UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarter ended March 31, 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
May 12, 1998:
Common Stock 10,777,562 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 -
March 31, 1998 and December 31, 1997 1
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 1998 and 1997 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Qualification Relating to Financial Information 13
Part II. Other Information 14
Signatures 15
<PAGE>
PART I. FINANCIAL INFORMATION
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
1998 1997
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 12,348 $ 12,375
Marketable securities 1,250 1,350
Accounts and other receivables 51,020 42,720
Inventories 27,948 24,842
Costs and estimated earnings
in excess of billings on uncompleted contracts 10,384 7,726
Prepaid expenses and other current assets 3,801 3,565
---------- ----------
Total current assets 106,751 92,578
--------- ----------
Investments and advances 27,123 28,093
---------- ----------
Property, plant and equipment, at cost 41,080 39,759
Less accumulated depreciation (30,899) (30,027)
---------- ---------
10,181 9,732
---------- ---------
Intangible assets, net of accumulated amortization
of $32,847 and $32,184 55,614 55,725
---------- ---------
Deferred tax asset 1,224 1,101
----------- ---------
Other assets 4,462 3,383
----------- ---------
$205,355 $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)
March 31, December 31,
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities
Current maturities of long-term debt $ 294 $ 342
Short-term borrowings 32,381 23,945
Accounts payable and accrued expenses 29,591 25,515
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,638 7,979
--------- ----------
Total current liabilities 70,904 57,781
-------- ---------
Long-term debt less current maturities 5,640 6,246
--------- ---------
Minority interests and other 2 2
----------- ------------
Stockholders' equity
Common stock 108 108
Class B capital stock 1 1
Capital in excess of par value 159,506 158,676
Deficit (35,545) (37,336)
Net unrealized gain on available-
for-sale securities 6,391 6,630
Treasury stock, at cost (1,652) (1,496)
---------- -----------
Total stockholders' equity 128,809 126,583
--------- ---------
$205,355 $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)
Three months
ended March 31,
1998 1997
Sales $ 62,859 $ 54,760
Costs of goods sold 53,394 46,544
--------- --------
Gross margin 9,465 8,216
Selling, general and administrative expenses (7,690) (7,411)
Interest expense (888) (998)
Investment and other income, net 443 773
Gain (loss) on trading securities 739 (1,875)
Minority interest 25
Income (loss) before income taxes 2,069 (1,270)
Income tax benefit (expense) (278) 284
---------- ---------
Net income (loss) $ 1,791 $ (986)
========= =========
Net income (loss) per share
Basic $ .17 $ (.10)
Diluted .15 (.10)
See accompanying notes to the consolidated condensed financial statements.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three months
ended March 31,
1998 1997
--------- -------
Cash flows from operations:
Net income (loss) $ 1,791 $ (986)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Issuance of stock for profit incentive plan 296
Depreciation and amortization 1,535 1,291
Loss (gain) on trading securities (739) 1,875
Equity loss on investments 430 225
Proceeds from sale of trading securities 959
Deferred income taxes (400)
Changes in other operating items (9,565) (7,657)
--------- ---------
Net cash used for operations (5,293) (5,652)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (1,321) (612)
Additions to intangible assets (552) (2,270)
Reduction in (additions to) investments and
other assets, net (1,021) 59
-------- ---------
Net cash used for investing activities (2,894) (2,823)
-------- --------
Cash flows from financing activities:
Net proceeds from short-term borrowings 8,436 6,060
Payments of long-term debt (154) (532)
Exercise of common stock options and warrants 34
Repurchase of treasury stock (156)
--------
Net cash provided by financing activities 8,160 5,528
-------- --------
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Three months
ended March 31,
1998 1997
Net decrease in cash and cash
equivalents $ (27) $ (2,947)
Cash and cash equivalents at the
beginning of the periods 12,375 22,677
--------- --------
Cash and cash equivalents at the end
of the periods $ 12,348 $ 19,730
--------- --------
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 1,046 $ 1,147
======== ========
Income taxes $ 430 $ 498
========= =========
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.
<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.
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):
March 31, December 31,
1998 1997
Raw materials $ 727 $ 619
Work in process 218 252
Finished goods 27,003 23,971
--------- --------
$ 27,948 $ 24,842
======== ========
3. Long-term debt
Long-term debt consists of the following (in thousands):
March 31, December 31,
1998 1997
8% Swiss bonds due 2000 $ 2,098 $ 2,158
5% convertible bonds due 1999 1,801 1,786
7% convertible note due to 2001 500 1,000
Other 1,535 1,644
--------- ---------
5,934 6,588
Less current maturities 294 342
--------- ---------
$ 5,640 $ 6,246
======== ========
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. 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):
Three Months Ended
March 31, March 31,
1998 1997
--------- -------
Net income (loss) $ 1,791 $ (986)
Other comprehensive income (loss), net of tax:
Net unrealized (loss) on
available-for-sale-securities (239) (792)
-------- --------
Comprehensive income (loss) $ 1,552 $(1,778)
======== =======
The components of accumulated other comprehensive income, net of related tax are
as follows:
March 31, December 31,
1998 1997
Net unrealized gain on
available-for-sale-securities $ 6,391 $ 6,630
-------- --------
Accumulated other comprehensive income $ 6,391 $ 6,630
======== ========
5. Subsequent events
(a) In April 1998, Interferon Sciences, Inc. (ISI), a 12% investment of the
Company which is accounted for as a combination of long-term investments carried
at cost and as long-term available-for-sale equity securities carried at market
value, experienced a significant decrease in market price of its common stock.
The price was $7.13 per share on March 31, 1998 as compared to $1.50 per share
on May 13, 1998. At March 31, 1998, the Company owned a total of 1,854,286
shares of ISI common stock, of which approximately 608,000 shares were marked to
market.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Subsequent events (Continued)
(b)On April 29, 1998 the Company announced that its wholly owned subsidiary,
General Physics Corporation ("General Physics"), and SHL Systemhouse Co.
("Systemhouse") have recently executed a letter of intent to negotiate a
definitive agreement, pursuant to which General Physics will acquire the
Learning Technologies business of Systemhouse (an MCI company), ("Learning
Technologies") for an undisclosed cash amount. The transaction also contemplates
that General Physics and Systemhouse will enter into a Preferred Provider
Agreement, under which subject to certain exceptions, General Physics will
become the exclusive provider of educational training products and services to
Systemhouse for its customers during the term of the agreement. The transaction
is anticipated to close in June 1998. The transaction is subject to satisfaction
of various conditions, including regulatory approvals and the negotiation and
execution of definitive documents. There can be no assurance that the
transaction will be completed.
Learning Technologies had annual revenues in 1997 of approximately $50 million
(USD), with the majority of sales attributable to operations in Canada and the
United Kingdom, respectively. Learning Technologies is a computer technology
training and consulting organization, with offices and classrooms in Canada, the
United States and the United Kingdom.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company had net income before income taxes of $2,069,000 for the
quarter ended March 31, 1998 compared to a net loss of $(1,270,000) for the
quarter ended March 31, 1997. The improved operating results were due to two
factors. During the first quarter of 1998, the Physical Science Group, which is
General Physics Corporation (General Physics) increased its operating profit by
approximately $957,000, when compared to the first quarter of 1997. In addition,
the Company recorded a $739,000 gain on trading securities (GTS Duratek, Inc.)
in the three months ended March 31, 1998, compared to a $1,875,000 loss in the
first quarter of 1997.
Sales
For the quarter ended March 31, 1998, consolidated sales increased by
$8,099,000 to $62,859,000 from the $54,760,000 in the corresponding quarter of
1997. The increased sales were primarily the result of increased sales within
the Physical Science Group. The increased in sales within the Physical Science
Group was the result of an approximately 30% increase in revenues earned from
General Physics' commercial clients. In addition, the Distribution Group and the
Optical Plastics Group also achieved increased sales during the first quarter of
1998. The Distribution Group, which is comprised of the Five Star Group, (Five
Star) had increased sales in the first quarter of 1998 as compared to the first
quarter of 1997, even though the first quarter of 1997 included $2,200,000 of
sales generated from a major retail chain, which ceased operations in September
1997.
Gross margin
Consolidated gross margin of $9,465,000, or 15%, for the quarter ended
March 31, 1998, increased by $1,249,000 compared to the consolidated gross
margin of $8,216,000, or 15%, for the quarter ended March 31, 1997. The
increased gross margin in 1998 was principally the result of increased gross
margin generated by General Physics due to increased sales.
Selling, general and administrative expenses
For the three months ended March 31, 1998, selling, general and
administrative (SG&A) expenses were $7,690,000 compared to the $7,411,000
incurred in the first quarter of 1997. The increase in SG&A for the first
quarter of 1998 was the result of marginally increased costs incurred by General
Physics and Five Star.
Investment and other income, net
Investment and other income was $443,000 for the quarter ended March
31, 1998, as compared to $773,000 for the first quarter of 1997. The change was
principally due to the effect of a $430,000 loss recognized on the Company's
equity investments in the quarter ended March 31, 1998 compared to a loss of
$225,000 recognized in the quarter ended March 31, 1997.
Income tax expense
In the quarter ended March 31, 1998, the Company recorded an income tax
expense of $278,000, which represents primarily state and local income taxes.
The Company has not recorded Federal income tax expense for the first quarter of
1998, due to the availability of net operating losses.
In the quarter ended March 31, 1997, the Company recorded an income tax
benefit of $284,000. The current income tax provision of $116,000 represents
primarily state and local income taxes. The deferred income tax benefit of
$400,000 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 pronouncements
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 addition, 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>
Forward-Looking Statements. This report contains certain forward-looking
statements reflecting 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, including, but not
limited to the Company's dependence on its subsidiaries and its investments to
fund its operations; the Company's ability to comply with financial covenants in
connection with various loan agreements, the risks that the acquisition of
Learning Technologies will not be completed, or that the acquisition will not be
completed within the period of time contemplated by the Letter of Intent, or
that, even if completed, the acquisition will not achieve the commercial
advantages anticipated by the Company.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash and cash equivalents totaling
$12,348,000. SGLG, Inc. and American Drug Company had cash and cash equivalents
of $190,000 at March 31, 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 March 31, 1998, 100,000 shares of Duratek stock valued
at $1,250,000 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
March 31, 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 for 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of the Stockholders held on
March 5, 1998, the following matter was voted upon:
Proposal to approve and adopt an amendment to the
Restated Certificate of Incorporation of the Registrant to
change the name of the Company to GP Strategies Corporation
was adopted with 7,985,995 votes for and 159,046 votes against
from the Common Stock and 625,000 votes for and no votes
against from the Class B Stock.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
none
b. Reports
There were no reports filed on Form 8-K for the
period ended March 31, 1998.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
March 31, 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: May 15, 1998 BY: /s/ Jerome I. Feldman
---------------------
Jerome I. Feldman
President &
Chief Executive Officer
DATE: May 15, 1998 BY: /s/ Scott N. Greenberg
----------------------
Scott N. Greenberg
Vice President &
Chief Financial Officer
<PAGE>
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<NAME> GP STRATEGIES CORPORATION
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