UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarter ended June 30, 2001
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission File Number: 1-7234
GP STRATEGIES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-1926739
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 West 57th Street, New York, NY 10019
(Address of principal executive offices) (Zip code)
(212) 826-8500
(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 X No
Number of shares outstanding of each of issuer's classes of common stock as of
August 6, 2001:
Common Stock 12,352,594 shares
Class B Capital 800,000 shares
TABLE OF CONTENTS
GP STRATEGIES CORPORATION AND SUBSIDIARIES
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
June 30, 2001 and December 31, 2000 1
Consolidated Condensed Statements of Operations -
Three Months and Six Months Ended June 30,
2001 and 2000 3
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II. Other Information 21
Signatures 22
PART I. FINANCIAL INFORMATION
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
June 30, December 31,
2001 2000
------ ----------
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 2,153 $ 2,487
Trading securities 8,830
Accounts and other receivables 45,176 46,388
Inventories 1,514 1,688
Costs and estimated earnings
in excess of billings on uncompleted contracts 10,422 12,515
Prepaid expenses and other current assets 5,581 3,955
--------- ----------
Total current assets 64,846 75,863
--------- ---------
Investments, advances and marketable securities 62,510 62,093
--------- ---------
Property, plant and equipment, net 9,873 9,787
--------- --------
Intangible assets, net of accumulated amortization
of $33,473 and $31,618 59,063 59,992
--------- ----------
Other assets 4,530 4,843
--------- -----------
$200,822 $212,578
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 2000 has been
summarized from the Company's audited Consolidated Balance Sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
June 30, December 31,
2001 2000
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities:
Current maturities of long-term debt $ 1,401 $ 1,311
Short-term borrowings 30,093 36,162
Accounts payable and accrued expenses 22,669 25,234
Billings in excess of costs and estimated
earnings on uncompleted contracts 11,054 11,322
-------- --------
Total current liabilities 65,217 74,029
-------- ---------
Long-term debt less current maturities 12,209 16,301
-------- --------
Deferred tax 6,698 6,504
-------- ---------
Other non-current liabilities 2,666 3,226
-------- ---------
Stockholders' equity
Common stock 127 125
Class B capital stock 8 8
Additional paid in capital 180,674 179,955
Accumulated deficit (86,504) (86,994)
Accumulated other comprehensive income 27,540 27,237
Note receivable from stockholder (4,095) (4,095)
Treasury stock, at cost (3,718) (3,718)
-------- ----------
Total stockholders' equity 114,032 112,518
-------- ---------
$200,822 $212,578
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 2000 has been
summarized from the Company's audited Consolidated Balance sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three months Six months
ended June 30, ended June 30,
---------------- ------------------------
2001 2000 2001 2000
------- ------ ------- ---------
Sales $ 50,347 $ 50,328 $ 99,461 $ 98,128
Cost of sales 43,373 45,379 86,128 88,817
-------- -------- ------- ---------
Gross margin 6,974 4,949 13,333 9,311
Selling, general & administrative expenses (6,997) (7,579) (11,096) (12,870)
Interest expense (1,155) (1,370) (2,555) (2,660)
Investment and other income (loss), net 291 (50) 781 281
Gain on trading securities 2,203 137 427 468
Asset impairment charge - (18,474) - (18,474)
------------- --------- ------------- ---------
Income (loss) before income taxes 1,316 (22,387) 890 (23,944)
Income tax expense (582) (179) (400) (375)
---------- ---------- --------- ---------
Net income (loss) $ 734 $(22,566) $ 490 $(24,319)
========== ======== ========= ========
Net income (loss) per share:
Basic and diluted $ .06 $ (1.85) $ .04 $ (2.02)
=========== ======== ========== ==========
Dividends per share none none none none
========== =========== ========== =============
See accompanying notes to the consolidated condensed financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six months
ended June 30,
2001 2000
------ -------
Cash flows from operations:
Net income (loss) $ 490 $(24,319)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 3,042 3,583
Issuance of stock for profit incentive plan 607 754
Non-cash compensation and other expense 523 1,600
Equity (income) loss on investments (296) 229
Proceeds from sale of trading securities 9,395 616
Asset impairment charge 18,474
Gain on trading securities (427) (468)
Changes in other operating items (3,179) 208
-------- --------
Net cash provided by operating activities 10,155 677
-------- --------
Cash flows from investing activities:
Additions to property, plant & equipment (1,077) (294)
Proceeds from disposal of fixed assets 507
Reduction of investments and other assets, net 416 96
-------- ---------
Net cash used for investing activities (661) (309)
--------- --------
Cash flows from financing activities:
Repayment of short-term borrowings (6,069) (3,017)
Proceeds from sale of Class B Stock 1,200
Proceeds from MXL mortgage 1,680
Repayment of long-term debt (5,682) (1,020)
-------- -------
Net cash used for financing activities (10,071) (2,579)
-------- -------
Effect of exchange rate changes on
Cash and cash equivalents 243 125
-------- --------
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Six months
ended June 30,
2001 2000
Net decrease in cash and cash equivalents $ (334) $ (1,468)
Cash and cash equivalents at the beginning of the periods 2,487 4,068
-------- --------
Cash and cash equivalents at the end of the periods $ 2,153 $ 2,600
======== ========
Cash paid during the periods for:
Interest $ 2,172 $ 2,980
======== ========
Income taxes $ 212 $ 311
========= =========
See accompanying notes to the consolidated condensed financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Earnings per share
Income (loss) per share (EPS) for the periods ended June 30, 2001 and
2000 are as follows (in thousands, except per share amounts):
Three months Six months
ended June 30, ended June 30,
-------------------------- ---------------------------
2001 2000 2001 2000
---- ---- ---- ----
Basic and Diluted EPS
Net income (loss) $ 734 $(22,566) $ 490 $(24,319)
Weighted average shares
outstanding basic 13,089 12,178 13,046 12,043
Weighted average shares
outstanding diluted 13,141 13,098
Basic and diluted net income
(loss) per share $ .06 $ (1.85) $ .04 $ (2.02)
Basic earnings per share are based upon the weighted average number of
common shares outstanding, including Class B common shares, during the period.
Class B common stockholders have the same rights to share in profits and losses
and liquidation values as common stockholders. In 2000, even though the Company
still had stock options and warrants outstanding, diluted earnings per share was
not presented due to the Company's net loss, which made the effect of the
potentially dilutive securities anti-dilutive. For the three and six months
ended June 30, 2001, weighted average shares outstanding, assuming dilution, are
13,056,000 and 13,012,000 shares, respectively.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Long-term debt
Long-term debt consists of the following (in thousands):
June 30, December 31,
2001 2000
--------- ----------
Term loan (See Note 4) $ 7,769 $13,313
Mortgage on MXL facility 1,655
Senior subordinated debentures 708 758
Subordinated convertible note 2,640 2,640
Other 838 901
-------- -----------
13,610 17,612
Less current maturities (1,401) (1,311)
-------- ----------
$12,209 $16,301
======= =======
On March 8, 2001, MXL Industries, Inc. ("MXL"), a wholly owned subsidiary of the
Company entered into a loan secured by a mortgage covering the real estate and
fixtures on its property in Pennsylvania in the amount of $1,680,000. The loan
requires monthly repayments of $8,333 plus accrued interest and matures on March
8, 2011 with interest at 2.5% above the one month LIBOR rate. The loan is
guaranteed by the Company. The proceeds of the loan were used to repay a portion
of the Company's short-term borrowings pursuant to its amended agreement
described below in Note 4. See Note 8, Subsequent Event.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Comprehensive income (loss)
The following are the components of comprehensive income (loss) (in thousands):
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
------- -------- ------- ---------
Net income (loss) $ 734 (22,566) $ 490 $(24,319)
--------- ------- --------- --------
Other comprehensive income (loss) before tax:
Net unrealized gain (loss) on
available-for-sale-securities 14,406 (665) 191 599
Foreign currency translation adjustment 50 (120) 243 125
------------ ----------- ---------- -------
Other comprehensive income (loss),
before tax 14,456 (785) 434 724
--------- --------- ---------- ----------
Income tax (expense) benefit relating to
items of other comprehensive income (5,663) 13 (131) (44)
--------- ----------- ---------- -----------
Comprehensive income (loss), net of tax $ 9,527 $(23,338) $ 793 $(23,639)
======== ======== ========= ========
The components of accumulated other comprehensive income (loss) are as follows:
June 30, December 31,
2001 2000
--------- ---------
Net unrealized gain on
available-for-sale-securities $ 45,803 $ 45,612
Foreign currency translation adjustment (438) (681)
--------- --------
Accumulated other comprehensive income
before tax 45,365 44,931
Accumulated income tax expense related to
items of other comprehensive income (17,825) (17,694)
-------- --------
Accumulated other comprehensive income,
net of tax $ 27,540 $ 27,237
======== ========
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Short-term borrowings
The Company and General Physics Canada Ltd. (GP Canada), an Ontario corporation
and a wholly-owned subsidiary of General Physics, entered into a credit
agreement, dated as of June 15, 1998, as amended and restated as of August 31,
2000 (the "Amended and Restated Agreement") with various banks. As of June 15,
2001, the Company and GP Canada entered into the Third Amendment to the Amended
and Restated Agreement (the "Third Amendment"), which among other things, (i)
extended the maturity date of the revolving credit notes to October 15, 2001,
(ii) reduced the amount available under the revolving credit loan to
$42,000,000, (iii) amended the interest rate from LIBOR plus 2.50% to LIBOR plus
2.95% and (iv) amended certain financial covenants. The Third Amendment required
certain mandatory asset sales and refinancings by August 30, 2001, which
condition has been satisfied by the Company. The Company utilized the proceeds
from such asset sales and refinancings to reduce its term loan from $13,313,000
at December 31, 2000 to $7,769,000 at June 30, 2001. The term loan is payable in
quarterly installments of $187,500, with a final payment due on June 15, 2003.
At June 30, 2001, the amount outstanding under the revolving credit facility is
$30,093,000 and is included in Short-term borrowings in the Consolidated
Condensed Balance Sheet. At June 30, 2001, the Company had approximately
$11,000,000 available to be borrowed under the Credit Agreement and was in
compliance with all of its financial covenants.
Based upon ongoing discussions with its banks and the fact that the Company has
been in compliance with all financial covenants under its Amended and Restated
Agreement, the management of the Company believes that its credit facility will
either be further extended or refinanced by October 15, 2001, the current
expiration date of the Amended and Restated Agreement.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Business segments
The operations of the Company currently consist of the following four business
segments, by which the Company is managed.
The Company's principal operating subsidiary is General Physics Corporation
(GP). GP is a performance improvement company that assists productivity driven
organizations to maximize workforce performance by integrating people, processes
and technology. GP is a total solutions provider for strategic training,
engineering, consulting and technical support services to Fortune 1000
companies, government, utilities and other commercial customers. GP operates in
two business segments. The Manufacturing & Process Group provides technology
based training, engineering, consulting and technical services to leading
companies in the automotive, steel, power, oil and gas, chemical, energy,
pharmaceutical and food and beverage industries, as well as to the government
sector. The Information Technology Group provides IT training programs and
solutions, including Enterprise Solutions and comprehensive career training and
transition programs.
The Optical Plastics Group, which consists of MXL, manufactures and distributes
coated and molded plastic products.
The Hydro Med Group consists of Hydro Med Sciences, a drug delivery company
which is engaged in Phase III clinical trials for the treatment of prostate
cancer.
Financial information for the three and six months ended June 30, 2000 has been
restated to show all information for the Manufacturing Services Group and
Process and Energy Group that were combined into the Manufacturing and Process
Group.
The management of the Company does not allocate the following items by segment:
Investment and other income, net, interest expense, selling, general and
administrative expenses, depreciation and amortization expense, income tax
expense, significant non-cash items and long-lived assets. There are deminimis
inter-segment sales. The reconciliation of gross margin to net income (loss) is
consistent with the presentation on the Consolidated Condensed Statements of
Operations.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Business segments (Continued)
The following tables set forth the sales and gross margin of each of the
Company's operating segments (in thousands):
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
------- -------- ------- -------
Sales
Manufacturing and Process $44,496 $40,089 $87,333 $77,083
Information Technology 2,888 7,241 6,106 14,989
Optical Plastics 2,962 2,958 6,019 5,916
Hydro Med and Other 1 40 3 140
------------ --------- ---------- -----------
$50,347 $50,328 $99,461 $98,128
------- ------- ------- -------
Gross margin
Manufacturing and Process $ 5,848 $ 5,457 $ 11,206 $ 9,956
Information Technology 449 (1,187) 768 (2,005)
Optical Plastics 822 807 1,660 1,601
Hydro Med and Other (145) (128) (301) (241)
--------- ---------- -------- ----------
$ 6,974 $ 4,949 $13,333 $ 9,311
------- ------- ------- -------
Information about the Company's net sales in different geographic regions, which
are attributed to countries based on location of customers, is as follows (in
thousands):
Three months ended Six months ended
June 30, June 30,
------------------------ ---------------------
2001 2000 2001 2000
------- --------- --------- -------
United States $46,740 $43,072 $92,125 $83,100
Canada 890 2,922 1,956 6,027
United Kingdom 1,641 3,123 3,400 6,761
Latin America 1,076 1,211 1,980 2,240
-------- --------- ------- ----------
$50,347 $50,328 $99,461 $98,128
------- ------- ------- -------
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Business segments (Continued)
Information about the Company's identifiable assets in different geographic
regions, is as follows (in thousands):
June 30, December 31,
2001 2000
-------- -----------
United States $190,998 $205,797
Canada 4,111 3,371
United Kingdom 2,734 1,928
Latin America and other 2,979 1,482
---------- --------
$200,822 $212,578
-------- --------
6. Asset impairment charge and restructuring charges
During 1999, the Company adopted restructuring plans, primarily related to its
IT Business segment. The Company took steps in order to change the focus of the
IT group from open enrollment information technology training courses to project
oriented work for corporations, which was consistent with the focus of General
Physics Corporation's (GP) current business. In connection with the
restructuring, the Company recorded a charge of $7,374,000 in 1999.
The Company believed at that time that the strategic initiatives and cost
cutting moves taken in 1999 and the first quarter of 2000 would enable the IT
Group to return to profitability in the last six months of 2000. However, those
plans were not successful, and the Company determined that it could no longer
bring the open enrollment IT business to profitability. Additionally there had
been further impairment to intangible and other assets. In July 2000, as a
result of the continued operating losses incurred by the IT Group, as well as
the determination that revenues would not increase to profitable levels, the
Company decided to close its open enrollment IT business in the third quarter of
2000. As a result, the Company recorded asset impairment charges of $19,245,000
during the year ended December 31, 2000, related to write-offs of intangible
assets, property, plant and equipment, and other assets of the IT Group.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Asset impairment charge and restructuring charges (Continued)
In addition, the Company recorded an $8,630,000 restructuring charge, net of
reversals, in 2000. During the period ended June 30, 2001 and the year ended
December 31, 2000, the Company utilized $2,120,000 (including current period
adjustments of $374,000) and $3,884,000, respectively, and reversed $774,000 and
$180,000, respectively. These reversals are included in Selling, general and
administrative expenses in the Consolidated Condensed Statement of Operations
for the period ended June 30, 2001. Of the remaining $4,345,000 balance at June
30, 2001 and $6,865,000 at December 31, 2000, $1,685,000 and $3,639,000,
respectively, were included in Accounts payable and accrued expenses and
$2,660,000 and $3,226,000, respectively, were included in Other non-current
liabilities in the Consolidated Condensed Balance Sheet.
The components of the 2001 and 2000 restructuring charges are as follows (in
thousands):
Severance Lease and
and related related Contractual Other
benefits obligations obligations costs Total
- --------------------------------------------------------------------------------------------------------------------
Balance December 31, 2000 $ 142 $ 5,298 $ 1,425 $ - $ 6,865
- --------------------------------------------------------------------------------------------------------------------
Utilization (196) (1,399) (316) (209) (2,120)
Reversal of restructuring
charges during 2001 (373) (401) (774)
Other Adjustments
during 2001 81 29 55 209 374
- --------------------------------------------------------------------------------------------------------------------
Balance June 30, 2001 $ 27 $ 3,555 $ 763 $ - $ 4,345
- --------------------------------------------------------------------------------------------------------------------
The remaining amounts that had been accrued for severance and related benefits
and contractual obligations will be expended by December 31, 2001. Lease
obligations are presented at their present value, net of assumed sublets.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Litigation
On January 4, 2001, the Company commenced an action alleging that MCI
Communications Corporation, Systemhouse, and Electronic Data Systems
Corporation, as successor to Systemhouse, committed fraud in connection with the
Company's 1998 acquisition of Learning Technologies from the defendants for
$24.3 million. The Company seeks actual damages in the amount of $117.9 million
plus interest, punitive damages in an amount to be determined at trial, and
costs. In February 2001, the defendants filed answers denying liability. No
counterclaims against the plaintiffs have been asserted. The case is currently
in discovery.
The complaint, which is pending in the New York State Supreme Court, alleges
that the defendants created a doctored budget to conceal the poor performance of
the United Kingdom operation of Learning Technologies. The complaint also
alleges that the defendants represented that Learning Technologies would
continue to receive business from Systemhouse even though defendants knew that
the sale of Systemhouse to EDS was imminent and that such business would cease
after such sale.
8. Subsequent Event
On July 3, 2001, MXL, a wholly owned subsidiary of the Company entered into a
loan secured by a mortgage covering the real estate and fixtures on its property
in Illinois in the amount of $1,250,000. The loan requires monthly payments of
principal and interest in the amount of $11,046 and matures on June 26, 2006
with interest at a fixed rate of 8.75% per annum. The loan is guaranteed by the
Company. The proceeds of the loan were used to repay a portion of the Company's
term loan pursuant to its Amended and Restated Agreement described above in Note
4.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Overview
During the first three quarters of 2000, the Company had five operating business
segments. However, in the fourth quarter of 2000, as a result of organizational
and operational changes at General Physics and the shut down of the IT open
enrollment business in the third quarter of 2000, the Company combined the
Manufacturing Services Group with the Process and Energy Group. The discussion
and disclosure that follows assumes that the Manufacturing Services Group and
the Process & Energy segments were combined as of January 1, 2000 to form the
Manufacturing & Process Group. Two of these segments, the Manufacturing &
Process Group and the IT Group, are managed through the Company's principal
operating subsidiary General Physics, the third through its operating subsidiary
MXL Industries and the fourth through its subsidiary Hydro Med Sciences. In
addition, the Company holds a number of investments in publicly held companies,
including publicly traded stock in Millennium Cell Inc.
General Physics is a performance improvement company that assists productivity
driven organizations to maximize workforce performance by integrating people,
processes and technology. General Physics is a total solution provider for
strategic training, engineering, consulting and technical support services to
Fortune 1000 companies, government, utilities and other commercial customers.
General Physics consists of two segments: the Manufacturing & Process Group and
the IT Group.
For the quarter ended June 30, 2001, the Company had income before income taxes
of $1,316,000 compared to loss before income taxes of $22,387,000 for the
quarter ended June 30, 2000. The income in the second quarter of 2001 was
attributable to the $2,203,000 gain primarily from the sale of securities of
Millennium Cell Inc., offset by a non-cash expense of $872,000 relating to the
Company's Deferred Compensation Plan. The income before income taxes for the
second quarter of 2001 also included approximately $300,000 (of which $250,000
was non-cash) relating to fees and options granted to a financial consultant.
The loss before income taxes in the second quarter of 2000 was primarily due to
the operating losses incurred by the now closed open enrollment IT Group, which
included an Asset Impairment charge of $18,474,000. In addition, in the 2nd
quarter of 2000, the Company also recorded a non-cash expense of $1,600,000
relating to the Company's Deferred Compensation Plan. The Manufacturing and
Process Group had increased operating profits in the quarter ended June 30,
2001, compared to the quarter ended June 30, 2000 due to increased sales offset
by a slight decrease in gross margin percentage.
For the six months ended June 30, 2001, the Company had income before income
taxes of $890,000 compared to a loss before income taxes of $23,944,000 for the
six months ended June 30, 2000. The six months ended June 30, 2001 included a
$427,000 gain from trading securities and a non-cash credit of $273,000 relating
to the Company's Deferred Compensation Plan. The six months ended June 30, 2000
loss was primarily due to the operating losses and an Asset Impairment charge of
$18,474,000 relating to the now closed open enrollment IT Group and a non-cash
compensation expense of $1,600,000.
Three months ended Six months ended
June 30, June 30,
---------------------------- ----------------------
2001 2000 2001 2000
------- -------- ------- -------
Sales
Manufacturing and Process $44,496 $40,089 $87,333 $77,083
Information Technology 2,888 7,241 6,106 14,989
Optical Plastics 2,962 2,958 6,019 5,916
Hydro Med and Other 1 40 3 140
------------ --------- ---------- -----------
$50,347 $50,328 $99,461 $98,128
------- ------- ------- -------
For the quarter and six months ended June 30, 2001, sales increased by $19,000
to $50,347,000 from $50,328,000 and $1,333,000 from $98,128,000 to $99,461,000,
respectively, from the corresponding periods in 2000. The increased sales in
2001 within the Manufacturing & Process Group was primarily due to increased
sales from GP's e-Learning subsidiary as well as increased sales from utility
customers. However, for the quarter and six months ended June 30, 2001, these
increases were largely offset by reduced sales in the IT Group resulting from
the Company's decision to close the open enrollment business in the third
quarter of 2000 and focus on providing training for Fortune 1000 manufacturing
and process clients.
Three months ended Six months ended
June 30, June 30,
2001 % 2000 % 2001 % 2000 %
------- ----- -------- ----- ------- ----- ------- -----
Gross margin
Manufacturing and Process $ 5,848 13.1 $ 5,457 13.6 $11,206 12.8 $ 9,956 12.9
Information Technology 449 15.5 (1,187) - 768 12.6 (2,005) -
Optical Plastics 822 27.8 807 27.3 1,660 27.6 1,601 27.1
Hydro Med and Other (145) - (128) - (301) - (241) -
-------- ------ ---------------- ------- ------ -------- ------
$ 6,974 13.9 $ 4,949 9.8 $13,333 13.4 $ 9,311 9.5
------- ---- ------- ---- ------- ---- ------- ----
Consolidated gross margin of $6,974,000 or 13.9% of sales, for the quarter ended
June 30, 2001, increased by $2,025,000 compared to the consolidated gross margin
of $4,949,000, or 9.8% of sales, for the quarter ended June 30, 2000. For the
six months ended June 30, 2001, gross margin increased by $4,022,000 from
$9,311,000 to $13,333,000. The increased gross margin in both the quarter and
the six months ended June 30, 2001 occurred as a result of increased sales in
the Manufacturing and Process Group, which was offset by a slight reduction in
the gross margin percentage. In addition, the negative gross margin incurred by
the IT Group in 2000 was eliminated when the open enrollment IT business closed
in the third quarter of 2000.
Selling, general and administrative expenses
For the quarter ended June 30, 2001, selling, general and administrative (SG&A)
expenses were $6,997,000 compared to $7,579,000 in the second quarter of 2000.
The reduction in SG&A of $582,000 in 2001 is attributable to the closing of the
Company's open enrollment IT operations offset by a non-cash expense of
$1,600,000 (as compared to $273 for the period ended June 30, 2001) relating to
the Company's Deferred Compensation Plan. For the six months ended June 30,
2001, Selling, general and administrative expenses was reduced by $1,774,000
from $12,870,000 to $11,096,000 primarily the result of the $1,600,000 charge
for the period ending June 30, 2000 relating to the Company's Deferred
Compensation Plan (as compared to $273 for the period ended June 30, 2001).
Interest expense
For the quarter ended June 30, 2001, interest expense was $1,155,000 compared to
$1,370,000 for the quarter ended June 30, 2000. The decreased interest expense
in 2001 was attributable to both a decrease in the Company's outstanding
indebtedness and a reduction in variable interest rates. For the six months
ended June 30, 2001, there was a decrease in interest expenses of $105,000 from
$2,660,000 to $2,555,000 due to the reduction of indebtedness in the second
quarter.
Investment and other income (loss), net
For the three and six months ended June 30, 2001, investment and other income
(loss), net was $291,000 and $781,000 as compared to $(50,000) and $281,000 for
the quarter and six months ended June 30, 2000. The increase in investment and
other income was primarily attributable to increased equity income recognized on
investments in 20% to 50% owned companies.
Income tax expense
For the quarter and six months ended June 30, 2001, the Company recorded an
income tax expense of $582,000 and $400,000, which represents the Company's
estimated effective federal, state and local, and foreign tax rate. In the
quarter and six months ended June 30, 2000, the Company recorded an income tax
expense of $179,000 and $375,000, which represents the applicable federal, state
and local, and foreign tax expense for these periods.
Liquidity and capital resources
At June 30, 2001, the Company had cash and cash equivalents totaling $2,153,000.
The Company has sufficient cash and cash equivalents, long-term investments and
borrowing availability under existing and potential lines of credit as well as
the ability to obtain additional funds from its operating subsidiaries in order
to fund its working capital requirements.
For the period ended June 30, 2001, the Company's working capital decreased by
$1,790,000 to a net working capital deficit of $371,000, primarily reflecting
the effect of decreases in Accounts and other receivables, offset by reductions
in Accounts payable and accrued expenses.
The decrease in cash and cash equivalents of $334,000 for the six months ended
June 30, 2001 resulted from cash provided by operations of $10,155,000 offset by
cash used for financing activities of $10,071,000. Cash used in financing
activities consisted primarily of repayments of short-term borrowings and the
long-term debt, partially offset by proceeds from the MXL mortgage.
Based upon the ongoing discussions with its banks and the fact that the Company
has been in compliance with all financial covenants under its amended and
restated agreement, the management of the Company believes that the credit
facility agreement will be either extended or refinanced by October 15, 2001
(See Note 4).
Recent accounting pronouncements
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.
As of the date of adoption, the Company expects to have unamortized goodwill in
the amount of approximately $56,000,000 and unamortized identifiable intangible
assets in the amount of approximately $1,000,000 both of which will be subject
to the transition provisions of Statements 141 and 142. Amortization expense
related to goodwill was approximately $2,800,000 and $1,300,000 for the year
ended December 31, 2000 and the six months ended June 30, 2001, respectively.
Because of the extensive effort needed to comply with adopting Statements 141
and 142, it is not practicable to reasonably estimate the impact of adopting
these Statements on the Company's financial statements at the date of this
report, including whether any transitional impairment losses will be required to
be recognized as the cumulative effect of a change in accounting principle.
Adoption of a Common European Currency
On January 1, 1999, eleven European countries adopted the Euro as their common
currency. From that date until January 1, 2002, debtors and creditors may choose
to pay or to be paid in Euros or in the former national currencies.
On and after January 1, 2002, the former national currencies will cease to be
legal tender.
The Company is currently reviewing its information technology systems and
upgrading them as necessary to ensure that they will be able to convert among
the former national currencies and the Euro, and process transactions and
balances in Euros, as required. The Company has sought and received assurances
from the financial institutions with which it does business that they will be
capable of receiving deposits and making payments both in Euros and in the
former national currencies. The Company does not expect that adapting its
information technology systems to the Euro will have a material impact on its
financial condition or results of operations. The Company is also reviewing
contracts with customers and vendors calling for payments in currencies that are
to be replaced by the Euro, and intends to complete in a timely way any required
changes to those contracts.
Adoption of the Euro is likely to have competitive effects in Europe, as prices
that had been stated in different national currencies become directly comparable
to one another. In addition, the adoption of a common monetary policy throughout
the countries adopting the Euro can be expected to have an effect on the economy
of the region. These competitive and economic effects cannot be predicted with
certainty, and there can be no assurance that they will not have a material
effect on the Company's business in Europe.
Forward-looking statements
The forward-looking statements contained herein reflect GP Strategies'
management's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements, all of which are difficult to predict and many
of which are beyond the control of GP Strategies, including, but not limited to
those risks and uncertainties detailed in GP Strategies' periodic reports and
registration statements filed with the Securities and Exchange Commission.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
June 30, 2001
The financial information included herein is unaudited. In addition, the
financial information does not include all disclosures required under generally
accepted accounting principles because certain note information included in the
Company's Annual Report has been omitted; however, such information reflects all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods. The results for the 2001 interim period are not necessarily
indicative of results to be expected for the entire year.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10. Employment Agreement dated as of May 1, 2001
between the Company and Andrea Dale Kantor.
10.1 Third Amendment to Amended and Restated Credit
Agreement dated as of June 15, 2001 among GP Strategies
Corporation, General Physics Canada LTD and Fleet National
Bank (f/k/a/ Fleet Bank, National Association) as agent to the
Lenders and as Issuing Bank.
b. Reports
None
GP STRATEGIES CORPORATION AND SUBSIDIARIES
June 30, 2001
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
GP STRATEGIES CORPORATION
DATE: August 14, 2001 Jerome I. Feldman
Chief Executive Officer
DATE: August 14, 2001 Scott N. Greenberg
President &
Chief Financial Officer