UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 
 For the quarterly period ended September 30, 2015March 31, 2016
or
 
¨ Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
 
For the transition period from                             to                             
 
Commission File Number 1-7234
 
 GP STRATEGIES CORPORATION
(Exact name of Registrant as specified in its charter)
 
Delaware 52-0845774
(State of Incorporation) (I.R.S. Employer Identification No.)
70 Corporate Center 
  
11000 Broken Land Parkway, Suite 200, Columbia, MD 21044
(Address of principal executive offices) (Zip Code)
 
(443) 367-9600

Registrant’s telephone number, including area code:
 
 
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   ý No   ¨
 
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   ý No   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer   ¨
Accelerated filer   x
Non-accelerated filer   ¨
Smaller reporting company   ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act). Yes   ¨ No   ý
 
The number of shares outstanding of the registrant’s common stock as of October 23, 2015April 25, 2016 was as follows:
Class Outstanding 
Common Stock, par value $.01 per share 17,028,33816,748,900 shares 






GP STRATEGIES CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS
  Page
   
Part I.Financial Information 
   
Item 1.Financial Statements (Unaudited) 
   
 
   
 
   
 
   
 
   
 
   
Item 2.
   
Item 3.
   
Item 4.
   
Part II.
   
Item 1.
   
Item 1A.
   
Item 2.
   
Item 6.
   
 



Part I. Financial Information
Item 1. Financial Statements 
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
September 30, 2015 (Unaudited) December 31, 2014March 31, 2016 (Unaudited) December 31, 2015
Assets 
  
 
  
Current assets:      
Cash and cash equivalents$13,631
 $14,541
$16,470
 $21,030
Accounts and other receivables, less allowance for doubtful accounts of $1,897 in 2015 and $1,947 in 201499,516
 99,638
Accounts and other receivables, less allowance for doubtful accounts of $1,892 in 2016 and $1,856 in 201586,483
 90,912
Costs and estimated earnings in excess of billings on uncompleted contracts39,301
 30,211
41,953
 46,061
Prepaid expenses and other current assets16,308
 15,967
11,963
 9,173
Total current assets168,756
 160,357
156,869
 167,176
Property, plant and equipment21,142
 20,837
21,155
 20,629
Accumulated depreciation(14,391) (12,973)(15,195) (14,384)
Property, plant and equipment, net6,751
 7,864
5,960
 6,245
Goodwill123,129
 125,757
124,056
 121,975
Intangible assets, net7,246
 10,535
6,810
 6,221
Other assets1,039
 939
822
 733
$306,921

$305,452
$294,517

$302,350
Liabilities and Stockholders’ Equity 
  
 
  
Current liabilities: 
  
 
  
Short-term borrowings$32,907
 $20,799
$33,092
 $34,084
Current portion of long-term debt13,333
 13,333
13,333
 13,333
Accounts payable and accrued expenses60,746
 59,018
57,057
 61,071
Billings in excess of costs and estimated earnings on uncompleted contracts16,476
 23,670
17,950
 18,366
Total current liabilities123,462
 116,820
121,432
 126,854
Long-term debt14,444
 24,444
7,778
 11,111
Other noncurrent liabilities10,778
 12,463
6,356
 6,041
Total liabilities148,684
 153,727
135,566
 144,006
      
Stockholders’ equity: 
  
 
  
Common stock, par value $0.01 per share172
 171
172
 172
Additional paid-in capital106,914
 104,523
106,539
 105,872
Retained earnings67,346
 54,809
77,398
 73,598
Treasury stock at cost(5,004) (381)(11,961) (8,497)
Accumulated other comprehensive loss(11,191) (7,397)(13,197) (12,801)
Total stockholders’ equity158,237
 151,725
158,951
 158,344
$306,921

$305,452
$294,517

$302,350
 
See accompanying notes to condensed consolidated financial statements.

1


GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
 
Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
Three Months Ended 
 March 31,
 
2015 2014 2015 20142016 2015 
Revenue$122,931
 $123,869
 $363,849
 $376,667
$115,756
 $115,253
 
Cost of revenue102,562
 101,351
 304,269
 311,027
97,829
 96,118
 
Gross profit20,369

22,518

59,580

65,640
17,927

19,135

Selling, general and administrative expenses12,253
 11,863
 35,859
 34,914
11,970
 11,599
 
Restructuring charges1,195
 
 1,195
 
Gain (loss) on change in fair value of contingent consideration, net(56) 655
 (314) 1,513
Loss on change in fair value of contingent consideration, net(159) (203) 
Operating income6,865

11,310

22,212

32,239
5,798

7,333

Interest expense340
 117
 1,011
 399
245
 365
 
Other income (expense)(606) (72) (1,141) 185
454
 (225) 
Income before income tax expense5,919

11,121

20,060

32,025
6,007

6,743

Income tax expense2,203
 3,877
 7,523
 12,351
2,207
 2,636
 
Net income$3,716

$7,244

$12,537

$19,674
$3,800

$4,107

           
Basic weighted average shares outstanding17,117
 19,131
 17,151
 19,138
16,758
 17,159
 
Diluted weighted average shares outstanding17,272
 19,391
 17,313
 19,409
16,831
 17,313
 
           
Per common share data: 
  
  
  
 
  
 
Basic earnings per share$0.22
 $0.38
 $0.73
 $1.03
$0.23
 $0.24
 
Diluted earnings per share$0.22
 $0.37
 $0.72
 $1.01
$0.23
 $0.24
 
 
See accompanying notes to condensed consolidated financial statements.

2


GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands)
 
Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
Three Months Ended 
 March 31,
 
2015 2014 2015 20142016 2015 
Net income$3,716
 $7,244
 $12,537
 $19,674
$3,800
 $4,107
 
Foreign currency translation adjustments(2,696) (3,674) (3,794) (2,446)(396) (4,585) 
Comprehensive income$1,020
 $3,570
 $8,743
 $17,228
Comprehensive income (loss)$3,404
 $(478) 
 
See accompanying notes to condensed consolidated financial statements.

3


GP STRATEGIES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
NineThree Months Ended September 30,March 31, 2016 and 2015 and 2014
(Unaudited, in thousands)
2015 20142016 2015
Cash flows from operating activities: 
  
 
  
Net income$12,537
 $19,674
$3,800
 $4,107
Adjustments to reconcile net income to net cash provided by operating activities: 
  
 
  
Loss (gain) on change in fair value of contingent consideration, net314
 (1,513)
Loss on change in fair value of contingent consideration, net159
 203
Depreciation and amortization6,014
 7,477
1,765
 2,068
Deferred income taxes
 366
Non-cash compensation expense4,473
 3,510
1,496
 1,338
Changes in other operating items: 
  
 
  
Accounts and other receivables(1,418) 6,164
4,644
 11,430
Costs and estimated earnings in excess of billings on uncompleted contracts(9,914) (15,937)3,914
 (6,733)
Prepaid expenses and other current assets220
 (2,725)(2,641) (3,866)
Accounts payable and accrued expenses5,275
 6,129
(3,654) (1,674)
Billings in excess of costs and estimated earnings on uncompleted contracts(6,695) (3,778)(376) (3,286)
Income tax benefit of stock-based compensation(435) (1,539)
Contingent consideration payments in excess of fair value on acquisition date(325) (1,043)
Other(518) (121)(544) (390)
Net cash provided by operating activities9,528
 16,664
8,563
 3,197
      
Cash flows from investing activities: 
  
 
  
Additions to property, plant and equipment(1,831) (2,315)(575) (600)
Acquisitions, net of cash acquired
 (8,666)(2,330) 
Other investing activities85
 246
13
 
Net cash used in investing activities(1,746) (10,735)(2,892) (600)
      
Cash flows from financing activities: 
  
 
  
Proceeds from short-term borrowings12,108
 4,473
Proceeds from (repayment of) short-term borrowings(992) 735
Repayment of long-term debt(10,000) 
(3,333) (3,333)
Contingent consideration payments(2,284) (977)
Change in negative cash book balance(1,865) (2,576)(1,659) (1,518)
Tax withholding payments for employee stock-based compensation in exchange for shares surrendered(650) (1,978)
Income tax benefit of stock-based compensation435
 1,539
Repurchases of common stock in the open market(6,535) (3,051)(4,291) (364)
Proceeds from stock option exercises115
 81
Other financing activities(10) (4)
 25
Net cash used in financing activities(8,686) (2,493)(10,275) (4,455)
      
Effect of exchange rate changes on cash and cash equivalents(6) 35
44
 (548)
Net decrease in cash and cash equivalents(910) 3,471
(4,560) (2,406)
Cash and cash equivalents at beginning of period14,541
 5,647
21,030
 14,541
Cash and cash equivalents at end of period$13,631
 $9,118
$16,470
 $12,135
      
Supplemental disclosures of cash flow information:      
Cash paid during the period for income taxes$5,655
 $14,502
$2,594
 $2,251
 See accompanying notes to condensed consolidated financial statements.

4


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2015March 31, 2016
(Unaudited)



(1)Basis of Presentation

GP Strategies Corporation is a global performance improvement solutions provider of training, e-Learning solutions, management consulting and engineering services. References in this report to “GP Strategies,” the “Company,” “we” and “our” are to GP Strategies Corporation and its subsidiaries, collectively.
 
The accompanying condensed consolidated balance sheet as of September 30, 2015March 31, 2016 and the condensed consolidated statements of operations, comprehensive income (loss) and cash flows for the ninethree months ended September 30,March 31, 2016 and 2015 and 2014 have not been audited, but have been prepared in conformity with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2014,2015, as presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.2015. In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for a fair presentation. The results for the 20152016 interim period are not necessarily indicative of results to be expected for the entire year. Certain prior year amounts have been reclassified to conform to current year presentation.
 
The condensed consolidated financial statements include the operations of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.
 
(2)Accounting StandardStandards Issued

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The standard’sASU’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-92014-09 was originally effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2016 and early adoption was not permitted. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of annual reporting periods and interim periods within that period beginning after December 15, 2016. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-9.the ASU. We are still in the process of evaluating the impact of adoption of this ASU on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases. This standard will require all leases with durations greater than twelve months to be recognized on the balance sheet as a right-of-use asset and a lease liability. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. We believe adoption of this standard will have a significant impact on our consolidated balance sheets. Although we have not completed our assessment, we do not expect the adoption of ASU 2016-02 to change the recognition and measurement of lease expense within the consolidated statements of operations.
5
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718). This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. The standard is effective for annual and interim reporting periods of public companies beginning after December 15, 2016, although early adoption is permitted. We are currently in the process of evaluating the impact of adoption of this ASU on our consolidated financial statements.




GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2015March 31, 2016
(Unaudited)

(3)Significant Customers & Concentration of Credit Risk

We have a market concentration of revenue in both the automotive sector and financial services & insurance sector. Revenue from the automotive industry accounted for approximately 18%20% and 14%13% of our consolidated revenue for the ninethree months ended September 30,March 31, 2016 and 2015, and 2014, respectively. In addition, we have a concentration of revenue from a single automotive customer, which accounted for approximately 12%13% and 7% of our consolidated revenue for the ninethree months ended September 30, 2015.March 31, 2016 and 2015, respectively. As of September 30, 2015,March 31, 2016, accounts receivable from a single automotive customer totaled $9.7$10.3 million, or 10%12%, of our consolidated accounts receivable balance.

Revenue from the financial services & insurance industry accounted for approximately 21%22% and 16%24% of our consolidated revenue for the ninethree months ended September 30,March 31, 2016 and 2015, and 2014, respectively. Beginning in 2015,In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately 14%15% of our consolidated revenue for both of the nine monthsthree-month periods ended September 30,March 31, 2016 and 2015. As of September 30, 2015,March 31, 2016, billed and unbilled accounts receivable from a single financial services customer totaled $35.8$28.3 million, or 26%22%, of our consolidated accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts balances.

No other single customer accounted for more than 10% of our consolidated revenue for the ninethree months ended September 30,March 31, 2016 or 2015 and 2014 or consolidated accounts receivable balance as of September 30, 2015.March 31, 2016.

(4)Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution of common stock equivalent shares that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
 
Our dilutive common stock equivalent shares consist of stock options and restricted stock units computed under the treasury stock method, using the average market price during the period. The following table presents instruments which were not dilutive and were excluded from the computation of diluted EPS in each period, as well as the dilutive common stock equivalent shares which were included in the computation of diluted EPS: 
Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
Three Months Ended 
 March 31,
 
2015 2014 2015 20142016 2015 
(In thousands)(In thousands)
Non-dilutive instruments29
 
 20
 
106
 2
 
           
Dilutive common stock equivalents155
 260
 162
 271
73
 154
 


6


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2015March 31, 2016
(Unaudited)

(5)Acquisitions

Jencal Training
On March 1, 2016, we acquired the share capital of Jencal Training Limited (Jencal Training) and its subsidiary B2B Engage Limited (B2B), an independent provider of vocational skills training in the United Kingdom. The upfront purchase price was $2.7 million in cash and is subject to a working capital adjustment which we expect will be finalized and agreed upon with the sellers in the second quarter of 2016. In addition, the purchase agreement requires up to an additional $0.4 million of consideration, contingent upon attaining incremental funding levels under a customer contract prior to July 31, 2016. The preliminary purchase price allocation for the acquisition primarily includes $1.4 million of customer-related intangible assets which are being amortized over four years from the acquisition date and $1.7 million of goodwill. None of the goodwill recorded for financial statement purposes is deductible for tax purposes. The acquired Jencal Training business is included in the Learning Solutions segment and the results of its operations have been included in the consolidated financial statements beginning March 1, 2016. The pro-forma impact of the acquisition is not material to our results of operations.

Contingent Consideration
Accounting Standards Codification (“ASC”) Topic 805 requires that contingent consideration be recognized at fair value on the acquisition date and be 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 and discount 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. We believe our 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, 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.

Below is a summary of the potential maximum contingent consideration we may be required to pay in connection with completed acquisitions during 2016 as of September 30, 2015March 31, 2016 (dollars in thousands): 
Original range      Original range Maximum payments due in
of potential
undiscounted
 As of September 30, 2015
Maximum contingent consideration due in
of potential
undiscounted
 
Acquisition:payments 20152016 Totalpayments 2016
Jencal Training$0 - $429 $429
Effective Companies$0 - $5,232 
 2,616
 2,616
$0 - $5,280 $2,640
Below is a summary of the changes in the recorded amount of contingent consideration liabilities from December 31, 20142015 to September 30, 2015March 31, 2016 (dollars in thousands):
Liability as of
December 31,
 Additions 
Change in
Fair Value of
Contingent
 
Foreign
Currency
 
Liability as of
September 30,
Liability as of
December 31,
 Additions 
Change in
Fair Value of
Contingent
 
Foreign
Currency
 
Liability as of
March 31,
Acquisition:2014 (Payments) Consideration Translation 20152015 (Payments) Consideration Translation 2016
Jencal Training$
 $294
 $
 $9
 $303
Effective Companies$5,083
 $(2,609) $314
 $(390) $2,398
2,381
 
 159
 100
 2,640
Total$2,381

$294

$159

$109

$2,943
 
As of September 30, 2015March 31, 2016 and December 31, 2014,2015, contingent consideration is considered a current liability and is included in accounts payable totaled $2.4of $2.9 million and $2.7 million, respectively. As of September 30, 2015 and December 31, 2014, we also had accrued contingent consideration totaling $0 and $2.4 million, respectively, related to acquisitions which are included in other long-term liabilities on the consolidated balance sheet and represent the portion of contingent consideration estimated to be payable greater than twelve months from the balance sheet date.respectively.

7


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2015March 31, 2016
(Unaudited)

(6)Intangible Assets

Goodwill
 
Changes in the carrying amount of goodwill by reportable business segment for the ninethree months ended September 30, 2015March 31, 2016 were as follows (in thousands):
 
Learning
Solutions
 
Professional
& Technical
Services
 Sandy 
Performance
Readiness
Solutions
 Total
Balance as of December 31, 2014$53,094
 $44,143
 $653
 $27,867
 $125,757
Foreign currency translation(2,360) (233) 
 (35) (2,628)
Balance as of September 30, 2015$50,734

$43,910

$653

$27,832

$123,129
 
Learning
Solutions
 
Professional
& Technical
Services
 Sandy 
Performance
Readiness
Solutions
 Total
Balance as of December 31, 2015$49,822
 $43,702
 $653
 $27,798
 $121,975
Acquisitions1,750
 
 
 
 1,750
Foreign currency translation587
 (215) 
 (41) 331
Balance as of March 31, 2016$52,159

$43,487

$653

$27,757

$124,056
 
Intangible Assets Subject to Amortization
 
Intangible assets with finite lives are subject to amortization over their estimated useful lives. The primary assets included in this category and their respective balances were as follows (in thousands):
September 30, 2015     
March 31, 2016     
Gross Carrying Amount Accumulated Amortization Net Carrying AmountGross Carrying Amount Accumulated Amortization Net Carrying Amount
  
Customer relationships$20,380
 $(13,916) $6,464
$19,401
 $(13,202) $6,199
Intellectual property and other1,777
 (995) 782
1,538
 (927) 611
$22,157

$(14,911)
$7,246
$20,939

$(14,129)
$6,810
          
December 31, 2014 
  
  
December 31, 2015 
  
  
Customer relationships$22,603
 $(13,042) $9,561
$19,351
 $(13,822) $5,529
Intellectual property and other2,160
 (1,186) 974
1,772
 (1,080) 692
$24,763

$(14,228)
$10,535
$21,123

$(14,902)
$6,221

8


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2015March 31, 2016
(Unaudited)

(7)Stock-Based Compensation

We recognize compensation expense for stock-based compensation awards issued to employees that are expected to vest. Compensation cost is based on the fair value of awards as of the grant date.
 
The following table summarizes the pre-tax stock-based compensation expense included in reported net income (in thousands): 
Three months ended September 30, Nine months ended September 30,Three months ended March 31,
2015 2014 2015 20142016 2015
Non-qualified stock options$55
 $113
 $169
 $367
$47
 $62
Restricted stock units658
 292
 1,747
 886
598
 439
Board of Directors stock grants68
 86
 296
 245
82
 111
Total stock-based compensation expense$781

$491
 $2,212

$1,498
$727

$612
 
Pursuant to our 2011 Stock Incentive Plan (the “2011 Plan”), we may grant awards of non-qualified stock options, incentive stock options, restricted stock, stock units, performance shares, performance units and other incentives payable in cash or in shares of our common stock to officers, employees or members of the Board of Directors. As of September 30, 2015,March 31, 2016, we had non-qualified stock options and restricted stock units outstanding under these plans as discussed below.

Non-Qualified Stock Options
 
Summarized information for the Company’s non-qualified stock options is as follows:
Number of options 
Weighted
average exercise price
 
Weighted
average
remaining
contractual term
 
Aggregate
intrinsic value
Number of options 
Weighted
average exercise price
 
Weighted
average
remaining
contractual term
 
Aggregate
intrinsic value
Stock Options  
Outstanding at December 31, 2014229,150
 $11.54
    
Outstanding at December 31, 2015110,550
 $14.54
    
Granted
 
    

 
    
Exercised(41,900) 10.75
    
(2,900) 10.04
    
Forfeited(600) 13.17
    
(300) 13.17
    
Expired
 
    
(600) 19.38
    
Outstanding at September 30, 2015186,650
 $11.71
 1.14 $2,075,000
Exercisable at September 30, 2015148,750
 $10.85
 0.97 $1,780,000
Outstanding at March 31, 2016106,750
 $14.64
 1.21 $1,362,000
Exercisable at March 31, 201673,250
 $14.53
 1.19 $942,000
 

9


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2015March 31, 2016
(Unaudited)

Restricted Stock Units
 
In addition to stock options, we issue restricted stock units to key employees and members of the Board of Directors based on meeting certain service goals. The stock units vest to the recipients at various dates, up to five years, based on fulfilling service requirements. We recognize the value of the market price of the underlying stock on the date of grant as compensation expense over the requisite service period. Upon vesting, the stock units are settled in shares of our common stock. Summarized share information for our restricted stock units is as follows:
Nine Months Ended September 30, 2015 
Weighted
average
grant date
fair value
Three Months Ended March 31, 2016 
Weighted
average
grant date
fair value
(In shares) (In dollars)(In shares) (In dollars)
Outstanding and unvested, beginning of period263,084
 $25.00
274,140
 $28.74
Granted82,120
 36.71
137,937
 26.93
Vested(40,976) 19.14
(2,050) 15.36
Forfeited(508) 25.30
(2,016) 26.50
Outstanding and unvested, end of period303,720
 $28.96
408,011
 $28.21

On March 30, 2015, the Compensation Committee approved an incentive program providing for the issuance to certain executives of the Company a combination of performance-based and time-based restricted stock units under the 2011 Plan. Under the program, a target level of equity compensation is set for each officer. The total equity compensation is divided into performance-based and time-based restricted stock units. Under the program, the Compensation Committee sets the performance-based goals within the first 90 days of each year.

On March 30, 2015,29, 2016, the Compensation Committee granted 52,47671,918 performance-based restricted stock units ("PSU's") to certain officers of the Company. Vesting of the PSU's is contingent upon the employee's continued employment and the Company's achievement of certain performance goals during a three-year performance period. The performance goals are established by the Compensation Committee and for the 2015-20172016-2018 performance period are based on financial targets, including an average annual return on invested capital (“ROIC”) and average annual growth in earnings before interest, taxes, depreciation and amortization (adjusted to exclude the effect of acquisitions, dispositions, and certain other nonrecurring or extraordinary items) (“Adjusted EBITDA”). We recognize compensation expense, net of estimated forfeitures, for PSU's on a straight-line basis over the performance period based on the probable outcome of achievement of the financial targets. At the end of each reporting period, we estimate the number of PSU's expected to vest, based on the probability and extent to which the performance goals will be met, and take into account these estimates when calculating the expense for the period. If the number of shares expected to be earned changes during the performance period, we will make a cumulative adjustment to compensation expense based on the revised number of shares expected to be earned.

Also on March 30, 201529, 2016 in conjunction with the grant of PSU's, the Compensation Committee granted a total of 29,64440,679 time-based restricted stock units to the same officers of the Company. Vesting of the time-based restricted stock units is subject to the employee's continued employment through December 31, 2017.2018.

10


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2015March 31, 2016
(Unaudited)




(8)Debt

On September 2, 2014, we entered into a Fourth Amended and Restated Financing and Security Agreement (the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility up to a maximum principal amount of $65 million expiring on October 31, 2018 and for a term loan in the principal amount of $40 million maturing on October 31, 2017, , and is secured by substantially all of our assets.
The maximum interest rate on the Credit Agreement is the daily one-month LIBOR market index rate plus 2.50%. Based on our financial performance, the interest rate can be reduced to a minimum rate of the daily one-month LIBOR market index rate plus 1.25%, with the rate being determined based on our maximum leverage ratio for the preceding four quarters. Each unpaid advance on the revolving loan will bear interest until repaid. The term loan is payable in monthly installments equal to $1.1 million plus applicable interest, beginning on November 1, 2014 and ending on October 31, 2017. We may prepay the term loan or the revolving loan, in whole or in part, at any time without premium or penalty, subject to certain conditions. Amounts repaid or prepaid on the term loan may not be reborrowed.
The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our and our subsidiaries’ (subject to certain exceptions) ability to, among other things, grant liens, make investments, incur indebtedness, merge or consolidate, dispose of assets or make acquisitions. We are also required to maintain compliance with a minimum fixed charge coverage ratio and a maximum leverage ratio. We were in compliance with all of the financial covenants under the Credit Agreement as of September 30, 2015.March 31, 2016. As of September 30, 2015,March 31, 2016, our total long-term debt outstanding under the term loan was $27.8$21.1 million. In addition, there were $32.9$33.1 million of borrowings outstanding and $31.5$29.4 million of available borrowings under the Credit Agreement. For the ninethree months ended September 30, 2015,March 31, 2016, the weighted average interest rate on our borrowings was 2.0%2.2%.

(9)Income Taxes

Income tax expense was $7.5$2.2 million, or an effective income tax rate of 37.5%36.7%, for the ninethree months ended September 30, 2015March 31, 2016 compared to $12.4$2.6 million, or an effective income tax rate of 38.6%39.1%, for the ninethree months ended September 30, 2014.March 31, 2015. The decrease in the effective income tax rate is due to a larger portion of our income being derived from foreign jurisdictions which are taxed at lower rates. Income tax expense for the quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.
 
An uncertain tax position taken or expected to be taken in a tax return is recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Interest and penalties related to income taxes are accounted for as income tax expense. As of September 30, 2015March 31, 2016, we had no uncertain tax positions reflected on our consolidated balance sheet. The Company files income tax returns in U.S. federal, state and local jurisdictions, and various non-U.S. jurisdictions, and is subject to audit by tax authorities in those jurisdictions. Tax years 2012 through 2014 remain open to examination by these tax jurisdictions, and earlier years remain open to examination in certain of these jurisdictions which have longer statutes of limitations.


11


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
 
September 30, 2015March 31, 2016
(Unaudited)

(10)Stockholders’ Equity

Changes in stockholders’ equity during the ninethree months ended September 30, 2015March 31, 2016 were as follows (in thousands):
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Treasury
stock
at cost
 
Accumulated
other
comprehensive
loss
 
Total
stockholders’
equity
Common
stock
 
Additional
paid-in
capital
 
Retained
earnings
 
Treasury
stock
at cost
 
Accumulated
other
comprehensive
loss
 
Total
stockholders’
equity
Balance at December 31, 2014$171
 $104,523
 $54,809
 $(381) $(7,397) $151,725
Balance at December 31, 2015$172
 $105,872
 $73,598
 $(8,497) $(12,801) $158,344
Net income
 
 12,537
 
 
 12,537

 
 3,800
 
 
 3,800
Foreign currency translation adjustment
 
 
 
 (3,794) (3,794)
 
 
 
 (396) (396)
Repurchases of common stock
 
 
 (6,594) 
 (6,594)
 
 
 (4,291) 
 (4,291)
Stock-based compensation expense
 2,212
 
 
 
 2,212

 727
 
 
 
 727
Issuance of stock for employer contributions to retirement plan
 681
 
 1,359
 
 2,040

 5
 
 686
 
 691
Net issuances of stock pursuant to stock compensation plans and other1
 (502) 
 612
 
 111

 (65) 
 141
 
 76
Balance at September 30, 2015$172

$106,914

$67,346

$(5,004)
$(11,191)
$158,237
Balance at March 31, 2016$172

$106,539

$77,398

$(11,961)
$(13,197)
$158,951

Stock Repurchase Program

We have a 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. During the three and nine months ended September 30,March 31, 2016 and 2015, we repurchased approximately 222,000181,000 and 255,00010,000 shares, respectively, of our common stock in the open market for a total cost of approximately $5.5$4.3 million and $6.6$0.4 million, respectively. As of September 30, 2015,March 31, 2016, there was approximately $8.4$9.7 million available for future repurchases under the buyback program.

12


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
September 30, 2015
(Unaudited)

(11)Restructuring

During the third quarter of 2015, we implemented a cost savings initiative to better align costs with revenues and improve our operating margins. The initiatives included a workforce reduction, lease exit costs and other general expense controls. We recorded severance expense of $1.1 million for the three months ended September 30, 2015 which is included in Restructuring charges on the consolidated statements of operations and is expected to be substantially paid by the end of the first quarter of 2016. We also incurred an immaterial amount of lease termination costs during the third quarter of 2015. The total remaining liability under these restructuring activities was $0.8 million as of September 30, 2015 and is included in accounts payable and accrued expenses on the consolidated balance sheet. We expect these restructuring activities to be substantially completed by the end of the first quarter of 2016.

(12)Business Segments

As of September 30, 2015,March 31, 2016, we operated through four reportable business segments: (i) Learning Solutions, (ii) Professional & Technical Services, (iii) Sandy Training & Marketing, and (iv) Performance Readiness Solutions. Each of our reportable segments represents an operating segment under U.S. GAAP. We are organized by operating groups 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 January 1, 2015, we realigned our operating groups, centralizing our service offerings to better respond to our customers' global needs, and to improve our internal efficiencies to leverage common technologies and practices across the company. This resulted in changes to our organizational structure to transfer the management responsibility of certain business units between segments, which changed the composition of certain of our operating segments. The changes primarily consisted of: (i) the Energy Services group became part of the Professional & Technical Services segment; (ii) certain business units providing leadership development offerings were transferred from the Learning Solutions segment to the Performance Readiness Solutions segment, (iii) a business unit which predominantly provides content development services to U.S. government and commercial clients transferred from the Professional & Technical Services segment to the Performance Readiness Solutions segment; and (iv) two business units providing engineering and technical services in Europe were transferred from the Learning Solutions segment to the Professional & Technical Services segment. We have reclassified the segment financial information herein for the prior year to reflect these changes and conform to the current year's presentation.
Further information regarding our business segments is discussed below.

Learning Solutions. The Learning Solutions segment delivers training, curriculum design and development, eLearning services, system hosting, training business process outsourcing and consulting services globally. This segment serves large companies in the electronics and semiconductors, healthcare, software, financial services and other industries, as well as government agencies. This segment also provides apprenticeship and vocational skills training for the United Kingdom government. The ability to deliver a wide range of training services on a global basis allows this segment to take over the entire learning function for the client, including their training personnel.
 
Professional & Technical Services. The Professional & Technical Services segment provides 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, energy and petrochemical industries; federal and state government agencies; and large government contractors. Our proprietary EtaPRO™ Performance and Condition Monitoring System provides a suite of real-time software solutions for power generation facilities and is installed on power-generating units across the world. In addition to providing custom training solutions, this segment provides web-based training through our GPiLEARN™ portal, which offers a variety of courses to power plant personnel in the U.S. and other countries. This segment also provides services to users of alternative fuels, including designing

GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
March 31, 2016
(Unaudited)

and constructing liquefied natural gas (LNG), liquid to compressed natural gas (LCNG) and hydrogen fueling stations, as well as supplying equipment.

13


GP STRATEGIES CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
September 30, 2015
(Unaudited)

 
Sandy Training & Marketing. The Sandy Training & Marketing 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 salesforces with respect to new vehicle features and designs, in effect rapidly increasing the salesforce knowledge base and enabling them to address detailed customer queries. Furthermore, Sandy helps our clients assess their customer relationship marketing strategy and connect with their customers on a one-to-one basis, including through custom publications. This segment also provides technical training services to automotive manufacturers as well as customers in other industries.
 
Performance Readiness Solutions. This segment provides performance consulting and technology consulting services, including platform adoption, end-user training, change management, knowledge management, customer product training outsourcing, training content development and sales enablement solutions. This segment also offers organizational performance solutions, including leadership development training and employee engagement tools and services. Industries served include manufacturing, aerospace, healthcare, life sciences, consumer products, financial, telecommunications, services and higher education, as well as government agencies.
 
We do not allocate the following items to the segments: selling, general & administrative expenses, other income (expense), interest expense, restructuring charges, gain (loss) on change in fair value of contingent consideration and income tax expense. Inter-segment revenue is eliminated in consolidation and is not significant.

The following table sets forth the revenue and operating results attributable to each reportable segment and includes a reconciliation of segment revenue to consolidated revenue and operating results to consolidated income before income tax expense (in thousands):
Three Months Ended 
 September 30,
 Nine Months Ended 
 September 30,
Three Months Ended 
 March 31,
2015
2014 2015
20142016
2015
Revenue:          
Learning Solutions$51,879
 $49,638
 $154,463
 $143,578
$49,906
 $51,829
Professional & Technical Services30,354
 36,138
 90,317
 118,364
25,829
 29,897
Sandy Training & Marketing22,115
 15,883
 62,043
 50,364
21,824
 14,729
Performance Readiness Solutions18,583
 22,210
 57,026
 64,361
18,197
 18,798
$122,931

$123,869

$363,849

$376,667
$115,756

$115,253
Operating income: 
  
  
  
Gross Profit: 
  
Learning Solutions$4,815
 $3,300
 $11,637
 $8,049
$9,704
 $8,347
Professional & Technical Services2,731
 4,426
 9,716
 16,577
3,884
 6,413
Sandy Training & Marketing150
 1,023
 1,481
 3,204
2,451
 1,976
Performance Readiness Solutions420
 1,906
 887
 2,896
1,888
 2,399
Restructuring charges1,195
 
 1,195
 
Gain (loss) on change in fair value of contingent consideration, net(56) 655
 (314) 1,513
Total Gross Profit17,927
 19,135
Selling, general and administrative expenses11,970
 11,599
Loss on change in fair value of contingent consideration, net(159) (203)
Operating income6,865

11,310

22,212

32,239
5,798

7,333
Interest expense340
 117
 1,011
 399
245
 365
Other income (expense)(606) (72) (1,141) 185
454
 (225)
Income before income tax expense$5,919
 $11,121
 $20,060
 $32,025
$6,007
 $6,743

14


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Results of Operations
 
General Overview
 
We are a global performance improvement solutions provider of 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 September 30, 2015,March 31, 2016, we operated through four reportable business segments: (i) Learning Solutions, (ii) Professional & Technical Services, (iii) Sandy Training & Marketing, and (iv) Performance Readiness Solutions. Each of our reportable segments represents an operating segment under U.S. GAAP. 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 January 1, 2015, we realigned our operating groups, centralizing our service offerings to better respond to our customers' global needs, and to improve our internal efficiencies to leverage common technologies and practices across the company. This resulted in changes to our organizational structure to transfer the management responsibility of certain business units between segments, which changed the composition of certain of our operating segments. The changes primarily consisted of: (i) the Energy Services group became part of the Professional & Technical Services segment; (ii) certain business units providing leadership development offerings were transferred from the Learning Solutions segment to the Performance Readiness Solutions segment, (iii) a business unit which predominantly provides content development services to U.S. government and commercial clients transferred from the Professional & Technical Services segment to the Performance Readiness Solutions segment; and (iv) two business units providing engineering and technical services in Europe were transferred from the Learning Solutions segment to the Professional & Technical Services segment. We have reclassified the segment financial information herein for the prior year to reflect these changes and conform to the current year's presentation.
 
Further information regarding our business segments is discussed below.

Learning Solutions. The Learning Solutions segment delivers training, curriculum design and development, eLearning services, system hosting, training business process outsourcing and consulting services globally. This segment serves large companies in the electronics and semiconductors, healthcare, software, financial services and other industries, as well as government agencies. This segment also provides apprenticeship and vocational skills training for the United Kingdom government. The ability to deliver a wide range of training services on a global basis allows this segment to take over the entire learning function for the client, including their training personnel.
 
Professional & Technical Services. The Professional & Technical Services segment provides 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, energy and petrochemical industries; federal and state government agencies; and large government contractors. Our proprietary EtaPRO™ Performance and Condition Monitoring System provides a suite of real-time software solutions for power generation facilities and is installed on power-generating units across the world. In addition to providing custom training solutions, this segment provides web-based training through our GPiLEARN™ portal, which offers a variety of courses to power plant personnel in the U.S. and other countries. This segment also provides services to users of alternative fuels, including designing and constructing liquefied natural gas (LNG), liquid to compressed natural gas (LCNG) and hydrogen fueling stations, as well as supplying equipment.
 

15


Sandy Training & Marketing. The Sandy Training & Marketing 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 salesforces with respect to new vehicle features and designs, in effect rapidly increasing the salesforce knowledge base and enabling them to address detailed customer queries. Furthermore, Sandy helps our clients assess their customer relationship marketing strategy and connect with their customers on a one-to-one basis, including through custom publications. This segment also provides technical training services to automotive manufacturers as well as customers in other industries.
 
Performance Readiness Solutions. This segment provides performance consulting and technology consulting services, including platform adoption, end-user training, change management, knowledge management, customer product training outsourcing, training content development and sales enablement solutions. This segment also offers organizational performance solutions, including leadership development training and employee engagement tools and services. Industries served include manufacturing, aerospace, healthcare, life sciences, consumer products, financial, telecommunications, services and higher education, as well as government agencies.


Acquisition

On March 1, 2016, we acquired the share capital of Jencal Training Limited (Jencal Training) and its subsidiary B2B Engage Limited (B2B), an independent provider of vocational skills training in the United Kingdom. The upfront purchase price was $2.7 million in cash and is subject to a working capital adjustment which we expect will be finalized and agreed upon with the sellers in the second quarter of 2016. In addition, the purchase agreement requires up to an additional $0.4 million of consideration, contingent upon attaining incremental funding levels under a customer contract prior to July 31, 2016. The preliminary purchase price allocation for the acquisition primarily includes $1.4 million of customer-related intangible assets which are being amortized over four years from the acquisition date and $1.7 million of goodwill. None of the goodwill recorded for financial statement purposes is deductible for tax purposes. The acquired Jencal Training business is included in the Learning Solutions segment and the results of its operations have been included in the consolidated financial statements beginning March 1, 2016. The pro-forma impact of the acquisition is not material to our results of operations.

Operating Highlights
 
Three Months ended September 30, 2015March 31, 2016 Compared to the Three Months ended September 30, 2014March 31, 2015
 
Our revenue decreased $0.9increased $0.5 million or 0.8% and our gross profit decreased $2.1 million or 9.5%0.4% during the thirdfirst quarter of 20152016 compared to the thirdfirst quarter of 2014.2015. The net declineincrease is largely attributabledue to a $4.5$7.1 million revenue decrease due to the completion of alternative fuels projectsincrease in 2014our Sandy Training & Marketing segment, offset by declines in our other three segments and a $2.8$1.9 million revenue decrease due to unfavorable changes in foreign currency exchange rates during the third quarter, partially offset by an increase in global training services.first quarter. The changes in revenue and gross profit are discussed in further detail below by segment.

Operating income, the components of which are discussed below, decreased $4.4$1.5 million or 39.3%20.9% to $6.9$5.8 million for the thirdfirst quarter of 20152016 compared to $11.3$7.3 million for the thirdfirst quarter of 2014.2015. The net decrease in operating income was primarily due to a $2.1$1.2 million decrease in gross profit and a $0.4 million increase in SG&A expenses, and a $0.7 million decreasewhich are discussed in the change in fair value of contingent consideration. In addition, we implemented a cost savings initiative in the third quarter of 2015 to better align costs with revenues and improve our operating margins. In connection with this initiative, we incurred $1.2 million of restructuring costs during the three months ended September 30, 2015, primarily consisting of severance expense. We estimate that our cost savings initiative will result in approximately $10 million of net annual cost reductions.more detail below.

For the three months ended September 30, 2015,March 31, 2016, we had income before income tax expense of $5.9$6.0 million compared to $11.1$6.7 million for the three months ended September 30, 2014.March 31, 2015. Net income was $3.7$3.8 million, or $0.22$0.23 per diluted share, for the three months ended September 30, 2015,March 31, 2016, compared to net income of $7.2$4.1 million, or $0.37$0.24 per diluted share, for the three months ended September 30, 2014.March 31, 2015. Diluted weighted average shares outstanding were16.8 million for the three months ended March 31, 2016 compared to 17.3 million for the three months ended September 30, 2015 compared to 19.4 million for the three months ended September 30, 2014.March 31, 2015. The decrease in shares outstanding is primarily due to the completionrepurchase of the modified "Dutch auction" tender offer in October 2014 in which we repurchased 2.1 million shares of our outstanding common stock.stock in the open market during 2015 and the first quarter of 2016.
 
Revenue
(Dollars in thousands)Three months endedThree months ended
September 30,March 31,
2015 20142016 2015
Learning Solutions$51,879
 $49,638
$49,906
 $51,829
Professional & Technical Services30,354
 36,138
25,829
 29,897
Sandy Training & Marketing22,115
 15,883
21,824
 14,729
Performance Readiness Solutions18,583
 22,210
18,197
 18,798
$122,931
 $123,869
$115,756
 $115,253
 
Learning Solutions revenue increased $2.2decreased $1.9 million or 4.5%3.7% during the thirdfirst quarter of 20152016 compared to the thirdfirst quarter of 2014.2015. The increasedecrease in revenue is due to the following:
A $3.5$1.5 million decrease in revenue due to unfavorable changes in foreign currency exchange rates; and
A $0.8 million net increasedecrease in e-Learning content development and training business process outsourcing (BPO) services primarily attributable to a global outsourcing contract with a financial services client; and

16


A $0.8 million increase in UK government funded skills training services.
These revenue increasesdecreases were partially offset by a $2.1$0.4 million revenue increase attributable to the Jencal Training acquisition completed on March 1, 2016.
Professional & Technical Services revenue decreased $4.1 million or 13.6% during the first quarter of 2016 compared to the first quarter of 2015. The net decrease in revenue is due to the following:
A $1.9 million decrease in training and technical services for oil and gas clients;
A $0.9 million net decrease in training and professional services for energy clients;

A $0.6 million decrease due to the completion of projects in our alternative fuels business;
A $0.3 million net decrease in engineering and technical training services primarily due to a decline in revenue from U.S. government clients due to project completions in 2015; and
A $0.4 million decrease in revenue due to unfavorable changes in foreign currency exchange rates.
Professional & Technical Services revenue decreased $5.8 million or 16.0% during the third quarter of 2015 compared to the third quarter of 2014. The net decrease in revenue is due to the following:
A $4.5 million decrease due to the completion of LNG projects by our alternative fuels business in 2014;
A $1.1 million net decrease in our Energy business primarily due to a decline in training services; and
A $0.7 million decrease in revenue due to unfavorable changes in foreign currency exchange rates.
These decreases were partially offset by a $0.5 million net increase in training and technical services for various clients.
Sandy Training & Marketing revenue increased $6.2$7.1 million or 39.2%48.2% during the thirdfirst quarter of 20152016 compared to the thirdfirst quarter of 2014.2015. The net increase is primarily due to ana $5.3 million increase in magazine publications revenue due to a new publication contract with an automotive customer which began in the second quarter of 2015.2015 and a $1.8 million net increase in training services for automotive customers.

Performance Readiness Solutions revenue decreased $3.6$0.6 million or 16.3%3.2% during the thirdfirst quarter of 20152016 compared to the thirdfirst quarter of 2014.2015. The net decrease is primarily due to a $0.9 million decline in its ERP implementation business due to project completionsplatform adoption training services, partially offset by a $0.3 million increase in leadership and a decline in training and consultingorganizational development services for certain of its existing customers during the thirdfirst quarter of 2015. If we continue to experience significant declines in this segment in future periods, we could incur goodwill impairment charges in the future.2016.
 
Gross Profit
(Dollars in thousands)Three months endedThree months ended
September 30,March 31,
2015 20142016 2015
  % Revenue   % Revenue  % Revenue   % Revenue
Learning Solutions$9,808
 18.9% $8,384
 16.9%$9,704
 19.4% $8,347
 16.1%
Professional & Technical Services5,527
 18.2% 7,384
 20.4%3,884
 15.0% 6,413
 21.5%
Sandy Training & Marketing2,470
 11.2% 2,519
 15.9%2,451
 11.2% 1,976
 13.4%
Performance Readiness Solutions2,564
 13.8% 4,231
 19.0%1,888
 10.4% 2,399
 12.8%
$20,369
 16.6% $22,518
 18.2%$17,927
 15.5% $19,135
 16.6%
 
Learning Solutions gross profit of $9.8$9.7 million or 18.9%19.4% of revenue for the thirdfirst quarter of 20152016 increased by $1.4 million or 17.0%16.3% when compared to gross profit of $8.4$8.3 million or 16.9%16.1% of revenue for the thirdfirst quarter of 2014.2015. The increase in gross profit is primarily due to the revenue increases noted above, a reduction in implementation costs incurred on a global outsourcing contract with a financial services client and an overall increase in gross profit and margin onand a one-time cost reduction related to a UK government funded skills training services. These increases werecontract during the first quarter of 2016. The net gross profit increase was partially offset by a $0.3 million decrease in gross profit due to unfavorable changes in foreign currency exchange rates.

Professional & Technical Services gross profit of $5.5$3.9 million or 18.2%15.0% of revenue for the thirdfirst quarter of 20152016 decreased by $1.9$2.5 million or 25.1%39.4% when compared to gross profit of $7.4$6.4 million or 20.4%21.5% of revenue for the thirdfirst quarter of 2014.2015. The decrease in gross profit and margin is primarily due to the LNGa decline in higher margin revenue decreases noted abovestreams in this segment and a $0.7 million non-recurring revenue and profit increaseloss in our alternative fuels business during the thirdfirst quarter of 2014 for a project completion bonus on a government contract.2016.
 
Sandy Training & Marketing gross profit of $2.5 million or 11.2% of revenue for the thirdfirst quarter of 2015 was flat2016 increased by $0.5 million or 24.0% when compared to gross profit of $2.5$2.0 million or 15.9%13.4% of revenue for the thirdfirst quarter of 20142015 due to the revenue increase noted above. Gross profit as a percentage of revenue decreased during the thirdfirst quarter of 20152016 primarily due to an increase in lower margin publication revenue compared to the thirdfirst quarter of 2014. We anticipate that the gross margins in this segment will continue to be lower in future quarters compared to prior periods due to an increase in lower margin publications revenue that is expected to continue for the remainder of this year.2015.
 
Performance Readiness Solutions gross profit of $2.6$1.9 million or 13.8%10.4% of revenue for the thirdfirst quarter of 20152016 decreased by $1.7$0.5 million or 39.4%21.3% when compared to gross profit of $4.2$2.4 million or 19.0%12.8% of revenue for the thirdfirst quarter of 2014.2015. The decrease in gross profit is primarily due to a decreasean increase in revenueestimated costs at completion on higher margin projects which concluded compared to the other revenue streams in this segment. If we continue to experience significant declines in this segment in future periods, we could incur goodwill impairment charges in the future.certain fixed price contracts.

17


 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses increased $0.4 million or 3.3%3.2% from $11.9$11.6 million for the thirdfirst quarter of 20142015 to $12.3$12.0 million for the thirdfirst quarter of 2015.2016. The increase in SG&A expenses is due to a $0.6$0.3 million increase in labor and benefits expense due to international expansion during 2014 and a $0.2$0.3 million net increase in IT infrastructure and various other expenses, partially offset by a $0.4$0.2 million decrease in amortization expense during the three months ended September 30, 2015March 31, 2016 compared to the same period in 20142015 due to certain intangible assets related to previously completed acquisitions becoming fully amortized.

Restructuring charges

During the third quarter of 2015, we implemented a cost savings initiative to better align costs with revenues and improve our operating margins. The initiatives included a workforce reduction, lease exit costs and other general expense controls. We recorded severance expense of $1.1 million for the three months ended September 30, 2015 which is included in Restructuring charges on the consolidated statements of operations and is expected to be substantially paid by the end of the first quarter of 2016. We also incurred an immaterial amount of lease termination costs during the third quarter of 2015. The total remaining liability under these restructuring activities was $0.8 million as of September 30, 2015 and is included in accounts payable and accrued expenses on the consolidated balance sheet. We expect these restructuring activities to be substantially completed by the end of the first quarter of 2016.

Change in Fair Value of Contingent Consideration
 
We recognized a net losslosses on the change in fair value of contingent consideration related to acquisitions of $0.1$0.2 million forin the three months ended September 30, 2015 compared to a net gainfirst quarters of $0.7 million for the same period in 2014.both 2016 and 2015. Changes in the fair value of contingent consideration obligations 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 5 to the Condensed Consolidated Financial Statements for further details regarding the potential contingent consideration payments and the changes in fair value of the related liabilities during the three months ended September 30, 2015.March 31, 2016.

Interest Expense
 
Interest expense increased $0.2decreased $0.1 million from $0.1$0.4 million for the thirdfirst quarter of 20142015 to $0.3$0.2 million for the thirdfirst quarter of 20152016 primarily due to an increasea decrease in borrowings under our Credit Agreementlong-term debt in 2016 compared to fund the modified "Dutch auction" tender offer that was completed in October 2014.2015.
 
Other Income (Expense)
 
Other expenseincome was $0.6$0.5 million for the thirdfirst quarter of 2016 compared to other expense of $0.2 million for the first quarter of 2015 compared to $0.1 million for the third quarter of 2014 and consistedconsists primarily of income from a joint venture offset byand foreign currency losses in both years.gains and losses. During the three months ended September 30, 2015,March 31, 2016, we had a $0.5net foreign currency gains of $0.3 million increase incompared to net foreign currency losses compared toof $0.5 million in the corresponding period in 2014.2015. The foreign currency gains and losses primarily relate to the effect of exchange rates on intercompany receivables and payables and third party receivables and payables that are denominated in currencies other than the functional currency of our legal entities.
 
Income Tax Expense
 
Income tax expense was $2.2 million for the thirdfirst quarter of 20152016 compared to $3.9$2.6 million for the thirdfirst quarter of 2014.2015. The effective income tax rate was 37.2%36.7% and 34.9%39.1% for the three months ended September 30,March 31, 2016 and 2015, and 2014, respectively. During
the third quarter of 2014, we recorded an income tax benefit of $0.6 million resulting from a claim for a deduction under Internal Revenue Code Section 199 for the Domestic Production Deduction on our 2013 U.S. federal income tax return which was not taken in previous years. Excluding this adjustment, the effective income tax rate was 40.3% for the three months ended September 30, 2014. The decrease in the effective income tax rate during the thirdfirst quarter of 20152016 is primarily due to an increase in income in jurisdictions with lower tax rates. Income tax expense for the quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.


18


Nine Months ended September 30, 2015 Compared to the Nine Months ended September 30, 2014
Our revenue decreased $12.8 million or 3.4% and our gross profit decreased $6.1 million or 9.2% during the nine months ended September 30, 2015 compared to nine months ended September 30, 2014. The net decline is largely attributable to a $27.3 million revenue decrease due to the completion of alternative fuels projects in 2014 and an $8.5 million revenue decrease due to unfavorable changes in foreign currency exchange rates, partially offset by an increase in global training services. The changes in revenue and gross profit are discussed in further detail below by segment.

Operating income, the components of which are discussed in detail below, decreased $10.0 million or 31.1% to $22.2 million for the nine months ended September 30, 2015 compared to $32.2 million for the same period in 2014. The net decrease in operating income was primarily due to a $6.1 million decrease in gross profit, a $0.9 million increase in SG&A expenses primarily due to increased costs associated with global expansion, and a $1.8 million decrease in the change in fair value of contingent consideration. In addition, we implemented a cost savings initiative in the third quarter of 2015 to better align costs with revenues and improve our operating margins. In connection with this initiative, we incurred $1.2 million of restructuring costs during the three months ended September 30, 2015, primarily consisting of severance expense. We estimate that our cost savings initiative will result in approximately $10 million of annual cost reductions, net of additional investments in global sales initiatives.

For the nine months ended September 30, 2015, we had income before income tax expense of $20.1 million compared to $32.0 million for the nine months ended September 30, 2014. Net income was $12.5 million, or $0.72 per diluted share, for the nine months ended September 30, 2015, compared to net income of $19.7 million, or $1.01 per diluted share, for the nine months ended September 30, 2014. Diluted weighted average shares outstanding were 17.3 million for the nine months ended September 30, 2015 compared to 19.4 million for the nine months ended September 30, 2014. The decrease in shares outstanding is primarily due to the completion of the modified "Dutch auction" tender offer in October 2014 in which we repurchased 2.1 million shares of our outstanding common stock.

Revenue
(Dollars in thousands)Nine months ended
 September 30,
 2015 2014
Learning Solutions$154,463
 $143,578
Professional & Technical Services90,317
 118,364
Sandy Training & Marketing62,043
 50,364
Performance Readiness Solutions57,026
 64,361
 $363,849
 $376,667
Learning Solutions revenue increased $10.9 million or 7.6% during the nine months ended September 30, 2015 compared to the same period in 2014. The increase in revenue is due to the following:
A $1.9 million increase attributable to the Effective Companies acquisition completed in April 2014;
A $12.9 million net increase in e-Learning content development and training business process outsourcing (BPO) services primarily attributable to a global outsourcing contract with a financial services client; and
A $2.4 million increase in UK government funded skills training services.
These revenue increases were offset by a $6.3 million decrease in revenue due to unfavorable changes in exchange rates.

Professional & Technical Services revenue decreased $28.0 million or 23.7% during the nine months ended September 30, 2015 compared to the same period in 2014. The increase in revenue is due to the following:
A $27.4 million decrease due to the completion of LNG projects by our alternative fuels business in 2014;
A $2.7 million net decrease in revenue from U.S. government clients due to project completions in 2014; and
A $1.9 million decrease in revenue due to unfavorable changes in exchange rates.
These decreases were partially offset by a $1.4 million increase in our Energy business due to a non-recurring revenue adjustment in 2014, a $1.3 million net increase in training and technical services for oil and gas clients, and a $1.3 million net increase in training and technical services for various clients.

19


Sandy Training & Marketing revenue increased $11.7 million or 23.2% during the nine months ended September 30, 2015 compared to the same period in 2014. The net increase is primarily due to an increase in magazine publications revenue due to a new publication contract with an automotive customer which began in the second quarter of 2015.
Performance Readiness Solutions revenue decreased $7.3 million or 11.4% during the nine months ended September 30, 2015 compared to the same period in 2014. The net decrease is primarily due to a decline in its ERP implementation business due to project completions and a decline in training and consulting services for certain of its existing customers during the third quarter of 2015. In addition, unfavorable changes in foreign currency exchange rates resulted in a $0.3 million decrease in revenue during the nine months ended September 30, 2015 compared to the same period in 2014. If we continue to experience significant declines in this segment in future periods, we could incur goodwill impairment charges in the future.
Gross Profit
(Dollars in thousands)Nine months ended
 September 30,
 2015 2014
   % Revenue   % Revenue
Learning Solutions$26,542
 17.2% $22,214
 15.5%
Professional & Technical Services17,769
 19.7% 26,099
 22.0%
Sandy Training & Marketing7,873
 12.7% 7,727
 15.3%
Performance Readiness Solutions7,396
 13.0% 9,600
 14.9%
 $59,580
 16.4% $65,640
 17.4%
Learning Solutions gross profit of $26.5 million or 17.2% of revenue for the nine months ended September 30, 2015 increased by $4.3 million or 19.5% when compared to gross profit of $22.2 million or 15.5% of revenue for the same period in 2014. The increase in gross profit is due to the revenue increases noted above, a reduction in implementation costs incurred on a global outsourcing contract with a financial services client and an increase in gross profit and margin on UK government funded skills training services. These increases were offset by a $1.1 million decrease in gross profit due to unfavorable changes in foreign currency exchange rates.

Professional & Technical Services gross profit of $17.8 million or 19.7% of revenue for the nine months ended September 30, 2015 decreased by $8.3 million or 31.9% when compared to gross profit of $26.1 million or 22.0% of revenue for the same period in 2014. The decrease in gross profit and margin is primarily due to the LNG revenue decreases noted above, as well as a $0.6 million one-time revenue and profit adjustment in the first quarter of 2014 relating to a final contract negotiation and close-out and a $0.7 million non-recurring revenue and profit increase in the third quarter of 2014 for a project completion bonus on a government contract.

Sandy Training and Marketing gross profit of $7.9 million or 12.7% of revenue for the nine months ended September 30, 2015 increased by $0.1 million or 1.9% when compared to gross profit of $7.7 million or 15.3% of revenue for the same period in 2014 due to the revenue increase noted above. Gross profit as a percentage of revenue decreased during the nine months ended September 30, 2015 due to an increase in lower margin publication revenue compared to the same period in 2014. We anticipate that the gross margins in this segment will continue to be lower in future quarters compared to prior periods due to an increase in lower margin publications revenue that is expected to continue for the remainder of this year.
Performance Readiness Solutions gross profit of $7.4 million or 13.0% of revenue for the nine months ended September 30, 2015 decreased by $2.2 million or 23.0% when compared to gross profit of $9.6 million or 14.9% of revenue for the same period in 2014. The decrease in gross profit is primarily due to a decrease in revenue on higher margin projects which concluded compared to the other revenue streams in this segment. If we continue to experience significant declines in this segment in future periods, we could incur goodwill impairment charges in the future.

20


Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $0.9 million or 2.7% from $34.9 million for the nine months ended September 30, 2014 to $35.9 million for the same period in 2015. The increase is primarily due to a $1.8 million increase in labor and benefits expense due to international expansion during 2014 and a $0.2 million net increase in IT infrastructure and various other expenses. These increases were offset by a $1.1 million decrease in amortization expense during the nine months ended September 30, 2015 compared to the same period in 2014 due to certain intangible assets related to previously completed acquisitions becoming fully amortized.
Restructuring charges

During the third quarter of 2015, we implemented a cost savings initiative to better align costs with revenues and improve our operating margins. The initiatives included a workforce reduction, lease exit costs and other general expense controls. We recorded severance expense of $1.1 million for the nine months ended September 30, 2015 which is included in Restructuring charges on the consolidated statements of operations and is expected to be substantially paid by the end of the first quarter of 2016. We also incurred an immaterial amount of lease termination costs during the third quarter of 2015. The total remaining liability under these restructuring activities was $0.8 million as of September 30, 2015 and is included in accounts payable and accrued expenses on the consolidated balance sheet. We expect these restructuring activities to be substantially completed by the end of the first quarter of 2016.

Change in Fair Value of Contingent Consideration
We recognized a net loss on the change in fair value of contingent consideration related to acquisitions of $0.3 million for the nine months ended September 30, 2015 compared to a net gain of $1.5 million for the same period in 2014. Changes in the fair value of contingent consideration obligations 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 5 to the Condensed Consolidated Financial Statements for further details regarding the potential contingent consideration payments and the changes in fair value of the related liabilities during the nine months ended September 30, 2015.
Interest Expense
Interest expense increased $0.6 million from $0.4 million for the nine months ended September 30, 2014 to $1.0 million for the nine months ended September 30, 2015 primarily due to an increase in borrowings under our Credit Agreement to fund the modified "Dutch auction" tender offer that was completed in October 2014.
Other Income (Expense)
Other expense was $1.1 million for the nine months ended September 30, 2015 compared to other income of $0.2 million for the same period in 2014 and consisted primarily of income from a joint venture offset by foreign currency losses in both years. During the nine months ended September 30, 2015, we had a $1.3 million increase in foreign currency losses compared the corresponding period in 2014. The foreign currency losses primarily relate to the effect of exchange rates on intercompany receivables and payables and third party receivables and payables that are denominated in currencies other than the functional currency of our legal entities.
Income Tax Expense
Income tax expense was $7.5 million for the nine months ended September 30, 2015 compared to $12.4 million for the same period in 2014. The effective income tax rate was 37.5% and 38.6% for the nine months ended September 30, 2015 and 2014, respectively. During the third quarter of 2014, we recorded an income tax benefit of $0.6 million resulting from a claim for a deduction under Internal Revenue Code Section 199 for the Domestic Production Deduction on our 2013 U.S. federal income tax return which was not taken in previous years. Excluding this and other discrete items, the effective income tax rate was 40.2% for the nine months ended September 30, 2014. The decrease in the effective income tax rate is primarily due to an increase in income in jurisdictions with lower tax rates. Income tax expense for the quarterly periods is based on an estimated annual effective tax rate which includes the U.S. federal, state and local, and non-U.S. statutory rates, permanent differences, and other items that may have an impact on income tax expense.

21



Liquidity and Capital Resources
 
Working Capital
 
For the nine months ended September 30, 2015, ourOur working capital was $45.3$35.4 million at September 30, 2015March 31, 2016 compared to $43.5$40.3 million at December 31, 2014.2015. As of September 30, 2015March 31, 2016 we had $32.9$33.1 million of short-term borrowings and $27.8$21.1 million of long-term debt outstanding. We believe that cash generated from operations and borrowings available under our Credit Agreement ($31.529.4 million of available borrowings as of September 30, 2015)March 31, 2016) will be sufficient to fund our working capital and other requirements for at least the next twelve months.
 
As of September 30, 2015,March 31, 2016, the amount of cash and cash equivalents held outside of the U.S. by foreign subsidiaries was $13.6$16.5 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 repatriated these funds.

Stock Repurchase Program

We have a 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. During the three and nine months ended September 30,March 31, 2016 and 2015, we repurchased approximately 222,000181,000 and 255,00010,000 shares, respectively, of our common stock in the open market for a total cost of approximately $5.5$4.3 million and $6.6$0.4 million, respectively. As of September 30, 2015,March 31, 2016, there was approximately $8.4$9.7 million available for future repurchases under the buyback program.
 

Acquisition-Related Payments
 
WeIn connection with previously completed acquisitions, we may be required to pay the followingup to an additional $2.6 million in contingent consideration in connection with completed acquisitions (dollars in thousands):
 
As of September 30, 2015
Maximum potential contingent consideration due in
 
Recorded
Liability as of
Acquisition:2015 2016 Total September 30, 2015
Effective Companies$
 $2,616
 $2,616
 $2,398
2016 for the Effective Companies acquisition and up to an additional $0.4 million of contingent consideration for the Jencal Training acquisition.
 
Significant Customers & Concentration of Credit Risk
 
We have a market concentration of revenue in both the automotive sector and financial services & insurance sector. Revenue from the automotive industry accounted for approximately 18%20% and 14%13% of our consolidated revenue for the ninethree months ended September 30,March 31, 2016 and 2015, and 2014, respectively. In addition, we have a concentration of revenue from a single automotive customer, which accounted for approximately 12%13% and 7% of our consolidated revenue for the ninethree months ended September 30, 2015.March 31, 2016 and 2015, respectively. As of September 30, 2015,March 31, 2016, accounts receivable from a single automotive customer totaled $9.7$10.3 million, or 10%12%, of our consolidated accounts receivable balance. Revenue from the financial services & insurance industry accounted for approximately 21%22% and 16%24% of our consolidated revenue for the ninethree months ended September 30,March 31, 2016 and 2015, and 2014, respectively. Beginning in 2015,In addition, we have a concentration of revenue from a single financial services customer, which accounted for approximately 14%15% of our consolidated revenue for both of the nine monthsthree-month periods ended September 30,March 31, 2016 and 2015. As of September 30, 2015,March 31, 2016, billed and unbilled accounts receivable from a single financial services customer totaled $35.8$28.3 million, or 26%22%, of our consolidated accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts balances. No other single customer accounted for more than 10% of our consolidated revenue for the ninethree months ended September 30,March 31, 2016 or 2015 and 2014 or consolidated accounts receivable balance as of September 30, 2015.March 31, 2016.


22


Cash Flows
 
NineThree Months ended September 30, 2015March 31, 2016 Compared to the NineThree Months ended September 30, 2014March 31, 2015
 
Our cash and cash equivalents balance decreased $0.9$4.6 million from $14.5$21.0 million as of December 31, 20142015 to $13.6$16.5 million as of September 30, 2015.March 31, 2016. The decrease in cash and cash equivalents during the ninethree months ended September 30, 2015March 31, 2016 resulted from cash provided by operating activities of $9.5$8.6 million, cash used in investing activities of $1.7$2.9 million, and cash used in financing activities of $8.7$10.3 million.
 
Cash provided by operating activities was $9.5$8.6 million for the ninethree months ended September 30, 2015March 31, 2016 compared to $16.7$3.2 million for the same period in 2014.2015. The decreaseincrease in cash is primarily due to a decreasenet favorable change in net incomeworking capital balances during the ninethree months ended September 30, 2015March 31, 2016 compared to the same period in 2014.2015.
 
Cash used in investing activities was $1.7$2.9 million for the ninethree months ended September 30, 2015March 31, 2016 compared to $10.7$0.6 million for the same period in 2014.2015. The decreaseincrease in cash used is due to the completion of the Effective CompaniesJencal Training acquisition in April 2014March 2016 in which we used $8.7$2.3 million of cash.cash, net of cash acquired.
 
Cash used in financing activities was $8.7$10.3 million for the ninethree months ended September 30, 2015March 31, 2016 compared to $2.5$4.5 million for the same period in 2014.2015. The increase in cash used in financing activities is primarily due a $3.5$3.9 million increase in share repurchases and a $10.0$1.0 million increase in long-term debtof repayments offset by a $7.6 million increase in proceeds fromof short-term borrowings in the nine months ended September 30, 2015first quarter of 2016 compared to an increase in borrowings of $0.7 million in the same period in 2014.first quarter of 2015.
 
Debt

On September 2, 2014, we entered into a Fourth Amended and Restated Financing and Security Agreement (the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility up to a maximum principal amount of $65 million expiring on October 31, 2018 and for a term loan in the principal amount of $40 million maturing on October 31, 2017, and is secured by substantially all of our assets.

The maximum interest rate on the Credit Agreement is the daily one-month LIBOR market index rate plus 2.50%. Based on our financial performance, the interest rate can be reduced to a minimum rate of the daily one-month LIBOR market index rate plus 1.25%, with the rate being determined based on our maximum leverage ratio for the preceding four quarters. Each unpaid advance on the revolving loan will bear interest until repaid. The term loan is payable in monthly installments equal to $1.1 million plus applicable interest, beginning on November 1, 2014 and ending on October 31, 2017. We may prepay the term loan or the revolving loan, in whole or in part, at any time without premium or penalty, subject to certain conditions. Amounts repaid or prepaid on the term loan may not be reborrowed.

The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict our and our subsidiaries’ (subject to certain exceptions) ability to, among other things, grant liens, make investments, incur indebtedness, merge or consolidate, dispose of assets, make acquisitions. We are also required to maintain compliance with a minimum fixed charge coverage ratio of 2.01.5 to 1.0 and a maximum leverage ratio of 2.252.0 to 1.0. As of September 30, 2015,March 31, 2016, our fixed coverage charge ratio was 2.11.9 to 1.0 and our leverage ratio was 1.3 to 1.0, all of which were in compliance with the Credit Agreement.

As of September 30, 2015,March 31, 2016, our total long-term debt outstanding under the term loan was $27.8$21.1 million. In addition, there were $32.9$33.1 million of borrowings outstanding and $31.5$29.4 million of available borrowings under the Credit Agreement. For the ninethree months ended September 30, 2015,March 31, 2016, the weighted average interest rate on our borrowings was 2.0%2.2%.


23


Off-Balance Sheet Commitments
 
As of September 30, 2015March 31, 2016, we did not have any off-balance sheet commitments except for operating leases and letters of credit entered into in the normal course of business.
 
Accounting StandardStandards Issued

We discuss recently issued accounting standards in Note 2 to the accompanying condensed consolidated financial statements.

Forward-Looking Statements
 
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward looking statements. Forward–looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results. We use words such as “expects,” “intends,” “believes,” “may,” “will,” “should,” “could,” “anticipates,” “estimates,” “plans” and similar expressions to indicate forward-looking statements, but their absence does not mean a statement is not forward-looking. Because these forward-looking statements are based upon management’s expectations and assumptions and are subject to risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements, including, but not limited to, those factors set forth in Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20142015 and those other risks and uncertainties detailed in our periodic reports and registration statements filed with the Securities and Exchange Commission. We caution that these risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot predict these new risk factors, nor can we assess the effect, if any, of the new risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ from those expressed or implied by these forward-looking statements.
 
If any one or more of these expectations and assumptions proves incorrect, actual results will likely differ materially from those contemplated by the forward-looking statements. Even if all of the foregoing assumptions and expectations prove correct, actual results may still differ materially from those expressed in the forward-looking statements as a result of factors we may not anticipate or that may be beyond our control. While we cannot assess the future impact that any of these differences could have on our business, financial condition, results of operations and cash flows or the market price of shares of our common stock, the differences could be significant. We do not undertake to update any forward-looking statements made by us, whether as a result of new information, future events or otherwise. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this report.

24



Item 3.    Quantitative and Qualitative Disclosure About Market Risk
 
The Company has no material changes to the disclosure on this matter made in its Annual Report on Form 10-K for the fiscal year ended December 31, 2014.2015.
 
Item 4.    Controls and Procedures
 
Disclosure Controls and Procedures 
 
We maintain a comprehensive set of disclosure controls and procedures (as defined in Rules 13a-15(e) and under the Securities Exchange Act of 1934 (“Exchange Act”)) designed to provide reasonable assurance that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the SEC’s rules and forms. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures are effective in providing reasonable assurance of the achievement of the objectives described above.
 
Internal Control Over Financial Reporting
 
During the quarter ended September 30, 2015,March 31, 2016, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d—15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
 

25



PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
 
None.
 
Item 1A. Risk Factors
 
The Company has no material changes to the disclosure on this matter made in its Annual Report on Form 10-K for the fiscal year ended December 31, 2014.2015.
 


26



 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about the Company's share repurchase activity for the three months ended September 30, 2015:March 31, 2016: 
  Issuer Purchases of Equity Securities
  
Total number
of shares purchased
  
Average
price paid per share
 
Total number
of shares
purchased as
part of publicly announced program
 
Approximate
dollar value of
shares that may yet
be purchased under the program (1)
Month     
July 1 - 31, 2015 
  $
 
 $13,899,000
August 1 - 31, 2015 182,287
(2) $25.05
 165,865
 $9,740,000
September 1 - 30, 2015 56,109
(2) $23.84
 55,803
 $8,406,000
  Issuer Purchases of Equity Securities
  
Total number
of shares purchased
  
Average
price paid per share
 
Total number
of shares
purchased as
part of publicly announced program
 
Approximate
dollar value of
shares that may yet
be purchased under the program (1)
Month     
January 1 - 31, 2016 168,331
(2) $23.45
 168,223
 $10,057,000
February 1 - 29, 2016 193
(2) $23.26
 100
 $10,054,000
March 1 - 31, 2016 14,411
(2) $26.44
 12,700
 $9,719,000
 
(1)We have a 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. In February 2015, the Company's Board of Directors authorized an increase to the share repurchase program of $15 million, replacing the existing authorization.
(2)Includes shares surrendered by employees to satisfy minimum tax withholding obligations on restricted stock units which vested and shares surrendered to exercise stock options and satisfy the related minimum tax withholding obligations during the thirdfirst quarter of 2015.2016.






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Item 6.Exhibits

10.1First Amendment, dated September 28, 2015, to Fourth Amended and Restated Financing and Security Agreement, dated September 2, 2014,Short-Term Incentive Plan approved by and between GP Strategies Corporation as Borrower and Wells Fargo Bank, National Association, as Lender.the Board of Directors on March 29, 2016. *
31.1Certification of Chief Executive Officer of the Company dated October 29, 2015April 28, 2016 pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002.*
31.2Certification of Executive Vice President and Chief Financial Officer of the Company dated October 29, 2015April 28, 2016 pursuant to Securities and Exchange Act Rule 13d-14(a)/15(d-14(a), as adopted pursuant to Section 302 and 404 of the Sarbanes-Oxley Act of 2002.*
32.1Certification of Chief Executive Officer and Chief Financial Officer of the Company dated October 29, 2015April 28, 2016 pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101The following materials from GP Strategies Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015,March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to Condensed Consolidated Financial Statements.*
*Filed herewith.


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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 GP STRATEGIES CORPORATION
  
October 29, 2015April 28, 2016/s/  Scott N. Greenberg
 Scott N. Greenberg
 Chief Executive Officer
  
October 29, 2015April 28, 2016/s/  Sharon Esposito-Mayer
 Sharon Esposito-Mayer
 Executive Vice President and Chief Financial Officer

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