SOTHEBYS (Form: 10-K, Received: 02/28/2019 07:28:37)



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


FORM 10-K



(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018.
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM TO
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		10021
New York, New York		(Zip Code)
(Address of principal executive offices)

	(212) 606-7000
	(Registrant’s telephone number, including area code)
	Securities registered pursuant to Section 12(b) of the Act:

	Title of each class		Name of each exchange on which registered


	Common Stock,		New York Stock Exchange
	$0.01 Par Value

	Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of 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 and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

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	o
Non-accelerated filer	o	Smaller reporting company	o
Emerging growth company	o

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. o

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

As of June 30, 2018, the aggregate market value of the 44,469,032 shares of Common Stock held by non-affiliates of the registrant was $2,416,447,198 based upon the closing price ($54.34) on the New York Stock Exchange composite tape on such date for the Common Stock.

As of February 26, 2019, there were outstanding 46,351,475 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement for the 2019 annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS



		Page

PART I

Item 1.	Description of Business	3
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	14
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	Mine Safety Disclosures	15

PART II

Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data	19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 8.	Financial Statements and Supplementary Data	56
	Report of Independent Registered Public Accounting Firm	56
	Consolidated Income Statements	57
	Consolidated Statements of Comprehensive Income	58
	Consolidated Balance Sheets	59
	Consolidated Statements of Cash Flows	60
	Consolidated Statements of Changes in Shareholders’ Equity	61
	Notes to Consolidated Financial Statements	62
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	113
Item 9A.	Controls and Procedures	113

	Report of Independent Registered Public Accounting Firm	114

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	115
Item 11.	Executive Compensation	116
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	116
Item 13.	Certain Relationships and Related Transactions and Director Independence	116
Item 14.	Principal Accountant Fees and Services	116

PART IV

Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	117

	Schedule II	120
	Signatures	121

PART I

ITEM 1 : DESCRIPTION OF BUSINESS

Company Overview

Sotheby’s has been uniting collectors with world-class works of art ¹ since 1744. Today, Sotheby's offers property from more than 70 collecting categories to clients from 130 countries and presents auctions in ten different salesrooms, including New York, London, Hong Kong and Paris, and Sotheby’s BidNow program allows clients to view all auctions live online and place bids from anywhere in the world. 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.

As successor to a business that began in 1744, Sotheby's is the oldest company listed on the New York Stock Exchange ("NYSE") (symbol: BID) and is the only publicly traded investment opportunity in the art market. Sotheby's is incorporated in Delaware.

Business Organization

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 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”), which was acquired on January 11, 2016 and 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. (See Note 3 of Notes to Consolidated Financial Statements for information regarding our segment reporting.)

Agency Segment

As compensation for our auction services, we earn a commission from both the buyer ("buyer's premium") and, to a lesser extent, the seller ("seller's commission") (collectively, "auction commission revenue"), 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 2018 , 2017 , and 2016 , auction commission revenues accounted for approximately 74% , 66% , and 75%, respectively, of our consolidated revenues. 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 its exclusive agent in the transaction. In 2018 , 2017 , and 2016 , private sale commission revenues accounted for approximately 8%, 6%, and 6%, respectively, of our consolidated revenues.

__________

¹ In this report, the term "works of art" is meant to include authenticated fine art, decorative art, jewelry, wine, and collectibles, and may also be referred to as "art," "artwork," or "property."

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. Alternatively, the consignor may reoffer the property at one of our future auctions or negotiate a private sale with us acting as their agent. 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 sale proceeds whether or not the buyer makes payment.

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.

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. In exchange for accepting a share of the financial exposure under the auction guarantee, our counterparties to these arrangements may receive a fee for providing the irrevocable bid, and are generally entitled to receive a share of our auction commission if the property sells and/or a share of the overage, if any.

Auction guarantees are an important financial incentive which may significantly influence an art collector's decision on whether and how to sell their property. As such, auction guarantees provide us the opportunity to secure highly sought-after consignments, often well in advance of a specific selling season. When we evaluate the performance of our portfolio of auction guarantees, we take into consideration the overall net revenues earned on the transaction, which includes our auction commission revenue, as well as any overage or shortfall. Depending on the mix of items subject to an auction guarantee, in advance of peak selling seasons, a small number of guaranteed items may represent a substantial portion of the aggregate amount of outstanding auction guarantees.

(See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for a discussion of the overall financial performance of the Agency segment for the years ended December 31, 2018 , 2017 , and 2016 . See Note 21 of Notes to Consolidated Financial Statements for additional information about auction guarantees.)

Sotheby's Financial Services

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. A considerable number of traditional lending sources offer conventional loans at a lower cost to borrowers than the average cost of loans offered by SFS and many traditional lenders offer borrowers a variety of integrated financial services such as wealth management. Few lenders, however, are willing to accept works of art as sole collateral for loans, as they do not have access to market information allowing them to effectively appraise collateral during the life of a loan, nor do they have the wherewithal to efficiently monetize loan collateral.

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 an initial maturity of one year with an option to renew for an additional year, 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.

Our previous credit agreements provided for dedicated asset-based revolving credit facilities for the Agency segment (the "Agency Credit Facility") and SFS (the "SFS Credit Facility"). Beginning in the first quarter of 2014 and into the third quarter of 2017, the SFS Credit Facility was used to fund a significant portion of client loans. 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, and on June 26, 2018, we refinanced our previous credit agreements. Our new credit agreement combined the Agency Credit Facility and SFS Credit Facility into one asset-based revolving credit facility. 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.

(See "Sotheby's Financial Services" under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for information on the financial performance of SFS for the years ended December 31, 2018 , 2017 , and 2016 . See Note 5 of Notes to Consolidated Financial Statements for information about the SFS loan portfolio.)

The Art Market

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 (see "Converting Consignment Opportunities" below). 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.

The most recent Art Basel & UBS Art Market Repor t estimates that global art sales totaled $64 billion ² in 2017 with private sales by dealers accounting for 53% ² of the market and public auctions accounting for 47% ² . This level of global art sales represents a 12% ² increase when compared to 2016, when global art sales totaled $57 billion ² , and a compound annual growth rate of 5.5% ² when compared to 2002, when global art sales totaled $27 billion. The growth since 2002 is indicative of the increasingly global nature of the art market, with a rise in cross-border transactions and a more global distribution network, and a significant increase in global wealth, due in part to rising affluence in newly industrialized countries.

Seasonality

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 ³ represented 76% , 80% , and 82% of our total annual Net Auction Sales in 2018 , 2017 , and 2016 , respectively, with auction commission revenues comprising approximately 74% , 66% , and 75% of our total revenues in each of these years. 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.

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. (See Note 28 of Notes to Consolidated Financial Statements for our quarterly results for the years ended December 31, 2018 and 2017 .)

__________

² Source: "The Art Market 2018," an Art Basel & UBS Report.

³ 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.

Competition

Artworks are sold primarily through the major auction houses, numerous art dealers, smaller auction houses, and also directly between private collectors. In recent years, a growing number of art dealers and private collectors also now buy and sell artworks at art fairs such as the The European Fine Art Fair ("TEFAF"), Art Basel, and the Frieze art fairs.

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 Council International Auction Company Ltd.

In 2018 , 2017 , and 2016 , Sotheby's and Christie's together totaled approximately $11.4 billion, $10.5 billion, and $8.7 billion, respectively, of Aggregate Auction Sales ⁴ , of which we accounted for $5.3 billion (46%), $4.6 billion (44%), and $4.2 billion (49%), respectively.

Converting Consignment Opportunities

The ability to source high quality and valuable property for consignment is highly dependent on the meaningful institutional and personal relationships we have with our clients, which sometimes span generations. As these relationships develop over time, we provide our clients with strategic guidance on collection identity, development and acquisition, and then help them navigate the financial, logistical and personal considerations involved with deciding to sell their valued artworks. A client's decision to sell their art may be part of their long-term financial planning process or could occur suddenly as a result of an unexpected change in circumstances. The timing of when consignment opportunities may arise is often unpredictable and not within our control. As a result, it is difficult to predict with any certainty the supply of high quality and valuable property available for consignment in advance of peak selling seasons.

The more valuable the property, the more likely it is that a seller of art will solicit proposals from more than one potential purchaser or agent. The primary options available to a seller of art are: (i) sale or consignment to an art dealer; (ii) sale or consignment to an auction house; (iii) private sale to a collector or museum; or (iv) consignment to an internet-based service.

A complex array of factors may influence a seller's decision to favor one of these options over the others, and may include any or all of the following considerations:



Factors Influencing a Seller's Decision
- The level and breadth of expertise of the art dealer or auction house with respect to the property.	- The desirability of a public auction in order to achieve the maximum possible price.
- The extent of the prior relationship, if any, between the art dealer or auction house and its staff and the seller, and ease of transacting with such parties.	- The amount of cash offered by an art dealer, auction house or other purchaser to purchase the property outright, which is greatly influenced by the amount and cost of capital resources available to such parties.
- The reputation and historic level of achievement by the art dealer or auction house in attaining high sale prices in the property's specialized category.	- The availability and terms of financial incentives offered by auction houses, including auction guarantees, short-term financing, and auction commission sharing arrangements.
- Recommendations by third parties consulted by the seller.	- The commission charged by art dealers or auction houses to sell a work on consignment.
- The client's desire for privacy.	- The cost, style, and extent of pre-sale marketing and promotion to be undertaken by an art dealer or auction house.
- The level of pre-sale estimates.	- The availability and extent of related services, such as tax or insurance appraisals.

____________

⁴ 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.

Regulation of the Art Market

Regulation of the art market varies from jurisdiction to jurisdiction. In many jurisdictions, we are subject to laws and regulations, including, but not limited to, import and export regulations, cultural property regulations, data protection and privacy laws, anti-money laundering laws, antitrust laws, copyright and resale royalty laws, laws and regulations involving sales, use, value-added and other indirect taxes, and regulations related to the use of real estate. In addition, we are subject to local auction regulations, such as New York City Auction Regulations Subchapter M of Title 6 §§ 2-121-2-125, et. seq. Such regulations currently do not impose a material impediment to our business, but do affect the art market generally. A material adverse change in such regulations, such as the American Royalties Too Act of 2014 introduced in the U.S. Congress, which would impose a 5% resale royalty (with a cap of $35,000) on sales of art through large auction houses, could affect our business. Additionally, export and import laws and cultural property ownership laws could affect the availability of certain kinds of property for sale at our principal auction locations, increase the cost of moving property to such locations, or expose us to legal claims or government inquiries. We have a Compliance Department which, amongst other activities, develops and updates compliance policies, and audits, monitors, and provides training to our employees on compliance with many of these laws and regulations.

Developing Technology to Attract New Clients and Create Value

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. The elements of these investments are:


•	Digital Infrastructure —We are developing a new auction engine and enhancing our digital capabilities to enable a paperless auction room. We have also recently installed a new content management system which will provide improved stability, depth, search optimization, and the potential for innovation.


•	Data —We are collating and standardizing our various collections of data, including the Sotheby's Mei Moses Index, our expanded customer relationship management system, object databases, and social media programs. The results of this process will establish the foundation for machine learning and other products that will enhance our ability to serve clients.


•	Basic Digital Services —We have been investing in basic digital services over the past three years. These basic services include a refreshed public website, an upgraded mobile app with payment and bidding capabilities, an upgraded retail wine store, and the acquisition of Viyet, now relaunched as Sotheby's Home, an online marketplace for interior design.


•	Content Marketing —We are continuing to develop a range of rich content to engage current and potential clients. In 2018, we produced and distributed more than 2,000 original pieces, including 373 videos, viewed over 28 million times. More than 15,000 visitors who viewed this content registered to bid in our auctions and a similar number requested estimates for consignments.


•	Advanced Digital Services —We are developing a range of advanced digital services that we believe will serve as a platform for future growth and efficiencies. Such services include our online estimates platform, which went live in 2017, and an improved appraisal interface, which is expected to launch in 2019.

An important measure of the effectiveness of our technology investments is the level of online sales. For the purposes of this discussion, the term "online sales" represents the aggregate sale price of lots purchased through online bids at our live auctions and in our online-only auctions, as well as items purchased through our retail websites, Sotheby’s Home and Sotheby's Wine. In 2018, online sales increased 24% to $220.4 million and include $72.1 million of sales attributable to online-only auctions and sales through Sotheby’s Home and Sotheby's Wine, as compared to $18.9 million in the prior year. Online sales are an important source of client growth and opportunity, with 60% of first-time bidders at Sotheby's coming through digital channels.

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 in 2018.

Brand Licensing Activities

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. In 2018 , 2017 , and 2016 , we earned $10.9 million, $10.3 million, and $9.1 million, respectively, in license fee revenue related to the Realogy License Agreement.

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. We will consider additional opportunities to license the Sotheby's brand in businesses where appropriate.

Financial and Geographical Information about Segments

See Note 3 of Notes to Consolidated Financial Statements for financial and geographical information about Sotheby's segments.

Employees

As of December 31, 2018 , we have 1,713 employees, with 730 located in the Americas, 536 in the U.K., 238 in Continental Europe, and 209 in Asia. We regard our relations with our employees as good. The table below provides a breakdown of Sotheby's employees by segment as of December 31, 2018 and 2017 .



December 31,	2018	2017
Agency	1,515	1,486
Finance	12	10
All Other (a)	186	166
Total	1,713	1,662

(a) Employees classified within "All Other" principally relate to our central corporate and information technology departments.

Website Address

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, are available free of charge on the Investor Relations page of our website, www.sothebys.com . These reports are made available on the same day that they are electronically filed with or furnished to the Securities and Exchange Commission (the "SEC"). Information available on the website is not incorporated by reference and is not deemed to be part of this Form 10-K.

ITEM 1A : RISK FACTORS

Before you make an investment decision with respect to our common stock, you should carefully consider all of the information included in this Form 10-K and our subsequent periodic filings with the SEC. In particular, you should carefully consider the risk factors described below and the risks and uncertainties related to "Forward Looking Statements," any of which could have a material adverse effect on our business, results of operations, financial condition and the actual outcome of matters as to which forward looking statements are made in this annual report. The following risk factors, which are not ranked in any particular order, should be read in conjunction with the balance of this annual report, including the Consolidated Financial Statements and related notes.

The global economy, the financial markets and political conditions of various countries may negatively affect our business and clients, as well as the supply of and demand for works of art.

The global art market is influenced over time by the overall strength and stability of the global economy and the financial markets of various countries, although this correlation may not be immediately evident. In addition, global political conditions and world events may affect our business through their effect on the economies of various countries, as well as on the willingness of potential buyers and sellers to purchase and sell art in the wake of economic uncertainty. Our business can be particularly influenced by the economies, financial markets and political conditions of the U.S., the U.K., China, and the other major countries or territories of Europe and Asia (including the Middle East). Accordingly, weakness in those economies and financial markets can adversely affect the supply of and demand for works of art and our business. Furthermore, global political conditions may also influence the enactment of legislation that could adversely impact our business.

Competition in the global art market is intense and may adversely impact our business, results of operations, and financial condition.

We compete with other auctioneers and art dealers to obtain valuable consignments to offer for sale either at auction or through private sale. The level of competition is intense and can adversely impact our ability to obtain valuable consignments for sale, as well as the commission margins achieved on such consignments.

We cannot be assured of the amount and quality of property consigned for sale, which may cause significant variability in our results of operations.

The amount and quality of property consigned for sale is influenced by a number of factors not within our control. Many major consignments, and specifically single-owner sale consignments, become available only as a result of the death or financial or marital difficulties of the owner, all of which are unpredictable and may cause significant variability in our results of operations from period to period.

The demand for art is unpredictable, which may cause significant variability in our results of operations.

The demand for art is influenced not only by overall economic conditions, but also by changing trends in the art market as to which collecting categories and artists are most sought after and by the collecting preferences of individual collectors. These conditions and trends are difficult to predict and may adversely impact our ability to obtain and sell consigned property, potentially causing significant variability in our results of operations from period to period.

The U.K.’s decision to leave the European Union, known as Brexit, may adversely impact our business, results of operations, and financial condition.

The U.K.’s decision to leave the European Union, known as Brexit, has introduced additional volatility and uncertainty in global stock and financial markets, economic conditions, and Pound Sterling exchange rates. Uncertainties caused by Brexit could adversely impact the future amount and quality of property consigned for sale and the future demand for such art, particularly in our London salesroom. In addition, uncertainties caused by Brexit could adversely impact our ability to move property between the U.K. and the European Union, and our employees.

The anticipated discontinuation of LIBOR may have unforeseen consequences.

On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates the London interbank offered rate (“LIBOR”), announced that the FCA will no longer compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021, and it appears likely that LIBOR will be discontinued or modified by 2021. The likely discontinuation of LIBOR may have consequences which cannot be fully anticipated, including potential impacts on the business of SFS and its loan portfolio, our revolving credit facility, the mortgage on our headquarters building, and the related interest rate collar.

We rely on a select group of clients who make a significant contribution to our revenues, profitability, and operating cash flows.

Sotheby's is a global art business that caters to a select group of the world's most discerning art collectors. Accordingly, our revenues, profitability, and operating cash flows are highly dependent upon our ability to develop and maintain relationships with these clients, as well as their financial strength.

Tax matters may cause significant variability in our results of operations.

We operate in many tax jurisdictions throughout the world, and the provision for income taxes involves a significant amount of judgment regarding the interpretation of relevant facts and laws in these jurisdictions. Our effective income tax rate and recorded tax balances can change significantly between periods due to a number of complex factors including, but not limited to: (i) our projected levels of taxable income; (ii) changes in the jurisdictional mix of our forecasted and/or actual pre-tax income; (iii) increases or decreases to valuation allowances recorded against deferred tax assets; (iv) tax audits conducted by various tax authorities; (v) adjustments to income taxes upon the finalization of income tax returns; (vi) the ability to claim foreign tax credits; and (vii) tax planning strategies.

Additionally, our effective income tax rate could be impacted by future changes in applicable tax laws, as well as by the European Commission’s investigations on illegal state aid, the Organisation for Economic Co-operation and Development project on Base Erosion and Profit Shifting, and future guidance that will be issued with respect to the U.S. Tax Cuts and Jobs Act that may change our interpretation of the new law and its application. Given the unpredictability of these possible changes, it is difficult to assess whether the overall effect of such potential tax changes on our earnings and cash flow would be cumulatively positive or negative, but such changes could ultimately have an adverse impact on our financial results.

Our clients reside in various tax jurisdictions throughout the world and the application of tax laws or tax reporting obligations in these jurisdictions, particularly as they relate to sales, use, value-added and other indirect taxes, is complex and requires a significant amount of judgment, exposing us to claims from tax authorities.

Our clients reside in various tax jurisdictions throughout the world. To the extent that there are changes to tax laws or tax reporting obligations in any of these jurisdictions, such changes could adversely impact the ability and/or willingness of our clients to purchase or sell works of art. Additionally, 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. In addition, changes to the laws and regulations involving sales, use, value-added and other indirect taxes could increase the complexity of our compliance efforts and impact our ability to accurately estimate any related liabilities. We are generally not responsible for these indirect tax liabilities unless we fail to collect the correct amount of sales, use, 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.

As a result of the U.S. Supreme Court decision in South Dakota v. Wayfair on June 21, 2018, a physical presence is no longer required for U.S. states to impose a sales tax collection obligation on out-of-state sellers. This ruling has significantly increased the number of states that have enacted economic nexus laws and, accordingly, has significantly increased the number of states in which we now collect sales tax, thereby increasing the administrative burden and cost of this added compliance. We will continue to monitor states’ new laws and register to collect sales tax in additional jurisdictions as required.

The loss of key personnel could adversely impact our ability to compete.

We are largely a service business in which the ability of our employees to develop and maintain relationships with potential sellers and buyers of works of art is essential to our success. Moreover, our business is unique, making it important to retain key specialists and members of management. Accordingly, our business is highly dependent upon our success in attracting and retaining qualified personnel.

Our investments in new businesses and technologies involve significant risks and uncertainties and may not succeed.

We have invested in new businesses and technologies to implement our strategic priorities. These investments involve significant risks and uncertainties, and may adversely impact our short-term operating results and liquidity, and if they are unsuccessful, may expose us to the loss of clients and the impairment of assets. Our future operating results are dependent, in part, on our ability to successfully integrate and utilize these new businesses and technologies.

Government laws and regulations may restrict or limit our business or impact the value of our real estate assets.

Many of our activities are subject to laws and regulations including, but not limited to, import and export regulations, cultural property regulations, data protection and privacy laws, anti-money laundering laws, antitrust laws, copyright and resale royalty laws, laws and regulations involving sales, use, value-added and other indirect taxes, and regulations related to the use of real estate. In addition, we are subject to local auction regulations, such as New York City Auction Regulations Subchapter M of Title 6 § 2-121-2-125, et. seq. Such regulations currently do not impose a material impediment to our business, but do affect the art market generally. A material adverse change in such regulations, such as the American Royalties Too Act of 2014 introduced in the U.S. Congress, which would impose a 5% resale royalty (with a cap of $35,000) on sales of art through large auction houses, could affect our business. Additionally, export and import laws and cultural property ownership laws could affect the availability of certain kinds of property for sale at our principal auction locations, increase the cost of moving property to such locations, or expose us to legal claims or government inquiries.

Our ability to collect auction receivables may be adversely impacted by buyers from emerging markets, as well as by the banking and foreign currency laws and regulations and judicial systems of the countries in which we operate and in which our clients reside.

We operate in 40 countries and have a worldwide client base that has grown in recent years due in part to an increase in the activity of buyers from emerging markets, in particular, China. The collection of auction receivables related to buyers from emerging markets may be adversely impacted by the buyer's lack of familiarity with the auction process and the buyer's financial condition. Our ability to collect auction receivables may also be adversely impacted by the banking and foreign currency laws and regulations regarding the movement of funds out of certain countries, as well as by our ability to enforce our rights as a creditor in jurisdictions where the applicable laws and regulations may be less defined, particularly in emerging markets.

Our capital allocation and financial policies may impact our liquidity, financial condition, market capitalization and business, and our ongoing ability to return capital to shareholders (and the size and timing of such return) is subject to ongoing business variables.

The actions taken in reference to our capital allocation and financial policies may impact our current and future liquidity, financial condition, market capitalization, and business. In addition, the amount and timing of any potential return of capital to shareholders depends on various factors, including the amount of excess cash generated by our business in the future, the ability to finance the SFS loan portfolio, the business initiatives contemplated and implemented by management, and the amount of capital that may be required to support our future liquidity needs, among other factors.

Foreign currency exchange rate movements can significantly impact our results of operations and financial condition.

We have operations throughout the world. Approximately 54% of our total revenues were earned outside of the U.S. in 2018 , including 25% of our total revenues earned in the U.K. Additionally, we have significant assets and liabilities denominated in the Pound Sterling, the Euro, and the Swiss Franc. Revenues, expenses, gains, and losses recorded in foreign currencies are translated using the monthly average exchange rates prevailing during the period in which they are recognized. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Accordingly, fluctuations in foreign currency exchange rates, particularly for the Pound Sterling, the Euro, and the Swiss Franc, can significantly impact our results of operations and financial condition.

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 and/or we may allow the buyer to take possession of purchased property before making payment. In these situations, we are exposed to losses in the event the buyer does not make payment.

Under the standard terms and conditions of our auction and private sales, we are not obligated to pay the consignor for property that has not been paid for by the buyer. However, 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 while we retain possession of the property. In these situations, if the buyer does not make payment, we take title to the property, but could be exposed to losses if the value of the property subsequently declines. In certain other situations and subject to management approval under our internal corporate governance policy, we may allow the buyer to take possession of the purchased property before making payment. In these situations, we are liable to the seller for the net sale proceeds whether or not the buyer makes payment and would incur a loss in the event of buyer default. (See Note 4 of Notes to Consolidated Financial Statements for information about auction and private sale receivables.)

We could be exposed to losses in the event of title or authenticity claims.

The assessment of property offered for auction or private sale can involve potential claims regarding title and authenticity. The items we sell may be subject to statutory warranties as to title and to a limited guarantee as to authenticity under the Conditions of Sale and Terms of Guarantee that are published in our auction sale catalogues and the terms stated in, and the laws applicable to, agreements governing private sale transactions. Our authentication of the items we offer is based on scholarship and research, but necessarily requires a degree of judgment from our specialists. In the event of a title or authenticity claim against us, we may have recourse against the seller of the property and may have the benefit of insurance, but a claim could nevertheless expose us to losses and to reputational risk.

Auction guarantees create the risk of loss resulting from the potential inaccurate valuation of art.

The market for fine art, decorative art, and jewelry is not a highly liquid trading market and, as a result, the valuation of these items is inherently subjective. Accordingly, we are at risk with respect to our ability to estimate the likely selling prices of property offered with auction guarantees. If our judgments about the likely selling prices of property offered with auction guarantees prove to be inaccurate, there could be a significant adverse impact on our results, financial condition, and liquidity. (See Note 21 of Notes to Consolidated Financial Statements for information related to auction guarantees.)

We could be exposed to losses in the event of nonperformance by our counterparties in auction guarantee risk and reward sharing arrangements.

In certain situations, we reduce our financial exposure under auction guarantees through risk sharing arrangements. Our counterparties to these 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. (See Note 21 of Notes to Consolidated Financial Statements for information related to auction guarantees.)

Demand for art-related financing is unpredictable, which may cause variability in the operating results of SFS.

Our business is, in part, dependent on 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. Accordingly, the operating results of SFS are subject to variability from period to period.

Our ability to realize proceeds from the sale of collateral for SFS loans may be delayed or limited.

In situations when there are competing claims on the collateral for SFS loans and/or when a borrower becomes subject to bankruptcy or insolvency laws, our ability to realize proceeds from the sale of its collateral may be limited or delayed.

The value of art held in inventory and art pledged as collateral for SFS loans is subjective and often fluctuates, exposing us to losses and significant variability in our results of operations.

The art market is not a highly liquid trading market. As a result, the valuation of art is inherently subjective and its realizable value often fluctuates over time. Accordingly, we are at risk both as to the realizable value of the property held in inventory and as to the realizable value of the property pledged as collateral for SFS loans. If there is evidence that the estimated realizable value of a specific item held in inventory is less than its carrying value, a loss is recorded to reflect our revised estimate of realizable value. In addition, if the estimated realizable value of the property pledged as collateral for an SFS loan is less than the corresponding loan balance, we assess whether it is necessary to record a loss to reduce the carrying value of the loan, after taking into account the ability of the borrower to repay any shortfall between the value of the collateral and the amount of the loan. In estimating the realizable value of art held in inventory and art pledged as collateral for SFS loans, we consider the following complex array of factors: (i) whether the property is expected to be offered at auction or sold privately, and the timing of any such sale; (ii) the supply and demand for the property, taking into account current art market conditions, as well as changing trends as to which collecting categories and artists are most sought after; (iii) recent sale prices achieved for comparable items within a particular collecting category and/or by a particular artist, (iv) the state of the global economy and financial markets; and (v) our intent and ability to hold the property in order to maximize its realizable value. Due to the inherent subjectivity involved in estimating the realizable value of art held in inventory and art pledged as collateral for SFS loans, our estimates of realizable value may prove, with the benefit of hindsight, to be different than the amount ultimately realized upon sale. Accordingly, changes in the valuation of art held in inventory and art pledged as collateral for SFS loans expose us to variability in our results of operations from period to period.

The low rate of historic losses on the SFS loan portfolio may not be indicative of future loan loss experience.

We have historically incurred minimal losses on the SFS loan portfolio. However, despite our stringent loan underwriting standards, our previous loan loss experience may not be indicative of the future performance of the loan portfolio.

The collateral supporting the SFS loan portfolio is concentrated within certain collecting categories. A material decline in these markets could impair our ability to collect the principal and interest owed on certain loans and could require repayments of borrowings on such affected loans under our revolving credit facility.

The collateral supporting the SFS loan portfolio is concentrated within certain collecting categories. Although we believe the SFS loan portfolio is sufficiently collateralized due to its current aggregate loan-to-value ratio of 43% , a material decline in these markets could impair our ability to collect the principal and interest owed on certain loans. Additionally, our revolving credit facility permits borrowings, if any, up to 85% of the portion of any SFS loan that does not exceed a 60% loan-to-value ratio. A material decline in the value of SFS loan collateral could result in an increase in the loan-to-value ratio above 60% for individual loans and, depending on the level of outstanding revolving credit facility borrowings, could require repayment of a portion of the borrowings associated with such loans.

We could be exposed to losses and/or reputational harm as a result of various claims and lawsuits incidental to the ordinary course of our business.

We become involved in various legal proceedings, lawsuits, and other claims incidental to the ordinary course of our business. We are required to assess the likelihood of any adverse judgments or outcomes in these matters, as well as potential ranges of probable or reasonably possible losses. A determination of the amount of losses, if any, 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.

We could be exposed to reputational harm as a result of wrongful actions by certain third parties.

We are involved in various business arrangements and ventures with unaffiliated third parties. Wrongful actions by such parties could harm our brand and reputation.

A breach of the security measures protecting our global network of information systems and those of certain third-party service providers utilized by Sotheby's could adversely impact our operations, reputation and brand.

The protection of client, employee and company data is extremely important to us. The regulatory environment surrounding information security and privacy is becoming increasingly demanding and frequently changing in the jurisdictions in which we do business. Clients and employees have expectations that we will protect their information from cyber-attacks and other security breaches. We have implemented systems and processes that are designed to protect personal and company information and to prevent data losses, however, these measures cannot provide absolute security, and our systems may be vulnerable to cyber-security breaches such as viruses, hacking, and similar disruptions from unauthorized intrusions. In addition, we are dependent on a global network of information systems to conduct our business and are committed to maintaining a strong infrastructure to secure these systems.

As part of our information systems infrastructure, we rely increasingly upon third-party service providers to perform services related to our live auction bidding platform, retail wine and other e-commerce, video broadcasting, website content distribution, marketing, and to store, process and transmit information including client, employee and company information. Any failure on our part or by these third-party service providers to maintain the security of our confidential data and our client and employee personal information could result in business disruption, damage to reputation, financial obligations, lawsuits, sizable fines and costs, and loss of employee and client confidence in Sotheby's, and thus could have a material adverse impact on our business and financial condition, and adversely affect our results of operations.

A significant security breach could require future expenditures to implement additional security measures to protect against new privacy threats or to comply with state, federal and international laws aimed at addressing those threats. To our knowledge, to date, we have not experienced any material impacts related to cyber-attacks or other information security breaches.

Due to the nature of our business, valuable works of art are exhibited and stored at our facilities around the world. Such works of art could be subject to damage or theft, which could have a material adverse effect on our operations, reputation and brand.

Valuable works of art are exhibited and stored at our facilities around the world. Although we maintain state of the art security measures at our premises, valuable artworks may be subject to damage or theft. The damage or theft of valuable property despite these security measures could have a material adverse impact on our business and reputation.

Insurance coverage for artwork may become more difficult to obtain or the terms of such coverage may become less favorable, exposing us to losses resulting from the damage or loss of artwork in our possession .

We maintain insurance coverage for the works of art we own, works of art consigned by clients, and all other property that may be in our custody, which are exhibited and stored at our facilities around the world. An inability to adequately insure such works of art due to limited capacity of the global art insurance market, or the inability to secure coverage on acceptable terms, could, in the future, have a material adverse impact on our business, results of operations, and financial condition.

Our business continuity plans may not be effective in addressing the impact of unexpected events that could impact our business.

Our inability to successfully implement our business continuity plans in the wake of an unexpected event, such as an act of God or a terrorist attack occurring in or near one of our major selling and/or sourcing offices and/or any other unexpected event, could disrupt our ability to operate and adversely impact our operations.

Future costs and obligations related to our U.K. Pension Plan are dependent on unpredictable factors, which may cause variability in our employee benefit costs.

Future costs and obligations related to our defined benefit pension plan in the U.K. are heavily influenced by changes in interest rates, investment performance in the debt and equity markets, changes in statutory requirements in the U.K., and actuarial assumptions, each of which is unpredictable and may cause variability in our employee benefit costs. (See Note 10 of Notes to Consolidated Financial Statements for information related to our defined benefit pension plan in the U.K.)

ITEM 1B : UNRESOLVED STAFF COMMENTS

None.

ITEM 2 : PROPERTIES

We are headquartered at 1334 York Avenue in New York (the "York Property"). The York Property includes land and approximately 406,000 square feet of building area. The York Property is home to our sole North American auction salesroom and principal North American exhibition space. The York Property is also home to the U.S. operations of SFS, as well as our corporate offices. In September 2017, we initiated an enhancement program to create new state-of-the art galleries, as well as new public and client exhibition spaces. In 2018, we invested $24 million in connection with the York Property enhancement program and we expect to invest up to $30 million in 2019. (See statement on Forward Looking Statements.)

The York Property is subject to a seven-year, $325 million mortgage that matures on July 1, 2022 (the "York Property Mortgage"). As of December 31, 2018 , the principal balance of the York Property Mortgage was $260.8 million . (See Note 7 of Notes to Consolidated Financial Statements for additional information on the York Property. See Note 11 of Notes to Consolidated Financial Statements for additional information on the York Property Mortgage.)

Our U.K. operations are based at 34-35 New Bond Street, London, where the main salesrooms, exhibition spaces, and administrative offices are located. Our New Bond Street premises consist of a series of properties that are held under various long-term lease, freehold, or virtual freehold arrangements ⁵ . As part of a multi-year refurbishment initiative, we have invested approximately $18 million in our New Bond Street premises in recent years to enhance exhibition and private sales gallery space, and establish a Sotheby's Diamonds salon. We also lease 52,000 square feet for a warehouse facility in Greenford, West London under a lease that expires in 2030. Certain of our London properties secure any U.K. borrowings under our revolving credit facility. (See Note 11 of Notes to Consolidated Financial Statements for additional information on our revolving credit facility.)

We also lease space primarily for Agency segment operations in various locations throughout North America, South America, Continental Europe and Asia, including sales centers in Geneva and Zurich, Switzerland; Milan, Italy; Paris, France; Hong Kong, China.

____________

⁵ Freeholds are occupancy arrangements in which we own the property outright. Virtual freeholds are occupancy arrangements in which there is a 2,000-year lease with nominal yearly rent payments that cannot be escalated during the term of the lease.

ITEM 3 : LEGAL PROCEEDINGS

See Note 20 of Notes to Consolidated Financial Statements for information related to legal proceedings.

ITEM 4 : MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5 : MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market and Stockholders

Our common stock is traded on the NYSE under the symbol BID. As of February 11, 2019, there were 746 registered holders of record of our common stock.

Dividends and Common Stock Repurchases

The following table provides information regarding our common stock repurchase program during the three months ended December 31, 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)
October 2018	—	$	—	—	$	24,690
November 2018 (b)	571,242	$	34.01	571,242	$	90,096,725
December 2018 (c)	2,112,219	$	37.40	2,112,219	$	581,035
Total	2,683,461	$	36.69	2,683,461

(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 November 26, 2018, our Board of Directors of Sotheby’s approved a $100 million increase to the Company’s share repurchase authorization.

(c) On December 13, 2018, we paid $70 million upon entry into an ASR agreement (the "December 2018 ASR Agreement"). Pursuant to this ASR Agreement, on December 14, 2018, we received an initial delivery of 1,605,938 shares of our common stock with a value of $59.5 million , or $37.05 per share. The average price per share reported in the table above is calculated using the $59.5 million value of the initial shares delivered under the December 2018 ASR Agreement.

The total number of shares that we will ultimately purchase upon the conclusion of the December 2018 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 December 2018 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 December 2018 ASR Agreement is scheduled to expire on March 1, 2019, but may conclude earlier at the counterparty's option, and may be terminated early upon the occurrence of certain events.

(See Note 16 of Notes to Consolidated Financial Statements for information regarding dividends and more detailed information about our common stock repurchase program.)

Equity Compensation Plans

The following table provides information as of December 31, 2018 related to shares of common stock that may be issued under equity compensation plans, which are described in Note 23 of Notes to Consolidated Financial Statements (in thousands, except per share data):



	(A)	(B)		(C)
Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1)	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (2)		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (3)
Equity compensation plans approved by shareholders	1,821	$	—	6,981
Equity compensation plans not approved by shareholders	31	$	—	—
Total	1,852	$	—	6,981

_____________________________________________________________

(1)

The number of securities that may be issued under equity compensation plans approved by shareholders includes 1,820,270 shares awarded under the Sotheby's Restricted Stock Unit Plan (the "Restricted Stock Unit Plan") and the Sotheby’s 2018 Equity Incentive Plan (the "Equity Plan"). The vesting of stock units issued under these plans is contingent upon future employee service and/or the achievement of certain profitability targets or certain return on invested capital targets. The number of securities that may be issued under equity compensation plans not approved by shareholders consists solely of 31,380 fully-vested restricted stock units granted to Thomas S. Smith, Jr., our President and Chief Executive Officer ("CEO"), as part of an inducement award upon the commencement of his employment on March 31, 2015. This inducement award was not issued pursuant to the Restricted Stock Unit Plan and has not been registered with the SEC.


(2)	The weighted-average exercise price does not take into account 1,820,270 shares awarded under the Restricted Stock Unit Plan or the 31,380 fully-vested restricted stock units granted to Mr. Smith upon the commencement of his employment as our President and CEO on March 31, 2015.


(3)	Includes 6,892,693 shares available for future issuance under the 2018 Equity Plan and 88,047 shares available for issuance under the Sotheby’s Stock Compensation Plan for Non-Employee Directors.

Performance Graph

The following graph compares the cumulative total shareholder return on our common stock for the five-year period from December 31, 2013 to December 31, 2018 with the cumulative return of the Standard & Poor's Global Luxury Index (the "S&P Global Luxury Index"), which is a line-of-business index largely composed of companies whose products and services appeal to a segment of the population consistent with our clients, and the Standard & Poor's MidCap 400 Stock Index (the"S&P MidCap 400").

The graph reflects an investment of $100 in our common stock, the S&P Global Luxury Index, and the S&P MidCap 400 on December 31, 2013, and a reinvestment of dividends at the average of the closing stock prices at the beginning and end of each quarter.



	12/31/13		12/31/14		12/31/15		12/31/16		12/31/17		12/31/18
Sotheby's	$	100.00	$	89.28	$	53.83	$	83.30	$	107.83	$	83.05
S&P Global Luxury Index	$	100.00	$	95.44	$	89.79	$	90.36	$	126.78	$	113.07
S&P MidCap 400	$	100.00	$	109.76	$	107.39	$	129.63	$	150.69	$	133.99

ITEM 6 : SELECTED FINANCIAL DATA



Year ended December 31,	2018			2017			2016			2015			2014
	(Thousands of dollars, except per share data)
Income Statement Data :
Revenues:
Agency commissions and fees (a)	$	891,774		$	809,571		$	724,398		$	791,920		$	825,126
Inventory sales	$	80,808		$	178,982		$	62,863		$	108,699		$	69,958
Finance	$	43,887		$	50,937		$	52,716		$	50,489		$	33,013
Other	$	19,271		$	17,890		$	17,965		$	10,386		$	9,956
Total revenues (a)	$	1,035,740		$	1,057,380		$	857,942		$	961,494		$	938,053
Net income attributable to Sotheby's	$	108,634		$	118,796		$	74,112		$	43,727		$	117,795
Basic earnings per share	$	2.10		$	2.22		$	1.28		$	0.64		$	1.69
Diluted earnings per share	$	2.09		$	2.20		$	1.27		$	0.63		$	1.68
Cash dividends declared per common share	$	—		$	—		$	—		$	0.40		$	4.74
Statistical Metrics:
Aggregate Auction Sales (b)	$	5,250,503		$	4,567,310		$	4,247,873		$	5,949,030		$	6,075,345
Net Auction Sales (c)	$	4,395,593		$	3,816,792		$	3,556,090		$	5,016,738		$	5,151,419
Private Sales (d)	$	1,018,844		$	744,640		$	583,410		$	673,119		$	624,511
Consolidated Sales (e)	$	6,350,155		$	5,490,932		$	4,894,146		$	6,730,848		$	6,769,814
Auction Commission Margin (f)	16.1		%	17.2		%	17.1		%	14.3		%	14.7		%
Non-GAAP Financial Measures:
Adjusted Net Income (g)	$	128,941		$	121,699		$	99,616		$	143,131		$	142,398
Adjusted Diluted EPS (g)	$	2.48		$	2.25		$	1.71		$	2.07		$	2.03
EBITDA (g)	$	201,851		$	199,298		$	150,902		$	225,322		$	248,036
Adjusted EBITDA (g)	$	230,066		$	200,176		$	192,646		$	278,771		$	289,873
Balance Sheet Data :
Working capital	$	102,219		$	385,463		$	525,878		$	913,166		$	610,315
Total assets	$	2,689,088		$	3,087,307		$	2,504,426		$	3,263,313		$	3,129,796
Average Loan Portfolio (h)	$	541,152		$	637,759		$	646,135		$	732,814		$	583,304
Average Credit Facility Borrowings (i)	$	106,181		$	479,367		$	534,433		$	541,004		$	306,448
Long-term debt, net	$	638,786		$	653,003		$	598,941		$	604,961		$	295,163
Total equity	$	441,494		$	616,940		$	505,602		$	806,704		$	878,238



Legend:
(a)	On January 1, 2018, we adopted Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers . 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 Consolidated Income Statements. Agency commissions and fees in the table above have been recast to reflect the retrospective adoption of ASC 606 for the years ended December 31, 2017 and 2016 to be consistent with the Consolidated Income Statements presented in this report. Agency commissions and fees for the years ended December 31, 2015 and 2014 were not adjusted. (See Note 2 of Notes to Consolidated Financial Statements for additional information on our adoption of ASC 606.)
(b)	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. .
(c)	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.
(d)	Represents the total purchase price of property sold in private sales that we have brokered, including our commissions.
(e)	Represents the sum of Aggregate Auction Sales, Private Sales, and inventory sales.
(f)	Represents total auction commission revenues, 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.
(g)	See "Non-GAAP Financial Measures" under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount.
(h)	Represents the average SFS loan portfolio outstanding during the period.
(i)	Represents average borrowings outstanding during the period under our revolving credit facility.


ITEM 7 :	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 Consolidated Financial Statements.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in accordance with GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. Actual results may ultimately differ from our original estimates, as future events and circumstances sometimes do not develop as expected. Note 1 of Notes to Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. In addition, we believe that the following are our most critical accounting estimates, which are not ranked in any particular order, that may affect our reported financial condition and/or results of operations.

(1)

Valuation of Inventory and Loan Collateral— The art market is not a highly liquid trading market. As a result, the valuation of art is inherently subjective and the realizable value of art often fluctuates over time. If there is evidence that the estimated realizable value of a specific item held in inventory is less than its carrying value, we record a loss to reflect our revised estimate of realizable value. If the estimated realizable value of the property pledged as collateral for a loan is less than the corresponding loan balance, we assess whether it is necessary to record a loss to reduce the carrying value of the loan, after taking into account the ability of the borrower to repay any shortfall between the value of the collateral and the amount of the loan.

In estimating the realizable value of art held in inventory and art pledged as collateral for loans, we consider the following complex array of factors: (i) whether the property is expected to be offered at auction or sold privately, and the timing of any such sale; (ii) the supply and demand for the property, taking into account current art market conditions, as well as changing trends as to which collecting categories and artists are most sought after; (iii) recent sale prices achieved for comparable items within a particular collecting category and/or by a particular artist; (iv) the state of the global economy and financial markets; and (v) our intent and ability to hold the property in order to maximize its realizable value.

Due to the inherent subjectivity involved in estimating the realizable value of art held in inventory and art pledged as collateral for loans, our estimates of realizable value may prove, with the benefit of hindsight, to be different than the amount ultimately realized upon sale.

(See Note 1 of Notes to Consolidated Financial Statements for information related to inventory. See Note 5 of Notes to Consolidated Financial Statements for information related to Notes Receivable.)

(2) Accounts Receivable— Accounts receivable principally includes amounts due from buyers as a result of auction and private sale transactions. The recorded amount reflects 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. Under the standard terms and conditions of our auction and private 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 commission, is reversed. Historically, cancelled sales have not been material in relation to the aggregate hammer price of property sold at auction or the aggregate purchase price of property sold in private sales.

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 while we retain possession of the property. In these situations, if the buyer does not make payment, Sotheby's takes title to the property, but could be exposed to losses if the value of the property subsequently declines. In certain other situations, and subject to management approval under our internal corporate governance policy, we allow the buyer to take possession of purchased property before making payment. In these situations, we are liable to the seller for the net sale proceeds whether or not the buyer makes payment and would incur a loss in the event of buyer default. We maintain an allowance for doubtful accounts that principally includes estimated losses associated with situations when we have paid the net sale proceeds to the seller, and it is probable that payment will not be collected from the buyer. The allowance for doubtful accounts also includes an estimate of probable losses inherent in the remainder of the accounts receivable balance.

Our judgments regarding the collectability of accounts receivable and the amount of any required allowance for doubtful accounts are based on the facts available to management, including 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 and private sale purchases are reevaluated and adjusted as additional facts become known, but may ultimately prove, with the benefit of hindsight, to be incorrect.

(See Note 4 of Notes to Consolidated Financial Statements for information related to accounts receivable.)

(3)

Income Taxes— The provision for income taxes involves a significant amount of judgment regarding the interpretation of the relevant facts and laws in the many jurisdictions in which we operate. Our effective income tax rate and recorded tax balances can change significantly between periods due to a number of complex factors including, but not limited to: (i) our projected levels of taxable income; (ii) changes in the jurisdictional mix of our forecasted and/or actual pre-tax income; (iii) increases or decreases to valuation allowances recorded against deferred tax assets; (iv) tax audits conducted by various tax authorities; (v) adjustments to income taxes upon the finalization of income tax returns; (vi) the ability to claim foreign tax credits; and (vii) tax planning strategies.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Act”) was enacted into law. Among other things, the Act reduced the U.S. corporate income tax rate from 35% to 21%, and made changes to certain other business-related exclusions, deductions and credits. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), Income Tax Accounting Implications of the Tax Cuts and Jobs Act , which allowed us to record provisional amounts during a measurement period not to extend beyond one year from the enactment date of the Act. In the fourth quarter of 2017, we recorded a provisional net income tax expense of $1.2 million based on reasonable estimates of the tax effects of the Act. This provisional net income tax expense was then adjusted in 2018 through the recording of $8.7 million in tax benefits as we finalized our accounting for the Act. The impact of the provisional accounting effects of the Act are described in greater detail in Note 18 of Notes to Consolidated Financial Statements.

As of December 31, 2018, we had a net deferred tax asset of $22.5 million. This amount includes gross deferred tax assets of $46.1 million, primarily resulting from deductible temporary differences which will reduce taxable income in future periods. To a lesser extent, we also have deferred tax assets relating to net operating loss carryforwards, which are partially offset by a valuation allowance of $2.4 million to reduce the deferred tax assets to the amount that we have determined is more likely than not to be realized. In assessing the need for a valuation allowance, we consider, among other things, projections of future taxable income and ongoing prudent and feasible tax planning strategies. If we determine that sufficient negative evidence exists (for example, if we experience cumulative three-year losses in a certain jurisdiction), then we will consider recording a valuation allowance against a portion or all of the deferred tax assets in that jurisdiction. If, after recording a valuation allowance, our projections of future taxable income and other positive evidence considered in evaluating the need for a valuation allowance prove, with the benefit of hindsight, to be inaccurate, it could prove more difficult to support the realization of these deferred tax assets. As a result, an additional valuation allowance could be required, which would have an adverse impact on our effective income tax rate and results. Conversely, if, after recording a valuation allowance, we determine that sufficient positive evidence exists in the jurisdiction in which a valuation allowance is recorded (for example, if we are no longer in a three-year cumulative loss position in the jurisdiction, and we expect to have future taxable income in that jurisdiction based upon our forecasts and the expected timing of deferred tax asset reversals), we may reverse a portion or all of the valuation allowance in that jurisdiction. In such situations, the adjustment made to the deferred tax asset would have a favorable impact on our effective income tax rate and results in the period such determination was made.

Due to the global complexity of tax regulation, we record liabilities to address potential exposures involving uncertain tax positions that we have taken, or expect to take, on income tax returns that could be challenged by taxing authorities. These potential exposures result from the varying applications and interpretations of income tax related statutes, rules, and regulations. As of December 31, 2018, our liability for unrecognized tax benefits, excluding interest and penalties, was $11.5 million. We believe that our recorded tax liabilities are adequate to cover all open years based on an assessment of the relevant facts and circumstances. This assessment involves assumptions and significant judgments about future events and potential actions by taxing authorities, as well as an evaluation of past experiences. The cost of the ultimate resolution of these matters may be greater or less than the liability that we have recorded. To the extent that our opinion as to the outcome of these matters changes, income tax expense will be adjusted accordingly in the period in which such a determination is made.

(See "Income Tax Expense" below, as well as Notes 18 and 19 of Notes to Consolidated Financial Statements.)

(4)

Share-Based Payments— We grant share-based payment awards as compensation to certain employees. 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. A substantial portion of the share-based payment awards vest only if we achieve established return on invested capital (or "ROIC") targets. The amount of compensation expense recognized for such performance-based awards is dependent upon our quarterly assessment of the likelihood of achieving these future 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. Accordingly, if our projections of future performance against these targets prove, with the benefit of hindsight, to be inaccurate, the amount of life-to-date and future compensation expense related to share-based payments could significantly increase or decrease.

In 2015, we granted a share-based payment award to Thomas S. Smith, Jr., our President and CEO, with a single vesting opportunity after a five-year service period contingent upon the achievement of pre-determined levels of price appreciation in our stock. The compensation expense recognized for this share-based payment is based on our estimate of the grant date fair value of the award. In developing this estimate, we considered then-current market conditions, historical data, and other relevant data.

(See Note 23 of Notes to Consolidated Financial Statements for additional information related to our share-based payment programs.)

(5)

(See Note 20 of Notes to Consolidated Financial Statements for additional information related to legal contingencies.)

Seasonality

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 represented 76% and 80% of our total annual Net Auction Sales in 2018 and 2017 , respectively, with auction commission revenues comprising approximately 74% and 66% 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.

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 ⁵ , 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 when compared to 2016, which led to a 12% increase in agency commissions and fees. In 2018, the art market was again strong, and Consolidated Sales grew to $6.4 billion, representing a 16% increase when compared to 2017. The strength of the market has paved the way for an increase of 10% in agency commissions and fees when compared to the same period in 2017.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

Consolidated Results of Operations

Overview —In 2018, we reported net income of $108.6 million , or $2.09 per diluted share, representing a $10.2 million (9%) decrease when compared to the prior year when we reported net income of $118.8 million , or $2.20 per diluted share. After excluding certain items, Adjusted Net Income* improved $7.2 million ( 6% ), from $121.7 million to $128.9 million , and Adjusted Diluted EPS* improved from $2.25 to $2.48 . The improvement in Adjusted Net Income* is attributable to a stronger art market as evidenced by a 16% increase in Consolidated Sales and associated increases in auction commissions ( $73.4 million / 11% ) and private sale commissions ( $14.9 million / 22% ). The increase in private sale commissions also reflects our continued focus of key resources toward this sale channel. However, results for the year are adversely impacted by a higher level of indirect expenses. The comparison of Adjusted Net Income* to the prior year is also unfavorably impacted by $7.7 million of discrete income tax benefits recorded in 2017 that primarily resulted from the reversal of a tax reserve for a previously uncertain tax position for which the statute of limitations expired.

Outlook —Historically, it is common for us to report a net loss in the first quarter of the year due to the seasonality of our business. We anticipate that our Adjusted Net Loss* for the first quarter of 2019 will be less than what we reported during the first quarters of 2017 and 2016, and instead closer to the average for the prior ten-year period. We are encouraged by a strong pipeline of potential consignments for our second quarter spring sales season in New York. (See statement on Forward Looking Statements.)

___________________

⁵ See the definition of Consolidated Sales in the Consolidated Financial Data Table below.


^*	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 Table —The table below presents a summary of our consolidated results of operations and related statistical metrics for the years ended December 31, 2018 and 2017 , as well as a comparison between the two years (in thousands of dollars, except per share data):



							Variance
Year Ended December 31,	2018			2017			$ / %			%
Revenues:
Agency commissions and fees (a)	$	891,774		$	809,571		$	82,203		10	%
Inventory sales	80,808			178,982			(98,174		)	(55	%)
Finance	43,887			50,937			(7,050		)	(14	%)
Other	19,271			17,890			1,381			8	%
Total revenues	1,035,740			1,057,380			(21,640		)	(2	%)
Expenses:
Agency direct costs (a)	184,491			150,133			34,358			23	%
Cost of inventory sales	81,103			181,487			(100,384		)	(55	%)
Cost of finance revenues (b)	4,056			19,312			(15,256		)	(79	%)
Marketing	23,897			25,377			(1,480		)	(6	%)
Salaries and related (c)	342,687			318,555			24,132			8	%
General and administrative	180,360			172,950			7,410			4	%
Depreciation and amortization	27,048			24,053			2,995			12	%
Voluntary separation incentive programs, net	—			(162		)	162			100	%
Restructuring charges	10,753			—			10,753			N/A
Total expenses	854,395			891,705			(37,310		)	(4	%)
Operating income	181,345			165,675			15,670			9	%
Net interest expense (b) (d)	(38,517		)	(31,034		)	(7,483		)	(24	%)
Extinguishment of debt	(10,855		)	—			(10,855		)	N/A
Write-off of credit facility fees	(3,982		)	—			(3,982		)	N/A
Non-operating income	4,688			7,045			(2,357		)	(33	%)
Income before taxes	132,679			141,686			(9,007		)	(6	%)
Income tax expense	27,652			25,415			2,237			9	%
Equity in earnings of investees	3,591			2,508			1,083			43	%
Net income	108,618			118,779			(10,161		)	(9	%)
Less: Net loss attributable to noncontrolling interest	(16		)	(17		)	1			6	%
Net income attributable to Sotheby's	$	108,634		$	118,796		$	(10,162	)	(9	%)
Diluted earnings per share - Sotheby's common shareholders	$	2.09		$	2.20		$	(0.11	)	(5	%)
Statistical Metrics :
Aggregate Auction Sales (e)	$	5,250,503		$	4,567,310		$	683,193		15	%
Net Auction Sales (f)	$	4,395,593		$	3,816,792		$	578,801		15	%
Private Sales (g)	$	1,018,844		$	744,640		$	274,204		37	%
Consolidated Sales (h)	$	6,350,155		$	5,490,932		$	859,223		16	%
Effective income tax rate	20.8		%	17.9		%	2.9		%	N/A
Non-GAAP Financial Measures:
Adjusted Expenses (i)	$	568,008		$	539,038		$	28,970		5	%
Adjusted Operating Income (i)	$	198,082		$	167,410		$	30,672		18	%
Adjusted Net Income (i)	$	128,941		$	121,699		$	7,242		6	%
Adjusted Diluted EPS (i)	$	2.48		$	2.25		$	0.23		10	%
Adjusted Effective Income Tax Rate (i)	24.8		%	24.6		%	0.2		%	N/A
EBITDA (i)	$	201,851		$	199,298		$	2,553		1	%
Adjusted EBITDA (i)	$	230,066		$	200,176		$	29,890		15	%



Legend:
(a)	On January 1, 2018, we adopted Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers . The adoption of ASC 606 did not impact the timing of our revenue recognition, but it changed the presentation of certain Agency-related revenues and expenses previously reported on a net basis in our Consolidated Income Statements. Results for the year ended December 31, 2017 have been recast to reflect the retrospective adoption of ASC 606. (See Note 2 of Notes to Consolidated Financial Statements for additional information on our adoption of ASC 606.)
(b)	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 Consolidated Income Statements. 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 that was entered into in connection with this refinancing combined the Agency Credit Facility and the SFS Credit Facility into one asset-based revolving credit facility. Subsequent to the refinancing and resulting elimination of the SFS Credit Facility, the SFS loan portfolio is no longer directly funded with revolving credit facility borrowings. Accordingly, beginning in the third quarter of 2018, all borrowing costs associated with our revolving credit facility are recorded as interest expense in our Consolidated Income Statements.
(c)	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.
(d)	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.
(e)	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.
(f)	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.
(g)	Represents the total purchase price of property sold in private sales that we have brokered, including our commissions.
(h)	Represents the sum of Aggregate Auction Sales, Private Sales, and inventory sales.
(i)	See "Non-GAAP Financial Measures" below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount.

Agency Segment

Agency Segment Overview —In 2018, Agency segment income before taxes increased $7.1 million ( 7% ) when compared to the prior year. After excluding certain items, Adjusted Agency Segment Income Before Taxes* increased $21 million ( 20% ) when compared to the prior year. In 2018, the art market continued to be strong as evidenced by a 15% increase in Consolidated Sales and associated increases in auction commissions ( $73.4 million / 11% ) and private sale commissions ( $14.9 million / 22% ). 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 indirect expenses.

Agency Segment Financial Data Table —The table below presents a summary of Agency segment income before taxes and related statistical metrics, in thousands of dollars, for the years ended December 31, 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.

______________________


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



							Variance
Year Ended December 31,	2018			2017			$ / %			%
Revenues:
Auction commissions and fees:
Auction commissions (a) (b)	$	767,881		$	694,501		$	73,380		11	%
Auction related fees, net (a) (b)	29,088			32,459			(3,371		)	(10	%)
Total Auction commissions and fees (b)	796,969			726,960			70,009			10	%
Private sale commissions (a) (b)	82,263			67,343			14,920			22	%
Other Agency commissions and fees (a)	11,181			13,617			(2,436		)	(18	%)
Total Agency commissions and fees (b)	890,413			807,920			82,493			10	%
Inventory sales (a)	66,234			167,628			(101,394		)	(60	%)
Total Agency segment revenues (b)	956,647			975,548			(18,901		)	(2	%)
Expenses:
Agency direct costs:
Auction direct costs (b)	176,699			143,468			33,231			23	%
Private sale expenses (b)	7,446			6,361			1,085			17	%
Intersegment costs (c)	6,969			9,168			(2,199		)	(24	%)
Total Agency direct costs (b)	191,114			158,997			32,117			20	%
Cost of inventory sales (d)	70,601			173,160			(102,559		)	(59	%)
Marketing	23,454			24,860			(1,406		)	(6	%)
Salaries and related (e)	327,267			305,677			21,590			7	%
General and administrative	172,450			165,224			7,226			4	%
Depreciation and amortization	26,102			23,015			3,087			13	%
Restructuring charges	10,660			—			10,660			N/A
Voluntary separation incentive programs, net	—			(148		)	148			100	%
Total Agency segment expenses	821,648			850,785			(29,137		)	(3	%)
Agency segment operating income	134,999			124,763			10,236			8	%
Net interest expense (f)	(31,935		)	(28,294		)	(3,641		)	(13	%)
Non-operating income	5,303			6,479			(1,176		)	(18	%)
Equity in earnings of investees	2,688			995			1,693			*
Agency segment income before taxes	$	111,055		$	103,943		$	7,112		7	%
Statistical Metrics:
Aggregate Auction Sales (g)	$	5,250,503		$	4,567,310		$	683,193		15	%
Net Auction Sales (h)	$	4,395,593		$	3,816,792		$	578,801		15	%
Items sold at auction with a hammer (sale) price greater than $1 million	626			558			68			12	%
Total hammer (sale) price of items sold at auction with a hammer price greater than $1 million	$	2,729,772		$	2,322,634		$	407,138		18	%
Items sold at auction with a hammer (sale) price greater than $3 million	222			192			30			16	%
Total hammer (sale) price of items sold at auction with a hammer (sale) price greater than $3 million	$	2,039,725		$	1,700,768		$	338,957		20	%
Auction Commission Margin (i)	16.1		%	17.2		%	(1.1		%)	N/A
Private Sales (j)	$	1,002,860		$	736,825		$	266,035		36	%
Consolidated Sales (k)	$	6,319,597		$	5,471,763		$	847,834		15	%
Non-GAAP Financial Measures:
Adjusted Agency Segment Income Before Taxes (l)	$	127,699		$	106,732		$	20,967		20	%



Legend:
*	Represents a variance in excess of 100%.
(a)	See Note 4 of Notes to Consolidated Financial Statements for a description of each component of Agency segment revenues.
(b)	On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers . The adoption of ASC 606 did not impact the timing of our revenue recognition, but it changed the presentation of certain Agency-related revenues and expenses previously reported on a net basis in our Consolidated Income Statements. Results for the year ended December 31, 2017 have been recast to reflect the retrospective adoption of ASC 606. (See Note 2 of Notes to Consolidated Financial Statements for additional information on our adoption of ASC 606.)
(c)	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.
(d)	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.
(e)	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.
(f)	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 that was entered into in connection with this refinancing combined the Agency Credit Facility and the SFS Credit Facility into one asset-based revolving credit facility. As a result of this refinancing and the concurrent elimination of the separate segment-based revolving credit facilities, 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 all prior periods have been recast to reflect this change in the measurement of segment profitability.
(g)	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.
(h)	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.
(i)	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.
(j)	Represents the total purchase price of property sold in private sales that we have brokered, including our commissions.
(k)	Represents the sum of Aggregate Auction Sales, Private Sales, and inventory sales attributable to the Agency segment.
(l)	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 —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.

Our buyer's premium is based on a tiered rate structure, which generally charges buyers a lower percentage for higher valued property, while lower valued property is charged a higher rate of commission. Accordingly, our aggregate Auction Commission Margin ⁶ 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 21 of Notes to Consolidated Financial Statements for information related to our use of auction guarantees.)

__________________________________________________

⁶ 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.

In 2018, our net auction results ⁷ increased $36.8 million ( 6% ) primarily due to a 15% increase in Net Auction Sales, reflecting the strength of the art market during the year across most collecting categories, but most prominently in Asian Art and Contemporary Art. A significant portion of this growth was at the high-end of our business as evidenced by the 20% increase in Net Auction Sales of items with a hammer price greater than $3 million. Many of these high-value consignments required the use of auction guarantees, which in 2018 resulted in a net principal loss and significantly contributed to a decrease in Auction Commission Margin from 17.2% to 16.1% . This decrease is principally due to the sale of two high value paintings in the second quarter of 2018, one of which involved the use of buyer’s premium to mitigate a loss on an auction guarantee and the other which involved an item that earned a minimal auction commission at the final hammer price. These two transactions collectively reduced our Auction Commission Margin by 0.6% in the current year. Excluding these two transactions, our Auction Commission Margin would have been 16.7% in 2018. The remainder of the decrease in Auction Commission Margin when compared to the prior year is a reflection of the increase in sales of higher valued property, a portion of which relates to competitive high-value consignments from fiduciary sources such as estates, foundations and charities.

Private Sale Results —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 its exclusive agent in the transaction. Because private sales are individually negotiated, non-recurring transactions, the volume and value of transactions completed can vary from period to period, with associated variability in revenues.

In 2018, private sale commissions increased $14.9 million ( 22% ) 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.

Inventory Activities —Agency segment inventory activities include amounts earned 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).

In 2018, the net results of our Agency segment inventory activities improved $1.2 million, primarily due to a lower level of inventory writedowns in the current year, the impact of which was partially offset by a higher level of profitable sales recognized in 2017. Also significantly impacting the comparison of inventory sales and cost of inventory sales to the prior year is the recognition of the sale of a Fancy Vivid Pink Diamond for $71.2 million, which resulted in a gain of approximately $0.4 million (see Note 13 of Notes to Consolidated Financial Statements).

_________________________________

⁷ Net auction results include auction commissions and fees (including any net overage or shortfall related to auction guarantees) less auction related direct costs.

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 years ended December 31, 2018 and 2017 :



							Variance
Year Ended December 31,	2018			2017			$ / %			%
Revenues:
Client paid revenues (a)	$	43,887		$	50,937		$	(7,050	)	(14	%)
Intersegment revenues (b)	6,969			9,168			(2,199		)	(24	%)
Total finance revenues	50,856			60,105			(9,249		)	(15	%)
Expenses:
Corporate finance charge (c)	16,895			18,504			(1,609		)	(9	%)
Marketing	86			164			(78		)	(48	%)
Salaries and related (d)	4,966			5,024			(58		)	(1	%)
General and administrative	1,792			3,547			(1,755		)	(49	%)
Depreciation and amortization	120			244			(124		)	(51	%)
Total SFS expenses	23,859			27,483			(3,624		)	(13	%)
SFS operating income	26,997			32,622			(5,625		)	(17	%)
Non-operating (expense) income	(961		)	481			(1,442		)	N/A
SFS income before taxes	$	26,036		$	33,103		$	(7,067	)	(21	%)
Loan Portfolio Metrics:
Loan Portfolio Balance (e)	$	693,977		$	590,609		$	103,368		18	%
Average Loan Portfolio (f)	$	541,152		$	637,759		$	(96,607	)	(15	%)
Finance Revenue Percentage (g)	9.4		%	9.4		%	—		%	N/A
Client Paid Interest Revenue Percentage (h)	7.3		%	7.3		%	—		%	N/A



Legend:
(a)	Includes client paid interest, facility fees, and collateral release fees.
(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)	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 that was entered into in connection with this refinancing combined the Agency Credit Facility and the SFS Credit Facility into one asset-based revolving credit facility. As a result of this refinancing and the concurrent elimination of the separate segment-based revolving credit facilities, 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 all prior periods 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 the period end net loan portfolio balance.
(f)	Represents the average loan portfolio outstanding during the period.
(g)	Represents the annualized percentage of total client paid and intersegment finance revenues in relation to the Average Loan Portfolio.
(h)	Represents the annualized percentage of total client paid interest revenue in relation to the Average Loan Portfolio.

SFS income before taxes decreased $7.1 million (21%) largely due to a 15% decrease in the Average Loan Portfolio resulting from the repayments of certain client loans in response to higher LIBOR rates during the year. The comparison to the prior year is also influenced by significant client paid interest recognized in 2017 related to retroactive interest rate increases triggered on a client loan during that year and default rate interest collected on a significant loan, which offset the impact of the generally higher interest rates earned on the loan portfolio in 2018.

While the Average Loan Portfolio decreased 15% in the current year when compared to 2017, a number of significant new loans were funded in the fourth quarter of 2018 resulting in a 17% increase in the period end net portfolio balance when compared to September 30, 2018.

Marketing Expenses

Marketing expenses are costs related to the promotion of the Sotheby's brand and include digital and print advertising, client relationship development, Sotheby's lifestyle magazines, and certain sponsorship agreements. In 2018, marketing expenses decreased $1.5 million (6%) primarily due to lower museum sponsorship and client development costs, partially offset by costs associated with the launch of Sotheby's Home in 2018.

Salaries and Related Costs

For the years ended December 31, 2018 and 2017 , salaries and related costs consisted of the following (in thousands of dollars):



					Variance
Year Ended December 31,	2018		2017		$			%
Full-time salaries	$	166,044	$	153,707	$	12,337		8	%
Incentive compensation expense	62,786		59,562		3,224			5	%
Employee benefits and payroll taxes	54,922		61,755		(6,833		)	(11	%)
Share-based payment expense	29,703		23,479		6,224			27	%
Contractual severance agreements, net	2,625		—		2,625			N/A
Other compensation expense (a)	26,607		20,052		6,555			33	%
Total salaries and related costs	$	342,687	$	318,555	$	24,132		8	%

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.

In 2018, salaries and related costs increased $24.1 million ( 8% ) when compared to the prior year. The comparison to the prior year is adversely impacted by changes in foreign currency exchange rates, which increased salaries and related costs by $3.9 million. Excluding the impact of changes in foreign currency exchange rates, salaries and related costs increased $20.2 million (6%) in 2018. 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 —In 2018, full-time salaries increased $12.3 million ( 8% ) when compared to the prior year. The comparison to the prior year is adversely impacted by changes in foreign currency exchange rates, which increased full-time salaries by $1.9 million. Excluding the impact of changes in foreign currency exchange rates, full-time salaries increased $10.4 million (7%) in 2018 principally due to headcount and base salary increases.

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 our annual cash incentive bonus plan are aligned with performance against Sotheby's annual financial plan. In 2018, incentive compensation increased $3.2 million ( 5% ) primarily due to the significant increase in private sales results during the year.

Employee Benefits and Payroll Taxes —Employee benefits include the cost of certain of our retirement plans and health and welfare programs, as well as certain employee severance costs. Generally, the amount of employee benefit costs recognized in a period is dependent upon headcount and overall compensation levels, in addition to our financial performance, as certain of our retirement plans provide for profit-sharing contributions. The amount of expense recorded in a period is also dependent upon changes in the fair value of the liability associated with our deferred compensation plan ("DCP"), which result from gains and losses in participant deemed investment funds.

In 2018, employee benefits and payroll taxes decreased $6.8 million (11%) when compared to the prior year. The comparison to the prior year is adversely impacted by changes in foreign currency exchange rates, which increased employee benefits and payroll taxes by $1.1 million. Excluding the impact of changes in foreign currency exchange rates, employee benefits and payroll taxes decreased $7.9 million (13%) in 2018. This decrease is principally due to lower DCP costs as a result of a decline in the performance of deemed participant investments, as well as a lower level of non-restructuring related severance costs. On a consolidated basis, the lower level of DCP costs are largely offset by market losses in the trust assets related to the DCP, which are reflected in our Consolidated Income Statements within non-operating income.

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.

Share-based payment expense increased by $6.2 million ( 27% ) in 2018, reflecting an increase in our estimate of the number of performance share units ultimately expected to vest relative to the prior year. (See Note 23 of Notes to Consolidated Financial Statements for more detailed information related to our share-based compensation programs.)

Contractual Severance Agreements —In 2018, we recorded net charges of $2.6 million resulting from contractual severance agreements entered into with certain former employees, which allowed us to redirect compensation towards the headcount supporting our various growth initiatives.

Other Compensation Expense —In 2018, other compensation expense increased $6.6 million ( 33% ) when compared to 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. In 2018, general and administrative expenses increased $7.4 million ( 4% ) 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 $1.6 million. Excluding the impact of foreign currency exchange rate changes, general and administrative expenses increased $5.8 million (3%) during 2018. This increase is due to a higher level of spending on digital initiatives and facilities-related expenses, which include the cost of off-site storage during the York Property enhancement project, as well as higher travel and entertainment. These factors are partially offset by professional fee recoveries realized in the second quarter of 2018 following the resolution of certain legal matters and lower bad debt expense as the prior year included a $1.5 million charge associated with an uncollectible Agency segment loan (see Note 5 of Notes to Consolidated Financial Statements).

Depreciation and Amortization Expense

In 2018, depreciation and amortization expense increased $3 million ( 12% ) in 2018 , when compared to the prior year. This increase is primarily due to higher 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 the York Property, as well as an increase in intangible asset amortization expense. (See Item 2, "Properties" for additional information regarding the York Property enhancement program. See Note 9 of Notes to Consolidated Financial Statements for information on intangible assets.)

Restructuring Charges

Beginning in the second quarter of 2018, we implemented a restructuring plan with the principal goal of reducing headcount through the elimination of certain Agency segment and corporate level positions (the "2018 Restructuring Plan"). The 2018 Restructuring Plan was completed in the fourth quarter of 2018 and resulted in $10.8 million of related charges, almost entirely attributable to severance-related costs. As of December 31, 2018, the remaining restructuring liability was $5.9 million and is recorded on our Consolidated Balance Sheets within accounts payable and accrued liabilities. This liability is expected to be substantially settled through cash payments to be made throughout 2019.

Net Interest Expense

In 2018, net interest expense increased $7.5 million ( 24% ) largely due to $3.2 million of 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"). The comparison to the prior year is also unfavorably influenced by a change in the classification of revolving credit facility costs that was made in the third quarter of 2018, as discussed in more detail below.

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 Consolidated Income Statements. In September 2017, we modified our cash management strategy in order to reduce borrowing costs by applying excess cash balances against revolving credit facility borrowings. On June 26, 2018, we refinanced our previous credit agreements. The new credit agreement that was entered into in connection with this refinancing combined the Agency Credit Facility and the SFS Credit Facility into one asset-based revolving credit facility. Subsequent to the refinancing and resulting elimination of the SFS Credit Facility, the SFS loan portfolio is no longer directly funded with revolving credit facility borrowings. Accordingly, beginning in the third quarter of 2018, all borrowing costs associated with our revolving credit facility are recorded as interest expense in our Consolidated Income Statements. This change in classification contributed $2.4 million to the increase in net interest expense between the current and prior year periods. 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 decreased by $11.4 million (52%) in 2018 when compared to the prior year primarily as a result of lower borrowings due to the change in our cash management strategy.

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 and SFS (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 11 of Notes to 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.

Non-Operating Income

In 2018, non-operating income decreased $2.4 million (33%) primarily due to a decline in the performance of the trust assets related to the DCP and a lower net credit associated with our U.K. Pension Plan (see Note 10 of Notes to Consolidated Financial Statements). These factors are partially offset by gains realized on the settlement of certain foreign currency denominated transactions in the current year. As discussed above under "Salaries and Related Costs," on a consolidated basis, market losses in the trust assets related to the DCP are largely offset by the the lower level of DCP costs reflected in our Consolidated Income Statements within salaries and related costs.

Income Tax Expense

Our effective income tax rate is 20.8% for the year ended December 31, 2018, compared to 17.9% in the prior year. The increase in our effective income tax rate is primarily due to a net tax charge of $4.8 million recorded in the current year related to the effective settlement of an income tax audit and a $7 million benefit recorded in the prior year to reverse a liability for a previously uncertain tax position for which the statute of limitations had expired. These factors are partially offset by an income tax benefit of $8.7 million recorded in the current year to adjust the provisional income tax expense of $1.2 million recorded in the prior year upon the enactment of the U.S. Tax Cuts and Jobs Act in 2017, as discussed below.

U.S. Tax Reform —The Act was enacted into law on December 22, 2017. Certain provisions of the Act have the effect of reducing our effective tax rate beginning on January 1, 2018, such as: (i) a reduction of the U.S. corporate income tax rate from 35% to 21%; (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; and (iii) the creation of Foreign Derived Intangible Income (“FDII”), a new category of income that is taxed at a lower rate. Conversely, certain provisions of the Act have the effect of increasing our effective tax rate beginning on January 1, 2018, 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.

Upon enactment of the Act, the SEC issued SAB 118, which allowed companies to record the income tax effects of the Act as a provisional amount based on reasonable estimates for those tax effects and provided a one-year measurement period for companies to finalize the accounting of the income tax effects of the Act. 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. This provisional net income tax expense was adjusted in 2018 through the recording of $8.7 million in tax benefits as we finalized our accounting for the Act. In total, between 2017 and 2018, we recorded a net income tax benefit of $7.5 million related to the Act, which consists of the following components:

•

An expense of $36.4 million to record a liability for the one-time transition tax on certain unremitted and untaxed earnings of our foreign subsidiaries. This amount consists of a $40.4 million liability that was recorded in the fourth quarter of 2017, which was adjusted in 2018 through a $4 million income tax benefit that was recorded to reduce the liability as a result of guidance that was issued by the IRS during the year and as a result of revisions made to certain estimates used in the calculation as of December 31, 2017;

•

An expense of $16.3 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%. This amount consists of a $19.8 million charge recorded in the fourth quarter of 2017, which was adjusted in 2018 through a $2.2 million income tax benefit to increase the value of our net deferred tax assets based on further analysis of available tax accounting methods and elections and a $1.3 million income tax benefit to increase the value of our deferred tax assets related to certain executive compensation based on guidance that was issued by the IRS during the year; and

•

An income tax benefit of $60.2 million to reduce our deferred tax liability related to the earnings of our foreign subsidiaries that were not deemed to be indefinitely reinvested. This amount consists of a $59 million income tax benefit recorded in the fourth quarter of 2017, which was adjusted in 2018 through a $1.2 million income tax benefit recorded to reduce our estimate of the deferred tax liability.

Our accounting for the effects of the Act is complete as of December 31, 2018; however, there may be some elements of the Act that remain subject to further clarification by the issuance of future regulations or notices by the U.S. Treasury Department or IRS which could result in adjustments to previously recorded amounts, including the issuance of final regulations on January 15, 2019 related to the one-time transition tax. We are evaluating the effect of the final regulations on the amount of the transition tax liability but don't believe that the regulations will have a material impact on the recorded liability.

The FASB voted to permit companies to elect to record deferred taxes on temporary basis differences that are expected to reverse as GILTI in the future, rather than recording the tax effect of those temporary differences as a period cost. We have chosen to account for any taxes associated with GILTI as a period cost and, accordingly, we have included the impact of changes in these temporary differences on GILTI as a period cost in our current tax provision.

Equity in Earnings of Investees

In 2018, our share of earnings from equity method investees increased $1.1 million primarily due to improved performance by RM Sotheby's, partially offset by lower results from Acquavella Modern Art. (See Note 6 of Notes to Consolidated Financial Statements for additional information regarding our equity method investments.)

Impact of Changes in Foreign Currency Exchange Rates

For the year ended December 31, 2018 , changes in foreign currency exchange rates had a net favorable impact of approximately $0.9 million on our operating income, with revenues favorably impacted by $10.1 million and expenses unfavorably impacted by $9.2 million.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

Consolidated Results of Operations

Overview —In 2017, our net income was $118.8 million , or $2.20 per diluted share, representing a $44.7 million ( 60% ) improvement when compared to 2016 when we reported net income of $74.1 million , or $1.27 per diluted share. After excluding certain items, Adjusted Net Income* improved $22.1 million ( 22% ), from $99.6 million to $121.7 million , and Adjusted Diluted EPS* improved from $1.71 to $2.25 . The improvement in Adjusted Net Income* was principally due to a stronger art market, which resulted in a 12% increase in Consolidated Sales and a 11% increase in auction commissions and fees when compared to 2016, as well as a significant improvement in our inventory activities. These factors were partially offset by a higher level of indirect expenses largely due to investments in growth initiatives and a higher level of incentive compensation reflecting improved performance against plan targets.

_______________________

^* 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 Table —The table below presents a summary of our consolidated results of operations and related statistical metrics for the years ended December 31, 2017 and 2016, as well as a comparison between the two years (in thousands of dollars, except per share data):



							Variance
Year Ended December 31,	2017			2016			$ / %			%
Revenues:
Agency commissions and fees (a)	$	809,571		$	724,398		$	85,173		12	%
Inventory sales	178,982			62,863			116,119			*
Finance	50,937			52,716			(1,779		)	(3	%)
Other	17,890			17,965			(75		)	—	%
Total revenues	1,057,380			857,942			199,438			23	%
Expenses:
Agency direct costs (a)	150,133			125,889			24,244			19	%
Cost of inventory sales	181,487			81,782			99,705			*
Cost of finance revenues	19,312			17,738			1,574			9	%
Marketing	25,377			19,695			5,682			29	%
Salaries and related (b)	318,555			315,640			2,915			1	%
General and administrative	172,950			161,356			11,594			7	%
Depreciation and amortization	24,053			21,817			2,236			10	%
Voluntary separation incentive programs, net	(162		)	(610		)	448			73	%
Total expenses	891,705			743,307			148,398			20	%
Operating income	165,675			114,635			51,040			45	%
Net interest expense (c)	(31,034		)	(29,016		)	(2,018		)	(7	%)
Non-operating income	7,045			11,115			(4,070		)	(37	%)
Income before taxes	141,686			96,734			44,952			46	%
Income tax expense	25,415			25,957			(542		)	(2	%)
Equity in earnings of investees	2,508			3,262			(754		)	(23	%)
Net income	118,779			74,039			44,740			60	%
Less: Net loss attributable to noncontrolling interest	(17		)	(73		)	56			77	%
Net income attributable to Sotheby's	$	118,796		$	74,112		$	44,684		60	%
Diluted earnings per share - Sotheby's common shareholders	$	2.20		$	1.27		$	0.93		73	%
Statistical Metrics :
Aggregate Auction Sales (d)	$	4,567,310		$	4,247,873		$	319,437		8	%
Net Auction Sales (e)	$	3,816,792		$	3,556,090		$	260,702		7	%
Private Sales (f)	$	744,640		$	583,410		$	161,230		28	%
Consolidated Sales (g)	$	5,490,932		$	4,894,146		$	596,786		12	%
Effective income tax rate	17.9		%	26.8		%	(8.9		%)	N/A
Non-GAAP Financial Measures:
Adjusted Expenses (h)	$	539,038		$	476,154		$	62,884		13	%
Adjusted Operating Income (h)	$	167,410		$	156,379		$	11,031		7	%
Adjusted Net Income (h)	$	121,699		$	99,616		$	22,083		22	%
Adjusted Diluted EPS (h)	$	2.25		$	1.71		$	0.54		32	%
Adjusted Effective Income Tax Rate (h)	24.6		%	23.0		%	1.6		%	N/A
EBITDA (h)	$	199,298		$	150,902		$	48,396		32	%
Adjusted EBITDA (h)	$	200,176		$	192,646		$	7,530		4	%



Legend :
*	Represents a variance in excess of 100%.
(a)	On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers . The adoption of ASC 606 did not impact the timing of our revenue recognition, but it changed the presentation of certain Agency-related revenues and expenses previously reported on a net basis in our Consolidated Income Statements. Results for the years ended December 31, 2017 and 2016 have been recast to reflect the retrospective adoption of ASC 606. (See Note 2 of Notes to Consolidated Financial Statements for additional information on our adoption of ASC 606.)
(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 of our employees perform duties that could be categorized across more than one of these line items.
(c)	Represents interest expense principally attributable to long-term debt 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.

Agency Segment

Agency Segment Overview —In 2017, Agency segment income before taxes increased $36.7 million ( 54% ), from $67.3 million to $103.9 million . After excluding certain items, Adjusted Agency Segment Income Before Taxes* improved $9.1 million ( 9% ). The improvement in Adjusted Agency Segment Income Before Taxes* is principally due to a stronger art market, which resulted in a 12% increase in Consolidated Sales and associated increases in auction commissions ( 8% ) and private sale commissions ( 22% ), as well as a significant improvement in our inventory activities and better results from our portfolio of auction guarantees. These factors are partially offset by a higher level of indirect expenses largely due to investments in growth initiatives and a higher level of incentive compensation reflecting improved performance against plan targets.

Agency Segment Financial Data Table —The table below presents a summary of Agency segment income before taxes and related statistical metrics for the years ended December 31, 2017 and 2016, as well as a comparison between the two years (in thousands of dollars). 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.

__________________________________

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



							Variance
Year Ended December 31,	2017			2016			$ / %			%
Revenues:
Auction commissions and fees:
Auction commissions (a) (b)	$	694,501		$	641,220		$	53,281		8	%
Auction related fees, net (a) (b)	32,459			16,594			15,865			96	%
Total Auction commissions and fees	726,960			657,814			69,146			11	%
Private sale commissions (a) (b)	67,343			54,984			12,359			22	%
Other Agency commissions and fees (a)	13,617			11,600			2,017			17	%
Total Agency commissions and fees (b)	807,920			724,398			83,522			12	%
Inventory sales (a)	167,628			54,829			112,799			*
Total Agency segment revenues (b)	975,548			779,227			196,321			25	%
Expenses:
Agency direct costs:
Auction direct costs (b)	143,468			119,223			24,245			20	%
Private sale expenses (b)	6,361			6,666			(305		)	(5	%)
Intersegment costs (c)	9,168			8,518			650			8	%
Total Agency direct costs (b)	158,997			134,407			24,590			18	%
Cost of inventory sales (d)	173,160			75,574			97,586			*
Marketing	24,860			19,311			5,549			29	%
Salaries and related (e)	305,677			293,784			11,893			4	%
General and administrative	165,224			155,448			9,776			6	%
Depreciation and amortization	23,015			21,081			1,934			9	%
Voluntary separation incentive programs, net	(148		)	(614		)	466			76	%
Total Agency segment expenses	850,785			698,991			151,794			22	%
Agency segment operating income	124,763			80,236			44,527			55	%
Net interest expense (f)	(28,294		)	(26,303		)	(1,991		)	(8	%)
Non-operating income	6,479			11,384			(4,905		)	(43	%)
Equity in earnings of investees	995			1,967			(972		)	(49	%)
Agency segment income before taxes	$	103,943		$	67,284		$	36,659		54	%
Statistical Metrics:
Aggregate Auction Sales (g)	$	4,567,310		$	4,247,873		$	319,437		8	%
Net Auction Sales (h)	$	3,816,792		$	3,556,090		$	260,702		7	%
Items sold at auction with a hammer (sale) price greater than $1 million	558			528			30			6	%
Total hammer (sale) price of items sold at auction with a hammer price greater than $1 million	$	2,322,634		$	1,963,512		$	359,122		18	%
Items sold at auction with a hammer (sale) price greater than $3 million	192			163			29			18	%
Total hammer (sale) price of items sold at auction with a hammer (sale) price greater than $3 million	$	1,700,768		$	1,369,147		$	331,621		24	%
Auction Commission Margin (i)	17.2		%	17.1		%	0.1		%	N/A
Private Sales (j)	$	736,825		$	583,410		$	153,415		26	%
Consolidated Sales (k)	$	5,471,763		$	4,886,112		$	585,651		12	%
Non-GAAP Financial Measures:
Adjusted Agency Segment Income Before Taxes (l)	$	106,732		$	97,659		$	9,073		9	%



Legend:
*	Represents a variance in excess of 100%.
(a)	See Note 4 of Notes to Consolidated Financial Statements for a description of each component of Agency segment revenues.
(b)	On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers. The adoption of ASC 606 did not impact the timing of our revenue recognition, but it changed the presentation of certain Agency-related revenues and expenses previously reported on a net basis in our Consolidated Income Statements. Results for the years ended December 31, 2017 and 2016 have been recast to reflect the retrospective adoption of ASC 606. (See Note 2 of Notes to Consolidated Financial Statements for additional information on our adoption of ASC 606.)
(c)	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.
(d)	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.
(e)	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.
(f)	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 that was entered into in connection with this refinancing combined the Agency Credit Facility and the SFS Credit Facility into one asset-based revolving credit facility. As a result of this refinancing and the concurrent elimination of the separate segment-based revolving credit facilities, 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 all prior periods have been recast to reflect this change in the measurement of segment profitability.
(g)	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.
(h)	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.
(i)	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.
(j)	Represents the total purchase price of property sold in private sales that we have brokered, including our commissions.
(k)	Represents the sum of Aggregate Auction Sales, Private Sales, and inventory sales attributable to the Agency segment.
(l)	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 —In 2017, our net auction results (i.e., auction commissions and fees, net of related direct costs) increased $44.9 million ( 8% ) principally due to a 7% increase in Net Auction Sales. The comparison to the prior year was also impacted by changes in foreign currency exchange rates, which reduced net auction results by $9.4 million. Excluding the impact of changes in foreign currency exchange rates, net auction results increased $54.3 million (10%). See below for a more detailed discussion of Net Auction Sales and Auction Commission Margin.

Net Auction Sales —In 2017, Net Auction Sales increased $260.7 million ( 7% ) principally due to a stronger art market, which resulted in significantly higher sales of Impressionist, Modern and Contemporary Art. The higher level of sales in these collecting categories was partially offset by a decrease in sales of Asian Art and Jewelry, as well as changes in foreign currency exchange rates which reduced Net Auction Sales by $71.6 million. Excluding the impact of changes in foreign currency exchange rates, Net Auction Sales increased by $332.3 million (9%).

Auction Commission Margin — In 2017, Auction Commission Margin improved slightly from 17.1% to 17.2% , reflecting changes to our buyer's premium rate structure and a shift in sales mix towards higher valued property.

Private Sale Results —In 2017, private sale commissions increased $12.4 million ( 22% ) due to a higher level of transaction volume during the year, particularly with respect to higher valued property.

Inventory Activities— In 2017, the net results of our Agency segment inventory activities improved due to a lower level of inventory writedowns, as well as a number of profitable sales completed during the current year. The higher overall level of inventory sales and inventory cost of sales in 2017 was largely due to the sale at auction of a Fancy Vivid Pink Diamond for

$71.2 million, which resulted in a gain of approximately $0.4 million. (See Note 13 of Notes to Consolidated Financial Statements.)

Sotheby's Financial Services

The following table presents a summary of SFS income before taxes and related loan portfolio metrics as of and for the years ended December 31, 2017 and 2016 (in thousands of dollars):



							Variance
Year Ended December 31,	2017			2016			$ / %			%
Revenues:
Client paid revenues (a)	$	50,937		$	52,716		$	(1,779	)	(3	%)
Intersegment revenues (b)	9,168			8,518			650			8	%
Total finance revenues	60,105			61,234			(1,129		)	(2	%)
Expenses:
Corporate finance charge (c)	18,504			15,310			3,194			21	%
Marketing	164			162			2			1	%
Salaries and related (d)	5,024			4,599			425			9	%
General and administrative	3,547			2,565			982			38	%
Depreciation and amortization	244			119			125			*
Total SFS expenses	27,483			22,755			4,728			21	%
SFS operating income	32,622			38,479			(5,857		)	(15	%)
Non-operating income (loss)	481			(144		)	625			N/A
SFS income before taxes	$	33,103		$	38,335		$	(5,232	)	(14	%)
Loan Portfolio Metrics:
Loan Portfolio Balance (e)	$	590,609		$	675,109		$	(84,500	)	(13	%)
Average Loan Portfolio (f)	$	637,759		$	646,135		$	(8,376	)	(1	%)
Finance Revenue Percentage (g)	9.4		%	9.5		%	(0.1		%)	N/A
Client Paid Interest Revenue Percentage (h)	7.3		%	6.7		%	0.6		%	N/A



Legend:
*	Represents a variance in excess of 100%.
(a)	Includes client paid interest, facility fees, and collateral release fees.
(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)	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 that was entered into in connection with this refinancing combined the Agency Credit Facility and the SFS Credit Facility into one asset-based revolving credit facility. As a result of this refinancing and the concurrent elimination of the separate segment-based revolving credit facilities, 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 all prior periods 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 the period end net loan portfolio balance.
(f)	Represents the average loan portfolio outstanding during the period.
(g)	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.

SFS income before taxes decreased $5.2 million (14%) in 2017 primarily due to non-recurring collateral release fees earned in the prior year and a lower level of facility fees attributable to a lower loan portfolio balance.

Marketing Expenses

In 2017, marketing expenses increased $5.7 million (29%) primarily due to higher spending related to digital initiatives, including costs to live stream our auctions, and higher sponsorship and client relationship development costs. To a lesser extent, costs incurred to promote the opening of an office in Dubai and the relocation of our Geneva salesroom also contributed to the increase.

Salaries and Related Costs

For the years ended December 31, 2017 and 2016, salaries and related costs consisted of the following (in thousands of dollars):



					Variance
Year Ended December 31,	2017		2016		$			%
Full-time salaries	$	153,707	$	143,577	$	10,130		7	%
Incentive compensation expense	59,562		41,035		18,527			45	%
Employee benefits and payroll taxes	61,755		50,425		11,330			22	%
Share-based payment expense	23,479		15,935		7,544			47	%
Contractual severance agreements, net	—		7,354		(7,354		)	(100	%)
Acquisition earn-out compensation	—		35,000		(35,000		)	(100	%)
Other compensation expense (a)	20,052		22,314		(2,262		)	(10	%)
Total salaries and related costs	$	318,555	$	315,640	$	2,915		1	%

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.

Full-Time Salaries —In 2017, full-time salaries increased $10.1 million (7%) principally due to base salary increases and headcount reinvestments.

Incentive Compensation — In 2017, incentive compensation expense increased $18.5 million (45%), reflecting improved performance against plan targets relative to the prior year.

Share-Based Payment Expense —In 2017, share-based payment expense increased by $7.5 million (47%), reflecting an increase in the estimate of the number of performance share units ultimately expected to vest relative to the prior year.

Employee Benefits and Payroll Taxes —In 2017, employee benefits and payroll taxes increased $11.3 million (22%), principally due to newly added staff, higher overall compensation levels, and increased employee severance costs. The increase in employee benefits and payroll taxes was also, in part, attributable to an increase in payroll taxes associated with a higher value of share-based payment awards vesting during the current year and higher DCP costs as a result of an improvement in the performance of deemed participant investments. On a consolidated basis, the higher level of DCP costs were largely offset by market gains in the trust assets related to the DCP, which were reflected in our Consolidated Income Statements within non-operating income.

Contractual Severance Agreements —In the first and third quarters of 2016, we entered into contractual severance agreements with certain former senior employees that provide cash severance benefits and the ability to continue to vest in share-based payment awards after termination of employment. In 2016, salaries and related costs included net charges of $7.4 million associated with these arrangements.

Acquisition Earn-Out Compensation — For the year ended December 31, 2016, we recognized $35 million of compensation expense associated with the AAP earn-out arrangement reflecting the full achievement of the cumulative financial target as a result of our improved market share in the Contemporary Art collecting category, as well as an improvement in auction commission margins, during the initial annual period. The $35 million owed under the earn-out arrangement is being paid out in four annual increments of $8.75 million in the first quarter of each year beginning in 2017 and through 2020. (See Note 8 of Notes to Consolidated Financial Statements for additional information regarding the acquisition of AAP and the related earn-out arrangement.)

General and Administrative Expense

In 2017, general and administrative expenses increased $11.6 million ( 7% ) largely as a result of higher levels of legal fees, facilities-related costs, and travel and entertainment, as well as a $1.5 million charge associated with an uncollectible Agency segment loan (see Note 5 of Notes to Consolidated Financial Statements). These factors were partially offset by a lower level of legal claims and client goodwill gestures.

Depreciation and Amortization Expense

In 2017, depreciation and amortization expense increased $2.2 million ( 10% ) primarily due to a $1.9 million accelerated depreciation charge recorded in the fourth quarter of 2017 for certain building improvements and other fixed assets that were removed from service in connection with the York Property enhancement program.

Net Interest Expense

In 2017, net interest expense increased $2 million (7%) due to a higher interest rate related to the York Property Mortgage and $1 million of incremental interest expense associated with the refinancing of our 2022 Notes with proceeds from the issuance of the 2025 Notes. The incremental interest expense associated with the refinancing is principally due to the fact that the 2022 Notes remained outstanding until their contractual redemption date on January 11, 2018. (See Note 11 of Notes to Consolidated Financial Statements.)

Non-Operating Income

In 2017, non-operating income decreased $4.1 million (37%) primarily due to a reduction in the net credit associated with the U.K. Pension Plan. This decrease was primarily due to a lower expected rate of return on plan assets and an increase in the required amortization of prior year actuarial losses. The lower expected rate of return was the result of a change in asset allocation strategy in the first quarter of 2017, which reduced risk by investing a higher proportion of plan assets in debt securities.

Income Tax Expense

Our effective income tax rate for 2017 was 17.9%, compared to 26.8% in 2016. The decrease in our effective income tax rate was primarily due to a decrease in U.S. taxes owed on our foreign earnings and the reversal in 2017 of a liability for a previously uncertain tax position for which the statute of limitations has expired. These factors were partially offset by a change in the jurisdictional mix of pre-tax earnings, which resulted in a lower portion of our income coming from jurisdictions with a statutory tax rate that was lower than the 35% rate that was in effect in the U.S. during those periods. To a lesser extent, the change in our effective income tax rate between 2017 and 2016 was impacted by provisional net income tax expense of $1.2 million recorded in the fourth quarter of 2017 related to the U.S. Tax Cuts and Jobs Tax Act, as discussed in more detail below. (See Note 19 of Notes to Consolidated Financial Statements for additional information on Uncertain Tax Positions.)

In the fourth quarter of 2017, we recorded a provisional net income tax expense of approximately $1.2 million based on reasonable estimates for the tax effects related to the U.S. Tax Cuts and Jobs Tax Act , consisting of the following:


•	Non-cash income tax expense of $19.8 million due to a reduction in the value of our net deferred tax assets, primarily due to the change in the U.S. corporate tax rate from 35% to 21% and the potential limitation of certain future business deductions;


•	Income tax 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; and


•	A non-cash income tax benefit of $59 million to reverse previously recognized deferred tax liabilities related to the earnings of our foreign subsidiaries that were not deemed to be indefinitely reinvested.

Equity in Earnings of Investees

In 2017, our equity in the earnings of our equity method investees decreased $0.8 million primarily due to lower earnings from RM Sotheby's, partially offset by improved results from Acquavella Modern Art. (See Note 6 of Notes to Consolidated Financial Statements for additional information regarding our equity method investments.)

Impact of Changes in Foreign Currency Exchange Rates

For the year ended December 31, 2017, changes in foreign currency exchange rates had a net unfavorable impact of approximately $5.6 million on our operating income, with revenues unfavorably impacted by $14.1 million and expenses favorably impacted by $8.5 million.

CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018, 2017, and 2016

For the years ended December 31, 2018 , 2017 , and 2016 total cash, cash equivalents, and restricted cash (decreased) increased ($723.7) million, $367.7 million , and $323.1 million , respectively. The captioned sections below explain the significant factors contributing to the (decrease) increase in cash, cash equivalents, and restricted cash during each of these years. This discussion should be read in conjunction with our Consolidated Statements of Cash Flows for the years ended December 31, 2018 , 2017 , and 2016 .

Net Cash (Used) Provided 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 1 of Notes to 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 year ended December 31, 2018 , net cash used by operating activities of approximately $77.8 million is principally due to net cash outflows of $260.9 million associated with the settlement of auction and private sale transactions during the period. This net cash outflow is the result of net sale proceeds that were remitted to consignors in early 2018 after being collected from buyers late in 2017. This cash outflow is partially offset by our net income for the period ( $108.6 million ) and net cash inflows from the sale of inventory ($19.3 million).

For the year ended December 31, 2017 , net cash provided by operating activities of $368.5 million was largely attributable to net cash inflows of $153.5 million associated with the settlement of auction and private sale transactions during the period, due in part to collections from buyers late in 2017 for which the corresponding net sale proceeds were not disbursed to the consignors until early in 2018. Also contributing to the net cash provided by operating activities were the sale of inventory, including the sale of a Fancy Vivid Pink Diamond (see Note 13 of Notes to Consolidated Financial Statements), and our net income of $118.8 million for the period.

For the year ended December 31, 2016 , net cash provided by operating activities of $156.2 million was principally attributable to net income of $74.1 million for the period and net proceeds received from the sale of inventory, including $34.2 million received upon the sale of an undivided 50% ownership interest in a Fancy Vivid Pink Diamond (see Note 13 of Notes to Consolidated Financial Statements).

Net Cash (Used) Provided by Investing Activities —For the year ended December 31, 2018 , the net cash used by investing activities of $87.3 million is largely due to the funding of capital expenditures of $56.8 million, including $24 million attributable to the York Property enhancement program (see Part 1, Item 2, "Properties"), and the net funding of client loans ($25.6 million).

For the year ended December 31, 2017 , the net cash provided by investing activities of $65.6 million was largely due to net collections of client loans ($54.8 million) and a $29.1 million net gain realized upon the settlement of derivative financial instruments designated as net investment hedges. These net cash inflows were partially offset by capital expenditures of $20.7 million primarily for various office renovations. (See Note 12 of Notes to Consolidated Financial Statements for additional information related to derivative financial instruments.)

For the year ended December 31, 2016 , the net cash used by investing activities of $92.1 million was primarily attributable to the cash used to acquire AAP ($50.7 million, net of cash acquired), $21.4 million in capital expenditures related to various office renovations and digital technology initiatives, and the net funding of client loans ($15.4 million). (See Note 8 of Notes to Consolidated Financial Statements for information related to the acquisition of AAP.)

Net Cash Used by Financing Activities —For the year ended December 31, 2018 , net cash used by financing activities of $548.6 million is primarily due to the extinguishment of our $300 million 2022 Senior Notes, including the payment of a $7.9 million call premium, and common stock repurchases ($295.2 million, including $10.5 million attributable to a forward contract indexed to Sotheby's stock as part of an accelerated share repurchase agreement). These net cash outflows were partially offset by net borrowings under our revolving credit facilities ($83.5 million).

For the year ended December 31, 2017 , net cash used by financing activities of $77.6 million was due to net repayments of revolving credit facility borrowings ($368.5 million), common stock repurchases ($44.5 million), principal payments made on the York Property Mortgage ($39.7 million), and the funding of employee tax obligations related to share-based payments ($16.9 million). These net cash outflows were partially offset by the cash inflows from the refinancing of our 2022 Senior Notes in the fourth quarter of 2017.

For the year ended December 31, 2016 , net cash used by financing activities of $351.6 million was predominantly due to common stock repurchases of $359.9 million.

(See Note 11 of Notes to Consolidated Financial Statements for additional information regarding our revolving credit facilities, the York Property Mortgage, and the refinancing of our 2022 Senior Notes. See Note 15 of Notes to Consolidated Financial Statements for information on our common stock repurchase program.)

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table summarizes our material contractual obligations and commitments as of December 31, 2018 (in thousands of dollars):



	Payments Due by Year
	Total		2019		2020 to 2021		2022 to 2023		Thereafter
Debt (a):
York Property Mortgage:
Principal payments	$	260,843	$	14,614	30,323		$	215,906	$	—
Interest payments	43,399		12,921		24,789		5,689		—
Sub-total	304,242		27,535		55,112		221,595		—
2025 Senior Notes:
Principal payments	400,000		—		—		—		400,000
Interest payments	136,500		19,500		39,000		39,000		39,000
Sub-total	536,500		19,500		39,000		39,000		439,000
Revolving credit facility borrowings	280,000		—		—		280,000		—
Total debt and interest payments	1,120,742		47,035		94,112		540,595		439,000
Other commitments:
Operating lease obligations (b)	105,360		20,039		31,804		21,199		32,318
Compensation arrangements (c)	11,350		6,207		4,400		743		—
Acquisition earn-out consideration (d)	17,500		8,750		8,750		—		—
Auction guarantees (e)	98,273		98,273		—		—		—
Unfunded loan commitments (f)	54,036		54,036		—		—		—
Liability related to U.S. Tax Cuts and Jobs Act (g)	15,271		—		—		4,113		11,158
Uncertain tax positions (h)	—		—		—		—		—
Total other commitments	301,790		187,305		44,954		26,055		43,476
Total	$	1,422,532	$	234,340	$	139,066	$	566,650	$	482,476

(a)

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 forecasted additional annual principal prepayments of $6.25 million each July continuing through 2021. (See Note 11 of Notes to Consolidated Financial Statements for additional information related to the York Property Mortgage, as well as information related to the 2025 Senior Notes and our revolving credit facility. See Note 12 of Notes to Consolidated Financial Statements for additional information related to the interest rate collar.)

(b)

These amounts represent undiscounted non-cancellable future minimum operating lease commitments primarily related to salesroom and exhibition space, office space, and warehouse facilities, including any contractual market-based or indexed rent adjustments that are currently in effect. Operating lease obligations reflected in the table above 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 December 31, 2018, net of amounts advanced, if any. (See Note 21 of Notes to 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 Consolidated Financial Statements for additional information related to the SFS loan portfolio.)

(g) Represents the 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 18 of Notes to Consolidated Financial Statements.)

(h)

Excludes the $12.6 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 Consolidated Balance Sheets as of December 31, 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 19 of Notes to Consolidated Financial Statements.)

OFF-BALANCE SHEET ARRANGEMENTS

For information related to off-balance sheet arrangements: (i) see Note 5 of Notes to Consolidated Financial Statements, which discusses unfunded SFS loan commitments; (ii) see Note 21 of Notes to Consolidated Financial Statements, which discusses auction guarantees; and (iii) see Note 22 of Notes to Consolidated Financial Statements, which discusses operating lease obligations.

DERIVATIVE FINANCIAL INSTRUMENTS

For information related to derivative financial instruments, see Note 12 of Notes to Consolidated Financial Statements.

CONTINGENCIES

For information related to contingencies: (i) see Note 5 of Notes to Consolidated Financial Statements, which discusses past due loans; (ii) see Note 19 of Notes to Consolidated Financial Statements, which discusses income tax contingencies; (iii) see Note 20 of Notes to Consolidated Financial Statements, which discusses legal and other tax contingencies; and (iv) see Note 21 of Notes to Consolidated Financial Statements, which discusses auction guarantees.

UNCERTAIN TAX POSITIONS

For information related to uncertain tax positions, see Note 19 of Notes to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Overview —As of December 31, 2018 , we held cash and cash equivalents of $178.6 million , with $31.1 million held in the U.S. and $153.3 million held by our foreign subsidiaries (see “Repatriation of Foreign Earnings” below). In addition to our available cash balances, we also have access to a revolving credit facility to support our various capital requirements. As of December 31, 2018 , our revolving credit facility had a total available borrowing capacity of $577.8 million . (See Note 11 of Notes to 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. 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, net of tax credits and other U.S. deductions, is approximately $25 million, and is being paid in installments over eight years beginning in 2018. In 2018, we repatriated approximately $370 million of the $460 million in foreign earnings to the U.S. and, as of December 31, 2018, the remaining liability for the one-time mandatory transition tax was approximately $15.3 million. (See statement on Forward Looking Statements.) (See Note 18 of Notes to the Consolidated Financial Statements for additional information of the effects of the Act.)

Assessment of Liquidity and Capital Requirements —We generally rely on operating cash flows, existing cash balances (including amounts collected on behalf of and owed to consignors), 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 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, the timing of the repatriation of foreign earnings, and the cyclical nature of the global art market.

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 Consolidated Financial Statements); (ii) the potential funding of auction guarantees (see Note 21 of Notes to Consolidated Financial Statements); (iii) the potential funding of client loans (see Note 5 of Notes to Consolidated Financial Statements); (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 $45 million related to various real estate projects; (vii) the funding of other possible business initiatives and/or investments; (viii) the funding of potential common stock repurchases (see Note 16 of Notes to 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 existing cash balances, operating cash flows, 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.)

ACQUISITION OF ART AGENCY, PARTNERS

See Note 8 of Notes to Consolidated Financial Statements for information related to our acquisition of Art Agency, Partners.

RECENT ACCOUNTING STANDARDS NOT YET ADOPTED

See Note 2 of Notes to 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-K 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-K are:



(i)	Adjusted Expenses	(v)	Adjusted Diluted Earnings Per Share ("Adjusted Diluted EPS")
(ii)	Adjusted Operating Income	(vi)	Adjusted Effective Income Tax Rate ("Adjusted ETR")
(iii)	Adjusted Agency Segment Income Before Taxes	(vii)	EBITDA
(iv)	Adjusted Net Income	(viii)	Adjusted EBITDA

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)	Earn-out compensation expense related to the acquisition of AAP;

(v)	Leadership transition severance costs;
	Leadership transition severance costs;
(vi)	Net credits associated with our previous regional voluntary separation incentive programs;

(vii)	CEO Separation and Transition Costs;
	CEO Separation and Transition Costs;
(viii)	Special charges associated with shareholder activism;

(ix)	The loss incurred in connection with the extinguishment of our 2022 Senior Notes;

(x)	The write-off of unamortized credit facility fees related to the refinancing of our previous credit agreement;

(xi)	The charge resulting from the concurrent amendments to the York Property Mortgage and the related interest rate collar;

(xii)	The net charge associated with the effective settlement of an income tax audit;

(xiii)	Net income tax (benefit) expense associated with the enactment of the U.S. Tax Cuts and Jobs Act; and

(xiv)	Income tax expense associated with the repatriation of pre-2014 foreign earnings.

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. We use Adjusted Expenses to assess our cost structure when compared to prior periods and on a forward-looking basis, particularly in evaluating performance against our cost control initiatives. 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 years ended December 31, 2018, 2017, and 2016 have been recast to reflect the retrospective adoption of ASC 606. (See Note 2 of Notes to Consolidated Financial Statements.)

We use Adjusted ETR to compare our effective income tax rate between reporting periods absent the effect of unusual items and the tax effects of items not reported in current year income. We also believe that these measures may be helpful to securities analysts, investors, financial institutions, and other interested parties in their evaluation of our effective income tax rate.

We caution users of our financial statements that amounts presented in accordance with 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 years ended December 31, 2018 , 2017 , and 2016 (in thousands of dollars):



Year Ended December 31,	2018		2017			2016
Total expenses	$	854,395	$	891,705		$	743,307
Subtract: Agency direct costs	184,491		150,133			125,889
Subtract: Cost of inventory sales	81,103		181,487			81,782
Subtract: Cost of finance revenues	4,056		19,312			17,738
Subtract: Restructuring charges	10,753		—			—
Subtract: Contractual severance agreement charges, net	2,625		—			7,354
Subtract: Accelerated depreciation charges	3,359		1,897			—
Subtract: Acquisition earn-out compensation expense	—		—			35,000
Subtract: Voluntary separation incentive program credits, net	—		(162		)	(610		)
Adjusted Expenses	$	568,008	$	539,038		$	476,154

The following is a reconciliation of operating income to Adjusted Operating Income for the years ended December 31, 2018 , 2017 , and 2016 (in thousands of dollars):



Year Ended December 31,	2018		2017			2016
Operating income	$	181,345	$	165,675		$	114,635
Add: Restructuring charges	10,753		—			—
Add: Contractual severance agreement charges, net	2,625		—			7,354
Add: Accelerated depreciation charges	3,359		1,897			—
Add: Acquisition earn-out compensation expense	—		—			35,000
Add: Voluntary separation incentive program credits, net	—		(162		)	(610		)
Adjusted Operating Income	$	198,082	$	167,410		$	156,379

The following is a reconciliation of Agency segment income before taxes to Adjusted Agency Segment Income Before Taxes for the years ended December 31, 2018 , 2017 , and 2016 (in thousands of dollars):



Year Ended December 31,	2018		2017			2016
Agency segment income before taxes	$	111,055	$	103,943		$	67,284
Add: Restructuring charges	10,660		—			—
Add: Contractual severance agreement charges, net	2,625		—			7,354
Add: Accelerated depreciation charges	3,359		1,897			—
Add: Acquisition earn-out compensation expense	—		—			23,635
Add: Voluntary separation incentive program credits, net	—		(148		)	(614		)
Add: Charge related to interest rate collar amendment	—		1,040			—
Adjusted Agency Segment Income Before Taxes	$	127,699	$	106,732		$	97,659

The following is a reconciliation of net income attributable to Sotheby's to Adjusted Net Income for the years ended December 31, 2018 , 2017 , 2016 , 2015 , and 2014 (in thousands of dollars):



Year Ended December 31,	2018		2017			2016			2015			2014
Net income attributable to Sotheby's	$	108,634	$	118,796		$	74,112		$	43,727		$	117,795
Add: Restructuring charges (net), net of tax of ($2,327), $0, $0, $339, and ($5,221)	8,426		—			—			(633		)	9,017
Add: Contractual severance agreement charges (net), net of tax of ($627), $0, ($2,852), $0, and $0	1,998		—			4,502			—			—
Add: Accelerated depreciation charges, net of tax of ($830), ($721), $0, $0, and $0	2,529		1,176			—			—			—
Add: Acquisition earn-out compensation expense, net of tax of $0, $0, ($13,615), $0, and $0	—		—			21,385			—			—
Add: Leadership transition severance costs, net of tax of $0, $0, $0, ($5,167), and $0	—		—			—			8,084			—
Add: Voluntary separation incentive program (credits) charges (net), net of tax of $0, $63, $227, ($13,298), and $0	—		(99		)	(383		)	23,640			—
Add: CEO separation and transition costs, net of tax of $0, $0, $0, ($1,651), and ($3,138)	—		—			—			2,581			4,453
Add: Special charges (net), net of tax of $0, $0, $0, $0, and ($8,875)	—		—			—			—			11,133
Add: Loss on extinguishment of debt, net of tax of ($2,692), $0, $0, $0, and $0	8,163		—			—			—			—
Add: Write-off of credit facility fees, net of tax of ($922), $0, $0, $0, and $0	3,060		—			—			—			—
Add: Charge related to interest rate collar amendment, net of tax of $0, ($398), $0, $0, and $0	—		642			—			—			—
Add: Net charge associated with the effective settlement of an income tax audit	4,837		—			—			—			—
Add: Income tax (benefit) expense associated with the enactment of the U.S. Tax Cuts and Jobs Act	(8,706)		1,184			—			—			—
Add: Income tax expense related to repatriation of pre-2014 foreign earnings	—		—			—			65,732			—
Adjusted Net Income	$	128,941	$	121,699		$	99,616		$	143,131		$	142,398

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

The following is a reconciliation of diluted earnings per share to Adjusted Diluted EPS for the years ended December 31, 2018 , 2017 , 2016 , 2015 , and 2014 :



Year Ended December 31,	2018		2017		2016			2015			2014
Diluted earnings per share	$	2.09	$	2.20	$	1.27		$	0.63		$	1.68
Add: Restructuring charges (net), per share	0.16		—		—			(0.01		)	0.13
Add: Contractual severance agreement charges (net), per share	0.04		—		0.08			—			—
Add: Accelerated depreciation charges, per share	0.05		0.02		—			—			—
Add: Acquisition earn-out compensation expense, per share	—		—		0.37			—			—
Add: Leadership transition severance costs, per share	—		—		—			0.11			—
Add: Voluntary separation incentive program (credits) charges (net), per share	—		—		(0.01		)	0.34			—
Add: CEO separation and transition costs, per share	—		—		—			0.04			0.06
Add: Special charges (net), per share	—		—		—			—			0.16
Add: Write-off of credit facility fees, per share	0.06		—		—			—			—
Add: Extinguishment of debt, per share	0.16		—		—			—			—
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	0.09		—		—			—			—
Add: Income tax (benefit) expense associated with the enactment of the U.S. Tax Cuts and Jobs Act, per share	(0.17)		0.02		—			—			—
Add: Income tax expense related to repatriation of pre-2014 foreign earnings, per share	—		—		—			0.96			—
Adjusted Diluted EPS	$	2.48	$	2.25	$	1.71		$	2.07		$	2.03

The following is a reconciliation of our effective income tax rate calculated in accordance with GAAP to our Adjusted ETR for the years ended December 31, 2018, 2017, and 2016:



Year Ended December 31,	2018		2017		2016
Effective income tax rate	20.8	%	17.9	%	26.8	%
Add: Effect of enacted tax legislation	6.6	%	(0.8	%)	0.1	%
Add: Changes in tax reserves	(0.1	%)	4.8	%	(1.3	%)
Add: Excess tax benefits from share-based payments	0.8	%	1.8	%	0.0	%
Add: Changes in valuation allowance	0.5	%	0.0	%	(0.5	%)
Add: Taxes on equity earnings	(0.2	%)	0.2	%	(1.2	%)
Add: Effective settlement of income tax audits	(4.2	%)	0.0	%	0.0	%
Add: Tax effect related to items not in current year income	0.6	%	0.7	%	(0.9	%)
Adjusted ETR	24.8	%	24.6	%	23.0	%

The following is a reconciliation of net income attributable to Sotheby's to EBITDA and Adjusted EBITDA for the years ended December 31, 2018 , 2017 , 2016 , 2015 , and 2014 (in thousands of dollars):



Year Ended December 31,	2018		2017			2016			2015			2014
Net income attributable to Sotheby's	$	108,634	$	118,796		$	74,112		$	43,727		$	117,795
Add: Income tax expense	27,652		25,415			25,957			131,145			75,761
Add: Income tax expense related to equity investees	—		—			—			—			599
Subtract: Interest income	1,467		1,184			1,294			1,776			1,883
Add: Interest expense	39,984		32,218			30,310			32,745			35,189
Add: Depreciation and amortization	27,048		24,053			21,817			19,481			20,575
EBITDA	201,851		199,298			150,902			225,322			248,036
Add: Restructuring charges, net	10,753		—			—			(972		)	14,238
Add: Contractual severance agreement charges, net	2,625		—			7,354			—			—
Add: Acquisition earn-out compensation expense	—		—			35,000			—			—
Add: Voluntary separation incentive program (credits) charges, net	—		(162		)	(610		)	36,938			—
Add: Leadership transition severance costs	—		—			—			13,251			—
Add: CEO separation and transition costs	—		—			—			4,232			7,591
Add: Special charges, net	—		—			—			—			20,008
Add: Extinguishment of debt	10,855		—			—			—			—
Add: Write-off of credit facility fees	3,982		—			—			—			—
Add: Charge related to interest rate collar amendment	—		1,040			—			—			—
Adjusted EBITDA	$	230,066	$	200,176		$	192,646		$	278,771		$	289,873

FORWARD LOOKING STATEMENTS

This Form 10-K 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 Sotheby's financial performance. 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 I, Item 1A, "Risk Factors."

ITEM 7A : 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 December 31, 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 Consolidated Financial Statements for information related to notes receivable. See Note 11 of Notes to Consolidated Financial Statements for information related to credit facility borrowings, the York Property Mortgage, and unsecured senior notes. See Note 12 of Notes to 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 December 31, 2018 , the notional value of the Mortgage Collar was $260.8 million . (See Note 11 of Notes to Consolidated Financial Statements for information regarding the York Property Mortgage. See Note 12 of Notes to Consolidated Financial Statements for information regarding the Mortgage Collar.)

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. 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 December 31, 2018 , the notional value of the outstanding forward exchange contracts used to hedge our foreign currency exchange rate risk, including the net investment hedge contracts discussed below, was $243.3 million .

As of December 31, 2018 , our foreign subsidiaries held approximately $155.5 million in foreign currency denominated cash and restricted 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 $15.5 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 December 31, 2018 , the aggregate notional value of our outstanding net investment hedge contracts was $55.7 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 8 : FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Sotheby’s

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Sotheby’s and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with the accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/S/ DELOITTE & TOUCHE LLP

New York, New York

February 28, 2019

We have served as the Company's auditor since at least 1984, in connection with its initial public offering; however, an earlier year could not be reliably determined.

SOTHEBY'S

CONSOLIDATED INCOME STATEMENTS

(Thousands of dollars, except per share data)



Year Ended December 31,	2018			2017			2016

Revenues:
Agency commissions and fees	$	891,774		$	809,571		$	724,398
Inventory sales	80,808			178,982			62,863
Finance	43,887			50,937			52,716
Other	19,271			17,890			17,965
Total revenues	1,035,740			1,057,380			857,942
Expenses:
Agency direct costs	184,491			150,133			125,889
Cost of inventory sales	81,103			181,487			81,782
Cost of finance revenues	4,056			19,312			17,738
Marketing	23,897			25,377			19,695
Salaries and related	342,687			318,555			315,640
General and administrative	180,360			172,950			161,356
Depreciation and amortization	27,048			24,053			21,817
Restructuring charges (see Note 25)	10,753			—			—
Voluntary separation incentive programs, net (see Note 24)	—			(162		)	(610		)
Total expenses	854,395			891,705			743,307
Operating income	181,345			165,675			114,635
Interest income	1,467			1,184			1,294
Interest expense	(39,984		)	(32,218		)	(30,310		)
Extinguishment of debt	(10,855		)	—			—
Write-off of credit facility fees	(3,982		)	—			—
Non-operating income	4,688			7,045			11,115
Income before taxes	132,679			141,686			96,734
Income tax expense	27,652			25,415			25,957
Equity in earnings of investees	3,591			2,508			3,262
Net income	108,618			118,779			74,039
Less: Net loss attributable to noncontrolling interest	(16		)	(17		)	(73		)
Net income attributable to Sotheby's	$	108,634		$	118,796		$	74,112
Basic earnings per share - Sotheby's common shareholders	$	2.10		$	2.22		$	1.28
Diluted earnings per share - Sotheby's common shareholders	$	2.09		$	2.20		$	1.27

See accompanying Notes to Consolidated Financial Statements

SOTHEBY'S

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Thousands of dollars)



Year Ended December 31,	2018			2017			2016

Net income	$	108,618		$	118,779		$	74,039
Other comprehensive (loss) income:
Currency translation adjustments	(9,510		)	13,889			(34,899		)
Cash flow hedges	399			2,635			642
Net investment hedges	1,768			(3,059		)	16,618
Defined benefit pension plan	(2,235		)	14,427			(6,515		)
Total other comprehensive (loss) income	(9,578		)	27,892			(24,154		)
Comprehensive income	99,040			146,671			49,885
Less: Comprehensive loss attributable to noncontrolling interests	(16		)	(17		)	(73		)
Comprehensive income attributable to Sotheby's	$	99,056		$	146,688		$	49,958

See accompanying Notes to Consolidated Financial Statements

SOTHEBY'S CONSOLIDATED BALANCE SHEETS (Thousands of dollars)

December 31,	2018			2017
Assets
Current assets:
Cash and cash equivalents	$	178,579		$	544,432
Restricted cash (see Notes 11 and 15)	4,836			361,578
Accounts receivable, net	978,140			795,239
Notes receivable, net	103,834			87,746
Inventory	43,635			74,483
Income tax receivables	3,353			6,601
Prepaid expenses and other current assets (see Note 14)	38,631			32,010
Total current assets	1,351,008			1,902,089
Notes receivable, net	602,389			507,538
Fixed assets, net	386,736			352,035
Goodwill	55,573			50,547
Intangible assets, net	12,993			11,492
Income tax receivables	16,694			324
Deferred income taxes	37,035			35,674
Other long-term assets (see Note 14)	226,660			227,608
Total assets	$	2,689,088		$	3,087,307
Liabilities and Shareholders' Equity
Current liabilities:
Client payables	$	997,168		$	996,197
Accounts payable and accrued liabilities	101,366			90,298
Accrued salaries and related costs	92,219			94,310
Current portion of long-term debt, net	13,604			308,932
Accrued income taxes	31,169			8,127
Other current liabilities (see Note 14)	13,263			18,762
Total current liabilities	1,248,789			1,516,626
Credit facility borrowings	280,000			196,500
Long-term debt, net	638,786			653,003
Accrued income taxes	19,933			37,651
Deferred income taxes	14,569			15,163
Other long-term liabilities (see Note 14)	45,517			51,424
Total liabilities	2,247,594			2,470,367
Commitments and contingencies (see Note 20)
Shareholders’ equity:
Common Stock, $0.01 par value	711			709
Authorized shares—200,000,000
Issued shares—71,188,120 and 70,830,184
Outstanding shares—46,346,863 and 52,461,996
Additional paid-in capital	463,623			453,364
Treasury stock shares, at cost: 24,841,257 and 18,368,188	(839,284		)	(554,551		)
Retained earnings	888,333			779,699
Accumulated other comprehensive loss	(72,044		)	(62,466		)
Total shareholders’ equity	441,339			616,755
Noncontrolling interest	155			185
Total equity	441,494			616,940
Total liabilities and shareholders' equity	$	2,689,088		$	3,087,307

See accompanying Notes to Consolidated Financial Statements

SOTHEBY'S CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of dollars)

Year Ended December 31,	2018			2017			2016
Operating Activities:
Net income attributable to Sotheby's	$	108,634		$	118,796		$	74,112
Adjustments to reconcile net income attributable to Sotheby's to net cash (used) provided by operating activities:
Extinguishment of debt	10,855			—			—
Write-off of credit facility fees	3,982			—			—
Depreciation and amortization	27,048			24,053			21,817
Deferred income tax benefit	(2,361		)	(27,985		)	(24,156		)
Share-based payments	29,703			23,479			15,216
Net pension benefit	(3,155		)	(4,660		)	(6,895		)
Inventory writedowns and bad debt provisions	10,305			14,902			23,441
Amortization of debt issuance costs	1,736			1,690			1,619
Equity in earnings of investees	(3,591		)	(2,508		)	(3,262		)
Other	1,246			1,077			794
Changes in assets and liabilities:
Accounts receivable	(278,225		)	(297,690		)	437,398
Client payables	17,337			451,186			(136,097		)
Related party client payables (see Note 27)	—			—			(285,418		)
Inventory (see Note 13)	19,335			73,709			29,746
Changes in other operating assets and liabilities (see Note 15)	(20,661		)	(7,589		)	7,873
Net cash (used) provided by operating activities	(77,812		)	368,460			156,188
Investing Activities:
Funding of notes receivable	(389,064		)	(198,481		)	(321,127		)
Collections of notes receivable	363,494			253,268			305,770
Capital expenditures	(56,824		)	(20,694		)	(21,363		)
Acquisitions, net of cash acquired (see Notes 8 and 9)	(6,094		)	(75		)	(54,343		)
Funding of investments	(257		)	(6,542		)	(2,200		)
Distributions from investees	3,204			4,825			1,925
Proceeds from the sale of equity investment	—			2,125			325
Proceeds from company-owned life insurance	—			2,100			2,182
Settlement of net investment hedges (see Note 12)	(1,747		)	29,110			(3,308		)
Net cash (used) provided by investing activities	(87,288		)	65,636			(92,139		)
Financing Activities:
Proceeds from credit facility borrowings	743,000			181,500			164,500
Repayments of credit facility borrowings	(659,500		)	(550,000		)	(141,000		)
Repayments of York Property Mortgage	(14,258		)	(39,667		)	(7,302		)
Proceeds from the issuance of 2025 Senior Notes (see Note 11)	—			400,000			—
Settlement of 2022 Senior Notes, including call premium (see Note 11)	(307,875		)	—			—
Debt issuance and other borrowing costs	(4,482		)	(5,729		)	(320		)
Repurchases of common stock	(284,733		)	(44,495		)	(359,885		)
Purchase of forward contract indexed to Sotheby's common stock	(10,500		)	—			—
Dividends paid	—			(2,375		)	(1,743		)
Funding of employee tax obligations upon the vesting of share-based payments	(10,222		)	(16,857		)	(5,890		)
Net cash used by financing activities	(548,570		)	(77,623		)	(351,640		)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(10,022		)	11,252			(35,472		)
(Decrease) increase in cash, cash equivalents and restricted cash	(723,692		)	367,725			(323,063		)
Cash, cash equivalents, and restricted cash at beginning of period	923,926			556,201			879,264
Cash, cash equivalents, and restricted cash at end of period	$	200,234		$	923,926		$	556,201

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 12 for information regarding derivative financial instruments designated as net investment hedges.

See accompanying Notes to Consolidated Financial Statements

SOTHEBY'S

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 2018 , 2017 , AND 2016

(Thousands of dollars, except per share data)



	Common Stock		Additional Paid-In Capital			Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Loss			Total
Balance at January 1, 2016	$	700	$	435,696		$	(150,000	)	$	586,235	$	(66,204	)	$	806,427
Net income attributable to Sotheby's									74,112					74,112
Other comprehensive loss											(24,154		)	(24,154		)
Common stock shares withheld to satisfy employee tax obligations			(5,890		)									(5,890		)
Restricted stock units vested, net	3		(3		)									—
Amortization of share-based payment expense			15,216											15,216
Tax deficiency from share-based payments			(1,342		)									(1,342		)
Shares and deferred stock units issued to directors			934											934
Repurchases of common stock						(359,885		)						(359,885		)
Balance at December 31, 2016	703		444,611			(509,885		)	660,347		(90,358		)	505,418
Net income attributable to Sotheby's									118,796					118,796
Other comprehensive income											27,892			27,892
Stock options exercised	1		1,106											1,107
Common stock shares withheld to satisfy employee tax obligations			(16,857		)									(16,857		)
Restricted stock units vested, net	5		(5		)									—
Amortization of share-based payment expense			23,479											23,479
Shares and deferred stock units issued to directors			999											999
Repurchases of common stock						(44,495		)						(44,495		)
Other adjustments related to share-based payments			31			(171		)	556					416
Balance at December 31, 2017	709		453,364			(554,551		)	779,699		(62,466		)	616,755
Net income attributable to Sotheby's									108,634					108,634
Other comprehensive loss											(9,578		)	(9,578		)
Common stock shares withheld to satisfy employee tax obligations			(10,222		)									(10,222		)
Restricted stock units vested, net	2		(2		)									—
Amortization of share-based payment expense			29,703											29,703
Shares and deferred stock units issued to directors			1,280											1,280
Repurchases of common stock						(284,733		)						(284,733		)
Forward contract indexed to Sotheby's common stock			(10,500		)									(10,500		)
Balance at December 31, 2018	$	711	$	463,623		$	(839,284	)	$	888,333	$	(72,044	)	$	441,339

See accompanying Notes to Consolidated Financial Statements

SOTHEBY'S

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 —Summary of Significant Accounting Policies

Company Overview —Since 1744, Sotheby’s has been uniting collectors with world-class works of art, which in these financial statements is meant to include authenticated fine art, decorative art, jewelry, wine, and collectibles and may also be referred to as "art," "artwork," or "property." Today, Sotheby's offers property from more than 70 collecting categories to clients from 130 countries and presents auctions in ten different salesrooms, including New York, London, Hong Kong and Paris, and Sotheby’s BidNow program allows clients to view all auctions live online and place bids from anywhere in the world. 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 Consolidated Financial Statements included herein have been prepared 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").

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, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation —The 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 Consolidated Income Statements and the non-controlling 20% ownership interest is reported as "Noncontrolling Interest" within the Equity section of our 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 Consolidated Income Statements within Equity in Earnings of Investees. Our interest in the net assets of these investees is recorded on our Consolidated Balance Sheets within Other Long-Term Assets . (See Note 6 for information related to our equity method investments.)

Foreign Currency Translation —Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenues, expenses, gains, and losses recorded in foreign currencies are translated using the monthly average exchange rates prevailing during the period in which they are recognized. Translation adjustments resulting from this process are recorded to Other Comprehensive (Loss) Income and reported on our Consolidated Balance Sheets within Accumulated Other Comprehensive Loss until the subsidiary is sold or liquidated, at which point the adjustments are recognized in Net Income.

Valuation of Inventory and Loan Collateral —The art market is not a highly liquid trading market. As a result, the valuation of art is inherently subjective and the realizable value of art often fluctuates over time. In estimating the realizable value of art held in inventory and art pledged as collateral for loans, we consider the following complex array of factors: (i) whether the property is expected to be offered at auction or sold privately, and the timing of any such sale; (ii) the supply and demand for the property, taking into account current art market conditions, as well as changing trends as to which collecting categories and artists are most sought after; (iii) recent sale prices achieved for comparable items within a particular collecting category and/or by a particular artist; (iv) the state of the global economy and financial markets; and (v) our intent and ability to hold the property in order to maximize its realizable value. Due to the inherent subjectivity involved in estimating the realizable value of art held in inventory and art pledged as collateral for loans, our estimates of realizable value may prove, with the benefit of hindsight, to be different than the amount ultimately realized upon sale.

Inventory —Inventory consists of artworks that we own and includes the following general categories:(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). (See Note 21 for information related to auction guarantees.)

Inventory is valued on a specific identification basis at the lower of cost or our estimate of realizable value (i.e., the expected sale price upon disposition). If there is evidence that the estimated realizable value of a specific item held in Inventory is less than its carrying value, a writedown is recorded to reflect our revised estimate of realizable va lue. For the years ended December 31, 2018 , 2017 , and 2016 , inventory writedowns totaled $9.5 million , $13.6 million , and $22.3 million , respectively, and are recorded within Cost of Inventory Sales in our Consolidated Income Statements.

Although all of the items held in Inventory are available for immediate sale, the timing of eventual sale is difficult to predict due to the high value and unique nature of each item, as well as the cyclical nature of the global art market. We expect that the items held in Inventory will be sold in the ordinary course of our business during the normal operating cycle for such items.

Fixed Assets —Fixed Assets are stated at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful life of the asset. Buildings are depreciated over a useful life of up to 50 years . Building improvements are depreciated over a useful life of up to 20 years . Furniture and fixtures are depreciated over a useful life of up to seven years. Leasehold improvements are amortized using the straight-line method over the lesser of the term of the related lease or the estimated useful life of the improvement. Computer software purchased or developed for internal use consists of the cost of purchased software, as well as direct external and internal software development costs. These costs are amortized on a straight-line basis over the estimated useful life of the software, which is typically between seven to ten years for enterprise systems and three years for other types of software. (See Note 7 for information related to Fixed Assets.)

Goodwill —Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in a business combination. Goodwill is not amortized, but is tested annually for impairment at the reporting unit level as of October 31 and between annual tests if indicators of potential impairment exist. These indicators could include a decline in our stock price and market capitalization, a significant change in the outlook for the reporting unit's business, lower than expected operating results, increased competition, legal factors, or the sale or disposition of a significant portion of a reporting unit. For reporting units with goodwill, an impairment loss is recognized for the amount by which the reporting unit's carrying value exceeds its fair value. The fair value of the reporting units in our Agency segment is determined in reference to a blend of the income and market approaches, and the fair value of our art advisory reporting unit is determined using a discounted cash flow methodology. (See Note 9 for information related to Goodwill.)

The significant assumptions used in the income approach and discounted cash flow approach include (i) forecasted growth rates and (ii) forecasted profitability, both of which are estimated based on consideration of our historical performance and projections of our future performance, and (iii) discount rates that are used to calculate the value of future projected cash flows, which rates are derived based on our estimated weighted average cost of capital. The significant assumptions used in the market approach include selected multiples applied to certain operating metrics. Considerable judgment is necessary to evaluate the impact of operating changes and business initiatives in order to estimate future growth rates and profitability in order to estimate future cash flows and multiples. This is particularly true in a cyclical business, like that of Sotheby's. Future business results could significantly impact the evaluation of our goodwill which could have a material impact on the determination of whether a potential impairment exists and the size of any such impairment.

Intangible Assets —Intangible assets are amortized over their estimated useful lives unless the useful life of a particular intangible asset is deemed to be indefinite. If indicators of potential impairment exist, intangible assets with defined useful lives are tested for impairment based on our estimates of undiscounted cash flows and, if impaired, written down to fair value based on either discounted cash flows or appraised values. (See Note 9 for information related to Intangible Assets.)

Impairment of Long-Lived Assets —Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In such situations, long-lived assets are considered impaired when estimated future cash flows (undiscounted and without interest charges) resulting from the use of the asset and its eventual disposition are less than the asset's carrying amount. In such situations, the asset is written down to the present value of the estimated future cash flows. Factors that are considered when evaluating long-lived assets for impairment include a current expectation that it is more likely than not that the long-lived asset will be sold significantly before the end of its useful life, a significant decrease in the market price of the long-lived asset, and a significant change in the extent or manner in which the long-lived asset is being used.

Deferred Tax Assets & Liabilities — We follow the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized, based on enacted tax rates, for the future tax consequences of (i) temporary differences between the tax basis of assets and liabilities and their reported amounts in our consolidated financial statements and (ii) operating loss and tax credit carry-forwards for tax purposes. A valuation allowance is recorded to reduce our deferred tax assets to the amount that is more likely than not to be realized. In assessing the need for the valuation allowance, management considers, among other things, projections of future taxable income and ongoing prudent and feasible tax planning strategies. If we determine that sufficient negative evidence exists (for example, if we experience cumulative three-year losses in a certain jurisdiction), then we will consider recording a valuation allowance against a portion or all of the deferred tax assets in that jurisdiction. If, after recording a valuation allowance, our projections of future taxable income and other positive evidence considered in evaluating the need for a valuation allowance prove, with the benefit of hindsight, to be inaccurate, it could prove to be more difficult to support the realization of our deferred tax assets. As a result, an additional valuation allowance could be required, which would have an adverse impact on our effective income tax rate and results. Conversely, if, after recording a valuation allowance, we determine that sufficient positive evidence exists in the jurisdiction in which the valuation allowance was recorded (for example, if we are no longer in a three-year cumulative loss position in the jurisdiction, and we expect to have future taxable income in that jurisdiction based upon our forecasts and the expected timing of deferred tax asset reversals), we may reverse a portion or all of the valuation allowance in that jurisdiction. In such situations, the adjustment made to the deferred tax asset would have a favorable impact on our effective income tax rate and on our results in the period such determination was made. (See Note 18 for information related to income taxes, including the recorded balances of our valuation allowance related to deferred tax assets.)

Revenue Recognition (Agency Commissions and Fees) —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. The revenue recognition policy for each of the principal components of Agency Commissions and Fees is described below. (See Note 4 for a table that summarizes our revenues by segment and type for the years ended December 31, 2018, 2017, and 2016.)

(1) Auction Commissions —In our role as auctioneer, we accept works of art on consignment and match sellers 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.

(2) Auction Guarantees —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 Consolidated Balance Sheets 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). The market for fine art, decorative art, and jewelry is not a highly liquid trading market. As a result, the valuation of property acquired as a result of failed auction guarantees is inherently subjective and its realizable value often fluctuates over time. Accordingly, the proceeds ultimately realized on the sale of previously guaranteed property may equal, exceed, or be less than the estimated net realizable value recorded as Inventory on our Consolidated Balance Sheets.

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 aggregate 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. The amount of any auction guarantee overage or shortfall is reported on a net basis within Agency Commissions and Fees.

(3) 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.

(4) 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.

(5) 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 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.

(6) 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.

Revenue Recognition (Inventory Sales) —From time-to-time, the Agency segment earns revenue from the sale of items held in Inventory. Such 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.

Revenue Recognition (Finance Revenues) —Finance revenues consist principally of interest income earned on Notes Receivable. Such interest income is recognized when earned, based on the amount of the outstanding loan, the applicable interest rate on the loan, and the length of time the loan is outstanding during the period. (See Note 5 for information related to Notes Receivable.)

Revenue Recognition (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.

Revenue Recognition (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 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.

We maintain an Allowance for Doubtful Accounts against our Accounts Receivable balances, which principally includes estimated losses associated with situations when we have paid the net sale proceeds to the seller and it is probable that payment will not be collected from the buyer. The Allowance for Doubtful Accounts also includes an estimate of probable losses inherent in the remainder of the Accounts Receivable balance. The amount of the required allowance is based on the facts available to management, including the value of any property held as collateral, and is reevaluated and adjusted as additional facts become known. Based on all available information, we believe that the Allowance for Doubtful Accounts is adequate as of December 31, 2018; however, actual losses may ultimately exceed the recorded allowance. As of December 31, 2018 and 2017, the Allowance for Doubtful Accounts was $9.1 million and $8.7 million , respectively.

Agency Direct Costs —A large portion of Agency Direct Costs relate to sale marketing expenses such as catalogue production and distribution, advertising and promotion costs, and traveling exhibition costs. Such costs are deferred and recorded on our Consolidated Balance Sheets within Prepaid Expenses and Other Current Assets until the date of the sale when they are recognized in our Consolidated Income Statements.

Salaries and Related Costs —Salaries and related costs are not allocated 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.

A substantial portion of the share-based payment awards vest only if we achieve established profitability (for awards granted prior to 2016) or certain return on invested capital (or "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. Accordingly, if our projections of future performance against these targets prove, with the benefit of hindsight, to be inaccurate, the amount of life-to-date and future compensation expense related to share-based payments could significantly increase or decrease.

In 2015, we granted a share-based payment award to Thomas S. Smith, Jr., our President and CEO, with a single vesting opportunity after a five -year service period contingent upon the achievement of pre-determined levels of appreciation related to our common stock. The compensation expense recognized for this share-based payment is based on our estimate of the grant date fair value of the award. In developing this estimate, we considered then-current market conditions, historical data, and any other relevant data.

Note 2 —Recently Issued Accounting Standards

Accounting Standards Adopted in 2018

Revenue Recognition —In May 2014, the Financial Accounting Standards Board (the "FASB") issued an Accounting Standards Update ("ASU") which amended previous 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 Consolidated Income Statements. 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 tables below under "Summary of Adjustments to Prior Period Presentation" show the impact of the retrospective adoption of ASC 606 on our Consolidated Income Statements for the years ended December 31, 2017 and 2016.

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 tables below under "Summary of Adjustments to Prior Period Presentation" show the impact of our retrospective adoption of ASU 2016-15 on our Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016.

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 tables below under "Summary of Adjustments to Prior Period Presentation" show the impact of our retrospective adoption of ASU 2016-18 on our Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016. (See Note 15 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 income (loss). We retrospectively adopted ASU 2017-07 on January 1, 2018. The tables below under "Summary of Adjustments to Prior Period Presentation" show the impact of our retrospective adoption of ASU 2017-07 on our Consolidated Income Statements for the for the years ended December 31, 2017 and 2016. (See Note 10 for information related to our defined benefit pension plan in the U.K.)

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 (the "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. We adopted ASU 2018-02 in the fourth quarter of 2018 and elected not to reclassify the stranded income tax effects in AOCI related to the Act to retained earnings in the statement of stockholders’ equity. Instead, any stranded income tax effects recorded in AOCI shall be reclassified into earnings in the period in which the underlying item is settled.

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. We adopted ASU 2018-14 in the fourth quarter of 2018 and provided the required disclosures in this report. (See Note 10.)

Summary of Adjustments to Prior Period Presentation

The following tables summarize the impact of the retrospective adoption of ASC 606 and ASU 2017-07 on our Consolidated Income Statements for the years ended December 31, 2017 and 2016 (in thousands of dollars):



Year Ended December 31, 2017	As Previously Reported		ASC 606 Adjustment		ASU 2017-07 Adjustment			As Adjusted
Revenues:
Agency commissions and fees	$	741,580	$	67,991	$	—		$	809,571
Total revenues	$	989,389	$	67,991	$	—		$	1,057,380
Expenses:
Agency direct costs	$	82,142	$	67,991	$	—		$	150,133
Salaries and related	$	313,895	$	—	$	4,660		$	318,555
Total expenses	$	819,054	$	67,991	$	4,660		$	891,705
Operating income	$	170,335	$	—	$	(4,660	)	$	165,675
Non-operating income	$	2,385	$	—	$	4,660		$	7,045
Net income attributable to Sotheby's	$	118,796	$	—	$	—		$	118,796



Year Ended December 31, 2016	As Previously Reported		ASC 606 Adjustment		ASU 2017-07 Adjustment			As Adjusted
Revenues:
Agency commissions and fees	$	671,833	$	52,565	$	—		$	724,398
Total revenues	$	805,377	$	52,565	$	—		$	857,942
Expenses:
Agency direct costs	$	73,324	$	52,565	$	—		$	125,889
Salaries and related	$	307,659	$	—	$	7,981		$	315,640
Total expenses	$	682,761	$	52,565	$	7,981		$	743,307
Operating income	$	122,616	$	—	$	(7,981	)	$	114,635
Non-operating income	$	3,134	$	—	$	7,981		$	11,115
Net income attributable to Sotheby's	$	74,112	$	—	$	—		$	74,112

The following tables summarize the impact of the retrospective adoption of ASU 2016-15 and ASU 2016-18 on our Consolidated Statement of Cash Flows for the years ended December 31, 2017, and 2016 (in thousands of dollars):



Year Ended December 31, 2017	As Previously Reported			ASU 2016-15 Adjustments			ASU 2016-18 Adjustments			As Adjusted
Operating Activities:
Restricted cash related to interest on 2022 Senior Notes	$	(4,375	)	$	—		$	4,375		$	—
Changes in other operating assets and liabilities	$	(5,489	)	$	(2,100	)	$	—		$	(7,589	)
Net cash provided by operating activities	$	366,185		$	(2,100	)	$	4,375		$	368,460
Investing Activities:
Proceeds from company-owned life insurance	$	—		$	2,100		$	—		$	2,100
Increase in restricted cash	$	(3,276	)	$	—		$	3,276		$	—
Net cash provided by investing activities	$	60,260		$	2,100		$	3,276		$	65,636
Financing Activities:
Restricted cash related to York Property Mortgage	$	1,527		$	—		$	(1,527	)	$	—
Restricted cash related to 2022 Senior Notes, principal and premium	$	(307,875	)	$	—		$	307,875		$	—
Net cash used by financing activities	$	(383,971	)	$	—		$	306,348		$	(77,623	)
Effect of exchange rate changes	$	5,927		$	—		$	5,325		$	11,252
Increase in cash, cash equivalents, and restricted cash (a)	$	48,401		$	—		$	319,324		$	367,725
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)	$	544,432		$	—		$	379,494		$	923,926



Year Ended December 31, 2016	As Previously Reported			ASU 2016-15 Adjustments			ASU 2016-18 Adjustments			As Adjusted
Operating Activities:
Changes in other operating assets and liabilities	$	10,055		$	(2,182	)	$	—		$	7,873
Net cash provided by operating activities	$	158,370		$	(2,182	)	$	—		$	156,188
Investing Activities:
Proceeds from company-owned life insurance	$	—		$	2,182		$	—		$	2,182
Increase in restricted cash	$	(26,097	)	$	—		$	26,097		$	—
Net cash used by investing activities	$	(120,418	)	$	2,182		$	26,097		$	(92,139	)
Financing Activities:
Restricted cash related to York Property Mortgage	$	(4,635	)	$	—		$	4,635		$	—
Net cash used by financing activities	$	(356,275	)	$	—		$	4,635		$	(351,640	)
Effect of exchange rate changes	$	(34,343	)	$	—		$	(1,129	)	$	(35,472	)
Decrease in cash, cash equivalents, and restricted cash (a)	$	(352,666	)	$	—		$	29,603		$	(323,063	)
Cash, cash equivalents, and restricted cash at beginning of period (a)	$	848,697		$	—		30,567			$	879,264
Cash, cash equivalents, and restricted cash at end of period (a)	$	496,031		$	—		$	60,170		$	556,201

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

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. On July 30, 2018, the FASB issued ASU 2018-11, which makes targeted improvements to ASU 2016-02 (together, the "New Lease Standard").

We will adopt the New Lease Standard on January 1, 2019, using the modified retrospective method and will not restate comparative periods presented in the year of adoption. We will elect the package of practical expedients available under the transition provisions of the New Lease Standard, including (i) not reassessing whether expired or existing contracts contain leases, (ii) not reassessing previous lease classification, and (iii) not revaluing initial direct costs for existing leases. In addition, we will elect the practical expedient which allows the aggregation of non-lease components with the related lease components when evaluating accounting treatment.

Upon the adoption of the New Lease Standard, we expect to record a right-of-use asset and a corresponding operating lease liability of approximately $ 70 million to $ 80 million. In addition, as of January 1, 2019, we have implemented internal controls over financial reporting relevant to the New Lease Standard. We do not expect the New Lease Standard to have a material impact on our results of operations, cash flows, or existing debt covenants.

(See Note 22 for additional information regarding our existing portfolio of leases.)

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.

Consolidation —In October 2018, the FASB issued ASU 2018-17, Targeted Improvements to Related Party Guidance for VIE's , which, among other things, addresses fees paid to decision makers and related party service providers. ASU 2018-17 is effective for us beginning on January 1, 2020. We are currently assessing the potential impact of adopting ASU 2018-17 on our financial statements.

Note 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").

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 operating segments which include the auction, private sale, and other related activities that are conducted within 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.

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 certain equity method investments (see Note 6).

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 items highlighted in the reconciliation below.

The following table presents our segment information for the years ended December 31, 2018 , 2017 , and 2016 (in thousands of dollars):



Year ended December 31, 2018	Agency		SFS		All Other				Reconciling items				Total
Revenues	$	956,647	$	50,856	$	35,206			$	(6,969	)	(a)	$	1,035,740
Interest income	$	1,467	$	—	$	—			$	—			$	1,467
Interest expense	$	33,402	$	—	$	—			$	6,582		(b)	$	39,984
Depreciation and amortization	$	26,102	$	120	$	826			$	—			$	27,048
Segment income before taxes (b)	$	111,055	$	26,036	$	7,762			$	(12,174	)	(c)	$	132,679
Year ended December 31, 2017
Revenues (d)	$	975,548	$	60,105	$	30,895			$	(9,168	)	(a)	$	1,057,380
Interest income	$	1,184	$	—	$	—			$	—			$	1,184
Interest expense	$	29,478	$	—	$	—			$	2,740		(b)	$	32,218
Depreciation and amortization	$	23,015	$	244	$	794			$	—			$	24,053
Segment income before taxes (b)	$	103,943	$	33,103	$	10,696		(c)	$	(6,056	)	(c)	$	141,686
Year ended December 31, 2016
Revenues (d)	$	779,227	$	61,234	$	25,999			$	(8,518	)	(a)	$	857,942
Interest income	$	1,294	$	—	$	—			$	—			$	1,294
Interest expense	$	27,597	$	—	$	—			$	2,713		(b)	$	30,310
Depreciation and amortization	$	21,081	$	119	$	617			$	—			$	21,817
Segment income (loss) before taxes (b) (e)	$	67,284	$	38,335	$	(482	)		$	(8,403	)	(c)	$	96,734

(a) 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.

(b)

As a result of this refinancing and the concurrent elimination of the separate segment-based revolving credit facilities, beginning in the third quarter of 2018, when measuring segment profitability: (i) revolving credit facility costs are no longer allocated to our segments and (ii) SFS receives a corporate finance charge that is calculated assuming that 85% of their loan portfolio is funded with debt. Segment results for all prior periods have been recast to reflect these changes in the measurement of segment profitability.


(c)	The reconciling items related to segment income before taxes are detailed in the table below.


(d)	Agency segment revenue for the years ended December 31, 2017 and 2016 has been recast to reflect the retrospective adoption of ASC 606. (See Notes 2 and 3.)


(e)	Agency segment income before taxes for the year ended December 31, 2016 includes $23.9 million of compensation expense related to an earn-out arrangement with the former principals of AAP. All Other segment income (loss) before taxes for the year ended December 31, 2016 includes $11.1 million of compensation expense related to this earn-out arrangement. (See Note 8 .)

The table below presents a reconciliation of segment income (loss) before taxes to consolidated income before taxes for the years ended December 31, 2018 , 2017 , and 2016 (in thousands of dollars):



Year ended December 31,	2018			2017			2016
Agency	$	111,055		$	103,943		$	67,284
SFS	26,036			33,103			38,335
All Other	7,762			10,696			(482		)
Segment income before taxes	144,853			147,742			105,137
Unallocated amounts and reconciling items:
Revolving credit facility costs (a)	(14,623		)	(22,052		)	(20,451		)
SFS corporate finance charge	16,895			18,504			15,310
Extinguishment of debt	(10,855		)	—			—
Equity in earnings of investees (b)	(3,591		)	(2,508		)	(3,262		)
Income before taxes	$	132,679		$	141,686		$	96,734

(a) For the year ended ended December 31, 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. (See Note 11.)

(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 income before taxes in our Consolidated Income Statements. (See Note 6 .)

The table below presents geographic information about our revenues for the years ended December 31, 2018 , 2017 , and 2016 for all countries which exceeded 5% of total revenues (in thousands of dollars):



Year ended December 31,	2018			2017			2016
United States	$	484,275		$	423,169		$	399,500
United Kingdom	263,116			248,802			204,262
Hong Kong and China	176,636			227,753			149,792
Switzerland	43,351			97,246			51,327
France	58,313			56,114			46,631
Other countries	17,018			13,464			14,948
Reconciling item:
Intercompany revenue	(6,969		)	(9,168		)	(8,518		)
Total	$	1,035,740		$	1,057,380		$	857,942

The table below presents segment assets, as well as a reconciliation of segment assets to consolidated assets as of December 31, 2018 , 2017 , and 2016 (in thousands of dollars):



December 31,	2018		2017		2016
Agency	$	1,886,986	$	2,395,429	$	1,759,670
SFS	705,779		608,713		687,649
All Other	39,241		40,566		42,246
Total segment assets	2,632,006		3,044,708		2,489,565
Unallocated amounts and reconciling items:
Deferred tax assets and income tax receivable	57,082		42,599		14,861
Consolidated assets	$	2,689,088	$	3,087,307	$	2,504,426

Substantially all of our capital expenditures for the years ended December 31, 2018 , 2017 , and 2016 were attributable to the Agency segment.

Note 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 2 for information regarding the retrospective adoption of ASC 606.)

The following tables summarize our revenues by segment and type for the years ended December 31, 2018 , 2017 , and 2016 (in thousands of dollars):



Year ended December 31, 2018	Agency		SFS		All Other		Total
Revenue from contracts with customers:
Agency commissions and fees:
Auction commissions	$	767,881	$	—	$	—	$	767,881
Auction related fees, net (a)	29,088		—		—		29,088
Private sale commissions	82,263		—		1,000		83,263
Other Agency commissions and fees	11,181		—		361		11,542
Total Agency commissions and fees	890,413		—		1,361		891,774
Inventory sales	66,234		—		14,574		80,808
Advisory revenues	—		—		6,147		6,147
License fee and other revenues	—		—		13,124		13,124
Total revenue from contracts with customers	956,647		—		35,206		991,853
Finance revenue:
Interest and related fees	—		43,887		—		43,887
Total revenues	$	956,647	$	43,887	$	35,206	$	1,035,740



Year ended December 31, 2017	Agency		SFS		All Other		Total
Revenue from contracts with customers:
Agency commissions and fees:
Auction commissions	$	694,501	$	—	$	—	$	694,501
Auction related fees, net (a)	32,459		—		—		32,459
Private sale commissions	67,343		—		815		68,158
Other Agency commissions and fees	13,617		—		836		14,453
Total Agency commissions and fees	807,920		—		1,651		809,571
Inventory sales	167,628		—		11,354		178,982
Advisory revenues	—		—		5,767		5,767
License fee and other revenues	—		—		12,123		12,123
Total revenue from contracts with customers	975,548		—		30,895		1,006,443
Finance revenue:
Interest and related fees	—		50,937		—		50,937
Total revenues	$	975,548	$	50,937	$	30,895	$	1,057,380



Year ended December 31, 2016	Agency		SFS		All Other		Total
Revenue from contracts with customers:
Agency commissions and fees:
Auction commissions	$	641,220	$	—	$	—	$	641,220
Auction related fees, net (a)	16,594		—		—		16,594
Private sale commissions	54,984		—		—		54,984
Other Agency commissions and fees	11,600		—		—		11,600
Total Agency commissions and fees	724,398		—		—		724,398
Inventory sales	54,829		—		8,034		62,863
Advisory revenues	—		—		6,596		6,596
License fee and other revenues	—		—		11,369		11,369
Total revenue from contracts with customers	779,227		—		25,999		805,226
Finance revenue:
Interest and related fees	—		52,716		—		52,716
Total revenues	$	779,227	$	52,716	$	25,999	$	857,942


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

The table below summarizes the balances recorded on our Consolidated Balance Sheets related to contracts with customers as of and for the years ended December 31, 2018 and 2017 (in thousands of dollars):



December 31,	2018		2017
Accounts Receivable
Balance as of beginning of period	$	783,706	$	424,418
Balance as of end of period	$	967,817	$	783,706
Increase	$	184,111	$	359,288
Client Payables
Balance as of beginning of period	$	996,197	$	511,876
Balance as of end of period	$	997,168	$	996,197
Increase	$	971	$	484,321

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 Consolidated Balance Sheets, are excluded from this table because they are not considered to be contract balances under ASC 606.

The increases in Accounts Receivable and Client Payables during the year ended December 31, 2018 are primarily due to a higher level of Net Auction Sales in the fourth quarter of 2018 as compared to the same period in 2017. The increases versus the prior year are also influenced by the timing of auction sale settlements, which resulted in us holding significant balances of net sales proceeds at the end of 2017 that were disbursed to consignors in early 2018. The increases in Accounts Receivable and Client Payables during the year ended December 31, 2017 are primarily due to a higher level of Net Auction Sales in the fourth quarter of 2017 as compared to the same period in 2016.

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 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 December 31, 2018 and 2017 , Accounts Receivable (net) included $118.7 million and $92.1 million , respectively, related to situations when we paid the consignor all or a portion of the net sales proceeds before payment was collected from the buyer. As of December 31, 2018 and 2017 , Accounts Receivable (net) also included $39.6 million and $53.8 million , respectively, related to situations when we allowed the buyer to take possession of the property before making payment.

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 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 Consolidated Income Statements. As of December 31, 2018 and 2017 , the contract cost balances recorded within Prepaid Expenses and Other Current Assets were $10.8 million and $9.6 million , respectively.

Note 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 an initial maturity of one year with an option to renew for an additional year, 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 our 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 December 31, 2018 and 2017 , the net Notes Receivable balance of SFS was $694 million and $590.6 million , respectively. As of December 31, 2018 and 2017 , $99.7 million and $85.1 million , respectively, of the net Notes Receivable balance of SFS was classified within current assets on our Consolidated Balance Sheets, with the remainder classified within non-current assets. The classification of a loan as current or non-current takes into account the contractual maturity date of the loan, as well as the likelihood of renewing the loan on or before its contractual maturity date.

As of December 31, 2018 and 2017 , the net Notes Receivable balance of SFS includes $126.2 million and $54.4 million , respectively, of term loans issued by SFS to refinance client auction and private sale purchases. For the years ended December 31, 2018 and 2017 , SFS issued $130 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 Consolidated Statements of Cash Flows. Upon repayment, the cash received in settlement of such Notes Receivable is classified within Operating Activities in our Consolidated Statements of Cash Flows. For the years ended December 31, 2018 and 2017 , such repayments totaled $58.2 million and $40.8 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 our 50% target due to a decrease in the low auction estimate 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 December 31, 2018 and 2017 (in thousands of dollars):



December 31,	2018			2017
Secured loans	$	693,977		$	590,609
Low auction estimate of collateral	$	1,629,270		$	1,369,235
Aggregate LTV ratio	43		%	43		%

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



December 31,	2018			2017
Secured loans with an LTV ratio above 50%	$	264,916		$	168,116
Low auction estimate of collateral related to secured loans with an LTV ratio above 50%	$	476,157		$	269,063
Aggregate LTV ratio of secured loans with an LTV above 50%	56		%	62		%

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



December 31,	2018		2017
Total secured loans	$	693,977	$	590,609
Loans past due	$	14,405	$	62,570
Loans more than 90 days past due	$	8,911	$	56,087
Non-accrual loans	$	3,854	$	—
Impaired loans	$	—	$	—
Allowance for credit losses:
Allowance for credit losses for impaired loans	$	—	$	—
Allowance for credit losses based on historical data	1,075		1,253
Total allowance for credit losses - secured loans	$	1,075	$	1,253

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 obligation. As of December 31, 2018 , $14.4 million of the net Notes Receivable balance was past due, of which $8.9 million was more than 90 days past due. We are continuing to accrue interest on $10.6 million of past due loans and, as of December 31, 2018, the collateral securing such loans has a low auction estimate of approximately $110.2 million , resulting in a weighted average LTV ratio of approximately 40% . In consideration of expected loan renewals, loan repayments received to date in 2019, 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 will 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, which then had a recorded investment balance of $49.5 million consisting of a principal balance of $47.7 million and $1.8 million in accrued interest, was placed on non-accrual status. Subsequent to January 1, 2018, the balance of this loan was reduced through the collection of collateral sale proceeds and, as of December 31, 2018, our recorded investment in the loan was approximately $5.6 million , consisting of the $3.8 million principal balance and $ 1.8 million in accrued interest. The remaining investment in this loan was collected in January 2019 through the collection of additional collateral sale proceeds.

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. The determination of whether a specific loan is impaired and the amount of any required allowance is based on the facts available to management and is reevaluated and adjusted as additional facts become known. 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 December 31, 2018 and 2017 , there were no impaired SFS loans outstanding.

As of December 31, 2018 , unfunded commitments to extend additional credit through SFS were approximately $54 million .

Agency Segment — As discussed in Note 1, 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 Consolidated Balance Sheets. 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 Consolidated Statements of Cash Flows. Upon repayment, the cash received in settlement of such Notes Receivable is classified within Operating Activities in our Consolidated Statements of Cash Flows. As of December 31, 2017, Notes Receivable (net) within the Agency segment included a $2.7 million balance that was reclassified from Accounts Receivable (net). This loan was substantially repaid in the fourth quarter of 2018.

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. In the fourth quarter of 2017, we determined that one such loan was 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, 2018 and 2017 loans of this type totaled $3.1 million and $2.1 million , respectively. These balances include a loan of $2.1 million for which we are no longer accruing interest, but believe that the recorded balance is collectible.

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 Consolidated Balance Sheets within Notes Receivable (net) and totaled $3.2 million as of December 31, 2018.

Allowance for Credit Losses —For the years ended December 31, 2018 and 2017 , 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, 2017	$	1,270		$	—	$	1,270
Change in loan loss provision based on historical data	(17		)	—		(17		)
Change in loan loss provision for impaired loans	—			1,525		1,525
Balance as of December 31, 2017	1,253			1,525		2,778
Change in loan loss provision based on historical data	(178		)	—		(178		)
Balance as of December 31, 2018	$	1,075		$	1,525	$	2,600

Note 6 —Equity Method Investments

Acquavella Modern Art— On May 23, 1990, we purchased the common stock of the Pierre Matisse Gallery Corporation ("Matisse") for approximately $153 million . The assets of Matisse consisted of a collection of fine art (the "Matisse Inventory"). Upon consummation of the purchase, we entered into an agreement with Acquavella Contemporary Art, Inc. ("ACA") to form AMA, a partnership through which the Matisse Inventory would be sold. We contributed the Matisse Inventory to AMA in exchange for a 50% interest in the partnership.

The original term of the AMA partnership agreement was due to expire in 2000, and it was renewed on an annual basis through 2016. On April 27, 2017, the AMA partnership agreement was amended to extend the term of the partnership to May 1, 2022. Upon dissolution of AMA, if we and ACA elect not to liquidate the property and assets of AMA, any assets remaining after the payment of expenses and any other liabilities of AMA will be distributed to us and AMA as tenants-in-common or in some other reasonable manner.

The net assets of AMA consist almost entirely of the Matisse Inventory. As of December 31, 2018 and 2017 , the carrying value of the Matisse Inventory was $30 million and $33.9 million , respectively. As of December 31, 2018 and 2017 , the carrying value of our investment in AMA was $2.7 million and $4.8 million , respectively. For the years ended December 31, 2018 , 2017 , and 2016 , our results include $1.2 million , $1.7 million , and $1.3 million , respectively, of equity earnings related to AMA. From time-to-time, we transact with the principal shareholder of ACA in the normal course of our business.

RM Sotheby's— On February 18, 2015, we acquired a 25% ownership interest in RM Auctions, an auction house for investment-quality automobiles, for $30.7 million . Following our investment, RM Auctions is now known as RM Sotheby's. In addition to the initial 25% ownership interest, we have governance participation through a comprehensive partnership agreement. As of December 31, 2018 and 2017 , the carrying value of our investment in RM Sotheby's was $39.1 million and $36.4 million , respectively. For the years ended December 31, 2018 , 2017 , and 2016 , our results include $2.7 million , $1.2 million , and $2 million , respectively, of equity earnings related to RM Sotheby's.

Other— In the second quarter of 2017, we formed a partnership through which artworks are being purchased and sold. As of December 31, 2018 and 2017 our investment in this partnership was $5.7 million , representing our 50% ownership interest.

Note 7 —Fixed Assets

As of December 31, 2018 and 2017 , Fixed Assets consisted of the following (in thousands of dollars):



December 31,	2018			2017
Land	$	92,338		$	92,591
Buildings and building improvements	235,469			235,222
Leasehold improvements	82,350			84,504
Computer hardware and software	94,632			77,179
Furniture, fixtures and equipment	81,628			81,031
Construction in progress	34,233			9,492
Other	3,297			1,767
Sub-total	623,947			581,786
Less: Accumulated depreciation and amortization	(237,211		)	(229,751		)
Total Fixed Assets, net	$	386,736		$	352,035

In September 2017, we initiated an enhancement program to our headquarters building at 1334 York Avenue in New York (the "York Property") to create new state-of-the art galleries, as well as new public and client exhibition spaces. As a result of this enhancement program, certain building improvements and other fixed assets were removed from service before the end of their originally estimated useful lives, resulting in accelerated depreciation expense of $3.4 million and $1.9 million recognized in 2018 and 2017, respectively, recorded on our Consolidated Income Statements within Amortization and Depreciation. For the years ended December 31, 2018 , 2017 , and 2016 , Depreciation and Amortization related to Fixed Assets was $24 million , $22.1 million , and $19.9 million , respectively.

Note 8 —Acquisition of Art Agency, Partners

On January 11, 2016, we acquired Art Agency, Partners, a firm that provides a range of art-related services, in exchange for initial cash consideration of $50 million and future earn-out payments of up to $35 million , as discussed in more detail below. The purchase agreement governing the acquisition of AAP includes non-competition and non-solicitation covenants that continue in effect until January 2021. In connection with this acquisition, each of the former principals of AAP also entered into a five -year employment agreement that extends through January 2021. Each employment agreement also includes non-competition and non-solicitation covenants that continue through January 2021, and are in effect for 12 months following the end of employment.

As indicated above, in connection with the acquisition of AAP, 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. Progress against the cumulative financial target (the "Target") was to be measured at the end of each calendar year during the four -year performance period following the acquisition, after adjusting the Target to reflect the annual growth or contraction of the auction market for Impressionist, Modern and Contemporary Art, when compared to the year ended December 31, 2015. Amounts owed pursuant to the earn-out arrangement are considered to be compensation expense for accounting purposes and are classified within Salaries and Related Costs in our Consolidated Income Statements.

For the year ended December 31, 2016, we recognized $35 million of compensation expense associated with the AAP earn-out arrangement, reflecting the full achievement of the Target as a result of our improved market share in the Contemporary Art collecting category, as well as an improvement in auction commission margins, during the initial annual period. The $35 million owed under the earn-out arrangement is being paid in four annual increments of $8.75 million in the first quarter of each year beginning in 2017 and through 2020. The portion of the accrued liability due in the first quarter of 2019 ( $8.75 million) is recorded within Accrued Salaries and Related Costs on our Consolidated Balance Sheets. The remaining liability ( $8.75 million) is recorded within Other Long-Term Liabilities. (See Note 14 .)

The table below summarizes the allocation of the total purchase price paid for AAP to the assets acquired and liabilities assumed (in thousands of dollars):



Purchase price:
Initial cash consideration	$	50,000
Working capital adjustment	1,189
Total purchase price	$	51,189
Allocation of purchase price:
Net working capital acquired	$	1,572
Fixed assets and other long-term assets	173
Goodwill	34,490
Intangible assets - customer relationships (see Note 9)	10,800
Intangible assets - non-compete agreements (see Note 9)	3,060
Deferred tax assets	1,094
Total purchase price	$	51,189

Upon completion of the purchase price allocation in the second quarter of 2016, $28.3 million of the resulting goodwill was allocated to the Agency segment and $6.2 million was allocated to the acquired art advisory business, which is reported within All Other for segment reporting purposes. The goodwill is tax deductible over a period of 15 years.

We incurred $0.8 million of transaction costs in connection with the acquisition of AAP, which were recognized within General and Administrative Expenses in our Consolidated Income Statements in the fourth quarter of 2015 ( $0.6 million ) and the first quarter of 2016 ( $0.2 million ).

It is impracticable to compute the amount of revenues and earnings contributed to the Agency segment as a result of the acquisition because the related activities have been integrated into the segment. Disclosure of pro-forma revenues and earnings attributable to the acquisition is also excluded because it is impracticable to determine since AAP was a closely-held private entity and its historical financial records are not available in U.S. GAAP.

Note 9 —Goodwill and Intangible Assets

Goodwill —For the years ended December 31, 2018 and 2017 , changes in the carrying value of Goodwill were as follows (in thousands of dollars):



	Year ended December 31, 2018								Year ended December 31, 2017
	Agency			All Other		Total			Agency		All Other		Total
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	(233		)	—		(233		)	518		—		518
Balance as of December 31,	$	49,422		$	6,151	$	55,573		$	44,396	$	6,151	$	50,547

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 was immaterial and 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 December 31, 2018 and 2017 , intangible assets consisted of the following (in thousands of dollars):



	Amortization Period	December 31, 2018			December 31, 2017
Indefinite lived intangible assets:
License (a)	N/A	$	324		$	324
Intangible assets subject to amortization:
Customer relationships - AAP (see Note 8)	8 years	10,800			10,800
Non-compete agreements - AAP (see Note 8)	5-6 years	3,060			3,060
Artworks database (b)	10 years	1,275			1,200
Technology	4 years	4,461			—
Total intangible assets subject to amortization		19,596			15,060
Accumulated amortization		(6,927		)	(3,892		)
Total amortizable intangible assets (net)		12,669			11,168
Total intangible assets (net)		$	12,993		$	11,492

(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 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 2017 and 2018.

For the years ended December 31, 2018 , 2017 , and 2016 amortization expense related to intangible assets was approximately $3 million , $2 million , and $1.9 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 December 31, 2018 balance sheet date are as follows (in thousands of dollars):



Period	Amount
2019	$	3,186
2020	$	3,186
2021	$	2,937
2022	$	1,573
2023	$	1,480

Note 10 —Pension Arrangements

Retirement Savings Plan —We sponsor a qualified defined contribution plan for our employees in the U.S. (the "Retirement Savings Plan"). Participants in the Retirement Savings Plan who are not at least a Senior Vice President may elect to contribute between 2% and 50% of their eligible compensation to the plan, on a pre-tax or after-tax Roth basis. Participants in the Retirement Savings Plan that are at least a Senior Vice President may elect to contribute between 2% and 25% of their eligible compensation, on a pre-tax or after-tax Roth basis. We may match participant savings with a contribution of up to 3% of eligible employee compensation. We may also contribute an annual discretionary amount to the Retirement Savings Plan, which varies as a percentage of each participant's eligible compensation depending on our profitability. For the years ended December 31, 2018 , 2017 , and 2016 , we accrued discretionary contributions of $1.6 million , $2.1 million , and $1.2 million , respectively, related to the Retirement Savings Plan, which is equal to 2% , 3% , and 2% of eligible compensation paid in those years, respectively. For the years ended December 31, 2018 , 2017 , and 2016 , total pension expense related to matching and discretionary contributions to the Retirement Savings Plan, net of forfeitures, was $3.3 million , $3.7 million , and $2.5 million , respectively. Both participant and Company contributions to the Retirement Savings Plan are subject to limitations under IRS regulations.

Deferred Compensation Plan —We sponsor a non-qualified Deferred Compensation Plan (the "DCP"), which is available to certain U.S. officers for whom contributions to the Retirement Savings Plan are limited by IRS regulations. The DCP provides participants with a menu of investment crediting options that track a portfolio of various deemed investment funds. We credit participant accounts on the same basis as matching and discretionary contributions to the Retirement Savings Plan, as discussed above. For the year ended December 31, 2018 , 2017 , and 2016 , we accrued discretionary contributions of $0.5 million , $0.5 million , and $0.3 million , respectively, related to the DCP, which is equal to 2% , 3% , and 2% of eligible compensation paid during those years, respectively. For the years ended December 31, 2018 , 2017 , and 2016 , total pension expense related to our matching and discretionary contributions to the DCP was $0.9 million , $0.9 million , and $0.6 million , respectively.

Employee deferrals and our accrued contributions to the DCP are informally funded into a rabbi trust which provides benefit security by sheltering assets in the event of a change-in-control of Sotheby's and certain other situations. DCP liabilities are financed through the trust almost entirely by using company-owned variable life insurance ("COLI"), and, to a lesser extent, investments in money market mutual funds. As of December 31, 2018 and 2017 , the DCP liability, which is recorded on our Consolidated Balance Sheets within Other Long-Term Liabilities (see Note 14), was $28.3 million and $25.6 million , respectively, and the assets held in the rabbi trust consisted of the following (in thousands of dollars):



December 31,	2018		2017
Company-owned variable life insurance	$	23,887	$	25,567
Money market mutual fund investments	4,630		673
Total	$	28,517	$	26,240

The COLI and money market mutual fund investments are aggregated and recorded on our Consolidated Balance Sheets within Other Long-Term Assets (see Note 14). The COLI is reflected at its cash surrender value. The money market mutual fund investments are classified as trading securities and reflected at their fair value.

Changes in the fair value of the DCP liability, which result from gains and losses in deemed participant investments, are recognized in our Consolidated Income Statements within Salaries and Related Costs in the period in which they occur. Gains in deemed participant investments increase the DCP liability, as well as Salaries and Related Costs. Losses in deemed participant investments decrease the DCP liability, as well as Salaries and Related Costs. For the years ended December 31, 2018 , 2017 , and 2016 , net (losses) gains in deemed participant investments totaled ($1.1) million , $3.1 million , and $1.6 million , respectively.

Gains and losses resulting from changes in the cash surrender value of the COLI and the fair value of the money market mutual fund investments, as well as COLI-related expenses, are recognized in our Consolidated Income Statements within Non-Operating Income in the period in which they occur. For the years ended December 31, 2018 , 2017 , and 2016 , net (losses) gains related to the COLI and the money market mutual fund investments were ($1.6) million , $2.6 million , and $0.4 million , respectively.

U.K. Defined Contribution Plan —Beginning on April 1, 2004, a defined contribution plan was made available to employees in the U.K. (the "U.K. Defined Contribution Plan"). Participants in the U.K. Defined Contribution Plan must contribute 3% of their eligible compensation to the plan with no cap on maximum contributions. We may match participant savings with a contribution of up to 9% of eligible employee compensation. We may also contribute an annual discretionary amount to the U.K. Defined Contribution Plan, which varies as a percentage of each participant's eligible compensation depending on our profitability. For the years ended December 31, 2018 , 2017 , and 2016 , we accrued discretionary contributions of $1.1 million related to the U.K. Defined Contribution Plan, which is equal to 2% , 3% , and 2% of eligible compensation paid during those years, respectively. For the years ended December 31, 2018 , 2017 , and 2016 , pension expense related to the U.K. Defined Contribution Plan was $4 million , $4.5 million , and $4.3 million , respectively.

U.K. Defined Benefit Pension Plan —We sponsor a defined benefit pension plan in the U.K. (the "U.K. Pension Plan"). Effective April 1, 2004, participation in the U.K. Pension Plan was closed to new employees. On April 30, 2016, after the completion of a statutory consultation process, the U.K. Pension Plan was closed to accrual of future service costs for active participants, who became participants in the U.K. Defined Contribution Plan.

Benefit Obligation, Plan Assets, and Funded Status

The table below details the changes in the projected benefit obligation, plan assets, and funded status of the U.K. Pension Plan, as well as the net pension asset recognized on our Consolidated Balance Sheets, within Other Long-Term Assets (see Note 14), as of and for the years ended December 31, 2018 and 2017 (in thousands of dollars):



December 31,	2018			2017
Reconciliation of benefit obligation
Projected benefit obligation at beginning of year	$	345,876		$	327,619
Interest cost	7,597			8,053
Actuarial gain	(17,745		)	(781		)
Prior service cost	967			—
Benefits paid	(9,913		)	(8,508		)
Settlement payments	—			(11,880		)
Foreign currency exchange rate changes	(17,065		)	31,373
Projected benefit obligation at end of year	309,717			345,876
Reconciliation of plan assets
Fair value of plan assets at beginning of year	454,702			406,195
Actual return on plan assets	(8,832		)	28,827
Benefits paid	(9,913		)	(8,508		)
Settlement payments	—			(11,880		)
Foreign currency exchange rate changes	(22,701		)	40,068
Fair value of plan assets at end of year	413,256			454,702
Funded Status
Net pension asset	$	103,539		$	108,826

For the year ended December 31, 2018, the projected benefit obligation decreased $36.2 million ( 10% ) largely due to an increase in the discount rate assumption used to value the obligation (see table below), foreign currency exchange rate changes, and, to a lesser extent, a change in mortality assumptions, partially offset by higher actual and assumed inflation, which together resulted in a pre-tax actuarial gain of $17.7 million . The net decrease in the projected benefit obligation during the current year was also influenced by the estimated pre-tax prior service cost (approximately $1 million ) related to the U.K. High Court ruling on October 26, 2018 which requires that certain guaranteed minimum pension benefits be equalized between men and women.

For the year ended December 31, 2017, the projected benefit obligation increased $18.3 million ( 6% ) largely due to foreign currency exchange rate changes, partially offset by settlement payments of ($11.9) million made to plan participants who transferred their accrued benefits from the U.K. Pension Plan to alternative arrangements not associated with Sotheby's.

We did not make any contributions to the U.K. Pension Plan in 2018 and 2017, and we do not expect to make any regular contributions in 2019.

As of December 31, 2018 and 2017 , the accumulated benefit obligation for the U.K. Pension Plan was $309.7 million and $345.8 million , respectively, and is identical to the projected benefit obligation on those dates because the plan is closed to accrual of future service costs.

Components of Net Pension Benefit

For the years ended December 31, 2018 , 2017 , and 2016 , the components of the net pension benefit related to the U.K. Pension Plan are as follows (in thousands of dollars):



Year Ended December 31,	2018			2017			2016
Service cost	$	—		$	—		$	1,086
Interest cost	7,597			8,053			9,817
Prior service cost	—			60			—
Expected return on plan assets	(11,131		)	(14,159		)	(17,798		)
Amortization of actuarial loss	481			1,139			—
Amortization of prior service cost	(102		)	(97		)	—
Settlement loss	—			344			—
Net pension benefit	$	(3,155	)	$	(4,660	)	$	(6,895	)

As discussed in Note 2, we retrospectively adopted ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , on January 1, 2018. ASU 2017-07 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 income (loss). Accordingly, in the table above, the service cost recognized for the year ended December 31, 2016 is presented within Salaries and Related Costs while the remaining components are presented within Non-Operating Income.

Amounts Recognized in Other Comprehensive (Loss) Income

Net Actuarial (Loss) Gain —The net actuarial (loss) gain related to the U.K. Pension Plan, which is recognized net of tax in Other Comprehensive (Loss) Income, is generally the result of: (i) actual results differing from previous actuarial assumptions (for example, the expected return on plan assets) and (ii) changes in actuarial assumptions between balance sheet dates (for example, the discount rate). For the years ended December 31, 2018 , 2017 , and 2016 , the net (loss) gain related to the U.K. Pension Plan was ($1.8) million , $13.3 million , and ($6.5) million , respectively.

Prior Service Cost —For the year ended December 31, 2018, we recognized estimated after-tax prior service cost of $0.8 million in Other Comprehensive (Loss) Income related to a U.K. High Court ruling on October 26, 2018 which requires that certain guaranteed minimum pension benefits be equalized between men and women.

Amounts Included in Accumulated Other Comprehensive Loss

Net Actuarial Loss —As of December 31, 2018 and 2017 , the net actuarial loss related to the U.K. Pension Plan recorded in Accumulated Other Comprehensive Loss was ($2.4) million and ($1) million , respectively.

If the amount recorded in Accumulated Other Comprehensive Loss exceeds 10% of the greater of (i) the market-related value of plan assets or (ii) the benefit obligation, that excess amount is amortized as a component of future net pension cost or benefit over the average expected future life of plan participants, which is approximately 28.4 years . The market-related value of plan assets adjusts the market value of plan assets by recognizing changes in fair value over a period of five years.

Prior Service Cost —As of December 31, 2018 , the prior service cost related to the U.K. Pension Plan recorded in Accumulated Other Comprehensive Loss was $0.8 million .

Assumptions

As of and for the years ended December 31, 2018 , 2017 , and 2016 , the following assumptions were used in determining the benefit obligation and net pension benefit related to the U.K. Pension Plan:



Benefit Obligation	2018	2017
Weighted average discount rate	2.9%	2.5%



Net Pension Benefit	2018	2017	2016
Weighted average discount rate - service cost	N/A	N/A	3.8%
Weighted average discount rate - interest cost	2.3%	2.4%	3.4%
Weighted average rate of compensation increase	N/A	N/A	4.1%
Weighted average expected long-term rate of return on plan assets	2.8%	3.8%	5.2%

The discount rate represents the approximate weighted average rate at which the obligations of the U.K. Pension Plan could be effectively settled and is based on a yield curve for a selection of high-quality corporate bonds with maturity dates approximating the length of time remaining until individual benefit payment dates. In 2016, we used a separate discount rate for the service and interest cost components of the net pension benefit. The discount rate used for each component in 2016 contemplates a full yield curve in respect to the expected timing of the cash flows related to these components. In 2018 and 2017, the measurement of the net pension benefit does not include an assumption of a discount rate to measure service cost due to the closure of the U.K. Pension Plan to the accrual of future service costs, as discussed above. Similarly, as of December 31, 2018 and 2017 , the measurement of the benefit obligation does not include an assumption for future annual compensation increases.

The expected long-term rate of return is weighted according to the composition of invested assets and is based on expected future appreciation, as well as dividend and interest yields currently available in the equity and bond markets. In particular, the expected rate of return for growth assets represents our estimate of median annualized returns by asset class. The expected rate of return on debt securities is based on interest yields currently available on long-dated U.K. government bonds and highly-rated corporate bonds. No allowance is made in the expected rate of return for potential market out-performance by fund managers.

Plan Assets

The investment policy for the U.K. Pension Plan is established by its Trustees in consultation with our management. The Trustees' investment objective is to maximize the return on assets while controlling the level of risk so as to ensure that sufficient assets are available to pay participants' benefits as and when they arise. The Trustees have agreed that a portfolio of assets with some growth content is appropriate, but so as to avoid an undue concentration of risk, a diverse spread of assets is held within the portfolio. The diversification is both within and across asset categories. Professional investment managers are provided target allocation percentages for different categories within each asset class; actual allocation percentages are permitted to fall within a reasonable range of these targets. In setting specific asset allocation targets, the Trustees take advice as required from professional investment advisors and require that the majority of the assets be realizable at short notice.

As a result of the closure of the U.K. Pension Plan to the accrual of future service costs in April 2016 and a $24.2 million contribution made in December 2016, there has been an improvement in the funded status of the plan in recent years. Accordingly, in February 2017, we began to change our allocation of plan assets to reduce investment risk, resulting in an approximate allocation of 40% to growth assets and 60% to debt securities and cash and cash equivalents. In December 2017, another change in asset allocation was made to further reduce investment risk, resulting in an approximate allocation of 23% to growth assets and 77% to debt securities and cash and cash equivalents.

In 2018, we made two further changes to the composition of plan assets to continue to reduce investment risk. First, in July 2018, we sold $133 million of debt securities in order to purchase a buy-in annuity contract from an insurer. The intent of the buy-in annuity contract is to generate returns designed to match the funding of pensioners currently receiving payments from the plan. In particular, the buy-in annuity contract offers the ability to lock-in the cash value of a portion of the pension benefit obligation and significantly reduce future volatility in plan assets. Then, in December 2018, another change in asset allocation was made, resulting in an approximate allocation of 17% to growth assets and 83% to debt and debt-like securities (including the buy-in annuity contract) and cash and cash equivalents.

The investment managers for the U.K. Pension Plan have some discretion in making investment decisions, subject to the investment mandate set forth by the Trustees. It is the Trustees' policy not to invest in the common stock of Sotheby's or any of its subsidiaries. The performance of the investment managers is benchmarked against suitable indices.

The table below presents the fair value of U.K. Pension Plan assets, by investment category, as of December 31, 2018 and 2017 (in thousands of dollars):



December 31,	2018		% of Total		2017		% of Total
Growth assets	$	69,617	16.8	%	$	104,735	23.0	%
Debt securities :
Corporate	37,332		9.0	%	41,804		9.2	%
Index-linked	147,891		35.8	%	219,428		48.3	%
Total debt securities	185,223		44.8	%	261,232		57.5	%
Buy-in annuity contract	131,416		31.8	%	—		—	%
Real estate mutual funds	33		—	%	3,233		0.6	%
Cash and cash equivalents	26,967		6.5	%	85,502		18.8	%
Total fair value of plan assets	$	413,256			$	454,702

The assets of the U.K. Pension Plan, which are measured at fair value, are classified and disclosed according to one of the following categories:


•	Level 1—Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Level 1 inputs generally provide the most reliable evidence of fair value.


•	Level 2—Pricing inputs are 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.


•	Level 3—Pricing inputs are unobservable for the asset or liability and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant management judgment or estimation.

The table below provides fair value measurement information for the U.K. Pension Plan assets as of December 31, 2018 (in thousands of dollars):



			Fair Value Measurements Using:
	Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Growth assets	$	69,617	$	69,617	$	—	$	—
Debt securities:
Corporate	37,332		37,332		—		—
Index-linked	147,891		146,582		1,309		—
Total debt securities	185,223		183,914		1,309		—
Buy-in annuity contract	131,416		—		—		131,416
Real estate mutual funds	33		—		33		—
Cash and cash equivalents	26,967		26,967		—		—
Total fair value of plan assets	$	413,256	$	280,498	$	1,342	$	131,416

As of December 31, 2018 , the following U.K. Pension Plan assets are classified as Level 1 fair value measurements:

Growth Assets —Includes investments in a publicly-traded mutual fund, the fair value of which is based on exchange quoted prices in active markets.

Debt Securities —Includes investments in publicly-traded bond mutual funds, the fair values of which are based on exchange quoted prices in active markets.

Cash and Cash Equivalents —Includes investments in cash and money market instruments that are highly liquid and for which book value approximates fair value.

As of December 31, 2018, the following U.K. Pension Plan assets are classified as Level 2 fair value measurements:

Debt Securities —Includes investments in pooled funds which do not have directly observable quoted market prices, but for which the underlying value is determined by publicly-traded bonds that have directly observable exchange quoted prices in active markets.

Real Estate Mutual Funds —Includes investments in real estate mutual funds, the fair value of which are based on directly and indirectly observable real estate prices, including comparable prices.

As of December 31, 2018 , the following U.K. Pension Plan assets are classified as Level 3 fair value measurements:

Buy-in Annuity Contract —The value of the buy-in annuity contract as of December 31, 2018 is based on the premium paid in July 2018 to purchase the contract of approximately $133 million , updated for actual benefit payments made in the second half of 2018 (approximately $3.6 million ) and interest and market condition adjustments commensurate with an investment of this type.

Estimated Future Benefit Payments

Estimated future benefit payments related to the U.K. Pension Plan are as follows (in thousands of dollars):



Year	Benefit Payments
2019	$	8,343
2020	$	9,227
2021	$	11,393
2022	$	10,776
2023	$	11,854
2024 to 2028	$	65,289

Note 11 —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 needs and other general corporate purposes, and borrowings thereunder are available in U.S. Dollars, Pounds Sterling, Euros, Swiss Francs, and 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 Agency Credit Facility and 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).

Subject to maintaining a minimum level of available borrowing capacity, the New Credit Agreement permits dividend payments, common stock repurchases, investments, and certain debt prepayments, so long as no event of default exists. 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 December 31, 2018.

We incurred aggregate fees of approximately $4.3 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 years ended December 31, 2018 , 2017 , and 2016 (in thousands of dollars):



As of and for the years ended	December 31, 2018		December 31, 2017		December 31, 2016
Maximum borrowing capacity (a)	$	1,100,000	$	1,100,000	$	1,335,000
Borrowing base	$	857,773	$	605,927	$	734,464
Borrowings outstanding	$	280,000	$	196,500	$	565,000
Available borrowing capacity (b)	$	577,773	$	409,427	$	169,464
Average borrowings outstanding	$	106,181	$	479,367	$	534,433

Legend:

(a) On October 2, 2017, we reduced the borrowing capacity of the 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 Income Statements as Interest Expense. Borrowing costs under the Previous Credit Agreements related to SFS are reflected in our Consolidated Income Statements within Cost of Finance Revenues as any borrowings thereunder were used to directly fund client loans. Subsequent to the change in our cash management strategy (as discussed in Note 3), 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 Consolidated Income Statements.

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



December 31,	2018			2017
York Property Mortgage, net of unamortized debt issuance costs of $3,559 and $4,545	$	257,284		$	270,556
2022 Senior Notes, net of unamortized debt issuance costs of $0 and $2,998	—			297,002
2025 Senior Notes, net of unamortized debt issuance costs of $4,894 and $5,623	395,106			394,377
Less current portion:
York Property Mortgage, net of unamortized debt issuance costs of $1,010 and $1,010	(13,604		)	(11,930		)
2022 Senior Notes, net of unamortized debt issuance costs of $0 and $2,998	—			(297,002		)
Total Long-Term Debt, net	$	638,786		$	653,003

See the captioned sections below for information related to the York Property Mortgage and our senior unsecured debt, including the 2022 Senior Notes and the 2025 Senior Notes.

York Property Mortgage —The York Property, our headquarters building located at 1334 York Avenue in New York, is subject to a seven -year, $325 million mortgage loan that matures on July 1, 2022 (the "York Property Mortgage"). As of December 31, 2018 , the outstanding principal balance of the York Property Mortgage was $260.8 million . As of December 31, 2018 , the fair value of the York Property Mortgage approximated its book value due to the variable interest rate associated with the mortgage. This 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 from $425 million to $325 million in order to provide continued flexibility regarding 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 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 December 31, 2018 , as calculated under the Second Amendment, is approximately $1.3 billion .

In conjunction with the First Amendment to the York Property Mortgage, on July 3, 2017, we made a prepayment of $32 million to reduce the outstanding principal balance of the mortgage and agreed to make annual principal prepayments beginning in July 2018 and continuing through July 2021. Such annual prepayments are to be funded primarily with cash accumulated in a restricted cash management account, as discussed below, and 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 the restricted cash management account. On July 2, 2018, we made an additional $6.25 million principal payment from the restricted cash management account in accordance with the First Amendment to the York Property Mortgage. (See Note 12 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 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 debt service, insurance, and taxes as security. As of December 31, 2018 and 2017, the Cash Management Account had a balance of $0.7 million and $3.1 million , respectively, which is reflected within Restricted Cash on our 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 December 15, 2025 (the “2025 Senior Notes”). The net proceeds from the sale 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. The $312.3 million redemption price that was deposited with the trustee, consisting of the $300 million principal amount plus $4.4 million of accrued interest and a call premium of $7.9 million , was classified within Restricted Cash on our Consolidated Balance Sheets as of December 31, 2017. 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 $10.9 million recognized in the first quarter of 2018.

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 December 31, 2018 , the $400 million principal amount of the 2025 Senior Notes had a fair value of approximately $366 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.

Future Payments Due Under Outstanding Debt —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 December 31, 2018 are as follows (in thousands of dollars):



Year	Amount
2019	$	47,035
2020	$	47,267
2021	$	46,845
2022	$	241,095
2023	$	299,500

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 12 ). 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 through 2021, as discussed above.

Interest Paid —In 2018 , 2017 , and 2016 , interest paid totaled $43.6 million , $51.8 million , and $44.5 million , respectively. Interest paid consists of cash payments related to the York Property Mortgage, our long-term debt securities, and revolving credit facility borrowings (including fees). In 2018 , 2017 , and 2016 , interest paid includes debt issuance costs of $4.5 million , $5.7 million , and $0.3 million , respectively, which are amortized to Interest Expense in our Consolidated Income Statements.

Note 12 —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 December 31, 2018 and 2017 (in thousands of dollars):

Assets

Liabilities

December 31, 2018

Balance Sheet Classification

Fair Value

Balance Sheet Classification

Fair Value

Cash Flow Hedges:

Interest rate collar

N/A

—

Other Current Liabilities

Interest rate collar

N/A

—

Other Long-Term Liabilities

1,185

Total cash flow hedges

—

1,225

Net Investment Hedges:

Foreign exchange contracts

Prepaid Expenses and Other Current Assets

462

N/A

—

Total

462

1,225



	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

In 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 . In 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 Consolidated Balance Sheets within Accumulated Other Comprehensive Loss.

The following table summarizes the effect of the derivative financial instruments designated as hedging instruments on our Consolidated Income Statements and Consolidated Statements of Comprehensive Income for the years ended December 31, 2018 , 2017 , and 2016 (in thousands of dollars):



	Gain (Loss) Recognized in Other Comprehensive (Loss) 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
Year Ended December 31,	2018		2017			2016				2018			2017		2016		2018			2017		2016
Cash Flow Hedges:
Interest rate swaps	$	95	$	201		$	(704	)	Interest Expense	$	(145	)	$	16	$	813	$	—		$	—	$	—
Interest rate swap	—		—			—			Non-operating income	—			—		—		(160		)	—		—
Interest rate collar	440		1,219			533			Interest Expense	169			577		—		—			—		—
Interest rate collar	—		—			—			Non-operating income	—			—		—		—			622		—
Total cash flow hedges	535		1,420			(171		)		24			593		813		(160		)	622		—
Net Investment Hedges:
Foreign exchange contracts	1,826		(3,059		)	16,618			Non-operating income	—			—		—		(58		)	—		—
Total	$	2,361	$	(1,639	)	$	16,447			$	24		$	593	$	813	$	(218	)	$	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 11), we entered into interest rate protection agreements secured by the York Property, consisting of a two -year interest rate swap (the "Mortgage Swap"), effective as of July 1, 2015, and a five -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 seven -year term. Beginning on the July 1, 2017 effective date of the Mortgage Collar through December 31, 2018, the weighted average interest rate for the York Property Mortgage was 4.33% .

In conjunction and concurrent with the First Amendment to the York Property Mortgage in June 2017 (see Note 10), 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. The 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 the reclassification of a $0.6 million loss (net of tax) from Accumulated Other Comprehensive Loss into Net Income in the second quarter of 2017.

As of December 31, 2018 , the notional value of the Mortgage Collar was $260.8 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 the reclassification of a $0.2 million gain (net of tax) from Accumulated Other Comprehensive Loss into Net Income.

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 Consolidated Balance Sheets and then reclassified to Interest Expense in our Consolidated Income Statements 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 Consolidated Balance Sheets would be immediately reclassified into Net Income.

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 December 31, 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 were 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 was based on a discounted cash flow methodology using the contractual terms of the instrument and observable LIBOR-curve rates that were consistent with the timing of the interest payments related to our revolving credit facility.

Derivative Financial Instruments Designated as Net Investment Hedges —We were 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 December 31, 2018 , the aggregate notional value of our outstanding net investment hedge contracts was $55.7 million .

In the fourth quarter of 2018, the net investment in the foreign subsidiary underlying one of our net investment hedges decreased below the notional value of the corresponding foreign currency forward exchange contract resulting in the reclassification of a ($0.1) million gain (net of tax) from Accumulated Other Comprehensive Loss into Net Income.

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 were reported in the cumulative translation adjustment accounts within Accumulated Other Comprehensive Loss on our Consolidated Balance Sheets.

The foreign currency forward exchange contracts designated as net investment hedges were considered Level 2 fair value measurements within the fair value hierarchy provided by ASC 820. Level 2 fair value measurements had pricing inputs other than quoted prices in active markets, which were 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 were 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 Consolidated Income Statements in Non-Operating Income.

As of December 31, 2018 , the notional value of outstanding forward exchange contracts not designated as hedging instruments was $187.6 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 were exposed to credit-related risks in the event of nonperformance by the counterparties to our outstanding forward exchange contracts that were 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 December 31, 2018 , our Consolidated Balance Sheets include an asset of $1.7 million within Prepaid Expenses and Other Current Assets and a liability of $1.5 million within Accounts Payable and Accrued Liabilities, representing the fair values of these contracts on that date. As of December 31, 2017, the aggregate fair value of these contracts represented a liability of $0.8 million , which was recorded on our Consolidated Balance Sheets within Accounts Payable and Accrued Liabilities.

Note 13 —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 Consolidated Balance Sheets as deferred revenue 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 paid to our partner in the Pink Diamond and other costs related to the sale.

Note 14 —Supplemental Consolidated Balance Sheet Information

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



December 31,	2018		2017
Prepaid expenses	$	25,672	$	25,418
Derivative financial instruments (see Note 12)	462		339
Insurance recoveries	4,353		—
Other	8,144		6,253
Total Prepaid and Other Current Assets	$	38,631	$	32,010

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



December 31,	2018		2017
Defined benefit pension plan asset (see Note 10)	$	103,539	$	108,826
Equity method investments (see Note 6)	47,507		46,905
Trust assets related to deferred compensation liability (see Note 10)	28,517		26,240
Restricted cash (a) (see Note 15)	16,819		17,916
Insurance recoveries	13,882		12,242
Other	16,396		15,479
Total Other Long-Term Assets	$	226,660	$	227,608

(a) Principally relates to funds held in escrow pending the payment of sale proceeds to a consignor).

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



December 31,	2018		2017
Deferred compensation liability (see Note 10)	$	28,255	$	25,614
Acquisition earn-out consideration (see Note 8)	8,750		17,500
Interest rate collar liability (see Note 12)	1,185		1,501
Other	7,327		6,809
Total Other Long-Term Liabilities	$	45,517	$	51,424

Note 15 —Supplemental Consolidated Cash Flow Information

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



December 31,	2018		2017
Cash and cash equivalents	178,579		$	544,432
Restricted cash (a), recorded within current assets:
Consignor funds held in legally segregated accounts	3,938		46,029
Funds deposited with the trustee for the redemption of the 2022 Senior Notes (see Note 11)	—		312,250
Cash Management Account related to the York Property Mortgage (see Note 11)	716		3,107
Other	182		192
Restricted cash, recorded within current assets (a)	4,836		361,578
Restricted cash, recorded within other long-term assets (a) (b)	16,819		17,916
Total restricted cash	21,655		379,494
Cash, cash equivalents, and restricted cash	$	200,234	$	923,926


(a)	Restricted cash generally includes legally restricted deposits or amounts and cash balances restricted as a result of contracts entered into with third parties.


(b)	Principally relates to funds held in escrow pending the payment of sale proceeds to a consignor.

Changes in Other Operating Assets and Liabilities — For the years ended December 31, 2018 , 2017 and 2016 , changes in other operating assets and liabilities as reported in the Consolidated Statements of Cash Flows included the following (in thousands of dollars):



Year Ended December 31,	2018			2017			2016
(Increase) decrease in:
Prepaid expenses and other current assets	$	(6,244	)	$	17,160		$	(14,510	)
Other long-term assets	(3,537		)	(12,449		)	(12,188		)
Income tax receivables and deferred income tax assets	(15,003		)	(33,532		)	2,395
Increase (decrease) in:
Accrued income taxes and deferred income tax liabilities	7,826			35,421			14,879
Accounts payable and accrued liabilities and other liabilities	(3,703		)	(14,189		)	17,297
Total changes in other operating assets and liabilities	$	(20,661	)	$	(7,589	)	$	7,873

Note 16 —Shareholders' Equity and Dividends

Common Stock —Our common stock is traded on the New York Stock Exchange (the "NYSE") under the symbol BID. Each share of our common stock has a par value of $0.01 per share and is entitled to one vote. As of December 31, 2018 and 2017 , there were 46,346,863 and 52,461,996 shares of our common stock outstanding, respectively.

Preferred Stock —We have the authority to issue 50 million shares of no par value preferred stock. No shares of preferred stock were outstanding as of December 31, 2018 and 2017 .

Common Stock Repurchase Program —The following table provides information regarding our common stock repurchase program for the years ended December 31, 2018, 2017, and 2016 (in thousands, except for per share data):



Year Ended December 31,	2018		2017		2016		Three-Year Total
Shares repurchased	6,473		961		13,144		20,578
Aggregate purchase price	$	284,733	$	44,495	$	359,885	$	689,113
Average price per share	$	43.99	$	46.32	$	27.38	$	33.49

The share repurchases made in 2018 include open market purchases, purchases made pursuant to a Rule 10b5-1 plan, and purchases made pursuant to two separate accelerated share repurchase ("ASR") agreements, as detailed below.

On September 11, 2018, we paid $95 million upon entry into an ASR agreement (the "September 2018 ASR Agreement"). Pursuant to the September 2018 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 September 2018 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 Additional Paid-In Capital to reduce Shareholders’ Equity for the value of the unsettled portion of the agreement, which represented a forward contract indexed to our common stock. In November 2018, the counterparty to the September 2018 ASR Agreement elected to conclude the agreement, and we received an additional 325,927 shares of our common stock. Upon conclusion of the September 2018 ASR Agreement, the $9.5 million initially recorded to Additional Paid-In Capital was reclassified to Treasury Stock on our Consolidated Statements of Shareholders' Equity. In total, the September 2018 ASR Agreement resulted in the repurchase of 2,118,380 shares of our common stock for an average price of $44.85 per share.

On December 13, 2018, we paid $70 million upon entry into an ASR agreement (the "December 2018 ASR Agreement"). Pursuant to the December 2018 ASR Agreement, on December 14, 2018, we received an initial delivery of 1,605,938 shares of our common stock with a value of $59.5 million , or $37.05 per share. In conjunction with our entry into the December 2018 ASR Agreement, we recorded $59.5 million to Treasury Stock to reduce Shareholders’ Equity for the value of the initial shares received and $10.5 million to Additional Paid-In Capital to reduce Shareholders’ Equity for the unsettled portion of the agreement, which represents a forward contract indexed to our common stock.

The amount paid to enter into the December 2018 ASR Agreement effectively utilized the remaining share repurchase authorization from our Board of Directors.

The share repurchases made in 2017 and 2016 generally include open market purchases and purchases made pursuant to a Rule 10b5-1 plan. The share repurchases made in 2016 also include purchases made pursuant to an agreement with funds managed by Marcato Capital Management LP ("Marcato") in which we acquired 2,050,000 shares of our common stock from Marcato for an aggregate purchase price of $73.8 million , or $36.00 per share. At the time of this agreement, Marcato owned 8.5% of our outstanding common stock.

Special Dividend —On January 29, 2014, our Board of Directors 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 was charged to Retained Earnings. For the years ended December 31, 2017 and 2016, $2 million and $1.4 million , respectively, of such dividends were paid to employees upon the vesting of the share-based payments. No such dividends were paid during the year ended December 31, 2018.

Note 17 —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 during the period January 1, 2016 to December 31, 2018 (in thousands of dollars):



Year Ended December 31,	2018			2017			2016

Currency Translation Adjustments
Balance at January 1	$	(74,505	)	$	(89,478	)	$	(52,279	)
Other comprehensive (loss) income before reclassifications, net of tax of ($498), $1,760, and ($13,113)	(9,546		)	14,973			(37,199		)
Other comprehensive (loss) income	(9,546		)	14,973			(37,199		)
Balance at December 31	(84,051		)	(74,505		)	(89,478		)
Cash Flow Hedges
Balance at January 1	(1,029		)	(3,664		)	(4,306		)
Other comprehensive income (loss) before reclassifications, net of tax of $177, $888, and ($106)	535			1,420			(171		)
Reclassifications from accumulated other comprehensive loss, net of tax of ($106), $753, and $502	(136		)	1,215			813
Other comprehensive income	399			2,635			642
Balance at December 31	(630		)	(1,029		)	(3,664		)
Net Investment Hedges
Balance at January 1	13,559			16,618			—
Other comprehensive income (loss) before reclassifications, net of tax of $635, ($1,885), and $10,354	1,826			(3,059		)	16,618
Reclassifications from accumulated other comprehensive loss, net of tax ($20), $0, and $0	(58		)	—			—
Other comprehensive income (loss)	1,768			(3,059		)	16,618
Balance at December 31	15,327			13,559			16,618
Defined Benefit Pension Plan
Balance at January 1	(491		)	(13,834		)	(9,619		)
Currency translation adjustments	36			(1,084		)	2,300
Net actuarial (loss) gain, net of tax of ($364), $2,719, and ($1,427)	(1,775		)	13,277			(6,515		)
Prior service cost, net of tax of ($157), $0, and $0	(774		)	—			—
Other comprehensive (loss) income before reclassifications, net of tax	(2,513		)	12,193			(4,215		)
Prior service cost amortization, net of tax of ($17), ($17), and $0	(85		)	(80		)	—
Actuarial loss amortization, net of tax of $82, $194, and $0	399			945			—
Settlement cost, net of tax of $0, $59, and $0	—			285			—
Reclassifications from accumulated other comprehensive loss, net of tax	314			1,150			—
Other comprehensive (loss) income	(2,199		)	13,343			(4,215		)
Balance at December 31	(2,690		)	(491		)	(13,834		)
Total other comprehensive (loss) income attributable to Sotheby's	(9,578		)	27,892			(24,154		)
Accumulated other comprehensive loss at December 31	$	(72,044	)	$	(62,466	)	$	(90,358	)



Year Ended December 31,	2018			2017			2016

Cash Flow Hedges
Settlements of interest rate swaps	$	(242	)	$	1,968		$	1,315
Tax effect	106			(753		)	(502		)
Reclassification adjustments, net of tax	(136		)	1,215			813
Net Investment Hedges
Dedesignation of net investment hedge	(78		)	—			—
Tax effect	20			—			—
Reclassification adjustments, net of tax	(58		)	—			—
Defined Benefit Pension Plan
Prior service cost amortization	(102		)	(97		)	—
Settlement loss	—			344			—
Actuarial loss amortization	481			1,139			—
Pre-tax total	379			1,386			—
Tax effect	(65		)	(236		)	—
Reclassification adjustments, net of tax	314			1,150			—
Total reclassification adjustments, net of tax	$	120		$	2,365		$	813

Note 18 —Income Taxes

For the years ended December 31, 2018 , 2017 , and 2016 , the significant components of income tax expense consisted of the following (in thousands of dollars):



Year Ended December 31,	2018			2017			2016
Income (loss) before taxes:
Domestic	$	5,355		$	3,636		$	(38,567	)
Foreign	127,324			138,050			135,301
Total	$	132,679		$	141,686		$	96,734
Income tax (benefit) expense—current:
Domestic	$	(17,510	)	$	24,427		$	18,443
State and local	2,987			1,492			1,766
Foreign	44,536			27,481			29,904
Sub-total	30,013			53,400			50,113
Income tax (benefit) expense—deferred:
Domestic	(2,787		)	(34,501		)	(19,114		)
State and local	(252		)	1,285			(1,034		)
Foreign	678			5,231			(4,008		)
Sub-total	(2,361		)	(27,985		)	(24,156		)
Total	$	27,652		$	25,415		$	25,957

100

As of December 31, 2018 and 2017 , the components of Deferred Tax Assets and Deferred Tax Liabilities consisted of the following (in thousands of dollars):



December 31,	2018			2017
Deferred tax assets:
Asset provisions and liabilities	$	8,992		$	4,832
Inventory writedowns	2,061			3,408
Tax loss and credit carryforwards	4,549			3,908
Difference between book and tax basis of depreciable and amortizable assets	11,438			20,218
Share-based payments and deferred compensation	19,012			15,130
Sub-total	46,052			47,496
Valuation allowance	(2,360		)	(3,194		)
Total deferred tax assets	43,692			44,302
Deferred tax liabilities:
Difference between book and tax basis of other assets and liabilities	1,720			859
Pension obligations	16,521			16,280
Basis differences in equity method investments	371			1,269
Undistributed earnings of foreign subsidiaries	2,614			2,571
Bond redemption costs	—			2,812
Total deferred tax liabilities	21,226			23,791
Total net deferred tax assets	$	22,466		$	20,511

As of December 31, 2018 , we had deferred tax assets related to various foreign and state loss and tax credit carryforwards totaling $4.5 million that begin to expire in 2020.

As of December 31, 2018 and 2017 , we provided valuation allowances of $2.4 million and $3.2 million , respectively, relating to net operating loss carryforwards. The decrease in the valuation allowance in 2018 is primarily due to the use of net operating losses for which a valuation allowance had been recognized.

For the years ended December 31, 2018 , 2017 , and 2016 , our effective income tax rate varied from the U.S. statutory tax rate that was in effect during the periods as follows:



Year Ended December 31,	2018		2017		2016
Statutory federal income tax rate	21.0	%	35.0	%	35.0	%
State and local taxes, net of federal tax benefit	1.6	%	0.8	%	0.5	%
Foreign taxes at rates different from U.S. rates	(1.2	%)	(13.5	%)	(25.0	%)
U.S. taxes on foreign earnings	1.8	%	1.2	%	9.9	%
Effect of enacted tax legislation	(6.6	%)	0.8	%	(0.1	%)
Changes in tax reserves	0.2	%	(4.5	%)	1.6	%
Effective settlement of income tax audits	4.2	%	0.0	%	0.0	%
Other	(0.2	%)	(1.9	%)	4.9	%
Effective income tax rate	20.8	%	17.9	%	26.8	%

101

Our effective income tax rate is 20.8% for the year ended December 31, 2018 , compared to 17.9% in the prior year. The increase in our effective income tax rate is primarily due to a net tax charge of $4.8 million recorded in the current year related to the effective settlement of an income tax audit and a $7 million benefit recorded in the prior year to reverse a liability for a previously uncertain tax position for which the statute of limitations had expired. These factors are partially offset by an income tax benefit of $8.7 million recorded in the current year to adjust the provisional income tax expense of $1.2 million recorded in the prior year upon the enactment of the U.S. Tax Cuts and Jobs Act in 2017, as discussed below.

U.S. Tax Reform —The U.S. Tax Cuts and Jobs Act (the “Act”) was enacted into law on December 22, 2017. Certain provisions of the Act have the effect of reducing our effective tax rate beginning on January 1, 2018, such as: (i) a reduction of the U.S. corporate income tax rate from 35% to 21%; (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; and (iii) the creation of Foreign Derived Intangible Income (“FDII”), a new category of income that is taxed at a lower rate. Conversely, certain provisions of the Act have the effect of increasing our effective tax rate beginning on January 1, 2018, 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.

Upon enactment of the Act, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), Income Tax Accounting Implications of the Tax Cuts and Jobs Act , which allowed companies to record the income tax effects of the Act as a provisional amount based on reasonable estimates for those tax effects and provided a one-year measurement period for companies to finalize the accounting of the income tax effects of the Act. 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. This provisional net income tax expense was then adjusted in 2018 through the recording of $8.7 million in tax benefits as we finalized our accounting for the Act. In total, between 2017 and 2018, we recorded a net income tax benefit of $7.5 million related to the Act, which consists of the following components:

•

Our accounting for the effects of the Act is complete as of December 31, 2018; however, there may be some elements of the Act that remain subject to further clarification by the issuance of future regulations or notices by the U.S. Treasury Department or IRS which could result in adjustments to previously recorded amounts, including the issuance of final regulations on January 15, 2019 related to the one-time transition tax. We are evaluating the effect of the final regulations on the amount of the transition tax liability, but don't believe that the regulations will have a material impact on the recorded liability.

102

Repatriation of Foreign Earnings —As discussed above, as a result of the Act, we incurred a $36.4 million liability as of December 31, 2018 related to the one-time mandatory transition tax on the unremitted and untaxed earnings of our foreign subsidiaries. As of December 31, 2018, we have provided tax on substantially all of the undistributed earnings of our foreign subsidiaries for which we are not indefinitely reinvested and have recognized a deferred tax liability of approximately $2.6 million on such earnings.

Income Tax Payments —Total net income tax payments during 2018 , 2017 , and 2016 were $36.8 million , $52.3 million , and $32.4 million , respectively.

Note 19 —Uncertain Tax Positions

As of December 31, 2018 , 2017 , and 2016 , the liability for unrecognized tax benefits, excluding interest and penalties, was $11.5 million , $13.2 million , and $19.5 million , respectively, and is recorded within long-term Accrued Income Taxes on our Consolidated Balance Sheets.

As of December 31, 2018 and 2017 , the total amount of unrecognized tax benefits that, if recognized, would favorably affect our effective income tax rate was $2.9 million and $4.1 million , respectively.

The table below presents a reconciliation of the beginning and ending balances of the liability for unrecognized tax benefits, excluding interest and penalties, for the years ended December 31, 2018 , 2017 , and 2016 (in thousands of dollars):



Year Ended December 31,	2018			2017			2016
Balance at January 1	$	13,174		$	19,478		$	22,042
Increases in unrecognized tax benefits related to the current year	2,583			2,512			1,700
Increases in unrecognized tax benefits related to prior years	4,503			2,430			29
Decreases in unrecognized tax benefits related to prior years	(1,334		)	(793		)	—
Decreases in unrecognized tax benefits related to settlements	(4,812		)	(2,075		)	—
Decreases in unrecognized tax benefits due to the lapse of the applicable statute of limitations	(2,639		)	(8,378		)	(4,293		)
Balance at December 31	$	11,475		$	13,174		$	19,478

The net decrease to the liability for unrecognized tax benefits in 2018 is primarily due to the reversal of tax reserves upon the settlement of tax audits. Also contributing to the decrease in the liability for unrecognized tax benefits is the lapse of the statute of limitations for certain tax years. These decreases are partially offset by the accrual of tax reserves related to transfer pricing and other U.S. federal and state and non-U.S. matters.

The net decreases to the liability for unrecognized tax benefits in 2017 and 2016 were primarily attributable to the expiration of the statutes of limitations for certain tax years, partially offset by the accrual of tax reserves related to transfer pricing and other U.S. federal and state and non-U.S. matters. The net decrease in 2017 was also due to the settlement of tax audits.

We recognize interest expense and penalties related to unrecognized tax benefits as a component of Income Tax Expense in our Consolidated Income Statements. During 2018 , 2017 , and 2016 , we recognized a net benefit of $0.1 million , a net benefit of $0.9 million , and a net expense of $0.3 million , respectively, for interest expense and penalties related to unrecognized tax benefits. As of December 31, 2018 , 2017 , and 2016 , the liability for tax-related interest and penalties included on our Consolidated Balance Sheets was $1.1 million , $1.2 million , and $2.1 million , respectively. The net decreases in 2018 and 2017 were due to the reversal of interest accrued on unrecognized tax benefits, partially offset by the accrual of additional interest on existing unrecognized tax benefits.

We are subject to taxation in the U.S. and various state and foreign jurisdictions and, as a result, may be 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 believe it is reasonably possible that a decrease of $2.2 million in the balance of unrecognized tax benefits can occur within 12 months of the December 31, 2018 balance sheet date primarily as a result of the expiration of statutes of limitation and the expected settlements of ongoing tax audits.

103

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

Note 20 —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 $11.4 million as of December 31, 2018 .

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 income statement.

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 (including the matter discussed below), 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. 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 January 18, 2019, Sotheby’s filed a motion to dismiss this complaint, which it believes to be meritless, on numerous grounds.

104

Note 21 —Auction Guarantees

As of December 31, 2018 , we had outstanding auction guarantees totaling $98.3 million . Each of the outstanding auction guarantees 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 throughout 2019. Our financial exposure under these auction guarantees is reduced by $45.6 million as a result of our use of contractual risk-sharing arrangements with third parties, as discussed above. After taking into account these risk-sharing arrangements, as of December 31, 2018 , our net financial exposure related to the auction guarantees was $52.7 million .

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. Additionally, 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 1 for additional information related to our use of auction guarantees and related risk-sharing arrangements.)

As of December 31, 2018 and 2017 , the estimated fair value of our obligation to perform under our outstanding auction guarantees totaled $2.9 million and $0.9 million , respectively, and is recorded within Accounts Payable and Accrued Liabilities on our Consolidated Balance Sheets. This estimated fair value is based on an analysis of historical loss experience related to auction guarantees and does not include the impact of risk-sharing arrangements that may have mitigated all or a portion of any historical losses.

As of February 26, 2019, we had outstanding auction guarantees totaling $244.5 million and, as of that date, our financial exposure was reduced by contractual risk-sharing arrangements totaling $133.3 million . Each of the auction guarantees outstanding as of February 26, 2019, had a minimum guaranteed price that was 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 throughout 2019. After taking into account these risk-sharing arrangements, as of February 26, 2019, our net financial exposure related to the auction guarantees was $111.2 million . As of February 26, 2019, we have advanced $7.6 million of the total guaranteed amount.

105

Note 22 —Lease Commitments

We conduct business on premises leased in 23 different countries under operating leases expiring at various dates through 2060. Our operating lease commitments primarily relate to salesroom and exhibition space, office space, and warehouse facilities used predominantly for Agency segment operations. Under the terms of certain operating leases, we are required to pay real estate taxes and utility costs and may be subject to escalations in the amount of future minimum lease payments based on certain contractual provisions. For the years ended December 31, 2018 , 2017 , and 2016 , net rental expense under our operating leases was $19.7 million , $18.7 million , and $18.4 million , respectively, which was recorded within General and Administrative Expenses in our Consolidated Income Statements.

The following table summarizes future minimum lease payments due under non-cancellable operating leases in effect at December 31, 2018 (in thousands of dollars):



2019	$	20,039
2020	17,771
2021	14,033
2022	11,750
2023	9,449
Thereafter	32,318
Total future minimum lease payments	$	105,360

The amounts included in the table above represent undiscounted non-cancellable future minimum lease payments including any contractual market-based or indexed rent adjustments that are currently in effect. Common area maintenance, insurance, and real estate tax payments for which we are also obligated under the terms of certain leases are excluded from the table above, as well as future minimum sublease rental receipts of $11.7 million owed to us under noncancellable subleases.

Note 23 —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 years ended December 31, 2018 , 2017 , and 2016 , compensation expense related to share-based payments was reflected in the following accounts in our Consolidated Income Statements (in thousands of dollars):



Year Ended December 31,	2018		2017		2016
Salaries and related costs	$	29,703	$	23,479	$	15,935
Voluntary separation incentive programs (see Note 24)	—		—		(719		)
Total share-based payment expense (pre-tax)	$	29,703	$	23,479	$	15,216
Total share-based payment expense (after-tax)	$	22,846	$	15,555	$	10,810

On January 1, 2017, we adopted ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting . ASU 2016-09 requires, among other things, that all excess tax benefits and deficiencies resulting from the vesting of share-based payments be recorded in the statement of operations, whereas previous guidance generally permitted such items to be recorded in the equity section of the balance sheet provided that an adequate level of previously recorded excess tax benefits existed. This aspect of ASU 2016-09 was adopted on a prospective basis.

In 2018 and 2017, we recognized $1.2 million and $2.7 million , respectively, in excess tax benefits related to share-based payments in our Consolidated Income Statements. These tax benefits represent the amount by which the tax deduction resulting from the vesting of share-based payments and the exercise of stock options during those years exceeded the tax benefit initially recognized in our Consolidated Financial Statements.

106

In 2016, we recognized a ($1.3) million tax shortfall related to share-based payment arrangements. This tax shortfall represents the amount by which the tax deduction resulting from the vesting of share-based payments during the year was less than the tax benefit initially recognized in our Consolidated Financial Statements. As discussed above, prior to the adoption of ASU 2016-09 on January 1, 2017, such tax shortfalls were accounted for as a reduction to previously recorded excess tax benefits related to share-based payments within Additional Paid-in Capital on our Consolidated Balance Sheets.

As of December 31, 2018 , unrecognized compensation expense related to the unvested portion of share-based payments to employees was $23.9 million . This compensation expense is expected to be amortized over a weighted-average period of approximately 1.8 years . We do not capitalize 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.

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.

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.

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 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.

In 2018, the Compensation Committee approved share-based payment awards with a total grant date fair value of $32.7 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 award 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 .


•	412,708 RSU's with a grant date fair value of $19.6 million and annual vesting opportunities over a three -year service period.

107

Summary of Outstanding Share-Based Payment Awards —For the year ended December 31, 2018 , changes to the number of outstanding RSU's, PSU's, and Restricted Stock shares were as follows (shares in thousands):



	RSU's, PSU's, and Restricted Stock Shares		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2018	1,922		$	36.59
Granted	696		$	47.05
Vested	(545	)	$	39.21
Canceled	(221	)	$	40.20
Outstanding at December 31, 2018	1,852		$	39.12

As of December 31, 2018 , 6.9 million shares were available for future awards pursuant to the Restricted Stock Unit Plan. The aggregate fair value of RSU's and PSU's that vested during 2018 , 2017 , and 2016 was $27.6 million , $39.7 million , and $15.2 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 . The exercised stock options had an intrinsic value of $1.4 million . Also, as a result of the exercise of these stock options, we recognized an excess tax benefit of $0.2 million in our Consolidated Income Statement in the fourth quarter of 2017. As of December 31, 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 NYSE 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. In 2018 , 2017 , and 2016 , we recognized $1.3 million , $1 million , and $0.9 million , respectively, within General and Administrative Expenses in our Consolidated Income Statements related to common stock shares awarded under the Directors Stock Plan. As of December 31, 2018 , 186,124 deferred stock units were outstanding under the Directors Stock Plan and 88,047 units were available for future issuance.

Note 24 —Voluntary Separation Incentive Programs, net

On November 13, 2015, we announced a series of regional voluntary separation incentive programs (the "Programs") aimed at reducing headcount and associated compensation costs. The Programs were offered to our employees in jurisdictions where it was practical to do so. Employees who elected to participate in the Programs were accepted only upon approval by management.

In the fourth quarter of 2015, we recognized a charge of $36.9 million as a result of the Programs, consisting of $33.8 million in cash severance benefits and $3.1 million in accelerated equity compensation expense related to awards that will continue to vest after termination of employment, subject to our achievement of the underlying profitability targets, when applicable. In 2016, we recognized a net credit of $0.6 million primarily resulting from our quarterly assessment of the likelihood that the performance-based stock units held by participants in the Programs will vest. In 2017, we recognized a credit of $0.2 million as a result of the reversal of the remaining liability related to the Programs following the final payment of severance benefits.

Note 25 —Restructuring Charges

Beginning in the second quarter of 2018, we implemented a restructuring plan with the principal goal of reducing headcount through the elimination of certain Agency segment and corporate level positions (the "2018 Restructuring Plan"). The 2018 Restructuring Plan was completed in the fourth quarter of 2018 and resulted in $10.8 million of related charges, almost entirely attributable to severance-related costs. As of December 31, 2018, the remaining restructuring liability was $5.9 million and is recorded on our Consolidated Balance Sheets within Accounts Payable and Accrued Liabilities. This liability is expected to be substantially settled through cash payments to be made throughout 2019.

108

Note 26 —Earnings Per Share

Basic earnings per share —Basic 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 stock shares held by employees, both of which have non-forfeitable rights to dividends. See Note 23 for information on our share-based payment programs.

Diluted earnings per share —Diluted earnings per share attributable to Sotheby's common shareholders is computed in a similar manner to basic 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 23 for information on our share-based payment programs.

For the years ended December 31, 2018 , 2017 , and 2016 , approximately 1 million potential common shares related to share-based payment awards were excluded from the computation of diluted earnings per share because the financial performance or stock price targets inherent in such awards were not achieved as of the respective balance sheet dates.

109

The table below summarizes the computation of basic and diluted earnings per share for the years ended December 31, 2018 , 2017 , and 2016 (in thousands of dollars, except per share amounts):



Year Ended December 31,	2018		2017		2016
Basic Earnings Per Share:
Numerator:
Net income attributable to Sotheby's	$	108,634	$	118,796	$	74,112
Less: Net income attributable to participating securities	1,620		1,765		1,001
Net income attributable to Sotheby's common shareholders	$	107,014	$	117,031	$	73,111
Denominator:
Weighted average common shares outstanding	50,872		52,684		57,024
Basic earnings per share - Sotheby's common shareholders	$	2.10	$	2.22	$	1.28

Diluted Earnings Per Share:
Numerator:
Net income attributable to Sotheby's	108,634		$	118,796	$	74,112
Less: Net income attributable to participating securities	1,620		1,765		1,001
Net income attributable to Sotheby's common shareholders	$	107,014	$	117,031	$	73,111
Denominator:
Weighted average common shares outstanding	50,872		52,684		57,024
Weighted average effect of dilutive potential common shares:
Performance share units	229		231		465
Deferred stock units	177		161		149
Stock options	—		25		15
Weighted average dilutive potential common shares outstanding	406		417		629
Weighted average diluted shares outstanding	51,278		53,101		57,653
Diluted earnings per share - Sotheby's common shareholders	$	2.09	$	2.20	$	1.27

Note 27 —Related Party Transactions

From time-to-time, in the ordinary course of business, related parties, such as members of our Board of Directors and management, buy and sell property at our auctions or through private sales. For the years ended December 31, 2018 , 2017 , and 2016 , our Consolidated Income Statements include Agency Commissions and Fees of $5.1 million , $5.2 million , and $4.1 million , respectively, attributable to transactions with related parties. In 2018, our Consolidated Income Statements include Inventory Sales (and related cost of sales) of $5.3 million attributable to transactions with related parties.

As of December 31, 2018 and December 31, 2017 , Client Payables included amounts owed to related party consignors totaling $4.3 million and $0.4 million , respectively. There were no related party Accounts Receivable balances outstanding as of December 31, 2018 and 2017.

On October 3, 2016, we entered into an agreement with funds managed by Marcato Capital Management LP, pursuant to which we purchased 2,050,000 shares of our common stock from Marcato for an aggregate purchase price of $73.8 million , or $36.00 per share. At the time of this agreement, Marcato owned 8.5% of our outstanding common stock. (See Note 16 .)

110

Note 28 —Quarterly Results (Unaudited)

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 76% and 80% of our total annual Net Auction Sales in 2018 and 2017 , respectively, with auction commission revenues comprising approximately 74% and 66% 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.

On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers . The adoption of ASC 606 did not impact the timing of our revenue recognition, but it changed the presentation of certain Agency-related revenues and expenses previously reported on a net basis in our Consolidated Income Statements. Results for the quarterly periods in 2017 have been recast to reflect the retrospective adoption of ASC 606. (See Note 2 for additional information on our adoption of ASC 606.)

_________________________________________________________________

¹ Net Auction Sales represents the hammer or sale price of property sold at auction, excluding amounts related to the sale of our inventory at auction, which are reported within inventory sales.

111



	First Quarter			Second Quarter		Third Quarter			Fourth Quarter
	(In thousands, except per share data)
Year Ended December 31, 2018
Net Auction Sales	$	691,369		$	1,707,432	$	373,152		$	1,623,640
Income Statement Data:
Revenues:
Agency commissions and fees	$	165,526		$	290,879	$	96,721		$	338,648
Inventory sales	16,236			40,106		6,498			17,968
Finance	9,881			9,641		11,423			12,942
Other	4,153			5,010		4,519			5,589
Total revenues	$	195,796		$	345,636	$	119,161		$	375,147
Operating income (loss)	$	6,911		$	83,826	$	(30,667	)	$	121,275
Net (loss) income attributable to Sotheby's	$	(6,522	)	$	57,282	$	(27,838	)	$	85,712
Per Share Amounts:
Basic (loss) earnings per share - Sotheby's common shareholders	$	(0.12	)	$	1.09	$	(0.55	)	$	1.75
Diluted (loss) earnings per share - Sotheby's common shareholders	$	(0.12	)	$	1.08	$	(0.55	)	$	1.72
Shares Outstanding:
Basic	52,464			51,780		50,927			48,318
Diluted	52,464			52,210		50,927			49,003
Year Ended December 31, 2017
Net Auction Sales	$	474,903		$	1,543,331	$	286,722		$	1,511,836
Income Statement Data:
Revenues:
Agency commissions and fees	$	111,265		$	301,768	$	81,264		$	315,274
Inventory sales	71,377			19,937		81,501			6,167
Finance	12,767			13,359		11,697			13,114
Other	3,900			4,795		5,546			3,649
Total revenues	$	199,309		$	339,859	$	180,008		$	338,204
Operating (loss) income	$	(14,058	)	$	114,155	$	(41,056	)	$	106,634
Net (loss) income attributable to Sotheby's	$	(11,325	)	$	76,891	$	(23,479	)	$	76,709
Per Share Amounts:
Basic (loss) earnings per share - Sotheby's common shareholders	$	(0.21	)	$	1.44	$	(0.45	)	$	1.44
Diluted (loss) earnings per share - Sotheby's common shareholders	$	(0.21	)	$	1.43	$	(0.45	)	$	1.43
Shares Outstanding:
Basic	53,016			52,716		52,532			52,471
Diluted	53,016			53,054		52,532			52,853

112

ITEM 9 : CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

DISCLOSURE

Not applicable.


ITEM 9A :	CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of December 31, 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 December 31, 2018 .

Management's Report on Internal Control over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management evaluates the effectiveness of the Company's internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2018 and concluded that it is effective.

The Company's independent registered public accounting firm, Deloitte & Touche LLP, has audited the effectiveness of the Company's internal control over financial reporting as of December 31, 2018 and has expressed an unqualified opinion in their report which is included herein.

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.

113

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Sotheby’s

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Sotheby’s and subsidiaries (the "Company") as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial statements as of and for the year ended December 31, 2018, of the Company and our report dated February 28, 2019, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/S/ DELOITTE & TOUCHE LLP

New York, New York

February 28, 2019

114

PART III


ITEM 10 :	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Certain of the information required by this Item is incorporated by reference from our definitive proxy statement for the 2019 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A within 120 days after December 31, 2018.

Executive Officers of the Registrant

Our Executive Officers as of February 28, 2019 were:



7
Name	Age	Current Position and Officer
Jill Bright	56	Executive Vice President, Human Resources and Administration
John Cahill	50	Executive Vice President and Chief Commercial Officer
Valentino D. Carlotti	52	Executive Vice President, Global Head of Business Development
Kenneth Citron	54	Executive Vice President, Operations and Chief Transformation Officer
Kevin M. Delaney	46	Senior Vice President, Controller and Chief Accounting Officer
David Goodman	58	Executive Vice President, Digital Development and Marketing
Michael Goss	59	Executive Vice President and Chief Financial Officer
Jane A. Levine	59	Executive Vice President, Chief Global Compliance Counsel and Head of Government and Regulatory Affairs
Jonathan A. Olsoff	59	Executive Vice President and Worldwide General Counsel
Thomas S. Smith, Jr.	53	President and Chief Executive Officer and a Director

There is no family relationship between the directors or executive officers. The term of office of each of our foregoing officers will continue until the next annual meeting of the Board of Directors and until a successor has been elected and qualified.

Jill Bright joined the Company in August 2017 as Executive Vice President, Human Resources and Administration. From December 2016 to July, 2017, she served as Chief Administrative Officer at Gensler, a global architectural, design, planning and consulting firm. Prior to that, Ms. Bright held various positions at Condé Nast from 1993 until 2016, including Chief Administrative Officer from 2010 until 2016 and, before that, head of the Human Resources and Corporate Communications groups. Prior to joining Condé Nast, she held senior human resources roles at Macy’s and American Express. Ms. Bright is a director of Wide Open West, Inc. (NYSE: WOW) and was a director of Cumulus Media from 2017 to 2018.

John Cahill joined the Company in February 2019 as Executive Vice President, Chief Commercial Officer. From 2007 through January 2019, he was a partner and founder of Cahill Cossu Noh & Robinson, a law firm specializing in art law. Prior to that, Mr. Cahill was Senior Vice President and General Counsel of Phillips, de Pury & Company. He was also a partner at the law firm Berger Stern & Webb LLP, and counsel to Friedman Kaplan Seiler & Adelman LLP.

Valentino D. Carlotti joined the Company in October 2017 as Executive Vice President, Global Head of Business Development, after being a Partner at Goldman, Sachs & Co. Mr. Carlotti was with Goldman, Sachs & Co. from 1994 to 2017, holding various positions, including Global Business Partner for Investment Banking Division and Merchant Banking from 2015 to 2017, Head of The Securities Division Institutional Client Group, from 2012 to 2014, and President, The Goldman Sachs Brazil Bank, from 2007 to 2012.

Kenneth Citron joined the Company in January 2019 as Executive Vice President, Operations and Chief Transformation Officer. From 2012 through 2017, he was Chief Operating Officer of Christie’s. Prior to that, Mr. Citron was Chief Operating Officer, Chief Information Officer and Executive Vice President of publishing operations at Rodale Inc., a global media company. Earlier in his career, he spent 12 years at Sony Music Corporation, most recently as Senior Vice President, Information Technology.

Kevin M. Delaney has served as Senior Vice President (and previously Vice President) and Chief Accounting Officer of the Company since March 2007. He joined Sotheby’s as Assistant Vice President (and later Vice President) and Assistant Corporate Controller in June 2000. From July 1998 to June 2000, Mr. Delaney served in several accounting management positions with Sony Music. From July 1994 to June 1998, Mr. Delaney was a staff accountant (and then senior accountant) with Deloitte & Touche. Mr. Delaney is a Certified Public Accountant.

115

David Goodman joined the Company in June 2015 as Executive Vice President of Digital Development and Marketing. From September 2014 until May 2015, he served as President, Productions and Live Entertainment, of The Madison Square Garden Company. Mr. Goodman had previously spent 12 years at CBS, leading various divisions of the company, including as president of CBS Live Experiences.

Michael Goss joined the Company in March 2016 as Executive Vice President and Chief Financial Officer. He was a partner and managing director at Bain Capital from 2001 to 2013, served as Bain’s Chief Financial Officer from 2001 to 2011, as Chief Operating Officer from 2004 to 2011 and Head of Global Investor Relations from 2012 to 2013. Prior thereto, he was Executive Vice President and Chief Financial Officer at Digitas in 2000 and Executive Vice President and Chief Financial Officer and a director at Playtex Products from 1994 to 1999. Mr. Goss is a director of Element Solutions Inc. (NYSE: ESI), formerly known as Platform Specialty Products.

Jane A. Levine has been Executive Vice President, Chief Global Compliance Counsel and Head of Government and Regulatory Affairs since May 2016. She joined the Company in September 2006 as Senior Vice President, Worldwide Director of Compliance. From August 1996 to August 2006, Ms. Levine served as an Assistant United States Attorney with the Southern District of New York, where she worked with the FBI’s Art Crime team.

Jonathan A. Olsoff has been with the Company since 1997. He has been Executive Vice President, Worldwide General Counsel of the Company since May 2016 and Senior Vice President, Worldwide General Counsel from May 2015 until May 2016. Mr. Olsoff also held the title of Corporate Secretary from May 2015 until September 2015. Prior to that, he held various positions, including Senior Vice President, General Counsel, Americas, Worldwide Head of Litigation and Assistant Secretary. Prior to joining the Company, Mr. Olsoff was employed with the law firm Berger & Steingut, where he served as one of Sotheby’s lead outside litigators, from 1994 to 1997.

Thomas S. (“Tad”) Smith, Jr., has served as President and Chief Executive Officer of the Company and a Director since March 2015. From February 2014 to March 2015, he served as President and Chief Executive Officer of The Madison Square Garden Company, a diversified media, entertainment and sports company. From 2009 to February 2014, Mr. Smith was President, Local Media, of Cablevision, responsible for Cablevision Media Sales. From 2000 to 2009, he worked for Reed Elsevier Group PLC, a worldwide media company, where he last served as chief executive officer of the company’s U.S. business-to-business division, Reed Business Information (RBI). He currently serves as an Adjunct Professor at NYU Stern School of Business.

ITEM 11 : EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the material appearing in the Proxy Statement under the captions "Compensation of Executive Officers" and "Compensation of Directors." Notwithstanding anything to the contrary herein, the Report of the Audit Committee and the Report of the Compensation Committee in the Proxy Statement are not incorporated by reference herein.

ITEM 12 : SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference to the tables and related text and footnotes appearing in the Proxy Statement under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plans."


ITEM 13 :	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the material appearing in the Proxy Statement under the captions "Corporate Governance" and "Certain Relationships and Related Party Transactions."


ITEM 14 :	PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference to the material appearing in the Proxy Statement under the caption "Proposal 3—Ratification of the Appointment of Independent Registered Public Accounting Firm."

116

PART IV

ITEM 15 : EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



2.1	—	Agreement and Plan of Merger between Sotheby's Holdings, Inc., a Michigan corporation and Sotheby's Delaware, Inc., a Delaware corporation, dated March 31, 2006, incorporated by reference to Exhibit 2.1 to the Company's First Quarter Form 10-Q for 2006.

3.1	—	Amended and Restated Certificate of Incorporation of Sotheby's.

3.2	—	Amended and Restated By-Laws of Sotheby's.

3.3	—	Form of Indemnity Agreement, as amended and restated as of August 4, 2009, incorporated by reference to Exhibit 10.1 to the Company's Second Quarter Form 10-Q for 2009.

4.1	—	Indenture, dated as of December 12, 2017, for the 4.875% Senior Notes due 2025 among Sotheby's, as Issuer, and Initial Subsidiary Guarantors Party thereto and U.S. Bank National Association, as Trustee, incorporated by reference to Exhibit 4.1 to the Company's current report on Form 8-K filed on December 12, 2017.

10.1	—	Agreement of Partnership of Acquavella Modern Art, dated May 29, 1990, between Sotheby's Nevada, Inc. and Acquavella Contemporary Art, Inc., incorporated by reference to Exhibit 10(b) to the Company's current report on Form 8-K, filed on June 7, 1990, SEC File No. 1-9750, on file at the Washington, D.C. office of the Securities and Exchange Commission.

10.2	—	Amendment to the Agreement of Partnership dated April 27, 2017, between Sotheby's Nevada Inc. and Acquavella Contemporary Art, incorporated by reference to the Exhibit 10.1 to the Company's Second Quarter Form 10-Q for 2017.

10.3	—	Support Agreement, dated May 4, 2014 by and among the Company, Third Point LLC and the other persons set forth on the signature pages thereto, incorporated by reference to Exhibit 99.1 to the Company's current report on Form 8-K filed on May 7, 2014.

10.4	—	Purchase Agreement, dated as of January 11, 2016, by and among Amy Cappellazzo, Allan Schwartzman, Adam Chinn and Sotheby’s, Inc., incorporated by reference to Exhibit 99.1 to the Company's current report on Form 8-K filed on January 11, 2016.

10.5	—	Support Agreement, dated November 4, 2016, by and between Sotheby's and Taikang Insurance Group, incorporated by reference to Exhibit 99.2 to the Company's current report on Form 8-K filed on November 7, 2016.

10.6	—	CREDIT AGREEMENT, dated as of June 26, 2018, among Sotheby's, the Other Borrowers and Other Loan Parties Party thereto, the Lenders Party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Wells Fargo Bank, N.A. and HSBC Bank USA, N.A., as Co-Syndication Agents, and ING Capital LLC, as Documentation Agent, JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., HSBC Bank USA, N.A., and ING Capital LLC, as Joint Lead Arrangers, JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., and HSBC Bank USA, N.A., as Joint Bookrunners, incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K filed on July 2, 2018.

10.7	—	Loan Agreement, dated as of July 1, 2015, among 1334 York, LLC, as Borrower, HSBC Bank USA, National Association, as Agent, HSBC Bank USA, National Association and Industrial and Commercial Bank of China, Limited, New York Branch, as Lenders and collectively, as Lead Arranger, and the other Lenders from time to time a party thereto, incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K filed on July 6, 2015.

10.8	—	Guaranty of Recourse Carveouts, dated as of July 1, 2015, by Sotheby’s, as Guarantor, for the benefit of HSBC Bank USA, National Association, as Agent, incorporated by reference to Exhibit 10.2 to the Company's current report on Form 8-K filed on July 6, 2015.

10.9		First Amendment to Loan Agreement and Guaranty of Resources Carveouts, dated as of June 21, 2017, between 1334 York, LLC, Sotheby's and HSBC Bank USA, National Association, as administrative agent, incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K filed on June 21, 2017.

10.10	—	Environmental Indemnity Agreement, dated as of July 1, 2015, between 1334 York, LLC and Sotheby’s, in favor of HSBC Bank USA, National Association, as Agent, incorporated by reference to Exhibit 10.3 to the Company's current report on Form 8-K filed on July 6, 2015.

117



10.11	—	Trademark License Agreement, dated as of February 17, 2004, among SPTC, Inc., as Licensor, Sotheby's Holdings, Inc. as Guarantor, Monticello Licensee Corporation, as Licensee, and Cendant Corporation, as Guarantor, incorporated by reference to Exhibit 99.3 to the Company's current report on Form 8-K, filed on March 2, 2004.

10.12	—	Amendment No. 1 to Trademark License Agreement, dated as of May 2, 2005, among SPTC Delaware, LLC (as an assignee of SPTC, Inc) and Sotheby's Holdings, Inc. and Cendant Corporation and Sotheby's International Realty Licensee Corporation (formerly known as Monticello Licensee Corporation), incorporated by reference to Exhibit 10.1 to the Company's Second Quarter Form 10-Q for 2005.

10.13	—	Amendment No. 2 to Trademark License Agreement, dated as of May 2, 2005, among SPTC Delaware, LLC (as an assignee of SPTC, Inc) and Sotheby's Holdings, Inc. and Cendant Corporation and Sotheby's International Realty Licensee Corporation (formerly known as Monticello Licensee Corporation), incorporated by reference to Exhibit 10.2 to the Company's Second Quarter Form 10-Q for 2005.

10.14*	—	Sotheby's Stock Compensation Plan for Non-Employee Directors, as amended and restated on May 7, 2015, effective May 7, 2015, incorporated by reference to Appendix A to the Company's Proxy Statement on Schedule 14A filed on March 26, 2015.

10.15*	—	Employment Agreement, dated March 13, 2015, effective as of March 31, 2015, between the Company and Thomas S. Smith, Jr., incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K filed on March 18, 2015.

10.16*	—	Restricted Stock Unit Agreement between Sotheby's and Thomas S. Smith, dated March 31, 2015, incorporated by reference to Exhibit 10.2 to the Company's First Quarter Form 10-Q for 2015.

10.17*	—	Performance Stock Unit Agreement between Sotheby's and Thomas S. Smith, dated March 31, 2015, incorporated by reference to Exhibit 10.4 to the Company's First Quarter Form 10-Q for 2015.

10.18*	—	Employment Agreement, dated January 11, 2016, between the Company and Adam Chinn incorporated by reference to Exhibit 99.1 to the Company's current report on Form 8-K filed on February 3, 2017.

10.19*	—	Separation Agreement, dated December 3, 2018, between the Company and Adam Chinn.

10.20*	—	Fourth Amended and Restated Sotheby's Restricted Stock Unit Plan, reflecting amendments effective as of February 7, 2017, incorporated by reference to Exhibit 10.52 to the Company's Annual Report on Form 10-K for the year ended December 31, 2016 (the "2016 Form 10-K").

10.21*	—	Form of Performance Share Unit Agreement, adopted by the Board of Directors of the Company on February 9, 2016, incorporated by reference to Exhibit 10.51 in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

10.22*	—	Sotheby's First Amended Executive Severance Benefits Plan, effective February 7, 2017, incorporated by reference in Exhibit 10.59 to the 2016 Form 10-K.

10.23*	—	Sotheby's 2016 Annual Bonus Plan, as adopted on May 6, 2016, incorporated by reference to Appendix A to the Company's Proxy Statement on Schedule 14A filed on March 24, 2016.

10.24*	—	Sotheby's Amended and Restated Deferred Compensation Plan, dated November 1, 2017 and effective January 1, 2018, incorporated by reference to Exhibit 10.33 to the Company's Form 10-K for the year ended December 31, 2017.

10.25*	—	Sotheby's Compensation Recoupment Policy, effective January 1, 2015, incorporated by reference to Exhibit 10.1 to the Company's Second Quarter Form 10-Q for 2016.

10.26*		2018 Sotheby's Equity Incentive Plan, as adopted on May 3, 2018, incorporated by reference to Appendix A to the Company's Proxy Statement on Schedule 14A filed on March 22, 2018.

10.27	—	Master Confirmation - Accelerated Stock Repurchases, dated as of December 13, 2018 between JPMorgan Chase Bank, National Association, and Sotheby's.

21	—	Subsidiaries of the Registrant

23	—	Consent of Deloitte & Touche LLP

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.

118





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.

	—	The list of exhibits filed with this report is set forth in response to Item 15(a)(3). The required exhibit index has been filed with the exhibits.

	—	The financial statement schedule of the Company listed in response to Item 15(a)(2) is filed pursuant to this Item 15(d).
*	A compensatory agreement or plan required to be filed pursuant to Item 15(c) of Form 10-K.

^	Confidential treatment has been requested with respect to portions of this exhibit, and the redacted information has been filed separately with the Securities and Exchange Commission.

FORM 8-K FILINGS IN THE FOURTH QUARTER OF 2018

	—	On October 22, 2018, the Company filed a current report on Form 8-K under Item 1.01, "Entry Into a Material Definitive Agreement."

	—	On November 26, 2018, the Company furnished a current report on Form 8-K under Item 7.01, "Regulation FD."

	—	On December 3, 2018, the Company furnished a current report on Form 8-K under Item 5.02, "Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers," Item 7.01, "Regulation FD," and Item 9.01, "Financial Statements and Exhibits."

	—	On December 14, 2018, the Company filed a current report on Form 8-K under Item 1.01, "Entry into a Material Definitive Agreement," Item 8.01, "Other Events," and Item 9.01, "Financial Statements and Exhibits."

119

SCHEDULE II

SOTHEBY'S

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 2018 , 2017 , AND 2016



Column A	Column B		Column C				Column D		Column E
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts		Deductions		Balance at End of Period
	(Thousands of dollars)
Valuation reserve deducted in the balance sheet from the asset to which it applies:
Receivables:
2018 Allowance for doubtful accounts and credit losses	$	11,500	$	2,256	$	—	$	2,031	$	11,725
2017 Allowance for doubtful accounts and credit losses	$	8,940	$	2,679	$	—	$	119	$	11,500
2016 Allowance for doubtful accounts and credit losses	$	10,099	$	928	$	—	$	2,087	$	8,940
Deferred tax assets:
2018 Valuation allowance	$	3,194	$	18	$	—	$	852	$	2,360
2017 Valuation allowance	$	2,819	$	384	$	—	$	9	$	3,194
2016 Valuation allowance	$	2,437	$	526	$	—	$	144	$	2,819

120

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.



	SOTHEBY'S

	By:	/s/ THOMAS S. SMITH, JR.
		Thomas S. Smith, Jr.
		President and Chief Executive Officer

Date: February 28, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 28th day of February 2019.



Signature		Title

/s/ THOMAS S. SMITH, JR.		President and Chief Executive Officer
Thomas S. Smith, Jr.

/s/ DOMENICO DE SOLE		Chairman of the Board
Domenico De Sole

/s/ DEVONSHIRE		Deputy Chairman of the Board
The Duke of Devonshire

/s/ JESSICA BIBLIOWICZ		Director
Jessica Bibliowicz

/s/ LINUS W. L. CHEUNG		Director
Linus W. L. Cheung

/s/ KEVIN CONROY		Director
Kevin Conroy

/s/ DANIEL S. LOEB		Director
Daniel S. Loeb

/s/ MARSHA E. SIMMS		Director
Marsha E. Simms

/s/ DIANA L. TAYLOR		Director
Diana L. Taylor

/s/ DENNIS M. WEIBLING		Director
Dennis M. Weibling

/s/ HARRY J. WILSON		Director
Harry J. Wilson

/s/ MICHAEL GOSS		Executive Vice President and Chief Financial Officer
Michael Goss		Executive Vice President and Chief Financial Officer

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

121

Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

SOTHEBY’S

Sotheby’s, a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), hereby certifies as follows:

A. The original Certificate of Incorporation of the Corporation was filed with the Secretary of the State of Delaware on March 30, 2006.

B. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware, as amended (the “DGCL”), and restates, integrates and further amends the provisions of the Corporation’s Certificate of Incorporation. Pursuant to resolutions of the Board of Directors of the Corporation, a special meeting of the stockholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the DGCL and the Corporation’s Certificate of Incorporation and By-Laws, at which meeting the necessary number of shares as required by statute were voted in favor of the amendments in this Amended and Restated Certificate of Incorporation.

C. The text of the Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety to read as follows:

FIRST. The name of the Corporation is Sotheby’s. The date of filing of its original certificate of incorporation with the Secretary of State of the State of Delaware was March 30, 2006, and the name under which it was originally incorporated was Sotheby’s Delaware, Inc.

SECOND. The address of the Corporation’s registered office in the State of Delaware is 251 Little Falls Drive, in the City of Wilmington, New Castle County, Delaware, 19808. The name of its registered agent at such address is Corporation Service Company.

THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.

FOURTH. (a) The total number of shares of stock that the Corporation shall have authority to issue is 250,000,000, of which 200,000,000 shares, par value $0.01 per share, shall be designated as Common Stock (“Common Stock”), and 50,000,000 shares, par value $0.01 per share, shall be designated as Preferred Stock (“Preferred Stock”).

(b) The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article Fourth, to provide from time to time for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof.

Exhibit 3.1

The authority of the Board to fix the designation, powers, preferences and rights of the shares of each series and the qualifications, limitations or restrictions thereof shall include, but not be limited to, determination of the following:

(1) the number of shares constituting that series and the distinctive designation of that series;

(2) the dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series;

(3) whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights;

(4) whether that series shall have conversion or exchange privileges, and, if so, the terms and conditions of such conversion or exchange, including provision for adjustment of the conversion or exchange rate in such events as the Board of Directors shall determine;

(5) whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or date upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different

conditions and at different redemption dates;

(6) whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund;

(7) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and

(8) any other relative rights, preferences and limitations of that series.

FIFTH. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the Corporation is expressly authorized to make, alter and repeal the By-Laws of the Corporation, subject to the power of the stockholders of the Corporation to alter or repeal any By-Law whether adopted by them or otherwise.

SIXTH. Unless and except to the extent that the By-Laws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.

SEVENTH. A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that such exemption from liability or limitation thereof is not permitted under the laws of the State of Delaware as currently in effect or as the same may hereafter be amended. Any amendment, modification or repeal of this Article Seventh shall be prospective only and shall not adversely affect any right or protection of a director of the Corporation that exists at the time of such amendment, modification or repeal.

EIGHTH. The Corporation shall indemnify and hold harmless, including the advancement of expenses, to the fullest extent permitted by applicable law as it currently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans maintained or

Exhibit 3.1

sponsored by the Corporation (a “Covered Person”) (including the heirs, executors, administrators and estate of such Covered Person), against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person. The Corporation may, to the extent authorized from time to time by the Board, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article Eighth with respect to the Indemnification and advancement of expenses of directors and officers of the Corporation. Without limiting the generality or the effect of the foregoing, the Corporation may enter into one or more agreements with any person that provide for indemnification greater than or different from that provided in this Article Eighth. No amendment or repeal of this Article Eighth shall adversely affect any right or protection existing hereunder or pursuant hereto immediately prior to such amendment or repeal. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article Eighth or under the applicable provisions of law.

NINTH. No action required to be taken or that may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing without a meeting to the taking of any action is specifically denied.

TENTH. Subject to the rights of holders of shares of any class or series of Preferred Stock in respect of meetings of the holders of such shares, special meetings of stockholders (i) may be called at any time by the Chairman of the Board, if any, the President, the Board of Directors, or a committee of the Board of Directors that has been duly designated by the Board of Directors and whose powers and authority, as expressly provided in a resolution of the Board of Directors, include the power to call such meetings at any time and for any purpose or purposes as shall be stated in the notice of the meeting, and (ii) shall be called by the Secretary of the Corporation upon the written request of one or more holders of record of shares in the aggregate entitled to cast not less than 20% of the votes, subject to and in compliance with this Article Tenth and the Bylaws. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of such special meeting.

IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by the Chief Executive Officer of the Corporation on this February 14, 2019.

By: /s/ Thomas S. Smith, Jr.

Exhibit 3.2

AMENDED AND RESTATED BY-LAWS OF SOTHEBY’S

(a Delaware corporation, the “Corporation”)

(as amended and restated through February 14, 2019)

ARTICLE I

Stockholders

Section 1.1 Annual Meetings . An annual meeting of stockholders shall be held for the election of directors, and, subject to Section 1.12 of these By-Laws, to conduct such other proper business as may be brought before the meeting, at such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors.

Section 1.2 Special Meetings .

(a) Subject to the rights of holders of shares of any class or series of Preferred Stock in respect of meetings of the holders of such shares, special meetings of stockholders may be called (1) at any time by the Chairman of the Board, if any, the President and Chief Executive Officer, the Board of Directors, or by a committee of the Board of Directors that has been duly designated by the Board of Directors and whose powers and authority, as expressly provided in a resolution of the Board of Directors, include the power to call such meetings, and (2) solely to the extent required by Section 1.2(b) of these By-Laws, by the Secretary of the Corporation. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of such special meeting. Any special meeting of stockholders, including any Stockholder Requested Special Meeting (as defined below), shall be held at such date, time and place in accordance with these By-Laws and in compliance with applicable law.

(b) A special meeting of the stockholders shall be called by the Secretary upon the written request of one or more holders of record of not less than twenty percent of the voting power of all outstanding shares of common stock of the Corporation (the “Requisite Percent”), subject to the following:

(1) In order for a special meeting upon stockholder request (a “Stockholder Requested Special Meeting”) to be called by the Secretary, one or more written requests for a special meeting (each, a “Special Meeting Request,” and collectively, the “Special Meeting Requests”) stating the purpose of the special meeting and the matters proposed to be acted upon thereat must be signed and dated by the Requisite Percent of record holders of common stock of the Corporation (or their duly authorized agents), must be delivered to the Secretary at the principal executive offices of the Corporation and must set forth:

(i) in the case of any nominations of a director or directors to the Board of Directors proposed to be presented at such Stockholder Requested Special Meeting, the information required by Section 1.13(c) of these By-Laws;

(ii) in the case of any matter (other than a director nomination) proposed to be conducted at such Stockholder Requested Special Meeting, the information required by Section 1.12(c) of these By-Laws; and

Exhibit 3.2

(iii) an agreement by the requesting stockholder(s) to notify the Corporation immediately in the case of any disposition prior to the record date for the Stockholder Requested Special Meeting of shares of common stock of the Corporation owned of record and an acknowledgment that any such disposition shall be deemed a revocation of such Special Meeting Request to the extent of such disposition, such that the number of shares disposed of shall not be included in determining whether the Requisite Percent has been reached and maintained.

The Corporation will provide the requesting stockholder(s) with notice of the record date for the determination of stockholders entitled to vote at the Stockholder Requested Special Meeting. Each requesting stockholder is required to update the notice delivered pursuant to this Section not later than eight (8) days after such record date to provide any material changes in the foregoing information as of such record date.

In determining whether a special meeting of stockholders has been requested by the record holders of shares representing in the aggregate at least the Requisite Percent, multiple Special Meeting Requests delivered to the Secretary will be considered together only if each such Special Meeting Request (x) identifies substantially the same purpose or purposes of the special meeting and substantially the same matters proposed to be acted on at the special meeting (in each case as determined in good faith by the Board of Directors), and (y) has been dated and delivered to the Secretary within sixty (60) days of the earliest dated of such Special Meeting Requests. If the record holder is not the signatory to the Special Meeting Request, such Special Meeting Request will not be valid unless documentary evidence is supplied to the Secretary at the time of delivery of such Special Meeting Request (or within ten (10) business days thereafter) of such signatory’s authority to execute the Special Meeting Request on behalf of the record holder. Any requesting stockholder may revoke his, her or its Special Meeting Request at any time by written revocation delivered to the Secretary at the principal executive offices of the Corporation; provided , however , that if at any time following such revocation (or any deemed revocation pursuant to clause (iii) above), the unrevoked valid Special Meeting Requests represent in the aggregate less than the Requisite Percent, there shall be no requirement to hold a special meeting. The first date on which unrevoked valid Special Meeting Requests constituting not less than the Requisite Percent shall have been delivered to the Corporation is referred to herein as the “Request Receipt Date”.

(2) A Special Meeting Request shall not be valid if:

(i) the Special Meeting Request relates to an item of business that is not a proper subject for stockholder action under applicable law;

(ii) the Request Receipt Date is during the period commencing ninety (90) days prior to the first anniversary of the date of the immediately preceding annual meeting and ending on the date of the next annual meeting;

(iii) the purpose specified in the Special Meeting Request is not the election of directors and an identical or substantially similar item (as determined in good faith by the Board of Directors, a “Similar Item”) was presented at any meeting of stockholders held within the twelve months prior to the Request Receipt Date; or

(iv) a Similar Item is included in the Corporation's notice as an item of business to be brought before a stockholder meeting that has been called but not yet held or that is called for a date within ninety (90) days of the Request Receipt Date.

Exhibit 3.2

(3) A Stockholder Requested Special Meeting shall be held at such date, time and place as may be fixed by the Board of Directors; provided , however , that the Stockholder Requested Special Meeting shall be called for a date not more than ninety (90) days after the Request Receipt Date. The Board of Directors shall establish a record date for a Stockholder Requested Special Meeting in accordance with Section 1.8 of these By-Laws.

(4) Business transacted at any Stockholder Requested Special Meeting shall be limited to (i) the purpose(s) stated in the valid Special Meeting Request(s) received from the Requisite Percent of record holders and (ii) any additional matters that the Board of Directors determines to include in the Corporation’s notice of the meeting. If none of the stockholders who submitted the Special Meeting Request appears or sends a qualified representative to present the matters to be presented for consideration that were specified in the Stockholder Meeting Request, the Corporation need not present such matters for a vote at such meeting, notwithstanding that proxies in respect of such matter may have been received by the Corporation.

Section 1.3 Notice of Meetings . Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given in writing or by electronic transmission in accordance with applicable law to each stockholder of record entitled to vote at such meeting. Such notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the Certificate of Incorporation or these By-Laws, the notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at the address of such stockholder as it appears on the records of the Corporation.

Section 1.4 Adjournments . Any meeting of stockholders, annual or special, may be adjourned from time to time by the chairman of such meeting, whether or not there is a quorum present at such meeting, to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 1.5 Quorum . Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, at each meeting of stockholders the presence in person or by proxy of the holders of shares of capital stock of the Corporation having a majority of the votes that could be cast by the holders of all outstanding shares of capital stock of the Corporation entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, the chairman of such meeting may adjourn the meeting from time to time in the manner provided in Section 1.4 of these By-Laws until a quorum shall be present in person or by proxy. Shares of capital stock of the Corporation belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for purposes of determining whether a quorum is present at any meeting of stockholders; provided , however , that the foregoing shall not limit the right of the Corporation to vote capital stock, including but not limited to its own capital stock, held by it (or any other corporation) in a fiduciary capacity. The stockholders present at a duly called meeting at which a quorum is present may

Exhibit 3.2

continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

Section 1.6 Organization . Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in the absence of the Vice Chairman of the Board by the President and Chief Executive Officer, or in the absence of the President and Chief Executive Officer by any Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of the meeting shall announce at the meeting of stockholders the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote.

Section 1.7 Voting; Proxies . Except as otherwise provided by the Certificate of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of capital stock of the Corporation held by such stockholder that has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary. Voting at meetings of stockholders need not be by written ballot and, unless otherwise required by law, need not be conducted by inspectors of election. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, all matters, other than the election of directors, shall be decided by a majority of the votes that could be cast by the holders of all outstanding shares of capital stock of the Corporation entitled to vote thereon that are present in person or by proxy at such meeting (assuming that a quorum is present).

Section 1.8 Fixing Date for Determination of Stockholders of Record . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of capital stock of the Corporation or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting; and (b) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided , however , that the Board of Directors may fix a new record date for the adjourned meeting.

Exhibit 3.2

Section 1.9 List of Stockholders Entitled to Vote . The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, and showing the address of each stockholder and the number and class of shares of capital stock of the Corporation registered in the name of each stockholder. Nothing in this Section 1.9 shall require the Corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Upon the willful neglect or refusal of the directors to produce such a list at any meeting for the election of directors held at a place, or to open such a list to examination on a reasonably accessible electronic network during any meeting for the election of directors held solely by means of remote communication, they shall be ineligible for election to any office at such meeting. The stock ledger shall be the only evidence as to which stockholders are entitled to examine the list of stockholders or to vote in person or by proxy at any meeting of stockholders.

Section 1.10 No Action By Consent of Stockholders . No action required to be taken or that may be taken at an annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to take action by consent in writing, without a meeting, is expressly denied.

Section 1.11 Conduct of Meetings . The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as may be adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present; (c) limitations on attendance at or participation in the meeting to stockholders of record, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (d) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (e) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

Section 1.12 Advance Notice of Stockholder Business at Annual Meetings .

(a) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (1) specified in the notice of meeting (or any supplement thereto) given by or at the

Exhibit 3.2

direction of the Board of Directors, (2) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (3) otherwise properly brought before the meeting by a stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Section 1.12 .

(b) For business to be properly brought before an annual meeting by a stockholder of record, the stockholder must have given timely notice thereof in writing to the Secretary. To be timely, a stockholder’s notice must be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year’s annual meeting; provided , however , that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above.

(c) A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (1) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (2) the name and address, as they appear on the Corporation’s books, of the stockholder proposing such business, and, if applicable, the beneficial owner on whose behalf the stockholder is acting, (3) the class and number of shares of capital stock of the Corporation that are owned of record by the stockholder, and, if applicable, beneficially by the beneficial owner, and (4) any material interest of the stockholder or, if applicable, the beneficial owner in such business. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 1.12 . The chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 1.12 , and if the chairman should so determine, the chairman shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted.

Section 1.13 Notice of Stockholder Nominees at Annual Meetings .

(a) Only persons who are nominated in accordance with the procedures set forth in this Section 1.13 shall be eligible for election as directors at any annual meeting called for the purpose of the election of directors.

(b) Nominations of persons for election to the Board of Directors may be made at an annual meeting of stockholders by or at the direction of the Board of Directors or by any stockholder entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 1.13 . Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary. To be timely, a stockholder’s notice shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year’s annual meeting; provided , however , that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the ninetieth (90th) day prior to such annual

Exhibit 3.2

meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above.

(c) A stockholder’s notice to the Secretary shall set forth: (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (1) the name, age, business address and residence address of such person, (2) the principal occupation or employment of such person, (3) the class and number of shares of capital stock of the Corporation that are beneficially owned by such person, and (4) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including, without limitation, such persons’ written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (1) the name and address, as they appear on the Corporation’s books, of such stockholder and (2) the class and number of shares of capital stock of the Corporation that are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the Secretary that information required to be set forth in a stockholder’s notice of nomination that pertains to the nominee. No person shall be eligible for election as a director at any annual meeting unless nominated in accordance with the procedures set forth in this Section 1.13 . The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these By-Laws, and if the chairman should so determine, the chairman shall so declare to the meeting, and the defective nomination shall be disregarded.

Section 1.14 Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting given by or at the direction of the Board of Directors or by the Secretary of the Corporation pursuant to Section 1.2(a)(2) of these By-Laws. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 1.14 , who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.14 . In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by Section 1.13 of these By-Laws shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the ninetieth (90th) day prior to such special meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder’s notice as described above.

Section 1.15 Procedure for Election of Directors; Required Vote .

(a) Subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, a majority of the votes cast at any meeting for the election of directors at

Exhibit 3.2

which a quorum is present shall elect directors. For purposes of this By-law, a majority of votes cast shall mean that the number of shares voted “for” a director’s election exceeds 50% of the number of votes cast with respect to that director’s election. Votes cast shall include direction to withhold authority in each case and exclude abstentions with respect to that director’s election. Notwithstanding the foregoing, in the event of a “contested election” of directors, directors shall be elected by the vote of a plurality of the votes cast at any meeting for the election of directors at which a quorum is present. For purposes of this By-law, a “contested election” shall mean any election of directors in which the number of candidates for election as directors exceeds the number of directors to be elected, with the determination thereof being made by the Secretary as of the close of the applicable notice of nomination period set forth in Sections 1.13 and 1.14 of these By-laws or under applicable law, based on whether one or more notice(s) of nomination were timely filed in accordance with said Sections 1.13 or 1.14 or under applicable law; provided , however , that the determination that an election is a “contested election” shall be determinative only as to the timeliness of a notice of nomination and not otherwise as to its validity. If, prior to the time the Corporation mails its initial proxy statement in connection with such election of directors, one or more notices of nomination are withdrawn such that the number of candidates for election as director no longer exceeds the number of directors to be elected, the election shall not be considered a contested election, but in all other cases, once an election is determined to be a contested election, directors shall be elected by the vote of a plurality of the votes cast.

(b) If a nominee for director who is an incumbent director is not elected and no successor has been elected at such meeting, the director shall promptly tender his or her resignation to the Board of Directors. The Nominating and Corporate Governance Committee shall make a recommendation to the Board of Directors as to whether to accept or reject the tendered resignation, or whether other action should be taken. The Board of Directors shall act on the tendered resignation, taking into account the Nominating and Corporate Governance Committee’s recommendation, and publicly disclose (by a press release, a filing with the Securities and Exchange Commission or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within 90 days from the date of the certification of the election results. The Nominating and Corporate Governance Committee in making its recommendation, and the Board of Directors in making its decision, may each consider any factors or other information that it considers appropriate and relevant. The director who tenders his or her resignation shall not participate in the recommendation of the Nominating and Corporate Governance Committee or the decision of the Board of Directors with respect to his or her resignation. If such incumbent director’s resignation is not accepted by the Board of Directors, such director shall continue to serve until the next annual meeting and until his or her successor is duly elected, or his or her earlier resignation or removal. If a director’s resignation is accepted by the Board of Directors pursuant to this By-law, or if a nominee for director is not elected and the nominee is not an incumbent director, then the Board of Directors, in its sole discretion, may fill any resulting vacancy pursuant to the provisions of Section 2.2 of these By-laws or may decrease the size of the Board of Directors pursuant to the provisions of Section 2.1 of these By-laws.

ARTICLE II

Board of Directors

Section 2.1 Number; Qualifications . The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board of Directors. Directors need not be stockholders. The Board of Directors may, if it so determines, choose a Chairman of the Board and a Vice Chairman of the Board from among its members. No decrease in the number of authorized directors shall shorten the term of any incumbent director.

Exhibit 3.2

Section 2.2 Election; Resignation; Vacancies; Removal . The Board of Directors shall initially consist of the persons named as directors by the incorporator, and each director so elected shall hold office until such director’s successor is elected and qualified. At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect directors each of whom shall hold office until such director’s successor is elected and qualified. Any director may resign at any time upon written notice to the Corporation. Any newly created directorship or any vacancy occurring in the Board of Directors for any cause may be filled solely by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum or by a single remaining director, and each director so elected shall hold office until such director’s successor is elected and qualified. Subject to the rights of holders of shares of any class or series of Preferred Stock with respect to such class or series of Preferred Stock, any director, or the entire Board of Directors, may be removed from office at any time, either with or without cause, by the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of directors.

Section 2.3 Regular Meetings . Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine, and, if so determined, notices thereof need not be given.

Section 2.4 Special Meetings . Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board, the President and Chief Executive Officer, the Secretary, or any other director. Notice of a special meeting of the Board of Directors shall be given by the person or persons calling the meeting at least twenty-four hours before the special meeting, unless such notice is waived by each director who is not present for such special meeting.

Section 2.5 Telephonic Meetings Permitted . Directors, or any member of any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this By-Law shall constitute presence in person at such meeting.

Section 2.6 Quorum; Vote Required for Action . At all meetings of the Board of Directors a majority of the whole Board of Directors (including any vacancies) shall constitute a quorum for the transaction of business. Except in cases in which the Certificate of Incorporation or these By-Laws otherwise provide, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

Section 2.7 Organization . Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in the absence of the Vice Chairman of the Board by the President and Chief Executive Officer, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but the chairman of the meeting may appoint any person to act as secretary of the meeting.

Section 2.8 Action by Directors without a Meeting . Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all directors or members of such committee, as the case may be, consent thereto in writing or by electronic transmission,

Exhibit 3.2

and the writing or writings or paper evidence of the electronic transmission are filed with the minutes of proceedings of the Board of Directors or such committee.

Section 2.9 Compensation . By resolution of the Board of Directors an annual or other fee as well as a fixed sum and expenses may be allowed for service as a member of the Board of Directors, for attendance at each annual or special meeting of the Board of Directors and for attendance by a member of such committee at each meeting of any committee designated by the Board of Directors; provided , however , that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

ARTICLE III

Committees

Section 3.1 Committees . The Board of Directors may by resolution designate one or more committees, each committee to consist of one or more of the directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it.

Section 3.2 Committee Rules . Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these By-Laws.

A RTICLE IV

Advisory Committee

Section 4.1 Advisory Committee: Constitution and Powers . The President and Chief Executive Officer, in consultation with the Chairman of the Board, if any, may designate an advisory committee (to be known as the “Advisory Committee” or “Advisory Board”), the members of which need not be directors but shall be prominent members of the art or business communities of the world. The Advisory Committee and its members shall advise the Corporation as to matters relating to conditions in the national and international art markets and shall recommend actions that the Corporation may take in respect thereto. The compensation, if any, of the members of the Advisory Committee shall be fixed from time to time by the President and Chief Executive Officer, in consultation with the Chairman of the Board, if any. The Advisory Committee, as such, shall have no rights, powers, duties, authority, or responsibilities in respect of the Corporation or its shareholders but shall be entitled to all of the indemnifications to which a member of the Board of Directors is entitled.

Section 4.2 Meetings of Advisory Committee . Meetings of the Advisory Committee shall be held at such time(s) and place(s), as shall from time to time be determined by resolution of the Advisory Committee or by its chairman, who shall be elected by the Board of Directors or appointed by the President and Chief Executive Officer. In case the day so determined shall be a legal holiday, such meeting shall be held on the next succeeding day, not a legal holiday, at the same hour.

Exhibit 3.2

Section 4.3 Vacancies in Advisory Committee . Any newly created memberships and vacancies occurring in the Advisory Committee may be filled by the President and Chief Executive Officer, in consultation with the Chairman of the Board, if any.

ARTICLE V

Officers

Section 5.1 Officers; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies . The Board of Directors shall elect a President and Chief Executive Officer and a Secretary. The Board of Directors may also choose a Chairman of the Board, one or more Vice Chairmen of the Board, one or more Vice Presidents (who may be further designated as Executive Vice Presidents or Senior Vice Presidents), one or more Assistant Secretaries, a Chief Financial Officer, a Treasurer and one or more Assistant Treasurers and such other officers as the Board of Directors may from time to time determine. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his election, and until such officer’s successor is elected and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. Any number of offices may be held by the same person. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting.

Section 5.2 Powers and Duties of Executive Officers . The officers of the Corporation shall have such powers and duties in the management of the Corporation as may be prescribed in a resolution by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his duties.

ARTICLE VI

Stock

Section 6.1 Stock Certificates . Every holder of stock shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President and Chief Executive Officer or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation certifying the number and class of shares of capital stock of the Corporation owned by such stockholder; provided that the Board of Directors may provide by resolution that some or all classes of its capital stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.

Section 6.2 Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates . The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it,

Exhibit 3.2

alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

Section 6.3 Transfer Agents and Registrars . The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.

ARTICLE VII

Indemnification

Section 7.1 Right to Indemnification . The Corporation shall indemnify and hold harmless, to the fullest extent authorized by the General Corporation Law of the State of Delaware as it currently exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter, a “proceeding”) by reason of the fact that such person, or a person for whom such person is the legal representative, is or was, at any time during which these By-laws are in effect (whether or not such person continues to serve in such capacity at the time any indemnification or payment of expenses pursuant hereto is sought or at the time any proceeding relating thereto exists or is brought) a director or officer of the Corporation or is or was at any such time serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans maintained or sponsored by the Corporation (including the heirs, executors, administrators and estate of such person) (hereinafter, an “indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, trustee, employee or agent or in any other capacity while serving as a director, officer, trustee, employee or agent, against all liability and loss suffered and expenses (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amount paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, trustee, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators Except as provided in Section 7.4 of these By-Laws, the Corporation shall be required to indemnify a person in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by the Board of Directors. The rights to indemnification and advancement of expenses and the other rights conferred upon indemnitees in this By-Law or other By-Laws shall all be contract rights that vest at the time of such person’s service to or at the request of the Corporation and such rights shall continue as to an indemnitee who has ceased to be a director, officer, trustee, employee or agent and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.

Section 7.2 Prepayment of Expenses . The Corporation shall pay the expenses (including attorneys’ fees) of any person entitled to indemnification pursuant to Section 7.1 of these By-Laws or the Certificate of Incorporation incurred in defending any proceeding in advance of its final disposition, such advances to be paid by the Corporation within twenty (20) days after the receipt by the Corporation of a statement or statements from the claimant requesting such advance or advances from time to time; provided , however , that if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any

Exhibit 3.2

other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer to repay all amounts advanced if it shall be ultimately determined by final judicial decision from which there is no further right of appeal that such director or officer is not entitled to be indemnified for such expenses under this Article VII or otherwise.

Section 7.3 Procedure . To obtain indemnification under this Article VII, a claimant shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Upon written request by a claimant for indemnification pursuant to the first sentence of this Section 7.3 , a determination, if required by applicable law, with respect to the claimant’s entitlement thereto shall be made as follows: (a) if requested by the claimant, by Independent Counsel (as hereinafter defined), or (b) if no request is made by the claimant for a determination by Independent Counsel, (a) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (2) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, or (3) if a quorum of Disinterested Directors so directs, by the stockholders of the Corporation. In the event the determination of entitlement to indemnification is to be made by Independent Counsel at the request of the claimant, the Independent Counsel shall be selected by the Board of Directors unless there shall have occurred within two years prior to the date of the commencement of the proceeding for which indemnification is claimed a “Change of Control” as defined in the Sotheby’s Restricted Stock Unit Plan, in which case the Independent Counsel shall be selected by the claimant unless the claimant shall request that such selection be made by the Board of Directors. If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within ten (10) days after such determination.

Section 7.4 Claims . If a claim for indemnification or payment of expenses under this Article VII is not paid in full within thirty (30) days after a written claim pursuant to Section 7.3 of these By-Laws has been received by the Corporation (except in the case of a claim for advancement of expenses, for which the applicable period is twenty (20) days), the claimant may at any time thereafter file suit against the Corporation to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standard of conduct which makes it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, Independent Counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board of Directors, Independent Counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. If a determination shall have been made pursuant to Section 7.3 of these By-Laws that the claimant is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 7.4 . The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to this

Exhibit 3.2

Section 7.4 that the procedures and presumptions of this Article VII are not valid, binding and enforceable and shall stipulate in such proceeding that the Corporation is bound by all the provisions of this Article VII.

Section 7.5 Non-Exclusivity of Rights; Inability to Terminate . The rights conferred on any person by this Article VII (a) shall not be exclusive of any other rights that such or any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these By-Laws, agreement, vote of stockholders or Disinterested Directors or otherwise and (b) cannot be terminated by the Corporation, the Board of Directors or the stockholders of the Corporation with respect to a person’s service prior to the date of such termination.

Section 7.6 Other Indemnification . The Corporation may, to the extent authorized from time to time by the Board of Directors or the Chief Executive Officer, grant rights to indemnification and rights to advancement of expenses incurred in connection with any proceeding in advance of its final disposition, to any current or former employee or agent of the Corporation to the fullest extent of the provisions of this Article VII with respect to the indemnification and advancement of expenses of current or former directors and officers of the Corporation.

Section 7.7 Amendment or Repeal . Any amendment, alteration, repeal or modification of the By-laws in this Article VII that in any way diminishes, limits, restricts, adversely affects or eliminates any right of an indemnitee or his or her successors to indemnification, advancement of expenses or otherwise shall be prospective only and shall not in any way diminish, limit, restrict, adversely affect or eliminate any such right with respect to any actual or alleged state of facts, occurrence, action or omission then or previously existing, or any action, suit or proceeding previously or thereafter brought or threatened based in whole or in part upon any such actual or alleged state of facts, occurrence, action or omission.

Section 7.8 Insurance . The Corporation shall have power to purchase and maintain insurance, at its expense, to protect itself and any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the provisions of this Article VII or under the General Corporation law of the State of Delaware. To the extent that the Corporation maintains any policy or policies providing such insurance, each such current or former director or officer, and each such agent or employee to which rights to indemnification have been granted, shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage thereunder for any such current or former director, officer, employee or agent.

Section 7.9 Definitions . For purposes of Article VII : (a) “Disinterested Director” means a director of the Corporation who is not and was not a party to the matter in respect of which indemnification is sought by the claimant and (b) “Independent Counsel” means a law firm, a member of a law firm, or an independent practitioner, that is experienced in matters of corporation law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Corporation or the claimant in an action to determine the claimant’s rights under this Article VII .

Section 7.10 Notice . Any notice, request or other communication required or permitted to be given to the Corporation under this Article VII shall be in writing and either delivered in person or sent by telecopy, telex, telegram, overnight mail or courier service, or certified or registered mail, postage

Exhibit 3.2

prepaid, return receipt requested, to the Secretary of the Corporation and shall be effective only upon receipt by the Secretary.

ARTICLE VII

Miscellaneous

Section 8.1 Fiscal Year . The fiscal year of the Corporation shall be determined from time to time by resolution of the Board of Directors.

Section 8.2 Seal . The corporate seal shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors.

Section 8.3 Waiver of Notice of Meetings of Stockholders, Directors and Committees . Any written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice.

Section 8.4 Interested Directors; Quorum . No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of the Corporation’s directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (a) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the Disinterested Directors, even though the Disinterested Directors be less than a quorum; (b) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee that authorizes the contract or transaction.

Section 8.5 Form of Records . Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time.

Section 8.6 Amendment of By-Laws . These By-Laws may be altered or repealed, and new By-Laws made, by the Board of Directors, but the stockholders may make additional By-Laws and may alter and repeal any By-Laws whether adopted by them or otherwise.

Exhibit 3.2

Section 8.7 Forum for Certain Actions . Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the United States District Court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Corporation, (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or stockholder of the Corporation to the Corporation or the Corporation’s stockholders, (c) any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware or the Certificate of Incorporation or these By-Laws (in each case, as may be amended and/or restated from time to time), or as to which the General Corporation Law of the State of Delaware confers jurisdiction on the Court of Chancery of the State of Delaware, (d) any action asserting a claim governed by the internal affairs doctrine, or (e) any action, suit or proceeding regarding indemnification or advancement or reimbursement of expenses arising out of the Certificate of Incorporation, these By-Laws or otherwise, in all cases to the fullest extent permitted by law. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 8.7 .

Section 8.8 Severability . If any provision or provisions of these By-Laws shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of these By-Laws (including, without limitation, each portion of any paragraph containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of these By-Laws (including, without limitation, each such portion of any paragraph containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

EXHIBIT 10.19

SEPARATION AGREEMENT AND GENERAL RELEASE

The parties to this Separation Agreement and General Release ("Agreement") are Adam Chinn ("Executive") and Sotheby's and/or the related company employing Executive ("Sotheby's" or the "Company").

WHEREAS, the Executive is a party to an employment agreement with the Company dated January 11, 2016 (the “Employment Agreement”) and a Purchase Agreement by and among Amy Cappellazzo, Allan Schwartzman, Adam Chinn and Sotheby’s, Inc. (the “Purchase Agreement”).

WHEREAS, the Executive’s employment will end as of the date set forth herein and Executive and the Company (together, the “Parties”) wish to confirm the various arrangements regarding Executive’s separation from employment with the Company, and Executive has not raised any claims regarding his employment or the termination of his employment.

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Executive and Sotheby’s, intending legally to be bound, covenant and agree as follows:

Termination Date . Executive’s last day of employment with the Company will be December 31, 2018 (the “Termination Date”). Executive will receive his salary at his regular rate of pay through the Termination Date. Any expense reports must be submitted by the Termination Date to the extent practicable and no later than January 15, 2019, and the Company will reimburse Executive for any approved expenses as soon as administratively feasible in accordance with the Company’s policies and practices.


2.	Severance Benefits . Provided that Executive (i) signs and returns this Agreement to the Company within twenty-one (21) days after Executive’s receipt of this Agreement; and (ii) Executive complies with the terms of this Agreement, Executive will receive the following benefits under Section 16 of the Employment Agreement .


•	Payment of 1.5 times the sum of (x) the Executive’s current annual base salary of $750,000, and (y) the Executive’s target annual bonus of $750,000, for a total of $2,250,000 payable in 12 equal semi-monthly installments on the dates that the Company’s makes payment to semi-monthly employees on its payroll, commencing with the first payroll period after the Termination Date;


•	A bonus for 2018 under the Sotheby’s 2016 Annual Bonus Plan, to be paid in a lump sum at such time as annual bonuses are paid Company-wide: 70% of which is subject to the Company’s performance level in 2018 and 30% of which is based upon Executive’s individual performance rating to be paid out at 100%; and


•	Payment of an amount equal to the monthly COBRA charge in effect as of the Termination Date under the group health plan coverage Executive elected for 2018, $2,689.04 , payable each month following the Termination Date for eighteen (18) months.

As additional consideration for Executive executing, and not timely revoking, this Agreement, Executive’s outstanding restricted stock unit and performance share unit awards that are scheduled to vest on March 5, 2019 (the “Equity”) shall continue to vest subject to the achievement of the performance criteria applicable to the performance share units in accordance with the terms of the relevant award agreements and the relevant Amended and Restated Restricted Stock Unit Plan (even though those awards would otherwise have been forfeited), subject to the following terms and conditions. Upon the vesting date, the Equity shall be settled and, after applicable withholdings, the net amount of Equity shall be held by the Company until the Delivery Date. The Delivery Date will be within 10 business days after January 10, 2021 or, if earlier, upon a Change in Control of the Company, as defined in the Employment Agreement; provided that if, at any time prior to the Delivery Date, Executive fails to comply with any of his obligations under this Agreement, including but not limited to his non-competition, non-solicitation, confidentiality and nondisparagement commitments and his representations and warranties herein concerning compliance with the Company’s Code of Conduct, other compliance policies and applicable law, the Equity shall be forfeited and no delivery shall occur. Executive agrees to sign an affirmation of compliance with the obligations and representations stated above prior to delivery.

All payments will be made less applicable withholdings. For the Equity vesting on March 5, 2019, Executive agrees to instruct the Company’s third party administrator to deduct any shares needed to pay applicable taxes at the date of vest.

Executive acknowledges and agrees that the above consideration (“Severance Benefits”) is in lieu of any payment or benefit to which he might otherwise be entitled under any policy, plan or procedure of Sotheby’s.

Restrictive Covenants and other Purchase Agreement Matters . Executive acknowledges his obligations pursuant to the Restrictive Covenants in Section 5.5 and Exhibit E of the Purchase Agreement (attached hereto as Exhibit 1) and Sections 9 and 10 of the Employment Agreement (attached hereto as Exhibit 2), subject to applicable ethical rules as to enforceability, both of which he signed on January 11, 2016 and are incorporated by reference herein. The Purchase Agreement requires the Company to make two additional Earn Out payments to Executive, each in the amount of $1.75mm, payable by March 31, 2019 and 2020, respectively.


4.	General Release .

(a)

For good and valuable consideration, the receipt of which is hereby acknowledged, Executive for himself and for his heirs, executors, administrators, trustees, legal representatives and assigns (hereinafter, collectively referred to as “Releasors”), to the fullest extent permissible by law, hereby forever releases and discharges Sotheby’s, or any of Sotheby’s past, present or future parent entities, partners, subsidiaries, affiliates, divisions, employee benefit plans or funds (including such plans or funds’ administrators, fiduciaries, trustees and service providers), insurers, successors and assigns and any of its or their past, present or future officers, directors, attorneys, agents, trustees, administrators, employees, or assigns (whether acting as agents for Sotheby’s or in their individual capacities) (collectively referred to as “Releasees”) from any and all claims, grievances, injuries, controversies, suits, arbitrations, debts, liabilities, demands, obligations, liens, liabilities, promises, acts, agreements, expenses, damages, attorney’s fees, costs, actions and causes of action (upon any legal or equitable theory, whether contractual, common-law, tort, statutory, federal, state, local, or otherwise), or any right to any monetary recovery or any other personal relief, of any kind whatsoever, whether known or unknown, by reason of any act, omission, transaction or occurrence which Releasors ever had, now have or hereafter can, shall or may have against Releasees up to and including the date on which Executive executes this Agreement.

Without limiting the generality of the foregoing, Releasors hereby release and discharge Releasees from:

(i)

any and all claims for monetary damages and any other form of personal relief under any federal, state or local statute or ordinance, including without limitation, any and all claims under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866 (42 U.S.C. Section 1981), the federal Worker Adjustment and Retraining Notification Act, the Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act, the Rehabilitation Act of 1973, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act, the Equal Pay Act, the New York State Executive Law, which is commonly known as the New York State Human Rights Law, the New York City Human Rights Law, the New York Equal Pay Law, the New York Equal Rights Law, the New York Off-Duty Conduct Lawful Activities Discrimination Law, the New York State Labor Relations Act, the New York Whistleblower Statute, the New York Family Leave Law, the New York Wage and Hour Laws, the New York WARN Laws, the New York Civil Rights Law, the New York State Corrections Law, the New York City Earned Sick Time Act, and the New York State Constitution, and the New York City Administrative Code Section 8-107, which is commonly known as the New York City Human Rights Law, except as prohibited by law;


(ii)	any and all claims for wrongful discharge and/or breach of contract or any claims for bonus or deferred payments; and


(iii)	any and all claims for attorney’s fees, costs, disbursements and the like

(b)

This release excludes: (i) any claim that cannot be waived or released by law; (ii) any claim for any sums or benefits expressly to be paid, provided or reimbursed under this Agreement or under the Earn Out provisions of the Purchase Agreement as stated in Paragraph 3 above; (iii) any claim for any vested, accrued benefits to which Executive is (or will become) otherwise entitled pursuant to the written terms and conditions of a qualified retirement plan prior to the Termination Date; (iv) any claim for workers’ compensation or unemployment insurance benefits (other than for retaliation under applicable workers’ compensation laws); (v) any claim, if any, to indemnification under applicable statutory or common law or any insurance, charter or by-laws of the Sotheby’s, Inc. or any of its affiliates or under Paragraph 24 of the Employment Agreement, it being understood and agreed that this Agreement, including all exhibits, does not create or expand upon any such rights (if any) to indemnification; (vi) any claim or right Executive may have under the Consolidated Omnibus Budget Reconciliation Act; (vii) any medical claim incurred during Executive’s employment that is payable under applicable medical plans or an employer-insured liability plan; (viii) any claim or right that may arise after the execution of this Agreement; or (ix) any claim or right Executive may have under this Agreement. Executive represents that he is not aware of any claims against the Company arising up to the date Executive executes this Agreement.

(c)

Further, nothing in this Agreement prevents or prohibits Executive from filing a charge or complaint with a government agency, such as the U.S. Equal Employment Opportunity Commission (“EEOC”) or similar state or local agency responsible for enforcing a law on behalf of the government, or Executive’s ability to participate in any investigation or proceeding conducted by such agency. However, Executive understands that, to the extent consistent with law, he is waiving and releasing any and all claims for monetary damages and any other form of personal relief.

(d)

Executive represents and warrants that he has disclosed to the Company’s General Counsel or Chief Executive Officer any known breach of the Company’s Code of Conduct and/or any material compliance policy violation or violation of applicable law during his employment. The Company’s General Counsel and Chief Executive Officer acknowledge that as of the date hereof, they know of no such undisclosed breach or violation.


5.	No Future Lawsuits . Executive agrees, to the maximum extent permitted by law, not to sue the Company and the Releasees for any of the claims released above, agrees not to participate in any class, collective, representative, or group action that may include any of the claims released above, and will affirmatively opt out of any such class, collective, representative or group action.

No Additional Entitlements . Except as set forth herein and except for payment of previously deferred compensation under the Company’s Deferred Compensation Plan, Executive agrees that he has received all payments and benefits due from the Company related to his employment with the Company, including but not limited to, all wages (including bonuses and commissions) earned, vacation pay, sick days, and personal or medical leave and all payments related thereto for which he was eligible, and that no other amounts are due to him other than as set forth in this Agreement.

Return of Company Property . Except as expressly permitted in Paragraph 10 of this Agreement, Executive acknowledges and reaffirms his obligations pursuant to the March 28, 2017 Confidentiality Agreement (Exhibit 4) as well as his confidentiality obligations under Section 8 of the Employment Agreement. Executive represents and warrants that he will not remove from Sotheby’s premises and will promptly return to Sotheby’s and/or delete all Sotheby’s property in his possession consistent with the agreements referenced in this Paragraph .

Non-Disparagement . Except as expressly permitted in Paragraph 10 of this Agreement, Executive agrees that he will not disparage (or induce or encourage others to disparage) Sotheby’s, any of its past or present directors, officers, agents, trustees, administrators, attorneys or employees. For the purposes of this Agreement, the term “disparage” means any untrue, damaging or disparaging comments or statements.

Cooperation with Sotheby’s . Except as expressly permitted in Paragraph 10 of this Agreement, Employee agrees to cooperate with Sotheby’s at its request in connection with any and all claims against Sotheby’s of which Executive has or may have knowledge. Such cooperation shall include, but not be limited to, meeting with Sotheby’s employees and/or otherwise assisting Sotheby’s employees, attorneys or other representatives, testifying at any trial or proceeding without the need for Sotheby’s to serve Employee with a subpoena, and in any other lawful ways that Sotheby’s deems appropriate. Such cooperation shall be rendered at times convenient with Executive’s professional obligations.

10.

Reports to Government Entities. Nothing in this Agreement restricts or prohibits Employee from initiating communications directly with, responding to any inquiries from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or from filing a claim or assisting with an investigation directly with a self-regulatory authority or a government agency or entity, including without limitation, the EEOC and the U.S. Securities and Exchange Commission or from making other disclosures that are protected under the whistleblower provisions of federal, state, or local law or regulation. Employee does not need the prior authorization of the Company to engage in conduct protected by this Paragraph, and Employee does not need to notify the Company that he has engaged in such conduct. The Company does not waive any applicable privileges or the right to continue to protect its privileged attorney-client information, attorney work product, and other privileged information.

Please take notice that federal law provides criminal and civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose a trade secret to their attorney, a court, or a government official in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and 1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for retaliation for reporting a suspected violation of the law.

11.

Voluntary Agreement/Revocation . Executive acknowledges that he has carefully read and fully understands all of the provisions of this Agreement, including all exhibits. Executive further acknowledges that he has been afforded twenty-one (21) days in which to consider this Agreement. Executive acknowledges that, if he elects to sign this Agreement, the executed Agreement must be returned to the Company by hand and pdf to Jill Bright, Sotheby’s, 1334 York Avenue, New York, New York 10021; jill.bright@sothebys.com. Executive understands that he may revoke his acceptance of this Agreement within seven (7) days of the date of execution (the “Revocation Period”). Revocation must be made by written notice and must be sent by email or overnight mail to the address above and postmarked on or before the seventh day following the date Executive executes the Agreement. Executive understands and agrees that this Agreement will not become effective and enforceable and no Severance Benefits will be made to him, until the Revocation Period has expired and Executive has not revoked this Agreement.


12.	Acknowledgments . Executive hereby acknowledges that:


(a)	The Company has advised Executive to consult with an attorney before signing this Agreement;


(b)	Executive freely, voluntarily and knowingly entered into this Agreement after due consideration;


(c)	If Executive knowingly and voluntarily chooses to do so, he may accept the terms of this Agreement before the twenty-one (21) day consideration period provided for in Paragraph 11 above has expired;


(d)	Executive and the Company agree that changes to the Company’s offer contained in this Agreement, whether material or immaterial, will not restart the twenty-one (21) day consideration period provided for in Paragraph 11 above; and

(e)

In exchange for Executive’s waivers, releases and commitments set forth in this Agreement and its exhibits, including Executive’s waiver and release of all claims arising under the Age Discrimination in Employment Act, the consideration Executive is receiving pursuant to this Agreement exceeds anything which Executive would otherwise be entitled, and is just and sufficient consideration for this Agreement.


13.	Failure to Accept . Executive agrees that if Executive fails to execute and return this Agreement to the Company within twenty-one (21) days of Executive’s receipt of the Agreement for Executive’s review and consideration, the promises and agreements made by the Company herein will have been revoked.


14.	Non-Admission of Liability . No party hereto admits or acknowledges the existence of any liability or wrongdoing. This Agreement (including its exhibits) is not in any respect, nor for any purpose, to be deemed or construed to be, or in any way used as evidence of, an admission or concession of any liability or wrongdoing whatsoever on the part of any person or entity.

15.

Severability . The terms and provisions of this Agreement are acknowledged by all Parties to be required for the reasonable protection of both Parties. If any of the provisions, terms, clauses or waivers or releases of claims or rights contained in this Agreement are declared unlawful, unenforceable, or ineffective in a legal forum of competent jurisdiction, then such provisions, terms, clauses, or waivers or releases of claims or rights shall be deemed severable, such that all other provisions, terms, clauses, and waivers and releases of claims or rights contained in this Agreement shall remain valid and binding upon the Parties; provided, however, that

if any court or arbitration panel were to find that the General Release in this Agreement is unlawful or unenforceable, or was not entered into knowingly and voluntarily, Executive agrees, at the Company’s option, either to return the consideration provided for in Paragraph 2 herein or to execute a waiver and release that is lawful and enforceable.

16.

Breach . Executive agrees that, without limiting the Company’s remedies, should he commence, continue, join in, or in any other manner attempt to assert any claim released in connection herewith, or otherwise violate in a material fashion any of the terms of this Agreement, the Company shall not be required to make any further payments pursuant to this Agreement and shall be entitled to recoup the Equity or the gross amount of the Equity if Executive has sold the shares vested from such awards, in addition to all damages, attorneys’ fees and costs the Company incurs in connection with the Executive’s breach of this Agreement. The Executive further agrees that the Company shall be entitled to the repayments and recovery of damages described above without waiver of or prejudice to the release granted by him in connection with this Agreement, and that his violation or breach of any provision of this Agreement shall forever release and discharge the Company from the performance of its obligations arising from the Agreement.

17.

Integration . This Agreement constitutes a single, integrated written contract expressing the entire agreement of the Parties hereto relative to the subject matter hereof and all prior and contemporaneous discussions and negotiations have been and are merged and integrated into and are superseded by this Agreement, except that the restrictive covenants, nondisparagement, non-solicitation and confidentiality obligations and other provisions of the Purchase Agreement and its Exhibits, as well as such provisions set forth in the Employment Agreement, and the Confidentiality Agreement Executive signed on March 28, 2017 remain in full force and effect and are incorporated herein. This Agreement supersedes any and all prior agreements or understanding between the Parties, whether oral or written, concerning the subject matter of this Agreement.

18.

Tax Matters . It is the Company’s intention that all payments or benefits provided under this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), including without limitation the six-month delay for payments of deferred compensation to “key employees” upon separation from service pursuant to Section 409A(a)(2)(B)(i) of the Code (if applicable), and this Agreement shall be interpreted, administered and operated accordingly. Notwithstanding anything to the contrary herein, the Company does not guarantee the tax treatment of any payments or benefits under this Agreement, including without limitation under the Code, federal, state, local or foreign tax laws and regulations.


19.	Amendments . This Agreement cannot be amended or modified, except by written amendment signed by Executive and an authorized representative of the Company.


20.	Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement. A facsimile or e-scanned copy of this Agreement shall also be deemed as original.


21.	Jurisdiction . In the event of a dispute hereunder, the Parties agree to follow the terms stated in Section 7.4 of the Purchase Agreement. The prevailing party in any such dispute shall be entitled to recover its costs, including attorneys’ fees.

IN WITNESS WHEREOF, this Agreement has been duly executed by the undersigned on dates indicated below.

Dated: December 11, 2018

SOTHEBY’S

By: /s/ Jill Bright

Jill Bright

Executive Vice President

Human Resources & Administration

ACCEPTED AND AGREED TO:

/s/ Adam Chinn

Adam Chinn

Dated: 12/14/2018

EXHIBIT 10.27

To: Sotheby’s

1334 York Avenue

New York, NY 10021

From: JPMorgan Chase Bank, National Association

London Branch

25 Bank Street

Canary Wharf

London E14 5JP

England

Re: Accelerated Stock Repurchases

This master confirmation (this “ Master Confirmation ”), dated as of December 13, 2018 is intended to set forth certain terms and provisions of certain Transactions (each, a “ Transaction ”) entered into from time to time between JPMorgan Chase Bank, National Association, London Branch (“ 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 Equity Definitions and (iv) the Agreement.

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 either (x) 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 or (y) an Additional Termination Event in respect of such Transaction, with Counterparty as the sole Affected Party and such Transaction as the sole Affected Transaction.

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 anything to the contrary in the Agreement, Dealer may assign, transfer and set over all rights, title and interest, powers, privileges and remedies of Dealer under any Transaction, in whole or in part, to an affiliate of Dealer whose obligations are guaranteed by Dealer or Dealer’s parent without the consent of Counterparty. Notwithstanding any other provision in this Master Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities to or from Counterparty, Dealer may designate any of its Affiliates to purchase, sell, receive or deliver such Shares or other securities and otherwise to perform Dealer’s obligations in respect of any Transaction and any such designee may assume such obligations. Dealer may assign the right to receive Settlement Shares to any third party who may legally receive Settlement Shares. Dealer shall be discharged of its obligations to Counterparty only to the extent of any such performance. For the avoidance of doubt, Dealer hereby acknowledges that notwithstanding any such designation hereunder, to the extent any of Dealer’s obligations in respect of any Transaction are not completed by its designee, Dealer shall be obligated to continue to perform or to cause any other of its designees to perform in respect of such obligations.

Dealer Payment Instructions: Bank: JPMorgan Chase Bank, N.A.

ABA#: 021000021

Acct No.: 099997979

Beneficiary: JPMorgan Chase Bank, N.A. New York

Ref: Derivatives

DTC 0352

Counterparty’s Contact Details

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

Dealer’s Contact Details for


Purpose of Giving Notice:	JPMorgan Chase Bank, National Association

EDG Marketing Support


Email:	edg_notices@jpmorgan.com

edg_ny_corporate_sales_support@jpmorgan.com

With a copy to:

Attention: Brett Chalmers

Title: Vice President, Corporate Equity Derivatives

Telephone No.: (212) 622-2252

Email Address: brett.chalmers@jpmorgan.com

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 (i) only on the Calculation Dates and (ii) 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 (including adjustments to account for changes in volatility, expected dividends, stock loan rate, value of any commercially reasonable Hedge Positions in connection with the Transaction and liquidity relevant to the Shares or to such Transaction).

(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 and taking into account the existence and size, at such time, of the Other Specified Repurchase Agreement) 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.	Amendments to the Equity Definitions .

(a)

Section 12.6(a)(ii) of the Equity Definitions is hereby amended by (i) deleting from the fourth line thereof the word “or” after the word “official” and inserting a comma therefor, and (ii) deleting the semi-colon at the end of subsection (B) thereof and inserting the following words therefor “or (C) at JPMorgan’s option, the occurrence of any of the events specified in Section 5(a)(vii) (1) through (9) of the ISDA Master Agreement with respect to that Issuer.”


(b)	Section 12.9(b)(iv) of the Equity Definitions is hereby amended by:


(i)	deleting (1) subsection (A) in its entirety, (2) the phrase “or (B)” following subsection (A) and (3) the phrase “in each case” in subsection (B); and


(ii)	replacing the phrase “neither the Non-Hedging Party nor the Lending Party lends Shares” with the phrase “such Lending Party does not lend Shares” in the penultimate sentence.


(c)	Section 12.9(b)(v) of the Equity Definitions is hereby amended by:


(i)	adding the word “or” immediately before subsection “(B)” and deleting the comma at the end of subsection (A); and


(ii)	(1) deleting subsection (C) in its entirety, (2) deleting the word “or” immediately preceding subsection (C), (3) deleting the penultimate sentence in its entirety and replacing it with the sentence “The Hedging Party will determine the Cancellation Amount payable by one party to the other” and (4) deleting clause (X) in the final sentence.

19. Non-confidentiality . Dealer and Counterparty hereby acknowledge and agree that each is authorized to disclose every aspect of this Master Confirmation, any Supplemental Confirmation and the transactions contemplated hereby and thereby to any and all persons, without limitation of any kind, and there are no express or implied agreements, arrangements or understandings to the contrary

20. 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).

21. 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.

22. 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.

23. 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).

24. Offices .

(a) The Office of Dealer for each Transaction is: London

JPMorgan Chase Bank, National Association

London Branch

25 Bank Street

Canary Wharf

London E14 5JP

England

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

25. 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.

26. 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.”

27. 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.

28. Communications with Employees of J.P. Morgan Securities LLC . If Counterparty interacts with any employee of J.P. Morgan Securities LLC with respect to any Transaction, Counterparty is hereby notified that such employee will act solely as an authorized representative of Dealer (and not as a representative of J.P. Morgan Securities LLC) in connection with such Transaction.

29. 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.

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 Dealer.

Yours faithfully,

JPMORGAN CHASE BANK, NATIONAL ASSOCIATION

By: /s/Brett Chalmers

Authorized Signatory:

Agreed and Accepted By:

SOTHEBY'S

By: /s/ Michael L. Gillis

Name: Michael L. Gillis

Title: SVP, Treasurer

SUPPLEMENTAL CONFIRMATION

To: Sotheby’s

1334 York Avenue

New York, NY 10021

From: JPMorgan Chase Bank, National Association

London Branch

25 Bank Street

Canary Wharf

London E14 5JP

England

Subject: Accelerated Stock Buyback

Ref. No: [Insert Reference No.]

Date: December 13, 2018

The purpose of this Supplemental Confirmation is to confirm the terms and conditions of the Transaction entered into between JPMorgan Chase Bank, National Association, London BrancH (“ 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 December 13, 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:	December 13, 2018

Forward Price Adjustment


Amount:	USD $0.8633


Calculation Period Start Date:	December 14, 2018


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:	March 1, 2019


First Acceleration Date:	January 22, 2019


Prepayment Amount:	USD $70,000,000


Prepayment Date:	December 14, 2018

Initial Shares:

1,605,938 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:	December 14, 2018


Maximum Number of Shares:	8,000,000


Ordinary Dividend Amount:	USD $0.00


Scheduled Ex Dividend Dates:	None


Termination Price:	$12.35


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


Designated OMR Threshold:	0% of the ADTV (as defined in Rule 10b-18(a)(1))

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,

JPMORGAN CHASE BANK, NATIONAL ASSOCIATION

By: /s/Brett Chalmers

Authorized Signatory

Agreed and Accepted By:

SOTHEBY'S

By: /s/ Michael L. Gillis

Name: Michael L. Gillis

Title: SVP, Treasurer

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, 3,778,677 Shares. The Reserved Shares may be increased or decreased in a Supplemental Confirmation.

EXHIBIT 21

SUBSIDIARIES OF SOTHEBY'S

As of December 31, 2018, the significant subsidiaries of Sotheby's, which are wholly owned except where indicated, are as follows:




	Entity Name	Jurisdiction of Incorporation
	1334 York, LLC	Delaware
	Fine Art Insurance Ltd.	Bermuda
	Oatshare Ltd.	United Kingdom
	Sotheby's	United Kingdom
	Sotheby's A.G.	Switzerland
	Sotheby's Amsterdam BV	Netherlands
	Sotheby's Financial Services, Inc.	Nevada
	Sotheby's Fine Art Holdings, Inc.	Delaware
	Sotheby's France S.A.S.	France
	Sotheby's Global Trading, GmbH	Switzerland
	Sotheby's Hong Kong, Ltd.	Hong Kong
	Sotheby's Italia S.r.L.	Italy
	Sotheby's Nederland B.V.	Netherlands
	Sotheby's, Inc.	New York
	SPTC Delaware LLC	Delaware
	SPTC, Inc.	Nevada
	York UK Holdco International Ltd.	United Kingdom
	York Luxembourg Holdings International S.a.r.l.	Luxembourg
	York Holdings International, Inc.	Delaware

Other than the subsidiaries listed above, the Registrant has 24 directly and indirectly controlled domestic subsidiaries and 34 directly and indirectly controlled foreign subsidiaries.

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 033-54057, 333-02315, 333-28007, 333-34623, 333-34621, 333-92193, 333-113647, 333-131638, 333-133928, 333-142853, 333-151285, 333-173904, 333-178492, 333-186444, 333-188941 and 333-204084, each on Form S-8 and Registration Statement Nos. 333-55995 and 333-183864 on Form S-3 of our reports dated February 28, 2019, relating to the consolidated financial statements and financial statement schedule of Sotheby’s and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2018.

/s/ DELOITTE & TOUCHE LLP

New York, New York

February 28, 2019

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 Annual Report on Form 10-K for the period ended December 31, 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
February 28, 2019

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 Annual Report on Form 10-K for the period ended December 31, 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
February 28, 2019

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

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

In connection with the Annual Report of Sotheby’s on Form 10-K for the period ended December 31, 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
February 28, 2019

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

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

In connection with the Annual Report of Sotheby’s on Form 10-K for the period ended December 31, 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
February 28, 2019