net increase in e-Learning revenue primarily due to a new content development contract awarded by a global software client during 2009.

The above revenue increases were offset by a $0.3 million decrease in U.S. dollar revenue recognized from our operations in the United Kingdom due to the change in currency exchange rates compared to 2009.

Professional & Technical Services revenue decreased $6.9 million or 8.8% during the year ended December 31, 2010 compared to 2009. The decrease in revenue is due to the following:

·                  A $4.7 million net decrease relating to construction projects for liquefied natural gas (LNG) fueling station facilities primarily due to the completion of a large project in 2009; and

·                  A $4.2 million net decrease in revenue from various contracts primarily related to environmental engineering services, homeland security / first responder training services and other technical services, largely due to certain contracts being completed during 2009 or running at reduced volumes in 2010.

The above revenue decreases were offset by a net increase of $2.0 million primarily due to training services for a large pharmaceutical company and various other clients during the year ended December 31, 2010 compared to 2009.

Sandy Training & Marketing revenue increased $1.5 million or 3.3% during the year ended December 31, 2010 compared to 2009 due to the following:

·                  A $7.7 million increase in revenue primarily due to an increase in training services for new vehicle launch and other new training programs for various automotive customers; and

·                  A $1.9 million increase in glove box portfolio revenue due to the addition of products in 2010 and increased vehicle sales volume; offset by

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·                  A $4.5 million net decrease in revenue from product sales trainer programs primarily due to a reduction in the number of trainers required and a reduction in related in-dealership training programs; and

·                  A $3.6 million decrease in publication revenue due to the elimination of vehicle brands and a reduction in dealerships which resulted in lower publication volume. We experience 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.

Energy Services revenue increased $0.3 million or 1.3% during the year ended December 31, 2010 compared to 2009 primarily due to an increase in training product sales.

Gross profit

Learning Solutions gross profit of $20.2 million or 17.0% of revenue for the year ended December 31, 2010 increased by $7.7 million or 61.6% when compared to gross profit of approximately $12.5 million or 17.1% of revenue for the year ended December 31, 2009. Approximately $5.5 million of the increase in gross profit is attributable to the acquisitions we completed in 2009 and 2010. In addition, the remaining increases in gross profit were primarily due to increased BPO and training services in 2010 noted above.

Professional & Technical Services gross profit of $9.1 million or 12.9% of revenue for the year ended December 31, 2010 increased by $0.4 million or 4.1% when compared to gross profit of approximately $8.8 million or 11.3% of revenue for the year ended December 31, 2009. Despite the revenue decrease in this segment, gross profit increased primarily due to increases in the more profitable revenue streams in this segment discussed above, along with improved profit margins on certain fixed price projects during 2010.

Sandy Training and Marketing gross profit of $6.1 million or 13.0% of revenue for the year ended December 31, 2010 decreased by $0.4 million or 6.4% when compared to gross profit of $6.5 million or 14.3% for the year ended December 31, 2009. The decrease in gross profit is primarily due to a reduction in higher margin publications revenue as discussed above.

Energy Services gross profit of $7.3 million or 31.6% of revenue for the year ended December 31, 2010 increased by $1.0 million or 15.2% when compared to gross profit of approximately $6.3 million or 27.8% of revenue for the year ended December 31, 2009. This increase in gross profit is primarily due to an increase in higher margin product sales and reduced costs relating to our GPiLearn e-Learning portal.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $2.7 million or 12.8% from $20.8 million for the year ended December 31, 2009 to $23.5 million for the year ended December 31, 2010. The increase is largely due to a $0.9 million increase in amortization expense and a $0.7 million increase in labor and benefits expense related to the acquisitions we completed in 2009 and 2010. There were also increases in bad debt expense, software costs and legal expenses totaling approximately $0.8 million.  In addition, there was a $0.3 million increase in restructuring charges recognized during 2010 related to facility leases in the United Kingdom.

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Gain on change in fair value of contingent consideration, net

During the year ended December 31, 2010, we recognized a $1.3 million net gain on the change in fair value of contingent consideration related to acquisitions we completed in 2009 and 2010.  Effective January 1, 2009, we adopted Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC Topic 805”), which requires that contingent consideration be recognized at fair value on the acquisition date, and re-measured each reporting period with subsequent adjustments recognized in the consolidated statement of operations. We estimate the fair value of contingent consideration liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. We believe our estimates and assumptions are reasonable; however, there is significant judgment involved. At each reporting date, the contingent consideration obligation will be revalued to estimated fair value and changes in fair value subsequent to the acquisitions will be reflected in operating income or expense in the consolidated statements of operations, and could cause a material impact to, and volatility in, our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. See Note 2 to the Consolidated Financial Statements for a detailed discussion of the acquisitions we completed subsequent to the adoption of ASC Topic 805 in 2009.

Goodwill and intangible asset impairment loss

We incurred a goodwill and intangible asset impairment loss of $10.2 million during the second quarter of 2009 related to our Manufacturing reporting unit.  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 was $0.2 million for each of the years ended December 31, 2010 and 2009.

Other income

Other income was $0.6 million and $0.5 million for the years ended December 31, 2010 and 2009, respectively, and consisted primarily of income from a joint venture and interest income, offset by a foreign currency loss in both years.

Income taxes

Income tax expense was $8.1 million for the year ended December 31, 2010 compared to $4.6 million for the year ended December 31, 2009. The increase in income tax expense is primarily due to an increase in income before income taxes in 2010 compared to 2009. We recognized a $1.5 million income tax benefit related to the $10.2 million goodwill and intangible asset impairment loss incurred during the second quarter of 2009 for the portion of goodwill which was deductible for tax purposes. Excluding the impact of the impairment loss in 2009, the effective income tax rate was 38.9% and 45.1% for the years ended December 31, 2010 and 2009, respectively. Approximately 2.1% of the decrease in the effective income tax rate is due to a larger portion of our 2010 income being derived from foreign jurisdictions which are taxed at lower rates and approximately 2.0% of the decrease is due to the closure of our Malaysian operations during 2010 for which we recognized a loss on our investment for tax purposes. In addition, during 2010 in conjunction with the filing of our 2009 tax return, we identified an error in the deferred tax liabilities on the consolidated balance sheet. We recorded a $0.4 million decrease in tax expense during the fourth quarter of 2010 to correct the error which had accumulated over several prior years. The error correction resulted in a 2.0% decrease in our effective income tax rate for 2010 compared to 2009. We determined that the out-of-period correction was not material quantitatively or qualitatively to the consolidated financial statements taken as a whole for any of the periods in which the accounts were mis-stated. See Note 9 to the accompanying Consolidated Financial Statements for further information regarding income taxes.

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Liquidity and Capital Resources

Working Capital

For the year ended December 31, 2011, our working capital decreased $11.4 million from $47.3 million at December 31, 2010 to $36.0 million at December 31, 2011. The decrease in working capital is primarily due to the use of cash for acquisitions during 2011, for which a significant amount of the purchase prices were allocated to goodwill and other intangible assets (see further details above and in Note 2 to the Consolidated Financial Statements). As of December 31, 2011, we had no long-term debt or short-term borrowings outstanding. We believe that cash generated from operations and borrowings available under our Credit Agreement ($34.5 million of available borrowings as of December 31, 2011) will be sufficient to fund our working capital and other requirements for at least the next twelve months.

As of December 31, 2011, the amount of cash and cash equivalents held outside of the U.S. by foreign subsidiaries was $3.1 million. At the present time, we do not anticipate repatriating these balances to fund domestic operations. We would be required to accrue for and pay taxes in the U.S. in the event we decided to repatriate these funds.

Acquisition-Related Payments

During the year ended December 31, 2011, we used $35.6 million of cash to complete acquisitions and $2.5 million of cash for contingent consideration payments related to previously completed acquisitions. In addition to the upfront purchase prices paid for acquisitions, we may be required to pay the following additional contingent consideration in connection with acquisitions we previously completed (dollars in thousands):

Significant Customers & Concentration of Credit Risk

We have a market concentration of revenue in the automotive sector and in prior years had a concentration of revenue from General Motors. Revenue from the automotive industry accounted for approximately 17%, 18% and 21% of our consolidated revenue for the years ended December 31, 2011, 2010 and 2009, respectively, and revenue from General Motors accounted for approximately 9%, 12% and 16% of our consolidated revenue for the years ended December 31, 2011, 2010 and 2009, respectively.  No single customer accounted for more than 10% of our consolidated revenue in 2011 or accounts receivable as of December 31, 2011.

Share Repurchase Program

Since January 2006, our Board of Directors has authorized a total of approximately $27 million of repurchases of our common stock. In September 2011, our Board of Directors authorized a $5 million share repurchase program to replace the existing authorization which had approximately $1.2 million remaining at the time of approval. Repurchases are made at management’s discretion in accordance with applicable federal securities law. The amount and timing of share repurchases will depending on a variety of factors, including market conditions and prevailing stock prices. The share repurchase authorization does not obligate us to acquire any specific number of shares in any period, and may be modified, suspended or discontinued at any time at the discretion of our Board of Directors.  During the years ended December 31, 2011, 2010 and 2009, we repurchased approximately 125,000, 37,000 and

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526,000 shares, respectively, of our common stock in the open market for a total cost of approximately $1.4 million, $0.3 million and $2.2 million, respectively. As of December 31, 2011, there was approximately $4.5 million available for future repurchases under the current buyback program. There is no expiration date for the repurchase program.

Cash Flows

Year ended December 31, 2011 compared to the year ended December 31, 2010

Our cash balance decreased $24.8 million from $28.9 million as of December 31, 2010 to $4.2 million as of December 31, 2011. The decrease in cash and cash equivalents during the year ended December 31, 2011 resulted from cash provided by operating activities of $16.2 million, cash used in investing activities of $40.2 million, cash used in financing activities of $0.6 million and a $0.1 million negative effect due to exchange rate changes on cash and cash equivalents.

Cash provided by operating activities was $16.2 million for the year ended December 31, 2011 compared to $26.2 million in 2010.  The decrease in cash provided by operating activities compared to the prior year is primarily due to unfavorable changes in working capital balances, largely due to an increase in accounts receivables and other current assets attributable to the acquired RWD business. In addition, net cash provided by operating activities includes payments totaling $0.7 million during the year ended December 31, 2011 for the portion of contingent consideration in excess of the estimated fair value as of the acquisition date.

Cash used in investing activities was $40.2 million for the year ended December 31, 2011 compared to $6.7 million in 2010. The increase in cash used in investing activities is primarily due to an increase in cash used for acquisitions, largely due to the use of $25.7 million of cash for the RWD acquisition, $8.4 million of cash used to complete three acquisitions in the UK and $1.5 million of cash used to complete an acquisition in China during 2011.  Fixed asset additions increased approximately $2.4 million during the year ended December 31, 2011 compared to 2010 primarily due to increased equipment and IT related purchases as a result of the acquisitions we completed during 2011, as well as equipment and vehicle purchases related to our alternative fuels business.

Cash used in financing activities was $0.6 million for the year ended December 31, 2011 compared to $1.4 million in 2010.  The decrease in cash used in financing activities is primarily due to an increase in our negative cash book balance of $1.9 million during 2011 (the negative cash book balance results from outstanding checks which had not cleared the bank at the end of the period in excess of amounts on deposit and are classified as accounts payable in the consolidated balance sheets and presented as a financing activity in the consolidated statements of cash flows).  This decrease in cash used was offset by an increase of $1.1 million of cash used for share repurchases in 2011 compared to 2010, and a $0.5 million increase in contingent consideration payments classified as financing activities (the portion of the payment of liability-classified contingent consideration arrangement that is included as part of the initial fair value measurement is classified as a financing activity in the statement of cash flows).

Year ended December 31, 2010 compared to the year ended December 31, 2009

Our cash balance increased $18.1 million from $10.8 million as of December 31, 2009 to $28.9 million as of December 31, 2010. The increase in cash and cash equivalents during the year ended December 31, 2010 resulted from cash provided by operating activities of $26.2 million, cash used in investing activities of $6.7 million, cash used in financing activities of $1.4 million and a $0.1 million negative effect due to exchange rate changes on cash and cash equivalents.

Cash provided by operating activities was $26.2 million for the year ended December 31, 2010 compared to $18.8 million in 2009.  The increase in cash provided by operating activities compared to the prior year is primarily due to an increase in net income and favorable changes in working capital items during 2010 compared to 2009.

Cash used in investing activities was $6.7 million for the year ended December 31, 2010 compared to $25.4 million in 2009. The decrease in cash used in investing activities is primarily due to a decrease in cash used for acquisitions during 2010 compared to 2009. We used a total of $5.1 million of cash during the year ended December 31, 2010 for acquisitions, net of cash acquired, compared to $24.2 million of cash during 2009.

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Cash used in financing activities was $1.4 million for the year ended December 31, 2010 compared to cash provided by financing activities of $13.2 million in 2009.  The decrease in cash is primarily due to $19.6 million of cash proceeds in 2009 from the equity investment by Sagard that did not recur in 2010. In addition, there was a $1.9 million decrease in cash used for share repurchases in 2010 compared to 2009, and $3.2 million in net repayments of short-term borrowings during 2009 compared to zero in 2010. During 2010, we paid $0.8 million of contingent consideration relating to our 2009 acquisition of Milsom in respect of the earnings targets achieved for the first twelve-month period following completion of the acquisition. In accordance with ASC Topic 805, which was adopted effective for all acquisitions after January 1, 2009, the portion of the payment of liability-classified contingent consideration arrangement that is included as part of the initial fair value measurement is classified as a financing activity in the statement of cash flows.

Short-term Borrowings

We have a $35 million Financing and Security Agreement (the “Credit Agreement”) with a bank that expires on October 31, 2013 with annual renewal options. The Credit Agreement is secured by certain of our assets. The maximum interest rate on the Credit Agreement is the daily LIBOR market index rate plus 2.25%. Based upon our financial performance, the interest rate can be reduced. As of December 31, 2011, the rate was LIBOR plus 1.0%. The Credit Agreement contains covenants which require us to maintain a minimum tangible net worth of no less than $30.0 million, a total liabilities to tangible net worth ratio of no more than 3.0 to 1.0, and an interest coverage ratio of no less than 5.0 to 1.0. As of December 31, 2011, our tangible net worth was $34.9 million, our total liabilities to tangible net worth ratio was 1.95 to 1.0 and our interest coverage ratio was 180.7 to 1.0, all of which were in compliance with the Credit Agreement. The Credit Agreement also contains certain restrictive covenants regarding future acquisitions, incurrence of debt and the payment of dividends. The Credit Agreement permits us to repurchase up to a certain dollar amount of our outstanding common stock in the open market. As of December 31, 2011, $5.2 million was remaining available for future share repurchases under the Credit Agreement. As of December 31, 2011, there were no borrowings outstanding and $34.5 million of available borrowings under the Credit Agreement.

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, 2011 (in thousands):

*                 Excludes purchase orders for goods and services entered into by us 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

As of December 31, 2011, we had five outstanding letters of credit totaling $0.3 million, all of which expire in 2012 except for one which expires in 2018. 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.

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Management Discussion of Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with U.S. GAAP 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, valuation of contingent consideration for business acquisitions, 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 contracts is recognized using the percentage-of-completion method. 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 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.

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Certain of our fixed price commercial contracts contain revenue arrangements with multiple deliverables.  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 the 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 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.

Valuation of Accounts Receivable

Trade accounts receivable are recorded at invoiced amounts. We evaluate the collectability of trade accounts receivable based on a combination of factors. When aware that a specific customer may be unable to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position, we evaluate the need to record a specific reserve for bad debt to reduce the related receivable to the amount we reasonably believe is collectible. We also record reserves for bad debt for all other customers based on a variety of factors, including the length of time the receivables are past due, historical collection experience and trends of past due accounts, write-offs and specific identification and review of past due accounts. Actual collections of trade receivables could differ from management’s estimates due to changes in future economic or industry conditions or specific customers’ financial conditions. The allowance for doubtful accounts was $1.0 million at December 31, 2011.

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 compute 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.

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. 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. 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

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segment, or one level below an operating segment, as defined by U.S. GAAP. 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.

Our reporting units are: (i) Learning Solutions, (ii) Europe, (iii) Professional & Technical Services, (iv) Sandy, (v) RWD, and (vi) Energy Services. Our Learning Solutions and Europe reporting units comprise our Learning Solutions reportable segment and the Professional & Technical Services, Sandy, RWD and Energy Services reporting units each represent separate reportable segments. During the fourth quarter of 2011, we made two management reporting changes which impacted our reporting units: 1) the Senior Vice President who manages our Europe operations (and formerly reported to the Executive Vice President of the Manufacturing group) was re-assigned to report directly to our President; and 2) the Senior Vice President who manages the Process & Government group (and formerly reported directly to the President) was re-assigned to report to the Executive Vice President of the Manufacturing group. As a result of these changes, the former Process & Government reporting unit is now part of the “Professional & Technical Services” reporting unit (formerly named the Manufacturing reporting unit). In addition, our Europe operations are now a separate reporting unit (formerly part of the Manufacturing reporting unit). As a result of these changes, the goodwill associated with the former Process & Government reporting unit was assigned to the Professional & Technical Services reporting unit, and the goodwill associated with our acquisitions in the United Kingdom was assigned to the Europe reporting unit. Our goodwill balances as of December 31, 2011 for each reporting unit were as follows (in thousands):

We determine the fair value of our reporting units using both an income approach and a market approach, and weight both approaches to determine the fair value of each reporting unit. Under the income approach, we perform a discounted cash flow analysis which incorporates management’s cash flow projections over a five-year period and a terminal value is calculated by applying a capitalization rate to terminal year projections based on an estimated long-term growth rate. The five-year projected cash flows and calculated terminal value are discounted using a weighted average cost of capital (“WACC”) which takes into account the costs of debt and equity. The cost of equity is based on the risk-free interest rate, equity risk premium, industry and size equity premiums and any additional market equity risk premiums as deemed appropriate for each reporting unit. To arrive at a fair value for each reporting unit, the terminal value is discounted by the WACC and added to the present value of the estimated cash flows over the discrete five-year period. There are a number of other variables which impact the projected cash flows, such as expected revenue growth and profitability levels, working capital requirements, capital expenditures and related depreciation and amortization. Under the market approach, we perform a comparable public company analysis and apply revenue and earnings multiples from the identified set of companies to the reporting unit’s actual and forecasted financial performance to determine the fair value of each reporting unit. In addition, we make certain judgments in allocating shared assets and liabilities to determine the carrying values for each of our reporting units.

Annual Impairment Tests as of December 31, 2011 and 2010

We tested the goodwill of each of our reporting units as of December 31, 2011 and 2010 and the estimated fair value of each reporting unit exceeded its respective carrying value, indicating the underlying goodwill of each unit was not

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impaired. Each of our reporting units had a substantial excess of fair value over its respective carrying value as of December 31, 2011 and 2010.

Given the current economic environment and the uncertainties regarding the impact on our business, there can be no assurance that our estimates and assumptions regarding the duration of the ongoing economic downturn, or the period or strength of recovery, made for purposes of our goodwill impairment testing will prove to be accurate predictions of the future. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain.  If our assumptions regarding forecasted revenue or profitability growth rates of certain reporting units are not achieved, we may be required to recognize goodwill impairment charges in future periods, whether in connection with our next annual impairment testing or prior to that, if any such change constitutes a triggering event that requires us to test for impairment during an interim period. We will continue to monitor our goodwill and intangible assets for impairment and conduct formal tests when impairment indicators are present.

Interim Impairment Test as of June 30, 2009

Based upon indicators of impairment in the second quarter of 2009, which included significantly lower than projected revenue and profit and a revised lower outlook for a longer period of time for certain of our reporting units, we performed an interim impairment test on our Manufacturing and Process & Aerospace reporting units as of June 30, 2009. During the second quarter of 2009, the Manufacturing reporting unit’s revenue and profit projections were significantly lowered as a result of the impact of the economic recession and the corresponding reduction in spending by several customers. The Process & Aerospace reporting unit’s profit projections were decreased due to a lower profit margin as a percentage of revenue experienced by this reporting unit, despite revenue being in line with projections, and a change in projected future profit margin which was lower than previously assumed. We determined that the fair value of our Manufacturing reporting unit was below its carrying value and recognized a goodwill impairment loss of $9.9 million for the three months ended June 30, 2009 related to this reporting unit. We determined that the fair value of our Process & Aerospace reporting unit was above its carrying value and no impairment was indicated as of June 30, 2009. During the second quarter of 2009 and in connection with the goodwill impairment loss discussed above, we also recorded an intangible asset impairment loss of $0.3 million relating to a non-compete agreement that was no longer deemed to have value as of June 30, 2009.

Valuation of Contingent Consideration for Business Acquisitions

Acquisitions may include contingent consideration payments based on future financial measures of an acquired company.  For acquisitions completed before 2009, these obligations were recognized as incurred and accounted for as an adjustment to the initial purchase price of the acquired assets.  For acquisitions in 2009 and beyond, contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. We believe our estimates and assumptions are reasonable; however, there is significant judgment involved. At each reporting date, the contingent consideration obligation will be revalued to estimated fair value and changes in fair value subsequent to the acquisition will be reflected in income or expense in the consolidated statements of operations, and could cause a material impact to our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria.

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.

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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 taken or expected to be taken in a tax return 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 have not been 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, 2011 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 non-U.S. 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.

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Item 8:           Financial Statements and Supplementary Data

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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, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with 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, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

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, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 29, 2012 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/  KPMG LLP

Baltimore, Maryland

February 29, 2012

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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, 2011, 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, 2011, 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, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2011, and our report dated February 29, 2012, expressed an unqualified opinion on those consolidated financial statements.

/s/  KPMG LLP

Baltimore, Maryland

February 29, 2012

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GP STRATEGIES CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2011 and 2010

(In thousands, except shares and par value per share)