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 September 30, 2000
orMarch 31, 2001
[ ] 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)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
November 9, 2000:May 8, 2001:
Common Stock 12,114,83712,198,209 shares
Class B Capital 800,000 shares
GP STRATEGIES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
September 30, 2000March 31, 2001 and December 31, 19992000 1
Consolidated Condensed Statements of Operations -Operations-
Three Months Ended March 31, 2001 and Nine Months Ended September 30,
2000 and 1999 3
Consolidated Condensed Statements of Cash Flows -
NineThree Months Ended September 30,March 31, 2001 and 2000 and 1999 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Qualification Relating to Financial Information 18
Part II. Other Information 2619
Signatures 2720
PART I. FINANCIAL INFORMATION
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
September 30, December 31,
2000 1999
-------------- --------
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 3,890 $ 4,068
Marketable securities 22,000
Accounts and other receivables 47,826 55,385
Inventories 1,672 1,888
Costs and estimated earnings
in excess of billings on uncompleted contracts 14,863 14,238
Prepaid expenses and other current assets 8,358 3,853
---------- --------
Total current assets 98,609 79,432
--------- ------
Investments and advances 124,125 16,557
Property, plant and equipment, net 9,090 13,658
Intangible assets, net of accumulated amortization
of $41,557 and $38,986 60,884 79,818
Deferred tax asset - 3,990
Other assets 4,396 3,663
---------- --------
$297,104 $197,118
March 31, December 31,
2001 2000
------- --------
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 1,940 $ 2,487
Trading securities 5,446 8,830
Accounts and other receivables 48,627 46,388
Inventories 1,795 1,688
Costs and estimated earnings
in excess of billings on uncompleted contracts 11,426 12,515
Prepaid expenses and other current assets 4,384 3,955
---------- ----------
Total current assets 73,618 75,863
--------- ---------
Investments, advances and marketable securities 48,176 62,093
---------- ---------
Property, plant and equipment, net 9,786 9,787
----------- ----------
Intangible assets, net of accumulated amortization
of $32,501 and $31,618 59,103 59,992
---------- ----------
Other assets 4,052 4,843
----------- -----------
$194,735 $212,578
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 19992000 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)
September 30,March 31, December 31,
2001 2000
1999
-------- ------------------ -------
LIABILITIES AND STOCKHOLDERS' EQUITY unaudited)(unaudited) *
Current liabilities:liabilities
Current maturities of long-term debt $ 1,3831,320 $ 3,6681,311
Short-term borrowings 37,607 40,27834,280 36,162
Accounts payable and accrued expenses 36,788 25,63422,002 25,234
Billings in excess of costs and estimated
earnings on uncompleted contracts 10,911 9,99812,107 11,322
--------- -----------------
Total current liabilities 86,689 79,57869,709 74,029
-------- -----------------
Long-term debt less current maturities 16,372 14,82217,676 16,301
-------- --------
Deferred tax liability 34,194 -620 6,504
---------- --------
Other non-current liabilities 3,659 2,7362,663 3,226
---------- --------
Stockholders' equity
Common stock 122 115125 125
Class B capital stock 8 58
Additional paid in capital 180,794 170,011180,238 179,955
Accumulated deficit (84,728) (61,602)(87,238) (86,994)
Accumulated other comprehensive income (loss) 69,001 (817)18,747 27,237
Note receivable from stockholder (4,094) (2,817)(4,095) (4,095)
Treasury stock, at cost (4,913) (4,913)
---------(3,718) (3,718)
---------- --------
Total stockholders' equity 156,190 99,982
----------104,067 112,518
--------- --------
$297,104 $197,118$194,735 $212,578
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 19992000 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 Nine months
ended September 30, ended September 30,
--------------------- ---------------------
2000 1999 2000 1999
------- ------ ----- ------
Sales $ 50,786 $ 53,258 $148,914 $175,953
Cost of sales 45,965 46,022 134,782 153,946
-------- -------- -------- ---------
Gross margin 4,821 7,236 14,132 22,007
Selling, general & administrative expenses (11,009) (7,013) (23,879) (21,429)
Interest expense (1,454) (1,144) (4,114) (3,205)
Investment and other income (loss), net (2,373) (1,332) (2,092) (590)
Gain on trading securities 12,000 693 12,468 1,257
Asset impairment charge (771) (19,245)
Restructuring charges (8,600) (8,600) (6,312)
---------- ------------- --------- ---------
Loss before income taxes (7,386) (1,560) (31,330) (8,272)
Income tax (expense) benefit 8,579 (262) 8,204 (1,119)
--------- ---------- --------- ---------
Net income (loss) $ 1,193 $ (1,822) $(23,126) $ (9,391)
======== ======== ======== ========
Net income (loss) per share:
Basic and diluted $ .09 $ (.16) $ (1.88) $ (.82)
========== ========= ======== ========
Dividends per share none none none none
======== ========== ======== ========
Three months
ended March 31,
--------------------------
2001 2000
---------- -------
Sales $ 49,114 $ 47,800
Costs of sales 42,755 43,438
--------- --------
Gross margin 6,359 4,362
Selling, general and administrative expenses (4,099) (5,291)
Interest expense (1,400) (1,290)
Investment and other income, net 490 331
Gain (loss) on trading securities (1,776) 331
---------- ----------
Loss before income taxes (426) (1,557)
Income tax benefit (expense) 182 (196)
---------- ----------
Net loss $ (244) $ (1,753)
========== =========
Net loss per share
Basic $ (.02) $ (.15)
--------- ----------
Diluted (.02) (.15)
--------- -----------
See accompanying notes to the consolidated condensed financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
NineThree months
ended September 30,March 31,
----------------------
2001 2000
1999
------ ----------------- -----
Cash flows from operations:operating activities:
Net loss $(23,126) $ (9,391)(244) $ (1,753)
Adjustments to reconcile net loss to net cash
provided by (used for)in) operating activities:
Depreciation and amortization 4,986 5,274
Proceeds from sale of trading securities 684 3,577
Gain on trading securities (12,468) (1,257)
Issuance of stock for profit incentive plan 1,027 1,001305 364
Depreciation and amortization 1,550 1,949
Loss (gain) on trading securities 1,776 (331)
Equity loss onincome in investments 2,959 1,302
Non-cash compensation expense 6,163
Asset impairment charge 19,245
Restructuring charge 8,600 6,312
Deferred tax benefit (8,959)(241) (25)
Proceeds from sale of trading securities 1,608 429
Changes in other operating items 2,050 (11,027)(5,328) 3,674
-------- --------
Net cash provided by (used for)in) operating activities 1,161 (4,209)(574) 4,307
--------- -------- ---------
Cash flows from investing activities:
Additions to property, plant &and equipment (562) (2,828)
Additions to intangible assets, net (454) (744)(445) (127)
Proceeds from disposal of fixed assets 507
(Increase) decrease ofReduction in investments and
other assets, net (1,215) 527
-------- --------777 5
--------- ----------
Net cash (used for) provided by investing activities (1,724) 3,045
--------332 385
--------- ---------
Cash flows from financing activities:
Net repayments of short-term
borrowings (1,882) (5,523)
Proceeds from MXL mortgage 1,680
Payments of long-term debt (296) (469)
Proceeds from sale of Class B Stock 1,200
---------- ----------
Net cash used in financing activities (498) (4,792)
---------- ---------
Effect of exchange rate
changes on cash and cash equivalents 193 245
---------- ----------
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
NineThree months
ended September 30,March 31,
2001 2000
1999
--------- -------
Cash flows from financing activities:
(Repayment of) proceeds from short-term borrowings (2,671) 7,523
Proceeds from sale of Class B Stock 1,200
Proceeds from subordinated convertible debentures 2,640
Repayment of long-term debt (1,258) (2,272)
Exercise of common stock options and warrants 189 910
Repurchase of treasury stock - (1,129)
-------- -------------
Net cash provided by financing activities 100 5,032
-------- -------
Effect of exchange rate changes on
Cash and cash equivalents 285 317
-------- --------
Net decrease(decrease) increase in cash and cash
equivalents (178) (1,905)$ (547) $ 145
Cash and cash equivalents at the
beginning of the periods 2,487 4,068
6,807
-------- ----------------- ---------
Cash and cash equivalents at the end
of the periods $ 3,8901,940 $ 4,902
======== ========4,213
--------- --------
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 4,2531,173 $ 3,930
========1,502
========= ========
Income taxes $ 361109 $ 955
=========168
========== =========
See accompanying notes to the consolidated condensed financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Qualification relating to financial information
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 to a fair
statement of the results for the interim periods. The results for the 2000
interim period are not necessarily indicative of results to be expected for the
entire year.
2. Earnings per share
IncomeEarnings (loss) per share (EPS) for the periods ended September 30,March 31, 2001
and 2000
and 1999 are as follows (in thousands, except per share amounts):
Three months Nine months
ended September 30, ended September 30,
-------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
Basic and Diluted EPS
Net income (loss) $ 1,193 $ (1,822) $(23,126) $(9,391)
Weighted average shares
outstanding 12,692 11,287 12,302 11,407
Basic and diluted net income
(loss) per share $ .09 $ (.16) $ (1.88) $ (.82)
Three months
ended March 31,
-------------------
2001 2000
-------- ------
Basic and diluted EPS
Net loss $ (244) $ (1,753)
Weighted average shares
outstanding 12,917 11,813
-------- --------
Basic and diluted loss per share $ (.02) $ (.15)
-------- ---------
Basic earnings per share areis 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 1999 andstock 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 the nine months
ended September 30, 2000, evenall dilutive potential common shares
outstanding. Even though the Company still has stock options and warrants
outstanding, diluted earnings per share is not presentedthe same as basic earnings per share
due to the Company's net loss, which makes the effect of the potentially dilutivesuch securities
anti-dilutive.
For
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Long-term debt
Long-term debt consists of the quarter ended September 30,following (in thousands):
March 31, December 31,
2001 2000
weighted
average shares outstanding assuming dilution--------- -------
Term loan $ 13,125 $ 13,313
Mortgage on MXL facility 1,680
Senior subordinated debentures 735 758
Subordinated convertible note 2,640 2,640
Other 816 901
-------- -----------
18,996 17,612
Less current maturities (1,320) (1,311)
-------- ----------
$ 17,676 $ 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
12,747,000 shares.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.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Long-term debt
Long-term debt consists of the following (in thousands):
September 30, December 31,
2000 1999
-------- ------
8% Swiss bonds due 2000* $ $ 2,175
Subordinated convertible debentures 2,640
Senior subordinated debentures 762 844
Term loan 13,500 14,063
Other 853 1,408
--------- --------
17,755 18,490
Less current maturities (1,383) (3,668)
--------- --------
$16,372 $14,822
======= =======
*On June 28, 2000, the Company issued 443,097 shares of its Common Stock at a
value of $5.1625 per share, in exchange for the total principal and interest due
of the Company's 8% Swiss bonds.
On July 7, 2000, the Company, in a private placement transaction (the "Private
Placement") with two institutional investors, received $2,640,000 in exchange
for 6% Convertible Exchangeable Notes due June 30, 2003 (the "Notes"). The
Notes, at the option of the holders, may be exchanged for 19.99% of the
outstanding capital stock of Hydro Med, Inc. ("Hydro Med"), a newly formed,
wholly-owned subsidiary, on a fully diluted basis, as defined in the Notes, or
into shares of the Company's Common Stock at a conversion rate of $7.50 per
share, subject to adjustment, as provided in the Notes. The holders of the Notes
can convert or exchange at any time prior to June 30, 2003. In connection with
the Private Placement, the Company transferred the assets of its Hydro Med
Sciences division to Hydro Med, a wholly owned subsidiary of the Company, and
granted the holders of the Notes a security interest in approximately 19.99% of
the capital stock of Hydro Med to secure payment of the Notes.
Hydro Med develops, manufactures, markets and sells proprietary, implantable,
controlled release drug delivery products, which release drugs directly into the
circulatory system, for human and veterinary applications and is focusing its
efforts to obtain Food and Drug Administration Approval for its prostate cancer
drug delivery system.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Comprehensive income (loss)
The following are the components of comprehensive income (loss) (in thousands):
Three months ended Nine months ended
September 30, September 30,
---------------------------------------------------
2000 1999 2000 1999
------- -------- ------- ---------
Net income (loss) $ 1,193 (1,822) $(23,126) $ (9,391)
--------- ------ --------- --------
Other comprehensive income
(loss) before tax:
Net unrealized gain (loss) on
available-for-sale-securities 112,681 (391) 113,280 (567)
Foreign currency translation adjustment 670 122 795 317
---------- ---------- ---------- ---------
Other comprehensive income (loss),
before tax 113,351 (269) 114,075 (250)
Income tax benefit (expense) relating to
items of other comprehensive income (44,213) 133 (44,257) 193
--------- --------- --------- ----------
Comprehensive income (loss), net of tax $ 70,331 $ (1,958) $ 46,692 $ (9,448)
======== ======== ======== ========
Three months
ended March 31,
-----------------------
2001 2000
--------- -------
Net loss $ (244) $ (1,753)
-------- --------
Other comprehensive income (loss) before tax:
Net unrealized gain (loss) on
available-for-sale-securities (14,215) 1,264
Foreign currency translation adjustment 193 245
--------- ---------
Other comprehensive income (loss), before tax (14,022) 1,509
-------- ---------
Income tax expense (benefit) relating to items
of other comprehensive income 5,532 (57)
--------- ----------
Comprehensive loss, net of tax $ (8,734) $ (301)
========= =========
The components of accumulated other comprehensive income, (loss)net are as follows:
September 30,March 31, December 31,
2001 2000
1999
--------------- -------
Net unrealized gain (loss) on
available-for-sale-securities $113,225 $ (55)31,397 $ 45,612
Foreign currency translation adjustment 36 (759)(488) (681)
-------- -----------------
Accumulated other comprehensive income
(loss) before tax 113,261 (814)30,909 44,931
Accumulated income tax expense related to
items of other comprehensive income (loss) (44,260) (3)(12,162) (17,694)
-------- -------------------
Accumulated other comprehensive income,
(loss), net of tax $ 69,00118,747 $ (817)27,237
======== ========
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Credit agreement4. 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 and as amended on August 29, 2000 (the
Credit Agreement)"Credit Agreement"), with various banks providing for a secured credit facility of $80,000,000 (the Credit
Facility) comprised of a revolving credit
facility of $65,000,000$63,500,000 expiring on June 15, 2001 and a five-year term loan of
$15,000,000. The five year term loan is payable in 20 quarterly installments of
$187,500 commencing on October 1, 1998 with a final payment of $11,250,000 due
on June 15, 2003.
Due to the Company's restructuring charges and operating losses in 1999
and the restructuring charges, operating losses and asset impairment charges in
2000, primarily related to General Physics' IT Group, the Company was not in
compliance with respect to the financial covenants in the Credit Agreement as of
September 30, 1999, December 31, 1999,At March 31, 2000 and June 30, 2000. The
Company and its lenders entered into agreements dated as of April 12, 2000 and
July 31, 2000 providing for waivers of compliance with such covenants at each of
those four dates.
Effective as of August 29, 2000,2001, the Company and certain of its
wholly-owned subsidiaries entered into an Amended and Restated secured
$63,500,000 Revolving Credit and Term Agreement (the "Amended Agreement") which
amended in its entirety the Company's Credit Agreement described above. The
Amended Agreement reduced the commitment pursuant toamount outstanding under the revolving credit agreement to $50,000,000 (subject to borrowing base limitations specifiedfacility is
$34,280,000 and is included in Short-term borrowings in the Amended Agreement), however the Amended Agreement did not change the payment
terms of the term loan which currently has an outstanding balance of $13,500,000
as well as the expiration date on both the credit facility and the term loan.
The interest rates increased on both the revolving credit agreement and the term
loan to prime plus 1.25% (increased from .50%) and Eurodollar plus 2.75%
(increased from 2.00%). The Amended Agreement provides for additional security
consisting of certain real property, personal property and substantially all
marketable securities owned by the Company and its subsidiaries and contains
certain restrictive covenants, including the prohibition on future acquisitions,
and provides for mandatory prepayment upon the occurrence of certain events. The
Amended Agreement also contains revised minimum net worth, fixed charge
coverage, EBITDA and consolidated liabilities to tangible net worth covenants.
Although there can be no assurance, the Company anticipates that it will satisfy
the revised covenants in the future.Consolidated
Condensed Balance Sheet. At September 30, 2000,March 31, 2001, the Company had approximately $10,600,000$13,740,000
available to be borrowed under the Amended Agreement.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6.Credit Agreement and was in compliance with
all of their 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 the credit facility will
either be extended or refinanced by June 15, 2001.
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 5001000
companies, government, utilities and other commercial customers. GP operates in
threetwo business segments. The Manufacturing Services& Process Group provides technology-basedtechnology
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 Process & Energy Group provides engineering, consulting and technical training
to the power, chemical, energy and pharmaceutical industries as well as
government facilities. The Information Technology Group provides informationIT training programs and
solutions, including Enterprise Solutions and comprehensive career training and
transition programs.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Business segments (Continued)
The Optical Plastics Group, which is the Company's wholly owned
subsidiaryconsists of MXL, Industries, Inc. (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 months ended March 31, 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, (loss), 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)
6. 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 Nine months ended
September 30, September 30,
---------------------- -----------------March 31,
-------------------------
2001 2000 1999 2000 1999
------- --------
------ -------
Sales
Manufacturing Services $ 21,185 $20,277 $ 55,994 $ 67,018& Process and Energy 21,113 17,254 63,385 56,571$42,837 $36,994
Information Technology 6,125 13,290 21,117 44,2343,218 7,748
Optical Plastics 2,363 2,432 8,278 7,6373,057 2,958
Hydro Med and Other - 5 140 4932 100
-------- ----------- ---------
--------
$ 50,786 $ 53,258 $148,914 $175,953
-------- -------- -------- --------$49,114 $47,800
------- -------
Gross margin
Manufacturing Services& Process $ 3,0675,358 $ 3,717 $ 7,564 $ 11,356
Process and Energy 3,013 2,857 8,472 8,1374,499
Information Technology (1,666) 228 (3,671) 404319 (818)
Optical Plastics 587 622 2,188 2,023838 794
Hydro Med and Other (180) (188) (421) 87
--------(156) (113)
------- ---------
---------- ----------
$ 4,8216,359 $ 7,236 $ 14,132 $ 22,007
-------- -------- -------- --------4,362
------- -------
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6.5. Business segments (continued)
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 Nine months ended
September 30, September 30,
------------------------ -----------------------March 31,
-------------------------
2001 2000 1999 2000 1999
--------- ---------
--------- -------
United States $ 44,78745,385 $ 41,603 $127,887 $136,50140,028
Canada 2,131 5,889 8,158 21,1341,066 3,105
United Kingdom 2,706 4,285 9,467 13,2901,759 3,638
Latin America 1,162 1,481 3,402 5,028
-------- ----------and other 904 1,029
--------- -------------------
$ 50,78649,114 $ 53,258 $148,914 $175,953
-------- --------47,800
-------- --------
Information about the Company's identifiable assets in different geographic
regions, is as follows (in thousands):
September 30,March 31, December 31,
2001 2000
1999----------- --------- ----------------
United States $286,851 $180,057$184,355 $205,797
Canada 4,317 9,5334,555 3,371
United Kingdom 2,884 5,0872,891 1,928
Latin America 3,052 2,441and other 2,934 1,482
-------- ---------
$194,735 $212,578
-------- --------
$297,104 $197,118
-------- --------
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7.6. Asset impairment chargeImpairment Charge and restructuring charge
The operations of the Information Technology (IT) Group are primarily
comprised of the operations of Learning Technologies, which was purchased by the
Company in June 1998. As a result of the purchase of Learning Technologies, the
Company recorded $23,216,000 of goodwill, which was being amortized over 30
years.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 closed, downsized, or consolidated 7 officesrecorded a charge of $7,374,000 in the
United States, 10 offices in Canada1999.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Asset Impairment Charge and 5 offices in the United Kingdom (UK),
and terminated approximately 156 employees.Restructuring Charges (Continued)
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, and additionallyprofitability. Additionally there had
been anfurther impairment to intangible and other assets. In July 2000, as a
result of the continued operating losses incurred by itsthe IT Group, as well as
the determination that revenues would not increase to profitable levels, the
Company closeddecided to close its open enrollment IT business in the UK and
Canada.third quarter of
2000. As a result, for the quarter and nine months ended September 30, 2000,
the Company has recorded asset impairment charges of $771,000 and $19,245,000
respectively,
related to the IT Group. The charges are comprised of a write-offwrite-offs of intangible assets, of $16,663,000 (of which $16,056,000 was recorded during
the six months ended June 30, 2000), as well as write-offs of property, plant and equipment, and
other assets relating toof the offices to be closed, totaling
$2,582,000 (of which $2,418,000 wasIT Group.
In addition, the Company recorded an $8,630,000 restructuring charge, net of
reversals, in 2000. During the period ended March 31, 2001 and the year ended
December 31, 2000, the Company utilized $1,354,000 and $3,884,000, respectively,
and reversed $373,000 during the six monthsperiod ended June
30, 2000).
The Company believes thatMarch 31, 2001. These reversals
are included in Selling, general and administrative expenses in the Consolidated
Condensed Statement of Operations for the period ended March 31, 2001. Of the
remaining unamortized goodwill$5,138,000 balance at March 31, 2001 and $6,865,000 at December 31,
2000, $2,474,000 and $3,639,000, respectively, were included in Accounts payable
and accrued expenses and $2,664,000 and $3,226,000, respectively, were included
in Other non-current liabilities in the Consolidated Condensed Balance Sheet.
The components of approximately $5,400,000, which relates to the US2000 and Canadian IT project
business, is recoverable from future operations. However, if the1999 restructuring charges are as follows (in
thousands):
Severance Lease and
and related related Contractual
benefits obligations obligations Total
- -------------------------------------------------------------------------------
Balance December 31, 2000 $ 142 $ 5,298 $ 1,425 $ 6,865
- -------------------------------------------------------------------------------
Utilization (107) (945) (302) (1,354)
Reversal of restructuring
charges during 2001 (373) (373)
- -------------------------------------------------------------------------------
Balance March 31, 2001 $ 35 $ 3,980 $ 1,123 $ 5,138
- -------------------------------------------------------------------------------
The remaining IT
operations do not achieve profitable operating results, there canamounts that had been accrued for severance and related benefits
and contractual obligations will be no
assurance that a further impairment charge will not be required.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. Asset impairment chargeLitigation
On January 4, 2001, the Company commenced an action alleging that MCI
Communications Corporation, Systemhouse, and restructuring charge (Continued)
In addition,Electronic Data Systems
Corporation, as successor to Systemhouse, committed fraud in connection with the
restructuring,Company's 1998 acquisition of Learning Technologies from the Company recorded
a restructuring charge of $8,600,000, net of a reversal of the 1999
restructuring charge of $768,000 during the quarter ended September 30, 2000.
The components of the 2000 restructuring charges are as follows (in thousands):
Severance Lease and Other facility
and related related Contractual related
benefits obligations obligations costs Total
- -----------------------------------------------------------------------------------------------------------------
Restructuring
charges during 2000 $ 1,825 $ 5,290 $ 2,043 $ 210 $ 9,368
Utilization 847 296 39 1,182
- -----------------------------------------------------------------------------------------------------------------
Balance September 30, 2000 $ 978 $ 4,994 $ 2,043 $ 171 $ 8,186
- -----------------------------------------------------------------------------------------------------------------
defendants for
$24.3 million. The Company anticipates recording an additional charge in the fourth
quarter of 2000, related to the IT Group due to continuing exit costs associated
with the offices and operations closed.
In connection with the Company's 1999 restructuring, the Company
recorded a restructuring charge of $7,374,000 in 1999. During the period ended
September 30, 2000 and the year ended December 31, 1999, the Company utilized
$2,043,000 and $2,754,000, respectively.
The components of the 1999 restructuring charges are as follows (in thousands):
Severance Lease and Other facility
and related related related
benefits obligations costs Total
- ---------------------------------------------------------------------------------------------------------
Balance December 31, 1999 $ 289 $ 4,206 $ 125 $ 4,620
- ---------------------------------------------------------------------------------------------------------
Utilization 184 1,806 53 2,043
Reversal of restructuring charges
during 2000 768 768
- ---------------------------------------------------------------------------------------------------------
Balance September 30, 2000 $ 105 $ 1,632 $ 72 $ 1,809
- ---------------------------------------------------------------------------------------------------------
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Asset impairment charge and restructuring charge (Continued)
The remaining amounts that have been accrued for severance and related
benefits will be expended by December 31, 2000. Lease obligations are presented
at their present value are net of assumed sublets. Other facility related costs
will be expended through 2001. Of the remaining unexpended amounts at September
30, 2000 and December 31, 1999, $6,336,000 and $1,884,000, respectively, was
included in Accounts payable and accrued expenses and $3,659,000 and $2,736,000,
respectively, was included in Other non-current liabilities in the Consolidated
Balance Sheet.
8. Termination of merger agreement
On February 11, 2000, the Company terminated its previously announced
merger agreement with VS&A Communications Partners III, L.P. ("VS&A"), an
affiliate of Veronis, Suhler & Associates Inc. To induce VS&A to agree to the
immediate termination of the merger agreement and to give the Company a general
release, on February 11, 2000, the Company issued to VS&A, as partial
reimbursement of the expenses incurred by it in connection with the merger
agreement, 83,333 shares of the Company's Common Stock and an 18-month warrant
to purchase 83,333 shares of the Company's Common Stock at a price of $6.00 per
share. The consideration was valued at $686,000, and was included in the
December 31, 1999 consolidated statement of operations.
9. Class B Capital Stock
On February 11, 2000, an affiliate of Andersen, Weinroth & Co., L.P.
("Andersen Weinroth") purchased 200,000 shares of the Company's Class B Capital
Stock for $6.00 per share for a total cost of $1,200,000. In addition, G. Chris
Andersen joined the Board of Directors of the Company. Mr. Andersen is a general
partner of Andersen Weinroth.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
10. Related party transactions
During the first quarter of 2000, the Company made loans to an officer
who is the President and Chief Executive Officer as well as a director of the
Company totalling approximately $1,277,000 to purchase an aggregate of 150,000
shares of Class B Capital Stock. In addition, at December 31, 1999, the Company
had loans receivable from such officerseeks actual damages in the amount of approximately
$2,817,000.$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 officer primarily utilizedcase is currently
in discovery.
The complaint, which is pending in the proceedsNew York State Supreme Court,
alleges that the defendants created a doctored budget to conceal the poor
performance of the prior loansUnited Kingdom operation of Learning Technologies. The
complaint also alleges that the defendants represented that Learning
Technologies would continue to exercise optionsreceive business from Systemhouse even though
defendants knew that the sale of Systemhouse to purchase an aggregate of 408,512 shares of Class B Capital
Stock. Such loans bear interest at the prime rate of Fleet BankEDS was imminent and are secured
by the purchased Class B Capital Stock and certain other assets. All principal
on the loans and accrued interest ($430,000 at September 30, 2000) are due on
May 31, 2004. In prior years, the Company made unsecured loans tothat such
officer
in the amount of approximately $480,000, which unsecured loans primarily bear
interest at the prime rate of Fleet Bank.
11. Investments
Millennium Cell Inc. ("Millennium") is a development stage company
which is engaged in the development of a patented and proprietary chemical
process that converts sodium borohydride to hydrogen. As of June 30, 2000, the
Company had a 27% ownership interest (prior to the completion of the Initial
Public Offering ("IPO") described below) representing approximately 6,000,000
shares including approximately 550,000 shares of common stock subject to options
given to the Company's employees to acquire Millennium shares from the Company's
holdings. The Company accounted for this investment under the equity method of
accounting.
On August 14, 2000, Millennium completed an IPO of 3,000,000 shares of
common stock at a price of $10 per share. Based upon the consummation of the IPO
which reduced the Company's holdings in Millennium from approximately 27% to
approximately 22.2% and certain organizational changes including lack of Board
representation, in Millennium, the Company believes that it does not have
significant influence on the operating and financial policies of Millennium and
asbusiness would cease after such now believes that it is appropriate to account for this investment under
the cost method of accounting.
The majority of the Company's shares of common stock in Millennium are
subject to a lock-up provision until February 9, 2001, and accordingly cannot be
sold by the Company before that date, unless the provision is waived by the
underwriter. In addition, the Company's shares (excluding the 550,000 shares
subject to options) have been pledged to its bank to secure its credit facility.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
11. Investments (Continued)
As the Company intends to dispose of 1,000,000 shares within the near
term the underwriter has agreed to waive the lock-up provisions on these shares.
Accordingly, the Company has classified these shares as trading securities. At
September 30, 2000, these shares had a value of approximately $22,000,000.
The approximately 5,000,000 shares remaining are not expected to be
sold within the near term and, as such are classified as available for sale
securities. At September 30, 2000, these shares had a value of approximately
$111,000,000.
In connection with the IPO the Company recorded an increase of
approximately $7,300,000 in its investment in Millennium which was credited, net
of taxes, to additional paid-in capital in accordance with Staff Accounting
Bulletin 51.
On February 11, 2000, the Company granted options to purchase an
aggregate of approximately 550,000 of its shares of Millennium common stock to
certain of its employees pursuant to the GP Strategies Corporation Millennium
Cell, LLC Option Plan (the "Millennium Option Plan"), which options vest over
either a one year or two year period and expire on May 11, 2002. The Company
will receive approximately $500,000 upon exercise of all options pursuant to the
Millennium Option Plan. As a result of the Millennium Option Plan, the Company
recorded net deferred compensation of $5,039,000, to be amortized over the
remaining vesting period of the options, and a liability to employees of
$11,702,000 at September 30, 2000. These amounts are included in Prepaid
expenses and other current assets and Accounts payable and accrued expenses,
respectively, on the Consolidated Condensed Balance Sheet. Pursuant to the
vesting provisions of the Millennium Option Plan, the Company recorded a
non-cash compensation expense of $4,563,000 and $6,163,000 for the quarter and
nine months ended September 30, 2000, which is included in Selling, general and
administrative expenses in the Consolidated Condensed Statement of Operations.sale.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONSResults of Operations
Overview
TheDuring the first three quarters of 2000, the Company has fourhad five operating business
segments. ThreeHowever, in the fourth quarter of 2000, as a result of organizational
and operational changes at General Physics and the shut down of the Company'sIT 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 GP, andGeneral Physics, the fourththird through its operating subsidiary
MXL Industries Inc. (MXL).and the fourth through its subsidiary Hydro Med Sciences. In
addition, the Company holds a number of investments in public and
privatelypublicly held companies.
GPcompanies,
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. GPGeneral Physics is a total solution provider for
strategic training, engineering, consulting and technical support services to
Fortune 5001000 companies, government, utilities and other commercial customers.
GPGeneral Physics consists of threetwo segments: the Information Technology (IT) Group, the Manufacturing Services& Process Group and
the Process & EnergyIT Group. The Optical Plastics Group, which
comprises MXL, manufactures molded and coated optical products, such as shields
and facemasks and non-optical plastic products.
The Company had a net loss before income taxes of $7,386,000 and
$31,330,000$426,000 for the quarter and nine months ended
September 30, 2000March 31, 2001 compared to
a net loss before income taxes of $1,560,000 and $8,272,000$1,557,000 for the quarter
and
nine months ended September 30, 1999.March 31, 2000. The operating loss in the first quarter of 2001 was attributable to
the $1,776,000 loss from trading 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. The loss in the first quarter of 2000 was primarily due to
an Asset impairment charge of $19,245,000, of which $18,474,000 was takenthe operating losses incurred by the now closed open enrollment IT Group. The
Manufacturing and Process Group had operating profits in the second quarter ended March
31, 2001, compared to the quarter ended March 31, 2000 due to increased sales
and $771,000gross margin percentage.
Sales
Three months
March 31,
-----------------------
2001 2000
--------- -------
Manufacturing & Process $42,837 $36,994
Information Technology 3,218 7,748
Optical Plastics 3,057 2,958
Hydro Med and Other 2 100
------- ---------
$49,114 $47,800
------- -------
For the quarter ended March 31, 2001, consolidated sales increased by $1,314,000
to $49,114,000 from $47,800,000 in the corresponding quarter of 2000. The
increased sales in 2001 within the Manufacturing & Process Group of GP was
takenprimarily due to increased sales from GP's e-Learning subsidiary as well as
increased sales from utility customers. However, these were largely offset by
reduced sales in the IT Group resulting from the Company's decision to close the
IT open enrollment business in the third quarter of 2000 and a
$8,600,000 Restructuring charge taken in the third quarterfocus on providing
training for Fortune 1000 manufacturing and process clients.
Gross margin
Three months
ended March 31,
---------------------------------------------
2001 % 2000 %
--------- ----- --------- ---
Manufacturing & Process $ 5,358 12.5 $ 4,499 12.2
Information Technology 319 9.9 (818) -
Optical Plastics 838 27.4 794 26.8
Hydro Med and Other (156) - (113) -
------- ---------
$ 6,359 12.9 $ 4,362 9.1
------- -------- ------- --------
Consolidated gross margin of 2000. These
charges were the result$6,359,000 or 12.9% of the continuing operating losses incurred by the IT
Group, due to the trend of reduced revenue on a quarterly basis, which began in
1999 and continued through 2000, and as such the IT open enrollment businesses
in UK and Canada were closed in the third quarter of 2000.
In addition,sales, for the quarter and nine months ended
September 30, 2000,
the Company also recorded a $4,563,000 and $6,163,000 non-cash compensation
expense related to a compensation plan offered to certain of its employees which
is included in selling, general and administrative expenses (See Note 11March 31, 2001, increased by $1,997,000 compared to the Consolidated Condensed Financial Statements).
For the third quarterconsolidated gross
margin of 2000 the Company had a gain$4,362,000, or 9.1% of $12,000,000sales, for the quarter and $12,468,000 for the nine months ended September 30, 2000 on
trading securities primarily relating to 1,000,000 shares of Millennium Cell
stock, which are classified as trading securities. In addition, the Company had
equity losses of $2,847,000 for the quarter and $2,959,000 for the nine months
ended September 30, 2000 which were primarily the result of the Company writing
down its investment in the Five Star Group by approximately $2,400,000 in the
third quarter of 2000 due to an "other than temporary" decline in the value of
this investment.
The Company had a loss before income taxes of $1,560,000 and $8,272,000
for the quarter and nine months ended September 30, 1999. The loss for the nine
months ended September 30, 1999 was primarily due to a Restructuring charge
recorded in the quarter ended June 30, 1999 totaling $6,312,000, principally
related to the Company's IT business segment as well as other costs incurred by
the IT group in exiting certain activities. These charges were included in Cost
of sales and Selling, general and administrative expenses, and included such
items as: payroll and related benefits, facility-related costs, write-offs of
other assets and losses on contracts.
The Manufacturing Services Group also had reduced operating profits due
to reduced sales and gross margin percentage in the nine months ended September
30, 2000, compared to the nine months ended September 30, 1999. For the quarter
ended September 30, 2000, the Manufacturing Group had reduced operating profit
due to reduced gross margin percentages.
The Process and Energy Group had increased operating profit for the
nine months ended September 30, 2000, as compared to the prior year, due to
increased sales. For the quarter ended September 30, 2000, the Process and
Energy Group has slightly improved operating results due to increased sales. In
addition, the Process & Energy and Manufacturing Services Groups had increased
investments in internal training and business development during the first nine
months of 2000. The Company is focusing its business development activities in
2000 on a major branding campaign, to increase the name recognition of GP, as
well as plant launch services, e-Learning and the area of learning resource
management. The Company believes that these investments in business development
are an integral part of its effort to increase its revenues and gross margin
percentage.
Asset impairment charge and restructuring charge
The operations of the IT Group are primarily comprised of the
operations of Learning Technologies, which was purchased by the Company in June
1998. As a result of the purchase of Learning Technologies, the Company recorded
$23,216,000 of goodwill, which is being amortized over 30 years.
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
GP's current business. In connection with the restructuring, the Company closed,
downsized, or consolidated 7 offices in the United States, 10 offices in Canada
and 5 offices in the United Kingdom (UK), and terminated approximately 156
employees.
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, and additionally
that there had been an impairment to intangible and other assets.
In July 2000, as a result of the continued operating losses incurred by
its IT Group, as well as the determination that revenues would not increase to
profitable levels, the Company closed its open enrollment business in the UK and
Canada. In the third quarter of 2000, the open enrollment IT business was
closed. The Company recorded a restructuring charge of $8,600,000 in the third
quarter of 2000.
As a result, for the quarter and nine months ended September 30, 2000,
the Company has recorded an asset impairment charge of $771,000 and $19,245,000
related to the IT Group. The charge includes a write-off of intangible assets of
$16,663,000 (of which $16,056,000 was recorded during the six months ended June
30, 2000), as well as write-offs of property, plant and equipment and other
assets relating to the offices to be closed totaling $2,582,000 (of which
$2,418,000 was recorded during the six months ended June 30, 2000).
The Company believes that the remaining unamortized goodwill of
approximately $5,400,000, which relates to the US and Canadian IT project
business, is recoverable from future operations. However, if the remaining IT
operations do not achieve profitable operating results, there can be no
assurance that a further impairment charge will not be required.
The Company anticipates recording an additional charge in the fourth
quarter of 2000, due to continuing exit costs associated with the offices and
operations closed related to the IT Group.
Sales
Three months ended Nine months ended
September 30, September 30,
--------------------- --------------
2000 1999 2000 1999
--------- --------- --------- -------
Manufacturing Services $ 21,185 $20,277 $ 55,994 $ 67,018
Process and Energy 21,113 17,254 63,385 56,571
Information Technology 6,125 13,290 21,117 44,234
Optical Plastics 2,363 2,432 8,278 7,637
Other - 5 140 493
-------- ----------- ----------- -----------
$ 50,786 $ 53,258 $148,914 $175,953
-------- -------- -------- --------
For the quarter and nine months ended September 30, 2000, consolidated
sales decreased by $2,472,000 and decreased by $27,039,000, respectively,
compared to the corresponding periods of 1999. The reduced sales occurred
primarily within the IT Group due to the continuing erosion of the Canadian and
UK IT training business. The reduced sales of the Manufacturing Services Group
for the nine months ended September 30, 2000, was the result of revenue
generated for several large jobs in 1999 that were not replaced with jobs of
similar dollar value in the first quarter ofMarch 31, 2000.
The increased sales within
the Manufacturing Services Group from the third quarter of 1999 was primarily
the result of growth within the Company's automotive sector. The Process and
Energy Group has experienced increased sales for both the quarter and nine
months ended September 30, 2000.
Gross margin
Three months ended Nine months ended
September 30, September 30,
---------------------------------- -------------------------
2000 % 1999 % 2000 % 1999 %
------- --- --------- --- ---------- -- --------- --
Manufacturing Services $ 3,067 14.5 $ 3,717 18.3 $ 7,564 13.5 $11,356 16.9
Process and Energy 3,013 14.3 2,857 16.6 8,472 13.4 8,137 14.4
Information Technology (1,666) 228 17.2 (3,671) 404 .9
Optical Plastics 587 24.8 622 25.6 2,188 26.4 2,023 26.5
Other (180) (188) (421) 87 17.6
------- -------- ------- ---------
$ 4,821 $ 7,236 8.7 $14,132 $22,007
------- ------- ------- -------
The reduction in gross margin of $7,875,000 for the nine months ended
September 30, 2000in 2001 occurred within all segments of GP, as a
result of reducedincreased sales and gross margin percentage. The gross margin for the quarter ended
September 30, 2000 was $2,415,000 lower than the gross margin achieved for the
quarter ended September 30, 1999. The negative gross margin
incurred by the IT Group in 2000 was the result of the continued decrease in
sales of the IT open enrollment business which was subsequently closed in the
third quarter of 2000, and the resulting inability of thethis segment to cover its
infrastructure and operating costs and closing costs. The reduced gross margin percentage in the Process &
Energy Group for the nine months ended September 30, 2000 was primarily the
result of a change in the mix of services provided, including reduced product
sales, which historically generate higher gross margin percentages. The
Manufacturing Services Group has a reduced gross margin percentage in 2000
compared to the third quarter and nine months of 1999, due to the lack of plant
launch and other large projects, which have historically generated higher gross
margins.
Selling, general and administrative expenses
For the quarter and ninethree months ended September 30, 2000,March 31, 2001, selling, general and administrative
(SG&A) expenses were $11,009,000 and $23,879,000$4,099,000 compared to $7,013,000 and $21,429,000 incurred$5,291,000 in the first quarter and nine months
ended September 30, 1999.of
2000. The increasedreduction in SG&A of $1,192,000 in 20002001 is primarily attributable to a non-cash
credit of $1,145,000 relating to the $4,563,000Company's Millennium Cell Deferred
Compensation Plan and $6,163,000a reversal of non-cash compensation expensethe Company's restructuring charge of
$373,000, offset by legal and other costs related to a
compensation plan offered to certain of its employees recorded in the quarter
and nine months ended September 30, 2000, which was partially offset by reduced
costs resulting from the restructuring plans which occurred in 1999. In
addition, the Company continued to reduce SG&A at the corporate level.
Company's IT business.
Interest expense
For the quarter and ninethree months ended September 30, 2000,March 31, 2001, interest expense was $1,454,000 and $4,114,000$1,400,000
compared to $1,114,000 and $3,205,000$1,290,000 for the quarter and ninethree months ended September 30, 1999.March 31, 2000. The increased
interest expense in 20002001 was primarily attributable to an increase in the
Company's outstanding indebtedness.
Investment and other income, net
For the three months ended March 31, 2001, investment and other income, net was
$490,000 as compared to $331,000 for the quarter ended March 31, 2000. The
increase was primarily attributable to increased interest ratesequity income recognized on
investments in the
current period.
Investment and other income, net
Investment and other income (loss), net were net losses of $2,373,000
and $2,092,000 for the quarter and nine months ended September 30, 2000
primarily from $2,847,000 and $2,959,000 of equity losses. Of these amounts
$2,400,000 is attributable20% to the write-down of the Company's investment in the
Five Star Group due to an "other than temporary" decline in the value of this
investment. These amounts were50% owned companies, partially offset by losses on the
Company's other income. For 1999 the
Company recognized a $1,000,000 loss of its investment in GSE Systems, Inc. and
had other losses of $1,332,000 and $590,000 for the quarter and nine months
ended September 30, 1999.investments.
Income tax expense
In the quarter and nine months ended September 30, 2000,March 31, 2001, the Company recorded an income tax benefit
of $8,579,000 and $8,204,000, respectively,$182,000, which represents athe Company's estimated effective federal, income tax benefit offset by state
and local, and foreign income taxes. Due to the increase in value of the Company's investment in
Millennium, the Company now anticipates it has the ability to utilize current
net operating loss carryforwards. As such the Company now anticipates that it
has the ability to utilize approximately $14,000,000 of net deferred tax assets
consists primarily of domestic net operating loss carryforwards against which a
valuation allowance was previously provided. This deferred tax benefit was
offset by an increase in the valuation allowance of approximately $6,000,000
related to Canadian net operating losses which are not anticipated to be
utilized and have therefore been reserved against.rate. In the quarter and nine
months ended September 30, 1999,March 31, 2000, the
Company recorded an income tax expense of $262,000 and $1,119,000, respectively,$196,000, which represents primarilythe
applicable federal, state and local, and foreign tax expense.
Liquidity and capital resources
At September 30, 2000,March 31, 2001, the Company had cash and cash equivalents totaling
$3,890,000.$1,940,000. The Company has sufficient cash and cash equivalents, marketable
current andsecurities, 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 quarter ended March 31, 2001, the Company's working capital increased by
$2,075,000 to $3,909,000, primarily reflecting the effect of increases in
Accounts and other receivables, offset by reductions in Accounts payable and
accrued expenses.
The decrease in cash and cash equivalents of $178,000$547,000 for the nine
monthsquarter ended
September 30, 2000March 31, 2001 resulted from cash providedused in operations of $574,000 and financing
activities of $100,000 and$498,000, partially offset by cash provided by operations of $1,161,000, offset
by cash used in investing
activities of $1,724,000.$332,000. Cash provided byused in financing activities consisted primarily of proceeds from the sale of convertible
debentures and Class B Stock partially offset by
repayments of short-term borrowings and long-term debt.
Due todebt, partially offset by
proceeds from the Company's restructuring charges and operating losses in 1999MXL mortgage.
Based upon the ongoing discussions with its banks and the operating losses and asset impairment charge in the nine months of 2000
primarily related to General Physics' IT Group,fact that the Company
was nothas been in compliance with respect to theall financial covenants inunder its creditamended and
restated agreement, asthe management of
September 30, 1999, December 31, 1999, March 31, 2000 and June 30, 2000. The
Company and its lenders entered into agreements dated as of April 12, 2000 and
July 31, 2000, providing for waivers of compliance with such covenants at each
of those four dates. Effective as of August 29, 2000, the Company and certain of
its wholly owned subsidiaries entered into an Amended and Restated secured
$63,500,000 Revolving Credit and Term Agreement (the "Amended Agreement") which
amended in its entirety the Company's former credit agreement. The Amended
Agreement reduced the commitment pursuant to the revolving facility to
$50,000,000 (subject to borrowing base limitations specified in the Amended
Agreement), however the Amended Agreement did not change the payment terms of
the term loan which currently has an outstanding balance of $13,500,000 as well
as the expiration date on bothbelieves that the credit
facility and the term loan. The
interest rates increased on both the revolving credit facility and the term loan
to prime plus 1.25% (increased from .50%) and Eurodollar plus 2.75% (increased
from 2.00%). The Amended Agreement provides for additional security consisting
of certain real property, personal property and all substantially marketable
securities owned by the Company and its subsidiaries and also contains certain
restrictive covenants, including the prohibition on future acquisitions, and
provides for mandatory prepayment upon the occurrence of certain events. The
Amended Agreement contains revised minimum net worth, fixed charge coverage,
EBITDA and consolidated liabilities to tangible net worth covenants. Although
there can be no assurance, the Company anticipates that it will satisfy the
revised covenants in the future. At September 30, 2000, the Company had
approximately $10,600,000 available to be borrowed under the Amended Agreement.
The Company believes that cash generated from operations and borrowing
availability under its credit agreement and marketable securities will be sufficient to fund the working capital needs of the Company.
Recent accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting
Standard No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities." This Statement establishes accounting and reporting standards for
derivatives as either assetsextended or liabilities. It requires that an entity
recognizes all derivatives as either assets or liabilities in the statement of
financial position and measures those instruments at fair value. This Statement
as amendedrefinanced by SFAS 137 and 138 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company will adopt SFAS 133, when
effective, which is currently anticipated to be by January 1, 2001. The Company
is still evaluating its position with respect to the use of derivative
instruments.
In December 1999, the SEC issued Staff Accounting Bulleting No.101,
"Revenue Recognition in Financial Statements" ("SAB No. 101") which summarizes
certain of the SEC staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. SAB No. 101, amended
by SAB 101A issued on March 24, 2000, requires registrants to adopt the
accounting guidance contained therein by no later than the second fiscal quarter
of the fiscal year beginning after December 15, 1999. On June 26, 2000, the SEC
issued SAB No. 101B which postponed the implementation of SAB No. 101 until the
fourth quarter of 2000. The Company does not believe that the implementation of
SAB No. 101 will have a significant effect on its results of operations.2001 (See
Note 4).
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 arewill 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
March 31, 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
10.10.1 Amended and Restated Credit AgreementNote dated April 1, 2001 in the amount
of $5,000,000 payable by and amongFive Star Products, Inc. to JL
Distributors, Inc, a wholly owned subsidiary of GP Strategies
Corporation, General Physics Canada, Ltd., The Lenders Party hereto, and Fleet
Bank, National Association, as Agent, as Issuing Bank and as Arranger dated as
of June 15, 1998, as amended and restated as of August 29, 2000.Corporation.
b. Reports
None
GP STRATEGIES CORPORATION AND SUBSIDIARIES
September 30, 2000March 31, 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: November 20, 2000May 15, 2001 BY: Jerome I. Feldman
President and&
Chief Executive Officer
DATE: November 20, 2000May 15, 2001 BY: Scott N. Greenberg
Executive Vice President and&
Chief Financial Officer