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 March 31, 2002
[ ] 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
May 17, 2002:
Common Stock 14,616,084 shares
Class B Capital 1,200,000 shares
GP STRATEGIES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
March 31, 2002 and December 31, 2001 1
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 2002 and 2001 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 2002 and 2001 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Qualification Relating to Financial Information 24
Part II. Other Information 25
Signatures 26
PART I. FINANCIAL INFORMATION
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
2002 2001
---------- -----------
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 1,665 $ 1,705
Accounts and other receivables 41,841 41,610
Inventories 1,658 1,734
Costs and estimated earnings
in excess of billings on uncompleted contracts 9,132 8,579
Prepaid expenses and other current assets 4,386 3,780
---------- -----------
Total current assets 58,682 57,408
--------- ----------
Investments, advances and marketable securities 24,626 30,400
---------- ----------
Property, plant and equipment, net 8,373 8,718
---------- -----------
Intangible assets, net of accumulated amortization
of $35,066 and $35,031 56,856 56,846
---------- ----------
Deferred tax asset 6,185 4,289
---------- -----------
Other assets 5,899 6,230
---------- -----------
$160,621 $163,891
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 2001 has been
summarized from the Company's audited Consolidated Balance Sheet as of that
date. Certain amounts in the Balance Sheet as of December 31, 2002 and notes
thereto, have been reclassified to conform to the 2002 classification.
See accompanying notes to the consolidated condensed financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
March 31, December 31,
2002 2001
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities
Current maturities of long-term debt $ 579 $ 637
Short-term borrowings 29,496 32,338
Accounts payable and accrued expenses 20,517 17,089
Billings in excess of costs and estimated
earnings on uncompleted contracts 9,211 10,094
--------- ---------
Total current liabilities 59,803 60,158
-------- ---------
Long-term debt less current maturities 6,106 6,226
--------- ----------
Other non-current liabilities 1,201 1,564
---------- ----------
Stockholders' equity
Common stock 128 128
Class B capital stock 9 9
Additional paid in capital 180,363 180,078
Accumulated deficit (87,734) (87,939)
Accumulated other comprehensive income 5,442 8,364
Note receivable from stockholder (4,095) (4,095)
Treasury stock, at cost (602) (602)
--------- -----------
Total stockholders' equity 93,511 95,943
--------- ---------
$160,621 $163,891
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 2001 has been
summarized from the Company's audited Consolidated Balance sheet as of that
date. Certain amounts in the Balance Sheet as of December 31, 2002 and notes
thereto, have been reclassified to conform to the 2002 classification.
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
ended March 31,
--------------------------
2002 2001
---------- -----------
Sales $ 40,226 $ 49,114
Costs of sales 34,778 42,755
--------- --------
Gross margin 5,448 6,359
Selling, general and administrative expenses (4,540) (4,472)
Interest expense (754) (1,400)
Investment and other (loss) income, net (435) 490
Gain (loss) on marketable securities 440 (1,776)
Restructuring charge reversal 214 373
---------- ----------
Income (loss) before income taxes 373 (426)
Income tax (expense) benefit (168) 182
--------- ----------
Net income (loss) $ 205 $ (244)
========= =========
Net income (loss) per share
Basic $ .01 $ (.02)
---------- ---------
Diluted $ .01 $ (.02)
---------- ---------
See accompanying notes to the consolidated condensed financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three months
ended March 31,
------------------------------
2002 2001
----------- ----------
Cash flows from operating activities:
Net income (loss) $ 205 $ (244)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Issuance of stock for profit incentive plan 200 305
Restructuring charge reversal (214) (373)
Depreciation and amortization 671 1,550
Non-cash compensation consultant fees 125
(Gain) loss on marketable securities (440) 1,776
Loss (income) on equity investments 575 (241)
Changes in other operating items 847 (4,955)
--------- --------
Net cash provided by (used in) operating activities 1,969 (2,182)
-------- ------------
Cash flows from investing activities:
Proceeds from sale of marketable securities 561 1,608
Additions to property, plant and equipment (116) (445)
Reduction in investments and
other assets, net 419 777
--------- ---------
Net cash provided by investing activities 864 1,940
--------- --------
Cash flows from financing activities:
Net repayments of short-term
borrowings (2,842) (1,882)
Payments of long-term debt (178) (296)
Proceeds from MXL mortgage 1,680
----------- ---------
Net cash used in financing activities (3,020) (498)
-------- ---------
Effect of exchange rate
changes on cash and cash equivalents 147 193
---------- ----------
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Three months
ended March 31,
----------------------------
2002 2001
-------- ---------
Net decrease in cash and cash
equivalents $ (40) $ (547)
Cash and cash equivalents at the
beginning of the periods 1,705 2,487
--------- ---------
Cash and cash equivalents at the end
of the periods $ 1,665 $ 1,940
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 536 $ 1,173
========= ========
Income taxes $ 144 $ 109
========= =========
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
Earnings (loss) per share (EPS) for the periods ended March 31, 2002
and 2001 are as follows (in thousands, except per share amounts):
Three months
ended March 31,
2002 2001
----------- ----------
Basic and diluted EPS
Net income (loss) $ 205 $ (244)
Weighted average shares
outstanding basic 13,666 12,917
-------- --------
Weighted average shares
outstanding diluted 13,695 12,917
-------- --------
Basic and diluted net income (loss)
per share $ .01 $ (.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 stock holders. Diluted earnings per share is based
upon the weighted average number of common shares outstanding during the period,
assuming the issuance of common shares for all dilutive potential common shares
outstanding. For the three months ended March 31, 2001, even though the Company
has stock options and warrants outstanding, diluted earnings per share is the
same as basic earnings per share due to the Company's net loss, which makes the
effect of such securities anti-dilutive.
At March 31, 2002, the Company had a put option obligation of $270,000. The
addition of $30,000 for the three-month period ended March 31, 2002 is deemed to
be a dividend for purposes of the basic and diluted loss per share calculation.
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):
March 31, December 31,
2002 2001
--------- ----------
Mortgage on MXL Pennsylvania facility $ 1,580 $ 1,605
Mortgage on MXL Illinois facility 1,231 1,237
Senior subordinated debentures 599 641
Subordinated convertible note 2,640 2,640
Other 635 740
--------- -----------
6,685 6,863
Less current maturities (579) (637)
--------- ----------
$ 6,106 $ 6,226
======== ========
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.
On July 3, 2001, MXL entered into a loan in the amount of $1,250,000, secured by
a mortgage covering the real estate and fixtures on its property in Illinois.
The loan requires monthly payments of principal and interest in the amount of
$11,046 with interest at a fixed rate of 8.75% per annum, and matures on June
26, 2006, when the remaining amount outstanding of approximately $1,100,000 is
due in full. 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
Agreement described in Note 4.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Comprehensive loss
The following are the components of comprehensive loss (in thousands):
Three months
ended March 31,
2002 2001
--------- --------
Net income (loss) $ 205 $ (244)
-------- --------
Other comprehensive loss before tax:
Net unrealized loss on
available-for-sale-securities (5,004) (14,215)
Foreign currency translation adjustment 147 193
---------- ----------
Other comprehensive loss, before tax (4,857) (14,022)
Income tax benefit relating to items
of other comprehensive income 1,935 5,532
---------- ---------
Comprehensive loss, net of tax $ (2,717) $ (8,734)
========= =========
The components of accumulated other comprehensive income, net are as follows:
March 31, December 31,
2002 2001
------- ----------
Net unrealized gain on
available-for-sale-securities $ 9,806 $14,810
Foreign currency translation adjustment (510) (657)
--------- ---------
Accumulated other comprehensive income
before tax 9,296 14,153
Accumulated income tax expense related to
items of other comprehensive income (3,854) (5,789)
-------- --------
Accumulated other comprehensive income,
net of tax $ 5,442 $ 8,364
======== ========
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Short-term borrowings
The Company and certain of its wholly owned subsidiaries entered into an Amended
and Restated secured $40,000,000 Revolving Credit Agreement (the "Amended
Agreement") with various banks on December 14, 2001 which amended in its
entirety the Company's former credit facility as discussed below. The Amended
Agreement reduced the commitment pursuant to the revolving facility to
$40,000,000 (subject to borrowing base limitations specified in the Amended
Agreement). The interest rates on the revolving credit facility are currently at
prime plus 1.50% and Eurodollar plus 3.00%, at the Company's option. Based upon
the financial performance of the Company, the interest rates can be reduced. The
Amended Agreement is secured by all of the receivables and inventory of the
Company as well as the common stock of the Company's material domestic
subsidiaries and 65% of the common stock of the Company's foreign subsidiaries.
The Amended Agreement also provides for additional security consisting of
certain real property, personal property and substantially all marketable
securities owned by the Company and its subsidiaries. The Amended Agreement
contains revised minimum consolidated net worth, fixed charge coverage, leverage
ratio and interest coverage ratio. The Amended Agreement also contains certain
restrictive covenants, including the prohibition on future acquisitions, and
provides for mandatory prepayment upon the occurrence of certain events. At
March 31, 2002, the amount outstanding under the revolving credit facility is
$29,361,000 and is included in short-term borrowings in the Consolidated
Condensed Balance Sheet. At March 31, 2002, the Company had $6,853,000 available
to be borrowed under the Credit Agreement and was in compliance with all
financial covenants.
5. Business segments
Effective January 1, 2002, the operations of the Company currently consist of
three business segments, by which the Company is managed.
The Company's principal operating subsidiary is General Physics Corporation
(GP). GP is a workforce development company that improves the effectiveness of
organizations by providing training, management systems and engineering services
to meet the specific needs of clients. Programs have been developed for service
managers and executives, engineers, sales associates, plant operators, the
maintenance and purchasing workforces and information technology professionals
in the public and private sectors in North and South America, Europe and Asia.
Clients include Fortune 500 companies, manufacturing, process and energy
industries, and other commercial and government customers. GP operates in two
business segments.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Business segments (continued)
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 and Other Group consisted of Hydro Med Sciences (HMS), a drug
delivery company, which is engaged in Phase III clinical trials for the
treatment of prostrate cancer. As part of a private placement transaction of
preferred stock that was completed on December 27, 2001, the Company no longer
has financial and operational control of HMS. Therefore, for the year ended
December 31, 2001 the operating results of HMS were consolidated within the
Consolidated Condensed Statement of Operations. However, effective January 1,
2002 and as a result of this private placement transaction, the Hydro Med and
Other Group no longer exists as a business segment of the Company. Effective
December 27, 2001, the Company currently accounts for its investment in HMS
under the equity method.
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 March 31,
2002 2001
--------- ----------
Sales
Manufacturing & Process $35,165 $42,837
Information Technology 2,305 3,218
Optical Plastics 2,756 3,057
Hydro Med and Other 2
-------- -----------
$40,226 $49,114
------- -------
Gross margin
Manufacturing & Process $ 4,590 $ 5,358
Information Technology 312 319
Optical Plastics 546 838
Hydro Med and Other (156)
-------- ---------
$ 5,448 $ 6,359
------- -------
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 March 31,
2002 2001
--------- ----------
United States $ 37,579 $ 45,385
Canada 299 1,066
United Kingdom 1,773 1,759
Latin America and other 575 904
-------- ---------
$ 40,226 $ 49,114
-------- --------
Information about the Company's identifiable assets in different geographic
regions, is as follows (in thousands):
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Business segments (continued)
March 31, December 31,
2002 2001
------------ ------------
United States $151,594 $154,844
Canada 3,626 3,653
United Kingdom 2,833 2,821
Latin America and other 2,568 2,573
---------- ---------
$160,621 $163,891
-------- --------
6. Restructuring charges
During 1999 and 2000, the Company adopted restructuring plans, primarily related
to its IT business segment. During the period ended March 31, 2002 and the year
ended December 31, 2001, the Company utilized $337,000 and $2,965,000,
respectively and reversed $214,000 and $1,174,000, respectively. Of the
remaining total restructuring balance of $2,175,000 at March 31, 2002 and
$2,726,000 at December 31, 2001, $974,000 and $1,162,000, respectively, were
included in Accounts payable and accrued expenses and $1,201,000 and $1,564,000,
respectively, were included in Other non-current liabilities in the Consolidated
Condensed Balance Sheet.
The components of the restructuring charge reserve are as follows (in
thousands):
Lease and
related Contractual
obligations obligations Total
- -------------------------------------------------------------------------------
Balance December 31, 2001 $ 2,374 $ 352 $ 2,726
- -----------------------------------------------------------------------------
Utilization (337) - (337)
Reversal of restructuring
charges during 2002 (214) (214)
- ------------------------------------------------------------------------------
Balance March 31, 2002 $ 1,823 $ 352 $ 2,175
- -----------------------------------------------------------------------------
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. Recently adopted accounting standards
Effective January 1, 2002, the Company adopted FASB Statement No. 141,
Business Combinations, and Statement No. 142, Goodwill and Other Intangible
Assets. Statement No. 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
No. 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 No. 142 requires 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 No. 142. Statement No. 142 also requires 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. The Company had unamortized
goodwill in the amount of $56,000,000. The Company is currently evaluating the
impact of the adoption of this statement, however, at the date of this report it
is not practicable to reasonabley estimate whether any transitional impairment
losses will be required to be recognized at the cumulative effect ofa change in
accounting principle.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Recently adopted accounting standards (continued)
The changes in the carrying amount of acquired intangible assets for the
three-month period ended March 31, 2002 are as follows:
Manufacturing & Information Optical
Process Technology Plastics Corporate Total
Intangible assets:
Balance as of:
December 31, 2001 $25,411 $ 7,471 $ 394 $35,358 $68,634
Additions 71 71
Other (29) (29)
- ------------------------------------------------------------------------------------------------------------
March 31, 2002 $25,482 $ 7,442 $ 394 $35,358 $68,676
- ------------------------------------------------------------------------------------------------------------
Manufacturing & Information Optical
Process Technology Plastics Corporate Total
Accumulated Amortization:
Balance as of:
December 31, 2001 $ 6,219 $ 1,337 $ 207 $ 4,025 $11,788
Amortization expense 4 10 14
Other 21 (5) 2 18
- ------------------------------------------------------------------------------------------------------------
March 31, 2002 $ 6,240 $ 1,332 $ 213 $ 4,035 $11,820
- ------------------------------------------------------------------------------------------------------------
Balance as of
March 31, 2002 $19,242 $ 6,110 $ 181 $31,323 $56,856
============================================================================================================
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Recently adopted accounting standards (continued)
The components of acquired intangible assets as of March 31, 2002 are as
follows:
Manufacturing & Information
Process Technology Optical Plastics Corporate
Gross Gross Gross Gross Gross
Carrying Accumulated Carrying Accumulated Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization Amount Amortization Amount Amortization
- -----------------------------------------------------------------------------------------------------------------------------------
Goodwill $25,482 $ 6,240 $7,442 $1,332 $394 $213 $35,200 $3,908
Other 158 127
- -----------------------------------------------------------------------------------------------------------------------------------
Balance as of
March 31, 2002 $25,482 $6,240 $7,442 $1,332 $394 $213 $35,358 $4,035
===================================================================================================================================
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Recently Adopted Accounting Standards (Continued)
Summarized below is pro forma net income (loss) and earnings per share for the
three months ended March 31, 2001 as adjusted for amortization expense that is
no longer recorded in accordance with Statement No. 142 and net of the related
income tax effect is as follows:
Net Income (loss) Bacis & Diluted EPS
Reported $(244) $(.02)
Add: amortization adjustment 433 .03
----- ------
Adjusted $189 $0.01
==== =====
Effective January 1, 2002, the Company adopted Statement No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, which supersedes both Statement
121 and the accounting and reporting provisions of APB Opinion No. 30, Reporting
the Results of Operations- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions (Opinion No. 30), for the disposal of a segment of a business (as
previously defined in that Opinion). Statement No. 144 retains the fundamental
provisions in Statement No. 121 for recognizing and measuring impairment losses
on long-lived assets held for use and long-lived assets to be disposed of by
sale, while also resolving significant implementation issues associated with
Statement No. 121. Statement No. 144 retains the basic provisions of Opinion No.
30 on how to present discontinued operations in the income statement but
broadens that presentation to include a component of an entity (rather than a
segment of a business). The adoption of Statement No. 144 did not have a
material impact on the Company's financial statements because impairment
assessments under Statement No. 144 are largely unchanged from Statement No.
121. The provisions of Statement No. 144 generally are required to be applied
prospectively after the adoption date to newly initiated disposal activities.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
8. Litigation
On January 3, 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.
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. In February 2001, the defendants filed answers denying
liability. No counterclaims against the plaintiffs have been asserted. Although,
discovery has not yet been completed, defendants have made a motion for summary
judgment which was submitted on April 15, 2002. The motion is under judicial
consideration.
9. Subsequent events
Pursuant to an agreement dated May 3, 2002, the Company agreed to sell
1,200,000 shares of Common Stock (the "Bedford Common Shares") of the Company
for an aggregate purchase price of $4,200,000 to Bedford Oak in a private
placement transaction. On May 3, 2002, the Company sold 690,000 of the Bedford
Common Shares for $2,415,000 and, promptly after the approval of stockholders,
will sell the remaining 510,000 Bedford Common Shares for $1,785,000. The
Company is required, at its expense, to file, not later than September 30, 2002,
a registration statement to register under the Securities Act of 1933, as
amended (the Securities Act) the resale by Bedford Oak of the Bedford Common
Shares, and to use its commercially reasonable efforts to cause the Registration
Statement to become effective under the Securities Act on the earliest possible
date.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
9. Subsequent events (continued)
Pursuant to an agreement dated May 3, 2002, the Company sold 100,000 shares of
Common Stock (the "Geller Common Shares") of the Company for an aggregate
purchase price of $350,000 to Marshall Geller, a director of the Company, in a
private placement transaction. The Company is required, at its expense, to file,
not later than September 30, 2002, a registration statement to register under
the Securities Act the resale by Mr. Geller of the Geller Common Shares, and to
use its commercially reasonable efforts to cause the Registration Statement to
become effective under the Securities Act on the earliest possible date.
Pursuant to an agreement dated May 3, 2002 (the "EGI Agreement"), the Company
sold to Equity Group Investments, L.L.C ("EGI") in a private placement
transaction 1,000,000 shares of Common Stock (the "EGI Common Shares") of the
Company for an aggregate purchase price of $3,500,000 and 300,000 shares of
Class B Stock (the "EGI Class B Shares") of the Company for an aggregate
purchase price of $1,260,000.
Until such time as EGI has disposed of more than 50% of the aggregate number of
EGI Common Shares and EGI Class B Shares, EGI is entitled to designate one
representative to serve as a member of the Board, subject to the approval of the
Company, which approval shall not be unreasonably denied or delayed. The initial
designee of EGI is Mr. Mark Radzik.
Upon the disposition of any of the EGI Class B Shares (other than to an
affiliate of EGI or to a transferee approved by the Board who in each case
agrees to be bound by the provisions of the EGI Agreement), EGI is required to
exercise the right to convert all of the EGI Class B Shares then owned by EGI
into an equal number of shares of Common Stock (the "EGI Underlying Shares") of
the Company. Until May 3, 2003, the Company has the right to purchase all, but
not less than all, of the EGI Class B Shares then owned by EGI at a price per
share equal to the greater of (i) the 90 day trailing average of the closing
prices of the Common Stock and (ii) $5.25. If the Company exercises such right,
EGI has the right to sell to the Company all or part of the EGI Common Shares
then owned by EGI at a price per share of $3.50. If EGI exercises such right and
the Company does not then have adequate liquidity, the repurchase of such EGI
Common Shares may take place over a period of 21 months.
The Company is required, at its expense, to file, not later than August 1, 2002,
a registration statement to register under the Securities Act the resale by EGI
of the EGI Common Shares and the EGI Underlying Shares, and to use its
reasonable efforts to cause such registration statement to become effective
under the Securities Act.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
9. Subsequent events (Continued)
The Company and EGI have entered into an advisory services agreement providing
that, to the extent requested by the Company and deemed appropriate by EGI, EGI
shall assist the Company in developing, identifying, evaluating, negotiating,
and structuring financings and business acquisitions. The Company has agreed to
pay EGI a transaction fee equal to 1% of the proceeds received by the Company in
a financing, or of the consideration paid by the Company in a business
acquisition, in respect of which EGI has provided material services.
Until November 3, 2003, EGI has agreed not to (a) effect, propose to effect, or
participate in (i) any acquisition of any assets of the Company or any of its
subsidiaries; (ii) any tender or exchange offer, merger, or other business
combination involving the Company or any of its subsidiaries not approved by the
Board; (iii) any recapitalization, restructuring, liquidation, dissolution,
reverse stock split, or other extraordinary transaction with respect to the
Company or any of its subsidiaries not approved by the Board; or (iv) any
solicitation of a proxy to vote any voting securities of the Company; (b) form,
join, or participate in a group with non-affiliates; (c) otherwise seek to
control or influence the management, Board, or policies of the Company, except
through EGI's designee on the Board in his or her capacity as a member of the
Board; (d) take any action which might obligate the Company to make a public
announcement regarding any of the types of matters set forth in (a) above; or
(e) enter into any discussions or arrangements with any third party with respect
to any of the foregoing.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Overview
The Company has three operating business segments. Two of these segments, the
Manufacturing & Process Group and the IT Group, are managed through the
Company's principal operating subsidiary General Physics and the third through
its operating subsidiary MXL Industries. In addition, the Company holds a number
of investments in publicly held companies, including publicly traded stock in
Millennium Cell Inc and its equity interest in HMS.
While the Company currently owns 100% of the Common Stock of HMS, as a result of
a private placement transaction of preferred stock that was completed on
December 27, 2001, the Company no longer has financial and operational control
of HMS. Therefore, for the year ended December 31, 2001, the operating results
of HMS were consolidated within the Consolidated Condensed Statement of
Operations. However, as a result of this private placement transaction,
effective January 1, 2002 the Hydro Med and Other Group no longer exists as a
business segment. The Company currently accounts for its investment in HMS under
the equity method.
GP is a workforce development company that improves the effectiveness of
organizations by providing training, management systems and engineering services
to meet the specific needs of clients. Programs have been developed for service
managers and executives, engineers, sales associates, plant operators, the
maintenance and purchasing workforces and information technology professionals
in the public and private sectors in North and South America, Europe and Asia.
Clients include Fortune 500 companies, manufacturing, process and energy
industries, and other commercial and government customers.
The Company had net income before income taxes of $373,000 for the quarter ended
March 31, 2002 compared to net loss before taxes of $426,000 for the quarter
ended March 31, 2001. Net income before taxes for the first quarter ended March
31, 2002 included a $440,000 gain from the sale of the Company's marketable
securities of Millennium Cell Inc. and a non-cash credit of $557,000 relating to
the Company's Millennium Cell Deferred Compensation Plan, offset by a non-cash
equity loss of $735,000 on HMS. Additionally, effective January 1, 2002, and
for the quarter ended March 31, 2002, the Company no longer amortizes goodwill
in accordance with SFAS No. 142 Goodwill and Other Intangible Assets. The loss
before income tax of $426,000 in the first quarter of 2001 was primarily
attributable to the $1,776,000 loss from marketable securities of Millennium
Cell Inc., offset by a non-cash credit of $1,145,000 relating to the Company's
Millennium Cell Deferred Compensation Plan and includes goodwill amortization
expense of $756,000.
Sales
Three months
March 31,
2002 2001
--------- ---------
Manufacturing & Process $35,165 $42,837
Information Technology 2,305 3,218
Optical Plastics 2,756 3,057
Hydro Med and Other 2
-------- -----------
$40,226 $49,114
------- -------
For the quarter ended March 31, 2002, consolidated sales decreased by $8,888,000
to $40,226,000 from $49,114,000 in the corresponding quarter of 2001. The
decrease in sales in 2002 was primarily attributable to a reduction in sales
from the automotive division, and e-Learning division of the Manufacturing and
Process Group, as well as decreased sales from certain high tech clients. In
addition, the Information Technology Group's sales decreased from $3,218,000 to
$2,305,000. The overall decrease which began in the third quarter of 2001 was
also due to the continued downturn in the economy compounded by the effects of
September 11, 2001.
Gross margin
Three months
Ended March 31,
---------------------------------------------------
2002 % 2001 %
--------- ----- --------- -----
Manufacturing & Process $ 4,590 13.1 $ 5,358 12.5
Information Technology 312 13.5 319 9.9
Optical Plastics 546 19.8 838 27.4
Hydro Med and Other (156)
------- ---------- -------- --------
$ 5,448 13.5 $ 6,359 12.9
------- -------- ------- --------
Consolidated gross margin of $5,448,000 or 13.5% of sales, for the quarter ended
March 31, 2002, decreased by $911,000 compared to the consolidated gross margin
of $6,359,000, or 12.9% of sales, for the quarter ended March 31, 2001. The
decrease in gross margin in 2002 occurred within all segments of GP, as a result
of decreased sales for the period. The gross margin percentage improved by .6
percentage points due to the Company's continued efforts to reduce costs.
Selling, general and administrative expenses
For the three months ended March 31, 2002, Selling, general and administrative
(SG&A) expenses were $4,540,000 compared to $4,472,000 in the first quarter of
2001. The increase in SG&A was primarily due to financial consulting fees of
$200,000, increased legal and other expenses of $300,000 and a reduction in the
non-cash credit of $615,000 relating to the Company' Deferred Compensation Plan
partially offset by a reduction in SG&A expenses for HMS of $401,000 due to the
deconsolidation of HMS and goodwill amortization expense of $756,000 in the
prior year which is not included in the current year in accordance with SFAS No.
142 Goodwill and Other Intangible Assets
Interest expense
For the three months ended March 31, 2002, interest expense was $754,000
compared to $1,400,000 for the three months ended March 31, 2001. The decrease
in interest expense in 2002 was primarily attributable to a decrease in the
Company's outstanding indebtedness and a reduction in interest rates offset by
increased fees.
Investment and other income (loss), net
For the three months ended March 31, 2002, investment and other income loss, net
was a loss of $435,000, as compared to income of $490,000 for the quarter ended
March 31, 2001. The decrease was attributable to an equity loss recognized on
HMS of $735,000, and reducted equity income, net on the Company's other equity
investments.
Income tax expense
For the three months ended March 31, 2002, the Company recorded an income tax
expense of $168,000 as compared to an income tax benefit of $182,000 for the
three months ended March 31, 2001 which represents applicable federal, state and
local, and foreign tax expense.
Liquidity and capital resources
At March 31, 2002, the Company had cash and cash equivalents totaling
$1,665,000. The Company has sufficient cash and cash equivalents, marketable
securities, 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.
In addition, in May 2002 the Company received an aggregate of $9.3 million from
private placement transactions of its equity securities (See Note 9).
For the quarter ended March 31, 2002, the Company's working capital increased by
$1,629,000 to a deficit of $1,121,000.
The decrease in cash and cash equivalents of $40,000 for the quarter ended March
31, 2002 resulted from cash provided by operating activities of $1,969,000 and
investing activities of $864,000 offset by cash used in financing activities of
$3,020,000. Cash used in financing activities consisted of repayments of
short-term borrowings and long-term debt.
Recent accounting pronouncements
In August 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities that
have legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development or normal use of the
asset. Enterprises are required to adopt Statement No. 143 for fiscal years
beginning after June 15, 2002. The Company has not yet determined the impact of
adopting this pronouncement on its financial statements.
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
March 31, 2002
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 2002
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
10.1 Stock Purchase Agreement dated as of May 3, 2002 by and between the
Registrant and EGI-Fund(02-04) Investors, L.L.L.
10.2 Advisory Services Agreement dated as of May 3, 2002 by and between the
Registrant and Equity Group Investments, L.L.C.
10.3 Subscription Agreement dated as of May 3, 2002 by and between the
Registrant and Bedford Oak Partners, L.P.
10.4 Subscription Agreement dated as of May 3, 2002 by and between the
Registrant and Marshall Geller.
b. Reports
None
GP STRATEGIES CORPORATION AND SUBSIDIARIES
March 31, 2002
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: May 20, 2002 BY: Jerome I. Feldman
Chairman of the Board and
Chief Executive Officer
DATE: May 20, 2002 BY: Scott N. Greenberg
President and
Chief Financial Officer