Sotheby's Announces 2007 Second Quarter and First Half Results

NEW YORK, Aug. 8 /PRNewswire-FirstCall/ -- Sotheby's today announced results for the second quarter and six months ended June 30, 2007.

For the quarter ended June 30, 2007, the Company reported record revenues of $339.5 million, a $91.2 million, or 37%, increase from the prior period, primarily due to a 43% increase in Consolidated Sales(1) to $2.3 billion which includes a 45% increase in private sales to $172.6 million. Income from continuing operations for the second quarter of 2007 was an historic high of $107.3 million, or $1.64 per diluted share, compared to $72.4 million, or $1.17 per diluted share for the prior period, a $35.0 million, or 48% improvement. Adjusted EBITDA(2) for the second quarter of 2007 was $164.5 million, a $41.1 million, or 33%, increase from the prior year period. This growth, which is largely due to the increase in revenues highlighted above, is partially offset by certain expense increases, which include the unfavorable impact of foreign currency translations of $5.7 million. Salaries and related costs increased $14.8 million, or 21%, largely due to higher full-time salaries (attributable to strategic headcount additions in key areas of the Company after the second quarter of 2006 and limited annual salary increases) and higher equity compensation costs (resulting from restricted stock awarded in February 2007 as well as compensation arrangements initiated with key senior executives in the second and third quarters of 2006). General and administrative expenses increased $13.1 million, or 42%, partially due to increased professional fees ($5.1 million) as well as increased client goodwill gestures and authenticity claims ($2.7 million).

For the first six months of 2007, revenues reached a record high of $486.9 million, a $142.6 million, or 41%, improvement largely due to a 45% increase in Consolidated Sales(1) to a record $3.24 billion. Private sales also saw strong growth with a 43% increase to $334.0 million, surpassing our full year 2006 private sales total of $327.9 million. Income from continuing operations for the first half of 2007 was a record $131.7 million, a $63.2 million, or 92%, increase from the first half of 2006. Diluted earnings per share from continuing operations was $2.02 for the first half of 2007, a 77% increase from the prior period figure of $1.14. This growth is partially offset by the expense increases mentioned previously and the unfavorable impact of foreign currency translations (a $12.9 million impact versus the prior period).

The Company's results for the first half of 2007 were significantly impacted by a one-time benefit of $20 million related to an insurance recovery from the key man life insurance policy covering Robert Noortman, who died unexpectedly in January 2007 and a $4.8 million gain on the sale of our former Billingshurst salesroom property in the United Kingdom, partially offset by a $15 million impairment charge related to intangible assets and goodwill of Noortman Master Paintings, B.V. Excluding these items, income from continuing operations(2) for the first half of 2007 would have been $123.3 million, or $1.89 per diluted share(2), a $54.9 million, or 80%, improvement from the first half of 2006. Also excluding these items, Adjusted EBITDA(2) for the first half of 2007 would have been $195.8 million, a $64.9 million, or 50%, improvement from the first half of 2006.

"These past six months have been historic by all standards," said Bill Ruprecht, President and Chief Executive Officer of Sotheby's. "In this six month period we earned more than in any full year in our history. We believe that these results validate our strategy, demonstrate the significant operating leverage in our business model and highlight our ability to execute in a strong art market. They reaffirm our commitment to our clients, our employees and our shareholders. And, very importantly, they reaffirm our commitment to profitability."

Second and Third Quarter Sales

In a remarkable season, Sotheby's sold four of the top five lots, including the top lot of the season, Mark Rothko's White Center (Yellow, Pink and Lavender on Rose) from the Collection of David and Peggy Rockefeller, which had a pre-sale estimate of $40 million(3) and sold for $72.8 million, setting the record for a Contemporary Art work at auction. Francis Bacon's Study from Pope Innocent X brought $52.7 million and Self-Portrait brought $43.0 million, while Claude Monet's Nympheas brought $36.7 million. Sotheby's sold 391 lots for $1 million or more in the first half of 2007.

The Contemporary Art series of sales in New York brought $344.6 million, Sotheby's highest total ever in this category and up 86% from May 2006. The New York May Impressionist sales also achieved excellent results with a total of $337.2 million, in line with the pre-sale estimate of $265/361 million(3), and up 36% from the prior year.

Sotheby's June fine arts sales in London were our best ever, bringing $402.5 million for the week. The Impressionist and Modern Art Sales brought $209.4 million and were highlighted by the sale of Claude Monet's Nympheas for $36.7 million, well above the pre-sale estimate of $20/30 million(3). London's Contemporary Art sales totaled a remarkable $193.1 million, more than double last year's figure of $77.6 million and significantly above the pre- sale estimate of $112/157 million(3).

Sotheby's spring sale of American Paintings in New York brought $55.8 million, well above the high end of the pre-sale estimate of $32/47 million(3). The highlights of the sale were Albert Bierstadt's Mountain Lake which sold for $4.9 million, about double the pre-sale estimate of $2/3 million(3) and Norman Rockwell's Home on Leave which sold for $4.5 million, above the pre-sale estimate of $2/3 million(3).

In our June Antiquities sale in New York, the auction record for any sculpture was shattered when the beautiful bronze statue Artemis and the Stag sold for an outstanding $28.6 million, more than four times the pre-sale high estimate of $7 million(3). The sale achieved $47.2 million, the highest ever total for an Antiquities sale, and significantly above the pre-sale estimate of $8/12 million(3).

Upcoming Sales

Sotheby's is encouraged by the current level of auction consignments for the remainder of 2007. While we are still accepting property for the November Impressionist sale, we already have a number of great works consigned by artists such as Pablo Picasso, Georges Braque, Lyonel Feininger, Claude Monet and Henri Matisse, among others.

Next month in London, Sotheby's will offer for sale the Rostropovich- Vishnevskaya Collection of Russian Art. The sale is entirely devoted to fine and decorative Russian Art from the 18th to the 20th centuries that formed the contents of the Paris and London apartments of recently deceased internationally renowned cellist and conductor Mstislav Rostropovich and his wife Galina Vishnevskaya, the famous Russian soprano. One of the highlights of the collection is a painting by Boris Dmitrievich Grigoriev, entitled The Faces of Russia (estimate of $3/4 million(3)). The entire offering is estimated to bring $26/40 million(3).

In October, Sotheby's New York will present a sale of property from the legendary Galerie Ariane Dandois in Paris. Following a decision to close her gallery space on the prestigious rue du Faubourg Saint-Honore to pursue other interests, Ariane Dandois will offer nearly 800 lots of high quality Continental furniture and decorative objects. In total the auction is estimated to achieve $12/16 million(3).

Highlighting Sotheby's four-day series of Asian sales in New York this fall is a Magnificent and Highly Important 13th century Tibetan Gilt Bronze Maitreya, among the most important Himalayan works of art ever to come to auction, estimated in the region of $3.5 million(3). The work will be the centerpiece of The Arts of the Buddha sale on September 21st, which will include 50 lots and is estimated to bring $8/11 million(3). The series also includes Sotheby's fourth sale of Contemporary Art Asia: China Korea Japan which is estimated to bring $20/30 million(3) and a sale of Fine Chinese Ceramics and Works of Art, comprising Chinese ceramics, cloisonne figures, archaic bronzes and classical furniture estimated at approximately $9 million(3).

In late September, Sotheby's New York will offer for sale The Jeffery B. Ellis Antique Golf Club Collection, the most wide-ranging and historically important collection of golf clubs in the world. The Collection includes approximately 800 golf clubs that span the history of clubmaking from its earliest days to the beginning of the steel shaft era. Highlights include a Very Early and Important Square Toe Light Iron, circa 1600 (estimate of $150/250,0003), and a circa 1750 Long Nose Putter made by Andrew Dickson, the first clubmaker to mark his clubs (estimate of $200/300,0003). The collection is expected to total in excess of $4 million(3).

Again this year, Sotheby's will be revisiting Chatsworth in the British countryside with a major exhibition of Modern and Contemporary sculpture, Beyond Limits. Works by artists such as Rodin, Maillol, Chadwick, Flanagan and Rickey will be displayed and available for private sale. The exhibition will run from September 8th to November 4th.

1 Consolidated Sales is equal to the sum of Aggregate Auction Sales, Private Sales and Dealer Sales, and is a non-GAAP financial measure. See Appendix B. 2 Non-GAAP financial measure. See Appendix B. 3 Estimates do not include buyer's premium. About Sotheby's

Sotheby's is a global company that engages in art auction, private sales and art-related financing activities. The Company operates in 35 countries, with principal salesrooms located in New York and London. The Company also regularly conducts auctions in 13 other salesrooms around the world, including Australia, Hong Kong, France, Italy, the Netherlands, Switzerland and Singapore. Sotheby's is listed on the New York Stock Exchange under the symbol BID.

Forward-looking Statements

This release contains certain "forward-looking statements" (as such term is defined in the Securities and Exchange Act of 1934, as amended) relating to future events and the financial performance of the Company. Such statements are only predictions and involve risks and uncertainties, resulting in the possibility that the actual events or performances will differ materially from such predictions. Major factors, which the Company believes could cause the actual results to differ materially from the predicted results in the "forward-looking statements" include, but are not limited to, the overall strength of the international economy and financial markets, political conditions in various nations, competition with other auctioneers and art dealers, the amount of quality property being consigned to art auction houses and the marketability at auction of such property.

Financial Tables Follow

All Sotheby's Press Releases and SEC filings are available on our web site at http://www.sothebys.com/.

Sotheby's earnings conference call will take place on Wednesday, August 8, 2007, at 4:45 PM EDT. Domestic callers should dial: 800-257-2101 and international callers should dial: 303-262-2139. The call reservation number is 11094714.

To listen to the conference call via web cast, please go to http://w.on24.com/r.htm?e=88203&s=1&k=FF2E63E9C43328B61C336CBB2AC56624. You will need Windows Media Player or Real Player to access the call. Please download either of these programs before the call begins. The web cast will be available for replay for two weeks after the call.

SOTHEBY'S APPENDIX A CONSOLIDATED INCOME STATEMENTS (UNAUDITED) (Thousands of dollars, except per share data) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2007 2006 2007 2006 Revenues: Auction and related revenues $313,479 $242,877 $443,296 $332,370 Finance revenues 4,219 3,550 8,999 6,982 Dealer revenues 20,495 634 32,341 2,865 License fee revenues 822 722 1,402 1,192 Other revenues 492 516 868 905 Total revenues 339,507 248,299 486,906 344,314 Expenses: Direct costs of services 30,235 23,228 47,466 36,111 Dealer cost of sales 17,167 - 25,532 - Salaries and related costs 85,090 70,338 139,894 114,342 General and administrative expenses 44,243 31,155 82,790 63,208 Depreciation and amortization expense 5,312 5,292 10,794 10,663 Impairment loss - - 14,979 - Gain on sale of land and buildings - - (4,752) - Total expenses 182,047 130,013 316,703 224,324 Operating income 157,460 118,286 170,203 119,990 Interest income 3,972 1,109 6,694 1,628 Interest expense (7,133) (8,370) (14,668) (16,900) Insurance recovery - - 20,000 - Other income (expense) 51 (816) 1,730 (570) Income from continuing operations before taxes 154,350 110,209 183,959 104,148 Equity in earnings of investees, net of taxes 1,040 402 1,749 509 Income tax expense 48,042 38,232 54,028 36,214 Income from continuing operations 107,348 72,379 131,680 68,443 Discontinued operations: Loss from discontinued operations before taxes - (1,419) - (1,486) Income tax benefit - (488) - (513) Loss from discontinued operations - (931) - (973) Net income $107,348 $71,448 $131,680 $67,470 Basic earnings per share: Earnings from continuing operations $1.68 $1.21 $2.08 $1.17 Loss from discontinued operations - (0.02) - (0.02) Basic earnings per share $1.68 $1.20 $2.08 $1.15 Diluted earnings per share: Earnings from continuing operations $1.64 $1.17 $2.02 $1.14 Loss from discontinued operations - (0.02) - (0.02) Diluted earnings per share $1.64 $1.16 $2.02 $1.12 Basic and diluted weighted average shares outstanding: Basic 63,750 59,740 63,453 58,437 Diluted 65,561 61,608 65,319 60,221 Cash dividends paid per common share $0.10 $ - $0.20 $ - APPENDIX B SOTHEBY'S GAAP TO NON-GAAP RECONCILIATIONS GAAP and non-GAAP Financial Measures: GAAP refers to generally accepted accounting principles in the United States of America. In this release, financial measures are presented in accordance with GAAP and also on a non-GAAP basis. All references in this release denoted by 1 are to "adjusted" non-GAAP financial measures. Management believes that the use of these non-GAAP financial measures enable management and investors to evaluate, and compare from period to period, the Company's results from operations in a more meaningful and consistent manner. A reconciliation of GAAP to non-GAAP financial measures is included below (all figures in thousands of dollars, except per share data). Three Months Ended $ % June 30, Increase/ Increase/ 2007 2006 Decrease Decrease GAAP Income from Continuing Operations $107,348 $72,379 $34,969 48.3% Adjustments: Income tax expense related to continuing operations 48,042 38,232 9,810 25.7% Income tax expense related to earnings from equity investees 667 258 409 158.5% Net interest expense 3,161 7,261 (4,100) -56.5% Depreciation and amortization expense 5,312 5,292 20 0.4% Adjusted EBITDA $164,530 $123,422 $41,108 33.3% GAAP Dealer Revenues $20,495 $634 $19,861 3132.6% Aggregate Auction Sales (1) 2,099,298 1,480,777 618,521 41.8% Private Sales (2) 172,554 118,956 53,598 45.1% Consolidated Sales $2,292,347 $1,600,367 $691,980 43.2% Six Months Ended $ % June 30, Increase/ Increase/ 2007 2006 Decrease Decrease GAAP Income from Continuing Operations $131,680 $68,443 $63,237 92.4% Adjustments: Income tax expense related to continuing operations 54,028 36,214 17,814 49.2% Income tax expense related to earnings from equity investees 1,122 327 795 243.1% Gain on sale of land and buildings (4,752) - (4,752) n/a Impairment loss 14,979 - 14,979 n/a Insurance recovery (20,000) - (20,000) n/a Net interest expense 7,974 15,272 (7,298) -47.8% Depreciation and amortization expense 10,794 10,663 131 1.2% Adjusted EBITDA $195,825 $130,919 $64,906 49.6% GAAP Income from Continuing Operations $131,680 $68,443 $63,237 92.4% Adjustments: Insurance recovery (20,000) - (20,000) n/a Impairment loss 14,979 - 14,979 n/a Gain on sale of land and buildings (3,326) - (3,326) n/a Adjusted Income from Continuing Operations $123,333 $68,443 $54,890 80.2% GAAP Diluted Earnings per Share from Continuing Operations $2.02 $1.14 $0.88 77.2% Adjustments: Insurance recovery (0.31) - (0.31) n/a Impairment loss 0.23 - 0.23 n/a Gain on sale of land and buildings (0.05) - (0.05) n/a Adjusted Diluted Earnings per Share from Continuing Operations $1.89 $1.14 $0.75 66.0% GAAP Dealer Revenues $32,341 $2,865 $29,476 1028.8% Aggregate Auction Sales (1) 2,874,787 1,992,448 882,339 44.3% Private Sales (2) 334,000 233,532 100,468 43.0% Consolidated Sales $3,241,128 $2,228,845 $1,012,283 45.4% (1) Represents the hammer (sale) price of property sold at auction plus buyer's premium. (2) Represents total purchase price of property sold in private sales brokered by the Company's Auction segment.