<PAGE>
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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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
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.)
500 NORTH WOODWARD AVENUE, SUITE 100
BLOOMFIELD HILLS, MICHIGAN 48304
(Address of principal executive office) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (248) 646-2400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ----------------------------------------------------------- -----------------------------------------------------------
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 March 16, 1998, the aggregate market value of the 39,378,709 shares of
Class A Limited Voting Common Stock held by non-affiliates of the registrant was
$890,943,291, based upon the closing price ($22.625) 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 March 16, 1998,
there were outstanding 39,437,899 shares of Class A Limited Voting Common Stock
(the "Class A Common Stock") and 16,973,094 shares of Class B Common Stock (the
"Class B Common Stock"), freely convertible into 16,973,094 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,
1997 (the "Annual Report") are incorporated by reference into Parts I and II,
and portions of the 1998 proxy statement for the annual meeting of shareholders
are incorporated by reference into Part III.
- --------------------------------------------------------------------------------
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<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 80 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 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 and other collectibles, art-related financing activities, the
brokering of art and collectible purchases and sales, 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 Christie's 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 1997 of $1.843 billion
(approximately L1.172 billion). Christie's aggregate auction sales in 1997 were
approximately $2.016 billion (L1.222 billion reported). The auction sales of the
next largest art auction house, Phillips International Auctioneers and Valuers,
were approximately $182 million (L111 million reported) for the year ended
December 31, 1997.
The Company auctions a wide variety of property, including fine arts,
jewelry, decorative arts, and rare books. In 1997, the Company's auction sales
by type of property were as follows: fine arts accounted for approximately
$884.8 million, or 48%, of auction sales; decorative arts accounted for
approximately $589.9 million, or 32%, of auction sales; and jewelry, rare books
and other property accounted for approximately $368.6 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 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.
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 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. See Note N to the Consolidated
Financial Statements in the Annual Report. Under certain guarantees, the Company
participates in a share of the proceeds if the property under guarantee sells
above a minimum price. In addition, the Company is obligated under the terms of
certain guarantees to fund a portion of the guarantee prior to the auction.
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.
In July 1997, the Company acquired Leslie Hindman Auctioneers, a regional
auction house based in Chicago, Illinois, in order to expand its Midwest
operations. In connection with the acquisition, the Company acquired the
building occupied by Leslie Hindman Auctioneers at 215 West Ohio Street,
Chicago, Illinois, and consolidated the Company's existing Chicago office at
this location. The Company is currently conducting auctions at this facility
through its subsidiary, Sotheby's Chicago, Inc.
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.
2
<PAGE>
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.
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 in the Annual Report. The
assets of the Partnership consist principally of art inventory. The Company
reflects its 50% interest in the net assets of the Partnership in Investments in
the Consolidated Balance Sheets in the Annual Report. This investment totalled
$35.2 million and $35.8 million at December 31, 1997 and 1996, 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,
1997, 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 regulations
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.
3
<PAGE>
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 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, 1997, $164.4 million of the total $276.4 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 over 165 licensed real estate brokerage offices worldwide and (b)
operating its own real estate brokerage offices in Beverly Hills, Bridgehampton,
Brentwood, East Hampton, Greenwich, Manhattan, Palm Beach, San Francisco, and
Southampton.
4
<PAGE>
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.
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, 1997, the Company had 1,847 employees: 779 located in North
America; 725 in the United Kingdom and 343 in the rest of the world. The
following table provides a breakdown of employees by operational areas as of
December 31, 1997:
<TABLE>
<CAPTION>
OPERATIONAL AREA NUMBER OF EMPLOYEES
- ------------------------------------------------------------------------ ---------------------
<S> <C>
Auction................................................................. 1,577
Other................................................................... 270
-----
Total................................................................... 1,847
-----
-----
</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
four 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, Philadelphia, 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., (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.
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, and has determined that there
is a need for additional facilities. The Company has studied how best to satisfy
its demand for additional office and auction space and has determined that a
complete rebuilding of the York Property is the most prudent of a number of
alternatives. An application to re-zone the York Property was filed with New
York City in October 1997. The filing outlined the Company's intent to construct
a six-story addition to and renovate the York Property. The City of New York has
decided to permit the Company to proceed on a "short" zoning application process
with the target of Summer 1998 for the issuance of a
5
<PAGE>
building permit and initiation of construction. In order to fund this expansion
and renovation, for which the Company estimates expenditures to be in the range
between $100 to $115 million, the Company is discussing financing options with
various financial institutions.
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 29,800 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 129,200
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.
Except as noted above, in management's opinion, the Company's worldwide
premises are generally adequate for the current conduct of its business.
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 retained outside counsel in the United States and United Kingdom to
assist and advise the Independent Review Committee in its review, which was
completed in December 1997. The review found no substantive deviation from the
Company's long-standing policy that employees may not violate or assist in the
violation of the laws of any country. The Company has implemented a number of
the Independent Review Committee's recommendations, including the creation of a
Compliance Department. The nonrecurring expenses incurred in connection with
this matter materially affected 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.
In May 1997, major auction houses, including the Company, and certain art
dealers received subpoenas from the Antitrust Division of the United States
Department of Justice seeking documents concerning the United States art market.
The Company is cooperating with the Justice Department's investigation.
The Company also becomes involved, from time to time, in various claims and
lawsuits incidental to the ordinary course of its business. 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 1997.
6
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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 1997 and 1996 are shown in the
following schedules:
<TABLE>
<CAPTION>
1997
-------------------- CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
- ------------------------------------------------------------- --------- --------- ---------------
<S> <C> <C> <C>
March 31..................................................... 18 7/8 16 $ 0.10
June 30...................................................... 17 1/4 14 7/8 $ 0.10
September 30................................................. 21 16 3/16 $ 0.10
December 31.................................................. 21 16 9/16 $ 0.10
</TABLE>
<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>
The number of holders of record of the Class A Common Stock as of March 16,
1998 was 1,286. The number of holders of record of the Class B Common Stock as
of March 16, 1998 was 28.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on page B28 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 B29 through B32 of the Annual Report is incorporated by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements on pages B33 through B48 of the Annual
Report are incorporated by reference.
The Independent Auditors' Report on page B49 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
Information required by this item is incorporated by reference to the
Company's definitive proxy statement for the annual meeting of shareholders to
be held in 1998 (the "Proxy Statement") under the captions "Election of
Directors" and "Management-Executive Officers." In addition, the following
persons are presently serving as directors of the Company:
Kevin A. Bousquette, age 40, became a director of the Company and was
appointed Executive Vice President and Chief Operating Officer of the Company in
September 1996. He had been the Company's Chief Financial Officer from March
1993 to November 1996 and a Senior Vice President of the Company from March 1993
to September 1996. From 1985 to 1992, Mr. Bousquette was an executive at
Kohlberg Kravis Roberts & Co., L.P., a merchant banking firm, and a limited
partner of KKR Associates, L.P. Mr. Bousquette has voluntarily resigned as a
director and executive officer of the Company, effective April 30, 1998.
The Rt. Hon. The Earl of Gowrie, age 58, has been a director of the Company
since 1985 and served as chairman of Sotheby's International from 1985 through
1987. From 1987 through 1993, Lord Gowrie served as chairman of Sotheby's
Europe, which then encompassed the United Kingdom, Europe, Asia and Australia.
Lord Gowrie was appointed Chairman of the Arts Council, which administers grants
to arts groups in Great Britain, effective April 1994, and became Chairman of
Development Securities, a property holdings and development company, in June
1996. He is a director of Verity plc, an audio and music equipment manufacturer,
Guiness Mahon Holdings plc, a merchant bank, and served as a director of
Ladbroke Group plc, an entertainment and leisure company, until May 1996. Lord
Gowrie is not standing for reelection as a director at the Company's 1998 annual
meeting.
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." Notwithstanding anything to the contrary herein, the Audit and
Compensation Committee Report and the Performance Graph in the Proxy Statement
are not incorporated by reference herein.
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, Nominees for Director,
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 and Compensation Arrangements."
8
<PAGE>
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, 1997, are incorporated by reference in Item 8:
Consolidated Statements of Income--Years ended December 31, 1997, 1996 and 1995
Consolidated Balance Sheets-- December 31, 1997 and 1996 Consolidated Statements
of Cash Flows--Years ended December 31, 1997, 1996 and 1995
Consolidated Statement of Changes in Shareholders' Equity--Years ended December
31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements--December 31, 1997
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, incorporated herein by reference to Exhibit 3(b) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K").
3(c) Amendment to Restated By-Laws of Sotheby's Holdings, Inc., effective February 17,
1998.
4 See Exhibits 3(a), 3(b), and 3(c).
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.
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.
</TABLE>
9
<PAGE>
<TABLE>
<C> <S>
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) 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.
10(j) 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(k)* Sotheby's Inc. 1988 Benefit Equalization Plan, incorporated by reference to
Exhibit 10(t) to Registration Statement No. 33-17667.
10(l)* 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(m)* 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(n)* 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(o)* First Amendment to Sotheby's Holdings, Inc. 1997 Stock Option Plan, dated
September 30, 1997, and effective as of December 12, 1997.
10(p) 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(q)* Amended and Restated Sotheby's Holdings, Inc. Director Stock Ownership Plan,
incorporated herein by reference to Exhibit 10(v) to the 1997 Form 10-K.
10(r)* Sotheby's Holdings, Inc. 1998 Stock Compensation Plan for Non-Employee Directors.
10(s) 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(t) Credit Agreement, dated as of July 11, 1996, among Sotheby's Holdings, Inc.,
Sotheby's Inc., Oatshare Limited, Sotheby's, and Chase Manhattan Bank
incorporated herein by reference to Exhibit 10(c) to the Second Quarter Form 10-Q
for 1996.
10(u)* 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(v)* 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, 1997
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche LLP
(24) Powers of Attorney
(27) Financial Data Schedule
(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>
- ------------------------
* A compensatory agreement or plan required to be filed pursuant to Item 14(c)
of Form 10-K.
10
<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, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997 and have issued our report
thereon dated February 27, 1998; such consolidated financial statements and
report are included in your 1997 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.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
February 27, 1998
11
<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:
1997 Allowance for doubtful accounts............ $ 10,156 $ 1,227 $ 1,811 $ 2,775 $ 10,419
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
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
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Inventory:
1997 Realizable value allowance................. $ 16,799 $ 1,540 $ 262 $ 2,875 $ 15,726
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
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
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
12
<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 25, 1998
A. Alfred Taubman
* Vice Chairman of the Board
- ------------------------------ March 25, 1998
Max M. Fisher
* Deputy Chairman of the
- ------------------------------ Board March 25, 1998
The Marquess Of Hartington
/S/ DIANA D. BROOKS President, Chief Executive
- ------------------------------ Officer and Director March 25, 1998
Diana D. Brooks
* Executive Vice President,
- ------------------------------ Chief Operating Officer March 25, 1998
Kevin A. Bousquette and Director
/S/ WILLIAM S. SHERIDAN Senior Vice President and
- ------------------------------ Chief Financial Officer March 25, 1998
William S. Sheridan
* Director
- ------------------------------ March 25, 1998
Viscount Blakenham
* Director
- ------------------------------ March 25, 1998
Henry R. Kravis
* Director
- ------------------------------ March 25, 1998
Conrad Black
* Director
- ------------------------------ March 25, 1998
Walter J. P. Curley
* Director
- ------------------------------
The Rt. Hon. The Earl of March 25, 1998
Gowrie
13
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/S/ CYNDEE GRILLO Vice President, Controller
- ------------------------------ and Chief Accounting March 25, 1998
Cyndee Grillo Officer
/S/ WILLIAM S. SHERIDAN
- ------------------------------
*William S. Sheridan March 25, 1998
AS ATTORNEY-IN-FACT
14
<PAGE>
Exhibit 3(c)
Section 1.03 of the Restated By-Laws of Sotheby's Holdings, Inc., as amended
through February 18, 1997, is deleted in its entirety and replaced with the
following:
SECTION 1.03. SPECIAL MEETINGS.
A special meeting of the shareholders may be called at any time and for
any purpose or purposes upon written direction of the Chairman of the Board
or the President, or pursuant to a resolution of the Board of Directors, or
upon written request by a shareholder or shareholders holding of record at
least twenty-five percent (25%) of the total of the combined voting power of
all outstanding shares (including the Class A Limited Voting Common Stock and
Class B Common Stock) of the corporation.
<PAGE>
Exhibit 10(o)
FIRST AMENDMENT TO
SOTHEBY'S HOLDINGS, INC.
1997 STOCK OPTION PLAN
THIS FIRST AMENDMENT to the Sotheby's Holdings, Inc. 1997 Stock Option
Plan ("First Amendment"), dated the 30th day of September, 1997, is adopted
by Sotheby's Holdings, Inc. (the "Corporation").
RECITALS:
A. The Sotheby's Holdings, Inc. 1997 Stock Option Plan (the "Plan")
was adopted by the Board of Directors of the Corporation on April 30, 1996
and approved by the shareholders of the Corporation at the Corporation's 1996
Annual Meeting of Shareholders on June 19, 1996.
B. Pursuant to Section 8.1 of the Plan, the Corporation has the
authority to amend the Plan. The Corporation desires to and does hereby amend
the Plan, as hereinafter set forth to clarify certain Plan provisions
applicable to employees in the United Kingdom for the purpose of obtaining UK
Inland Revenue approval of the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 6.2 of the Plan is hereby amended in its entirety to
read as follows:
6.2 OPTION GRANTS TO UK EMPLOYEES. Any Options granted under the
Plan to an Employee who is a resident of the United Kingdom on the Date
of Grant of such Option shall be granted by the Committee first under
the UK Sub-Plan (Article 12) to the extent such grant will take effect
under Section 12.3 of the UK Sub-Plan. Any portion of an Option granted
to a UK resident which does not take effect under the UK Sub-Plan as a
result of the limitations provided in Section 12.3 thereof, shall be
granted as a separate option under the Plan, subject only to the
provisions of Article 1 through 11 of the Plan and not subject to Article
12.
2. Section 7.17 of the Plan is hereby amended in its entirety to read
as follows:
7.17 RESTRICTIONS ON OWNERSHIP OF CLASS B COMMON STOCK;
INCORPORATION BY REFERENCE OF ARTICLES OF INCORPORATION. Ownership of
Class B Common Stock is subject to all of the restrictions contained in
the Articles of Incorporation, including the automatic conversion of
Class B Common Stock to Class A Common Stock. The relevant provisions of
the Articles of Incorporation are hereby incorporated by reference.
<PAGE>
3. Section 12.7 of the Plan is hereby amended in its entirety to read
as follows:
12.7 MODIFICATION OF OPTIONS. No modification (as referred to in
Section 6.3 of the Plan) or adjustment (as referred to in Section
8.3(c), (d) or (e) of the Plan) may be made to Options granted under the
UK Sub-Plan without the prior consent of the Board of the UK Inland
Revenue. Any adjustment (as referred to in Section 8.3(c), (d) or (e) of
the Plan) which affects Options granted under the UK Sub-Plan may only
be made following a variation of the share capital of the Corporation.
Notwithstanding the provisions of Section 6.3 of the Plan, no Option
granted under the UK Sub-Plan may be cancelled or surrendered in
consideration of the grant of any new Options.
4. Section 12.8 of the Plan is amended in its entirety to read as
follows:
12.8 AMENDMENTS. No revision or amendment (as referred to in Section
8.1 of the Plan) to the UK Sub-Plan shall have effect unless approved by
the Board of the UK Inland Revenue.
5. Section 12.12 of the Plan is amended in its entirety to read as
follows:
12.12 NO ACCELERATION OF VESTING. The Committee shall not exercise its
discretion under Section 7.6 of the Plan to accelerate the vesting of any
Option granted under the UK Sub-Plan.
6. New Sections 12.13 and 12.14 are added and shall read as follows:
12.13 EXERCISE PRICE TO BE PAID IN CASH. The provisions of Section
7.13(ii), (iii) and (iv) shall not apply to any Option granted under the
U.K. Sub-Plan.
12.14 NO SURRENDER IN EXCHANGE FOR CASH. Notwithstanding the provisions
of Section 7.15, no Option granted under the UK Sub-Plan shall be
capable of surrender in exchange for cash.
7. This Amendment shall be submitted to the U.K. Inland Revenue for
approval and shall be effective as of December 12, 1997 (the date on
-----------------
which the Amendment is approved by the U.K. Inland Revenue).
IN WITNESS WHEREOF, this Amendment is hereby executed as of the day and
year first above written.
SOTHEBY'S HOLDINGS, INC.
By: Signature
-----------------------------
Its: CEO
-----------------------------
2
<PAGE>
Exhibit 10(r)
SOTHEBY'S HOLDINGS, INC.
1998 STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
1. ADOPTION AND TERM. The Sotheby's Holdings, Inc. 1998 Stock
Compensation Plan for Non-Employee Directors (the "Plan") has been approved by
the Board of Directors (the "Board") of Sotheby's Holdings, Inc. (the "Company")
and is effective on April 30, 1998, the date of the 1998 Annual Meeting. The
Plan shall remain in effect until terminated or abandoned by action of the
Board.
2. PURPOSE OF THE PLAN. The purpose of the Plan is to promote the long
term growth and success of the Company by attracting, motivating and retaining
non-employee directors of outstanding ability and to promote a greater identity
of interest between the Company's non-employee directors and its shareholders.
The Plan covers stock compensation only and does not include other amounts
receivable by non-employee directors, such as fees for attending meetings and
reimbursement of expenses.
3. ADMINISTRATION. The Plan requires no discretionary action by any
administrative body with regard to any transaction under the Plan. To the
extent, if any, that questions of administration arise, these shall be resolved
by the Board. The Board may, in its discretion, delegate to the Chief Financial
Officer or other officer of the Company any or all authority and responsibility
to act pursuant to the Plan. The determination of the Board on all matters
within its authority relating to the Plan shall be conclusive. The Board shall
not be liable for any action or determination made in good faith with respect to
the Plan, and the Company shall indemnify and hold harmless the Board, the Chief
Financial Officer and any other party to whom the Board has delegated its
authority pursuant to this Section 3 from all losses and expenses (including
reasonable attorneys' fees) arising from the assertion or judicial determination
of such liability.
4. 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 (the "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 250,000 shares of Common Stock.
5. STOCK COMPENSATION. Each non-employee director ("Eligible Director")
shall receive, as his or her annual retainer, 2,260 shares of the Company's
Common Stock ("Director Stock"). The Director Stock shall be paid on a
quarterly basis for services rendered from the date of the Annual Meeting to the
date of the following Annual Meeting (the "Annual Period"). If an Eligible
Director serves for less than the Annual Period, the number of shares of
Director Stock payable to such Eligible Director shall be prorated accordingly.
6. DEFERRAL OF DIRECTOR STOCK. An Eligible Director may elect to defer
the receipt of all or a portion of the Director Stock by making an election
pursuant to Section 7, in which case there shall be credited to the Eligible
Director's Stock Unit Account (as defined in Section 8) a number of units equal
to the number of shares of Director Stock being deferred.
<PAGE>
7. ELECTION TO DEFER. Each Eligible Director may elect to defer (the
"Deferral Election") part or all of the shares of Director Stock by submitting a
deferral election form (the "Deferral Election Form") to the Chief Financial
Officer, indicating the number of shares of Director Stock to be deferred (the
"Deferred Amount"). Any Deferral Election (i) shall be in writing, (ii) shall
be effective only with respect to Director Stock which is earned after the
Deferral Election Form is received by the Chief Financial Officer, and (iii) may
not be revoked or changed once made. Notwithstanding the foregoing, a Deferral
Election may be superseded with respect to Director Stock payable for the next
following Annual Period by submitting a new Deferral Election Form to the Chief
Financial Officer; provided, however, that (i) no revocation shall be effective
to make any change with respect to Deferred Amounts previously deferred; (ii) no
change in Deferred Amount shall take effect until the Annual Period after such
new Deferral Election Form has been received by the Chief Financial Officer, and
(iii) any such Deferral Election shall be irrevocable. To the extent required
by the then applicable Rule 16b-3, no Deferral Election shall take effect until
a date at least six (6) months after the Deferral Election Form is received by
the Chief Financial Officer.
8. STOCK UNIT ACCOUNT. An Eligible Director who defers the receipt of
Director Stock shall have credited to an account (the "Stock Unit Account") a
number of units (the "Stock Units") equal to the number of shares of Director
Stock being deferred. The Deferred Amount shall be credited as of the date on
which the Eligible Director becomes entitled to payment of the Deferred Amount
in accordance with Section 5. Stock Units shall have no voting rights.
9. STOCK UNITS CREDITED WITH DIVIDENDS. If Stock Units exist in an
Eligible Director's Stock Unit Account on a dividend record date for the
Company's Common Stock, the Stock Unit Account shall be credited, on the
dividend payment date related to such dividend record date, with an additional
number of Stock Units equal to (i) the cash dividend paid on one share of Common
Stock, multiplied by (ii) the number of Stock Units in the Stock Unit Account on
the dividend record date, divided by (iii) the Fair Market Value of a share of
Common Stock on the dividend payment date. "Fair Market Value" means the
closing price per share of Common Stock on the New York Stock Exchange on the
day before the relevant dividend payment date.
10. DISTRIBUTIONS. All amounts credited to an Eligible Director's Stock
Unit Account shall be distributed on the first day of the calendar month
following the date of the Eligible Director's termination of service on the
Company's Board for any reason. All distributions from the Stock Unit Account
shall be made in a lump sum payment, and shall be in the form of a certificate
for the number of whole shares of Common Stock equal to the number of whole
Stock Units to be distributed and cash in lieu of any fractional share
(determined by using the Fair Market Value of a share of Common Stock on the
date on which such distributions are distributed, but if such date is not a
business day, then on the next preceding business day).
11. DESIGNATION OF BENEFICIARY. An Eligible Director may designate, on
the Deferral Election Form, one or more beneficiaries to receive a distribution
of the Eligible Director's Stock Unit Account under the Plan upon the Eligible
Director's death. An Eligible Director may change his or her beneficiary
designation at any time by submitting a new Deferral Election Form to the
Company. If there is no designated beneficiary or no designated beneficiary
surviving at the Eligible Director's death, the Eligible Director's Stock Unit
Account shall be paid to the Eligible Director's estate.
12. COMPLIANCE WITH RULE 16B-3 OF THE SECURITIES EXCHANGE ACT.
Transactions under
2
<PAGE>
this Plan are intended to comply with all applicable conditions of Rule 16b-3 or
its successors under the Securities Exchange Act of 1934, as amended, and in all
events the Plan shall be construed in accordance with Rule 16b-3. To the extent
any provision of the Plan or action by the Board fails to so comply, it shall be
deemed null and void to the extent permitted by law and deemed advisable by the
Board.
13. ACCOUNT STATEMENTS. Each Eligible Director shall be provided a copy
of the Plan, and, each Eligible Director who makes a Deferral Election shall
receive, not less frequently than annually, a statement reflecting the amounts
credited to the Eligible Director's Stock Unit Account.
14. NO ASSIGNMENT OR ALIENATION. The right of an Eligible Director,
beneficiary or any other person to the payment of Director Stock or of amounts
credited to the Stock Unit Account may not be assigned, transferred, pledged or
encumbered except by will or by the laws of descent and distribution.
15. AMENDMENT AND TERMINATION OF THE PLAN. The Board may from time to
time suspend, discontinue, revise or amend the Plan in any respect whatsoever.
16. DELIVERY OF ELECTIONS AND NOTICES. Any and all notices or elections
required under this Plan shall be deemed adequately given only if in writing.
All notices and elections shall be deemed to have been properly given, if
delivered by hand or mailed, on the date of receipt shown on the delivery
receipt or return receipt, if delivered by Federal Express or similar expedited
overnight commercial carrier, on the date that is one Business Day after the
date upon which the same shall have been delivered to Federal Express or similar
expedited overnight commercial carrier, addressed to the recipient, with all
shipping charges prepaid, provided that the same is actually received by the
recipient in the ordinary course, and if sent by telecopier, on the date of
confirmed delivery. Elections and notices to the Company shall be directed to:
Sotheby's Holdings, Inc.
1334 York Avenue
New York, New York 10021
Attention: Chief Financial Officer
Notices to or with respect to an Eligible Director shall be directed to the
Eligible Director, or the executors, personal representatives or distributees of
a deceased Eligible Director, at the Eligible Director's address on the records
of the Company.
17. EXECUTION. To record the adoption of the Plan, the Company has caused
the execution hereof as of this ____ day of March, 1998.
SOTHEBY'S HOLDINGS, INC.,
a Michigan corporation
By:
--------------------------------------------
Its:
---------------------------------------
3
<PAGE>
Exhibit 13
BLUEPRINT FOR THE FUTURE
97
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A
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R
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SOTHEBY'S HOLDINGS, INC.
[GRAPHIC OMITTED]
THEME:
BLUEPRINT FOR THE FUTURE
97
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ANNUAL
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REPORT
------
SOTHEBY'S IS -->
COMPANY:
SOTHEBY'S HOLDINGS, INC.
<PAGE>
[PHOTO OMITTED]
SOTHEBY'S TODAY> AN EXCITING STEP IN OUR BLUEPRINT FOR FUTURE GROWTH IS THE
OPENING OF OUR NEW PARIS PREMISES IN THE HISTORIC GALERIE CHARPENTIER.
> Table of Contents
FINANCIAL HIGHLIGHTS A-10, SHAREHOLDERS' LETTER A-12, FINANCIALS B-27
<PAGE>
--> FINE ART -->
THEME:
BLUEPRINT FOR THE FUTURE
97
------
ANNUAL
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REPORT
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COMPANY:
SOTHEBY'S HOLDINGS, INC.
PAGE NUMBER: A-1
<PAGE>
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As we lay the ground work for Sotheby's entry into the 21st Century, our
blueprint for the future is to expand and renovate our American headquarters.
- --------------------------------------------------------------------------------
<PAGE>
[GRAPHICS OMITTED]
- --------------------------------------------------------------------------------
DURING 1997 A NUMBER OF IMPORTANT WORKS IN A BROAD RANGE OF COLLECTING AREAS
WERE OFFERED IN OUR SALEROOMS THROUGHOUT THE WORLD, WITH MANY BRINGING RECORD
PRICES. THE CHARACTER OF THE YEAR WAS DEFINED BY NEW PRICE LEVELS THAT WERE
ACHIEVED FOR THOSE WORKS REPRESENTING THE BEST IN QUALITY AND RARITY. THE FINE
ARTS ENJOYED AN EXCELLENT YEAR, INCREASING 25% OVER 1996. IMPRESSIONIST AND
MODERN ART AND
- --------------------------------------------------------------------------------
<PAGE>
[GRAPHICS OMITTED]
- --------------------------------------------------------------------------------
CONTEMPORARY ART LED THE WAY, BRINGING SOTHEBY'S HIGHEST SALE TOTALS IN EACH
FIELD SINCE 1990. OTHER STRONG PERFORMANCES CAME IN OLD MASTER PAINTINGS AND
AMERICAN ART, BOTH OF WHICH MADE THE HIGHEST TOTALS IN AUCTION HISTORY AMID SOME
OF THE MOST COMPETITIVE BIDDING IN YEARS. LATIN AMERICAN ART CELEBRATED THE 20TH
ANNIVERSARY OF ITS FIRST AUCTION AT SOTHEBY'S WITH SOLID RESULTS. THE DECORATIVE
ARTS ALSO
- --------------------------------------------------------------------------------
AUCTION
----------
HIGHLIGHTS
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--> DECORATIVE ARTS
<PAGE>
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
ENJOYED CONSIDERABLE STRENGTH. AMERICANA IN PARTICULAR CONTINUED ITS RECORD OF
RECENT SUCCESSES WITH ANOTHER FINE YEAR. FRENCH FURNITURE AND DECORATIONS, BOOKS
AND MANUSCRIPTS AND ASIAN ART, TO NAME A FEW, ALSO HIGHLIGHTED THE YEAR WITH A
NUMBER OF MASTERPIECES OF HISTORICAL SIGNIFICANCE BEING OFFERED. SEVERAL
HIGH-QUALITY PIECES FROM IMPORTANT PRIVATE COLLECTIONS WERE FEATURED IN OUR
AUCTIONS
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AUCTION
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HIGHLIGHTS
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<PAGE>
[GRAPHIC OMITTED]
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OF PRECIOUS OBJECTS. JEWELRY CONTINUES TO BE A MAJOR CATEGORY FOR SOTHEBY'S, AND
THROUGHOUT 1997 WE ACHIEVED STRONG RESULTS IN NEW YORK AND GENEVA. OUR EVENING
AUCTION OF MAGNIFICENT JEWELRY IN NEW YORK INCLUDED A RECORD PRICE FOR A YELLOW
DIAMOND. OUR SILVER AUCTIONS CONTAINED FASCINATING AND UNUSUAL OBJECTS WHICH
EVOKED ENTHUSIASTIC BIDDING. THE YEAR ALSO WITNESSED A NUMBER OF INNOVATIVE
- --------------------------------------------------------------------------------
AUCTION
----------
HIGHLIGHTS
-->
<PAGE>
[GRAPHIC OMITTED]
--> SPECIAL SALES
<PAGE>
[GRAPHICS OMITTED]
- --------------------------------------------------------------------------------
THEME AND SPECIAL SALES, EVENTS THAT SOTHEBY'S HAS PIONEERED IN THE AUCTION
WORLD. AMONG THESE WERE THE ESTATE OF AMBASSADOR PAMELA HARRIMAN, THE BECK
COLLECTION OF ILLUMINATED MANUSCRIPTS, IMPORTANT ANCIENT GLASS FROM THE
COLLECTION FORMED BY THE BRITISH RAIL PENSION FUND, THE ESTATE OF LEONARD
BERNSTEIN, AS WELL AS OUR SALES OF TURKISH ART, FASHION AND THE HIGHLY UNUSUAL
TYRANNOSAURUS REX, "SUE."
- --------------------------------------------------------------------------------
AUCTION
----------
HIGHLIGHTS
-->
<PAGE>
> FINANCIAL PERFORMANCE
[The following tables were represented as bar graphs in the printed material]
($ in millions)
93 94 95 96 97
-- -- -- -- --
REVENUES 249.7 259.7 312.9 336.5 381.8
($ in millions)
93 94 95 96 97
-- -- -- -- --
EXPENSES 218.9 226.6 256.0 268.3 302.3
Excludes 1997 non-recurring charges of $11.7 million
($ in millions)
93 94 95 96 97
-- -- -- -- --
NET INCOME 19.3 20.3 32.6 40.9 48.0
Excludes 1997 non-recurring charges of $7.4 million after tax
- --------------------------------------------------------------------------------
NEW SHAREHOLDER COMMUNICATION SERVICE > SOTHEBY'S FINANCIAL INFORMATION AND NEWS
RELEASES ARE NOW AVAILABLE BY RECORDING, FAX OR THROUGH THE MAIL BY CALLING OUR
SHAREHOLDER DIRECT TOLL FREE LINE AT 1.800.700.6321, 24 HOURS A DAY. THIS
SERVICE REPLACES OUR TRADITIONAL PRINTED QUARTERLY PRESS RELEASE PROVIDING YOU
WITH THE MOST CURRENT AND CONVENIENT ACCESS TO SOTHEBY'S NEWS.
- --------------------------------------------------------------------------------
> SHAREHOLDER RETURNS
93 94 95 96 97
-- -- -- -- --
RETURN ON
SHAREHOLDER'S EQUITY 9.7% 10.4% 15.4% 18.0% 18.9%
Excludes 1997 non-recurring charges of $7.4 million after tax
($ in millions)
93 94 95 96 97
-- -- -- -- --
CASH RETURNED
TO SHAREHOLDERS 23.2 13.4 17.7 32.0 43.1
($ per share)
92 93 94 95 96 97
-- -- -- -- -- --
CLOSING STOCK PRICE
As of December 31 12.25 15.38 11.50 14.25 18.63 18.75
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
(Thousands of dollars, except per share data) 1997 1996 1995 1994 1993
=============================================== ======== ========= ======== ======== =========
<S> <C> <C> <C> <C> <C>
STATEMENT OF Auction and related revenues $336,559 $ 300,472 $284,051 $233,451 $ 229,886
OPERATIONS Other revenues 45,233 36,024 28,829 26,212 19,790
-------- --------- -------- -------- ---------
DATA Total revenues 381,792 336,496 312,880 259,663 249,676
-------- --------- -------- -------- ---------
Operating income 79,459(1) 68,208 56,841 33,033 30,785
Net income $ 47,979(2) $ 40,946 $ 32,582 $ 20,259 $ 19,294
-------- --------- -------- -------- ---------
Diluted earnings per share $ 0.85(2) $ 0.73 $ 0.58 $ 0.36 $ 0.35
As at December 31
=============================================== ======== ========= ======== ======== =========
BALANCE SHEET Net debt (cash)3 $ 85,526 $(63,675) $ 3,103 $ 1,416 $(53,257)
-------- --------- -------- -------- ---------
Shareholders' equity $258,268 $ 253,472 $227,482 $211,052 $ 194,632
======== ========= ======== ======== =========
</TABLE>
[GRAPHIC OMITTED]
(1) Excludes 1997 non-recurring charges of $11.7 million
(2) Excludes 1997 non-recurring charges of $7.4 million after tax
(3) Short-term borrowings and commercial paper less cash and cash equivalents
- --------------------------------------------------------------------------------
SOTHEBY'S IS > LOCATED IN 46 COUNTRIES WITH 20 AUCTION CENTERS. IN 1997 WE HELD
544 AUCTIONS WORLDWIDE IN 80 COLLECTING CATEGORIES. WE SOLD APPROXIMATELY
180,000 LOTS WORTH AN AVERAGE LOT PRICE OF $10,200. 80% OF THE TOTAL LOTS SOLD
WERE BELOW $5,000. OUR SPECIALIST STAFF NUMBERS APPROXIMATELY 400 AND OUR
SPECIALIST DEPARTMENT HEADS HAVE AN AVERAGE OF NEARLY 2O YEARS EXPERIENCE WITH
SOTHEBY'S.
- --------------------------------------------------------------------------------
($ in millions)
[The following tables were represented as pie charts in the printed material]
GEOGRAPHIC DISTRIBUTION DEPARTMENTAL DISTRIBUTION
OF 1997 AUCTION SALES OF 1997 AUCTION SALES
[PIE CHART OMITTED] [PIE CHART OMITTED]
50% NORTH AMERICA $919.0 13% JEWELRY
36% UNITED KINGDOM $654.6 19% IMPRESSIONIST AND MODERN ART
9% CONTINENTAL EUROPE $173.6 6% OLD MASTERS
5% ASIA $96.1 6% CONTEMPORARY
17% OTHER PAINTINGS AND FINE ARTS
7% FURNITURE
25% OTHER DECORATIVE ARTS
7% BOOKS AND OTHER
SECTION:
FINANCIAL HIGHLIGHTS
97
------
ANNUAL
------
REPORT
------
COMPANY:
SOTHEBY'S HOLDINGS, INC.
PAGE NUMBER: A-11
<PAGE>
>SHAREHOLDERS' LETTER
Today, Sotheby's is a service company preeminent in the fields of art, antiques
and other fine objects. In 1997, a year of growth and change for Sotheby's, we
achieved the third-highest auction sales in our history and continued a
five-year growth trend, which began in 1992, in revenues and net income, before
non-recurring charges. The art auction company is at the core of Sotheby's, but
we also operate beyond it to capitalize on our equity and to take advantage of
market opportunities in related lines of business. We are a continually evolving
company, building and enhancing our services while maintaining the highest
commitments to our expertise, traditions and culture.
CLIENT SERVICE > Over the last few years we have worked to become one
worldwide company that offers a client the same high level of service in America
as in Australia. We also recognize that each office must tailor its approach to
the customs and cultures within its marketplace. Quality client service is of
paramount importance to us and we have taken important steps this year to ensure
that we achieve it on a world-class level across the globe. With the help of
outside consultants, we completed a comprehensive review of client service in
our two main auction centers of New York and London. Based on that review, we
are making some critical changes to the basic service we provide to all of our
clients worldwide. We have also created a new framework to handle our most
important clients, and we are using new technologies and processes to support
this effort.
[PHOTO OMITTED]
> A. ALFRED TAUBMAN
CHAIRMAN
> DIANA D. BROOKS
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
- --------------------------------------------------------------------------------
1997--A YEAR OF
GROWTH AND CHANGE
With our sights clearly set on the new millennium, we have chosen to make the
theme for this annual report the "Blueprint for the Future." This theme is
particularly appropriate this year with the opening of our new facility in Paris
and the announcement of our plans to expand and renovate our American
headquarters. After exploring several real estate options, we have decided to
remain in our current building in New York, which will require a significant
capital commitment. However, this headquarters
- --------------------------------------------------------------------------------
PRUDENT MANAGEMENT OF COSTS > Equally important is our goal to run
Sotheby's as prudently as possible. It is our belief that our shareholders
should reap the benefit of an organization that closely and conservatively
monitors costs while exploring the most suitable expansion opportunities. In
today's highly competitive market, it is increasingly challenging to manage
costs. While securing the best property for sale is unquestionably important to
us, we are also determined to manage costs as responsibly as we can in this
environment.
FINANCIAL HIGHLIGHTS > Amid a strong worldwide economic environment,
particularly in the United States, the art market had a very good year.
Sotheby's 1997 auction sales of $1.8 billion were the highest since 1990. Our
sales growth of 15% for the year was broad-based, demonstrating the overall
strength in
<PAGE>
the art market. Net income for the year, excluding non-recurring charges, was
also up a significant 17%, illustrating our ability to leverage the efficiencies
of the art auction business. Growth in 1997 earnings was driven primarily by an
increase in revenues from our core auction company, which included significant
private treaty sales. In addition, other revenues grew by 26%, reflecting the
record performance of our Real Estate and Financial Services businesses.
The strong financial markets, bolstered by a healthy art market, helped
our stock price hit $21 per share for the first time in 7 years. Additionally,
we returned $43.1 million to shareholders through stock buyback and dividend
payments. The Board of Directors and Management feel confident about the strong
future of Sotheby's. Our commitment to continued superior performance is
confirmed by the high level of board and management ownership of our stock,
which in 1997 was 16.7 million shares or 30% of the shares outstanding at
December 31, 1997. Additionally, we have put a plan into place whereby senior
management is now partially compensated through performance shares which are
directly tied to pre-determined multi-year financial targets.
- --------------------------------------------------------------------------------
will be a state-of-the-art auction sales center in the year 2000. In many
respects the design of this building will set the stage for the future of our
business.
In the following pages we have tried to provide you with a plan for our
future. We will continue to explore new ideas for growing our franchise in
related lines of business. However, in the short term, we plan to remain focused
on driving existing initiatives to their fullest potential. It is our wish that
at the end of this report you will have a better understanding of our vision for
the future.
- --------------------------------------------------------------------------------
INTERNAL REVIEW > While this year has been a strong financial year for
us, it has included some difficult events. In early 1997, a television program
was aired in the United Kingdom and a related book was published which alleged
improper conduct by certain current and former employees. These allegations
called into question our reputation and integrity, two things that are of the
utmost importance to us. We handled this situation immediately to ensure that
our clients and employees would have full confidence in our standards and
procedures for conducting business.
After calling a special meeting, the board of directors took a number of
measures to ensure that our house rules were firmly and vigorously followed at
all times. Foremost among the measures was the decision to create a committee of
Sotheby's Independent Directors consisting of: Max Fisher, acting as Chairman,
Conrad Black, Lord Blakenham, Ambassador Curley and Henry Kravis. This
committee, who gave substantial time and effort to resolve these issues, with
the help of independent counsel both in the United States and Europe, conducted
an independent review of our practices and compliance around the world, focusing
on international trade issues and auction room practices.
THEME:
BLUEPRINT FOR THE FUTURE
97
------
ANNUAL
------
REPORT
------
YEAR IN REVIEW
COMPANY:
SOTHEBY'S HOLDINGS, INC.
PAGE NUMBER: A-13
<PAGE>
The independent review committee released its findings in December 1997
and while the detailed findings will remain confidential, we are proud to report
that the review found no widespread deviation from the Company's policy that
employees may not violate or assist in the violation of the laws of any country.
The review was extensive, encompassing interviews with more than 200 employees
around the world, and examining 8,000 lots sold in 1996. It was the most
comprehensive review that we are aware of in our industry. Among the
recommendations of the committee were the enhancement of our compliance,
education and training for our staff around the world in import/export issues
and auction practices. We have added and will be adding to our legal and
compliance resources and implementing new record-keeping rules. As a result of
this review, we named Rena Moulopoulos, who has been Deputy General Counsel, to
the new position of Worldwide Director of Compliance, Business Practices
Counsel. We are also pleased to announce that Don C. Pillsbury, Senior Counsel
for Davis Polk & Wardwell, with a broad corporate law background as well as
considerable international experience, has joined us as General Counsel as of
January 1998. We believe that he and Rena will be excellent team leaders,
ensuring that we are conducting business at the highest levels of integrity.
[PHOTOS OMITTED]
> MAX M. FISHER
VICE CHAIRMAN
> LORD CAMOYS
DEPUTY CHAIRMAN
> THE MARQUESS OF HARTINGTON
DEPUTY CHAIRMAN
> KEVIN A. BOUSQUETTE
EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
> HENRY R. KRAVIS
> AMBASSADOR WALTER J. P. CURLEY
> VISCOUNT MICHAEL BLAKENHAM
> THE RT. HON. THE EARL OF GOWRIE
> HONORABLE CONRAD M. BLACK
The review was a lengthy process which took most of the 1997 year and cost
you, our shareholders, significant non-recurring charges. However, we are
certain that the undertaking was a very worthwhile one confirming that Sotheby's
operates with the highest integrity. We are grateful to all of you for your
patience, understanding and support during this difficult process.
MANAGEMENT CHANGES > We wish to acknowledge two board members who have
resigned during the past year, Lord Camoys and Simon de Pury. Lord Camoys leaves
Sotheby's to take a position as Lord Chamberlain to Her Majesty the Queen and
Simon de Pury, formerly Chairman of Sotheby's Europe, has left the Company to
start his own art firm. We extend our congratulations to both of them in their
new endeavors and we thank them for their contributions to Sotheby's.
Following the resignation of Simon de Pury, we named Henry Wyndham,
formerly Chairman of Sotheby's United Kingdom, to the position of Chairman,
Sotheby's Europe. We know that Henry will be a strong leader in his new role. We
are also very pleased that Robin Woodhead has joined Sotheby's as Co-Managing
Director with George Bailey of Sotheby's Europe. Robin comes to Sotheby's with
excellent managerial and entrepreneurial experience, having been Chief Executive
of the London Commodity Exchange, and considerable experience both in the United
States and on the Continent. We have made another key appointment this
<PAGE>
year. Charles Moffett, Director of the Phillips Collection in Washington, D.C.,
will join us in April as Co-Chairman, with Michel Strauss, of Impressionist and
Modern art worldwide bringing 25 years of expertise and leadership with some of
America's greatest art institutions. We are delighted to welcome him to this
important role.
The 1998 auction year has begun extremely well, continuing the momentum
seen in our strong 1997 sales. Americana auctions continue to reach
record-breaking levels, with our January sales bringing $26 million, the highest
in auction history. The series was highlighted by the single-owner sales of
American Silver from The Masco Corporation, the Collections of Stanley Paul Sax
and Mr. and Mrs. Al Luckett, Jr. Our Old Master paintings auctions have been
extraordinary in both New York and London. The January auction in New York
included an exceptional group of the most important masters in history. The
world-record Old Master paintings auction brought $53 million, with 12 paintings
selling for more than $1 million, confirming the continued strength of this
market.
Among the most important highlights of the 1998 year will be the auction
of the collection of the Duke and Duchess of Windsor. As you may know, Sotheby's
was scheduled to sell this collection in September 1997. However, following the
tragic deaths of Diana, Princess of Wales, and Mr. Dodi Fayed, the eldest son of
Mr. Mohamed Al Fayed, owner of the contents of the Paris home of the Duke and
Duchess of Windsor, a decision was made to postpone the auction. The auction was
rescheduled to take place from February 19th to 27th, 1998, in New York.
Proceeds from the 3,200 lot, 9-day auction will now benefit the Dodi Fayed
International Charitable Foundation, whose principal purpose will be to provide
funds for causes supported by Princess Diana and Dodi Fayed during their
lifetimes.
France remains a major growth opportunity for us, once we have received
government approval to conduct auctions there. We have opened wonderful new
premises on the rue du Faubourg Saint-Honore and have already lined up several
exciting auctions there, including the sale of Le Chateau de Groussay, home of
Charles de Beistegui, the first sale of its kind to be undertaken by the Company
on French soil. This sale is an excellent example not only of the opportunities
available in the French market, but also the cross-marketing opportunities
between our auction and real estate companies.
We are enthusiastic about the exciting times ahead of us. We are confident
in the steady growth of the art market and we are committed to providing the
highest financial returns possible. We remain grateful to our clients, employees
and you, our shareholders, for your continued support of the growth and success
of Sotheby's.
/s/ A. Alfred Taubman /s/ Diana D. Brooks
A. ALFRED TAUBMAN DIANA D. BROOKS
Chairman President and Chief Executive Officer
THEME:
BLUEPRINT FOR THE FUTURE
97
------
ANNUAL
------
REPORT
------
-->
COMPANY:
SOTHEBY'S HOLDINGS, INC.
PAGE NUMBER: A-15
<PAGE>
>WHAT IS SOTHEBY'S?
For more than 250 years, Sotheby's has looked toward the future while
respecting the traditions of its past. With the millennium fast approaching, we
have spent time this year defining Sotheby's today and Sotheby's in the future.
In many ways, our plans to transform our American headquarters and auction
center in New York into a state-of-the-art auction sales and services center
represent our vision for the future. Therefore, the theme for this year's annual
report, Blueprint for the Future, is an appropriate one, and a fitting platform
for sharing some of our future plans with you.
Today we are a service company, preeminent in the fields of art, antiques
and other fine objects. Art and service are the two things that best define us.
We are a continuously evolving company that is building creatively for the
future while maintaining the highest respect for our traditions and culture. It
is perhaps this single-minded emphasis on the changing needs of our diverse,
international clientele that has guided and strengthened Sotheby's through its
long and memorable history. With a new century beckoning, the word service has
an even greater meaning to our future success.
Sotheby's has always been a company of new ideas and creativity. We have
pioneered many new auction categories, introduced financing and education to the
auction market, and inaugurated such related services as real estate and
restoration in our ongoing efforts to broaden our reach in the art industry. The
art market has grown dramatically in recent decades. It is now very much a
global market, ever expanding and drawing new participants. Sotheby's has been
at the leading edge of that growth, often shaping its direction and character.
To many, the name Sotheby's is synonymous with the art market. It is a name that
connotes tradition as well as change, integrity and innovation.
One way to protect the value and power of our name is by maintaining and
building our core business. We remain deeply committed to upholding the great
traditions of our firm by building and strengthening Sotheby's core auction
business, while at the same time providing new and creative services in related
lines of business. In the short term, we plan to remain focused on driving our
existing initiatives of real estate, financial services, private treaty sales,
education and restoration to their fullest potential, while exploring other
future opportunities.
In many ways, the auction house is a public space much like a museum,
opening its doors to share with the public the diverse works of art that will
soon change hands. Sotheby's has always been a public-minded organization, using
its resources to service not only the local neighborhoods where it conducts
business, but also the arts community as a whole. Throughout the year our
premises and specialists around the globe are made available to many charities
and events in support of numerous educational and arts institutions. In 1997
alone, our auctioneers gave their time and service to nearly 400 charity
auctions and we held almost 200 benefit events at our premises. We are committed
to making our resources available to a variety of organizations, communities and
causes throughout the world.
<PAGE>
[PHOTO OMITTED]
"Sotheby's is a company of talented
PEOPLE constantly exploring
new ideas. It is this kind of
creative energy that sets us apart."
THEME:
BLUEPRINT FOR THE FUTURE
97
------
ANNUAL
------
REPORT
------
-->
NAME/TITLE:
>Diana D. Brooks, President and Chief Executive Officer
PAGE NUMBER: A-17
<PAGE>
[GRAPHIC OMITTED]
--> INNOVATIVE
SOTHEBY'S IS
AN INNOVATIVE COMPANY,
APPROACHING NEW OPPORTUNITIES
IN THE MARKETPLACE WITH
EXPERIENCE AND VISION.
<PAGE>
>SOTHEBY'S CORE
Our core business, the auction business, is one of the most fascinating in the
world. It is one of enormous appeal to a broad spectrum of participants
throughout the globe. The drama of the auction itself offers the public an
opportunity to compete in an open forum for works that encompass an
extraordinary range of collecting interests--from Impressionist and Old Master
paintings to Tyrannosaurus rex fossils. To the many professionals at Sotheby's,
the auction business is one of profound passion and commitment, demanding
exceptional specialist knowledge and a deep concern for the needs of our
clients. Our specialists remain the bedrock of our business, with our department
heads having an average of nearly 20 years of experience in the business.
Sotheby's is over 250 years old. This fact adds a measure of mystique to
the business, since its foundation and corporate identity are rooted in an age
so far removed in time. But in fact, Sotheby's--and the auction business
itself--is constantly evolving and changing. It is an inclusive business, with
public exhibitions and auctions opening the doors to the widest possible
participation. Here again, our long tradition of providing premier service to
our clients means we must be ever responsive to change and improvement in the
way we do business.
CLIENT SERVICE: THE FOUNDATION OF OUR BUSINESS > As a global organization, with
offices and representatives worldwide, we must operate as one company with a
unified approach to delivering service that is tailored to the unique needs and
demands of each locale in which we operate. One of our most important goals,
then, is to make Sotheby's a world-class service organization with the highest
standards in the art industry.
To this end, in the summer of 1997 we completed a review of client service
at our main auction centers in New York and London that was undertaken with the
help of outside consultants. The study resulted in recommendations for a plan to
improve Sotheby's client service throughout the world, unifying and
strengthening our approach in this crucial area. The new plan will strengthen
and improve client communication. It will streamline and expedite payment and
property release procedures while enhancing our information systems to improve
relationship management.
In every part of the world where Sotheby's does business, and especially
at each of our major international business centers, we will strive to create a
fully integrated headquarters, one that will centralize all of our services and
will deliver the most effective management of client relationships by our senior
specialists and management. In this way we will be able to cross-market more
effectively the many services we offer while ensuring the highest level of
timely and personal interaction with our clients, which will help ensure their
loyalty to the firm.
BUSINESS DEVELOPMENT: COMPETING FOR AUCTION PROPERTY THROUGHOUT THE WORLD >
Sotheby's is constantly attuned to new business opportunities, whether it be a
single work of art or a major private collection. We are sensitive to every
business opportunity that arises, which we pursue with energy and
resourcefulness. In the auction world, the fierce competition for the finest
property demands nothing less than the highest level of service in this critical
area of our business.
Developing new business requires an innovative and well-orchestrated team
effort by Sotheby's worldwide staff, from specialists and trusts and estates
professionals to marketing and promotional experts and
<PAGE>
[PHOTO OMITTED]
"Sotheby's has a
long-standing commitment to maintain
and uphold the highest standard of
EXPERTISE."
THEME:
BLUEPRINT FOR THE FUTURE
97
------
ANNUAL
------
REPORT
------
-->
NAME/TITLE:
>Henry Wyndham, Chairman, Europe
PAGE NUMBER: A-19
<PAGE>
[GRAPHIC OMITTED]
--> TRADITION
SOTHEBY'S IS
A MODERN COMPANY
BUILDING FOR THE FUTURE
WHILE RESPECTING ITS
TRADITION AND CULTURE.
<PAGE>
exhibition designers. We must make the strongest presentation for winning new
business. We must also demonstrate our ability to tap the full resources of our
firm in achieving the highest possible financial return for a sale at auction.
This competition demands a constant striving for new ideas, the breaking of new
ground in selling works of art at auction. Every client and every piece of
business is critical to Sotheby's, and our approach to each new business
opportunity must be tailored to the client's most exacting needs and
expectations. We will continue to remain competitive in this ever changing and
evolving industry by finding, to the best of our ability, innovative approaches
to serving our clients.
STRENGTHENING SOTHEBY'S GLOBAL ORGANIZATION > Sotheby's worldwide network
includes 110 offices located in 46 countries. Our principal salerooms are
located in New York and London, but we also conduct auctions in 18 other
locations around the world. Our future growth relies on our ability to
capitalize on opportunities throughout the world, especially in Europe, North
and South America and Asia.
EUROPE > In Europe there exist good opportunities for growth, particularly in
France, Germany, Switzerland and England. Perhaps our most important immediate
opportunity lies in France, where we have just moved into new premises in Paris
that will set the stage for extensive future growth once this market opens to
foreign auctioneers. The site of the new Sotheby's office is the former home of
the historic Galerie Charpentier on the prestigious rue du Faubourg
Saint-Honore. Fully modernized and remodeled, this facility will enable us to
conduct exhibitions and auctions in Paris and will also accommodate our growing
specialist staff there.
Over the last several years, Sotheby's has grown to become a recognized
force in Germany, notably in estate sales. We believe that the German market has
extensive future possibilities, both in the purchasing power of clients within
the country and through our ability to capture a larger share of that market.
Our future goal will be to broaden our franchise in Germany, utilizing developed
strategies to meet the ever-growing demands there.
Switzerland represents an important growth market for Sotheby's. We have a
well-established presence throughout Switzerland and we are exploring concepts
for broadening our market opportunities there. In England, where our company was
founded, our future goal is to define this market and its direction and then to
maintain and develop a course of action that meets the demands of this
historically important place.
NORTH AND SOUTH AMERICA > Bolstered by a strong $8 trillion economy, the auction
market in the United States has seen the emergence and active participation of
many new clients. Today, the United States accounts for 50% of our business. We
have made important advances in this market, finding innovative ways to reach
new clients and to convert them into repeat auction participants.
Our blueprint for future operations in the United States includes
undertaking a large capital commitment to completely rebuild our existing
American headquarters and auction sales center on York Avenue in New York into a
state-of-the-art facility. Once completed in the year 2000, the new building
will incorporate all of Sotheby's many services, providing the most advanced,
innovative, full-service center in the art world. Our clients will find doing
business with Sotheby's in this new building exciting and even more accessible.
It will greatly
<PAGE>
[PHOTO OMITTED]
"We provide the highest
QUALITY service
to our clients by working together as
one company catering to many
different needs."
THEME:
BLUEPRINT FOR THE FUTURE
97
------
ANNUAL
------
REPORT
------
-->
NAME/TITLE:
>Richard Oldenburg, Chairman, North & South America
PAGE NUMBER: A-21
<PAGE>
[GRAPHIC OMITTED]
--> SERVICE
SOTHEBY'S IS
A NAME SYNONYMOUS WITH
ART AND SERVICE.
<PAGE>
expand our exhibition and auction saleroom space in New York, providing a
cultural arts center for the city.
Another strategic initiative for North and South America is to strengthen
our regional network, locating offices and representatives in areas that will
better access clients and service their needs. This year we completed the
acquisition of Leslie Hindman Auctioneers in Chicago, the largest auctioneer in
the midwestern United States. We plan to capitalize on the important midwest
region, rich in major private collectors, by increasing the number and variety
of auctions we hold in Chicago each year, allowing us to serve more clients in a
setting more convenient to them. This acquisition also enables us to create a
model for selling high volumes of lower-valued property profitably in a regional
setting. This model could then be used on a national basis.
ASIA > While Asia currently represents less than 10% of our business, it remains
an important region for Sotheby's future opportunities. It is an ever evolving
and changing region, one that must be handled with a flexibility that matches
the volatility in the Asian economies. We believe that some of the countries
currently experiencing financial difficulties, most of which are not significant
drivers of our Asian business, will be a source of future growth for us,
although this growth may be deferred by these economic issues. Our challenge
will be to position ourselves to reach and access the most clients throughout
Asia while understanding that there is tremendous economic fluctuation within
each country. In the future we will strive to broaden our name recognition so
that our franchise is known to more clients and make our resources available to
better connect our Asian clients to our worldwide network. We want to have a
strong presence and be available to clients in each country with growth
potential, while being flexible to capitalize on market opportunities,
especially in the areas of jewelry, ceramics, fine arts and commodity-related
areas such as coins and stamps.
STRENGTHENING SOTHEBY'S CORE AUCTION ACTIVITIES > Our continuing growth and
success in the world auction market depends on our unceasing efforts to improve
and strengthen our core auction activities. We are always sensitive to the
changing nature of the art market as well as to the constant demand for
innovations and fresh new approaches to the buying and selling of artwork. These
demands have become all the more crucial with the increased participation of
many affluent new buyers who continue to enter the art market.
One such innovation is the way we will offer 19th and 20th Century art at
auction. While we have decided to continue to sell this art in three separate
categories of 19th Century, Impressionist & Modern, and Contemporary art, we
have changed the scheduling of these sales to better serve our clients. As a
result of market research, we discovered that the highest client buying
crossover between categories occurred between Impressionist & Modern art (52%),
further confirming our decision not to split these two categories into separate
sales. Under the new schedule, our Impressionist & Modern and Contemporary art
auctions will take place in the same week during May and November in New York
and during June and December in London. In order to present this entire period
of art history at one time and to better meet the needs of our 19th Century art
clients, our 19th Century art auctions will take place the week before
Impressionist & Modern and Contemporary art sales, with the Impressionist &
Modern works on view throughout the entire period. In this way, our clients will
be able to see the Impressionist & Modern art sale at any time over a twelve-day
viewing period, instead of the present five-day period.
<PAGE>
[PHOTO OMITTED]
"If we remain
FLEXIBLE in an ever changing
world, our opportunities for growth
and future success will
be significant."
THEME:
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NAME/TITLE:
>Alice Lam, Co-Chairman, Asia
PAGE NUMBER: A-23
<PAGE>
[GRAPHIC OMITTED]
--> DYNAMIC
SOTHEBY'S IS
A DYNAMIC COMPANY GROWING
AND CHANGING TO MEET
THE NEEDS OF AN EVOLVING
MARKETPLACE.
<PAGE>
In a related change, this year we dramatically redesigned the catalogue
for our Contemporary art sales, creating an enlarged, museum-like format that
has won praise for its energy and excitement. The Contemporary art market showed
renewed strength in 1997, and we feel that our new catalogue captures the
vitality and confidence of this important collecting field.
Our public exhibitions draw large crowds and are, like museum exhibitions,
often reviewed by the media. Sotheby's has long been praised for its exhibitions
of paintings and furniture. Understanding the ability of these exhibitions to
influence auction buying, this year we greatly enhanced our exhibition designs
for a number of important sales. In New York, for example, we auctioned one of
the world's most celebrated dinosaur fossils, "Sue," the largest and most
complete skeleton of a Tyrannosaurus rex ever found. The exhibition utilized an
enormous slide diagram illustrating the complete skeleton of "Sue," thus
creating a unique educational setting for interested buyers, the general public
and students alike, resulting in a highly successful auction.
>SOTHEBY'S BEYOND THE CORE BUSINESS
The global art market continues to grow and evolve, drawing new collectors while
posing challenges to the way business is performed. Sotheby's remains committed
to exploring new areas where we can be of greatest service to the market and to
our clients. It was this philosophy that led to the creation of our allied
businesses of real estate, private sales, restoration, education and financial
services, all of which continue to complement our core auction business while
enhancing profitability.
SOTHEBY'S INTERNATIONAL REALTY > Sotheby's International Realty, in particular,
has enjoyed remarkable growth. In 1997 it recorded the highest sales in its
history, with profits up 28% over 1996. The over 1,200 transactions handled by
Realty this year recorded an average selling price of approximately $1.3
million, confirming its distinction as one of the premier sellers of luxury real
estate in the world. Increases were made in every sector of our real estate
operations, from our direct brokerage offices to our affiliate network,
including increases in the number of referrals between Realty and the auction
house.
Our future strategy is to build and strengthen Sotheby's International
Realty's position in the currently expanding preeminent real estate markets
throughout the world. To this end, we will continue to selectively grow the
number of company-owned direct brokerage offices in our network, following the
lead of the auction company. In Europe, for example, we are developing realty
offices in London and Paris that will be strengthened by Sotheby's already
existing auction operations, thus aiding the natural synergy between the sales
of real estate and art work. In France, we have recently announced the sale of
Le Chateau de Groussay, home of the late Charles de Beistegui, one of the
trendsetters of the 20th century. Le Chateau de Groussay stands as his greatest
achievement, a masterpiece of imaginative and theatrical use of historic styles.
Sotheby's International Realty will advise on the sale of this magnificent and
unique chateau with its surrounding buildings and grounds, while Sotheby's will
conduct the sale of the chateau's contents, which have an estimate of $30
million. This will be the first sale of its kind to be undertaken by Sotheby's
on French soil.
<PAGE>
[PHOTO OMITTED]
"We will aggressively
pursue OPPORTUNITIES
for cross-marketing our services to
achieve maximum growth."
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NAME/TITLE:
>Stuart Siegel, President, International Realty
PAGE NUMBER: A-25
<PAGE>
[GRAPHIC OMITTED]
--> GROWTH
SOTHEBY'S IS
POISED FOR STRATEGIC
GROWTH IN
THE NEW CENTURY.
<PAGE>
Our direct brokerage business was responsible for nearly 70% of our
revenue last year. Additionally, we are pleased that our recently expanded
presence on the West-Coast and our new brokerage offices on the east coast of
Long Island, New York, and in Greenwich, Connecticut, have all significantly
contributed to our profitability. Our primary future goal is to grow Sotheby's
Direct Brokerage business while simultaneously providing greater support to our
affiliate network.
FINANCIAL SERVICES > Sotheby's Financial Services has been an important business
for Sotheby's for nearly two decades, creating valuable relationships. It has
provided collectors, museums and dealers with financing secured by works of art
and has been a creative vehicle for us to obtain business. Today, Financial
Services is growing, with a loan portfolio of $276 million at year end, up 80%
over 1996. While currently prevailing financial and market factors are reducing
the demand for art-related financing, we believe that growth in this business
may come from several areas. We hope to solidify and grow our existing core
business of art-related financing, and we plan to expand our Financial Services
into other businesses closely related to our own where we see significant
opportunities.
SOTHEBY'S VENTURES > Another service which is growing in importance to our
clients is the private sale of artwork. This business, which we have formalized
to meet this growing demand, is an increasing source of revenue for Sotheby's.
It will encompass private sales, principal transactions and financing
partnerships with dealers, serving to create new and enhance existing
relationships for us. As the business cycle for private transactions may be
different than that of the auction company, Ventures will enable us to more
effectively spread our risk. We are ideally suited to take advantage of this new
opportunity given our client relationships, knowledge of potential business and
property location, experienced personnel and financing capabilities. We believe
that Sotheby's Ventures provides another important service to our clients,
enhancing our effectiveness in the art market.
THE 20TH CENTURY ART GALLERY PROGRAM > There are many promising opportunities in
the Contemporary art field today and a growing interest in younger artists. With
this in mind, we undertook an important new initiative with the 20th Century Art
Gallery Program that is being developed and managed by art dealer and advisor
Jeffrey Deitch. Mr. Deitch joined Sotheby's this year to inaugurate this
exciting new program, which will incorporate the Deitch and Emmerich Galleries,
as well as Deitch Projects, which specializes in artists from 1980 onward. The
Gallery Program will emphasize private sales of 20th Century art and will enable
us to reach a much wider audience than exists now for new art.
SOTHEBY'S IS > innovative...traditional...dynamic...flexible...creative...a
company dedicated to service and quality. As we approach the new century, we
will continue to emphasize profitability while exploring opportunities for
growth. These are the values and goals that will define our blueprint for the
future.
<PAGE>
PROFITABILITY
REMAINS OUR
KEY FINANCIAL
PRIORITY.
- --> PROFITABLE
SECTION B TABLE OF CONTENTS > (28) SELECTED FINANCIAL DATA (29) MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (33)
CONSOLIDATED STATEMENTS OF INCOME (34) CONSOLIDATED BALANCE SHEETS (35)
CONSOLIDATED STATEMENTS OF CASH FLOWS (36) CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY (37) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (49) REPORT
OF INDEPENDENT AUDITORS (49) REPORT OF MANAGEMENT (49) AUDIT AND COMPENSATION
COMMITTEE CHAIRMAN'S LETTER
SECTION:
CONSOLIDATED FINANCIAL STATEMENTS
97
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ANNUAL
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REPORT
------
-->
COMPANY:
SOTHEBY'S HOLDINGS, INC.
PAGE NUMBER: B-27
<PAGE>
> SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31
(Thousands of dollars, except per share data) 1997 1996 1995 1994 1993
================================================== =========== =========== =========== =========== ===========
<S> <C> <C> <C> <C> <C>
AUCTION SALES(1) $ 1,843,335 $ 1,599,595 $ 1,665,378 $ 1,330,001 $ 1,325,334
----------- ----------- ----------- ----------- -----------
AUCTION AND RELATED REVENUES 336,559 300,472 284,051 233,451 229,886
OTHER REVENUES 45,233 36,024 28,829 26,212 19,790
----------- ----------- ----------- ----------- -----------
TOTAL REVENUES $ 381,792 $ 336,496 $ 312,880 $ 259,663 $ 249,676
OPERATING INCOME 67,759(2) 68,208 56,841 33,033 30,785
INCOME BEFORE TAXES 64,457(2) 68,244 54,303 33,765 32,157
----------- ----------- ----------- ----------- -----------
NET INCOME $ 40,608(3) $ 40,946 $ 32,582 $ 20,259 $ 19,294
----------- ----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE $ 0.73(3) $ 0.73 $ 0.58 $ 0.36 $ 0.35
----------- ----------- ----------- ----------- -----------
DILUTED EARNINGS PER SHARE $ 0.72(3) $ 0.73 $ 0.58 $ 0.36 $ 0.35
----------- ----------- ----------- ----------- -----------
CASH DIVIDENDS DECLARED PER SHARE $ 0.40 $ 0.32 $ 0.24 $ 0.24 $ 0.42
----------- ----------- ----------- ----------- -----------
As at December 31
(Thousands of dollars) 1997 1996 1995 1994 1993
================================================== =========== =========== =========== =========== ===========
WORKING CAPITAL $ 121,722 $ 57,466 $ 101,394 $ 70,031 $ 75,276
TOTAL ASSETS 860,241 656,098 600,104 557,084 559,356
COMMERCIAL PAPER 117,000 -- 38,000 27,500 34,000
NET DEBT (CASH)(4) 85,526 (63,675) 3,103 1,416 (53,257)
SHAREHOLDERS' EQUITY 258,268 253,472 227,482 211,052 194,632
=========== =========== =========== =========== ===========
</TABLE>
(1) Auction sales represent sales at the hammer price plus buyer's premium.
(2) Includes 1997 non-recurring charges of $11.7 million.
(3) Includes 1997 non-recurring charges of $7.4 million after tax.
(4) Short-term borrowings and commercial paper less cash and cash equivalents.
PAGE NUMBER: B-28
<PAGE>
> MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997 AND 1996 > Auction sales for
Sotheby's Holdings, Inc. (together with its subsidiaries, the "Company") totaled
$1,843.3 million during 1997, an increase of $243.7 million, or 15%, compared to
the prior year. The increase in worldwide sales was primarily a result of
broad-based growth in virtually every collecting category. Sales of Fine Art
increased 25%, led by increases in Impressionist and Modern art, Old Master
paintings and Contemporary art. Other sales increases included Books, Asian
Works of Art and Wine. 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 1997
and 1996:
(Thousands of dollars) 1997 1996
===================================================== ==========
NORTH AMERICA $ 919,028 $ 770,438
EUROPE 828,192 751,154
ASIA 96,115 78,003
---------- ----------
TOTAL $1,843,335 $1,599,595
========== ==========
The sales increase in North America of $148.6 million, or 19%, during 1997 was
primarily a result of increases in Impressionist and Modern art, Old Master
paintings and Contemporary art. Sales in Europe, which for purposes of this
discussion consists of the United Kingdom ("U.K.") and continental Europe ("the
Continent"), increased $77.0 million, or 10%, primarily due to Old Master
paintings, Books, Impressionist and Modern art and Wine. Asian sales increased
$18.1 million, or 23%, due primarily to increased sales of Asian Works of Art.
The Company continues to focus on growth in the Asian market but is unable to
predict the effect, if any, of the unstable Asian economy on the Company's
operating results.
Worldwide revenues from auction and related operations increased $36.1 million,
or 12%, in 1997 compared to 1996. This increase is primarily due to higher
commission revenue (which consists of buyer's premium, seller's commission and
expense recoveries) which resulted from the increased auction sales discussed
above and to an increase in commissions from private treaty sales. These
increases were offset, in small part, by a decrease in commission rates earned
from sellers at auction, primarily as a result of the mix of sales.
Other revenues consists primarily of revenues from art-related financing
activities, real estate operations, principal activities, Emmerich Galleries and
educational activities. Other revenues increased $9.2 million, or 26%, in 1997
compared to 1996. This growth was due to increases in both real estate and
financing activities offset in part by decreases in principal activities. The
increase in real estate revenue was driven by an increase in real estate sales.
Financing activity growth was primarily due to an increase in the average loan
portfolio. The average loan portfolio increased to $215.8 million in 1997 from
$148.0 million in 1996. 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 investments in Acquavella Modern Art ("AMA")
and other equity investments; net income (loss) earned from guarantees; and
provisions for write-downs of inventory to estimated net realizable value. The
decrease in revenues from principal activities was primarily due to lower income
earned from guarantees.
Direct costs of services (consisting largely of catalogue production and
distribution costs as well as corporate marketing and sale marketing expenses)
totaled $70.4 million in 1997, an increase of $7.3 million, or 12%, compared to
1996. This increase is primarily a result of increased sales in 1997 offset by a
decline in expenses associated with the sale of Property from the Estate of
Jacqueline Kennedy Onassis which were fully recovered and reflected in auction
and related revenues in 1996. Excluding these costs, direct costs as a
percentage of sales totaled 3.8% in 1997 compared to 3.7% in 1996.
Excluding non-recurring charges of $11.7 million in 1997, all other operating
expenses (which consist of salaries and related costs, general and
administrative expenses and depreciation and amortization) increased $26.8
million, or 13%, compared to 1996. This increase was primarily due to a $17.5
million, or 15%, increase in salaries and related costs and a $7.7 million, or
9%, increase in general and administrative expenses. These increases were
primarily a result of new initiatives.
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 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 also conducted its own internal review. Both reviews were
completed in 1997. In 1997, the Company incurred $11.7 million of non-recurring
charges which consisted primarily of legal and other professional fees
associated with the Board of Directors' Independent Review Committee.
Interest income decreased $1.2 million in 1997 compared to 1996 reflecting lower
cash balances largely due to the increase in the Company's average loan
portfolio. Interest expense increased $2.4 million mostly as a result of
additional overnight and commercial paper borrowings to fund the higher average
loan portfolio.
1997 > Sotheby's Holdings, Inc. and Subsidiaries PAGE NUMBER: B-29
<PAGE>
> MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
The consolidated effective tax rate was 37% in 1997 compared to 40% in 1996.
This decrease is primarily a result of higher earnings during 1997 in lower tax
rate jurisdictions and lower earnings in higher tax rate jurisdictions.
Net income for 1997 of $40.6 million was flat compared to $40.9 million in 1996.
Basic earnings per share remained flat at $0.73 in 1997 compared to 1996.
Excluding non-recurring charges, net income increased 17% to $48.0 million and
basic earnings per share increased 18% to $0.86 from $0.73 in 1996. Movements in
foreign currencies did not have a material impact on 1997 revenues or expenses.
RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1995 > Auction sales for
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 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 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.
Worldwide revenues from auction and related operations in 1996 of $300.5 million
increased $16.4 million, or 6%, over 1995. Auction and related revenues 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. The increase in
commissions was largely due to the positive impact of the Company's new seller's
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 increased $7.2 million when compared to 1995 due mostly to an
increase in revenues from principal and real estate activities. The increase in
revenues from principal activities was largely 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 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 revenues. Excluding these costs,
direct costs in 1996 declined slightly and totaled 3.7% of auction sales,
relatively unchanged compared to the prior year.
All other operating expenses 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.
PAGE NUMBER: B-30
<PAGE>
> MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
Movements in foreign currencies did not have a material impact on 1996 revenues
or expenses. Basic earnings per share increased to $0.73 in 1996 from $0.58 in
1995, an increase of 26%.
LIQUIDITY AND CAPITAL RESOURCES > The Company's net debt position (short-term
borrowings and commercial paper less cash and cash equivalents) totaled $85.5
million at December 31, 1997, compared to a net cash position of $63.7 million
at December 31, 1996 and net debt of $3.1 million at December 31, 1995. Working
capital (current assets less current liabilities) at December 31, 1997 was
$121.7 million, compared to $57.5 million and $101.4 million at December 31,
1996 and 1995, respectively.
The Company's client loan portfolio increased to $276.4 million at December 31,
1997 from $153.1 million and $144.2 million at December 31, 1996 and 1995,
respectively. These amounts include $112.0 million, $69.4 million and $42.7
million of loans which have a maturity of more than one year at December 31,
1997, 1996 and 1995, respectively.
The Company relies on internally generated funds and borrowings to meet its
financing requirements. The Company may issue up to $200 million of short-term
notes pursuant to its U.S. commercial paper program. At December 31, 1997,
$117.0 million of commercial paper was outstanding. 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 1997, the Company's primary sources of liquidity were derived from
commercial paper borrowings and supplemented by available cash balances and
operations. The most significant cash uses during 1997 were net funding of the
client loan portfolio of $124.4 million, payment of shareholder dividends and
repurchases of common stock. The Company paid dividends to shareholders of $22.4
million in 1997 (of which $5.6 million was declared and paid in 1997 with
respect to 1996) and repurchased $20.0 million of common stock. In the first
quarter of 1998, the Company declared and will pay dividends of $5.6 million in
respect of the fourth quarter of 1997.
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.
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).
Capital expenditures, consisting primarily of office and auction facility
refurbishment and the acquisition of computer equipment, totaled $17.5 million
for 1997, $9.8 million for 1996 and $8.4 million for 1995.
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, 1997, 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 principal
auction premises for the requirements of the present and future conduct of its
business. An application to re-zone the site of the Company's New York auction
facility and the global headquarters was filed with New York City in October of
1997. The filing outlined the Company's intent to construct a six story addition
to and renovate its current facility on York Avenue. The City of New York has
decided to permit the Company to proceed on a "short" zoning application process
with the target of Summer 1998 for the issuance of a building permit and
initiation of construction.
This planned construction will expand auction, warehouse and office space in New
York City and will enable the Company to consolidate its auction operations in
New York into one facility. If the project is approved by the City of New York,
the capital expenditures relating to the new building construction will be in a
range of $100-115 million. As of February 27, 1998 the Company has financial
commitments in relation to this project of approximately $12 million.
1997 > Sotheby's Holdings, Inc. and Subsidiaries PAGE NUMBER: B-31
<PAGE>
> MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
The Company is currently discussing financing options with various financial
institutions but believes that adequate capital and debt financing, will be
available to complete this proposed project.
The Company recognizes the issues associated with the Year 2000 and the need to
ensure that its operations will not be adversely impacted by Year 2000
information systems failures. The Company has evaluated its existing worldwide
financial systems in light of Year 2000 issues and various new technologies
being offered in the market place. The Company has made a decision to replace
its worldwide financial systems and has determined that this will require a
significant use of capital, which the Company believes is adequately available.
In addition to the replacement of worldwide financial systems referred to above,
modifications of other existing information systems will be required to address
Year 2000 issues. The Company is in the process of evaluating the financial
impact of these modifications and does not believe that the cost to ensure Year
2000 compliance for these other existing information systems will be material.
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's
New York auction facility. 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.
[V] The planned construction of a New York auction facility and global
headquarters.
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 R to the Consolidated Financial Statements).
Percentage of annual auction sales
1997 1996 1995
============================================ =========== ===========
JANUARY - MARCH 11% 10% 11%
APRIL - JUNE 35 39 39
JULY - SEPTEMBER 8 9 7
OCTOBER - DECEMBER 46 42 43
----------- ----------- -----------
100% 100% 100%
=========== =========== ===========
FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS > In June 1997, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income", which is
effective for fiscal years beginning after December 15, 1997 with earlier
application permitted. The Company will adopt this standard in the first quarter
of 1998. This statement requires certain transactions to be included as
adjustments to net income in order to report comprehensive income. These
transactions represent items that, under previous accounting standards, bypassed
the statement of income and were reported directly as adjustments to the equity
section of the balance sheet. Adoption of this standard will require the Company
to report these transactions, which may be material, on the statement of
comprehensive income.
The FASB also issued SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information" in June of 1997, which is effective for fiscal years
beginning after December 15, 1997 with earlier application permitted. The
Company will adopt this standard for the year ended December 31, 1998. This
statement requires additional disclosure of financial and descriptive
information on operating segments. Adoption of this standard may require the
Company to report information about certain operating segments that was not
previously disclosed.
PAGE NUMBER: B-32
<PAGE>
> CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31
(Thousands of dollars, except per share data) 1997 1996 1995
============================================================================== ============ ============ ============
<S> <C> <C> <C> <C>
REVENUES Auction and related $ 336,559 $ 300,472 $ 284,051
(NOTE B) Other (Notes E and F) 45,233 36,024 28,829
------------ ------------ ------------
Total revenues 381,792 336,496 312,880
------------ ------------ ------------
============================================================================== ============ ============ ============
EXPENSES Direct costs of services 70,364 63,090 59,978
Salaries and related costs (Note L) 131,874 114,360 105,285
General and administrative (Note J) 89,038 81,368 79,548
Depreciation and amortization (Notes B and G) 11,057 9,470 11,228
Non-recurring charges (Note P) 11,700 -- --
------------ ------------ ------------
Total expenses 314,033 268,288 256,039
------------ ------------ ------------
Operating income 67,759 68,208 56,841
------------ ------------ ------------
Interest income 3,047 4,266 3,176
Interest expense (Note H) 6,018 3,643 5,850
Other income (expense) (331) (587) 136
------------ ------------ ------------
Income before taxes 64,457 68,244 54,303
Income taxes (Note I) 23,849 27,298 21,721
------------ ------------ ------------
Net income $ 40,608 $ 40,946 $ 32,582
------------ ------------ ------------
Basic earnings per share (Note B) $ 0.73 $ 0.73 $ 0.58
============ ============ ============
Diluted earnings per share (Note B) $ 0.72 $ 0.73 $ 0.58
============ ============ ============
Dividends per share $ 0.40 $ 0.32 $ 0.24
============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
1997 > Sotheby's Holdings, Inc. and Subsidiaries PAGE NUMBER: B-33
<PAGE>
> CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Thousands of dollars) As at December 31
ASSETS 1997 1996
====================================================================================== ========= =========
<S> <C> <C> <C>
CURRENT Cash and cash equivalents $ 33,642 $ 66,886
ASSETS Accounts and notes receivable, net of allowance
for doubtful accounts of $10,419 and $10,156 (Note D)
Accounts receivable 315,274 250,780
Notes receivable 160,807 81,218
Other 35,448 13,353
--------- ---------
Total accounts and notes receivable, net 511,529 345,351
--------- ---------
Inventory, net (Note E) 23,574 14,801
Deferred income taxes (Note I) 6,401 4,655
Prepaid expenses and other current assets (Note L) 18,511 14,689
--------- ---------
Total current assets 593,657 446,382
--------- ---------
- -------------------------------------------------------------------------------------- --------- ---------
NON-CURRENT Notes receivable (Note D) 111,974 69,418
ASSETS Properties, less allowance for depreciation
and amortization of $70,342 and $63,983 (Notes G and J) 78,542 70,576
Intangible assets, less allowance for
amortization of $16,671 and $15,607 32,618 27,199
Investments (Note F) 37,466 35,834
Other assets 5,984 6,689
--------- ---------
Total Assets $ 860,241 $ 656,098
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
====================================================================================== ========= =========
CURRENT Due to consignors (Notes D and M) $ 352,437 $ 276,967
LIABILITIES Short-term borrowings (Note H) 2,168 3,211
Accounts payable and accrued liabilities 87,252 75,807
Deferred revenues 6,510 7,166
Accrued income taxes (Note I) 23,568 25,765
--------- ---------
Total current liabilities 471,935 388,916
--------- ---------
- -------------------------------------------------------------------------------------- --------- ---------
LONG-TERM Commercial paper (Note H) 117,000 --
LIABILITIES Deferred income taxes (Note I) 11,908 12,493
Other long-term obligations 1,130 1,217
--------- ---------
Total Liabilities 601,973 402,626
--------- ---------
- -------------------------------------------------------------------------------------- --------- ---------
SHAREHOLDERS' Common stock, $.10 par value
EQUITY (NOTE K) Authorized shares - 125,000,000 of Class A and 75,000,000 of Class B
Issued and outstanding shares 38,762,656 and 38,669,411 of Class A,
and 17,058,400 and 17,214,987 of Class B at December 31, 1997
and 1996, respectively 5,582 5,589
Additional paid-in capital 71,132 78,382
Retained earnings 197,027 178,805
Foreign currency translation adjustments (15,473) (9,304)
--------- ---------
Total Shareholders' Equity 258,268 253,472
--------- ---------
Total Liabilities and Shareholders' Equity $ 860,241 $ 656,098
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
PAGE NUMBER: B-34
<PAGE>
> CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
(Thousands of dollars) 1997 1996 1995
============================================================================== ============ ============ ============
<S> <C> <C> <C>
OPERATING Net income $ 40,608 $ 40,946 $ 32,582
ACTIVITIES Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,057 9,470 11,228
Deferred income taxes (2,699) 471 997
Tax benefit of stock option exercises 1,766 2,341 250
Asset provisions 4,390 4,641 7,868
Other 307 (993) 429
Change in assets and liabilities:
Decrease (increase) in prepaid expenses and
other current assets (3,830) (3,005) 117
Increase in accounts and other receivables (96,924) (30,360) (44,607)
Decrease (increase) in inventory (10,773) 8,919 (8,860)
Decrease (increase) in other assets 633 (638) 6,066
Increase in due to consignors 75,097 52,941 24,465
Increase (decrease) in accrued income taxes (2,197) 11,473 (5,865)
Increase in other current liabilities 8,671 10,774 8,187
------------ ------------ ------------
Net cash provided by operating activities 26,106 106,980 32,857
============================================================================== ============ ============ ============
INVESTING Increase in notes receivable (215,323) (119,727) (100,350)
ACTIVITIES Collections of notes receivable 90,920 112,360 90,535
Capital expenditures (17,507) (9,835) (8,384)
Decrease (increase) in investments (1,632) 2,967 1,180
Acquisitions (6,900) -- --
------------ ------------ ------------
Net cash used by investing activities (150,442) (14,235) (17,019)
============================================================================== ============ ============ ============
FINANCING Increase (decrease) in commercial paper 117,000 (38,000) 10,500
ACTIVITIES Decrease in short-term borrowings (2,260) (2,605) (3,087)
Proceeds from exercise of stock options 11,473 9,115 1,495
Repurchase of common stock (19,999) (14,178) (4,239)
Dividends paid (22,386) (17,829) (13,411)
------------ ------------ ------------
Net cash provided (used) by financing activities 83,828 (63,497) (8,742)
Effect of exchange rate changes on cash 7,264 (3,075) (1,370)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (33,244) 26,173 5,726
Cash and cash equivalents at beginning of year 66,886 40,713 34,987
------------ ------------ ------------
Cash and cash equivalents at end of year $ 33,642 $ 66,886 $ 40,713
============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
1997 > Sotheby's Holdings, Inc. and Subsidiaries PAGE NUMBER: B-35
<PAGE>
> CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Foreign currency
Common paid-in Retained translation
(Thousands of dollars) stock capital earnings adjustment
========================================================================== =========== =========== ===========
<S> <C> <C> <C> <C> <C>
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)
----------- ----------- ----------- -----------
Stock options exercised 112 11,361
Tax benefit associated with exercise
of stock options 1,766
Shares issued to directors 1 242
Repurchase of common stock (120) (20,619)
Foreign currency translation (6,169)
Net income 40,608
Dividends (22,386)
========================================================================== =========== =========== ===========
BALANCE AT DECEMBER 31, 1997 $ 5,582 $ 71,132 $ 197,027 $ (15,473)
----------- ----------- ----------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
PAGE NUMBER: B-36
<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, the marketing and brokering of
luxury real estate, fine arts education and art-related restoration.
[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 investments in Acquavella Modern Art ("AMA") and other investments in
20% to 50% owned affiliates are accounted for under the equity method.
REVENUE RECOGNITION > Auction and related revenues are 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 art-related financing activities, real estate
operations, principal activities, Emmerich Galleries and educational activities.
Principal activities include net gains (losses) on sales of inventories, the
Company's share of operating results from its investment in AMA and other equity
investments, 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. Equipment
includes capitalized software which reflects costs related to purchased
software. These costs are amortized on a straight-line basis over the estimated
useful life of the software. 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 principally over fifteen to 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 > Effective December 31, 1997, the Company adopted Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." Basic
earnings per share is based on the weighted average number of outstanding shares
of common stock. Diluted earnings per share is based on the weighted average
number of shares of common stock and common stock equivalents (stock options).
Prior period earnings per share have been restated. The basic and diluted
weighted average number of shares used for the earnings per share calculations
were as follows:
(In millions) 1997 1996 1995
============================================ =========== ===========
BASIC 56.0 55.7 55.9
DILUTIVE EFFECT OF OPTIONS 0.3 0.7 0.3
----------- ----------- -----------
DILUTED 56.3 56.4 56.2
1997 > Sotheby's Holdings, Inc. and Subsidiaries PAGE NUMBER: B-37
<PAGE>
> notes to consolidated financial statements (continued)
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 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, pro forma net income and earnings per share information
has been presented in Note K as required under SFAS No. 123.
IMPAIRMENT OF LONG-LIVED ASSETS > Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset in question may not be recoverable.
RECLASSIFICATIONS > Certain amounts in the 1996 and 1995 financial statements
have been reclassified to conform with the 1997 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.
[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.
<TABLE>
<CAPTION>
Year ended December 31
(Thousands of dollars) 1997 1996 1995
============================================================================== ============ ============ ============
<S> <C> <C> <C> <C>
REVENUES North America $ 189,039 $ 172,864 $ 153,900
Europe 172,662 148,179 147,324
Asia 20,091 15,453 11,656
------------ ------------ ------------
Total $ 381,792 $ 336,496 $ 312,880
============ ============ ============
============================================================================== ============ ============ ============
OPERATING North America $ 41,149 $ 51,238 $ 39,699
INCOME (LOSS) Europe 37,290 29,384 26,476
Asia 833 (870) (2,809)
Corporate (11,513) (11,544) (6,525)
------------ ------------ ------------
Total $ 67,759 $ 68,208 $ 56,841
============ ============ ============
============================================================================== ============ ============ ============
IDENTIFIABLE North America $ 551,901 $ 322,962 $ 311,934
ASSETS Europe 297,336 314,656 263,916
Asia 11,004 18,480 24,254
------------ ------------ ------------
Total $ 860,241 $ 656,098 $ 600,104
============ ============ ============
</TABLE>
PAGE NUMBER: B-38
<PAGE>
> notes to consolidated financial statements (continued)
[NOTE-D> Accounts and Notes Receivable
Accounts and notes receivable consist of the following:
As at December 31
(Thousands of dollars) 1997 1996
===================================================== ==========
ACCOUNTS AND OTHER RECEIVABLES $ 357,521 $ 271,788
ALLOWANCE FOR DOUBTFUL ACCOUNTS (6,799) (7,655)
---------- ----------
350,722 264,133
---------- ----------
NOTES RECEIVABLE 276,401 153,137
ALLOWANCE FOR DOUBTFUL ACCOUNTS (3,620) (2,501)
---------- ----------
272,781 150,636
---------- ----------
Total $ 623,503 $ 414,769
========== ==========
Accounts receivable included $2.1 million and $1.2 million at December 31, 1997
and 1996, 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, 1997 and 1996, accounts receivable included
approximately $179.6 million and $120.3 million, respectively, of such sales. As
of February 27, 1998, $137.2 million of the amount outstanding at December 31,
1997 had been paid. Amounts outstanding at December 31, 1996 which remained
outstanding at December 31, 1997 totaled $0.1 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% at December
31, 1997 and 1996. The estimated fair value of notes receivable was $275.6
million and $152.4 million at December 31, 1997 and 1996, respectively.
As of December 31, 1997, an amount equal to approximately 51% of the Company's
notes receivable (current and non-current) was extended to two borrowers. No
other individual loans amounted to more than 5% of total assets at December 31,
1997. Although the Company's general policy is to make secured loans at loan to
value ratios (principal loan amount divided by the low auction estimate of the
collateral) of 50% or lower, on certain occasions the Company will lend, on a
secured basis, at loan to value ratios higher than 50%. The loan to value ratios
on the loans noted above exceed 50%, however, neither loan has a loan to value
ratio greater than 70%. In addition, on certain occasions, the Company will also
lend amounts at loan to value ratios higher than 50% where the Company
participates in a share of the sale proceeds if the property sells for more than
an agreed target amount and the Company shares in a portion of the loss if the
property does not sell at or above the target amount. At December 31, 1997,
approximately 41% of the estimated value of collateral securing the Company's
notes receivable was Impressionist and Modern art.
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.
1997 > Sotheby's Holdings, Inc. and Subsidiaries PAGE NUMBER: B-39
<PAGE>
> notes to consolidated financial statements (continued)
Following are the changes in the allowance for credit losses relating to notes
receivable for the twelve months ended December 31, 1997 and 1996:
Year ended December 31
(Thousands of dollars) 1997 1996
===================================================================== =======
ALLOWANCE FOR CREDIT LOSSES AT DECEMBER 31, 1996 AND 1995 $ 2,501 $ 3,052
PROVISIONS 1,251 604
WRITEOFFS (257) (1,201)
OTHER 125 46
------- -------
ALLOWANCE FOR CREDIT LOSSES AT DECEMBER 31, 1997 AND 1996 $ 3,620 $ 2,501
======= =======
[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,
purchasing property at the minimum price guaranteed by the Company and purchases
of property for investment purposes.
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) 1997 1996
=================================================================== ========
INVENTORY, AT COST $ 39,300 $ 31,600
NET REALIZABLE VALUE ALLOWANCES (15,726) (16,799)
-------- --------
TOTAL $ 23,574 $ 14,801
======== ========
[NOTE-F> Investments
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 in investments in the Consolidated Balance Sheets. This investment
totaled $35.2 million and $35.8 million at December 31, 1997 and 1996,
respectively.
To the extent that the partnership requires working capital, the Company has
agreed to lend the same to the partnership. As of December 31, 1997, no such
amounts were outstanding.
In 1997, the Company made investments of $2.3 million in other affliliates.
PAGE NUMBER: B-40
<PAGE>
> notes to consolidated financial statements (continued)
[NOTE-G> Properties
Properties consist of the following:
As at December 31
(Thousands of dollars) 1997 1996
===================================================== ==========
LAND $ 276 $ 170
BUILDING AND BUILDING IMPROVEMENTS 43,792 39,264
LEASEHOLDS AND LEASEHOLD IMPROVEMENTS 40,784 39,849
FURNITURE, FIXTURES AND EQUIPMENT 57,613 49,702
OTHER 6,419 5,574
---------- ----------
148,884 134,559
LESS: ACCUMULATED DEPRECIATION (70,342) (63,983)
---------- ----------
TOTAL $ 78,542 $ 70,576
========== ==========
[NOTE-H> Credit Arrangements
Short-term borrowings consist of the following:
As at December 31
(Thousands of dollars) 1997 1996
===================================================== ==========
BANK LINES OF CREDIT $ 2,152 $ 3,200
OTHER SHORT-TERM OBLIGATIONS 16 11
---------- ----------
TOTAL $ 2,168 $ 3,211
========== ==========
BANK LINES OF CREDIT > At December 31, 1997 and 1996, $2.2 million and $3.2
million, respectively, were outstanding under domestic and foreign lines of
credit at weighted average annual interest rates of 5.44% and 7.39%,
respectively.
COMMERCIAL PAPER > The Company may issue up to $200 million in notes under its
U.S. commercial paper program. At December 31, 1997, $117.0 million of
commercial paper borrowings were outstanding. These borrowings 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. At December 31, 1996 no commercial paper borrowings were outstanding. 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, 1997 was 6.05% with an
average maturity of 19.5 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
$0.3 million and $0.4 million for the years ended December 31, 1997 and 1996,
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, 1997, consolidated tangible net worth, as defined,
was $241.1 million. The Company had no outstanding borrowings under these
facilities during 1997.
Interest paid on borrowings totaled $5.5 million, $2.7 million and $4.5 million
in the years ended December 31, 1997, 1996 and 1995, respectively.
1997 > Sotheby's Holdings, Inc. and Subsidiaries PAGE NUMBER: B-41
<PAGE>
> notes to consolidated financial statements (continued)
[NOTE-I> Income Taxes
<TABLE>
<CAPTION>
Year ended December 31
(Thousands of dollars) 1997 1996 1995
============================================================================== ============ ============ ============
<S> <C> <C> <C> <C>
INCOME Domestic $ 19,514 $ 31,595 $ 28,235
BEFORE Foreign 44,943 36,649 26,068
TAXES ------------ ------------ ------------
Total $ 64,457 $ 68,244 $ 54,303
============ ============ ============
- ------------------------------------------------------------------------------ ------------ ------------ ------------
INCOME Federal $ 7,136 $ 11,241 $ 5,890
TAXES State and local 3,824 5,067 4,611
CURRENT Foreign 15,220 10,519 10,223
------------ ------------ ------------
26,180 26,827 20,724
- ------------------------------------------------------------------------------ ------------ ------------ ------------
INCOME TAXES Federal (3,426) (2,299) (932)
DEFERRED Foreign 1,095 2,770 1,929
------------ ------------ ------------
(2,331) 471 997
------------ ------------ ------------
Total $ 23,849 $ 27,298 $ 21,721
============ ============ ============
</TABLE>
As required by SFAS No.109, the components of deferred income tax assets and
liabilities are disclosed below:
<TABLE>
<CAPTION>
As at December 31
(Thousands of dollars) 1997 1996
===================================================================================== ========= =========
<S> <C> <C> <C>
CURRENT Asset provisions and accrued liabilities $ 6,401 $ 4,655
DEFERRED TAX ========= =========
ASSETS
- ------------------------------------------------------------------------------------- --------- ---------
NON-CURRENT Basis difference in partnership assets $ 12,772 $ 13,075
DEFERRED TAX Depreciation (864) (582)
LIABILITIES --------- ---------
Total $ 11,908 $ 12,493
========= =========
</TABLE>
The effective tax rate varied from the statutory rate as follows:
Year ended December 31
1997 1996 1995
- --------------------------------------------------------- ------- -------
STATUTORY FEDERAL INCOME TAX RATE 35.0% 35.0% 35.0%
STATE AND LOCAL TAXES, NET OF FEDERAL TAX BENEFIT 3.9 4.8 5.5
FOREIGN TAXES AT RATES GREATER THAN U.S. RATES 0.9 0.7 3.6
TAXABLE FOREIGN SOURCE INCOME (2.5) 0.0 1.5
OTHER (0.3) (0.5) (5.6)
------- ------- -------
EFFECTIVE INCOME TAX RATE 37.0% 40.0% 40.0%
======= ======= =======
Undistributed earnings of foreign subsidiaries included in consolidated retained
earnings at December 31, 1997 and 1996 amounted to $23.3 million and $25.0
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 1997, 1996 and 1995 were $24.2
million, $12.7 million and $12.3 million, respectively.
PAGE NUMBER: B-42
<PAGE>
> notes to consolidated financial statements (continued)
[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 $13.1 million, $11.9 million and $12.0 million,
respectively, for the years ended December 31, 1997, 1996 and 1995.
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, 1997 are as follows:
(Thousands of dollars)
===================================================================
1998 $14,179
1999 11,687
2000 10,367
2001 9,283
2002 9,194
THEREAFTER 65,789
--------
TOTAL FUTURE MINIMUM LEASE PAYMENTS $120,499
========
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.
[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, 1997 and 1996.
STOCK OPTION PLANS > At December 31, 1997, the Company has reserved 7,276,000
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.
1997 > Sotheby's Holdings, Inc. and Subsidiaries PAGE NUMBER: B-43
<PAGE>
> notes to consolidated financial statements (continued)
At December 31, 1997 and 1996, there were outstanding options under the Plan and
the 1987 Stock Option Plan for the purchase of 6,696,365 and 5,775,084 shares,
respectively, at prices ranging from $1.50 to $22.62 per share. Stock option
transactions during 1997, 1996 and 1995 are summarized as follows (shares in
thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------
Shares reserved for Weighted
issuance 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, 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
Options granted 2,279 $ 15.75-18.94 $ 17.72
Options canceled (237) $ 10.87-17.13 $ 13.64
Options exercised (1,121) (1,121) $ 1.50-18.00 $ 10.23
- ----------------------------------------------------------------- ------------- --------------- ---------------
Balance at December 31, 1997 7,276 6,696 $ 3.50-22.62 $ 14.92
============ ============= =============== ===============
</TABLE>
The following table summarizes information about options outstanding at December
31, 1997 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- -------------------------------
Weighted
Outstanding average remaining Weighted Exercisable Weighted
Range of prices at 12/31/97 contractual life average price at 12/31/97 average price
============================================= =================== ============== ============== ==============
<S> <C> <C> <C> <C> <C>
$3.50 4 0.2 years $ 3.50 4 $ 3.50
$10.63-12.75 1,605 5.5 years $ 11.43 804 $ 11.81
$13.00-14.75 1,879 5.7 years $ 13.70 1,197 $ 13.43
$15.75-17.00 1,320 7.6 years $ 16.20 435 $ 16.46
$17.12-22.62 1,888 9.4 years $ 18.23 52 $ 20.55
-------------- -------------- --------------
6,696 2,492 $ 13.57
============== ============== ==============
</TABLE>
The weighted average fair value per share of options granted during the years
ended December 31, 1997, 1996 and 1995 was $6.46, $5.52 and $4.01, respectively.
At December 31, 1996 and 1995, 2,498,527 and 2,593,235 options were exercisable
at a weighted average exercise price of $11.96 and $9.99, respectively.
In February 1998, the Company approved an additional aggregate grant of
1,190,000 options pursuant to the Plan.
PERFORMANCE SHARE PURCHASE PLAN > At December 31, 1997, 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, 1997,
430,500 options were outstanding under the Performance Plan.
The following table summarizes information about options outstanding at December
31, 1997 under the Performance Plan:
<TABLE>
<CAPTION>
Weighted
OPTIONS OUTSTANDING Shares Prices average price
============================================================================ ============= =============
<S> <C> <C> <C>
INITIAL GRANT FEBRUARY 1996 AND BALANCE AT DECEMBER 31, 1996 215,000 $ 3.69 $ 3.69
Options granted 271,500 $ 4.29 $ 4.29
Options canceled 56,000 $ 3.69-4.29 $ 4.02
---------- ------------- -------------
BALANCE AT DECEMBER 31, 1997 430,500 $ 3.69-4.29 $ 4.03
========== ============= =============
</TABLE>
PAGE NUMBER: B-44
<PAGE>
The Company recognized compensation expense of $1.3 million and $0.5 million in
1997 and 1996, respectively, 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 they have time
vested. If the adjusted performance goal 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. During
1997, the Audit and Compensation Committee approved an acceleration of the time
vesting for options granted during 1996 and 1997. These options will time vest
on the date the performance criteria is achieved.
The weighted average fair value per share of options granted during 1997 and
1996 was $11.99 and $10.33, respectively.
In February 1998, the Company approved an additional aggregate grant of 302,500
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 1997, 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:
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
=============================================================== ========== ==========
<S> <C> <C> <C>
NET INCOME--AS REPORTED $ 40,608 $ 40,946 $ 32,582
NET INCOME--PRO FORMA $ 38,044 $ 39,345 $ 31,460
BASIC EARNINGS PER SHARE--AS REPORTED $ 0.73 $ 0.73 $ 0.58
DILUTED EARNINGS PER SHARE--AS REPORTED $ 0.72 $ 0.73 $ 0.58
BASIC EARNINGS PER SHARE--PRO FORMA $ 0.68 $ 0.71 $ 0.56
DILUTED EARNINGS PER SHARE--PRO FORMA $ 0.68 $ 0.70 $ 0.56
</TABLE>
The pro forma 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, 1997, the Company had reserved
180,110 shares of Class A Common Stock for issuance in connection with the
Director Stock Ownership Plan. During 1997 and 1996, 15,390 and 4,500 shares,
respectively, 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, 1997, 2.5 million shares had been repurchased
under this program.
1997 > Sotheby's Holdings, Inc. and Subsidiaries PAGE NUMBER: B-45
<PAGE>
> notes to consolidated financial statements (continued)
[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 $2.5 million, $2.0 million and $1.7 million for the years ended
December 31, 1997, 1996 and 1995, respectively.
The Company also contributes to a defined benefit pension plan covering
substantially all employees in the U.K. on an annual basis.
The components of the net pension expense for the U.K. pension plan are as
follows:
Year ended December 31
(Thousands of dollars) 1997 1996 1995
========================================================= ======== ========
SERVICE COST $ 3,656 $ 3,229 $ 2,874
INTEREST COST ON PROJECTED BENEFIT OBLIGATIONS 6,568 5,854 5,169
ACTUAL RETURN ON PLAN ASSETS (24,718) (17,346) (11,622)
NET AMORTIZATION AND DEFERRAL 13,553 7,552 3,664
-------- -------- --------
NET PENSION EXPENSE (BENEFIT) $ (941) $ (711) $ 85
======== ======== ========
The funded status of the U.K. plan is as follows:
<TABLE>
<CAPTION>
As at December 31
1997 1996
======================================================================== =========
<S> <C> <C>
ACCUMULATED VESTED BENEFIT OBLIGATIONS $ 90,975 $ 80,892
EFFECT OF FUTURE SALARY INCREASES 6,419 5,831
--------- ---------
TOTAL PROJECTED BENEFIT OBLIGATIONS 97,394 86,723
--------- ---------
PLAN ASSETS AT FAIR MARKET VALUE, PRIMARILY STOCKS AND BONDS 142,023 122,355
--------- ---------
EXCESS OF PLAN ASSETS OVER PROJECTED BENEFIT OBLIGATIONS 44,629 35,632
UNRECOGNIZED NET TRANSITION ASSET (2,461) (3,070)
UNRECOGNIZED PRIOR SERVICE COST 2,870 3,057
UNRECOGNIZED NET GAIN (38,368) (30,589)
--------- ---------
PREPAID PENSION COST RECORDED IN CONSOLIDATED BALANCE SHEET $ 6,670 $ 5,030
========= =========
</TABLE>
The weighted average discount rate used in determining actuarial values for the
U.K. pension plan was 7.0% in 1997 and 8.0% in 1996, the increase in future
compensation levels was 6.0% in 1997 and 7.0% in 1996, and the expected weighted
average long-term rate of return on plan assets was 9.0% in 1997 and 1996.
[NOTE-M> Related Party Transactions
Due to consignors included $0.2 million at December 31, 1997 relating to the
sale of art objects at auction by employees, officers, directors and other
related parties. No comparable amounts were included in Due to consignors at
December 31, 1996. 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 $0.1 million and $0.6 million at
December 31, 1997 and 1996, respectively. 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
PAGE NUMBER: B-46
<PAGE>
> notes to consolidated financial statements (continued)
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 $6.6 million at December
31, 1997. See Notes D, J and N for additional related party disclosure.
[NOTE-N> Commitments and Contingencies
COMMITMENTS > As of February 27, 1998, the Company had entered into commitments
of approximately $12 million for property additions and reburbishments.
LEGAL ACTIONS > The Company, in the normal course of business, is a defendant in
various legal actions.
LENDING AND OTHER CONTINGENCIES > 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 $27.7 million and
$18.6 million at December 31, 1997 and 1996, 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 $1.0 million at December 31, 1997.
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 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, 1997 and
February 27, 1998, the Company had outstanding guarantees totaling approximately
$7.5 million and $6.2 million, respectively, which cover auction property having
a mid-estimate sales price of approximately $10.1 million and $8.8 million,
respectively. Under certain guarantees, the Company participates in a share of
the proceeds if the property under guarantee sells above a minimum price. In
addition, the Company is obligated under the terms of certain guarantees to fund
a portion of the guarantee prior to the auction.
In the opinion of management, the commitments and contingencies described above
and in Note P 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 to interest expense over the life of the contract. At December 31,
1997, the Company's outstanding foreign currency forward contracts were not
material.
[NOTE-P> Non-recurring Charges
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 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 also conducted its own internal review. Both reviews were
completed in 1997. In 1997, the Company incurred $11.7 million of non-recurring
charges which consisted primarily of legal and other professional fees
associated with the Board of Directors' Independent Review Committee. The
Company does not expect to incur any additional material expenses in relation to
this matter.
1997 > Sotheby's Holdings, Inc. and Subsidiaries PAGE NUMBER: B-47
<PAGE>
> notes to consolidated financial statements (continued)
[NOTE-Q> Acquisitions
In March 1997, the Company acquired Braverman, Newbold and Brennan, a real
estate brokerage firm in Southampton, New York. In July 1997, the Company
acquired Leslie Hindman Auctioneers, an auction house in Chicago, IL. Both of
these acquisitions have been accounted for as a purchase. These acquisitions did
not have a material effect on the Company's financial statements, thus pro forma
results of operations have not been included herein.
[NOTE-R> Quarterly Results (Unaudited)
<TABLE>
<CAPTION>
(Thousands of dollars, except per share data) First Second Third Fourth
====================================================== ========= ========= ========= =========
<S> <C> <C> <C> <C> <C>
1997 Auction sales $ 207,262 $ 650,607 $ 137,778 $ 847,688
--------- --------- --------- ---------
Auction and related revenues $ 44,783 $ 116,095 $ 38,929 $ 136,752
Other revenues 9,299 14,907 12,385 8,642
--------- --------- --------- ---------
Total revenues 54,082 131,002 51,314 145,394
--------- --------- --------- ---------
Operating income (loss)
before non-recurring charges (8,854) 51,297 (13,765) 50,781
Operating income (loss)
after non-recurring charges (11,354) 48,297 (17,265) 48,081
Net income (loss) $ (6,783) $ 29,340 $ (11,322) $ 29,373
Basic earnings (loss) per share $ (0.12) $ 0.53 $ (0.20) $ 0.52
Diluted earnings (loss) per share $ (0.12) $ 0.52 $ (0.20) $ 0.52
--------- --------- --------- ---------
(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
Basic earnings (loss) per share $ (0.15) $ 0.51 $ (0.17) $ 0.54
Diluted earnings (loss) per share $ (0.15) $ 0.51 $ (0.17) $ 0.53
--------- --------- --------- ---------
</TABLE>
PAGE NUMBER: B-48
<PAGE>
> REPORT OF INDEPENDENT AUDITORS AND REPORT OF MANAGEMENT
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, 1997 and 1996, 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, 1997.
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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
February 27, 1998
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 /s/ William S. Sheridan /s/ Cyndee Grillo
Diana D. Brooks William S. Sheridan Cyndee Grillo
President and Senior Vice President and Vice President,
Chief Executive Officer Chief Financial Officer 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 five independent directors. Information as to these persons, as
well as the scope of duties of the Committee, is provided in the Proxy
Statement. During 1997, the Committee met three 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
1997 > Sotheby's Holdings, Inc. and Subsidiaries PAGE NUMBER: B-49
<PAGE>
> SOTHEBY'S HOLDINGS, INC.
BOARD OF DIRECTORS >
A. Alfred Taubman,
Chairman
Max M. Fisher,
Vice 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,
MEPC 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.
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,
Worldwide Head of
Human Resources
John S. Brittain, Jr.,
Senior Vice President,
Treasurer
F. Paul Cuccia,
Senior Vice President,
Chief Information Officer
Paul Donaher,
Senior Vice President,
Head of Strategic Planning
Rena J. Moulopoulos,
Senior Vice President,
Worldwide Head of Compliance
Diana Phillips,
Senior Vice President,
Worldwide Head of
Corporate Affairs
Donaldson C. Pillsbury,
Senior Vice President,
General Counsel
William S. Sheridan,
Senior Vice President,
Chief Financial Officer
Patricia Carberry,
Vice President,
Worldwide Financial Systems
Cyndee Grillo,
Vice President, Controller
and Chief Accounting Officer
Daryl S. Wickstrom,
Vice President, Associate General Counsel
Robert C. Wolcott,
Vice President,
Head of Taxes
ADVISORY BOARD >
Giovanni Agnelli
Her Royal Highness
The Infanta Pilar de Borbon,
Duchess of Badajoz
Ann Getty
Alexis Gregory
Dr. 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
> SOTHEBY'S WORLDWIDE MANAGEMENT
North and South America Board of Directors>
Richard E. Oldenburg,
Chairman, Sotheby's North
and South America
William F. Ruprecht,
Managing Director,
Executive Vice President,
Sotheby's North and
South America
John D. Block,
Vice Chairman, Sotheby's
North and South America,
Head of International
Jewelry
Warren P. Weitman, Jr.,
Vice Chairman, Sotheby's
North and South America,
Worldwide Head of
Business Development
C. Hugh Hildesley,
Executive Vice President,
Client Development
David N. Redden,
Executive Vice President,
Worldwide Head of Books,
Manuscripts and Collectibles
William W. Stahl, Jr.,
Executive Vice President,
Head of Decorative Arts
George Wachter,
Executive Vice President,
Head of Fine Arts
Susan Alexander,
Senior Vice President,
Worldwide Head of
Human Resources,
Sotheby's Holdings, Inc.
Alexander Apsis,
Senior Vice President,
Head of Impressionist and Modern Art
William Cottingham,
Senior Vice President,
Head of Regional Offices
North and South America
PAGE NUMBER: B-50
<PAGE>
> Sotheby's worldwide management (continued)
Helyn Goldenberg,
Senior Vice President,
Chairman, Sotheby's Midwest
Tobias Meyer,
Senior Vice President,
Worldwide Head of
Contemporary Art
Thierry Millerand,
Worldwide Senior Expert,
European Furniture
James G. Niven,
Senior Vice President,
Head of Business Development,
North and South America
Diana Phillips,
Senior Vice President,
Worldwide Head of
Corporate Affairs,
Sotheby's Holdings, Inc.
Donaldson C. Pillsbury,
Senior Vice President,
General Counsel,
Sotheby's Holdings, Inc.
Andrea Van de Kamp,
Senior Vice President, Chairman,
West Coast Operations
Stuart N. Siegel,
President,
Sotheby's International Realty
Mitchell Zuckerman,
President,
Sotheby's Financial Services
and Sotheby's Ventures
Europe Board of Directors>
Henry Wyndham,
Chairman,
Sotheby's Europe
George Bailey,
Co-Managing Director,
Sotheby's Europe
Robin Woodhead,
Co-Managing Director,
Sotheby's Europe
Princess de Beauvau Craon,
President, Sotheby's France,
Deputy Chairman,
Sotheby's Europe
David W. Bennett, F.G.A.,
Chairman,
Sotheby's Switzerland
Deputy Chairman, Sotheby's
Europe, Head of
International Jewelry
Melanie Clore,
Deputy Chairman,
Sotheby's Europe,
Head of Impressionist and
Modern Art
James Stourton,
Deputy Chairman,
Sotheby's Europe,
Head of European Business Development
James Miller,
Deputy Chairman,
Sotheby's United Kingdom
Simon Taylor,
Deputy Managing Director,
Sotheby's Europe
Paul J. Mack,
Senior Director,
Head of Furniture
Tobias Meyer,
Senior Vice President,
Worldwide Head of
Contemporary Art
Kristen van Riel,
Managing Director,
Sotheby's France
Michel Strauss,
Co-Chairman,
Worldwide Impressionist
and Modern Art
Asia Board of Directors>
Alice Lam,
Co-Chairman,
Sotheby's Asia
Julian Thompson,
Co-Chairman,
Sotheby's Asia
James Godfrey
Senior Vice President,
Head of Chinese
Works of Art, Sotheby's
North and South America
Lisa Hubbard,
Senior Vice President,
Head of International
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 and
South America
Tetsuji Shibayama,
President, Sotheby's Japan
Managing Director,
Sotheby's North Asia
John Tancock,
Senior Vice President,
Impressionist and Modern Art,
Sotheby's North and South
America and Japan
Yarman Vachha,
Finance and Operations Director,
Sotheby's Asia
Patricia Wong,
Head of Business Development,
China and Southeast Asia
Rita Wong
Quek Chin Yeow
Managing Director,
Sotheby's Singapore
Sotheby's Financial Services
and Sotheby's Ventures>
Mitchell Zuckerman,
President
Sotheby's International Realty>
Stuart N. Siegel,
President
1997 > Sotheby's Holdings, Inc. and Subsidiaries PAGE NUMBER: B-51
<PAGE>
WORLDWIDE LOCATIONS >
SOTHEBY'S NORTH AND SOUTH AMERICA> UNITED STATES Atlanta, Baltimore, Bermuda,
Beverly Hills(1), Boston, Chicago(1), Dallas, Honolulu, Houston, Long Island,
Miami, Minneapolis, Monterey, Naples, New York(1), North Carolina, Palm
Beach, Philadelphia, Puerto Rico, Richmond, St. Louis, San Francisco, Santa
Barbara, Seattle, Tampa, Washington, D.C., Wilmington, 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 Billingshurst(1), Cheltenham, Chester,
Cumbria, Derbyshire, Exeter, Hampshire, Harrogate, London(1),
Newcastle-upon-Tyne, Newmarket, Norfolk, Northamptonshire, Northern Ireland,
North Wales & The Marches, Nottinghamshire, Salisbury, Suffolk, SCOTLAND
Edinburgh, Glasgow, REPUBLIC OF IRELAND Dublin, Co. Kildare, CHANNEL ISLANDS
Guernsey, C.I., AUSTRIA Graz, Vienna, BELGIUM Brussels, CYPRUS Nicosia, CZECH
REPUBLIC Prague, DENMARK Copenhagen, FINLAND Helsinki, FRANCE Bordeaux, Lyon,
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, LUXEMBOURG,
MONACO(1), NORWAY Oslo, PORTUGAL Lisbon, SOUTH AFRICA Cape Town,
Johannesburg, SPAIN Barcelona, Bilbao, 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)TWENTY Salesrooms FOURTY-SIX Countries
PAGE NUMBER: B-52
<PAGE>
> SHAREHOLDERS INFORMATION
> COMMON STOCK PRICE
The quarterly price ranges and dividends per share of Class A Common Stock in
1997 and 1996 were as follows:
Cash dividends
Quarter High Low per share
======== ================== =================== ===================
1997 1996 1997 1996 1997 1996
------- ------- -------- ------- -------- --------
First $18 7/8 $15 1/4 $ 16 $12 3/4 $ 0.10 $ 0.08
Second 17 1/4 15 14 7/8 13 3/4 0.10 0.08
Third 21 16 5/8 16 3/16 13 3/8 0.10 0.08
Fourth 21 18 3/4 16 9/16 15 1/2 0.10 0.08
------- ------- -------- ------- -------- --------
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 March 2, 1998
was 1,292. The number of holders of record of the Class B Common Stock as of
March 2, 1998 was 31.
> 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: (201) 329-8660
www.chasemellon.com
Computer Share Services plc
Registrar's Department
P.O. Box 82
Caxton House, Redcliffe Way
Bristol BS99 7NH England
Tel: 011 44 117 930 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 Thursday, April 30, 1998 at
10:00 a.m. at
Sotheby's
34-35 New Bond Street
London
> FORM 10-K AND SHAREHOLDER INFORMATION
The 1997 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: (800) 700-6321
U.K. Corporate Secretary's Office
Sotheby's
34-35 New Bond Street
London W1A 2AA
Tel: 011 44 171 293 5257
> NEW INFORMATION SERVICE FOR SHAREHOLDERS
Sotheby's latest financial information and news is now available by fax,
recording or mail by calling our Shareholder Direct toll-free line at
1.800.700.6321, 24 hours a day, 7 days a week. This new service replaces our
traditional printed quarterly press release included in your dividend statement
and will provide you with faster, more convenient and more timely access to
Sotheby's news.
> CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
1997 > Sotheby's Holdings, Inc. and Subsidiaries PAGE NUMBER: B-53
<PAGE>
> PHOTO LEGEND
Sotheby's is > Fine Art (1) FRANS HALS' SAINT JOHN THE EVANGELIST SOLD IN
LONDON FOR (POUND)1.9 MILLION ($3.2 MILLION). THIS RECENTLY-REDISCOVERED WORK
ESTABLISHED AN AUCTION RECORD FOR THE ARTIST. COPYRIGHT THE J.PAUL GETTY
MUSEUM, LOS ANGELES. (2) VINCENT VAN GOGH'S HARVEST IN PROVENCE SOLD IN
LONDON FOR (POUND)8.8 MILLION ($14.7 MILLION), AN AUCTION RECORD FOR A WORK
ON PAPER BY THE ARTIST. (3) ROY LICHTENSTEIN'S THE RING (DETAIL) BROUGHT $2.2
MILLION IN NEW YORK IN OUR STRONGEST SALE OF CONTEMPORARY ART SINCE 1990.
COPYRIGHT ESTATE OF ROY LICHTENSTEIN, 1998. (4) JOHN SINGER SARGENT'S IN THE
GARDEN, CORFU, THE BEST KNOWN AND MOST IMPORTANT WORK BY THE ARTIST, SOLD IN
NEW YORK FOR $8.4 MILLION. (5) JACQUES-LOUIS DAVID'S PORTRAIT OF SUZANNE LE
PELETIER DE SAINT-FARGEAU SET A RECORD FOR THE ARTIST IN BRINGING (POUND)3.7
MILLION ($6.1 MILLION) IN A LONDON SALE. (6) RUFINO TAMAYO'S SANDIAS (DETAIL)
SOLD IN NEW YORK FOR $2.4 MILLION, THE SECOND HIGHEST PRICE FOR A WORK BY THE
ARTIST. (7) GUSTAV KLIMT'S LITZLBERGERKELLERAM ATTERSEE (DETAIL) FROM THE
COLLECTION OF SERGE SABARSKY SOLD IN NEW YORK FOR$14.7 MILLION, SETTING A
RECORD FOR THE ARTIST. (8) THE HIGHEST PRICE FOR ANY WORK SOLD AT SOTHEBY'S
IN 1997 WAS ACHIEVED BY PIERRE AUGUSTE RENOIR'S BAIGNEUSE, WHICH SOLD IN NEW
YORK IN NOVEMBER FOR $20.9 MILLION, DOUBLE THE ESTIMATE. Sotheby's is >
Decorative Art (9) AN IMPORTANT AND EXCEPTIONALLY LARGE UNGLAZED POTTERY
FIGURE OF A CAPARISONED FEREGHAN STALLION (DETAIL), TANG DYNASTY, MORE THAN
DOUBLED ITS ESTIMATE IN SELLING FOR $937,000 IN NEW YORK. (10) ONE OF A PAIR
OF HIGHLY IMPORTANT LARGE ITALIAN BRONZE GROUPS (DETAIL) SOLD IN NEW YORK FOR
$1.3 MILLION IN OUR AUCTION OF FRENCH FURNITURE AND DECORATIONS. (11) AN
IMPORTANT JEWELRY BOX MADE FOR WILLIAM BECKFORD DURING THE FRENCH REVOLUTION
BROUGHT FF5.2 MILLION ($906,250) IN MONACO. (12) AN IMPORTANT QUEEN ANNE
CARVED AND FIGURED MAHOGANY BONNET-TOP HIGHBOY (DETAIL) GODDARD-TOWNSEND
SCHOOL, NEWPORT, RHODE ISLAND, 1750-70 SOLD IN NEW YORK FOR $910,000, NEARLY
FOUR TIMES THE HIGH ESTIMATE. (13) A HIGHLY IMPORTANT MING BLUE AND WHITE
DRAGON BRUSHWASHER, SOLD IN HONG KONG FOR HK$16.5 MILLION ($2.1 MILLION),
ESTABLISHING A NEW RECORD FOR BLUE AND WHITE PORCELAIN AT AUCTION. Sotheby's
is > Precious Objects (14) AN ENORMOUS AND MONUMENTAL VICTORIAN VASE, " THE
LARGE WATER VASE," SOLD IN NEW YORK FOR $750,500. (15) AN IMPORTANT AND RARE
SYMPATHIQUE CLOCK (DETAIL) BY BREGUET, NO. 222 SET A RECORD FOR A TIMEPIECE
BY BREGUET BRINGING SF1.1 MILLION ($788,214) IN GENEVA. (16) A MAGNIFICENT
FANCY VIVID YELLOW DIAMOND RING WEIGHING 13.83 CARATS SOLD IN NEW YORK FOR
$3.3 MILLION, A PER CARAT RECORD FOR A YELLOW DIAMOND AT AUCTION. (17) AN
HISTORICALLY IMPORTANT SAPPHIRE, DIAMOND AND PEARL SUITE OF JEWELRY (DETAIL)
WHICH WAS CONSIGNED BY THE COMTE AND COMTESSE DE PARIS AND ORIGINALLY
BELONGED TO QUEEN MARIE-AMELIE OF FRANCE,WAS BOUGHT IN GENEVA FOR SF1.3
MILLION ($996,030) BY SHEIK AHMED H. FITAIHI. Sotheby's is > Special Sales
(18) THE BECK COLLECTION OF ILLUMINATED MANUSCRIPTS SOLD IN LONDON FOR
(POUND)11.1 MILLION ($18.2 MILLION), A RECORD FOR A COLLECTION OF MANUSCRIPTS
AT AUCTION. THE SANCT-BLASIEN PSALTER (DETAIL), IN LATIN WITH A FEW WORDS IN
GERMAN, IS SHOWN. IT BROUGHT (POUND)2.5 MILLION ($4.1 MILLION). (19) THE HOME
OF AMBASSADOR PAMELA HARRIMAN IN MIDDLEBURG, VIRGINIA SOLD THROUGH SOTHEBY'S
INTERNATIONAL REALTY FOR $3.3 MILLION. PROPERTY FROM HER ESTATE WAS SOLD IN
NEW YORK FOR $8.7 MILLION. (20) THE CONTENTS OF THE DAKOTA APARTMENT OF THE
LEGENDARY COMPOSER AND CONDUCTOR LEONARD BERNSTEIN SOLD IN NEW YORK FOR $1.1
MILLION. (21) IMPORTANT ANCIENT GLASS FROM THE COLLECTION FORMED BY THE
BRITISH RAIL PENSION FUND ACHIEVED (POUND)4.0 MILLION ($6.8 MILLION) WHEN IT
SOLD IN LONDON. A ROMAN IRIDESCENT COLOURLESS GLASS CAGE-CUP DATING FROM
CIRCA 300 A.D. BROUGHT (POUND)2.3 MILLION ($3.9 MILLION), A RECORD FOR A
PIECE OF ANCIENT GLASS AT AUCTION. Sotheby's is > Innovative (22) THE WORLD'S
MOST CELEBRATED DINOSAUR FOSSIL, THE LARGEST AND MOST COMPLETE SKELETON OF A
TYRANNOSAURUS REX EVER FOUND, SOLD FOR $8.4 MILLION IN NEW YORK. THE
EXHIBITION, WHICH WAS DESIGNED TO ILLUSTRATE THE COMPLEX FOSSIL IN THE MOST
COMPLETE WAY, FASCINATED VISITORS, INCLUDING SCHOOL CHILDREN WHO WERE ABLE TO
SEE FIRST-HAND THIS AMAZING PIECE OF HISTORY. "SUE"WAS PURCHASED FOR THE
FIELD MUSEUM OF NATURAL HISTORY IN CHICAGO, ILLINOIS. Sotheby's is >
Tradition (23) THE TRADITION OF SELLING FINE ART IS ONE WE HAVE MAINTAINED
FOR TWO CENTURIES. OLD MASTER PAINTINGS HAVE GROWN TO REPRESENT 6% OF OUR
TOTAL SALES IN 1997, WITH SEVERAL OUTSTANDING WORKS ACHIEVING RECORD PRICES.
OUR OLD MASTER PAINTINGS AUCTION IN LONDON INCLUDED A PAIR OF VENETIAN SCENES
BY CANALETTO, VENICE A VIEW OF THE PIAZZA SAN MARCO LOOKING EAST TOWARDS THE
BASILICA AND THE CAMPANILE (SHOWN HERE), WHICH SOLD FOR (POUND)3.9 MILLION
($6.5 MILLION). Sotheby's is >Service (24) IN OUR SEARCH TO FIND INNOVATIVE
WAYS TO REACH NEW AND EXISTING CLIENTS, WE CREATED A UNIQUE PARTNERSHIP WITH
BERGDORF GOODMAN IN NEW YORK THAT ENABLED US TO EXHIBIT PROPERTY FROM THE
COLLECTION OF THE DUKE AND DUCHESS OF WINDSOR IN BERGDORF'S WINDOWS ON FIFTH
AVENUE. Sotheby's is > Dynamic (25) AMID A VOLATILE ECONOMIC ENVIRONMENT IN
ASIA DURING THE LAST YEAR, SOTHEBY'S SALES WERE UP 23% OVER 1996 SALES. AMONG
THE HIGHLIGHTS OF THE YEAR WAS A REMARKABLE GROUP OF MING AND QING IMPERIAL
PORCELAIN FROM A DISTINGUISHED FAR EASTERN COLLECTION WHICH WAS THE BEST
COLLECTION OF ITS KIND TO COME TO MARKET IN A DECADE. THE AUCTION BROUGHT
HK$80.4 MILLION ($10.4 MILLION). THE TOP LOT, A UNIQUE IMPERIAL YELLOW-GROUND
`LANDSCAPE' BOWL, SET A RECORD FOR QING DYNASTY PORCELAIN WHEN IT SOLD FOR
HK$21.4 MILLION ($2.8 MILLION). Sotheby's is > Growth (26) A KEY GOAL FOR OUR
FUTURE GROWTH IS TO USE ALL OF SOTHEBY'S SERVICES TO MEET THE NEEDS OF OUR
CLIENTS. THE SALE IN FRANCE OF THE CHATEAU DE GROUSSAY IS A GOOD EXAMPLE OF
THIS EFFORT. Cover left- EDGAR DEGAS' DANSEUSES SOLD IN NEW YORK IN MAY FOR
$11.0 MILLION, AN AUCTION RECORD FOR A PASTEL BY THE ARTIST. Cover right- A
BLUEPRINT DRAWING OF THE PROPOSED RENOVATION OF OUR NEW YORK HEADQUARTERS ON
YORK AVENUE AND 72ND STREET.
DESIGN> SANDRA BURCH EDITORIAL> SOTHEBY'S NEW YORK PHOTOGRAPHY> KEN ADLARD, PAUL
DE HUECK, GRANT DEUDNEY, BETTE MARSHALL, CYNTHIA MATTHEWS, PHILIP PERKIS, NEAL
WILSON
PAGE NUMBER: B-54
<PAGE>
[GRAPHIC OMITTED]
SOTHEBY'S IN 2000> OUR NEW YORK HEADQUARTERS WILL BE A STATE-OF-THE-ART AUCTION
FACILITY, STREAMLINING AND CONSOLIDATING OUR OPERATIONS, PROVIDING THE MOST
INNOVATIVE FULL-SERVICE CENTER IN THE ART WORLD ... A MAJOR STEP IN OUR
BLUEPRINT FOR THE FUTURE.
<PAGE>
97
------
ANNUAL
------
REPORT
------
--> SOTHEBY'S
-------------
Founded 1744
[GRAPHIC OMITTED]
BLUEPRINT FOR THE FUTURE
97
--
A
--
R
--
-->
SOTHEBY'S HOLDINGS, INC.
<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:
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION
-------------------
<S> <C>
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
</TABLE>
<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, Registration Statement No.
33-54057 of Sotheby's Holdings, Inc. on Form S-8, Registration Statement No.
333-02315 on Form S-8, Registration Statement No. 333-28007 on Form S-8,
Registration Statement No. 333-34621 on Form S-8, and Registration Statement No.
333-34623 on Form S-8 of our reports dated February 27, 1998, 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, 1997.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
March 25, 1998
<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 13th day of February, 1998.
---- --------
/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 5th day of February, 1998.
---- --------
/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 13th day of February, 1998.
---- --------
/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 10th day of February, 1998.
----- --------
/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 2nd day of February, 1998.
----- --------
/s/ Kevin A. Bousquette
-----------------------------------
KEVIN A. BOUSQUETTE
<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 11th day of February, 1998.
----- --------
/s/ 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 10th day of February, 1998.
----- --------
/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 11th day of February, 1998.
----- --------
/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 3rd day of March, 1998.
---- --------
/s/ Henry R. Kravis
-----------------------------------
HENRY R. KRAVIS
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 33,642
<SECURITIES> 0
<RECEIVABLES> 511,529
<ALLOWANCES> 10,419
<INVENTORY> 23,574
<CURRENT-ASSETS> 593,657
<PP&E> 78,542
<DEPRECIATION> 70,342
<TOTAL-ASSETS> 860,241
<CURRENT-LIABILITIES> 471,935
<BONDS> 0
5,582
0
<COMMON> 0
<OTHER-SE> 252,686
<TOTAL-LIABILITY-AND-EQUITY> 860,241
<SALES> 0
<TOTAL-REVENUES> 381,792
<CGS> 0
<TOTAL-COSTS> 70,364
<OTHER-EXPENSES> 135,726
<LOSS-PROVISION> 1,227
<INTEREST-EXPENSE> 6,018
<INCOME-PRETAX> 64,457
<INCOME-TAX> 23,849
<INCOME-CONTINUING> 40,608
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,608
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.72
</TABLE>
