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, 1998
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 13, 1998:
Common Stock 10,848,678 shares
Class B Capital 62,500 shares
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
June 30, 1998 and December 31, 1997 1
Consolidated Condensed Statements of Operations -
Three Months and Six Months Ended June 30,
1998 and 1997 3
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Qualification Relating to Financial Information 18
Part II. Other Information 19
Signatures 20
<PAGE>
PART I. FINANCIAL INFORMATION
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
June 30, December 31,
1998 1997
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 9,724 $ 12,375
Marketable securities 1,556 1,350
Accounts and other receivables 57,812 42,720
Inventories 24,255 24,842
Costs and estimated earnings in excess
of billings on uncompleted contracts 9,935 7,726
Prepaid expenses and other current assets 6,458 3,565
---------- ----------
Total current assets 109,740 92,578
--------- ---------
Investments and advances 24,948 28,093
--------- ----------
Property, plant and equipment, at cost 48,991 39,759
Less accumulated depreciation (31,606) (30,027)
--------- ---------
17,385 9,732
---------- ----------
Intangible assets, net of amortization of
$33,541 and $32,184 75,128 55,725
--------- ---------
Deferred tax asset 592 1,101
---------- ----------
Other assets 4,382 3,383
---------- ----------
$232,175 $190,612
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 1997 has been
summarized from the Company's audited Consolidated Balance Sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
June 30, December 31,
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities:
Current maturities of long-term debt and
notes payable $ 862 $ 342
Short-term borrowings 45,573 23,945
Accounts payable and accrued expenses 27,365 25,515
Billings in excess of costs and estimated
earnings on uncompleted contracts 9,163 7,979
---------- ----------
Total current liabilities 82,963 57,781
--------- ---------
Long-term debt less current maturities 19,456 6,246
--------- ----------
Minority interests and other 2 2
------------ ----------
Stockholders' equity
Common stock 109 108
Class B capital stock 1 1
Capital in excess of par value 159,953 158,676
Deficit (33,282) (37,336)
Net unrealized gain on
available-for-sale securities 4,709 6,630
Treasury stock, at cost (1,736) (1,496)
---------- ----------
Total stockholders' equity 129,754 126,583
--------- ---------
$232,175 $190,612
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 1997 has been
summarized from the Company's audited Consolidated Balance sheet as of that
date.
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
---------------- ----------------
1998 1997 1998 1997
------- ------ ------- -------
<S> <C> <C> <C> <C>
Sales $ 70,910 $ 60,590 $133,769 $115,350
Cost of goods sold 60,247 51,397 113,641 97,941
-------- -------- -------- --------
Gross margin 10,663 9,193 20,128 17,409
Selling, general & administrative expenses (8,078) (8,153) (15,768) (15,564)
--------- -------- -------- --------
Operating income 2,585 1,040 4,360 1,845
--------- ---------- -------- ----------
Interest expense (958) (1,177) (1,846) (2,175)
Investment and other income, net 339 645 782 1,418
Gain (loss) on trading securities 533 1,031 1,272 (844)
Minority interest 25
Income before income taxes 2,499 1,539 4,568 269
Income tax benefit (expense) (236) 94 (514) 378
--------- ---------- -------- ----------
Net income $ 2,263 $ 1,633 $ 4,054 $ 647
======== ======= ======== ========
Net income per share:
Basic $ .21 $ .15 $ .38 $ .06
========== ========= ========== =========
Diluted $ .18 $ .15 $ .33 $ .06
========== ========= ========== =========
Dividends per share none none none none
See accompanying notes to the consolidated condensed financial statements.
</TABLE>
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six months
ended June 30,
1998 1997
Cash flows from operations:
<S> <C> <C>
Net income $ 4,054 $ 647
Adjustments to reconcile net income
to net cash used for operating activities:
Depreciation and amortization 2,936 2,646
Issuance of stock for profit incentive plan 617 244
Equity loss on investments 780 525
Proceeds from sale of trading securities 1,319
Deferred income taxes (700)
Unrealized loss (gain) on trading securities 1,272) 844
Changes in other operating items (18,818) (8,067)
------- --------
Net cash used for operations (10,384) (3,861)
------- ---------
Cash flows from investing activities:
Acquisition of Learning Technologies (24,292)
Proceeds from sale of stock of an affiliate 330
Additions to property, plant & equipment (2,593) (1,088)
Additions to intangible assets, net (862) (3,051)
Reduction of (increase to) investments and other assets, net (899) (163)
------- ---------
Net cash (used for) provided by investing activities (28,646) (3,972)
------- -------
Cash flows from financing activities:
Repayments of short-term borrowings (14,519)
Proceeds from short-term borrowings 36,147 4,581
Proceeds from issuance of long-term debt 15,000
Reduction of long-term debt (270) (7,474)
Exercise of common stock options and warrants 261
Repurchase of treasury stock (240) (600)
------- ---------
Net cash provided by (used for) financing activities 36,379 (3,493)
-------- --------
</TABLE>
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six months
ended June 30,
1998 1997
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents (2,651) (11,326)
Cash and cash equivalents at the beginning of the periods 12,375 22,677
-------- --------
Cash and cash equivalents at the end of the periods $ 9,724 $11,351
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 2,211 $ 2,542
======== ========
Income taxes $ 784 $ 597
======== ========
Supplemental schedule of non-cash transactions:
Issuance of common stock related to the
acquisition of General Physics Corporation $(25,228)
Additions to intangible assets 15,154
Reduction of minority interest 10,074
See accompanying notes to the consolidated condensed financial statements.
</TABLE>
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Earnings per share
In the fourth quarter of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), as required, and restated the previously reported earnings per share in
conforming with SFAS 128.
Earnings per share (EPS) for the periods ended June 30, 1998 and 1997
are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1998 1997 1998 1997
Basic EPS
<S> <C> <C> <C> <C>
Net income $ 2,263 $ 1,633 $ 4,054 $ 647
Weighted average shares
outstanding 10,815 10,665 10,775 10,222
Basic earnings per share $ .21 $ .15 $ .38 $ .06
Diluted EPS
Net income $ 2,263 $ 1,633 $ 4,054 $ 647
Weighted average shares
outstanding 10,815 10,665 10,775 10,222
Dilutive effect of stock options
and warrants 1,573 1,462
---------- ------------- --------
Weighted average shares
outstanding, diluted 12,388 10,665 12,237 10,222
Diluted earnings per share $ .18 $ .15 $ .33 $ .06
</TABLE>
Basic earnings per share are based upon the weighted average number of
common shares outstanding, including Class B common shares, during the period.
Class B common stockholders have the same rights to share in profits and losses
and liquidation values as common stock holders. Diluted earnings per share are
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.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Inventories
Inventories are valued at the lower of cost or market, principally
using the first-in, first-out (FIFO) method. Inventories consisting of material,
labor, and overhead are classified as follows (in thousands):
June 30, December 31,
1998 1997
Raw materials $ 863 $ 619
Work in process 246 252
Finished goods 23,146 23,971
------- -------
$24,255 $24,842
======= =======
3. Long-term debt
Long-term debt consists of the following (in thousands):
June 30, December 31,
1998 1997
8% Swiss bonds due 2000 $ 1,801 $ 2,158
5% Convertible bonds due 1999 2,098 1,786
7% Convertible note (a) 1,000
Term loan (note 5) 15,000
Other 1,419 1,644
-------- --------
20,318 6,588
Less current maturities 862 342
-------- ---------
$19,456 $ 6,246
======= =======
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Long-term debt (Continued)
(a) On March 17, 1998 and April 2, 1998, American Drug Company
(American Drug), a 54% owned subsidiary of the Company, was informed by holders
of an aggregate of $1,000,000 of American Drug's convertible notes (the "Notes")
that they had elected to convert $1,000,000 of the Notes into 82,306 shares of
GP Strategies common stock. The Company issued the common stock during the
second quarter of 1998, which resulted in an increase in paid in capital of
approximately $1,000,000. In accordance with the terms of the original agreement
the Company and American Drug had agreed that if the Notes were used to exercise
the warrants issued by the Company in connection with the Note offering, the
Company had the right to receive from American Drug in exchange for the Notes,
shares of American Drug's common stock at a price equal to 60% of its then
current market value.
On April 30, l998, the Company and American Drug agreed that instead of
issuing additional shares of American Drug's common stock, American Drug would
assign to the Company its expected future payments in the amount of
approximately $1,000,000 from ICF Kaiser International as a success fee in
connection with the completion of American Drug's consulting project in the
Czech Republic, which is anticipated to be completed in l999.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Acquisition of Learning Technologies
On June 16, 1998, General Physics Corporation (General Physics), a
wholly-owned subsidiary of the Company, completed its acquisition of the
Learning Technologies business of Systemhouse (an MCI company) (Learning
Technologies), pursuant to the Asset Purchase Agreement, dated as of June 3,
1998, by and among SHL Systemhouse Co., MCI Systemhouse Corp., SHL Computer
Innovations Inc., SHL Technology Solutions Limited (collectively, the "Sellers")
and General Physics. Learning Technologies is a computer technology training and
consulting organization, with offices and classrooms in Canada, the United
States and the United Kingdom. General Physics and the Sellers have also entered
into a Preferred Provider Agreement under which, subject to certain exceptions,
General Physics is the provider of educational training products and services to
the Sellers for its customers during the term of such agreement. General Physics
purchased Learning Technologies for approximately $24,000,000 in cash. Learning
Technologies has annual revenues in 1997 of approximately $50,000,000, with the
majority of these sales attributable to operations in Canada and the United
Kingdom. The Company recorded revenues of $2,000,000 and operating income of
$100,000 through June 30, 1998. The Company has accounted for this transaction
as a purchase, and has recorded approximately $19,898,000 of goodwill, which
will be amortized over 30 years. However, the allocation of the purchase price
and the goodwill related to the transaction is subject to final adjustment. The
Company believes that any adjustments will not be significant.
5. Credit agreement and term loan
GP Strategies Corporation (the Company) and General Physics Canada Ltd.
(GP Canada), an Ontario corporation and a wholly-owned subsidiary of General
Physics, entered into a new Credit Agreement, dated as of June 15, 1998 (the
Credit Agreement), with Key Bank, N.A., Mellon Financial Services Corporation,
Summit Bank (Summit), The Dime Savings Bank of New York, FSB (Dime), and Fleet
Bank, National Association (Fleet), as Agent, as Issuing Bank and as Arranger,
providing for a secured credit facility of $80,000,000 (the Credit Facility)
comprised of a revolving credit facility of $65,000,000 for the Company expiring
on June 15, 2001 and a five-year term loan of $15,000,000 to GP Canada. The
Company terminated its existing credit facility with Fleet, Dime and Summit,
dated as of March 26, 1997, as amended.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Credit agreement and term loan (Continued)
The Credit Facility is secured by the receivables and inventory of the
Company, GP Canada and the material domestic subsidiaries of the Company, as
well as all of the issued and outstanding stock of the Company's material
domestic subsidiaries and 65% of the issued and outstanding stock of the
Company's foreign subsidiaries. At the option of the Company or GP Canada, as
the case may be, the interest rate on any loan under the Credit Facility may be
based on an adjusted prime rate or Eurodollar rate, as described in the Credit
Agreement. The Agreement contains certain covenants which requires among other
things, the maintenance of certain financial rations. At June 30, 1998, the
Company was in compliance with the covenants. At June 30, 1998 $25,222,000 was
borrowed under the Credit Facility and $39,778,000 was available to be borrowed.
On July 13, 1998 an additional $6,300,000 was borrowed to complete the
acquisition of substantially all the operations and assets of the Deltapoint
Corporation (see Note 8).
6. Five Star Group, Inc.
On June 10, 1998, the Company signed a non binding letter of intent to
sell certain operating assets of its wholly-owned subsidiary, the Five Star
Group, Inc. (Five Star) to American Drug Company for approximately $17,500,000
in cash, subject to certain adjustments, and a $5,000,000 unsecured senior note.
GP Strategies will use the cash proceeds of the transaction to repay Five Star's
existing short-term borrowings, thereby reducing GP Strategies consolidated
debt. Five Star is a leading distributor of home decorating, hardware and
finishing products in the northeast. As part of this transaction, GP Strategies
intends to sell approximately 14% of its interest in American Drug to the
management of Five Star, bringing GP Strategies interest in American Drug to
40%. This transaction is subject to satisfaction of various conditions including
American Drug receiving acceptable financing from the banks. In addition to this
proposed transaction, the Company is considering other options as to its
investment in Five Star. Upon completion of the sale of certain operating
assets, American Drug intends to seek stockholder approval to change its name to
the Five Star Group. As a result of the proposed transaction, GP Strategies will
no longer consolidate the operations of Five Star, but will instead account for
Five Star as an investment.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Comprehensive income
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130. "Reporting Comprehensive Income", which establishes standards
for the reporting and display of comprehensive income and its components in
general purpose financial statements for the year ended December 31, 1998. The
following are the components of comprehensive income (in thousands):
Six Months Ended
June 30, June 30,
1998 1997
--------- -------
Net income $ 4,054 $ 647
Other comprehensive income (loss),
net of tax:
Net unrealized gain (loss) on
available-for-sale-securities (1,921) 938
-------- ---------
Comprehensive income $ 2,133 $ 1,585
======== ========
The components of accumulated other comprehensive income, net of related tax are
as follows:
June 30, December 31,
1998 1997
Net unrealized gain on
available-for-sale-securities $ 4,709 $ 6,630
-------- --------
Accumulated other comprehensive income $ 4,709 $ 6,630
======== ========
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
8. Subsequent event
On July 13, 1998, General Physics, a wholly-owned subsidiary of the
Company, completed its acquisition of substantially all of the operations,
assets, properties, rights and business of The Deltapoint Corporation
(Deltapoint) and in connection therewith, assumed certain of the liabilities of
Deltapoint, pursuant to the Asset Purchase Agreement, dated as of July 13, 1998
between General Physics and Deltapoint. Deltapoint is a Seattle, Washington
based management consulting firm focused on large systems change and
lean-enterprise, with 500 clients primarily operating in the aerospace,
pharmaceutical, manufacturing, health care and telecommunications industries.
General Physics purchased Deltapoint for approximately $6,300,000 in cash and a
future earnout, as described in the Asset Purchase Agreement. As additional
consideration under the Asset Purchase Agreement, GP agreed to pay Deltapoint a
percentage of revenues received for each of the three years following closing,
so long as minimum revenue and earnings goals are achieved. Assuming for each
year that those goals are reached, then the additional consideration for such
year would equal $1,333,440 plus a percentage of revenues received in excess of
the goal. The $6,300,000 cash consideration of the purchase price was derived
from funds borrowed by the Company and General Physics, pursuant to the
Company's Credit Agreement dated as of June 15, 1998 (see Note 5).
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company realized income before income taxes of $2,499,000 and $4,568,000
for the quarter and six months ended June 30, 1998, as compared with income of
$1,539,000 and $269,000 for the corresponding periods of 1997. The change in the
Company's results is due to several factors. For the quarter and six months
ended June 30, 1998, the Company recorded a $533,000 and $1,272,000 unrealized
gain on certain trading marketable securities as compared to a $1,031,000 gain
and a $(844,000) unrealized loss on certain trading marketable securities
recorded for the quarter and six months ended June 30, 1997, respectively. For
the quarter and six months ended June 30, 1998, the Company also earned
Investment and other income, net of $339,000 and $782,000, respectively,
compared to $645,000 and $1,418,000 for the corresponding periods of 1997.
The Company had improved operating results for the quarter and six months
ended June 30, 1998, primarily due to significantly increased profits achieved
by the Company's principal operating subsidiary General Physics Corporation
(General Physics). For the quarter and six months ended June 30, 1998, General
Physics operating profit increased by $2,211,000 and $1,308,000, respectively.
Sales
For the quarter ended June 30, 1998, consolidated sales increased by
$10,320,000 to $70,910,000 from the $60,590,000 recorded in the corresponding
quarter of 1997. For the six months ended June 30, 1998, consolidated sales
increased by $18,419,000 to $133,769,000 from $115,350,000 recorded for the six
months ended June 30, 1997. The increased sales for the quarter and six months
ended June 30, 1998, were primarily the result of increased sales by General
Physics. The increased sales by General Physics were the result of increased
sales within all of General Physics' business groups, resulting primarily from
the continued growth of General Physics' revenue generated from commercial
clients. The acquisition of Learning Technologies did not have an effect on the
results for the quarter and six months ended June 30, 1998, since the
acquisition took place on June 16, 1998.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
In addition, MXL Industries, Inc. achieved increased sales of $363,000 and
$818,000, respectively, for the quarter and six months ended June 30, 1998 due
to new business development, while the Five Star Group, Inc. experienced a
reduction in sales of $1,585,000 and $970,000 for the quarter and six months
ended June 30, 1998, as a result of the prior quarter and six months including
$2,190,000 and $5,180,000, respectively, of sales generated from a major retail
chain, which ceased operations in September 1997.
Gross margin
Consolidated gross margin of $10,663,000, or 15%, for the quarter ended June
30, 1998, increased by $1,470,000 when compared to the consolidated gross margin
of $9,193,000, or 15%, for the quarter ended June 30, 1997. For the six months
ended June 30, 1998, consolidated gross margin of $20,128,000 or 15% of
consolidated sales increased by $2,719,000 when compared to $17,409,000 or 15%
of consolidated sales earned in the six months ended June 30, 1997. The
increased gross margin in 1998 was primarily the result of increased gross
margins generated by GP due to increased sales.
Selling, general and administrative expenses
For the quarter and six months ended June 30, 1998, selling, general and
administrative expenses (SG&A) of $8,078,000 and $15,768,000 was $75,000 lower
and $204,000 higher than the $8,153,000 and $15,564,000 of SG&A expenses
incurred during the quarter and six months ended June 30, 1997. The increase in
SG&A for the six months ended June 30, 1998, was principally the result of
marginally increased costs incurred by GP, partially offset by reduced costs at
the corporate level.
Investment and other income, net
Investment and other income (loss), net of $339,000 and $782,000 for the
quarter and six months ended June 30, 1998 decreased by $306,000 and $636,000,
respectively, as compared to $645,000 and $1,418,000 for the corresponding
periods of 1997. The decreased investment and other income (loss), net for the
quarter and six months ended June 30, 1998, was the result of consulting revenue
earned by the Company's American Drug Company subsidiary during 1997. In
addition, the Company recognized losses of $350,000 and $780,000 for the quarter
and six months ended June 30, 1998, on the Company's equity investments compared
to losses of $300,000 and $525,000 recognized for the corresponding periods in
1997.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Income tax expense
For the quarter and six months ended June 30, 1998, the Company recorded an
income tax expense of $236,000 and $514,000, respectively, which represents
primarily state and local income taxes. The Company has not recorded Federal
income tax expense for the quarter and six months ended June 30, 1998, due to
the availability of net operating losses.
For the quarter and six months ended June 30, 1997, the Company had an
income tax benefit of $94,000 and $378,000, respectively. The current income tax
provision of $206,000 and $322,000 for the quarter and six months ended June 30,
1997, represents primarily state and local income taxes. The deferred income tax
benefit of approximately $300,000 and $700,000 for the periods results from a
reduction in the valuation allowance among other factors. The decrease in the
valuation allowance in 1997 was attributable in part to the expected utilization
of the Company's net operating loss carryforwards, and to the Company's
expectation of generating sufficient taxable income that will allow for the
realization of a portion of its deferred tax assets.
Recent accounting pronouncement
The Financial Accounting Standards Board issued Accounting Standards
(SFAS 130), "Reporting Comprehensive Income", in June 1997 which requires a
statement of comprehensive income to be included in the financial statements for
fiscal years beginning after December 15, 1997. The Company has included
information in Note 4 to the Consolidated Condensed Financial Statements, and
will provide more detailed disclosure, as required, in the annual financial
statements.
In June of 1997, the FASB issued SFAS 131, "Disclosures About Segments
of an Enterprise and Related Information". SFAS 131 requires disclosure of
certain information about operating segments and about products and services,
geographic areas in which a company operates, and their major customers. The
Company is presently in the process of evaluating the effect that this new
standard will have on disclosures in the Company's financial statements and the
required information will be reflected in the December 31, 1998 financial
statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company will adopt SFAS No. 133 by
January 1, 2000. The Company is currently evaluating the impact the adoption of
SFAS No. 133 will have on the consolidated financial 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,
the risk that the acquisition of The Learning Technologies business of SHL
Systemhouse Co. and The Deltapoint Corporation will not achieve the commercial
advantages anticipated by GP Strategies, such as the production of significant
revenues or profits for GP Strategies, the risk that the sale of certain assets
of Five Star will not be completed and those risks and uncertainties detailed in
GP Strategies' periodic reports and registration statements filed with the
Securities and Exchange Commission.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and cash equivalents totaling
$9,724,000. SGLG, Inc. and American Drug Company had cash and cash equivalents
of $201,000 at June 30, 1998. The minority interests of these two companies are
owned by the general public, and therefore the assets of these subsidiaries have
been dedicated to the operations of these companies and may not be readily
available for the general corporate purposes of the parent.
The Company has sufficient cash, cash equivalents and marketable
securities, marketable 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. At June 30, 1998, 150,000 shares of Duratek stock valued
at $1,556,000 were classified as marketable securities due to the Company's
intention to sell the shares in 1998.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
June 30, 1998
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 1998 interim period are not necessarily
indicative of results to be expected for the entire year.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Form 8-K filed on June 29, 1998 reporting events
under Items 5 and 7, and Form 8-K filed on July 27, 1998
reporting events under Item 2.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
June 30, 1998
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, 1998 BY: Scott N. Greenberg
Executive Vice President and
Chief Financial Officer
DATE: August 14, 1998 BY: Jerome I. Feldman
President and
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000070415
<NAME> GP STRATEGIES CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,724
<SECURITIES> 1,556
<RECEIVABLES> 57,812
<ALLOWANCES> 2,391
<INVENTORY> 24,255
<CURRENT-ASSETS> 109,740
<PP&E> 48,991
<DEPRECIATION> (31,606)
<TOTAL-ASSETS> 232,175
<CURRENT-LIABILITIES> 82,963
<BONDS> 19,546
0
0
<COMMON> 109
<OTHER-SE> 129,645
<TOTAL-LIABILITY-AND-EQUITY> 232,175
<SALES> 133,769
<TOTAL-REVENUES> 134,551
<CGS> 113,641
<TOTAL-COSTS> 15,768
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,846
<INCOME-PRETAX> 4,568
<INCOME-TAX> (514)
<INCOME-CONTINUING> 4,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,054
<EPS-PRIMARY> .38
<EPS-DILUTED> .33
</TABLE>
