<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO , AND
COMMISSION FILE NUMBER 1-9750.
SOTHEBY'S HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MICHIGAN 38-2478409
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
500 NORTH WOODWARD AVENUE, SUITE 100 48304
BLOOMFIELD HILLS, MICHIGAN (Zip Code)
(Address of principal executive office)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (810) 646-2400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ----------------------------------------------------------- -----------------------------------------------------------
<S> <C>
Class A Limited Voting Common Stock, New York Stock Exchange
$0.10 Par Value London Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 PERIODS 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. )
As of February 28, 1997, the aggregate market value of the 38,730,467 shares
of Class A Limited Voting Common Stock held by non-affiliates of the registrant
was $663,259,247, based upon the closing price ($17.125) on the New York Stock
Exchange composite tape on such date. (For this computation, the registrant has
excluded the market value of all shares of its Class A Limited Voting Common
Stock reported as beneficially owned by executive officers and directors of the
registrant; such exclusion shall not be deemed to constitute an admission that
any such person is an "affiliate" of the registrant.) As of February 28, 1997,
there were outstanding 38,798,218 shares of Class A Limited Voting Common Stock
(the "Class A Common Stock") and 17,219,847 shares of Class B Common Stock (the
"Class B Common Stock"), freely convertible into 17,219,847 shares of Class A
Common Stock. There is no public market for the registrant's Class B Common
Stock, which is held by affiliates and non-affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended December 31,
1996 (the "Annual Report") are incorporated by reference into Parts I and II,
and portions of the 1997 proxy statement for the annual meeting of shareholders
are incorporated by reference into Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Sotheby's Holdings, Inc. (together with its subsidiaries, unless the context
otherwise requires, the "Company") is one of the world's two largest auctioneers
of fine arts, antiques and collectibles, offering property in over 70 collecting
categories, among them paintings, jewelry, decorative arts, and books. The
worldwide auction business is conducted through a division known as "Sotheby's"
and consists of three principal operating units: Sotheby's North and South
America ("Sotheby's, Inc."), Sotheby's Europe, and Sotheby's Asia. In addition
to auctioneering, the Company is engaged in a number of related activities,
including the purchase and resale of art, the brokering of art purchases and
sales, art-related financing activities, the marketing and brokering of luxury
real estate, and art education and restoration.
The Company believes it is one of the world's leaders in art-related
financing activities. The Company principally lends money secured by consigned
art in order to facilitate clients' bringing property to auction. In addition, a
portion of the Company's loan portfolio consists of loans to collectors,
dealers, and museums secured by collections not presently intended for sale.
The Company, through its subsidiary, Sotheby's International Realty, Inc.
("SIR"), is engaged in the marketing and brokering of luxury residential real
estate.
The Company was incorporated in Michigan in August 1983. In October 1983,
the Company acquired Sotheby Parke Bernet Group Limited, which was then a
publicly held company listed on the International Stock Exchange of the United
Kingdom and the Republic of Ireland Limited (the "London Stock Exchange") and
which, through its predecessors, had been engaged in the auction business since
1744. In 1988, the Company issued shares of Class A Common Stock to the public.
The Class A Common Stock is listed on the New York Stock Exchange (the "NYSE")
and the London Stock Exchange.
THE AUCTION BUSINESS
The purchase and sale of works of art in the international art market are
effected through numerous dealers, the two major auction houses, the smaller
auction houses and also directly between collectors. Although dealers and
smaller auction houses generally do not report sales figures publicly, the
Company believes that dealers account for the majority of the volume of
transactions in the international art market.
The Company and Christies International plc, a United Kingdom publicly held
company ("Christie's"), are the two largest art auction houses in the world. The
Company conducted aggregate auction sales in 1996 of $1.600 billion
(approximately 1.017 billion British Pounds ("BP")). Christie's aggregate
auction sales in 1996 were approximately $1.602 billion (BP1.016 billion
reported). The auction sales of the next largest art auction house, Phillips
International Auctioneers and Valuers, were approximately $179 million
(BP114 million reported) for the year ended December 31, 1996.
The Company auctions a wide variety of property, including fine arts,
jewelry, decorative arts, and rare books. In 1996, the Company's auction sales
by type of property were as follows: fine arts accounted for approximately $747
million, or 47%, of auction sales; decorative arts accounted for approximately
$525 million, or 33%, of auction sales; and jewelry, rare books and other
property accounted for approximately $328 million, or 20%, of auction sales.
Most of the objects auctioned by the Company are unique items, and their
value, therefore, can only be estimated prior to sale. The Company's principal
role as an auctioneer is to identify, evaluate, and appraise works of art
through its international staff of specialists; to stimulate purchaser interest
through professional marketing techniques; and to match sellers and buyers
through the auction process.
1
<PAGE>
In its role as auctioneer, the Company generally functions as an agent
accepting property on consignment from its selling clients. The Company sells
property as agent of the consignor, billing the buyer for property purchased,
receiving payment from the buyer, and remitting to the consignor the consignor's
portion of the buyer's payment after deducting the Company's commission,
expenses, and applicable taxes. From time to time, the Company releases property
sold at auction to buyers, principally dealers, before the Company receives
payment. In such event, the Company must pay the seller the net sale proceeds
for the released property at the time payment is due to the consignor, even if
the Company has not received payment from the buyer.
In addition, on certain occasions, the Company will guarantee the consignor
a minimum price in connection with the sale of property. Generally, the Company
must perform under its guarantee only in the event that (a) the property fails
to sell at auction 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 amount and the Company must pay the difference between the
sale price at auction and the amount of the guarantee. See Note N to the
Consolidated Financial Statements in the Annual Report. When the Company
guarantees a minimum price, the Company participates in a share of the proceeds
if the property under guarantee sells above a minimum price.
All buyers pay a premium (known as the buyer's premium) to the Company on
auction purchases. The buyer's premium in North America is 15% of the hammer
price on items sold for $50,000 or less and if the property is sold for more
than $50,000, 15% of the first $50,000 and 10% on the remainder of the purchase
price. Generally, similar structures apply throughout most of the remainder of
Sotheby's auction operations elsewhere in the world. The Company also charges
consignors a selling commission, which until September 1995, was frequently
negotiated on a per lot basis. As of September 1995, in most jurisdictions in
which the Company operates, the Company instituted a commission fee schedule
which applies to sales above $100,000 in most collecting categories. For sales
under $100,000, commissions are charged on a per lot basis according to a fixed
schedule. For sales over $100,000, a seller will pay a commission equal to the
lesser of (a) the rate applicable based on the total amount of property sold in
a particular consignment; (b) the rate based upon the total amount of property
sold by the seller through the Company and its subsidiaries during the previous
calendar year; and (c) the rate based upon the total amount of property sold to
date by the seller through the Company and its subsidiaries during the current
calendar year. The applicable rate paid by a seller varies, with different rate
schedules for private parties, art dealers, and museums.
The Company's operating revenues are significantly influenced by a number of
factors not within the Company's control, including: the overall strength of the
international economy and financial markets and, in particular, the economies of
the United States, the United Kingdom, and the major countries of continental
Europe and Asia (principally Japan and Hong Kong); political conditions in
various nations; the presence of export and exchange controls; local taxation of
sales and donations of auctioned property; competition; and the amount of
property being consigned to art auction houses.
The Company's business is seasonal, with peak revenues and operating income
occurring in the second and fourth quarters of each year as a result of the
traditional spring and fall art auction seasons. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition--Seasonality" in
the Annual Report.
THE AUCTION MARKET
Competition in the international art market is intense. A fundamental
challenge facing any auctioneer or dealer is to obtain high quality and valuable
property for sale. The Company's primary auction competitor is Christie's.
2
<PAGE>
The owner of a work of art wishing to sell it has three options: sale or
consignment to, or private brokerage by, an art dealer; consignment to, or
private sale by, an auction house; or private sale to a collector or museum
without the use of an intermediary. The more valuable the property, the more
likely it is that the owner will consider more than one option and will solicit
proposals from more than one potential purchaser or agent, particularly if the
seller is a fiduciary representing an estate or trust.
A complex array of factors may influence the seller's decision. These
factors include: the level of expertise of the dealer or auction house with
respect to the property; the extent of the prior relationship, if any, between
the seller and the firm; the reputation and historic level of achievement by a
firm in attaining high sale prices in the property's specialized category; the
breadth of staff expertise; the desire for privacy on the part of sellers and
buyers; the amount of cash offered by a dealer or other purchaser to purchase
the property outright compared with the estimates given by auction houses; the
time that will elapse before the seller will receive sale proceeds; the
desirability of a public auction in order to achieve the maximum possible price
(a particular concern for fiduciary sellers); the amount of commission proposed
by dealers or auction houses to sell a work on consignment; the cost, style and
extent of presale marketing and promotion to be undertaken by a firm;
recommendations by third parties consulted by the seller; personal interaction
between the seller and the firm's staff; and the availability and extent of
related services, such as a tax or insurance appraisal and short-term financing.
The Company's ability to obtain high quality and valuable property for sale
depends, in part, on the relationships that certain employees of the Company,
particularly its senior art specialists or management, have established with
potential sellers.
It is not possible to measure the entire international art market or to
reach any conclusions regarding overall competition because dealers and smaller
auction firms frequently do not publicly report annual sales totals.
Occasionally, the Company acts as a principal in connection with the sale of
property. For example, the Company acts as a principal through its investment in
Acquavella Modern Art (the "Partnership" or "AMA"), a partnership consisting of
a wholly-owned subsidiary of the Company and Acquavella Contemporary Art, Inc.
The Company accounts for its investment in AMA under the equity method of
accounting in the Consolidated Financial Statements. The assets of the
Partnership consist principally of inventory. The Company reflects its 50%
interest in the net assets of the Partnership as investment in partnership,
which totalled $35.8 million and $38.8 million at December 31, 1996 and 1995,
respectively. Since the Company has received the return of its initial
investment, cash distributions are made on a 50-50 basis. To the extent that the
Partnership requires working capital, the Company has agreed to lend the same to
the Partnership. Any amounts loaned to the Partnership by the Company would bear
interest, compounded monthly, at the prime rate, plus 1%. As of December 31,
1996, no such amounts were outstanding. See Note F to the Consolidated Financial
Statements in the Annual Report.
REGULATION
Regulation of the auction business varies from jurisdiction to jurisdiction.
In many jurisdictions, the Company is subject to laws and regulations that are
not directed solely toward the auction business, including, but not limited to,
import and export regulations and value added sales taxes. Such regulations do
not impose a material impediment to the worldwide business of the Company but do
affect the market generally, and a material adverse change in such regulation
could affect the business. In addition, the failure to comply with such local
laws and regulations could subject the Company to civil and/or criminal
penalties in such jurisdictions.
In February 1990, certain members of the Assembly of the State of New York,
the jurisdiction where the Company's principal U.S. auctions are held, initiated
an inquiry with respect to the business practices of auction houses, museums and
art dealers, including the Company. Each year since 1990, certain Assemblymen
have reintroduced legislation that, if enacted, could substantially alter the
manner in which
3
<PAGE>
the Company's auction business in New York is conducted. To date, no legislation
has been enacted by the State of New York.
FINANCING ACTIVITIES
The Company provides financing secured by works of art and other personal
property owned by its clients. The Company's financing activities are conducted
through its wholly-owned direct and indirect subsidiaries.
The Company generally makes two types of secured loans: (1) advances secured
by consigned property to borrowers who are contractually committed, in the near
term, to sell the property at auction (a "consignor advance"); and (2) general
purpose loans to collectors, museums or dealers secured by property not
presently intended for sale. The loans are generally made with full recourse to
the borrower. In certain instances, consignor advances are made with recourse
limited to the works of art consigned for sale and pledged as security for the
loan. The consignor advance allows a consignor to receive funds shortly after
consignment for an auction that will occur several weeks or months in the
future, while preserving for the benefit of the consignor the potential of the
auction process. The general purpose secured loans allow the Company to
establish or enhance a mutually beneficial relationship with dealers and
collectors. The majority of the Company's loans are variable interest rate
loans. At December 31, 1996, $84.3 million of the total $153.7 million loan
portfolio was due within one year.
The Company regularly reviews its loan portfolio. Each loan is analyzed
based on the current estimated realizable value of collateral securing the loan.
For financial statement purposes, the Company establishes reserves for certain
loans that the Company believes are under-collateralized and with respect to
which the under-collateralized amount may not be collectible from the borrower.
See Note D to the Consolidated Financial Statements in the Annual Report.
The Company funds its financing activities through internally generated
funds, through the issuance of commercial paper and through its bank credit
lines. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition--Liquidity and Capital Resources" and Note H to the
Consolidated Financial Statements in the Annual Report.
A considerable number of traditional lending sources offer conventional
loans at a lower cost to borrowers than the average cost of those offered by the
Company. However, the Company believes that only Christie's and a few other
lenders are as willing to accept works of art as sole collateral. The Company
believes that its financing alternatives are attractive to clients who wish to
obtain liquidity from their art assets.
LUXURY REAL ESTATE ACTIVITIES
SIR was founded in 1976 as an outgrowth of Sotheby's auction activities and
in response to the requests of major clients to market estates and other real
property that would benefit from exposure beyond a local market. SIR responds to
the needs of its clients by (a) acting as an exclusive marketing agent providing
services to 185 licensed real estate brokerage offices worldwide and (b)
operating its own real estate brokerage offices in Manhattan, Southampton, East
Hampton, Palm Beach, Beverly Hills, San Francisco, and Greenwich.
COMPETITION
SIR's primary competitors are small, local real estate brokerage firms that
deal exclusively with luxury real estate and the "distinctive property"
divisions of large regional and national real estate firms. Competition in the
luxury real estate business takes many forms, including competition in price,
marketing expertise and the provision of personalized service to sellers and
buyers.
4
<PAGE>
REGULATION
The real estate brokerage business is subject to regulation in most
jurisdictions in which SIR operates. Typically, individual real estate brokers
and brokerage firms are subject to licensing requirements. SIR is registered to
conduct business in 31 states and maintains real estate brokerage licenses in 14
states. In other jurisdictions, SIR acts as an exclusive marketing agent
providing services to licensed real estate brokers.
PERSONNEL
At December 31, 1996, the Company had 1,676 employees: 686 located in North
America; 696 in the United Kingdom and 294 in the rest of the world. The
following table provides a breakdown of employees by operational areas as of
December 31, 1996:
<TABLE>
<CAPTION>
OPERATIONAL AREA NUMBER OF EMPLOYEES
- ------------------------------------------------------------------------ ---------------------
<S> <C>
Auction................................................................. 1,422
Other................................................................... 254
-----
Total................................................................... 1,676
-----
-----
</TABLE>
The Company regards its relations with its employees as good.
ITEM 2. PROPERTIES
Sotheby's, Inc. is headquartered at 1334 York Avenue, New York, New York
(the "York Property"). The Company also leases office and warehouse space in
three other locations in the New York City area, and leases office and
exhibition space in several other major cities throughout the United States,
including Los Angeles, San Francisco, Chicago, Palm Beach and Boston.
The Company currently leases the York Property, comprising approximately
160,500 square feet, from an unaffiliated party under a 30-year lease expiring
in 2009, which contains an option to extend the term for an additional 30 years
until July 31, 2039. The lease also grants the Company a right of first refusal
with respect to the sale of the York Property.
York Avenue Development, Inc. ("York"), a wholly-owned subsidiary of
Sotheby's, Inc., has the right to purchase the fee interest in the York Property
by exercising certain options available through January 31, 1999 and during the
months of August 1999, August 2004, and July 2009.
The Company is considering various alternatives for the realization of the
value of the right to purchase the fee interest in the York Property.
Additionally, the Company is studying how best to satisfy its demand for
additional office and auction space.
Pursuant to an agreement (the "Financing and Guarantee Agreement") among
York Avenue Advisors, Inc. ("Advisors"), Sotheby's, Inc., and York, Advisors has
agreed that it will assist York in developing and financing a new, mixed-use
tower (the "New Tower") over the existing four-story building on the York
Property, should a decision be made to proceed with such development. Sotheby's,
Inc. has structured the transaction to isolate the financial exposure of the
Company with respect to development of the New Tower in one subsidiary, namely,
York. The grantor trust of A. Alfred Taubman, the Company's Chairman and largest
shareholder, is the sole shareholder of Advisors. If New Tower construction has
not commenced on or before September 30, 1997, the Financing and Guarantee
Agreement will expire on October 1, 1997. See Note J to the Consolidated
Financial Statements in the Annual Report.
Sotheby's, Inc. also assigned to York its rights and obligations under a
project services agreement dated November 8, 1985 (the "Project Services
Agreement") between Sotheby's, Inc. and The Taubman Company ("TTC"), which is an
affiliate of A. Alfred Taubman. Under the Project Services Agreement,
5
<PAGE>
TTC has agreed to develop the New Tower on behalf of Sotheby's, Inc. and to
provide consultation and advice to Sotheby's, Inc. in connection with the
development of the New Tower, should a decision be made to proceed with the
development. For its services, TTC shall be reimbursed for reasonable expenses
and paid a multiple of payroll costs and development fees.
SIR leases approximately 10,900 square feet of office space at 980 Madison
Avenue, New York, New York, from unaffiliated parties under leases expiring in
2001. SIR also leases satellite office space at a number of locations, totalling
another 14,700 square feet.
The Company's U.K. operations are centered at New Bond Street, London, where
the main salesrooms and administrative offices of Sotheby's (U.K.) are located.
Additional salesrooms are located in close proximity to the New Bond Street
location. The total net usable floor area amounts to approximately 124,000
square feet. The Company owns or holds long-term leasehold interests in
approximately 75% of these properties by area, the balance being held on leases
with remaining terms of less than 20 years. In addition, warehouse space is
leased at King's House in West London. The Company also owns a salesroom in
Sussex where it conducts auctions.
The Company also leases office space in various locations throughout
continental Europe, including Amsterdam, Frankfurt, Geneva, Madrid, Milan,
Munich, Paris, and Zurich; in Asia, including Hong Kong, Seoul, Singapore,
Taipei, and Tokyo; in South America; and in Canada.
In management's opinion, the Company's worldwide premises are generally
adequate for the current conduct of its business. However, the Company
evaluates, on an ongoing basis, the adequacy of its premises for the
requirements of the present and future conduct of its business, with particular
focus on its major auction locations. The Company has explored different options
for relocating auction facilities to a new location in New York City, but no
final determination to relocate has been made. If the Company does relocate its
New York City operations, the Company believes that it has adequate capital
resources available from operations, commercial paper and existing credit
facilities to fund such relocation.
ITEM 3. LEGAL PROCEEDINGS
In early 1997 a television program aired in the United Kingdom and a related
book was published, both of which contain certain allegations of improper
conduct by current and former employees of the Company. In response to these
allegations, the Board of Directors, in February 1997, established a committee
of independent directors (the "Independent Review Committee") to review the
issues raised in the book and related matters. The Independent Review Committee
has retained outside counsel in the United States and United Kingdom to assist
and advise the Independent Review Committee in its review. The Company's
management is conducting its own internal review. Due to the preliminary nature
of these investigations, it is not possible at this time to estimate the impact
of any of the alleged activities or the expenses associated with these
investigations on the Company's financial condition and results of operations.
However, the nonrecurring expenses to be incurred in connection with this matter
may be material to the Company's operating results in 1997. In addition, the
Company is aware of governmental investigations in Italy and India arising from
certain of the allegations. The Company has been in contact with and is working
with these authorities.
The Company also becomes involved from time to time in various claims and
lawsuits incidental to the ordinary course of its business. Except for the
matters described in the preceding paragraph, the Company does not believe that
the outcome of any such pending claims or proceedings will have a material
effect upon its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of 1996.
6
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SHAREHOLDER MATTERS
MARKET INFORMATION
The principal U.S. market for the Company's Class A Common Stock is the NYSE
(symbol: BID). The Class A Common Stock is also traded on the London Stock
Exchange.
The Company also has Class B Common Stock, convertible on a share for share
basis into Class A Common Stock. There is no public market for the Class B
Common Stock. Per share cash dividends are equal for the Class A and Class B
Common Stock.
The quarterly price ranges on the New York Stock Exchange of the Class A
Common Stock and dividends per share for 1996 and 1995 are shown in the
following schedules:
<TABLE>
<CAPTION>
1996
-------------------- CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
- ---------------------------------------------------------------- --------- --------- ---------------
<S> <C> <C> <C>
March 31........................................................ 15 1/4 12 3/4 $ 0.08
June 30......................................................... 15 13 3/4 $ 0.08
September 30.................................................... 16 5/8 13 3/8 $ 0.08
December 31..................................................... 18 3/4 15 1/2 $ 0.08
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------- CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
- ---------------------------------------------------------------- --------- --------- ---------------
<S> <C> <C> <C>
March 31........................................................ 12 5/8 10 3/8 $ 0.06
June 30......................................................... 14 1/4 12 $ 0.06
September 30.................................................... 14 3/4 12 1/2 $ 0.06
December 31..................................................... 15 3/8 13 1/8 $ 0.06
</TABLE>
The number of holders of record of the Class A Common Stock as of February
28, 1997 was 1,280. The number of holders of record of the Class B Common Stock
as of February 28, 1997 was 40.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 22 of the Annual Report is incorporated by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Management's Discussion and Analysis of Results of Operations and Financial
Condition on pages 23 through 26 of the Annual Report is incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements on pages 27 through 40 of the Annual
Report are incorporated by reference.
The Independent Auditors' Report on page 41 of the Annual Report is
incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
7
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required by this item is incorporated by reference to the
material appearing in the Company's definitive proxy statement for the annual
meeting of shareholders to be held in 1997 (the "Proxy Statement") under the
caption "Management-Directors and Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
material appearing in the Proxy Statement under the captions
"Management-Compensation of Executive Officers," and "Compensation of
Directors."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
table and related footnotes appearing in the Proxy Statement under the caption
"Class A and Class B Common Stock Ownership of Directors, Executive Officers and
5% Shareholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
material appearing in the Proxy Statement under the captions "Certain
Transactions" and "Certain Employment Arrangements."
PART IV
<TABLE>
<C> <S>
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
14(A)(1) The following consolidated financial statements of Sotheby's Holdings, Inc. and
subsidiaries, included in the Annual Report of the registrant to its shareholders
for the year ended December 31, 1996, are incorporated by reference in Item 8:
Consolidated Statements of Income--Years ended December 31, 1996, 1995 and 1994
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1995 and
1994
Consolidated Statement of Changes in Shareholders' Equity--Years ended December
31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements--December 31, 1996
14(A)(2) The following is a list of the consolidated financial statement schedules of
Sotheby's Holdings, Inc. and subsidiaries and the Independent Auditors' Report
required by Item 14(d): Independent Auditors' Report on Financial Statement
Schedule
Schedule II--Valuation and Qualifying Accounts
14(A)(3)
3(a) Amended and Restated Articles of Incorporation of Sotheby's Holdings, Inc., as
amended, incorporated by reference to Exhibit 4(b) to Registration Statement No.
33-26008.
3(b) Restated By-Laws of Sotheby's Holdings, Inc., as amended, through February 18,
1997.
4 See Exhibits 3(a) and 3(b).
10(a) Issuing and Paying Agency Agreement, dated February 15, 1989, between Sotheby's,
Inc. and the Chase Manhattan Bank, N.A. relating to the issuance of short-term
notes ("U.S. Notes") in the U.S. Commercial Paper market, incorporated by
reference to Exhibit 10(g) to the 1988 Form 10-K, SEC File No. 1-9750, on file at
the Washington, D.C. office of the Securities and Exchange Commission.
</TABLE>
8
<PAGE>
<TABLE>
<C> <S>
10(b) U.S. Commercial Paper Dealer Agreement, dated February 15, 1989, between
Sotheby's, Inc. and Chase Securities, Inc. relating to the issuance of the U.S.
Notes, incorporated by reference to Exhibit 10(h) to the 1988 Form 10-K, SEC File
No. 1-9750, on file at the Washington, D.C. office of the Securities and Exchange
Commission.
10(c) U.S. Commercial Paper Dealer Agreement, dated February 15, 1989, between
Sotheby's, Inc. and Merrill Lynch Money Markets, Inc. relating to the issuance of
the U.S. Notes, incorporated by reference to the Exhibit 10(i) of the 1988 Form
10-K, SEC File No. 1-9750, on file at the Washington, D.C. office of the
Securities and Exchange Commission.
10(d) Lease, dated as of July 25, 1979, among The Benenson Capital Company, Lawrence A.
Benenson, Raymond E. Benenson (collectively, "Benenson") to Sotheby Parke Bernet
Inc., and amendments thereto, all relating to 1334 York Avenue, New York, New York
(the'York Avenue Property"), incorporated by reference to Exhibit 10(g) to
Registration Statement No. 33-17667.
10(e) Option Agreement with Form of Exchange Agreement, dated July 25, 1979, among
Benenson and 089 Nosidam Corp. (as nominee of Sotheby Parke Bernet Inc.)
assignments thereof and amendments thereto, all relating to the York Avenue
Property, incorporated by reference to Exhibit 10(h) to Registration Statement No.
33-17667.
10(f) Exchange Agreement, dated October 27, 1986, among Benenson and York Avenue
Development, Inc., and Letter, dated October 27, 1986, from Benenson to Sotheby's,
Inc. and York Avenue Development, Inc., concerning zoning matters and security
relating to the York Avenue Property, incorporated by reference to Exhibit 10(i)
to Registration Statement No. 33-17667.
10(g) Guarantee, made November 6, 1986, by A. Alfred Taubman in favor of Benenson
relating to the York Avenue Property (the "Taubman Guarantee"), incorporated by
reference to Exhibit 10(j) to Registration Statement No. 33-17667.
10(h) Letter from Sotheby's, Inc. and York Avenue Development, Inc., dated October 27,
1986, agreeing to indemnify A. Alfred Taubman from all liabilities, damages,
losses and judgments arising under the Taubman Guarantee, incorporated by
reference to Exhibit 10(k) to Registration Statement No. 33-17667.
10(i) Project Services Agreement (the "Project Agreement"), dated November 8, 1985,
between Sotheby's, Inc. and The Taubman Company, Inc. relating to the proposed
development of the York Avenue Property, incorporated by reference to Exhibit
10(1) to Registration Statement No. 33-17667.
10(j) Financing and Guarantee Agreement (with exhibits) (the "Financing and Guarantee
Agreement"), dated as of October 1, 1987, among Sotheby's Inc., York Avenue
Development, Inc., and Taubman York Avenue Associates, Inc., relating to the
proposed development of the York Avenue Property, incorporated by reference to
Exhibit 10(m) to Registration Statement No. 33-17667.
10(k) Letter Agreement, from Sotheby's, Inc. to York Avenue Development, Inc. and
Taubman York Avenue Associates, Inc., dated August 18, 1988, amending the
Financing and Guarantee Agreement, incorporated by reference to Exhibit 10(k) to
the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (the
"1995 Form 10-K").
10(l) Assignment and Assumption of Financing and Guarantee Agreement, by and between
Taubman York Avenue Associates, Inc. and York Avenue Advisors, Inc., dated as of
June 1, 1995, incorporated by reference to Exhibit 10(l) to the 1995 Form 10-K.
10(m) Bill of Sale and Assignment and Assumption Agreement (regarding Contracts, General
Intangibles, Receivables, and other Assets and Liabilities), by and between
Taubman York Avenue Associates, Inc. and York Avenue Advisors, Inc. dated as of
June 1, 1995, incorporated by reference to Exhibit 10(m) to the 1995 Form 10-K.
10(n) Memorandum of Option Agreement, dated January 31, 1981, among Benenson and 089
Nosidam Corp., relating to the York Avenue Property, incorporated by reference to
Exhibit 10(hh) to Registration Statement No. 33-17667.
</TABLE>
9
<PAGE>
<TABLE>
<C> <S>
10(o) Letter Agreement, dated October 27, 1986, among Benenson and York Avenue
Development, Inc. relating to the York Avenue Property, incorporated by reference
to Exhibit 10(ii) to Registration Statement No. 33-17667.
10(p) Assignment, Assumption Agreement and Release, dated as of October 1, 1987, among
Sotheby's Inc., York Avenue Development, Inc. and the Taubman Company, Inc.
relating to the assignment of the Project Agreement, incorporated by reference to
Exhibit 10(jj) to Registration Statement No. 33-17667.
10(q)* Sotheby's Inc. 1988 Benefit Equalization Plan, incorporated by reference to
Exhibit 10(t) to Registration Statement No. 33-17667.
10(r)* Sotheby's Holdings, Inc. 1987 Stock Option Plan as amended and restated effective
June 1, 1994 incorporated by reference to Exhibit 10(o) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994 (the "1994 Form 10-K").
10(s)* Sotheby's Holdings, Inc. Performance Share Purchase Plan, incorporated by
reference to Exhibit 10(a) to the Second Quarter Form 10-Q for 1996.
10(t)* Sotheby's Holdings, Inc. 1997 Stock Option Plan incorporated herein by reference
to Exhibit 10(b) to the Second Quarter Form 10-Q for 1996.
10(u) Agreement of Partnership of Acquavella Modern Art, dated May 29, 1990, between
Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated herein
by reference to Exhibit 10(b) to the Form 8-K, filed on June 7, 1990, SEC, File
No. 1-9750, on file at the Washington, D.C. office of the Securities and Exchange
Commission.
10(v)* Amended and Restated Sotheby's Holdings, Inc. Director Stock Ownership Plan.
10(w) Amendment, dated as of April 19, 1991, between The Benenson Capital Company,
Lawrence A. Benenson and Raymond E. Benenson and York Avenue Development, Inc. to
Amendment to Option Agreement and to Related Agreements, incorporated herein by
reference to Exhibit 10(kk) to the Company's Annual Report on Form 10K, for the
year ended December 31, 1991, SEC File No. 1-9750.
10(x) Credit Agreement, dated as of July 11, 1996, among Sotheby's Holdings, Inc.,
Sotheby's Inc., Oatshare Limited, Sotheby's, and Chemical Bank, incorporated
herein by reference to Exhibit 10(c) to the Second Quarter Form 10-Q for 1996.
10(y)* Letter Agreement, dated October 25, 1993, between Sotheby's (U.K.) and Henry
Wyndham setting forth certain terms and agreements of his employment, incorporated
herein by reference to Exhibit 10(u) to the 1994 Form 10-K.
10(z)* Letter Agreement, dated October 13, 1993, between Sotheby's (U.K.) and Henry
Wyndham Fine Art Ltd., an art dealing business, setting forth certain terms and
agreements of the purchase of inventory, incorporated herein by reference to
Exhibit 10(v) to the 1994 Form 10-K.
10(aa)* Guarantee Agreement, dated June 2, 1994, from Sotheby's Holdings, Inc. to Henry
Wyndham, incorporated herein by reference to Exhibit 10(w) to the 1994 Form 10-K.
10(bb)* Letter, dated April 21, 1995, from Sotheby's Holdings, Inc. to Coutts and Co.,
setting forth an increased guarantee by the Company on Henry Wyndham's behalf,
incorporated herein by reference to Exhibit 10(y) to the 1995 Form 10-K.
10(cc)* Letter Agreement, dated October 27, 1993, between Sotheby's Holdings, Inc. and
Lord Camoys setting forth certain terms and agreements of his employment,
incorporated herein by reference to Exhibit 10(x) to the 1994 Form 10-K.
10(dd)* Letter Agreement, dated December 21, 1993, between Sotheby's (U.K.) and The Rt.
Hon. The Earl of Gowrie setting forth certain terms and agreements of his
employment, incorporated herein by reference to Exhibit 10(y) to the 1994 Form
10-K.
10(ee)* Letter, dated March 25, 1996, from George Bailey, Managing Director, Sotheby's
Europe, to The Rt. Hon. The Earl of Gowrie setting forth certain terms and
agreements concerning his consulting arrangement, incorporated herein by reference
to Exhibit 10(bb) to the 1995 Form 10-K.
</TABLE>
10
<PAGE>
<TABLE>
<C> <S>
10(ff)* Letter to Marquess of Hartington relating to his new position as Deputy Chairman
of Sotheby's Holdings, Inc., incorporated herein by reference to Exhibit 10(b) of
the First Quarter Form 10-Q for 1996.
(13) Annual Report to Shareholders for the year ended December 31, 1996
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche LLP
(24) Powers of Attorney
(27) Financial Data Schedule
</TABLE>
- ------------------------
*A compensatory agreement or plan required to be filed pursuant to Item 14(c) of
Form 10-K.
<TABLE>
<C> <S>
(14)(b) Current Reports on Form 8-K--None.
(14)(c) The list of exhibits filed with this report is set forth in response to Item
14(a)(3). The required exhibit index has been filed with the exhibits.
(14)(d) The financial statement schedules of the Company listed in response to Item
14(a)(2) are filed pursuant to this Item 14(d).
</TABLE>
11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
SOTHEBY'S HOLDINGS, INC.:
We have audited the consolidated financial statements of Sotheby's Holdings,
Inc. and subsidiaries as of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996 and have issued our report
thereon dated February 28, 1997; such consolidated financial statements and
report are included in your 1996 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the consolidated
financial statement schedule of Sotheby's Holdings, Inc. and subsidiaries listed
in Item 14. This consolidated financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such consolidated financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
New York, New York
February 28, 1997
12
<PAGE>
SCHEDULE II
SOTHEBY'S HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------- ----------- ------------------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
ADDITIONS
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ---------------------------------------------------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Valuation reserve deducted in the balance sheet from
the asset to which it applies:
Accounts and notes receivable:
1996 Allowance for doubtful accounts............ $ 12,578 $ 1,537 $ 44 $ 4,001 $ 10,156
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
1995 Allowance for doubtful accounts............ $ 10,165 2,902 $ 604 $ 1,093 $ 12,578
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
1994 Allowance for doubtful accounts............ $ 10,596 $ 4,196 $ -- $ 4,627 $ 10,165
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Inventory:
1996 Realizable value allowance................. $ 21,012 $ 3,103 $ 691 $ 8,007 $ 16,799
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
1995 Realizable value allowance................. $ 14,995 $ 4,965 $ 2,666 $ 1,614 $ 21,012
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
1994 Realizable value allowance................. $ 14,334 $ 1,921 $ -- $ 1,260 $ 14,995
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SOTHEBY'S HOLDINGS, INC.
By: /S/ DIANA D. BROOKS
-----------------------------------------
Diana D. Brooks
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Chairman of the Board
- ------------------------------ March 21, 1997
A. Alfred Taubman
* Vice Chairman of the Board
- ------------------------------ March 21, 1997
Max M. Fisher
* Deputy Chairman of the
- ------------------------------ Board March 21, 1997
Lord Camoys
* Deputy Chairman of the
- ------------------------------ Board March 21, 1997
The Marquess Of Hartington
/S/ DIANA D. BROOKS President, Chief Executive
- ------------------------------ Officer and Director March 21, 1997
Diana D. Brooks
* Executive Vice President,
- ------------------------------ Chief Operating Officer March 21, 1997
Kevin A. Bousquette And Director
/S/ WILLIAM S. SHERIDAN Senior Vice President And
- ------------------------------ Chief Financial Officer March 21, 1997
William S. Sheridan
* Director
- ------------------------------ March 21, 1997
Viscount Blakenham
* Director
- ------------------------------ March 21, 1997
Henry R. Kravis
* Director
- ------------------------------ March 21, 1997
Conrad Black
* Chairman, Sotheby's Europe
- ------------------------------ and Director March 21, 1997
Simon de Pury
* Director
- ------------------------------ March 21, 1997
Walter J. P. Curley
14
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Director
- ------------------------------
The Rt. Hon. The Earl of March 21, 1997
Gowrie
* Co-Chairman, Sotheby's
- ------------------------------ Asia, Inc. and Director March 21, 1997
Julian Thompson
/S/ PATRICIA CARBERRY Vice President, Controller
- ------------------------------ And Chief Accounting March 21, 1997
Patricia Carberry Officer
*By: /S/ WILLIAM S.
SHERIDAN
------------------------ March 21, 1997
William S. Sheridan
AS ATTORNEY-IN-FACT
15
<PAGE>
EXHIBIT 3(B)
RESTATED BY-LAWS
OF
SOTHEBY'S HOLDINGS, INC.
As Amended Through February 18, 1997
------------------------------------
<PAGE>
INDEX
TO
RESTATED BY-LAWS
OF
SOTHEBY'S HOLDINGS, INC.
Page
----
ARTICLE I - MEETINGS OF SHAREHOLDERS
Section 1.01 Place of Meetings. . . . . . . . . . . . . . . 1
Section 1.02 Annual Meeting . . . . . . . . . . . . . . . . 1
Section 1.03 Special Meetings of Business; Agent for Service
of Process . . . . . . . . . . . . . . . . . 1
Section 1.04 Notice of Meetings . . . . . . . . . . . . . . 2
Section 1.05 Waiver of Notice . . . . . . . . . . . . . . . 2
Section 1.06 Inspectors of Election . . . . . . . . . . . . 2
Section 1.07 Quorum and Adjournment . . . . . . . . . . . . 3
Section 1.08 Vote of Shareholders . . . . . . . . . . . . . 3
Section 1.09 Proxies. . . . . . . . . . . . . . . . . . . . 3
Section 1.10 Consents . . . . . . . . . . . . . . . . . . . 3
Section 1.11 Organization of Shareholders' Meetings . . . . 4
ARTICLE II - DETERMINATION OF VOTING, DIVIDEND, AND OTHER RIGHTS . . . . 4
ARTICLE III - DIRECTORS
Section 3.01 General Powers . . . . . . . . . . . . . . . . 5
Section 3.02 Number, Qualifications, and Term of Office . . 5
Section 3.03 Place of Meetings. . . . . . . . . . . . . . . 5
Section 3.04 Annual Meeting . . . . . . . . . . . . . . . . 5
Section 3.05 Special Meetings . . . . . . . . . . . . . . . 6
Section 3.06 Quorum and Manner of Action. . . . . . . . . . 6
Section 3.07 Compensation . . . . . . . . . . . . . . . . . 6
Section 3.08 Removal of Directors . . . . . . . . . . . . . 6
Section 3.09 Resignations . . . . . . . . . . . . . . . . . 7
Section 3.10 Vacancies. . . . . . . . . . . . . . . . . . . 7
Section 3.11 Organization of Board Meeting. . . . . . . . . 7
- i -
<PAGE>
ARTICLE IV - ADVISORY COMMITTEE
Section 4.01 Advisory Committee: Constitution and Powers . 7
Section 4.02 Meetings of Advisory Committee . . . . . . . . 8
Section 4.03 Vacancies in Advisory Committee. . . . . . . . 8
ARTICLE V - COMMITTEES OF THE BOARD . . . . . . . . . . . . . . . . . . 8
ARTICLE VI - OFFICERS
Section 6.01 Officers . . . . . . . . . . . . . . . . . . . 8
Section 6.02 Term of Office and Resignation . . . . . . . . 9
Section 6.03 Removal of Elected Officers. . . . . . . . . . 9
Section 6.04 Vacancies. . . . . . . . . . . . . . . . . . . 9
Section 6.05 Compensation . . . . . . . . . . . . . . . . . 9
Section 6.06 The Chairman of the Board. . . . . . . . . . . 10
Section 6.07 The President. . . . . . . . . . . . . . . . . 10
Section 6.08 The Chief Operating Officer. . . . . . . . . . 10
Section 6.09 The Vice President . . . . . . . . . . . . . . 10
Section 6.10 The Secretary. . . . . . . . . . . . . . . . . 10
Section 6.11 The Chief Financial Officer. . . . . . . . . . 11
Section 6.12 The Treasurer. . . . . . . . . . . . . . . . . 11
ARTICLE VII - INDEMNIFICATION
Section 7.01 Indemnification . . . . . . . . . . . . . . . 11
Section 7.02 Advancement of Expenses. . . . . . . . . . . . 12
Section 7.03 Indemnification: Insurance. . . . . . . . . . 12
Section 7.04 Indemnification: Constituent Corporations . . 12
ARTICLE VIII - SHARE CERTIFICATES
Section 8.01 Form; Signature. . . . . . . . . . . . . . . . 13
Section 8.02 Transfer Agents and Registrars . . . . . . . . 13
Section 8.03 Transfers of Shares. . . . . . . . . . . . . . 13
Section 8.04 Registered Shareholders. . . . . . . . . . . . 14
Section 8.05 Lost Certificates. . . . . . . . . . . . . . . 14
ARTICLE IX
Section 9.01 Fiscal Year. . . . . . . . . . . . . . . . . . 14
Section 9.02 Signatures on Negotiable Instruments . . . . . 14
Section 9.03 Dividends. . . . . . . . . . . . . . . . . . . 15
Section 9.04 Reserves . . . . . . . . . . . . . . . . . . . 15
Section 9.05 Seal . . . . . . . . . . . . . . . . . . . . . 15
Section 9.06 Corporation Offices. . . . . . . . . . . . . . 15
- ii -
<PAGE>
ARTICLE X - AMENDMENTS
Section 10.01 Power to Amend . . . . . . . . . . . . . . . . 16
ARTICLE XI - ELECTION NOT TO BE GOVERNED BY CHAPTER 7B
OF THE BUSINESS CORPORATION ACT . . . . . . . . . . . . . 16
- iii -
<PAGE>
RESTATED BY-LAWS
OF
SOTHEBY'S HOLDINGS, INC.
Article I
MEETINGS OF SHAREHOLDERS
SECTION 1.01. PLACE OF MEETINGS.
Annual and special meetings of the shareholders shall be held at such place
within or outside the State of Michigan as may be fixed from time to time by
the board of directors and stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
SECTION 1.02. ANNUAL MEETING.
The annual meeting of the shareholders for the election of directors and for
the transaction of such other business as may properly come before the meeting
shall be held on such date during the months of April, May, or June as the
Chairman of the Board, the chief executive officer or the board of directors
shall designate, and at such hour as may be named, in the notice of said
meeting. If the election of directors shall not be held on the date so
designated for any annual meeting or at any adjournment of such meeting, the
board of directors shall cause the election to be held at a special meeting as
soon thereafter as it conveniently may be held.
SECTION 1.03. SPECIAL MEETINGS.
A special meeting of the shareholders may be called at any time and for any
purpose or purposes by the Chairman of the Board, the President, or the board of
directors, or by a shareholder or shareholders holding of record at least
twenty-five percent (25%) of the voting power of the outstanding capital stock
of the corporation entitled to vote at such meeting.
<PAGE>
SECTION 1.04. NOTICE OF MEETINGS.
A written notice of the place, date, and hour of each meeting, whether annual
or special, and any adjournment thereof, shall be given personally or by mail to
each shareholder of record entitled to vote thereat at least ten (10) but not
more than sixty (60) days prior to the meeting unless a shorter time is provided
by the Michigan Business Corporation Act and is fixed by the board of directors.
The notice of any special meeting shall also state the purpose or purposes for
which the meeting is called and by or at whose direction it is being issued.
If, at any meeting, whether annual or special, action is proposed to be taken
which would, if taken, entitle shareholders fulfilling requirements of law to
receive payment for their shares, the notice of such meeting shall include a
statement of that purpose and to that effect. If any notice, as provided in
this Section 1.04 is mailed, it shall be directed to the shareholder in a
postage prepaid envelope at his address as it appears on the corporation's
record of shareholders.
SECTION 1.05. WAIVER OF NOTICE.
Notice of meeting need not be given to any shareholder who submits a waiver of
notice, signed in person or by proxy, whether before or after the meeting. The
attendance of any shareholder at a meeting, in person or by proxy, shall
constitute a waiver of notice by him except when the shareholder attends such
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
SECTION 1.06. INSPECTORS OF ELECTION.
The board of directors, or any officer or officers duly authorized by the
board of directors, in advance of any meeting of shareholders, may appoint one
or more inspectors to act at the meeting or any adjournment thereof. If
inspectors are not so appointed, the person presiding at the meeting may, and on
the request of any shareholder entitled to vote thereat shall, appoint one or
more inspectors. In case any person appointed fails to appear or act, the
vacancy may be filled by appointment made by the board of directors in advance
of the meeting or at the meeting by the chairman of the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum, the validity
and effect of proxies, and shall receive votes, ballots, or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots, or consents, determine the result,
and do such acts as are proper to conduct the election or vote with fairness to
all shareholders. On request of the person presiding at the meeting or any
shareholder entitled to vote thereat, the inspectors shall make a report in
writing of any facts or matters found or determined by them and execute a
certificate with respect thereto.
2
<PAGE>
SECTION 1.07. QUORUM AND ADJOURNMENT.
At all meetings of shareholders, except as otherwise provided by statute or
the articles of incorporation, the holders of the number of shares possessing a
majority of the voting power of all shares entitled to vote thereat, present in
person or by proxy, shall be necessary and sufficient to constitute a quorum for
the transaction of business. The shareholders present in person or by proxy at
any of such meetings at which a quorum is initially present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum. By a vote of the majority of
shareholders present, in person or by proxy, whether or not a quorum is present,
the meeting may, from time to time, be adjourned, by resolution to another place
and time, for a period not exceeding fourteen (14) days in any one case. At any
such adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 1.08. VOTE OF SHAREHOLDERS.
Each shareholder having the right to vote shall be entitled at every meeting
of shareholders to (i) one (1) vote for every share of Class A Limited Voting
Common Stock and (ii) ten (10) votes for every share of Class B Common Stock
standing in his name on the record date of shareholders fixed by the board of
directors pursuant to Article II of these by-laws. Whenever any corporate
action is to be taken by vote at a meeting of the shareholders, it shall, except
as otherwise required by statute or by the articles of incorporation, be
authorized by a majority of the votes cast by such holders present in person or
by proxy and entitled to vote, a quorum being present as provided in Section
1.07.
SECTION 1.09. PROXIES.
Every shareholder entitled to vote at a meeting of shareholders or to express
consent or dissent without a meeting may authorize another person or persons to
act for him by proxy. Every proxy must be in writing and signed by the
shareholder or his attorney-infact. No proxy shall be valid after the
expiration of one (1) year from the date thereof unless otherwise provided in
the proxy.
SECTION 1.10. CONSENTS.
Any action required or permitted by the Michigan Business Corporation Act to
be taken at a meeting of shareholders may be taken without a meeting, without
prior notice and without a vote, if all of the shareholders entitled to vote
thereon consent thereto in writing; provided, however, if authorized by the
articles of incorporation, any action required or permitted by the Michigan
Business Corporation Act or by these by-laws to be taken at an annual or special
meeting of shareholders may be taken without a meeting, without prior notice and
without a
3
<PAGE>
vote, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take the action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent, as herein provided, shall be given to shareholders who have not
consented in writing.
SECTION 1.11. ORGANIZATION OF SHAREHOLDERS' MEETINGS.
At every meeting of the shareholders, the Chairman of the Board or, in the
Chairman's absence or at his direction, the President or, in his absence, a
Vice-President, or, in the absence of the Chairman of the Board, the President
and Vice-President, a chairman chosen by a majority in interest of the
shareholders of the corporation present in person or by proxy and entitled to
vote, shall act as chairman; and the Secretary, or in his absence any person
appointed by the chairman, shall act as secretary.
Article II
DETERMINATION OF VOTING,
DIVIDEND, AND OTHER RIGHTS
For the purpose of determining the shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or to express
consent to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or the date when any change or conversion or exchange
of capital stock shall go into effect, or for the purpose of any other action,
the board of directors may fix, in advance, a date as the record date for any
such determination of shareholders. Such date shall not be more than sixty (60)
nor less than ten (10) days before the date of any such meeting, nor more than
thirty (30) days prior to any other action. If a record date is so fixed, such
shareholders and only such shareholders as shall be shareholders of record on
that date so fixed shall be entitled to notice of, and to vote at, such meeting
and any adjournment thereof, or to express such consent or dissent, or to
receive payment of such dividend or such allotment of rights, or otherwise to be
recognized as shareholders for the purpose of any other action, notwithstanding
any transfer of any shares on the books of the corporation after any such record
date so fixed.
4
<PAGE>
Article III
DIRECTORS
SECTION 3.01. GENERAL POWERS.
The business and all the powers of the corporation, and the stock, property,
and affairs of the corporation, except as otherwise provided by the articles of
incorporation, the by-laws, or by statute, shall be managed by the board of
directors.
SECTION 3.02. NUMBER, QUALIFICATIONS, AND TERM OF OFFICE.
The number of directors shall be not more than fifteen (15) nor less than
seven (7), but each such number may be decreased or increased by amendment of
these by-laws by a vote of the shareholders of record holding the number of
shares possessing a majority of the voting power entitled to vote. The board,
at the time of the adoption of these restated by-laws, shall consist of eight
(8) directors. Thereafter, within the limits above specified, the number of
directors may be determined, between annual meetings of the shareholders, by
resolution of the board of directors. Except as otherwise provided by statute,
the articles of incorporation, or these by-laws, the directors, who need not be
shareholders, shall be elected at the annual meeting of the shareholders and
shall hold office for the period of one (1) year and until their successors
shall be duly elected and qualified, or until death, resignation, or removal.
SECTION 3.03. PLACE OF MEETINGS.
Meetings of the board of directors, annual or special, shall be held at any
place within or outside the State of Michigan as may from time to time be
determined by the board of directors.
SECTION 3.04. ANNUAL MEETING.
The board of directors shall meet as soon as practicable after each annual
election of directors for the purpose of organization, election of officers, and
the transaction of other business, on the same day and at the same place at
which the shareholders' meeting is held. Notice of such meeting need not be
given. Such meeting may be held at such other time and place as shall be
specified in a notice to be given as hereinafter provided for special meetings
of the board of directors, or according to consent and waiver of notice thereof
signed by all directors.
5
<PAGE>
SECTION 3.05. SPECIAL MEETINGS.
Special meetings of the board of directors shall be held whenever called by
any director. Notice of any special meeting, and any adjournment thereof,
stating the place, date, hour, and purpose of the meeting, shall be mailed to
each director, addressed to him at his residence or usual place of business, or
shall be sent to him at such place by telegraph, telecopier, cable, or radio, or
be delivered personally or by telephone, not later than the fifth (5th) calendar
day before the day on which the meeting is to be held. Notice of any meeting of
the board of directors need not be given to any director who submits a signed
waiver of notice before or after the meeting, or who attends the meeting without
protesting, either prior to or at the commencement of such meeting, the lack of
notice to him. Unless limited by statute, the articles of incorporation, these
bylaws, or the terms of the notice thereof, any and all business may be
transacted at any special meeting.
SECTION 3.06. QUORUM AND MANNER OF ACTION.
A majority of the directors in office at the time of any annual or special
meeting of the board of directors, present in person, shall be necessary and
sufficient to constitute a quorum for the transaction of business. The vote of
a majority of the directors present at the time of such vote, if a quorum is
present at the time of such vote, shall be the act of the board of directors,
except as otherwise required by statute or the articles of incorporation. A
majority of the directors present, whether or not a quorum is present, may by
resolution, from time to time, adjourn any meeting to another place and time for
a period not exceeding fourteen (14) days in any one case. If the directors
shall severally and/or collectively consent in writing to any act taken or to be
taken by the corporation, such action shall be valid corporate action as though
it had been authorized at a meeting of the board of directors.
SECTION 3.07. COMPENSATION.
By resolution of the board of directors a fixed annual or other fee as well as
a fixed sum and expenses may be allowed for attendance at each annual or special
meeting of the board of directors; provided, however, that nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 3.08. REMOVAL OF DIRECTORS.
By a vote of the number of shares possessing a majority of the voting power of
all shares of stock outstanding and entitled to vote, one or more or all of the
directors may be removed from office at any time for or without cause.
6
<PAGE>
SECTION 3.09. RESIGNATIONS.
Any director may resign at any time by giving written notice to the board of
directors, the Chairman of the Board, the President, or the Secretary of the
corporation. Such resignation shall take effect at the time specified therein;
and unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
SECTION 3.10. VACANCIES.
Any newly created directorships and vacancies occurring on the board of
directors by reason of death, resignation, retirement, disqualification, or
removal shall be temporarily filled by a vote of a majority of the directors
then in office, even though less than a quorum. Any director elected by the
board of directors to fill a vacancy temporarily shall hold office for the
unexpired portion of the term of his predecessor subject to these by-laws.
SECTION 3.11. ORGANIZATION OF BOARD MEETING.
At each meeting of the board of directors, the Chairman or, in his absence or
at the Chairman's direction, the President or, in his absence, a director chosen
by a majority of the directors present shall act as chairman of the meeting.
The Secretary or, in his absence, any person appointed by the chairman shall act
as secretary of the meeting.
Article IV
ADVISORY COMMITTEE
SECTION 4.01. ADVISORY COMMITTEE: CONSTITUTION AND POWERS.
The board of directors, by resolution adopted by a majority of the entire
board, may designate an advisory committee (to be known as the "Advisory
Committee" or "Advisory Board"), the members of which need not be directors of
the corporation but shall be prominent members of the art or business
communities of the world. The advisory committee and its members shall serve at
the pleasure of the board of directors and shall advise the board as to matters
relating to conditions in the national and international art markets and shall
recommend actions that the corporation may take in respect thereto. The
compensation, if any, of the members of the advisory committee shall be fixed
from time to time by the board of directors. The advisory committee, as such,
shall have no rights, powers, duties, authority, or responsibilities in respect
of the corporation or its shareholders but shall be entitled to all of the
indemnifications to which a member of the board of directors is entitled.
7
<PAGE>
SECTION 4.02. MEETINGS OF ADVISORY COMMITTEE.
Meetings of the advisory committee shall be held at least annually or more
frequently, and at such time and place, as shall from time to time be determined
by resolution of the advisory committee or its chairman, who shall be the
Chairman of the Board. In case the day so determined shall be a legal holiday,
such meeting shall be held on the next succeeding day, not a legal holiday, at
the same hour.
SECTION 4.03. VACANCIES IN ADVISORY COMMITTEE.
Any newly created memberships and vacancies occurring in the advisory
committee may be filled only by resolution adopted by a majority of the
entire board of directors.
ARTICLE V
COMMITTEES OF THE BOARD
The corporation may have such committees of the board, consisting of two or
more directors, as the board of directors shall, by resolution from time to
time, determine, which shall have such powers and authority as designated by the
board of directors. The operation of each such committee shall be as determined
by the board of directors.
Article VI
OFFICERS
SECTION 6.01. OFFICERS.
The elected officers of the corporation shall be a Chairman of the Board
(sometimes herein referred to as the "Chairman"), a President, one or more
Vice-Presidents, a Secretary, a Chief Financial Officer and a Treasurer. The
board of directors may also appoint one or more Assistant Secretaries, one or
more Assistant Treasurers, and such other officers and agents as may from time
to time appear to be necessary or advisable in the conduct of the affairs of the
corporation. Any two or more offices, whether elective or appointive, may be
held by the same person, except that an officer shall not execute, acknowledge
or verify any instrument in more
8
<PAGE>
than one capacity if the instrument is required by law or the articles of
incorporation or the by-laws to be executed, acknowledged or verified by two or
more officers.
SECTION 6.02. TERM OF OFFICE AND RESIGNATION.
So far as practicable, all elected officers shall be elected at the first
meeting of the board of directors following the annual meeting of shareholders
in each year and, except as otherwise hereinafter provided, shall hold office
until the first meeting of the board of directors following the next annual
meeting of shareholders and until their respective successors shall have been
elected or appointed and qualified. All other officers shall hold office at the
pleasure of the board of directors. Any elected or appointed officer may resign
at any time by giving written notice to the board of directors, the Chairman,
the President, or the Secretary of the corporation. Such resignation shall take
effect at the time specified therein, and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
SECTION 6.03. REMOVAL OF ELECTED OFFICERS.
Any elected officer may be removed at any time, with or without cause, by vote
at any meeting of the board of directors of a majority of the entire board of
directors.
SECTION 6.04. VACANCIES.
If any vacancy shall occur in any office for any reason, the board of
directors may elect or appoint a successor to fill such vacancy for the
remainder of the term.
SECTION 6.05. COMPENSATION.
The compensation, if any, of all elected or appointed officers of the
corporation shall be fixed by the board of directors or by a committee of the
board of directors established for such purpose.
9
<PAGE>
SECTION 6.06. THE CHAIRMAN OF THE BOARD.
The Chairman of the Board (sometimes herein the "Chairman") shall preside at
all meetings of the shareholders and board of directors and shall appoint all
standing and special committees as are deemed necessary in the conduct of the
business. The Chairman of the Board shall exercise any and all powers and
perform any and all duties which are required by the by-laws and which the board
of directors may additionally confer upon him. The board of directors may also
designate one or more Vice Chairman(men) of the board.
SECTION 6.07. THE PRESIDENT.
The President shall, if the board of directors shall so determine, be the
chief executive officer and/or the chief operating officer and in the absence of
the Chairman of the Board shall preside at all meetings of the board of
directors. The President shall perform such other duties as are usually
ascribed to that office, such as are directed by the Chairman, and such as are
required by the by-laws or the resolutions of the board of directors.
SECTION 6.08. THE CHIEF OPERATING OFFICER.
The Chief Operating Officer shall perform such duties as are usually ascribed
to that office, as are directed by the Chairman of the Board of the President,
and as are required by the by-laws or action of the board of directors.
SECTION 6.09. THE VICE-PRESIDENT.
The Vice-President, and such grades thereof (including, but not limited to,
the grades of Executive Vice President and Senior Vice President) as shall be
determined by the board of directors from time to time, or if there is more
than one Vice-President, each Vice-President, shall have such powers and
discharge such duties as may be assigned to him from time to time by the
Chairman of the Board, the President, the Chief Operating Officer, any more
senior grade of Vice-President and/or the board of directors.
SECTION 6.10. THE SECRETARY.
The Secretary shall attend all meetings of the board of directors and the
shareholders and shall record all votes and the minutes of all proceedings in a
book to be kept for that purpose and shall, when requested, perform like duties
for all committees of the board of directors. He shall attend to the giving of
notice of all meetings of the shareholders, and special meetings of the board of
directors and committees thereof; he shall have custody of the corporate seal,
and, when authorized by the board of directors, shall have authority to affix
the same to any instrument and, when so affixed, it shall be attested by his
signature or by the signatures of the Treasurer or an Assistant Secretary or an
Assistant Treasurer. He shall keep an account for all books, documents, papers,
and records of the corporation, except those for which some
10
<PAGE>
other officer or agent is properly accountable. He shall have authority to sign
stock certificates, and shall generally perform all the duties appertaining to
the office of secretary of a corporation. In the absence of the Secretary, such
person as shall be designated by the Chairman or the President shall perform his
duties.
SECTION 6.11. THE CHIEF FINANCIAL OFFICER.
The Chief Financial Officer shall have the care and custody of all the funds
of the corporation and shall deposit the same in such banks or other
depositories as the board of directors, or any officer and agent jointly, duly
authorized by the board of directors, shall, from time to time, direct or
approve. He shall keep a full and accurate account of all monies received and
paid on account of the corporation, and shall render a statement of his accounts
whenever the board of directors shall require. He shall perform all other
necessary acts and duties in connection with the administration of the financial
affairs of the corporation, and shall generally perform all duties usually
appertaining to the office of Chief Financial Officer of a corporation. When
required by the board of directors, he shall give bonds for the faithful
discharge of his duties in such sums and with such sureties as the board of
directors shall approve. In the absence of the Chief Financial Officer, such
person as shall be designated by the Chairman or the President shall perform his
duties.
SECTION 6.12. TREASURER.
The Treasurer shall perform such duties and have such powers and
responsibilities as shall be assigned to him from time to time by the Chief
Financial Officer, the Chairman, the President, and/or the board of directors.
When required by the board of directors, he shall give bonds for the faithful
discharge of his duties in such sums and with such sureties as the board of
directors shall approve. In the absence of the Treasurer, such person as shall
be designated by the Chief Financial Officer, the Chairman or the President
shall perform his duties.
Article VII
INDEMNIFICATION
SECTION 7.01. INDEMNIFICATION.
Subject to and in accordance with the provisions of the corporation's articles
of incorporation, the corporation has the power to (and shall if so provided in
the corporation's articles of incorporation) indemnify any person (and the
heirs, executors, and administrators of any such person) against any loss, cost,
damage, fine, penalty, or expense (including attorneys' fees) suffered,
incurred, assessed, or imposed by reason of the fact that such person is or was
a
11
<PAGE>
director, officer, employee, or agent of the corporation or is or was serving,
at the request of the corporation, as a director, officer, employee, agent,
partner, or trustee of another corporation, partnership, joint venture, trust,
or other enterprise.
SECTION 7.02. ADVANCEMENT OF EXPENSES.
Expenses incurred in defending or settling a civil or criminal action, suit,
or proceeding to which any person described in Section 7.01 is or was a party,
or is or was threatened to be made a party, may be paid by the corporation in
advance in accordance with and subject to the provisions of the corporation's
articles of incorporation.
SECTION 7.03. INDEMNIFICATION: INSURANCE.
The corporation shall have power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee, or agent of the
corporation or is liable as a director of the corporation, or is or was serving,
at the request of the corporation, as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, regardless of whether the
corporation would have power to indemnify him against such liability under the
provisions of this Article VII or under the applicable provisions of law.
SECTION 7.04. INDEMNIFICATION: CONSTITUENT CORPORATIONS.
For the purposes of this Article VII, references to the corporation include
all constituent corporations absorbed in a consolidation or merger and the
resulting or surviving corporation, so that a person who is or was a director or
officer of such constituent corporation or is or was serving at the request of
such constituent corporation as a director or officer of another corporation,
partnership, joint venture, trust, or other enterprise shall (as shall his
heirs, executors, and administrators) stand in the same position, under the
provisions of this Article, with respect to the resulting or surviving
corporation as he would if he had served the resulting or surviving corporation
in the same capacity.
12
<PAGE>
Article VIII
SHARE CERTIFICATES
SECTION 8.01. FORM; SIGNATURE.
The shares of the corporation shall be represented by certificates in such
form or forms as shall be determined by the board of directors and shall be
signed by the Chairman of the Board, President or a Vice-President and the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
of the corporation, and shall be sealed with the seal of the corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles if the certificate is countersigned by a Transfer Agent or registered
by a Registrar other than the corporation or its employee. In case any officer
who has signed or whose facsimile has been placed upon a certificate shall have
ceased to be such officer before such certificate is issued, it may be issued by
the corporation with the same effect as if he were such officer at the date of
issue.
SECTION 8.02. TRANSFER AGENTS AND REGISTRARS.
The board of directors may, in its discretion, appoint one or more banks or
trust companies in the State of Michigan and in such other state or states or
localities within or outside the United States as the board of directors may
deem advisable, from time to time, to act as Transfer Agents and Registrars of
the shares of the corporation; and upon such appointments being made, no
certificate representing shares shall be valid until countersigned by one of
such Transfer Agents and registered by one of such Registrars.
SECTION 8.03. TRANSFERS OF SHARES.
Transfers of shares shall be made on the books of the corporation only upon
written request by the person named in the certificate, or by his attorney
lawfully constituted in writing, and upon surrender and cancellation of a
certificate or certificates for a like number of shares of the same class, with
duly executed assignment and a power of transfer endorsed thereon or attached
thereto, and with such proof of the authenticity of the signatures as the
corporation or its agents may reasonably require. Any such transfer shall be
made without charge to the transferor or transferee except for stock transfer
taxes levied by any governmental authority having jurisdication over such
transfer. To the extent that all shares represented by a certificate are not
transferred, a certificate representing the balance of the shares shall be
issued to the transferor without charge.
13
<PAGE>
SECTION 8.04. REGISTERED SHAREHOLDERS.
The corporation shall be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive dividends and other
distributions, and to vote as such owner, and to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by law.
SECTION 8.05. LOST CERTIFICATES.
In case any certificate representing shares shall be lost, stolen, or
destroyed, the board of directors, or any officer or officers duly authorized by
the board of directors, may authorize, without charge, except as hereinafter
provided, the issuance of a substitute certificate in place of the certificate
so lost, stolen, or destroyed, and may cause or authorize such substitute
certificate to be countersigned by the appropriate Transfer Agent and registered
by the appropriate Registrar. In each such case the applicant for a substitute
certificate shall furnish to the corporation and to such of its Transfer Agents
and Registrars as may require the same, evidence to their satisfaction, in their
discretion, of the loss, theft, or destruction of such certificate and of the
ownership thereof, and also such security or indemnity, at such applicant's sole
cost and expense, as may by them be required.
Article IX
MISCELLANEOUS
SECTION 9.01. FISCAL YEAR.
The board of directors from time to time shall determine the fiscal year of
the corporation.
SECTION 9.02. SIGNATURES ON NEGOTIABLE INSTRUMENTS.
All bills, notes, checks, or other instruments for the payment of money shall
be signed or countersigned by such officers or agents and in such manner as from
time to time may be prescribed by resolution of the board of directors, or may
be prescribed by any officer or officers, or any officer and agent jointly, duly
authorized by the board of directors.
14
<PAGE>
SECTION 9.03. DIVIDENDS.
Except as otherwise provided in the articles of incorporation, dividends upon
the shares of the corporation may be declared and paid as permitted by law in
such amounts as the board of directors may determine at any annual or special
meeting. Dividends may be paid in cash, in property, or in shares of the
capital stock of the corporation, subject to the articles of incorporation.
SECTION 9.04. RESERVES.
Before payment of any dividend, there may be set aside out of any funds of the
corporation available for dividends such sum or sums as the board of directors
from time to time, in its absolute discretion, deems proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
board of directors deems conducive to the interest of the corporation; and in
its discretion, the board of directors may decrease or abolish any such reserve.
SECTION 9.05. SEAL.
The board of directors shall provide a corporate seal which shall consist of
two concentric circles between which shall be the name of the corporation and in
the center of which shall be inscribed "SEAL".
SECTION 9.06. CORPORATION OFFICES.
The registered office of the corporation shall be as set forth in the articles
of incorporation. The corporation may also have offices in such places as the
board of directors may from time to time appoint or the business of the
corporation require. Such offices may be outside the State of Michigan.
15
<PAGE>
Article X
AMENDMENTS
SECTION 10.01. POWER TO AMEND.
Except as otherwise specifically provided in the articles of incorporation,
these bylaws may be amended, repealed, or adopted by vote of the holders of the
number of shares possessing a majority of the voting power of all shares at the
time entitled to vote (determined without regard to the second paragraph of
Section 2.A. of Article III of the articles of incorporation) or by majority of
the entire board of directors. Except as otherwise specifically provided in the
articles of incorporation, any by-law adopted by the board of directors may be
amended or repealed by shareholders entitled to vote thereon as herein provided,
and any by-law adopted by the shareholders may be amended or repealed by the
board of directors, except as limited by statute and except when the
shareholders have expressly provided otherwise with respect to any particular
by-law.
Article XI
ELECTION NOT TO BE GOVERNED BY CHAPTER 7B
OF THE BUSINESS CORPORATION ACT
The Corporation shall not be governed by, or be subject to, any of the terms,
provisions or restrictions set forth in Chapter 7B of the Michigan Business
Corporation Act (the "Act"), being Act No. 58 of the Public Acts of 1988,
Michigan Compiled Laws Sections 790 through 799. This Article XI is intended to
provide, as permitted in Section 794 of the Act, that said Chapter 7B of the Act
shall not apply to any "control share acquisition," as defined in Chapter 7B of
the Act, of shares of the Corporation.
Reference is made to Article X of the Third Amended and Restated Articles of
Incorporation. Pursuant to said Article X, for so long as there shall be shares
of Class B Common Stock issued and outstanding, this Article XI of the by-laws
shall not be amended, rescinded or repealed unless such action to amend, rescind
or repeal is approved by the affirmative vote of the holders of a majority in
voting power of the then issued and outstanding shares of Class A and Class B
Common Stock voting as a single class. As provided in Article X of the Third
Amended and Restated Articles of Incorporation, at such time as there shall be
no shares of Class B Common Stock issued and outstanding, this Article XI may be
amended, rescinded or repealed in any manner provided in Article X of these
by-laws.
16
<PAGE>
Exhibit 10(v)
SOTHEBY'S HOLDINGS, INC.
AMENDED AND RESTATED DIRECTOR STOCK OWNERSHIP PLAN
1. ADOPTION; TERM; AND ADMINISTRATION. The Amended and Restated
Director Stock Ownership Plan (the "Plan") has been approved by the Board of
Directors (the "Board") of Sotheby's Holdings, Inc. (the "Company") and shall
become effective as of February 18, 1997. The Plan shall remain in effect
until terminated or abandoned by action of the Board and shall be
administered by the Board.
2. SHARES SUBJECT TO THE PLAN. The shares to be issued under this Plan
shall be shares of the Company's authorized but unissued Class A Limited
Voting Common Stock, par value $0.10 per share ("Common Stock"). Subject to
adjustment for share subdivision, consolidation, or other capital
readjustment, the aggregate number of shares reserved and available for
issuance under the Plan is 200,000 shares of Common Stock.
3. STOCK COMPENSATION AND ELECTIONS. Each non-employee director shall
receive, as his annual retainer, (i) the equivalent of $10,000 in shares of
Common Stock (the "Cash Equivalent Stock Fee"); and (ii) 1,500 shares of the
Company's Common Stock. Each non-employee Director may also elect to receive
a cash payment in lieu of the Cash Equivalent Stock Fee otherwise payable to
him or her for services to be rendered as a Director during the year. Any
such election must be made with respect to not less than all of the Cash
Equivalent Stock Fee otherwise payable to such Director and must be made on
or before January 31 (except for 1997, in which such election shall be made
as soon as practicable after February 18) of each year for which the election
is being made, but may be revoked once made, at any time. After an election
has been made, it shall be effective for all succeeding years unless revoked.
4. ELECTION UPON FILLING A BOARD VACANCY. Notwithstanding the
foregoing Section 3, in the event a vacancy arises on the Board and such
vacancy is filled by the Board, then the individual who is so appointed by
the Board to fill such vacancy, provided he or she is eligible to participate
in this Plan, shall be permitted to make an election (an "Interim Election")
as to not less than all of the Cash Equivalent Stock Fee otherwise payable to
him or her as a Director. Any such Interim Election (i) must be made promptly
after the date on which such individual fills the Board vacancy, and (ii) may
be revoked at any time.
5. CALCULATION OF STOCK COMPENSATION. The Cash Equivalent Stock Fee
shall be that number of shares of Common Stock equal to (i) $10,000 divided
by (ii) the Fair Market Value (as defined below) of the Common Stock,
determined as of the date on which a cash payment would have been paid had
the individual made such an election under the Plan. Such payments,
whether in cash or Common Stock, shall be paid periodically during each
year as determined by the Company's management. If the number of shares
so computed is not a whole number of shares, such number of shares shall be
rounded down to the next whole number, and any remaining compensation payable
to the Director shall be paid in the form of cash compensation. "Fair Market
Value" means the closing price per share of Common Stock on the New York
Stock Exchange on the day before the relevant date hereunder.
6. AMENDMENT AND TERMINATION OF THE PLAN. The Board may from time to
time suspend, discontinue or revise or amend the Plan in any respect
whatsoever.
<PAGE>
Exhibit 13
SOTHEBY'S
1996 ANNUAL REPORT
[STOCK PHOTOGRAPHY]
<PAGE>
Table of Contents
Financial Information 2
Letter to Shareholders 4
Sotheby's, The Value of a Name 6
The Art Market and the Auction House 7
Sotheby's Today, Built on Experience 8
The Best of Sotheby's, Highlights of 1996 10
Sotheby's Tomorrow, The Path to the Future 16
Financial Section 21
Sotheby's Holdings, Inc.,
Directors and Officers 42
Worldwide Auction Locations 42
Sotheby's Worldwide Management 43
Shareholder Information 44
(cover)
- ----------
The public exhibition for the sale of
Property from the Estate of Jacqueline
Kennedy Onassis in April 1996 opened
the doors of Sotheby's to 40,000
visitors from around the world.
<PAGE>
Financial Highlights
Auction Sales
($ in millions)
1,131.6 1,325.3 1,330.0 1,665.4 1,599.6 [Graph]
92 93 94 95 96
Net Income
($ in millions)
4.0 19.3 20.3 32.6 40.9 [Graph]
92 93 94 95 96
Revenues:
Total and as a Percent
of Auction Sales
($ in millions)
223.8 249.7 259.7 312.9 336.5 [Graph]
19.8% 18.8% 19.5% 18.8% 21.0%
92 93 94 95 96
Expenses:
Total and as a Percent
of Auction Sales
($ in millions)
219.3 218.9 226.6 256.0 268.3 [Graph]
19.4% 16.5% 17.0% 15.4% 16.8%
92 93 94 95 96
Return on
Shareholders' Equity
1.6% 9.7% 10.4% 15.4% 18.0% [Graph]
92 93 94 95 96
Cash Returned
to Shareholders
($ in millions)
31.8 23.2 13.4 17.7 32.0 [Graph]
92 93 94 95 96
[ ] Dividends
[ ] Stock Repurchased
page 2
<PAGE>
[PHOTO]
Bidding throughout the Onassis auction was highly competitive, with nearly every
lot selling for multiples of its estimate.
Sotheby's
Franchise
Today
EXTENDS TO 46 COUNTRIES WORLDWIDE WITH 18 AUCTION LOCATIONS. IN 1996 WE HELD
OVER 500 AUCTIONS WORLDWIDE IN 76 COLLECTING CATEGORIES. WE SOLD APPROXIMATELY
168,000 LOTS WITH AN AVERAGE LOT PRICE OF $9,500 AND 80% OF THE TOTAL LOTS SOLD
WERE BELOW $5,000. OVER THE LAST TEN YEARS OUR SALES HAVE EXCEEDED $17 BILLION
AND WE HAVE SOLD 1.7 MILLION LOTS. OUR SPECIALIST STAFF NUMBERS APPROXIMATELY
400 AND OUR SPECIALIST DEPARTMENT HEADS HAVE AN AVERAGE OF NEARLY 20 YEARS
EXPERIENCE WITH SOTHEBY'S.
<PAGE>
<TABLE>
<CAPTION>
(Thousands of dollars, Year Ended December 31
except per share data) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Auction sales $1,599,595 $1,665,378 $1,330,001 $1,325,334 $1,131,601
---------- ---------- ---------- ---------- ----------
Auction and related revenues 300,472 284,051 233,451 229,886 196,142
Total revenues 336,496 312,880 259,663 249,676 223,799
---------- ---------- ---------- ---------- ----------
Operating income 68,208 56,841 33,033 30,785 4,453
Net income $ 40,946 $ 32,582 $ 20,259 $ 19,294 $ 3,960
---------- ---------- ---------- ---------- ----------
Earnings per share $ 0.73 $ 0.58 $ 0.36 $ 0.35 $ 0.07
---------- ---------- ---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------
Balance Sheet
Net debt (cash) $ (63,675) $ 3,103 $ 1,416 $ (53,257) $ 5,157
---------- ---------- ---------- ---------- ----------
Shareholders' equity 253,472 227,482 211,052 194,632 198,195
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<S> <C>
20 Year Auction Sales History
[GRAPH]
3,000
2,500
2,000
1,500 11.3%
1,000
500
'76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96
</TABLE>
[ ] Annual Auction
sales
[ ] Compound annual
growth rate
[The following table was represented as a pie graph in the printed material]
Geographic Distribution
of Auction Sales in 1996
48% North America
($770 million)
35% United Kingdom
($556 million)
12% Continental Europe
($196 million)
5% Asia
($78 million)
[The following table was represented as a pie graph in the printed material]
Departmental Distribution
of Auction Sales in 1996
13% Jewelry
19% Impressionist
and Modern Art
6% Old Masters
5% Contemporary
17% Other Paintings
and Fine Arts
9% Furniture
24% Other
Decorative Arts
7% Books and Other
page 3
<PAGE>
Letter
to Shareholders
[PHOTO]
DEAR SHAREHOLDERS At Sotheby's, 1996 will be remembered by many as the year of
Jacqueline Kennedy Onassis. The sale of property from the estate of Mrs.
Onassis, an event often referred to as "the sale of the century," was a moment
in time when we were able to demonstrate the strength of our organization to a
global audience. We were honored and privileged to have been selected to auction
the property from the estate of this remarkable woman. We believe that this sale
demonstrated the best of Sotheby's. We are extraordinarily proud of our
employees for their dedication to providing the highest quality of client
service and executing this complex event at a level which, we believe, is
unsurpassed in the industry's history. This auction elevated Sotheby's worldwide
name recognition to a higher level through the unprecedented global media
coverage, catalogue sales and remarkable attendance at the pre-sale exhibition
and sale. With the information and lessons gathered from it, we look forward to
future special sales in which we will be able to utilize the experience derived
from the Onassis sale.
1996 FINANCIAL HIGHLIGHTS The strong earnings growth trend which has been in
place since 1992 continued in 1996. Net income totaled $40.9 million this year,
an increase of 26% compared to 1995, and earnings per share were $0.73, also up
26% from the prior year. The healthy growth in 1996 earnings was driven by an
increase in auction revenue margins, the improved performance of our auction
operations in the United Kingdom and Asia, strong profit growth in our real
estate and art-related financing businesses and continued emphasis on expense
controls. [CLIPART] Sotheby's strong 1996 financial performance was favorably
received by the financial markets. Sotheby's shareholders were rewarded with a
return, through share price appreciation and dividends, of 33.4% in 1996,
compared to 19.2% for the S&P Midcap 400 Index, of which we are a component.
Additionally, we returned $14.2 million to shareholders during the year through
the acquisition of common stock under our repurchase program and paid $17.8
million in dividends. [CLIPART] Sotheby's Board of Directors and Management
remain committed to maximizing shareholder value. This commitment is reflected
in our decision in June 1996 to increase our stock repurchase program to a
maximum of 4 million shares, or 7% of the total shares outstanding, and to
increase our quarterly dividend to $0.10 per share in February 1997. These
decisions reflect not only the exceptional financial performance of the Company
during the past year, but our strong belief in the future of our business. The
Board of Directors and Management own 17.7 million shares, or 32% of Sotheby's
total shares outstanding, a level of ownership which reflects our belief that we
will continue to deliver outstanding long-term financial performance.
CHANGES IN MANAGEMENT During the year we made several additions and changes to
our management and our board. In September 1996, we named Kevin A. Bousquette,
formerly our Chief Financial Officer, to the newly created post of Executive
Vice President and Chief Operating
page 4
<PAGE>
[PHOTO]
SOTHEBY'S HOLDINGS, INC.
BOARD OF DIRECTORS
(seated left to right)
- ---------------------------
Max M. Fisher
Vice Chairman
A. Alfred Taubman
Chairman
Diana D. Brooks
President and Chief Executive Officer
Kevin A. Bousquette
Executive Vice President and
Chief Operating Officer
(standing left to right)
- ---------------------------
The Rt. Hon. The Earl of Gowrie
The Marquess of Hartington
Deputy Chairman
Simon de Pury
Ambassador Walter J. P. Curley
Viscount Michael Blakenham
Lord Camoys
Deputy Chairman
(not pictured)
- ---------------------------
Honorable Conrad M. Black
Henry R. Kravis
Julian Thompson
Officer of Sotheby's Holdings, Inc. Kevin has also joined our Board of
Directors. Since coming to the Company in 1993, Kevin has done an excellent job
streamlining our financial operations, and with his strong business background
and experience he is ideally suited for his new role. [CLIPART] We were pleased
to welcome Henry R. Kravis of Kohlberg Kravis Roberts & Co. to our Board of
Directors in October 1996. A prominent art collector and a Trustee of The
Metropolitan Museum of Art, he is recognized as one of the world's leading
business figures. He will add tremendous expertise to our board. In February
1997, the Honorable Conrad M. Black, Chairman and Chief Executive Officer of
Hollinger Inc., joined our board. We are delighted to have a man of his stature
and experience with us. [CLIPART] We were deeply saddened by the passing this
year of Graham D. Llewellyn and Anne Ford Johnson, two of our Advisory Board
members, and Robert C. Woolley, Executive Vice President and Director of
Decorative Arts in New York. During their association with our Company, they
provided insightful contributions and wise guidance and we are grateful for
their dedication to the Company. Graham, a valued colleague for more than 40
years, served as Chief Executive Officer from 1981-83 and played the key role in
building our jewelry sales throughout the world.
1997 AND BEYOND Sotheby's is a world-renowned art auction franchise with a
history and tradition that attracts the attention of clients, the media and the
financial markets. As the art market grows and develops throughout the world, we
believe that we have the structure in place to take advantage of new
opportunities both in the art market and in complementary businesses. It is a
major objective to utilize our world-renowned franchise, our excellent
management team and our strong global network to explore these opportunities and
to take Sotheby's to new levels of growth and profitability in the future.
[CLIPART] At this exciting time for our Company, we reaffirm our commitment to
the reputation and integrity of Sotheby's. They are extremely important to us
and we will continue to preserve and enhance them. During 1997, with the
assistance of a review by a committee of independent directors of the board, we
will ensure that Sotheby's maintains its reputation for excellence and
integrity, which has been the cornerstone of our business for 252 years.
[CLIPART] We look toward the future optimistically, with the belief that our
success is contingent upon our ability to continually develop client
relationships throughout the world, to recruit and keep exceptional employees
and to earn your support. Together we are building a stronger future for
Sotheby's.
/s/ A. Alfred Taubman /s/ Diana D. Brooks
A. Alfred Taubman Diana D. Brooks
Chairman President and Chief Executive Officer
page 5
<PAGE>
Sotheby's
The Value of a Name
In every field of business, there is one name that stands for excellence. While
known for providing the highest-quality products and services, this one name
often embodies much more: a sense of history and tradition, of longstanding
expertise and market strength, of boldness and innovation. To clients,
employees, shareholders and the public, the name means success, preeminence.
[CLIPART] Sotheby's is perhaps the name most recognized and respected in the art
auction business, with 252 years of outstanding performance to back it up. The
value of Sotheby's name, and the excellence associated with it, was dramatically
demonstrated in 1996 in one particular sale. For a period of eight memorable
days in April, the world's attention was riveted on the sale of Property from
the Estate of Jacqueline Kennedy Onassis, comprising a remarkable collection of
paintings, jewelry, furniture, antiquities, decorations, books, historical
artifacts and memorabilia. Apart from achieving a total of $34.5 million, nearly
seven times its high estimate, the Onassis auction reaffirmed the power and
magic of Sotheby's name throughout the world. [CLIPART] The "celebrity sale" is
but one aspect of Sotheby's diverse range of international interests, yet one
which symbolizes, perhaps like no other, the firm's franchise value. Indeed, for
more than two centuries Sotheby's has been conducting the sale of property owned
by renowned individuals, from the library of the Emperor Napoleon to the jewels
of the Duchess of Windsor and the collections of Elton John, Greta Garbo and
Andy Warhol. With every sale we have strengthened our expertise and leadership
in this specialized auction field, while at the same time enhancing Sotheby's
franchise internationally. In this regard, the Onassis auction brought 90,000
new bidders to Sotheby's, further expanding our global reach while creating new
business opportunities for the future. [CLIPART] Since its founding in 1744,
Sotheby's has evolved from a small London auction house into a worldwide company
whose name is synonymous with quality. From the very beginning, Sotheby's has
shown an unwavering commitment to be the best, to be the market innovator.
Throughout 1996 we brought exciting new ideas to the art market and will
continue this tradition, helping Sotheby's to remain the first name in the
auction world.
The Best of Sotheby's
The Auction of the Estate of Jacqueline Kennedy Onassis
IN WHAT BECAME KNOWN AS "THE SALE OF THE CENTURY," SOTHEBY'S FOUR-DAY AUCTION OF
PROPERTY FROM THE ESTATE OF JACQUELINE KENNEDY ONASSIS DREW 40,000 TO THE
FOUR-DAY PUBLIC EXHIBITION AND PROMPTED AN AMAZING 125,000 ABSENTEE BIDS. THE
SALE COMMANDED UNPRECEDENTED WORLDWIDE MEDIA ATTENTION. THE 584-PAGE CATALOGUE
WAS ILLUSTRATED WITH MANY PHOTOGRAPHS WHICH OPENED A PRIVATE WORLD THAT
page 6
<PAGE>
[PHOTO]
The Onassis exhibition was brought to life with rare period photographs
recalling a life of diverse accomplishments.
[PHOTO]
This Louis XVI Desk on which the Nuclear Test Ban Treaty was signed in 1963 made
$1.4 million at the Onassis auction.
[PHOTO]
Diana D. Brooks, President and CEO of Sotheby's Holdings, Inc., conducting the
black-tie first session of the Onassis auction.
[PHOTO]
Sotheby's hosted some 250 television journalists representing media
organizations from around the world.
<PAGE>
STIRRED PEOPLE'S MEMORIES. SOTHEBY'S SOLD 115,000 COPIES OF THE ONASSIS
CATALOGUE, MAKING IT THE MOST SUCCESSFUL ONE PRODUCED IN AUCTION HISTORY. THE
1,301 LOTS OF THE SALE BROUGHT A FINAL TOTAL OF $34.5 MILLION, MAKING THIS ONE
OF THE MOST SUCCESSFUL SINGLE-OWNER COLLECTION SALES IN HISTORY. NEARLY EVERY
SINGLE LOT SOLD FOR MANY MULTIPLES OF ITS ESTIMATE, REAFFIRMING MRS. ONASSIS'S
EXTRAORDINARY HOLD ON THE PUBLIC'S IMAGINATION.
The Art Market and the Auction House
The art market is comprised of many specialized markets. For example, Sotheby's
offers sales in 76 different collecting categories in more than 500 auctions in
18 locations. From Impressionist and Modern art and jewelry to furniture, wine,
coins, silver, tribal art, porcelain and Americana, the art market is one of the
most dynamic and fascinating markets in the world. New fields of collecting
continue to emerge, and with them come many new and enthusiastic buyers. Thus
with abundant opportunities for buyers to participate at all price levels and to
cross over into several areas of collecting, the global art market is highly
vigorous and accessible. [CLIPART] Perhaps the most striking aspect of the art
market is its universal appeal. The very nature of the objects sold--from a
Sherlock Holmes manuscript to an important diamond once belonging to Marie
Antoinette--excites the public's curiosity, especially when a prominent name is
attached. There can be no better example of the art market's extraordinary
drawing power than the Onassis auction this year, which made the front page of
nearly every leading newspaper in the world. [CLIPART] The auction house plays a
unique role in this complex international market, providing an open, competitive
forum for the buying and selling of works of art. It acts as agent for the
seller by appraising items to be offered for public sale. It creates scholarly
and beautiful catalogues and utilizes state-of-the-art marketing techniques to
reach the broadest audience of prospective auction participants. Specialists are
the backbone of the auction house, providing the very highest standard of
expertise and professional advice to buyer and seller alike. Thus the auctioneer
conducts the sale of works of art in a manner that will ensure the maximum price
for the seller and fair market value. [CLIPART] Sotheby's commitment to
expertise and client service has changed little in the course of two and a half
centuries of business. We continue to search for ways to maximize shareholder
value and to become more profitable, always with an abiding respect for the
traditions that have guided our success. With a profound understanding of our
business, backed by our specialists, we have shared our knowledge with the
public and helped expand the boundaries, and opportunities, of today's global
art market.
page 7
<PAGE>
Sotheby's Today
Built on Experience
Amid the ongoing growth and diversification of the art market this century, the
training and experience of our specialists in all fields has remained the
bedrock of our business. One of the most important and rewarding aspects of a
specialist's job at Sotheby's is building close relationships with collectors,
helping them acquire works and thus build a collection. Our success in this
crucial area has yielded enormous dividends. Sotheby's is renowned in the
auction market as unsurpassed in the sale of the world's greatest private
collections--as evidenced by our having achieved 13 of the 15 all-time sale
totals for single-owner collections. We continue to offer the highest-level
client service to generation after generation of the world's leading collecting
families. [CLIPART] The experience of our administrative leaders and senior
specialists in many key departments has been largely responsible for this record
of success. Many of our experts have worked at Sotheby's for decades, offering
clients a seamless continuity of service and knowledge. In the field of
Impressionist and Modern art, for example, Michel Strauss and Melanie Clore in
Europe and Alexander Apsis and John Tancock in North America have a combined 100
years of experience with Sotheby's. In his nearly four decades with the Company
Michel has worked closely with many of the world's leading collectors and
museums. The extraordinary knowledge of this team continues to enhance our
performance in this field. [CLIPART] Jewelry, long one of Sotheby's strongest
collecting fields, is now second only to Impressionist and Modern art in sales
volume, accounting for 13% of 1996 sales. Here again, our worldwide senior
experts have worked together for decades. Under the leadership of John Block in
America and David Bennett in Europe, Sotheby's jewelry team has conducted 8 of
the top 10 single-owner sales for such collections as those of the Count and
Countess Guy du Boisrouvray, Mrs. Harry Winston and the Duchess of Windsor. This
team has also been responsible for nearly every jewelry world record such as
that for a diamond, a ruby, a sapphire, an emerald and cultured pearls. Once
again, continuity and experience have been the key to our success.
The Best of Sotheby's Collections
ONE OF SOTHEBY'S GREATEST STRENGTHS THROUGHOUT ITS HISTORY HAS BEEN THE SALE OF
THE WORLD'S MOST IMPORTANT PRIVATE COLLECTIONS. WE CONTINUED THIS TRADITION IN
1996 WITH THE SALE OF A DIVERSE NUMBER OF COLLECTIONS INCLUDING, PROPERTY OF THE
SHELBURNE MUSEUM, THE GUTZWILLER AND THE GEORG WAECHTER COLLECTIONS OF
IMPRESSIONIST AND MODERN ART; ROYAL FRENCH SILVER FROM THE COLLECTION OF GEORGE
ORTIZ; THE MR. AND MRS. ADOLPH HENRY MEYER COLLECTION OF AMERICANA; EUROPEAN
WORKS OF ART AND OLD
page 8
<PAGE>
[PHOTO]
Sotheby's auction of property of the Shelburne Museum included this sculpture,
Petite Danseuse de Quatorze Ans, which brought a record $11.9 million.
[PHOTO]
(detail)
Francisco Jose Goya's The Death of a Picador, from The Collection
formed by The British Rail Pension Fund, sold for $4.0 million.
[PHOTO]
(detail)
Royal French Silver from the Collection of George Ortiz included
this Louis XV Royal Silver Tureen by Thomas Germain which sold for a record
$10.3 million.
[PHOTO]
The Edward Townsend Kneehole Desk from the Meyer Collection brought $3.6
million, the second highest price for American furniture.
<PAGE>
MASTER PAINTINGS FROM THE COLLECTION FORMED BY THE BRITISH RAIL PENSION FUND;
THE ENRICO FATTORINI COLLECTION OF OLD MASTER PAINTINGS; THE MONSIEUR AND MADAME
DELPLACE AND THE ESTATE OF RENE WEILLER COLLECTIONS OF FRENCH FURNITURE; THE
ARTHINGWORTH COLLECTION OF ENGLISH FURNITURE; THE WARSHAWSKY CORPORATE
COLLECTION OF TIFFANY LAMPS; CONTEMPORARY ART FROM THE COLLECTION OF MICHAEL
HAAS; AND AN IMPORTANT PRIVATE COLLECTION OF CHINESE CELADONS AND CERAMICS.
SOTHEBY'S CONTINUES TO BE THE PREEMINENT AUCTION HOUSE IN THE SALE OF
COLLECTIONS.
SOTHEBY'S GLOBAL NETWORK
The art market is truly a global business, with each part of the world offering
unique challenges and requiring highly specialized knowledge of the local
culture and its customs. Building an international network of art specialists to
enable the most effective and competitive presence throughout the world has long
been a principal goal of Sotheby's. Since mid-century, we have carefully charted
our growth around the globe, with major expansion in America in the 1950s,
throughout Australia, Canada, Europe and South America in the 1960s and into
Asia in the 1970s. At each step of the way Sotheby's has been a market
innovator, and we are committed to continuing that tradition. [CLIPART] In the
more than 500 auctions conducted by Sotheby's in 1996 we offered to the public
many masterpieces of the fine and decorative arts, as well as some of the
world's greatest private art collections. This year we also sold the contents of
several prominent country houses, continuing the tradition of such outstanding
recent sales as the Princely Collections of Thurn und Taxis in 1994 and
Baden-Baden in 1995. We inaugurated a number of new theme sales--including a
week of auctions in New York entitled "In Celebration of the English Country
House" as well as the "Turkish Sale" and the "Racing Sale" in London--promoting
them successfully to a broad audience of new auction participants. Additionally,
we took steps to expand our presence in the key markets of Asia, the United
States and France, the latter holding enormous financial potential as plans go
forward to allow auctions there by non-French companies in 1998. [CLIPART]
Through these and other endeavors in 1996 we opened new markets for the firm and
brought many new buyers into the auction process, while enhancing Sotheby's name
recognition worldwide. Looking forward, we are committed to developing the same
sort of fresh and imaginative new marketing ideas we employed throughout this
past year. With this global reach, the specialist knowledge and client contacts
of our senior staff, we are confident of our future ability to strengthen the
power and profitability of the Sotheby's franchise.
page 9
<PAGE>
OUR WORLDWIDE MANAGEMENT TEAM
We believe that our future is built on a very solid management foundation. Since
becoming President and Chief Executive Officer of Sotheby's Holdings, Inc., in
1994, Diana D. Brooks has brought together a management team uniquely qualified
to build the Sotheby's franchise, a team with an average of 20 years experience
in the art world. This team includes Kevin Bousquette, who was promoted from
Chief Financial Officer to the newly created post of Executive Vice President
and Chief Operating Officer of Sotheby's worldwide; Richard Oldenburg and
William Ruprecht in the United States; Simon de Pury, Henry Wyndham and George
Bailey in Europe; and Alice Lam, Julian Thompson and Tetsuji Shibayama in Asia.
Also on this team are Stuart Siegel, who heads Sotheby's International Realty,
and Mitchell Zuckerman, who runs Sotheby's Financial Services. The ability of
this group to lead Sotheby's into the 21st century and remain highly competitive
in the world auction market will be crucial to our future success, especially as
this market continues to grow. [CLIPART] Continuing this development of
Sotheby's senior management team, in 1996 we strengthened a number of strategic
areas of our operation with new appointments. William Sheridan, formerly a
partner with the public accounting firm Deloitte & Touche, LLP, joined us as
Chief Financial Officer. In addition, Suzanne McMillan, head of our worldwide
marketing division, unified Sotheby's image through a complete redesign of our
advertising, catalogues and other publications. In the complementary area of
information systems we appointed Paul Cuccia, formerly of Ogilvy and Mather, as
Chief Information Officer to consolidate and refine our global approach to this
key discipline, ensuring that Sotheby's database management will be
state-of-the-art. [CLIPART] Another key appointment was Kristin van Riel as
Managing Director of Sotheby's France. He will work closely with Laure de
Beauvau, President of Sotheby's France, to broaden and solidify our management
team there. Kristin brings vast experience as a partner with the law firm of
Willkie Farr & Gallagher to Sotheby's expanded role in France as that promising
auction market prepares to open to foreign competition in 1998.
The Best of Sotheby's
Highlights of 1996
NINETEEN NINETY-SIX WAS A STRONG YEAR FOR MANY FIELDS OF COLLECTING. IN
IMPRESSIONIST AND MODERN ART, FOR EXAMPLE, SOTHEBY'S OFFERED SUCH EXCEPTIONAL
PROPERTY AS THE PAINTINGS AND SCULPTURE OF THE SHELBURNE MUSEUM, WHICH TOTALED
$31.2 MILLION. THIS FIELD CONTINUES TO SPUR INTENSE COMPETITION AND HIGH PRICES.
IN AMERICAN PAINTINGS, SOTHEBY'S ACHIEVED THE HIGHEST TOTAL SINCE 1989, WITH A
NEW RECORD FOR AN AMERICAN PAINTING SET THIS YEAR FOR JOHN SINGER SARGENT'S
CASHMERE. THE ROBUST AMERICAN ECONOMY
page 10
<PAGE>
[PHOTO]
(detail)
Edvard Munch's radiant 1902 oil painting, Girls on a Bridge, sold
for $7.7 million, a record for the artist.
[PHOTO]
Jean-Antoine Houdon's magnificent Bust of Benjamin Franklin brought a record
$2.9 million and is now in the Philadelphia Museum of Art.
[PHOTO]
(detail)
John Singer Sargent's 1908 portrait, Cashmere, sold for $11.1
million, a record for the artist and the highest price for a pre-war American
painting.
<PAGE>
[PHOTO]
The "Apple Blossom" Easter Egg by Faberge, with jeweled gold and enamel mounts,
brought $1.1 million in Geneva.
[PHOTO]
(detail)
Pieter de Hooch's painting of a maid in a courtyard, from the Enrico Fattorini
Collection, brought $3.4 million in London.
The Best of Sotheby's
ALSO YIELDED AN EXCEPTIONAL YEAR IN THE FIELD OF AMERICAN FURNITURE AND FOLK
ART, WHICH HAS BEEN GROWING STEADILY FOR 5 YEARS. OLD MASTER PAINTINGS CONTINUED
ITS STRONG PERFORMANCE OF RECENT YEARS WITH A NUMBER OF OUTSTANDING COLLECTIONS
AND INDIVIDUAL WORKS SOLD IN AUCTIONS ON BOTH SIDES OF THE ATLANTIC. JEWELRY HAS
GROWN INTO SOTHEBY'S SECOND LARGEST COLLECTING CATEGORY, AND OUR SALES IN 1996
TOTALED $213.6 MILLION. IN CONTEMPORARY ART THERE WERE NUMEROUS SIGNS OF RENEWED
ACTIVITY, ESPECIALLY FOR WORKS OF THE
<PAGE>
[PHOTO]
(detail)
Paul Cezanne's Grands Arbres au Jas de Bouffan, painted circa 1890, brought $7.9
million at an Impressionist sale in London.
[PHOTO]
(detail)
This exquisite Burmese Sapphire and Diamond Necklace from the late 19th Century
was sold in New York for $2.8 million.
[PHOTO]
This Pair of George III Mahogany Armchairs, formerly in St. Giles's House,
Dorset, sold for $1.3 million in London.
<PAGE>
[PHOTO]
(detail)
Forest Scene by Roy Lichtenstein sold for $2.1 million in an auction of
Contemporary art in New York.
[PHOTO]
This 12th Century Reliquary Chasse commemorating the martyrdom of St. Thomas a
Becket made $6.5 million in London.
[PHOTO]
A Set of MacGregor Woods belonging to President Kennedy sold for $772,500. This
was 858 times the estimate, the highest multiple of the Onassis auction.
<PAGE>
The Best of Sotheby's
Highlights of 1996
HIGHEST QUALITY COMING FRESH TO THE MARKET. AUCTIONS OF ASIAN ART THROUGHOUT THE
WORLD IMPROVED THIS YEAR, REFLECTING THE CURRENT STRENGTH OF SEVERAL ASIAN
ECONOMIES.
AUCTION RECORDS
- ---------------
AMONG THE MANY IMPORTANT AUCTION RECORDS WE ESTABLISHED DURING THE YEAR WERE FOR
SILVER, AN AMERICAN PAINTING, A SPORTING PAINTING, A TIFFANY LAMP, A GOLD AND
ROMAN COIN, CHINESE EXPORT PORCELAIN, AN ENGLISH LITERATURE MANUSCRIPT AND A
BRITISH WATERCOLOR.
[PHOTO]
(detail)
A spectacular Ten-Panel Screen Celebrating the 80th Birthday of the Queen Mother
Cho sold for $1.2 million, a record for a Korean screen at auction.
[PHOTO]
This 1907 Double Eagle from the Bloomfield Foundation Collection sold for
$825,000, a record for a gold coin.
[PHOTO]
A Biscuit Figure of a Tiger, Kangxi Period, set a record for Chinese Export
Porcelain, selling for $600,490 in London.
<PAGE>
Sotheby's Tomorrow
The Path to the Future
While the art auction market of today bears little resemblance to what it was in
the mid-eighteenth century when Sotheby's began, the challenge of developing new
business, and new markets, remains the same. Every turning point in Sotheby's
long history has been marked by innovation and strong marketing, leading to
growth and expansion. The Impressionist and Modern art market of today, for
example, with a global clientele and strong prices for the finest paintings,
began with a marketing idea developed by Sotheby's in 1958. In offering the
historic Goldschmidt Collection of Impressionist and Modern art that year,
Sotheby's chose to conduct the sale at night in a black-tie aura worthy of the
collection's stature. From that inaugural evening sale of Impressionist art,
which has now become a tradition in the auction world, this market began to grow
steadily. The sale this year of Impressionist and Modern art of the Shelburne
Museum was another milestone in that distinguished tradition.
STRENGTH IN MARKETING Marketing remains one of the firm's singular strengths.
In 1996 we completed a comprehensive redesign of all our marketing materials in
order to bring uniformity and consistency to Sotheby's brand image throughout
the world. This has included the design of a new corporate color and standard
logo. As a result, the hundreds of sale catalogues we publish internationally
each year now all project the same unified image of Sotheby's. Our catalogues
are known the world over as perhaps the finest in the auction market, and they
are truly our most effective marketing tool. This redesign was thus a crucial
step for the company in strengthening global awareness of Sotheby's. [CLIPART]
Another key marketing initiative taken by Sotheby's in 1996 was in advertising,
where we redesigned our print advertisements worldwide and launched a new
advertising campaign targeting clients who may be new to Sotheby's and the
auction process. We also enhanced our direct mail capabilities, focusing not
only on building interest in key auction sales throughout the year but also on
attracting new auction participants.
CLIENT DEVELOPMENT A large number of newly-affluent individuals have begun to
acquire art and build collections, but have not participated in the auction
process. The world of Sotheby's is one of great fascination to the public, but
it also can be an intimidating one. From long experience
The Best of Sotheby's
Marketing
- ---------
SOTHEBY'S HAS LONG BEEN RECOGNIZED FOR ITS INNOVATIVE MARKETING AND PROMOTION
OF AUCTION SALES. IN 1996 WE UNIFIED OUR GLOBAL IMAGE THROUGH A NUMBER OF NEW
INITIATIVES. THESE INCLUDED A MORE CREATIVE STAGING OF OUR PUBLIC EXHIBITIONS, A
REDESIGN OF OUR CATALOGUES WORLDWIDE, AND AN ADVERTISING CAMPAIGN EMPHASIZING
FIRST-TIME AUCTION BUYERS, KEEPING SOTHEBY'S AT THE FOREFRONT OF ART AUCTION
MARKETING.
page 16
<PAGE>
[PHOTO]
Sotheby's unified its worldwide image through a comprehensive new marketing
campaign.
[PHOTO]
(detail)
Castillo del Lago, a Spanish Revival residence in Hollywood, California, was
listed and sold by Sotheby's International Realty.
<PAGE>
The Best of Sotheby's
Real Estate
- -----------
SOTHEBY'S STRATEGY FOR PROFIT GROWTH IN THIS BUSINESS IS TO EXPAND OUR DIRECT
BROKERAGE OPERATIONS WHILE STRENGTHENING LINKS BETWEEN OUR AFFILIATE NETWORK AND
AUCTION BUSINESS. THIS STRATEGY WAS INAUGURATED ON THE WEST COAST WITH THE
OPENING OF OUR DIRECT BROKERAGE OFFICE IN BEVERLY HILLS IN 1995. ONE OF THE
FIRST PROPERTIES LISTED AND SOLD BY SOTHEBY'S BEVERLY HILLS BROKERAGE WAS
CASTILLO DEL LAGO, A SPLENDID 1920S RESIDENCE ON 3 HILLSIDE ACRES IN HOLLYWOOD
WITH AN ASKING PRICE OF $6.5 MILLION.
we know that once clients come to us they remain loyal, participating not only
in auctions but taking advantage of our services in real estate, restoration,
education and financial services. Attracting these many potential new clients to
Sotheby's, therefore, is crucial to our future growth. [CLIPART] In recent years
Sotheby's has greatly intensified its client development efforts, and
significant advances were made throughout 1996 in this key area. With many
thousands of clients scattered throughout the world, each requiring personal
attention and service of the highest standard, managing these relationships is
of paramount importance to us. Utilizing advanced database technology, we have
implemented a new system for the most timely, proactive management by our senior
staff and specialists around the globe. We are committed to further enhancing
our ability to identify business opportunities in the most timely fashion,
especially among our key clients, while providing a higher level of ongoing,
personalized service to our international clientele. [CLIPART] In 1996 we were
particularly successful in new client development. Under the direction of
Executive Vice President C. Hugh Hildesley, we began a new program entitled
"Auction Adventures" which offers an exciting introduction to Sotheby's through
a mock auction. Throughout 1996 we hosted "Auction Adventures" in New York and
in various cities across America. This program is another example of how we
continue to expand our market innovatively while further strengthening our
franchise.
FINANCIAL SERVICES Sotheby's pioneered art-related financing in the auction
business 17 years ago. Today we remain the leader in this specialized auction
service with a portfolio of $154 million as of December 31, 1996, and worldwide
clients from the United States to Europe and Asia. Sotheby's Financial Services
has provided loans for collectors, museums and dealers secured by works of art.
Art-related financing remains an important and profitable adjunct to our main
activity of fine art auctioneering, often helping to secure important
consignments for sale through the auction process. We operate this business in a
prudent manner, and through it we are able to broaden our client relationships
by providing an additional important service. We believe that demand for
art-related financing will increase, and we will continue to grow our loan
portfolio aggressively, while maintaining stringent credit requirements.
page 17
<PAGE>
REAL ESTATE Another important auction-related service that Sotheby's pioneered
is real estate brokerage. In 1996 Sotheby's International Realty Company
celebrated its 20th anniversary. With sales of $785 million in 1996, Realty
posted the strongest year in its history. Today Sotheby's Realty operates in 17
countries and maintains a network of some 200 affiliates around the globe,
making it one of the largest and most prominent realty firms in the world.
[CLIPART] Sotheby's Realty is currently pursuing a major strategic initiative
focused on building our most profitable sector, a network of company-owned
brokerages. At the same time, we aim to maximize the linkage between Sotheby's
real estate, our network of affiliates and Sotheby's auction division, a synergy
that creates opportunities when a residence is acquired or sold. In 1995, for
example, we opened a direct brokerage office in Beverly Hills, California, which
has already made a significant impact on our West Coast business through a
number of major sales. Following this same initiative, in 1996 we opened
Sotheby's International Realty Brokerages in Greenwich, Connecticut, and San
Francisco, California, with another office scheduled to open in Brentwood,
California, in early 1997. San Francisco, one of the great cities of the West
Coast and the cosmopolitan center of the booming Silicon Valley, represents an
excellent crossover opportunity for our realty and auction businesses. As the
global demand continues to grow for this profitable service, we are committed to
expanding Sotheby's International Realty through additional direct brokerage
initiatives in the world's most affluent residential areas.
NEW OPPORTUNITIES Building upon such innovative partnerships of recent years as
Acquavella Modern Art and the Joseph R. Ritman Collection, in 1996 Sotheby's
created a new division known as Emmerich/Sotheby's. It will create a dynamic new
force in the Contemporary art world by combining Sotheby's resources with the
Andre Emmerich Gallery, a leading dealer in Post-war and Contemporary art. The
division will focus on the roster of artists historically represented by
Emmerich as well as the appraisal, consignment and sale of artists' estates,
exhibitions and publishing. [CLIPART] Sotheby's designs and produces hundreds of
auction catalogues each year, many of them lavish full-color volumes
The Best of Sotheby's
Theme and House Sales
THEME SALES HAVE BECOME INCREASINGLY SUCCESSFUL AT SOTHEBY'S. 1996 SAW THE
ADVENT OF A SERIES OF AUCTIONS ENTITLED "IN CELEBRATION OF THE ENGLISH COUNTRY
HOUSE." SOTHEBY'S ALSO HELD ITS FIRST "TURKISH SALE" AND "RACING SALE," BOTH OF
WHICH PERFORMED WELL. WE HAVE ESTABLISHED AN UNRIVALED REPUTATION FOR CONDUCTING
HOUSE SALES. HIGHLIGHTING 1996 WERE THE FIRST HOUSE SALE IN DENMARK, AT AALHOLM
SLOT, AND THE SALE OF THE CONTENTS OF THE MARQUESS OF BRISTOL'S PRIVATE
APARTMENT AT ICKWORTH IN SURREY.
page 18
<PAGE>
[PHOTO]
(detail)
In the first-ever auction devoted to Turkish art, Sotheby's sold an Ottoman
Painted Wood Room from Syria for $312,600.
[PHOTO]
(detail)
At our English Country House sales in New York, John Frederick Herring, Snr.'s
The Start of the Epsom Derby, 1835 brought a record $2.3 million.
[PHOTO]
C. Hugh Hildesley, head of Client Development in New York at a mock auction.
[PHOTO]
The Cafe, located in Sotheby's New Bond Street Gallery.
<PAGE>
The Best of Sotheby's
New Initiatives
- ---------------
AUCTION ADVENTURES
- ------------------
AN EXCITING NEW CLIENT-DEVELOPMENT PROGRAM, "AUCTION ADVENTURES," IN WHICH NEW
CLIENTS PARTICIPATE IN LIVELY MOCK AUCTIONS, WAS OFFERED INTERNATIONALLY LAST
YEAR.
THE CAFE
- --------
VOTED ONE OF THE FINEST RESTAURANTS IN LONDON, AND FAST BECOMING ONE OF THE MOST
POPULAR, THE CAFE, LOCATED IN OUR NEW BOND STREET GALLERY, OFFERS A GASTRONOMIC
INTRODUCTION TO SOTHEBY'S.
that would be the envy of any museum or publishing company. Increasingly we have
come to realize the value to Sotheby's of books which can distill the vast
specialized knowledge of our firm, while communicating the appeal of collecting
and connoisseurship for general audiences. [CLIPART] With this in mind we formed
Sotheby's Books as a unique publishing imprint to create and market books about
the fine and decorative arts and other subjects related to our business. In
addition to a series of Sotheby's Guides on various collecting fields and other
volumes, we are currently pursuing a broader worldwide publishing role for
Sotheby's, with a strategic emphasis on the vast American market. [CLIPART] We
believe that book publishing is an important means of enhancing Sotheby's
enormous prestige and name recognition. We are exploring a number of
opportunities in this field which we believe will complement our initiative of
bringing new clients to Sotheby's by fostering, in a practical and useful
manner, a greater appreciation for art and art collecting.
SOTHEBY'S GLOBAL FRANCHISE Secure in its position in the art world, Sotheby's
is today poised for expansive future growth. We are a firm mindful of our
history and traditions, yet responsive to the changing demands of the
marketplace. We are committed to the future of our business, which we believe
holds considerable promise throughout the world.
UNITED STATES In the United States, the population of wealthy individuals
continues to expand, notably among the baby boomer generation which is expected
to grow by 28 million by the year 2030, as successive waves reach peak earning
power. With our extensive network of auction specialists and representatives
throughout the country, fortified by our linking realty operations, Sotheby's is
positioned to compete aggressively for new business in America while developing
new services that will complement and enhance our core auction franchise.
FRANCE In France, the auction market is centered in Paris, where Sotheby's will
soon open expanded new facilities in the historic Galerie Charpentier on rue du
Faubourg St. Honore. This prestigious venue will afford us the finest saleroom
in the city when the French market opens to foreign auctioneers. The current
auction market in France, while active, is fragmented and inefficient. Our goal
will be to capture a share of the mar-
page 19
<PAGE>
ket--which had sales in Paris in 1996 of more than $600 million--while taking
steps to expand it. Sotheby's has maintained a large presence in Paris for many
years and has stood in the forefront in promoting the opening of the French
market. With this soon to be a reality, Sotheby's global capabilities will make
it a highly competitive player in a market which we believe has enormous
potential.
ASIA Asia will continue to be an important source of buyers and sellers for
Sotheby's in our auctions throughout the world. Our auction sales in Asia in
1996 increased by 46%, and we are well positioned to take advantage of the
future opportunities in this region. For example, Sotheby's has carefully
developed the market in Japan with an eye to the resumption of more active
Japanese buying and selling. As a consequence, our consignments and purchases
from Japan in 1996 increased significantly over the previous year, and we expect
that they will continue to grow substantially in coming years. In addition, we
anticipate that the economies will grow and expand in such countries as
Malaysia, Korea, Indonesia, Thailand, Singapore and China where we have
appointed representatives in the last two years. In 1996 we conducted our first
auction in Singapore of Southeast Asian paintings, a further expression of our
confidence of the potential for growth in this region.
THE FRANCHISE IN THE FUTURE As we continue our efforts to expand the Sotheby's
franchise and to develop new areas of interest for the firm, we are reminded
once again of the great name we carry and what it represents in our business. We
are prepared and committed to growing this franchise around the world and to
maintaining its historic, time-honored prominence in the marketplace. In this
way, Sotheby's in the future will continue to be the name that stands for
excellence in the art auction business.
page 20
<PAGE>
Index to Consolidated Financial Statements
Selected Financial Data 22
Management's Discussion and Analysis of
Results of Operations and
Financial Condition 23
Consolidated Statements of Income 27
Consolidated Balance Sheets 28
Consolidated Statements of Cash Flows 29
Consolidated Statements of Changes in
Shareholders' Equity 30
Notes to Consolidated Financial Statements 31
Independent Auditors' Report 41
Report of Management 41
Audit and Compensation Committee
Chairman's Letter 41
Sotheby's Holdings, Inc. and Subsidiaries page 21
<PAGE>
Selected Financial Data
<TABLE>
<CAPTION>
(Thousands of dollars, Year ended December 31
except per share data) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Auction sales(1) $1,599,595 $1,665,378 $1,330,001 $1,325,334 $1,131,601
---------- ---------- ---------- ---------- ----------
Auction and related revenues 300,472 284,051 233,451 229,886 196,142
---------- ---------- ---------- ---------- ----------
Total revenues $ 336,496 $ 312,880 $ 259,663 $ 249,676 $ 223,799
Operating income 68,208 56,841 33,033 30,785 4,453
Income before taxes 68,244 54,303 33,765 32,157 6,491
---------- ---------- ---------- ---------- ----------
Net income $ 40,946 $ 32,582 $ 20,259 $ 19,294 $ 3,960
---------- ---------- ---------- ---------- ----------
Earnings per share $ 0.73 $ 0.58 $ 0.36 $ 0.35 $ 0.07
---------- ---------- ---------- ---------- ----------
Cash dividends declared per share $ 0.32 $ 0.24 $ 0.24 $ 0.42 $ 0.60
========== ========== ========== ========== ==========
Year ended December 31
(Thousands of dollars) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------
Working capital $ 57,466 $ 101,394 $ 70,031 $ 75,276 $ 121,055
Total assets 656,098 600,104 557,084 559,356 577,657
Commercial paper -- 38,000 27,500 34,000 86,400
Net debt (cash)(2) (63,675) 3,103 1,416 (53,257) 5,157
Shareholders' equity 253,472 227,482 211,052 194,632 198,195
========== ========== ========== ========== ==========
</TABLE>
(1) Auction sales represent sales at the hammer price plus buyer's premium.
(2) Short term borrowings and commercial paper less cash and cash equivalents.
page 22 Sotheby's Holdings, Inc. and Subsidiaries
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
Years Ended December 31, 1996 and 1995
Auction sales for Sotheby's Holdings, Inc. (together with its subsidiaries, the
"Company") totaled $1,599.6 million during 1996, a decrease of $65.8 million, or
4%, compared to the prior year. The decrease in worldwide sales was primarily
due to the lower level of single-owner sales during 1996 when compared to 1995.
Single-owner sales in 1995 included the Stralem Collection ($65.2 million) and
the Hazen Collection ($51.8 million) in North America and the Grand Ducal
collection of Baden ($54.8 million) in Europe. Excluding the results of these
three sales, auction sales grew by 7% in 1996 compared to the prior year.
Auction sales recorded by the Company's foreign operations were not materially
affected by translation to United States ("U.S.") dollars.
Following is a geographical breakdown of the Company's auction sales for 1996
and 1995:
(Thousands of dollars) 1996 1995
- --------------------------------------------------------------------------------
North America $ 770,438 $ 825,788
Europe 751,154 786,277
Asia 78,003 53,313
---------- ----------
Total $1,599,595 $1,665,378
========== ==========
The decrease in auction sales in North America of $55.4 million, or 7%, during
1996 was driven by a lower level of single-owner sales when compared to 1995 as
discussed above. Sales in Europe, which for the purposes of this discussion
consists of the United Kingdom ("U.K.") and continental Europe ("the
Continent"), decreased $35.1 million, or 4%, in 1996. Sales in the U.K. improved
$49.0 million, or 10%, when compared to the prior year, primarily due to the
1996 sale of property from the collection formed by the British Rail Pension
Fund. Sales on the Continent declined $84.1 million, or 30%, during 1996 due
largely to the sale of the Grand Ducal collection of Baden in Germany in 1995
(as discussed above) as well as Jewelry sales in Switzerland, which decreased
$30.4 million in 1996 compared to the prior year. Asian sales increased $24.7
million, or 46%, in 1996 due largely to increased auction sales in Hong Kong and
Singapore in a number of collecting categories. The Company continues to focus
on growth in the Asian market but is unable to predict the effect, if any, on
the Company's operating results of the change in government in 1997 in Hong
Kong.
Worldwide revenues from auction and related operations in 1996 of $300.5 million
increased $16.4 million, or 6%, over 1995. Auction and related revenue as a
percent of auction sales increased to 18.8% in 1996 from 17.1% in 1995. This
increase was largely due to higher commission revenue (which consists of buyer's
premium, seller's commission and expense recoveries). The increase in
commissions was largely due to the positive impact of the Company's new sellers'
commission schedule, the contribution of the sale of Property from the Estate of
Jacqueline Kennedy Onassis, and a change in the relative mix of sales toward
property with lower average lot values which yield higher average commission
rates. Auction and related revenues also benefited from increases in non-auction
revenue categories. The impact of these factors was offset, in part, by the
decrease in sales volume discussed above.
Other revenues consists primarily of revenues from art-related financing
activities, real estate operations and principal activities. Other revenues
increased $7.2 million when compared to 1995 due mostly to an increase in
revenues from principal and real estate activities. Principal activities
include: net gains (losses) on sales of inventory (including inventory obtained
as a result of the auction process as well as inventory obtained for investment
purposes); the Company's share of operating results from its investment in
Acquavella Modern Art ("AMA"); net income (loss) earned from guarantees; and
provisions for write-downs of inventory to estimated net realizable value. The
increase in revenues from principal activities was principally due to higher
income earned from guarantees as well as a lower level of write-downs on
inventory to estimated net realizable value.
Direct costs of services (consisting largely of catalogue production and
distribution costs as well as corporate and sale marketing expenses) totaled
$63.1 million during 1996, an increase of $3.1 million, or 5%, over 1995. This
increase reflects expenses associated with the sale of Property from the Estate
of Jacqueline Kennedy Onassis which were fully recovered and reflected in
auction and related revenue. Excluding these costs, direct costs in 1996
declined slightly and totaled 3.7% of auction sales, relatively unchanged
compared to the prior year.
Sotheby's Holdings, Inc. and Subsidiaries page 23
<PAGE>
All other operating expenses (which consist of salaries and related costs,
general and administrative expenses and depreciation and amortization) increased
$9.1 million, or 5%, compared to 1995. This increase was primarily due to salary
increases offset, in part, by a decrease in depreciation due to a change in the
estimated useful lives for computer hardware during 1995 (see Note B to the
Consolidated Financial Statements).
Interest income totaled $4.3 million in 1996 compared to $3.2 million in 1995.
This increase was a result of higher average cash balances in Europe. Interest
expense totaled $3.6 million in 1996 compared to $5.9 million in 1995. This
decrease was due to lower average commercial paper borrowings in 1996 as well as
lower average interest rates on those borrowings as compared to 1995.
The consolidated effective tax rate was 40% for the years ended December 31,
1996 and 1995 (see Note I to the Consolidated Financial Statements).
Net income for 1996 was $40.9 million, a 26% increase when compared to net
income of $32.6 million for 1995. Movements in foreign currencies did not have a
material impact on 1996 revenues or expenses. Earnings per share increased to
$0.73 in 1996 from $0.58 in 1995, an increase of 26%.
Results of Operations
Years Ended December 31, 1995 and 1994
Auction sales for the Company totaled $1,665.4 million during 1995, an increase
of $335.4 million, or 25%, over 1994. The increase in worldwide sales was
primarily due to an increase in sales of Impressionist and Modern art as well as
Jewelry, with most of the growth contributed by single-owner and other
non-recurring sales. Auction sales recorded by the Company's foreign operations
were positively affected by translation to U.S. dollars which increased auction
sales by $41.7 million, or 3%.
Following is a geographical breakdown of the Company's auction sales for 1995
and 1994:
(Thousands of dollars) 1995 1994
- --------------------------------------------------------------------------------
North America $ 825,788 $ 666,301
Europe 786,277 608,291
Asia 53,313 55,409
---------- ----------
Total $1,665,378 $1,330,001
========== ==========
The growth in auction sales in North America of $159.5 million, or 24%, during
1995 was driven largely by sales of Impressionist and Modern art, with much of
this growth coming from single-owner and estate collections. Jewelry also
contributed to sales growth in North America. Sales in Europe increased $178.0
million, or 29%, in 1995. Excluding the impact of translating foreign currencies
into U.S. dollars, sales in Europe increased $136.5 million, or 22%, compared to
1994. Sales in the U.K. improved $76.1 million, or 24%, when compared to 1994.
Excluding the favorable impact of currency movements, sales in the U.K.
increased $64.9 million primarily due to Impressionist and Modern art and Old
Master paintings sales. Sales on the Continent grew $101.9 million during 1995;
excluding foreign currency movements sales grew $71.6 million principally due to
the sale of the Grand Ducal collection of Baden in Germany as well as increased
Jewelry sales in Switzerland. Asian sales declined $2.1 million, or 4%, in 1995,
largely as a result of general economic uncertainties in the Hong Kong market,
softening in key collecting categories as well as competitive pressures.
Worldwide revenues from auction and related operations in 1995 of $284.1 million
increased $50.6 million, or 22%, over 1994. This increase was largely due to
higher commission revenue, driven by the increase in sales volume discussed
above. Commissions as a percentage of auction sales were down year-to-year due
to a change in the relative mix of sales toward property with higher average lot
values which yield lower average commission rates. In addition, competitive
pricing pressures which existed prior to the implementation, in September of
1995, of the Company's new sellers' commission schedule contributed to the
decline in commission rates. Auction and related revenues also benefited from
increases in non-auction revenue categories. Excluding the impact of translating
revenues outside North America into U.S. dollars, auction and related revenues
increased 19% when compared to the prior year.
page 24 Sotheby's Holdings, Inc. and Subsidiaries
<PAGE>
Other revenues increased $2.6 million when compared to 1994 due mostly to an
increase in revenues from financing activities offset, in part, by a decrease in
revenues from principal activities. Revenues from financing activities totaled
$13.8 million during 1995, an increase of $4.6 million compared to 1994. This
increase was principally due to an increase in the average rate charged to
borrowers and, to a lesser extent, to an increase in the average outstanding
loan portfolio balance. Average rates charged to borrowers increased to 9.2% in
1995 from 7.3% in 1994. The outstanding loan portfolio averaged $148.2 million
in 1995 compared to $126.4 million in 1994. The decrease in revenues from
principal activities was principally due to write-downs on inventory to
estimated net realizable value. Movements in foreign currencies did not have a
material impact on other revenues.
Direct costs of services totaled $60.0 million during 1995, an increase of $10.8
million, or 22%, over 1994. Excluding movements in foreign exchange rates,
direct costs increased $9.0 million, or 18%, essentially due to the increase in
auction sales. Excluding movements in foreign currencies, direct costs as a
percentage of auction sales declined to 3.5% in 1995 from 3.7% in 1994.
All other expenses increased $18.6 million, or 11%; excluding the impact of
foreign currency movements, these expenses increased by 8%. Two significant
factors in the growth were increased incentive compensation and a $2.1 million
increase in depreciation due to a change in the estimated useful lives for
computer hardware (see Note B to the Consolidated Financial Statements).
Excluding these factors and the impact of foreign currency movements, all other
expenses increased approximately 5%. This increase was primarily due to salary
increases.
Interest income totaled $3.2 million in 1995 compared to $4.9 million in 1994.
This decrease was a result of lower average cash balances. Interest expense
totaled $5.9 million in 1995 compared to $4.0 million in 1994. This increase was
due to higher average short-term and commercial paper borrowings in Europe and
North America, respectively, as well as higher average interest rates on
commercial paper borrowings compared to 1994.
The consolidated effective tax rate was 40% for the years ended December 31,
1995 and 1994 (see Note I to the Consolidated Financial Statements).
Net income for 1995 was $32.6 million, a 61% increase when compared to net
income of $20.3 million for 1994. Movements in foreign currencies did not have a
material impact on 1995 net income. Earnings per share increased from $0.36 per
share in 1994 to $0.58 per share in 1995.
Liquidity and Capital Resources
The Company's net cash position (total cash and cash equivalents less total
debt, which includes short-term borrowings and commercial paper) totaled $63.7
million at December 31, 1996, compared to net debt of $3.1 million at December
31, 1995 and $1.4 million at December 31, 1994. Working capital (current assets
less current liabilities) at December 31, 1996 was $57.5 million, compared to
$101.4 million and $70.0 million at December 31, 1995 and 1994, respectively.
The Company's client loan portfolio increased to $153.7 million at December 31,
1996 from $144.2 million and $133.6 million at December 31, 1995 and 1994,
respectively. These amounts include $69.4 million, $42.7 million and $34.9
million of loans which have a maturity of more than one year at December 31,
1996, 1995 and 1994, 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. No amounts were issued or
outstanding at December 31, 1996. The Company supports any short-term notes
issued under its U.S. commercial paper program with a committed credit facility.
The Company maintains $300 million of committed and available financing pursuant
to a Bank Credit Agreement (the "Credit Agreement") which was amended and
restated on July 11, 1996. The Credit Agreement provides the Company $300
million of committed financing to July 11, 2001 (see Note H to the Consolidated
Financial Statements).
During 1996, the Company's primary sources of liquidity were derived from
operations supplemented by available cash balances. The most significant cash
uses during 1996 were the repayment of commercial paper borrowings, payment of
shareholder dividends, repurchases of common stock and net funding of the client
loan portfolio. The Company paid dividends to shareholders of $17.8 million in
1996 (of which $4.5 million was declared and paid in 1996 with respect to 1995).
In the first quarter of 1997, the Company declared and paid dividends of $5.6
million in respect of the fourth quarter of 1996. In February 1997, the Board of
Directors voted to increase the quarterly dividend to $ 0.10 per share in 1997
from $ 0.08 per share in 1996 due to the Company's strong 1996 financial
performance.
Sotheby's Holdings, Inc. and Subsidiaries page 25
<PAGE>
During 1995, the Company's primary sources of liquidity were derived from
operations and supplemented by available cash balances and commercial paper
borrowings. The most significant cash uses in 1995 were shareholder dividends
and net funding of the client loan portfolio of $9.8 million. The company paid
dividends to shareholders of $13.4 million in 1995 (of which $3.4 million was
declared and paid in 1995 with respect to 1994).
During 1994, the Company's primary sources of liquidity were derived from
available cash balances supplemented by short-term borrowings and operations.
The most significant cash uses during 1994 were net funding of the client loan
portfolio of $48.1 million and shareholder dividends. The Company paid dividends
to shareholders of $13.4 million in 1994 (of which $3.3 million was declared and
paid in 1994 with respect to 1993).
Capital expenditures, consisting primarily of office and auction facility
refurbishment and the acquisition of computer equipment, totaled $9.8 million
for 1996, $8.4 million for 1995 and $7.9 million for 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. As of
December 31, 1996, no such advances were outstanding. From time to time, the
Company has off-balance sheet commitments which include short-term commitments
to consignors that property will sell at a minimum price and legally binding
lending commitments in conjunction with the client loan program (see Notes M and
N to the Consolidated Financial Statements). 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 Company's client loan
program, peak working capital requirements and other short-term commitments to
consignors.
The Company evaluates, on an ongoing basis, the adequacy of its premises for the
requirements of the present and future conduct of its business. Any significant
alteration to its principal auction premises may require use of additional
capital, which the Company believes is adequately available.
This Annual Report contains certain forward-looking statements, as such term is
defined in Section 21E of the Securities Exchange Act of 1934, as amended,
relating to future events and the financial performance of the Company,
particularly with respect to the adequacy of working capital as well as
additional capital necessary for relocation of all or a portion of the Company.
Such statements are only predictions and involve risks and uncertainties,
resulting in the possibility that the actual events or performance will differ
materially from such predictions. Major factors which the Company believes could
cause the actual results to differ materially from the predicted results in the
forward-looking statements include, but are not limited to, the following, which
are not listed in any particular rank order:
(I) The Company's business is seasonal, with peak revenues and operating
income occurring in the second and fourth quarters of each year as a result
of the traditional spring and fall art auction season.
(II) The overall strength of the international economy and financial
markets and, in particular, the economies of the U.S., the U.K. and the
major countries of continental Europe and Asia (principally Japan and Hong
Kong).
(III) Competition with other auctioneers and art dealers.
(IV) The volume of consigned property and the marketability at auction of
such property.
In early 1997, a television program aired in the U.K. and a related book was
published, both of which contain certain allegations of improper or illegal
conduct by current and former employees of the Company. In response to these
allegations, the Board of Directors, in February 1997, established a
committee of independent directors to review the issues raised by the book
and related matters. The Independent Review Committee has retained outside
independent counsel in the U.S. and the U.K. to assist and advise the
Committee in its review. The Company's management is conducting its own
internal review. Due to the preliminary nature of these investigations, it is
not possible at this time to estimate the impact of any of the alleged
activities or the expenses associated with these investigations on the
Company's financial condition and results of operations. However, the
nonrecurring expenses to be incurred in connection with this matter may be
material to the Company's operating results in 1997. See the Company's Form
10-K for the year ended December 31, 1996 filed with the Securities and
Exchange Commission for additional information.
Seasonality
The worldwide art auction market has two principal selling seasons, spring and
fall. During the summer and winter, auction 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 (see Note P to the
Consolidated Financial Statements).
Percentage of annual auction sales
1996 1995 1994
- -------------------------------------------------------------------------------
January-March 10% 11% 12%
April-June 39 39 40
July-September 9 7 8
October-December 42 43 40
--- --- ---
100% 100% 100%
=== === ===
page 26 Sotheby's Holdings, Inc. and Subsidiaries
<PAGE>
Consolidated Statement of Income
(Thousands of dollars, Year ended December 31
except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------
Revenues (Note B)
Auction and related $ 300,472 $ 284,051 $ 233,451
Other (Notes E and F) 36,024 28,829 26,212
--------- --------- ---------
Total revenues 336,496 312,880 259,663
========= ========= =========
- --------------------------------------------------------------------------------
Expenses
Direct costs of services 63,090 59,978 49,211
Salaries and related costs (Note L) 114,360 105,285 93,829
General and administrative (Note J) 81,368 79,548 75,146
Depreciation and amortization
(Notes B and G) 9,470 11,228 8,444
--------- --------- ---------
Total expenses 268,288 256,039 226,630
--------- --------- ---------
Operating income 68,208 56,841 33,033
--------- --------- ---------
Interest income 4,266 3,176 4,909
Interest expense (Note H) 3,643 5,850 4,013
Other income (expense) (587) 136 (164)
--------- --------- ---------
Income before taxes 68,244 54,303 33,765
Income taxes (Note I) 27,298 21,721 13,506
--------- --------- ---------
Net Income $ 40,946 $ 32,582 $ 20,259
--------- --------- ---------
Earnings Per Share $ 0.73 $ 0.58 $ 0.36
========= ========= =========
Dividends Per Share $ 0.32 $ 0.24 $ 0.24
========= ========= =========
See accompanying Notes to Consolidated Financial Statements
Sotheby's Holdings, Inc. and Subsidiaries page 27
<PAGE>
Consolidated Balance Sheets
(Thousands of dollars) As at December 31
Assets 1996 1995
- --------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 66,886 $ 40,713
Accounts and notes receivable, net of allowance
for doubtful accounts of $10,156 and $12,578 (Note D)
Accounts receivable 250,780 215,425
Notes receivable 81,761 98,507
Other 12,810 21,200
--------- ---------
Total accounts and notes receivable, net 345,351 335,132
--------- ---------
Inventory, net (Note E) 14,801 22,798
Deferred income taxes (Note I) 4,655 8,434
Prepaid expenses and other current assets (Note L) 14,689 11,936
--------- ---------
Total current assets 446,382 419,013
--------- ---------
- --------------------------------------------------------------------------------
Non-current Assets
Notes receivable (Note D) 69,418 42,670
Properties, less allowance for depreciation
and amortization of $63,983 and
$63,898 (Notes G and J) 70,576 65,320
Intangible assets, less allowance for
amortization of $15,607 and $13,986 27,199 28,123
Investment in partnership (Note F) 35,834 38,801
Other assets 6,689 6,177
--------- ---------
Total Assets $ 656,098 $ 600,104
========= =========
Liabilities and Shareholders' Equity
- --------------------------------------------------------------------------------
Current Liabilities
Due to consignors (Notes D and M) $ 277,751 $ 224,223
Short-term borrowings (Note H) 3,211 5,816
Accounts payable and accrued liabilities 75,023 67,579
Deferred revenues 7,166 5,709
Accrued income taxes (Note I) 25,765 14,292
--------- ---------
Total current liabilities 388,916 317,619
--------- ---------
- --------------------------------------------------------------------------------
Long-term Liabilities
Commercial paper (Note H) -- 38,000
Deferred income taxes (Note I) 12,493 15,801
Other long-term obligations 1,217 1,202
--------- ---------
Total Liabilities 402,626 372,622
--------- ---------
- --------------------------------------------------------------------------------
Shareholders' Equity (Note K)
Common stock, $.10 Par value
Authorized shares - 125,000,000 of Class A
and 75,000,000 of Class B
Issued and outstanding shares 38,669,411
and 38,466,478 of Class A, and 17,214,987
and 17,278,667 of Class B at December 31,
1996 and 1995, respectively 5,589 5,575
Additional paid-in capital 78,382 81,051
Retained earnings 178,805 155,688
Foreign currency translation adjustments (9,304) (14,832)
--------- ---------
Total Shareholders' Equity 253,472 227,482
--------- ---------
Total Liabilities and Shareholders' Equity $ 656,098 $ 600,104
========= =========
See accompanying Notes to Consolidated Financial Statements
page 28 Sotheby's Holdings, Inc. and Subsidiaries
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
(Thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 40,946 $ 32,582 $ 20,259
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,470 11,228 8,444
Deferred income taxes 471 997 (2,211)
Tax benefit of stock option exercises 2,341 250 805
Asset provisions 4,641 7,868 6,117
Other (993) 429 (1,242)
Change in assets and liabilities:
Decrease (increase) in prepaid expenses and
other current assets (3,005) 117 (173)
Increase in accounts and other receivables (27,220) (44,607) (8,035)
Decrease (increase) in inventory 8,919 (8,860) 2,202
Decrease (increase) in other assets (638) 6,066 1,505
Increase (decrease) in due to consignors 53,725 24,465 (6,115)
Increase (decrease) in accrued income taxes 11,473 (5,865) (8,898)
Increase (decrease) in other current liabilities 9,990 8,187 (2,835)
--------- --------- ---------
Net cash provided by operating activities 110,120 32,857 9,823
- -------------------------------------------------------------------------------------
Investing Activities
Increase in notes receivable (122,867) (100,350) (128,523)
Collections of notes receivable 112,360 90,535 80,383
Capital expenditures (9,835) (8,384) (7,897)
Decrease in investment in partnership 2,967 1,180 1,376
--------- --------- ---------
Net cash used by investing activities (17,375) (17,019) (54,661)
- -------------------------------------------------------------------------------------
Financing Activities
Increase (decrease) in commercial paper (38,000) 10,500 (6,500)
Increase (decrease) in short-term borrowings (2,605) (3,087) 4,320
Proceeds from exercise of stock options 9,115 1,495 2,256
Repurchase of common stock (14,178) (4,239) --
Dividends paid (17,829) (13,411) (13,379)
--------- --------- ---------
Net cash used by financing activities (63,497) (8,742) (13,303)
Effect of exchange rate changes on cash (3,075) (1,370) 1,288
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 26,173 5,726 (56,853)
Cash and cash equivalents at beginning of year 40,713 34,987 91,840
--------- --------- ---------
Cash and cash equivalents at end of year $ 66,886 $ 40,713 $ 34,987
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Sotheby's Holdings, Inc. and Subsidiaries page 29
<PAGE>
Consolidated Statements of Changes in
Shareholders' Equity
Foreign
Additional currency
Common paid-in Retained translation
(Thousands of dollars) stock capital earnings adjustment
- --------------------------------------------------------------------------------
Balance at December 31, 1993 $ 5,550 $ 80,509 $129,637 $(21,064)
-------- -------- -------- --------
Stock options exercised 32 2,224
Tax benefit associated with
exercise of stock options 805
Foreign currency translation 6,479
Net income 20,259
Dividends (13,379)
- --------------------------------------------------------------------------------
Balance at December 31, 1994 $ 5,582 $ 83,538 $136,517 $(14,585)
-------- -------- -------- --------
Stock options exercised 22 1,473
Tax benefit associated with
exercise of stock options 250
Repurchase of common stock (29) (4,210)
Foreign currency translation (247)
Net income 32,582
Dividends (13,411)
- --------------------------------------------------------------------------------
Balance at December 31, 1995 $ 5,575 $ 81,051 $155,688 $(14,832)
-------- -------- -------- --------
Stock options exercised 109 9,006
Tax benefit associated with
exercise of stock options 2,341
Shares issued to directors 1 66
Repurchase of common stock (96) (14,082)
Foreign currency translation 5,528
Net income 40,946
Dividends (17,829)
- --------------------------------------------------------------------------------
Balance at December 31, 1996 $ 5,589 $ 78,382 $178,805 $ (9,304)
-------- -------- -------- --------
See accompanying Notes to Consolidated Financial Statements
page 30 Sotheby's Holdings, Inc. and Subsidiaries
<PAGE>
Notes to Consolidated Financial Statements
Note A: Organization and Business
Sotheby's Holdings, Inc. (together with its subsidiaries, the "Company")
conducts auctions and private sales of fine art, jewelry and decorative art.
Auction activities occur primarily in New York and London, but are also
conducted elsewhere in North America, Europe and Asia. In addition, the Company
is engaged in art-related financing activities and in marketing and brokering
luxury real estate.
Note B: Summary of Significant Accounting Policies
Principles of Consolidation The Consolidated Financial Statements include the
accounts of Sotheby's Holdings, Inc. and its wholly-owned subsidiaries. The
Company's investment in Acquavella Modern Art ("AMA") is accounted for under the
equity method.
Revenue Recognition Auction and related revenue is generally recognized at the
date of sale less estimates for allowances. Subscription revenue from auction
catalogues is recognized over the twelve-month period of the subscription from
the date of receipt of the proceeds. Other revenues consist principally of
revenues from financing activities, real estate operations and principal
activities. Principal activities include net gains (losses) on sales of
inventories, the Company's share of operating results from its investment in
AMA, net income (loss) earned from guarantees and provisions for write-downs of
inventories to estimated net realizable value. Other revenues are generally
recognized at the time service is rendered or revenue is earned by the Company.
Properties Properties, consisting primarily of buildings and improvements,
furniture and fixtures and equipment, are stated on the cost basis. Depreciation
is computed principally on the straight-line method over estimated useful lives
for financial reporting purposes and by accelerated methods for income tax
purposes. Leaseholds and leasehold improvements are amortized over the lesser of
the life of the lease or the estimated useful life of the improvement. During
the fourth quarter of 1995, the Company changed its estimate of the useful lives
for computer hardware. These changes were made to better reflect the estimated
periods during which these assets will remain in service. This change had the
effect of increasing depreciation expense in 1995 by approximately $2.1 million.
General and administrative expenses include repairs and maintenance.
Direct Costs of Services Direct costs of services primarily include the costs
of obtaining and marketing property for auctions.
Cash Equivalents Cash equivalents are liquid investments comprised primarily of
bank and time deposits with an original maturity of three months or less. These
investments are carried at cost, which approximates market value.
Financial Instruments The carrying amounts of cash and cash equivalents,
accounts receivable, short-term borrowings, due to consignors, accounts payable
and accrued liabilities and commercial paper are a reasonable estimate of their
fair value. The fair value of notes receivable is estimated using the current
interest rates at which similar loans would be made to borrowers for the same
remaining maturities.
Inventory Inventory consists of objects obtained incidental to the auction
process as well as for investment purposes. Inventory is valued at the lower of
cost or management's estimate of net realizable value.
Intangible Assets Intangible assets include goodwill, lease rights and
subscriber lists. Goodwill is being amortized over forty years. The amounts
assigned to other intangible assets are amortized on a straight-line basis over
estimated useful lives not to exceed twenty-five years.
Earnings Per Share Earnings per share is based on the weighted average number
of outstanding shares of common stock and common stock equivalents (stock
options). The weighted average number of shares for the earnings per share
computation were as follows: 1996-56,446,104; 1995-56,424,467; and
1994-56,158,933. Fully diluted earnings per share, assuming the maximum dilutive
effect of stock options, has not been presented because the effects are not
material. The weighted average number of shares for the fully diluted earnings
per share computations were as follows: 1996-56,515,496; 1995-56, 446,638; and
1994-56,158,933.
Foreign Currency Translation Assets and liabilities of foreign subsidiaries are
translated at year-end exchange rates. Income statement amounts are translated
using weighted average monthly exchange rates during the year. Gains and losses
resulting from translating foreign currency financial statements are accumulated
in a separate component of shareholders' equity until the subsidiary is sold or
substantially liquidated.
Stock-Based Compensation Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." The Company has elected to continue to account for
stock-based compensation in accordance with Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees." Accordingly, proforma
net income and earnings per share information has been presented in Note K as
required under SFAS No. 123.
Impairment of Long-Lived Assets Effective January 1, 1996, the Company adopted
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." This standard requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset in question may not be
recoverable. The effect of adoption of this standard did not have a material
effect on the Company's financial statements.
Reclassifications Certain amounts in the 1995 and 1994 financial statements
have been reclassified to conform with the 1996 presentation.
Use of Estimates The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Sotheby's Holdings, Inc. and Subsidiaries page 31
<PAGE>
Notes to Consolidated Financial Statements -- Continued
Note C: Geographic Data
In the following table North America includes the United States ("U.S.") and
Canada; Europe includes the United Kingdom ("U.K.") and continental Europe; and
Asia primarily includes operations in Hong Kong, Taiwan, Japan and Australia.
Year ended December 31
(Thousands of dollars) 1996 1995 1994
- --------------------------------------------------------------------------------
Revenues
North America $ 172,864 $ 153,900 $ 133,770
Europe 148,179 147,324 115,622
Asia 15,453 11,656 10,271
--------- --------- ---------
Total $ 336,496 $ 312,880 $ 259,663
========= ========= =========
- --------------------------------------------------------------------------------
Operating Income (Loss)
North America $ 51,238 $ 39,699 $ 31,408
Europe 29,384 26,476 10,096
Asia (870) (2,809) (1,679)
Corporate (11,544) (6,525) (6,792)
--------- --------- ---------
Total $ 68,208 $ 56,841 $ 33,033
========= ========= =========
- --------------------------------------------------------------------------------
Identifiable Assets
North America $ 322,962 $ 311,934 $ 326,975
Europe 314,656 263,916 205,859
Asia 18,480 24,254 24,250
--------- --------- ---------
Total $ 656,098 $ 600,104 $ 557,084
========= ========= =========
Note D: Accounts and Notes Receivable
Accounts and notes receivable consist of the following:
As at December 31
(Thousands of dollars) 1996 1995
- --------------------------------------------------------------------------------
Accounts and other receivables $ 271,245 $ 246,151
Allowance for doubtful accounts (7,655) (9,526)
--------- ---------
263,590 236,625
--------- ---------
Notes receivable 153,680 144,229
Allowance for doubtful accounts (2,501) (3,052)
--------- ---------
151,179 141,177
--------- ---------
Total $ 414,769 $ 377,802
========= =========
page 32 Sotheby's Holdings, Inc. and Subsidiaries
<PAGE>
Accounts receivable included $1.2 million and $1.6 million at December 31, 1996
and 1995, respectively, relating to the purchase of art objects at auction by
employees, officers, directors and other related parties.
Under the standard terms and conditions of the Company's auction sales, the
Company is not obligated to pay consignors if it has not been paid by the
purchaser. If the purchaser defaults on payment, the Company has the right to
cancel the sale and return the property to the owner, re-offer the property at
auction or negotiate a private sale.
In certain situations, when the purchaser takes possession of the property
before payment is made, the Company is liable to the seller for the net sale
proceeds. As of December 31, 1996 and 1995, accounts receivable included
approximately $120.3 million and $90.6 million, respectively, of such sales. As
of February 28, 1997, $85.4 million of the amount outstanding at December 31,
1996 had been paid. Amounts outstanding at December 31, 1995 which remained
outstanding at December 31, 1996 totaled $0.4 million. Management believes that
adequate allowances have been established to provide for potential losses on
these amounts.
The average interest rates charged on notes receivables were 9.1% and 9.2% at
December 31, 1996 and 1995, respectively. The estimated fair value of notes
receivable was $152.4 million and $140.1 million at December 31, 1996 and 1995,
respectively.
Approximately 27% of the Company's loan portfolio at December 31, 1996 was
extended to one borrower. The Company's general policy in relation to secured
loans is to lend an amount which is equal to or less than 50% of the low
estimated auction value of the collateral ("loan to value ratio"). The loan to
value ratio for this secured loan was 63% at December 31, 1996. No other
individual loan amounted to more than 5% of total assets. At December 31, 1996,
approximately 39% of the estimated value of collateral securing the Company's
notes receivable was Impressionist and Modern art.
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." Adoption of this standard did not have a
material impact on the Company's financial statements. 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 twelve months ended December 31, 1996 and 1995:
Year ended December 31
(Thousands of dollars) 1996 1995
- --------------------------------------------------------------------------------
Allowance for credit losses at
December 31, 1995 and 1994 $ 3,052 $ 2,368
Provisions 604 1,228
Writeoffs (1,201) (96)
Other 46 (448)
------- -------
Allowance for credit losses at
December 31, 1996 and 1995 $ 2,501 $ 3,052
======= =======
Note E: Inventory
Inventory consists principally of objects obtained incidental to the auction
process primarily as a result of honoring authenticity claims of purchasers,
purchasers defaulting on accounts receivable after the consignor has been paid
and purchasing property at the minimum price guaranteed by the Company.
The inventory and related allowances to adjust the cost of inventory to
management's estimated net realizable value are as follows:
As at December 31
(Thousands of dollars) 1996 1995
- --------------------------------------------------------------------------------
Inventory, at cost $ 31,600 $ 43,810
Net realizable value allowances (16,799) (21,012)
-------- --------
Total $ 14,801 $ 22,798
======== ========
Note F: Investment in Partnership
On May 23, 1990, the Company purchased the common stock of the Pierre Matisse
Gallery Corporation ("Matisse") for approximately $153 million. The assets of
Matisse consisted of a collection of fine art (the "Matisse inventory"). Upon
consummation of the purchase, the Company contributed the Matisse inventory to
AMA and entered into the AMA partnership agreement with Acquavella Contemporary
Art, Inc. to sell the Matisse inventory. The Company accounts for its investment
in AMA under the equity method of accounting in the Consolidated Financial
Statements, including its share of AMA's operating results in other revenue. The
total net assets of the partnership consist principally of the inventory
described above. The Company reflects its 50% interest in the net assets of the
partnership as investment in partnership in the Consolidated Balance Sheets,
which totaled $35.8 million and $38.8 million at December 31, 1996 and 1995,
respectively.
Sotheby's Holdings, Inc. and Subsidiaries page 33
<PAGE>
Notes to Consolidated Financial Statements -- Continued
To the extent that the partnership requires working capital, the Company has
agreed to lend the same to the partnership. As of December 31, 1996, no such
amounts were outstanding.
Note G: Properties
Properties consist of the following:
As at December 31
(Thousands of dollars) 1996 1995
- --------------------------------------------------------------------------------
Land $ 170 $ 170
Building and building
improvements 39,264 33,309
Leaseholds and leasehold
improvements 39,849 38,123
Furniture, fixtures and equipment 49,702 52,247
Other 5,574 5,369
--------- ---------
134,559 129,218
--------- ---------
Less: Accumulated depreciation (63,983) (63,898)
--------- ---------
Total $ 70,576 $ 65,320
========= =========
Note H: Credit Arrangements
Short-term borrowings consist of the following:
As at December 31
(Thousands of dollars) 1996 1995
- --------------------------------------------------------------------------------
Bank lines of credit $3,200 $5,816
Other short-term obligations 11 --
------ ------
Total $3,211 $5,816
====== ======
Bank Lines of Credit At December 31, 1996 and 1995, $3.2 million and $5.8
million, respectively, were outstanding under lines of credit at weighted
average annual interest rates of 7.39% and 4.58%, respectively.
Commercial Paper The Company may issue up to $200 million in notes under its
U.S. commercial paper program. At December 31, 1996 no commercial paper
borrowings were outstanding. At December 31, 1995, commercial paper borrowings
amounting to $38.0 million were classified on the Consolidated Balance Sheets as
a long-term liability based on the Company's ability to maintain or refinance
these obligations on a long-term basis. The notes do not bear interest but are
issued at a discount, which is negotiated by the Company and purchaser prior to
each issuance. The weighted average annual interest rate on notes outstanding at
December 31, 1995 was 6.06% with an average maturity of 27.5 days.
Bank Credit Facilities On July 11, 1996, the Company entered into a $300
million Bank Credit Agreement (the "Credit Agreement"). The Credit Agreement
represents an amendment and restatement of the Company's former $300 million
credit agreement which was executed in August 1994. Borrowings under the Credit
Agreement are permitted through July 11, 2001 in either U.S. dollars or U.K.
pounds sterling. Under the terms of the Credit Agreement, interest is calculated
based on the London Interbank Offering Rate ("LIBOR"). A facility fee of 0.10%
per annum is charged on the amount of the commitment. Commitment fees totaled
$0.4 million and $0.5 million for the years ended December 31, 1996 and 1995,
respectively. The Credit Agreement contains certain financial covenants. Under
these covenants, the Company is permitted to pay dividends, however, the Company
is required to maintain consolidated tangible net worth, as defined, of at least
$150 million. At December 31, 1996, consolidated tangible net worth, as defined,
was $235.6 million.
Prior to August 1994, the Company had an aggregate of $175 million available
under various bank credit facilities. Borrowings under these facilities were
based on one of several interest rates, at the option of the Company. Commitment
fees on the unused portion of the facilities totaled $0.4 million for the year
ended December 31, 1994.
Interest paid on borrowings totaled $2.7 million, $4.5 million and $4.1 million
in the years ended December 31, 1996, 1995 and 1994, respectively.
page 34 Sotheby's Holdings, Inc. and Subsidiaries
<PAGE>
Note I: Income Taxes
Year ended December 31
(Thousands of dollars) 1996 1995 1994
- --------------------------------------------------------------------------------
Income Before Taxes
Domestic $ 31,595 $ 28,235 $ 19,880
Foreign 36,649 26,068 13,885
-------- -------- --------
Total $ 68,244 $ 54,303 $ 33,765
======== ======== ========
- --------------------------------------------------------------------------------
Income Taxes Current
Federal $ 11,241 $ 5,890 $ 5,401
State and local 5,067 4,611 3,090
Foreign 10,519 10,223 7,226
-------- -------- --------
26,827 20,724 15,717
- --------------------------------------------------------------------------------
Income Taxes Deferred
Federal (2,299) (932) (1,070)
Foreign 2,770 1,929 (1,141)
-------- -------- --------
471 997 (2,211)
-------- -------- --------
Total $ 27,298 $ 21,721 $ 13,506
======== ======== ========
As required by SFAS No.109, the components of deferred income tax assets and
liabilities are disclosed below:
As at December 31
(Thousands of dollars) 1996 1995
- --------------------------------------------------------------------------------
Current Deferred Tax Assets
Asset provisions and accrued liabilities $ 4,655 $ 8,434
======== ========
- --------------------------------------------------------------------------------
Non-Current Deferred Tax Liabilities
Basis difference in partnership assets $ 13,075 $ 13,570
Depreciation (582) 2,231
-------- --------
Total $ 12,493 $ 15,801
======== ========
The effective tax rate varied from the statutory rate as follows:
Year ended December 31
1996 1995 1994
- --------------------------------------------------------------------------------
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local taxes, net of federal tax benefit 4.8 5.5 6.0
Foreign taxes at rates greater than U.S. rates 0.7 3.6 3.6
Taxable foreign source income 0.0 1.5 (0.9)
Other (0.5) (5.6) (3.7)
---- ---- ----
Effective income tax rate 40.0% 40.0% 40.0%
==== ==== ====
Sotheby's Holdings, Inc. and Subsidiaries page 35
<PAGE>
Notes to Consolidated Financial Statements -- Continued
Undistributed earnings of foreign subsidiaries included in consolidated retained
earnings at December 31, 1996 and 1995 amounted to $25.0 million and $18.2
million, respectively. Such amounts are considered to be reinvested indefinitely
or will be distributed from income that would not incur a significant tax
consequence and, therefore, no provision has been made for taxes that would be
payable upon distribution of these earnings.
Total income tax payments, net of refunds, during 1996, 1995 and 1994 were $12.7
million, $12.3 million and $4.7 million, respectively.
Note J: Lease Commitments
The Company conducts its business on premises leased in various locations under
long-term operating leases expiring through 2060. Net rental payments under
operating leases amounted to $11.9 million, $12.0 million and $11.3 million,
respectively, for the years ended December 31, 1996, 1995 and 1994.
Properties under capital leases, which relate primarily to computer and office
equipment, are not material. Future minimum lease payments under noncancelable
operating leases in effect at December 31, 1996 are as follows:
(Thousands of dollars)
- --------------------------------------------------------------------------------
1997 $ 11,326
1998 11,753
1999 10,662
2000 10,424
2001 9,368
Thereafter 60,585
---------
Total future minimum lease payments $ 114,118
=========
In addition to the above rentals, under the terms of certain of the leases, the
Company pays real estate taxes, utility costs and other increases based on a
price-level index.
Operating leases include a lease expiring in 2009 (which can be extended until
2039) on the North American headquarters building in New York City (the "York
Property"). York Avenue Development, Inc. ("York"), a wholly-owned subsidiary of
Sotheby's, Inc. (itself a wholly-owned subsidiary of the Company), holds a
purchase option on the York Property. The option can be exercised anytime until
January 31, 1999 for $11 million plus a profit-sharing arrangement of from $5
million to $10 million. Thereafter, on defined dates in 1999, 2004 and 2009, the
option is exercisable for ten times the rent at the date the option is
exercised, subject to certain limitations.
Sotheby's Inc. and York have reached an agreement with Taubman York Avenue
Associates, Inc. ("Associates") under which Associates will assist York in
developing and financing a new mixed-use tower (the "New Tower") over the
existing four-story building on the York Property, if the Company chooses to
develop the New Tower. This agreement has been assigned to York Avenue Advisors,
Inc. ("Advisors") as of June 1, 1995. Associates was and Advisors is controlled
by the largest shareholder and Chairman of the Company.
Under the Agreement:
(I) York will be responsible at its sole cost and expense for developing
the New Tower (but without recourse to the Company or any of its other
subsidiaries);
(II) Advisors will lend funds and provide certain guarantees, including
guarantees that may be required by any construction lender in order to
provide the necessary resources for the development of the New Tower; and
(III) York will indemnify Advisors against liabilities arising from the
construction of the New Tower and any guarantees given by Advisors.
The investment of Sotheby's, Inc. in the development of the New Tower totaled
$4.3 million at December 31, 1996. If the New Tower is developed, under the
agreement with Advisors, Sotheby's, Inc. will either acquire a condominium to be
composed of the existing building and the first floor of the New Tower (the
"Condominium") for $1.00 or lease the Condominium from York for $1.00 per year
under a long-term lease. In addition, York is entitled to receive 10% of the
first $15.0 million of the cash profits (as defined) plus 25% of any cash
profits in excess of $15.0 million from the development of the New Tower.
Advisors will receive the remainder of the cash profits from the development of
the New Tower. If construction does not begin on or before September 30, 1997,
Advisors' arrangements with Sotheby's Inc. and York will terminate.
Note K: Shareholders' Equity
Common Stock and Public Offering Effective May 13, 1988, 11,006,214 shares of
Class A Limited Voting Common Stock ("Class A Common Stock") were sold in an
initial public offering by the Company's shareholders. Effective June 30, 1992,
an additional 11,000,000 shares of Class A Common Stock were sold in a secondary
public offering by certain of the Company's shareholders. The Class A Common
Stock is traded on stock exchanges in both the U.S. and the U.K.
Each share of Class A Common Stock is entitled to one vote and each share of
Class B Common Stock is entitled to ten votes. Both classes of common stock
share equally in cash dividend distributions.
Preferred Stock In addition to Class A and B Common Stock outstanding, the
Company has the authority to issue 50,000,000 shares of Preferred Stock, no par
value. No such shares were issued and outstanding at December 31, 1996 and 1995.
Stock Option Plans At December 31, 1996, the Company has reserved 8,397,000 and
6,000,000 shares of Class B Common Stock for issuance in connection with the
1987 Stock Option Plan and the 1997 Stock Option Plan ("the Plan"),
respectively. The Plan succeeded the 1987 Stock Option Plan.
Pursuant to both stock option plans, options are granted with an exercise price
equal to or greater than fair market value at the date of grant. Pursuant to the
1987 Stock Option Plan, options granted through September 1992 vest and become
exercisable ratably during each of the fourth, fifth and sixth years after the
date of grant. For options granted subsequent to September 1992 and through
December 31, 1996, pursuant to the 1987 Stock Option Plan, and for options
granted subsequent to January 1997, pursuant to the Plan, options vest and
become exercisable ratably in each of the second, third, fourth, fifth and sixth
years after the date of grant (except in the U.K. where options vest
three-fifths in the fourth year and one-fifth in each of the fifth and sixth
years after the date of grant). The options are exercisable into shares of Class
B Common Stock, which are authorized but unissued shares. The shares of Class B
Common Stock issued upon exercise are convertible into an equivalent number of
shares of Class A Common Stock.
page 36 Sotheby's Holdings, Inc. and Subsidiaries
<PAGE>
At December 31, 1996 and 1995, there were outstanding options under the 1987
Stock Option Plan for the purchase of 5,775,084 and 6,296,565 shares,
respectively, at prices ranging from $1.50 to $22.62 per share. Stock option
transactions during 1996, 1995 and 1994 are summarized as follows (shares in
thousands):
<TABLE>
<CAPTION>
Options outstanding
- ---------------------------------------------------------------------------------------
Shares
reserved
for issuance Weighted
under the plan Shares Prices average price
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial grant September 1, 1987 12,507 7,628 $ 1.50 $ 1.50
- ---------------------------------------------------------------------------------------
Balance at December 31, 1993 10,039 5,230 $ 1.50-22.62 $ 10.84
Options granted 933 $12.25-18.00 $ 16.28
Options canceled (320) $ 1.50-16.50 $ 13.16
Options exercised (328) (328) $ 1.50-15.50 $ 6.88
- ---------------------------------------------------------------------------------------
Balance at December 31, 1994 9,711 5,515 $ 1.50-22.62 $ 11.86
Options granted 1,217 $10.87-14.12 $ 11.03
Options canceled (214) $10.87-16.50 $ 13.15
Options exercised (221) (221) $ 1.50-13.37 $ 6.78
- ---------------------------------------------------------------------------------------
Balance at December 31, 1995 9,490 6,297 $ 1.50-22.62 $ 11.83
Options granted 754 $14.00-17.00 $ 15.13
Options canceled (183) $10.87-20.87 $ 13.65
Options exercised (1,093) (1,093) $ 1.50-16.50 $ 8.34
- ---------------------------------------------------------------------------------------
Balance at December 31, 1996 8,397 5,775 $ 1.50-22.62 $ 12.86
------ ------ ------------ -------
</TABLE>
The following table summarizes information about options outstanding at December
31, 1996 (shares in thousands):
<TABLE>
<CAPTION>
Options outstanding Options exercisable
--------------------------------------- --------------------------
Weighted
average
remaining
Outstanding contractual Weighted Exercisable Weighted
Range of prices at 12/31/96 life average price at 12/31/96 average price
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.50-3.50 286 0.7 years $ 1.53 286 $ 1.53
$10.63-12.75 1,953 6.3 years $ 11.48 808 $ 11.93
$13.00-14.75 2,468 6.5 years $ 13.64 1,131 $ 13.34
$15.75-17.00 998 7.7 years $ 16.40 230 $ 16.50
$18.00-22.62 70 4.9 years $ 19.89 44 $ 21.01
----- ----- ---------
5,775 2,499 $ 11.96
===== ===== =========
</TABLE>
The weighted average fair value per share of options granted during the years
ended December 31, 1996 and 1995 was $5.52 and $4.01, respectively. At December
31, 1995, 2,593,235 options were exercisable at a weighted average exercise
price of $9.99.
In February 1997, the Company approved an additional aggregate grant of 762,850
options pursuant to the Plan.
Performance Share Purchase Plan At December 31, 1996, the Company had reserved
2,000,000 shares of Class B Common Stock for issuance in connection with the
Performance Share Purchase Plan (the "Performance Plan"). At December 31, 1996,
215,000 options were granted under the Performance Plan, at an exercise price of
$3.69 per option. The Company recognized compensation expense of $0.5 million in
1996 relating to the Performance Plan. Pursuant to the Performance Plan, options
are granted with an exercise price equal to at least 25% of the fair market
value of the Class B Common Stock at the date of grant.
Options granted under the Performance Plan will be exercisable upon the
fulfillment of certain performance criteria, based on the Company's earnings per
share or return on equity, or both, as determined by the Audit and Compensation
Committee of the Board of Directors, as well as fulfillment of time vesting
requirements. The options, which generally have a three-year performance period,
time vest, regardless of achieving performance criteria, in one third increments
on each of the third, fourth and fifth anniversaries of the date of grant. If
the performance goal has been achieved at the time these options begin time
vesting, the options will become exercisable when the time vesting requirement
is met. If the performance goal has not been achieved by the end of the
performance period, the options will not become exercisable upon vesting.
Rather, the designated performance goal will automatically be adjusted and the
performance period will be extended one year. Upon achievement of the adjusted
performance goal, the options will be exercisable to the extent that they have
time vested. If the adjusted performance goal
Sotheby's Holdings, Inc. and Subsidiaries page 37
<PAGE>
Notes to Consolidated Financial Statements -- Continued
is not achieved by the end of the seventh year after the date of grant, the
options will expire. During the term of each Performance Plan option, the option
accrues dividend equivalents which are payable to the option holder when the
option becomes exercisable.
The weighted average fair value per share of options granted during 1996 was
$10.33.
In February 1997, the Company approved an additional aggregate grant of 271,500
options pursuant to the Performance Plan.
Pro Forma Disclosure of the Compensation Cost for Stock Option Plans Effective
January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." As permitted under SFAS No. 123, the Company has elected to
continue to measure stock-based compensation using the intrinsic value approach
under APB Opinion No. 25, the former standard. If the former standard for
measurement is elected, SFAS No. 123 requires supplemental disclosure to show
the effects of using the new measurement criteria.
Had compensation cost for the Plan and the Performance Plan been determined
based on the fair value at the grant date for awards in 1996 and 1995 consistent
with the provisions of SFAS No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
Year ended December 31
1996 1995
- --------------------------------------------------------------------------------
Net income--as reported $ 40,946 $ 32,582
Net income--pro forma $ 39,345 $ 31,460
Earnings per share--as reported $ 0.73 $ 0.58
Earnings per share--pro forma $ 0.70 $ 0.56
The proforma information reflected above may not be representative of the
amounts to be expected in future years as the fair value method of accounting
contained in SFAS No. 123 had not been applied to options granted prior to
January 1995.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for all grants: dividend yield of 2.1%; expected volatility of
30%; risk-free rate of return of 6%; and expected life of 7.5 years. The
compensation cost generated by the Black-Scholes model may not be indicative of
the future benefit received by the option holder.
Director Stock Ownership Plan At December 31, 1996, the Company has reserved
50,000 shares of Class A Common Stock for issuance in connection with the
Director Stock Ownership Plan. During 1996, 4,500 shares were issued to
non-employee directors under this Plan.
Stock Repurchase Programs In June of 1996, the Company authorized an increase
in the number of shares of its outstanding Class A Common Stock to be acquired
under the November 30, 1995 stock repurchase program from 1 million shares to 4
million shares. As of December 31, 1996, 1.3 million shares had been repurchased
under this program.
Note L: Pension Arrangements
The Company has a U.S. defined contribution plan that covers employees after 90
days of service. The Company contributes 2% of each participant's compensation
to the plan. In addition, participants may elect to contribute between 2% and
12% of their compensation, up to the maximum amount allowable under IRS
regulations, on a pre-tax basis. Effective May 1, 1996, employee savings are
matched by a Company contribution of up to an additional 6% of the participant's
compensation. Prior to May 1, 1996, the Company matched employee savings up to
an additional 3% of the participant's compensation. The Company's contributions
amounted to $2.0 million, $1.7 million and $1.5 million for the years ended
December 31, 1996, 1995 and 1994, respectively.
The Company also has a defined benefit pension plan covering substantially all
employees in the U.K. Contributions to this plan are funded annually.
The components of the net pension expense for the U.K. pension plan are as
follows:
Year ended December 31
(Thousands of dollars) 1996 1995 1994
- --------------------------------------------------------------------------------
Service cost $ 3,229 $ 2,874 $ 3,031
Interest cost on projected
benefit obligations 5,854 5,169 4,837
Actual return on
plan assets (17,346) (11,622) (2,485)
Net amortization
and deferral 7,552 3,664 (4,417)
-------- -------- --------
Net pension expense
(benefit) $ (711) $ 85 $ 966
======== ======== ========
The funded status of the U.K. plan is as follows:
As at December 31
1996 1995
- --------------------------------------------------------------------------------
Accumulated vested benefit
obligations $ 80,892 $ 64,653
Effect of future salary increases 5,831 5,049
--------- ---------
Total projected benefit obligations 86,723 69,702
--------- ---------
Plan assets at fair market value,
primarily stocks and bonds 122,355 95,452
--------- ---------
Excess of plan assets over
projected benefit obligations 35,632 25,750
Unrecognized net transition asset (3,070) (3,249)
Unrecognized prior service cost 3,057 3,046
Unrecognized net gain (30,589) (22,351)
--------- ---------
Prepaid pension cost recognized in
consolidated balance sheet $ 5,030 $ 3,196
========= =========
page 38 Sotheby's Holdings, Inc. and Subsidiaries
<PAGE>
The weighted-average discount rate used in determining actuarial values for the
U.K. pension plan was 8.0% in 1996 and 1995; the increase in future compensation
levels was 7.0% in 1996 and 1995; and the expected weighted-average long-term
rate of return on plan assets was 9.0% in 1996 and 1995.
Note M: Related Party Transactions
Effective in 1995, members of the Board of Directors, the Advisory Board and
employees are charged a 2% seller's commission on property sold at auction for
their benefit; prior to 1995, no seller's commission was charged. Due to
consignors included $0.4 million at December 31, 1995 relating to the sale of
art objects at auction by employees, officers, directors and other related
parties. In addition, prior to December 1995, the Company had a loan program
whereby the Company would directly lend money to certain officers and staff for
a term of 15 years to purchase a residence under notes bearing interest at an
annual rate equal to 1 to 2 percentage points below the prime rate. Outstanding
direct loans amounted to $0.6 million at December 31, 1996. In December 1995,
the majority of the loans under this program were refinanced and replaced by a
bank loan program providing comparable loan terms and interest rates. All
repayment obligations under this bank loan program are guaranteed by the
Company. This program is available to employees at the Chief Executive Officer's
discretion. For loans under this program exceeding $0.4 million, the approval of
either the Audit and Compensation Committee or Executive Committee of the Board
of Directors is required. All loans are repayable when an employee leaves the
Company. The amount of guarantees outstanding was $6.2 million and $4.3 million
at December 31, 1996 and 1995, respectively. See Notes D, J and N for additional
related party disclosure.
Note N: Commitments and Contingencies
Legal Actions The Company, in the normal course of business, is a defendant in
various legal actions.
Lending and Other 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 or other objects. Unfunded commitments to extend
additional credit were approximately $18.6 million and $13.6 million at December
31, 1996 and 1995, respectively.
The Company has a bank loan guarantee program available to certain employees at
the Chief Executive Officer's discretion whereby the employee borrows directly
from a bank on a demand note basis and pays an annual interest rate equal to the
prime rate. All of the repayment obligations of the employee are guaranteed by
the Company and repayable when an employee leaves the Company. These obligations
totaled $1.4 million at December 31, 1996. In the U.K., the Company has
guaranteed a portion of an employee mortgage loan. The amount of the guarantee
was $0.3 million at December 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 at auction 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 amount of the guarantee. At December 31, 1996 and
February 28, 1997, the Company had outstanding guarantees totaling approximately
$6.4 million and $14.2 million, respectively, which cover auction property
having a mid-estimate sales price of approximately $10.0 million and $19.1
million, respectively. Under the guarantees, the Company participates in a share
of the proceeds if the property under guarantee sells above a minimum price.
In early 1997, a television program aired in the U.K. and a related book was
published, both of which contain certain allegations of improper or illegal
conduct by current and former employees of the Company. In response to these
allegations, the Board of Directors, in February 1997, established a committee
of independent directors to review the issues raised by the book and related
matters. The Independent Review Committee has retained outside independent
counsel in the U.S. and the U.K. to assist and advise the Committee in its
review. The Company's management is conducting its own internal review. Due to
the preliminary nature of these investigations, it is not possible at this time
to estimate the impact of any of the alleged activities or the expenses
associated with these investigations on the Company's financial condition and
results of operations.
Except for the matters referred to in the preceding paragraph, 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.
Note O: Derivative Contracts
The Company enters into forward exchange contracts to hedge foreign currency
transactions. The Company's forward exchange contracts do not subject the
Company to risk from exchange rate movements because gains and losses on such
contracts offset gains and losses on the assets or transactions being hedged.
The Company is exposed to credit-related losses in the event of nonperformance
by counterparties to forward exchange contracts, but the Company does not expect
any counterparties to fail to meet their obligations given their high-credit
ratings. Gains and losses on contracts to hedge identifiable foreign currency
commitments are recognized in income and offset the foreign exchange gains and
losses on the underlying transactions. Premium or discount on forward contracts
is amortized over the life of the contract.
At December 31, 1996, the Company's outstanding foreign currency forward
contract was not material.
Sotheby's Holdings, Inc. and Subsidiaries page 39
<PAGE>
Notes to Consolidated Financial Statements -- Continued
Note P: Quarterly Results (Unaudited)
(Thousands of dollars,
except per share data) First Second Third Fourth
- --------------------------------------------------------------------------------
1996
Auction sales $ 155,035 $ 630,981 $ 148,606 $ 664,973
--------- --------- --------- ---------
Auction and related revenues $ 33,762 $ 115,784 $ 30,335 $ 120,591
Other revenues 7,034 8,814 7,884 12,292
--------- --------- --------- ---------
Total revenues 40,796 124,598 38,219 132,883
--------- --------- --------- ---------
Operating income (loss) (13,910) 47,805 (15,914) 50,227
Net Income (Loss) $ (8,157) $ 28,570 $ (9,555) $ 30,088
Earnings (Loss) Per Share $ (0.15) $ 0.50 $ (0.17) $ 0.52
--------- --------- --------- ---------
(Thousands of dollars,
except per share data) First Second Third Fourth
- --------------------------------------------------------------------------------
1995
Auction sales $ 175,681 $ 655,799 $ 123,574 $ 710,324
--------- --------- --------- ---------
Auction and related revenues $ 35,551 $ 100,940 $ 27,849 $ 119,711
Other revenues 6,903 7,613 7,640 6,673
--------- --------- --------- ---------
Total revenues 42,454 108,553 35,489 126,384
--------- --------- --------- ---------
Operating income (loss) (11,630) 40,731 (18,738) 46,478
Net Income (Loss) $ (6,954) $ 23,669 $ (11,662) $ 27,529
Earnings (Loss) Per Share $ (0.12) $ 0.42 $ (0.21) $ 0.48
--------- --------- --------- ---------
page 40 Sotheby's Holdings, Inc. and Subsidiaries
<PAGE>
Independent Auditors' Report
To the Directors and Shareholders of Sotheby's Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Sotheby's
Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Sotheby's Holdings, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
February 28, 1997
Report of Management
The Company's consolidated financial statements were prepared by management,
which is responsible for their integrity and objectivity. The financial
statements have been prepared in accordance with generally accepted accounting
principles and, as such, include amounts based on management's best estimates
and judgments.
Management is further responsible for maintaining a system of internal control
structure and related policies and procedures designed to provide reasonable
assurance that assets are adequately safeguarded and that the accounting records
reflect transactions executed in accordance with management's authorization.
/s/ Diana D. Brooks
Diana D. Brooks
President and
Chief Executive Officer
/s/ William S. Sheridan
William S. Sheridan
Senior Vice President and
Chief Financial Officer
/s/ Patricia Carberry
Patricia Carberry
Vice President, Controller and
Chief Accounting Officer
Audit and Compensation
Committee Chairman's Letter
The Audit and Compensation Committee (the "Committee") of the Board of Directors
consisted of four independent directors. Information as to these persons, as
well as the scope of duties of the Committee, is provided in the Proxy
Statement. During 1996, the Committee met five times and reviewed with Deloitte
& Touche LLP, the Director of the Internal Audit Department and management the
various audit activities and plans, together with the results of selected
internal audits. The Committee also reviewed the reporting of consolidated
financial results and the adequacy of internal controls. The Committee
recommended the appointment of Deloitte & Touche LLP as independent public
accountants and considered factors related to their independence. Deloitte &
Touche LLP and the Director of the Internal Audit Department met privately with
the Committee on occasion to encourage confidential discussion as to any
auditing matters.
/s/ Max M. Fisher
Max M. Fisher
Chairman,
Audit and Compensation Committee
Sotheby's Holdings, Inc. and Subsidiaries page 41
<PAGE>
Sotheby's Holdings, Inc.
Board of Directors
A. Alfred Taubman,
Chairman
Max M. Fisher,
Vice Chairman
Lord Camoys,
Deputy Chairman
The Marquess of Hartington,
Deputy Chairman
Diana D. Brooks,
President and
Chief Executive Officer
Honorable Conrad M. Black,
Chairman and Chief Executive Officer,
Hollinger, Inc.
Viscount Michael Blakenham,
Executive Chairman,
Pearson PLC
Kevin A. Bousquette,
Executive Vice President and
Chief Operating Officer
Ambassador Walter
J. P. Curley,
Chairman, The French
American Foundation
The Rt. Hon. The Earl of Gowrie,
Chairman,The Arts Council
Henry R. Kravis,
Founding General Partner,
Kohlberg Kravis Roberts & Co.
Simon de Pury,
Chairman, Sotheby's Europe
Julian Thompson,
Co-Chairman, Sotheby's Asia
Corporate Officers
Diana D. Brooks,
President and Chief
Executive Officer
Kevin A. Bousquette,
Executive Vice President and
Chief Operating Officer
Susan Alexander,
Senior Vice President,
Human Resources
John S. Brittain, Jr.,
Senior Vice President and
Treasurer
F. Paul Cuccia,
Senior Vice President and
Chief Information Officer
Paul Donaher,
Senior Vice President and
Director of Strategic Planning
Suzanne McMillan,
Senior Vice President, Marketing
Diana Phillips,
Senior Vice President,
Public Relations
William S. Sheridan,
Senior Vice President and
Chief Financial Officer
Patricia Carberry,
Vice President, Controller and
Chief Accounting Officer
Rena J. Moulopoulos,
Vice President,
Deputy General Counsel
Jeffrey J. Pierne,
Vice President,
Investor Relations and
Assistant Treasurer
Robert C. Wolcott,
Vice President and
Director of Taxes
Advisory Board
Giovanni Agnelli
Her Royal Highness
The Infanta Pilar de Borbon,
Duchess of Badajoz
Ann Getty
Alexis Gregory
Sir Quo-Wei Lee
John L. Marion
The Rt. Hon. Sir Angus
Ogilvy, K.C.V.O.
Carroll Petrie
Mrs. Charles H. Price
Prof. Dr. Werner Schmalenbach
Baron Hans Heinrich
Thyssen-Bornemisza de Kaszon
Worldwide Locations
Sotheby's
North and South America
United States
Atlanta
Baltimore
Beverly Hills (1)
Boston
Chicago
Dallas
Denver
Fort Worth
Honolulu
Houston
Miami
Minneapolis
New Orleans
New York (1)
North Carolina
Palm Beach
Philadelphia
Puerto Rico
St. Louis
San Francisco
Seattle
Tampa
Virginia
Washington, D.C.
Canada
Toronto (1)
Vancouver
Victoria, B.C.
Argentina
Buenos Aires
Brazil
Rio de Janeiro
Sao Paulo
Mexico
Mexico City
Monterrey
Venezuela
Caracas
Sotheby's Europe
United Kingdom
Cheltenham
Chester
Derbyshire
Devon
Hampshire
Harrogate
Kent
Lincolnshire
London (1)
Norfolk
Suffolk
Sussex (1)
Wiltshire
Yorkshire
Scotland and
Border Counties
Edinburgh
Glasgow
Newcastle-upon-Tyne
Northern Ireland
Newtonards, Co. Down
Ireland
Dublin
Channel Islands
Guernsey, C.I.
Austria
Graz
Klagenfurt
Vienna
Belgium
Brussels
Cyprus
Nicosia
Czech Republic
Prague
Denmark
Copenhagen
Finland
Helsinki
France
Bordeaux
Montpellier
Paris
Strasbourg
Germany
Berlin
Cologne
Frankfurt
Hamburg
Karlsruhe
Lower Saxony
Munich (1)
Stuttgart
Greece
Holland
Amsterdam (1)
Hungary
Budapest
Iceland
Reykjavik
India
Bombay
New Delhi
Israel
Tel Aviv (1)
Italy
Florence
Milan (1)
Rome
Turin
Jordan
Liechtenstein
Luxembourg
Monaco (1)
Norway
Oslo
Portugal
Lisbon
Spain
Barcelona
Madrid (1)
Sweden
Gothenburg
Stockholm (1)
Switzerland
Basel
Geneva (1)
Lugano
Zurich (1)
Syria
Sotheby's Asia
Australia
Melbourne (1)
Sydney (1)
China
Shanghai
Hong Kong (1)
Indonesia
Jakarta
Japan
Tokyo
Korea
Seoul
Malaysia
Kuala Lumpur
Singapore (1)
Taiwan
Taipei (1)
Thailand
Bangkok
(1) 19 Salesrooms
46 Countries
page 42 Sotheby's Holdings, Inc. and Subsidiaries
<PAGE>
Sotheby's Worldwide Management
North and South America
Board of Directors
Diana D. Brooks,
President and
Chief Executive Officer,
Sotheby's Holdings, Inc.
Richard E. Oldenburg,
Chairman,
Sotheby's North and South America
William F. Ruprecht,
Managing Director,
Sotheby's North and South America
Kevin A. Bousquette,
Executive Vice President and
Chief Operating Officer,
Sotheby's Holdings, Inc.
John D. Block,
Executive Vice President,
Head of Jewelry and Precious Objects
C. Hugh Hildesley,
Executive Vice President,
Client Development
Warren P. Weitman, Jr.,
Executive Vice President,
Worldwide Head of
Business Development
Susan Alexander,
Senior Vice President,
Worldwide Head of
Human Resources,
Sotheby's Holdings, Inc.
Suzanne McMillan,
Senior Vice President,
Worldwide Head of Marketing,
Sotheby's Holdings, Inc.
Tobias Meyer,
Senior Vice President,
Worldwide Head of Contemporary Art
Thierry Millerand,
Worldwide Senior Expert,
European Furniture
Diana Phillips,
Senior Vice President,
Worldwide Head of
Public Relations,
Sotheby's Holdings, Inc.
David N. Redden,
Senior Vice President,
Worldwide Head of Books,
Manuscripts and Collectibles
William W. Stahl, Jr.,
Senior Vice President,
Head of Decorative Arts
George Wachter,
Senior Vice President,
Head of Fine Arts
Stuart N. Siegel,
President, Sotheby's
International Realty
Mitchell Zuckerman,
President,
Sotheby's Financial Services
Europe
Board of Directors
Simon de Pury,
Chairman,
Sotheby's Europe
Henry Wyndham,
Chairman,
Sotheby's United Kingdom
George Bailey,
Managing Director,
Sotheby's Europe
Diana D. Brooks,
President and
Chief Executive Officer,
Sotheby's Holdings, Inc.
Kevin A. Bousquette,
Executive Vice President and
Chief Operating Officer,
Sotheby's Holdings, Inc.
Princess de Beauvau Craon,
President,
Sotheby's France
David W. Bennett, F.G.A.,
Senior Director,
Head of Jewelry and
Precious Objects
Melanie Clore,
Senior Director,
Head of Impressionist and
Modern Art
Daniella Luxembourg,
Senior Director,
Deputy Chairman,
Sotheby's Switzerland
Paul J. Mack,
Senior Director,
Head of Furniture
Tobias Meyer,
Senior Vice President,
Worldwide Head of Contemporary Art
James Miller,
Senior Director,
Business Development
Kristen van Riel,
Managing Director,
Sotheby's Paris
James Stourton,
Senior Director,
Head of European
Business Development
Michel Strauss,
Senior Director,
Impressionist and
Modern Art
Simon Taylor,
Senior Director,
Head of Expert Departments
Julian Thompson,
Co-Chairman,
Sotheby's Asia
Asia
Board of Directors
Alice Lam,
Co-Chairman,
Sotheby's Asia
Julian Thompson,
Co-Chairman,
Sotheby's Asia
Diana D. Brooks,
President and
Chief Executive Officer,
Sotheby's Holdings, Inc.
Kevin A. Bousquette,
Executive Vice President and
Chief Operating Officer,
Sotheby's Holdings, Inc.
Robert Bleakley,
Chairman,
Sotheby's Australia
Lisa Hubbard,
Senior Vice President,
Head of Jewelry,
Sotheby's Asia
Colin Mackay,
Senior Director,
Head of Decorative Arts,
Sotheby's London
Justin Miller,
Managing Director,
Sotheby's Australia
Carlton Rochell,
Senior Vice President,
Division Head Asian Arts,
Sotheby's North America
Tetsuji Shibayama,
Managing Director,
Sotheby's Japan
John Tancock,
Senior Vice President,
Impressionist and Modern Art,
Sotheby's North America and Japan
Suzanne Tory,
Operations Director,
Sotheby's Asia
Yarman Vachha,
Finance and Operations Director,
Sotheby's Asia
Patricia Wong,
Director of Business Development,
China and Southeast Asia
Rita Wong,
Chairman,
Sotheby's Taiwan
Sotheby's
Financial Services
Mitchell Zuckerman,
President
Sotheby's
International Realty
Stuart N. Siegel,
President
Sotheby's Holdings, Inc. and Subsidiaries page 43
<PAGE>
Shareholders Information
Common Stock Price
The quarterly price ranges and dividends per share of Class A Common Stock in
1996 and 1995 were as follows:
Cash dividends
Quarter High Low per share
- --------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
------- ------- ------- ------- ------- -------
First $15 1/4 $12 5/8 $12 3/4 $10 3/8 $ 0.08 $ 0.06
Second 15 14 1/4 13 3/4 12 0.08 0.06
Third 16 5/8 14 3/4 13 3/8 12 1/2 0.08 0.06
Fourth 18 3/4 15 3/8 15 1/2 13 1/8 0.08 0.06
------- ------- ------- ------- ------- -------
The Company also has Class B Common Stock convertible on a share-for-share basis
into Class A Common Stock. There is no public market for the Class B Common
Stock. Cash dividends are payable equally on the Class A and B Common Stock.
The number of holders of record of the Class A Common Stock as of February 28,
1997 was 1,280. The number of holders of record of the Class B Common Stock as
of February 28, 1997 was 40.
Administrative Offices
c/o Sotheby's Service Corporation
1334 York Avenue
New York, New York 10021
Transfer Agents
Chase Mellon Shareholder Services, L.L.C.
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
Tel: (800) 851-9677
Tel: (212) 613-7427
The Royal Bank of Scotland plc
Registrar's Department
P.O. Box 82
Caxton House, Redcliffe Way
Bristol BS99 7NH England
Tel: 011 441 79 30 6666
Common Stock Information
Sotheby's Holdings, Inc. Class A Common Stock is listed on the New York Stock
Exchange (symbol: BID) and the London Stock Exchange.
Annual Meeting
The Annual Meeting of Shareholders will be held
on Tuesday, April 29, 1997 at 10:00 a.m. at
Sotheby's
34-35 New Bond Street
London
Form 10-K and Shareholder Information
The 1996 Form 10-K filed with the Securities and Exchange Commission and other
investor information may be obtained by writing to:
Investor Relations
Sotheby's
1334 York Avenue
New York, New York 10021
Tel: (212) 606-7507
U.K. Corporate Secretary's Office
Sotheby's
34-35 New Bond Street
London W1A 2AA
Tel: 011 441 71 408 5257
Certified Public Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
page 44 Sotheby's Holdings, Inc. and Subsidiaries
<PAGE>
Copyrights
- --------------------------------------------------------------------------------
Page 11:
The Bust of Benjamin Franklin by Jean-Antoine
Houdon: The Philadelphia Museum of Art. Purchased with a major grant from The
Barra Foundation, Inc., the Henry P. McIlhenny Fund in memory of Frances P.
McIlhenny, the Walter E. Stait Fund, the Fiske Kimball Fund, and with
contributions from the Women's Committee of the Philadelphia Museum of Art and
other generous donors to the Fund for Franklin.
Page 11:
Edvard Munch's, Girls on a Bridge:
(C) 1997 The Munch Museum / The Munch-Ellingsen Group / Artist Rights Society
(ARS), New York
Page 14:
Roy Lichtenstein's
Forest Scene:
(C) Roy Lichtenstein
Design and Editorial
- --------------------------------------------------------------------------------
Sotheby's,
New York, NY
Photography
- --------------------------------------------------------------------------------
Dirk Bakker
Grant Deudney
Sasha Gusov
Leslie Jean-Bart
Philip Perkis
Tim Street-Porter
<PAGE>
[PHOTO]
SOTHEBY'S
---------
Founded 1744
<PAGE>
Exhibit 21
Subsidiaries of Sotheby's Holdings, Inc.
The significant subsidiaries of Sotheby's Holdings, Inc., which are wholly
owned except where indicated, are as follows:
JURISDICTION OF
INCORPORATION
---------------
Sotheby's Holdings, Inc. Michigan
Sotheby's Financial Services, Inc. Nevada
SPTC, Inc. Nevada
SFS Holdings, Inc. Delaware
Fine Art Insurance Ltd. Bermuda
Sotheby's, Inc. New York
Oatshare Limited United Kingdom
Sotheby's United Kingdom
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-26008 of Sotheby's Holdings, Inc. on Form S-8 and Registration Statement No.
33-302315 on Form S-8 of our reports dated February 28, 1997, appearing in and
incorporated by reference in, the Annual Report on Form 10-K of Sotheby's
Holdings, Inc. for the year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
March 21, 1997
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana
D. Brooks and William S. Sheridan with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and
any and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 30th day of January, 1997.
/s/ R. Julian De La M. Thompson
---------------------------------
R. JULIAN DE LA M. THOMPSON
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana
D. Brooks and William S. Sheridan with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and
any and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 28th day of January, 1997.
/s/ Walter J.P. Curley
---------------------------------
WALTER J.P. CURLEY
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana
D. Brooks and William S. Sheridan with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and
any and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 23rd day of January, 1997.
/s/ Max M. Fisher
---------------------------------
MAX M. FISHER
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana
D. Brooks and William S. Sheridan with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and
any and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 27th day of January, 1997.
/s/ Viscount Blakenham
---------------------------------
VISCOUNT BLAKENHAM
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana
D. Brooks and William S. Sheridan with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and
any and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 4th day of February, 1997.
/s/ Henry R. Kravis
---------------------------------
HENRY R. KRAVIS
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana
D. Brooks and William S. Sheridan with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and
any and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 28th day of January, 1997.
/s/ Simon De Pury
---------------------------------
SIMON DE PURY
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana
D. Brooks and William S. Sheridan with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and
any and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 22nd day of January, 1997.
/s/ Camoys
---------------------------------
LORD CAMOYS
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana
D. Brooks and William S. Sheridan with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and
any and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 28th day of January, 1997.
/s/ Gowrie
---------------------------------
THE RT. HON. THE EARL OF GOWRIE
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana
D. Brooks and William S. Sheridan with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and
any and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 7th day of March, 1997.
/s/ Conrad Black
---------------------------------
CONRAD BLACK
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana
D. Brooks and William S. Sheridan with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and
any and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 13th day of March, 1997.
/s/ Hartington
---------------------------------
THE MARQUESS OF HARTINGTON
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana
D. Brooks and William S. Sheridan with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and
any and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 13th day of March, 1997.
/s/ A. Alfred Taubman
---------------------------------
A. ALFRED TAUBMAN
<PAGE>
POWER OF ATTORNEY
The undersigned, a Director of Sotheby's Holdings, Inc., a Michigan
corporation (the "Company"), does hereby constitute and appoint each of Diana
D. Brooks and William S. Sheridan with full power of substitution, as his
true and lawful attorney and agent to execute in his name and on his behalf,
as a Director of the Company, the Company's Annual Report on form 10-K, and
any and all amendments thereto to be filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended. Each
such attorney or agent shall have, and may exercise, all of the powers hereby
conferred.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his
signature this 13th day of March, 1997.
/s/ Kevin A. Bousquette
---------------------------------
KEVIN A. BOUSQUETTE
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 66,886
<SECURITIES> 0
<RECEIVABLES> 345,351
<ALLOWANCES> 10,156
<INVENTORY> 14,801
<CURRENT-ASSETS> 446,382
<PP&E> 70,576
<DEPRECIATION> 63,983
<TOTAL-ASSETS> 656,098
<CURRENT-LIABILITIES> 388,916
<BONDS> 0
<COMMON> 5,589
0
0
<OTHER-SE> 247,883
<TOTAL-LIABILITY-AND-EQUITY> 656,098
<SALES> 0
<TOTAL-REVENUES> 336,496
<CGS> 0
<TOTAL-COSTS> 63,090
<OTHER-EXPENSES> 117,130
<LOSS-PROVISION> 1,281
<INTEREST-EXPENSE> 3,643
<INCOME-PRETAX> 68,244
<INCOME-TAX> 27,298
<INCOME-CONTINUING> 40,946
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,946
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
</TABLE>
