BKF CAPITAL GROUP INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended June 30, 2004

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to

Commission file number: 1-10024

BKF Capital Group, Inc.

(Exact name of registrant as specified in its charter)


Delaware		36-0767530
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Rockefeller Plaza, New York, New York (Address of principal executive offices)		10020 (Zip Code)

(212) 332-8400

(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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes þ No o

As of July 31, 2004, 6,918,390 shares of the registrant’s common stock, $1.00 par value, were outstanding.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
	RISK FACTORS
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATION
CERTIFICATION
CERTIFICATION
CERTIFICATION

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollar amounts in thousands)


			June 30,			December 31,
			2004			2003

			(Unaudited)			(Audited)
Assets
Cash and cash equivalents			$	49,298		$	37,442
Investment advisory and incentive fees receivable				22,437			37,844
Investments in securities, at value (cost $5,395 and $4,317, respectively)				5,565			4,379
Investments in affiliated partnerships				9,286			17,042
Prepaid expenses and other assets				4,456			3,890
Fixed assets (net of accumulated depreciation of $5,603 and $4,881, respectively)				7,041			6,741
Deferred tax asset				9,174			8,666
Goodwill (net of accumulated amortization of $8,566)				14,796			14,796
Investment advisory contracts (net of accumulated amortization of $56,071 and $52,567, respectively)				14,018			17,522
Consolidated affiliated partnerships:
	Due from broker			10,341			4,248
	Investments in securities, at value (cost $7,740 and $3,692, respectively)			8,071			3,927
	Investments in unaffiliated partnerships			—			3,778

		Total assets	$	154,483		$	160,275

Liabilities, minority interest and stockholders’ equity
Accrued expenses			$	3,019		$	3,562
Accrued bonuses				25,432			39,728
Accrued incentive compensation				14,519			10,289
Accrued lease amendment expense				4,070			4,535
Consolidated affiliated partnerships:
	Securities sold short, at value (proceeds of $4,301 and $1,106, respectively)			4,345			1,117

		Total liabilities		51,385			59,231

Minority interest in consolidated affiliated partnerships				13,947			8,935

Stockholders’ equity
Common stock, $1 par value, authorized — 15,000,000 shares, issued and outstanding — 6,917,071 and 6,826,247 shares, respectively				6,917			6,826
Additional paid-in capital				65,199			63,229
Retained earnings				18,439			22,054
Unearned compensation — restricted stock				(1,404	)		—

		Total stockholders’ equity		89,151			92,109

Total liabilities, minority interest and stockholders’ equity			$	154,483		$	160,275

See accompanying notes.

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollar amounts in thousands, except per share data)

(Unaudited)



			Three Months Ended						Six Months Ended
			June 30,						June 30,

			2004			2003			2004			2003

Revenues:
Investment advisory fees			$	19,558		$	14,421		$	38,144		$	28,251
Incentive fees and allocations				4,259			8,697			14,350			15,563
Commission income (net) and other				320			496			798			989
Net realized and unrealized gain on investments				191			405			400			506
Interest income				94			145			172			229
From consolidated affiliated partnerships:
	Net realized and unrealized gain on investments			177			861			568			1,165
	Interest and dividend income			20			82			33			214

		Total revenues		24,619			25,107			54,465			46,917

Expenses:
Employee compensation and benefits				17,339			16,372			38,429			30,857
Employee compensation relating to vesting of equity grants				2,241			2,149			4,404			3,636
Occupancy & equipment rental				1,562			1,534			2,918			3,178
Other operating expenses				3,142			3,155			6,771			6,188
Other operating expenses from consolidated affiliated partnerships				11			37			20			107
Amortization of intangibles				1,752			1,752			3,504			3,504
Interest expense from lease amendment				28			—			89			—

		Total expenses		26,075			24,999			56,135			47,470

Operating (loss)				(1,456	)		108			(1,670	)		(553	)
Minority interest in consolidated affiliated partnerships				(163	)		(585	)		(541	)		(822	)

(Loss) before taxes				(1,619	)		(477	)		(2,211	)		(1,375	)

Income tax expense				80			597			546			988

Net (loss)			$	(1,699	)	$	(1,074	)	$	(2,757	)	$	(2,363	)

(Loss) per share:
Basic and Diluted			$	(0.25	)	$	(0.16	)	$	(0.40	)	$	(0.36	)

Weighted average shares outstanding
Basic and Diluted				6,908,415			6,646,055			6,881,352			6,644,992

See accompanying notes.

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2004

(Amounts in thousands)

(Unaudited)


			Additional
	Common		Paid-In		Unearned			Retained
	Stock		Capital		compensation			earnings			Total

Balance at December 31, 2003		6,826		63,229		—			22,054			92,109
Grants of restricted stock		65		1,620		(1,404	)		—			281
Issuance of common stock		26		173		—			—			199
Tax benefit related to employee compensation plans		—		177		—			—			177
Dividend, net of compensation expense(1)		—		—		—			(858	)		(858	)
Net (loss)		—		—		—			(2,757	)		(2,757	)

Balance at June 30, 2004	$	6,917	$	65,199	$	(1,404	)	$	18,439		$	89,151

(1) compensation expense incurred relating to dividend

See accompanying notes.

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)



			Six Months Ended
			June 30,

			2004			2003

Cash flows from operating activities
Net (loss)			$	(2,757	)	$	(2,363	)
Adjustments to reconcile net (loss) to net cash provided by operations:
	Depreciation and amortization			4,464			4,193
	Compensation expense for vesting of restricted stock units			4,542			3,636
	Tax benefit related to employee compensation plans			177			—
	Change in deferred tax asset			(508	)		(1,984	)
	Unrealized (gain) on investments in securities			(109	)		(320	)
	Changes in operating assets and liabilities:
		Decrease in investment advisory and incentive fees receivable		15,407			2,249
		(Increase) in prepaid expenses and other assets		(592	)		(996	)
		Decrease in investments in affiliated investment partnerships		9,624			4,150
		(Increase) Decrease in investments in securities		(1,077	)		999
		(Decrease) in accrued expenses		(551	)		(1,619	)
		(Decrease) in accrued bonuses		(14,296	)		(10,313	)
		(Decrease) in accrued lease amendment expense		(465	)		—
		Increase in income taxes payable		—			1,855
	Changes in operating assets and liabilities from consolidated affiliated partnerships:
		Minority interest in income		541			822
		Other		(16	)		—
		Increase (decrease) in due from broker		(6,093	)		15,118
		(Increase) decrease in securities		(4,144	)		3,549
		(Increase) in investments in unaffiliated partnerships		—			(946	)
		Increase (decrease) in securities sold short		3,228			(3,076	)

Net cash provided by operating activities				7,375			14,954

Cash flows from investing activities
Fixed asset additions				(1,310	)		(1,631	)

Net cash (used in) investing activities				(1,310	)		(1,631	)

Cash flows from financing activities
Issuance of common stock				199			(50	)
Dividend paid to shareholders				(858	)
Consolidated affiliated partnerships:
		Partner subscriptions		6,450			2,785
		Partner redemptions		—			(12,200	)

Net cash provided by (used in) financing activities				5,791			(9,465	)

Net increase in cash and cash equivalents				11,856			3,858
Cash and cash equivalents at the beginning of the year				37,442			39,150

Cash and cash equivalents at the end of the period			$	49,298		$	43,008

Supplemental disclosure of cash flow information
Cash paid for interest			$	89		$	5

Cash paid for taxes			$	1,863		$	1,597

See accompanying notes.

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Organization and Summary of Significant Accounting Policies


	*Organization and Basis of Presentation*

The consolidated interim financial statements of BKF Capital Group, Inc. (formerly Baker, Fentress & Company, hereto referred to as “BKF” or the “Company”) and its subsidiaries included herein have been prepared in accordance with generally accepted accounting principles for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. The Company follows the same accounting policies in the preparation of interim reports. In the opinion of management, the consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the financial condition, results of operations and cash flows of the Company for the interim periods presented and are not necessarily indicative of a full year’s results.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates.

The Company operates through a wholly-owned subsidiary, Levin Management Co., Inc. and its subsidiaries, all of which are referred to as “Levco”. The Company trades on the New York Stock Exchange, Inc. (“NYSE”) under the symbol “BKF”.

The Consolidated Financial Statements of Levco include its wholly-owned subsidiary, John A. Levin & Co., Inc. (“JALCO”), JALCO’s two wholly-owned subsidiaries, Levco GP Inc. (“Levco GP”) and LEVCO Securities, Inc. (“LEVCO Securities”) and certain affiliated investment partnerships for which the Company is deemed to have controlling interest of the applicable partnership. One investment partnership was consolidated at June 30, 2004 and for the six-month period then ended and two investment partnerships were consolidated at December 31, 2003. The operations of four investment partnerships (of which two terminated in March 2003) were included in the consolidated statements of operations and cash flows for the six-month period ended June 30, 2003.

JALCO is an investment advisor registered under the Investment Advisers Act of 1940, as amended, which provides investment advisory services to its clients which include U.S. and foreign corporations, mutual funds, limited partnerships, universities, pension and profit sharing plans, individuals, trusts, not-for-profit organizations and foundations. JALCO also participates in broker consulting programs (Wrap Accounts) with several nationally recognized financial institutions. LEVCO Securities is registered with the SEC as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. Levco GP acts as the managing general partner of several affiliated investment partnershi

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