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

FORM 10-Q



(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June~~September 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND 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
New York,	New York	10021
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (212) 606-7000

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	BID	NYSE

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

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

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



Large accelerated filer	☒	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐	Smaller reporting company	☐

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

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

As of ~~July 26~~November 8, 2019, there were 46488,~~613,443~~926 outstanding shares of common stock, par value $0.01 per share, of the registrant.

________________________________________________________________________________________________

TABLE OF CONTENTS

		PAGE
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements (UNAUDITED):
	Condensed Consolidated Income Statements for the Three and Six Months Ended June 30, 2019 and 2018	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2019 and 2018	4
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, 2019 and 2018	5
	Condensed Consolidated Balance Sheets as of June 30, 2019, December 31, 2018 and June 30, 2018	5
	Condensed Consolidated Balance Sheets as of September 30, 2019, December 31, 2018 and September 30, 2018	6
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	7
	Condensed Consolidated Statements of Changes in Shareholders' Equity for the Six Months Ended June 30, 2019 and 2018	7
	Condensed Consolidated Statements of Changes in Shareholders' Equity for the Nine Months Ended September 30, 2019 and 2018	8
	Notes to Condensed Consolidated Financial Statements	810
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4246
Item 3	Quantitative and Qualitative Disclosures About Market Risk	6673
Item 4	Controls and Procedures	6673
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	6673
Item 1A	Risk Factors	6774
Item 4	Mine Safety Disclosures	6779
Item 6	Exhibits	6880
SIGNATURE		6981

EXPLANATORY NOTE

On June 16, 2019, Sotheby's (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with BidFair USA Inc. (formerly a limited liability company known as BidFair USA LLC) (“Parent”) and BidFair MergeRight Inc., a Delaware corporation and a wholly owned indirect subsidiary of Parent (“Merger Sub”). On October 3, 2019, the Company completed the transactions contemplated by the Merger Agreement, and Merger Sub merged with and into the Company, with the Company continuing as the surviving corporation and a wholly-owned indirect subsidiary of Parent (the “Merger”). Accordingly, the Company is no longer a publicly traded company. However, this report on Form 10-Q for the period ending September 30, 2019 is being filed with the Securities and Exchange Commission due to the reporting covenants of Sotheby's outstanding 4.875% Senior Notes due 2025 (the "2025 Notes"), which require that periodic and current reports be filed with the SEC as long as the 2025 Notes are outstanding. As of November 8, 2019, approximately $57.7 million of the 2025 Notes remain outstanding.

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

SOTHEBY’S

CONDENSED CONSOLIDATED ~~INCOME~~ STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share data)

	Three Months Ended								~~Six Months Ended~~	Nine Months Ended
	June 30, 2019				June 30, 2018				June 30, 2019				June 30, 2018
	September 30, 2019					September 30, 2018				September 30, 2019				September 30, 2018
Revenues:
Agency commissions and fees	$	~~322~~65,~~144~~850		—	$	~~290,879~~$	96,721		$	~~469,811~~$	535,661		$	~~456,405~~$	553,126
Inventory sales	186,~~259~~953				~~40,106~~	6,498			~~27,025~~	33,978			~~56,342~~	62,840
Finance	15,~~848~~657				~~9,641~~	11,423			~~29,114~~	44,771			~~19,522~~	30,945
Other	54,~~527~~474				~~5,010~~	4,519			~~9,293~~	13,767			~~9,163~~	13,682
Total revenues	~~361~~92,~~778~~934				~~345,636~~	119,161			~~535,243~~	628,177			~~541,432~~	660,593
Expenses:
Agency direct costs	7315,~~834~~847				~~59,449~~	19,622			~~105,637~~	121,484			~~94,722~~	114,344
Cost of inventory sales	157,~~335~~425				~~42,414~~	6,322			~~22,501~~	29,926			~~58,409~~	64,731
Cost of finance revenues	—				~~1,793~~	—			—	—			~~4,056~~	4,056
Marketing	67,~~546~~008				~~6,276~~	4,824			~~12,454~~	19,462			~~11,998~~	16,822
Salaries and related	~~110~~69,~~601~~260				~~96,718~~	67,274			~~187,246~~	256,506			~~175,437~~	242,711
General and administrative	4744,~~267~~612				~~45,671~~	42,291			~~95,109~~	139,721			~~89,484~~	131,775
Depreciation and amortization	7,~~929~~980				~~7,343~~	5,714			~~15,620~~	23,600			~~14,443~~	20,157
Merger-related expenses (see Note 22)	54,~~710~~735				—	—			~~5,710~~	10,445			—	—
Restructuring charges, net	(3138		)		~~2,146~~	3,781			~~(50~~	(88	)	)	~~2,146~~	5,927
Total expenses	~~267~~156,~~191~~829				~~261,810~~	149,828			~~444,227~~	601,056			~~450,695~~	600,523
Operating income	94,587				83,826				91,016				90,737
Operating (loss) income	(63,895		)			(30,667		)		27,121				60,070
Interest income	~~286~~413				~~482~~	502			~~571~~	984			~~847~~	1,349
Interest expense	(1312,~~604~~708		)		~~(8,894~~	(10,084	)	)	~~(26,755~~	(39,463	)	)	~~(18,207~~	(28,291	)	)
Write-off of credit facility fees	—				~~(3,982~~	—	)		—	—			~~(3,982~~	(3,982	)	)
Extinguishment of debt	—				—	—			—	—			~~(10,855~~	(10,855	)	)
Non-operating income	1,~~687~~153				~~2,449~~	3,172			~~3,535~~	4,688			~~3,873~~	7,045
Income before taxes	82,956				73,881				68,367				62,413
(Loss) income before taxes	(75,037		)			(37,077		)		(6,670		)		25,336
Income tax expense	26,808				17,838				20,822				13,702
Income tax (benefit) expense	(21,144		)			(7,759		)		(322		)		5,943
Equity in earnings of investees	~~853~~531				~~1,234~~	1,476			~~2,381~~	2,912			~~2,040~~	3,516
Net income	57,001				57,277				49,926				50,751
Net (loss) income	(53,362		)			(27,842		)		(3,436		)		22,909
Less: Net loss attributable to noncontrolling interest	(53		)		(5	(4	)	)	(9	(12	)	)	(9	(13	)	)
Net income attributable to Sotheby's	$	57,006			$	57,282			$	49,935			$	50,760
Net (loss) income attributable to Sotheby's	$	(53,359	)			$	(27,838	)		$	(3,424	)		$	22,922
Basic earnings per share - Sotheby’s common shareholders	$	1.21			$	1.09			$	1.06			$	0.96
Basic (loss) earnings per share - Sotheby’s common shareholders	$	(1.14	)			$	(0.55	)		$	(0.07	)		$	0.44
Diluted earnings per share - Sotheby's common shareholders	$	1.20			$	1.08			$	1.05			$	0.95
Diluted (loss) earnings per share - Sotheby's common shareholders	$	(1.14	)			$	(0.55	)		$	(0.07	)		$	0.43
Weighted average basic shares outstanding	46,~~614~~616				~~51,780~~	50,927			~~46,518~~	46,551			~~52,122~~	51,724
Weighted average diluted shares outstanding	4746,~~124~~616				~~52,210~~	50,927			~~47,077~~	46,551			~~52,491~~	52,036

See accompanying Notes to Condensed Consolidated Financial Statements

SOTHEBY’S

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

(In thousands)

	Three Months Ended						~~Six~~Nine Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net income	$	57,001		$	57,277		$	49,926		$	50,751
Net (loss) income	$	(53,362	)	$	(27,842	)	$	(3,436	)	$	22,909
Other comprehensive loss:
Currency translation adjustments	(15,~~866~~635		)	(~~14,206~~151		)	(~~619~~6,254		)	(7,~~006~~157		)
Cash flow hedges	(~~1,428~~220		)	~~136~~96			(1,~~641~~861		)	1,~~306~~402
Net investment hedges	~~1,041~~868			~~3,350~~(238		)	~~995~~1,863			1,~~740~~502
Defined benefit pension plan	(1312		)	8176			(2638		)	~~163~~239
Total other comprehensive loss	(24,~~266~~999		)	(~~10,639~~217		)	(16,~~291~~290		)	(34,~~797~~014		)
Comprehensive income	54,735			46,638			48,635			46,954
Comprehensive (loss) income	(58,361		)	(28,059		)	(9,726		)	18,895
Less: Comprehensive loss attributable to noncontrolling interests	(53		)	(54		)	(912		)	(913		)
Comprehensive income attributable to Sotheby's	$	54,740		$	46,643		$	48,644		$	46,963
Comprehensive (loss) income attributable to Sotheby's	$	(58,358	)	$	(28,055	)	$	(9,714	)	$	18,908

See accompanying Notes to Condensed Consolidated Financial Statements

SOTHEBY’SCONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED) (In thousands)
	June 30, 2019			December 31, 2018			June 30, 2018
A S S E T S
Current assets:
Cash and cash equivalents	$	132,137		$	178,579		$	432,357
Restricted cash (see Notes 9 and 12)	38,016			4,836			28,979
Accounts receivable, net of allowance for doubtful accounts of $9,411, $9,125, and $9,667	900,362			978,140			1,088,569
Notes receivable, net of allowance for credit losses of $1,271, $1,075, and $1,132	39,889			103,834			92,770
Inventory	32,204			43,635			32,639
Income tax receivables	19,374			3,353			18,051
Prepaid expenses and other current assets (see Note 11)	41,279			38,631			43,262
Total current assets	1,203,261			1,351,008			1,736,627
Notes receivable, net of allowance for credit losses of $1,525, $1,525, and $1,525	714,918			602,389			390,507
Fixed assets, net of accumulated depreciation and amortization of $248,057, $237,211, and $239,705	405,657			386,736			356,162
Operating lease right-of-use assets (see Note 6)	77,636			—			—
Goodwill	55,540			55,573			55,670
Intangible assets, net	11,354			12,993			14,613
Income tax receivables	17,964			16,694			327
Deferred income taxes	31,849			37,035			27,948
Other long-term assets (see Note 11)	232,409			226,660			229,813
Total assets	$	2,750,588		$	2,689,088		$	2,811,667
L I A B I L I T I E S A N D S H A R E H O L D E R S’ E Q U I T Y
Current liabilities:
Client payables	$	901,779		$	997,168		$	1,191,581
Accounts payable and accrued liabilities	94,752			101,366			104,608
Accrued salaries and related costs	71,887			92,219			62,160
Current portion of long-term debt, net	9,409			13,604			13,423
Operating lease liabilities (see Note 6)	17,129			—			—
Accrued income taxes	49,782			31,169			23,012
Other current liabilities	14,478			13,263			11,785
Total current liabilities	1,159,216			1,248,789			1,406,569
Credit facility borrowings	320,000			280,000			63,000
Long-term debt, net	639,689			638,786			648,411
Operating lease liabilities (see Note 6)	62,015			—			—
Accrued income taxes	22,648			19,933			26,737
Deferred income taxes	14,008			14,569			14,035
Other long-term liabilities (see Note 11)	39,789			45,517			46,171
Total liabilities	2,257,365			2,247,594			2,204,923
Commitments and contingencies (see Note 15)
Shareholders’ equity:
Common stock, $0.01 par value	716			711			711
Authorized shares — 200,000,000
Issued shares —71,640,967; 71,188,120; and 71,173,857
Outstanding shares —46,612,978; 46,346,863; and 51,613,065
Additional paid-in capital	477,107			463,623			458,712
Treasury stock shares, at cost — 25,027,989; 24,841,257; and 19,560,792	(849,784		)	(839,284		)	(617,048		)
Retained earnings	938,375			888,333			830,459
Accumulated other comprehensive loss	(73,335		)	(72,044		)	(66,263		)
Total shareholders’ equity	493,079			441,339			606,571
Noncontrolling interest	144			155			173
Total equity	493,223			441,494			606,744
Total liabilities and shareholders’ equity	$	2,750,588		$	2,689,088		$	2,811,667

See accompanying Notes to Condensed Consolidated Financial Statements

SOTHEBY’SCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED) (In thousands)
SOTHEBY’SCONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED) (In thousands)
	Six Months Ended
	September 30, 2019			December 31, 2018			September 30, 2018
	June 30, 2019			June 30, 2018
A S S E T S
Operating Activities:
Current assets:
Net income attributable to Sotheby's	$	49,935		$	50,760
Cash and cash equivalents	$	81,695		$	178,579		$	156,272
Adjustments to reconcile net income attributable to Sotheby's to net cash (used) provided by operating activities:
Restricted cash (see Notes 9 and 12)	3,406			4,836			1,824
Extinguishment of debt	—			10,855
Accounts receivable, net of allowance for doubtful accounts of $10,174, $9,125, and $9,504	421,234			978,140			611,183
Write-off of credit facility fees	—			3,982
Notes receivable, net of allowance for credit losses of $1,410, $1,075, and $1,067	51,657			103,834			151,374
Depreciation and amortization	15,620			14,443
Inventory	28,096			43,635			54,024
Amortization of operating lease right-of-use assets	8,419			—
Income tax receivables	32,647			3,353			29,449
Deferred income tax expense	4,821			2,873
Prepaid expenses and other current assets (see Note 11)	50,487			38,631			57,153
Share-based payments	15,917			14,689
Total current assets	669,222			1,351,008			1,061,279
Net pension benefit	(1,341		)	(1,626		)
Notes receivable, net of allowance for credit losses of $1,525, $1,525, and $1,525	811,892			602,389			465,963
Inventory writedowns and bad debt provisions	2,204			8,106
Fixed assets, net of accumulated depreciation and amortization of $250,142, $237,211, and $236,024	412,631			386,736			367,690
Amortization of debt issuance costs	862			877
Operating lease right-of-use assets (see Note 6)	71,745			—			—
Equity in earnings of investees	(2,381		)	(2,040		)
Goodwill	55,380			55,573			55,658
Other	1,013			947
Intangible assets, net	10,534			12,993			13,981
Changes in assets and liabilities:
Income tax receivables	17,781			16,694			4,535
Accounts receivable	19,478			(285,172		)
Deferred income taxes	31,711			37,035			31,916
Client payables	(94,600		)	205,791
Other long-term assets (see Note 11)	230,385			226,660			234,449
Inventory	9,920			33,680
Total assets	$	2,311,281		$	2,689,088		$	2,235,471
Changes in other operating assets and liabilities (see Note 12)	(37,100		)	(41,370		)
L I A B I L I T I E S A N D S H A R E H O L D E R S’ E Q U I T Y
Net cash (used) provided by operating activities	(7,233		)	16,795
Current liabilities:
Investing Activities:
Client payables	$	405,144		$	997,168		$	627,466
Funding of notes receivable	(153,528		)	(66,608		)
Accounts payable and accrued liabilities	80,237			101,366			101,919
Collections of notes receivable	165,348			161,192
Accrued salaries and related costs	68,736			92,219			60,047
Capital expenditures	(43,468		)	(19,075		)
Current portion of long-term debt, net	9,590			13,604			13,514
Acquisitions, net of cash acquired	(759		)	(5,702		)
Operating lease liabilities (see Note 6)	16,835			—			—
Funding of investments	(411		)	(64		)
Accrued income taxes	36,465			31,169			42,385
Distributions from investees	2,050			2,179
Other current liabilities	13,369			13,263			12,675
Settlement of net investment hedges	548			(5,921		)
Total current liabilities	630,376			1,248,789			858,006
Net cash (used) provided by investing activities	(30,220		)	66,001
Credit facility borrowings	470,000			280,000			215,000
Financing Activities:
Long-term debt, net	635,949			638,786			640,515
Proceeds from credit facility borrowings	725,000			108,000
Operating lease liabilities (see Note 6)	56,812			—			—
Repayments of credit facility borrowings	(685,000		)	(241,500		)
Accrued income taxes	22,446			19,933			8,708
Repayments of York Property Mortgage	(4,154		)	(3,978		)
Deferred income taxes	13,878			14,569			14,190
Settlement of 2022 Senior Notes, including call premium	—			(307,875		)
Other long-term liabilities (see Note 11)	39,426			45,517			46,569
Debt issuance and other borrowing costs	(71		)	(3,457		)
Total liabilities	1,868,887			2,247,594			1,782,988
Repurchases of common stock (see Note 13)	(10,500		)	(62,497		)
Commitments and contingencies (see Note 15)
Settlement of forward contract indexed to Sotheby's common stock (see Note 13)	10,500			—
Shareholders’ equity:
Funding of employee tax obligations upon the vesting of share-based payments	(11,666		)	(9,903		)
Common stock, $0.01 par value	716			711			711
Net cash provided (used) by financing activities	24,109			(521,210		)
Authorized shares — 200,000,000
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(83		)	(6,734		)
Issued shares —71,646,142; 71,188,120; and 71,175,100
Decrease in cash, cash equivalents, and restricted cash	(13,427		)	(445,148		)
Outstanding shares —46,618,153; 46,346,863; and 49,017,304
Cash, cash equivalents, and restricted cash at beginning of period	200,234			923,926
Additional paid-in capital	484,649			463,623			456,279
Cash, cash equivalents, and restricted cash at end of period	$	186,807		$	478,778
Treasury stock shares, at cost — 25,027,989; 24,841,257; and 22,157,796	(849,784		)	(839,284		)	(740,805		)
Retained earnings	885,016			888,333			802,621
Accumulated other comprehensive loss	(78,334		)	(72,044		)	(66,480		)
Total shareholders’ equity	442,263			441,339			452,326
Noncontrolling interest	131			155			157
Total equity	442,394			441,494			452,483
Total liabilities and shareholders’ equity	$	2,311,281		$	2,689,088		$	2,235,471

See accompanying Notes to Condensed Consolidated Financial Statements

SOTHEBY’S CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)

	Nine Months Ended
	September 30, 2019			September 30, 2018
Operating Activities:
Net (loss) income attributable to Sotheby's	$	(3,424	)	$	22,922
Adjustments to reconcile net (loss) income attributable to Sotheby's to net cash used by operating activities:
Extinguishment of debt	—			10,855
Write-off of credit facility fees	—			3,982
Depreciation and amortization	23,600			20,157
Amortization of operating lease right-of-use assets	12,806			—
Deferred income tax expense	5,624			91
Share-based payments	23,129			21,425
Net pension benefit	(1,979		)	(2,395		)
Inventory writedowns and bad debt provisions	5,885			8,496
Amortization of debt issuance costs	1,286			1,311
Equity in earnings of investees	(2,912		)	(3,516		)
Other	1,345			1,285
Changes in assets and liabilities:
Accounts receivable	475,538			88,767
Client payables	(582,473		)	(358,956		)
Inventory	10,016			11,315
Changes in other operating assets and liabilities (see Note 12)	(93,134		)	(83,323		)
Net cash used by operating activities	(124,693		)	(257,584		)
Investing Activities:
Funding of notes receivable	(282,828		)	(199,781		)
Collections of notes receivable	200,181			266,878
Capital expenditures	(61,386		)	(36,005		)
Acquisitions, net of cash acquired	(759		)	(5,777		)
Funding of investments	(482		)	(64		)
Distributions from investees	2,050			2,916
Settlement of net investment hedges	2,262			(1,858		)
Net cash (used) provided by investing activities	(140,962		)	26,309
Financing Activities:
Proceeds from credit facility borrowings	895,000			323,000
Repayments of credit facility borrowings	(705,000		)	(304,500		)
Repayments of York Property Mortgage	(8,143		)	(12,214		)
Settlement of 2022 Notes, including call premium	—			(307,875		)
Debt issuance and other borrowing costs	(146		)	(4,208		)
Repurchases of common stock (see Note 13)	(10,500		)	(186,254		)
Settlement of forward contract indexed to Sotheby's common stock (see Note 13)	10,500			(9,500		)
Funding of employee tax obligations upon the vesting of share-based payments	(11,641		)	(9,921		)
Net cash provided (used) by financing activities	170,070			(511,472		)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(3,352		)	(5,946		)
Decrease in cash, cash equivalents, and restricted cash	(98,937		)	(748,693		)
Cash, cash equivalents, and restricted cash at beginning of period	200,234			923,926
Cash, cash equivalents, and restricted cash at end of period	$	101,297		$	175,233

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 Notes 1 and 6 for information regarding non-cash investing and financing activities related to leases.

See Note 10 for information regarding derivative financial instruments designated as net investment hedges.

See accompanying Notes to Condensed Consolidated Financial Statements

SOTHEBY'S

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2019 ~~AND 2018~~

(UNAUDITED)

(In thousands)

	CommonStock		AdditionalPaid-InCapital			Treasury Stock			RetainedEarnings			AccumulatedOtherComprehensiveLoss			Total
Balance at January 1, 2019	$	711	$	463,623		$	(839,284	)	$	888,333		$	(72,044	)	$	441,339
Net loss attributable to Sotheby's									(7,071		)				(7,071		)
Other comprehensive income												975			975
Common stock shares withheld to satisfy employee tax obligations			(11,597		)										(11,597		)
Restricted stock units vested, net	5		(5		)										—
Amortization of share-based payment expense			7,598												7,598
Shares and deferred stock units issued to directors			344												344
Forward contract indexed to Sotheby's common stock			10,500			(10,500		)							—
Other									106						106
Balance at March 31, 2019	716		470,463			(849,784		)	881,368			(71,069		)	431,694
Net income attributable to Sotheby's									57,006						57,006
Other comprehensive loss												(2,266		)	(2,266		)
Common stock shares withheld to satisfy employee tax obligations			(69		)										(69		)
Amortization of share-based payment expense			8,319												8,319
Modification of share-based payment award (see Note 18)			(1,981		)										(1,981		)
Shares and deferred stock units issued to directors			375												375
Other									1						1
Balance at June 30, 2019	$716	~~716~~	$477,107	~~477,107~~		$(849,784	~~(849,784~~	)	$938,375	~~938,375~~		$(73,335	~~(73,335~~	)	$493,079	~~493,079~~
Net loss attributable to Sotheby's									(53,359		)				(53,359		)
Other comprehensive loss												(4,999		)	(4,999		)
Common stock shares withheld to satisfy employee tax obligations			(45		)										(45		)
Amortization of share-based payment expense			7,212												7,212
Shares and deferred stock units issued to directors			375												375
Balance at September 30, 2019	$	716	$	484,649		$	(849,784	)	$	885,016		$	(78,334	)	$	442,263

	CommonStock		AdditionalPaid-InCapital			Treasury Stock			RetainedEarnings			AccumulatedOtherComprehensiveLoss			Total
Balance at January 1, 2018	$	709	$	453,364		$	(554,551	)	$	779,699		$	(62,466	)	$	616,755
Net loss attributable to Sotheby's									(6,522		)				(6,522		)
Other comprehensive income												6,842			6,842
Common stock shares withheld to satisfy employee tax obligations			(9,548		)										(9,548		)
Restricted stock units vested, net	2		(2		)										—
Amortization of share-based payment expense			8,377												8,377
Shares and deferred stock units issued to directors			250												250
Repurchases of common stock						(25,340		)							(25,340		)
Balance at March 31, 2018	711		452,441			(579,891		)	773,177			(55,624		)	590,814
Net income attributable to Sotheby's									57,282						57,282
Other comprehensive loss												(10,639		)	(10,639		)
Common stock shares withheld to satisfy employee tax obligations			(385		)										(385		)
Amortization of share-based payment expense			6,312												6,312
Shares and deferred stock units issued to directors			344												344
Repurchases of common stock						(37,157		)							(37,157		)
Balance at June 30, 2018	$	711	$	458,712		$	(617,048	)	$	830,459		$	(66,263	)	$	606,571

7SOTHEBY'S

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2018

(UNAUDITED)

(In thousands)



	Common Stock		Additional Paid-In Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balance at January 1, 2018	$	709	$	453,364		$	(554,551	)	$	779,699		$	(62,466	)	$	616,755
Net loss attributable to Sotheby's									(6,522		)				(6,522		)
Other comprehensive income												6,842			6,842
Common stock shares withheld to satisfy employee tax obligations			(9,548		)										(9,548		)
Restricted stock units vested, net	2		(2		)										—
Amortization of share-based payment expense			8,377												8,377
Shares and deferred stock units issued to directors			250												250
Repurchases of common stock						(25,340		)							(25,340		)
Balance at March 31, 2018	711		452,441			(579,891		)	773,177			(55,624		)	590,814
Net income attributable to Sotheby's									57,282						57,282
Other comprehensive loss												(10,639		)	(10,639		)
Common stock shares withheld to satisfy employee tax obligations			(385		)										(385		)
Amortization of share-based payment expense			6,312												6,312
Shares and deferred stock units issued to directors			344												344
Repurchases of common stock						(37,157		)							(37,157		)
Balance at June 30, 2018	711		458,712			(617,048		)	830,459			(66,263		)	606,571
Net loss attributable to Sotheby's									(27,838		)				(27,838		)
Other comprehensive loss												(217		)	(217		)
Common stock shares withheld to satisfy employee tax obligations			(13		)										(13		)
Amortization of share-based payment expense			6,736												6,736
Shares and deferred stock units issued to directors			344												344
Repurchases of common stock						(123,757		)							(123,757		)
Forward contract indexed to Sotheby's common stock			(9,500		)										(9,500		)
Balance at September 30, 2018	$	711	$	456,279		$	(740,805	)	$	802,621		$	(66,480	)	$	452,326

SOTHEBY’S

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

Company Overview—Since 1744, Sotheby’s (the "Company") 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. Sotheby's also offers 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.

AsAccounting ~~successor~~Principles—The tounaudited aCondensed ~~business~~Consolidated ~~that~~Financial ~~began~~Statements inincluded ~~1744,~~herein have been prepared by the management of Sotheby'’s isin ~~the~~accordance ~~oldest~~with ~~company~~accounting ~~listed~~principles ongenerally accepted in the ~~New~~United ~~York~~States ~~Stock~~of ~~Exchange~~America ("~~NYSE~~U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (~~symbol:~~the ~~BID~~"SEC"). Certain information and isfootnote ~~the~~disclosures ~~only~~normally ~~publicly~~included ~~traded~~in ~~investment~~financial ~~opportunity~~statements prepared in ~~the~~accordance ~~art~~with ~~market~~U.S. ~~Sotheby's~~GAAP have been condensed or omitted from this report, as is ~~incorporated~~permitted inby ~~Delaware~~such rules and regulations. OnIn ~~June~~our 16opinion, ~~2019,~~the ~~Sotheby's~~unaudited ~~entered~~Condensed ~~into~~Consolidated anFinancial ~~Agreement~~Statements ~~and~~reflect ~~Plan~~all adjustments of ~~Merger~~a ~~with~~normal ~~Bidfair~~recurring ~~USA~~nature ~~LLC~~that ~~and~~are ~~BidFair~~necessary ~~MergeRight~~for ~~Inc.~~a Iffair presentation of the ~~pending~~results ~~Merger~~for ~~(as~~the ~~defined~~interim periods presented. The interim results presented in ~~Note~~our ~~22)~~Condensed isConsolidated ~~consummated,~~Statements ~~Sotheby’s~~of ~~will~~Operations ~~cease~~are tonot benecessarily aindicative ~~publicly~~of ~~traded~~results ~~company~~for a full year. (See Note 222 for information ~~regarding~~about the ~~pending~~seasonality ~~Merger~~ of ~~Sotheby's~~our business. We urge you to read these unaudited Condensed Consolidated Financial Statements in conjunction with ~~Bidfair~~the ~~USA~~information ~~LLC~~included ~~and~~in ~~BidFair~~our ~~MergeRight~~2018 ~~Inc.)~~Form 10-K filed with the SEC on February 28, 2019.

~~Accounting~~ Principles of Consolidation—The unaudited Condensed Consolidated Financial Statements ~~included~~include ~~herein~~the ~~have~~accounts ~~been~~of ~~prepared~~our bywholly-owned ~~the~~subsidiaries ~~management~~and of Sotheby’'s ~~in accordance with accounting principles generally accepted in the United States of America~~ (~~"U.S. GAAP"~~Beijing) ~~and~~Auction ~~pursuant~~Co., toLtd. ~~the rules and regulations of the Securities and Exchange Commission~~ (~~the~~"Sotheby's Beijing"~~SEC"~~)., ~~Certain~~a ~~information~~joint ~~and~~venture ~~footnote disclosures normally included~~ in ~~financial~~which ~~statements~~we ~~prepared in accordance with U.S. GAAP~~ have ~~been~~a ~~condensed~~controlling or80% ~~omitted~~ownership ~~from~~interest. ~~this~~The ~~report,~~net asloss isattributable ~~permitted~~to ~~by such rules and regulations. In our opinion,~~ the ~~unaudited~~minority ~~Condensed~~owner ~~Consolidated Financial Statements reflect all adjustments~~ of aSotheby's ~~normal~~Beijing ~~recurring~~is ~~nature~~reported ~~that~~as ~~are~~"Net ~~necessary~~Loss ~~for~~Attributable ato ~~fair~~Noncontrolling ~~presentation~~Interest" ~~of the results for the interim periods presented. The interim results presented~~ in our Condensed Consolidated ~~Income~~ Statements ~~are~~of ~~not~~Operations, ~~necessarily~~and ~~indicative~~the ofnon-controlling ~~results~~20% ~~for~~ownership ainterest ~~full~~is ~~year.~~reported ~~See~~as ~~Note~~"Noncontrolling 2Interest" ~~for~~within ~~information about~~ the ~~seasonality~~Equity section of our ~~business. We urge you to read these unaudited~~ Condensed Consolidated ~~Financial~~Balance ~~Statements~~Sheets. inIntercompany ~~conjunction~~transactions ~~with~~and ~~the~~balances ~~information~~among ~~included in~~ our ~~2018~~subsidiaries ~~Form~~are ~~10-K~~eliminated ~~filed~~in ~~with the SEC on February 28, 2019~~consolidation.

~~Principles~~Equity ofinvestments ~~Consolidation—The~~through ~~unaudited~~which ~~Condensed~~we ~~Consolidated~~may ~~Financial~~significantly ~~Statements~~influence, ~~include~~but ~~the~~not ~~accounts~~control, ofthe ~~our~~investee, ~~wholly-owned~~are ~~subsidiaries~~accounted ~~and~~for ~~Sotheby's~~using ~~(Beijing)~~the ~~Auction~~equity Comethod., ~~Ltd.~~Under ~~("Sotheby's~~the ~~Beijing")~~equity method, aour ~~joint~~share ~~venture~~of ininvestee ~~which~~earnings weor ~~have~~losses ais ~~controlling~~recorded ~~80%~~in ~~ownership~~our ~~interest.~~Condensed ~~The~~Consolidated ~~net~~Statements ~~loss~~of ~~attributable~~Operations towithin ~~the~~Equity ~~minority~~in ~~owner~~Earnings of ~~Sotheby's~~Investees. ~~Beijing~~Our isinterest ~~reported~~in asthe ~~"Net~~net ~~Loss~~assets ~~Attributable~~of tothese ~~Noncontrolling~~investees ~~Interest"~~is inrecorded on our Condensed Consolidated ~~Income~~Balance ~~Statements,~~Sheets ~~and~~within ~~the~~Other ~~non~~Long-~~controlling~~Term ~~20%~~Assets. ~~ownership~~Our ~~interest~~equity ismethod ~~reported~~investees asinclude: ~~"Noncontrolling~~(i) ~~Interest~~Acquavella Modern Art ("AMA"), ~~within~~a ~~the~~partnership ~~Equity~~through ~~section~~which a collection of ~~our~~fine ~~Condensed~~art ~~Consolidated~~is ~~Balance~~being ~~Sheets.~~sold, ~~Intercompany~~(ii) ~~transactions~~RM Sotheby's, an auction house for investment-quality automobiles, and ~~balances~~(iii) ~~among~~a ~~our~~partnership ~~subsidiaries~~through which artworks are ~~eliminated~~being inpurchased ~~consolidation~~and sold.

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

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

Leases—In February 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("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 liability are recorded for all long-term leases, whether classified as an operating lease or a finance lease. On July 30, 2018, the FASB issued ASU 2018-11, which made targeted improvements to ASU 2016-02 (together, the "New Lease Standard").

We adopted the New Lease Standard on January 1, 2019 using the modified retrospective method and elected not to recast comparative prior year periods. We have also elected 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, for all leases, we have elected the practical expedient that allows the aggregation of non-lease components, such as maintenance, utilities, and management services, with the related lease components when evaluating accounting treatment.

As a result of our adoption of the New Lease Standard, we recorded a right-of-use asset of $78.4 million and a corresponding operating lease liability of $79.4 million on the January 1, 2019 effective date. The operating lease liability recorded upon adoption was measured using our approximate incremental borrowing rate as of that date. The New Lease Standard did not impact our results of operations, cash flows, or our compliance with existing debt covenants. (See Note 6 for additional information on our leases.)

2. Seasonality of Business

The global art auction market has two principal selling seasons, which generally occur in the second and fourth quarters of the year. In the aggregate, second and fourth quarter Net Auction Sales¹ 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.

________________________________________________________________

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

3. Segment Reporting

~~Our~~As of September 30, 2019, our operations ~~are~~were organized under two segments—the Agency segment and the Finance segment, which does business, 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.

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.

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

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

~~Thomas~~The S.Chief ~~Smith,~~Executive ~~Jr., Sotheby's~~Officer ~~CEO,~~of the Company is our chief operating decision maker. ~~Mr.~~The ~~Smith~~Chief Executive Officer 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 (loss) income before taxes, which excludes the unallocated items highlighted in the reconciliation below.

~~The~~On ~~following~~October ~~table~~3, ~~presents~~2019, we completed our ~~segment~~merger ~~information~~with BidFair MergeRight Inc. See Note 22 for ~~the~~more ~~three~~information ~~and~~related ~~six~~to ~~months~~our ~~ended~~merger ~~June~~with 30BidFair MergeRight Inc., ~~2019~~as well as the concurrent transfers of Sotheby's Financial Services, Inc. to BidFair USA Inc. and ~~2018~~1334 York LLC (the owner of our headquarters building at 1334 York Avenue in ~~thousands~~New York, the "York Property"): to BidFair Property Holdings Inc., a subsidiary of BidFair USA Inc. Upon completion of those transfers, the Company no longer owned SFS, Inc. and 1334 York LLC.

Three Months Ended June 30, 2019	Agency		SFS		All Other		Reconciling items				Total
Revenues	$	338,139	$	18,359	$	7,791	$	(2,511	)	(a)	$	361,778
Segment income before taxes (b)	$	77,290	$	9,584	$	1,335	$	(5,253	)	(c)	$	82,956
Three Months Ended June 30, 2018
Revenues	$	327,445	$	11,823	$	8,550	$	(2,182	)	(a)	$	345,636
Segment income before taxes (b)	$	70,192	$	6,380	$	1,051	$	(3,742	)	(c)	$	73,881
Six Months Ended June 30, 2019
Revenues	$	492,441	$	34,426	$	13,688	$	(5,312	)	(a)	$	535,243
Segment income before taxes (b)	$	53,144	$	17,561	$	3,413	$	(5,751	)	(c)	$	68,367
Six Months Ended June 30, 2018
Revenues	$	507,178	$	24,239	$	14,732	$	(4,717	)	(a)	$	541,432
Segment income before taxes (b)	$	61,169	$	13,131	$	2,439	$	(14,326	)	(c)	$	62,413

________________________________________________________________

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

The following table presents our segment information for the three and nine months ended September 30, 2019 and 2018 (in thousands):



Three Months Ended September 30, 2019	Agency			SFS		All Other		Reconciling items				Total
Revenues	$	70,948		$	17,884	$	6,329	$	(2,227	)	(a)	$	92,934
Segment (loss) income before taxes (b)	$	(83,210	)	$	10,149	$	1,402	$	(3,378	)	(c)	$	(75,037	)
Three Months Ended September 30, 2018
Revenues	$	98,314		$	12,822	$	9,424	$	(1,399	)	(a)	$	119,161
Segment (loss) income before taxes (b)	$	(46,803	)	$	7,152	$	2,093	$	481		(c)	$	(37,077	)
Nine Months Ended September 30, 2019
Revenues	$	563,389		$	52,310	$	20,017	$	(7,539	)	(a)	$	628,177
Segment (loss) income before taxes (b)	$	(30,066	)	$	27,710	$	4,815	$	(9,129	)	(c)	$	(6,670	)
Nine Months Ended September 30, 2018
Revenues	$	605,492		$	37,061	$	24,156	$	(6,116	)	(a)	$	660,593
Segment income before taxes (b)	$	15,175		$	20,283	$	4,532	$	(14,654	)	(c)	$	25,336


(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) Our previous credit agreements provided for dedicated asset-based revolving credit facilities for the Agency segment and SFS (see Note 9). The SFS Credit Facility was used to fund a significant portion of client loans. Accordingly, any borrowing costs associated with the SFS Credit Facility were recorded within Cost of Finance Revenues in our Condensed Consolidated ~~Income~~ Statements of Operations. In September 2017, we modified our cash management strategy in order to reduce borrowing costs by applying excess cash balances against revolver credit facility borrowings. On June 26, 2018, we refinanced our previous credit agreements. The new credit agreement 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 Condensed Consolidated Statements of Operations.

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 Condensed Consolidated Income Statements.

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. Prior period segment results have been recast to reflect these changes in the measurement of segment profitability.

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

~~The table below presents a reconciliation of total segment income before taxes to consolidated income before taxes for the three and six months ended June 30, 2019 and 2018 (in thousands):~~12

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Agency	$	77,290		$	70,192		$	53,144		$	61,169
SFS	9,584			6,380			17,561			13,131
All Other	1,335			1,051			3,413			2,439
Segment income before taxes	88,209			77,623			74,118			76,739
Unallocated amounts and reconciling items:
Revolving credit facility costs (a)	(5,164		)	(6,473		)	(9,983		)	(9,419		)
SFS corporate finance charge	6,474			3,965			12,323			7,988
Merger-related expenses	(5,710		)	—			(5,710		)	—
Extinguishment of debt	—			—			—			(10,855		)
Equity in earnings of investees (b)	(853		)	(1,234		)	(2,381		)	(2,040		)
Income before taxes	$	82,956		$	73,881		$	68,367		$	62,413

The table below presents a reconciliation of total segment (loss) income before taxes to consolidated (loss) income before taxes for the three and nine months ended September 30, 2019 and 2018 (in thousands):

(a) For the three and six months ended June 30, 2018, revolving credit facility costs in the table above includes approximately $4 million of unamortized fees related to our previous credit agreements that were written off in the second quarter of 2018. (See Note 9.)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Agency	$	(83,210	)	$	(46,803	)	$	(30,066	)	$	15,175
SFS	10,149			7,152			27,710			20,283
All Other	1,402			2,093			4,815			4,532
Segment (loss) income before taxes	(71,659		)	(37,558		)	2,459			39,990
Unallocated amounts and reconciling items:
Revolving credit facility costs (a)	(4,458		)	(1,921		)	(14,441		)	(12,149		)
SFS corporate finance charge	6,346			3,878			18,669			11,866
Merger-related expenses	(4,735		)	—			(10,445		)	—
Extinguishment of debt	—			—			—			(10,855		)
Equity in earnings of investees (b)	(531		)	(1,476		)	(2,912		)	(3,516		)
(Loss) income before taxes	$	(75,037	)	$	(37,077	)	$	(6,670	)	$	25,336

(ba) For ~~segment~~the ~~reporting~~nine ~~purposes~~months ended September 30, ~~our~~2018, ~~share~~revolving ofcredit ~~earnings~~facility ~~related~~costs toin ~~equity~~the ~~investees~~table isabove ~~included~~includes asapproximately ~~part~~$4 million of ~~income~~unamortized ~~before~~fees ~~taxes.~~related ~~However,~~to ~~such~~our ~~earnings~~previous ~~are~~credit ~~reported~~agreements ~~separately~~that ~~below~~were ~~income~~written ~~before~~off ~~taxes~~ in ~~our~~the ~~Condensed~~second ~~Consolidated~~quarter ~~Income~~of ~~Statements~~2018. (See Note 9.)

~~The~~(b) ~~table~~For ~~below presents~~ segment ~~assets~~reporting purposes, asour ~~well~~share ~~as a reconciliation~~ of ~~segment~~earnings ~~assets~~related to ~~consolidated~~equity ~~assets~~investees is included as part of ~~June 30,~~(loss) ~~2019,~~income ~~December 31,~~before ~~2018~~taxes. However, ~~and~~such ~~June 30,~~earnings ~~2018~~are reported separately below (loss) income before taxes in ~~thousands):~~our Condensed Consolidated Statements Operations.

	June 30, 2019		December 31, 2018		June 30, 2018
Agency	$	1,884,330	$	1,886,986	$	2,227,296
SFS	759,623		705,779		494,420
All Other	37,448		39,241		43,625
Total segment assets	2,681,401		2,632,006		2,765,341
Unallocated amounts and reconciling items:
Deferred tax assets and income tax receivable	69,187		57,082		46,326
Consolidated assets	$	2,750,588	$	2,689,088	$	2,811,667

The table below presents segment assets, as well as a reconciliation of segment assets to consolidated assets as of September 30, 2019, December 31, 2018, and September 30, 2018 (in thousands):

Substantially all of our capital expenditures for the six months ended June 30, 2019, the year ended December 31, 2018, and the six months ended June 30, 2018 were attributable to the Agency segment.



	September 30, 2019		December 31, 2018		September 30, 2018
Agency	$	1,333,377	$	1,886,986	$	1,516,644
SFS	860,284		705,779		616,092
All Other	35,481		39,241		36,835
Total segment assets	2,229,142		2,632,006		2,169,571
Unallocated amounts and reconciling items:
Deferred tax assets and income tax receivable	82,139		57,082		65,900
Consolidated assets	$	2,311,281	$	2,689,088	$	2,235,471

11Substantially all of our capital expenditures for the nine months ended September 30, 2019, the year ended December 31, 2018, and the nine months ended September 30, 2018 were attributable to the Agency segment.

4. Revenues

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

~~The following tables summarize our revenues by segment and type for the three and six months ended June 30, 2019 and 2018 (in thousands):~~13

	Three Months Ended June 30, 2019								Three Months Ended June 30, 2018
	Agency		SFS		All Other		Total		Agency		SFS		All Other		Total
Revenue from contracts with customers:
Agency commissions and fees:
Auction commissions	$	275,851	$	—	$	—	$	275,851	$	257,799	$	—	$	—	$	257,799
Auction related fees, net (a)	19,086		—		—		19,086		6,081		—		—		6,081
Private sale commissions	24,780		—		114		24,894		24,016		—		500		24,516
Other Agency commissions and fees	2,302		—		11		2,313		2,359		—		124		2,483
Total Agency commissions and fees	322,019		—		125		322,144		290,255		—		624		290,879
Inventory sales	16,120		—		2,139		18,259		37,190		—		2,916		40,106
Advisory revenues	—		—		1,315		1,315		—		—		1,156		1,156
License fee and other revenues	—		—		4,212		4,212		—		—		3,854		3,854
Total revenue from contracts with customers	338,139		—		7,791		345,930		327,445		—		8,550		335,995
Finance revenue:
Interest and related fees	—		15,848		—		15,848		—		9,641		—		9,641
Total revenues	$	338,139	$	15,848	$	7,791	$	361,778	$	327,445	$	9,641	$	8,550	$	345,636

The following tables summarize our revenues by segment and type for the three and nine months ended September 30, 2019 and 2018 (in thousands):



	Three Months Ended September 30, 2019								Three Months Ended September 30, 2018
	Agency		SFS		All Other		Total		Agency		SFS		All Other			Total
Revenue from contracts with customers:
Agency commissions and fees:
Auction commissions	$	48,088	$	—	$	—	$	48,088	$	72,734	$	—	$	(156	)	$	72,578
Auction related fees, net (a)	5,786		—		—		5,786		7,685		—		(15		)	7,670
Private sale commissions	10,118		—		107		10,225		12,759		—		—			12,759
Other Agency commissions and fees	1,719		—		32		1,751		3,556		—		158			3,714
Total Agency commissions and fees	65,711		—		139		65,850		96,734		—		(13		)	96,721
Inventory sales	5,237		—		1,716		6,953		1,580		—		4,918			6,498
Advisory revenues	—		—		1,203		1,203		—		—		1,169			1,169
License fee and other revenues	—		—		3,271		3,271		—		—		3,350			3,350
Total revenue from contracts with customers	70,948		—		6,329		77,277		98,314		—		9,424			107,738
Finance revenue:
Interest and related fees	—		15,657		—		15,657		—		11,423		—			11,423
Total revenues	$	70,948	$	15,657	$	6,329	$	92,934	$	98,314	$	11,423	$	9,424		$	119,161

Six Months Ended June 30, 2019

Six Months Ended June 30, 2018

Nine Months Ended September 30, 2019

Nine Months Ended September 30, 2018

Agency

SFS

All Other

Total

Agency

SFS

All Other

Total

Revenue from contracts with customers:

Agency commissions and fees:

Auction commissions

~~392~~440,~~889~~977

—

~~392~~440,~~889~~977

~~389~~462,~~929~~663

—

—(156

)

~~389~~462,~~929~~507

Auction related fees, net (a)

2834,~~514~~300

—

2834,~~514~~300

1725,~~824~~509

—

—(15

)

1725,~~824~~494

Private sale commissions

4353,~~019~~137

—

~~114~~221

4353,~~133~~358

4356,~~501~~260

—

500

4456,~~001~~760

Other Agency commissions and fees

56,~~220~~939

—

5587

57,~~275~~026

47,~~351~~907

—

~~300~~458

48,~~651~~365

Total Agency commissions and fees

~~469~~535,~~642~~353

—

~~169~~308

~~469~~535,~~811~~661

~~455~~552,~~605~~339

—

~~800~~787

~~456~~553,~~405~~126

Inventory sales

2228,~~799~~036

—

45,~~226~~942

2733,~~025~~978

5153,~~573~~153

—

49,~~769~~687

5662,~~342~~840

Advisory revenues

—

23,~~722~~925

—

23,~~406~~575

License fee and other revenues

—

69,~~571~~842

—

610,~~757~~107

Total revenue from contracts with customers

~~492~~563,~~441~~389

—

1320,~~688~~017

~~506~~583,~~129~~406

~~507~~605,~~178~~492

—

1424,~~732~~156

~~521~~629,~~910~~648

Finance revenue:

Interest and related fees

—

2944,~~114~~771

—

2944,~~114~~771

—

1930,~~522~~945

—

1930,~~522~~945

Total revenues

~~492~~563,~~441~~389

2944,~~114~~771

1320,~~688~~017

~~535~~628,~~243~~177

~~507~~605,~~178~~492

1930,~~522~~945

1424,~~732~~156

~~541~~660,~~432~~593


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

(See Note 22 for information related to our merger with BidFair MergeRight Inc., as well as the concurrent transfer of Sotheby's Financial Services, Inc. to BidFair USA, Inc. Upon completion of this transfer, the Company no longer owned Sotheby's Financial Services, Inc.)

Contract Balances—We are predominantly an agency business that collects and remits cash on behalf of our clients. 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. Accordingly, in these situations, the net sale proceeds are paid to the consignor before payment is collected from the buyer. Under our standard auction terms, we retain possession of the property until payment is received from the buyer, though, in certain limited situations, we may allow the buyer to take possession of the property before making payment. In these situations, we are liable to the seller for the net sales proceeds whether or not the buyer makes payment. All extended payment term and property release 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, the receivable balance is reclassified from Accounts Receivable to Notes Receivable on our Condensed Consolidated Balance Sheets. (See Note 5 for information on Agency segment Notes Receivable.)

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

The table below presents the Accounts Receivable balances related to our contracts with customers and associated Client Payables as of ~~June~~September 30, 2019, December 31, 2018, and ~~June~~September 30, 2018. The net receivable (payable) balance reported at each balance sheet date is dependent on the timing of auction and private sale settlements, as well as the extent of extended payment terms granted to buyers, particularly if not matched by the consignor.

(in thousands)	~~June~~September 30, 2019			December 31, 2018			~~June~~September 30, 2018
Accounts receivable	$	~~890~~410,~~330~~147		$	967,817		$	1599,~~076,152~~681
Client payables	~~901~~405,~~779~~144			997,168			1627,~~191,581~~466
Net payable	$	(11,449	)	$	(29,351	)	$	(115,429	)
Net receivable (payable)	$	5,003		$	(29,351	)	$	(27,785	)

As of ~~June~~September 30, 2019, the net ~~payable~~receivable balance was ($~~11.4)~~5 million, as compared to net payable balances of ($29.4) million as of December 31, 2018 and ($~~115~~27.48) million as of ~~June~~September 30, 2018. As of ~~June~~September 30, 2019, Accounts Receivable includes $9168.12 million related to situations when we paid the consignor prior to collecting from the buyer, as compared to $118.7 million as of December 31, 2018 and $7547.32 million as of ~~June~~September 30, 2018. As of ~~June~~September 30, 2019, December 31, 2018, and ~~June~~September 30, 2018, Accounts Receivable (net) also included $3914.36 million, $39.6 million, and $~~26.9~~12 million, respectively, related to situations when we allowed the buyer to take possession of the property before making payment.

Deferred revenue balances are generally not material.

Contract Costs—We incur various direct costs in the fulfillment of our auction services. These costs principally relate to the transport of consigned artworks to the location of the auction sale, various sale marketing activities including catalogue production and distribution, and the exhibition of consigned artworks. A large portion of these costs are funded prior to the auction and are recorded on our Condensed Consolidated Balance Sheets within Prepaid Expenses and Other Current Assets until the date of the auction sale when they are expensed to Direct Costs of Services in the Condensed Consolidated Income Statements. As of June 30, 2019, December 31, 2018, and June 30, 2018, the contract cost balances recorded within Prepaid Expenses and Other Current Assets were $11 million, $10.8 million, and $6.8 million, respectively. 15

14Contract Costs—We incur various direct costs in the fulfillment of our auction services. These costs principally relate to the transport of consigned artworks to the location of the auction sale, various sale marketing activities including catalogue production and distribution, and the exhibition of consigned artworks. A large portion of these costs are funded prior to the auction and are recorded on our Condensed Consolidated Balance Sheets within Prepaid Expenses and Other Current Assets until the date of the auction sale when they are expensed to Direct Costs of Services in the Condensed Consolidated Statements of Operations. As of September 30, 2019, December 31, 2018, and September 30, 2018, the contract cost balances recorded within Prepaid Expenses and Other Current Assets were $10.3 million, $10.8 million, and $10.4 million, respectively.

5. Notes Receivable

Sotheby's Financial Services—SFS makes term loans secured by artworks that are not presently intended for sale, allowing us to establish or enhance mutually beneficial relationships with art collectors. Term loans may also generate future auction or private sale consignments through the sale of the collateral at the conclusion of the loan and/or through future purchases of new property by the borrower. In certain situations, term loans are made to refinance the accounts receivable balances generated by the auction and private sale purchases of our clients. Term loans normally have 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.

As of ~~June~~September 30, 2019, December 31, 2018, and ~~June~~September 30, 2018, the net Notes Receivable balance of SFS was $~~747~~851.31 million, $694 million, and $~~480~~593 million, respectively. As of ~~June~~September 30, 2019, December 31, 2018, and ~~June~~September 30, 2018, $3945.96 million, $99.7 million, and $91129.81 million, respectively, of the net Notes Receivable balance of SFS was classified within current assets on our Condensed 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 ~~June~~September 30, 2019, December 31, 2018, and ~~June~~September 30, 2018, the total net Notes Receivable balance of SFS included $~~188~~193.59 million, $126.2 million, and $28132.45 million, respectively, of term loans issued by SFS to refinance client auction and private sale purchases. For the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, SFS issued $6879.62 million and $15119.12 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 (net) within Investing Activities in our Condensed Consolidated Statements of Cash Flows. Upon repayment, the cash received in settlement of such Notes Receivable is classified within Operating Activities in our Condensed Consolidated Statements of Cash Flows. For the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, such repayments totaled $611.35 million and $41.1 million, respectively.

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

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

The LTV ratio of certain loans may increase above the 50% target due to a decrease in the low auction estimates of the collateral. The revaluation of term loan collateral is performed by our specialists on a semi-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 June 30, 2019, December 31, 2018, and June 30, 2018 (in thousands):

	June 30, 2019			December 31, 2018			June 30, 2018
Secured loans	$	747,312		$	693,977		$	479,972
Low auction estimate of collateral	$	1,633,504		$	1,629,270		$	1,159,693
Aggregate LTV ratio	46		%	43		%	41		%

The table below provides the aggregate LTV ratio for secured loans made by SFS with an LTV ratio above 50% as of June 30, 2019, December 31, 2018, and June 30, 2018 (in thousands):

	June 30, 2019			December 31, 2018			June 30, 2018
Secured loans with an LTV ratio above 50%	$	266,931		$	264,916		$	105,744
Low auction estimate of collateral related to secured loans with an LTV ratio above 50%	$	479,638		$	476,157		$	182,398
Aggregate LTV ratio of secured loans with an LTV ratio above 50%	56		%	56		%	58		%

The table below provides other credit quality information regarding secured loans made by SFS as of June 30, 2019, December 31, 2018, and June 30, 2018 (in thousands):

	June 30, 2019		December 31, 2018		June 30, 2018
Total secured loans	$	747,312	$	693,977	$	479,972
Loans past due	$	42,424	$	14,405	$	62,310
Loans more than 90 days past due	$	14,561	$	8,911	$	41,819
Non-accrual loans	$	—	$	3,854	$	15,402
Impaired loans	$	—	$	—	$	—
Allowance for credit losses:
Allowance for credit losses for impaired loans	$	—	$	—	$	—
Allowance for credit losses based on historical data	1,271		1,075		1,132
Total allowance for credit losses - secured loans	$	1,271	$	1,075	$	1,132

We consider a loan to be past due when principal payments are not paid by the contractual maturity date. Typically, a loan becomes past due only for a short period of time during which either the loan is renewed or collateral is sold to satisfy the borrower's obligations. As of June 30, 2019, $42.4 million of the net Notes Receivable balance was past due, of which $14.6 million was more than 90 days past due. We are continuing to accrue interest on all past due loans and, as of June 30, 2019, the collateral securing such loans had a low auction estimate of approximately $83.6 million, resulting in a weighted average LTV ratio of approximately 51%. In consideration of expected loan renewals, as well as the value of the remaining collateral, 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 be 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.

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 June 30, 2019, December 31, 2018, and June 30, 2018, there were no impaired loans outstanding.

AsThe table below provides the aggregate LTV ratio for the SFS loan portfolio as of ~~June~~September 30, 2019, ~~unfunded~~December 31, ~~commitments~~2018, toand ~~extend~~September 30, ~~additional~~2018 ~~credit~~(in ~~through SFS were approximately $65.8 million.~~thousands):

Agency Segment—As discussed in Note 4, in the limited circumstances when the payment due date for an auction or private sale receivable is extended to a date that is beyond one year from the sale date, if the consignor does not provide matched payment terms, the receivable balance is reclassified from Accounts Receivable (net) to Notes Receivable (net) on our Condensed Consolidated Balance Sheets. These Notes Receivable are accounted for as non-cash transfers between Accounts Receivable (net) and Notes Receivable (net) and are, therefore, not reflected as the funding of Notes Receivable within Investing Activities in our Condensed Consolidated Statements of Cash Flows. Upon repayment, the cash received in settlement of such Notes Receivable is classified within Operating Activities in our Condensed Consolidated Statements of Cash Flows. As of June 30, 2018, Notes Receivable (net) within the Agency segment included $1.2 million of such amounts reclassified from Accounts Receivable (net), respectively.



	September 30, 2019			December 31, 2018			September 30, 2018
Secured loans	$	851,108		$	693,977		$	592,962
Low auction estimate of collateral	$	1,770,870		$	1,629,270		$	1,425,960
Aggregate LTV ratio	48		%	43		%	42		%

~~Under~~ ~~certain~~The ~~circumstances,~~table webelow ~~provide~~provides ~~loans to certain art dealers to finance~~ the ~~purchase~~aggregate ofLTV ~~works~~ratio offor ~~art.~~secured Inloans ~~these~~made ~~situations,~~by weSFS ~~acquire~~with aan ~~partial~~LTV ~~ownership~~ratio ~~interest~~above or50% aas ~~security interest in the purchased property in addition to providing the loan. Upon the eventual sale~~ of ~~the property acquired, the loan is repaid. As of June~~September 30, 2019, December 31, 2018, and ~~June~~ September 30, 2018 ~~loans~~(in ~~of this type had a balance of $2.1 million, $3.1 million, and $2.1 million respectively.~~ thousands):

In certain limited situations, the Agency segment will also provide advances to consignors that are secured by property scheduled to be offered at auction in the near term. Such Agency segment consignor advances are recorded on our Condensed Consolidated Balance Sheets within Notes Receivable (net) and totaled $3.2 million as of December 31, 2018. There were no Agency segment consignor advances outstanding as of June 30, 2019 and June 30, 2018.



	September 30, 2019			December 31, 2018			September 30, 2018
Secured loans with an LTV ratio above 50%	$	388,247		$	264,916		$	225,491
Low auction estimate of collateral related to secured loans with an LTV ratio above 50%	$	667,461		$	476,157		$	382,997
Aggregate LTV ratio of secured loans with an LTV ratio above 50%	58		%	56		%	59		%

~~Allowance~~The ~~for~~table ~~Credit~~below ~~Losses—During~~provides ~~the~~other ~~period~~credit ~~January~~quality 1,information ~~2019~~regarding tosecured ~~June 30,~~loans ~~2019,~~made ~~activity~~by ~~related~~SFS toas ~~the~~of ~~Allowance~~September 30, ~~for~~2019, ~~Credit~~December 31, ~~Losses~~2018, byand ~~segment~~September 30, ~~was~~2018 ~~as follows~~ (in thousands):

	SFS			Agency			Total
		September 30, 2019			December 31, 2018			September 30, 2018
Balance as of January 1, 2019	$	1,075		$	1,525		$	2,600
Total secured loans		$	851,108		$	693,977		$	592,962
Change in loan loss provision based on historical data	196			—			196
Loans past due		$	103,322		$	14,405		$	77,751
Balance as of June 30, 2019	$	1,271		$	1,525		$	2,796
Loans more than 90 days past due		$	19,388		$	8,911		$	27,315
Non-accrual loans		$	—		$	3,854		$	6,330
Impaired loans		$	—		$	—		$	—
Allowance for credit losses:
Allowance for credit losses for impaired loans		$	—		$	—		$	—
Allowance for credit losses based on historical data		$	1,410		$	1,075		$	1,067
Total allowance for credit losses - secured loans		$	1,410		$	1,075		$	1,067

We consider a loan to be past due when principal payments are not paid by the contractual maturity date. Typically, a loan becomes past due only for a short period of time during which either the loan is renewed or collateral is sold to satisfy the borrower's obligations. As of September 30, 2019, $103.3 million of the net Notes Receivable balance was past due, of which $19.4 million was more than 90 days past due. We are continuing to accrue interest on all past due loans and, as of September 30, 2019, the collateral securing such loans had a low auction estimate of approximately $215 million, resulting in a weighted average LTV ratio of approximately 51%. In consideration of expected loan renewals, collateral sales to date for which the proceeds have not yet been collected from the buyer, as well as the value of the remaining collateral, we believe that the principal and interest amounts owed for these past due loans will be collected.

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 September 30, 2019, December 31, 2018, and September 30, 2018, there were no impaired loans outstanding.

As of September 30, 2019, unfunded commitments to extend additional credit through SFS were approximately $39.1 million.

Agency Segment—As discussed in Note 4, in the limited circumstances when the payment due date for an auction or private sale receivable is extended to a date that is beyond one year from the sale date, if the consignor does not provide matched payment terms, the receivable balance is reclassified from Accounts Receivable (net) to Notes Receivable (net) on our Condensed Consolidated Balance Sheets. These Notes Receivable are accounted for as non-cash transfers between Accounts Receivable (net) and Notes Receivable (net) and are, therefore, not reflected as the funding of Notes Receivable within Investing Activities in our Condensed Consolidated Statements of Cash Flows. Upon repayment, the cash received in settlement of such Notes Receivable is classified within Operating Activities in our Condensed Consolidated Statements of Cash Flows. As of September 30, 2018, Notes Receivable (net) within the Agency segment included $1.2 million of such amounts reclassified from Accounts Receivable (net), respectively.

Under certain circumstances, we provide loans to certain art dealers to finance the purchase of works of art. In these situations, we acquire a partial ownership interest or a security interest in the purchased property in addition to providing the loan. Upon the eventual sale of the property acquired, the loan is repaid. In the third quarter of 2019, one such loan became uncollectible and, as a result, we recorded a loss of $2.1 million associated with the write-off of this loan. As of December 31, 2018 and September 30, 2018, loans of this type had a balance of $3.1 million.

In certain limited situations, the Agency segment will also provide advances to consignors that are secured by property scheduled to be offered at auction in the near term. Such Agency segment consignor advances are recorded on our Condensed Consolidated Balance Sheets within Notes Receivable (net) and totaled $2 million, $3.2 million, and $3.4 million as of September 30, 2019, December 31, 2018 and September 30, 2018, respectively.

Allowance for Credit Losses—During the period January 1, 2019 to September 30, 2019, activity related to the Allowance for Credit Losses by segment was as follows (in thousands):



	SFS		Agency		Total
Balance as of January 1, 2019	$	1,075	$	1,525	$	2,600
Change in loan loss provision based on historical data	335		—		335
Change in loan loss provision for impaired loans	—		—		—
Balance as of September 30, 2019	$	1,410	$	1,525	$	2,935

6. Leases

We conduct business in leased premises, which are primarily used to conduct Agency segment operations, including space used for auction salesrooms, gallery and exhibition space, administrative offices, and warehouse facilities. A substantial portion of our leased premises are located in London, England; Hong Kong, China; Paris, France; Geneva, Switzerland; and Zurich, Switzerland.

Our determination of whether a contract is or contains a lease and whether that lease should be classified as a finance or operating lease is performed at lease inception, which is the date on which we sign the lease agreement. Lease components, which represent our right to use specified assets, and non-lease components such as maintenance, utilities, and management services contained within a lease are accounted for as a single lease component.

Lease right-of-use assets and lease liabilities are measured and recognized on our Condensed Consolidated Balance Sheets on the lease commencement date, which is the date on which the lessor makes the underlying asset available to use. The measurement of lease right-of-use assets and lease liabilities is based on the present value of lease payments not yet made, discounted using our incremental borrowing rate ("IBR") as of the commencement date of the lease. In determining our IBR, a number of factors are considered, including the term of the lease, the effects of collateral, the economic environment of the lessee, and the creditworthiness of the lessee. Short-term operating leases, which have an initial term of twelve months or less, are not recognized on our Condensed Consolidated Balance Sheets.

Operating lease cost is calculated so that the aggregate amount of fixed minimum lease payments for each lease is recognized in our Condensed Consolidated ~~Income~~ Statements of Operations on a straight-line basis over the term of the lease. Variable lease payments are not included in the lease liability recorded on our Condensed Consolidated Balance Sheets, but are recognized in our Condensed Consolidated ~~Income~~ Statements of Operations during the period in which the obligation for those payments is incurred. Our variable lease payments principally relate to lease obligations which are periodically adjusted for changes in an index or rate, including fair market rental rate adjustments that typically occur according to a scheduled rent review period. For leases with such provisions, the operating right-of-use asset and lease liability are measured using the index or fair market rental rate in effect at the lease commencement date. Under the terms of most leases, we are required to pay various service fees, real estate taxes, and insurance costs which are variable in nature and, therefore not included in the measurement of our lease liabilities.

Certain of our leases provide us the option to extend or terminate the lease term. Such options are factored into the measurement of our lease right-of-use assets and lease liabilities when we determine it is reasonably certain that the option will be exercised.

The following table summarizes the components of the operating lease cost reflected in our Condensed Consolidated ~~Income~~ Statements of Operations within General and Administrative Expenses for the three and ~~six~~nine months ended ~~June~~September 30, 2019 (in thousands):

	Three Months Ended June 30,			Six Months Ended June 30,
	Three Months Ended September 30,			Nine Months Ended September 30,
	2019			2019
Operating lease cost	$	45,~~869~~252		$	914,~~730~~982
Variable lease cost	~~671~~513			1,~~428~~941
Sublease income	(~~377~~275		)	(~~856~~1,131		)
Total lease cost	$	5,~~163~~490		$	1015,~~302~~792

The following table summarizes information about the amount and timing of our future operating lease commitments as of ~~June~~September 30, 2019 (in thousands):

2019 (remaining)	$	94,~~978~~825
2020	18,~~638~~171
2021	14,~~622~~315
2022	1211,~~027~~802
2023	8,~~899~~736
Thereafter	3130,~~720~~834
Total undiscounted operating lease payments	$	9588,~~884~~683
Less: Imputed interest	(1615,~~740~~036		)
Present value of operating lease liabilities	$	7973,~~144~~647

As of ~~June~~September 30, 2019, the weighted-average remaining lease term for our operating leases is 7.4336 years, and the weighted average discount rate used to measure our operating lease liabilities is 4.7074%.

For the ~~six~~nine months ended ~~June~~September 30, 2019, operating lease liabilities arising from obtaining right-of-use assets totaled $8.7 million. For the ~~six~~nine months ended ~~June~~September 30, 2019, cash payments made in respect of our lease liabilities totaled $914.43 million and are classified within operating activities in our Condensed Consolidated Statements of Cash Flows.

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



January 2019 to December 2019		January 2020 to December 2020		January 2021 to December 2021		January 2022 to December 2022		January 2023 to December 2023		Thereafter		Total (a)
$	20,039	$	17,771	$	14,033	$	11,750	$	9,449	$	32,318	$	105,360

The following table summarizes the future minimum lease payments due under non-cancellable operating leases in effect at ~~June~~September 30, 2018 (in thousands):

July 2018 to June 2019

July 2019 to June 2020

July 2020 to June 2021

July 2021 to June 2022

July 2022 to June 2023

Thereafter

Total (a)

October 2018 to September 2019

October 2019 to September 2020

October 2020 to September 2021

October 2021 to September 2022

October 2022 to September 2023

Thereafter

Total (a)

19,~~311~~233

16,~~802~~779

1413,~~384~~598

11,~~522~~112

9,~~652~~453

3029,~~121~~579

~~101~~99,~~792~~754

(a)

These amounts represent our undiscounted non-cancellable future minimum operating lease commitments, including any contractual market-based or indexed rent adjustments that are currently in effect. The lease commitments reflected in the table also include any future fixed minimum payments for common area maintenance, insurance, or tax payments for which we are also obligated under the terms of certain leases.

18(See Note 22 for information related to our merger with BidFair MergeRight Inc., as well as the concurrent related transfer of 1334 York LLC (the owner of the York Property) and the intended transfer of the real estate holdings that collectively house our main salesrooms, exhibition spaces, and administrative offices in London to BidFair Property Holdings Inc., a subsidiary of BidFair USA Inc. Following the completion of these transfers, the Company will no longer own any of the underlying real estate assets and will no longer be party to any of the associated lease agreements that are currently in place. Instead, the Company will enter into long-term, arms-length lease agreements with BidFair Property Holdings Inc. in respect of these real estate assets.)

7. Goodwill and Intangible Assets

Goodwill—For the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, changes in the carrying value of Goodwill were as follows (in thousands):

Six Months Ended June 30,	2019								2018
Nine Months Ended September 30,	2019								2018
	Agency			All Other		Total			Agency			All Other		Total
Beginning balance as of January 1	$	49,422		$	6,151	$	55,573		$	44,396		$	6,151	$	50,547
Goodwill acquired	—			—		—			5,259			—		5,259
Foreign currency exchange rate changes	(33193		)	—		(33193		)	(~~136~~148		)	—		(~~136~~148		)
Ending balance as of June 30	$	49,389		$	6,151	$	55,540		$	49,519		$	6,151	$	55,670
Ending balance as of September 30	$	49,229		$	6,151	$	55,380		$	49,507		$	6,151	$	55,658

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

Intangible Assets—As of ~~June~~September 30, 2019, December 31, 2018, and ~~June~~September 30, 2018, intangible assets consisted of the following (in thousands):

	Amortization Period	~~June~~September 30, 2019			December 31, 2018			~~June~~September 30, 2018
Indefinite lived intangible assets:
License (a)	N/A	$	324		$	324		$	324
Intangible assets subject to amortization:
Customer relationships - Art Advisory Partners	8 years	10,800			10,800			10,800
Non-compete agreements - Art Advisory Partners	5-6 years	3,060			3,060			3,060
Artworks database (b)	10 years	1,275			1,275			1,~~200~~275
Technology	4 years	4,461			4,461			4,461
Total intangible assets subject to amortization		19,596			19,596			19,~~521~~596
Accumulated amortization		(89,~~566~~386		)	(6,927		)	(5,~~232~~939		)
Total amortizable intangible assets (net)		1110,~~030~~210			12,669			1413,~~289~~657
Total intangible assets (net)		$	1110,~~354~~534		$	12,993		$	1413,~~613~~981


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


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

For the three and ~~six~~nine months ended ~~June~~September 30, 2019, amortization expense related to intangible assets was approximately $0.8 million and $12.65 million, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2018, amortization expense related to intangible assets was approximately $0.7 million and $~~1.3~~2 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 ~~June~~September 30, 2019 balance sheet date are as follows (in thousands):

Period	Amount
July 2019 to June 2020	$	3,186
October 2019 to September 2020	$	3,186
July 2020 to June 2021	$	3,062
October 2020 to September 2021	$	2,999
July 2021 to June 2022	$	2,302
October 2021 to September 2022	$	1,937
July 2022 to June 2023	$	1,480
October 2022 to September 2023	$	1,480
July 2023 to June 2024	$	805
October 2023 to September 2024	$	468

1921

8. Defined Benefit Pension Plan

We sponsor a defined benefit pension plan in the U.K. (the "U.K. Pension Plan"), which was closed to future service cost accruals on April 30, 2016. For the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, the components of the net pension credit related to the U.K. Pension Plan recorded within Non-Operating Income in our Condensed Consolidated ~~Income~~ Statements of Operations were as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Interest cost	$	1,~~990~~897		$	1,~~939~~855		$	45,~~006~~903		$	35,~~920~~775
Expected return on plan assets	(2,~~640~~520		)	(2,~~839~~717		)	(57,~~315~~835		)	(58,~~741~~458		)
Amortization of actuarial loss	—			~~122~~117			—			~~247~~364
Amortization of prior service cost	(1615		)	(2624		)	(3247		)	(5276		)
Net pension credit	$	(~~666~~638	)	$	(~~804~~769	)	$	(1,~~341~~979	)	$	(12,~~626~~395	)

9. 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~~On June 26, 2018, we refinanced the Previous Credit Agreements ~~were~~and ~~scheduled~~entered tointo ~~mature~~a oncredit ~~August~~agreement 22with an international syndicate of lenders led by JPMorgan Chase Bank, ~~2020~~N.A. (the “JPMorgan Chase Credit Agreement”). 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.

OnThe ~~June~~JPMorgan ~~26,~~Chase ~~2018,~~Credit weAgreement ~~refinanced~~combined the ~~Previous~~Agency Credit ~~Agreements~~Facility and ~~entered~~SFS Credit Facility into aone ~~new~~asset-based revolving credit ~~agreement~~facility with an ~~international~~aggregate ~~syndicate~~borrowing capacity of ~~lenders~~$1.1 ~~led by JPMorgan Chase Bank~~billion, ~~N.A.~~subject ~~(the~~to ~~“New~~a ~~Credit~~borrowing ~~Agreement”)~~base. ~~The~~Borrowings ~~proceeds~~ under the ~~New~~JPMorgan Chase Credit Agreement ~~may~~were beavailable ~~used~~to ~~for~~fund our working capital needs and for other general corporate purposes~~, and borrowings thereunder are available in U~~.S. ~~Dollars,~~Our ~~Pounds~~obligations ~~Sterling,~~under ~~Euros,~~the ~~Swiss~~JPMorgan ~~Francs,~~Chase ~~and Hong Kong Dollars. The New~~ Credit Agreement ~~reduced~~were ~~the~~secured ~~interest~~by ~~rate~~liens ~~margins~~on ~~for~~all ~~borrowings~~or ~~when~~substantially ~~compared~~all toof ~~those under~~ the ~~Previous~~personal ~~Credit~~property ~~Agreements~~of bythe 25entities ~~basis points. Such interest rate margins are determined by reference to a pricing grid~~ that iswere ~~based~~borrowers onand ~~the~~guarantors ~~level of borrowings outstanding~~ under the ~~New~~JPMorgan ~~Credit~~Chase ~~Agreement. The New~~ Credit Agreement ~~is scheduled to mature on June 26, 2023~~.

The ~~New~~JPMorgan Chase Credit Agreement ~~combined~~was ~~the~~scheduled ~~Agency~~to ~~Credit~~mature ~~Facility~~on ~~and~~June ~~SFS~~26, ~~Credit~~2023, ~~Facility~~but ~~into~~it ~~one~~was ~~asset-based~~terminated ~~revolving~~on ~~credit~~October ~~facility~~3, 2019 in connection with anour ~~aggregate~~merger ~~borrowing~~with ~~capacity~~BidFair ofMergeRight $1Inc.~~1 billion~~, ~~which~~and isall ~~subject~~remaining tooutstanding anborrowings ~~enhanced~~were ~~borrowing base~~repaid. ~~The~~As ~~New Credit Agreement has~~ a ~~sub-limit~~result of ~~$350 million for foreign currency borrowings, as well as an accordion feature, which allows us to seek an increase to~~ the ~~borrowing~~termination ~~capacity~~ of the ~~New~~JPMorgan Chase Credit Agreement, ~~by an amount not to exceed~~ $~~300~~3.3 million inof ~~the~~related ~~aggregate.~~unamortized ~~Though~~debt ~~new~~issuance ~~commitments~~costs ~~would~~will ~~need to~~ be ~~obtained,~~written-off in the ~~uncommitted~~fourth ~~accordion~~quarter ~~feature~~of ~~permits~~2019. us(See toNote ~~seek~~22 anfor ~~increase~~information related to ~~the~~our ~~aggregate~~merger ~~borrowing~~with ~~capacity~~BidFair ~~under~~MergeRight ~~the New Credit Agreement pursuant to an expedited documentation process~~Inc.)

The ~~borrowing~~following ~~base~~table ~~under~~summarizes ~~the~~our ~~New~~revolving ~~Credit~~credit ~~Agreement~~facility isborrowings ~~determined~~as byof aand ~~calculation~~for ~~that~~the isperiods ~~based~~ended ~~upon~~September 30, ~~among~~2019, ~~other~~December 31, ~~things~~2018, aand ~~percentage~~September 30, ~~of:~~2018 (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~~thousands): ~~the fair market value of certain eligible real property located in the U.K., subject to a cap; and (vii) the net orderly liquidation value of certain of our trademarks, subject to a cap.~~

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.



As of and for the periods ended	September 30, 2019		December 31, 2018		September 30, 2018
Borrowings outstanding	$	470,000	$	280,000	$	215,000
Average Borrowings Outstanding:
Three months ended September 30,	$	403,750	N/A		$	71,902
Nine months ended September 30,	$	360,726	N/A		$	94,399
Year ended December 31,	N/A		$	106,181	N/A

~~The~~For ~~New~~the ~~Credit~~period ~~Agreement~~through ~~contains~~June ~~certain~~26, ~~customary~~2018, ~~affirmative~~borrowing ~~and~~costs ~~negative~~under ~~covenants~~the ~~including,~~Previous ~~but~~Credit ~~not~~Agreements ~~limited~~related to, ~~limitations~~SFS onare ~~indebtedness,~~reflected ~~liens,~~in ~~investments,~~our ~~restricted~~Condensed ~~payments,~~Consolidated ~~and~~Statements ~~the~~of ~~use~~Operations within Cost of ~~proceeds~~Finance ~~from~~Revenues as any borrowings thereunder. ~~The~~were ~~New~~used ~~Credit~~to ~~Agreement~~directly ~~also~~fund ~~contains~~client loans. Subsequent to a ~~limitation~~change onin ~~net~~our ~~outstanding~~cash ~~auction~~management ~~guarantees~~strategy (isee Note 3) and the elimination of the SFS Credit Facility on June 26, 2018, the SFS loan portfolio is no longer directly funded with revolving credit facility borrowings.e. Accordingly, ~~auction~~all ~~guarantees~~borrowing ~~less~~costs associated with the ~~impact~~JPMorgan ofChase ~~related~~Credit ~~risk~~Agreement ~~sharing~~are ~~arrangements)~~recorded as Interest Expense in our Condensed Consolidated Statements of Operations.

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 June 30, 2019.

(See Note 22 for information regarding the pending Merger of Sotheby's with Bidfair USA LLC and BidFair MergeRight Inc., as well as the potential impact of the pending Merger on the New Credit Agreement.)

We have incurred aggregate fees of approximately $4.4 million related to the New Credit Agreement, which are being amortized on a straight-line basis through its June 26, 2023 maturity date.

The following tables summarize information related to our revolving credit facilities as of and for the periods ended June 30, 2019, December 31, 2018, and June 30, 2018 (in thousands):

As of and for the periods ended	June 30, 2019		December 31, 2018		June 30, 2018
Maximum borrowing capacity	$	1,100,000	$	1,100,000	$	1,100,000
Borrowing base	$	907,133	$	857,773	$	655,198
Borrowings outstanding	$	320,000	$	280,000	$	63,000
Available borrowing capacity (a)	$	587,133	$	577,773	$	592,198
Average Borrowings Outstanding:
Three months ended June 30,	$	325,055	N/A		$	63,637
Six months ended June 30,	$	338,857	N/A		$	105,823
Year ended December 31,	N/A		$	106,181	N/A

(a) 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 are reflected in our Condensed Consolidated Income Statements as Interest Expense. Borrowing costs under the Previous Credit Agreements related to SFS are reflected in our Condensed Consolidated Income Statements within Cost of Finance Revenues as any borrowings thereunder were used to directly fund client loans. Subsequent to the 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 Condensed Consolidated Income Statements.

Long-Term Debt—As of June 30, 2019, December 31, 2018, and June 30, 2018, Long-Term Debt consisted of the following (in thousands):

	June 30, 2019			December 31, 2018			June 30, 2018
York Property Mortgage, net of unamortized debt issuance costs of $3,051, $3,559, and $4,039	$	253,638		$	257,284		$	267,082
2025 Senior Notes, net of unamortized debt issuance costs of $4,540, $4,894, and $5,248	395,460			395,106			394,752
Less current portion:
York Property Mortgage, net of unamortized debt issuance costs of $1,017, $1,010, and $1,010	(9,409		)	(13,604		)	(13,423		)
Total Long-Term Debt, net	$	639,689		$	638,786		$	648,411

See the captioned sections below for information related to the York Property Mortgage 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 (the "York Property Mortgage") that matures on July 1, 2022. As of June 30, 2019, the York Property Mortgage had an outstanding principal balance of $256.7 million and its fair value approximated its book value due to the variable interest rate associated with the mortgage. The fair value measurement of the York Property Mortgage is considered to be a Level 2 fair value measurement in the hierarchy provided by 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 potential future common stock repurchases. On October 18, 2018, the York Property Mortgage was further amended (the "Second Amendment") to modify the definition of net worth whereby the balance recorded within Treasury Stock Shares on our Condensed Consolidated Balance Sheets is added back to Total Equity for the purposes of calculating net worth. Although the minimum net worth required by the York Property Mortgage remains at $325 million, the change to the definition of net worth provides continued flexibility regarding potential future common stock repurchases. Sotheby’s net worth as of June 30, 2019, as calculated under the Second Amendment, is approximately $1.3 billion.

In conjunction with the First Amendment, on July 3, 2017, we made a prepayment of $32 million to reduce the outstanding principal balance of the York Property Mortgage, and agreed to make annual prepayments funded primarily with cash accumulated in a restricted cash management account, as discussed below, beginning in July 2018 and continuing through July 2021 that are not to exceed $25 million in the aggregate during that period. The $32 million principal payment made on July 3, 2017 was funded with $25 million from existing cash balances and $7 million from a restricted cash management account associated with the York Property Mortgage. On July 2, 2018, a $6.25 million principal payment funded primarily from the restricted cash management account was made in accordance with the First Amendment. On July 1, 2019, a $1.9 million principal payment funded from the restricted cash management account was made in accordance with the First Amendment. (See Note 10 for information related to the interest protection agreements that were entered into in connection with the York Property Mortgage.)

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

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

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

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

~~• If Sotheby's corporate credit rating from Standard & Poor’s Rating Services ("S&P") is downgraded to "BB~~Long-",Term 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". Debt—As ~~a result, a Cash Management Account was established under the control~~ of ~~the lender. The lender will retain any excess cash after monthly debt service, insurance, and taxes as security. As of June~~ September 30, 2019, December 31, 2018, and ~~June~~ September 30, 2018, ~~the~~Long-Term ~~Cash~~Debt ~~Management~~consisted ~~Account had a balance~~ of ~~$1.6~~the ~~million,~~following ~~$0.7~~(in ~~million, and $5.3 million, respectively, which is reflected within Restricted Cash on our Condensed Consolidated Balance Sheets.~~thousands):

• 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.



	September 30, 2019			December 31, 2018			September 30, 2018
York Property Mortgage, net of unamortized debt issuance costs of $2,797, $3,559, and $3,787	$	249,902		$	257,284		$	259,099
2025 Notes, net of unamortized debt issuance costs of $4,363, $4,894, and $5,070	395,637			395,106			394,930
Less current portion:
York Property Mortgage, net of unamortized debt issuance costs of $1,017, $1,010, and $1,010	(9,590		)	(13,604		)	(13,514		)
Total Long-Term Debt, net	$	635,949		$	638,786		$	640,515

(See ~~Note 22 for information regarding~~ the ~~pending~~captioned ~~Merger~~sections ofbelow ~~Sotheby's~~for ~~with~~information ~~Bidfair~~related ~~USA~~to ~~LLC and BidFair MergeRight Inc., as well as~~ the ~~potential~~York ~~impact~~Property ofMortgage ~~the~~and ~~pending Merger on~~ the ~~York~~2025 ~~Property Mortgage~~Notes.) )

~~Senior~~York ~~Unsecured~~Property ~~Debt~~Mortgage—OnAs of September 2730, ~~2012~~2019, wethe ~~issued~~York ~~$300~~Property, ~~million~~our ~~aggregate~~headquarters ~~principal~~building ~~amount~~located ofat ~~5.25%~~1334 ~~Senior~~York ~~Notes,~~Avenue ~~due~~in ~~October 1~~New York, ~~2022~~was ~~(the~~subject ~~"2022~~to ~~Senior~~a ~~Notes"). On December 12~~seven-year, ~~2017, we issued~~ $~~400~~325 million ~~aggregate~~mortgage ~~principal~~loan ~~amount~~(the of"York ~~4.875%~~Property ~~Senior~~Mortgage") ~~Notes~~that ~~due~~was ~~December~~scheduled ~~15,~~to ~~2025~~mature ~~(the~~on ~~“2025~~July ~~Senior~~1, ~~Notes”)~~2022. ~~The~~As ~~net~~of ~~proceeds~~September 30, ~~from~~2019, the ~~sale~~York ofProperty ~~the~~Mortgage ~~2025~~had ~~Senior~~an ~~Notes~~outstanding ~~were~~principal ~~approximately~~balance of $~~395~~252.57 million, ~~after~~and ~~deducting~~its ~~fees~~fair ~~paid~~value toapproximated ~~the~~its ~~initial~~book ~~purchasers,~~value ofdue ~~which~~to ~~$312.3~~the ~~million~~variable ~~was~~interest ~~irrevocably~~rate ~~deposited~~associated with ~~a trustee for~~ the ~~benefit~~mortgage. ofThe ~~the~~fair ~~holders~~value measurement of the ~~2022~~York ~~Senior~~Property ~~Notes,~~Mortgage ~~which~~is ~~were~~considered ~~redeemed~~to ~~using~~be ~~these~~a ~~funds~~Level on2 ~~January~~fair ~~11,~~value ~~2018.~~measurement ~~The~~in ~~$312.3~~the ~~million~~hierarchy ~~redemption~~provided ~~price~~by ~~that~~ASC ~~was deposited with the trustee~~820, ~~consisting~~Fair ofValue ~~the $300 million principal amount plus $4~~Measurements.4 ~~million~~The ofYork ~~accrued~~Property ~~interest~~Mortgage ~~and~~was arepaid ~~call~~on ~~premium~~October ~~of $7.9 million~~3, ~~was~~2019 ~~classified~~in ~~within~~connection ~~Restricted~~with ~~Cash~~the oncompletion of our ~~Condensed~~merger ~~Consolidated~~with ~~Balance~~BidFair ~~Sheets~~MergeRight ~~as of December 31, 2017~~Inc. As a result of the ~~redemption~~repayment of the ~~2022~~York ~~Senior~~Property ~~Notes~~Mortgage, ~~we wrote-off~~ $32.8 million of ~~related~~ unamortized debt issuance costs, ~~which,~~will ~~when~~be ~~combined~~written-off ~~with the $7.9 million call premium, resulted~~ in ~~a total loss on~~ the ~~extinguishment~~fourth ~~of $10.9 million recognized in the first~~ quarter of ~~2018~~2019.

~~Interest~~The onYork ~~the~~Property ~~2025~~Mortgage ~~Senior~~was ~~Notes~~charged isinterest ~~payable~~based inon ~~cash~~the ~~semi~~one-~~annually~~month inLIBOR ~~arrears~~rate onplus ~~June~~a 15spread ~~and December 15~~ of ~~each year, beginning June 15, 2018~~2.25% ~~The~~and ~~2025~~was ~~Senior~~being ~~Notes~~amortized ~~were~~based ~~offered~~on ~~only~~a to25-year ~~qualified~~mortgage-style ~~institutional~~amortization ~~buyers~~schedule inover ~~accordance~~its ~~with~~originally ~~Rule~~scheduled ~~144A and to non~~seven-Uyear term.S. ~~Persons~~On ~~under~~June ~~Regulation~~21, S2017, ~~under~~ the ~~Securities~~York ~~Act~~Property ofMortgage ~~1933,~~was as amended (the "~~Securities~~First ~~Act~~Amendment"). ~~Holders~~to ofreduce the ~~2025~~minimum ~~Senior~~net ~~Notes~~worth dothat ~~not~~Sotheby's ~~have~~was ~~registration~~required ~~rights,~~to ~~and~~maintain ~~the~~from ~~2025~~$425 ~~Senior~~million ~~Notes~~to ~~have~~$325 ~~not~~million ~~been~~in ~~and~~order ~~will~~to ~~not~~provide beflexibility ~~registered~~in ~~under~~carrying ~~the~~out ~~Securities~~its ~~Act.~~common ~~The~~stock ~~2025~~repurchase ~~Senior~~program. ~~Notes~~On ~~are~~October ~~guaranteed~~18, ~~jointly and severally~~2018, the onYork aProperty ~~senior~~Mortgage ~~unsecured~~was ~~basis~~further byamended ~~certain~~(the of"Second ~~our~~Amendment") ~~existing and future domestic subsidiaries~~ to modify the ~~extent~~definition ~~and~~of onnet ~~the~~worth ~~same~~to ~~basis~~provide ~~that~~further ~~such~~flexibility ~~subsidiaries~~in ~~guarantee~~carrying ~~borrowings~~out ~~under~~ the ~~Credit~~common ~~Agreement.~~stock repurchase program.

~~The~~In ~~2025~~conjunction ~~Senior~~with ~~Notes~~the ~~will~~First ~~be redeemable~~Amendment, inon ~~whole~~July or3, ~~in part~~2017, onwe ormade ~~after~~a ~~December~~prepayment ~~15,~~of ~~2020,~~$32 atmillion ~~specified~~to ~~redemption~~reduce ~~prices~~the ~~set~~outstanding ~~forth~~principal inbalance of the ~~underlying~~York ~~indenture~~Property Mortgage, ~~plus accrued~~ and ~~unpaid~~agreed ~~interest~~ to, ~~but~~make ~~excluding,~~annual ~~the~~prepayments ~~redemption~~funded ~~date.~~primarily with cash accumulated in a restricted cash management account, ~~Prior~~as todiscussed ~~December 15~~below, ~~2020,~~beginning ~~the~~in ~~2025~~July ~~Senior~~2018 ~~Notes~~and ~~are~~continuing ~~redeemable,~~through inJuly ~~whole~~2021 orthat inare ~~part,~~not atto aexceed ~~redemption~~$25 ~~price~~million ~~equal~~in tothe ~~100%~~aggregate ofduring ~~the~~that ~~principal~~period. ~~amount~~The of$32 ~~the~~million ~~2025~~principal ~~Senior~~payment ~~Notes~~made toon beJuly ~~redeemed~~3, ~~plus~~2017 ~~accrued~~was ~~and~~funded ~~unpaid~~with ~~interest~~$25 ~~to,~~million ~~but~~from ~~excluding,~~existing ~~the~~cash ~~redemption~~balances ~~date,~~and ~~plus~~$7 million from a ~~make-whole~~restricted ~~premium~~cash ~~(as~~management ~~defined~~account inassociated with the ~~underlying~~York ~~indenture)~~Property Mortgage. InSubsequent ~~addition,~~principal atpayments ~~any~~were ~~time~~made ~~prior~~on toJuly ~~December 15~~2, ~~2020,~~2018 we($6.25 ~~may~~million) ~~redeem~~and upJuly to1, ~~40%~~2019 of($1.9 ~~the~~million) ~~aggregate~~funded ~~principal~~primarily ~~amount~~from of the ~~2025~~restricted ~~Senior Notes with the net~~ cash ~~proceeds~~management ofaccount ~~certain~~in ~~equity~~accordance ~~offerings~~with at the ~~redemption~~First ~~price of 104~~Amendment.~~875%~~ ~~plus accrued and unpaid interest.~~

IfOn February 9, 2016, Sotheby's ~~experiences~~corporate acredit ~~Change~~rating offrom ~~Control~~Standard ~~(as~~& ~~defined~~Poor’s inRating ~~the~~Services ~~underlying~~was ~~indenture),~~downgraded weto ~~must~~"BB-" ~~offer~~from "BB". As a result, due to ~~repurchase~~a ~~all~~financial ofcovenant under the ~~2025~~York ~~Senior~~Property ~~Notes~~Mortgage, ~~then~~a ~~outstanding~~Cash ~~at 101% of~~Management ~~the~~Account ~~aggregate~~was ~~principal~~established ~~amount~~under the control of the ~~2025~~lender. ~~Senior~~The ~~Notes,~~lender ~~plus~~was ~~accrued~~entitled to retain any excess cash after monthly debt service, insurance, and ~~unpaid~~taxes ~~interest~~as security. ~~(See~~As ~~Note~~of 22September 30, ~~for~~2019, ~~information~~December 31, ~~regarding~~2018, ~~the~~and ~~pending~~September 30, ~~Merger~~2018, ofthe ~~Sotheby's~~Cash ~~with~~Management ~~Bidfair~~Account ~~USA~~had ~~LLC~~a ~~and~~balance ~~BidFair~~of ~~MergeRight~~$0.6 ~~Inc~~million, $0.7 million, asand ~~well~~$0.5 asmillion, ~~the~~respectively, ~~potential~~which ~~impact~~is ofreflected ~~the~~within ~~pending~~Restricted ~~Merger~~Cash on ~~the~~our ~~2025~~Condensed ~~Senior~~Consolidated ~~Notes.)~~Balance Sheets.

The ~~underlying~~York ~~indenture~~Property, ~~for~~the York Property Mortgage, and the ~~2025~~related ~~Senior~~interest ~~Notes~~rate ~~also~~protection ~~contains~~agreements ~~customary~~are/were ~~covenants~~held ~~that~~by ~~limit~~1334 York, ~~among~~LLC ~~other~~(the ~~things~~"LLC"), ~~our~~a ~~ability~~separate tolegal ~~grant~~entity ~~liens~~of onSotheby's ~~our~~that ~~assets;~~maintains ~~enter~~its ~~into~~own ~~sale~~books and ~~leaseback~~records ~~transactions;~~ and ~~merge~~whose results through October 3, ~~consolidate~~2019 orwere ~~transfer~~ultimately orconsolidated ~~dispose~~into ofour ~~substantially~~financial ~~all~~statements. The LLC is the sole owner and lessor of ~~our~~the ~~assets~~York Property. The ~~above~~LLC ~~covenants~~presently ~~are~~leases ~~subject~~the York Property to aSotheby's, ~~number~~Inc., which is also controlled by Sotheby's. The assets of ~~exceptions~~the ~~and~~LLC ~~qualifications~~are ~~set~~not ~~forth~~available into satisfy the ~~underlying~~obligations ~~indenture~~of our other affiliates or any other entity.

As(See ofNote ~~June 30,~~10 ~~2019,~~for ~~the~~information ~~$400~~related ~~million~~to ~~principal~~the ~~amount~~interest ofprotection ~~the~~agreements ~~2025~~that ~~Senior~~were ~~Notes~~entered ~~had~~into ain ~~fair~~connection ~~value~~with ofthe ~~approximately~~York ~~$405~~Property Mortgage.5 ~~million,~~See ~~reflecting~~Note a22 ~~redemption~~for ~~price~~information ofrelated ~~101.375%,~~to ~~based~~our onmerger awith ~~broker~~BidFair ~~quoted~~MergeRight ~~price~~Inc., ~~derived~~as ~~via~~well aas ~~pricing~~the ~~model~~related ~~using~~transfer ~~observable~~of ~~and~~the ~~unobservable~~LLC ~~inputs.~~to AsBidFair ~~such,~~Property ~~this~~Holdings ~~fair~~Inc., ~~value~~a ~~measurement~~subsidiary isof ~~considered~~BidFair toUSA beInc. aUpon ~~Level~~completion 3of ~~fair~~this ~~value~~transfer, ~~measurement in~~ the ~~hierarchy~~Company ~~provided~~no bylonger ~~ASC~~owned ~~820~~the LLC.)

~~Future~~Senior ~~Payments~~Unsecured ~~Due~~Debt—On ~~Under~~September ~~Outstanding~~27, ~~Debt—The~~2012, we issued $300 million aggregate ~~future~~principal amount of 5.25% Senior Notes, due October 1, 2022 (the "2022 Notes"). On December 12, 2017, we issued $400 million aggregate principal ~~and~~amount ~~interest~~of ~~payments~~4.875% Senior Notes due ~~under~~December 15, 2025 (the ~~New~~“2025 ~~Credit~~Notes”). ~~Agreement~~The net proceeds from the sale of the 2025 Notes were approximately $395.5 million, after deducting fees paid to the ~~York~~initial ~~Property~~purchasers, ~~Mortgage~~of which $312.3 million was irrevocably deposited with a trustee for the benefit of the holders of the 2022 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 Condensed Consolidated Balance Sheets as of December 31, 2017. As a result of the ~~2025~~redemption ~~Senior~~of the 2022 Notes, ~~during~~we wrote-off $3 million of related unamortized debt issuance costs, which, when combined with the ~~five-year~~$7.9 ~~period~~million ~~after~~call ~~June 30~~premium, ~~2019~~resulted ~~are~~in asa ~~follows~~total (loss on the extinguishment of $10.9 million recognized in ~~thousands):~~the first quarter of 2018.

Period	Amount
July 2019 to June 2020	$	41,350
July 2020 to June 2021	$	41,198
July 2021 to June 2022	$	41,098
July 2022 to June 2023	$	563,514
July 2023 to June 2024	$	19,500

Interest on the 2025 Notes is payable in cash semi-annually in arrears on June 15 and December 15 of each year, beginning June 15, 2018. The 2025 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 Notes do not have registration rights, and the 2025 Notes have not been and will not be registered under the Securities Act. The 2025 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 JPMorgan Chase Credit Agreement.

The ~~table~~2025 ~~above~~Notes ~~assumes~~will ~~that~~be redeemable, in whole or in part, on or after December 15, 2020, at specified redemption prices set forth in the ~~annual~~underlying indenture, plus accrued and unpaid interest ~~rate~~to, ~~for~~but excluding, the ~~York~~redemption ~~Property~~date. ~~Mortgage~~Prior ~~will~~to beDecember ~~within~~15, 2020, the ~~ceiling~~2025 ~~and~~Notes ~~floor~~are ~~rates~~redeemable, ofin ~~the~~whole ~~associated~~or ~~interest~~in ~~rate~~part, ~~collar~~at ~~for~~a redemption price equal to 100% of the ~~remainder~~principal amount of the ~~mortgage~~2025 ~~term~~Notes ~~based~~to onbe ~~available~~redeemed, ~~forecasts~~plus ofaccrued ~~LIBOR~~and ~~rates~~unpaid ~~for~~interest to, but excluding, the ~~future~~redemption ~~periods~~date, ~~through~~plus ~~maturity~~a make-whole premium (~~see~~as ~~Note~~defined 10in the underlying indenture). The ~~table~~underlying ~~above~~indenture for the 2025 Notes also ~~assumes~~contains ~~York~~customary ~~Property~~covenants ~~Mortgage~~that ~~principal~~limit, ~~payments~~among ~~consistent~~other ~~with~~things, ~~the~~our ~~related~~ability ~~mortgage~~to ~~amortization~~grant ~~schedule~~liens on our assets; enter into sale and leaseback transactions; and merge, asconsolidate ~~well~~or astransfer ~~currently~~or ~~anticipated~~dispose ~~annual~~of ~~principal~~substantially ~~prepayments~~all of ~~approximately~~our $2assets. The ~~million~~above ~~each~~covenants ~~July~~are ~~through~~subject ~~2021~~to a number of exceptions and qualifications set forth in the underlying indenture.

~~The~~As ~~table~~of ~~above~~September 30, ~~does~~2019, ~~not reflect~~ the ~~required~~$400 ~~potential~~million ~~redemption~~principal amount of the 2025 ~~Senior~~ Notes, ~~the~~had ~~potential~~a ~~required~~fair ~~repayment~~value of ~~outstanding~~approximately ~~revolving~~$407.5 ~~credit~~million, ~~facility~~based ~~borrowings~~on ~~under~~a ~~the~~broker ~~New~~quoted ~~Credit~~price ~~Agreement,~~derived orvia ~~the~~a ~~potential~~pricing ~~required~~model ~~repayment~~using ofobservable ~~the~~and ~~York~~unobservable ~~Property~~inputs. ~~Mortgage~~As ~~upon~~such, ~~the~~this ~~change~~fair ofvalue ~~control~~measurement ~~that~~is ~~would~~considered ~~occur~~to ifbe ~~the~~a ~~pending~~Level ~~Merger~~3 ~~discussed~~fair value measurement in ~~Note~~the 22hierarchy isprovided ~~consummated~~by ASC 820.

On September 10, 2019, BidFair MergeRight Inc. made an offer to purchase (the “Change of Control Tender Offer”) any and all of the outstanding 2025 Notes in connection with and conditioned on the consummation of our merger with BidFair MergeRight Inc. The Change of Control Tender Offer offered to repurchase the $400 million 2025 Notes outstanding at 101% of the aggregate principal amount, plus accrued and unpaid interest. On October 15, 2019, as a result of the Change of Control Tender Offer, the Company repurchased $342.3 million of the 2025 Notes at a redemption price of $351.3 million, which included $5.6 million of accrued interest and a call premium of $3.4 million. As a result of the partial redemption of the 2025 Notes, we will write-off $3.7 million of unamortized debt issuance costs, which, when combined with the $3.4 million call premium, will result in a total loss on the extinguishment of $7.1 million to be recognized in the fourth quarter of 2019. As of November 9, 2019, $57.7 million of the 2025 Notes remain outstanding. (See Note 22 for information related to our merger with BidFair MergeRight Inc.)

Future Payments Due Under Outstanding Debt—As of September 30, 2019, the aggregate future principal and interest payments due under the JPMorgan Chase Credit Agreement, the York Property Mortgage, and the 2025 Notes during the subsequent five-year period are as follows (in thousands):



Period	Amount
October 2019 to September 2020	$	41,302
October 2020 to September 2021	$	41,173
October 2021 to September 2022	$	258,209
October 2022 to September 2023	$	489,500
October 2023 to September 2024	$	19,500

The table above does not reflect the partial redemption of the 2025 Notes, the repayment of outstanding revolving credit facility borrowings under the JPMorgan Chase Credit Agreement, or the repayment of the York Property Mortgage in connection with the completion of our merger with BidFair MergeRight, Inc. on October 3, 2019 (see Note 22).

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 its contractual term based on available forecasts of LIBOR rates for the future periods through maturity (see Note 10). The table above also assumes York Property Mortgage principal payments consistent with the related mortgage amortization schedule, as well as currently anticipated annual principal prepayments of approximately $2 million each July through 2021.

10. 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 ~~June~~September 30, 2019, December 31, 2018, and ~~June~~September 30, 2018 (in thousands):

Assets

Liabilities

June 30, 2019

Balance Sheet Classification

Fair Value

Balance Sheet Classification

Fair Value

September 30, 2019

Balance Sheet Classification

Fair Value

Balance Sheet Classification

Fair Value

Cash Flow Hedges:

Interest rate collar

N/A

—

Other Current Liabilities

~~629~~683

Interest rate collar

N/A

—

Other Long-Term Liabilities

23,~~778~~017

Total cash flow hedges

—

3,~~407~~700

Net Investment Hedges:

Foreign exchange contracts

Prepaid Expenses and Other Current Assets

~~1,235~~661

N/A

—

Total

~~1,235~~661

3,~~407~~700



	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	$	40
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

June 30, 2018

Balance Sheet Classification

Fair Value

Balance Sheet Classification

Fair Value

September 30, 2018

Balance Sheet Classification

Fair Value

Balance Sheet Classification

Fair Value

Cash Flow Hedges:

Interest rate swap

Prepaid Expenses and Other Current Assets

274

N/A

—

Interest rate collar

Prepaid Expenses and Other Current Assets

N/A

—

Interest rate collar

~~N/A~~Other Long-Term Assets

—98

~~Other Current Liabilities~~N/A

25—

Interest rate collar

N/A

—

Other Long-Term Liabilities

207

Total cash flow hedges

110

—

Total cash flow hedges

274

232

Net Investment Hedges:

Foreign exchange contracts

Prepaid Expenses and Other Current Assets

~~4,444~~81

N/A

—

Total

~~4,718~~191

~~232~~—

During the ~~six~~nine months ended ~~June~~September 30, 2019, we settled derivative financial instruments designated as net investment hedges with an aggregate notional value of $2259.97 million and realized an aggregate gain of $02.53 million. During the ~~six~~nine months ended ~~June~~September 30, 2018, we settled derivative financial instruments designated as net investment hedges with an aggregate notional value of $~~97.9~~202 million and realized a net loss of ($51.9) million.

The following table summarizes the effect of the derivative financial instruments designated as hedging instruments on our Condensed Consolidated Income Statements and Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018 (in thousands):

	(Loss) Gain Recognized in Other Comprehensive Loss - Effective Portion					Classification of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income	Amount Reclassified from Accumulated Other Comprehensive Loss into Net Income - Effective Portion
Three Months Ended June 30,	2019			2018			2019		2018
Cash Flow Hedges:
Interest rate swap	$	—		$	15	Interest Expense	$	—	$	(93	)
Interest rate collar	(1,428		)	207		Interest Expense	—		7
Total cash flow hedges	(1,428		)	222			—		(86		)
Net Investment Hedges:
Foreign exchange contracts	1,041			3,350		N/A	—		—
Total	$	(387	)	$	3,572		$	—	$	(86	)

	(Loss) Gain Recognized in Other Comprehensive Loss - Effective Portion					Classification of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Net Income	Amount Reclassified from Accumulated Other Comprehensive Loss into Net Income - Effective Portion
Six Months Ended June 30,	2019			2018			2019		2018
Cash Flow Hedges:
Interest rate swap	$	—		$	95	Interest Expense	$	—	$	(145	)
Interest rate collar	(1,641		)	1,187		Interest Expense	—		169
Total cash flow hedges	(1,641		)	1,282			—		24
Net Investment Hedges:
Foreign exchange contracts	995			1,740		N/A	—		—
Total	$	(646	)	$	3,022		$	—	$	24

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 9), we entered into interest rate protection agreements secured by the York Property, consisting of a 2-year interest rate swap (the "Mortgage Swap"), effective as of July 1, 2015, and a 5-year interest rate collar (the "Mortgage Collar"), effective as of July 1, 2017. The Mortgage Swap fixed the LIBOR rate on the York Property Mortgage at an annual rate equal to 0.877% through its July 1, 2017 expiration date. The Mortgage Collar effectively fixes the LIBOR rate on the York Property Mortgage at an annual rate of no less than 1.917%, but no more than 3.75%, for the remainder of the mortgage's 7-year term. After taking into account the interest rate protection agreements, the annual interest rate for the first two years of the York Property Mortgage was approximately 3.127% and then will be between a floor of 4.167% and a cap of 6% for the remainder of its term. Beginning on the effective date of the Mortgage Collar through June 30, 2019, the average interest rate for the York Property Mortgage was 4.4%.

In conjunction and concurrent with the First Amendment to the York Property Mortgage in June 2017 (see Note 9), 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.

As of June 30, 2019, the notional value of the Mortgage Collar was $256.7 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~~following ~~Property,~~table summarizes the ~~York~~effect ~~Property~~of ~~Mortgage,~~the ~~and~~derivative ~~the~~financial ~~related~~instruments ~~interest~~designated ~~rate~~as ~~protection~~hedging ~~agreement(s)~~instruments ~~are~~on ~~held~~our byCondensed ~~1334~~Consolidated ~~York,~~Statements ~~LLC,~~of aOperations ~~separate~~and ~~legal~~Condensed ~~entity~~Consolidated Statements of ~~Sotheby's~~Comprehensive ~~that~~(Loss) ~~maintains~~Income ~~its~~for ~~own~~the ~~books~~three and ~~records~~nine ~~and~~months ~~whose~~ended ~~results~~September ~~are~~30, ~~ultimately~~2019 ~~consolidated~~and ~~into~~2018 ~~our~~(in ~~financial statements.~~ thousands):



	(Loss) Gain Recognized in Other Comprehensive Loss - Effective Portion						Classification of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Net Loss	Amount Reclassified from Accumulated Other Comprehensive Loss into Net Loss - Effective Portion
Three Months Ended September 30,	2019			2018				2019		2018
Cash Flow Hedges:
Interest rate collar	$	(220	)	$	256		Interest Expense	$	—	$	—
Total cash flow hedges	(220		)	256				—		—
Net Investment Hedges:
Foreign exchange contracts	868			(238		)	N/A	—		—
Total	$	648		$	18			$	—	$	—



	(Loss) Gain Recognized in Other Comprehensive Loss - Effective Portion					Classification of (Loss) Gain Reclassified from Accumulated Other Comprehensive Loss into Net (Loss) Income	Amount Reclassified from Accumulated Other Comprehensive Loss into Net (Loss) Income - Effective Portion
Nine Months Ended September 30,	2019			2018			2019		2018
Cash Flow Hedges:
Interest rate swap	$	—		$	95	Interest Expense	$	—	$	(145	)
Interest rate collar	(1,861		)	1,443		Interest Expense	—		169
Total cash flow hedges	(1,861		)	1,538			—		24
Net Investment Hedges:
Foreign exchange contracts	1,863			1,502		N/A	—		—
Total	$	2		$	3,040		$	—	$	24

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—Upon entry into the York Property Mortgage (see Note 9), we entered into interest rate protection agreements secured by the York Property, consisting of a 2-year interest rate swap (the "Mortgage Swap"), effective as of July 1, 2015, and a 5-year interest rate collar (the "Mortgage Collar"), effective as of July 1, 2017. As of September 30, 2019, the notional value of the Mortgage Collar was $249 million, which was slightly lower than the principal balance of the York Property Mortgage on that date. The York Property Mortgage was repaid on October 3, 2019 in connection with the completion of our merger with BidFair MergeRight Inc. (see Note 22). As a result, as of that date, the previously forecasted interest payments associated with the York Property Mortgage are no longer probable of occurring. Accordingly, in the fourth quarter of 2019, the remaining amount associated with the Mortgage Collar recorded in Accumulated Other Comprehensive Loss on our Condensed Consolidated Balance Sheets will be reclassified into Net Income.

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 fixed 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 was between a floor of 4.167% and a cap of 6%. Beginning on the effective date of the Mortgage Collar through September 30, 2019, the average interest rate for the York Property Mortgage was 4.4%.

In conjunction and concurrent with the First Amendment to the York Property Mortgage in June 2017 (see Note 9), 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 related to previously forecasted interest payments that were no longer probable of occurring following the June 2017 amendment to the York Property Mortgage.

As of September 30, 2019 and prior to the Merger, the Mortgage Collar was assumed to have a notional value that was no greater than the applicable forecasted principal balance of the York Property Mortgage. Upon the closing of the Merger on October 3, 2019, 1334 York LLC repaid all of its outstanding indebtedness under the York Property Mortgage.

The York Property, the York Property Mortgage, and the related interest rate protection agreement(s) are/were held by 1334 York, LLC, a separate legal entity of Sotheby's that maintains its own books and records and whose results through October 3, 2019 were ultimately consolidated into our financial statements.

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

At their inception, 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~~remained outstanding and iswas effective, any unrealized gains and losses related to changes in their fair value ~~are~~were recorded to Accumulated Other Comprehensive Loss on our Condensed Consolidated Balance Sheets and then to the extent that there are any hedge settlements, the ~~after-tax~~ amount of any such settlement is reclassified to Interest Expense in our Condensed Consolidated ~~Income~~ Statements of Operations in the same period that interest expense related to the underlying debt instruments iswas recorded. Any hedge ineffectiveness iswas immediately recognized in Net Income. In addition, if any of the forecasted transactions associated with the Cash Flow Hedges ~~are~~were no longer probable of occurring, any related amounts previously recorded in Accumulated Other Comprehensive Loss on our Condensed Consolidated Balance Sheets ~~would~~were ~~be immediately~~ reclassified into Net (Loss) Income.

Management ~~performs~~performed a quarterly assessment to determine whether the Mortgage Collar, as amended, ~~continues~~continued 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 ~~June~~September 30, 2019, because our merger with BidFair MergeRight Inc. was not yet completed (see Note 22), the Mortgage Collar, as amended, iswas 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 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 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 ~~June~~September 30, 2019, the aggregate notional value of our outstanding net investment hedge contracts was $3635.71 million.

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

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

27Derivative Financial Instruments Not Designated as Hedging Instruments—We also utilize forward contracts to hedge cash flow exposures related to foreign currency exchange rate movements arising from short-term foreign currency denominated intercompany balances and, to a much lesser extent, foreign currency denominated client payable balances, as well as foreign currency denominated auction guarantee obligations. Such forward exchange contracts are typically short-term with settlement dates less than six months from their inception. These instruments are not designated as hedging instruments for accounting purposes. Accordingly, changes in the fair value of these instruments are recognized in our Condensed Consolidated Statements of Operations in Non-Operating Income.

~~Derivative~~The ~~Financial~~following ~~Instruments~~table ~~Not~~presents ~~Designated~~the asfair ~~Hedging~~values ~~Instruments—We~~of ~~also utilize~~ forward ~~contracts~~exchange tocontract ~~hedge~~assets ~~cash~~and ~~flow~~liabilities ~~exposures~~recorded ~~related~~on toour ~~foreign~~Condensed ~~currency~~Consolidated ~~exchange~~Balance ~~rate~~Sheets ~~movements~~as ~~arising~~of ~~from~~September ~~short-term~~30, ~~foreign currency denominated intercompany balances and~~2019, toDecember ~~a much lesser extent~~31, ~~foreign currency denominated client payable balances~~2018, asand ~~well~~September 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. Accordingly30, ~~changes~~2018 (in ~~the fair value of these instruments are recognized in our Condensed Consolidated Income Statements in Non-Operating Income.~~ thousands):

The following table presents the fair values of forward exchange contract assets and liabilities recorded on our Condensed Consolidated Balance Sheets as of June 30, 2019, December 31, 2018, and June 30, 2018 (in thousands):



	September 30, 2019		December 31, 2018		September 30, 2018
Fair value of forward exchange contracts recorded within Prepaid Expenses and Other Current Assets	$	169	$	351	$	578
Fair value of forward exchange contracts recorded within Accounts Payable and Accrued Liabilities	$	—	$	125	$	343

	June 30, 2019		December 31, 2018		June 30, 2018
Fair value of forward exchange contracts recorded within Prepaid Expenses and Other Current Assets	$	77	$	351	$	3,712
Fair value of forward exchange contracts recorded within Accounts Payable and Accrued Liabilities	$	115	$	125	$	2

As of September 30, 2019, the notional value of outstanding forward exchange contracts not designated as hedging instruments was $203 million. Notional values do not quantify risk or represent assets or liabilities, but are used to calculate cash settlements under outstanding forward exchange contracts. We are exposed to credit-related risks in the event of nonperformance by the counterparties to our outstanding forward exchange contracts that are not designated as hedging instruments. We do not expect any of these counterparties to fail to meet their obligations, given their investment grade short-term credit ratings.

As of June 30, 2019, the notional value of outstanding forward exchange contracts not designated as hedging instruments was $324 million. Notional values do not quantify risk or represent assets or liabilities, but are used to calculate cash settlements under outstanding forward exchange contracts. We are exposed to credit-related risks in the event of nonperformance by the counterparties to our outstanding forward exchange contracts that are not designated as hedging instruments. We do not expect any of these counterparties to fail to meet their obligations, given their investment grade short-term credit ratings.

11. Supplemental Condensed Consolidated Balance Sheet Information

As of ~~June~~September 30, 2019, December 31, 2018, and ~~June~~September 30, 2018, Prepaid Expenses and Other Current Assets consisted of the following (in thousands):

June 30, 2019

December 31, 2018

June 30, 2018

September 30, 2019

December 31, 2018

September 30, 2018

Prepaid expenses

2533,~~440~~691

25,672

2539,~~586~~832

Derivative financial instruments (see Note 10)

~~1,235~~661

462

~~274~~670

Insurance recoveries

4,~~147~~022

4,353

2,~~335~~189

Other

1012,~~457~~113

8,144

1514,~~067~~462

Total Prepaid Expenses and Other Current Assets

4150,~~279~~487

38,631

4357,~~262~~153

~~As of June 30, 2019, December 31, 2018, and June 30, 2018, Other Long-Term Assets consisted of the following (in thousands):~~29

	June 30, 2019		December 31, 2018		June 30, 2018
Defined benefit pension plan asset	$	103,931	$	103,539	$	107,647
Equity method investments (a)	47,897		47,507		46,789
Trust assets related to deferred compensation liability	33,457		28,517		30,017
Restricted cash (see Note 12)	16,654		16,819		17,442
Insurance recoveries	13,205		13,882		12,782
Other	17,265		16,396		15,136
Total Other Long-Term Assets	$	232,409	$	226,660	$	229,813

As of September 30, 2019, December 31, 2018, and September 30, 2018, Other Long-Term Assets consisted of the following (in thousands):



	September 30, 2019		December 31, 2018		September 30, 2018
Defined benefit pension plan asset	$	101,601	$	103,539	$	108,036
Equity method investments (a)	48,469		47,507		47,527
Trust assets related to deferred compensation liability	32,997		28,517		30,870
Restricted cash (see Note 12)	16,196		16,819		17,137
Insurance recoveries	6,870		13,882		15,357
Derivative financial instruments (see Note 10)	—		—		98
Other	24,252		16,396		15,424
Total Other Long-Term Assets	$	230,385	$	226,660	$	234,449


(a)	Includes our equity method investments in RM Sotheby's and AMA, as well as a partnership through which artworks are being purchased and sold.

28As of September 30, 2019, December 31, 2018, and September 30, 2018, Other Long-Term Liabilities consisted of the following (in thousands):

As of June 30, 2019, December 31, 2018, and June 30, 2018, Other Long-Term Liabilities consisted of the following (in thousands):



	September 30, 2019		December 31, 2018		September 30, 2018
Deferred compensation liability	$	32,387	$	28,255	$	30,491
Acquisition earn-out consideration	—		8,750		8,750
Interest rate collar liability (see Note 10)	3,017		1,185		—
Other	4,022		7,327		7,328
Total Other Long-Term Liabilities	$	39,426	$	45,517	$	46,569

	June 30, 2019		December 31, 2018		June 30, 2018
Deferred compensation liability	$	32,894	$	28,255	$	29,605
Acquisition earn-out consideration	—		8,750		8,750
Interest rate collar liability (see Note 10)	2,778		1,185		207
Other	4,117		7,327		7,609
Total Other Long-Term Liabilities	$	39,789	$	45,517	$	46,171

12. Supplemental Condensed Consolidated Cash Flow Information

Cash, Cash Equivalents, and Restricted Cash—As of ~~June~~September 30, 2019, December 31, 2018, and ~~June~~September 30, 2018, cash, cash equivalents, and restricted cash consisted of the following (in thousands):

June 30, 2019

December 31, 2018

June 30, 2018

September 30, 2019

December 31, 2018

September 30, 2018

Cash and cash equivalents

~~132~~81,~~137~~695

178,579

~~432~~156,~~357~~272

Restricted cash, recorded within current assets:

Consignor funds held in legally segregated accounts

361,~~187~~976

3,938

231,~~528~~179

Cash Management Account related to the York Property Mortgage (see Note 9)

~~1,648~~595

716

~~5,264~~460

Other

~~181~~835

182

~~187~~185

Restricted cash, recorded within current assets

383,~~016~~406

4,836

281,~~979~~824

Restricted cash, recorded within other long-term assets (a)

16,~~654~~196

16,819

17,~~442~~137

Total restricted cash

5419,~~670~~602

21,655

4618,~~421~~961

Cash, cash equivalents, and restricted cash

~~186~~101,~~807~~297

200,234

~~478~~175,~~778~~233


(a)	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 six months ended June~~ 30~~, 2019 and 2018, changes in other operating assets and liabilities as reported in the Condensed Consolidated Statements of Cash Flows include the following (in thousands):~~

Six Months Ended June 30,	2019			2018
Increase in:
Prepaid expenses and other current assets	$	(3,435	)	$	(8,233	)
Other long-term assets	(4,839		)	(3,611		)
Income tax receivables and deferred income tax assets	(17,022		)	(9,782		)
(Decrease)/increase in:
Accounts payable and accrued liabilities and other liabilities	(33,110		)	(23,870		)
Accrued income taxes and deferred income tax liabilities	21,306			4,126
Total changes in other operating assets and liabilities	$	(37,100	)	$	(41,370	)

Changes in Other Operating Assets and Liabilities—For the nine months ended September 30, 2019 and 2018, changes in other operating assets and liabilities as reported in the Condensed Consolidated Statements of Cash Flows include the following (in thousands):



Nine Months Ended September 30,	2019			2018
Increase in:
Prepaid expenses and other current assets	$	(9,375	)	$	(16,384	)
Other long-term assets	(3,110		)	(6,590		)
Income tax receivables and deferred income tax assets	(30,573		)	(26,305		)
(Decrease)/increase in:
Accounts payable and accrued liabilities and other liabilities	(58,415		)	(39,436		)
Accrued income taxes and deferred income tax liabilities	8,339			5,392
Total changes in other operating assets and liabilities	$	(93,134	)	$	(83,323	)

13. Common Stock Repurchase Program

On December 13, 2018, we paid $70 million upon entry into an Accelerated Share Repurchase ("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 December 2018 ASR Agreement, which represented a forward contract indexed to our common stock. On March 1, 2019, the December 2018 ASR Agreement expired, and we received an additional 186,732 shares of our common stock. Upon conclusion of the December 2018 ASR Agreement, the $10.5 million initially recorded to Additional Paid-In Capital was reclassified to Treasury Stock on our Condensed Consolidated Statements of Shareholders' Equity. In total, the December 2018 ASR Agreement resulted in the repurchase of 1,792,670 shares of our common stock for an average price of $39.05 per share. The amount paid to enter into the December 2018 ASR Agreement effectively utilized the remaining share repurchase authorization from our Board of Directors.

During the first ~~six~~nine months of 2018, we repurchased 13,~~192~~789,~~604~~608 shares of our common stock for an aggregate purchase price of $62186.52 million, resulting in an average price of $5249.4014 per share. These share repurchases were made through open market purchases and purchases made pursuant to an SEC Rule 10b5-1 plan codified at 17 C.F.R. 240.10b5-1.

14. Accumulated Other Comprehensive Loss

The following is a summary of the changes in Accumulated Other Comprehensive Loss and the details regarding any reclassification adjustments made for the three and six months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Currency Translation Adjustments
Balance at beginning of period	$	(82,722	)	$	(67,280	)	$	(84,051	)	$	(74,505	)
Other comprehensive loss before reclassifications, net of tax of $0, $0, $0, and $400	(1,972		)	(14,238		)	(643		)	(7,013		)
Other comprehensive loss	(1,972		)	(14,238		)	(643		)	(7,013		)
Balance at end of period	(84,694		)	(81,518		)	(84,694		)	(81,518		)
Cash Flow Hedges
Balance at beginning of period	(843		)	141			(630		)	(1,029		)
Other comprehensive (loss) income before reclassifications, net of tax of ($471), $73, ($541), and $423	(1,428		)	222			(1,641		)	1,282
Reclassifications from accumulated other comprehensive loss, net of tax of $0, ($28), $0, and $8	—			(86		)	—			24
Other comprehensive (loss) income	(1,428		)	136			(1,641		)	1,306
Balance at end of period	(2,271		)	277			(2,271		)	277
Net Investment Hedges
Balance at beginning of period	15,281			11,949			15,327			13,559
Other comprehensive income before reclassifications, net of tax of $341, $1,094, $329, and $569	1,041			3,350			995			1,740
Other comprehensive income	1,041			3,350			995			1,740
Balance at end of period	16,322			15,299			16,322			15,299
Defined Benefit Pension Plan
Balance at beginning of period	(2,785		)	(434		)	(2,690		)	(491		)
Currency translation adjustments	106			32			24			7
Other comprehensive income before reclassifications	106			32			24			7
Prior service cost amortization, net of tax of ($3), ($4), ($6), and ($8)	(13		)	(21		)	(26		)	(43		)
Actuarial loss amortization, net of tax of $0, $19, $0, and $40	—			102			—			206
Reclassifications from accumulated other comprehensive loss, net of tax	(13		)	81			(26		)	163
Other comprehensive income (loss)	93			113			(2		)	170
Balance at end of period	(2,692		)	(321		)	(2,692		)	(321		)
Total other comprehensive loss attributable to Sotheby's	(2,266		)	(10,639		)	(1,291		)	(3,797		)
Accumulated other comprehensive loss as of June 30	$	(73,335	)	$	(66,263	)	$	(73,335	)	$	(66,263	)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Cash Flow Hedges
Settlements	$	—		$	(114	)	$	—		$	32
Tax effect	—			28			—			(8		)
Reclassification adjustments, net of tax	—			(86		)	—			24
Defined Benefit Pension Plan
Prior service cost amortization	(16		)	(26		)	(32		)	(52		)
Actuarial loss amortization	—			122			—			247
Pre-tax total	(16		)	96			(32		)	195
Tax effect	3			(15		)	6			(32		)
Reclassification adjustments, net of tax	(13		)	81			(26		)	163
Total reclassification adjustments, net of tax	$	(13	)	$	(5	)	$	(26	)	$	187

14. Accumulated Other Comprehensive Loss

The following is a summary of the changes in Accumulated Other Comprehensive Loss and the details regarding any reclassification adjustments made for the three and nine months ended September 30, 2019 and 2018 (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Currency Translation Adjustments
Balance at beginning of period	$	(84,694	)	$	(81,518	)	$	(84,051	)	$	(74,505	)
Other comprehensive loss before reclassifications, net of tax of $0, $0, $0, and $400	(5,707		)	(155		)	(6,350		)	(7,168		)
Other comprehensive loss	(5,707		)	(155		)	(6,350		)	(7,168		)
Balance at end of period	(90,401		)	(81,673		)	(90,401		)	(81,673		)
Cash Flow Hedges
Balance at beginning of period	(2,271		)	277			(630		)	(1,029		)
Other comprehensive (loss) income before reclassifications, net of tax of ($73), $85, ($614), and $508	(220		)	256			(1,861		)	1,538
Reclassifications from accumulated other comprehensive loss, net of tax of $0, ($114), $0, and ($106)	—			(160		)	—			(136		)
Other comprehensive (loss) income	(220		)	96			(1,861		)	1,402
Balance at end of period	(2,491		)	373			(2,491		)	373
Net Investment Hedges
Balance at beginning of period	16,322			15,299			15,327			13,559
Other comprehensive income (loss) before reclassifications, net of tax of $284, ($78), $613, and $491	868			(238		)	1,863			1,502
Other comprehensive income (loss)	868			(238		)	1,863			1,502
Balance at end of period	17,190			15,061			17,190			15,061
Defined Benefit Pension Plan
Balance at beginning of period	(2,692		)	(321		)	(2,690		)	(491		)
Currency translation adjustments	72			4			96			11
Other comprehensive income before reclassifications	72			4			96			11
Prior service cost amortization, net of tax of ($3), ($4), ($9), and ($12)	(12		)	(21		)	(38		)	(64		)
Actuarial loss amortization, net of tax of $0, $20, $0, and $60	—			97			—			303
Reclassifications from accumulated other comprehensive loss, net of tax	(12		)	76			(38		)	239
Other comprehensive income	60			80			58			250
Balance at end of period	(2,632		)	(241		)	(2,632		)	(241		)
Total other comprehensive loss attributable to Sotheby's	(4,999		)	(217		)	(6,290		)	(4,014		)
Accumulated other comprehensive loss as of September 30	$	(78,334	)	$	(66,480	)	$	(78,334	)	$	(66,480	)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Cash Flow Hedges
Settlements	$	—		$	(274	)	$	—		$	(242	)
Tax effect	—			114			—			106
Reclassification adjustments, net of tax	—			(160		)	—			(136		)
Defined Benefit Pension Plan
Prior service cost amortization	(15		)	(25		)	(47		)	(77		)
Actuarial loss amortization	—			117			—			364
Pre-tax total	(15		)	92			(47		)	287
Tax effect	3			(16		)	9			(48		)
Reclassification adjustments, net of tax	(12		)	76			(38		)	239
Total reclassification adjustments, net of tax	$	(12	)	$	(84	)	$	(38	)	$	103

15. Commitments and Contingencies

Compensation Arrangements—We are party to compensation arrangements with certain senior employees, which expire at various points between March 31, 2020 and December 31, 2022. Such arrangements may provide, among other benefits, for minimum salary levels and for compensation under our incentive compensation programs that is payable only if specified Company and individual goals are attained. Additionally, under certain circumstances, certain of these arrangements provide annual share-based payments, severance payments, and other cash compensation. The aggregate remaining commitment for salaries and other cash compensation related to these compensation arrangements, excluding any participation in our incentive compensation programs, was approximately $1816.79 million as of ~~June~~September 30, 2019.

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, 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 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.

Rybolovlev Litigation—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.

3233

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

On October 2, 2018, two entities controlled by Mr. Rybolovlev commenced proceedings against Sotheby’s and Sotheby’s, Inc. in the U.S. District Court for the Southern District of New York. In their complaint, these entities allege that Sotheby’s and Sotheby's Inc. and their 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 the Sotheby's Parties, in commencing the Swiss Action, violated a tolling agreement that the parties had entered into and seek an injunction prohibiting the Sotheby's Parties from prosecuting the Swiss Action. On January 18, 2019, the Sotheby's and Sotheby's Inc. filed a motion to dismiss this complaint, which they believe to be meritless, on numerous grounds.

On June 25, 2019, the District Court in New York granted in part and denied in part Sotheby's and Sotheby's Inc.'s motion to dismiss this case on forum non conveniens and international comity grounds and to dismiss the plaintiffs’ breach of contract claim for failure to state a claim, pursuant to Rule 12(b) of the Federal Rules of Civil Procedure. The District Court in New York granted Sotheby's and Sotheby's Inc.'s motion insofar as it sought to dismiss the plaintiffs’ claim for an injunction prohibiting the Sotheby's Parties from prosecuting the Swiss Action. The District Court in New York otherwise denied the Sotheby's and Sotheby's Inc.'s motion to dismiss. In the same June 25 ruling, the District Court in New York granted in part and denied in part Sotheby's and Sotheby's Inc.'s motion to seal certain publicly filed documents in the case.

On July 23, 2019, Sotheby's and Sotheby's Inc. filed their answer with the District Court in New York. The case will now proceed to discovery. In addition, on September 20, 2019, the plaintiffs filed a motion for partial summary judgment with respect to their claim that Sotheby’s violated the tolling agreement. On October 20, 2019, Sotheby’s filed its opposition to that motion, to which plaintiffs responded on October 25, 2019.

Litigation Related to ~~Pending~~ Merger—~~Following~~On ~~the~~July ~~announcement~~17, onJuly ~~June~~19, 17July 23, and August 1, 2019, offour ~~the~~substantially ~~pending~~similar ~~Merger~~litigations ~~(see~~were ~~Note~~filed ~~22),~~against ~~Sotheby's~~the Company and the members of its Board of Directors ~~have~~in ~~been~~the ~~named~~United States District Court for the Southern District of New York and in ~~three~~the ~~putative~~United ~~class~~States ~~action~~District ~~complaints~~Court for the District of Delaware by purported stockholders of the Company, ~~Shiva~~captioned Stein vsv. Sotheby'’s, et al., ~~and~~Case ~~Eli~~No. 1:19-cv-06669 (S.D.N.Y.), Goffmna vsv. Sotheby'’s, et al., ~~filed~~Case inNo. ~~the~~1:19-cv-06733 U.(S.D.N.Y.), ~~District~~Kent ~~Court~~v. ~~for~~Sotheby’s, ~~the~~et ~~Southern District of New York~~al., ~~and~~Case aNo. ~~third~~1:19-cv-01374-UNA ~~putative~~(D. ~~class~~Del.) ~~action~~and ~~complaint,~~Stevens ~~Michael Kent vs~~v. Sotheby'’s, et al., ~~filed~~Case inNo. ~~the~~1:19-cv-7198 U.(S.D.N.Y), ~~District~~respectively. ~~Court~~The ~~for~~complaints ~~the~~allege ~~District~~that a preliminary version of ~~Delaware,~~the proxy statement filed by ~~alleged~~the ~~stockholders~~Company ofwith ~~Sotheby’s. The~~the ~~plaintiffs~~SEC ~~allege,~~in ~~among~~connection ~~other~~with ~~things~~its proposed merger was materially inaccurate or incomplete in certain respects, ~~that~~thereby ~~the~~allegedly ~~preliminary~~violating ~~proxy~~Section ~~statement~~14(a) ~~filed~~and ~~with~~20(a) of the ~~SEC~~Exchange byAct, ~~Sotheby's~~15 onU.S.C. ~~July~~§§ 1278n(a), ~~2019~~78t(a), inand ~~connection~~SEC ~~with~~Rule ~~the~~14a-9, ~~pending~~17 ~~Merger~~C.F.R. ~~misstates~~240.14a-9 orand ~~omits~~17 ~~material~~C.F.R. ~~information~~§ ~~regarding~~244.100 ~~Sotheby's~~promulgated ~~financial~~thereunder. ~~projections,~~The complaints purport to seek injunctive relief and money damages. Following the ~~analyses~~filing ~~performed~~of bythe ~~Sotheby'~~Company’s ~~financial~~final ~~advisors~~proxy statement, ~~and~~the plaintiffs in each of the ~~process~~actions ~~leading~~indicated upthat they intended to dismiss the ~~pending~~actions ~~Merger~~as moot, inwhile ~~violation~~reserving ofthe right to seek attorneys’ fees from the ~~federal~~Company. The ~~securities~~Company ~~laws~~believes the allegations in these actions are without merit.

Litigation such as this is routine in the United States following the announcement of a pending acquisition, and additional, duplicative actions may be filed in the future. We believe that any claim that the preliminary proxy statement is inaccurate or misleading in any way is without merit, and we will vigorously defend against any assertions in these or in any similar actions that may be filed against Sotheby's. Therefore, at this time, we do not believe the ultimate resolution of these lawsuits will have a material adverse effect on Sotheby's.

16. Income Taxes

The U.S. Tax Cuts and Jobs Act (“the Act”) was enacted on December 22, 2017. Upon enactment, 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. Our accounting for the effects of the Act was 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 future adjustments to previously recorded amounts.

Final regulations related to the computation of the one-time transition tax on certain unremitted and untaxed earnings of our foreign subsidiaries were issued on January 15, 2019. These regulations did not have a material impact on the related liability that was recorded.

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On June 21, 2019, the Internal Revenue Service issued final regulations relating to the global intangible low-taxed income and foreign tax credit provisions of the U.S. tax law changes included in the Act. We do not believe these regulations will have a material impact on our financial statements.

As of ~~June~~September 30, 2019, December 31, 2018, and ~~June~~September 30, 2018, our Condensed Consolidated Balance Sheets reflect long-term accrued income taxes (net of foreign tax credits) of $15.3 million, $15.3 million, and $2014.25 million, respectively, for the remaining balance of the one-time transition tax, which we elected to pay in installments over eight years, as allowed by the Act. Under the Act, certain acceleration events may cause the remaining unpaid portion of the installments to become due immediately. The Merger is one such acceleration event. We have filed a transfer agreement with the Internal Revenue Service (“IRS”) that would allow us to maintain the deferral. If the IRS does not accept the transfer agreement, the remaining balance of the liability would be due immediately. (See Note 22 for information relating to the Merger.)

17. 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 Condensed 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 Condensed Consolidated Balance Sheets.

We may reduce our financial exposure under auction guarantees through contractual risk sharing arrangements. Such auction guarantee risk sharing arrangements include irrevocable bid arrangements and, from time-to-time, partner sharing arrangements. An irrevocable bid is an arrangement under which a counterparty irrevocably commits to bid a predetermined price on the guaranteed property. If the irrevocable bid is not the winning bid, the counterparty is generally entitled to receive, as their fee, a share of the buyer's premium earned on the sale and/or a share of any auction guarantee overage. 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). 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.

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.

As of ~~June~~September 30, 2019, we had outstanding auction guarantees totaling $68195.76 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. All of the property related to these auction guarantees is being offered at auctions during the ~~third and~~ fourth ~~quarters~~quarter of 2019. Our financial exposure under these auction guarantees is reduced by $59130.1 million as a result of our use of contractual risk sharing arrangements with third parties. After taking into account these risk-sharing arrangements, as of ~~June~~September 30, 2019, our net financial exposure related to the auction guarantees was $965.65 million.

We are obligated under the terms of certain auction guarantees to advance all or a portion of the guaranteed amount prior to auction. There were no auction guarantee advances outstanding as of June 30, 2019, December 31, 2018, and June 30, 2018. As of June 30, 2019, December 31, 2018, and June 30, 2018, the estimated fair value of our obligation to perform under our outstanding auction guarantees totaled $1.9 million, $2.9 million, and $0.9 million, respectively, and is recorded within Accounts Payable and Accrued Liabilities on our Condensed 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 July 26, 2019, we had outstanding auction guarantees totaling $44.2 million and, as of that date, our financial exposure was reduced by risk-sharing arrangements totaling $32.9 million. After taking into account these risk-sharing arrangements, as of July 26, 2019, our net financial exposure related to auction guarantees was $11.4 million. Each of the auction guarantees outstanding as of July 26, 2019 has a minimum guaranteed price that is within or below the range of the pre-sale auction estimates for the underlying property. The majority of property related to these auction guarantees is being offered at auctions during the fourth quarter of 2019. As of July 26, 2019, we have no auction guarantee advances outstanding.

18. Share-Based Payments

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

For the three and six months ended June 30, 2019 and 2018, compensation expense related to share-based payments was as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Amortization of share-based payments	$	7,269	$	6,312	$	14,867	$	14,689
Accelerated expense attributable to contractual severance agreement	1,050		—		1,050		—
Total share-based payment expense (pre-tax)	$	8,319	$	6,312	$	15,917	$	14,689
Total share-based payment expense (after-tax)	$	6,386	$	5,087	$	12,214	$	11,726

In the second quarter of 2019, we entered into a contractual severance agreement with a named executive officer (the "NEO”) pursuant to which, among other things, the NEO will no longer be required to provide service in order for his share-based payment awards to vest. In addition, in conjunction with this contractual severance agreement and in anticipation of the pending Merger (see Note 22), the NEO’s stock units were immediately canceled and converted into a right to receive an amount in cash equal in value to the product of: (i) the number of shares of Sotheby’s common stock underlying such awards and (ii) $57.00. As a result of the contractual severance agreement with the NEO, for the three and six months ended June 30, 2019, we recognized accelerated share-based payment expense of $1.1 million related to the removal of the NEO's service requirement and an additional $0.7 million related to the revaluing of the NEO's share-based payment awards to $57.00 per share from their grant date fair value. Also in conjunction with the modification of the NEO's share-based payment awards, in the second quarter of 2019, $2 million was reclassified from Additional Paid-in Capital to Accrued Salaries and Related Costs in our Condensed Consolidated Balance Sheets to reflect the required cash settlement of those awards.

For the six months ended June 30, 2019 and 2018, we recognized $1.5 million and $1.2 million, respectively, in excess tax benefits related to share-based payments in our Condensed Consolidated Income Statements. These tax benefits represent the amount by which the tax deduction resulting from the vesting of share-based payments in the period exceeded the tax benefit initially recognized in our Condensed Consolidated Financial Statements.

As of June 30, 2019, unrecognized compensation expense related to the unvested portion of share-based payments to employees was $37.6 million. This compensation expense is expected to be amortized over a weighted-average period of approximately 2.2 years. We do not capitalize any compensation expense related to share-based payments to employees.

~~2018~~We ~~Equity~~are ~~Incentive~~obligated ~~Plan—The~~under ~~Sotheby’s~~the ~~2018~~terms ~~Equity~~of ~~Incentive~~certain ~~Plan~~auction ~~(the~~guarantees ~~“Equity~~to ~~Plan”)~~advance ~~was~~all ~~adopted~~or bya ~~our~~portion ~~Board~~ of ~~Directors~~the onguaranteed ~~February 28,~~amount ~~2018~~prior ~~and~~to ~~approved~~auction. byAs ~~our~~of ~~stockholders~~September on30, ~~May~~2019 3,and 2018., ~~The~~there were ~~Equity~~$3.8 ~~Plan~~million and ~~replaced~~$21.5 ~~the~~million ~~Sotheby’s~~of ~~Restricted~~auction ~~Stock~~guarantee ~~Unit~~advances ~~Plan~~outstanding, ~~(as~~respectively. ~~amended~~As ~~and~~of ~~restated~~September 30, ~~the~~2019, ~~"Restricted~~December 31, ~~Stock~~2018, ~~Unit Plan")~~ and ~~the~~September 30, ~~Sotheby’s 1997 Stock Option Plan (collectively~~2018, the ~~“Prior~~estimated ~~Plans”),~~fair ~~which~~value ~~are~~of ~~discussed~~our inobligation ~~more~~to ~~detail~~perform ~~below.~~under ~~The~~our ~~Equity~~outstanding ~~Plan~~auction ~~permits~~guarantees ~~the~~totaled ~~issuance~~$5.5 ofmillion, ~~restricted~~$2.9 ~~stock~~million, ~~restricted~~and ~~stock~~$11.4 ~~units~~million, ~~performance shares~~respectively, ~~performance~~and ~~share~~is ~~units,~~recorded ~~stock~~within ~~options,~~Accounts ~~stock~~Payable ~~appreciation~~and ~~rights~~Accrued ~~(or,~~Liabilities ~~"SAR's"),~~on ~~and~~our ~~other~~Condensed ~~equity-related~~Consolidated ~~awards~~Balance Sheets. NoThis ~~further~~estimated ~~awards~~fair ~~will~~value beis ~~granted~~based ~~under~~on ~~the~~an ~~Prior~~analysis ~~Plans~~of ~~after~~historical ~~May~~loss 3,experience ~~2018.~~related ~~However,~~to ~~the~~auction ~~terms~~guarantees and ~~conditions~~does ofnot include the ~~Prior~~impact ~~Plans~~of ~~and~~risk-sharing ~~related~~arrangements ~~award~~that ~~agreements~~may ~~will~~have ~~continue~~mitigated ~~to apply to~~ all ~~awards~~or ~~granted~~a ~~prior~~portion toof ~~May~~any 3,historical ~~2018 under the Prior Plans~~losses.

~~The Equity Plan is a fungible share plan~~18. ~~Each option or SAR granted under the Equity Plan will count as one share from the available share pool. Each full~~Share-~~value~~Based ~~award~~Payments ~~granted under the Equity Plan, including restricted stock units and performance share units, will count as 2.14 shares from the available pool.~~

Prior to our merger with BidFair MergeRight Inc. on October 3, 2019, share-based payments made to employees included performance-based stock unit awards, market-based stock unit awards, restricted stock units, and restricted shares. Share-based payments were 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. (See Note 22 for information related to our merger with BidFair MergeRight Inc., as well as the impact of the merger on outstanding share-based payments awards.)

For the three and nine months ended September 30, 2019 and 2018, compensation expense related to share-based payments was as follows (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Amortization of share-based payments	$	7,212	$	6,736	$	22,079	$

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