SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1995
Commission File Number 1-9750
Sotheby's Holdings, Inc.
(Exact name of registrant as specified in its charter)
Michigan 38-2478409
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
500 North Woodward Avenue, Suite 100
Bloomfield Hills, Michigan 48304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code: (313) 646-2400
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 .
As of April 28, 1995, there were outstanding 37,039,174 shares of
Class A Limited Voting Common Stock, par value $0.10 per share, and
18,804,017 shares of Class B Common Stock, par value $0.10 per
share, of the Registrant. Each share of Class B Common Stock is
freely convertible into one share of Class A Limited Voting Common
Stock.
<PAGE>
PART 1: FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Consolidated Balance Sheets
Sotheby's Holdings, Inc. and Subsidiaries
(Thousands of dollars)
<CAPTION>
March 31, December 31,
1995 1994
<S>
Assets <C> <C>
Current Assets
Cash and cash equivalents $ 8,708 $ 34,987
Accounts and notes receivable, net of allowance
for doubtful accounts of $11,123 and $10,165
Auction operations 93,959 180,521
Finance operations 144,281 131,294
Other 16,847 13,442
Total Accounts And Notes Receivable, Net 255,087 325,257
Inventory, net 48,551 20,330
Deferred income taxes 11,408 12,053
Prepaid expenses 12,975 12,053
Total Current Assets 336,729 404,680
Properties, less allowance for depreciation
and amortization of $56,876 and $53,464 68,108 66,825
Intangible assets, less allowance for
amortization of $29,175 and $28,051 29,064 29,054
Investment in partnership 43,944 44,281
Other assets 12,455 12,244
Total Assets $ 490,300 $ 557,084
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
Sotheby's Holdings, Inc. and Subsidiaries
(Thousands of dollars)
<CAPTION>
March 31, December 31,
1995 1994
<S>
Liabilities And Shareholders' Equity <C> <C>
Current Liabilities
Due to consignors $ 90,314 $ 199,758
Short-term borrowings - Note 2 17,086 8,903
Accounts payable and accrued liabilities 52,027 60,428
Deferred revenues 6,798 6,173
Accrued income taxes 24,090 24,457
Total Current Liabilities 190,315 299,719
Long-Term Liabilities
Commercial paper - Note 2 77,000 27,500
Deferred income taxes 18,131 18,423
Other long-term obligations 419 390
Total Liabilities 285,865 346,032
Shareholders' Equity
Common Stock, $0.10 par value:
Authorized shares - 125,000,000 of Class A and 75,000,000 of Class B
Issued and outstanding shares - 37,031,988 and 36,730,771 of Class A,
and 18,804,017 and 19,093,071 of Class B, at March 31, 1995 and
December 31, 1994, respectively 5,584 5,582
Additional paid-in capital 83,589 83,538
Retained earnings 126,213 136,517
Foreign currency translation adjustments (10,951) (14,585)
Total Shareholders' Equity 204,435 211,052
Total Liabilities And Shareholders' Equity$ 490,300 $ 557,084
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Income
Sotheby's Holdings, Inc. and Subsidiaries
(Thousands of dollars, except per share data)
<CAPTION>
Quarter Ended March 31, 1995 1994
<S>
Auction <C> <C>
Revenues $ 37,136 $ 34,659
Direct costs of services (9,218) (7,193)
Salaries and related costs (22,178) (19,560)
General and administrative expenses (16,863) (15,714)
Depreciation and amortization (2,084) (1,836)
Income from inventory and other auction - related
activities 100 290
Operating loss - Auction (13,107) (9,354)
Interest income 688 1,327
Interest expense (1,230) (630)
Net interest charged to Financial Services 1,406 335
Loss Before Taxes - Auction (12,243) (8,322)
Financial Services
Revenues 3,274 1,676
General and administrative expenses (740) (599)
Net interest expense from Auction (1,406) (335)
Income Before Taxes - Financial Services 1,128 742
Real Estate
Revenues 2,083 2,617
Operating expenses (1,728) (2,108)
Income Before Taxes - Real Estate 355 509
Corporate operating expenses (1,412) (1,505)
Other non-operating income 183 98
Consolidated
Revenues 42,493 38,952
Operating loss (13,036) (9,608)
Net interest income 864 1,032
Other non-operating income 183 98
Loss before taxes (11,989) (8,478)
Income taxes 5,035 3,391
Net Loss $ (6,954) $ (5,087)
Net Loss Per Share $ (0.12) $ (0.09)
Weighted Average Shares Outstanding 55,832,463 55,596,016
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
Sotheby's Holdings, Inc. and Subsidiaries
(Thousands of dollars)
<CAPTION>
Quarter Ended March 31, 1995 1994
<S>
Operating Activities: <C> <C>
Net loss $ (6,954) $ (5,087)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,219 1,948
Deferred income taxes 353 (332)
Tax benefit of stock option exercises 34 768
Asset provisions 947 1,430
Other 242 158
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses (921) 413
Decrease in accounts receivable 82,205 76,972
Increase in inventory (28,182) (1,864)
Decrease in due to consignors (109,444) (128,186)
Increase (decrease) in accrued income taxes (367) 369
Decrease in other current liabilities (7,776) (12,903)
Net cash used by operating activities (67,644) (66,314)
Investing Activities:
Finance operation loans (34,062) (35,908)
Collections on finance operation loans 22,924 31,199
Capital expenditures (1,069) (891)
Decrease in investment in partnership 337 84
Net cash used by investing activities (11,870) (5,516)
Financing Activities:
Increase in commercial paper 49,500 19,000
Increase (decrease) in short term borrowings 8,183 (78)
Proceeds from exercise of stock options 18 1,636
Dividends paid (3,350) (3,336)
Net cash provided by financing activities 54,351 17,222
Effect of exchange rate changes on cash (1,116) 412
Decrease in cash and cash equivalents (26,279) (54,196)
Cash and Cash Equivalents at Beginning of Period 34,987 91,840
Cash and Cash Equivalents at End of Period$ 8,708 $ 37,644
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
SOTHEBY'S HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated financial statements included herein have
been prepared by Sotheby's Holdings, Inc. (together with its
subsidiaries, the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. These
consolidated financial statements should be read in
conjunction with the consolidated financial statements and the
notes thereto incorporated by reference in the Company's
Annual report on Form 10-K for the year ended December 31,
1994 (the "Annual Report"). Reference should be made to the
Annual Report for industry segment information required to be
included under Financial Accounting Standards Board Statement
No. 14.
In the opinion of the management of the Company, all
adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the results of operations
for the quarters ended March 31, 1995 and 1994 have been
included. Certain amounts for the quarter ended March 31,
1994 have been reclassified to conform to the 1995
presentation.
2. Credit Arrangements
At March 31, 1995, there were $77.0 million of outstanding
commercial paper notes sold to investors at weighted average
discount rates of approximately 6.2% with average maturities
of 26 days. These amounts have been classified on the
consolidated balance sheets as long-term liabilities based on
the Company's ability to maintain or refinance these
obligations on a long-term basis. Short-term borrowings
totaled $17.1 million at March 31, 1995 and consisted
primarily of bank borrowings at interest rates between LIBOR
plus 0.30% and LIBOR plus 0.625%.
3. Commitments and Contingencies
In conjunction with the client loan program, the Company
enters into legally binding arrangements to lend, on a
collateralized basis, to potential consignors and other
individuals who have collections of fine art and other
objects. Unfunded commitments to extend additional credit
were approximately $12.6 million at March 31, 1995.
<PAGE>
On certain occasions, the Company will guarantee to the
consignor a minimum price in connection with the sale of
property. The Company must perform under its guarantee only
in the event that (a) the property fails to sell and (b) the
consignor prefers to be paid the guarantee price rather than
retain ownership of the unsold property. In such event, the
Company may purchase the property at the guaranteed price. At
March 31, 1995 the Company had outstanding guarantees totaling
approximately $40 million, which covers auction property
having a mid-estimate sales price of approximately $50
million, as well as contingent liability of up to $8 million
relating to other property which will not be sold at auction.
Under the auction guarantees, the Company participates in a
share of the proceeds if the property under guarantee sells
above a minimum price. At May 15, 1995, such total outstanding
guarantees and contingent liabilities were approximately
$39 million.
In addition, the Company, in the normal course of business, is
a defendant in various legal actions.
In the opinion of management, the commitments and
contingencies described above currently are not expected to
have a material adverse effect on the Company's financial
statements.
4. Seasonality of Business
The worldwide art auction market has two principal selling
seasons, spring and fall. During the summer and winter, sales
are considerably lower. The table below demonstrates that at
least 80% of the Company's auction sales are derived from the
second and fourth quarters of the year.
<TABLE>
<CAPTION>
Percentage of Annual
Auction Sales
1994 1993 1992
<S> <C> <C> <C>
January - March 12% 10% 12%
April - June 40% 38% 38%
July - September 8% 6% 8%
October - December 40% 46% 42%
100% 100% 100%
</TABLE>
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Auction
The worldwide auction business is highly seasonal in nature,
with two principal selling seasons, spring and fall.
Accordingly, first and third quarter results reflect lower
auction sales and lower operating margins than the second and
fourth quarters due to the fixed nature of many of the
operating expenses. (See Note 4 in the Notes to the
Consolidated Financial Statements for additional information.)
Following is a geographical breakdown of the Company's auction
sales for the three month periods ended March 31, 1995 and
1994 (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1995 1994
<C> <C>
<S>
North America $106,297 $101,940
Europe 69,384 59,341
Asia - -
Total $175,681 $161,281
</TABLE>
For the three months ended March 31, 1995, auction sales
increased to $175.7 million from $161.3 million in the first
quarter of 1994, an increase of $14.4 million, or 9%. Auction
sales recorded by the Company's European operations were
positively affected by translation to U.S. dollars, which
increased auction sales by $5.6 million. The remaining
increase was largely attributable to single owner sales,
including property from The New-York Historical Society and
the Cyril Humphris Collection in New York and the Man Ray
Collection in London.
Revenues from auction operations ("Auction") for the first
quarter of 1995 increased $2.5 million, or 7%, to $37.1.
Excluding the impact of translating revenues outside North
America into U.S. dollars, Auction revenues increased by $1.3
million or 4%. Auction revenues were positively affected by
increased commissions (which are principally buyer's premium,
vendor's commission and expense recoveries). The increase in
commissions is largely due to the greater volume of auction
sales discussed above and, to a lesser extent, a change in the
relative mix of sales toward property with lower average
values which yield higher average commission rates.
Reductions in other non-commission revenue categories
partially offset the impact of increased commissions.
<PAGE>
Auction operating expenses (which include direct costs of
services, salaries and related costs, general and
administrative expenses as well as depreciation and
amortization) totaled $50.3 million for the first quarter of
1995, an increase of $6.0 million, or 14%, when compared to
the prior year. Excluding the effects of movements in
exchange rates, Auction's operating expenses increased $3.9
million, or 9%, when compared to the first quarter of 1994.
The increase in first quarter operating expenses was
attributable to increased salaries and related costs, direct
costs and general and administrative costs. Salaries and
related costs increased $2.6 million, or 13%, in the first
three months of 1995; excluding the impact of foreign currency
movements, salaries and related costs increased $1.7 million,
or 9%. The quarter-to-quarter increase is largely due to
salary increases at the beginning of 1995 as well as the
effect of additions to staff subsequent to the first quarter
of 1994 (including several senior management positions).
Direct costs of services, which consist largely of catalogue
production, distribution and mailing costs, were up
approximately $2.0 million, or 28%, in the first quarter of
1995; excluding the effects of currency movements, direct
costs increased $1.7 million, or 23%. The increase in direct
costs reflects increased costs related to catalogue printing,
higher expenses associated with single owner sales and a
decision by management to enhance the Company's worldwide
corporate marketing. Direct costs of services as a percentage
of sales was 5.2% in the first quarter of 1995 compared to
4.5% in the same period of the prior year. General and
administrative costs increased $1.1 million, or 7%, in the
first quarter of 1995. Excluding the impact of foreign
currency movements, general and administrative costs increased
only $0.4 million, or 3%.
Income from inventory and other auction-related activities
generated pre-tax income of $0.1 million compared to $0.3
million in 1994's first quarter.
Traditionally, the first quarter generates a loss due to the
seasonal nature of the art auction business. Auction's
operating loss totalled $13.1 million for the quarter ended
March 31, 1995, which represents a $3.8 million deterioration
from the first quarter of 1994. Excluding movements in
foreign currency movements, Auction's operating loss
deteriorated by $2.9 million.
Auction's interest income, which is earned on short-term
investments of excess cash, decreased $0.6 million in the
first three months of 1995 compared to 1994 due primarily to
a lower level of invested funds when compared to the prior
year. Interest expense is incurred on borrowings to fund cash
requirements, including the client loan portfolio of the
Company's subsidiary, Sotheby's Financial Services, Inc.
("Financial Services"). The increase in interest expense of
$0.6 million is due primarily to higher average interest rates
and, to a lesser extent, higher average commercial paper
borrowings.
<PAGE>
As noted above, Auction funds a portion of the client loan
portfolio of Financial Services. Net interest charged to
Financial Services on borrowings from Auction totaled $1.4
million and $0.3 million in the first quarter of 1995 and
1994, respectively. The 1995 amount represents interest
income of $1.7 million on borrowings by Financial Services
from Auction, net of interest expense on special financing
programs of $0.3 million charged by Financial Services to
Auction. The quarter-to-quarter increase is attributable to
the larger client loan portfolio and, to a lesser extent, the
lower level of special financing programs for which interest
is charged to Auction by Financial Services.
Financial Services
Revenues from Financial Services increased to $3.3 million for
the first quarter of 1995 from $1.7 million last year. The
growth in revenues for the first quarter of 1995 was primarily
due to an increase in the average outstanding loan portfolio
and, to a lesser extent, higher rates of interest earned on
outstanding loans. Average portfolio balances were $146.1
million for the first quarter of 1995, compared to $101.9
million in 1994's first quarter. The Company continues to
experience increased demand for loans, particularly from
consignors, which has resulted in the portfolio growth.
For the first quarter of 1995, income before taxes increased
$0.4 million from the comparable period in 1994. The increase
is principally the result of the larger client loan portfolio
discussed above.
Real Estate
Revenues from Sotheby's International Realty, Inc. ("Real
Estate") for the first quarter of 1995 decreased to $2.1
million from $2.6 million in 1994. The decrease reflects a
decline in the level of property sales. Operating expenses
decreased $0.4 million when compared to the first three months
of 1994 largely reflecting a decrease in marketing (consistent
with the lower level of property sales) as well as a reduction
in various other operating expenses. Real Estate's pre-tax
income for the first quarter of 1995 was slightly below the
prior year level.
Corporate
Corporate expenses of $1.4 million for the first quarter of
1995 were down marginally from the first quarter of 1994.
<PAGE>
Provision for Income Taxes
The consolidated effective tax rate was 42% for the first
three months of 1995 and 40% for the first three months of
1994. The increased tax rate reflects the net impact of a
shift in worldwide earnings to jurisdictions having higher
statutory rates.
Net Loss and Loss Per Share
For the first quarter of 1995, the net loss increased 37%, to
$7.0 million, from a net loss of $5.1 million in the first
quarter of 1994. The net loss per share for the first quarter
of 1995 increased to $0.12 from $0.09 for the first quarter of
1994. The impact of translating the results of foreign
subsidiaries into U.S. dollars increased the net loss by $0.5
million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net debt position (total debt, which includes
short-term borrowings and commercial paper, less cash and cash
equivalents) totalled $85.4 million at March 31, 1995 compared
to $1.4 million at December 31, 1994. Working capital
(current assets less current liabilities) at March 31, 1995
was $146.4 million compared to $105.0 million at December 31,
1994.
The Company's client loan portfolio, consisting of loans which
generally have a maturity of one year or less, increased to
$144.3 million at March 31, 1995 compared to $131.3 million at
December 31, 1994.
The Company relies on internally generated funds and
borrowings to meet its finance requirements. The Company may
issue up to $200 million of short-term notes pursuant to its
U.S. commercial paper program, of which $77.0 million was
issued and outstanding at March 31, 1995. The Company
supports any short-term notes issued under its U.S. commercial
program with committed credit facilities. The Company has
$300 million available under a bank credit agreement entered
into during 1994.
<PAGE>
For the three month periods ended March 31, 1995 and 1994, the
Company's primary sources of liquidity were derived from
available cash balances supplemented by commercial paper
borrowings. During the first quarter of 1995, short-term
borrowings were also a primary source of liquidity. The most
significant cash uses during the first quarters of 1995 and
1994 were operations (which included the purchase of inventory
during the first quarter of 1995), net funding of the client
loan portfolio ($11.1 million and $4.7 million for 1995 and
1994, respectively) and shareholder dividends. The Company
anticipates that much of this inventory will be sold during
1995. The Company paid dividends to shareholders of $3.4
million during the first three months of 1995 in respect of
1994 and $3.3 million during the first three months of 1994 in
respect of 1993.
Capital expenditures, consisting primarily of office and
auction facility refurbishment and the acquisition of computer
equipment, totaled $1.1 million for the first three months of
1995 and $0.9 million for the first quarter of 1994.
In certain instances, consignor advances are made with
recourse limited only to the works of art consigned for sale
and pledged as security for the loan, or with recourse limited
to the consigned works and to other works of art owned by the
consignor, but not pledged as security. As of March 31, 1995,
$1.5 million of these consignor advances were outstanding.
From time to time, the Company has off-balance sheet
commitments to consignors that property will sell at a minimum
price and legally binding lending commitments in conjunction
with the client loan program. See Note 3 in the Notes to the
Consolidated Financial Statements for additional information.
The Company does not believe that material liquidity risk
exists relating to these commitments.
During April, the Company introduced a fixed rate commission
schedule to be charged to sellers worldwide. The revised
rates, which are effective immediately, will apply to future
consignments for the fall auction season, beginning September
5, 1995.
OUTLOOK
The Company is encouraged by auction sales and the level and
quality of consignments received thus far in 1995.
The Company believes that operating cash flows will be
adequate to meet normal working capital requirements and that
the commercial paper program and credit facilities will
continue to be adequate to fund the client loan program, peak
working capital requirements and other short-term commitments
to consignors.
<PAGE>
The Company evaluates, on an ongoing basis, the adequacy of
its principal auction premises for the requirements of the
present and future conduct of its business. Any significant
alteration to these premises may require utilization of
additional capital which the Company believes is adequately
available.
<PAGE>
PART II, OTHER INFORMATION
SOTHEBY'S HOLDINGS, INC.
AND SUBSIDIARIES
ITEM 6. Exhibits and Reports on Form 8-K
(a)Exhibits
None
(b)Reports on Form 8-K
No report on Form 8-K has been filed for the
quarter ended March 31, 1995.
<PAGE>
SOTHEBY'S HOLDINGS, INC.
AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed this 15
day of May, 1995, on its behalf by the undersigned, thereunto duly
authorized and in the capacity indicated.
SOTHEBY'S HOLDINGS, INC.
By: PATRICIA A. CARBERRY
Vice President, Controller and
Chief Accounting Officer
<PAGE>
SOTHEBY'S HOLDINGS, INC.
AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed this
15th day of May, 1995, on its behalf by the undersigned, thereunto
duly authorized and in the capacity indicated.
SOTHEBY'S HOLDINGS, INC.
By: PATRICIA A. CARBERRY
Vice President, Controller and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 8708
<SECURITIES> 0
<RECEIVABLES> 255087
<ALLOWANCES> 11123
<INVENTORY> 48551
<CURRENT-ASSETS> 336729
<PP&E> 68108
<DEPRECIATION> 56876
<TOTAL-ASSETS> 490300
<CURRENT-LIABILITIES> 190315
<BONDS> 77000
<COMMON> 5584
0
0
<OTHER-SE> 198851
<TOTAL-LIABILITY-AND-EQUITY> 490300
<SALES> 0
<TOTAL-REVENUES> 42493
<CGS> 0
<TOTAL-COSTS> 9401
<OTHER-EXPENSES> 25189
<LOSS-PROVISION> 444
<INTEREST-EXPENSE> 1230
<INCOME-PRETAX> (11989)
<INCOME-TAX> 5035
<INCOME-CONTINUING> (6954)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6954)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
