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(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended September 30, 2004

or

o		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: 1-10024

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 October 31, 2004, 7,077,808 shares of the registrant’s common stock, $1.00 par value, were outstanding.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
	RISK FACTORS
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)


			September 30,			December 31,
			2004			2003

			(Unaudited)			(Audited)
Assets
Cash and cash equivalents			$	59,566		$	37,442
Investment advisory and incentive fees receivable				24,987			37,844
Investments in securities, at value (cost $5,379 and $4,317, respectively)				5,456			4,379
Investments in affiliated partnerships				14,428			17,042
Prepaid expenses and other assets				1,821			3,890
Fixed assets (net of accumulated depreciation of $6,165 and $4,881, respectively)				6,793			6,741
Deferred tax asset				10,071			8,666
Goodwill (net of accumulated amortization of $8,566)				14,796			14,796
Investment advisory contracts (net of accumulated amortization of $57,823 and $52,567, respectively)				12,266			17,522
Consolidated affiliated partnerships:
	Due from broker			—			4,248
	Investments in securities, at value (cost $0 and $3,692, respectively)			—			3,927
	Investments in unaffiliated partnerships			—			3,778

		Total assets	$	150,184		$	160,275

Liabilities, minority interest and stockholders’ equity
Accrued expenses				3,717		$	3,562
Accrued bonuses				37,952			39,728
Accrued incentive compensation				16,180			10,289
Accrued lease amendment expense				3,971			4,535
Dividends Payable				1,077			—
Consolidated affiliated partnerships:
	Securities sold short, at value (proceeds of $0 and $1,106, respectively)			—			1,117

		Total liabilities		62,897			59,231

Minority interest in consolidated affiliated partnerships				—			8,935

Stockholders’ equity
Common stock, $1 par value, authorized — 15,000,000 shares, issued and outstanding — 6,951,245 and 6,826,247 shares, respectively				6,951			6,826
Additional paid-in capital				65,775			63,229
Retained earnings				15,779			22,054
Unearned compensation — restricted stock				(1,218	)		—

		Total stockholders’ equity		87,287			92,109

Total liabilities, minority interest and stockholders’ equity			$	150,184		$	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						Nine Months Ended
			September 30,						September 30,

			2004			2003			2004			2003

Revenues:
Investment advisory fees			$	20,103		$	15,548		$	58,247		$	43,799
Incentive fees and allocations				7,246			9,887			21,596			25,450
Commission income (net) and other				271			513			1,069			1,502
Net realized and unrealized gain on investments				49			200			449			706
Interest income				175			99			347			328
From consolidated affiliated partnerships:
	Net realized and unrealized gain on investments			—			596			568			1,761
	Interest and dividend income			—			81			33			295

		Total revenues		27,844			26,924			82,309			73,841

Expenses:
Employee compensation and benefits				19,254			19,069			57,683			49,926
Employee compensation relating to equity grants				1,892			2,238			6,296			5,874
Occupancy & equipment rental				1,538			1,616			4,456			4,794
Loss on lease amendment				—			5,127			—			5,127
Other operating expenses				2,965			3,081			9,736			9,269
Other operating expenses from consolidated affiliated partnerships				—			39			20			146
Amortization of intangibles				1,753			1,753			5,257			5,257
Interest expense from lease amendment				27			—			116			—

		Total expenses		27,429			32,923			83,564			80,393

Operating income (loss)				415			(5,999	)		(1,255	)		(6,552	)
Minority interest in consolidated affiliated partnerships				—			(451	)		(541	)		(1,273	)

Income (loss) before taxes				415			(6,450	)		(1,796	)		(7,825	)

Income tax expense (benefit)				1,152			(2,167	)		1,698			(1,179	)

Net (loss)			$	(737	)	$	(4,283	)	$	(3,494	)	$	(6,646	)

(Loss) per share:
Basic and Diluted			$	(0.11	)	$	(0.64	)	$	(0.51	)	$	(1.00	)

Weighted average shares outstanding
Basic and Diluted				6,922,763			6,655,734			6,895,256			6,648,612

See accompanying notes.

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Nine Months Ended September 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		(1,218	)		—			467
Issuance of common stock		60		455		—			—			515
Tax benefit related to employee compensation plans		—		471		—			—			471
Dividend, net of compensation expense(1)		—		—		—			(2,781	)		(2,781	)
Net (loss)		—		—		—			(3,494	)		(3,494	)

Balance at September 30, 2004	$	6,951	$	65,775	$	(1,218	)	$	15,779		$	87,287

(1) compensation expense incurred relating to dividend

BKF CAPITAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)



			Nine Months Ended
			September 30,

			2004			2003

Cash flows from operating activities
Net (loss)			$	(3,494	)	$	(6,646	)
Adjustments to reconcile net (loss) to net cash provided by operations:
	Depreciation and amortization			6,830			6,338
	Compensation expense for vesting of restricted stock & stock units			6,405			5,874
	Loss on disposal of fixed assets			—			127
	Tax benefit related to employee compensation plans			470			93
	Change in deferred tax asset			(1,405	)		(4,668	)
	Unrealized (gain) on investments in securities			(15	)		(330	)
	Changes in operating assets and liabilities:
		(Increase) decrease in investment advisory and incentive fees receivable		12,857			(4,916	)
		(Increase) decrease in prepaid expenses and other assets		2,035			(369	)
		(Increase) decrease in investments in affiliated investment partnerships		4,538			(1,613	)
		(Increase) decrease in investments in securities		(1,062	)		1,000
		Increase (decrease) in accrued expenses		125			(1,519	)
		Increase (decrease) in accrued bonuses		(1,776	)		1,980
		Increase (decrease) in accrued lease amendment expense		(564	)		5,000
		Increase in income taxes payable		—			2,467
	Changes in operating assets and liabilities from consolidated affiliated partnerships:
		Minority interest in income		—			1,273
		Decrease in due from broker		—			15,118
		(Increase) in securities		—			(2,203	)
		(Increase) in investments in unaffiliated partnerships		—			(1,060	)
		(Decrease) in securities sold short		—			(2,711	)
		Minority interest in previously unconsolidated affiliated partnerships		—			(123	)

Net cash provided by operating activities				24,944			13,112

Cash flows from investing activities
Fixed asset additions				(1,624	)		(2,033	)

Net cash (used in) investing activities				(1,624	)		(2,033	)

Cash flows from financing activities
Issuance of common stock				515			122
Dividends paid to shareholders				(1,711	)
Consolidated affiliated partnerships:
		Partner subscriptions		—			8,645
		Partner redemptions		—			(13,141	)

Net cash (used in) financing activities				(1,196	)		(4,374	)

Net increase in cash and cash equivalents				22,124			6,705
Cash and cash equivalents at the beginning of the year				37,442			39,150

Cash and cash equivalents at the end of the period			$	59,566		$	45,855

Supplemental disclosure of cash flow information
Cash paid for interest			$	116			—

Cash paid for taxes			$	1,387		$	1,645

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 use of estimates is important in the determining compensation expense for interim periods.

A substantial portion of our compensation expense is comprised of discretionary bonuses, genera

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