10-Q 1 tenqgp.txt GPSTRATEGIES SECOND QTR 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended June 30, 2001 or [ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number: 1-7234 GP STRATEGIES CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 13-1926739 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9 West 57th Street, New York, NY 10019 (Address of principal executive offices) (Zip code) (212) 826-8500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange act of 1934 during the preceding 12 months (or for such shorter period) that the registrant was required to file such reports and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares outstanding of each of issuer's classes of common stock as of August 6, 2001: Common Stock 12,352,594 shares Class B Capital 800,000 shares TABLE OF CONTENTS GP STRATEGIES CORPORATION AND SUBSIDIARIES Page No. Part I. Financial Information Consolidated Condensed Balance Sheets - June 30, 2001 and December 31, 2000 1 Consolidated Condensed Statements of Operations - Three Months and Six Months Ended June 30, 2001 and 2000 3 Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 2001 and 2000 4 Notes to Consolidated Condensed Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Part II. Other Information 21 Signatures 22 PART I. FINANCIAL INFORMATION GP STRATEGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands)
June 30, December 31, 2001 2000 ------ ---------- ASSETS (unaudited) * Current assets Cash and cash equivalents $ 2,153 $ 2,487 Trading securities 8,830 Accounts and other receivables 45,176 46,388 Inventories 1,514 1,688 Costs and estimated earnings in excess of billings on uncompleted contracts 10,422 12,515 Prepaid expenses and other current assets 5,581 3,955 --------- ---------- Total current assets 64,846 75,863 --------- --------- Investments, advances and marketable securities 62,510 62,093 --------- --------- Property, plant and equipment, net 9,873 9,787 --------- -------- Intangible assets, net of accumulated amortization of $33,473 and $31,618 59,063 59,992 --------- ---------- Other assets 4,530 4,843 --------- ----------- $200,822 $212,578 ======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 2000 has been summarized from the Company's audited Consolidated Balance Sheet as of that date. See accompanying notes to the consolidated condensed financial statements. GP STRATEGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Continued) (in thousands)
June 30, December 31, 2001 2000 ----------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) * Current liabilities: Current maturities of long-term debt $ 1,401 $ 1,311 Short-term borrowings 30,093 36,162 Accounts payable and accrued expenses 22,669 25,234 Billings in excess of costs and estimated earnings on uncompleted contracts 11,054 11,322 -------- -------- Total current liabilities 65,217 74,029 -------- --------- Long-term debt less current maturities 12,209 16,301 -------- -------- Deferred tax 6,698 6,504 -------- --------- Other non-current liabilities 2,666 3,226 -------- --------- Stockholders' equity Common stock 127 125 Class B capital stock 8 8 Additional paid in capital 180,674 179,955 Accumulated deficit (86,504) (86,994) Accumulated other comprehensive income 27,540 27,237 Note receivable from stockholder (4,095) (4,095) Treasury stock, at cost (3,718) (3,718) -------- ---------- Total stockholders' equity 114,032 112,518 -------- --------- $200,822 $212,578 ======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 2000 has been summarized from the Company's audited Consolidated Balance sheet as of that date. See accompanying notes to the consolidated condensed financial statements. GP STRATEGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share data)
Three months Six months ended June 30, ended June 30, ---------------- ------------------------ 2001 2000 2001 2000 ------- ------ ------- --------- Sales $ 50,347 $ 50,328 $ 99,461 $ 98,128 Cost of sales 43,373 45,379 86,128 88,817 -------- -------- ------- --------- Gross margin 6,974 4,949 13,333 9,311 Selling, general & administrative expenses (6,997) (7,579) (11,096) (12,870) Interest expense (1,155) (1,370) (2,555) (2,660) Investment and other income (loss), net 291 (50) 781 281 Gain on trading securities 2,203 137 427 468 Asset impairment charge - (18,474) - (18,474) ------------- --------- ------------- --------- Income (loss) before income taxes 1,316 (22,387) 890 (23,944) Income tax expense (582) (179) (400) (375) ---------- ---------- --------- --------- Net income (loss) $ 734 $(22,566) $ 490 $(24,319) ========== ======== ========= ======== Net income (loss) per share: Basic and diluted $ .06 $ (1.85) $ .04 $ (2.02) =========== ======== ========== ========== Dividends per share none none none none ========== =========== ========== =============
See accompanying notes to the consolidated condensed financial statements. GP STRATEGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six months ended June 30, 2001 2000 ------ ------- Cash flows from operations: Net income (loss) $ 490 $(24,319) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 3,042 3,583 Issuance of stock for profit incentive plan 607 754 Non-cash compensation and other expense 523 1,600 Equity (income) loss on investments (296) 229 Proceeds from sale of trading securities 9,395 616 Asset impairment charge 18,474 Gain on trading securities (427) (468) Changes in other operating items (3,179) 208 -------- -------- Net cash provided by operating activities 10,155 677 -------- -------- Cash flows from investing activities: Additions to property, plant & equipment (1,077) (294) Proceeds from disposal of fixed assets 507 Reduction of investments and other assets, net 416 96 -------- --------- Net cash used for investing activities (661) (309) --------- -------- Cash flows from financing activities: Repayment of short-term borrowings (6,069) (3,017) Proceeds from sale of Class B Stock 1,200 Proceeds from MXL mortgage 1,680 Repayment of long-term debt (5,682) (1,020) -------- ------- Net cash used for financing activities (10,071) (2,579) -------- ------- Effect of exchange rate changes on Cash and cash equivalents 243 125 -------- --------
GP STRATEGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued) (Unaudited) (in thousands)
Six months ended June 30, 2001 2000 Net decrease in cash and cash equivalents $ (334) $ (1,468) Cash and cash equivalents at the beginning of the periods 2,487 4,068 -------- -------- Cash and cash equivalents at the end of the periods $ 2,153 $ 2,600 ======== ======== Cash paid during the periods for: Interest $ 2,172 $ 2,980 ======== ======== Income taxes $ 212 $ 311 ========= =========
See accompanying notes to the consolidated condensed financial statements. GP STRATEGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. Earnings per share Income (loss) per share (EPS) for the periods ended June 30, 2001 and 2000 are as follows (in thousands, except per share amounts):
Three months Six months ended June 30, ended June 30, -------------------------- --------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Basic and Diluted EPS Net income (loss) $ 734 $(22,566) $ 490 $(24,319) Weighted average shares outstanding basic 13,089 12,178 13,046 12,043 Weighted average shares outstanding diluted 13,141 13,098 Basic and diluted net income (loss) per share $ .06 $ (1.85) $ .04 $ (2.02)
Basic earnings per share are based upon the weighted average number of common shares outstanding, including Class B common shares, during the period. Class B common stockholders have the same rights to share in profits and losses and liquidation values as common stockholders. In 2000, even though the Company still had stock options and warrants outstanding, diluted earnings per share was not presented due to the Company's net loss, which made the effect of the potentially dilutive securities anti-dilutive. For the three and six months ended June 30, 2001, weighted average shares outstanding, assuming dilution, are 13,056,000 and 13,012,000 shares, respectively. GP STRATEGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) (Unaudited) 2. Long-term debt Long-term debt consists of the following (in thousands): June 30, December 31, 2001 2000 --------- ---------- Term loan (See Note 4) $ 7,769 $13,313 Mortgage on MXL facility 1,655 Senior subordinated debentures 708 758 Subordinated convertible note 2,640 2,640 Other 838 901 -------- ----------- 13,610 17,612 Less current maturities (1,401) (1,311) -------- ---------- $12,209 $16,301 ======= ======= On March 8, 2001, MXL Industries, Inc. ("MXL"), a wholly owned subsidiary of the Company entered into a loan secured by a mortgage covering the real estate and fixtures on its property in Pennsylvania in the amount of $1,680,000. The loan requires monthly repayments of $8,333 plus accrued interest and matures on March 8, 2011 with interest at 2.5% above the one month LIBOR rate. The loan is guaranteed by the Company. The proceeds of the loan were used to repay a portion of the Company's short-term borrowings pursuant to its amended agreement described below in Note 4. See Note 8, Subsequent Event. GP STRATEGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) (Unaudited) 3. Comprehensive income (loss) The following are the components of comprehensive income (loss) (in thousands):
Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 ------- -------- ------- --------- Net income (loss) $ 734 (22,566) $ 490 $(24,319) --------- ------- --------- -------- Other comprehensive income (loss) before tax: Net unrealized gain (loss) on available-for-sale-securities 14,406 (665) 191 599 Foreign currency translation adjustment 50 (120) 243 125 ------------ ----------- ---------- ------- Other comprehensive income (loss), before tax 14,456 (785) 434 724 --------- --------- ---------- ---------- Income tax (expense) benefit relating to items of other comprehensive income (5,663) 13 (131) (44) --------- ----------- ---------- ----------- Comprehensive income (loss), net of tax $ 9,527 $(23,338) $ 793 $(23,639) ======== ======== ========= ========
The components of accumulated other comprehensive income (loss) are as follows:
June 30, December 31, 2001 2000 --------- --------- Net unrealized gain on available-for-sale-securities $ 45,803 $ 45,612 Foreign currency translation adjustment (438) (681) --------- -------- Accumulated other comprehensive income before tax 45,365 44,931 Accumulated income tax expense related to items of other comprehensive income (17,825) (17,694) -------- -------- Accumulated other comprehensive income, net of tax $ 27,540 $ 27,237 ======== ========
GP STRATEGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) (Unaudited) 4. Short-term borrowings The Company and General Physics Canada Ltd. (GP Canada), an Ontario corporation and a wholly-owned subsidiary of General Physics, entered into a credit agreement, dated as of June 15, 1998, as amended and restated as of August 31, 2000 (the "Amended and Restated Agreement") with various banks. As of June 15, 2001, the Company and GP Canada entered into the Third Amendment to the Amended and Restated Agreement (the "Third Amendment"), which among other things, (i) extended the maturity date of the revolving credit notes to October 15, 2001, (ii) reduced the amount available under the revolving credit loan to $42,000,000, (iii) amended the interest rate from LIBOR plus 2.50% to LIBOR plus 2.95% and (iv) amended certain financial covenants. The Third Amendment required certain mandatory asset sales and refinancings by August 30, 2001, which condition has been satisfied by the Company. The Company utilized the proceeds from such asset sales and refinancings to reduce its term loan from $13,313,000 at December 31, 2000 to $7,769,000 at June 30, 2001. The term loan is payable in quarterly installments of $187,500, with a final payment due on June 15, 2003. At June 30, 2001, the amount outstanding under the revolving credit facility is $30,093,000 and is included in Short-term borrowings in the Consolidated Condensed Balance Sheet. At June 30, 2001, the Company had approximately $11,000,000 available to be borrowed under the Credit Agreement and was in compliance with all of its financial covenants. Based upon ongoing discussions with its banks and the fact that the Company has been in compliance with all financial covenants under its Amended and Restated Agreement, the management of the Company believes that its credit facility will either be further extended or refinanced by October 15, 2001, the current expiration date of the Amended and Restated Agreement. GP STRATEGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) (Unaudited) 5. Business segments The operations of the Company currently consist of the following four business segments, by which the Company is managed. The Company's principal operating subsidiary is General Physics Corporation (GP). GP is a performance improvement company that assists productivity driven organizations to maximize workforce performance by integrating people, processes and technology. GP is a total solutions provider for strategic training, engineering, consulting and technical support services to Fortune 1000 companies, government, utilities and other commercial customers. GP operates in two business segments. The Manufacturing & Process Group provides technology based training, engineering, consulting and technical services to leading companies in the automotive, steel, power, oil and gas, chemical, energy, pharmaceutical and food and beverage industries, as well as to the government sector. The Information Technology Group provides IT training programs and solutions, including Enterprise Solutions and comprehensive career training and transition programs. The Optical Plastics Group, which consists of MXL, manufactures and distributes coated and molded plastic products. The Hydro Med Group consists of Hydro Med Sciences, a drug delivery company which is engaged in Phase III clinical trials for the treatment of prostate cancer. Financial information for the three and six months ended June 30, 2000 has been restated to show all information for the Manufacturing Services Group and Process and Energy Group that were combined into the Manufacturing and Process Group. The management of the Company does not allocate the following items by segment: Investment and other income, net, interest expense, selling, general and administrative expenses, depreciation and amortization expense, income tax expense, significant non-cash items and long-lived assets. There are deminimis inter-segment sales. The reconciliation of gross margin to net income (loss) is consistent with the presentation on the Consolidated Condensed Statements of Operations. GP STRATEGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) (Unaudited) 5. Business segments (Continued) The following tables set forth the sales and gross margin of each of the Company's operating segments (in thousands):
Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 ------- -------- ------- ------- Sales Manufacturing and Process $44,496 $40,089 $87,333 $77,083 Information Technology 2,888 7,241 6,106 14,989 Optical Plastics 2,962 2,958 6,019 5,916 Hydro Med and Other 1 40 3 140 ------------ --------- ---------- ----------- $50,347 $50,328 $99,461 $98,128 ------- ------- ------- ------- Gross margin Manufacturing and Process $ 5,848 $ 5,457 $ 11,206 $ 9,956 Information Technology 449 (1,187) 768 (2,005) Optical Plastics 822 807 1,660 1,601 Hydro Med and Other (145) (128) (301) (241) --------- ---------- -------- ---------- $ 6,974 $ 4,949 $13,333 $ 9,311 ------- ------- ------- -------
Information about the Company's net sales in different geographic regions, which are attributed to countries based on location of customers, is as follows (in thousands):
Three months ended Six months ended June 30, June 30, ------------------------ --------------------- 2001 2000 2001 2000 ------- --------- --------- ------- United States $46,740 $43,072 $92,125 $83,100 Canada 890 2,922 1,956 6,027 United Kingdom 1,641 3,123 3,400 6,761 Latin America 1,076 1,211 1,980 2,240 -------- --------- ------- ---------- $50,347 $50,328 $99,461 $98,128 ------- ------- ------- -------
GP STRATEGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) (Unaudited) 5. Business segments (Continued) Information about the Company's identifiable assets in different geographic regions, is as follows (in thousands): June 30, December 31, 2001 2000 -------- ----------- United States $190,998 $205,797 Canada 4,111 3,371 United Kingdom 2,734 1,928 Latin America and other 2,979 1,482 ---------- -------- $200,822 $212,578 -------- -------- 6. Asset impairment charge and restructuring charges During 1999, the Company adopted restructuring plans, primarily related to its IT Business segment. The Company took steps in order to change the focus of the IT group from open enrollment information technology training courses to project oriented work for corporations, which was consistent with the focus of General Physics Corporation's (GP) current business. In connection with the restructuring, the Company recorded a charge of $7,374,000 in 1999. The Company believed at that time that the strategic initiatives and cost cutting moves taken in 1999 and the first quarter of 2000 would enable the IT Group to return to profitability in the last six months of 2000. However, those plans were not successful, and the Company determined that it could no longer bring the open enrollment IT business to profitability. Additionally there had been further impairment to intangible and other assets. In July 2000, as a result of the continued operating losses incurred by the IT Group, as well as the determination that revenues would not increase to profitable levels, the Company decided to close its open enrollment IT business in the third quarter of 2000. As a result, the Company recorded asset impairment charges of $19,245,000 during the year ended December 31, 2000, related to write-offs of intangible assets, property, plant and equipment, and other assets of the IT Group. GP STRATEGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) (Unaudited) 6. Asset impairment charge and restructuring charges (Continued) In addition, the Company recorded an $8,630,000 restructuring charge, net of reversals, in 2000. During the period ended June 30, 2001 and the year ended December 31, 2000, the Company utilized $2,120,000 (including current period adjustments of $374,000) and $3,884,000, respectively, and reversed $774,000 and $180,000, respectively. These reversals are included in Selling, general and administrative expenses in the Consolidated Condensed Statement of Operations for the period ended June 30, 2001. Of the remaining $4,345,000 balance at June 30, 2001 and $6,865,000 at December 31, 2000, $1,685,000 and $3,639,000, respectively, were included in Accounts payable and accrued expenses and $2,660,000 and $3,226,000, respectively, were included in Other non-current liabilities in the Consolidated Condensed Balance Sheet. The components of the 2001 and 2000 restructuring charges are as follows (in thousands):
Severance Lease and and related related Contractual Other benefits obligations obligations costs Total -------------------------------------------------------------------------------------------------------------------- Balance December 31, 2000 $ 142 $ 5,298 $ 1,425 $ - $ 6,865 -------------------------------------------------------------------------------------------------------------------- Utilization (196) (1,399) (316) (209) (2,120) Reversal of restructuring charges during 2001 (373) (401) (774) Other Adjustments during 2001 81 29 55 209 374 -------------------------------------------------------------------------------------------------------------------- Balance June 30, 2001 $ 27 $ 3,555 $ 763 $ - $ 4,345 --------------------------------------------------------------------------------------------------------------------
The remaining amounts that had been accrued for severance and related benefits and contractual obligations will be expended by December 31, 2001. Lease obligations are presented at their present value, net of assumed sublets. GP STRATEGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) (Unaudited) 7. Litigation On January 4, 2001, the Company commenced an action alleging that MCI Communications Corporation, Systemhouse, and Electronic Data Systems Corporation, as successor to Systemhouse, committed fraud in connection with the Company's 1998 acquisition of Learning Technologies from the defendants for $24.3 million. The Company seeks actual damages in the amount of $117.9 million plus interest, punitive damages in an amount to be determined at trial, and costs. In February 2001, the defendants filed answers denying liability. No counterclaims against the plaintiffs have been asserted. The case is currently in discovery. The complaint, which is pending in the New York State Supreme Court, alleges that the defendants created a doctored budget to conceal the poor performance of the United Kingdom operation of Learning Technologies. The complaint also alleges that the defendants represented that Learning Technologies would continue to receive business from Systemhouse even though defendants knew that the sale of Systemhouse to EDS was imminent and that such business would cease after such sale. 8. Subsequent Event On July 3, 2001, MXL, a wholly owned subsidiary of the Company entered into a loan secured by a mortgage covering the real estate and fixtures on its property in Illinois in the amount of $1,250,000. The loan requires monthly payments of principal and interest in the amount of $11,046 and matures on June 26, 2006 with interest at a fixed rate of 8.75% per annum. The loan is guaranteed by the Company. The proceeds of the loan were used to repay a portion of the Company's term loan pursuant to its Amended and Restated Agreement described above in Note 4. GP STRATEGIES CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Overview During the first three quarters of 2000, the Company had five operating business segments. However, in the fourth quarter of 2000, as a result of organizational and operational changes at General Physics and the shut down of the IT open enrollment business in the third quarter of 2000, the Company combined the Manufacturing Services Group with the Process and Energy Group. The discussion and disclosure that follows assumes that the Manufacturing Services Group and the Process & Energy segments were combined as of January 1, 2000 to form the Manufacturing & Process Group. Two of these segments, the Manufacturing & Process Group and the IT Group, are managed through the Company's principal operating subsidiary General Physics, the third through its operating subsidiary MXL Industries and the fourth through its subsidiary Hydro Med Sciences. In addition, the Company holds a number of investments in publicly held companies, including publicly traded stock in Millennium Cell Inc. General Physics is a performance improvement company that assists productivity driven organizations to maximize workforce performance by integrating people, processes and technology. General Physics is a total solution provider for strategic training, engineering, consulting and technical support services to Fortune 1000 companies, government, utilities and other commercial customers. General Physics consists of two segments: the Manufacturing & Process Group and the IT Group. For the quarter ended June 30, 2001, the Company had income before income taxes of $1,316,000 compared to loss before income taxes of $22,387,000 for the quarter ended June 30, 2000. The income in the second quarter of 2001 was attributable to the $2,203,000 gain primarily from the sale of securities of Millennium Cell Inc., offset by a non-cash expense of $872,000 relating to the Company's Deferred Compensation Plan. The income before income taxes for the second quarter of 2001 also included approximately $300,000 (of which $250,000 was non-cash) relating to fees and options granted to a financial consultant. The loss before income taxes in the second quarter of 2000 was primarily due to the operating losses incurred by the now closed open enrollment IT Group, which included an Asset Impairment charge of $18,474,000. In addition, in the 2nd quarter of 2000, the Company also recorded a non-cash expense of $1,600,000 relating to the Company's Deferred Compensation Plan. The Manufacturing and Process Group had increased operating profits in the quarter ended June 30, 2001, compared to the quarter ended June 30, 2000 due to increased sales offset by a slight decrease in gross margin percentage. For the six months ended June 30, 2001, the Company had income before income taxes of $890,000 compared to a loss before income taxes of $23,944,000 for the six months ended June 30, 2000. The six months ended June 30, 2001 included a $427,000 gain from trading securities and a non-cash credit of $273,000 relating to the Company's Deferred Compensation Plan. The six months ended June 30, 2000 loss was primarily due to the operating losses and an Asset Impairment charge of $18,474,000 relating to the now closed open enrollment IT Group and a non-cash compensation expense of $1,600,000.
Three months ended Six months ended June 30, June 30, ---------------------------- ---------------------- 2001 2000 2001 2000 ------- -------- ------- ------- Sales Manufacturing and Process $44,496 $40,089 $87,333 $77,083 Information Technology 2,888 7,241 6,106 14,989 Optical Plastics 2,962 2,958 6,019 5,916 Hydro Med and Other 1 40 3 140 ------------ --------- ---------- ----------- $50,347 $50,328 $99,461 $98,128 ------- ------- ------- -------
For the quarter and six months ended June 30, 2001, sales increased by $19,000 to $50,347,000 from $50,328,000 and $1,333,000 from $98,128,000 to $99,461,000, respectively, from the corresponding periods in 2000. The increased sales in 2001 within the Manufacturing & Process Group was primarily due to increased sales from GP's e-Learning subsidiary as well as increased sales from utility customers. However, for the quarter and six months ended June 30, 2001, these increases were largely offset by reduced sales in the IT Group resulting from the Company's decision to close the open enrollment business in the third quarter of 2000 and focus on providing training for Fortune 1000 manufacturing and process clients.
Three months ended Six months ended June 30, June 30, 2001 % 2000 % 2001 % 2000 % ------- ----- -------- ----- ------- ----- ------- ----- Gross margin Manufacturing and Process $ 5,848 13.1 $ 5,457 13.6 $11,206 12.8 $ 9,956 12.9 Information Technology 449 15.5 (1,187) - 768 12.6 (2,005) - Optical Plastics 822 27.8 807 27.3 1,660 27.6 1,601 27.1 Hydro Med and Other (145) - (128) - (301) - (241) - -------- ------ ---------------- ------- ------ -------- ------ $ 6,974 13.9 $ 4,949 9.8 $13,333 13.4 $ 9,311 9.5 ------- ---- ------- ---- ------- ---- ------- ----
Consolidated gross margin of $6,974,000 or 13.9% of sales, for the quarter ended June 30, 2001, increased by $2,025,000 compared to the consolidated gross margin of $4,949,000, or 9.8% of sales, for the quarter ended June 30, 2000. For the six months ended June 30, 2001, gross margin increased by $4,022,000 from $9,311,000 to $13,333,000. The increased gross margin in both the quarter and the six months ended June 30, 2001 occurred as a result of increased sales in the Manufacturing and Process Group, which was offset by a slight reduction in the gross margin percentage. In addition, the negative gross margin incurred by the IT Group in 2000 was eliminated when the open enrollment IT business closed in the third quarter of 2000. Selling, general and administrative expenses For the quarter ended June 30, 2001, selling, general and administrative (SG&A) expenses were $6,997,000 compared to $7,579,000 in the second quarter of 2000. The reduction in SG&A of $582,000 in 2001 is attributable to the closing of the Company's open enrollment IT operations offset by a non-cash expense of $1,600,000 (as compared to $273 for the period ended June 30, 2001) relating to the Company's Deferred Compensation Plan. For the six months ended June 30, 2001, Selling, general and administrative expenses was reduced by $1,774,000 from $12,870,000 to $11,096,000 primarily the result of the $1,600,000 charge for the period ending June 30, 2000 relating to the Company's Deferred Compensation Plan (as compared to $273 for the period ended June 30, 2001). Interest expense For the quarter ended June 30, 2001, interest expense was $1,155,000 compared to $1,370,000 for the quarter ended June 30, 2000. The decreased interest expense in 2001 was attributable to both a decrease in the Company's outstanding indebtedness and a reduction in variable interest rates. For the six months ended June 30, 2001, there was a decrease in interest expenses of $105,000 from $2,660,000 to $2,555,000 due to the reduction of indebtedness in the second quarter. Investment and other income (loss), net For the three and six months ended June 30, 2001, investment and other income (loss), net was $291,000 and $781,000 as compared to $(50,000) and $281,000 for the quarter and six months ended June 30, 2000. The increase in investment and other income was primarily attributable to increased equity income recognized on investments in 20% to 50% owned companies. Income tax expense For the quarter and six months ended June 30, 2001, the Company recorded an income tax expense of $582,000 and $400,000, which represents the Company's estimated effective federal, state and local, and foreign tax rate. In the quarter and six months ended June 30, 2000, the Company recorded an income tax expense of $179,000 and $375,000, which represents the applicable federal, state and local, and foreign tax expense for these periods. Liquidity and capital resources At June 30, 2001, the Company had cash and cash equivalents totaling $2,153,000. The Company has sufficient cash and cash equivalents, long-term investments and borrowing availability under existing and potential lines of credit as well as the ability to obtain additional funds from its operating subsidiaries in order to fund its working capital requirements. For the period ended June 30, 2001, the Company's working capital decreased by $1,790,000 to a net working capital deficit of $371,000, primarily reflecting the effect of decreases in Accounts and other receivables, offset by reductions in Accounts payable and accrued expenses. The decrease in cash and cash equivalents of $334,000 for the six months ended June 30, 2001 resulted from cash provided by operations of $10,155,000 offset by cash used for financing activities of $10,071,000. Cash used in financing activities consisted primarily of repayments of short-term borrowings and the long-term debt, partially offset by proceeds from the MXL mortgage. Based upon the ongoing discussions with its banks and the fact that the Company has been in compliance with all financial covenants under its amended and restated agreement, the management of the Company believes that the credit facility agreement will be either extended or refinanced by October 15, 2001 (See Note 4). Recent accounting pronouncements In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. As of the date of adoption, the Company expects to have unamortized goodwill in the amount of approximately $56,000,000 and unamortized identifiable intangible assets in the amount of approximately $1,000,000 both of which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was approximately $2,800,000 and $1,300,000 for the year ended December 31, 2000 and the six months ended June 30, 2001, respectively. Because of the extensive effort needed to comply with adopting Statements 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on the Company's financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. Adoption of a Common European Currency On January 1, 1999, eleven European countries adopted the Euro as their common currency. From that date until January 1, 2002, debtors and creditors may choose to pay or to be paid in Euros or in the former national currencies. On and after January 1, 2002, the former national currencies will cease to be legal tender. The Company is currently reviewing its information technology systems and upgrading them as necessary to ensure that they will be able to convert among the former national currencies and the Euro, and process transactions and balances in Euros, as required. The Company has sought and received assurances from the financial institutions with which it does business that they will be capable of receiving deposits and making payments both in Euros and in the former national currencies. The Company does not expect that adapting its information technology systems to the Euro will have a material impact on its financial condition or results of operations. The Company is also reviewing contracts with customers and vendors calling for payments in currencies that are to be replaced by the Euro, and intends to complete in a timely way any required changes to those contracts. Adoption of the Euro is likely to have competitive effects in Europe, as prices that had been stated in different national currencies become directly comparable to one another. In addition, the adoption of a common monetary policy throughout the countries adopting the Euro can be expected to have an effect on the economy of the region. These competitive and economic effects cannot be predicted with certainty, and there can be no assurance that they will not have a material effect on the Company's business in Europe. Forward-looking statements The forward-looking statements contained herein reflect GP Strategies' management's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, all of which are difficult to predict and many of which are beyond the control of GP Strategies, including, but not limited to those risks and uncertainties detailed in GP Strategies' periodic reports and registration statements filed with the Securities and Exchange Commission. GP STRATEGIES CORPORATION AND SUBSIDIARIES QUALIFICATION RELATING TO FINANCIAL INFORMATION June 30, 2001 The financial information included herein is unaudited. In addition, the financial information does not include all disclosures required under generally accepted accounting principles because certain note information included in the Company's Annual Report has been omitted; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. The results for the 2001 interim period are not necessarily indicative of results to be expected for the entire year. GP STRATEGIES CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits 10. Employment Agreement dated as of May 1, 2001 between the Company and Andrea Dale Kantor. 10.1 Third Amendment to Amended and Restated Credit Agreement dated as of June 15, 2001 among GP Strategies Corporation, General Physics Canada LTD and Fleet National Bank (f/k/a/ Fleet Bank, National Association) as agent to the Lenders and as Issuing Bank. b. Reports None GP STRATEGIES CORPORATION AND SUBSIDIARIES June 30, 2001 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. GP STRATEGIES CORPORATION DATE: August 14, 2001 Jerome I. Feldman Chief Executive Officer DATE: August 14, 2001 Scott N. Greenberg President & Chief Financial Officer