Acquisitions

9 Months Ended

Sep. 30, 2011

Acquisitions

Acquisitions

(4) Acquisitions

Beneast Training Ltd

On August 1, 2011, General Physics through its wholly-owned subsidiary, General Physics (UK) Ltd.(“GPUK”), acquired the share capital of TK Holdings Ltd and its subsidiary Beneast Training Ltd (collectively, “Beneast”).  Beneast is an independent skills training provider located in the United Kingdom. General Physics paid approximately $6,815,000 in cash at closing. The purchase price is subject to adjustment based on final determination of the net assets of the acquired business on the closing date in accordance with the Purchase Agreement.  Beneast is included in the Company’s Manufacturing & BPO segment and its results of operations have been included in the Company’s consolidated financial statements since August 1, 2011. The pro-forma impact of the acquisition is not material to the Company’s results of operations.

The estimated fair value of the purchase price recorded by the Company consisted of the following (in thousands):

Cash purchase price	$	6,815
Less: estimated payment due from seller for net asset adjustment	(22		)
Total estimated purchase price	$	6,793

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

Cash	$	2,236
Accounts receivable	382
Prepaid expenses and other assets	101
Property and equipment	192
Amortizable intangible assets	2,706
Goodwill	3,758
Total assets acquired	9,375
Accounts payable, accrued expenses and other liabilities	1,878
Deferred tax liability	704
Total liabilities assumed	2,582
Net assets acquired	$	6,793

The Company recorded customer-related intangible assets as a result of the acquisition, which included $2,706,000 relating to customer lists and relationships acquired which will be amortized over an estimated useful life of five years.

Van Hee

On July 29, 2011, GPUK 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 $770,000 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.

RWD Technologies

On April 15, 2011, General Physics 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. General Physics paid $27,980,000 at closing, which was financed with $20,380,000 of cash on hand and $7,600,000 of borrowings under its 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 General Physics $2,220,000 based on the final determination of working capital as of the acquisition date.

Based on management estimates of the fair values, the estimated purchase price allocation as of the April 15, 2011 acquisition date is as follows (in thousands):

Cash paid at closing	$	27,980
Less: payment from seller for working capital adjustment	(2,220		)
Total purchase price	$	25,760
Purchase price allocation:
Assets acquired:
Current assets
Cash and cash equivalents	$	81
Accounts receivable	13,667
Costs and earnings in excess of billings on uncompleted contracts	2,023
Prepaids and other current assets	247
Property and equipment	573
Deferred tax asset	39
Intangible assets:
Customer-related	2,787
Marketing-related	1,652
Goodwill	12,270
Other assets	28
Total assets acquired	33,367
Liabilities assumed:
Accounts payable and accrued expenses	6,299
Billings in excess of costs and estimated earnings on uncompleted contracts	1,308
Total liabilities assumed	7,607
Net assets acquired	$	25,760

The Company recorded customer-related intangible assets of $2,787,000 relating to customer lists and relationships acquired to be amortized over an estimated useful life of 5.9 years, and marketing-related intangible assets of $1,652,000 relating to the tradename acquired to be amortized over an estimated useful life of 5 years. During the three and nine months ended September 30, 2011, the Company recognized $205,000 and $376,000, respectively, of amortization expense for these intangible assets.

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 Manufacturing & BPO and Sandy Training & Marketing 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 interim periods shown below:

	Nine months ended
	September 30,
	2011		2010
	(In thousands, except per share amounts)
Revenue	$	260,717	$	238,174
Net income	12,652		5,632
Basic earnings per share	0.68		0.30
Diluted earnings per share	0.68		0.30

Ultra Training Ltd.

On April 1, 2011, GPUK acquired Ultra Training Ltd., an independent skills training provider located in the United Kingdom. General Physics paid approximately $2,968,000 in cash at closing. In addition, the purchase agreement requires General Physics to pay $481,000 of deferred consideration, of which $160,000 was paid in April 2011 and the remainder was paid in July 2011 upon completion of a closing condition specified in the purchase agreement.  The purchase price was subsequently reduced by $29,000 based on final determination of the net assets of the acquired business on the closing date in accordance with the Purchase Agreement. Ultra Training Ltd. is included in the Company’s Manufacturing & BPO segment and its results of operations have been included in the Company’s consolidated financial statements since April 1, 2011. The pro-forma impact of the acquisition is not material to the Company’s results of operations.

The estimated fair value of the purchase price recorded by the Company consisted of the following (in thousands):

Cash purchase price	$	2,968
Deferred consideration	481
Less: payment from seller for net asset adjustment	(29		)
Total purchase price	$	3,420

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

Cash	$	347
Accounts receivable	340
Prepaid expenses and other assets	188
Property and equipment	42
Amortizable intangible assets	1,412
Goodwill	2,333
Total assets acquired	4,662
Accounts payable, accrued expenses and other liabilities	875
Deferred tax liability	367
Total liabilities assumed	1,242
Net assets acquired	$	3,420

The Company recorded customer-related intangible assets as a result of the acquisition, which included $1,412,000 relating to customer lists and relationships acquired which will be amortized over an estimated useful life of five years.

Communication Consulting

On February 1, 2011, General Physics, through its wholly-owned subsidiaries GP Worldwide Hong Kong Limited and GP (Shanghai) Consulting Co., Ltd., 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. General Physics paid approximately $1,380,000 in cash at closing and $125,000 of cash in the third quarter of 2011 upon the completion of certain post-closing matters. In addition, the purchase agreement requires up to an additional $700,000 of contingent consideration, which would be payable subsequent to each of the two twelve-month periods following completion of the acquisition, contingent upon the achievement of certain revenue targets during those periods, as defined in the purchase agreement. The total estimated fair value of the purchase price as of the acquisition date was $1,617,000 and consisted of $1,505,000 in cash payments and $112,000 of estimated contingent consideration. The purchase price allocation consisted of $16,000 of fixed assets, $1,211,000 of goodwill and $390,000 of intangible assets to be amortized over five years from the acquisition date. The acquired Communication Consulting business is included in the Manufacturing & BPO segment and the results of its operations have been included in the consolidated financial statements since February 1, 2011. The pro-forma impact of the acquisition is not material to the Company’s results of operations.

Contingent Consideration

Effective January 1, 2009, the Company adopted Accounting Standards Codification (“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. The Company estimates the fair value of contingent consideration liabilities based on financial projections of the acquired companies and estimated probabilities of achievement and discounts the liabilities to present value using a weighted-average cost of capital. Contingent consideration is valued using significant inputs that are not observable in the market which are defined as Level 3 inputs pursuant to fair value measurement accounting. The Company believes its estimates and assumptions are reasonable, however, there is significant judgment involved. At each reporting date, the contingent consideration obligation is revalued to estimated fair value, and changes in fair value subsequent to the acquisitions are reflected in income or expense in the consolidated statements of operations, and could cause a material impact to, and volatility in, the Company’s 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.

Below is a summary of the potential contingent consideration the Company may be required to pay in connection with completed acquisitions as of September 30, 2011 (dollars in thousands):

	Original range
	of potential	As of September 30, 2011
	undiscounted	Maximum contingent consideration due in
Acquisition:	payments	2011		2012		2013		Total
Milsom	$0 - $3,600	$	1,172	$	1,172	$	—	$	2,344
Option Six	$0 - $2,000	—		1,000		—		1,000
PerformTech	$0 - $4,500	—		2,000		—		2,000
Marton House	$0 - $3,750	—		1,250		1,250		2,500
Bath Consulting	$0 - $2,376	453		860		1,063		2,376
Academy of Training	$0 - $156	156		—		—		156
Communication Consulting	$0 - $700	—		400		300		700
Other		314		601		—		915
Total		$	2,095	$	7,283	$	2,613	$	11,991

Below is a summary of the changes in the recorded amount of contingent consideration liabilities from December 31, 2010 to September 30, 2011 for each acquisition (dollars in thousands):

					Change in
			2011		Fair Value of		Foreign
	Liability as of		Additions		Contingent		Currency	Liability as of
Acquisition:	Dec. 31, 2010		(Payments)		Consideration		Translation	Sept. 30, 2011
Milsom	$	1,198	—		(498	)	31	$	731
Option Six	902		(650	)	525		—	777
PerformTech	—		—		—		—	—
Marton House	2,366		(1,308	)	(436	)	87	709
Bath Consulting	940		—		(13	)	8	935
Academy of Training	132		—		(96	)	2	38
Communication Consulting	—		112		13		—	125
Other	194		112		—		8	314
Total	$	5,732	(1,734	)	(505	)	136	$	3,629

As of September 30, 2011 and December 31, 2010, contingent consideration included in accounts payable and accrued expenses on the consolidated balance sheet totaled $2,459,000 and $3,062,000, respectively. As of September 30, 2011 and December 31, 2010, the Company also had accrued contingent consideration totaling $1,170,000 and $2,670,000, respectively, included in other noncurrent liabilities on the consolidated balance sheet and represents the portion of contingent consideration estimated to be payable greater than twelve months from the balance sheet date.