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 quarterly period ended July 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 0-21105
RESEARCH PARTNERS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3414302
- -------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One State Street Plaza, New York, NY 10004
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(212)509-3800
- ---------------
(Registrant's telephone number, including area code)
GKN Holding Corp.
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 14, 1998
- -------------------------------- ----------------------------------
Common Stock, $.0001 par value 8,110,899 shares
<PAGE>
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Index
Part I - Financial Information Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
July 31, 1998 (Unaudited) and January 31, 1998 3
Consolidated Statements of Operations for the three and six
months ended July 31, 1998 and 1997 (Unaudited) 4
Consolidated Statements of Changes in Stockholders' Equity
for the year ended January 31, 1998 and the six months
ended July 31, 1998 (Unaudited) 5
Consolidated Statements of Cash Flows for the six months
ended July 31, 1998 and 1997 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
2
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
July 31, January 31,
1998 1998
-------------- ----------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 10,169,000 $ 8,111,000
Receivable from brokers and dealers 202,000 896,000
Securities owned, at market value 6,203,000 10,154,000
Securities owned, not readily marketable, at fair value 635,000 1,443,000
Investments 4,423,000 3,640,000
Office furniture, equipment and leasehold improvements, net 1,291,000 1,043,000
Goodwill, net 3,763,000 3,684,000
Loans receivable 1,613,000 1,404,000
Income taxes receivable 498,000 3,544,000
Deferred tax asset 629,000 -
Other assets 2,954,000 3,053,000
-------------- --------------
Total assets $ 32,380,000 $ 36,972,000
============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Securities sold, not yet purchased, at market value $ 438,000 $ 2,320,000
Commissions payable 2,629,000 1,441,000
Deferred compensation 11,000 1,796,000
Deferred tax liability - 236,000
Accrued expenses and other liabilities 2,491,000 2,982,000
-------------- --------------
5,569,000 8,775,000
Liability subordinated to the claims of general creditors 498,000 576,000
-------------- --------------
Total liabilities 6,067,000 9,351,000
-------------- --------------
Stockholders' equity:
Preferred stock, $.10 par value; 1,200,000 shares authorized;
1,140,000 shares issued and outstanding 114,000 114,000
Common stock, $.0001 par value; 35,000,000 shares
authorized; 9,209,875 shares issued; 8,110,899 and
8,095,899 shares outstanding 1,000 1,000
Additional paid-in capital 21,018,000 20,710,000
Retained earnings 10,063,000 11,734,000
Accumulated other comprehensive income (47,000) (36,000)
-------------- --------------
31,149,000 32,523,000
Less treasury stock, at cost; 1,098,976 and 1,113,976 shares (4,836,000) (4,902,000)
-------------- --------------
Total stockholders' equity 26,313,000 27,621,000
-------------- --------------
Total liabilities and stockholders' equity $ 32,380,000 $ 36,972,000
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended July 31, Ended July 31,
----------------------------------- -------------------------------
1998 1997 1998 1997
--------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 11,009,000 $ 9,630,000 $ 22,018,000 $ 17,734,000
Investment banking 1,197,000 3,053,000 3,550,000 3,729,000
Principal transactions (1,214,000) 1,445,000 (82,000) 691,000
Interest 316,000 310,000 668,000 735,000
Other 1,098,000 357,000 1,640,000 455,000
--------------- --------------- ---------------- ---------------
Total revenues 12,406,000 14,795,000 27,794,000 23,344,000
--------------- --------------- ---------------- ---------------
Expenses:
Compensation and benefits 9,845,000 8,624,000 19,700,000 16,378,000
Communications 1,410,000 1,173,000 2,511,000 2,370,000
Brokerage, clearing and
exchange fees 1,003,000 867,000 1,855,000 1,568,000
Occupancy and equipment 1,442,000 809,000 2,808,000 1,509,000
Business development 655,000 522,000 1,188,000 1,176,000
Professional fees 683,000 267,000 953,000 495,000
Investigations and settlements - 1,188,000 - 1,988,000
Other 462,000 1,317,000 1,262,000 1,973,000
--------------- --------------- ---------------- ---------------
Total expenses 15,500,000 14,767,000 30,277,000 27,457,000
--------------- --------------- ---------------- ---------------
Income (loss) before income taxes (3,094,000) 28,000 (2,483,000) (4,113,000)
Income tax (benefit) (1,123,000) 24,000 (812,000) (1,664,000)
--------------- --------------- ---------------- ---------------
Net income (loss) $ (1,971,000) $ 4,000 $ (1,671,000) $ (2,449,000)
=============== =============== ================ ===============
Basic earnings (loss)
per common share $ (0.24) $ 0.00 $ (0.21) $ (0.30)
============== =============== =============== ==============
Diluted earnings (loss)
per common share $ (0.24) $ 0.00 $ (0.21) $ (0.30)
============== =============== =============== ==============
Weighted average common
shares outstanding - basic 8,104,214 8,094,334 8,100,126 8,132,452
=============== =============== ================ ===============
Weighted average common
shares outstanding - diluted 8,104,214 8,341,442 8,100,126 8,132,452
=============== =============== ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Year Ended January 31, 1998 and the Six Months Ended July 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Preferred Other
Common Stock Stock Additional Compre- Treasury Stock
---------------- ------------------- Paid-in Retained hensive -------------------------
Shares Amt. Shares Amt. Capital Earnings Income Shares Amount Total
--------- ------- ---------- --------- ------------- ----------- -------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 31,
1997 9,217,875 1,000 - - 19,931,000 18,247,000 (3,000) (992,363) (3,150,000) 35,026,000
Net loss - - - - - (6,513,000) - - (6,513,000)
Stock issued -
acquisition - - 1,140,000 114,000 1,376,000 - 152,000 482,000 1,972,000
Stock issued -
compensation
plan - - - - (1,193,000) - 288,944 1,193,000 -
Amortization
of unearned
compensation - - - - 545,000 - - - 545,000
Stock options
exercised - - - - (45,000) - 34,443 124,000 79,000
Note receivable
for given - - - - 100,000 - - - 100,000
Retirement
of stock (8,000) - - - - - 8,000 35,000 35,000
Purchase
of treasury
stock - - - - - - (605,000) (3,586,000) (3,586,000)
Translation
adjustment - - - - - - (33,000) - - (33,000)
Other - - - - (4,000) - - - - (4,000)
-------- ------ ----------- ------- --------- ---------- ------- ------- --------- ----------
Balance at
January 31,
1998 9,209,875 $1,000 1,140,000 $114,000 $20,710,000 $11,734,000 $(36,000) (1,113,976) $(4,902,000) $27,621,000
Net loss - - - - - (1,671,000) - - - (1,671,000)
Stock issued -
compensation
plan - - - - (6,000) - - 15,000 66,000 60,000
Amortization
of unearned
compensation - - - - 314,000 - - - - 314,000
Translation
adjustment - - - - - - (11,000) - - (11,000)
-------- ------ ----------- ------- --------- ---------- ------- ------- --------- ----------
Balance at
July 31,
1998 9,209,875 $1,000 1,140,000 $114,000 $21,018,000 $ 10,063,000 $(47,000)(1,098,976) $(4,836,000) $26,313,000
========= ====== =========== ======== =========== ============ ======== ========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31,
1998 1997
---------------- --------------
<S> <C> <C>
Operating activities:
Net loss $ (1,671,000) $ (2,449,000)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 360,000 354,000
Deferred taxes (865,000) (85,000)
Other 381,000 254,000
---------------- ----------------
(1,795,000) (1,926,000)
(Increase) decrease in operating assets:
Receivable from brokers and dealers 694,000 4,673,000
Securities owned, at market value 3,951,000 515,000
Securities owned, not readily marketable 808,000 239,000
Loans receivable (209,000) (2,182,000)
Income taxes receivable 3,046,000 (2,017,000)
Other assets 18,000 (308,000)
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased (1,882,000) (1,229,000)
Commissions payable 1,188,000 (1,106,000)
Deferred compensation (1,785,000) (516,000)
Income taxes payable - (229,000)
Accrued expenses and other liabilities (491,000) 1,794,000
Translation adjustment (11,000) (19,000)
---------------- ----------------
Net cash provided by (used in) operating activities 3,532,000 (2,311,000)
---------------- ----------------
Investing activities:
Purchase of office furniture, equipment
and leasehold improvements (448,000) (117,000)
Limited partnerships (783,000) (372,000)
Acquisition, net of cash acquired - (197,000)
Goodwill resulting from acquisition (159,000) 9,000
---------------- ----------------
Net cash used in investing activities (1,390,000) (677,000)
---------------- ----------------
Financing activities:
Issuance of common shares - 75,000
Purchase of treasury stock - (3,586,000)
Repayment of subordinated debt (84,000) (186,000)
---------------- ----------------
Net cash used in financing activities (84,000) (3,697,000)
---------------- ----------------
Net change in cash and cash equivalents 2,058,000 (6,685,000)
Cash and cash equivalents at beginning of year 8,111,000 17,856,000
---------------- ----------------
Cash and cash equivalents at end of period $ 10,169,000 $ 11,171,000
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated financial statements include the accounts of Research Partners
International, Inc. and its subsidiaries (the Company). All significant
intercompany accounts and transactions are eliminated in consolidation. In the
opinion of management, the consolidated financial statements reflect all
adjustments, which are all of a normal recurring nature, necessary for a fair
statement of the Company's financial position and results of operations for the
interim periods presented. These consolidated financial statements should be
read in conjunction with the Company's consolidated financial statements and
notes thereto for the year ended January 31, 1998, in its annual report on Form
10-K. Certain reclassifications have been made to the prior year amounts to
conform to the current presentation.
The financial statements conform with generally accepted accounting principles
(GAAP). The preparation of financial statements in conformity with GAAP requires
the Company to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could vary
from these estimates.
The Company's principal business activities are affected by many factors,
including general economic and market conditions, which can result in
substantial fluctuations in the Company's revenues and net income. Therefore,
the results of operations for the six months ended July 31, 1998, are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. Net Capital Requirements
GKN Securities Corp. (GKN), Southeast Research Partners, Inc. (Southeast), and
Shochet Securities, Inc. (Shochet), all wholly owned subsidiaries of the
Company, are registered broker-dealers with the Securities and Exchange
Commission (the SEC) and member firms of the National Association of Securities
Dealers, Inc. (NASD). As such, GKN, Southeast, and Shochet are subject to the
SEC's net capital rule, which requires the maintenance of minimum net capital.
GKN has elected to compute net capital using the alternative method permitted by
the net capital rule, which requires that it maintain minimum net capital, as
defined, to be greater than or equal to $250,000. At July 31, 1998, GKN had net
capital of $4,807,000.
Southeast has elected to compute net capital under the standard aggregate
indebtedness method permitted by the net capital rule, which requires that the
ratio of aggregate indebtedness to net capital, both as defined, shall not
exceed 15 to 1. At July 31, 1998, Southeast had net capital of $690,000 and a
net capital requirement of $163,000. Southeast's net capital ratio at July 31,
1998, was 3.54 to 1.
Shochet has also elected to compute net capital under the standard aggregate
indebtedness method permitted by the net capital rule. At July 31, 1998, Shochet
had net capital of $ 454,000 and a net capital requirement of $100,000.
Shochet's net capital ratio at July 31, 1998, was 1.46 to 1.
3. Earnings Per Share
Effective for the fiscal year ended January 31, 1998, the Company adopted SFAS
No. 128, Earnings per Share (SFAS 128), which established new standards for
computing and presenting earnings per share (EPS). This statement changes the
calculation and presentation of EPS. The new presentation consists of basic EPS,
which includes no dilution and is computed by dividing net income by the
weighted-average number of common shares outstanding for the period, and diluted
EPS, which is similar to the previously disclosed fully diluted EPS. SFAS 128
7
<PAGE>
will result in basic EPS results higher than EPS as calculated under the
previous method. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to the SFAS 128
requirements. For the three and six month periods ended July 31, 1998 and for
the six months ended July 31, 1997, common stock equivalents, consisting of
stock options, warrants and convertible preferred stock, were not included in
the computation of diluted EPS, as the inclusion of such shares would be
anti-dilutive due to the Company's net loss in those periods.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three months ended July 31, Six months ended July 31,
----------------------------------- -------------------------------
1998 1997 1998 1997
-------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted EPS:
Net income (loss) $ (1,971,000) $ 4,000 $ (1,671,000) $ (2,449,000)
Denominator for basic EPS:
Weighted-average common shares 8,104,214 8,094,334 8,100,126 8,132,452
Dilutive common stock equivalents - 247,108 - -
-------------- -------------- -------------- ---------------
Denominator for diluted EPS: 8,104,214 8,341,442 8,100,126 8,132,452
Basic EPS $ (0.24) $ 0.00 $ (0.21) $ (0.30)
Diluted EPS $ (0.24) $ 0.00 $ (0.21) $ (0.30)
</TABLE>
4. Supplemental Cash Flow Information
Six Months Ended July 31,
-------------------------
1998 1997
------------ -----------
Cash paid for:
Income taxes $ 199,000 $ 731,000
Interest 9,000 34,000
Non-cash financing activities:
Treasury stock issued for
Incentive Compensation Plan $ 66,000 $3,586,000
Details of acquisition:
Fair value of assets acquired $ - $1,479,000
Liabilities assumed - (1,474,000)
Common stock issued in acquisition - (960,000)
Preferred stock issued in acquisition - (1,152,000)
Goodwill - 2,304,000
------------ -------------
Net cash used for acquisition $ - $ 197,000
============ =============
5. Commitments and Contingencies
Various legal proceedings are pending against the broker-dealers. Management
believes that, other than as reflected in the consolidated financial statements,
the aggregate liability resulting from these proceedings will not be material.
8
<PAGE>
6. Comprehensive Income
The Company has adopted SFAS No. 130, Reporting Comprehensive Income, which
establishes standards for the reporting and display of comprehensive income and
its components. Total comprehensive income measures all changes in stockholders'
equity resulting from transactions of the period, other than transactions with
stockholders.
The components of comprehensive income for the three and six months ended July
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Three months ended July 31, Six months ended July 31,
-------------------------------- -------------------------------
1998 1997 1998 1997
---------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net income $ (1,971,000) $ 4,000 $ (1,671,000) $ (2,449,000)
Other comprehensive income:
Foreign currency translation
adjustments - (11,000) (11,000) (19,000)
---------------- --------------- --------------- ---------------
Total comprehensive income $ (1,971,000) $ (7,000) $ (1,682,000) $ (2,468,000)
============== ============== ============== ================
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended July 31, 1998 vs. Three Months Ended July 31, 1997
- ----------------------------------------------------------------------
Net loss for the three months ended July 31, 1998 was $(1,971,000) as compared
with net income of $4,000 for the three months ended July 31, 1997. Loss per
share of common stock for the three months ended July 31, 1998 was $(0.24) as
compared to $0.00 for the three months ended July 31, 1997. The decrease was
primarily attributable to lower investment banking activity and larger losses
from principal transactions. During the quarter, the Company expanded its
business to include day trading and fixed income activities. This expansion,
notwithstanding the investment costs, is expected to enhance profitability in
the near future.
The Company's principal business activities are affected by many factors,
including general economic and market conditions, which can result in
substantial fluctuations in the Company's revenues and net income. Therefore,
the results of operations for the quarter are not necessarily indicative of the
results which may be expected for the entire fiscal year.
Revenues
Total revenues decreased by 16% to $12,406,000 for the second quarter of fiscal
1999, mainly as a result of trading and investment revenue losses and a decrease
in investment banking activity. These decreases were offset by increases in
commission revenues and other income.
Commission revenues increased by $1,379,000, or 14%, for the second quarter. The
Company executed 41% more trades during the period at an average commission 19%
lower as compared to the same period in the prior year.
Investment banking revenues decreased by $1,856,000, or 61%. During the second
quarter of fiscal 1999 the Company raised $15.2 million for corporate clients
through one public offering and one private placement. In the same period in
fiscal 1998 the Company raised $46.4 million for its clients through four public
offerings and two private placements. The Company is transitioning from being
the sole manager on micro-cap underwritings to a co-manager on small and mid-cap
issues.
Principal transactions generated losses of $(1,214,000) in the second quarter of
fiscal 1999, as opposed to a $1,445,000 gain in the fiscal 1998 quarter.
Investment account losses totaled $(472,000), while market making activities
generated a loss of $(742,000).
Other revenues increased $741,000 to $1,098,000, mainly as a result of the
Company's merchant banking and asset management activities.
Expenses
Total expenses for the quarter in fiscal 1999 were $15,500,000, a 5% increase
over the first quarter in fiscal 1998. The increase is attributable to increases
in compensation and benefits expense, as well as occupancy and equipment charges
and professional fees, offset by decreases in investigations and settlements and
other expenses.
Compensation and benefits expense increased 14% to $9,845,000. These expenses
are primarily variable as commissions to brokers are paid as a percentage of
commission revenues generated. The expense increase in fiscal 1999 is consistent
with the increase in commission revenue, and personnel costs associated with the
Company's expansion into day trading and fixed income activities.
10
<PAGE>
Communications expense increased by $237,000, or 20%, as a result of the
Company's new business ventures.
Brokerage, clearing and exchange fees increased by $136,000 or 16%. This
increase was attributable to the increase in trade volume.
Occupancy and equipment expenses increased $633,000, or 78% as a result of the
addition of new branch offices, the move of the Company's corporate
headquarters, and the investment made to upgrade the Company's technological
infrastructure.
Business development expenses increased by 26% to $655,000 due to increased
promotional activities.
Professional fees increased by $416,000, mainly as a result of costs associated
with implementing the Company's new mission.
Investigations and settlements were eliminated, as the SEC and NASDR
investigatory matters are settled and have been completed.
Other expenses decreased $855,000, or 65% primarily due to decreased
amortization of recruiting payments to brokers.
Weighted average common shares outstanding
The average number of common shares and common stock equivalents outstanding
used in the computation of basic earnings per common share was 8,104,214 for the
second quarter of fiscal 1999, compared with 8,094,334 in fiscal 1998. The
average number of common shares and common stock equivalents outstanding used in
the computation of diluted earnings per common share was 8,104,214 for the
second quarter of fiscal 1999, compared with 8,341,442 in fiscal 1998.
Six Months Ended July 31, 1998 vs. Six Months Ended July 31, 1997
- -------------------------------------------------------------------
Net loss for the six months ended July 31, 1998 was $(1,671,000) as compared
with net loss of $(2,449,000) for the six months ended July 31, 1997. Loss per
share of common stock for the six months ended July 31, 1998 was $(0.21) as
compared to $(0.30) for the six months ended July 31, 1997. The increase in
operating results is primarily the result of increased commission revenues and
other income as well as the elimination of expenses associated with
investigations and settlements.
The results of operations for the six months are not necessarily indicative of
the results which may be expected for the entire fiscal year.
Revenues
Total revenues increased $4,450,000 or 19% to $27,794,000 for the first half of
fiscal 1999, mainly as a result of increased commissions revenue and other
income. These increases were partially offset by losses from principal
transactions.
Commission revenues increased 24%, or $4,284,000, for the six months ended July
31, 1998. The Company executed 57% more trades during the period at an average
commission 21% lower as compared to the same period in the prior year.
Investment banking revenues decreased by $179,000. During the first half of
fiscal 1999 the Company raised $23.5 million for corporate clients through two
public offerings and one private placement. In the same period in fiscal 1998
the Company raised $52.2 million for its clients through four public offerings
and four private placements.
11
<PAGE>
Principal transactions generated losses of $(82,000) in the first six months of
fiscal 1999, as opposed to a $691,000 gain in the same period in fiscal 1998.
Investment account gains totaled $898,000, while market making activities
generated a loss of $(980,000).
Other revenues increased $1,185,000 to $1,640,000, mainly as a result of the
Company's merchant banking and asset management activities.
Expenses
Total expenses for the first half of fiscal 1999 were $30,277,000, a 10%
increase over the same period in fiscal 1998. As a percentage of revenues, these
expenses decreased from 118% in fiscal 1998 to 109% in fiscal 1999.
Fluctuations in the Company's expense categories for the six month period
resulted from the same factors causing fluctuations for the second quarter. The
primary factors resulting in higher expenses were the increase in trading
volume, relocation of corporate headquarters, opening of new branch offices, and
technological upgrades. Primary factors resulting in decreased expenses were the
elimination of the investigations and settlements expenses and decreased
amortization of recruiting payments to brokers.
Weighted average common shares outstanding
The average number of common shares and common stock equivalents outstanding
used in the computation of basic and diluted earnings per common share was
8,100,126 for the first half of fiscal 1999 and 8,132,452 for the first half of
fiscal 1998.
Liquidity and Capital Resources
Approximately 51% of the Company's assets at July 31, 1998 are highly liquid,
consisting primarily of cash and cash equivalents, securities inventories, and
receivables from other broker-dealers, all of which fluctuate depending upon the
levels of customer business and trading activity. Receivables from
broker-dealers, which are primarily from the Company's clearing broker, turn
over rapidly. As a securities dealer, the Company may carry significant levels
of trading inventories to meet customer needs. The Company's inventory of
market-making securities is readily marketable; however, holding large blocks of
the same security may limit liquidity and prevent realization of full market
value for the securities. Securities owned, but not readily marketable,
represent underwriter warrants and the securities underlying such warrants. The
liquidity of these securities is limited. A relatively small percentage of the
Company's total assets are fixed. The Company's total assets or the individual
components of total assets may vary significantly from period to period because
of changes relating to customer demand, economic and market conditions, and
proprietary trading strategies.
GKN, Southeast, and Shochet, the Company's domestic operating broker-dealer
subsidiaries, are subject to the net capital rules of the National Association
of Securities Dealers, Inc. (NASD) and the Securities and Exchange Commission
(SEC). As such, they and the Company are subject to certain restrictions on the
use of capital and its related liquidity. GKN's, Southeast's, and Shochet's
respective net capital positions as of July 31, 1998, were $4,807,000, $690,000,
and $454,000, which were $4,557,000, $527,000 and $354,000, respectively, in
excess of their respective net capital requirements.
In conjunction with the Company's move of its corporate headquarters in New York
City the Company has significantly upgraded its technological infrastructure.
The combined costs of the move and the technological investment were financed
through a series of operating leases. These leases total $4.8 million. As
security for these leases, the Company arranged for a standby letter of credit.
As collateral for the standby letter of credit, the Company has placed $2.4
million in a restricted cash escrow account with the provider. The Company
intends to use debt and lease financing prudently in the future.
12
<PAGE>
The Company's overall capital and funding needs are continually reviewed to
ensure that its capital base can support the estimated needs of its business
units. These reviews take into account business needs as well as regulatory
capital requirements of the subsidiaries. Based upon these reviews, management
believes that the Company's capital structure is adequate for current operations
and reasonably foreseeable future needs.
Other Matters
Year 2000 Computer Issue
Based upon a preliminary study, the Company expects a minimal internal impact
from the "Year 2000 Computer Issue". All of the Company's computer programs are
provided by third-party vendors and service providers. Most of the programs were
purchased after the Year 2000 Computer Issue became widely recognized. The
Company has sought, and expects to receive, written confirmation from its
third-party program and service providers that the Year 2000 Computer Issue has
been appropriately managed. Schroder & Co., the Company's clearing firm, is the
Company's largest and most important computer services related vendor. Schroder
& Co. has provided the Company with assurances that they expect to appropriately
manage the Year 2000 Computer Issue on a timely basis. Management does not
expect the Year 2000 Computer Issue to have a material effect on the Company's
earnings. However, there can be no assurance that the systems of other companies
or third-party vendors and service providers on which the Company's systems rely
also will be appropriately examined on a timely basis. The Year 2000 Computer
Issue creates risk for the Company from unforeseen problems in its own computer
systems, third-party vendors and service providers, and from third parties with
whom the Company deals on financial transactions worldwide. Such failures could
have a material impact on the Company's ability to conduct business.
New Accounting Pronouncements
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128),
effective beginning in the fiscal year ending January 31, 1998. This statement
changes the calculation and presentation of earnings per common share (EPS). The
new presentation consists of basic EPS, which includes no dilution and is
computed by dividing net income by the weighted-average number of common shares
outstanding for the period, and diluted EPS, which is similar to the previous
fully diluted EPS. The financial statements reflect the implementation of SFAS
128.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income (SFAS 130), effective beginning in the
fiscal year ending January 31, 1999. This statement establishes standards for
the reporting and display of comprehensive income and its components. Total
comprehensive income measures all changes in stockholders' equity resulting from
transactions of the period, other than transactions with stockholders. The
financial statements reflect the implementation of SFAS 130.
Safe Harbor Cautionary Statement
The Company occasionally makes forward-looking statements such as forecasts and
projections of expected future performance or statements of its plans and
objectives. When used in this report and in future filings by the Company with
the SEC, in the Company's press releases and in oral statements made with the
approval of an authorized executive officer of the Company, the words or phrases
"will likely result," "the Company expects," "will continue," "is anticipated,"
"estimated," "project," or "outlook" or similar expressions (including
confirmations by an authorized executive officer of the Company of any such
expressions made by a third party with respect to the Company) are intended to
identify forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, each of which
speaks only as of the date made. Such statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected.
13
<PAGE>
Factors that could affect the Company's results of operations and cause its
results to differ from these statements include the volatility and price level
of the securities markets; the volume, size and timing of securities
transactions; the demand for investment banking services; the level and
volatility of interest rates; the availability of credit; legislation affecting
the business and financial communities; and the economy in general. For a more
complete discussion of these and other factors, see the Company's registration
statement filed on Form S-1, as amended (No. 333-05273), and the Company's
periodic Form 10-K, 10-Q, and 8-K filings with the SEC. The Company has no
obligation to publicly release the result of any revisions that may be made to
any forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
14
<PAGE>
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on July 15, 1998.
At the meeting, the three incumbent directors for re-election were
re-elected to three-year terms, receiving the number of votes set forth
below:
Director Votes for Re-Election Authority Withheld
------------------ ---------------------- -------------------
Peter R. Kent 5,834,091 55,455
John P. Margaritis 5,823,341 66,205
Peter R. McMullin 5,824,091 65,455
At the meeting, the stockholders also approved an amendment to the
Company's Certificate of Incorporation to change its name from GKN
Holding Corp. to Research Partners International, Inc. The votes were
as follows:
For Against Abstain Broker Non-Votes
----------- ------- ------- -----------------
5,852,796 2,650 34,100 -
Item 5. Other Information
Notice to Stockholders Regarding 1999 Annual Meeting of Stockholders:
Pursuant to Rule 14a-4 promulgated by the Securities and Exchange
Commission, stockholders are advised that the Company's management
shall be permitted to exercise discretionary voting authority under
proxies it solicits and obtains for the Company's 1999 Annual Meeting
of Stockholders with respect to any proposal presented by a stockholder
at such meeting, without any discussion of the proposal in the
Company's proxy statement for such meeting, unless the Company receives
notice of such proposal at its principal office located at One State
Street Plaza, New York, New York, no later than April 30, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1(b) - Amendment to Registrant's Restated Certificate of
Incorporation
27 - Financial Data Schedule BD
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K, dated July 23, 1998,
reporting under Item 5, Other Events, the issuance of two press
releases which announced, (i) that the Company's stockholders approved
a change in the Company's name from GKN Holding Corp. to Research
Partners International, Inc. and the re-election of certain of its
incumbent directors and (ii) the change in the Company's symbol to RPII
and its CUSIP number to 761013101.
15
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESEARCH PARTNERS INTERNATIONAL, INC.
Date: September 14, 1998 /s/ David M. Nussbaum
---------------------
David M. Nussbaum
Chairman of the Board and
Chief Executive Officer
/s/ Peter R. Kent
---------------------------
Peter R. Kent, Executive Vice President
Chief Operating Officer and
Chief Financial Officer
16
<PAGE>
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Exhibit Index
Number Description
3.1(b) Amendment to Registrant's Restated Certificate of Incorporation
27 Financial Data Schedule BD (7/31/98)
17
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GKN HOLDING CORP.
Pursuant to Section 242 of the General Corporation Law of the
State of Delaware ("GCL"), it is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is GKN Holding Corp. The date on which the original certificate
of incorporation of the Corporation was filed with the Secretary of State of the
State of Delaware was January 30, 1987.
2. The certificate of incorporation of the Corporation is
hereby amended by deleting paragraph FIRST and in its stead substituting the
following:
"FIRST: The name of the corporation is Research Partners
International, Inc. ("Corporation")"
3. Except as otherwise amended hereby, the provisions of the
certificate of incorporation of the Corporation are in full force and effect.
4. The amendment to the certificate of incorporation has been
duly adopted in accordance with the provisions of Section 242 of the GCL, by
resolution of the Board of Directors of the Corporation and by affirmative vote
of the holders of a majority of the outstanding securities entitled to vote
thereon at a meeting of stockholders.
IN WITNESS WHEREOF, the undersigned has signed this
Certificate of Amendment on this 15th day of July 1998 and affirms, under
penalties of perjury, that the Certificate of Amendment is the act and deed of
the Corporation and the facts stated herein are true.
/s/ Peter R. Kent
--------------------------------
Peter R. Kent, Executive Vice
President, Chief Operating Officer
and Chief Financial Officer
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JUL-31-1998
<CASH> 10,169,000
<RECEIVABLES> 2,313,000
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<PP&E> 1,291,000
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0
114,000
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