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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)
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)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (248) 646-2400
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Class A Limited Voting Common Stock, New York Stock Exchange
$0.10 Par Value London Stock Exchange
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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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
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
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
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
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:
OPERATIONAL AREA NUMBER OF EMPLOYEES
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Auction................................................................. 1,577
Other................................................................... 270
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Total................................................................... 1,847
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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
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
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:
1997
-------------------- CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
- ------------------------------------------------------------- --------- --------- ---------------
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
1996
-------------------- CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
- ------------------------------------------------------------- --------- --------- ---------------
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
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
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
PART IV
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.
9
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).
- ------------------------
* A compensatory agreement or plan required to be filed pursuant to Item 14(c)
of Form 10-K.
10
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
SCHEDULE II
SOTHEBY'S HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------- ----------- ------------------------ ----------- -----------
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ---------------------------------------------------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS)
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
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
12
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
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