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UNITED STATES
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, 1998.
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 10, 1999, the aggregate market value of the 40,307,339 shares of
Class A Limited Voting Common Stock held by non-affiliates of the registrant was
$1,156,316,787 based upon the closing price ($28.6875) 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 10, 1999,
there were outstanding 40,358,128 shares of Class A Limited Voting Common Stock
(the "Class A Common Stock") and 16,995,299 shares of Class B Common Stock (the
"Class B Common Stock"), freely convertible into 16,995,299 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,
1998 (the "Annual Report") are incorporated by reference into Parts I and II,
and portions of the 1999 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 segment of the Company's business is conducted through a
division known as "Sotheby's". In addition to auctioneering, the auction segment
is engaged in a number of related activities, including the purchase and resale
of art and other collectibles and the brokering of art and collectible purchases
and sales through private treaty sales. In certain circumstances the Company
provides loans to finance the purchase of property, which is pledged as
collateral for the loans, and shares in the gain (loss) if the property sells
either above or below its investment. The Company also markets and brokers
luxury residential real estate through its real estate segment, conducts
art-related financing activities through its finance segment and is engaged in
art education and restoration activities.
The Company believes it is one of the world's leaders in art-related
financing activities. The Company lends money generally secured by consigned art
in order to facilitate clients' bringing property to auction and also makes
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 SEGMENT
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, a privately held auction house based in the
United Kingdom, are the two largest art auction houses in the world. The Company
conducted aggregate auction sales in 1998 of $1.940 billion (approximately
L1.176 billion). Christie's aggregate auction sales in 1998 were approximately
$1.965 billion (L1.183 billion reported). The auction sales of the next largest
art auction house, Phillips International Auctioneers and Valuers, were
approximately $200.6 million (L121.6 million reported) for the year ended
December 31, 1998.
The Company auctions a wide variety of property, including fine arts,
jewelry, decorative arts, and rare books. In 1998, the Company's auction sales
by type of property were as follows: fine arts accounted for approximately
$1,031.7 million, or 53%, of auction sales; decorative arts accounted for
approximately $551.1 million, or 28%, of auction sales; and jewelry, rare books
and other property accounted for approximately $356.9 million, or 19%, 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
1
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.
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 or the property does not sell and therefore, 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 an agreed 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
(sale) 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 premium structures apply throughout most of
the remainder of Sotheby's auction operations elsewhere in the world. The
Company also charges consignors a selling commission. In most jurisdictions in
which the Company operates, the Company has 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; or (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 addition to auctioneering, the auction segment is engaged in a number of
related activities, including the brokering of art and collectible purchases and
sales through private treaty sales and the purchase and resale of art and other
collectibles. 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 $34.3 million and $35.2 million at December 31,
1998 and 1997, 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, 1998, no such amounts were outstanding. See Note F to the
Consolidated Financial Statements in the Annual Report.
In October 1998, the Company acquired Davis & Co., a wine auctioneer based
in Chicago, Illinois, in order to expand its Midwest and Western operations.
2
The Company's auction business is seasonal, with peak revenues and operating
income occurring in the second and fourth quarters of each year as a result of
the traditional spring and fall art auction seasons. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition-Seasonality" in the Annual Report.
THE AUCTION MARKET AND COMPETITION
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.
AUCTION 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.
THE INTERNET INITIATIVE
On January 19, 1999, the Company announced its intention to launch
SOTHEBYS.COM, a new Internet auction business for art, antiques, jewelry and
collectibles. The Company's Internet auction business will be distinguished by
the fact that it will not only provide property for SOTHEBYS.COM from its
existing business but also from selected professionals, including art dealers
and other members of the art community. This will make SOTHEBYS.COM a site where
only acknowledged experts will be offering property for sale. The Company
believes that as image technology develops and as e-commerce becomes an
increasingly
3
important part of people's lives, the volume and the value of art, antiques,
jewelry and collectibles offered by SOTHEBYS.COM will increase. The Company
expects to invest up to and perhaps in excess of $25 million in the initial
development phase of the new venture, including personnel, marketing and capital
costs. A majority of this amount will be incurred in 1999.
The Company's success in developing and implementing its Internet strategy
is dependent upon the following factors: 1) competition in the Internet auction
business; 2) the level of use of the Internet and online services; 3) consumer
confidence in and acceptance of the Internet and other online services for
commerce; 4) consumer confidence in Internet security; 5) the Company's ability
to attract and maintain an active customer base; 6) the functionality of the
Company's computer and communication systems; 7) the Company's ability to
upgrade and develop its systems and infrastructure to accommodate growth and 8)
the success of the Company in attracting and retaining qualified personnel.
The market for auctioning items over the Internet is relatively new and
rapidly evolving. There are numerous companies that provide online person to
person auction services such as eBay Inc. and Yahoo! Inc. Christie's, the
Company's principal auction competitor, has also announced that it intends to
commence Internet auction sales in 1999.
With respect to all statements made herein regarding the Company's Internet
initiative, see statement on Forward Looking Statements, incorporated by
reference from the Annual Report in Item 7 below.
THE FINANCE SEGMENT
The Company provides financing generally 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 or privately (a "consignor advance"); and
(2) general purpose loans to collectors, museums or dealers secured by property
not presently intended for sale. 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 loans are generally made with full recourse to the
borrower. In certain instances, however, loans are made with recourse limited to
the works of art pledged as security for the loan. To the extent that the
Company is looking wholly or partially to the collateral for repayment of its
loans, repayment can be adversely impacted by a decline in the art market in
general or in the value of the particular collateral. In addition, in situations
where the borrower becomes subject to bankruptcy or insolvency laws, the
Company's ability to realize on its collateral may be limited or delayed by the
application of such laws. The majority of the Company's loans are variable
interest rate loans. At December 31, 1998, $138.5 million of the total $155.6
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.
Reserves are established for probable losses inherent in the remainder of the
loan portfolio based on historical data and current market conditions. See Notes
B and 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
4
Results of Operations and Financial Condition-Liquidity and Capital Resources"
and Note H to the Consolidated Financial Statements in the Annual Report.
THE FINANCE MARKET AND COMPETITION
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.
THE REAL ESTATE SEGMENT
SIR was founded in 1976 as a wholly-owned subsidiary of the Company. A
natural extension of the Company's auction services, SIR's early mission was to
assist fine arts, furniture and collectibles clients in buying and selling
distinctive properties. Since that time SIR has evolved into a worldwide
organization serving an international customer base. Today, SIR provides
brokerage, marketing and consulting services for luxury residential, resort,
farm and ranch properties nationally and internationally.
SIR offers real estate clients a global network of brokerage operations,
including 15 company-owned brokerage offices and six regional offices.
The company-owned brokerage offices of SIR are located on the upper East
Side and SoHo in Manhattan; Southampton, Bridgehampton and East Hampton, N.Y.;
Palm Beach, Fla; Beverly Hills, Brentwood, Santa Barbara and San Francisco, CA.;
Greenwich, Conn.; Santa Fe, N.M.; Sydney, Australia; London, England and, most
recently, Jackson Hole, Wyoming. The Santa Fe office, formed from the
acquisition of a local affiliate, and the SoHo, Santa Barbara and London offices
were established in 1998. The Jackson Hole office was established in January
1999 through the acquisition of one of SIR's local affiliates.
SIR's six regional offices, located in Manhattan; Palm Beach, Fla.; Newport
Beach, CA.; Boston, MA.; London; and Paris, France, manage the Company's
affiliation with more than 175 independent brokerage offices in the U.S.,
Europe, Canada and the Caribbean. In selecting its affiliates, SIR evaluates a
firm's expertise in the high-end segment of its local market, community
reputation and dedication to customer service. Each affiliate is the exclusive
SIR representative in its respective territory. To complement its brokerage and
affiliate operations, SIR employs a buyers' representative in Hong Kong.
Through the SIR global network, company-owned and affiliate offices offer
buyers access to distinctive properties, in a range of prices, in both domestic
and international luxury real estate markets. The network, combined with SIR's
connection to the Company's auction and finance businesses, provides sellers
access to a unique, qualified list of buyers.
REAL ESTATE 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.
REAL ESTATE 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 34 states and maintains real estate brokerage licenses in 18
states. In
5
other jurisdictions, SIR acts as an exclusive marketing agent providing services
to licensed real estate brokers.
FACTORS EFFECTING OPERATING REVENUES
The Company's Auction, Finance and Real Estate 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 potential auction property; competition; and the amount of property being
consigned to art auction houses.
FINANCIAL AND GEOGRAPHICAL INFORMATION ABOUT OPERATING SEGMENTS
See Note C to the Consolidated Financial Statements in the Annual Report for
financial and geographical information about the Company's operating segments.
PERSONNEL
At December 31, 1998, the Company had 1,921 employees: 863 located in North
America; 717 in the United Kingdom and 341 in the rest of the world. The
following table provides a breakdown of employees by operating segment as of
December 31, 1998:
OPERATING SEGMENT NUMBER OF EMPLOYEES
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Auction................................................................. 1,589
Others.................................................................. 332
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Total................................................................... 1,921
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The Company regards its relations with its employees as good.
ITEM 2. PROPERTIES
Sotheby's, Inc., a wholly-owned subsidiary of the Company, 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 aforementioned office space is
primarily utilized by Auction and Finance employees.
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., holds a purchase option on the York Property. The option can be
exercised on defined dates in 1999, 2004 and 2009, for ten times the rent at the
date the option is exercised, subject to certain limitations. York expects to
exercise this option in August 1999.
The Company evaluated the adequacy of its premises for the requirements of
the present and future conduct of its business. In September 1998, the Company
received final approval from the City of New York to proceed with its plan to
construct a six-story addition to and renovate the York Property. This
construction will expand auction, warehouse and office space in New York City
and will enable the
6
Company to consolidate its operations in New York City. At the present time, the
Company is progressing with its construction of the York Property. The capital
expenditures relating to the new building are currently estimated to be in the
range of $125-130 million.
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 (primarily Auction) 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 primarily for Auction operations 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 Australia; 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. 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. (See statement on
Forward Looking Statements, incorporated by reference from the Annual Report in
Item 7 below.)
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 1998.
7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY 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 1998 and 1997 are shown in the
following schedules:
1998
-------------------- CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
- ----------------------------------------------------------- --------- --------- ---------------
March 31................................................... 23.250 17.188 $ 0.10
June 30.................................................... 24.500 21.438 $ 0.10
September 30............................................... 24.375 16.500 $ 0.10
December 31................................................ 38.000 15.500 $ 0.10
1997
-------------------- CASH DIVIDEND
QUARTER ENDED HIGH LOW DECLARED
- ----------------------------------------------------------- --------- --------- ---------------
March 31................................................... 18.875 16.000 $ 0.10
June 30.................................................... 17.250 14.875 $ 0.10
September 30............................................... 21.000 16.188 $ 0.10
December 31................................................ 21.000 16.563 $ 0.10
The number of holders of record of the Class A Common Stock as of March 10,
1999 was 986. The number of holders of record of the Class B Common Stock as of
March 10, 1999 was 30.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 32 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 33 through 39 of the Annual Report is incorporated by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures About Market Risk on page 38 of the
Annual Report is incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements on pages 40 through 61 of the Annual
Report are incorporated by reference.
8
The Independent Auditors' Report on page 62 of the Annual Report is
incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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 1999 (the "Proxy Statement") under the captions "Election of
Directors" and "Management-Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
material appearing in the Proxy Statement under the captions
"Management-Compensation of Executive Officers" and "Compensation of Directors."
Notwithstanding anything to the contrary herein, the 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, 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 Employment
and Compensation Arrangements", "Certain Transactions" and "Compensation
Committee Interlocks and Insider Participation."
9
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, 1998, are incorporated by reference in Item 8:
Consolidated Statements of Income-Years ended December 31, 1998, 1997 and 1996;
Consolidated Balance Sheets-December 31, 1998 and 1997; Consolidated Statements of
Cash Flows-Years ended December 31, 1998, 1997 and 1996; Consolidated Statement of
Changes in Shareholders' Equity-Years ended December 31, 1998, 1997 and 1996;
Notes to Consolidated Financial Statements-December 31, 1998
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)
1 Underwriting Agreement, dated as of February 2, 1999 among Sotheby's Holdings,
Inc., Morgan Stanley and Co. Incorporated, Chase Securities Inc. and Merrill
Lynch, Pierce, Fenner and Smith Incorporated, incorporated by reference to Exhibit
1 to the current report on Form 8-K, filed on February 10, 1999 with the
Securities and Exchange Commission.
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, SEC File No. 1-9750, on file at the Washington D.C. office of the
Securities and Exchange Commission.
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, incorporated by reference to Exhibit 3(c) to the 1997 Form 10-K.
4(a) See Exhibits 3(a), 3(b), and 3(c).
4(b) Indenture, dated as of February 5, 1999, between Sotheby's Holdings Inc. and The
Chase Manhattan Bank as Trustee, incorporated by reference to Exhibit 4(a) to the
current report on Form 8-K, filed on February 10, 1999 with the Securities and
Exchange Commission.
4(c) Fixed Rate Note, dated February 5, 1999, made by Sotheby's Holdings, Inc. in favor
of Cede & Co., incorporated by reference to Exhibit 4(b) to the current report on
Form 8-K, filed on February 10, 1999 with the Securities and Exchange Commission.
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 July 29, 1998, between Sotheby's,
Inc., Sotheby's Holdings, Inc. and Chase Securities Inc. relating to the issuance
of the U.S. Notes, incorporated by reference to Exhibit 10(a) to the Third Quarter
Form 10-Q for 1998.
10
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) Amendment, dated July 13, 1998, to 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 Exhibit
10(b) to the Third Quarter Form 10-Q for 1998.
10(e) 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, SEC File No. 1-9750, on file at the
Washington D.C. office of the Securities and Exchange Commission ("Registration
Statement No. 33-17667").
10(f) 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(g) 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(h) Guarantee, made November 6, 1986, by A. Alfred Taubman in favor of Benenson
relating to the York Avenue Property (the "Taubman Guarantee"), incorporated by
reference to Exhibit 10(j) to Registration Statement No. 33-17667.
10(i) 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(j) 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(k) 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(l)* Sotheby's Inc. 1988 Benefit Equalization Plan, incorporated by reference to
Exhibit 10(t) to Registration Statement No. 33-17667.
10(m)* 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(n)* 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(o)* 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.
11
10(p)* First Amendment to Sotheby's Holdings, Inc. 1997 Stock Option Plan, dated
September 30, 1997, and effective as of December 12, 1997, incorporated by
reference to Exhibit 10(o) of the 1997 Form 10-K.
10(q)* Second Amendment to Sotheby's Holdings, Inc. 1997 Stock Option Plan, dated October
29, 1998.
10(r)* Third Amendment to Sotheby's Holdings, Inc. 1997 Stock Option Plan.
10(s) 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(t)* Amended and Restated Sotheby's Holdings, Inc. Director Stock Ownership Plan,
incorporated herein by reference to Exhibit 10(v) to the 1996 Form 10-K.
10(u)* Sotheby's Holdings, Inc. 1998 Stock Compensation Plan for Non-Employee Directors,
dated as of March 3, 1998.
10(v) 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 10-K, for the
year ended December 31, 1991, SEC File No. 1-9750, on file at the Washington D.C.
office of the Securities and Exchange Commission.
10(w) 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(x)* 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(y)* 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, 1998
(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.
12
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, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998 and have issued our report
thereon dated February 23, 1999; such consolidated financial statements and
report are included in your 1998 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 23, 1999
13
SCHEDULE II
SOTHEBY'S HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COMUMN C COLUMN D COLUMN E
- ---------------------------------------------------- ----------- ------------------------ ----------- -----------
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:
1998 Allowance for doubtful accounts................ $ 10,419 $ 6,598 $ 285 $ 2,717 $ 14,585
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
Inventory:
1998 Realizable value allowance..................... $ 15,726 $ 1,653 $ 855 $ 8,812 $ 9,422
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
14
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
DATE: March 24, 1999
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 24, 1999
A. Alfred Taubman
* Vice Chairman of the Board
- -------------------------- March 24, 1999
Max M. Fisher
* Deputy Chairman of the
- -------------------------- Board March 24, 1999
The Marquess Of Hartington
/s/ DIANA D. BROOKS President, Chief Executive
- -------------------------- Officer and Director March 24, 1999
Diana D. Brooks
/s/ WILLIAM S. SHERIDAN Senior Vice President and
- -------------------------- Chief Financial Officer March 24, 1999
William S. Sheridan
* Director
- -------------------------- March 24, 1999
Viscount Blakenham
* Director
- -------------------------- March 24, 1999
Henry R. Kravis
* Director
- -------------------------- March 24, 1999
Conrad Black
* Director
- -------------------------- March 24, 1999
Walter J. P. Curley
* Director
- -------------------------- March 24, 1999
Sharon Percy Rockefeller
* Director
- -------------------------- March 24, 1999
Jeffrey H. Miro
/s/ JOSEPH A. DOMONKOS Vice President, Controller
- -------------------------- and Chief Accounting March 24, 1999
Joseph A. Domonkos Officer
/s/ WILLIAM S. SHERIDAN
- --------------------------
*William S. Sheridan March 24, 1999
AS ATTORNEY-IN-FACT
15