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 Quarterly Period Ended March 31, 1996
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, including area code: (810) 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 30, 1996, there were outstanding 38,680,970 shares of Class A
Limited Voting Common Stock, par value $0.10 per share, and 17,266,407
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 Statements of Income
Sotheby's Holdings, Inc. and Subsidiaries
(Thousands of dollars, except per share data)
<CAPTION>
For the Quarter Ended
March 31,
1996 1995
<S> <C> <C>
Revenues:
Auction $ 33,793 $ 35,551
Other 7,003 6,903
Total revenues 40,796 42,454
Expenses:
Direct costs of services (8,793) (9,424)
Salaries and related costs (25,395) (23,991)
General and administrative (18,237) (18,478)
Depreciation and amortization (2,281) (2,191)
Total expenses (54,706) (54,084)
Operating loss (13,910) (11,630)
Interest income 1,087 688
Interest expense (933) (1,230)
Other income 160 183
Loss before taxes (13,596) (11,989)
Income taxes 5,439 5,035
Net Loss ($ 8,157) ($ 6,954)
Net Loss Per Share ($ 0.15) ($ 0.12)
Weighted Average Shares Outstanding (in millions) 56.0 55.8
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
Sotheby's Holdings, Inc. and Subsidiaries
(Thousands of dollars)
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 31,942 $ 40,713
Accounts and notes receivable, net of allowance
for doubtful accounts of $11,884 and $12,578
Accounts receivable 83,425 215,221
Notes receivable 84,864 98,711
Other 19,228 21,200
Total Accounts and Notes Receivable, Net 187,517 335,132
Inventory, net 21,609 22,798
Deferred income taxes 8,067 8,434
Prepaid expenses 10,962 11,936
Total Current Assets 260,097 419,013
Notes receivable 48,309 42,670
Properties, less allowance for depreciation
and amortization of $65,655 and $63,898 63,464 65,320
Intangible assets, less allowance for
amortization of $14,174 and $13,986 27,705 28,123
Investment in partnership 38,434 38,801
Other assets 5,678 6,177
Total Assets $ 443,687 $ 600,104
Liabilities And Shareholders' Equity
Current Liabilities
Due to consignors $ 85,890 $ 224,223
Short-term borrowings 4,600 5,816
Accounts payable and accrued liabilities 48,657 67,579
Deferred revenue 7,029 5,709
Accrued income taxes 6,998 14,292
Total Current Liabilities 153,174 317,619
Long-Term Liabilities
Commercial paper 58,000 38,000
Deferred income taxes 15,889 15,801
Other long-term obligations 1,197 1,202
Total Liabilities 228,260 372,622
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 - 38,819,992 and 38,466,478 of Class A, and
17,274,274 and 17,278,667 of Class B, at March 31,1996 and
December 31, 1995, respectively 5,610 5,575
Additional paid-in capital 83,412 81,051
Retained earnings 143,055 155,688
Foreign currency translation adjustments (16,650) (14,832)
Total Shareholders' Equity 215,427 227,482
Total Liabilities And Shareholders' Equity $ 443,687 $ 600,104
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, 1996 1995
<S> <C> <C>
Operating Activities:
Net loss ($ 8,157) ($ 6,954)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 2,281 2,191
Deferred income taxes 455 353
Tax benefit of stock option exercises 1,041 34
Asset provisions 702 947
Other 5 11
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses 974 (921)
Decrease in accounts receivable 131,068 86,876
Decrease (increase) in inventory 855 (28,182)
Decrease (increase) in other assets 456 (183)
Decrease in due to consignors (138,333) (109,444)
Decrease in accrued income taxes (7,294) (367)
Decrease in other current liabilities (17,801) (7,334)
Net cash used by operating activities (33,748) (62,973)
Investing Activities:
Increase in notes receivable (21,724) (34,062)
Collections of notes receivable 29,467 22,924
Capital expenditures (910) (1,069)
Decrease in investment in partnership 367 337
Net cash provided (used) by investing activities 7,200 (11,870)
Financing Activities:
Increase in commercial paper 20,000 49,500
Increase (decrease) in short term borrowings (1,216) 8,183
Proceeds from exercise of stock options 1,354 18
Dividends (4,475) (3,350)
Net cash provided by financing activities 15,663 54,351
Effect of exchange rate changes on cash 2,114 (5,787)
Decrease in cash and cash equivalents (8,771) (26,279)
Cash and Cash Equivalents at Beginning of Period 40,713 34,987
Cash and Cash Equivalents at End of Period $ 31,942 $ 8,708
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
SOTHEBY'S HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO THE 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, 1995 (the "Annual Report").
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, 1996 and 1995 have been included. Certain prior period
amounts have been restated to conform to the current year's
presentation.
In January of 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The
adoption of this standard did not have a material impact on the
Company's financial statements.
2. Notes Receivable
As of March 31, 1996, an amount equal to approximately 37% of the
Company's notes receivable (including current and non-current) was
extended to one borrower. The Company's general policy in relation
to secured loans is to obtain collateral with a low estimated
auction value equivalent to or greater than 200% of the secured
loan. The low auction estimate of the collateral for this secured
loan was within the Company's general policy requirements at March
31, 1996. No other individual loan amounted to more than 5% of
total assets.
Interest income on impaired loans is recognized to the extent cash
is received. Where there is doubt regarding the ultimate
collectibility of principal for impaired loans, cash receipts,
whether designated as principal or interest, are thereafter applied
to reduce the recorded investment in the loan. Following are the
changes in the allowance for credit losses relating to notes
receivable for the three months ended March 31, 1996 and 1995 (in
thousands):
<PAGE>
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Allowance for credit losses
at December 31, 1995 and 1994 $ 2,848 $ 2,292
Provisions 99 251
Other (27) 59
Allowance for credit losses
at March 31, 1996 and 1995 $ 2,920 $ 2,602
</TABLE>
3. Credit Arrangements
At March 31, 1996, there were $58.0 million of outstanding
commercial paper notes sold to dealers at weighted average discount
rates of 5.4% with average maturities of 13.9 days. These notes
have been classified on the consolidated balance sheet as long-term
liabilities based on the Company's ability to maintain or refinance
these obligations on a long-term basis. At March 31, 1996, the
Company also had $4.6 million outstanding under bank lines of
credit at weighted average interest rates of 7.9%.
4. Commitments and Contingencies
The Company, in the normal course of business, is a defendant in
various legal actions.
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 $12.9 million at March
31, 1996.
On certain occasions, the Company will guarantee to the consignor a
minimum price in connection with the sale of property at auction.
The Company must perform under its guarantee only in the event that
(a) the property fails to sell and the consignor prefers to be paid
the minimum price rather than retain ownership of the unsold
property, resulting in the Company's purchase of the property at
the minimum price or (b) the property sells for less than the
minimum price and the Company must pay the difference between the
sale price at auction and the minimum price. At March 31,
1996, the Company had no outstanding guarantees. At May 14, 1996,
the Company had outstanding guarantees totaling approximately $27
million which covers auction property having a mid-estimate sales
price of approximately $37 million. Under the auction
guarantees, the Company participates in a share of the proceeds if
the property under guarantee sells above a minimum price. In
addition, the Company is obligated under the terms of certain
auction guarantees to fund an amount equal to the guarantee at the
option of the consignor. At March 31, 1996, the Company had an
outstanding guarantee of up to $8.0 million relating to property
which is not art.
<PAGE>
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 consolidated financial statements.
5. 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
1995 1994 1993
<S> <C> <C> <C>
January - March 11% 12% 10%
April - June 39% 40% 38%
July - September 7% 8% 6%
October - December 43% 40% 46%
100% 100% 100%
</TABLE>
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
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 5 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 months ended March 31, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
North America $ 90,493 $ 106,297
Europe 63,663 69,384
Asia 879 -
Total $ 155,035 $ 175,681
</TABLE>
For the quarter ended March 31, 1996, worldwide auction sales of
$155.0 million decreased $20.6 million compared to the first
quarter of 1995. The decrease was largely attributable to several
worldwide single-owner sales which occurred in 1995 but for which
there were no comparable sales in 1996. Movements in foreign
currencies did not have a material impact on worldwide sales.
For the first quarter of 1996 worldwide auction revenues decreased
$1.8 million, or 5%, to $33.8 million. This decrease was largely
attributable to a reduction in auction commissions (which are
principally buyer's premium, seller's commission and expense
recoveries) due principally to the lower volume of auction sales
discussed above. The impact of the lower sales volume was offset,
in part, by an increase in rates realized from sellers at auction.
This increase reflects the positive impact of our new seller's
commission schedule as well as a reduction in single-owner sales
which, prior to the new seller's commission schedule, yielded lower
average commission rates. Exchange rate movements did not
materially impact revenues for the quarter.
Other revenues, which include revenues from art-related financing
activities, real estate operations, other auction-related services
and principal activities, increased $0.1 million when compared to
the first quarter of 1995. This increase was principally due to an
increase in revenues from real estate operations, offset, in part,
by a decline in revenues from art-related financing activities.
Revenues from real estate operations increased primarily due to
stronger direct real estate brokerage operations in the U.S..
Revenues from art-related financing activities decreased due to a
decline in the average loan portfolio balances offset, in part, by
higher commitment fees. The outstanding loan portfolio averaged
$126.7 million in the first quarter of 1996 compared to $143.1
million in the same period of 1995. Average rates charged to
borrowers were 9.1% in 1996 and 1995.
<PAGE>
Direct costs of services (which consist largely of catalogue
production and distribution costs as well as corporate marketing
and sale marketing expenses) totaled $8.8 million in the first
quarter of 1996 compared to $9.4 million in 1995, a decrease of 7%.
The decrease in direct costs is primarily due to the decline in
single-owner sales in 1996 as discussed above. Auction direct costs
increased slightly as a percentage of auction sales in the first
quarter of 1996 compared to the same period of 1995.
All other operating expenses (which include salaries and related
costs, general and administrative expenses as well as depreciation
and amortization) totaled $45.9 million for the first quarter of
1996, an increase of $1.3 million, or 3%, over 1995's first
quarter. The increase in other operating expenses for the quarter
ended March 31, 1996 was principally due to salaries and related
costs which increased 6%. This increase was offset, in part, by a
slight decline in general and administrative expenses. Movements
in foreign currencies did not have a material impact on all other
operating expenses.
Interest income increased $0.4 million in the first quarter of 1996
compared to 1995. This increase was primarily due to a one-time
receipt of interest related to an operating lease in the United
Kingdom and higher cash balances. Interest expense decreased $0.3
million primarily due to a decline in the average amount
outstanding and, to a lesser extent, the average interest rate paid
on commercial paper borrowings.
The consolidated effective tax rate was 40% in the first three
months of 1996 and 42% in the first three months of 1995. The
decline in the tax rate increased the net loss recorded in the
first quarter by $0.3 million.
For the first quarter of 1996, the net loss increased 17%, to $8.2
million from a net loss of $7.0 million in the first quarter of
1996. The net loss per share for the first quarter increased to
$0.15 from $0.12 from the first quarter of 1995. Movements in
foreign currencies did not have a material impact on the 1996 first
quarter results.
<PAGE>
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) totaled $30.7 million at March 31, 1996 compared to
$3.1 million at December 31, 1995. Working capital (current assets
less current liabilities) at March 31, 1996 was $106.9 million
compared to $101.4 million at December 31, 1995.
The Company's client loan portfolio decreased to $136.1 million at
March 31, 1996 from $144.2 million at December 31, 1995. These
amounts include $48.3 million and $42.7 million of loans which have
a maturity of more than one year at March 31, 1996 and December 31,
1995, respectively.
The Company relies on internally generated funds and borrowings to
meet its financing requirements. The Company may issue up to $200
million of short-term notes pursuant to its U.S. commercial paper
program, of which $58.0 million was issued and outstanding at March
31, 1996. The Company supports any short-term notes issued under
its U.S. commercial paper program with committed credit facilities.
The Company has $300 million committed and available under a bank
credit agreement entered into during 1994.
For the three months ended March 31, 1996, the Company's primary
sources of liquidity were derived from available cash balances
supplemented by commercial paper borrowings and net collections of
the client loan portfolio. The most significant cash uses during
the first three months of 1996 were operations and payment of
shareholder dividends. For the three months ended March 31, 1995,
the Company's primary sources of liquidity were derived from
available cash balances supplemented by commercial paper and
short-term borrowings. The most significant cash uses during
the first three months of 1995 were operations, net funding of the
client loan portfolio and payment of shareholder dividends.
Capital expenditures, consisting primarily of office and auction
facility refurbishment and the acquisition of computer equipment,
totaled $0.9 million for the first three months of 1996 and $1.1
million for the first three months of 1995.
<PAGE>
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. As of March 31, 1996, no such 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 4 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.
OUTLOOK
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
short-term commitments to consignors.
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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(a). Summary of Sotheby's Holdings, Inc. Director
Stock Ownership Plan
10(b). Letter to Marquess of Hartington relating to
his new position as Deputy Chairman,
Sotheby's Holdings, Inc.
27. Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K has been filed for the
quarter ended March 31, 1996.
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
<C> <S>
10(a). Summary of Sotheby's Holdings, Inc.
Director Stock Ownership Plan
10(b). Letter to Marquess of Hartington relating
to his new position as Deputy Chairman,
Sotheby's Holdings, Inc.
27. Financial Data Schedule
</TABLE>
<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
the 14th day of May, 1996, on its behalf by the undersigned,
thereunto duly authorized and in the capacity indicated.
SOTHEBY'S HOLDINGS, INC.
By: PATRICIA A. CARBERRY
Patricia A. Carberry
Vice President, Controller
and Chief Accounting Officer
EXHIBIT 10 (a)
SUMMARY OF
SOTHEBY'S HOLDINGS, INC. DIRECTOR STOCK OWNERSHIP PLAN
Pursuant to resolutions of the Board of Directors
establishing the Sotheby's Holdings, Inc. Director Stock
Ownership Plan, each Non-Executive Director will receive, as
part of his annual retainer, 750 shares of the Company's
Class A Limited Voting Common Stock.
EXHIBIT 10 (b)
[ SOTHEBY'S LETTERHEAD ]
April 17, 1996
Marquess of Hartington
Beamsley Hall
Bolton Abbey, Skipton
North Yorkshire BD23 6HD
Dear Stoker,
I am delighted to confirm the details of your new role as
Deputy Chairman, Sotheby's Holdings, effective April 15,
1996. In this non-executive role, you would devote
approximately two days per week to Sotheby's focusing on the
following:
1. VIP Business Getting - UK (US, Europe on an
occasional basis- particularly France and Germany)
2. VIP visits with Henry Wyndham, James Stourton,
others plus lunches/receptions
3. Strategic advice to Dede Brooks, George Bailey,
Henry Wyndham and Simon de Pury
4. Negotiations on Private Treaty Deals
5. Monday Continental and UK Business Development
Meetings
6. Assisting George Bailey and Henry Wyndham on
Sotheby's II
7. Continued role on Board
8. Assisting Dede Brooks and Hugh Hildesley with
Advisory Board
You will remain member of the Holdings Company Board and
will receive normal Director's fee of $20,000 per year,
annual stock grants (presently 750 shares), meeting fees,
and reimbursement of Board related travel expenses.
In respect to your new responsibilities, you will be paid
consulting fees of GBP50,000 per year and will be reimbursed
for related expenses. You will receive a consulting
agreement to be renewed annually which incorporates the
above.
We will arrange for an office to be located near Henry,
George and Simon, and Tiffany Wood will provide secretarial
assistance. On a quarterly basis, we will discuss and agree
upon your schedule.
Stoker, I am enormously excited about the opportunity to
work even more closely together in the years ahead.
Sincerely,
By: /s/ Dede Brooks
Dede Brooks
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 31,942
<SECURITIES> 0
<RECEIVABLES> 187,517
<ALLOWANCES> 11,884
<INVENTORY> 21,609
<CURRENT-ASSETS> 260,097
<PP&E> 63,464
<DEPRECIATION> 65,655
<TOTAL-ASSETS> 443,687
<CURRENT-LIABILITIES> 153,174
<BONDS> 58,000
<COMMON> 5,610
0
0
<OTHER-SE> 209,817
<TOTAL-LIABILITY-AND-EQUITY> 443,687
<SALES> 0
<TOTAL-REVENUES> 40,796
<CGS> 0
<TOTAL-COSTS> 8,793
<OTHER-EXPENSES> 26,609
<LOSS-PROVISION> 237
<INTEREST-EXPENSE> 933
<INCOME-PRETAX> (13,596)
<INCOME-TAX> (5,439)
<INCOME-CONTINUING> (8,157)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,157)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
