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, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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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
April 25, 2000:
Common Stock 11,305,713 shares
Class B Capital 800,000 shares
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
March 31, 2000 and December 31, 1999 1
Consolidated Condensed Statements of Operations-
Three Months Ended March 31, 2000 and 1999 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 4
Notes to Consolidated Condensed Financial
Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Qualification Relating to Financial Information 22
Part II. Other Information 23
Signatures 24
<PAGE>
24
PART I. FINANCIAL INFORMATION
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
2000 1999
-------- --------
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 4,213 $ 4,068
Accounts and other receivables 45,201 55,385
Inventories 2,073 1,888
Costs and estimated earnings
in excess of billings on uncompleted contracts 14,624 14,238
Prepaid expenses and other current assets 3,160 3,853
-------- --------
Total current assets 69,271 79,432
-------- --------
Investments and advances 17,714 16,557
-------- --------
Property, plant and equipment, net 12,430 13,658
Intangible assets, net of accumulated amortization
of $40,000 and $38,986 78,804 79,818
-------- --------
Deferred tax asset 3,990 3,990
-------- --------
Other assets 3,548 3,663
-------- --------
$185,757 $197,118
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 1999 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,
2000 1999
-------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) *
Current liabilities
Current maturities of long-term debt $ 3,501 $ 3,668
Short-term borrowings 34,755 40,278
Accounts payable and accrued expenses 20,451 25,634
Billings in excess of costs and estimated
earnings on uncompleted contracts 8,848 9,998
-------- --------
Total current liabilities 67,555 79,578
-------- ---------
Long-term debt less current maturities 14,520 14,822
-------- ---------
Other non-current liabilities 2,437 2,736
Stockholders' equity
Common stock 115 115
Class B capital stock 8 5
Additional paid in capital 172,850 170,011
Accumulated deficit (63,355) (61,602)
Accumulated other comprehensive income (loss) 635 (817)
Note receivable from stockholder (4,095) (2,817)
Treasury stock, at cost (4,913) (4,913)
-------- ---------
Total stockholders' equity 101,245 99,982
-------- ---------
$185,757 $197,118
======== ========
* The Consolidated Condensed Balance Sheet as of December 31, 1999 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,
--------------------------
2000 1999
--------- -------
Sales $ 47,800 $ 65,929
Costs of sales 43,438 56,072
--------- --------
Gross margin 4,362 9,857
Selling, general and administrative expenses (5,291) (6,018)
Interest expense (1,290) (951)
Investment and other income, net 331 479
Gain on trading securities 331 25
---------- ----------
Income (loss) before income taxes (1,557) 3,392
Income tax expense (196) (780)
---------- ----------
Net income (loss) $ (1,753) $ 2,612
========== =========
Net income (loss) per share
Basic $ (.15) $ .23
---------- -----------
Diluted (.15) .21
---------- -----------
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,
----------------------------
2000 1999
-------- -------
Cash flows from operating activities:
Net income (loss) $(1,753) $ 2,612
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Issuance of stock for profit incentive plan 364 321
Depreciation and amortization 1,949 1,771
Gain on trading securities (331) (25)
Equity gain on investments (25) (335)
Proceeds from sale of trading securities 429 50
Changes in other operating items 3,674 (10,484)
------- -------
Net cash provided by (used in) operating activities 4,307 (6,090)
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (127) (1,501)
Proceeds from disposal of fixed assets 507
Reduction in (additions to) investments and
other assets, net 5 2,290
------- -------
Net cash provided by investing activities 385 789
------- -------
Cash flows from financing activities:
Net (repayments of) proceeds from short-term borrowings (5,523) 7,000
Proceeds from note receivable 828
Payments of long-term debt (469) (345)
Exercise of common stock options and warrants 814
Proceeds from sale of Class B Stock 1,200
Repurchase of treasury stock (1,087)
------- --------
Net cash (used in) provided by financing activities (4,792) 7,210
------- --------
Effect of exchange rate
changes on cash and cash equivalents 245 (28)
------- --------
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
Three months
ended March 31,
2000 1999
-------- ------
Net increase in cash and cash
equivalents $ 145 $ 1,881
Cash and cash equivalents at the
beginning of the periods 4,068 6,807
------- ------
Cash and cash equivalents at the end
of the periods $ 4,213 $ 8,688
------- ------
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 1,502 1,197
======= =====
Income taxes $ 168 $ 439
======= ======
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
Earnings (loss) per share (EPS) for the periods ended March 31, 2000
and 1999 are as follows (in thousands, except per share amounts):
Three months
ended March 31,
2000 1999
-------- ------
Basic EPS
Net income (loss) $ (1,753) $ 2,612
Weighted average shares
outstanding 11,813 11,237
Basic earnings (loss) per share $ (.15) $ .23
-------- --------
Diluted EPS
Net income (loss) $ (1,753) $ 2,612
Weighted average shares
outstanding 11,813 11,237
Dilutive effect of stock options
and warrants 1,469
---------- --------
Weighted average shares
outstanding, diluted 11,813 12,706
------- -------
Diluted earnings (loss) per share $ (.15) $ .21
-------- ----------
Basic earnings per share is 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 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. In 2000, even though the Company still has stock options and
warrants outstanding, diluted earnings per share is the same as basic earnings
per share due to the Company's net loss, which makes the effect of such
securities anti-dilutive.
<PAGE>
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):
March 31, December 31,
2000 1999
--------- -------
8% Swiss bonds due June 2000 $ 2,125 $ 2,175
Term loan 13,875 14,063
Senior subordinated debentures 817 844
Other 1,204 1,408
--------- ---------
18,021 18,490
Less current maturities (3,501) (3,668)
--------- ----------
$ 14,520 $ 14,822
======== ========
3. Comprehensive income (loss)
The following are the components of comprehensive income (loss) (in thousands):
Three months ended
March 31, March 31,
2000 1999
--------- -------
Net income (loss) $ (1,753) $ 2,612
-------- --------
Other comprehensive income (loss) before tax:
Net unrealized gain (loss) on
available-for-sale-securities 1,264 200
Foreign currency translation adjustment 245 (28)
---------- ---------
Other comprehensive income (loss),
before tax 1,509 172
--------- --------
Income tax expense relating to items
of other comprehensive income (57) (67)
----------- ---------
Comprehensive income (loss), net of tax $ (301) $ 2,717
========== ========
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Comprehensive income (loss) (Continued)
The components of accumulated other comprehensive income (loss) are as follows:
March 31, December 31,
2000 1999
--------- -------
Net unrealized gain (loss) on
available-for-sale-securities $ 1,209 $ (55)
Foreign currency translation adjustment (514) (759)
--------- ---------
Accumulated other comprehensive income
(loss) before tax 695 (814)
Accumulated income tax expense related to
items of other comprehensive income (60) (3)
---------- -----------
Accumulated other comprehensive income
(loss), net of tax $ 635 $ (817)
========= =========
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Credit agreement
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 various
banks providing for a secured credit facility of $80,000,000 (the Credit
Facility) comprised of a revolving credit facility of $65,000,000 expiring on
June 15, 2001 and a five-year term loan of $15,000,000. The five year term loan
is payable in 20 quarterly installments of $187,500 commencing on October 1,
1998 with a final payment of $11,250,000 due on June 15, 2003.
Due to the Company's restructuring charges and operating losses in 1999
and the operating loss in the first quarter of 2000, the Company is in default
with respect to the financial covenants in its credit agreement. The Company and
its lenders entered into an agreement dated as of April 12, 2000, providing for
waivers of compliance with such covenants as of September 30, 1999, December 31,
1999 and March 31, 2000. Effective April 12, 2000, the Company and its lenders
entered into a binding commitment to enter into an Amended and Restated Credit
Agreement (the "Amended Agreement") on the terms and conditions described below.
The Amended Agreement will reduce the commitment pursuant to the revolving
facility to $50,000,000 (subject to borrowing base limitations specified in the
Amended Agreement), however the Amended Agreement did not change the payment
terms or expiration date of the Company's current outstanding term loan in the
amount of $13,875,000. The interest rates increased on both the revolving
facility and the term loan to prime plus 1.25% (increased from .50%) and
Eurodollar plus 2.75% (increased from 2.00%). The Amended Agreement provides for
additional security consisting of certain real property and all marketable
securities owned by the Company and its subsidiaries. The Amended Agreement
contains certain restrictive covenants, including the prohibition on future
acquisitions, and provides for mandatory prepayment upon the occurrence of
certain events. The Amended Agreement contains revised minimum net worth, fixed
charge coverage, EBITDA and consolidated liabilities to tangible net worth
covenants. Although there can be no assurance, the Company anticipates that it
will satisfy the revised covenants. If the Amended Agreement had been in effect
at March 31, 2000, the Company would have had approximately $7,000,000 available
to be borrowed under the Amended Agreement, as opposed to the $30,245,000
available at March 31, 2000 under the original agreement.
<PAGE>
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 500 companies, government, utilities and other commercial customers.
GP operates in three business segments. The Manufacturing Services Group
provides technology based training to leading companies in the automotive, steel
and food and beverage industries, as well as to the government sector. The
Process & Energy Group provides engineering, consulting and technical training
to the power, chemical, energy and pharmaceutical industries as well as
government facilities. The Information Technology Group provides information
training programs and solutions, including Enterprise Solutions and
comprehensive career training and transition programs.
The Optical Plastics Group, which is the Company's wholly-owned
subsidiary MXL Industries, Inc. (MXL), manufactures and distributes coated and
molded plastic products.
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.
<PAGE>
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
March 31,
2000 1999
--------- -------
Sales
Manufacturing Services $15,860 $19,491
Process & Energy 21,134 26,898
Information Technology 7,748 16,606
Optical Plastics 2,958 2,729
Other 100 205
------- ---------
$47,800 $65,929
------- -------
Gross margin
Manufacturing Services $ 1,822 $ 4,047
Process & Energy 2,677 4,018
Information Technology ( 818) 954
Optical Plastics 794 716
Other (113) 122
------- ---------
$ 4,362 $ 9,857
------- -------
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. Business segments (continued)
Information about the Company's net sales in different geographic regions, which
are attributed to countries based on location of customers, is as follows (in
thousands):
Three months ended
March 31,
2000 1999
--------- -------
United States $ 40,028 $ 51,270
Canada 3,105 8,329
United Kingdom 3,638 4,784
Latin America and other 1,029 1,546
-------- ---------
$ 47,800 $ 65,929
-------- --------
Information about the Company's identifiable assets in different
geographic regions, is as follows (in thousands):
March 31, December 31,
2000 1999
----------- ---------
United States $171,357 $180,057
Canada 8,608 9,533
United Kingdom 3,642 5,087
Latin America and other 2,150 2,441
-------- ---------
$185,757 $197,118
-------- --------
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Restructuring
During 1999, the Company adopted restructuring plans which primarily
relate to its Information Technology (IT) business segment. The Company has
taken the 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 is consistent with the focus of GP's current business. In
connection with the restructuring, the Company closed, downsized, or
consolidated 7 offices in the United States, 10 offices in Canada and 5 offices
in the United Kingdom (UK), and terminated approximately 156 employees.
In connection with the restructuring, the Company recorded a
restructuring charge of $7,374,000 in 1999. During the period ended March 31,
2000 and the year ended December 31, 1999, the Company expended $1,059,000 and
$2,754,000, respectively. Of the remaining unexpended amount at March 31, 2000
and December 31, 1999, $1,124,000 and $1,884,000, respectively, was included in
Accounts payable and accrued expenses and $2,437,000 and $2,736,000,
respectively was included in Other non-current liabilities in the Consolidated
Balance Sheet. The components of the restructuring charge are as follows (in
thousands):
<TABLE>
<CAPTION>
Severance Present Value Other facility
and related of future lease related
benefits costs costs Total
----------- --------------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1999 $ 289 $ 4,206 $ 125 $ 4,620
Utilization (183) (876) (1,059)
------- ------- ---------- -------
Balance
March 31, 2000 $ 106 $ 3,330 $ 125 $ 3,561
======== ======= ======== =======
</TABLE>
Remaining amounts that have been accrued for severance and related
benefits will be expended by September 30, 2000. The present value of future
lease obligations is net of assumed sublets. Other facility-related costs will
be expended through the remainder of 2000.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Termination of merger agreement
On February 11, 2000, the Company terminated its previously announced
merger agreement with VS&A Communications Partners III, L.P. ("VS&A"), an
affiliate of Veronis, Suhler & Associates Inc., pursuant to which holders of
outstanding shares of the Company would have received $13.75 per share, payable
in cash.
VS&A had informed the Company that it believed that the Company
suffered a material adverse change in the fourth quarter of 1999 and that the
conditions to VS&A's obligation to consummate the merger contemplated by the
merger agreement therefore may not be fulfilled. VS&A also said that it did not
intend to waive the conditions to its obligation. Since certain members of the
Company's management were participating in the proposed VS&A merger, the Special
Negotiating Committee of the Board of Directors, which evaluated and recommended
the proposed VS&A merger, was empowered to consider the Company's options.
The Committee and its advisors attempted to negotiate an alternative
transaction with VS&A, but were unable to do so on acceptable terms. The
Committee also determined that prompt action was necessary to preserve value for
the Company's stockholders and that it would be imprudent to continue with the
proposed VS&A merger given that there would be no assurance that VS&A would have
an obligation to close. Therefore, the Committee unanimously recommended that
the proposed VS&A merger be terminated. The Board of Directors agreed that this
was the best course of action for the Company's stockholders, and believed that
this early termination enabled senior management and the Board of Directors to
focus their efforts on improving core operations, as well as continuing sales of
non-core assets.
To induce VS&A to agree to the immediate termination of the merger
agreement and to give the Company a general release, on February 11, 2000, the
Company issued to VS&A, as partial reimbursement of the expenses incurred by it
in connection with the merger agreement, 83,333 shares of the Company's Common
Stock and an 18-month warrant to purchase 83,333 shares of the Company's Common
Stock at a price of $6.00 per share. The consideration was valued at $686,000,
and was included in the December 31, 1999 consolidated statement of operations.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
(Unaudited)
8. Class B Capital Stock
On February 11, 2000, an affiliate of Andersen, Weinroth & Co.,
L.P.("Andersen Weinroth") purchased 200,000 shares of the Company's Class B
Capital Stock for $6.00 per share pursuant to a subscription agreement for an
aggregate cost of $1,200,000. In addition, G. Chris Andersen joined the Board of
Directors of the Company. Mr. Andersen is a general partner of Andersen
Weinroth.
9. Related party transaction
During the first quarter of 2000, the Company made loans to an officer
who is the President and Chief Executive Officer and a director of the Company
in the amount of approximately $1,278,000 to purchase an aggregate of 150,000
shares of Class B Capital Stock. In addition, at December 31, 1999, the Company
had loans receivable from such officer in the amount of approximately
$2,817,000. The officer primarily utilized the proceeds of the prior loans to
exercise options to purchase an aggregate of 408,512 shares of Class B Capital
Stock. Such loans bear interest at the prime rate of Fleet Bank and are secured
by the purchased Class B Capital Stock and certain other assets. All principal
on the loans and accrued interest of $300,000 are due on May 31, 2004. In prior
years, the Company made unsecured loans to such officer in the amount of
approximately $480,000, which unsecured loans primarily bear interest at the
prime rate of Fleet Bank.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Overview
GP Strategies Corporation (the Company) has four operating business
segments. Three of the Company's segments are managed through the Company's
principal operating subsidiary, General Physics Corporation (GP), and the fourth
through its operating subsidiary MXL Industries, Inc. (MXL). In addition, the
Company holds a number of investments in public and privately held companies.
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 solution provider for strategic
training, engineering, consulting and technical support services to Fortune 500
companies, government, utilities and other commercial customers. GP consists of
three segments: the Information Technology (IT) Group, the Manufacturing
Services Group and the Process & Energy Group. The Optical Plastics Group, which
comprises MXL, manufactures molded and coated optical products, such as shields
and face masks and non-optical plastic products.
The Company had a net loss before income taxes of $1,557,000 for the
quarter ended March 31, 2000 compared to net income before income taxes of
$3,392,000 for the quarter ended March 31, 1999. The operating loss was
primarily due to 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
has continued through the first quarter of 2000. In addition, the Manufacturing
Services and Process & Energy Group's also had reduced operating profits due to
reduced sales and gross margin percentage in the quarter ended March 31, 2000,
compared to the quarter ended March 31, 1999. However, sales within the
Manufacturing Services and Process & Energy Groups were slightly higher in the
first quarter of 2000, as compared to the fourth quarter of 1999.
In addition, the Process & Energy and Manufacturing Services Groups had
increased investments in internal training and business development during the
first quarter of 2000. The Company is focusing its business development
activities in 2000 on a major branding campaign, to increase the name
recognition of GP, as well as plant launch services, e-Learning and the area of
learning resource management. The Company believes that these investments in
business development are an integral part in its effort to increase its revenues
and gross margin percentage.
<PAGE>
The Company believes that the strategic initiatives and cost cutting
moves taken in the fourth quarter of 1999 and the first quarter of 2000 will
enable the IT Group to return to profitability in the last six months of 2000.
If such plans are not successful, the Company may need to take other steps as
yet not determined. The Company continues to assess the recoverability of
intangible assets and other long-lived assets related to its IT business segment
and does not currently believe an impairment has occurred. However, in the event
the Company's plans are not successful, there cannot be any assurance that an
impairment charge will not be required.
Sales
Three months ended
March 31,
2000 1999
--------- -------
Manufacturing Services $15,860 $19,491
Process & Energy 21,134 26,898
Information Technology 7,748 16,606
Optical Plastics 2,958 2,729
Other 100 205
------- ---------
$47,800 $65,929
------- -------
For the quarter ended March 31, 2000, consolidated sales decreased by
$18,129,000 to $47,800,000 from $65,929,000 in the corresponding quarter of
1999. The reduced sales occurred within all segments of GP. The reduced sales in
the IT Group were the result of the continuing softness in the IT training
business in Canada and the UK, as well as fewer opportunities within the US ERP
practice. The reduced sales within the Process & Energy Group were the result of
reduced product sales to utilities, due to the effect of the consolidation
within the utility industry, as well as the transition of the Group's business
model from OSHA and regulatory work, to GP's core business focus of workforce
development and training. The reduced sales of the Manufacturing Services Group
for the quarter ended March 31, 2000, was the result of revenue generated for
several large jobs in 1999, that were not replaced with jobs of similar dollar
value in the first quarter of 2000.
Gross margin
Three months ended
March 31,
-----------------------
2000 % 1999 %
--------- ----- --------- ----
Manufacturing Services $ 1,822 11.5 $ 4,047 20.8
Process & Energy 2,677 12.7 4,018 14.9
Information Technology ( 818) - 954 5.7
Optical Plastics 794 26.8 716 26.2
Other (113) - 122 59.5
------- -------
$ 4,362 9.1 $ 9,857 15.0
------- ----- ------- -----
<PAGE>
Consolidated gross margin of $4,362,000 or 9.1% of sales, for the
quarter ended March 31, 2000, decreased by $5,495,000 compared to the
consolidated gross margin of $9,857,000, or 15% of sales, for the quarter ended
March 31, 1999. The reduced gross margin in 2000 occurred within all segments of
GP, as a result of reduced sales and gross margin percentage. The negative gross
margin incurred by the IT Group in 2000 was the result of the continued decrease
in sales, and the resulting inability of the segment to cover its infrastructure
and operating costs. The reduced gross margin percentage in the Process & Energy
Group was primarily the result of a change in the mix of services provided,
including reduced product sales, which historically generate higher gross margin
percentages. The Manufacturing Services Group has a reduced gross margin
percentage in 2000 compared to the first quarter of 1999, due to the lack of
plant launch and other large projects, which have historically generated higher
gross margins.
Selling, general and administrative expenses
For the three months ended March 31, 2000, selling, general and
administrative (SG&A) expenses were $5,291,000 compared to $6,018,000 incurred
in the first quarter of 1999. The reduced SG&A in 2000 is primarily attributable
to reduced costs incurred by GP due to the savings resulting from the
restructuring plans which occurred in 1999. In addition, the Company continued
to reduce SG&A at the corporate level.
Interest expense
For the three months ended March 31, 2000, interest expense was
$1,290,000 compared to $951,000 for the three months ended March 31, 1999. The
increased interest expense in 2000 was primarily attributable to increased
interest rates in the current period.
Investment and other income, net
For the three months ended March 31, 2000, investment and other income,
net was $331,000 as compared to $479,000 for the quarter ended March 31, 1999.
The decrease was primarily attributable to reduced equity income recognized on
investments in 20% to 50% owned investments, partially offset by increased
interest income.
Income tax expense
In the quarter ended March 31, 2000, the Company recorded an income tax
expense of $196,000, which represents primarily state and local and foreign
income taxes. In the quarter ended March 31, 1999, the Company recorded an
income tax expense of $780,000, which represents the applicable federal, state
and local and foreign tax expense.
<PAGE>
Liquidity and capital resources
At March 31, 2000, the Company had cash and cash equivalents totaling
$4,213,000. The Company has sufficient cash and cash equivalents, 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.
For the quarter ended March 31, 2000, the Company's working capital
increased by $1,862,000 to $1,716,000, primarily reflecting the effect of
reduced Short-term borrowings and Accounts payable and accrued expenses,
partially offset by reduced Accounts and other receivables.
The increase in cash and cash equivalents of $145,000 for the quarter
ended March 31, 2000 resulted from cash provided by operations of $4,307,000,
and investing activities of $385,000 partially offset by cash used in financing
activities of $4,792,000. Cash used for financing activities consisted primarily
of repayments of short-term borrowings and long-term debt, partially offset by
proceeds from the sale of stock.
Due to the Company's restructuring charges and operating losses in 1999
and the operating loss in the first quarter of 2000, the Company is in default
with respect to the financial covenants in its credit agreement. The Company and
its lenders entered into an agreement dated as of April 12, 2000, providing for
waivers of compliance with such covenants as of September 30, 1999, December 31,
1999 and March 31, 2000. Effective April 12, 2000, the Company and its lenders
entered into a binding commitment to enter into an Amended and Restated Credit
Agreement (the "Amended Agreement") on the terms and conditions described below.
The Amended Agreement will reduce the commitment pursuant to the revolving
facility to $50,000,000 (subject to borrowing base limitations specified in the
Amended Agreement), however the Amended Agreement did not change the payment
terms or expiration date of the Company's current outstanding term loan in the
amount of $13,875,000. The interest rates increased on both the revolving
facility and the term loan to prime plus 1.25% (increased from .50%) and
Eurodollar plus 2.75% (increased from 2.00%). The Amended Agreement provides for
additional security consisting of certain real property and all marketable
securities owned by the Company and its subsidiaries. The Amended Agreement
contains certain restrictive covenants, including the prohibition on future
acquisitions, and provides for mandatory prepayment upon the occurrence of
certain events. The Amended Agreement contains revised minimum net worth, fixed
charge coverage, EBITDA and consolidated liabilities to tangible net worth
covenants. Although there can be no assurance, the Company anticipates that it
will satisfy the revised covenants. If the Amended Agreement had been in effect
at March 31, 2000, the Company would have had approximately $7,000,000 available
to be borrowed under the Amended Agreement, as opposed to the $30,245,000
available at March 31, 2000 under the original agreement.
<PAGE>
Recent accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting
Standard No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities." This Statement establishes accounting and reporting standards for
derivatives as either assets or liabilities. It requires that an entity
recognizes all derivatives as either assets or liabilities in the statement of
financial position and measures those instruments at fair value. This Statement
as amended by SFAS 137 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company will adopt SFAS 133, when effective,
which is currently anticipated to be by January 1, 2001. The Company is still
evaluating its position with respect to the use of derivative instruments.
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 beginning in
1999 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.
<PAGE>
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,
the risk that qualified personnel will not continue to be available,
technological risks, risks associated with the Company's acquisition strategy
and its ability to manage growth, risks associated with changing economic
conditions, risks of conducting international operations, the Company's ability
to comply with financial covenants in connection with various loan agreements
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
QUALIFICATION RELATING TO FINANCIAL INFORMATION
March 31, 2000
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 2000
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
Form 8-K filed on February 14, 2000 reporting event under Item 5.
<PAGE>
GP STRATEGIES CORPORATION AND SUBSIDIARIES
March 31, 2000
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 12, 2000 BY: Jerome I. Feldman
President &
Chief Executive Officer
DATE: May 12, 2000 BY: Scott N. Greenberg
Executive Vice President &
Chief Financial Officer
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