SOTHEBYS (Form: 10-Q, Received: 11/01/2018 07:54:34)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


	FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2018

Commission File Number 1-9750



(Exact name of registrant as specified in its charter)

Delaware		38-2478409
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1334 York Avenue New York, New York		10021
(Address of principal executive offices)		(Zip Code)
Registrant's telephone number, including area code: (212) 606-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of the Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ý

As of October 29, 2018, there were 49,017,304 outstanding shares of common stock, par value $0.01 per share, of the registrant.

______________________________________________________________________________________________________

TABLE OF CONTENTS



		PAGE
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements (UNAUDITED):

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2018 and 2017	3
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, 2018 and 2017	4
	Condensed Consolidated Balance Sheets as of September 30, 2018, December 31, 2017 and September 30, 2017	5
	Condensed Consolidated Statements of Cash Flows for Nine Months Ended September 30, 2018 and 2017	6
	Notes to Condensed Consolidated Financial Statements	7

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46

Item 3	Quantitative and Qualitative Disclosures About Market Risk	71

Item 4	Controls and Procedures	72

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	72

Item 1A	Risk Factors	72

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	72

Item 4	Mine Safety Disclosures	73

Item 6	Exhibits	74

SIGNATURE		75

PART I: FINANCIAL INFORMATION

ITEM 1 : FINANCIAL STATEMENTS

SOTHEBY’S

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share data)



	Three Months Ended						Nine Months Ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Revenues:
Agency commissions and fees	$	96,721		$	81,264		$	553,126		$	494,297
Inventory sales	6,498			81,501			62,840			172,815
Finance	11,423			11,697			30,945			37,823
Other	4,519			5,546			13,682			14,241
Total revenues	119,161			180,008			660,593			719,176
Expenses:
Agency direct costs	19,622			18,935			114,344			95,066
Cost of inventory sales	6,322			78,734			64,731			172,396
Cost of finance revenues	—			6,054			4,056			16,169
Marketing	4,824			5,933			16,822			17,795
Salaries and related	67,274			63,218			242,711			217,308
General and administrative	42,291			42,483			131,775			124,796
Depreciation and amortization	5,714			5,707			20,157			16,767
Voluntary separation incentive programs, net	—			—			—			(162		)
Restructuring charges	3,781			—			5,927			—
Total expenses	149,828			221,064			600,523			660,135
Operating (loss) income	(30,667		)	(41,056		)	60,070			59,041
Interest income	502			278			1,349			902
Interest expense	(10,084		)	(8,067		)	(28,291		)	(23,172		)
Write-off of credit facility fees	—			—			(3,982		)	—
Extinguishment of debt	—			—			(10,855		)	—
Non-operating income	3,172			3,130			7,045			6,118
(Loss) income before taxes	(37,077		)	(45,715		)	25,336			42,889
Income tax (benefit) expense	(7,759		)	(21,328		)	5,943			2,848
Equity in earnings of investees	1,476			901			3,516			2,034
Net (loss) income	(27,842		)	(23,486		)	22,909			42,075
Less: Net loss attributable to noncontrolling interest	(4		)	(7		)	(13		)	(12		)
Net (loss) income attributable to Sotheby's	$	(27,838	)	$	(23,479	)	$	22,922		$	42,087
Basic (loss) earnings per share - Sotheby’s common shareholders	$	(0.55	)	$	(0.45	)	$	0.44		$	0.79
Diluted (loss) earnings per share - Sotheby's common shareholders	$	(0.55	)	$	(0.45	)	$	0.43		$	0.78
Weighted average basic shares outstanding	50,927			52,532			51,724			52,755
Weighted average diluted shares outstanding	50,927			52,532			52,036			53,183

See accompanying Notes to Condensed Consolidated Financial Statements

SOTHEBY’S

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

(Thousands of dollars)



	Three Months Ended						Nine Months Ended
	September 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Net (loss) income	$	(27,842	)	$	(23,486	)	$	22,909		$	42,075
Other comprehensive (loss) income:
Currency translation adjustments	(151		)	3,437			(7,157		)	11,788
Cash flow hedges	96			410			1,402			1,286
Net investment hedges	(238		)	(911		)	1,502			(2,989		)
Defined benefit pension plan	76			219			239			642
Total other comprehensive (loss) income	(217		)	3,155			(4,014		)	10,727
Comprehensive (loss) income	(28,059		)	(20,331		)	18,895			52,802
Less: Comprehensive loss attributable to noncontrolling interests	(4		)	(7		)	(13		)	(12		)
Comprehensive (loss) income attributable to Sotheby's	$	(28,055	)	$	(20,324	)	$	18,908		$	52,814

See accompanying Notes to Condensed Consolidated Financial Statements

SOTHEBY’S CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Thousands of dollars)

	September 30, 2018			December 31, 2017			September 30, 2017
	September 30, 2018			December 31, 2017			September 30, 2017
A S S E T S
Current assets:
Cash and cash equivalents	$	156,272		$	544,432		$	311,298
Restricted cash (see Notes 8 and 11)	1,824			361,578			5,548
Accounts receivable, net of allowance for doubtful accounts of $9,504, $8,722, and $8,487	611,183			795,239			453,906
Notes receivable, net of allowance for credit losses of $1,067, $1,253, and $1,295	151,374			87,746			51,524
Inventory	54,024			74,483			63,319
Income tax receivables	29,449			6,601			25,312
Prepaid expenses and other current assets (see Note 11)	57,153			32,010			55,523
Total current assets	1,061,279			1,902,089			966,430
Notes receivable, net of allowance for credit losses of $1,525, $1,525, and $0	465,963			507,538			558,342
Fixed assets, net of accumulated depreciation and amortization of $236,024, $229,751, and $223,856	367,690			352,035			350,470
Goodwill	55,658			50,547			50,496
Intangible assets, net	13,981			11,492			11,987
Income tax receivables	4,535			324			4,942
Deferred income taxes	31,916			35,674			7,926
Other long-term assets (see Note 11)	234,449			227,608			196,082
Total assets	$	2,235,471		$	3,087,307		$	2,146,675
L I A B I L I T I E S A N D S H A R E H O L D E R S’ E Q U I T Y
Current liabilities:
Client payables	$	627,466		$	996,197		$	376,108
Accounts payable and accrued liabilities	101,919			90,298			88,107
Accrued salaries and related costs	60,047			94,310			57,092
Current portion of long-term debt, net	13,514			308,932			11,912
Accrued income taxes	42,385			8,127			13,395
Other current liabilities (see Note 10)	12,675			18,762			10,990
Total current liabilities	858,006			1,516,626			557,604
Credit facility borrowings	215,000			196,500			434,000
Long-term debt, net	640,515			653,003			557,190
Accrued income taxes	8,708			37,651			15,816
Deferred income taxes	14,190			15,163			10,377
Other long-term liabilities (see Note 11)	46,569			51,424			51,667
Total liabilities	1,782,988			2,470,367			1,626,654
Commitments and contingencies (see Note 15)
Shareholders’ equity:
Common stock, $0.01 par value	711			709			709
Authorized shares — 200,000,000
Issued shares —71,175,100; 70,830,184; and 70,777,023
Outstanding shares —49,017,304; 52,461,996; and 52,503,235
Additional paid-in capital	456,279			453,364			446,017
Treasury stock shares, at cost — 22,157,796; 18,368,188; and 18,273,788	(740,805		)	(554,551		)	(550,249		)
Retained earnings	802,621			779,699			702,990
Accumulated other comprehensive loss	(66,480		)	(62,466		)	(79,631		)
Total shareholders’ equity	452,326			616,755			519,836
Noncontrolling interest	157			185			185
Total equity	452,483			616,940			520,021
Total liabilities and shareholders’ equity	$	2,235,471		$	3,087,307		$	2,146,675

See accompanying Notes to Condensed Consolidated Financial Statements

SOTHEBY’S CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Thousands of dollars)

	Nine Months Ended
	September 30, 2018			September 30, 2017
Operating Activities:
Net income attributable to Sotheby's	$	22,922		$	42,087
Adjustments to reconcile net income attributable to Sotheby's to net cash used by operating activities:
Extinguishment of debt	10,855			—
Write-off of credit facility fees	3,982			—
Depreciation and amortization	20,157			16,767
Deferred income tax expense	91			9,396
Share-based payments	21,425			17,423
Net pension benefit	(2,395		)	(3,719		)
Inventory writedowns and bad debt provisions	8,496			9,127
Amortization of debt issuance costs	1,311			1,240
Equity in earnings of investees	(3,516		)	(2,034		)
Other	1,285			683
Changes in assets and liabilities:
Accounts receivable	88,767			29,878
Client payables	(358,956		)	(167,233		)
Inventory	11,315			88,422
Changes in other operating assets and liabilities (see Note 12)	(83,323		)	(117,776		)
Net cash used by operating activities	(257,584		)	(75,739		)
Investing Activities:
Funding of notes receivable	(199,781		)	(152,242		)
Collections of notes receivable	266,878			206,899
Capital expenditures	(36,005		)	(14,462		)
Acquisitions, net of cash acquired	(5,777		)	(75		)
Funding of investments	(64		)	(6,169		)
Distributions from investees	2,916			4,675
Proceeds from the sale of equity investment	—			2,125
Proceeds from company-owned life insurance	—			2,100
Settlement of net investment hedges	(1,858		)	29,110
Net cash provided by investing activities	26,309			71,961
Financing Activities:
Proceeds from credit facility borrowings	323,000			31,500
Repayments of credit facility borrowings	(304,500		)	(162,500		)
Repayments of York Property Mortgage	(12,214		)	(37,709		)
Settlement of 2022 Senior Notes, including call premium	(307,875		)	—
Debt issuance and other borrowing costs	(4,208		)	(163		)
Repurchases of common stock	(186,254		)	(40,193		)
Purchase of forward contract indexed to Sotheby's common stock	(9,500		)	—
Dividends paid	—			(2,375		)
Funding of employee tax obligations upon the vesting of share-based payments	(9,921		)	(16,774		)
Net cash used by financing activities	(511,472		)	(228,214		)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(5,946		)	10,472
Decrease in cash, cash equivalents, and restricted cash	(748,693		)	(221,520		)
Cash, cash equivalents, and restricted cash at beginning of period	923,926			556,201
Cash, cash equivalents, and restricted cash at end of period	$	175,233		$	334,681

Supplemental information on non-cash investing and financing activities:

See Note 5 for information regarding non-cash transfers between Accounts Receivable (net) and Notes Receivable (net).

See Note 9 for information regarding derivative financial instruments designated as net investment hedges.

See accompanying Notes to Condensed Consolidated Financial Statements

SOTHEBY’S

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1 . Basis of Presentation

Company Overview —Sotheby's (or the "Company") offers collectors the opportunity to connect with and transact in the world's most extraordinary art and luxury goods, which in this report may collectively be referred to as "art," "works of art," "artwork," or "property." Auctioneers since 1744, today we present auctions in ten different salesrooms, including New York, London, Hong Kong and Paris. We also offer collectors a variety of innovative art-related services, including the brokerage of private art sales, private jewelry sales through Sotheby's Diamonds, exclusive private selling exhibitions, art-related financing, and art advisory services, as well as retail wine locations in New York and Hong Kong.

Accounting Principles —The unaudited Condensed Consolidated Financial Statements included herein have been prepared by the management of Sotheby’s in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. In our opinion, the unaudited Condensed Consolidated Financial Statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. The interim results presented in our Condensed Consolidated Statements of Operations are not necessarily indicative of results for a full year. See Note 2 for information about the seasonality of our business. We urge you to read these unaudited Condensed Consolidated Financial Statements in conjunction with the information included in our 2017 Form 10-K filed with the SEC on March 1, 2018.

Principles of Consolidation —The unaudited Condensed Consolidated Financial Statements include the accounts of our wholly-owned subsidiaries and Sotheby's (Beijing) Auction Co., Ltd. ("Sotheby's Beijing"), a joint venture in which we have a controlling 80% ownership interest. The net loss attributable to the minority owner of Sotheby's Beijing is reported as "Net Loss Attributable to Noncontrolling Interest" in our Condensed Consolidated Statements of Operations, and the non-controlling 20% ownership interest is reported as "Noncontrolling Interest" within the Equity section of our Condensed Consolidated Balance Sheets. Intercompany transactions and balances among our subsidiaries are eliminated in consolidation.

Equity investments through which we may significantly influence, but not control, the investee, are accounted for using the equity method. Under the equity method, our share of investee earnings or losses is recorded in our Condensed Consolidated Statements of Operations within Equity in Earnings of Investees. Our interest in the net assets of these investees is recorded on our Condensed Consolidated Balance Sheets within Other Long-Term Assets. Our equity method investees include: (i) Acquavella Modern Art ("AMA"), a partnership through which a collection of fine art is being sold, (ii) RM Sotheby's, an auction house for investment-quality automobiles, and (iii) a partnership formed in the second quarter of 2017 through which artworks are being purchased and sold.

Estimates and Assumptions —The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition —In May 2014, the Financial Accounting Standards Board (the "FASB") issued an Accounting Standards Update ("ASU") which amends revenue recognition guidance and requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This ASU is codified in U.S. GAAP under Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers .

We adopted ASC 606 on January 1, 2018 using the full retrospective method. The adoption of ASC 606 did not impact the timing of our revenue recognition, but it changed the presentation of certain revenues and expenses previously reported on a net basis in our Condensed Consolidated Statements of Operations. Specifically, the following items previously reported on a net basis within Agency Commissions and Fees are now reported on a gross basis within Agency Direct Costs: (i) fees owed to the counterparties in auction guarantee risk sharing arrangements and (ii) fees owed to third parties who introduce us to auction or private sale consignors. In addition, consignor expense recoveries and buyer shipping fees previously reported on a net basis within Agency Direct Costs are now reported on a gross basis within Agency Commission and Fees. The table below under "Summary of Adjustments to Prior Period Presentation" shows the impact of the retrospective adoption of ASC 606 on our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 .

Statement of Cash Flows —In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows , which updated the guidance on how certain cash receipts and cash payments should be presented and classified within the statement of cash flows. We retrospectively adopted ASU 2016-15 on January 1, 2018. The adoption of ASU 2016-15 changed how we classify cash proceeds received from our investment in company-owned life insurance ("COLI"), which is held in a rabbi trust and used to fund certain deferred compensation liabilities. Prior to the adoption of ASU 2016-15, COLI proceeds were classified as cash inflows from operating activities, but are now classified as cash inflows from investing activities. The adoption of ASU 2016-15 also required us to make certain accounting policy elections with respect to the statement of cash flows. First, ASU 2016-15 clarifies that COLI premiums paid may be classified as cash outflows from operating or investing activities, or a combination of both. In connection with the adoption of ASU 2016-15, we made an accounting policy election to classify COLI premiums paid as cash outflows from operating activities, consistent with our previous presentation of such payments. Second, ASU 2016-15 allows distributions received from equity method investees to be classified using either the cumulative earnings approach or the nature of distribution approach. In connection with the adoption of ASU 2016-15, we made an accounting policy election to classify distributions received from equity method investees using the cumulative earnings approach, consistent with our previous presentation of such distributions. The other aspects of ASU 2016-15 did not result in a change to our existing accounting policies for the preparation of the statement of cash flows. The table below under "Summary of Adjustments to Prior Period Presentation" shows the impact of our retrospective adoption of ASU 2016-15 on our Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 .

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows , to add and clarify guidance on the classification and presentation of restricted cash and restricted cash equivalents in the statement of cash flows. In particular, ASU 2016-18 requires that restricted cash and restricted cash equivalents be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period totals disclosed in the statement of cash flows. Transfers between restricted and unrestricted cash accounts are not to be reported within the statement of cash flows. Only restricted cash receipts or payments directly with third parties are to be reported in the statement of cash flows as either an operating, investing, or financing activity, depending on the nature of the transaction. We retrospectively adopted ASU 2016-18 on January 1, 2018. The table below under "Summary of Adjustments to Prior Period Presentation" shows the impact of our retrospective adoption of ASU 2016-18 on our Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 . (See Note 11 for information related to our restricted cash balances.)

Presentation of Pension and Postretirement Costs —In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , which requires that the service cost component of net periodic pension cost be presented in the same statement of operations line item as other employee compensation costs, while the remaining components of net periodic pension cost be presented outside of operating (loss) income. We retrospectively adopted ASU 2017-07 on January 1, 2018. The table below under "Summary of Adjustments to Prior Period Presentation" shows the impact of our retrospective adoption of ASU 2017-07 on our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 . (See Note 7 for information related to our defined benefit pension plan in the U.K.)

Accounting for Cloud Computing Arrangements —In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , which aligns the requirements for capitalizing costs incurred to implement a cloud computing arrangement that is a service contract with the requirements for capitalizing costs incurred to develop or obtain internal-use software. We adopted ASU 2018-15 on a prospective basis beginning in the third quarter of 2018. We expect the adoption of ASU 2018-15 to allow us to capitalize approximately $1 million in hosting arrangement implementation costs in the fourth quarter of 2018, which will be amortized to the statement of operations in future periods over the terms of the underlying service agreements. Prior to the adoption of ASU 2018-15, these costs would have been expensed to the statement of operations as incurred.

Summary of Adjustments to Prior Period Presentation —The following table summarizes the impact of the retrospective adoption of ASC 606 and ASU 2017-07 on our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 (in thousands of dollars):



Three Months Ended September 30, 2017	As Previously Reported			ASC 606 Adjustment		ASU 2017-07 Adjustment			As Adjusted
Revenues:
Agency commissions and fees	$	72,650		$	8,614	$	—		$	81,264
Total revenues	$	171,394		$	8,614	$	—		$	180,008
Expenses:
Agency direct costs	$	10,321		$	8,614	$	—		$	18,935
Salaries and related	$	61,946		$	—	$	1,272		$	63,218
Total expenses	$	211,178		$	8,614	$	1,272		$	221,064
Operating loss	$	(39,784	)	$	—	$	(1,272	)	$	(41,056	)
Non-operating income	$	1,858		$	—	$	1,272		$	3,130
Net loss attributable to Sotheby's	$	(23,479	)	$	—	$	—		$	(23,479	)



Nine Months Ended September 30, 2017	As Previously Reported		ASC 606 Adjustment		ASU 2017-07 Adjustment			As Adjusted
Revenues:
Agency commissions and fees	$	448,950	$	45,347	$	—		$	494,297
Total revenues	$	673,829	$	45,347	$	—		$	719,176
Expenses:
Agency direct costs	$	49,719	$	45,347	$	—		$	95,066
Salaries and related	$	213,589	$	—	$	3,719		$	217,308
Total expenses	$	611,069	$	45,347	$	3,719		$	660,135
Operating income	$	62,760	$	—	$	(3,719	)	$	59,041
Non-operating income	$	2,399	$	—	$	3,719		$	6,118
Net income attributable to Sotheby's	$	42,087	$	—	$	—		$	42,087

The following table summarizes the impact of the retrospective adoption of ASU 2016-15 and ASU 2016-18 on our Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017 (in thousands of dollars):



	As Previously Reported			ASU 2016-15 Adjustments			ASU 2016-18 Adjustments			As Adjusted
Operating Activities:
Changes in other operating assets and liabilities	$	(115,676	)	$	(2,100	)	$	—		$	(117,776	)
Net cash used by operating activities	$	(73,639	)	$	(2,100	)	$	—		$	(75,739	)
Investing Activities:
Proceeds from company-owned life insurance	$	—		$	2,100		$	—		$	2,100
Decrease in restricted cash	$	38,575		$	—		$	(38,575	)	$	—
Net cash provided by investing activities	$	108,436		$	2,100		$	(38,575	)	$	71,961
Financing Activities:
Decrease in restricted cash related to York Property Mortgage	$	2,857		$	—		$	(2,857	)	$	—
Net cash used by financing activities	$	(225,357	)	$	—		$	(2,857	)	$	(228,214	)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	$	5,827		$	—		$	4,645		$	10,472
Decrease in cash, cash equivalents, and restricted cash (a)	$	(184,733	)	$	—		$	(36,787	)	$	(221,520	)
Cash, cash equivalents, and restricted cash at beginning of period (a)	$	496,031		$	—		60,170			$	556,201
Cash, cash equivalents, and restricted cash at end of period (a)	$	311,298		$	—		$	23,383		$	334,681


(a)	Restricted cash is included only in the adjusted balances, reflecting the retrospective adoption of ASU 2016-18.

2 . Seasonality of Business

The global art auction market has two principal selling seasons, which generally occur in the second and fourth quarters of the year. In the aggregate, second and fourth quarter Net Auction Sales ¹ represented 80% and 82% of our total annual Net Auction Sales in 2017 and 2016, respectively, with auction commission revenues comprising approximately 66% and 75% , of our total revenues, respectively. Accordingly, our financial results are seasonal, with peak revenues and operating income generally occurring in the second and fourth quarters. Consequently, first and third quarter results have historically reflected lower revenues when compared to the second and fourth quarters and, typically, a net loss due to the fixed nature of many of our operating expenses.

___________________________________________________________________

¹ Represents the total hammer (sale) price of property sold at auction.

3 . Segment Reporting

Our operations are organized under two segments—the Agency segment and the Finance segment, which does business as and is referred to in this report as Sotheby's Financial Services (or "SFS"). Thomas S. Smith, Jr, Sotheby's CEO, is our chief operating decision maker. Mr. Smith regularly evaluates financial information about each of our segments in deciding how to allocate resources and assess performance. The performance of each segment is measured based on segment income before taxes, which excludes the unallocated amounts and reconciling items highlighted in the table below.

Through our Agency segment, we accept works of art on consignment and match sellers (also known as consignors) to buyers through the auction or private sale process. In both auction and private sale transactions, we act as exclusive agent for the seller. Prior to offering a work of art for sale, we perform due diligence activities to authenticate and determine the ownership history and condition of the consigned artwork. To a much lesser extent, Agency segment activities also include the sale of artworks that are principally acquired as a consequence of the auction process, and RM Sotheby's, an equity investee that operates as an auction house for investment-quality automobiles. The Agency segment is an aggregation of the auction, private sale, and other related activities that are conducted across various collecting categories, all of which have similar economic characteristics and are similar in their services, customers, and the manner in which their services are provided.

SFS is an art financing company that operates as a niche lender with the ability to tailor attractive financing packages for clients who wish to obtain immediate access to liquidity from their art assets. SFS leverages the art expertise of the Agency segment, skill in international law and finance, and access to capital to provide art collectors and dealers with financing secured by their works of art, allowing them to unlock the value in their collections.

Art Agency, Partners (“AAP”), through which we offer art advisory services, provides art collectors with strategic guidance on collection identity and development, acquisitions, short and long-term planning, and provides advice to artists and artists' estates. In addition, from time-to-time, AAP brokers private art sales for its advisory clients. Our advisory services are classified within All Other for segment reporting purposes, along with our retail wine business, brand licensing activities, and the results from other equity method investments.

The following table presents our segment information for the three and nine months ended September 30, 2018 and 2017 (in thousands of dollars):



Three Months Ended September 30, 2018	Agency			SFS		All Other		Reconciling items				Total
Revenues	$	98,314		$	12,822	$	9,424	$	(1,399	)	(c)	$	119,161
Segment (loss) income before taxes (a)	$	(46,803	)	$	7,152	$	2,093	$	481		(d)	$	(37,077	)
Three Months Ended September 30, 2017
Revenues (b)	$	160,774		$	13,781	$	7,537	$	(2,084	)	(c)	$	180,008
Segment (loss) income before taxes (a)	$	(54,335	)	$	7,212	$	4,282	$	(2,874	)	(d)	$	(45,715	)
Nine Months Ended September 30, 2018
Revenues	$	605,492		$	37,061	$	24,156	$	(6,116	)	(c)	$	660,593
Segment income before taxes (a)	$	15,175		$	20,283	$	4,532	$	(14,654	)	(d)	$	25,336
Nine Months Ended September 30, 2017
Revenues (b)	$	660,439		$	44,514	$	20,914	$	(6,691	)	(c)	$	719,176
Segment income before taxes (a)	$	15,833		$	24,381	$	9,003	$	(6,328	)	(d)	$	42,889

(a)

Our previous credit agreements provided for dedicated asset-based revolving credit facilities for the Agency segment and SFS. The SFS Credit Facility was used to fund a significant portion of client loans. Accordingly, any borrowing costs associated with the SFS Credit Facility were recorded within cost of finance revenues in our Condensed Consolidated Statements of Operations. In September 2017, we modified our cash management strategy in order to reduce borrowing costs by applying excess cash balances against revolver credit facility borrowings.

On June 26, 2018, we refinanced our previous credit agreements. The new credit agreement combined these credit facilities into one asset-based revolving credit facility. As a result of this refinancing, beginning in the third quarter of 2018, revolving credit facility costs are no longer allocated to our segments for the purpose of measuring segment profitability.

Subsequent to the refinancing of our previous credit agreements and the resulting elimination of the SFS Credit Facility on June 26, 2018, the SFS loan portfolio is no longer being directly funded with revolving credit facility borrowings. However, beginning in the third quarter of 2018, for the purpose of measuring segment profitability, SFS receives a corporate finance charge that is calculated assuming that 85% of their loan portfolio is funded with debt. This charge is eliminated in the consolidation of Sotheby's results.

Segment results for periods prior to the third quarter of 2018 have been recast to reflect these changes in the measurement of segment profitability.


(b)	Agency segment revenue for the three and nine months ended September 30, 2017 has been recast to reflect the retrospective adoption of ASC 606. See Notes 1 and 4.


(c)	The reconciling items related to revenues consist principally of amounts charged by SFS to the Agency segment, including interest and facility fees related to certain loans made to Agency segment clients, as well as fees charged for term loan collateral sold at auction or privately through the Agency segment.


(d)	The unallocated amounts and reconciling items related to segment (loss) income before taxes are detailed in the table below.

The table below presents a reconciliation of total segment (loss) income before taxes to consolidated (loss) income before taxes for the three and nine months ended September 30, 2018 and 2017 (in thousands of dollars):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Agency	$	(46,803	)	$	(54,335	)	$	15,175		$	15,833
SFS	7,152			7,212			20,283			24,381
All Other	2,093			4,282			4,532			9,003
Segment (loss) income before taxes	(37,558		)	(42,841		)	39,990			49,217
Unallocated amounts and reconciling items:
Extinguishment of debt	—			—			(10,855		)	—
Revolving credit facility costs (a)	(1,921		)	(6,780		)	(12,149		)	(18,259		)
SFS corporate finance charge	3,878			4,807			11,866			13,965
Equity in earnings of investees (b)	(1,476		)	(901		)	(3,516		)	(2,034		)
(Loss) income before taxes	$	(37,077	)	$	(45,715	)	$	25,336		$	42,889


(a)	For the nine months ended September 30, 2018, revolving credit facility costs in the table above includes approximately $4 million of unamortized fees related to our previous credit agreements that were written off in the second quarter of 2018.


(b)	For segment reporting purposes, our share of earnings related to equity investees is included as part of income before taxes. However, such earnings are reported separately below (loss) income before taxes in our Condensed Consolidated Statements of Operations.

The table below presents segment assets, as well as a reconciliation of segment assets to consolidated assets as of September 30, 2018 , December 31, 2017 , and September 30, 2017 (in thousands of dollars):



	September 30, 2018		December 31, 2017		September 30, 2017
Agency	$	1,516,644	$	2,395,429	$	1,441,249
SFS	616,092		608,713		627,815
All Other	36,835		40,566		39,431
Total segment assets	2,169,571		3,044,708		2,108,495
Unallocated amounts and reconciling items:
Deferred tax assets and income tax receivable	65,900		42,599		38,180
Consolidated assets	$	2,235,471	$	3,087,307	$	2,146,675

Substantially all of our capital expenditures for the nine months ended September 30, 2018 , the year ended December 31, 2017 , and the nine months ended September 30, 2017 were attributable to the Agency segment.

4 . Revenues

The Agency segment, which is our predominant source of revenue, earns commissions and fees by acting as agent for clients wishing to sell their artworks through the auction or private sale process. To a much lesser extent, the Agency segment also earns revenues from the sale of artworks that are owned by Sotheby's. Outside of the Agency segment, we earn revenues from art advisory services, retail wine sales, and brand licensing activities, which are aggregated and classified within All Other for segment reporting purposes, as well as from the art-related financing activities conducted by SFS. The revenues earned by the Agency and All Other segments are accounted for in accordance with ASC 606, Revenue from Contracts with Customers , which was retrospectively adopted on January 1, 2018. The revenues earned by SFS are not within the scope of ASC 606. (See Note 1 for information regarding the retrospective adoption of ASC 606.)

The following table summarizes our revenues by segment and type for the three and nine months ended September 30, 2018 and 2017 (in thousands of dollars):



	Three Months Ended September 30, 2018									Three Months Ended September 30, 2017
	Agency		SFS		All Other			Total		Agency		SFS		All Other		Total
Revenue from contracts with customers:
Agency commissions and fees:
Auction commissions	$	72,734	$	—	$	(156	)	$	72,578	$	62,731	$	—	$	—	$	62,731
Auction related fees, net (a)	7,685		—		(15		)	7,670		3,543		—		—		3,543
Private sale commissions	12,759		—		—			12,759		12,902		—		—		12,902
Other Agency commissions and fees	3,556		—		158			3,714		2,088		—		—		2,088
Total Agency commissions and fees	96,734		—		(13		)	96,721		81,264		—		—		81,264
Inventory sales	1,580		—		4,918			6,498		79,510		—		1,991		81,501
Advisory revenues	—		—		1,169			1,169		—		—		1,422		1,422
License fee and other revenues	—		—		3,350			3,350		—		—		4,124		4,124
Total revenue from contracts with customers	98,314		—		9,424			107,738		160,774		—		7,537		168,311
Finance revenue:
Interest and related fees	—		11,423		—			11,423		—		11,697		—		11,697
Total revenues	$	98,314	$	11,423	$	9,424		$	119,161	$	160,774	$	11,697	$	7,537	$	180,008



	Nine Months Ended September 30, 2018									Nine Months Ended September 30, 2017
	Agency		SFS		All Other			Total		Agency		SFS		All Other		Total
Revenue from contracts with customers:
Agency commissions and fees:
Auction commissions	$	462,663	$	—	$	(156	)	$	462,507	$	420,296	$	—	$	—	$	420,296
Auction related fees, net (a)	25,509		—		(15		)	25,494		25,041		—		—		25,041
Private sale commissions	56,260		—		500			56,760		40,949		—		—		40,949
Other Agency commissions and fees	7,907		—		458			8,365		8,011		—		—		8,011
Total Agency commissions and fees	552,339		—		787			553,126		494,297		—		—		494,297
Inventory sales	53,153		—		9,687			62,840		166,142		—		6,673		172,815
Advisory revenues	—		—		3,575			3,575		—		—		4,251		4,251
License fee and other revenues	—		—		10,107			10,107		—		—		9,990		9,990
Total revenue from contracts with customers	605,492		—		24,156			629,648		660,439		—		20,914		681,353
Finance revenue:
Interest and related fees	—		30,945		—			30,945		—		37,823		—		37,823
Total revenues	$	605,492	$	30,945	$	24,156		$	660,593	$	660,439	$	37,823	$	20,914	$	719,176


(a)	Auction Related Fees, net includes the net overage or shortfall attributable to auction guarantees, consignor expense recoveries, and shipping fees charged to buyers.

Auction Commissions —In our role as auctioneer, we accept works of art on consignment and match sellers (also known as consignors) to buyers through the auction process. In an auction transaction, we act as exclusive agent for the seller. The terms of our arrangement with the seller are stipulated in a consignment agreement, which, among other things, entitles us to collect and retain an auction commission as compensation for our service. Our auction commission includes a premium charged to the buyer and, to a lesser extent, a commission charged to the seller, both of which are calculated as a percentage of the hammer price of the property sold at auction. In certain situations, in order to secure a high-value consignment, we may not charge a seller's commission and/or may share a portion of our buyer's premium with the seller. In situations when we share a portion of our buyer's premium with the seller, our auction commission revenue is recorded net of the amount paid to the seller.

Prior to the date of the auction, we perform a number of activities in connection with our obligations under an auction consignment agreement, which may include: (i) transporting the consigned artwork to the location of the auction sale; (ii) performing due diligence to authenticate and determine the ownership history and condition of the consigned artwork; (iii) preparing the consigned artwork for auction (e.g., framing and cleaning); (iv) preparing catalogue content related to the consigned artwork (e.g., photography and description of the artwork); (v) marketing the artwork through exhibitions and advertising campaigns; (vi) establishing presale estimates for the consigned artwork in response to an assessment of buyer demand and overall market conditions; and (vii) conducting pre-auction bidder registration and qualification. The services associated with these activities are necessary components of our auction service, which culminates in the creation of a public marketplace for the sale and purchase of art that, if successful, results in the matching of the seller to a buyer upon the fall of the auctioneer's hammer.

Upon the fall of the auctioneer's hammer, the highest bidder becomes legally obligated to pay the aggregate purchase price (i.e., the hammer price plus buyer's premium) and the consignor is legally obligated to relinquish the property in exchange for the net sale proceeds (i.e., the hammer price less any seller's commission and expense recoveries). However, if the bidding for an individual artwork does not reach its reserve price (i.e., the confidential minimum hammer price at which the consignor has agreed to sell), the sale is not completed, and we are not entitled to collect a commission. Accordingly, the consignor receives the benefit of our auction service only when the sale is completed, upon the fall of the auctioneer's hammer, at which point in time we recognize our auction commission revenue.

Under the standard terms and conditions of our auction sales, we are not obligated to pay the consignor for property that has not been paid for by the buyer. If a buyer defaults on payment, the sale is cancelled, and the property is returned to the consignor. We continually evaluate the collectability of amounts due from individual buyers and only recognize auction commission revenue when the collection of the amount due from the buyer is probable. If we determine that payment from the buyer is not probable, a cancelled sale is recorded in the period in which that determination is made and the associated Accounts Receivable balance, including our auction commission, is reversed. Our judgments regarding the collectability of Accounts Receivable are based on an assessment of the buyer's payment history, discussions with the buyer, and the value of any property held as security against the buyer's payment obligation. Our judgments with respect to the collectability of amounts due from buyers for auction purchases may prove, with the benefit of hindsight, to be incorrect. Historically, cancelled sales have not been material in relation to the aggregate hammer price of property sold at auction.

For artworks purchased at auction, the buyer is provided a five-year guarantee of authenticity. Subject to certain limitations, this guarantee generally attests to the authorship of the artwork. In the event a valid claim is made by the buyer under the authenticity guarantee, the sale is rescinded and we are obligated to refund the aggregate purchase price to the buyer. In these circumstances, the consignor is obligated to return any net sale proceeds paid to them. Outside of a valid authenticity claim, the buyer has no right to rescind an auction sale. The authenticity guarantee provided to the auction buyer is a product warranty that is associated with the provision of our auction service; it may not be purchased separately and does not provide an additional service to the buyer.

Auction Guarantee Overage (Shortfall) —From time-to-time, in the ordinary course of business, we will provide a guarantee to the consignor that their consigned artwork will achieve a specified minimum sale price at auction. This type of arrangement is known as an auction guarantee. If the property offered under an auction guarantee sells above the minimum guaranteed price, we are generally entitled to a share of the overage. In the event that the property sells for less than the minimum guaranteed price, we must perform under the auction guarantee by funding the shortfall between the sale price at auction and the amount of the auction guarantee. If the property offered under the auction guarantee does not sell, we must pay the amount of the auction guarantee to the consignor and then take ownership of the unsold property and may recover the amount paid through its future sale. In certain limited situations, if the guaranteed property fails to sell at auction or if the purchaser defaults, the consignor has the right to cancel the auction guarantee and retain the property.

In situations when an item of guaranteed property does not sell and we take ownership of the property, it is taken into Inventory and recorded on our balance sheet at the lower of its cost (i.e., the amount paid under the auction guarantee) or our estimate of the property’s net realizable value (i.e., the expected sale price upon its eventual disposition).

We may reduce our financial exposure under auction guarantees through contractual risk sharing arrangements. Such auction guarantee risk sharing arrangements include irrevocable bid arrangements and, from time-to-time, partner sharing arrangements.

An irrevocable bid is an arrangement under which a counterparty irrevocably commits to bid a predetermined price on the guaranteed property. If the irrevocable bid is not the winning bid, the counterparty is generally entitled to receive, as their fee, a share of the buyer's premium earned on the sale and/or a share of any auction guarantee overage. Such fees paid to irrevocable bid counterparties are recorded within Agency Direct Costs in the period of the sale. If the irrevocable bid is the winning bid, the counterparty may sometimes receive a fee as compensation for providing the irrevocable bid. This fee is netted against the counterparty's obligation to pay the full purchase price (i.e., the hammer price plus buyer's premium) and is recorded as a reduction to our auction commission revenue in the period of the sale.

In a partner sharing arrangement, a counterparty commits to fund: (i) a share of the difference between the sale price at auction and the amount of the auction guarantee, if the property sells for less than the minimum guaranteed price, or (ii) a share of the minimum guaranteed price if the property does not sell, while taking ownership of a proportionate share of the unsold property. In exchange for accepting a share of the financial exposure under the auction guarantee, if the property sells, the counterparty in a partner sharing arrangement is generally entitled to receive, as their fee, a share of the buyer's premium earned on the sale and/or a share of any auction guarantee overage. Such fees paid to the counterparties in auction guarantee partner sharing arrangements are recorded within Agency Direct Costs in the period of the sale.

Similar to a standard auction transaction, for property sold under an auction guarantee, the consignor receives the benefit of our auction service only when the sale is completed, upon the fall of the auctioneer's hammer, at which point in time we recognize our auction commission revenue and any auction guarantee overage or shortfall. In the event that the property offered under an auction guarantee sells for a hammer price that is less than the minimum guaranteed price, the amount of the shortfall is recorded net of any buyer’s premium commission earned on the sale. An auction guarantee shortfall may also be recognized prior to the date of the auction if we determine that it is probable that the expected selling price of the property, including buyer's premium, will not exceed the amount of the auction guarantee.

Consignor Expense Recoveries —We incur various direct costs in the fulfillment of our auction service. These costs principally relate to the transport of consigned artworks to the location of the auction sale, various sale marketing activities including catalogue production and distribution, and the exhibition of consigned artworks. Auction consignment agreements sometimes permit us to recover all or a portion of these costs from the consignor through a deduction from their net sale proceeds if the item is sold at auction. Such recoveries are recognized as revenue in the period of the auction sale.

Buyer Shipping Fees —Auction buyers may be charged a fee for shipping services associated with their purchased property. Such fees are recognized as revenue in the period when the shipping service is provided.

Private Sale Commissions —Private sale commission revenues are earned through the direct brokering of purchases and sales of art. Private sales are generally initiated by a client wishing to sell their artwork (i.e., the consignor) with Sotheby's acting as their exclusive agent in the transaction. Such arrangements are evidenced by a legally binding consignment agreement between us and the seller, which outlines the terms of the arrangement, including the desired sale price and the amount or rate of commission that we may earn if a sale is completed, as well as, in certain instances, the period of time over which the artwork may be offered for private sale. The terms of the private sale consignment agreement create our sole performance obligation, which is to broker a legally binding sale of the consigned artwork to a qualified buyer as exclusive agent for the seller.

In connection with our efforts to fulfill our performance obligation under a private sale consignment agreement, we perform a number of activities, which may include: (i) transporting the consigned artwork to the location of the sale; (ii) performing due diligence to authenticate and determine the ownership history and condition of the consigned artwork; (iii) preparing the consigned artwork for sale (e.g., framing and cleaning); (iv) providing advice as to an appropriate asking price for the consigned artwork in response to an assessment of buyer demand and overall market conditions; (v) marketing the artwork to a select group of potential buyers or through theme-based private sale exhibitions; and (vi) completing all relevant administrative tasks related to completion of the sale.

In certain situations, when completing a private sale, we may execute a legally binding agreement with the buyer stipulating the terms pursuant to which the buyer will purchase the consigned artwork. In situations when a legally binding buyer agreement is not executed, only an invoice is issued to provide the buyer with the information necessary for finalizing the transaction (e.g., the amount owed and any associated taxes and royalties, the payment due date, payment instructions, etc.).

The consignor receives the benefit of our private sale service only upon the completion of a legally binding sale. For private sales where we execute a buyer agreement, the consignor receives the benefit of our private sale service and revenue is recognized at the point in time when the agreement is signed by the buyer. At this point in time, the buyer becomes legally obligated to pay the purchase price and the consignor is legally obligated to relinquish the property in exchange for the net sale proceeds (i.e., the purchase price less our commission). In the absence of an executed buyer agreement, the consignor receives the benefit of our private sale service and revenue is recognized at the point in time when the full purchase price is paid by the buyer. At this point in time, we have performed all of our service obligations in the transaction and the consignor is legally obligated to relinquish the property in exchange for the net sale proceeds. If we are not successful in completing a sale according to the terms of the private sale consignment agreement, we are not entitled to collect a commission.

For artworks purchased in a private sale transaction, the buyer is provided a guarantee of authenticity for a period of up to five years. Subject to certain limitations, this guarantee generally attests to the authorship of the artwork. In the event a valid claim is made by the buyer under the authenticity guarantee, the sale is rescinded and we are obligated to refund the purchase price to the buyer. In these circumstances, the consignor is obligated to return any net sale proceeds paid to them. Outside of a valid authenticity claim, the buyer has no right to rescind a completed private sale. The authenticity guarantee provided to the buyer is a product warranty that is associated with the provision of our private sale service; it may not be purchased separately and does not provide an additional service to the buyer.

Other Agency Commissions and Fees —From time-to-time, we earn commissions and fees connected with sales of art brokered by third parties. These commissions and fees are recognized at a point in time in the period when we receive confirmation from the third parties that the sale has been completed.

Inventory Sales —From time-to-time, the Agency segment earns revenue from the sale of: (i) artworks that have been obtained as a result of the failure of guaranteed property to sell at auction; (ii) artworks that have been purchased opportunistically, including property acquired for sale at auction; and (iii) other objects obtained incidental to the auction process (e.g., as a result of buyer default).

Inventory sales may be consummated through either a private sale transaction or through an auction sale. For artworks that are sold privately, an executed agreement with the buyer is used to document the terms and conditions of the transaction. For artworks that are sold at auction, the sale is completed pursuant to the conditions of sale published in the corresponding auction catalogue. Regardless of the method of sale, title and control of the artwork are transferred to the buyer only upon payment of the full purchase price. Accordingly, sales of inventory are recognized at a point in time in the period when title and control of the artwork is transferred to the buyer.

Advisory Revenues —Advisory revenues consist of fees earned from providing art-related advice to certain clients. These arrangements may be evidenced by a legally binding written retainer agreement with the client, which outlines the nature of the services to be provided and the amount of fees to be earned. Advisory retainer agreements are typically one year in duration. Advisory services are also sometimes provided on the basis of a verbal agreement with the client. For advisory arrangements with written retainer agreements, revenues are recognized ratably over time, based on the contractual period and as services are provided to the client. In the absence of a written retainer agreement, revenue recognition is deferred until we have performed our substantive service obligations and the client has made payment for those services, thereby evidencing the terms of the arrangement.

License Fee Revenues —Prior to 2004, we were engaged in the marketing and brokerage of luxury residential real estate sales through Sotheby's International Realty ("SIR"). In 2004, we sold SIR to a subsidiary of Realogy Corporation ("Realogy"), formerly Cendant Corporation. In conjunction with the sale, we entered into an agreement with Realogy to license the SIR trademark and certain related trademarks for an initial 50 -year term with a 50 -year renewal option (the "Realogy License Agreement"). The Realogy License Agreement is applicable worldwide.The Realogy License Agreement provides for an ongoing license fee during its term based on the volume of commerce transacted under the licensed trademarks. We also license the Sotheby's name for use in connection with the art auction business in Australia, and art education services in the U.S. and the U.K. The license fees earned from these arrangements are sales-based and are recognized in the periods in which the underlying sales occur.

Sales, Use and Value-Added Taxes —Sales, use and value-added taxes assessed by governmental authorities that are both imposed on and concurrent with revenue-producing transactions between us and our clients are reported on a net basis within revenues.

Resale Royalties —In certain foreign jurisdictions, various resale royalties and other fees are imposed on auctioneers upon the completion of an auction sale. These royalties and fees are reported on a gross basis within Agency Direct Costs.

Contract Balances —Following the completion of an auction or private sale, we invoice the buyer for the aggregate purchase price of the property, which includes our buyer's premium or private sale commission, as well as any applicable taxes and royalties. The amount owed by the buyer is recorded within Accounts Receivable, and the amount of net sale proceeds due to the seller is recorded within Client Payables. Upon collection from the buyer, we are obligated to remit the net proceeds to the seller after deducting our commissions and related fees, as well as any applicable taxes and royalties, which are ultimately paid to the appropriate taxing authority or royalty association.

Under our standard auction payment terms, the purchase price is due from the buyer no more than 30 days after the sale date, with the net proceeds due to the consignor 35 days after the sale date. For private sales, payment from the buyer is typically due on the sale date, with the net sale proceeds due to the consignor shortly thereafter. We also sometimes provide extended payment terms to an auction or private sale buyer. For auctions, the extent to which extended payment terms are provided can vary considerably from selling season to selling season. Extended payment terms typically extend the payment due date to a date that is no longer than one year from the sale date. In limited circumstances, the payment due date may be extended to a date that is beyond one year from the sale date. When providing extended payment terms, we attempt to match the timing of cash receipt from the buyer with the timing of our payment to the consignor, but are not always successful in doing so. All extended payment term arrangements are approved by management under our internal corporate governance policy.

In the limited circumstances when the buyer's payment due date is extended to a date that is beyond one year from the sale date, if the seller does not provide matched payment terms (i.e., we pay the seller before receiving payment from the buyer), the receivable balance is reclassified from Accounts Receivable to Notes Receivable on our Condensed Consolidated Balance Sheets. See Note 5 for information on Agency segment Notes Receivable.

When the buyer's due date is extended to a date that is one year or less from the sale date, as a practical expedient, we do not record a discount to our commission to account for the effects of the financing component. However, in the limited circumstances when the buyer's due date is extended to a date that is beyond one year from the sale date, we record a discount to our commission revenue to reflect the financing component, if material.

The table below summarizes the balances related to our contracts with customers as of and for the nine months ended September 30, 2018 and 2017 (in thousands of dollars):



	September 30, 2018			September 30, 2017
Accounts Receivable
Balance as of beginning of period	$	783,706		$	424,418
Balance as of end of period	$	599,681		$	442,111
(Decrease)/increase	$	(184,025	)	$	17,693
Client Payables
Balance as of beginning of period	$	996,197		$	511,876
Balance as of end of period	$	627,466		$	376,108
Decrease	$	(368,731	)	$	(135,768	)

The balances of Accounts Receivable presented in the table above relate almost entirely to amounts due from auction and private sale buyers. To a much lesser extent, they also include amounts owed to us in relation to our advisory services and brand licensing activities. Interest and related fees due to SFS, which are recorded within Accounts Receivable on our Condensed Consolidated Balance Sheets, are excluded from this table because they are not considered to be contract balances under ASC 606.

The net decreases in Accounts Receivable and Client Payables during the nine months ended September 30, 2018 are largely the result of auction sale proceeds that have been collected from buyers and remitted to sellers. The net changes in Accounts Receivable and Client Payables during the nine months ended September 30, 2017 were largely attributable to the funding of certain consignor settlements prior to collecting from buyers. When compared to September 30, 2017 , the increases in Accounts Receivable and Client Payables as of September 30, 2018 are principally due to the higher levels of auction and private sales through the third quarter of 2018 , a decrease in early consignor settlements (as discussed in the following paragraph), and the general timing of buyer and consignor settlements.

In certain instances, and subject to management approval under our internal corporate governance policy, we may pay the net sale proceeds to the seller before payment is collected from the buyer and/or we may allow the buyer to take possession of the property before making payment. In situations when the buyer takes possession of the property before making payment, we are liable to the seller for the net sales proceeds whether or not the buyer makes payment. As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , Accounts Receivable included $47.2 million , $92.1 million , and $144.9 million , respectively, related to situations when we paid the seller all or a portion of the net sales proceeds before payment was collected from the buyer. As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , Accounts Receivable (net) also included $12 million , $53.8 million , and $16.4 million , respectively, related to situations when we allowed the buyer to take possession of the property before making payment.

Deferred revenue balances are generally not material.

Contract Costs —We incur various direct costs in the fulfillment of our auction services. These costs principally relate to the transport of consigned artworks to the location of the auction sale, various sale marketing activities including catalogue production and distribution, and the exhibition of consigned artworks. A large portion of these costs are funded prior to the auction and are recorded on our Condensed Consolidated Balance Sheets within Prepaid Expenses and Other Current Assets until the date of the auction sale when they are expensed to Direct Costs of Services in the Condensed Consolidated Statements of Operations. As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , the contract cost balances recorded within Prepaid Expenses and Other Current Assets were $10.4 million , $9.6 million , and $8.2 million , respectively.

5 . Notes Receivable

Sotheby's Financial Services —SFS makes term loans secured by artworks that are not presently intended for sale, allowing us to establish or enhance mutually beneficial relationships with art collectors. Term loans may also generate future auction or private sale consignments through the sale of the collateral at the conclusion of the loan and/or through future purchases of new property by the borrower. In certain situations, term loans are made to refinance the accounts receivable balances generated by the auction and private sale purchases of our clients. Term loans normally have initial maturities of up to two years and typically carry a variable market rate of interest. To a much lesser extent, SFS also makes consignor advances secured by artworks that are contractually committed, in the near term, to be offered for sale through the Agency segment. Consignor advances allow sellers to receive funds upon consignment for an auction or private sale that will occur up to one year in the future and normally have short-term maturities.

As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , the net Notes Receivable balance of SFS was $593 million , $590.6 million , and $602.2 million , respectively. As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , the total net Notes Receivable balance of SFS included $132.5 million , $54.4 million , and $57.9 million , respectively, of term loans issued by SFS to refinance client auction and private sale purchases. For the nine months ended September 30, 2018 and 2017 , SFS issued $119.2 million and $6.5 million , respectively, of such loans. These loans are accounted for as non-cash transfers between Accounts Receivable (net) and Notes Receivable (net) and are, therefore, not reflected as the funding of Notes Receivable within Investing Activities in our Condensed Consolidated Statements of Cash Flows. Upon repayment, the cash received in settlement of such Notes Receivable is classified within Operating Activities in our Condensed Consolidated Statements of Cash Flows. For the nine months ended September 30, 2018 and 2017 , such repayments totaled $41.1 million and $37.3 million , respectively.

The repayment of secured loans can be adversely impacted by a decline in the art market in general or in the value of the collateral, which is concentrated within certain collecting categories. In addition, in situations when there are competing claims on the collateral and/or when a borrower becomes subject to bankruptcy or insolvency laws, our ability to realize on our collateral may be limited or delayed.

We aim to mitigate the risk associated with a potential devaluation in our collateral by targeting a 50% loan-to-value ("LTV") ratio (i.e., the principal loan amount divided by the low auction estimate of the collateral). However, loans may also be made with LTV ratios between 51% and 60% , and, in rare circumstances, loans may be made at an initial LTV ratio higher than 60% .

The LTV ratio of certain loans may increase above the 50% target due to a decrease in the low auction estimates of the collateral. The revaluation of term loan collateral is performed by our specialists on an annual basis or more frequently if there is a material change in the circumstances related to the loan, the value of the collateral, the disposal plans for the collateral, or if an event of default occurs. We believe that the LTV ratio is the critical credit quality indicator for the secured loans made by SFS.

The table below provides the aggregate LTV ratio for the SFS loan portfolio as of September 30, 2018 , December 31, 2017 , and September 30, 2017 (in thousands of dollars):



	September 30, 2018			December 31, 2017			September 30, 2017
Secured loans	$	592,962		$	590,609		$	602,176
Low auction estimate of collateral	$	1,425,960		$	1,369,235		$	1,378,737
Aggregate LTV ratio	42		%	43		%	44		%

The table below provides the aggregate LTV ratio for secured loans made by SFS with an LTV ratio above 50% as of September 30, 2018 , December 31, 2017 , and September 30, 2017 (in thousands of dollars):



	September 30, 2018			December 31, 2017			September 30, 2017
Secured loans with an LTV ratio above 50%	$	225,491		$	168,116		$	179,568
Low auction estimate of collateral related to secured loans with an LTV ratio above 50%	$	382,997		$	269,063		$	306,603
Aggregate LTV ratio of secured loans with an LTV ratio above 50%	59		%	62		%	59		%

The table below provides other credit quality information regarding secured loans made by SFS as of September 30, 2018 , December 31, 2017 , and September 30, 2017 (in thousands of dollars):



	September 30, 2018		December 31, 2017		September 30, 2017
Total secured loans	$	592,962	$	590,609	$	602,176
Loans past due	$	77,751	$	62,570	$	79,038
Loans more than 90 days past due	$	27,315	$	56,087	$	78,367
Non-accrual loans	$	6,330	$	—	$	—
Impaired loans	$	—	$	—	$	—
Allowance for credit losses:
Allowance for credit losses for impaired loans	$	—	$	—	$	—
Allowance for credit losses based on historical data	1,067		1,253		1,295
Total allowance for credit losses - secured loans	$	1,067	$	1,253	$	1,295

We consider a loan to be past due when principal payments are not paid by the contractual maturity date. Typically, a loan becomes past due only for a short period of time during which either the loan is renewed or collateral is sold to satisfy the borrower's obligations. As of September 30, 2018 , $77.8 million of the net Notes Receivable balance was past due, of which $27.3 million was more than 90 days past due. We are continuing to accrue interest on $71.4 million of past due loans and, as of September 30, 2018 , the collateral securing such loans had a low auction estimate of approximately $259.4 million , resulting in an LTV ratio of approximately 28% . In consideration of expected loan renewals, collateral sales to date for which the proceeds have not yet been collected from the buyer, as well as the value of the remaining collateral and our current collateral disposal plans, we believe that the principal and interest amounts owed for these past due loans will be collected.

A non-accrual loan is a loan for which future Finance revenue is not recorded due to our determination that it is probable that future interest on the loan is not collectible. Any cash receipts subsequently received on non-accrual loans are first applied to reduce the recorded principal balance of the loan, with any proceeds in excess of the principal balance then applied to interest owed by the borrower. The recognition of Finance revenue may resume on a non-accrual loan if sufficient additional collateral is provided by the borrower or if we become aware of other circumstances that indicate that it is probable that the borrower will make future interest payments on the loan. As of January 1, 2018, one of the past due loans included in the table above was placed on non-accrual status. Through September 30, 2018, our investment in this loan was reduced by $41.1 million as the result of proceeds collected from collateral sales. As of September 30, 2018 , our recorded investment in this loan was approximately $8.1 million , consisting of the $6.3 million principal balance and $1.8 million in accrued interest. Additional collateral sale proceeds of $7.2 million are expected to be collected from auction buyers in the first quarter of 2019. Following the collection of these collateral sale proceeds, our recorded investment in the loan will be less than $1 million which we expect to recover through the future sale of the remaining loan collateral.

A loan is considered to be impaired when we determine that it is probable that a portion of the principal and interest owed by the borrower will not be recovered after taking into account the estimated realizable value of the collateral securing the loan, as well as the ability of the borrower to repay any shortfall between the value of the collateral and the amount of the loan. If a loan is considered to be impaired, Finance revenue is no longer recognized and bad debt expense is recorded for any principal or accrued interest that is deemed uncollectible. As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , there were no impaired loans outstanding.

As of September 30, 2018 , unfunded commitments to extend additional credit through SFS were approximately $46 million .

Agency Segment —As discussed above, in the limited circumstances when the payment due date for an auction or private sale receivable is extended to a date that is beyond one year from the sale date, if the consignor does not provide matched payment terms, the receivable balance is reclassified from Accounts Receivable (net) to Notes Receivable (net) on our Condensed Consolidated Balance Sheets. As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , Notes Receivable (net) within the Agency segment included $1.2 million , $2.7 million , and $2.7 million of such amounts reclassified from Accounts Receivable (net). These Notes Receivable are accounted for as non-cash transfers between Accounts Receivable (net) and Notes Receivable (net) and are, therefore, not reflected as the funding of Notes Receivable within Investing Activities in our Condensed Consolidated Statements of Cash Flows. Upon repayment, the cash received in settlement of such Notes Receivable is classified within Operating Activities in our Condensed Consolidated Statements of Cash Flows. For the nine months ended September 30, 2018 and 2017, such repayments totaled $1 million and $5 million , respectively.

Under certain circumstances, we provide loans to certain art dealers to finance the purchase of works of art. In these situations, we acquire a partial ownership interest or a security interest in the purchased property in addition to providing the loan. Upon the eventual sale of the property acquired, the loan is repaid. As of September 30, 2018 , such loans totaled $3.1 million , including one loan with a balance of $2.1 million for which we are no longer accruing interest but believe that the recorded balance of the loan is collectible. As of September 30, 2017 , such loans totaled $3.8 million . In the fourth quarter of 2017, we determined one of these loans to be impaired as a result of the bankruptcy of the art dealer and recorded a credit loss of $1.5 million in the period. We have commenced legal proceedings against one of the individuals who personally guaranteed this loan. As of December 31, 2017 , we had one loan outstanding of this type with a balance of $2.1 million .

In certain limited situations, the Agency segment will also provide advances to consignors that are secured by property scheduled to be offered at auction in the near term. Such Agency segment consignor advances are recorded on our Condensed Consolidated Balance Sheets within Notes Receivable (net) and totaled $3.4 million as of September 30, 2018 . There were no Agency segment consignor advances outstanding as of December 31, 2017 and September 30, 2017 .

Allowance for Credit Losses —During the period January 1, 2018 to September 30, 2018 , activity related to the Allowance for Credit Losses by segment was as follows (in thousands of dollars):



	SFS			Agency		Total
Balance as of January 1, 2018	$	1,253		$	1,525	$	2,778
Change in loan loss provision based on historical data	(186		)	—		(186		)
Balance as of September 30, 2018	$	1,067		$	1,525	$	2,592

6 . Goodwill and Intangible Assets

Goodwill —For the nine months ended September 30, 2018 and 2017 , changes in the carrying value of Goodwill were as follows (in thousands of dollars):



	Nine Months Ended September 30, 2018								Nine Months Ended September 30, 2017
	Agency			All Other		Total			Agency		All Other		Total
Beginning balance as of January 1	$	44,396		$	6,151	$	50,547		$	43,878	$	6,151	$	50,029
Goodwill acquired	5,259			—		5,259			—		—		—
Foreign currency exchange rate changes	(148		)	—		(148		)	467		—		467
Ending balance as of September 30	$	49,507		$	6,151	$	55,658		$	44,345	$	6,151	$	50,496

On February 2, 2018, we acquired Viyet, an online marketplace for interior design specializing in vintage and antique furniture, decorative objects, and accessories. This acquisition complements and enhances our online sales program, and provides an additional sale format to offer clients. In October 2018, Viyet was rebranded as Sotheby's Home.

Intangible Assets —As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , intangible assets consisted of the following (in thousands of dollars):



	Amortization Period	September 30, 2018			December 31, 2017			September 30, 2017
Indefinite lived intangible assets:
License (a)	N/A	$	324		$	324		$	324
Intangible assets subject to amortization:
Customer relationships - Art Advisory Partners	8 years	10,800			10,800			10,800
Non-compete agreements - Art Advisory Partners	6 years	3,060			3,060			3,060
Artworks database (b)	10 years	1,275			1,200			1,200
Technology	4 years	4,461			—			—
Total intangible assets subject to amortization		19,596			15,060			15,060
Accumulated amortization		(5,939		)	(3,892		)	(3,397		)
Total amortizable intangible assets (net)		13,657			11,168			11,663
Total intangible assets (net)		$	13,981		$	11,492		$	11,987


(a)	Relates to a license obtained in conjunction with the purchase of a retail wine business in 2008 .


(b)	Relates to a database containing historic information concerning repeat sales of works of art. This database was acquired along with the associated business in exchange for an initial cash payment made in the third quarter of 2016 and subsequent cash payments made in the third quarters of 2018 and 2017.

For the three and nine months ended September 30, 2018 , amortization expense related to intangible assets was approximately $0.7 million and $2 million , respectively. For the three and nine months ended September 30, 2017 , amortization expense related to intangible assets was approximately $0.5 million and $1.5 million , respectively.

The estimated aggregate amortization expense for the remaining useful lives of intangible assets subject to amortization during the five -year period succeeding the September 30, 2018 balance sheet date are as follows (in thousands of dollars):



Period	Amount
October 2018 to September 2019	$	3,103
October 2019 to September 2020	$	3,103
October 2020 to September 2021	$	3,103
October 2021 to September 2022	$	1,977
October 2022 to September 2023	$	1,478

7 . Defined Benefit Pension Plan

We sponsor a defined benefit pension plan in the U.K. (the "U.K. Pension Plan"), which was closed to future service cost accruals on April 30, 2016. For the three and nine months ended September 30, 2018 and 2017 , the components of the net pension credit for the U.K. Pension Plan recorded within Non-Operating Income in our Condensed Consolidated Statements of Operations were as follows (in thousands of dollars):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Interest cost	$	1,855		$	2,047		$	5,775		$	5,984
Expected return on plan assets	(2,717		)	(3,598		)	(8,458		)	(10,519		)
Prior service cost	—			15			—			45
Amortization of actuarial loss	117			289			364			842
Amortization of prior service cost	(24		)	(25		)	(76		)	(71		)
Net pension credit	$	(769	)	$	(1,272	)	$	(2,395	)	$	(3,719	)

8 . Debt

Revolving Credit Facilities —Prior to June 26, 2018, we were party to credit agreements with an international syndicate of lenders that, among other things, provided for dedicated asset-based revolving credit facilities for the Agency segment (the "Agency Credit Facility") and SFS (the "SFS Credit Facility") (collectively, the "Previous Credit Agreements"). The Previous Credit Agreements were scheduled to mature on August 22, 2020.

On June 26, 2018, we refinanced the Previous Credit Agreements and entered into a new credit agreement with an international syndicate of lenders led by JPMorgan Chase Bank, N.A. (the “New Credit Agreement”). The proceeds under the New Credit Agreement may be used for our working capital and other general corporate purposes and borrowings thereunder are available in U.S. Dollars, Pounds Sterling, Euros, Swiss Francs or Hong Kong Dollars. The New Credit Agreement reduces the interest rate margins for borrowings when compared to those under the Previous Credit Agreements by 25 basis points. Such interest rate margins are determined by reference to a pricing grid that is based on the level of borrowings outstanding under the New Credit Agreement. The New Credit Agreement is scheduled to mature on June 26, 2023.

The New Credit Agreement combines the previous Agency Credit Facility and previous SFS Credit Facility into one asset-based revolving credit facility with an aggregate borrowing capacity of $1.1 billion , which is subject to an enhanced borrowing base. The New Credit Agreement has a sub-limit of $350 million for foreign currency borrowings, as well as an accordion feature, which allows us to seek an increase to the borrowing capacity of the New Credit Agreement by an amount not to exceed $300 million in the aggregate. Though new commitments would need to be obtained, the uncommitted accordion feature permits us to seek an increase to the aggregate borrowing capacity under the New Credit Agreement pursuant to an expedited documentation process.

The borrowing base under the New Credit Agreement is determined by a calculation that is based upon, among other things, a percentage of: (i) eligible cash; (ii) the carrying value of certain auction guarantee advances; (iii) the carrying value of certain art inventory; (iv) the carrying value of certain extended payment term receivables arising from auction or private sale transactions; (v) the carrying value of certain loans in the SFS loan portfolio; (vi) the fair market value of certain eligible real property located in the U.K.; and (vii) the net orderly liquidation value of certain of our trademarks.

Domestic borrowers are jointly and severally liable for all obligations under the New Credit Agreement and, subject to certain limitations, borrowers in the U.K. and Sotheby's Hong Kong Limited, are jointly and severally liable for all obligations of the foreign borrowers under the New Credit Agreement. In addition, the obligations of the borrowers under the New Credit Agreement are guaranteed by certain of their subsidiaries. Our obligations under the New Credit Agreement are secured by liens on all or substantially all of the personal property of the entities that are borrowers and guarantors under the New Credit Agreement.

The New Credit Agreement contains certain customary affirmative and negative covenants including, but not limited to, limitations on indebtedness, liens, investments, restricted payments, and the use of proceeds from borrowings thereunder. The New Credit Agreement also contains a limitation on net outstanding auction guarantees (i.e., auction guarantees less the impact of related risk sharing arrangements).

The New Credit Agreement permits dividend payments, common stock repurchases, investments, and certain debt prepayments, so long as no event of default exists and is generally subject to maintaining a minimum level of borrowing availability. The New Credit Agreement also contains certain financial covenants, which are only applicable during certain defined compliance periods. These financial covenants were not applicable for the twelve month period ended September 30, 2018.

We incurred aggregate fees of approximately $4.1 million related to the New Credit Agreement, which are being amortized on a straight-line basis through its June 26, 2023 maturity date. As a result of this refinancing, $4 million of unamortized fees related to the Previous Credit Agreements were written off in the second quarter of 2018.

The following tables summarize information related to our revolving credit facilities as of and for the periods ended September 30, 2018 , December 31, 2017 , and September 30, 2017 (in thousands of dollars):



As of and for the periods ended	September 30, 2018		December 31, 2017		September 30, 2017
Maximum borrowing capacity (a)	$	1,100,000	$	1,100,000	$	1,335,000
Borrowing base	$	803,440	$	605,927	$	638,068
Borrowings outstanding	$	215,000	$	196,500	$	434,000
Available borrowing capacity (b)	$	588,440	$	409,427	$	204,068
Average Borrowings Outstanding:
Three months ended	$	71,902	N/A		$	508,342
Nine months ended	$	94,399	N/A		$	537,374
Year ended	N/A		$	479,367	N/A


(a)	On October 2, 2017, we reduced the borrowing capacity of the previous SFS Credit Facility by $235 million . This reduction, which was entirely at our option and as part of our ongoing capital allocation analysis, was executed in order to reduce facility fees for unused borrowing capacity.


(b)	The available borrowing capacity is calculated as the borrowing base less borrowings outstanding.

Borrowing costs under the Previous Credit Agreements related to the Agency segment, which include interest and fees, are reflected in our Condensed Consolidated Statements of Operations as Interest Expense. Borrowing costs under the Previous Credit Agreements related to SFS are reflected in our Condensed Consolidated Income Statements within Cost of Finance Revenues as any borrowings thereunder were used to directly fund client loans. Subsequent to the refinancing of the Previous Credit Agreements and the resulting elimination of the SFS Credit Facility on June 26, 2018, the SFS loan portfolio is no longer being directly funded with revolving credit facility borrowings. Accordingly, all borrowing costs associated with the New Credit Agreement are recorded as Interest Expense in our Condensed Consolidated Statements of Operations.

Long-Term Debt —As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , Long-Term Debt consisted of the following (in thousands of dollars):



	September 30, 2018			December 31, 2017			September 30, 2017
York Property Mortgage, net of unamortized debt issuance costs of $3,787, $4,545, and $4,797	$	259,099		$	270,556		$	272,261
2022 Senior Notes, net of unamortized debt issuance costs of $0, $2,998, and $3,159	—			297,002			296,841
2025 Senior Notes, net of unamortized debt issuance costs of $5,070, $5,623, and $0	394,930			394,377			—
Less current portion:
York Property Mortgage, net of unamortized debt issuance costs of $1,010, $1,010, and $1,010	(13,514		)	(11,930		)	(11,912		)
2022 Senior Notes, net of unamortized debt issuance costs of $0, $2,998, and $0	—			(297,002		)	—
Total Long-Term Debt, net	$	640,515		$	653,003		$	557,190

See the captioned sections below for information related to the York Property Mortgage, the 2022 Senior Notes, and the 2025 Senior Notes.

York Property Mortgage —The York Property, which is our headquarters building located at 1334 York Avenue in New York, is subject to a seven -year, $325 million mortgage loan (the "York Property Mortgage") that matures on July 1, 2022. As of September 30, 2018 , the outstanding principal balance of the York Property Mortgage was $262.9 million . As of September 30, 2018 , the fair value of the York Property Mortgage approximated its book value due to the variable interest rate associated with the mortgage. The fair value measurement is considered to be a Level 2 fair value measurement in the fair value hierarchy as per ASC 820, Fair Value Measurements .

The York Property Mortgage bears interest based on the one -month LIBOR rate plus a spread of 2.25% and is being amortized based on a 25 -year mortgage-style amortization schedule over its seven -year term. On June 21, 2017, the York Property Mortgage was amended (the "First Amendment") to reduce the minimum net worth that Sotheby's is required to maintain f rom $425 million to $325 million in order to provide continued flexibility regarding potential future common stock repurchases. On October 18, 2018, the York Property Mortgage was further amended (the "Second Amendment") to modify the definition of net worth whereby the balance recorded within Treasury Stock Shares on our Condensed Consolidated Balance Sheets is added back to Total Equity for the purposes of calculating net worth. Although the minimum net worth required by the York Property Mortgage remains at $325 million , the change to the definition of net worth provides continued flexibility regarding potential future common stock repurchases. Our net worth as of September 30, 2018 , as calculated under the First Amendment, was approximately $452.5 million . Sotheby’s net worth as of September 30, 2018 , as calculated under the Second Amendment, would have been approximately $1.2 billion .

In conjunction with the First Amendment, on July 3, 2017, we made a prepayment of $32 million to reduce the outstanding principal balance of the York Property Mortgage, and agreed to make annual prepayments funded primarily with cash accumulated in a restricted cash management account, as discussed below, beginning in July 2018 and continuing through July 2021 that are not to exceed $25 million in the aggregate during that period. The $32 million principal payment made on July 3, 2017 was funded with $25 million from existing cash balances and $7 million from a restricted cash management account associated with the York Property Mortgage. On July 2, 2018, a $6.25 million principal payment funded primarily from the restricted cash management account was made in accordance with the First Amendment. (See Note 9 for information related to the interest protection agreements that were entered into in connection with the York Property Mortgage.)

The York Property, the York Property Mortgage, and the related interest rate protection agreements are held by 1334 York, LLC (the "LLC"), a separate legal entity of Sotheby's that maintains its own books and records and whose results are ultimately consolidated into our Condensed Consolidated Financial Statements. The LLC is the sole owner and lessor of the York Property. The LLC presently leases the York Property to Sotheby's, Inc., which is also controlled by Sotheby's. The assets of the LLC are not available to satisfy the obligations of our other affiliates or any other entity.

The loan agreement governing the York Property Mortgage contains the following financial covenants, which are subject to additional terms and conditions as provided in the underlying loan agreement:

•

As measured on July 1, 2020, the LTV ratio (i.e., the principal balance of the York Property Mortgage divided by the appraised value of the York Property) may not exceed 65% (the "Maximum LTV") based on the then-outstanding principal balance of the York Property Mortgage. If the LTV ratio exceeds the Maximum LTV, the LLC may, at its option, post cash or a letter of credit or pay down the York Property Mortgage without any prepayment penalty or premium, in an amount that will cause the LTV ratio not to exceed the Maximum LTV.

•

At all times during the term of the York Property Mortgage, the Debt Yield will not be less than 8.5% (the "Minimum Debt Yield"). The Debt Yield is calculated by dividing the annual net operating income of the LLC, which primarily consists of lease income from Sotheby's, Inc. (calculated on a cash basis), by the outstanding principal balance of the York Property Mortgage. If the Debt Yield falls below the Minimum Debt Yield, the LLC has the option to post cash or a letter of credit or prepay the York Property Mortgage without any prepayment penalty or premium, in an amount that will cause the Debt Yield to exceed the Minimum Debt Yield.

•

If Sotheby's corporate credit rating from Standard & Poor’s Rating Services ("S&P") is downgraded to "BB-", the lender may require that the LLC establish cash management accounts (the "Cash Management Accounts") under the lender's control for potential monthly debt service, insurance, and tax payments. If the rating is downgraded to "B+" or "B", the lender may require the LLC to deposit a certain amount of debt service into the Cash Management Accounts (approximately 6 and 12 months of debt service, respectively). If the rating is downgraded to lower than "B", the LLC must make principal payments on the mortgage such that the LTV ratio does not exceed 65% . On February 9, 2016, Sotheby's corporate credit rating from S&P was downgraded to "BB-" from "BB". As a result, a Cash Management Account was established under the control of the lender. The lender will retain any excess cash after monthly debt service, insurance, and taxes as security. As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , the Cash Management Account had a balance of $0.5 million , $3.1 million , and $1.8 million , respectively, which is reflected within Restricted Cash on our Condensed Consolidated Balance Sheets.


•	At all times during the term of the York Property Mortgage, we are required to maintain a minimum net worth as discussed above, subject to a cure period.

Senior Unsecured Debt —On September 27, 2012, we issued $300 million aggregate principal amount of 5.25% Senior Notes, due October 1, 2022 (the "2022 Senior Notes"). On December 12, 2017, we issued $400 million aggregate principal amount of 4.875% Senior Notes due on December 15, 2025 (the “2025 Senior Notes”). The net proceeds from the issuance of the 2025 Senior Notes were approximately $395.5 million , after deducting fees paid to the initial purchasers, of which $312.3 million was irrevocably deposited with a trustee for the benefit of the holders of the 2022 Senior Notes, which were redeemed using these funds on January 11, 2018, as discussed below. The $312.3 million deposited with the trustee was classified within Restricted Cash on our Condensed Consolidated Balance Sheets as of December 31, 2017. The remaining net proceeds from the issuance of the 2025 Senior Notes were used for general corporate purposes, including reductions to revolving credit facility borrowings.

Interest on the 2025 Senior Notes is payable in cash semi-annually in arrears on June 15 and December 15 of each year, beginning June 15, 2018. The 2025 Senior Notes were offered only to qualified institutional buyers in accordance with Rule 144A and to non-U.S. Persons under Regulation S under the Securities Act of 1933, as amended (the "Securities Act"). Holders of the 2025 Senior Notes do not have registration rights, and the 2025 Senior Notes have not been and will not be registered under the Securities Act. The 2025 Senior Notes are guaranteed, jointly and severally, on a senior unsecured basis by certain of our existing and future domestic subsidiaries to the extent and on the same basis that such subsidiaries guarantee borrowings under the Credit Agreement. The 2025 Senior Notes will be redeemable, in whole or in part, on or after December 15, 2020, at specified redemption prices set forth in the underlying indenture, plus accrued and unpaid interest to, but excluding, the redemption date. Prior to December 15, 2020, the 2025 Senior Notes are redeemable, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2025 Senior Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, plus a make-whole premium (as defined in the underlying indenture). In addition, at any time prior to December 15, 2020, we may redeem up to 40% of the aggregate principal amount of the 2025 Senior Notes with the net cash proceeds of certain equity offerings at the redemption price of 104.875% plus accrued and unpaid interest. If Sotheby's experiences a Change of Control (as defined in the underlying indenture), we must offer to repurchase all of the 2025 Senior Notes then outstanding at 101% of the aggregate principal amount of the 2025 Senior Notes repurchased, plus accrued and unpaid interest. The underlying indenture for the 2025 Senior Notes also contains customary covenants that limit, among other things, our ability to grant liens on our assets; enter into sale and leaseback transactions; and merge, consolidate or transfer or dispose of substantially all of our assets. The above covenants are subject to a number of exceptions and qualifications set forth in the underlying indenture.

As of September 30, 2018 , the $400 million principal amount of the 2025 Senior Notes had a fair value of approximately $378.5 million based on a broker quoted price derived via a pricing model using observable and unobservable inputs. As such, this fair value measurement is considered to be a Level 3 fair value measurement in the fair value hierarchy as per ASC 820.

On January 11, 2018, we redeemed the 2022 Senior Notes for a redemption price of $312.3 million , including the $300 million principal amount plus $4.4 million of accrued interest and a call premium of $7.9 million . As a result of the redemption of the 2022 Senior Notes, we wrote-off $3 million of related unamortized debt issuance costs, which, when combined with the $7.9 million call premium, resulted in a total loss on the extinguishment of debt of $10.9 million recognized in the first quarter of 2018.

Future Principal and Interest Payments —The aggregate future principal and interest payments due under the New Credit Agreement, the York Property Mortgage, and the 2025 Senior Notes during the five-year period after September 30, 2018 are as follows (in thousands of dollars):



Period	Amount
October 2018 to September 2019	$	46,743
October 2019 to September 2020	$	47,073
October 2020 to September 2021	$	46,672
October 2021 to September 2022	$	246,118
October 2022 to September 2023	$	234,500

The table above assumes that the annual interest rate for the York Property Mortgage will be within the ceiling and floor rates of the associated interest rate collar for the remainder of the mortgage term based on available forecasts of LIBOR rates for the future periods through maturity (see Note 9). The table above also assumes York Property Mortgage principal payments consistent with the related mortgage amortization schedule, as well as annual principal prepayments of $6.25 million each July beginning in 2018 and continuing through 2021, as discussed above.

9 . Derivative Financial Instruments

Derivative Financial Instruments Designated as Hedging Instruments —The following tables present fair value information related to the derivative financial instruments designated as hedging instruments as of September 30, 2018 , December 31, 2017 , and September 30, 2017 (in thousands of dollars):



	Assets			Liabilities
September 30, 2018	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Cash Flow Hedges:
Interest rate collar	Prepaid Expenses and Other Current Assets	$	12	N/A	$	—
Interest rate collar	Other Long-Term Assets	98		N/A	—
Total cash flow hedges		110			—
Net Investment Hedges:
Foreign exchange contracts	Prepaid Expenses and Other Current Assets	81		N/A	—
Total		$	191		$	—



	Assets			Liabilities
December 31, 2017	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Cash Flow Hedges:
Interest rate swap	Prepaid Expenses and Other Current Assets	$	339	N/A	$	—
Interest rate collar	N/A	—		Other Current Liabilities	666
Interest rate collar	N/A	—		Other Long-Term Liabilities	1,501
Total cash flow hedges		339			2,167
Net Investment Hedges:
Foreign exchange contracts	N/A	—		Other Current Liabilities	3,756
Total		$	339		$	5,923



	Assets			Liabilities
September 30, 2017	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Cash Flow Hedges:
Interest rate swaps	Prepaid Expenses and Other Current Assets	$	238	N/A	$	—
Interest rate collar	N/A	—		Other Current Liabilities	1,375
Interest rate collar	N/A	—		Other Long-Term Liabilities	2,900
Total cash flow hedges		238			4,275
Net Investment Hedges:
Foreign exchange contracts	N/A	—		Other Current Liabilities	3,626
Total		$	238		$	7,901

During the three months ended September 30, 2018, we settled derivative financial instruments designated as net investment hedges with an aggregate notional value of $104 million and realized a net gain of $4.1 million . During the nine months ended September 30, 2018 , we settled derivative financial instruments designated as net investment hedges with an aggregate notional value of $202 million and realized a net loss of ($1.9) million . During the nine months ended September 30, 2017 , we settled derivative financial instruments designated as net investment hedges with an aggregate notional value of $213.8 million and realized a net gain of $29.1 million . Realized gains and losses related to the settlement of derivative financial instruments designated as net investment hedges are reflected on our Condensed Consolidated Balance Sheets within Accumulated Other Comprehensive Loss.

The following tables summarize the effect of the derivative financial instruments designated as hedging instruments on our Condensed Consolidated Statements of Operations and Consolidated Condensed Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2018 and 2017 (in thousands of dollars)



	Gain (Loss) Recognized in Other Comprehensive Income - Effective Portion						Classification of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income	Amount Reclassified from Accumulated Other Comprehensive Loss into Net Loss - Effective Portion					Amount Reclassified from Accumulated Other Comprehensive Loss into Net Loss - Ineffective Portion
Three Months Ended September 30,	2018			2017				2018		2017			2018			2017
Cash Flow Hedges:
Interest rate swaps	$	—		$	(7	)	Interest Expense	$	—	$	(8	)	$	—		$	—
Interest rate swaps	—			—			Non-operating income	—		—			(160		)	—
Interest rate collar	256			125			Interest Expense	—		300			—			—
Total cash flow hedges	256			118				—		292			(160		)	—
Net Investment Hedges:
Foreign exchange contracts	(238		)	(911		)	N/A	—		—			—			—
Total	$	18		$	(793	)		$	—	$	292		$	(160	)	$	—



	Gain (Loss) Recognized in Other Comprehensive Income - Effective Portion					Classification of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Net Income	Amount Reclassified from Accumulated Other Comprehensive Loss into Net Income - Effective Portion					Amount Reclassified from Accumulated Other Comprehensive Loss into Net Income - Ineffective Portion
Nine Months Ended September 30,	2018		2017				2018			2017		2018			2017
Cash Flow Hedges:
Interest rate swaps	$	95	$	127		Interest Expense	$	(145	)	$	27	$	—		$	—
Interest rate swaps	—		—			Non-operating income	—			—		(160		)	—
Interest rate collar	1,443		210			Interest Expense	169			300		—			—
Interest rate collar	—		—			Non-operating income	—			—		—			622
Total cash flow hedges	1,538		337				24			327		(160		)	622
Net Investment Hedges:
Foreign exchange contracts	1,502		(2,989		)	N/A	—			—		—			—
Total	$	3,040	$	(2,652	)		$	24		$	327	$	(160	)	$	622

See the captioned sections below for information related to the derivative financial instruments designated as cash flow hedges or net investment hedges.

Derivative Financial Instruments Designated as Cash Flow Hedges —In connection with the York Property Mortgage (see Note 8), we entered into interest rate protection agreements secured by the York Property, consisting of a 2 -year interest rate swap (the "Mortgage Swap"), effective as of July 1, 2015 , and a 5 -year interest rate collar (the "Mortgage Collar"), effective as of July 1, 2017 . The Mortgage Swap fixed the LIBOR rate on the York Property Mortgage at an annual rate equal to 0.877% through its July 1, 2017 expiration date. The Mortgage Collar effectively fixes the LIBOR rate on the York Property Mortgage at an annual rate of no less than 1.917% , but no more than 3.75% , for the remainder of the mortgage's 7 -year term. After taking into account the interest rate protection agreements, the annual interest rate for the first two years of the York Property Mortgage was approximately 3.127% and then will be between a floor of 4.167% and a cap of 6% for its remaining 7 -year term. Beginning on the effective date of the Mortgage Collar through September 30, 2018 , the weighted average interest rate for the York Property Mortgage was 4.27% .

In conjunction and concurrent with the First Amendment to the York Property Mortgage in June 2017 (see Note 8), the notional value of the Mortgage Collar was reduced by $57 million to reflect: (i) the $32 million principal prepayment made on the York Property Mortgage on July 3, 2017 and (ii) potential annual prepayments of $6.25 million each, beginning in July 2018 and continuing through July 2021. This reduction in the notional value of the Mortgage Collar relates to previously forecasted interest payments that are no longer probable of occurring following the June 2017 amendment to the York Property Mortgage. The reduction in the notional value of the Mortgage Collar resulted in a $0.6 million (net of tax) reclassification from Accumulated Other Comprehensive Loss into Net Income in the second quarter of 2017.

As of September 30, 2018 , the notional value of the Mortgage Collar was $262.9 million , which is equal to the principal balance of the York Property Mortgage on that date. For the remainder of its term, the Mortgage Collar will have a notional value that is no greater than the applicable forecasted principal balance of the York Property Mortgage. The York Property, the York Property Mortgage, and the related interest rate protection agreement(s) are held by 1334 York, LLC, a separate legal entity of Sotheby's that maintains its own books and records and whose results are ultimately consolidated into our financial statements.

On November 21, 2016, we entered into a two -year interest rate swap agreement to eliminate the variability in expected cash outflows associated with the one-month LIBOR-indexed interest payments owed on $63 million of revolving credit facility borrowings (the "Revolving Credit Facility Swap"). In the third quarter of 2018, these revolving credit facility borrowings were repaid, and the Revolving Credit Facility Swap was terminated, resulting in a $0.2 million (net of tax) reclassification from Accumulated Other Comprehensive Loss into Net Loss.

At their inception, the Mortgage Swap, the Mortgage Collar, and the Revolving Credit Facility Swap (collectively, the "Cash Flow Hedges") were each individually designated as cash flow hedges of the risk associated with the variability in expected cash outflows related to the one-month LIBOR-indexed interest payments owed on their respective debt instruments. Accordingly, to the extent that each of the Cash Flow Hedges remains outstanding and is effective, any unrealized gains and losses related to changes in their fair value are recorded to Accumulated Other Comprehensive Loss on our Condensed Consolidated Balance Sheets and then reclassified to Interest Expense in our Condensed Consolidated Statements of Operations in the same period that interest expense related to the underlying debt instruments is recorded. Any hedge ineffectiveness is immediately recognized in Net Income. In addition, if any of the forecasted transactions associated with the Cash Flow Hedges are no longer probable of occurring, any related amounts previously recorded in Accumulated Other Comprehensive Loss on our Condensed Consolidated Balance Sheets would be immediately reclassified into Net Income (Loss). As discussed above, certain previously forecasted interest payments associated with the Mortgage Collar became no longer probable of occurring in the second quarter of 2017 and, as a result, $0.6 million (net of tax) of the amount previously recorded in Accumulated Other Comprehensive Loss was immediately reclassified into Net Income in the second quarter of 2017. Likewise, certain previously forecasted interest payments associated with the Revolving Credit Facility Swap became no longer probable of occurring in the third quarter of 2018 and, as a result, $0.2 million (net of tax) of the amount previously recorded in Accumulated Other Comprehensive Loss was immediately reclassified into Net Loss in the third quarter of 2018.

Management performs a quarterly assessment to determine whether the Mortgage Collar, as amended, continues to be highly effective in hedging the risk associated with the variability in expected cash outflows related to the one-month LIBOR-indexed interest payments on the York Property Mortgage. As of September 30, 2018 , the Mortgage Collar, as amended, is expected to continue to be highly effective in hedging the risk associated with the variability in expected cash outflows related to the one-month LIBOR-indexed interest payments on the York Property Mortgage.

The assets and liabilities associated with the Cash Flow Hedges have been designated as Level 2 fair value measurements within the fair value hierarchy provided by ASC 820. Level 2 fair value measurements have pricing inputs other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. Level 2 fair value measurements may be determined through the use of models or other valuation methodologies. The fair value of the Mortgage Swap was based on a discounted cash flow methodology using the contractual terms of the instrument and observable LIBOR-curve rates that are consistent with the timing of the interest payments related to the York Property Mortgage. The fair value of the Mortgage Collar is based on an option pricing model using observable LIBOR-curve rates for each forecasted monthly settlement, with the projected cash flows discounted using the contractual terms of the instrument. The fair value of the Revolving Credit Facility Swap is based on a discounted cash flow methodology using the contractual terms of the instrument and observable LIBOR-curve rates that are consistent with the timing of the interest payments related to our revolving credit facility.

Derivative Financial Instruments Designated as Net Investment Hedges —We are exposed to variability in the U.S. Dollar equivalent of the net investments in our foreign subsidiaries and, by extension, the U.S. Dollar equivalent of any foreign earnings repatriated to the U.S. due to potential changes in foreign currency exchange rates. As a result, we regularly enter into foreign currency forward exchange contracts to hedge the net investments in our foreign subsidiaries from which we expect to repatriate earnings to the U.S. As of September 30, 2018 , the aggregate notional value of our outstanding net investment hedge contracts was $4.7 million .

We use the forward rate method to assess the effectiveness of our net investment hedges. Under the forward rate method, if both the notional value of the derivative designated as a hedge of a net investment in a foreign subsidiary equals the portion of the net investment designated as being hedged and the derivative relates solely to the foreign exchange rate between the functional currency of the hedged net investment and the investor’s functional currency, then all changes in fair value of the derivative are reported in the cumulative translation adjustment accounts within Accumulated Other Comprehensive Loss on our Condensed Consolidated Balance Sheets.

The foreign currency forward exchange contracts designated as net investment hedges are considered Level 2 fair value measurements within the fair value hierarchy provided by ASC 820. Level 2 fair value measurements have pricing inputs other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value may be determined through the use of models or other valuation methodologies. The fair value of these foreign currency forward exchange contracts is based on the estimated amount to settle the contracts using applicable market exchange rates as of the balance sheet date.

Derivative Financial Instruments Not Designated as Hedging Instruments —We also utilize forward contracts to hedge cash flow exposures related to foreign currency exchange rate movements arising from short-term foreign currency denominated intercompany balances and, to a much lesser extent, foreign currency denominated client payable balances, as well as foreign currency denominated auction guarantee obligations. Such forward exchange contracts are typically short-term with settlement dates less than six months from their inception. These instruments are not designated as hedging instruments for accounting purposes. Accordingly, changes in the fair value of these instruments are recognized in our Condensed Consolidated Statements of Operations in Non-Operating Income.

As of September 30, 2018 , the notional value of outstanding forward exchange contracts not designated as hedging instruments was $244.6 million . Notional values do not quantify risk or represent assets or liabilities, but are used to calculate cash settlements under outstanding forward exchange contracts. We are exposed to credit-related risks in the event of nonperformance by the counterparties to our outstanding forward exchange contracts that are not designated as hedging instruments. We do not expect any of these counterparties to fail to meet their obligations, given their investment grade short-term credit ratings. As of September 30, 2018 , our Condensed Consolidated Balance Sheets include an asset of $0.6 million within Prepaid Expenses and Other Current Assets and a liability of $0.3 million within Accounts Payable and Accrued Liabilities, representing the fair values of these contracts on that date. As of December 31, 2017 and September 30, 2017 , the aggregate fair value of these contracts represented liabilities of $0.8 million and $0.4 million , respectively, which were recorded on our Condensed Consolidated Balance Sheets within Accounts Payable and Accrued Liabilities.

10 . Sale of Pink Diamond

In the second quarter of 2016, we sold an undivided legal and beneficial 50% ownership interest in a Fancy Vivid Pink Diamond (the "Pink Diamond") held in Inventory for $34.2 million in cash, which was recorded on our Condensed Consolidated Balance Sheets within Other Current Liabilities. In April 2017, at our Magnificent Jewels and Jadeite Sale in Hong Kong (the "Auction"), the Pink Diamond was sold for a total purchase price of approximately $71.2 million (the "Purchase Price"). Although the Auction occurred in the second quarter of 2017, the sale was recognized in our financial statements in the third quarter of 2017 upon collection of the Purchase Price from the winning bidder in September 2017. Upon the collection of the Purchase Price, the $68.4 million carrying value of the Pink Diamond was removed from Inventory and the related $34.2 million cash payment received in the second quarter of 2016 was removed from Other Current Liabilities. The sale of the Pink Diamond resulted in a gain of approximately $0.4 million in 2017, after taking into account the associated Cost of Inventory Sales of $70.8 million , which includes amounts due to our partner in the Pink Diamond and other costs related to the sale.

11 . Supplemental Condensed Consolidated Balance Sheet Information

Prepaid and Other Current Assets — As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , Prepaid Expenses and Other Current Assets consisted of the following (in thousands of dollars):



	September 30, 2018		December 31, 2017		September 30, 2017
Prepaid expenses	$	39,832	$	25,418	$	31,623
Derivative financial instruments (see Note 9)	670		339		239
Insurance recoveries	2,189		—		—
Other	14,462		6,253		23,661
Total Prepaid Expenses and Other Current Assets	$	57,153	$	32,010	$	55,523

Other Long-Term Assets — As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , Other Long-Term Assets consisted of the following (in thousands of dollars):



	September 30, 2018		December 31, 2017		September 30, 2017
Defined benefit pension plan asset	$	108,036	$	108,826	$	90,559
Equity method investments (a)	47,527		46,905		46,207
Trust assets related to deferred compensation liability	30,870		26,240		25,325
Restricted cash (see Note 12)	17,137		17,916		17,835
Insurance recoveries	15,357		12,242		11,557
Derivative financial instruments (see Note 9)	98		—		—
Other	15,424		15,479		4,599
Total Other Long-Term Assets	$	234,449	$	227,608	$	196,082


(a)	Includes our equity method investments in RM Sotheby's and AMA, as well as a partnership that was formed in the second quarter of 2017 through which artworks are being purchased and sold.

Other Long-Term Liabilities — As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , Other Long-Term Liabilities consisted of the following (in thousands of dollars):



	September 30, 2018		December 31, 2017		September 30, 2017
Deferred compensation liability	$	30,491	$	25,614	$	24,563
Acquisition earn-out consideration	8,750		17,500		17,500
Interest rate collar liability (see Note 9)	—		1,501		2,900
Other	7,328		6,809		6,704
Total Other Long-Term Liabilities	$	46,569	$	51,424	$	51,667

12 . Supplemental Condensed Consolidated Cash Flow Information

Cash, Cash Equivalents, and Restricted Cash —As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , cash, cash equivalents, and restricted cash consisted of the following (in thousands of dollars):



	September 30, 2018		December 31, 2017		September 30, 2017
Cash and cash equivalents	$	156,272	$	544,432	$	311,298
Restricted cash, recorded within current assets:
Consignor funds held in legally segregated accounts	1,179		46,029		3,110
Funds deposited with the trustee for the redemption of the 2022 Senior Notes (see Note 8)	—		312,250		—
Cash Management Account related to the York Property Mortgage (see Note 8)	460		3,107		1,778
Other	185		192		660
Restricted cash, recorded within current assets	1,824		361,578		5,548
Restricted cash, recorded within other long-term assets (a)	17,137		17,916		17,835
Total restricted cash	18,961		379,494		23,383
Cash, cash equivalents, and restricted cash	$	175,233	$	923,926	$	334,681


(a)	Restricted cash reflected within Other Long-Term Assets principally relates to $15.3 million of funds held in escrow pending the final settlement of a sale.

Changes in Other Operating Assets and Liabilities —For the nine months ended September 30, 2018 and 2017 , changes in other operating assets and liabilities as reported in the Condensed Consolidated Statements of Cash Flows included the following (in thousands of dollars):



	Nine Months Ended September 30,
	2018			2017
Increase in:
Prepaid expenses and other current assets	$	(16,384	)	$	(2,443	)
Other long-term assets	(6,590		)	(1,312		)
Income tax receivables and deferred income tax assets	(26,305		)	(34,168		)
(Decrease)/increase in:
Accounts payable and accrued liabilities and other liabilities	(39,436		)	(64,697		)
Accrued income taxes and deferred income tax liabilities	5,392			(15,156		)
Total changes in other operating assets and liabilities	$	(83,323	)	$	(117,776	)

13 . Shareholders' Equity and Dividends

Common Stock Repurchase Program —On February 28, 2018, the Board of Directors approved a $100 million increase to our share repurchase authorization, resulting in an updated share repurchase authorization of $195.7 million as of that date.

The following table provides information regarding our common stock repurchase program for the nine months ended September 30, 2018 and 2017 (in thousands, except for per share data):



	Nine Months Ended
	September 30, 2018		September 30, 2017
Shares repurchased	3,790		866
Aggregate purchase price	$	186,206	$	40,193
Average price per share	$	49.14	$	46.40

On September 11, 2018, we paid $95 million upon entry into an accelerated share repurchase agreement (the "ASR Agreement"). Pursuant to the ASR agreement, on September 12, 2018, we received an initial delivery of 1,792,453 shares of our common stock with a value of $85.5 million , or $47.70 per share. In conjunction with our entry into the ASR Agreement, we recorded $85.5 million to Treasury Stock to reduce Shareholders’ Equity for the value of the initial shares received and $9.5 million to reduce Additional Paid-In Capital for the unsettled portion of the agreement, which represents a forward contract indexed to our common stock.

The total number of shares that we will ultimately purchase upon the conclusion of the ASR Agreement will generally be based on the average of the daily volume-weighted average prices of our common stock during the term of the agreement, less an agreed discount. Upon final settlement of the ASR Agreement, we may be entitled to receive additional shares of our common stock or, under certain circumstances, we may be required to deliver shares or make an additional cash payment to the counterparty, at our option. The ASR Agreement is scheduled to expire on December 11, 2018, but may conclude earlier at the counterparty's option, and may be terminated early upon the occurrence of certain events.

The amount paid to enter into the ASR Agreement effectively utilized the remaining share repurchase authorization from our Board of Directors.

Special Dividend —On January 29, 2014, the Board of D irectors declared a special dividend of $300 million ( $4.34 per share) that was paid on March 17, 2014. In conjunction with this special dividend, we accrued approximately $10 million for dividend equivalents owed on share-based payments to employees, which we charged to retained earnings. For the nine months ended September 30, 2017 , $2 million of such dividends were paid to employees upon the vesting of the share-based payments. No such dividends were paid during the nine months ended September 30, 2018 .

14 . Accumulated Other Comprehensive Loss

The following is a summary of the changes in Accumulated Other Comprehensive Loss and the details regarding any reclassification adjustments made for the three and nine months ended September 30, 2018 and 2017 (in thousands of dollars):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Currency Translation Adjustments
Balance at beginning of period	$	(81,518	)	$	(80,327	)	$	(74,505	)	$	(89,478	)
Other comprehensive (loss) income before reclassifications, net of tax of $0, $851, $400, and $2,272	(155		)	3,870			(7,168		)	13,021
Other comprehensive (loss) income	(155		)	3,870			(7,168		)	13,021
Balance at end of period	(81,673		)	(76,457		)	(81,673		)	(76,457		)
Cash Flow Hedges
Balance at beginning of period	277			(2,788		)	(1,029		)	(3,664		)
Other comprehensive income before reclassifications, net of tax of $85, $72, $508, and $207	256			118			1,538			337
Reclassifications from accumulated other comprehensive loss, net of tax of ($114), $181, ($106), and $588	(160		)	292			(136		)	949
Other comprehensive income	96			410			1,402			1,286
Balance at end of period	373			(2,378		)	373			(2,378		)
Net Investment Hedges
Balance at beginning of period	15,299			14,540			13,559			16,618
Other comprehensive (loss) income before reclassifications, net of tax of ($78), ($552), $491, and ($1,822)	(238		)	(911		)	1,502			(2,989		)
Other comprehensive (loss) income	(238		)	(911		)	1,502			(2,989		)
Balance at end of period	15,061			13,629			15,061			13,629
Defined Benefit Pension Plan
Balance at beginning of period	(321		)	(14,211		)	(491		)	(13,834		)
Currency translation adjustments	4			(433		)	11			(1,233		)
Other comprehensive income (loss) before reclassifications	4			(433		)	11			(1,233		)
Prior service cost amortization, net of tax of ($4), ($5), ($12), and ($12)	(21		)	(20		)	(64		)	(59		)
Actuarial loss amortization, net of tax of $20, $50, $60, and $141	97			239			303			701
Reclassifications from accumulated other comprehensive loss, net of tax	76			219			239			642
Other comprehensive income (loss)	80			(214		)	250			(591		)
Balance at end of period	(241		)	(14,425		)	(241		)	(14,425		)
Total other comprehensive (loss) income attributable to Sotheby's	(217		)	3,155			(4,014		)	10,727
Accumulated other comprehensive loss as of September 30	$	(66,480	)	$	(79,631	)	$	(66,480	)	$	(79,631	)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Cash Flow Hedges
Settlements	$	(274	)	$	473		$	(242	)	$	1,537
Tax effect	114			(181		)	106			(588		)
Reclassification adjustments, net of tax	(160		)	292			(136		)	949
Defined Benefit Pension Plan
Prior service cost amortization	(25		)	(25		)	(77		)	(71		)
Actuarial loss amortization	117			289			364			842
Pre-tax total	92			264			287			771
Tax effect	(16		)	(45		)	(48		)	(129		)
Reclassification adjustments, net of tax	76			219			239			642
Total reclassification adjustments, net of tax	$	(84	)	$	511		$	103		$	1,591

15 . Commitments and Contingencies

Compensation Arrangements —We are party to compensation arrangements with certain senior employees, which expire at various points between March 31, 2020 and December 31, 2022 . Such arrangements may provide, among other benefits, for minimum salary levels and for compensation under our incentive compensation programs that is payable only if specified Company and individual goals are attained. Additionally, under certain circumstances, certain of these arrangements provide annual share-based payments, severance payments, and other cash compensation. The aggregate remaining commitment for salaries and other cash compensation related to these compensation arrangements, excluding any participation in our incentive compensation programs, was approximately $13 million as of September 30, 2018 .

Guarantees of Collection— A guarantee of collection is a commitment to a consignor that, under certain conditions, Sotheby's will fund the payment of the net sale proceeds to the consignor even if the purchaser has not yet made payment. It is not a guarantee that the property will be sold at a certain minimum price. In the event that any item subject to a guarantee of collection is sold and the purchaser does not pay by the settlement date, we are required to pay the consignor the net sale proceeds, but would then take title to the property and have the right to pursue the defaulting buyer and/or reoffer the property at a future sale. In certain limited circumst ances, we may also have the right to recover the net sale proceeds from the consignor in the event of an ultimate purchaser default. In April 2018, property connected to a guarantee of collection was sold at auction for a hammer price of $26.8 million . In the third quarter of 2018, we refinanced the buyer receivable through the issuance of an SFS term loan and paid to the seller $15.4 million of the net sale proceeds. As a condition of the refinancing, the buyer has pledged sufficient collateral as security for the loan, which has an LTV of 38% . The remaining amount owed to the consignor is expected to be paid in the fourth quarter of 2018. (See Note 5 for additional information related to situations when term loans are made to refinance client auction and private sale purchases.)

Indirect Tax Contingencies —We are subject to laws and regulations in many countries involving sales, use, value-added and other indirect taxes which are assessed by various governmental authorities and imposed on certain revenue-producing transactions between us and our clients. The application of these laws and regulations to our unique business and global client base, and the estimation of any related liabilities, is complex and requires a significant amount of judgment. We are generally not responsible for these indirect tax liabilities unless we fail to collect the correct amount of sales, value-added, or other indirect taxes. Failure to collect the correct amount of indirect tax on a transaction may expose us to claims from tax authorities and could require us to record a liability and corresponding charge to our statement of operations.

Legal Contingencies —We become involved in various claims and lawsuits incidental to the ordinary course of our business. We are required to assess the likelihood of any adverse judgments or outcomes related to these legal contingencies, as well as potential ranges of probable or reasonably possible losses. The determination of the amount of any losses to be recorded or disclosed as a result of these contingencies is based on a careful analysis of each individual exposure with, in some cases, the assistance of outside legal counsel. The amount of losses recorded or disclosed for such contingencies may change in the future due to new developments in each matter or a change in settlement strategy. While the impact of any one or more legal claims or proceedings could be material to our operating results in any period, we do not believe that the outcome of any of these pending claims or proceedings, individually or in the aggregate, will have a material adverse effect on our consolidated financial condition.

On November 17, 2017, Sotheby’s, together with its London, Geneva and Vienna subsidiaries, and one of its employees (collectively, “the Sotheby’s Parties”), initiated a declaratory judgment action (requête en conciliation) in Switzerland (the “Swiss Action”), at the Tribunal de Première Instance de la République et Canton de Genève, against Dmitry Rybolovlev and various persons and entities affiliated with him. The Sotheby’s Parties’ action seeks a declaration that the Sotheby’s Parties owe no liability or debt to Mr. Rybolovlev and his affiliates in connection with sales of art and related services to entities affiliated with Mr. Yves Bouvier, as discussed in more detail below. Sotheby’s filed its detailed Statement of Claim on July 11, 2017.

The Sotheby’s Parties filed the Swiss Action in response to the stated intent of Mr. Rybolovlev’s counsel to initiate litigation in the U.K. against several of the Sotheby’s Parties. Specifically, on October 27, 2017, counsel for entities affiliated with Mr. Rybolovlev filed papers with the U.S. District Court for the Southern District of New York requesting authority to use documents previously obtained from Sotheby’s pursuant to 28 U.S.C. § 1782. This statute allows parties to conduct discovery in the U.S. for use in foreign legal proceedings. Mr. Rybolovlev sought discovery to support a contemplated U.K. proceeding alleging that Sotheby’s and its agents aided and abetted an alleged fraud that Mr. Bouvier allegedly perpetrated against Mr. Rybolovlev and affiliated entities. On December 22, 2017, the District Court in New York approved Mr. Rybolovlev’s request to use Sotheby’s previously disclosed documents both in the contemplated U.K. proceedings, and in the Sotheby’s Parties’ Swiss declaratory judgment proceeding against Mr. Rybolovlev and his affiliates. To date, we are not aware of Mr. Rybolovlev actually filing the threatened U.K. litigation against Sotheby’s, and believe that Geneva is the correct venue for the dispute, that the Lugano Convention effectively precludes Mr. Rybolovlev from sustaining an action in the U.K., and that the Sotheby’s Parties will prevail in the Swiss Action.

On October 2, 2018, two entities controlled by Mr. Rybolovlev commenced proceedings against Sotheby’s and Sotheby’s, Inc. in the U.S. District Court for the Southern District of New York. In their complaint, these entities allege that Sotheby’s and its agents aided and abetted an alleged fraud that Mr. Bouvier allegedly perpetrated against Mr. Rybolovlev and affiliated entities and are claiming a minimum of $380 million in damages. The plaintiffs also allege that Sotheby’s, in commencing the Swiss Action, violated a tolling agreement that the parties had entered into and seek an injunction prohibiting Sotheby’s from prosecuting the Swiss Action. On or about January 18, 2019, Sotheby’s will file a motion to dismiss this complaint, which it believes to be meritless, on numerous grounds.

16 . Income Taxes

U.S. Tax Reform —The U.S. Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017. The Act includes significant changes to the U.S. corporate income tax system that became effective on January 1, 2018, including, among other things, (i) a reduction of the U.S. corporate income tax rate from 35% to 21%, (ii) the transition to a modified territorial tax system from a worldwide tax system, (iii) limitations on the deductibility of interest expense and executive compensation, (iv) the imposition of the Base Erosion Anti-Abuse Tax (“BEAT”), a new minimum tax on international payments meant to reduce the ability of multinational companies to erode the U.S. tax base through deductible payments to related parties, and (v) the creation of two new categories of income: (a) foreign-derived intangible income (“FDII”), which is income derived from the sale of property or services to a foreign person which may be taxed at a rate lower than 21%, and (b) global intangible low taxed income (“GILTI”), which is certain income earned by foreign subsidiaries that must be included in the income of the U.S. shareholder. In addition, the Act imposed a one-time transition tax in 2017 on the mandatory deemed repatriation of certain unremitted foreign earnings as of December 31, 2017.

Soon after the Act was signed into law, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118"), which allows companies to record the income tax effects of the Act as a provisional amount based on reasonable estimates. The provisional amount is subject to adjustment as companies complete their analysis of the Act, and collect and prepare the necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, IRS, the FASB, and other standard-setting and regulatory bodies. Any such adjustments may be made within a subsequent measurement period, which should not extend beyond one year from the enactment date.

In accordance with SAB 118, in the fourth quarter of 2017, we recorded a provisional net income tax expense of approximately $1.2 million based on reasonable estimates of the tax effects of the Act, which included an expense of $40.4 million to record a liability for the one-time mandatory transition tax on certain unremitted and untaxed earnings of our foreign subsidiaries. In the second quarter of 2018, we recorded an income tax benefit of approximately $2.3 million to reduce this liability as a result of guidance that was issued by the IRS during the period and as a result of revisions made to certain estimates used in the calculation as of December 31, 2017. In the third quarter of 2018, we recorded an income tax benefit of approximately $1.7 million to reduce this liability as a result of finalizing our calculation of the amount owed.

The provisional net income tax expense recorded in the fourth quarter of 2017 also included an expense of $19.8 million to reduce the value of our net deferred tax assets, primarily as a result of the change in the U.S. corporate income tax rate from 35% to 21%. In the second quarter of 2018, we recorded an income tax benefit of $2.6 million to adjust the remeasurement of our net deferred tax asset based on further analysis of available tax accounting methods and elections. In the third quarter of 2018, we recorded an income tax benefit of $1.2 million to adjust the value of our deferred tax assets related to certain executive compensation based on guidance that was issued by the IRS during the period.

As of September 30, 2018, we are continuing to gather additional information and expect to complete our accounting for the tax effects of the Act within the prescribed measurement period, which will not exceed one year from the December 22, 2017 enactment date.

We are still evaluating the GILTI provisions of the Act in order to determine whether we will make an accounting policy election to recognize deferred taxes for temporary basis differences expected to reverse as GILTI income in future periods or to provide for the tax expense related to GILTI in the year in which the tax is incurred. Accordingly, no deferred taxes have been provided for GILTI income.

As of September 30, 2018, our Condensed Consolidated Balance Sheets reflect a provisional income tax payable of $14.5 million for the one-time mandatory transition tax on unremitted foreign earnings discussed above. This liability is net of tax credits, other U.S. deductions, and payments made to date. We elected to settle the remaining liability in installments over eight years, as allowed by the Act.

Income Tax (Benefit) Expense — The table below summarizes our income tax (benefit) expense and effective income tax (benefit) expense rate for the three and nine months ended September 30, 2018 and 2017, including the impact of discrete items (in thousands of dollars):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018		2017
(Loss) income before taxes	$	(37,077	)	$	(45,715	)	$	25,336	$	42,889
Income tax (benefit) expense	$	(7,759	)	$	(21,328	)	$	5,943	$	2,848
Effective income tax (benefit) expense rate	(20.9%)			(46.7%)			23.5%		6.6%

Our income tax benefit for the three months ended September 30, 2018 was reduced by approximately $7 million of discrete tax expense recorded in the current period related to the effective settlement of an income tax audit. This discrete tax expense was partially offset by approximately $2.9 million of discrete tax benefits recorded in the current period to adjust provisional amounts recorded in the prior year related to the Act, as discussed above. In contrast, the third quarter of 2017 included $7.7 million of discrete tax benefits, primarily resulting from the reversal of a tax reserve for a previously uncertain tax position for which the statute of limitations had expired.

In addition to the factors discussed above, the increase in the effective income tax rate for the nine months ended September 30, 2018 is also influenced by: (i) income tax benefits of approximately $4.9 million recorded discretely in the second quarter of 2018 to adjust the estimated income tax expense recorded in the fourth quarter of 2017 upon the enactment of the Act; (ii) a lower discrete income tax benefit recorded in the current year when compared to the prior year related to the vesting of share-based payments; and (iii) a discrete income tax benefit recognized in the current year related to the loss incurred on the extinguishment of debt, which was recorded at a statutory income tax rates that were lower than our estimated annual effective tax rate.

17 . Uncertain Tax Positions

As of September 30, 2018 , our liability for unrecognized tax benefits, excluding interest and penalties, was $8.1 million , representing a net decrease of $5.1 million when compared to a liability of $13.2 million as of December 31, 2017 . This net decrease is primarily the result of the expiration of the statute of limitations for certain tax years and the effective settlement of tax audits, partially offset by the accrual of tax reserves related to various U.S. and non-U.S. matters, and an increase due to changes in foreign exchange rates. As of September 30, 2017 , our liability for unrecognized tax benefits, excluding interest and penalties, was $14.2 million .

As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , the total amount of unrecognized tax benefits that, if recognized, would favorably impact our effective income tax rate was $2.6 million , $4.1 million , and $3.1 million , respectively. We believe it is reasonably possible that a decrease of $2.5 million in the balance of unrecognized tax benefits can occur within 12 months of the September 30, 2018 balance sheet date as a result of the expiration of statutes of limitations and the expected settlement of ongoing tax audits.

We are subject to taxation in the U.S., as well as in various U.S. state and foreign jurisdictions. As a result, we are subject to tax audits in these jurisdictions. We are currently under examination by various U.S. state and foreign taxing authorities. The earliest open tax year for the major jurisdictions in which we do business, which includes the U.S. (including various state and local jurisdictions), the U.K., and Hong Kong, is 2011.

We recognize interest expense and penalties related to unrecognized tax benefits as a component of Income Tax (Benefit) Expense in our Condensed Consolidated Statements of Operations. For the three months ended September 30, 2018 , the accrual of such interest and penalties decreased by approximately $0.2 million .

Our policy is to record interest expense related to sales, value added and other non-income based taxes as Interest Expense in our Condensed Consolidated Statements of Operations. Penalties related to such taxes are recorded as General and Administrative Expenses in our Condensed Consolidated Statements of Operations. Interest expense and penalties related to income taxes are recorded as a component of Income Tax (Benefit) Expense in our Condensed Consolidated Statements of Operations.

18 . Auction Guarantees

As of September 30, 2018 , we had outstanding auction guarantees totaling $377.7 million . Each of the auction guarantees outstanding as of September 30, 2018 has a minimum guaranteed price that is within or below the range of the pre-sale auction estimates for the underlying property. Substantially all of the property related to these auction guarantees is being offered at auctions during the fourth quarter of 2018 . Our financial exposure under these auction guarantees is reduced by $134.6 million as a result of our use of contractual risk sharing arrangements with third parties, as discussed below. After taking into account these risk-sharing arrangements, as of September 30, 2018, our net financial exposure related to the auction guarantees was $243.1 million . (See Note 22 for information related to an auction guarantee arrangement with a related party that was outstanding as of September 30, 2018.)

The contractual risk sharing arrangements used to reduce our exposure to auction guarantees include irrevocable bid arrangements and, from time-to-time, partner sharing arrangements. The counterparties to these auction guarantee risk sharing arrangements are typically major international art dealers or major art collectors. We could be exposed to losses in the event any of these counterparties do not perform according to the terms of these contractual arrangements.

Although risk sharing arrangements may be used to reduce the risk associated with auction guarantees, we may also enter into auction guarantees without securing such arrangements. In these circumstances, we could be exposed to deterioration in auction commission margins and/or auction guarantee losses if one or more of the guaranteed items fails to sell at its minimum guaranteed price. Furthermore, in such situations, our liquidity could be reduced.

(See Note 4 for additional information related to our use of auction guarantees and related risk sharing arrangements.)

We are obligated under the terms of certain auction guarantees to advance all or a portion of the guaranteed amount prior to auction. As of September 30, 2018 and September 30, 2017 , auction guarantee advances outstanding totaled $21.5 million and $1.1 million , respectively. There were no auction guarantee advances outstanding as of December 31, 2017 . As of September 30, 2018 , December 31, 2017 , and September 30, 2017 , the estimated fair value of our obligation to perform under our outstanding auction guarantees totaled $11.4 million , $0.9 million , and $5 million , respectively, and is recorded within Accounts Payable and Accrued Liabilities on our Condensed Consolidated Balance Sheets.

As of October 30, 2018, we had outstanding auction guarantees totaling $414.4 million and, as of that date, our financial exposure was reduced by risk-sharing arrangements totaling $296.1 million . After taking into account these risk-sharing arrangements, as of October 30, 2018, our net financial exposure related to auction guarantees was $118.3 million . Each of the auction guarantees outstanding as of October 30, 2018 has a minimum guaranteed price that is within or below the range of the pre-sale auction estimates for the underlying property. The property related to these auction guarantees is being offered at auctions during the fourth quarter of 2018 and throughout 2019. As of October 30, 2018, we have advanced $16.5 million of the total guaranteed amount.

19 . Share-Based Payments

Share-based payments made to employees include performance-based stock unit awards, market-based stock unit awards, restricted stock units, restricted shares, and stock options. Share-based payments are also made to members of our Board of Directors through the issuance of common stock and deferred stock units. A description of each of these share-based payments is provided below.

For the three and nine months ended September 30, 2018 and 2017 , compensation expense related to share-based payments was as follows (in thousands of dollars):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Pre-tax	$	6,736	$	5,408	$	21,425	$	17,423
After-tax	$	4,754	$	3,657	$	16,480	$	11,654

For the nine months ended September 30, 2018 and 2017, we recognized $1.2 million and $2.6 million , respectively, in excess tax benefits related to share-based payments in our Condensed Consolidated Statements of Operations. These tax benefits represent the amount by which the tax deduction resulting from the vesting of share-based payments in the period exceeded the tax benefit initially recognized in our Condensed Consolidated Financial Statements.

As of September 30, 2018 , unrecognized compensation expense related to the unvested portion of share-based payments to employees was $30.2 million . This compensation expense is expected to be amortized over a weighted-average period of approximately 2 years. We do not capitalize any compensation expense related to share-based payments to employees.

Shareholder Approval of 2018 Equity Incentive Plan —The Sotheby’s 2018 Equity Incentive Plan (the “Equity Plan”) was adopted by our Board of Directors on February 28, 2018 and approved by our stockholders on May 3, 2018. The Equity Plan replaces the Sotheby’s Restricted Stock Unit Plan (as amended and restated, the "Restricted Stock Unit Plan") and the Sotheby’s 1997 Stock Option Plan (collectively, the “Prior Plans”), which are discussed in more detail below. The Equity Plan permits the issuance of restricted stock, restricted stock units, performance shares, performance share units, stock options, stock appreciation rights (or, "SAR's"), and other equity-related awards. No further awards will be granted under the Prior Plans after May 3, 2018. However, the terms and conditions of the Prior Plans and related award agreements will continue to apply to all awards granted prior to May 3, 2018 under the Prior Plans.

The Equity Plan is a fungible share plan. Each option or SAR granted under the Equity Plan will count as one share from the available share pool. Each full-value award granted under the Equity Plan, including restricted stock units and performance share units, will count as 2.14 shares from the available pool.

Restricted Stock Unit Plan —Prior to May 3, 2018, the Restricted Stock Unit Plan provided for the issuance of restricted stock units ("RSU's") and restricted shares to employees. Awards made under the Restricted Stock Unit Plan were subject to the approval of the Compensation Committee of our Board of Directors. In making awards under the Restricted Stock Unit Plan, the Compensation Committee took into account the nature of the services rendered by employees, their present and potential future contributions to Sotheby's success, and such other factors as the Compensation Committee in its discretion deemed relevant.

RSU's and restricted shares issued under the Restricted Stock Unit Plan generally vest evenly over a three -year service period. Prior to vesting, holders of RSU's and restricted shares issued under the Restricted Stock Unit Plan are entitled to receive non-forfeitable dividend equivalents and dividends, respectively, at the same rate as dividends are paid on our common stock (if and when such dividends are paid). Prior to vesting, holders of RSU's issued under the Restricted Stock Unit Plan do not have voting rights, while holders of restricted shares have voting rights. RSU's and restricted shares may not be sold, assigned, transferred, pledged or otherwise encumbered until they vest.

For RSU's and restricted shares issued after May 3, 2018 under the new Equity Plan, dividend equivalents will generally be credited to holders of RSU's at the same rate as dividends are paid on our common stock (if and when such dividends are paid), but will only be paid for RSU's and restricted shares that vest.

Performance Share Units (or "PSU's") are RSU's that generally vest over three or four -year service periods, subject to the achievement of certain profitability targets (for awards granted prior to 2016) or certain return on invested capital ("ROIC") targets (for awards granted beginning in 2016). Prior to vesting, holders of PSU's do not have voting rights and are not entitled to receive dividends or dividend equivalents. Dividend equivalents are generally credited to holders of PSU's at the same rate as dividends are paid on our common stock (if and when such dividends are paid), but are only paid for PSU's that vest and become shares of our common stock. PSU's may not be sold, assigned, transferred, pledged or otherwise encumbered until they vest.

For the nine months ended September 30, 2018 , the Compensation Committee approved share-based payment awards with a total grant date fair value of $32.6 million , as follows:

•

283,019 PSU's with a grant date fair value of $13.2 million and a single vesting opportunity after a three -year service period. These PSU's provide the recipient with an opportunity to vest in incremental PSU's of up to 100% of the initial units awarded subject to the achievement of certain ROIC targets, for a total maximum vesting opportunity of 200% of the initial award. The maximum number of shares of common stock that may be payable with respect to these awards is 566,038 .


•	410,025 RSU's with a grant date fair value of $19.5 million and annual vesting opportunities over a three -year service period.

Summary of Outstanding Share-Based Payment Awards —For the nine months ended September 30, 2018 , changes to the number of outstanding RSU’s, PSU’s, and restricted shares were as follows (shares in thousands):



	Restricted Shares, RSU's and PSU's		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2018	1,922		$	36.59
Granted	693		$	47.08
Vested	(527	)	$	38.98
Canceled	(170	)	$	39.98
Outstanding at September 30, 2018	1,918		$	39.10

As of September 30, 2018 , 6.2 million shares were available for future awards issued pursuant to the new Equity Plan. The aggregate fair value of RSU’s and PSU's that vested during the nine months ended September 30, 2018 and 2017 was $26.9 million and $39.5 million , respectively, based on the closing stock price on the dates the shares vested.

Stock Options —Prior to the shareholder approval of the new Equity Plan on May 3, 2018, stock options were issued pursuant to the 1997 Stock Option Plan and were exercisable into authorized, but unissued shares of our common stock. These stock options vested evenly over four years and expired ten years after the date of grant. In the fourth quarter of 2017, the remaining 50,000 stock options that were outstanding under the 1997 Stock Option Plan were exercised at an exercise price of $22.11 . As of September 30, 2018, there were no stock options outstanding or exercisable.

Directors Stock Plan —Common stock is issued quarterly under the Sotheby’s Stock Compensation Plan for Non-Employee Directors (as amended and restated, the “Directors Stock Plan”). Directors may elect to receive this compensation in the form of deferred stock units, which are credited in an amount that is equal to the number of shares of common stock the director otherwise would have received. The number of shares of common stock awarded is calculated using the closing price of the common stock on the New York Stock Exchange on the business day immediately prior to the quarterly grant date. Deferred stock units are held until a director’s termination of service, at which time the units are settled on a one-for one basis in shares of our common stock on the first day of the calendar month following the date of termination. For the three months ended September 30, 2018 and 2017 , we recognized $0.3 million within General and Administrative Expenses in our Condensed Consolidated Statements of Operations related to common stock shares awarded under the Directors Stock Plan. For the nine months ended September 30, 2018 and 2017 , such expense was $0.9 million and $0.8 million , respectively. As of September 30, 2018 , 178,173 deferred stock units were outstanding under the Directors Stock Plan and 96,793 units were available for future issuance.

20 . (Loss) Earnings Per Share

Basic (loss) earnings per share —Basic (loss) earnings per share attributable to Sotheby's common shareholders is computed under the two-class method using the weighted average number of common shares outstanding during the period. The two-class method requires that the amount of net income attributable to participating securities be deducted from consolidated net income in the computation of basic earnings per share. In periods with a net loss, the net loss attributable to participating securities is not deducted from consolidated net loss in the computation of basic loss per share as the impact would be anti-dilutive. Our participating securities include unvested restricted stock units and unvested restricted shares awarded to employees prior to May 3, 2018, both of which have non-forfeitable rights to dividends. See Note 19 for information on our share-based payment programs.

Diluted (loss) earnings per share —Diluted (loss) earnings per share attributable to Sotheby's common shareholders is computed in a similar manner to basic (loss) earnings per share under the two-class method, using the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential common shares outstanding during the period. Our potential common shares principally include unvested performance share units held by employees and deferred stock units held by members of our Board of Directors. See Note 19 for information on our share-based payment programs.

The table below summarizes the computation of basic and diluted (loss) earnings per share for the three and nine months ended September 30, 2018 and 2017 (in thousands, except per share amounts):



	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018		2017
Basic :
Numerator:
Net (loss) income attributable to Sotheby’s	$	(27,838	)	$	(23,479	)	$	22,922	$	42,087
Less: Net income attributable to participating securities	—			—			344		643
Net (loss) income attributable to Sotheby’s common shareholders	$	(27,838	)	$	(23,479	)	$	22,578	$	41,444
Denominator:
Weighted average common shares outstanding	50,927			52,532			51,724		52,755
Basic (loss) earnings per share - Sotheby’s common shareholders	$	(0.55	)	$	(0.45	)	$	0.44	$	0.79
Diluted :
Numerator:
Net (loss) income attributable to Sotheby’s	$	(27,838	)	$	(23,479	)	22,922		$	42,087
Less: Net income attributable to participating securities	—			—			344		643
Net (loss) income attributable to Sotheby’s common shareholders	$	(27,838	)	$	(23,479	)	$	22,578	$	41,444
Denominator:
Weighted average common shares outstanding	50,927			52,532			51,724		52,755
Weighted average effect of dilutive potential common shares:
Performance share units	—			—			138		243
Deferred stock units	—			—			174		159
Stock options	—			—			—		26
Weighted average dilutive potential common shares outstanding	—			—			312		428
Weighted average diluted shares outstanding	50,927			52,532			52,036		53,183
Diluted (loss) earnings per share - Sotheby’s common shareholders	$	(0.55	)	$	(0.45	)	$	0.43	$	0.78

For the three and nine months ended September 30, 2018 and 2017 , approximately 1 million potential common shares related to share-based payments were excluded from the computation of diluted loss per share because the financial performance or stock price targets inherent in such awards were not achieved as of the respective balance sheet dates.

21 . Restructuring Charges

Beginning in the second quarter of 2018, management is implementing a restructuring plan with the principal goal of reducing headcount through the elimination of certain positions primarily in the Agency segment. The restructuring plan will also result in the termination of lease agreements in certain small non-selling locations. For the three and nine months ended September 30, 2018 , we recognized $3.8 million and $5.9 million , respectively, of Restructuring Charges almost entirely attributable to severance-related costs. The remaining restructuring liability of $4.8 million as of September 30, 2018 is recorded on our Condensed Consolidated Balance Sheets within Accounts Payable and Accrued Liabilities. This liability is expected to be settled through cash payments to be made principally in fourth quarter of 2018.

22 . Related Party Transactions

From time-to-time, in the ordinary course of business, related parties such as members of the Board of Directors and management, buy and sell property at our auctions or through private sales. For the three months ended September 30, 2018 and 2017 our Condensed Consolidated Statements of Operations includes less than $0.1 million of Agency Commissions and Fees attributable to transactions with related parties. For the nine months ended September 30, 2018 and 2017, our Condensed Consolidated Statements of Operations includes Agency Commissions and Fees of $3.4 million and $4.7 million , respectively, attributable to transactions with related parties. For the nine months ended September 30, 2018 , our Condensed Consolidated Statements of Operations include Inventory Sales (and related cost of sales) of $5.3 million attributable to transactions with related parties.

As of September 30, 2018 and 2017, our Accounts Receivable balance includes amounts due from related parties of $0.1 million , respectively. As of December 31, 2017, there were no related party Accounts Receivable balances outstanding. As of September 30, 2018 , December 31, 2017, and September 30, 2017 , Client Payables included amounts owed to related party consignors totaling $0.5 million , $0.4 million , and $0.4 million , respectively.

As of September 30, 2018 , our portfolio of auction guarantees included one auction guarantee with RM Sotheby's, an equity method investee in which we have a 25% ownership stake. The auction guarantee with RM Sotheby's totaled $1.3 million , of which $0.8 million had been advanced as of September 30, 2018. The guarantee has a minimum guaranteed price that is below the range of the pre-sale auction estimates for the underlying property. Substantially all of the property related to this guarantee is being offered in the fourth quarter of 2018. (See Note 18 for additional information related to our use of auction guarantees.)

23 . Recent Accounting Standards Not Yet Adopted

Leases —In February 2016, the FASB issued ASU 2016-02, Leases , which requires long-term lease arrangements to be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all long-term leases, whether operating or financing, while the statement of operations will reflect lease expense for operating leases and interest expense for financing leases. The amendments also require certain new quantitative and qualitative disclosures regarding leasing arrangements. On July 30, 2018, the FASB issued ASU 2018-11, which makes targeted improvements to ASU 2016-02. In particular, ASU 2018-11 allows an entity to elect not to recast the comparative periods presented when transitioning to the new standard. We will adopt ASU 2016-02 on January 1, 2019, using the transition relief provided by ASU 2018-11.

We have identified and reviewed all material lease agreements and implemented a lease management software solution to assist the adoption process. Upon our adoption of ASU 2016-02, our operating lease commitments will be recorded on our balance sheet as operating lease liabilities with corresponding right-of-use assets.

Credit Losses —In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments , which amends previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected losses rather than incurred losses. ASU 2016-13 is effective for us beginning on January 1, 2020. We are currently assessing the potential impact of adopting ASU 2016-13 on our financial statements.

Goodwill —In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment , which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. ASU 2017-04 is effective for us beginning on January 1, 2020. We do not expect the adoption of ASU 2017-04 to have a material impact on our financial statements.

Derivatives —In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities , which provides targeted guidance regarding the accounting for hedging activities to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 is effective for us beginning on January 1, 2019. We are currently assessing the potential impact of adopting ASU 2017-12 on our financial statements.

Accumulated Comprehensive Income —On February 14, 2018, the FASB issued ASU 2018-02 to address industry concerns related to the application of ASC 740, Income Taxes , to certain provisions of the U.S. Tax Cuts and Jobs Act. Specifically, some constituents in the banking and insurance industries had expressed concerns about the requirement in ASC 740 that the effect of a change in tax laws or rates on deferred tax assets and liabilities be included in income from continuing operations in the reporting period that contains the enactment date of the change. That guidance applies even in situations in which the tax effects were initially recognized directly in other comprehensive income at the previous rate, resulting in stranded amounts in accumulated other comprehensive income ("AOCI") related to the income tax rate differential. Upon adopting ASU 2018-02, an entity is required to disclose:


•	Its accounting policy related to releasing income tax effects from AOCI;


•	Whether it has elected to reclassify, to retained earnings in the statement of stockholders’ equity, the stranded tax effects in AOCI related to the Act; and


•	If it has elected to reclassify to retained earnings the stranded tax effects in AOCI related to the Act, what the reclassification encompasses (i.e., whether it only includes the change in the federal corporate tax rate or whether it also includes other changes resulting from the Act that affect AOCI).

The guidance in ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods therein. An entity will apply this guidance to each period in which the effect of the Act (or portion thereof) is recorded and may apply it either (1) retrospectively as of the date of enactment or (2) as of the beginning of the period of adoption. We are currently evaluating the potential impact of adopting ASU 2018-02 on our financial statements.

Defined Benefit Plans —On August 28, 2018, the FASB issued ASU 2018-14 , Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans , which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. In particular, this standard requires companies to provide the reasons for significant gains and losses in pension benefit obligations ("PBO's") and to explain any other significant changes in PBO's and plan assets not otherwise apparent. A SU 2018-14 is effective for us beginning on January 1, 2021. We are currently assessing the potential impact of adopting ASU 2018-14 on our financial statements.

ITEM 2 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations (or "MD&A") should be read in conjunction with Note 3 ("Segment Reporting") of Notes to Condensed Consolidated Financial Statements.

Sotheby's Business

Sotheby's offers collectors the opportunity to connect with and transact in the world's most extraordinary art and luxury goods, which in this report may collectively be referred to as "art," "works of art," "artwork," or "property." Auctioneers since 1744, today we present auctions in ten different salesrooms, including New York, London, Hong Kong and Paris. We also offer collectors a variety of innovative art-related services, including the brokerage of private art sales, private jewelry sales through Sotheby's Diamonds, exclusive private selling exhibitions, art-related financing, and art advisory services, as well as retail wine locations in New York and Hong Kong.

We are currently investing in technology to innovate and expand our traditional auction business, as well as to sharpen the differentiation between us and our competitors. These investments have provided tools to enhance our private sales capabilities, replaced our content management system, and implemented advanced client relationship management techniques.

Through these investments, we have shown marked improvement in several key areas. Through the first nine months of 2018, online sales totaled approximately $129 million, an increase of approximately 25% when compared to the same period in 2017. Additionally, through the first nine months of 2018, approximately 26% of the items purchased at auction have been bought online, as compared to 22% in the same period in 2017.

Looking to the future, additional technology investments are also being made in five broad areas: (i) digital infrastructure, including a new auction engine and digitalization in the auction room; (ii) data systems to inform business decisions on pricing and client relationships among other areas; (iii) basic digital services such as an improved website and app, and new e-commerce capabilities; (iv) content marketing to develop and distribute rich, engaging content; and (v) advanced digital services, including a more powerful online consignment tool, a recommendation engine, and a new platform to allow consignors to transact more quickly.

While our technology investments are facilitating the innovation and expansion of our traditional business, these investments have contributed to an overall increase in operating expenses across various categories in recent years, including to date in 2018.

Our operations are organized under two segments—the Agency segment and the Finance segment, which does business as and is referred to in this report as Sotheby’s Financial Services (“SFS”). The Agency segment earns commissions and fees by acting as agent for clients wishing to sell their artworks through the auction or private sale process. To a much lesser extent, the Agency segment also also earns revenues from the sale of artworks that are owned by Sotheby's. SFS earns interest income and associated fees through art-related financing activities by making loans that are secured by works of art. Art Agency, Partners (“AAP”), through which we offer art advisory services, provides art collectors with strategic guidance on collection identity and development, acquisitions, and short and long-term planning, and provides advice to artists and artists' estates. In addition, from time-to-time, AAP brokers private art sales for its advisory clients. Our advisory services are classified within All Other for segment reporting purposes, along with our retail wine business and brand licensing activities, and the results from certain equity method investments.

The global art market, like other asset classes, is influenced over time by the overall strength and stability of the global economy, the financial markets of various countries, geopolitical conditions, and world events. However, the global art market often moves independently and sometimes, counter to, general macroeconomic cycles. Ultimately, we believe that the level of activity and buoyancy of the global art market is most prominently impacted by the collective sentiment of art market participants, as well as the individual circumstances of potential sellers of art. For example, many major artworks are offered for sale only as a result of the death or financial or personal situations of the owner. In addition, in the wake of economic uncertainty, potential sellers may not be willing to offer their artworks for sale, and potential buyers may be less willing to purchase works of art. Also, in periods of market expansion, potential sellers may choose to not offer their artworks for sale in order to benefit from potential future price appreciation. Taken together, these factors cause the supply and demand for works of art to be unpredictable and may lead to significant variability in our revenues and earnings from period to period.

Competition in the global art market is intense. A fundamental challenge facing any auctioneer or art dealer is the sourcing of high quality and valuable property for sale either as agent or as principal. Our primary competitor in the global art market is Christie's, a privately owned auction house. To a lesser extent, we also face competition from a variety of art dealers across all collecting categories, as well as smaller auction houses such as Bonhams, Phillips, and certain regional auction houses. In the Chinese art market, the largest auction houses are Beijing Poly International Auction Co. Ltd., China Guardian Auctions Co. Ltd. and Beijing Hanhai Auction Co. Ltd.

As noted above, we are a service business in which the ability of our employees to source high-value works of art and develop and maintain relationships with potential sellers and buyers of art is essential to our success. Our business is highly dependent upon attracting and retaining qualified personnel and employee compensation is our most substantial operating expense. We also incur significant costs to promote and conduct our auctions, as well as general and administrative expenses to support our global operations. While a large portion of our expenses are fixed, certain categories of expense are variable. For example, sale marketing costs are dependent upon the volume of auction activity and certain elements of employee compensation are a function of our financial performance.

Seasonality

In quarterly reporting periods, the comparison of our results between reporting periods can be significantly influenced by a number of factors, such as changes in the timing of when certain auctions occur, the level of non-recurring single-owner auction sale events, the level and timing of individually negotiated private sale transactions, and changes in certain accounting estimates that rely upon forecasted results such as variable incentive and share-based compensation expense and our estimated annual effective income tax rate. Accordingly, when evaluating our performance, we believe that investors should also consider results for rolling six and twelve month periods, which better reflect the business cycle of the global art auction market.

Business and Industry Trends

Following a period of expansion that began in late-2009 and lasted until the fourth quarter of 2015, the global art market experienced a brief period of lower sales in 2016, particularly in the Impressionist, Modern and Contemporary Art collecting categories, resulting in a 27% decrease in Consolidated Sales ² , when compared to 2015. However, even during this brief period of lower sales, collectors continued to purchase top quality works of art for strong prices and our auction sell-through rates remained encouraging. In 2017, the art market strengthened, and we achieved a 12% increase in Consolidated Sales w hen compared to 2016, which led to a 10% increase in agency commissions and fees. During the first nine months of 2018, the art market has continued to be strong, and, due in part to the efforts of management, Consolidated Sales have grown to $4 billion, representing a 20% increase when compared to the same period in 2017. The strength of the market has paved the way for an increase of 12% in agency commissions and fees in the current September year-to-date period, when compared to the same period in 2017.

____________________________________

¹ Represents the total hammer (sale) price of property sold at auction, excluding amounts related to the sale of our inventory at auction, which are reported within inventory sales.

² Represents the sum of Aggregate Auction Sales, Private Sales, and inventory sales, as defined below.

Consolidated Results of Operations for the Three and Nine Months Ended September 30, 2018 and 2017

Overview —For the three months ended September 30, 2018, we reported a net loss of ($27.8) million , compared to a net loss of ($23.5) million in the same period of the prior year, representing a $4.4 million (19%) increase between the two periods. However, after excluding certain items, Adjusted Net Loss* for the three months ended September 30, 2018 improved $2.7 million ( 11% ) to ($20.8) million when compared to the prior year. This improvement is largely due to a 30% increase in Net Auction Sales, which resulted in a 19% increase in agency commissions and fees during the period. To a lesser extent, the comparison to the prior year is favorably impacted by a significant reduction in revolving credit facility borrowings and related interest costs (see note (a) under the Consolidated Financial Data Tables below). These factors are largely offset by higher salaries and related costs. The comparison to the prior year is also unfavorably impacted by $7.7 million of discrete income tax benefits recorded in the third quarter of 2017 that primarily resulted from the reversal of a tax reserve for a previously uncertain tax position for which the statute of limitations expired.

For the nine months ended September 30, 2018, we reported net income of $22.9 million , representing a $19.2 million (46%) decrease when compared to the same period in the prior year. After excluding certain items, Adjusted Net Income* for the nine months ended September 30, 2018 decreased $0.4 million (1%) when compared to the prior year. During the first nine months of 2018, the art market continued to be strong as evidenced by a 20% increase in Consolidated Sales and associated increases in auction commissions ($42.4 million / 10%) and private sale commissions ( $15.3 million / 37% ). The increase in private sale commissions also reflects our continued focus of key resources toward this sale channel. However, results for the period were adversely impacted by a higher level of operating expenses. The comparison to the prior year is also unfavorably impacted by the $7.7 million of discrete income tax benefits recorded in the third quarter of 2017, as discussed above.

For the nine months ended September 30, 2018, Auction Commission Margin decreased from 17.2% to 15.5%. In the second quarter of 2018, the art market was driven by competitive high-value consignments from fiduciary sources such as estates, foundations and charities. Accordingly, when compared to the prior year period, our Auction Commission Margin was reduced by a higher level of auction commissions shared with consignors in these situations. The comparison to the prior year period is also negatively impacted by the sale of two high value paintings, one of which involved the use of buyer’s premium to mitigate a loss on an auction guarantee and the other involved a lot on which very little auction commission was earned at the final hammer price. These two transactions collectively reduced our Auction Commission Margin by 1% in the current year-to-date period. Excluding these two transactions, our Auction Commission Margin for the nine months ended September 30, 2018 would have been 16.5%.

Outlook — In general, the art market is strong, however, the demand at the high-end of the market for trophy works may be moderating as bidding for such lots in our second quarter auction sales appeared less robust than a year ago. The first week of our autumn sales season in Hong Kong in late September, which included predominantly Modern and Contemporary Art categories, performed very well, resulting in a 117% increase in Net Auction Sales when compared to the prior year. However, our Hong Kong sales during the first week of October resulted in an 18% shortfall versus the prior year, primarily in regional Asian Art categories. To date, 2018 has seen a strong supply of property come to market and top-line results have been encouraging. Looking at the emerging picture for 2019, we are at the beginning of our planning process for next year and will know more after our major sales of Impressionist, Modern, and Contemporary Art in November. Nevertheless, we are planning for market conditions in 2019 to be more subdued than what we experienced at the end of 2017 and into early 2018.

We currently estimate that our effective income tax rate for 2018, excluding discrete items, will be in the range of 28% to 30%. We are still evaluating the effects of certain provisions of the U.S. Tax Cuts and Jobs Act ("the Act"), which could have an impact on our effective income tax rate in the future. As of September 30, 2018 based on our latest financial forecasts and current interpretation of the Act, we estimate our effective income tax rate for 2018 excluding discrete items to be approximately 28%. This estimate is subject to further change due to various factors, including changes in our interpretation and/or assessment of Act provisions, additional interpretive guidance regarding the Act that may be issued in the future by the IRS and state taxing authorities, as well as changes to our financial forecasts and to projected jurisdictional mix of earnings in 2018.

(See statement on Forward Looking Statements.)

____________________________________

* See "Non-GAAP Financial Measures" below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP

amount.

Consolidated Financial Data Tables —The following tables present a summary of our consolidated results of operations and related statistical metrics for the three and nine months ended September 30, 2018 and 2017 , as well as a comparison between the current and prior year periods (in thousands of dollars, except per share data):



							Variance
Three Months Ended September 30,	2018			2017			$ / %			%
Revenues:
Agency commissions and fees	$	96,721		$	81,264		$	15,457		19	%
Inventory sales	6,498			81,501			(75,003		)	(92	%)
Finance	11,423			11,697			(274		)	(2	%)
Other	4,519			5,546			(1,027		)	(19	%)
Total revenues	119,161			180,008			(60,847		)	(34	%)
Expenses:
Agency direct costs	19,622			18,935			687			4	%
Cost of inventory sales	6,322			78,734			(72,412		)	(92	%)
Cost of finance revenues (a)	—			6,054			(6,054		)	(100	%)
Marketing	4,824			5,933			(1,109		)	(19	%)
Salaries and related (b)	67,274			63,218			4,056			6	%
General and administrative	42,291			42,483			(192		)	—	%
Depreciation and amortization	5,714			5,707			7			—	%
Restructuring charges	3,781			—			3,781			N/A
Total expenses	149,828			221,064			(71,236		)	(32	%)
Operating loss	(30,667		)	(41,056		)	10,389			25	%
Net interest expense (c)	(9,582		)	(7,789		)	(1,793		)	(23	%)
Non-operating income	3,172			3,130			42			1	%
Loss before taxes	(37,077		)	(45,715		)	8,638			19	%
Income tax benefit	(7,759		)	(21,328		)	13,569			64	%
Equity in earnings of investees	1,476			901			575			64	%
Net loss	(27,842		)	(23,486		)	(4,356		)	(19	%)
Less: Net loss attributable to noncontrolling interest	(4		)	(7		)	3			43	%
Net loss attributable to Sotheby's	$	(27,838	)	$	(23,479	)	$	(4,359	)	(19	%)
Diluted loss per share - Sotheby’s common shareholders	$	(0.55	)	$	(0.45	)	$	(0.10	)	(22	%)
Statistical Metrics:
Aggregate Auction Sales (d)	$	449,044		$	347,338		$	101,706		29	%
Net Auction Sales (e)	$	373,152		$	286,722		$	86,430		30	%
Private Sales (f)	$	132,752		$	120,304		$	12,448		10	%
Consolidated Sales (g)	$	588,294		$	549,143		$	39,151		7	%
Effective income tax rate	(20.9		%)	(46.7		%)	25.8		%	N/A
Non-GAAP Financial Measures:
Adjusted Expenses (h)	$	120,103		$	117,341		$	2,762		2	%
Adjusted Operating Loss (h)	$	(26,886	)	$	(41,056	)	$	14,170		35	%
Adjusted Net Loss (h)	$	(20,822	)	$	(23,479	)	$	2,657		11	%
Adjusted Diluted Loss Per Share (h)	$	(0.41	)	$	(0.45	)	$	0.04		9	%



							Variance
Nine Months Ended September 30,	2018			2017			$ / %			%
Revenues:
Agency commissions and fees	$	553,126		$	494,297		$	58,829		12	%
Inventory sales	62,840			172,815			(109,975		)	(64	%)
Finance	30,945			37,823			(6,878		)	(18	%)
Other	13,682			14,241			(559		)	(4	%)
Total revenues	660,593			719,176			(58,583		)	(8	%)
Expenses:
Agency direct costs	114,344			95,066			19,278			20	%
Cost of inventory sales	64,731			172,396			(107,665		)	(62	%)
Cost of finance revenues (a)	4,056			16,169			(12,113		)	(75	%)
Marketing	16,822			17,795			(973		)	(5	%)
Salaries and related (b)	242,711			217,308			25,403			12	%
General and administrative	131,775			124,796			6,979			6	%
Depreciation and amortization	20,157			16,767			3,390			20	%
Voluntary separation incentive programs, net	—			(162		)	162			100	%
Restructuring charges	5,927			—			5,927			N/A
Total expenses	600,523			660,135			(59,612		)	(9	%)
Operating income	60,070			59,041			1,029			2	%
Net interest expense (c)	(26,942		)	(22,270		)	(4,672		)	(21	%)
Write-off of credit facility fees	(3,982		)	—			(3,982		)	N/A
Extinguishment of debt	(10,855		)	—			(10,855		)	N/A
Non-operating income	7,045			6,118			927			15	%
Income before taxes	25,336			42,889			(17,553		)	(41	%)
Income tax expense	5,943			2,848			3,095			*
Equity in earnings of investees	3,516			2,034			1,482			73	%
Net income	22,909			42,075			(19,166		)	(46	%)
Less: Net loss attributable to noncontrolling interest	(13		)	(12		)	(1		)	(8	%)
Net income attributable to Sotheby's	$	22,922		$	42,087		$	(19,165	)	(46	%)
Diluted earnings per share - Sotheby’s common shareholders	$	0.43		$	0.78		$	(0.35	)	(45	%)
Statistical Metrics:
Aggregate Auction Sales (d)	$	3,303,255		$	2,754,567		$	548,688		20	%
Net Auction Sales (e)	$	2,771,953		$	2,304,956		$	466,997		20	%
Private Sales (f)	$	675,400		$	454,114		$	221,286		49	%
Consolidated Sales (g)	$	4,041,495		$	3,381,496		$	659,999		20	%
Effective income tax rate	23.5		%	6.6		%	16.9		%	N/A
Non-GAAP Financial Measures:
Adjusted Expenses (h)	$	405,717		$	376,666		$	29,051		8	%
Adjusted Operating Income (h)	$	71,745		$	58,879		$	12,866		22	%
Adjusted Net Income (h)	$	42,191		$	42,630		$	(439	)	(1	%)
Adjusted Diluted Earnings Per Share (h)	$	0.80		$	0.79		$	0.01		1	%



Legend :
(a)	Our previous credit agreements provided for dedicated asset-based revolving credit facilities for the Agency segment and SFS. The SFS Credit Facility was used to fund a significant portion of client loans. Accordingly, any borrowing costs associated with the SFS Credit Facility were recorded within cost of finance revenues in our Condensed Consolidated Statements of Operations. In September 2017, we modified our cash management strategy in order to reduce borrowing costs by applying excess cash balances against revolver credit facility borrowings. On June 26, 2018, we refinanced our previous credit agreements. The new credit agreement combined these credit facilities into one asset-based revolving credit facility. Subsequent to this refinancing and the resulting elimination of the SFS Credit Facility, the SFS loan portfolio is no longer being directly funded with revolving credit facility borrowings. Accordingly, all borrowing costs associated with our new revolving credit facility are recorded as interest expense in our Condensed Consolidated Statements of Operations.
(b)	We do not allocate salaries and related costs to our cost of revenue, marketing expense, and general and administrative expense line items, as many employees often perform duties that could be categorized across more than one of these line items.
(c)	Represents interest expense principally attributable to long-term debt and, beginning in the third quarter of 2018, revolving credit facility borrowings, less non-operating interest income.
(d)	Represents the total hammer (sale) price of property sold at auction plus buyer’s premium, excluding amounts related to the sale of our inventory at auction, which are reported within inventory sales.
(e)	Represents the total hammer (sale) price of property sold at auction, excluding amounts related to the sale of our inventory at auction, which are reported within inventory sales.
(f)	Represents the total purchase price of property sold in private sales that we have brokered, including our commissions.
(g)	Represents the sum of Aggregate Auction Sales, Private Sales, and inventory sales.
(h)	See "Non-GAAP Financial Measures" below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount.

Separate discussions of Agency segment and SFS results for the three and nine months ended September 30, 2018 and 2017 , as well as a comparison of our indirect expenses between these periods, are presented in the captioned sections below.

Agency Segment

Agency Segment Overview —For the three months ended September 30, 2018, Agency segment loss before taxes improved by $7.5 million (14%) when compared to the same period in the prior year. After excluding certain items, Adjusted Agency Segment Loss Before Taxes* improved by $11.3 million (21%) when compared to the prior year. This improvement is largely due to a 30% increase in Net Auction Sales, which resulted in a 19% increase in agency commissions and fees during the period. These factors are largely offset by higher salaries and related costs.

For the nine months ended September 30, 2018, Agency segment income before taxes decreased $0.7 million (4%) when compared to the same period in the prior year. After excluding certain items, Adjusted Agency Segment Income Before Taxes* increased $9.5 million (57%) when compared to the prior year. During the first nine months of 2018, the art market continued to be strong as evidenced by a 20% increase in Consolidated Sales and associated increases in auction commissions ($42.4 million / 10%) and private sale commissions ( $15.3 million / 37% ). The increase in private sale commissions also reflects our continued focus of key resources toward this sale channel. However, results for the period were adversely impacted by a higher level of operating expenses.

Agency Segment Financial Data Tables —The following tables present a summary of Agency segment income before taxes and related statistical metrics, in thousands of dollars, for the three and nine months ended September 30, 2018 and 2017 . A detailed discussion of the significant factors impacting the comparison of Agency segment results between the current and prior year periods is presented below the table.



							Variance
Three Months Ended September 30,	2018			2017			$ / %			%
Revenues:
Auction commissions and fees:
Auction commissions (a)	$	72,734		$	62,731		$	10,003		16	%
Auction related fees, net (a)	7,685			3,543			4,142			*
Total Auction commissions and fees	80,419			66,274			14,145			21	%
Private sale commissions (a)	12,759			12,902			(143		)	(1	%)
Other Agency commissions and fees (a)	3,556			2,088			1,468			70	%
Total Agency commissions and fees	96,734			81,264			15,470			19	%
Inventory sales (a)	1,580			79,510			(77,930		)	(98	%)
Total Agency segment revenues	98,314			160,774			(62,460		)	(39	%)
Expenses:
Agency direct costs:
Auction direct costs	18,274			17,826			448			3	%
Private sale expenses	1,389			1,109			280			25	%
Intersegment costs (b)	1,399			2,084			(685		)	(33	%)
Total Agency direct costs	21,062			21,019			43			—	%
Cost of inventory sales (c)	2,776			77,353			(74,577		)	(96	%)
Marketing	4,719			5,811			(1,092		)	(19	%)
Salaries and related (d)	64,558			60,968			3,590			6	%
General and administrative	40,226			40,896			(670		)	(2	%)
Depreciation and amortization	5,474			5,469			5			—	%
Restructuring charges	3,781			—			3,781			N/A
Total Agency segment expenses	142,596			211,516			(68,920		)	(33	%)
Agency segment operating loss	(44,282		)	(50,742		)	6,460			13	%
Net interest expense (e)	(7,298		)	(6,702		)	(596		)	(9	%)
Non-operating income	3,336			2,958			378			13	%
Equity in earnings of investees	1,441			151			1,290			*
Agency segment loss before taxes	$	(46,803	)	$	(54,335	)	$	7,532		14	%
Statistical Metrics:
Aggregate Auction Sales (f)	$	449,044		$	347,338		$	101,706		29	%
Net Auction Sales (g)	$	373,152		$	286,722		$	86,430		30	%
Items sold at auction with a hammer (sale) price greater than $1 million	56			35			21			60	%
Total hammer (sale) price of items sold at auction with a hammer price greater than $1 million	$	203,804		$	118,071		$	85,733		73	%
Items sold at auction with a hammer (sale) price greater than $3 million	15			9			6			67	%
Total hammer (sale) price of items sold at auction with a hammer price greater than $3 million	$	131,877		$	70,931		$	60,946		86	%
Auction Commission Margin (h)	19.1		%	20.7		%	(1.6		%)	N/A
Private Sales (i)	$	132,752		$	112,554		$	20,198		18	%
Consolidated Sales (j)	$	583,376		$	539,402		$	43,974		8	%
Non-GAAP Financial Measure:
Adjusted Agency Segment Loss Before Taxes (k)	$	(43,022	)	$	(54,335	)	$	11,313		21	%



							Variance
Nine Months Ended September 30,	2018			2017			$ / %			%
Revenues:
Auction commissions and fees:
Auction commissions (a)	$	462,663		$	420,296		$	42,367		10	%
Auction related fees, net (a)	25,509			25,041			468			2	%
Total Auction commissions and fees	488,172			445,337			42,835			10	%
Private sale commissions (a)	56,260			40,949			15,311			37	%
Other Agency commissions and fees (a)	7,907			8,011			(104		)	(1	%)
Total Agency commissions and fees	552,339			494,297			58,042			12	%
Inventory sales (a)	53,153			166,142			(112,989		)	(68	%)
Total Agency segment revenues	605,492			660,439			(54,947		)	(8	%)
Expenses:
Agency direct costs:
Auction direct costs	108,839			91,351			17,488			19	%
Private sale expenses	5,277			3,715			1,562			42	%
Intersegment costs (b)	6,119			6,691			(572		)	(9	%)
Total Agency direct costs	120,235			101,757			18,478			18	%
Cost of inventory sales (c)	57,724			167,663			(109,939		)	(66	%)
Marketing	16,496			17,478			(982		)	(6	%)
Salaries and related (d)	232,960			209,207			23,753			11	%
General and administrative	125,814			119,806			6,008			5	%
Depreciation and amortization	19,451			15,949			3,502			22	%
Restructuring charges	5,302			—			5,302			N/A
Voluntary separation incentive programs, net	—			(148		)	148			100	%
Total Agency segment expenses	577,982			631,712			(53,730		)	(9	%)
Agency segment operating income	27,510			28,727			(1,217		)	(4	%)
Net interest expense (e)	(21,711		)	(19,096		)	(2,615		)	(14	%)
Non-operating income	6,781			5,709			1,072			19	%
Equity in earnings of investees	2,595			493			2,102			*
Agency segment income before taxes	$	15,175		$	15,833		$	(658	)	(4	%)
Statistical Metrics:
Aggregate Auction Sales (f)	$	3,303,255		$	2,754,567		$	548,688		20	%
Net Auction Sales (g)	$	2,771,953		$	2,304,956		$	466,997		20	%
Items sold at auction with a hammer (sale) price greater than $1 million	400			337			63			19	%
Total hammer (sale) price of items sold at auction with a hammer price greater than $1 million	$	1,759,699		$	1,478,530		$	281,169		19	%
Items sold at auction with a hammer (sale) price greater than $3 million	132			115			17			15	%
Total hammer (sale) price of items sold at auction with a hammer price greater than $3 million	$	1,305,609		$	1,106,574		$	199,035		18	%
Auction Commission Margin (h)	15.5		%	17.2		%	(1.7		%)	N/A
Private Sales (i)	$	669,900		$	446,364		$	223,536		50	%
Consolidated Sales (j)	$	4,026,308		$	3,367,073		$	659,235		20	%
Non-GAAP Financial Measure:
Adjusted Agency Segment Income Before Taxes (k)	$	26,225		$	16,725		$	9,500		57	%



Legend:
*	Represents a change in excess of 100%.
(a)	See Note 4 of Notes to Condensed Consolidated Financial Statements for a description of each component of Agency segment revenues.
(b)	Principally includes fees charged to the Agency segment to compensate SFS for generating auction and private sale consignments through the sale of term loan collateral. In addition, this line item includes amounts charged by SFS for loans issued with favorable terms as an accommodation to the Agency segment in order to secure a consignment or enhance a client relationship.
(c)	Includes the net book value of inventory sold, commissions and fees paid to third parties who help facilitate the sale of inventory, and writedowns associated with our periodic assessment of inventory valuation.
(d)	We do not allocate salaries and related costs to our cost of revenue, marketing expense, and general and administrative expense line items, as many employees often perform duties that could be categorized across more than one of these line items.
(e)	Represents interest expense attributable to long-term debt, less non-operating interest income. On June 26, 2018, we refinanced our previous credit agreements, which provided for dedicated asset-based revolving credit facilities for the Agency segment and SFS. The new credit agreement combined these credit facilities into one asset-based revolving credit facility. As a result of this refinancing, beginning in the third quarter of 2018, revolving credit facility costs are no longer allocated to our segments for the purpose of measuring segment profitability. Segment results for periods prior to the third quarter of 2018 have been recast to reflect this change in the measurement of segment profitability.
(f)	Represents the total hammer (sale) price of property sold at auction plus buyer's premium, excluding amounts related to the sale of our inventory at auction, which are reported within inventory sales.
(g)	Represents the total hammer (sale) price of property sold at auction, excluding amounts related to the sale of our inventory at auction, which are reported within inventory sales.
(h)	Represents total auction commissions, net of fees owed to the counterparties in auction guarantee risk sharing arrangements and fees owed to third parties who introduce us to auction consignors (both of which are recorded within Auction direct costs), as a percentage of Net Auction Sales.
(i)	Represents the total purchase price of property sold in private sales that we have brokered, including our commissions. Because private sales are individually negotiated and non-recurring transactions, the volume and value of transactions completed can vary from period to period, with associated variability in revenues.
(j)	Represents the sum of Aggregate Auction Sales, Private Sales, and inventory sales attributable to the Agency segment.
(k)	See "Non-GAAP Financial Measures" below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount.

Auction Results —For the three and nine months ended September 30, 2018, our net auction results (i.e., commissions and fees, net of related direct costs) improved $13.7 million ( 28% ) and $25.3 million ( 7% ), respectively, primarily due to a higher level of Net Auction Sales, which increased by 30% and 20% during the three and nine-month periods, respectively. The comparison of third quarter results to the prior year is also favorably impacted by an auction guarantee loss incurred in the third quarter of 2017 that did not repeat in the current year. (See the captioned sections below for a detailed discussion of Net Auction Sales and Auction Commission Margin.)

Net Auction Sales —For the three and nine months ended September 30, 2018 , Net Auction Sales increased $86.4 million ( 30% ) and $467 million ( 20% ), respectively, when compared to the prior year periods. The increase in third quarter Net Auction Sales is predominantly due to a $98 million (117%) increase in results associated with the first week of our autumn sales season in Hong Kong in late September. The increase in September year-to-date Net Auction Sales is primarily attributable to higher sales of Asian Art, Contemporary Art, and Impressionist and Modern Art. A significant portion of the overall increases in Net Auction Sales during the three and nine-month periods is attributable to sales of high-value property, as evidenced by the 86% and 18% increases in Net Auction Sales of items with a hammer price greater than $3 million during these periods.

Auction Commission Margin —Auction Commission Margin represents total auction commissions, net of fees owed to the counterparties in auction guarantee risk sharing arrangements and fees owed to third parties who introduce us to auction consignors, as a percentage of Net Auction Sales. Typically, Auction Commission Margin is higher for lower value works of art or collections, while higher valued property earns a lower Auction Commission Margin. Accordingly, Auction Commission Margin may be impacted by the mix of property sold in a period. Auction Commission Margin may also be adversely impacted by arrangements whereby we share our buyer's premium with a consignor in order to secure a competitive high-value consignment, as well as by our use of auction guarantees. For example, in situations when guaranteed property sells for less than the guaranteed price, our buyer's premium from that sale is used to reduce the loss on the transaction. See Note 18 of Notes to Condensed Consolidated Financial Statements for information related to our use of auction guarantees.

For the three months ended September 30, 2018, Auction Commission Margin decreased from 20.7% to 19.1% largely due to changes in sales mix, as a significantly greater proportion of current period sales was composed of high value property.

For the nine months ended September 30, 2018, Auction Commission Margin decreased 17.2% to 15.5%. In the second quarter of 2018, the art market was driven by competitive high-value consignments from fiduciary sources such as estates, foundations and charities. Accordingly, when compared to the prior year periods, our Auction Commission Margin was reduced by a higher level of auction commissions shared with consignors in these situations. The comparison to the prior year period is also negatively impacted by the sale of two high value paintings, one of which involved the use of buyer’s premium to mitigate a loss on an auction guarantee and the other involved a lot on which very little auction commission was earned at the final hammer price. These two transactions collectively reduced our Auction Commission Margin by 1% in the current year-to-date period. Excluding these two transactions, our Auction Commission Margin for the nine months ended September 30, 2018 would have been 16.5%.

Private Sale Results —For the nine months ended September 30, 2018, our net private sale results (i.e., commissions, net of related direct costs) increased $15.3 million ( 37% ), due to an increase in high-value transaction volume during the current year period, which reflects our continued focus of key resources towards this sales channel. For the three months ended September 30, 2018, our net private sale results decreased $0.4 million (4%) despite a higher level of transaction volume due in part to a significant high margin sale completed in the third quarter of 2017, for which there was no comparable sale in the current period.

Inventory Activities —For the three and nine months ended September 30, 2018, the net result of our inventory activities (i.e., inventory sales, net of related cost of sales) decreased $3.4 million and $3.1 million, respectively, primarily due to the profitable sale of one significant item in the prior year, for which there was no comparable sale in the current year periods. Also significantly impacting the comparison to the prior year periods is the recognition of the sale of a Fancy Vivid Pink Diamond for $71.2 million in the third quarter of 2017, which resulted in a gain of approximately $0.4 million (see Note 10 of Notes to Condensed Consolidated Financial Statements).

Sotheby's Financial Services

The following table presents a summary of SFS income before taxes and related loan portfolio metrics, in thousands of dollars, as of and for the three and nine months ended September 30, 2018 and 2017 :



							Variance
Three Months Ended September 30,	2018			2017			$ /%			%
Revenues:
Client paid revenues (a)	$	11,423		$	11,697		$	(274	)	(2	%)
Intersegment revenues (b)	1,399			2,084			(685		)	(33	%)
Total finance revenues	12,822			13,781			(959		)	(7	%)
Expenses:
Corporate finance charge (c)	3,878			4,807			(929		)	(19	%)
Marketing	25			37			(12		)	(32	%)
Salaries and related (d)	867			920			(53		)	(6	%)
General and administrative	420			647			(227		)	(35	%)
Depreciation and amortization	29			63			(34		)	(54	%)
Total SFS expenses	5,219			6,474			(1,255		)	(19	%)
SFS operating income	7,603			7,307			296			4	%
Net interest expense (e)	(171		)	(238		)	67			28	%
Non-operating (loss) income	(280		)	143			(423		)	N/A
SFS income before taxes	$	7,152		$	7,212		$	(60	)	(1	%)
Loan Portfolio Metrics:
Loan Portfolio Balance (f)	$	592,962		$	602,176		$	(9,214	)	(2	%)
Average Loan Portfolio (g)	$	508,179		$	638,476		$	(130,297	)	(20	%)
Finance Revenue Percentage (h)	10.1		%	8.6		%	1.5		%	N/A
Client Paid Interest Revenue Percentage (i)	8.0		%	6.6		%	1.4		%	N/A



							Variance
Nine Months Ended September 30,	2018			2017			$ /%			%
Revenues:
Client paid revenues (a)	$	30,945		$	37,823		$	(6,878	)	(18	%)
Intersegment revenues (b)	6,116			6,691			(575		)	(9	%)
Total finance revenues	37,061			44,514			(7,453		)	(17	%)
Expenses:
Corporate finance charge (c)	11,866			13,965			(2,099		)	(15	%)
Marketing	68			104			(36		)	(35	%)
Salaries and related (d)	2,885			3,477			(592		)	(17	%)
General and administrative	1,314			2,048			(734		)	(36	%)
Depreciation and amortization	90			189			(99		)	(52	%)
Total SFS expenses	16,223			19,783			(3,560		)	(18	%)
SFS operating income	20,838			24,731			(3,893		)	(16	%)
Net interest expense (e)	(529		)	(714		)	185			26	%
Non-operating (loss) income	(26		)	364			(390		)	N/A
SFS income before taxes	$	20,283		$	24,381		$	(4,098	)	(17	%)
Loan Portfolio Metrics:
Loan Portfolio Balance (f)	$	592,962		$	602,176		$	(9,214	)	(2	%)
Average Loan Portfolio (g)	$	518,902		$	653,579		$	(134,677	)	(21	%)
Finance Revenue Percentage (h)	9.5		%	9.1		%	0.4		%	N/A
Client Paid Interest Revenue Percentage (i)	7.2		%	7.0		%	0.2		%	N/A



Legend:
(a)	Includes interest, facility fees, and collateral release fees earned from clients.
(b)	Principally includes fees charged to the Agency segment to compensate SFS for generating auction and private sale consignments through the sale of term loan collateral. In addition, this line item includes interest and fees earned from the Agency segment for loans issued with favorable terms as an accommodation to the Agency segment in order to secure a consignment or enhance a client relationship.
(c)	Subsequent to the refinancing of our previous credit agreements and the resulting elimination of the SFS Credit Facility on June 26, 2018, the SFS loan portfolio is no longer being directly funded with revolving credit facility borrowings. However, beginning in the third quarter of 2018, for the purpose of measuring segment profitability, SFS receives a corporate finance charge that is calculated assuming that 85% of their loan portfolio is funded with debt. This charge is eliminated in the consolidation of Sotheby's results. Segment results for periods prior to the third quarter of 2018 have been recast to reflect this change in the measurement of segment profitability.
(d)	We do not allocate salaries and related costs to our cost of revenue, marketing expense, and general and administrative expense line items, as many of our employees perform duties that could be categorized across more than one of these line items.
(e)	Represents non-operating interest expense less non-operating interest income.
(f)	Represents the period end net loan portfolio balance.
(g)	Represents the average loan portfolio outstanding during the period.
(h)	Represents the annualized percentage of total client paid and intersegment finance revenues in relation to the Average Loan Portfolio.
(i)	Represents the annualized percentage of total client paid interest revenue in relation to the Average Loan Portfolio.

For the nine months ended September 30, 2018, SFS income before taxes decreased ($4.1) million (17%) principally due to a 21% decrease in the Average Loan Portfolio resulting from the repayment of certain client loans in response to higher LIBOR rates during the period.

Salaries and Related Costs

For the three and nine months ended September 30, 2018 and 2017 , salaries and related costs consisted of the following (in thousands of dollars):



					Variance
Three Months Ended September 30,	2018		2017		$			%
Full-time salaries	$	40,663	$	38,116	$	2,547		7	%
Incentive compensation expense	2,071		2,521		(450		)	(18	%)
Employee benefits and payroll taxes	11,626		12,960		(1,334		)	(10	%)
Share-based payment expense	6,736		5,408		1,328			25	%
Other compensation expense (a)	6,178		4,213		1,965			47	%
Total salaries and related costs	$	67,274	$	63,218	$	4,056		6	%



					Variance
Nine Months Ended September 30,	2018		2017		$			%
Full-time salaries	$	125,084	$	114,674	$	10,410		9	%
Incentive compensation expense	30,931		28,228		2,703			10	%
Employee benefits and payroll taxes	42,529		42,758		(229		)	(1	%)
Share-based payment expense	21,425		17,423		4,002			23	%
Contractual severance agreements	2,625		—		2,625			N/A
Other compensation expense (a)	20,117		14,225		5,892			41	%
Total salaries and related costs	$	242,711	$	217,308	$	25,403		12	%

Legend:

(a) Other compensation expense typically includes the cost of temporary labor and overtime, as well as amortization expense related to certain retention-based, new-hire and other employment arrangements.

For the three and nine months ended September 30, 2018 , salaries and related costs increased $4.1 million ( 6% ) and $25.4 million ( 12% ), respectively, when compared to the same periods in the prior year. The year-to-date comparison to the prior year is adversely impacted by changes in foreign currency exchange rates, which increased salaries and related costs by $5.1 million. Excluding the impact of changes in foreign currency exchange rates, salaries and related costs increased $20.3 million (9%) during the current year-to-date period. See below for a detailed discussion of the significant factors impacting the comparison of the various elements of salaries and related costs between the current and prior year periods.

Full-Time Salaries —For the three and nine months ended September 30, 2018 , full-time salaries increased $2.5 million ( 7% ) and $10.4 million ( 9% ), respectively, when compared to the same periods in the prior year principally due to headcount and base salary increases. The year-to-date comparison to the prior year is adversely impacted by changes in foreign currency exchange rates, which increased full-time salaries by $2.4 million. Excluding the impact of changes in foreign currency exchange rates, full-time salaries increased $8 million (7%) during the current year-to-date period.

Incentive Compensation —Incentive compensation consists of the accrual for annual cash incentive bonuses, as well as amounts awarded to employees for brokering certain eligible private sale and other transactions. Payments made under the annual cash incentive bonus plan are aligned with performance against Sotheby's annual financial plan. The $2.7 million ( 10% ) increase in incentive compensation expense for the nine months ended September 30, 2018 is due to the significant increase in private sales completed during the year-to-date period, which resulted in a higher level of associated incentive compensation expense.

Share-Based Payment Expense —Share-based payment expense relates to the amortization of equity compensation awards such as performance share units, market-based share units, restricted stock units, and restricted shares. The amount of compensation expense recognized for share-based payments is based, in part, on our estimate of the number of units or shares ultimately expected to vest as a result of employee service. In addition, performance share units vest only if we achieve established profitability targets (for awards granted prior to 2016) or certain ROIC targets (for awards granted beginning in 2016). The amount of compensation expense recognized for such performance-based awards is dependent upon our quarterly assessment of the likelihood of achieving these future profitability or ROIC targets. If, as a result of our assessment, we project that a greater number of performance share units will vest than previously anticipated, a life-to-date adjustment to increase compensation expense is recorded in the period such determination is made. Conversely, if, as a result of our assessment, we project that a lower number of performance share units will vest than previously anticipated, a life-to-date adjustment to decrease compensation expense is recorded in the period such determination is made. See Note 19 of Notes to Condensed Consolidated Financial Statements for more detailed information related to our share-based compensation programs.

For the three and nine months ended September 30, 2018 , share-based payment expense increased $1.3 million ( 25% ) and $4 million ( 23% ), respectively, when compared to the prior year periods, principally reflecting an increase in our estimate of the number of performance share units ultimately expected to vest relative to the prior year.

Contractual Severance Agreements —For the nine months ended September 30, 2018, we recorded net charges of $2.6 million resulting from contractual severance agreements entered into with certain former employees, which will allow us to redirect compensation towards the headcount supporting our various growth initiatives.

Other Compensation Expense —For the three and nine months ended September 30, 2018 , other compensation expense increased $2 million ( 47% ) and $5.9 million ( 41% ), respectively, when compared to the same periods in the prior year, primarily due to higher costs from retention-based, new-hire arrangements and temporary labor costs, especially with respect to various digital initiatives.

General and Administrative Expenses

General and administrative expenses include professional fees, facilities-related expenses, and travel and entertainment costs, as well as other indirect expenses. For the nine months ended September 30, 2018, general and administrative expenses increased $7 million ( 6% ) when compared to the prior year. The comparison to the prior year is adversely impacted by changes in foreign currency exchange rates, which increased general and administrative expenses by $2.3 million. Excluding the impact of foreign currency exchange rate changes, general and administrative expenses increased $4.7 million (4%) during the current year-to-date period. This increase is due to higher spending on digital initiatives and travel and entertainment, as well as the cost of off-site storage during the York Property enhancement project and higher costs associated with legal claims and client goodwill gestures. These factors are partially offset by professional fee recoveries realized in the second quarter of 2018 following the resolution of certain legal matters.

Depreciation and Amortization Expense

For the nine months ended September 30, 2018, depreciation and amortization expense increased $3.4 million ( 20% ), predominantly due to accelerated depreciation charges associated with certain building improvements and other fixed assets that were removed from service as of July 1, 2018 in connection with enhancements being made to our headquarters building at 1334 York Avenue in New York (the "York Property").

Restructuring Charges

Beginning in the second quarter of 2018, management is implementing a restructuring plan with the principal goal of reducing headcount through the elimination of certain positions primarily in the Agency segment. The restructuring plan will also result in the termination of lease agreements in certain non-selling locations. For the three and nine months ended September 30, 2018 , we recognized $3.8 million and $5.9 million , respectively, of restructuring charges almost entirely attributable to severance-related costs. The remaining restructuring liability of $4.8 million as of September 30, 2018 is recorded on our Condensed Consolidated Balance Sheets within accounts payable and accrued liabilities. This liability is expected to be settled through cash payments to be made principally in fourth quarter of 2018.

Net Interest Expense

For the three and nine months ended September 30, 2018 , net interest expense increased $1.8 million (23%) and $4.7 million (21%) , respectively, when compared to the same periods in the prior year. These increases are largely due to incremental interest expense associated with the refinancing of $300 million of 5.25% Senior Notes, due 2022, (the "2022 Notes") with proceeds from the issuance of $400 million of 4.875% Senior Notes, due 2025 (the "2025 Notes").

Our previous SFS Credit Facility was used to fund a significant portion of client loans. Accordingly, any borrowing costs associated with the SFS Credit Facility were recorded within cost of finance revenues in our Condensed Consolidated Statements of Operations. In September 2017, we modified our cash management strategy in order to reduce borrowing costs by applying excess cash balances against revolver credit facility borrowings. On June 26, 2018, we refinanced our previous credit agreements, which resulted in the elimination of the SFS Credit Facility, and concluded our strategy of directly funding the loan portfolio with revolving credit facility borrowings. Accordingly, all borrowing costs associated with our new revolving credit facility are recorded as interest expense in our Condensed Consolidated Statements of Operations. As a result, the comparison of interest expense between the current and prior year periods is unfavorably impacted by this change in classification. However, on an all-in basis (i.e., combining the amounts recorded in cost of finance revenues and interest expense), the costs associated with our revolving credit facilities and borrowings thereunder have decreased by $4.9 million (72%) and $10.9 million (60%), respectively, for the three and nine months ended September 30, 2018 when compared to same periods in the prior year.

(See "Sotheby's Financial Services" above and Note 8 of Notes to Condensed Consolidated Financial Statements.)

Write-off of Credit Facility Fees

Prior to June 26, 2018, we were party to credit agreements with an international syndicate of lenders that provided for dedicated asset-based revolving credit facilities for the Agency segment (the "Agency Credit Facility") and SFS (the "SFS Credit Facility") (collectively, the "Previous Credit Agreements"). On June 26, 2018, we refinanced the Previous Credit Agreements and entered into a new credit agreement with an international syndicate of lenders led by JPMorgan Chase Bank, N.A. As a result of this refinancing, $4 million of unamortized fees related to the Previous Credit Agreements were written off in the second quarter of 2018. See Note 8 of Notes to Condensed Consolidated Financial Statements.

Extinguishment of Debt

On December 12, 2017, we issued $400 million aggregate principal amount of 2025 Senior Notes. The net proceeds from the issuance of the 2025 Senior Notes were approximately $395.5 million, after deducting fees paid to the initial purchasers. On January 11, 2018, a significant portion of these proceeds were used to redeem $300 million aggregate principal amount of 2022 Senior Notes for a redemption price of $312.3 million, which included $4.4 million of accrued interest and a call premium of $7.9 million. As a result of the redemption of the 2022 Senior Notes, we wrote-off $3 million of related unamortized debt issuance costs, which, when combined with the $7.9 million call premium, resulted in a total loss on the extinguishment of debt of $10.9 million recognized in the first quarter of 2018.

Income Tax (Benefit) Expense

Our quarterly income tax provision is calculated using an estimated annual effective income tax rate ("ETR") based on actual historical information and forward looking estimates. Our estimated annual ETR may fluctuate due to changes in forecasted annual pre-tax income, changes in the jurisdictional mix of forecasted pre-tax income, and changes to actual or forecasted permanent book to tax differences (e.g., non-deductible expenses). Furthermore, our ETR may fluctuate as the result of changes to the valuation allowance for net deferred tax assets, the impact of future tax settlements with federal, state or foreign tax authorities, or the impact of tax law changes. We identify items that are unusual and non-recurring in nature and treat these as discrete events. The tax effect of these discrete events is booked entirely in the quarter in which they occur.

As of September 30, 2018, we estimate that our annual ETR, excluding discrete items, will be approximately 28%. Our estimated annual ETR as of September 30, 2017 was also 28%. Although the overall estimate of our annual ETR did not change, the comparison of our annual ETR to the prior year is significantly influenced by the U.S. Tax Cuts and Jobs Act (the “Act”), which was enacted into law on December 22, 2017 and includes many provisions that became effective on January 1, 2018. Certain provisions of the Act have the effect of reducing our annual estimated ETR, such as: (i) a reduction of the U.S. corporate income tax rate from 35% to 21% and (ii) the transition from a worldwide tax system to a modified territorial tax system, under which dividends from foreign subsidiaries are not subject to additional U.S. tax. Conversely, certain provisions of the Act have the effect of increasing our annual estimated ETR, such as: (i) the creation of global intangible low taxed income (“GILTI”), which requires income earned by foreign subsidiaries in excess of a nominal return on their depreciable assets to be included currently in the income of the U.S. shareholder, (ii) the imposition of the Base Erosion Anti-Abuse Tax (“BEAT”), a minimum tax on certain non-US related-party payments and (iii) more restrictive limitations on the deductibility of executive compensation. The estimated annual ETR of approximately 28% is higher than the U.S. federal statutory rate of 21% primarily as a result of state income taxes and the provisions of the Act related to GILTI, BEAT, and the deductibility of executive compensation. (See Note 16 of Notes to Condensed Consolidated Financial Statements for additional information related to the Act.)

The table below summarizes our income tax (benefit) expense and effective income tax (benefit) expense rate for the three and nine months ended September 30, 2018 and 2017, including the impact of discrete items (in thousands of dollars):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018		2017
(Loss) income before taxes	$	(37,077	)	$	(45,715	)	$	25,336	$	42,889
Income tax (benefit) expense	$	(7,759	)	$	(21,328	)	$	5,943	$	2,848
Effective income tax (benefit) expense rate	(20.9%)			(46.7%)			23.5%		6.6%

Our income tax benefit for the three months ended September 30, 2018 was reduced by approximately $7 million of discrete tax expense recorded in the current period related to the effective settlement of an income tax audit. This discrete tax expense was partially offset by approximately $2.9 million of discrete tax benefits recorded in the current period to adjust provisional amounts recorded in the prior year related to the Act. In contrast, the third quarter of 2017 included $7.7 million of discrete tax benefits, primarily resulting from the reversal of a tax reserve for a previously uncertain tax position for which the statute of limitations had expired. (See Note 16 of Notes to Condensed Consolidated Financial Statements.)

Equity in Earnings of Investees

For the three and nine months ended September 30, 2018, earnings from equity method investments increased $0.6 million ( 64% ) and $1.5 million ( 73% ), respectively, due to higher earnings from RM Sotheby's, partially offset by lower results from Acquavella Modern Art.

Impact of Changes in Foreign Currency Exchange Rates

For the three months ended September 30, 2018 , changes in foreign currency exchange rates had a net favorable impact of $0.7 million on our operating loss, which was solely attributable to the impact of changing rates on our expenses during a seasonal loss quarter. For the nine months ended September 30, 2018, changes in foreign currency exchange rates had a net favorable impact of $1.9 million on our operating income, with revenues favorably impacted by $13.6 million, and expenses unfavorably impacted by $11.7 million. The net favorable impact for the nine month period is the result of the weakening of the U.S. Dollar against the Pound Sterling and the Euro.

CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

This discussion should be read in conjunction with Sotheby’s Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 . For the nine months ended September 30, 2018 , total cash, cash equivalents, and restricted cash decreased $748.7 million to $175.2 million , as compared to a decrease of $221.5 million to $334.7 million for the nine months ended September 30, 2017. The significant factors impacting the comparisons between these periods are discussed below.

Net Cash Used by Operating Activities —We are predominantly an agency business that collects and remits cash on behalf of our clients. Accordingly, the net amount of cash provided or used in a period by our operating activities is significantly influenced by the timing of auction and private sale settlements. As discussed in Note 4 of Notes to Condensed Consolidated Financial Statements, under our standard auction payment terms, the purchase price is due from the buyer no more than 30 days after the sale date, with the net proceeds due to the consignor 35 days after the sale date. Accordingly, it is not unusual for us to hold significant balances of consignor net sale proceeds at the end of a quarterly reporting period that are disbursed soon thereafter. Additionally, we sometimes provide extended payment terms to an auction or private sale buyer. For auctions, the extent to which extended payment terms are provided can vary considerably from selling season to selling season. In certain instances, and subject to management approval under our internal corporate governance policy, we may pay the net sale proceeds to the consignor before payment is collected from the buyer, with the collection from the buyer sometimes occurring after the current balance sheet date. The amount of net cash provided or used by our operating activities in a reporting period is also a function of our net income or loss, the timing of payments made to vendors, the timing of compensation-related payments, the timing and extent of cash flows related to inventory activities, and the timing of the collection and/or payment of tax-related receivables and payables.

For the nine months ended September 30, 2018 , net cash used by operating activities of $257.6 million is principally due to net cash outflows of $270.2 million associated with the settlement of auction and private sale transactions during the period, as we held significant balances of consignor net sale proceeds at the end of 2017 that were paid in early 2018. Also contributing to the net cash outflow from operating activities is the funding of 2017 incentive compensation ($51.4 million). These cash outflows are partially offset by our net income for the period ( $22.9 million ) and net cash inflows from inventory activities ($11.3 million).

For the nine months ended September 30, 2017, net cash used by operating activities of $75.7 million was principally due to net cash outflows of $137.4 million associated with the settlement of auction and private sale transactions during the period as a result of the funding of certain consignor settlements prior to collecting from buyers in the subsequent quarter. Also contributing to the net cash outflows from operating activities was the funding of 2016 incentive compensation ($33.8 million), payments made in respect of the AAP earn-out arrangement ($8.75 million), and income tax payments ($43 million). These cash outflows were partially offset by net cash inflows from the sale of inventory primarily attributable to the sale of a Fancy Vivid Pink Diamond and our net income for the period ($42.1 million).

(See Note 10 of Notes to Condensed Consolidated Financial Statements for additional information regarding the sale of the Fancy Vivid Pink Diamond.)

Net Cash Provided by Investing Activities —For the nine months ended September 30, 2018 , net cash provided by investing activities of $26.3 million is largely due to net collections of client loans ($67.1 million), as certain loans were repaid during the period in response to higher LIBOR rates. This investing net cash inflow is partially offset by the funding of capital expenditures of $36 million, which includes approximately $15 million for the enhancements being made to the York Property. Net cash outflows from investing activities also include acquisitions ($5.8 million), as well as a realized net loss of $1.9 million from the settlement of derivative financial instruments designated as net investment hedges.

For the nine months ended September 30, 2017, net cash provided by investing activities of $72 million was largely due to net collections of client loans ($54.7 million) and a realized net gain of $29.1 million from the settlement of derivative financial instruments designated as net investment hedges. These cash inflows were partially offset by capital expenditures of $14.5 million primarily for various office renovations.

(See Note 8 of Notes to Condensed Consolidated Financial Statements for additional information related to derivative financial instruments.)

Net Cash Used by Financing Activities —For the nine months ended September 30, 2018 , net cash used by financing activities of $511.5 million is primarily due to the settlement of our $300 million 2022 Senior Notes, including the payment of a call premium of $7.9 million , as well as common stock repurchases ($186.3 million) and the purchase of a forward contract indexed to our common stock ($9.5 million). Other cash outflows from financing activities include principal payments made on the York Property Mortgage ($12.2 million) and the funding of employee tax obligations related to share-based payments ($9.9 million). These net cash outflows were partially offset by net borrowings under our revolving credit facilities ($18.5 million).

For the nine months ended September 30, 2017, net cash used by financing activities of $228.2 million was due to net repayments of borrowings under our previous SFS Credit Facility ($131 million), common stock repurchases ($40.2 million), principal payments made on the York Property Mortgage ($37.7 million), and the funding of employee tax obligations related to share-based payments ($16.8 million).

(See Note 8 of Notes to Condensed Consolidated Financial Statements for additional information regarding the York Property Mortgage and our revolving credit facilities. See Note 13 of Notes to Condensed Consolidated Financial Statements for additional information on our common stock repurchase program.)

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table summarizes our material contractual obligations and commitments as of September 30, 2018 (in thousands of dollars):



	Payments Due by Period
	Total		Less Than One Year		1 to 3 Years		3 to 5 Years		After 5 Years
Debt (a):
York Property Mortgage:
Principal payments	$	262,886	$	14,524	$	30,129	$	218,233	$	—
Interest payments	45,720		12,719		24,616		8,385		—
Sub-total	308,606		27,243		54,745		226,618		—
2025 Senior Notes
Principal payments	400,000		—		—		—		400,000
Interest payments	146,250		19,500		39,000		39,000		48,750
Sub-total	546,250		19,500		39,000		39,000		448,750
Revolving credit facility borrowings	215,000		—		—		215,000		—
Total debt and interest payments	1,069,856		46,743		93,745		480,618		448,750
Other commitments:
Operating lease obligations (b)	99,754		19,233		30,377		20,565		29,579
Compensation arrangements (c)	12,984		6,958		5,096		930		—
Acquisition earn-out consideration (d)	17,500		8,750		8,750		—		—
Auction guarantees (e)	356,200		356,200		—		—		—
Unfunded loan commitments (f)	45,944		45,944		—		—		—
Liability related to U.S. Tax Cuts and Jobs Act (g)	14,461		—		—		3,668		10,793
Uncertain tax positions (h)	—		—		—		—		—
Total other commitments	546,843		437,085		44,223		25,163		40,372
Total	$	1,616,699	$	483,828	$	137,968	$	505,781	$	489,122

(a)

See Note 8 of Notes to Condensed Consolidated Financial Statements for information related to the York Property Mortgage, the 2025 Senior Notes, and our revolving credit facility. The York Property Mortgage bears interest based on the one-month LIBOR rate plus a spread of 2.25%. We are party to an interest rate collar, which effectively fixes the LIBOR rate on the York Property Mortgage at an annual rate of no less than 1.917%, but no more than 3.75%. The table above assumes that the annual interest rate for the York Property Mortgage will be within the interest rate collar's floor and ceiling rates for the remainder of the mortgage term based on available forecasts of LIBOR rates for the future periods through maturity. The table above also assumes York Property Mortgage principal payments consistent with the related mortgage amortization schedule, as well as additional annual principal prepayments of $6.25 million each July continuing through 2021. (See Note 9 of Notes to Condensed Consolidated Financial Statements for additional information related to the interest rate collar.)

(b)

These amounts represent undiscounted non-cancellable future minimum rental commitments primarily related to office and warehouse operating leases, including any contractual market-based or indexed rent adjustments that are currently in effect. Operating lease obligations do not include common area maintenance, insurance, or tax payments for which we are also obligated under the terms of certain leases.


(c)	These amounts represent the remaining commitment for future salaries and other cash compensation related to compensation arrangements with certain senior employees, excluding any participation in our incentive compensation and share-based payment programs.

(d) In conjunction with the acquisition of AAP on January 11, 2016, we agreed to make future earn-out payments to the former principals of AAP not to exceed $35 million in the aggregate, contingent on the achievement of a level of cumulative financial performance within the Impressionist, Modern and Contemporary Art collecting categories, as well as from AAP's art advisory business. The cumulative financial performance target associated with this earn-out arrangement was achieved in the fourth quarter of 2016. The remaining $17.5 million owed under the earn-out arrangement will be paid in annual increments of $8.75 million in each of March 2019 and March 2020.


(e)	This amount represents the minimum guaranteed price associated with auction guarantees outstanding as of September 30, 2018 , net of amounts advanced, if any. See Note 18 of Notes to Condensed Consolidated Financial Statements for additional information related to auction guarantees.

(f) Represents unfunded commitments to extend additional credit through SFS. See Note 5 of Notes to Condensed Consolidated Financial Statements for additional information related to the SFS loan portfolio.


(g)	Represents the provisional income tax payable for the one-time mandatory transition tax on unremitted foreign earnings related to the U.S. Tax Cuts and Jobs Act. We elected to settle this liability in installments over eight years, as allowed by the Act. See Note 16 of Notes to Condensed Consolidated Financial Statements.

(h)

Excludes the $9.1 million liability recorded for uncertain tax positions that would be settled by cash payments to the respective taxing authorities, which are classified as long-term liabilities on our Condensed Consolidated Balance Sheets as of September 30, 2018 . This liability is excluded from the table above because we are unable to make reliable estimates of the period of settlement with the various taxing authorities. See Note 17 of Notes to Condensed Consolidated Financial Statements.

OFF-BALANCE SHEET ARRANGEMENTS

For information related to off-balance sheet arrangements see: (i) Note 5 of Notes to Condensed Consolidated Financial Statements, which discusses unfunded SFS loan commitments; (ii) Note 15 of Notes to Condensed Consolidated Financial Statements, which discusses guarantees of collection; and (iii) Note 18 of Notes to Condensed Consolidated Financial Statements, which discusses auction guarantees.

DERIVATIVE FINANCIAL INSTRUMENTS

For information related to derivative financial instruments, see Note 9 of Notes to Condensed Consolidated Financial Statements.

CONTINGENCIES

For information related to contingencies see: (i) Note 5 of Notes to Condensed Consolidated Financial Statements, which discusses past due loans; (ii) Note 15 of Notes to Condensed Consolidated Financial Statements, which discusses legal and other tax contingencies; (iii) Note 17 of Notes to Condensed Consolidated Financial Statements, which discusses income tax contingencies; and (iv) Note 18 of Notes to Condensed Consolidated Financial Statements, which discusses auction guarantees.

UNCERTAIN TAX POSITIONS

For information related to uncertain tax positions, see Note 17 of Notes to Condensed Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Overview —As of September 30, 2018 , we held cash and cash equivalents of $156.3 million , with $23.8 million held in the U.S. and $132.5 million held by our foreign subsidiaries (see “Repatriation of Foreign Earnings” below). After taking into account funds held that are owed to consignors, we estimate available cash balances to be approximately $40 million as of September 30, 2018 . In addition to our available cash balances, we also have access to a revolving credit facility to support our various capital requirements. As of September 30, 2018 , our revolving credit facility had a total available borrowing capacity of $588.4 million . (See Note 8 of Notes to Condensed Consolidated Financial Statements for information regarding the terms and conditions of our revolving credit facility.)

Our capital requirements include the liquidity necessary to support our recurring business needs, capital required for the pursuit of growth opportunities, and capital reserved to mitigate the risk of a cyclical downturn in the global art market. Importantly, the assessment of our capital requirements also takes into consideration the risks associated with our use of auction guarantees and their potential impact on our liquidity. We believe that our cash balances and available revolving credit facility borrowings provide an adequate level of capital to support our anticipated short and long-term commitments (as discussed in more detail below), operating needs, and capital requirements.

Repatriation of Foreign Earnings —On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the "Act") was enacted into law. One provision of the Act required U.S. taxes to be paid on certain of our foreign earnings that had not been repatriated, which totaled $460 million as of December 31, 2017. Our liability for this one-time mandatory transition tax was approximately $36 million. This amount, net of tax credits and other U.S. deductions, is approximately $24 million, and is being paid in installments over eight years beginning in 2018. The remaining liability as of September 30, 2018 is approximately $14.5 million. In the first nine months of 2018, we repatriated approximately $368 million of these foreign earnings to the U.S. (See statement on Forward Looking Statements. See Note 16 of Notes to the Condensed Consolidated Financial Statements for additional information of the effects of the Act.)

Assessment of Liquidity and Capital Requirements —We generally rely on existing cash balances (including amounts collected on behalf of and owed to consignors), operating cash flows, and revolving credit facility borrowings, if needed, to meet our liquidity and capital requirements. The timing and extent of any revolving credit facility borrowings is dependent upon a number of factors including, but not limited to, the amount of available cash on hand, the cyclical nature of the global art market, the seasonality of the art auction market, the timing of auction and private sale settlements, the potential funding of auction guarantees, the demand for art-related financing, which can be significantly influenced by overall economic conditions and by the often unpredictable financial requirements of owners of major art collections, the timing of the funding of new client loans, the timing of the settlement of existing client loans, the pursuit of business opportunities and growth initiatives, the timing and amount of common stock repurchases, and the timing of the repatriation of foreign earnings.

Our short-term and long-term operating needs and capital requirements include: (i) the funding of net sales proceeds to consignors when unmatched extended payment terms are granted to auction or private sale buyers (see Note 4 of Notes to Condensed Consolidated Financial Statements); (ii) the potential funding of auction guarantees (see Note 18 of Notes to Condensed Consolidated Financial Statements); (iii) the potential funding of client loans; (iv) repayments of outstanding revolving credit facility borrowings, if any, (v) the potential repayment of other debt; (vi) the funding of capital expenditures, including approximately $25 million to $35 million related to the ongoing York Property enhancement program, ; (vii) the funding of other possible business initiatives and/or investments; (viii) the funding of potential common stock repurchases (see Note 13 of Notes to Condensed Consolidated Financial Statements); and (ix) the funding of the other short-term and long-term commitments summarized in the table of contractual obligations and commitments above. (See statement on Forward Looking Statements.)

We believe that operating cash flows, existing cash balances, and revolving credit facility borrowings will be adequate to support our anticipated short and long-term commitments, operating needs and capital requirements through the June 23, 2023 expiration of our revolving credit facility. (See statement on Forward Looking Statements.)

RECENT ACCOUNTING STANDARDS NOT YET ADOPTED

See Note 23 of Notes to Condensed Consolidated Financial Statements for a discussion of recent accounting standards that have not yet been adopted.

NON-GAAP FINANCIAL MEASURES

GAAP refers to generally accepted accounting principles in the United States of America. Included in this Form 10-Q are financial measures presented in accordance with GAAP and also on a non-GAAP basis. Non-GAAP financial measures are important supplemental measures used in our financial and operational decision making processes, for internal reporting, and as part of our forecasting and budgeting processes, as they provide helpful measures of our core operations. These measures allow us to view operating trends, perform analytical comparisons, and benchmark performance between periods. We also believe that these measures may be used by securities analysts, investors, financial institutions, and other interested parties in their evaluation of our performance. The non-GAAP financial measures presented in this Form 10-Q are:



(i)	Adjusted Expenses	(iv)	Adjusted Net (Loss) Income
(ii)	Adjusted Operating (Loss) Income	(v)	Adjusted Diluted (Loss) Earnings Per Share
(iii)	Adjusted Agency Segment (Loss) Income Before Taxes

To the extent applicable, these non-GAAP financial measures exclude the effect of the following items, as detailed in the accompanying reconciliation tables below:



(i)	Restructuring charges;
	Restructuring charges;
(ii)	Charges related to contractual severance agreements entered into with certain former employees;

(iii)	Accelerated depreciation charges related to certain fixed assets that have been removed from service in connection with enhancements being made to the York Property;

(iv)	Net credits associated with a series of regional voluntary separation incentive programs that were implemented in 2015;
(v)	The loss incurred in connection with the extinguishment of our 2022 Senior Notes in the first quarter of 2018;

(vi)	The write-off of unamortized credit facility fees related to our previous credit agreement, which was refinanced in the second quarter of 2018;

(vii)	The charge resulting from the concurrent amendments to the York Property Mortgage and the related interest rate collar in the second quarter of 2017;

(viii)	The net charge associated with the effective settlement of an income tax audit; and
(ix)	Adjustments made to the net income tax expense recorded in the fourth quarter of 2017 upon the enactment of the U.S. Tax Cuts and Jobs Act.

Adjusted Expenses, as reconciled below, also excludes agency direct costs, the cost of inventory sales, and the cost of finance revenues, all of which are variable in nature and can vary significantly from period-to-period. In the second quarter of 2018, we updated our definition of Adjusted Expenses to exclude agency direct costs as a result of the adoption of Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers . As a result of the adoption of ASC 606, the following items previously reported on a net basis within revenues are now reported on a gross basis within agency direct costs: (i) fees owed to the counterparties in auction guarantee risk sharing arrangements and (ii) fees owed to third parties who introduce us to auction or private sale consignors. This change in presentation has added to the variability of our agency direct costs. Adjusted Expenses for the three and nine months ended September 30, 2017 has been recast to reflect the retrospective adoption of ASC 606. (See Note 1 of Notes to Condensed Consolidated Financial Statements.)

We caution users of our financial statements that amounts presented in accordance these non-GAAP financial measures may not be comparable to similar measures disclosed by other companies because not all companies and analysts calculate such measures in the same manner.

The following is a reconciliation of total expenses to Adjusted Expenses for the three and nine months ended September 30, 2018 and 2017 (in thousands of dollars):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Total expenses	$	149,828	$	221,064	$	600,523	$	660,135
Subtract: Agency direct costs	19,622		18,935		114,344		95,066
Subtract: Cost of inventory sales	6,322		78,734		64,731		172,396
Subtract: Cost of finance revenues	—		6,054		4,056		16,169
Subtract: Restructuring charges	3,781		—		5,927		—
Subtract: Contractual severance agreement charges	—		—		2,625		—
Subtract: Accelerated depreciation charges	—		—		3,123		—
Subtract: Voluntary separation incentive program credits, net	—		—		—		(162		)
Adjusted Expenses	$	120,103	$	117,341	$	405,717	$	376,666

The following is a reconciliation of operating (loss) income to Adjusted Operating (Loss) Income for the three and nine months ended September 30, 2018 and 2017 (in thousands of dollars):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018		2017
Operating (loss) income	$	(30,667	)	$	(41,056	)	$	60,070	$	59,041
Add: Restructuring charges	3,781			—			5,927		—
Add: Contractual severance agreement charges	—			—			2,625		—
Add: Accelerated depreciation charges	—			—			3,123		—
Add: Voluntary separation incentive program credits, net	—			—			—		(162		)
Adjusted Operating (Loss) Income	$	(26,886	)	$	(41,056	)	$	71,745	$	58,879

The following is a reconciliation of Agency segment (loss) income before taxes to Adjusted Agency Segment (Loss) Income Before Taxes for the three and nine months ended September 30, 2018 and 2017 (in thousands of dollars):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018		2017
Agency segment (loss) income before taxes	$	(46,803	)	$	(54,335	)	$	15,175	$	15,833
Add: Restructuring charges	3,781			—			5,302		—
Add: Contractual severance agreement charges	—			—			2,625		—
Add: Accelerated depreciation charges	—			—			3,123		—
Add: Voluntary separation incentive program credits, net	—			—			—		(148		)
Add: Charge related to interest rate collar amendment	—			—			—		1,040
Adjusted Agency Segment (Loss) Income Before Taxes	$	(43,022	)	$	(54,335	)	$	26,225	$	16,725

The following is a reconciliation of net (loss) income attributable to Sotheby's to Adjusted Net (Loss) Income for the three and nine months ended September 30, 2018 and 2017 (in thousands of dollars):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018		2017
Net (loss) income attributable to Sotheby's	$	(27,838	)	$	(23,479	)	$	22,922	$	42,087
Add: Restructuring charges, net of tax of ($930), $0, ($1,462), and $0	2,851			—			4,465		—
Add: Contractual severance agreement charges, net of tax of $0, $0, ($627), and $0	—			—			1,998		—
Add: Accelerated depreciation charges, net of tax of $0, $0, ($775), and $0	—			—			2,348		—
Add: Voluntary separation incentive programs credits (net), net of tax of $0, $0, $0, and $63	—			—			—		(99		)
Add: Extinguishment of debt, net of tax of $0, $0, ($2,692), and $0	—			—			8,163		—
Add: Write-off of credit facility fees, net of tax of $0, $0, ($922), and $0	—			—			3,060		—
Add: Charge related to interest rate collar amendment, net of tax of $0, $0, $0, and ($398)	—			—			—		642
Add: Net charge associated with the effective settlement of an income tax audit	7,062			—			7,062		—
Subtract: Adjustments to amounts recorded upon the enactment of the U.S. Tax Cuts and Jobs Act	2,897			—			7,827		—
Adjusted Net (Loss) Income	$	(20,822	)	$	(23,479	)	$	42,191	$	42,630

The income tax effect of each line item in the reconciliation of net (loss) income attributable to Sotheby's to Adjusted Net (Loss) Income is computed using the relevant jurisdictional tax rate for that item.

The following is a reconciliation of diluted (loss) earnings per share to Adjusted Diluted (Loss) Earnings Per Share for the three and nine months ended September 30, 2018 and 2017 :



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018		2017
Diluted (loss) earnings per share	$	(0.55	)	$	(0.45	)	$	0.43	$	0.78
Add: Restructuring charges, per share	0.06			—			0.09		—
Add: Contractual severance agreement charges, per share	—			—			0.04		—
Add: Accelerated depreciation charges, per share	—			—			0.04		—
Add: Voluntary separation incentive program credits (net), per share	—			—			—		—
Add: Extinguishment of debt, per share	—			—			0.15		—
Add: Write-off of credit facility fees, per share	—			—			0.06		—
Add: Charge related to interest rate collar amendment, per share	—			—			—		0.01
Add: Net charge associated with the effective settlement of an income tax audit, per share	0.14			—			0.14		—
Subtract: Adjustments made to amounts recorded upon the enactment of the U.S. Tax Cuts and Jobs Act, per share	0.06			—			0.15		—
Adjusted Diluted (Loss) Earnings Per Share	$	(0.41	)	$	(0.45	)	$	0.80	$	0.79

FORWARD LOOKING STATEMENTS

This Form 10-Q contains certain forward looking statements, as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended, relating to future events and the financial performance of Sotheby's. Such statements are only predictions and involve risks and uncertainties, resulting in the possibility that the actual events or performance will differ materially from such predictions. Major factors, which we believe could cause the actual results to differ materially from the predicted results in the “forward looking statements” include, but are not limited to:


•	Changes in the global economy, the financial markets, and political conditions of various countries;


•	A change in the level of competition in the global art market;


•	Uncertainty regarding the amount and quality of property available for consignment;


•	Changes in trends in the art market as to which collecting categories and artists are most sought after and in the collecting preferences of individual collectors;


•	The unpredictable demand for art-related financing;


•	Our ability to maintain strong relationships with art collectors;


•	An adverse change in the financial health and/or creditworthiness of our clients;


•	Our ability to retain key personnel;


•	Our ability to successfully execute business plans and strategic initiatives;


•	Our ability to accurately estimate the value of works of art held in inventory or as collateral for SFS loans, as well as those offered under an auction guarantee;


•	An adverse change in the financial health and/or creditworthiness of the counterparties to our auction guarantee risk sharing arrangements;


•	Changes in laws and regulations, including those related to income taxes and sales, use, value-added, and other indirect taxes;


•	Changes in foreign currency exchange rates;


•	Volatility in the share price of Sotheby's common stock; and


•	The ability of Sotheby's and its third party service providers to adequately protect their information systems and the client, employee, and company data maintained in those systems.

See Part II, Item 1A, "Risk Factors."

ITEM 3 : QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We continually evaluate the market risk associated with our financial instruments in the normal course of our business. As of September 30, 2018 , our material financial instruments include: (i) cash and cash equivalents; (ii) restricted cash; (iii) notes receivable; (iv) credit facility borrowings; (v) the York Property Mortgage; (vi) various derivative financial instruments, including an interest rate collar and outstanding forward exchange contracts, as discussed in more detail below; and (vii) unsecured senior notes. See Note 5 of Notes to Condensed Consolidated Financial Statements for information related to notes receivable. See Note 8 of Notes to Condensed Consolidated Financial Statements for information related to credit facility borrowings, the York Property Mortgage, and unsecured senior notes. See Note 9 of Notes to Condensed Consolidated Financial Statements for information regarding our derivative financial instruments.

Interest Rate Risk — On July 1, 2015, we entered into a seven -year, $325 million mortgage loan to refinance the previous mortgage on the York Property. The York Property Mortgage bears interest based on the one -month LIBOR rate plus a spread of 2.25%. In connection with the York Property Mortgage, we entered into a five -year interest rate collar (the "Mortgage Collar"), effective as of July 1, 2017 . The Mortgage Collar effectively fixes the LIBOR rate on the York Property Mortgage at an annual rate of no less than 1.917% , but no more than 3.75% . After taking into account the Mortgage Collar, the annual interest rate of the York Property Mortgage will be between a floor of 4.167% and a cap of 6% for its remaining seven -year term. As of September 30, 2018 , the notional value of the Mortgage Collar was $262.9 million .

We believe that the interest rate risk associated with our other financial instruments is minimal as a hypothetical 10% increase or decrease in interest rates is immaterial to our cash flow, earnings, and the fair value of our financial instruments.

We are exposed to credit-related risks in the event of nonperformance by the counterparties to the Mortgage Collar and the SFS Swap. We do not expect any of these counterparties to fail to meet their obligations, given their investment grade short-term credit ratings.

Foreign Currency Exchange Rate Risk —We utilize forward contracts to hedge cash flow exposures related to foreign currency exchange rate movements, which primarily arise from short-term foreign currency denominated intercompany balances and, to a much lesser extent, foreign currency denominated client payable balances, as well as foreign currency denominated auction guarantee obligations. Such forward exchange contracts are typically short-term with settlement dates less than six months from their inception. In addition, as discussed in more detail below, we regularly enter into foreign currency forward exchange contracts to hedge the net investments in our foreign subsidiaries. All derivative financial instruments are entered into by our global treasury function, which is responsible for monitoring and managing our exposure to foreign currency exchange rate movements. As of September 30, 2018 , the notional value of outstanding forward exchange contracts used to hedge such cash flow exposures was $249.3 million .

As of September 30, 2018 , our foreign subsidiaries held approximately $129.8 million in foreign currency denominated cash balances. A hypothetical 10% strengthening or weakening of the U.S. dollar relative to all other currencies would result in a decrease or increase in our cash flow of approximately $13 million related to such foreign currency balances.

We are exposed to variability in the U.S. Dollar equivalent of the net investments in our foreign subsidiaries and, by extension, the U.S. Dollar equivalent of any foreign earnings repatriated to the U.S. due to potential changes in foreign currency exchange rates. As a result, we regularly enter into foreign currency forward exchange contracts to hedge the net investments in our foreign subsidiaries from which we expect to repatriate earnings to the U.S. As of September 30, 2018 , the aggregate notional value of our outstanding net investment hedge contracts was $4.7 million .

We are exposed to credit-related risks in the event of nonperformance by the counterparties to our outstanding forward exchange contracts. We do not expect any of these counterparties to fail to meet their obligations, given their investment grade short-term credit ratings.

ITEM 4 : CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of September 30, 2018 , the Company has carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) were effective as of September 30, 2018 .

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1 : LEGAL PROCEEDINGS

See Note 15 of Notes to Condensed Consolidated Financial Statements for information related to legal proceedings.

ITEM 1A : RISK FACTORS

There have been no changes to the Risk Factors described in Part 1, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

ITEM 2 : UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information regarding our common stock repurchase program for the three months ended September 30, 2018:



Period	Total number of shares purchased	Average price paid per share			Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under publicly announced plans or programs (a)
July 2018	—	$	—		—	$	133,233,869
August 2018	650,320	$	47.47		650,320	$	102,360,693
September 2018	1,946,684	$	47.69	(b)	1,946,684	$	24,690
Third Quarter 2018	2,597,004	$	47.64	(b)	2,597,004

(a) Represents the dollar value of shares that were available to be repurchased under our publicly announced share repurchase program at the end of each respective monthly period.

(b) On September 11, 2018, we paid $95 million upon entry into an accelerated share repurchase agreement (the "ASR Agreement"). Pursuant to the ASR agreement, on September 12, 2018, we received an initial delivery of 1,792,453 shares of our common stock with a value of $85.5 million , or $47.70 per share.

The average price per share reported in the table above is calculated using the $85.5 million value of the initial shares delivered under the ASR Agreement.

ITEM 4 : MINE SAFETY DISCLOSURES

Not applicable.

ITEM 6 : EXHIBITS


10.1	Master Confirmation - Uncollared Accelerated Share Repurchase Program, dated as of September 11, 2018, between HSBC Bank USA and Sotheby's.


10.2	Letter Agreement between HSBC Bank USA, National Association, as Agent, and 1334 York, LLC dated October 18, 2018.


31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


101.INS	XBRL Instance Document.


101.SCH	XBRL Taxonomy Extension Schema Document.


101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.


101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.


101.LAB	XBRL Taxonomy Extension Label Linkbase Document.


101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	S OTHEBY’S

	By:	/s/ KEVIN M. DELANEY
		Kevin M. Delaney
		Senior Vice President, Controller and Chief Accounting Officer

Date: November 1, 2018

EXHIBIT 10.1

To: Sotheby’s

1334 York Avenue

New York, NY 10021

From: HSBC Bank USA, National Association

Re: Accelerated Stock Repurchases

This master confirmation (this “ Master Confirmation ”), dated as of September 11, 2018 is intended to set forth certain terms and provisions of certain Transactions (each, a “ Transaction ”) entered into from time to time between HSBC Bank USA, National Association (“ Dealer ”) and Sotheby’s (“ Counterparty ”). This Master Confirmation, taken alone, is neither a commitment by either party to enter into any Transaction nor evidence of a Transaction. The additional terms of any particular Transaction shall be set forth in a Supplemental Confirmation in the form of Schedule A hereto (a “ Supplemental Confirmation ”), which shall reference this Master Confirmation and supplement, form a part of, and be subject to this Master Confirmation. This Master Confirmation and each Supplemental Confirmation together shall constitute a “Confirmation” as referred to in the Agreement specified below.

The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the “ Equity Definitions ”), as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Master Confirmation. This Master Confirmation and each Supplemental Confirmation evidence a complete binding agreement between Counterparty and Dealer as to the subject matter and terms of each Transaction to which this Master Confirmation and such Supplemental Confirmation relate and shall supersede all prior or contemporaneous written or oral communications with respect thereto.

This Master Confirmation and each Supplemental Confirmation supplement, form a part of, and are subject to an agreement in the form of the ISDA 2002 Master Agreement (the “ Agreement ”) as if Dealer and Counterparty had executed the Agreement on the date of this Master Confirmation (but without any Schedule except for (i) New York law (without reference to its choice of laws doctrine other than Title 14 of Article 5 of the New York General Obligations Law) as the governing law, (ii) “Multiple Transaction Payment Netting” shall not apply for the purpose of Section 2(c) and (iii) the election that the “Cross Default” provisions of Section 5(a)(vi) shall apply to Dealer and Counterparty, with a “Threshold Amount” of USD 3% of stockholders’ equity applicable Dealer and USD $50 million applicable to Counterparty; provided that (a) the words “, or becoming capable at such time of being declared,” shall be deleted from Section 5(a)(vi) and (b) the following sentence shall be added to the end thereof: “Notwithstanding the foregoing, an Event of Default shall not occur under either (1) or (2) above if (a) the event or condition referred to in (1) or the failure to pay referred to in (2) is caused by an error or omission of an administrative or operational nature, (b) funds were available to such party to enable it to make the relevant payment when due, and (c) such payment is made within two Local Business Days.”

The Transactions shall be the sole Transactions under the Agreement. If there exists any ISDA Master Agreement between Dealer and Counterparty or any confirmation or other agreement between Dealer and Counterparty pursuant to which an ISDA Master Agreement is deemed to exist between Dealer and Counterparty, then notwithstanding anything to the contrary in such ISDA Master Agreement, such confirmation or agreement or any other agreement to which Dealer and Counterparty are parties, the Transactions shall not be considered Transactions under, or otherwise governed by, such existing or deemed ISDA Master Agreement.

All provisions contained or incorporated by reference in the Agreement shall govern this Master Confirmation and each Supplemental Confirmation except as expressly modified herein or in the related Supplemental Confirmation.

If, in relation to any Transaction to which this Master Confirmation and a Supplemental Confirmation relate, there is any inconsistency between the Agreement, this Master Confirmation, any Supplemental Confirmation and the Equity Definitions, the following will prevail for purposes of such Transaction in the order of precedence indicated: (i) such Supplemental Confirmation; (ii) this Master Confirmation; (iii) the Agreement and (iv) the Equity Definitions;.

1. Each Transaction constitutes a Share Forward Transaction for the purposes of the Equity Definitions. Set forth below are the terms and conditions that, together with the terms and conditions set forth in the Supplemental Confirmation relating to any Transaction, shall govern such Transaction.

General Terms:


Trade Date:	For each Transaction, as set forth in the related Supplemental Confirmation.


Buyer:	Counterparty.


Seller:	Dealer.


Shares:	Common stock, par value $0.01 per share, of Counterparty (Ticker: BID ).


Exchange:	New York Stock Exchange


Related Exchange(s):	All Exchanges.

Prepayment\Variable


Obligation:	Applicable.


Prepayment Amount:	For each Transaction, as set forth in the related Supplemental Confirmation.


Prepayment Date:	For each Transaction, as set forth in the related Supplemental Confirmation.

Valuation:

VWAP Price:

For any Exchange Business Day, as determined by the Calculation Agent based on the 10b-18 volume weighted average price per Share for the regular trading session (including any extensions thereof) of the Exchange on such Exchange Business Day (without regard to pre-open or after hours trading outside of such regular trading session for such Exchange Business Day), as published by Bloomberg at 4:15 p.m. New York time (or 15 minutes following the end of any extension of the regular trading session) on such Exchange Business Day, on Bloomberg page “BID <Equity> AQR_SEC” (or any successor thereto), or if such price is not so reported on such Exchange Business Day for any reason or is, in the Calculation Agent’s reasonable discretion, erroneous, such VWAP Price shall be as reasonably determined by the Calculation Agent. For purposes of calculating the VWAP Price, the Calculation Agent will include only those trades that are reported during the period of time during which Counterparty could purchase its own shares under Rule 10b-18(b)(2) and are effected pursuant to the conditions of Rule 10b-18(b)(3), each under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) (such trades, “ Rule 10b-18 eligible transactions ”).


Forward Price:	The average of the VWAP Prices for the Calculation Dates in the Calculation Period, subject to “Valuation Disruption” below.

Forward Price


Adjustment Amount:	For each Transaction, as set forth in the related Supplemental Confirmation.


Calculation Period:	The period from and including the Calculation Period Start Date to and including the Termination Date.

Calculation Period Start


Date:	For each Transaction, as set forth in the related Supplemental Confirmation.

Termination Date:

The Scheduled Termination Date; provided that Dealer shall have the right to designate any Calculation Date on or after the First Acceleration Date to be the Termination Date (the “ Accelerated Termination Date ”) by delivering notice to Counterparty of any such designation prior to 8:00 p.m. New York City time on the Exchange Business Day immediately following the designated Accelerated Termination Date (the “ Accelerated Termination Notice Date ”).


Calculation Dates:	For each Transaction, as set forth in the related Supplemental Confirmation.

Scheduled Termination


Date:	For each Transaction, as set forth in the related Supplemental Confirmation, subject to postponement as provided in “Valuation Disruption” below


First Acceleration Date:	For each Transaction, as set forth in the related Supplemental Confirmation

Valuation Disruption:

The definition of “Market Disruption Event” in Section 6.3(a) of the Equity Definitions is hereby amended by deleting the words “at any time during the one-hour period that ends at the relevant Valuation Time, Latest Exercise Time, Knock-in Valuation Time or Knock-out Valuation Time, as the case may be” and inserting the words “at any time on any Scheduled Trading Day during the Calculation Period or Settlement Valuation Period” after the word “material,” in the third line thereof.

Section 6.3(d) of the Equity Definitions is hereby amended by deleting the remainder of the provision following the term “Scheduled Closing Time” in the fourth line thereof.

Notwithstanding anything to the contrary in the Equity Definitions, to the extent that a Disrupted Day occurs (i) on a Scheduled Trading Day that is a Calculation Date for such Transaction, the Calculation Agent may, in its good faith and commercially reasonable discretion, postpone the Scheduled Termination Date to the next Calculation Date, or (ii) in the Settlement Valuation Period, the Calculation Agent may extend the Settlement Valuation Period by up to one Calculation Date for each Disrupted Day. If any such Disrupted Day is a Disrupted Day because of a Market Disruption Event (or a deemed Market Disruption Event as provided herein), the Calculation Agent shall determine whether (i) such Disrupted Day is a Disrupted Day in full, in which case the VWAP Price for such Disrupted Day shall not be included for purposes of determining the Forward Price or the Settlement Price, as the case may be, or (ii) such Disrupted Day is a Disrupted Day only in part, in which case the VWAP Price for such Disrupted Day shall be determined by the Calculation Agent based on Rule 10b-18 eligible transactions in the Shares on such Disrupted Day effected before the relevant Market Disruption Event occurred and/or after the relevant Market Disruption Event ended, and the weighting of the VWAP Price for the relevant Calculation Dates during the Calculation Period or the Settlement Valuation Period, as the case may be, shall be adjusted in a commercially reasonable manner by the Calculation Agent for purposes of determining the Forward Price or the Settlement Price, as the case may be, with such adjustments based on the duration of any Market Disruption Event and the volume, historical trading patterns and price of the Shares. Any Exchange Business Day on which, as of the date hereof, the Exchange is scheduled to close prior to its normal close of trading shall be deemed not to be an Exchange Business Day; if a closure of the Exchange prior to its normal close of trading on any Exchange Business Day is scheduled following the date hereof, then such Exchange Business Day shall be deemed to be a Disrupted Day in full.

If a Disrupted Day occurs on a Scheduled Trading Day scheduled to be a Calculation Date during the Calculation Period or the Settlement Valuation Period, as the case may be, and each of the five immediately following Calculation Dates is a Disrupted Day, then the Calculation Agent, in its good faith and commercially reasonable discretion, may deem such fifth scheduled Calculation Date to be an Exchange Business Day that is not a Disrupted Day and determine the VWAP Price for such fifth scheduled Calculation Date using its good faith estimate of the value of the Shares on such fifth scheduled Calculation Date based on the volume, historical trading patterns and price of the Shares.

The Calculation Agent shall notify the parties of the occurrence of any Disrupted Day as promptly as practicable, and shall use good faith efforts to notify the parties of any determination pursuant to these Valuation Disruption provisions no later than

the Exchange Business Day immediately following the last consecutive affected Calculation Date.

Settlement Terms:

Settlement Procedures:

If the Number of Shares to be Delivered is positive, Physical Settlement shall be applicable; provided that Dealer does not, and shall not, make the agreement or the representations set forth in Section 9.11 of the Equity Definitions related to the restrictions imposed by applicable securities laws with respect to any Shares delivered by Dealer to Counterparty under any Transaction. If the Number of Shares to be Delivered is negative, then the Counterparty Settlement Provisions in Annex A shall apply.

Number of Shares


to be Delivered:	A number of Shares equal to (x)(a) the Prepayment Amount divided by (b) the Divisor Amount minus (y) the number of Initial Shares.


Divisor Amount:	The greater of (i) the Forward Price minus the Forward Price Adjustment Amount and (ii) $1.00.

Excess Dividend


Amount:	For the avoidance of doubt, all references to the Excess Dividend Amount shall be deleted from Section 9.2(a)(iii) of the Equity Definitions.


Settlement Date:	If the Number of Shares to be Delivered is positive, the date that is one Settlement Cycle immediately following the Termination Date; provided that with respect to any Accelerated Termination Date, the date shall be the date that falls one Settlement Cycle following the Accelerated Termination Notice Date.


Settlement Currency:	USD.


Initial Share Delivery:	Dealer shall deliver a number of Shares equal to the Initial Shares to Counterparty on the Initial Share Delivery Date in accordance with Section 9.4 of the Equity Definitions, with the Initial Share Delivery Date deemed to be a “Settlement Date” for purposes of such Section 9.4.

Initial Share Delivery


Date:	For each Transaction, as set forth in the related Supplemental Confirmation.


Initial Shares:	For each Transaction, as set forth in the related Supplemental Confirmation.

Share Adjustments:


Potential Adjustment Event:	Notwithstanding anything to the contrary in Section 11.2(e) of the Equity Definitions, (i) an Extraordinary Dividend shall not constitute a Potential Adjustment Event and (ii) none of the Transactions pursuant to this Master Confirmation, nor any Permitted OMR Transaction (each as defined below) shall constitute a Potential Adjustment Event.

It shall constitute an additional Potential Adjustment Event if the Scheduled Termination Date for any Transaction is postponed pursuant to “Valuation Disruption” above, in which case the Calculation Agent may, in its commercially reasonable discretion, adjust any relevant terms of any such Transaction as necessary to account for the economic effect on any Transaction of such postponement; provided that the Calculation Agent shall not change the designation of any Calculation Date.


Extraordinary Dividend:	For any calendar quarter, any dividend or distribution on the Shares with an ex-dividend date occurring during such calendar quarter (other than any dividend or

distribution of the type described in Section 11.2(e)(i) or Section 11.2(e)(ii)(A) of the Equity Definitions) (a “Dividend”) the amount or value of which (as determined by the Calculation Agent), when aggregated with the amount or value (as determined by the Calculation Agent) of any and all previous Dividends with ex-dividend dates occurring in the same calendar quarter, exceeds the Ordinary Dividend Amount.


Ordinary Dividend Amount:	For each Transaction, as set forth in the related Supplemental Confirmation.


Method of Adjustment:	Calculation Agent Adjustment.

Agreement Regarding Dividends:

Notwithstanding any other provision of this Master Confirmation, the Definitions or the Agreement to the contrary, in calculating any adjustment pursuant to Article 11 of the Equity Definitions or any amount payable in respect of any termination or cancellation of the Transaction pursuant to Article 12 of the Equity Definitions or Section 6 of the Agreement, the Calculation Agent shall not take into account changes to any dividends since the Trade Date. For the avoidance of doubt, if an Early Termination Date occurs in respect of the Transaction, the amount payable pursuant to Section 6 of the Agreement in respect of such Early Termination Date shall be determined without regard to the difference between actual dividends declared (including Extraordinary Dividends) and expected dividends as of the Trade Date.


Scheduled Ex-Dividend Dates:	For each Transaction for each calendar quarter, as set forth in the related Supplemental Confirmation.

Extraordinary Events:

Consequences of

Merger Events:


(a) Share-for-Share:	Modified Calculation Agent Adjustment.


(b) Share-for-Other:	Cancellation and Payment.


(c) Share-for-Combined:	Component Adjustment.

Tender Offer:

Applicable; provided that (i) Section 12.1(d) of the Equity Definitions shall be amended by replacing “10%” in the third line thereof with “25%”, (ii) Section 12.1(l) of the Equity Definitions shall be amended (x) by deleting the parenthetical in the fifth line thereof, (y) by replacing “that” in the fifth line thereof with “whether or not such announcement” and (z) by adding immediately after the words “Tender Offer” in the fifth line thereof “, and any publicly announced change or amendment to such an announcement (including the announcement of an abandonment of such intention)” and (iii) Sections 12.3(a) and 12.3(d) of the Equity Definitions shall each be amended by replacing each occurrence of the words “Tender Offer Date” by “Announcement Date.”

Consequences of

Tender Offers:


(a) Share-for-Share:	Modified Calculation Agent Adjustment.


(b) Share-for-Other:	Modified Calculation Agent Adjustment.


(c) Share-for-Combined:	Modified Calculation Agent Adjustment.

Nationalization,


Insolvency or Delisting:	Cancellation and Payment; provided that in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it shall also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed,

re-traded or re-quoted on any of the New York Stock Exchange, NYSE MKT, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall be deemed to be the Exchange.

Additional Disruption Events :

Change in Law:

Applicable; provided that Section 12.9(a)(ii) of the Equity Definitions is hereby amended by (i) replacing the phrase “the interpretation” in the third line thereof with the phrase “, or public announcement of, the formal or informal interpretation” and (ii) replacing the word “Shares” where it appears in clause (X) thereof with the words “Hedge Position”; provided further that Section 12.9(a)(ii) of the Equity Definitions is hereby amended by replacing the parenthetical beginning after the word “regulation” in the second line thereof with the words “(including, for the avoidance of doubt and without limitation, (x) any tax law or (y) adoption or promulgation of new regulations authorized or mandated by existing statute)”.


Failure to Deliver:	Applicable.


Insolvency Filing:	Applicable.


Hedging Disruption:	Not Applicable.


Increased Cost of Hedging:	Not Applicable.


Loss of Stock Borrow:	Applicable.


Maximum Stock Loan Rate:	200 basis points per annum.


Increased Cost of Stock Borrow:	Applicable.


Initial Stock Loan Rate:	50 basis points per annum.

Hedging Party:

Dealer or an affiliate of Dealer that is involved in the hedging of the Transaction for all applicable Additional Disruption Events; provided that when making any determination or calculation as “Hedging Party,” Dealer shall act in good faith and in a commercially reasonable manner and shall promptly provide Counterparty with a written explanation describing in reasonable detail any determination or calculation made by it (including any quotations, market data or information from internal sources used in making such determinations, but without disclosing its proprietary models or other information that it determines in good faith is likely to be proprietary or subject to contractual, legal or regulatory obligations to not disclose such information).

Determining Party:

Dealer for all applicable Extraordinary Events and Additional Disruption Events; provided that when making any determination or calculation as “Determining Party,” Dealer shall act in good faith and in a commercially reasonable manner and shall promptly provide Counterparty with a written explanation describing in reasonable detail any determination or calculation made by it (including any quotations, market data or information from internal sources used in making such determinations, but without disclosing its proprietary models or other information that it determines in good faith is likely to be proprietary or subject to contractual, legal or regulatory obligations to not disclose such information).


Additional Termination Event(s):	Notwithstanding anything to the contrary in the Equity Definitions, if, as a result of an Extraordinary Event, any Transaction would be cancelled or terminated (whether in whole or in part) pursuant to Article 12 of the Equity Definitions, an Additional Termination Event (with such terminated Transaction(s) (or portions thereof) being

the Affected Transaction(s) and Counterparty being the sole Affected Party) shall be deemed to occur, and, in lieu of Sections 12.7, 12.8 and 12.9 of the Equity Definitions, Section 6 of the Agreement shall apply to such Affected Transaction(s).

The declaration by the Issuer of:

(i) any Extraordinary Dividend, the ex-dividend date for which occurs or is scheduled to occur during the Relevant Dividend Period, and/or

(ii) any Dividend that is not an Extraordinary Dividend, if the ex-dividend date for such Dividend for any calendar quarter occurring (in whole or in part) during the Relevant Dividend Period will be prior to the Scheduled Ex-Dividend Date for such calendar quarter,

shall in each case constitute an Additional Termination Event, with Counterparty as the sole Affected Party and all Transactions hereunder as the Affected Transactions.


Relevant Dividend Period:	The period from and including the Calculation Period Start Date to and including the Relevant Dividend Period End Date.

Relevant Dividend Period


End Date:	If the Number of Shares to be Delivered is negative, the last day of the Settlement Valuation Period; otherwise, the Termination Date.

Non-Reliance/Agreements and

Acknowledgments Regarding

Hedging Activities/Additional


Acknowledgments:	Applicable.

Transfer:

Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing HSBC to purchase, sell, receive or deliver any Shares or other securities to or from Counterparty, HSBC (the “ Designator ”) may designate any of its Affiliates (the “ Designee ”) to deliver or take delivery, as the case may be, and otherwise perform its obligations to deliver, if any, or take delivery of, as the case may be, any such Shares or other securities in respect of the Transaction, and the Designee may assume such obligations, if any. Such designation shall not relieve the Designator of any of its obligations, if any, hereunder. Notwithstanding the previous sentence, if the Designee shall have performed the obligations, if any, of the Designator hereunder, then the Designator shall be discharged of its obligations, if any, to Counterparty solely to the extent of such performance.

Dealer Payment Instructions: Bank: HSBC BANK USA N.A., New York

[REDACTED]

Counterparty’s Contact Details

for Purpose of Giving Notice: To be provided by Counterparty.

Dealer’s Contact Details for

Purpose of Giving Notice: To be provided by Dealer.

2. Calculation Agent. Dealer. Following any adjustment, determination or calculation by the Calculation Agent or the Determining Party hereunder, upon a request by Counterparty, the Calculation Agent or Determining Party, as the case may be, will provide to Counterparty within three (3) Exchange Business Days following receipt of such request, a report (in a commonly used file format for the storage and manipulation of financial data but without disclosing any proprietary models of the Calculation Agent or other information that it determines in good faith is or is likely to be proprietary or subject to contractual, legal or regulatory obligations not to disclose such information) displaying in reasonable detail the basis for such determination, adjustment or calculation, as the case may be. Whenever the Calculation Agent is required or permitted to exercise discretion in any way, it will do so in good faith and in a commercially reasonable manner. Notwithstanding anything to the contrary in the Equity Definitions,

this Master Confirmation or any Supplemental Confirmation, the Calculation Agent and the Determining Party shall not change the dates identified as Calculation Dates in the relevant Supplemental Confirmation for any Transaction.

3. Additional Mutual Representations, Warranties and Covenants of Each Party . In addition to the representations, warranties and covenants in the Agreement, each party represents, warrants and covenants to the other party that:

(a) Eligible Contract Participant . It is an “eligible contract participant”, as defined in the U.S. Commodity Exchange Act (as amended), and is entering into each Transaction hereunder as principal (and not as agent or in any other capacity, fiduciary or otherwise) and not for the benefit of any third party.

(b) Accredited Investor . Each party acknowledges that the offer and sale of each Transaction to it is intended to be exempt from registration under the Securities Act of 1933, as amended (the “ Securities Act ”), by virtue of Section 4(a)(2) thereof. Accordingly, each party represents and warrants to the other that (i) it has the financial ability to bear the economic risk of its investment in each Transaction and is able to bear a total loss of its investment, (ii) it is an “accredited investor” as that term is defined under Regulation D under the Securities Act and (iii) the disposition of each Transaction is restricted under this Master Confirmation, the Securities Act and state securities laws.

(c) Material Nonpublic Information . Dealer hereby represents and covenants to Counterparty that it has implemented policies and procedures, taking into consideration the nature of its business, reasonably designed to prevent individuals making investment decisions related to any Transaction from having access to material nonpublic information regarding Issuer that may be in possession of other individuals at Dealer.

(d) Rule 10b-18 . With respect to purchases of Shares by Dealer in connection with any Transaction during the Calculation Period for such Transaction (other than any purchases made by Dealer in connection with dynamic hedge adjustments of Dealer’s exposure to any Transaction as a result of any equity optionality contained in such Transaction, including, for the avoidance of doubt, timing optionality), Dealer will use good faith, commercially reasonable efforts to effect such purchases in a manner so that, if such purchases were made by Counterparty, they would meet the requirements of Rule 10b-18(b)(2), (3) and (4), and effect calculations in respect thereof, taking into account any applicable Securities and Exchange Commission no-action letters as appropriate and subject to any delays between the execution and reporting of a trade of the Shares on the Exchange and other circumstances beyond Dealer’s control. Notwithstanding the foregoing, Dealer shall not be responsible for any failure to comply with Rule 10b-18(b)(3) to the extent any transaction that was executed (or deemed to be executed) by or on behalf of Counterparty or an “affiliated purchaser” (as defined under Rule 10b-18) pursuant to a separate agreement is not deemed to be an “independent bid” or an “independent transaction” for purposes of Rule 10b-18(b)(3).

4. Additional Representations, Warranties and Covenants of Counterparty . In addition to the representations, warranties and covenants in the Agreement, Counterparty represents, warrants and covenants to Dealer that:

(a) The purchase or writing of each Transaction and the transactions contemplated hereby will not violate Rule 13e-1 or Rule 13e-4 under the Exchange Act.

(b) As of the date hereof and on the Trade Date of each Transaction, it is not entering into such Transaction (i) on the basis of, and is not aware of, any material non-public information with respect to the Shares, (ii) in anticipation of, in connection with, or to facilitate, a distribution of its securities, a self tender offer or a third-party tender offer or (iii) to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for the Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for the Shares).

(c) Each Transaction is being entered into pursuant to a publicly disclosed Share buy-back program and its Board of Directors has approved the use of derivatives to effect the Share buy-back program.

(d) Without limiting the generality of Section 13.1 of the Equity Definitions, Counterparty acknowledges that neither Dealer nor any of its affiliates is making any representations or warranties or taking any position or expressing any view with respect to the treatment of any Transaction under any accounting standards including ASC Topic 260, Earnings Per Share, ASC Topic 815, Derivatives and Hedging, or ASC Topic 480, Distinguishing Liabilities from Equity and ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity.

(e) As of (i) the date hereof and (ii) the Trade Date for each Transaction hereunder, Counterparty is in compliance in all material respects with its reporting obligations under the Exchange Act.

(f) Counterparty shall report each Transaction as required under the Exchange Act and the rules and regulations thereunder.

(g) The Shares are not, and Counterparty will not cause the Shares to be, subject to a “restricted period” (as defined in Regulation M promulgated under the Exchange Act) at any time during any Regulation M Period (as defined below) for any Transaction unless Counterparty has provided written notice to Dealer of such restricted period not later than the Scheduled Trading Day immediately preceding the first day of such “restricted period”; Counterparty acknowledges that any such notice may cause a Disrupted Day to occur pursuant to Section 5 below; accordingly, Counterparty acknowledges that its delivery of such notice must comply with the standards set forth in Section 6 below; “Regulation M Period” means, for any Transaction, (i) the Relevant Period (as defined below) and (ii) the Settlement Valuation Period, if any, for such Transaction. “Relevant Period” means, for any Transaction, the period commencing on the Calculation Period Start Date for such Transaction and ending on the earlier of (i) the Scheduled Termination Date and (ii) the Additional Relevant Day (as specified in the related Supplemental Confirmation) for such Transaction, or such earlier day as elected by Dealer and communicated to Counterparty on such day (or, if later, the First Acceleration Date without regard to any acceleration thereof pursuant to “Special Provisions for Acquisition Transaction Announcements” below).

(h) As of the Trade Date and the Prepayment Date for each Transaction, Counterparty is not “insolvent” (as such term is defined under Section 101(32) of the U.S. Bankruptcy Code (Title 11 of the United States Code) (the “ Bankruptcy Code ”)) and Counterparty would be able to purchase a number of Shares with a value equal to the Prepayment Amount in compliance with the laws of the jurisdiction of Counterparty’s incorporation.

(i) Counterparty is not and, after giving effect to any Transaction, will not be, required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.

(j) Counterparty has not and will not enter into agreements similar to the Transactions described herein where the relevant calculation or valuation dates in any initial hedge period, calculation period, relevant period or settlement valuation period (each however defined) in such other transaction will coincide at any time (including as a result of extensions in such initial hedge period, calculation period, relevant period or settlement valuation period as provided in the relevant agreements) with the Calculation Dates in any Relevant Period or, if applicable, any Settlement Valuation Period under this Master Confirmation. In the event that any relevant calculation or valuation dates in any initial hedge period, relevant period, calculation period or settlement valuation period in any other similar transaction coincides with any Calculation Dates in any Relevant Period or, if applicable, Settlement Valuation Period under this Master Confirmation as a result of any postponement of the Scheduled Termination Date or extension of the Settlement Valuation Period pursuant to “Valuation Disruption” above, Counterparty shall promptly amend such transaction to avoid any such overlap. For the avoidance of doubt, nothing in this Section 5(j) shall prohibit or apply to the Permitted Purchases (as defined below).

5. Regulatory Disruption . In the event that Dealer concludes, in its good faith, commercially reasonable discretion based on the advice of counsel, that it is appropriate with respect to any legal, regulatory or self-regulatory requirements or related policies and procedures (whether or not such requirements, policies or procedures are imposed by law or have been voluntarily adopted by Dealer (provided that any such requirements, policies or procedures are generally applicable to transactions of this nature and related to compliance with applicable laws for Dealer and applied hereto in a non-discriminatory manner and in a consistent manner to similarly affected transactions generally)), for it to refrain from or decrease any market activity on any Scheduled Trading Day or Days in order to establish, maintain or unwind commercially reasonable Hedge Positions during the Calculation Period or, if applicable, the Settlement Valuation Period, Dealer may by written notice to Counterparty elect to deem that a Market Disruption Event has occurred and will be continuing on such Scheduled Trading Day or Days; provided that if such deemed Market Disruption Event is deemed to have occurred solely in response to such related policies or procedures, such Scheduled Trading Day or Days will each be a Disrupted Day in full. Dealer shall promptly notify Counterparty upon exercising its rights pursuant to this provision and shall subsequently notify Counterparty in writing on the Scheduled Trading Day Dealer reasonably believes in good faith and upon the advice of counsel that it may resume its market activity.

6. 10b5-1 Plan . Counterparty represents, warrants and covenants to Dealer that:

(a) Counterparty is entering into this Master Confirmation and each Transaction hereunder in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1 under the Exchange Act (“ Rule 10b5-1 ”) or any other antifraud or anti-manipulation provisions of the federal or applicable state securities laws and that it has not entered into or altered and will not enter into or alter any corresponding or hedging transaction or position with respect to the Shares. For the avoidance of doubt, any Permitted OMR Transactions (as defined below) shall not fall within the ambit of the previous sentence. Counterparty acknowledges that it is the intent of the parties that each Transaction entered into under this Master Confirmation comply with

the requirements of paragraphs (c)(1)(i)(A) and (B) of Rule 10b5-1 and each Transaction entered into under this Master Confirmation shall be interpreted to comply with the requirements of Rule 10b5-1(c).

(b) Counterparty will not seek to control or influence Dealer’s decision to make any “purchases or sales” (within the meaning of Rule 10b5-1(c)(1)(i)(B)(3)) under any Transaction entered into under this Master Confirmation, including, without limitation, Dealer’s decision to enter into any hedging transactions. Counterparty represents and warrants that it has consulted with its own advisors as to the legal aspects of its adoption and implementation of this Master Confirmation and each Supplemental Confirmation under Rule 10b5-1.

(c) Counterparty acknowledges and agrees that any amendment, modification, waiver or termination of this Master Confirmation or the relevant Supplemental Confirmation must be effected in accordance with the requirements for the amendment or termination of a “plan” as defined in Rule 10b5-1(c). Without limiting the generality of the foregoing, any such amendment, modification, waiver or termination shall be made in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5, and no such amendment, modification or waiver shall be made at any time at which Counterparty or any officer, director, manager or similar person of Counterparty is aware of any material non-public information regarding Counterparty or the Shares.

7. Counterparty Purchases . Counterparty (or any “affiliated purchaser” as defined in Rule 10b-18 under the Exchange Act (“ Rule 10b-18 ”)) shall not, without the prior written consent of Dealer, directly or indirectly purchase any Shares (including by means of a derivative instrument), listed contracts on the Shares or securities that are convertible into, or exchangeable or exercisable for Shares (including, without limitation, any Rule 10b-18 purchases of blocks (as defined in Rule 10b-18)) on any Calculation Date during any Relevant Period or, if applicable, Settlement Valuation Period, except through Dealer or pursuant to the Permitted OMR Transactions.

Notwithstanding the immediately preceding paragraph or anything herein to the contrary, Counterparty may purchase Shares pursuant to any Rule 10b5-1 or Rule 10b-18 repurchase plan entered into with Dealer or an Affiliate of Dealer, so long as, on any Exchange Business Day, purchases under all Dealer Permitted OMR Transactions do not in the aggregate exceed the Designated OMR Threshold specified in the Supplemental Confirmation for such Transaction on such Calculation Date (a “ Permitted OMR Transaction ”). In addition, the preceding paragraph shall not limit (w) Counterparty’s purchases of Shares that do not constitute “Rule 10b-18 purchases” under subparagraphs (ii) or (iii) of Rule 10b-18(a)(13), (x) Counterparty’s purchases of Shares pursuant to employee incentive plans in connection with related equity transactions, or the granting of Shares or options to “affiliated purchasers” (as defined in Rule 10b-18) or the ability of such affiliated purchasers to acquire such Shares or options, in connection with the Counterparty’s compensation policies for directors, officers and employees, (y) withholding of Shares to cover amounts payable (including tax liabilities and/or payment of exercise price) in respect of the exercise of employee stock options or the vesting of restricted stock or stock units and (z) privately negotiated (off-market) transactions by Counterparty, not involving any derivative instrument, to purchase Shares from existing holders of Shares in transactions that do not result in, or relate to, purchases of Shares in the public market by such existing holders in connection with such transactions. Purchases of Shares that are permitted by this paragraph are referred to herein as the “ Permitted Purchases ”).

8. Special Provisions for Merger Transactions . Notwithstanding anything to the contrary herein or in the Equity Definitions:

(a) Counterparty agrees that it:

(i) will not during the period commencing on the Trade Date through the end of the Relevant Period or, if applicable, the Settlement Valuation Period for any Transaction make, or, to the extent within its control, permit to be made, any public announcement (as defined in Rule 165(f) under the Securities Act) of any Merger Transaction or potential Merger Transaction (a “ Public Announcement ”) unless such Public Announcement is made prior to the opening or after the close of the regular trading session on the Exchange for the Shares, except to the extent required by any law, rule or regulation applicable to Counterparty;

(ii) shall promptly (but in any event prior to the next opening of the regular trading session on the Exchange) notify Dealer following any such Public Announcement that such Public Announcement has been made; and

(iii) shall promptly (but in any event prior to the next opening of the regular trading session on the Exchange) provide Dealer with written notice specifying (i) Counterparty’s average daily Rule 10b-18 Purchases (as defined in Rule 10b-18) during the three full calendar months immediately preceding the date of such Public Announcement that were not effected through Dealer or its affiliates and (ii) the number of Shares purchased pursuant to the proviso in Rule 10b-18(b)(4) under the Exchange Act for the three full calendar months preceding the date of such Public Announcement.

Such written notice shall be deemed to be a certification by Counterparty to Dealer that such information is true and correct. In addition, Counterparty shall promptly notify Dealer of the earlier to occur of the completion of the relevant Merger Transaction and the completion of the vote by target shareholders.

(b) Counterparty acknowledges that a Public Announcement may cause the terms of any Transaction to be adjusted or such Transaction to be terminated; accordingly, Counterparty acknowledges that in making any Public Announcement, it must comply with the standards set forth in Section 6 above.

(c) Upon the occurrence of any Public Announcement (whether made by Counterparty or a third party), Dealer in its commercially reasonable discretion may (i) make commercially reasonable adjustments to the terms of any Transaction to account for the economic effect on the Transaction of such Merger Transaction, including, without limitation, the Scheduled Termination Date or the Forward Price Adjustment Amount, and/or suspend the Calculation Period and/or any Settlement Valuation Period, but excluding changing the designation of any Calculation Date (such adjustments to be limited to account for changes in the price of the Shares and volatility, stock loan rate and liquidity relevant to the Shares or to such Transaction) or (ii) if Dealer determines that no adjustment that it could make under clause (i) would produce a commercially reasonable result, treat the occurrence of such Public Announcement as an Additional Termination Event with Counterparty as the sole Affected Party and the Transactions hereunder as the Affected Transactions and with the amount under Section 6(e) of the Agreement determined taking into account the fact that the Calculation Period or Settlement Valuation Period, as the case may be, had fewer Scheduled Trading Days than originally anticipated.

“Merger Transaction” means any merger, acquisition or similar transaction involving a recapitalization as referred to in Rule 10b-18(a)(13)(iv) under the Exchange Act (after giving effect to the exclusions from such reference in clause (A) of Rule 10b-18(a)(13)(iv)).

9. Special Provisions for Acquisition Transaction Announcements . (a) If an Acquisition Transaction Announcement occurs on or prior to the Settlement Date for any Transaction, then the Calculation Agent shall make such adjustments in a commercially reasonable manner, to the exercise, settlement, payment or any other terms of such Transaction as the Calculation Agent determines appropriate, at such time or at multiple times as the Calculation Agent deems appropriate (without duplication), to account for the economic effect on such Transaction of such Acquisition Transaction Announcement.

(b) “ Acquisition Transaction Announcement ” means (i) the announcement of an Acquisition Transaction by Counterparty or any of its subsidiaries, (ii) an announcement that Counterparty or any of its subsidiaries has entered into an agreement or a letter of intent designed to result in an Acquisition Transaction, by Counterparty or any of its subsidiaries or any other party that is a party to such agreement or letter of intent, (iii) the announcement by Counterparty of the intention to solicit or enter into, or to explore strategic alternatives or other similar undertaking that include, an Acquisition Transaction, (iv) any other announcement by Counterparty or any of its subsidiaries that in the reasonable judgment of the Calculation Agent is reasonably likely to result in an Acquisition Transaction (provided that for such purposes the Calculation Agent may take into account the effect of such announcement on the market price of the Shares or options on the Shares) or (v) any announcement of any material change or amendment to any previous Acquisition Transaction Announcement (including any announcement of the abandonment of any such previously announced Acquisition Transaction, agreement, letter of intent, understanding or intention).

(c) “ Acquisition Transaction ” means (i) any Merger Event (for purposes of this definition the definition of Merger Event shall be read with the references therein to “100%” being replaced by “30%” and to “50%” by “75%” and without reference to the clause beginning immediately following the definition of Reverse Merger therein to the end of such definition), Tender Offer or Merger Transaction or any other transaction involving the merger of Counterparty with or into any third party, (ii) the sale or transfer of all or substantially all of the assets of Counterparty, (iii) a recapitalization, reclassification, binding share exchange or other similar transaction, (iv) any acquisition, lease, exchange, transfer, disposition (including by way of spin-off or distribution) of assets (including any capital stock or other ownership interests in subsidiaries) or other similar event by Counterparty or any of its subsidiaries where the aggregate consideration transferable or receivable by or to Counterparty or its subsidiaries exceeds 30% of the market capitalization of Counterparty and (v) any transaction in which Counterparty or its board of directors has a legal obligation to make a recommendation to its shareholders in respect of such transaction (whether pursuant to Rule 14e-2 under the Exchange Act or otherwise).

10. Acknowledgments .

(a) The parties hereto intend for:

(i) each Transaction to be a “securities contract” as defined in Section 741(7) of the Bankruptcy Code, a “swap agreement” as defined in Section 101(53B) of the Bankruptcy Code and a “forward contract” as defined in Section

101(25) of the Bankruptcy Code, and the parties hereto to be entitled to the protections afforded by, among other Sections, Sections 362(b)(6), 362(b)(17), 362(b)(27), 362(o), 546(e), 546(g), 546(j), 555, 556, 560 and 561 of the Bankruptcy Code;

(ii) the Agreement to be a “master netting agreement” as defined in Section 101(38A) of the Bankruptcy Code;

(iii) a party’s right to liquidate, terminate or accelerate any Transaction, net out or offset termination values or payment amounts, and to exercise any other remedies upon the occurrence of any Event of Default or Termination Event under the Agreement with respect to the other party or any Extraordinary Event that results in the termination or cancellation of any Transaction to constitute a “contractual right” (as defined in the Bankruptcy Code); and

(iv) all payments for, under or in connection with each Transaction, all payments for the Shares (including, for the avoidance of doubt, payment of the Prepayment Amount) and the transfer of such Shares to constitute “settlement payments” and “transfers” (as defined in the Bankruptcy Code).

(b) Counterparty acknowledges that:

(i) during the term of any Transaction, Dealer and its affiliates may buy or sell Shares or other securities or buy or sell options or futures contracts or enter into swaps or other derivative securities in order to establish, adjust or unwind its hedge position with respect to such Transaction;

(ii) Dealer and its affiliates may also be active in the market for the Shares and derivatives linked to the Shares other than in connection with hedging activities in relation to any Transaction, including acting as agent or as principal and for its own account or on behalf of customers;

(iii) Dealer shall make its own determination as to whether, when or in what manner any hedging or market activities in Counterparty’s securities shall be conducted and shall do so in a manner that it deems appropriate to hedge its price and market risk with respect to the Forward Price and the VWAP Price;

(iv) any market activities of Dealer and its affiliates with respect to the Shares may affect the market price and volatility of the Shares, as well as the Forward Price and VWAP Price, each in a manner that may be adverse to Counterparty; and

(v) each Transaction is a derivatives transaction in which it has granted Dealer an option; Dealer may purchase shares for its own account at an average price that may be greater than, or less than, the price paid by Counterparty under the terms of the related Transaction.

(i) is an “institutional account” as defined in FINRA Rule 4512(c);

(ii) is capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies involving a security or securities, and will exercise independent judgment in evaluating the recommendations of Dealer or its associated persons, unless it has otherwise notified Dealer in writing; and

(iii) will notify Dealer if any of the statements contained in clause (i) or (ii) of this Section 10(c) ceases to be true.

11. Credit Support Documents . The parties hereto acknowledge that no Transaction hereunder is secured by any collateral that would otherwise secure the obligations of Counterparty herein or pursuant to the Agreement.

12. No Set-off . Obligations under the Agreement shall not be subject to any Set-off by either party against any obligations of the other party or of that other party’s affiliates. “Set-off” means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the relevant payer of an amount is entitled or subject (whether arising under the Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer.

13. Delivery of Shares . Notwithstanding anything to the contrary herein, Dealer may, by prior notice to Counterparty, satisfy its obligation to deliver any Shares or other securities on any date due (an “ Original Delivery Date ”) by making separate deliveries of Shares or such securities, as the case may be, at more than one time on or prior to such Original Delivery Date, so long as the aggregate number of Shares and other securities so delivered on or prior to such Original Delivery Date is equal to the number required to be delivered on such Original Delivery Date.

14. Early Termination . In the event that an Early Termination Date (whether as a result of an Event of Default or a Termination Event) occurs or is designated with respect to any Transaction (except as a result of a Merger Event in which the consideration or proceeds to be paid to holders of Shares consists solely of cash), if either party would owe any amount to the other party pursuant to Section 6(d)(ii) of the Agreement (any such amount, a “ Payment Amount ”), then, in lieu of any payment of such Payment Amount, Counterparty may, no later than the Early Termination Date or the date on which such Transaction is terminated, elect to deliver or for Dealer to deliver, as the case may be, to the other party a number of Shares (or, in the case of a Merger Event, a number of units, each comprising the number or amount of the securities or property that a hypothetical holder of one Share would receive in such Merger Event (each such unit, an “ Alternative Delivery Unit ” and, the securities or property comprising such unit, “ Alternative Delivery Property ”)) with a value equal to the Payment Amount, as determined by the Calculation Agent in a commercially reasonable manner (and the parties agree that, in making such determination of value, the Calculation Agent may take into account a number of factors, including the market price of the Shares or Alternative Delivery Property on the date of early termination and, if such delivery is made by Dealer, the prices at which Dealer purchases Shares or Alternative Delivery Property on any Calculation Date in a commercially reasonable manner to fulfill its delivery obligations under this Section 14); provided that in determining the composition of any Alternative Delivery Unit, if the relevant Merger Event involves a choice of consideration to be received by holders, such holder shall be deemed to have elected to receive the maximum possible amount of cash; and provided further that Counterparty may make such election only if Counterparty represents and warrants to Dealer in writing on the date it notifies Dealer of such election that, as of such date, Counterparty is not aware of any material non-public information concerning the Shares and is making such election in good faith and not as part of a plan or scheme to evade compliance with the federal securities laws. If such delivery is made by Counterparty, paragraphs 2 through 7 of Annex A shall apply as if such delivery were a settlement of the Transaction to which Net Share Settlement applied, the Cash Settlement Payment Date were the Early Termination Date and the Forward Cash Settlement Amount were zero (0) minus the Payment Amount owed by Counterparty.

15. Calculations and Payment Date upon Early Termination . The parties acknowledge and agree that in calculating the Close Out Amount pursuant to Section 6 of the Agreement Dealer may (but need not) determine losses and gains without reference to actual losses and gains incurred or realized but based on expected losses and gains assuming a commercially reasonable (including without limitation with regard to reasonable legal and regulatory guidelines) risk bid were used to determine loss to avoid awaiting the delay associated with closing out any hedge or related trading position in a commercially reasonable manner prior to or sooner following the designation of an Early Termination Date. Notwithstanding anything to the contrary in Section 6(d)(ii) of the Agreement, all amounts calculated as being due in respect of an Early Termination Date under Section 6(e) of the Agreement will be payable on the day that notice of the amount payable is effective; provided that if Counterparty elects to receive Shares or Alternative Delivery Property in accordance with Section 14, such Shares or Alternative Delivery Property shall be delivered on a date selected by Dealer as promptly as practicable.

16. Maximum Share Delivery . Notwithstanding anything to the contrary in this Master Confirmation, in no event shall Dealer be required to deliver any Shares in respect of any Transaction in excess of the Maximum Number of Shares set forth in the Supplemental Confirmation for such Transaction.

17. Automatic Termination Provisions . Notwithstanding anything to the contrary in Section 6 of the Agreement, if a Termination Price is specified in any Supplemental Confirmation, then an Additional Termination Event with Counterparty as the sole Affected Party and the Transaction to which such Supplemental Confirmation relates as the Affected Transaction will automatically occur without any notice or action by Dealer or Counterparty if, on three consecutive Exchange Business Days, the price of the Shares on the Exchange at any time during the regular trading session (including any extensions thereof) of the Exchange (without regard to pre-open or after hours trading outside of such regular trading session for each such Exchange Business Day) falls below such Termination Price, and the Exchange Business Day following such third consecutive Exchange Business Day will be the “Early Termination Date” for purposes of the Agreement.

18. Delivery of Cash . For the avoidance of doubt, nothing in this Master Confirmation shall be interpreted as requiring Counterparty to deliver cash in respect of the settlement of the Transactions contemplated by this Master Confirmation following payment by Counterparty of the relevant Prepayment Amount, except in circumstances where the required cash settlement thereof is permitted for classification of the contract as equity by ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity, as in effect on the relevant Trade Date (including, without limitation, where Counterparty so elects to deliver cash or fails timely to elect to deliver Shares or Alternative Delivery Property in respect of the settlement of such Transactions).

19. Claim in Bankruptcy . Dealer acknowledges and agrees that this Confirmation is not intended to convey to it rights with respect to the Transactions that are senior to the claims of common stockholders in the event of Counterparty’s bankruptcy.

20. Tax .

(a) The parties agree that “Indemnifiable Tax” as defined in Section 14 of the Agreement shall not include (i) any tax imposed or collected pursuant to Sections 1471 through 1474 of the Internal Revenue Code of 1986, as amended (the “ Code ”), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b) of the Code, or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code (a “ FATCA Withholding Tax ”) or (ii) any tax imposed on amounts treated as dividends from sources within the United States under Section 871(m) of the Code (or the United States Treasury Regulations or other guidance issued thereunder). For the avoidance of doubt, a FATCA Withholding Tax is a Tax the deduction or withholding of which is required by applicable law for the purposes of Section 2(d) of the Agreement.

(b) Each party agrees to deliver to the other party one duly executed and completed United States Internal Revenue Service Form W-9 (or successor thereto) or W-8ECI upon execution and delivery of this Agreement; promptly upon reasonable demand by the other party; and promptly upon learning that any such Form previously provided by Counterparty has become obsolete or incorrect.

21. Governing Law . The Agreement, this Master Confirmation, each Supplemental Confirmation and all matters arising in connection with the Agreement, this Master Confirmation and each Supplemental Confirmation shall be governed by, and construed and enforced in accordance with, the laws of the State of New York (without reference to its choice of laws doctrine other than Title 14 of Article 5 of the New York General Obligations Law).

22. Offices .

(a) The Office of Dealer for each Transaction is: Tower 3, 452 5th Avenue, New York, NY 10018

(b) The Office of Counterparty for each Transaction is: Not Applicable. Counterparty is not a Multibranch Party.

23. General Obligations Law of New York . With respect to each Transaction, (i) this Master Confirmation, together with the related Supplemental Confirmation, is a “qualified financial contract”, as such term is defined in Section 5‑701(b)(2) of the General Obligations Law of New York (the “General Obligations Law”); and (ii) this Master Confirmation, together with the related Supplemental Confirmation, constitutes a prior “written contract” as set forth in Section 5‑701(b)(1)(b) of the General Obligations Law, and each party hereto intends and agrees to be bound by this Master Confirmation and the related Supplemental Confirmation.

24. Submission to Jurisdiction . Section 13(b) of the Agreement is deleted in its entirety and replaced by the following:

“Each party hereby irrevocably and unconditionally submits for itself and its property in any suit, legal action or proceeding relating to this Agreement and/or any Transaction, or for recognition and enforcement of any judgment in respect thereof, (each, “ Proceedings ”) to the exclusive jurisdiction of the Supreme Court of the State of New York, sitting in New York County, the courts of the United States of America for the Southern District of New York and appellate courts from any thereof. Nothing in the Master Confirmation, any Supplemental Confirmation or this Agreement precludes either party from bringing Proceedings in any other jurisdiction if (A) the courts of the State of New York or the United States of America for the Southern District of New York lack jurisdiction over the parties or the subject matter of the Proceedings or declines to accept the Proceedings on the grounds of lacking such jurisdiction; (B) the Proceedings are commenced by a party for the purpose of enforcing against the other party’s property, assets or estate any decision or judgment rendered by any court in which Proceedings may be brought as provided hereunder; (C) the Proceedings are commenced to appeal any such court’s decision or judgment to any higher court with competent appellate jurisdiction over that court’s decisions or judgments if that higher court is located outside the State of New York or Borough of Manhattan, such as a federal court of appeals or the U.S. Supreme Court; or (D) any suit, action or proceeding has been commenced in another jurisdiction by or against the other party or against its property, assets or estate and, in order to exercise or protect its rights, interests or remedies under this Agreement, the Master Confirmation or any Supplemental Confirmation, the party (1) joins, files a claim, or takes any other action, in any such suit, action or proceeding, or (2) otherwise commences any

Proceeding in that other jurisdiction as the result of that other suit, action or proceeding having commenced in that other jurisdiction.”

25. Waiver of Jury Trial . EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING RELATING TO THE AGREEMENT, THIS MASTER CONFIRMATION, EACH SUPPLEMENTAL CONFIRMATION, THE TRANSACTIONS HEREUNDER AND ALL MATTERS ARISING IN CONNECTION WITH THE AGREEMENT, THIS MASTER CONFIRMATION AND ANY SUPPLEMENTAL CONFIRMATION AND THE TRANSACTIONS HEREUNDER. EACH PARTY (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF SUCH A SUIT, ACTION OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HAVE BEEN INDUCED TO ENTER INTO THE TRANSACTIONS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS PROVIDED HEREIN.

26. Counterparts . This Master Confirmation may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Master Confirmation by signing and delivering one or more counterparts.

[signature page to the Master Confirmation]

US-DOCS\96736047.4

Counterparty hereby agrees (a) to check this Master Confirmation carefully and immediately upon receipt so that errors or discrepancies can be promptly identified and rectified and (b) to confirm that the foregoing (in the exact form provided by Dealer) correctly sets forth the terms of the agreement between Dealer and Counterparty with respect to any particular Transaction to which this Master Confirmation relates, by manually signing this Master Confirmation or this page hereof as evidence of agreement to such terms and providing the other information requested herein and immediately returning an executed copy to [Insert Dealer].

Yours faithfully,

HSBC BANK USA, NATIONAL ASSOCIATION

By: /s/Suzzette Scott

Authorized Signatory:

Agreed and Accepted By:

Sotheby's

By: /s/ Michael L. Gillis

SVP, Treasurer

Schedule A

SUPPLEMENTAL CONFIRMATION

To: Sotheby’s

1334 York Avenue

New York, NY 10021

From: HSBC Bank USA, National Association

Subject: Accelerated Stock Buyback

Ref. No: [Insert Reference No.]

Date: September 11, 2018

The purpose of this Supplemental Confirmation is to confirm the terms and conditions of the Transaction entered into between HSBC Bank USA, National Association (“ Dealer ”) and Sotheby’s (“ Counterparty ”) (together, the “ Contracting Parties ”) on the Trade Date specified below. This Supplemental Confirmation is a binding contract between Dealer and Counterparty as of the relevant Trade Date for the Transaction referenced below.

1. This Supplemental Confirmation supplements, forms part of, and is subject to the Master Confirmation dated as of September 11, 2018 (the “ Master Confirmation ”) between the Contracting Parties, as amended and supplemented from time to time. All provisions contained in the Master Confirmation govern this Supplemental Confirmation except as expressly modified below.

2. The terms of the Transaction to which this Supplemental Confirmation relates are as follows:


Trade Date:	[____________]

Forward Price Adjustment


Amount:	USD [____]


Calculation Period Start Date:	[_______]


Calculation Dates:	Each Scheduled Trading Day in the Calculation Period or the Settlement Valuation Period, as the case may be, subject to the limitations set forth in “Valuation Disruption” in the Master Confirmation.


Scheduled Termination Date:	[_______]


First Acceleration Date:	[_______]


Prepayment Amount:	USD [_______]


Prepayment Date:	[_______]

Initial Shares:

[_______] Shares; provided that if, in connection with the Transaction, Dealer is unable to borrow or otherwise acquire a number of Shares equal to the Initial Shares for delivery to Counterparty on the Initial Share Delivery Date, the Initial Shares delivered on the Initial Share Delivery Date shall be reduced to such number of Shares that Dealer is able to so borrow or otherwise acquire; provided that if the Initial Shares are reduced as provided in the preceding proviso, then Dealer shall use commercially reasonable efforts to borrow or otherwise acquire an additional number of Shares equal to the shortfall in the Initial Shares delivered on the Initial Share Delivery Date

and shall deliver such additional Shares as promptly as practicable, and all Shares so delivered shall be considered Initial Shares.


Initial Share Delivery Date:	[_______]


Maximum Number of Shares:	[_______]


Ordinary Dividend Amount:	USD [_______]


Scheduled Ex Dividend Dates:	[_______]


Termination Price:	[_______]


Additional Relevant Day:	The Exchange Business Day immediately following the Calculation Period.


Designated OMR Threshold:	[ ]% of the ADTV (as defined in Rule 10b-18).

3. Counterparty represents and warrants to Dealer that neither it nor any “affiliated purchaser” (as defined in Rule 10b-18 under the Exchange Act) has made any purchases of blocks pursuant to the proviso in Rule 10b-18(b)(4) under the Exchange Act during either (i) the four full calendar weeks immediately preceding the Trade Date or (ii) during the calendar week in which the Trade Date occurs.

4. This Supplemental Confirmation may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Supplemental Confirmation by signing and delivering one or more counterparts.

Counterparty hereby agrees (a) to check this Supplemental Confirmation carefully and immediately upon receipt so that errors or discrepancies can be promptly identified and rectified and (b) to confirm that the foregoing (in the exact form provided by Dealer) correctly sets forth the terms of the agreement between Dealer and Counterparty with respect to the Transaction to which this Supplemental Confirmation relates, by manually signing this Supplemental Confirmation or this page hereof as evidence of agreement to such terms and providing the other information requested herein and immediately returning an executed copy to Dealer.

Yours sincerely,

HSBC Bank USA, National Association

By: /s/Suzzette Scott

Authorized Signatory

Agreed and Accepted By:

Sotheby's

By: /s/ Michael L. Gillis

Name: Michael L. Gillis

Title: SVP, Treasurer

Schedule A

COUNTERPARTY SETTLEMENT PROVISIONS

1. The following Counterparty Settlement Provisions shall apply to the extent indicated under the Master Confirmation:


Settlement Currency:	USD.

Settlement Method Election:

Applicable; provided that (i) Section 7.1 of the Equity Definitions is hereby amended by deleting the word “Physical” in the sixth line thereof and replacing it with the words “Net Share” and (ii) the Electing Party may make a settlement method election only if the Electing Party represents and warrants to Dealer in writing on the date it notifies Dealer of its election that, as of such date, the Electing Party is not aware of any material non-public information concerning Counterparty or the Shares and is electing the settlement method in good faith and not as part of a plan or scheme to evade compliance with the federal securities laws.


Electing Party:	Counterparty.

Settlement Method


Election Date:	The earlier of (i) the Scheduled Termination Date and (ii) the second Exchange Business Day immediately following the Accelerated Termination Date (in which case the election under Section 7.1 of the Equity Definitions shall be made no later than 10 minutes prior to the open of trading on the Exchange on such second Exchange Business Day), as the case may be.


Default Settlement Method:	Cash Settlement.

Forward Cash Settlement


Amount:	The Number of Shares to be Delivered multiplied by the Settlement Price.


Settlement Price:	The average of the VWAP Prices for the Calculation Dates in the Settlement Valuation Period, subject to Valuation Disruption as specified in the Master Confirmation.

Settlement Valuation Period:

A number of Calculation Dates required for Dealer to unwind a commercially reasonable hedge position, beginning on the Calculation Date immediately following the earlier of (i) the Scheduled Termination Date or (ii) the Calculation Date immediately following the Termination Date. Dealer shall notify Counterparty of the last Calculation Date of the Settlement Valuation Period on or prior to the Exchange Business Day immediately following such last Calculation Date.


Cash Settlement:	If Cash Settlement is applicable, then Buyer shall pay to Seller the absolute value of the Forward Cash Settlement Amount on the Cash Settlement Payment Date.

Cash Settlement


Payment Date:	The date one Settlement Cycle following the last day of the Settlement Valuation Period.

Net Share Settlement


Procedures:	If Net Share Settlement is applicable, Net Share Settlement shall be made in accordance with paragraphs 2 through 7 below.

2. Net Share Settlement shall be made by delivery on the Cash Settlement Payment Date of a number of Shares satisfying the conditions set forth in paragraph 3 below (the “ Registered Settlement Shares ”), or a number of Shares not satisfying such conditions (the “ Unregistered Settlement Shares ”), in either case with a value equal to the absolute value of the Forward Cash Settlement Amount, with such Shares’ value determined by the Calculation Agent in a commercially reasonable manner (which

value shall, in the case of Unregistered Settlement Shares, take into account a customary, commercially reasonable illiquidity discount), in each case as determined by the Calculation Agent.

3. Counterparty may only deliver Registered Settlement Shares pursuant to paragraph 2 above if:

(a) a registration statement covering public resale of the Registered Settlement Shares by Dealer (the “ Registration Statement ”) shall have been filed with the Securities and Exchange Commission under the Securities Act and been declared or otherwise become effective on or prior to the date of delivery, and no stop order shall be in effect with respect to the Registration Statement; a printed prospectus relating to the Registered Settlement Shares (including any prospectus supplement thereto, the “ Prospectus ”) shall have been delivered to Dealer, in such quantities as Dealer shall reasonably have requested, on or prior to the date of delivery;

(b) the form and content of the Registration Statement and the Prospectus (including, without limitation, any sections describing the plan of distribution) shall be reasonably satisfactory to Dealer;

(c) as of or prior to the date of delivery, Dealer and its agents shall have been afforded a reasonable opportunity to conduct a due diligence investigation with respect to Counterparty customary in scope for underwritten offerings of equity securities by issuers of comparable size to Counterparty and in the same industry as Counterparty and the results of such investigation are satisfactory to Dealer, in its good faith discretion, subject to customary confidentiality undertakings on the part of such party; and

(d) as of the date of delivery, an agreement (the “ Underwriting Agreement ”) shall have been entered into with Dealer in connection with the public resale of the Registered Settlement Shares by Dealer substantially similar to underwriting agreements customary for underwritten offerings of equity securities by issuers of comparable size to Counterparty and in the same industry as Counterparty, in form and substance reasonably satisfactory to Dealer, which Underwriting Agreement shall include, without limitation, provisions substantially similar to those contained in such underwriting agreements relating, without limitation, to the indemnification of, and contribution in connection with the liability of, Dealer and its affiliates and the provision of customary opinions, accountants’ comfort letters and lawyers’ negative assurance letters.

4. If Counterparty delivers Unregistered Settlement Shares pursuant to paragraph 2 above:

(a) all Unregistered Settlement Shares shall be delivered to Dealer (or any affiliate of Dealer designated by Dealer) pursuant to the exemption from the registration requirements of the Securities Act provided by Section 4(a)(2) thereof;

(b) as of or prior to the date of delivery, Dealer and any potential purchaser of any such shares from Dealer (or any affiliate of Dealer designated by Dealer) identified by Dealer shall be afforded a commercially reasonable opportunity to conduct a due diligence investigation with respect to Counterparty customary in scope for private placements of equity securities by issuers of comparable size to Counterparty and in the same industry as Counterparty (including, without limitation, the right to have made available to them for inspection all financial and other records, pertinent corporate documents and other information reasonably requested by them), subject to customary confidentiality undertakings on the part of such party;

(c) as of the date of delivery, Counterparty shall enter into an agreement (a “ Private Placement Agreement ”) with Dealer (or any affiliate of Dealer designated by Dealer) in connection with the private placement of such shares by Counterparty to Dealer (or any such affiliate) and the private resale of such shares by Dealer (or any such affiliate), substantially similar to private placement purchase agreements customary for private placements of equity securities by issuers of comparable size to Counterparty and in the same industry as Counterparty, in form and substance commercially reasonably satisfactory to Dealer, which Private Placement Agreement shall include, without limitation, provisions substantially similar to those contained in such private placement purchase agreements relating, without limitation, to the indemnification of, and contribution in connection with the liability of, Dealer and its affiliates and the provision of customary opinions, accountants’ comfort letters and lawyers’ negative assurance letters, and shall provide for the payment by Counterparty of all commercially reasonable out of pocket fees and expenses in connection with such resale, including all commercially reasonable fees and expenses of outside counsel for Dealer, and shall contain customary representations, warranties, covenants and agreements of Counterparty reasonably necessary or advisable to establish and maintain the availability of an exemption from the registration requirements of the Securities Act for such resales; and

(d) in connection with the private placement of such shares by Counterparty to Dealer (or any such affiliate) and the private resale of such shares by Dealer (or any such affiliate), Counterparty shall, if so requested by Dealer, prepare, in cooperation with Dealer, a private placement memorandum in form and substance reasonably satisfactory to Dealer

5. Dealer, itself or through an affiliate (the “ Selling Agent ”) or any underwriter(s), will sell, in a commercially reasonable manner, all, or such lesser portion as may be required hereunder, of the Registered Settlement Shares or Unregistered Settlement Shares and any Makewhole Shares (as defined below) (together, the “ Settlement Shares ”) delivered by Counterparty to Dealer pursuant to paragraph 6 below commencing on the Cash Settlement Payment Date and continuing until the date on which the aggregate Net Proceeds (as such term is defined below) of such sales, as determined by Dealer in a commercially reasonable manner, is equal to the absolute value of the Forward Cash Settlement Amount (such date, the “ Final Resale Date ”). If the proceeds of any sale(s) made by Dealer, the Selling Agent or any underwriter(s), net of any commercially reasonable fees and commissions (including, without limitation, underwriting or placement fees) customary for similar transactions under the circumstances at the time of the offering, together with commercially reasonable carrying charges and expenses incurred in connection with the offer and sale of the Shares (including, but without limitation to, the covering of any over-allotment or short position (syndicate or otherwise)) (the “ Net Proceeds ”) exceed the absolute value of the Forward Cash Settlement Amount, Dealer will refund, in USD, such excess to Counterparty on the date that is three (3) Currency Business Days following the Final Resale Date, and, if any portion of the Settlement Shares remains unsold, Dealer shall return to Counterparty on that date such unsold Shares.

6. If the Calculation Agent determines that the Net Proceeds received from the sale of the Registered Settlement Shares or Unregistered Settlement Shares or any Makewhole Shares, if any, pursuant to this paragraph 6 are less than the absolute value of the Forward Cash Settlement Amount (the amount in USD by which the Net Proceeds are less than the absolute value of the Forward Cash Settlement Amount being the “ Shortfall ” and the date on which such determination is made, the “ Deficiency Determination Date ”), Counterparty shall on the Calculation Date next succeeding the Deficiency Determination Date (the “ Makewhole Notice Date ”) deliver to Dealer, through the Selling Agent, a notice of Counterparty’s election that Counterparty shall either (i) pay an amount in cash equal to the Shortfall on the day that is two (2) Currency Business Days after the Makewhole Notice Date, or (ii) deliver additional Shares. If Counterparty elects to deliver to Dealer additional Shares, then Counterparty shall deliver additional Shares in compliance with the terms and conditions of paragraph 3 or paragraph 4 above, as the case may be (the “ Makewhole Shares ”), on the second Clearance System Business Day which is also a Calculation Date following the Makewhole Notice Date in such number as the Calculation Agent reasonably believes would have a market value on that Calculation Date equal to the Shortfall. Such Makewhole Shares shall be sold by Dealer in accordance with the provisions above; provided that if the sum of the Net Proceeds from the sale of the originally delivered Shares and the Net Proceeds from the sale of any Makewhole Shares is less than the absolute value of the Forward Cash Settlement Amount then Counterparty shall, at its election, either make such cash payment or deliver to Dealer further Makewhole Shares until such Shortfall has been reduced to zero.

7. Notwithstanding the foregoing, in no event shall the aggregate number of Settlement Shares and Makewhole Shares be greater than the Reserved Shares minus the amount of any Shares actually delivered by Counterparty under any other Transaction(s) under this Master Confirmation (the result of such calculation, the “ Capped Number ”). Counterparty represents and warrants (which shall be deemed to be repeated on each day that a Transaction is outstanding) that the Capped Number is equal to or less than the number of Shares determined according to the following formula:

A - B

Where A = the number of authorized but unissued shares of the Counterparty that are not reserved for future issuance on the date of the determination of the Capped Number; and

B = the maximum number of Shares required to be delivered to third parties if Counterparty elected Net Share Settlement of all transactions in the Shares (other than Transactions in the Shares under this Master Confirmation) with all third parties that are then currently outstanding and unexercised.

“Reserved Shares” means initially, [________] Shares. The Reserved Shares may be increased or decreased in a Supplemental Confirmation.

EXHIBIT 10.2

HSBC BANK USA, NATIONAL ASSOCIATION , as Agent

452 Fifth Avenue

New York, New York 10018

As of October 18, 2018

1334 York, LLC

1334 York Avenue

New York, New York 10021

Re: Sotheby’s - 1334 York Avenue, New York, New York

Dear Ladies and Gentlemen:

Reference is hereby made to that certain loan in the original principal amount of $325,000,000.00 (the “ Loan ”) made by the Lenders (as defined herein) to 1334 York Avenue, LLC, a Delaware limited liability company (“ Borrower ”), pursuant to that certain Loan Agreement, dated as of July 1, 2015, among HSBC BANK USA NATIONAL ASSOCIATION , a banking association chartered under the laws of the United States of America (“ HSBC ”), as agent (“ Agent ”) for itself and the other co-lenders as may exist from time to time (collectively with HSBC in its individual capacity as a lender, “ Lenders ”), Borrower and the Lenders signatory thereto, as amended by that certain First Amendment to Loan Agreement and Guaranty of Recourse Carveouts (the “ First Amendment ”), dated as of June 21, 2017, among Agent, Borrower, Guarantor and the Lenders (collectively, and as the same may be further amended from time to time, the “ Loan Agreement ”). Borrower, Guarantor and Agent on behalf of Lenders hereby agree that the terms of the Loan Agreement and Guaranty, as applicable, shall be modified as set forth in this letter. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Loan Agreement.


1.	Pursuant to Section 4.1.12(d) of the Loan Agreement and Section 4.2 of the Guaranty, Guarantor is required to maintain a Net Worth of $325,000,000.00. The definition of “Net Worth” in the Loan Agreement and the Guaranty, as applicable, are amended as follows:

(a) The definition of “Net Worth” in Section 1.1 of the existing Loan Agreement is deleted in its entirety and replaced with the following: “ Net Worth ” shall mean (i) the excess of total assets over total liabilities (as presented on Guarantor’s financial statements delivered in accordance with Section 4.1.7), each determined in accordance with GAAP provided that depreciation and amortization of equipment and goodwill shall not be deducted from total assets plus (ii) the balance included under the caption “treasury stock shares, at cost” in the shareholder’s equity section of the Guarantor’s balance sheet.”

(b) The definition of “ Net Worth ” in Section 1.2 of the existing Guaranty is deleted in its entirety and replaced with the following: “ Net Worth ” shall mean (i) the excess of total assets over total liabilities (as presented on Guarantor’s financial statements delivered in accordance with Section 4.1 hereof), each determined in accordance with GAAP provided that depreciation and amortization of equipment and goodwill shall not be deducted from total assets plus (ii) the balance included under

the caption “treasury stock shares, at cost” in the shareholder’s equity section of the Guarantor’s balance sheet.”

Pursuant to Section 4.1.15(a) of the existing Loan Agreement, Borrower is required to maintain an Interest Rate Protection Agreement with a notional amount equal to the Loan Amount. Agent hereby agrees that any Interest Rate Protection Agreement which Borrower purchases (or any existing Interest Rate Protection Agreement which Borrower has entered into) shall have a notional amount equal to at least ninety percent (90%) of the then outstanding principal balance of the Loan (“ Minimum Notional Amount ”). To the extent that the Interest Rate Protection Agreement then in place has a notional amount which is reduced to an amount that is less than the Minimum Notional Amount, Borrower shall, within thirty (30) days of the date that the notional amount has been so reduced, at Borrower’s option, either (a) prepay the Loan in part, without any premium or penalty, such that the outstanding balance of the Loan is equal to at least the Minimum Notional Amount and/or (b) modify the Interest Rate Protection Agreement then in place (“ Existing Interest Rate Protection Agreement ”) and/or in addition to the Existing Interest Rate Protection Agreement, enter into any additional or supplemental Interest Rate Protection Agreement which complies with Section 4.1.15 of the existing Loan Agreement and which is collaterally assigned to Agent, for the Ratable benefit of the Lenders (individually and/or in the aggregate, “ Additional Interest Rate Protection Agreement ” and, together with the Existing Interest Rate Protection Agreement, “ Interest Rate Protection Agreement ”), such that the notional amount of the Interest Rate Protection Agreement, in the aggregate, shall be equal to at least the then existing Minimum Notional Amount.

This letter agreement is not intended to, and shall not be construed to, effect a novation, and except as expressly provided in this letter agreement, neither the Loan Agreement nor any of the other Loan Documents have been modified, amended, cancelled, terminated, released, satisfied, superseded or otherwise invalidated by execution of this letter agreement. In the event of any conflict between the terms of this letter agreement and the terms of the Loan Agreement or any of the other Loan Documents, the terms of this letter agreement shall control. All references in the Loan Documents to the Loan Agreement shall mean the Loan Agreement, as modified by this letter, as the same may hereafter be supplemented, amended, modified, extended, renewed, restated or replaced from time to time. All references in the Loan Documents to the Guaranty shall mean the Guaranty, as modified by this letter, as the same may hereafter be supplemented, amended, modified, extended, renewed, restated or replaced from time to time.


4.	This letter agreement shall be governed by, and construed in accordance with, the laws of the State of New York pursuant to Section 5-1401 of the General Obligations Law without regard to its principles of conflicts of laws.


5.	Borrower shall pay to Agent and Lenders all reasonable out-of-pocket costs and expenses incurred by Agent and Lenders in connection with this letter agreement (including, without limitation, reasonable attorneys’ fees and disbursements and filing and recording costs).


6.	This letter agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and permitted assigns.


7.	This letter agreement contains the entire agreement of the parties hereto in respect of the transactions contemplated hereby, and all prior agreements among or between such parties, whether oral or written are superseded by the terms of this letter agreement.

This letter agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which, when taken together, shall constitute one and the same instrument and shall become effective when copies hereof, when taken together, bear the signatures of each of the parties hereto and it shall not be necessary in making proof of this instrument to produce or account for original signatures or more than one of such fully executed counterparts. Electronically delivered copies of signature pages hereto shall be deemed to have the same effect as originals thereof.

[SIGNATURE PAGES TO FOLLOW]

Sincerely,

HSBC BANK USA, NATIONAL

ASSOCIATION, as Agent

By: /s/Thomas Van Haren

Name: Thomas Van Haren

Title: Vice President

BORROWER:

1334 YORK, LLC

By: /s/Michael L. Gillis

Name: Michael L. Gillis

Title: SVP, Treasurer

Guarantor hereby consents to and acknowledges this letter agreement and agrees that neither this letter agreement nor any documents entered into in connection with this letter agreement shall (i) constitute, or be deemed to constitute, a novation, release, waiver or satisfaction of Guarantor’s obligations under the Guaranty, the Environmental Indemnity or any other Loan Documents or (ii) impair, reduce or otherwise affect the nature of the obligations of Guarantor under the Guaranty, except as specifically provided in the letter agreement, or the Environmental Indemnity.

Guarantor acknowledges that the Guaranty, as modified by this letter agreement, and the Environmental Indemnity and the obligations of Guarantor contained therein are hereby ratified and confirmed, are continuing and remain in full force and effect and constitute the valid and legally binding obligations of Guarantor, except to the extent modified pursuant to this letter agreement.

SOTHEBY’S, a Delaware corporation

By: /s/Michael L. Gillis

Name: Michael L. Gillis

Title: SVP, Treasurer

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas S. Smith, Jr., certify that:


(1)	I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2018 of Sotheby’s;


(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


(4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


(5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



/s/ THOMAS S. SMITH, JR.
Thomas S. Smith, Jr.
President and Chief Executive Officer
Sotheby’s
November 1, 2018

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Goss, certify that:


(1)	I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2018 of Sotheby’s;


(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


(4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


(5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



/s/ MICHAEL GOSS
Michael Goss
Executive Vice President and Chief Financial Officer
Sotheby’s
November 1, 2018

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Sotheby’s on Form 10-Q for the period ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas S. Smith, Jr., certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant.



/s/ THOMAS S. SMITH, JR.
Thomas S. Smith, Jr.
President and Chief Executive Officer
Sotheby’s
November 1, 2018

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Sotheby’s on Form 10-Q for the period ended September 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Goss, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant.



/s/ MICHAEL GOSS
Michael Goss
Executive Vice President and Chief Financial Officer
Sotheby’s
November 1, 2018