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, 2001 orMarch 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)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 6, 2001:May 17, 2002:
Common Stock 12,695,04614,616,084 shares
Class B Capital 900,0001,200,000 shares
GP STRATEGIES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
September 30, 2001March 31, 2002 and December 31, 20002001 1
Consolidated Condensed Statements of Operations -Operations-
Three Months Ended March 31, 2002 and Nine Months Ended September 30,
2001 and 2000 3
Consolidated Condensed Statements of Cash Flows -
NineThree Months Ended September 30,March 31, 2002 and 2001 and 2000 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 1620
Qualification Relating to Financial Information 24
Part II. Other Information 2325
Signatures 2426
PART I. FINANCIAL INFORMATION
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
September 30,March 31, December 31,
2002 2001
2000
------------- ------------------- -----------
ASSETS unaudited)(unaudited) *
Current assets
Cash and cash equivalents $ 3,8581,665 $ 2,487
Trading securities 8,8301,705
Accounts and other receivables 43,542 46,38841,841 41,610
Inventories 1,892 1,6881,658 1,734
Costs and estimated earnings
in excess of billings on uncompleted contracts 10,426 12,5159,132 8,579
Prepaid expenses and other current assets 5,324 3,955
---------4,386 3,780
---------- -----------
Total current assets 65,042 75,86358,682 57,408
--------- -------------------
Investments, advances and marketable securities 27,642 62,093
--------- ---------24,626 30,400
---------- ----------
Property, plant and equipment, net 9,392 9,787
--------- --------8,373 8,718
---------- -----------
Intangible assets, net of accumulated amortization
of $34,303$35,066 and $31,618 58,224 59,992
---------$35,031 56,856 56,846
---------- ----------
Deferred tax asset 6,011 -
--------- --------------6,185 4,289
---------- -----------
Other assets 4,336 4,843
---------5,899 6,230
---------- -----------
$170,647 $212,578$160,621 $163,891
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 20002001 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)
September 30,March 31, December 31,
2002 2001
2000
----------- --------------------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities:liabilities
Current maturities of long-term debt $ 1,442579 $ 1,311637
Short-term borrowings 32,477 36,16229,496 32,338
Accounts payable and accrued expenses 19,367 25,23420,517 17,089
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,886 11,3229,211 10,094
--------- -----------------
Total current liabilities 62,172 74,02959,803 60,158
-------- ---------
Long-term debt less current maturities 11,337 16,301
-------- --------
Deferred tax - 6,5046,106 6,226
--------- ---------- ---------
Other non-current liabilities 2,678 3,226
--------- ---------1,201 1,564
---------- ----------
Stockholders' equity
Common stock 127 125128 128
Class B capital stock 8 89 9
Additional paid in capital 181,407 179,955180,363 180,078
Accumulated deficit (85,657) (86,994)(87,734) (87,939)
Accumulated other comprehensive income 6,388 27,2375,442 8,364
Note receivable from stockholder (4,095) (4,095)
Treasury stock, at cost (3,718) (3,718)
---------- ----------(602) (602)
--------- -----------
Total stockholders' equity 94,460 112,518
----------93,511 95,943
--------- $170,647 $212,578---------
$160,621 $163,891
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 20002001 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 Nine months
ended September 30, ended September 30,
--------------------- ---------------------
2001 2000 2001 2000
------- ------ ------- ---------
Sales $ 44,713 $ 50,786 $144,174 $148,914
Cost of sales 40,030 45,965 126,158 134,782
-------- -------- -------- ---------
Gross margin 4,683 4,821 18,016 14,132
Selling, general & administrative expenses (3,576) (11,009) (15,072) (23,879)
Interest expense (1,111) (1,454) (3,666) (4,114)
Investment and other income (loss), net 342 (2,373) 1,123 (2,092)
Gain on marketable securities 1,049 20,780 1,476 21,248
Asset impairment charge - (771) - (19,245)
Restructuring reversals (charges) 206 (8,600) 606 (8,600)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)
---------- --------- ---------
Income (loss) before income taxes 1,593 1,394 2,483 (22,550)
Income tax (expense) benefit (746) 5,155 (1,146) 4,780
--------- --------- --------- --------
Net income (loss) $ 847 $ 6,549 $ 1,337 $(17,770)
======== ======== ======== ========
Net income (loss) per share:
Basic and diluted $ .06 $ .52 $ .10 $ (1.44)
========= ========== ========== ========
Dividends per share none none none none
======== ========== ======== =========
See accompanying notes to the consolidated condensed financial statements.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
NineThree months
ended September 30,March 31,
------------------------------
2002 2001
2000
-------- ----------------- ----------
Cash flows from operations:operating activities:
Net income (loss) $ 1,337 $(17,770)205 $ (244)
Adjustments to reconcile net lossincome (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,516 4,986
Proceeds from sale of trading securities 10,827 684
Gain on trading securities (1,476) (21,248)
Issuance of stock for profit incentive plan 1,141 1,027
Equity (income)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 (309) 2,959
Non-cash compensation (income) expense (3,047) 6,163
Non-cash consultancy charge 500 -
Asset impairment charge - 19,245
Restructuring (reversals) charges (606) 8,600
Deferred tax benefit (expense) 732 (5,535)575 (241)
Changes in other operating items (1,793) 2,050847 (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 operatinginvesting activities 11,822 1,161864 1,940
--------- -------- ---------
Cash flows from investingfinancing activities:
Additions to property, plant & equipment (1,221) (562)
Additions to intangible assets, net (917) (454)Net repayments of short-term
borrowings (2,842) (1,882)
Payments of long-term debt (178) (296)
Proceeds from disposal of fixed assets - 507
(Increase) decrease of investments and other assets, net 91 (1,215)
--------MXL mortgage 1,680
----------- ---------
Net cash used for investingin financing activities (2,047) (1,724)(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
Nine months
ended September 30,March 31,
----------------------------
2002 2001
2000
----------- -------
Cash flows from financing activities:
Repayment of short-term borrowings (3,685) (2,671)
Proceeds from sale of Class B Stock - 1,200
Proceeds from subordinated convertible debentures - 2,640
Proceeds from mortgages 2,930 -
Repayment of long-term debt (7,763) (1,258)
Exercise of common stock options and warrants - 189-------- ---------
--------
Net cash (used in) provided by financing activities (8,518) 100
-------- --------
Effect of exchange rate changes on
Cash and cash equivalents 114 285
--------- --------
Net increase (decrease)decrease in cash and cash
equivalents 1,371 (178)$ (40) $ (547)
Cash and cash equivalents at the
beginning of the periods 1,705 2,487
4,068
-------- ----------------- ---------
Cash and cash equivalents at the end
of the periods $ 3,8581,665 $ 3,890
======== ========1,940
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 3,118536 $ 4,253
========1,173
========= ========
Income taxes $ 289144 $ 361109
========= =========
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 2001 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, 2002
and 2001 and 2000 are as follows (in thousands, except per share amounts):
Three months Nine months
ended September 30, ended September 30,
-------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
Basic and Diluted EPS
Net income (loss) $ 847 $ 6,549 $ 1,337 $ (17,770)
Weighted average shares
outstanding basic 13,169 12,692 13,087 12,302
Weighted average shares
outstanding, diluted 13,193 12,747 13,111 12,564
Basic and diluted net income
(loss) per share $ .06 $ .52 $ .10 $ (1.44)
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 stockholders.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 ninethree months ended September 30, 2000,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 asdue to the Company's net loss, which makes the
effect of potentially dilutivesuch 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 anti-dilutive.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)
3.2. Long-term debt
Long-term debt consists of the following (in thousands):
September 30,March 31, December 31,
2002 2001 2000
--------- ----------
Term loan (See Note 5) $ 5,723 $13,313
MortgagesMortgage on MXL facilities 2,849Pennsylvania facility $ 1,580 $ 1,605
Mortgage on MXL Illinois facility 1,231 1,237
Senior subordinated debentures 670 758599 641
Subordinated convertible note 2,640 2,640
Other 897 901635 740
--------- -----------
12,779 17,6126,685 6,863
Less current maturities (1,442) (1,311)
--------(579) (637)
--------- ----------
$11,337 $16,301
======= =======$ 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 and matures on March 8, 2011, when the remaining amount
outstanding of approximately $680,000 is due in full.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 and Restated Agreement
described below in Note 5.4.
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 in the amount of $1,250,000.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
and
Restated Agreement described below in Note 5.4.
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. Comprehensive income (loss)
The following are the components of comprehensive income (loss) (in thousands):
Three months ended Nine months ended
September 30, September 30,
--------------------------------------------------------
2001 2000 2001 2000
-------- --------- -------- ------------
Net income (loss) $ 847 $ 6,549 $ 1,337 $(17,770)
--------- -------- --------- --------
Other comprehensive (loss) income before tax:
Net unrealized gain (loss) on
available-for-sale-securities (34,374) 103,901 (34,183) 104,500
Foreign currency translation adjustment (129) 670 114 795
---------- ---------- ---------- ---------
Other comprehensive (loss) income,
before tax (34,503) 104,571 (34,069) 105,295
Income tax benefit (expense) relating to
items of other comprehensive income 13,351 (40,789) 13,220 (40,833)
--------- --------- --------- ---------
Comprehensive (loss) income, net of tax $ (20,305) $ 70,331 $ (19,512) $ 46,692
========= ======== ========= ========
The components of accumulated other comprehensive income are as follows:
September 30, December 31,
2001 2000
--------- ---------
Net unrealized gain on
available-for-sale-securities $ 11,429 $ 45,612
Foreign currency translation adjustment (567) (681)
---------- --------
Accumulated other comprehensive income
before tax 10,862 44,931
Accumulated income taxes related to
items of other comprehensive income (4,474) (17,694)
--------- --------
Accumulated other comprehensive
income, net of tax $ 6,388 $ 27,237
======== ========
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Short-term borrowings
The Company and General Physics Canada Ltd. (GP Canada), an Ontario corporation
and a wholly-owned subsidiarycertain of General Physics,its wholly owned subsidiaries entered into a credit
agreement, dated as of June 15, 1998, as amendedan Amended
and restated as of August 31,
2000Restated secured $40,000,000 Revolving Credit Agreement (the "Amended and Restated
Agreement") with various banks. Asbanks 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 June 15,
2001,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 GP Canada entered intoits 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 Third Amendment toprohibition on future acquisitions, and
provides for mandatory prepayment upon the Amended
and Restated Agreement (the "Third Amendment"), which among other things, (i)
extended the maturity dateoccurrence of the revolving credit notes to October 15, 2001,
(ii) reduced the amount available under the revolving credit loan to
$42,000,000, (iii) amended the interest rate from LIBOR plus 2.50% to LIBOR plus
2.95% and (iv) amended certain financial covenants. The Third Amendment required
certain mandatory asset sales and refinancings by August 30, 2001, which
condition has been satisfied by the Company.
As of October 15, 2001, the Company and GP Canada entered into the Fourth
Amendment to the Amended and Restated Agreement with the various banks (the
"Fourth Amendment"), which among other things, (i) extended the maturity date of
the revolving credit notes to December 14, 2001, and (ii) required that the
Company sign a commitment letter for a new credit facility on or before October
22, 2001. The Company satisfied this requirement by signing a commitment letter
for a three year $49.5 million revolving credit and term loan agreement with a
financial institution.
The Company utilized proceeds from asset sales and refinancings to reduce its
term loan from $13,313,000 at Decemberevents. At
March 31, 2000 to $5,723,000 at September 30,
2001. The term loan is payable in quarterly installments of $187,500, with a
final payment due on June 15, 2003.
At September 30, 2001,2002, the amount outstanding under the revolving credit facility is
$32,477,000$29,361,000 and is included in Short-termshort-term borrowings in the Consolidated
Condensed Balance Sheet. At September 30, 2001,March 31, 2002, the Company had approximately $8,000,000$6,853,000 available
to be borrowed under the Credit Agreement and was in compliance with all
of its financial covenants.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6.5. Business segments
TheEffective January 1, 2002, the operations of the Company currently consist of
the following fourthree business segments, by which the Company is managed.
The Company's principal operating subsidiary is General Physics Corporation
(GP). GP is a performance improvementworkforce development company that assists productivity drivenimproves the effectiveness of
organizations to maximize workforce performance by integrating people, processesproviding training, management systems and technology. GP is a total solutions provider for strategic training,
engineering consulting and technical support 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 1000500 companies, government, utilitiesmanufacturing, 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 consistsconsisted of Hydro Med Sciences (HMS), a drug
delivery company, which is engaged in Phase III clinical trials for the
treatment of prostateprostrate cancer. Financial informationAs 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 threeyear ended
December 31, 2001 the operating results of HMS were consolidated within the
Consolidated Condensed Statement of Operations. However, effective January 1,
2002 and nine months ended September 30, 2000 has
been restated to show all informationas 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 Manufacturing Services Group and
Process and Energy Group that were combined into the Manufacturing and Process
Group.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)
6.5. Business segments (Continued)(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,
---------------------- ---------------------
2001 2000 2001 2000
-------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
------- -------
Sales
Manufacturing and Process $ 39,458 $42,298 $126,791 $119,379
Information Technology 2,495 6,125 8,601 21,117
Optical Plastics 2,758 2,363 8,777 8,278
Hydro Med and Other 2 - 5 140
----------- ------------ ------------ -----------
$ 44,713 $ 50,786 $144,174 $148,914
-------- -------- -------- --------
Gross margin
Manufacturing and Process $ 3,682 $ 6,080 $ 14,888 $ 16,036
Information Technology 535 (1,666) 1,303 (3,671)
Optical Plastics 608 587 2,268 2,188
Hydro Med and Other (142) (180) (443) (421)
---------- --------- ---------- ----------
$ 4,683 $ 4,821 $ 18,016 $ 14,132
--------- -------- -------- --------
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. 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,
2002 2001
2000 2001 2000
--------- --------- --------- -----------------
United States $ 41,29337,579 $ 44,787 $133,418 $127,88745,385
Canada 506 2,131 2,462 8,158299 1,066
United Kingdom 1,739 2,706 5,139 9,4671,773 1,759
Latin America 1,175 1,162 3,155 3,402and other 575 904
-------- ---------
---------- --------- ----------
$ 44,71340,226 $ 50,786 $144,174 $148,914
-------- --------49,114
-------- --------
Information about the Company's identifiable assets in different geographic
regions, is as follows (in thousands):
September 30,
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, 2000
--------- ----------------
United States $162,785 $205,797
Canada 3,720 3,371
United Kingdom 2,866 1,928
Latin America 1,276 1,482
-------- --------
$170,647 $212,578
-------- --------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. Asset impairment charge and restructuring charge
During 1999,Recently adopted accounting standards
Effective January 1, 2002, the Company adopted restructuring plans, primarily related to its
ITFASB Statement No. 141,
Business segment. The Company took steps in order to change the focus of the
IT group from open enrollment information technology training courses to project
oriented work for corporations, which was consistent with the focus of General
Physics Corporation's (GP) current business. In connection with the
restructuring, the Company recorded a charge of $7,374,000 in 1999.
The Company believed at that timeCombinations, and Statement No. 142, Goodwill and Other Intangible
Assets. Statement No. 141 requires that the strategic initiatives and cost
cutting moves taken in 1999 and the first quarterpurchase method 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 ITaccounting be
used for all business to profitability. Additionally there had
been further impairment to intangible and other assets. In July 2000, as a
result of the continued operating losses incurred by the IT Group,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
determinationprovisions of Statement No. 142. Statement No. 142 also requires that revenues would not increaseintangible
assets with definite useful lives be amortized over their respective estimated
useful lives to profitable levels,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 decided to close its open enrollment IT businesshad unamortized
goodwill in the third quarteramount of 2000. As a result,$56,000,000. The Company is currently evaluating the
Company recorded asset impairment charges of $19,245,000
during the nine months ended September 30, 2000, related to write-offs of
intangible assets, property, plant and equipment, and other assetsimpact of the IT
Group.
In addition,adoption of this statement, however, at the Company recorded an $8,600,000 restructuring charge, netdate of reversals,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
2000. During the period ended September 30, 2001 and the year
ended December 31, 2000, the Company utilized $2,454,000 (including current
period adjustments of $288,000) and $3,884,000, respectively, and reversed
$894,000 and $180,000, respectively. Of the remaining $3,805,000 balance at
September 30, 2001 and $6,865,000 at December 31, 2000, $1,667,000 and
$3,639,000, respectively, were included in Accounts payable and accrued expenses
and $2,138,000 and $3,226,000, respectively, were included in Other non-current
liabilities in the Consolidated Condensed Balance Sheet.accounting principle.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Asset impairment charge and restructuring charge (Continued)Recently adopted accounting standards (continued)
The componentschanges in the carrying amount of acquired intangible assets for the
2001 and 2000 restructuring chargesthree-month period ended March 31, 2002 are as follows (in
thousands):follows:
Severance Lease and
and related related Contractual Other
benefits obligations obligations costsManufacturing & Information Optical
Process Technology Plastics Corporate Total
- --------------------------------------------------------------------------------------------------------------------Intangible assets:
Balance as of:
Balance December 31, 20002001 $25,411 $ 1427,471 $ 5,298394 $35,358 $68,634
Additions 71 71
Other (29) (29)
- ------------------------------------------------------------------------------------------------------------
March 31, 2002 $25,482 $ 1,4257,442 $ 394 $35,358 $68,676
- $ 6,865
- --------------------------------------------------------------------------------------------------------------------
Utilization (205) (1,745) (295) (209) (2,454)
Reversal of restructuring
charges during 2001 (495) (399) (894)
Other Adjustments
during 2001 77 - 2 209 288
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Manufacturing & Information Optical
Process Technology Plastics Corporate Total
Accumulated Amortization:
Balance September 30,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 $ 3,0586,240 $ 7331,332 $ 213 $ 4,035 $11,820
- ------------------------------------------------------------------------------------------------------------
Balance as of
March 31, 2002 $19,242 $ 3,8056,110 $ 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
===================================================================================================================================
The remaining amounts
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 had been accrued for severanceis
no longer recorded in accordance with Statement No. 142 and related benefits
and contractual obligations will be expended by December 31, 2002. Lease
obligations are presented at their present value, net of assumed sublets.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 4,3, 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. In February 2001, the defendants filed answers denying liability. No
counterclaims against the plaintiffs have been asserted. The case is currently
in discovery.
The complaint, which is pending in the New York State Supreme Court, alleges
that the defendants created a doctored budget to conceal the poor performance of
the United Kingdom operation of Learning Technologies. The complaint also
alleges that the defendants represented that Learning Technologies would
continue to receive business from Systemhouse even though defendants knew that
the sale of Systemhouse to EDS was imminent and that such business would cease
after such sale. 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 eventevents (continued)
Pursuant to an agreement dated as of October 19, 2001 (the "Stock Purchase
Agreement"),May 3, 2002, the Company has sold to an institutional investor100,000 shares of
Common Stock (the "Investor""Geller Common Shares")
300,000 shares (the "Shares") of Class B Capital Stock of the Company for an aggregate
purchase price of $900,000. Upon the disposition of any of the Shares
(other than$350,000 to an affiliate of the Investor who agrees to be bound by the
provisions of the Stock Purchase Agreement) or at the request of the Board of
DirectorsMarshall Geller, a director of the Company, the Investor is required to exercise the right to
convert all of the Shares then owned by the Investor into an equal number of
shares of Common Stock of the Company (the "Underlying Shares").in a
private placement transaction. The Company is required, at its expense, to file,
not later than January 15,September 30, 2002, a registration statement to register under
the Securities Act of 1933 (the
"Securities Act") the resale by the InvestorMr. 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 commercially
reasonable efforts to cause such registration statement to become effective
under the Securities ActAct.
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 earliest possible date. OnBoard in his or her capacity as a member of the
Board; (d) take any date prior to October 19, 2003 duringaction which the Investor is not able to resell
the Underlying Shares pursuant to such registration statement, the Investor has
the right to requiremight obligate the Company to purchase from the Investor all, but not less
than all,make a public
announcement regarding any of the Shares and Underlying Shares then held by the Investor for a
purchase price (the "Put Price") equaltypes of matters set forth in (a) above; or
(e) enter into any discussions or arrangements with any third party with respect
to the product of (i) the number of
Shares and Underlying Shares owned by the Investor and (ii) the current market
price per share of Common Stockany of the Company. The Company may pay the Put
Price by delivering to the Investor, at the option of the Company, (i) cash,
(ii) shares of Millennium Cell Inc. (the "Millennium Cell Shares") owned by the
Company with a current market price equal to the Put Price, or (iii) a
combination of cash and Millennium Cell Shares.foregoing.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONSResults of Operations
Overview
During the firstThe Company has three quarters of 2000, the Company had five operating business segments. However, inTwo of these segments, the fourth quarter of 2000, as a result of organizational
and operational changes at General Physics and the shut down of the IT open
enrollment business in the third quarter of 2000, the Company combined the
Manufacturing Services Group with the Process and Energy Group. The discussion
and disclosure that follows reflects that the Manufacturing Services Group and
the Process & Energy segments being combined as of January 1, 2000 to form the
Manufacturing & Process Group. The
Manufacturing & Process Group and the IT Group, are managed through the
Company's principal operating subsidiary General Physics and the third segment through
its operating subsidiary MXL Industries and
the fourth through its subsidiary Hydro Med Sciences.Industries. In addition, the Company holds a number
of investments in publicly held companies, including publicly traded stock in
Millennium Cell Inc.
General PhysicsInc 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 performance improvementworkforce development company that assists productivity
drivenimproves the effectiveness of
organizations to maximize workforce performance by integrating people,
processesproviding training, management systems and technology. General Physics is a total solution provider for
strategic training, engineering consulting and technical support 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 1000500 companies, government, utilitiesmanufacturing, process and energy
industries, and other commercial and government customers.
General Physics consists of two segments: the Manufacturing & Process Group and
the IT Group.
For the quarter ended September 30, 2001, theThe Company had net income before income taxes of $1,593,000 compared to net income before taxes of $1,394,000$373,000 for the quarter ended
September 30, 2000. TheMarch 31, 2002 compared to net loss before taxes of $426,000 for the quarter
ended March 31, 2001. Net income inbefore taxes for the thirdfirst quarter of 2001 was
attributable to the $1,049,000ended March
31, 2002 included a $440,000 gain primarily from the sale of the Company's marketable
securities of Millennium Cell Inc. and a non-cash credit of $2,774,000$557,000 relating to
the Company's Deferred Compensation Plan (which fluctuates based on the market value
of the Millennium Cell shares). This was partially offset by approximately
$550,000 (of which $250,000 was non-cash) relating to fees and options granted
to a financial consultant and a loss at the Company's Hydro Med Sciences
subsidiary of approximately $884,000. For the quarter ended September 30, 2000,
the Company had income before income taxes of $1,394,000. This was primarily
attributed to income of $20,780,000 on the Company marketable shares of
Millennium Cell offset by a $771,000 asset impairment charge, $8,600,000
Restructuring Charge, a $4,563,000 non-cash compensation expense related to the
Company's deferred compensation plan and the continued operating losses of the
Company IT open enrollment business which was closed in the third quarter of
2000.
For the nine months ended September 30, 2001, the Company had income before
income taxes of $2,483,000 compared to a loss before income taxes of $22,550,000
for the nine months ended September 30, 2000. The nine months ended September
30, 2001 included a $1,476,000 gain from marketable securities and a non-cash
credit of $3,047,000 relating to the Company's Deferred Compensation Plan, offset by a non-cash
equity loss of approximately $2,500,000$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 Sciences Division.
The operating loss for the nine months ended September 30, 2000, was primarily
due to an Asset impairment charge of $19,245,000 and a $8,600,000 Restructuring
charge. These charges were the result 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, for the nine months ended September 30, 2000, the Company also
recorded a $6,163,000 non-cash compensation expense related to a deferred
compensation plan offered to certain of its employees which is included in
selling, general and administrative expenses.
Three months ended Nine months ended
September 30, September 30,
---------------------- ------------------------
2001 2000 2001 2000
-------Other 2
-------- -----------
$40,226 $49,114
------- -------
Sales
Manufacturing and Process $ 39,458 $ 42,298 $126,791 $119,379
Information Technology 2,495 6,125 8,601 21,117
Optical Plastics 2,758 2,363 8,777 8,278
Hydro Med and Other 2 - 5 140
-------- ---------- ------------ -----------
$ 44,713 $ 50,786 $144,174 $148,914
-------- -------- -------- --------
For the quarter and nine months ended September 30, 2001,March 31, 2002, consolidated sales decreased by $6,073,000$8,888,000
to $44,713,000$40,226,000 from $50,786,000 and $4,740,000 from $148,914,000$49,114,000 in the corresponding quarter of 2001. The
decrease in sales in 2002 was primarily attributable to $144,174,000, respectively,a reduction in sales
from the corresponding periods in 2000.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 decreased salesoverall decrease which began in the third quarter of 2001 within the Manufacturing & Process
Group was
primarilyalso due to decreased salesthe continued downturn in the Company's manufacturing
services and waseconomy compounded by the effects of
the events of September 11, 2001.
In addition, for the quarterGross 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 nine months ended September 30, 2001, revenues
were affected by reduced sales in the IT Group resulting from the Company's
decision to close the open enrollment business in the third quarter of 2000 and
focus on providing training for Fortune 1000 manufacturing and process clients.
Three months ended Nine months ended
September 30, September 30,
------------------------------------ --------------------------------
2001 % 2000 % 2001 % 2000 %Other (156)
------- ---------- -------- --------
$ 5,448 13.5 $ 6,359 12.9
------- -------- ------- ----- -------- ----- ------- ----- ------- -----
Gross margin
Manufacturing and Process $ 3,682 9.3 $ 6,080 14.4 $14,888 11.7 $16,036 13.4
Information Technology 535 21.4 (1,666) - 1,303 15.1 (3,671) -
Optical Plastics 608 22.0 587 24.8 2,268 25.8 2,188 26.4
Hydro Med and Other (142) - (180) - (443) - (421) -
-------- ------ ---------------- ------- ------ -------- -------
$ 4,683 10.5 $ 4,821 9.5 $18,016 12.5 $14,132 9.5
------- ---- ------- ---- ------- ---- ------- ----
Consolidated gross margin of $4,683,000$5,448,000 or 10.5%13.5% of sales, for the quarter ended
September 30, 2001,March 31, 2002, decreased by $138,000$911,000 compared to the consolidated gross margin
of $4,821,$6,359,000, or 9.5%12.9% of sales, for the quarter ended September 30, 2000.March 31, 2001. The
decreaseddecrease in gross margin for the quarter ended September 30, 2001in 2002 occurred within all segments of GP, as a result
of decreased sales for the slow down in the automotive sector of the Management and Process
Group as well as the impact of the effects of September 11, 2001. For the nine
months ended September 30, 2001,period. The gross margin increasedpercentage improved by $3,884,000 from
$14,132,000.6
percentage points due to $18,016,000. The increased gross margin for the nine months ended
September 30, 2001 occurred as a result of the negative margin in the IT Group
in 2000 which was offset by the impact of the effects of September 11, 2001 and
a slow down in the automotive sector of the business in 2001.Company's continued efforts to reduce costs.
Selling, general and administrative expenses
For the quarterthree months ended September 30, 2001,March 31, 2002, Selling, general and administrative
(SG&A) expenses were $3,576,000$4,540,000 compared to $11,009,000$4,472,000 in the thirdfirst quarter ended September 30, 2000.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 $7,433,000 in 2001 is
attributable$401,000 due to the
closingdeconsolidation of the Company's open enrollment IT operationsHMS and goodwill amortization expense of $756,000 in the
third quarter of 2000,prior year which is not included in the current year in accordance with SFAS No.
142 Goodwill and a credit of $2,774,000 (as compared to a
$4,563,000 charge for the quarter ended September 30, 2000) relating to the
Company's Deferred Compensation Plan. For the nine months ended September 30,
2001, Selling, general and administrative expenses decreased by $8,807,000 from
$23,879,000 to $15,072,000 resulting from a $3,047,000 credit for the period
ended September 30, 2001 (as compared to a charge of $6,163,000 for the period
ended September 30, 2000) relating to the Company's Deferred Compensation Plan,
offset by costs attributable to the closing of the open enrollment IT
operations.Other Intangible Assets
Interest expense
For the quarterthree months ended September 30, 2001,March 31, 2002, interest expense was $1,111,000$754,000
compared to $1,454,000$1,400,000 for the quarterthree months ended September 30, 2000.March 31, 2001. The decreaseddecrease
in interest expense in 20012002 was primarily attributable to both a decrease in the
Company's outstanding indebtedness and a reduction in variable interest rates. For the
nine months ended September 30, 2001, there was a decrease in interest expenses
of $448,000 from $4,114,000 to $3,666,000 due to the reduction of indebtedness
in the second quarter of 2001.
rates offset by
increased fees.
Investment and other income (loss), net
For the three and nine months ended September 30, 2001,March 31, 2002, investment and other income (loss),loss, net
was $342,000 and $1,123,000a loss of $435,000, as compared to $(2,373,000) and
$(2,092,000)income of $490,000 for the quarter and nine months ended
September 30, 2000.March 31, 2001. The increase in investment and other incomedecrease was primarily attributable to increasedan equity loss recognized on
HMS of $735,000, and reducted equity income, recognizednet on investments in 20% to 50% owned companies. The
quarter and nine months ended 2000 had a $2,400,000 write-down of the Company's investment in the Five Star Group.other equity
investments.
Income tax expense
For the quarter and ninethree months ended September 30, 2001,March 31, 2002, the Company recorded an income tax
expense of $746,000 and $1,146,000,$168,000 as compared to an income tax benefit of $182,000 for the
three months ended March 31, 2001 which represents the Company's
estimated effectiveapplicable federal, state and
local, and foreign tax rate. In the
quarter and nine months ended September 30, 2000, the Company recorded an income
tax benefit of $5,155,000 and $4,780,000, respectively, which represents federal
income tax benefit offset by state, local and foreign income taxes. Due to the
increase in value of the Company's investment in Millennium Cell in 2000, the
Company anticipated that it had the ability to utilize net operating loss
carryforwards. As such the Company anticipated that it had the ability to
utilize approximately $11,000,000 and net deferred tax assets consisting
primarily of domestic net operating loss carryforwards against which a valuation
allowance was previously provided.expense.
Liquidity and capital resources
At September 30, 2001,March 31, 2002, the Company had cash and cash equivalents totaling
$3,858,000.$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 periodquarter ended September 30, 2001,March 31, 2002, the Company's working capital increased by
$1,036,000$1,629,000 to a net working capitaldeficit of $2,870,000, primarily reflecting the
effect of decreases in Short term Borrowings and Accounts Payable partially
offset by a$1,121,000.
The decrease in marketable securities.
The increase in cash and cash equivalents of $1,371,000$40,000 for the nine monthsquarter ended September 30, 2001March
31, 2002 resulted from cash provided by operationsoperating activities of $11,822,000$1,969,000 and
investing activities of $864,000 offset by cash used forin financing activities of
$8,518,000.$3,020,000. Cash used in financing activities consisted primarily of repayments of
short-term borrowings and the long-term debt, partially offset by proceeds from new MXL
mortgages. Although there can be no assurance, based upon the commitment letter
received by the Company from the financial institution as described in Note 5,
the management of the Company believes that its credit facility agreement will
be refinanced on or before December 14, 2001 (See Note 5).debt.
Recent accounting pronouncements
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.
As of the date of adoption, the Company expects to have unamortized goodwill in
the amount of approximately $56,000,000 and unamortized identifiable intangible
assets in the amount of approximately $1,000,000 both of which will be subject
to the transition provisions of Statements 141 and 142. Amortization expense
related to goodwill was approximately $2,800,000 and $2,000,000 for the year
ended December 31, 2000 and the nine months ended September 30, 2001,
respectively. Because of the extensive effort needed to comply with adopting
Statements 141 and 142, it is not practicable to reasonably estimate the impact
of adopting these Statements on the Company's financial statements at the date
of this report, including whether any transitional impairment losses will be
required to be recognized as the cumulative effect of a change in accounting
principle.
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.
In October 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While statement No. 144 supersedes FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it
retains many of the fundamental provisions of that Statement.
Statement No. 144 also supersedes 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, for the disposal of a segment of a business.
However, it retains the requirement in Opinion 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. By broadening the presentation of
discontinued operations to include more disposal transactions, the FASB has
enhanced management's ability to provide information that helps financial
statement users to assess the effects of a disposal transaction on the ongoing
operations of an entity. Statement No. 144 is effective for fiscal years
beginning after December 15, 2001 and interim periods within those fiscal years.
The Company has not yet determined the impact of adopting this pronouncement on
its financial statements.
Adoption of a Common European Currency
On January 1, 1999, eleven European countries adopted the Euro as their common
currency. From that date until January 1, 2002, debtors and creditors may choose
to pay or to be paid in Euros or in the former national currencies.
On and after January 1, 2002, the former national currencies will cease to be
legal tender.
The Company is currently reviewing its information technology systems and
upgrading them as necessary to ensure that they will be able to convert among
the former national currencies and the Euro, and process transactions and
balances in Euros, as required. The Company has sought and received assurances
from the financial institutions with which it does business that they will be
capable of receiving deposits and making payments both in Euros and in the
former national currencies. The Company does not expect that adapting its
information technology systems to the Euro will have a material impact on its
financial condition or results of operations. The Company is also reviewing
contracts with customers and vendors calling for payments in currencies that are
to be replaced by the Euro, and intends to complete in a timely way any required
changes to those contracts.
Adoption of the Euro is likely to have competitive effects in Europe, as prices
that had been stated in different national currencies become directly comparable
to one another. In addition, the adoption of a common monetary policy throughout
the countries adopting the Euro can be expected to have an effect on the economy
of the region. These competitive and economic effects cannot be predicted with
certainty, and there can be no assurance that they will not have a material
effect on the Company's business in Europe.
Forward-looking statements
The forward-looking statements contained herein reflect GP Strategies'
management's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements, all of which are difficult to predict and many
of which are beyond the control of GP Strategies, including, but not limited to
those risks and uncertainties detailed in GP Strategies' periodic reports and
registration statements filed with the Securities and Exchange Commission.
GP STRATEGIES CORPORATION AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
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
None10.1 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
September 30, 2001March 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: November 14, 2001May 20, 2002 BY: Jerome I. Feldman
Chairman of the Board and
Chief Executive Officer
DATE: November 14, 2001May 20, 2002 BY: Scott N. Greenberg
President &and
Chief Financial Officer