SOTHEBYS HOLDINGS INC - 10-Q Quarterly Report

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

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2002
Commission File Number 1-9750

Sotheby's Holdings, Inc.
------------------------
(Exact name of registrant as specified in its charter)

Michigan 38-2478409
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

38500 Woodward Avenue, Suite 100
Bloomfield Hills, Michigan 48304
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (248) 646-2400

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 /X/ . No / /.

As of November 11, 2002, there were outstanding 44,933,703 shares of Class A
Limited Voting Common Stock, par value $0.10 per share, and 16,549,650 shares
of Class B Common Stock, par value $0.10 per share, of the Registrant. Each
share of Class B Common Stock is freely convertible into one share of Class A
Limited Voting Common Stock.

INDEX

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

SOTHEBY'S HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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SOTHEBY'S HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4

CONSOLIDATED STATEMENTS OF CASH FLOWS
SOTHEBY'S HOLDINGS, INC.
(UNAUDITED)

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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SOTHEBY'S HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The consolidated financial statements included herein have been prepared by
Sotheby's Holdings, Inc. (together with its subsidiaries, the "Company")
pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). These consolidated financial statements should be
read in conjunction with the consolidated financial statements and the
notes thereto on Form 10-K for the year ended December 31, 2001.

Certain amounts in the 2001 consolidated financial statements have been
reclassified to conform to the current year presentation.

In the opinion of the management of the Company, all adjustments,
consisting of normal recurring adjustments, necessary for a fair
presentation of the financial statements included herein, have been made.

2. SEASONALITY OF BUSINESS

The worldwide art auction market has two principal selling seasons, spring
and fall. Consequently, during the summer and winter, Auction Sales (as
defined in Part I, Item 2 "Management's Discussion and Analysis of Results
of Operations and Financial Condition") are considerably lower. The table
below demonstrates that approximately 80% to 84% of the Company's Auction
Sales are derived from the second and fourth quarters of the year.

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3. SEGMENT REPORTING

For the three and nine months ended September 30, 2002 and 2001, revenues
for the Company's operating segments are as follows (in thousands):

For the three and nine months ended September 30, 2002 and 2001, profit or
(loss) for the Company's operating segments are as follows (in thousands):

The following is a reconciliation of the loss reported for the Company's
reportable operating segments to the applicable line items in the
Consolidated Statements of Operations (in thousands):

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Total assets for the Company's reportable operating segments are as follows
(in thousands):

The following is a reconciliation of assets for the Company's reportable
operating segments to the applicable line items in the Consolidated Balance
Sheets (in thousands):

8

4. RECEIVABLES

Receivables consist of the following (in thousands):

The Company provides collectors and dealers with financing generally
secured by works of art that the Company either has in its possession or
permits the borrower to possess. The Company generally makes two types of
secured loans: (1) advances secured by consigned property to borrowers who
are contractually committed, in the near term, to sell the property at
auction (a "consignor advance"); and (2) general purpose loans to
collectors or dealers secured by property not presently intended for sale.
The consignor advance allows a consignor to receive funds shortly after
consignment for an auction that will occur several weeks or months in the
future, while preserving for the benefit of the consignor the potential of
the auction process. The general purpose secured loans allow the Company to
establish or enhance a mutually beneficial relationship with dealers and
collectors. The loans are generally made with full recourse against the
borrower. In certain instances, however, loans are made with recourse
limited to the works of art pledged as security for the loan. To the extent
that the Company is looking wholly or partially to the collateral for
repayment of its loans, repayment can be adversely impacted by a decline in
the art market in general or in the value of the particular collateral. In
addition, in situations where the borrower becomes subject to bankruptcy or
insolvency laws,

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the Company's ability to realize on its collateral may be limited or
delayed by the application of such laws. Under certain circumstances, the
Company also makes unsecured loans to collectors and dealers. Included in
net notes receivable and consignor advances are unsecured loans totaling
$19.7 million, $31.5 million and $30.8 million at September 30, 2002,
December 31, 2001 and September 30, 2001, respectively.

Although the Company's general policy is to make secured loans at loan to
value ratios (principal loan amount divided by the low auction estimate of
the collateral) of 50% or lower, the Company will lend at loan to value
ratios higher than 50%. In certain of these situations, the Company
finances the purchase of works of art by certain art dealers through
unsecured loans. The property purchased pursuant to such unsecured loans is
sold by the dealer or at auction with any net profit or loss shared by the
Company and the dealer. During the fourth quarter of 2000, the Company
recorded a $9.0 million provision related to one such unsecured loan. This
loan was written off against the reserve during the first quarter of 2001.
At September 30, 2002, December 31, 2001 and September 30, 2001, the net
total of all such unsecured loans was $13.5 million, $15.5 million and
$14.7 million, respectively. These amounts are included in the total
unsecured loan balances provided in the previous paragraph.

The weighted average interest rates charged on net notes receivable and
consignor advances were 5.3%, 7.9% and 8.3% at September 30, 2002, December
31, 2001 and September 30, 2001, respectively.

Changes in the allowance for credit losses related to notes receivable and
consignor advances for the nine months ended September 30, 2002 and 2001
are as follows (in thousands):

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5. GOODWILL

On January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Intangible Assets." SFAS No. 142
eliminates the amortization of goodwill and instead requires that goodwill
be tested for impairment on at least an annual basis. The Company has
completed a transitional impairment test on its goodwill as of the date of
adoption and determined that its goodwill was not impaired.

The table below reconciles the net loss reported for the three and nine
months ended September 30, 2001 to the adjusted net loss, which is
presented as if the Company adopted SFAS No. 142 on January 1, 2001. The
table below also compares the adjusted prior year amounts to current year
results.

The impact of goodwill amortization on basic and diluted loss per share for
the three months ended September 30, 2001 is less than $0.01 per share. The
impact of goodwill amortization on basic and diluted loss per share for the
nine months ended September 30, 2001 is approximately $0.01 per share.

Changes in the carrying amount of goodwill for the nine months ended
September 30, 2002, by operating segment, are as follows:

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6. CREDIT ARRANGEMENTS

Short-term borrowings and long-term debt consist of the following (in
thousands):

BANK CREDIT FACILITIES - In July 2002, the Company extended the maturity
date of the senior secured revolving credit facility (the "Revolving
Facility") under its credit agreement ("the Amended and Restated Credit
Agreement") from July 10, 2002 to August 11, 2002 and reduced the borrowing
capacity from $120 million to $100 million. In August 2002, the maturity
date of the Revolving Facility was extended to February 11, 2003.

In August 2002, the maturity date of the senior secured term facility (the
"Term Facility") under the Amended and Restated Credit Agreement was
extended from August 11, 2002 to February 11, 2003 and the borrowing
capacity was reduced from $130 million to $100 million.

The Company paid fees of $2.0 million in connection with the August 2002
extension of the Amended and Restated Credit Agreement, which are being
amortized to interest expense over the extended term of the agreement.

The Company's obligations under the Amended and Restated Credit Agreement
are secured by substantially all of the assets of the Company and its
domestic subsidiaries, including a mortgage on the Company's headquarters
at 1334 York Avenue in New York (the "York Property"). In addition, any
borrowings by the Company's United Kingdom ("U.K.") affiliates and Swiss
affiliate are secured by their respective loan portfolios. Borrowings under
the Amended and

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Restated Credit Agreement may be used for general corporate purposes.
Borrowings under the Term Facility bear interest equal to LIBOR plus 3.5%.
Borrowings under the Revolving Facility generally bear interest equal to:
(i) LIBOR plus 3.5% or (ii) the Prime Rate plus 2.5%. The Amended and
Restated Credit Agreement also contains certain financial covenants,
including covenants requiring the Company to maintain a minimum net worth
and to meet certain quarterly leverage ratio and interest coverage ratio
tests. Additionally, the Amended and Restated Credit Agreement has a
covenant that requires the Company to limit dividend payments. The Company
was in compliance with these financial covenants as of September 30, 2002.

At September 30, 2002, the Company had outstanding short-term borrowings of
$100 million under the Term Facility at an interest rate of 5.2%.

At September 30, 2002, the Company had outstanding short-term borrowings of
$50 million under the Revolving Facility at a weighted average interest
rate of 6.1%.

As discussed above, the Term Facility and Revolving Facility under the
Company's Amended and Restated Credit Agreement are available through
February 11, 2003. On this date, the Term Facility and the Revolving
Facility will expire and any outstanding borrowings will be due and payable
to the Company's existing lender group. In order to fund the repayment of
any such outstanding borrowings and to provide for the Company's long-term
operating needs and capital requirements including the remaining payments
due under the Company's Antitrust fine (see Part II, Item 1 "Legal
Proceedings"), the redemption of Discount Certificates to be distributed as
part of the U.S. Antitrust Litigation settlement (see Note 10 and Part II,
Item 1 "Legal Proceedings"), payments due under the Company's retention
programs (see Note 11) and interest payments related to the Company's
long-term debt securities, additional funding will be necessary to
supplement operating cash flows.

As previously disclosed, management has been exploring a sale-leaseback
transaction involving the York Property as a means of additional funding
and is currently focusing on such a transaction. It is management's
intention that any such sale-leaseback transaction would be done in
conjunction with an extension, amendment or refinancing of the Revolving
Facility under the Amended and Restated Credit Agreement. A portion of the
proceeds

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from a sale-leaseback transaction would be used to repay the outstanding
borrowings under the Term Facility due on February 11, 2003. Any remaining
proceeds, together with amounts available under an extended, amended, or
refinanced Revolving Facility, would be available for the Company's other
funding needs described above. If consummated, management currently
believes that a sale-leaseback transaction in conjunction with an
extension, amendment or refinancing of the Revolving Facility under the
Amended and Restated Credit Agreement would be in place by February 11,
2003 and would be priced at market rates that reflect the Company's
current credit rating.

Management currently believes that there are other potential financing
options that may be available to the Company as an alternative to a
sale-leaseback transaction including an extension, amendment or refinancing
of both the Term Facility and the Revolving Facility under the Amended and
Restated Credit Agreement, as well as any one or a combination of one or
more of the following in conjunction with an extension, amendment or
refinancing of the Revolving Facility under the Amended and Restated Credit
Agreement: a long-term mortgage on the York Property, the sale of certain
other corporate assets or operating units, or the collection of client
loans. If necessary, management would also explore other financing options
such as the issuance of various types of debt instruments with varying
maturities, including convertible debt, and the issuance of additional
equity securities. However, there can be no assurances that the Company
would be successful in securing funding from one of the options outlined
above and some of the above alternatives might come at a high cost or could
limit the Company's operating flexibility. Additionally, any convertible
debt or equity security issuance may be dilutive.

On June 3, 2002, A. Alfred Taubman, the controlling shareholder of the
Company, filed with the SEC an amended Schedule 13D in which he announced
his intention to work in cooperation with the Company to explore a possible
sale or merger of the Company or the sale of his stake in the Company (a
"Transaction"). Management believes that, if a sale or merger is
consummated by February 11, 2003, any new controlling shareholder would
provide, arrange or facilitate the financing necessary to conduct the
Company's business.

If the Company were unable to secure adequate long-term funding or satisfy
its liquidity needs through a sale-leaseback transaction in conjunction
with an extension, amendment or refinancing of the Revolving Facility under
the Amended and Restated Credit Agreement or pursuant to one of the other
options stated above, or in

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conjunction with a Transaction, prior to the expiration of the Amended and
Restated Credit Agreement, this would have a material adverse effect on the
Company's business, results of operations, financial condition and/or
ability to operate.

SENIOR UNSECURED DEBT - In February 1999, the Company issued a tranche of
long-term debt securities (the "Notes"), pursuant to the Company's $200
million shelf registration with the SEC, for an aggregate offering price of
$100 million. The ten-year Notes have an effective interest rate of 6.98%
payable semi-annually in February and August. The Notes have covenants that
impose limitations on the Company from placing liens on property and
entering into sale-leaseback transactions, excluding the York Property. The
Company was in compliance with these covenants as of September 30, 2002.

An event of default related to the Amended and Restated Credit Agreement
discussed above does not, in and of itself, constitute an event of default
under the Indenture pursuant to which the Notes were issued.

If and to the extent required under the Indenture pursuant to which the
Notes were issued and subject to certain exceptions contained in the
Indenture, the security documents executed in connection with the Amended
and Restated Credit Agreement provide that the obligations under the Notes
shall be secured equally and ratably with that portion of the obligations
under the Amended and Restated Credit Agreement that exceed the permitted
exceptions contained in the Indenture.

7. DERIVATIVE INSTRUMENTS

The Company utilizes forward exchange contracts to manage exposures related
to foreign currency risks, which primarily arise from foreign currency
denominated intercompany balances. Generally, such intercompany balances
are centrally funded and settled through the Company's global treasury
function. The Company's primary objective for holding derivative
instruments is to minimize foreign currency risks using the most effective
methods to eliminate or reduce the impacts of these exposures.

The forward exchange contracts entered into by the Company are used as
economic cash flow hedges of the Company's exposure to foreign currency
denominated intercompany balances. Such contracts are typically short-term
with settlement dates no more than one month

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from their inception. These contracts are not designated as hedging
instruments under SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," and are recorded in the Company's Consolidated Balance
Sheets at their fair value with the changes in the fair value of the
derivative being recognized currently in earnings. Such changes in fair
value are generally offset by the revaluation of the underlying
intercompany balance in accordance with SFAS No. 52, "Foreign Currency
Translation." As a result, upon settlement, the net impact on the Company's
earnings of such derivative instruments represents the transaction costs
related to the derivatives. For the three and nine months ended September
30, 2002 and 2001, such costs, which are reflected in other income
(expense), were not material to the Company's results of operations.

The Company's Consolidated Balance Sheet at September 30, 2002 includes an
asset of approximately $0.1 million recorded within other current assets
reflecting the fair value of the Company's forward exchange contracts.

The adoption of SFAS No. 133 on January 1, 2001, resulted in a cumulative
pre-tax decrease to other comprehensive income of $0.3 million ($0.2
million after-tax) during the first quarter of 2001. Substantially this
entire amount was reclassified into earnings as other expense during the
first quarter of 2001. The remaining amount was reclassified into earnings
during the second quarter of 2001.

8. COMPREHENSIVE LOSS

The Company's comprehensive loss includes the net loss for the period, as
well as other comprehensive income (loss), which consists of the change in
the foreign currency translation adjustment account during the period. For
the three and nine months ended September 30, 2002, the Company's other
comprehensive income is primarily attributable to the weakening of the U.S.
Dollar against the U.K. Pound Sterling and the Euro during those periods.
For the three and nine months ended September 30, 2002 and 2001,
comprehensive loss is as follows (in thousands):

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9. SPECIAL CHARGES

For the three and nine months ended September 30, 2002 and 2001, the
Company recorded the following charges in the Consolidated Statements of
Operations related to the investigation by the Antitrust Division of the
United States Department of Justice (the "DOJ") and other related matters,
as discussed in Part II, Item 1 "Legal Proceedings" (in thousands):

In the first quarter of 2002, the Company entered into a final settlement
agreement with its former Chief Executive Officer with respect to the DOJ
investigation and other related matters. As part of this settlement
agreement, in addition to relinquishing all of her stock options in 2000,
the Company's former Chief Executive Officer paid the Company $3.25
million. Of this amount, $2.05 million was paid by her relinquishment of
vested benefits under the Company's Benefit Equalization Plan and the
remaining $1.2 million was paid in cash. As a result, the Company recorded
in special charges a reduction of accrued compensation cost of
approximately $2.05 million and a recovery of $1.2 million in the first
quarter of 2002.

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On October 30, 2002, the European Commission issued a decision in which it
determined that the Company and Christie's had breached the competition
provisions of the Treaty Establishing the European Community by agreeing to
fix selling commissions and other trading terms in connection with auctions
held in the European Union between 1993 and 2000. Pursuant to this
decision, the European Commission imposed a fine of approximately $20.1
million on the Company, payable on February 8, 2003. As a result, the
Company recorded this amount in special charges in the third quarter of
2002. (See Part II, Item 1 "Legal Proceedings.")

Settlement liabilities related to the DOJ investigation and other related
matters consist of the following (in thousands):

The settlement liability for the U.S. Antitrust Litigation relates to the
vendor's commission discount certificates (the "Discount Certificates")
that will be distributed as part of the U.S. Antitrust Litigation
settlement. The Discount Certificates will expire five years after the date
they are first issued. However, the face value of any unused Discount
Certificates may be redeemed for cash at the end of four years. The Court
determined that the $62.5 million face value of the Discount Certificates
had a fair market value of not less than $50 million, which equals the
value of the Discount Certificates that is recorded in the Company's
Consolidated Balance Sheets within the current and long-term settlement
liabilities. The current portion of the liability for the Discount
Certificates is based on management's estimate of redemptions expected
during the twelve-month period after the balance sheet date. The Discount
Certificates are currently expected to be printed and issued to the class
of plaintiffs during the second quarter of 2003.

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The Company expects to incur administrative costs for printing and issuing
the Discount Certificates, as well as for processing any redemptions of the
Discount Certificates. These costs have not been expensed because they are
currently not reasonably estimatable due to continuing negotiations with
the potential Discount Certificate administrator.

Amounts charged to the Company's settlement liabilities related to the DOJ
investigation and other related matters during the nine months ended
September 30, 2002 were as follows (in thousands):

10. COMMITMENTS AND CONTINGENCIES

COMMITMENTS - In conjunction with its retention programs (see Note 11), the
Company entered into employment agreements with a group of certain key
employees, which expire at various dates through December 31, 2003. Such
agreements provide, among other benefits, for minimum salary levels and
incentive bonuses which are payable if specified Company and individual
goals are attained, as well as cash awards in conjunction with the
Company's retention programs. The aggregate commitment for future salaries
at September 30, 2002, excluding incentive bonuses and cash awards in
conjunction with the Company's retention programs, was approximately $2.4
million.

LEGAL ACTIONS - One of the parties that opted out of the class action
settlement in the U.S. Antitrust Litigation has threatened to commence a
lawsuit against the Company and Christie's alleging antitrust violations
and is seeking approximately $20 million in damages. The parties have
agreed to enter into non-binding mediation to attempt to resolve this
claim, and the mediation process is underway. Although there were other
opt-outs from the settlement of the U.S. Antitrust Litigation, no other
claims have been asserted to date. The Company believes that its maximum
potential exposure in this matter is substantially less than the

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amount of the claim; however, the amount of any potential loss is not
currently estimatable.

On January 30, 2001, the United States District Court for the Southern
District of New York granted the Company's motion to dismiss the
International Antitrust Litigation (as defined in Part II, Item 1 "Legal
Proceedings"). Plaintiffs appealed the court's decision to the United
States Court of Appeals for the Second Circuit. On March 13, 2002, the
Second Circuit Court of Appeals reversed the District Court's ruling that
it lacked jurisdiction over auctions held by the Company, its subsidiaries
and Christie's outside of the United States and remanded the case to the
District Court to consider whether the International Antitrust Litigation
should be dismissed on other grounds. The Company and Christie's have filed
a petition for certiorari seeking review of the Court of Appeals' decision
by the United States Supreme Court. (See Part II, Item 1 "Legal
Proceedings" for further information regarding the International Antitrust
Litigation.)

The Company also becomes involved, from time to time, in various claims and
lawsuits incidental to the ordinary course of its business. The Company
does not believe that the outcome of any such pending claims or proceedings
will have a material effect upon its business or financial condition.

LENDING AND OTHER CONTINGENCIES - The Company enters into legally binding
arrangements to lend, primarily on a collateralized basis, to potential
consignors and other individuals who have collections of fine art or other
objects (see Note 4). However, potential consignor advances related to such
arrangements are subject to certain limitations and conditions. Unfunded
commitments to extend additional credit were approximately $12.5 million at
September 30, 2002.

On certain occasions, the Company will guarantee to the consignor a minimum
price in connection with the sale of property at auction. The Company must
perform under its guarantee only in the event that the property sells for
less than the minimum price and, therefore, the Company must pay the
difference between the sale price at auction and the amount of the
guarantee or if the property does not sell, the amount of the guarantee
must be paid. At November 13, 2002, the Company had outstanding guarantees
totaling approximately $9.0 million. This outstanding guarantee amount
consists of approximately $15.4 million in gross auction guarantees less
partner shares and prefunded amounts and covers auction property
having a mid-estimate sales price of approximately $20.4 million. Under
certain guarantees, the Company participates in a share of the proceeds if

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the property under guarantee sells above a minimum price. In addition, the
Company is obligated under the terms of certain guarantees to fund a
portion of the guaranteed amount prior to the auction. As of November 13,
2002, $2.5 million had been funded in connection with outstanding
guarantees.

In the opinion of management, the contingencies described here in Note
10 and in Note 9 are not currently expected to have a material adverse
effect on the Company's financial condition, liquidity and/or results of
operations, with the exception of the resolution of the threatened
litigation by one of the parties that opted out of the class action
settlement in the U.S. Antitrust Litigation, and the possible exception
of the cash redemption of any unused Discount Certificates (see Note 9),
the administrative costs for printing and issuing the Discount
Certificates (see Note 9), as well as the administrative costs for
processing any redemptions of the Discount Certificates (see Note 9) and
the resolution of the International Antitrust Litigation.

(See Notes 9 and 11 for other commitments and contingencies.)

11. RETENTION PROGRAMS

The Company maintains retention programs that provide cash awards for the
retention of a group of key employees. Employees granted such cash awards
will receive cash payments upon fulfillment of full-time employment through
certain dates in 2002 and 2003. An employee granted a cash award who leaves
the Company prior to such date will, generally, forfeit his or her right to
payment. Under the retention programs, up to $4.0 million is payable in
December 2002, up to $12.3 million is payable in January 2003, up to $0.2
million is payable in March 2003, up to $0.1 million is payable in April
2003 and up to $3.0 million is payable in December 2003.

The group of key employees granted such awards received cash payments of
approximately $28.7 million during the nine months ended September 30, 2002
upon the fulfillment of full-time employment through certain dates.

All amounts related to the retention programs discussed above are being
amortized over the contractual service period. For the three months ended
September 30, 2002 and 2001, the Company recorded charges of $5.8 million
and $5.0 million, respectively, related to its retention programs. For the
nine months ended September 30,

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2002 and 2001, the Company recorded charges of $18.3 million and $13.7
million, respectively, related to its retention programs.

(See Note 13, Related Party Transactions.)

12. NET RESTRUCTURING CHARGES

The Company recorded the following amounts related to the restructuring
plans described below during the three and nine months ended September 30,
2002 and 2001 (in thousands):

1998 RESTRUCTURING PLAN

During the second quarter of 2001, the Company reversed the remaining 1998
restructuring liability related to the consolidation and integration of its
New York operations into the York Property. As the consolidation and
integration was completed in the second quarter of 2001, the Company
determined that this liability was no longer necessary.

2000 RESTRUCTURING PLAN

During the fourth quarter of 2000, management completed a strategic and
operational review of the Company's businesses. Based on the results of
this review, the Board of Directors approved a restructuring plan in the
Company's Auction segment in December 2000. The liability related to the
2000 Restructuring Plan is recorded within accounts payable and accrued
liabilities in the Company's Consolidated Balance Sheets. Amounts charged
to the restructuring liability through September 30, 2002 were as follows
(in thousands):

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For the three months ended September 30, 2002, the Company recorded a
favorable adjustment of $0.2 million to restructuring charges resulting
from the final sale of assets related to certain activities that were
exited in conjunction with the 2000 Restructuring Plan.

For the nine months ended September 30, 2002, the Company recorded a
favorable adjustment of $1.0 million to restructuring charges primarily due
to the reversal of a portion of the remaining liability related to the 2000
Restructuring Plan that was no longer necessary.

The remaining cash expenditures related to the 2000 Restructuring Plan,
expected to be approximately $0.5 million, are expected to be substantially
paid by the end of 2002.

2001 RESTRUCTURING PLAN

During the third quarter of 2001, management completed a further review of
the Company's businesses. Based on the results of this review, the Board of
Directors approved a restructuring plan in September 2001 for the Company's
live auction business within the Auction segment, as well as its Finance
and Real Estate segments and certain corporate departments.

During the fourth quarter of 2001, as authorized by the Board of Directors,
management approved a restructuring plan for the Company's online auction
business within the Auction segment.

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The liability related to the 2001 Restructuring Plan is recorded within
accounts payable and accrued liabilities in the Company's Consolidated
Balance Sheets. Amounts charged to the restructuring liability through
September 30, 2002 were as follows (in thousands):

For the three months ended September 30, 2002, the Company recorded an
unfavorable adjustment of $0.1 million to restructuring charges primarily
resulting from the final sale of the Chicago auction salesroom in
conjunction with the 2001 Restructuring Plan.

For the nine months ended September 30, 2002, the Company recorded a
favorable adjustment of $0.5 million to restructuring charges primarily due
to the reversal of $0.9 million of the remaining liability related to the
2001 Restructuring Plan that was no longer necessary. This favorable
adjustment was partially offset by $0.2 million in severance and
termination benefits recorded during the first quarter of 2002, as well as
an unfavorable adjustment related to the sale of the Chicago auction
salesroom.

The remaining cash expenditures related to the 2001 Restructuring Plan are
expected to be approximately $2.4 million, of which one payment of
approximately $0.8 million was made on October 1, 2002. All other cash
expenditures are expected to be substantially paid by the end of 2002.

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13. RELATED PARTY TRANSACTIONS

For the nine months ended September 30, 2002 and 2001, the Company
recognized approximately $0.6 million and $3.0 million, respectively, of
auction commission revenue related to transactions with related parties.

Approximately $9.6 million of the cash retention awards remaining to be
paid by the Company is guaranteed by A. Alfred Taubman, a principal
shareholder of the Company. (See Note 11 for additional information on the
Company's retention programs.)

14. RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS
No. 146 will supersede Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that costs associated with an exit
or disposal plan be recognized when incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31,
2002, with early application encouraged.

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

The worldwide auction business is highly seasonal in nature, with two principal
selling seasons, spring and fall. Accordingly, first and third quarter results
reflect lower Auction Sales (as defined below) and lower operating results than
the second and fourth quarters due to the fixed nature of many of the Company's
operating expenses. (See Note 2 of Notes to Consolidated Financial Statements
for additional information.)

AUCTION SALES FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 - The
aggregate hammer price of property sold at auction by the Company ("Auction
Sales"), which includes buyer's premium, totaled $208.6 million for the three
months ended September 30, 2002, an increase of 79% compared to the same period
in 2001. Excluding the impact of favorable foreign currency translations,
Auction Sales increased 65%. The increase in Auction Sales reflects a 20%
increase in the number of lots sold in the third quarter of 2002 when compared
to the same period in 2001, as well as a 37% increase in the average selling
price per lot sold.

As discussed below, Auction Sales for the third quarter of 2002 include the sale
of Rubens' "The Massacre of the Innocents" for $77 million. Excluding the Rubens
sale and the impact of favorable foreign currency translations, Auction Sales
decreased 1% when compared to the same period in 2001. This decrease in Auction
Sales reflects an 18% decrease in the average selling price per lot sold in the
third quarter of 2002 when compared to the same period in 2001, partially offset
by a 20% increase in the number of lots sold.

The following is a geographical breakdown of Auction Sales for the three months
ended September 30, 2002 and 2001 (in thousands):

26

Auction Sales in North America increased $8.2 million, or 58%, for the three
months ended September 30, 2002 when compared to the same period in 2001. The
increase in North America was primarily the result of the July 2002 sale of The
1933 Double Eagle Coin for $7.6 million for which there was no comparable sale
in the third quarter of 2001. Also favorably impacting the comparison to the
prior year is the timing of the Asia Week sales. Such sales, which took place in
September in 2002 and resulted in $4.9 million in Auction Sales, were held in
the fourth quarter in 2001 as a result of the September 11th terrorist attacks.
These increases were partially offset by a change in the timing between 2001 and
2002 of certain sales in the autumn auction season from the third quarter to the
fourth quarter. Also unfavorably impacting the comparison to the prior year is
the closure of the Chicago auction salesroom in the third quarter of 2001 as
part of the 2001 Restructuring Plan (see Note 12 of Notes to Consolidated
Financial Statements). During the third quarter of 2001, the Chicago auction
salesroom generated approximately $1.6 million in Auction Sales.

Auction Sales in Europe increased $88.0 million, or 96%, for the three months
ended September 30, 2002 when compared to the same period in 2001. Excluding the
impact of favorable foreign currency translations, Auction Sales in Europe
increased 79%. The increase in Europe was primarily the result of the successful
July 2002 Old Master Paintings sale in London, which included the sale of
Rubens' "The Massacre of the Innocents" for $77 million.

Auction Sales in Asia decreased $4.4 million, or 40%, for the three months ended
September 30, 2002 when compared to the same period in 2001. The decrease in
Asia was primarily due to the timing of the sales of Tribal Art, which occurred
in the second quarter of 2002 as opposed to the third quarter of 2001, and
Southeast Asian Paintings, which occurred in October 2002 as opposed to the
third quarter of 2001. For the three months ended September 30, 2002, Auction
Sales in Asia were not materially affected by the translation to U.S. Dollars.

AUCTION SALES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 - For the
nine months ended September 30, 2002, Auction Sales totaled $1.1 billion, an
increase of 2% compared to the same period in 2001. Excluding the impact of
favorable foreign currency translations, Auction Sales were essentially
unchanged when compared to the prior year. Worldwide Auction Sales for the first
nine months of 2002 reflects a 15% decrease in the number of lots sold when
compared to the same period in 2001, offset by an 18% increase in the average
selling price per lot sold.

27

As previously discussed, Auction Sales for the nine months ended September 30,
2002 include the sale of Rubens' "The Massacre of the Innocents" for $77
million. Excluding the Rubens sale and the impact of favorable foreign
currency translations, Auction Sales decreased 8% when compared to the same
period in 2001. This decrease in Auction Sales reflects a 15% decrease in the
number of lots sold when compared to the same period in 2001, partially
offset by a 9% increase in the average selling price per lot sold.

The following is a geographical breakdown of Auction Sales for the nine months
ended September 30, 2002 and 2001 (in thousands):

Auction Sales in North America decreased $50.7 million, or 9%, for the nine
months ended September 30, 2002 when compared to the same period in 2001. The
decrease in North America was primarily the result of a $65.4 million, or 54%,
decrease in Auction Sales attributable to single-owner collections.
Specifically, the first nine months of 2001 included the single-owner sale of
Works from the Collection of Stanley J. Seeger for which there was no comparable
sale in the first nine months of 2002. Also unfavorably impacting the comparison
to the prior year are decreased sales of Old Master Paintings, Jewelry and
Contemporary Art. These decreases were partially offset by increased sales of
Impressionist Art and American Paintings.

Auction Sales in Europe increased $70.1 million, or 15%, for the nine months
ended September 30, 2002 when compared to the same period in 2001. Excluding the
impact of favorable foreign currency translations, Auction Sales in Europe
increased 9%. The increase in Europe was primarily the result of the successful
July 2002 Old Master Paintings sale in London, which included the sale of
Rubens' "The Massacre of the Innocents" for $77 million, as well as better
results from the spring Impressionist and Contemporary sales. These increases
were partially offset by decreased jewelry sales in Switzerland and lower sales
of British Pictures, as well as reduced results in the winter Impressionist
sales.

28

Auction Sales in Asia increased $3.5 million, or 7%, for the nine months ended
September 30, 2002 when compared to the same period in 2001. The increase in
Asia was primarily due to the successful spring sales in Hong Kong of Chinese
Ceramics and Western Jewelry partially offset by the timing of the Southeast
Asian Paintings sale, which occurred in the fourth quarter of 2002 as opposed to
the third quarter of 2001. For the nine months ended September 30, 2002, Auction
Sales in Asia were not materially affected by the translation to U.S. Dollars.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND
2001 - Note 3 of Notes to Consolidated Financial Statements ("Segment
Reporting") should be read in conjunction with this discussion.

Worldwide auction and related revenues increased $10.8 million, or 43%, for the
three months ended September 30, 2002 when compared to the same period in 2001.
Excluding the impact of favorable foreign currency translations, worldwide
auction and related revenues increased 32%. This increase was principally due to
approximately $9 million in auction commissions earned from the sale of Rubens'
"The Massacre of the Innocents," as discussed above.

Worldwide auction and related revenues decreased $2.2 million, or 1%, for the
nine months ended September 30, 2002 when compared to the same period in
2001. Excluding the impact of favorable foreign currency translations,
worldwide auction and related revenues decreased 4%. Excluding auction
commissions attributable to the Rubens sale discussed above and the impact of
favorable foreign currency translations, worldwide auction and related
revenues decreased 8%. This decrease was primarily due to lower buyer's
premium and seller's commission revenues principally resulting from decreased
Auction Sales. Also unfavorably impacting the comparison to the prior year
are lower private treaty revenues, as well as margin erosion primarily
resulting from the competitive environment for consignments (as discussed
below) and commissions shared with partners who participated in the Company's
auction guarantee transactions (see Note 10 of Notes to Consolidated
Financial Statements) in order to reduce the Company's principal risk. These
decreases were partially offset by the favorable impact of the new buyer's
premium rate structure that became effective on April 1, 2002, as well as
increased principal activities primarily due to successful auction guarantees
in the spring Impressionist and Contemporary sales in New York.

Other revenues decreased $0.8 million, or 6%, for the three months ended
September 30, 2002 when compared to the same period in 2001. The decrease was
principally due to a $0.5 million, or 23%, decrease in revenues from the Finance
segment primarily due to a lower average loan portfolio balance and lower
interest rates. For the three months ended September 30, 2002, other revenues
were not materially affected by the translation to U.S. Dollars.

29

Other revenues decreased $2.2 million, or 6%, for the nine months ended
September 30, 2002 when compared to the same period in 2001. The decrease was
primarily due to a $4.9 million, or 52%, decrease in revenues from the Finance
segment partially offset by a $3.0 million, or 12%, increase in revenues from
the Real Estate segment. The decrease in Finance revenues was primarily due to a
lower average loan portfolio balance and lower interest rates. The increase in
Real Estate revenues was primarily due to higher sales volume principally
resulting from a 20% increase in unit sales. For the nine months ended
September 30, 2002, other revenues were not materially affected by the
translation to U.S. Dollars.

Direct costs of services (consisting largely of corporate marketing and sale
marketing expenses, as well as catalogue production and distribution costs)
decreased $1.0 million, or 13%, for the three months ended September 30, 2002
when compared to the same period in 2001. Excluding the impact of unfavorable
foreign currency translations, direct costs of services decreased 17%. This
decrease was primarily due to savings in marketing expenses and other auction
direct costs principally resulting from the Company's restructuring plans (as
discussed below and in Note 12 of Notes to Consolidated Financial Statements)
and other cost containment efforts.

Direct costs of services decreased $8.2 million, or 19%, for the nine months
ended September 30, 2002 when compared to the same period in 2001. Excluding the
impact of unfavorable foreign currency translations, direct costs of services
decreased 20%. This decrease was due in part to a $2.4 million reduction in
catalogue production costs primarily resulting from the Company's use of digital
photography and other catalogue savings initiatives, as well as the decrease in
the number of lots sold at auction when compared to the prior period, as
discussed above. Additionally, results for the nine months ended September 30,
2002 reflect savings in marketing expenses and other auction direct costs
principally resulting from the Company's restructuring plans (as discussed below
and in Note 12 of Notes to Consolidated Financial Statements) and other cost
containment efforts.

Salaries and related costs decreased $0.6 million, or 2%, and $7.7 million, or
7%, for the three and nine months ended September 30, 2002, respectively, when
compared to the same periods in 2001. Excluding the impact of unfavorable
foreign currency translations, salaries and related costs decreased 5% and 8%,
respectively, for those periods. These decreases were primarily due to savings
achieved in the Auction

30

segment as a result of the Company's restructuring plans and other cost
containment efforts. Additionally, results for the three and nine months ended
September 30, 2002 reflect reduced salaries and related costs as a result of the
capitalization of costs associated with computer software developed or obtained
for internal use. Such capitalized costs totaled $1.0 million and $1.4 million
for the three and nine months ended September 30, 2002, respectively. The
comparison to the prior periods is unfavorably influenced by the reversal in the
third quarter of 2001 of a $0.8 million accrual that was no longer necessary as
a result of favorable changes in circumstances for which there was no comparable
event in 2002.

General and administrative expenses increased $2.6 million, or 12%, for the
three months ended September 30, 2002 when compared to the same period in 2001.
Excluding the impact of unfavorable foreign currency translations, general and
administrative expenses increased 8%. The comparison to the prior year is
unfavorably influenced by the reversal in August 2001 of a $1.6 million bad debt
accrual that was no longer required as a result of a settlement related to a
past due receivable for which there was no comparable event in the current
period. Additionally, results for the third quarter of 2002 reflect increased
insurance costs principally in the Auction segment, as well as higher
professional fees. These unfavorable variances were partially offset by savings
in travel and entertainment expenses primarily as a result of the Company's
restructuring plans and other cost containment efforts.

General and administrative expenses were relatively unchanged for the nine
months ended September 30, 2002 when compared to the same period in 2001.
Excluding the impact of unfavorable foreign currency translations, general and
administrative expenses decreased 1% principally due to savings in travel and
entertainment expenses, professional fees and telecommunication costs primarily
as a result of the Company's restructuring plans and other cost containment
efforts. Also favorably influencing the comparison to the prior year is the
reversal in the second quarter of 2002 of a $1.1 million bad debt accrual that
was no longer necessary due to the collection of the related client receivable
balance. These favorable variances were partially offset by increased insurance
costs principally in the Auction segment and the reversal of approximately $2.0
million of accruals in the second quarter of 2001 due to positive changes in
circumstances for which there was no comparable event in the current period. The
comparison to the prior year is also unfavorably influenced by the reversal in
August 2001 of a $1.6 million bad debt accrual that was no longer required as a
result of a settlement related to a past due receivable.

31

Depreciation and amortization expense decreased 4% for the three and nine months
ended September 30, 2002, respectively, when compared to the same periods in
2001. Excluding the impact of unfavorable foreign currency translations,
depreciation and amortization expense decreased 6% and 5%, respectively, for
those periods. These decreases were primarily attributable to lower depreciation
expense due to the write-off of computer hardware and software in the fourth
quarter of 2001 as a result of the Company's strategic alliance with eBay, Inc.,
as well as the ceasing of goodwill amortization as a result of the adoption of
SFAS No. 142 on January 1, 2002 (see Note 5 of Notes to Consolidated Financial
Statements). These decreases were partially offset by the incremental
depreciation and amortization expense associated with capital projects placed in
service subsequent to the third quarter of 2001. Additionally, results for the
nine months ended September 30, 2002 are unfavorably impacted by depreciation
expense associated with the final phase of the York Property, which was placed
in service in April 2001.

INTERNET RELATED OPERATING EXPENSES - Internet related operating expenses
totaled $1.6 million and $7.4 million for the three and nine months ended
September 30, 2002, respectively. For the three and nine months ended September
30, 2001, total Internet related operating expenses were $4.5 million and $18.7
million, respectively. These significant decreases were principally due to
savings achieved in salaries and related costs, general and administrative
expenses and marketing costs as a result of the Company's restructuring plans
and other cost containment efforts.

RETENTION COSTS - See Note 11 of Notes to Consolidated Financial Statements for
information related to the Company's retention programs for key employees.

RESTRUCTURING PLANS - Total estimated net annual cost savings following the full
implementation of the Company's restructuring plans is expected to be
approximately $60 million. These savings were initiated during 2001, primarily
in the Internet, and are currently expected to be fully realized by the end of
2002. Most of the anticipated savings are being achieved through lower salaries
and related costs resulting from terminations and attrition, as well as
reductions in direct costs of services and general and administrative expenses.

(See Note 12 of Notes to Consolidated Financial Statements for additional
information on the Company's restructuring plans.)

32

(With respect to all statements made herein regarding the Company's
restructuring plans, see statement on Forward Looking Statements.)

SPECIAL CHARGES - See Note 9 of Notes to Consolidated Financial Statements for
information on special charges.

NET INTEREST EXPENSE - Net interest expense decreased $0.3 million and $0.9
million for the three and nine months ended September 30, 2002, respectively,
when compared to the same periods in 2001. These decreases were partially due to
lower interest expense resulting from a lower average cost of borrowing related
to the Company's Amended and Restated Credit Agreement (see Note 6 of Notes to
Consolidated Financial Statements), as well as lower outstanding borrowings. The
decrease in interest expense was partially offset by lower interest income
primarily due to decreased cash balances, lower interest rates and a reduction
in amounts earned from overdue client receivable balances.

INCOME TAX BENEFIT - The consolidated effective tax benefit rate was 23% and 25%
for the three and nine months ended September 30, 2002, respectively, compared
to 38% for the same periods in 2001. The decrease in the effective tax benefit
rate when compared to the prior year is primarily due to the fact that the fine
payable to the European Commission (see Note 9 of Notes to Consolidated
Financial Statements and Part II, Item 1 "Legal Proceedings") is not tax
deductible.

NET LOSS AND LOSS PER SHARE - For the three months ended September 30, 2002, net
loss increased to ($43.0) million from ($33.1) million for the same period in
2001. Diluted loss per share for the three months ended September 30, 2002
increased to ($0.70) from ($0.54) for the same period in 2001. The impact on
diluted loss per share of the special charges related to the DOJ investigation
and other related matters (see Note 9 of Notes to Consolidated Financial
Statements and Part II, Item 1 "Legal Proceedings") was ($0.34) and ($0.01) for
the three months ended September 30, 2002 and 2001, respectively. The impact on
diluted loss per share related to the Company's Internet operating loss was
($0.01) and ($0.04) for the three months ended September 30, 2002 and 2001,
respectively.

For the nine months ended September 30, 2002, net loss increased to ($48.2)
million from ($41.3) million for the same period in 2001. Diluted loss per share
for the nine months ended September 30, 2002 increased to ($0.78) from ($0.68)
for the same period in 2001. The impact on diluted loss per share of the special
charges related to the DOJ investigation and other related matters (see Note 9
of Notes to Consolidated Financial Statements and Part II, Item 1 "Legal

33

Proceedings") was ($0.32) and ($0.03) for the nine months ended September 30,
2002 and 2001, respectively. The impact on diluted loss per share related to the
Company's Internet operating loss was ($0.03) and ($0.14) for the nine months
ended September 30, 2002 and 2001, respectively.

BUSINESS ENVIRONMENT - The business environment in the art market
continues to be difficult and the Company continues to face intense
competition for consignments, particularly from its traditional competitor,
Christie's. As a result of the competition for consignments, the Company has
experienced a decrease in seller's commission revenue as a percentage of
Auction Sales, as well as an increase in shared and introductory auction
commissions during the current period. The Company currently believes that
this business environment may continue and, as a result, may adversely impact
future results of operations. (See statement on Forward Looking Statements.)

Additionally, for the nine months ended September 30, 2002, the Company
experienced margin erosion partially due to commissions shared with partners
who participated in the Company's auction guarantee transactions (see Note 10
of Notes to Consolidated Financial Statements) in order to reduce the
Company's principal risk. The Company has entered into shared commission
transactions for certain auctions occurring durring the fourth quarter of
2002.

OTHER MATTERS - As a result of the competitive environment discussed above
and the current economic environment, as well as management's continued focus
on improving profitability, the Company is currently assessing all aspects of
its business and is developing plans to improve profitability through further
cost reductions and other strategic actions. As such, the Company may record
a restructuring charge in the fourth quarter of 2002 or the first quarter of
2003. (See statement on Forward Looking Statements.)

CONTINGENCIES - See Notes 9 and 10 of Notes to Consolidated Financial Statements
for information on contingencies. (See statement on Forward Looking Statements.)

FINANCIAL CONDITION AS OF SEPTEMBER 30, 2002 - For the nine months ended
September 30, 2002, total cash and cash equivalents decreased $85.9 million from
December 31, 2001 primarily due to the factors discussed below.

Net cash used by operations was $76.2 million for the nine months ended
September 30, 2002 and was largely the result of a net loss from operations, as
well as approximately $28.7 million of retention payments to key employees (see
Note 11 of Notes to Consolidated Financial Statements) and the payment of
approximately $12.3 million into an escrow account established for the benefit
of a consignor, which is recorded within prepaid expenses and other current
assets in the Company's Consolidated Balance Sheet at September 30, 2002.

34

Net cash used by investing activities was $33.3 million for the nine months
ended September 30, 2002 and was primarily due to the funding of new client
loans and auction guarantees. These investing cash outflows were partially
offset by the collection of maturing client loans.

Net cash provided by financing activities was $22.2 million for the nine months
ended September 30, 2002 and was primarily the result of $80 million in
borrowings under the Revolving Facility of the Amended and Restated Credit
Agreement. These financing cash inflows were partially offset by the repayment
in August 2002 of $30 million in borrowings under the Term Facility of the
Amended and Restated Credit Agreement and the repayment of $30 million in
borrowings under the Revolving Facility.

COMMITMENTS AS OF SEPTEMBER 30, 2002 - The table below summarizes the Company's
material contractual obligations and commitments as of September 30, 2002.

35

(1) Represents the outstanding principal and approximate interest payments
due under the Amended and Restated Credit Agreement, as discussed below
and in Note 6 of Notes to Consolidated Financial Statements.

(2) Represents the outstanding principal and semi-annual interest payments
due on the Company's long-term debt. (See Note 6 of Notes to
Consolidated Financial Statements.)

(3) See Note 11 of Notes to Consolidated Financial Statements.

(4) See Part II, Item 1 "Legal Proceedings."

(5) On certain occasions, the Company guarantees to the consignor a minimum
price in connection with the sale of property at auction. The Company
must perform under its guarantee only in the event that the property
sells for less than the minimum price and, therefore, the Company must
pay the difference between the sale price at auction and the amount of
the guarantee (or if the property does not sell, the amount of the
guarantee must be paid). The amount disclosed in the commitments chart
above consists of approximately $102 million in gross auction guarantees
less partner shares and prefunded amounts. (See Note 10 of Notes to
Consolidated Financial Statements.)

(6) Represents the aggregate commitment for future salaries related to
employment agreements with certain key employees, excluding incentive
bonuses and awards in conjunction with the Company's retention programs.
(See Note 10 of Notes to Consolidated Financial Statements.)

The Discount Certificates to be distributed as part of the U.S. Antitrust
Litigation settlement (see Note 9 of Notes to Consolidated Financial Statements
and Part II, Item 1 "Legal Proceedings") will expire five years after the date
they are first issued. However, the face value of any unused Discount
Certificates may be redeemed for cash at the end of four years. The Court
determined that the $62.5 million face value of the Discount Certificates had a
fair market value of not less than $50 million, which equals the value of the
Discount Certificates that is recorded in the Company's Consolidated Balance
Sheets within the short-term and long-term settlement liabilities. The Discount
Certificates are currently expected to be printed and issued to the class of
plaintiffs during the second quarter of 2003.

Additionally, in certain situations, the Company makes short-term commitments to
consignors to extend additional credit. However, potential consignor advances
related to such commitments are subject to certain limitations and conditions.
The total amount of such commitments was $12.5 million as of September 30, 2002.
(See Notes 4 and 10 of Notes to Consolidated Financial Statements.)

36

LIQUIDITY AND CAPITAL RESOURCES - The Company generally relies on operating cash
flows supplemented by borrowings to meet its financing requirements.

In July 2002, the Company extended the maturity date of the Revolving Facility
under the Amended and Restated Credit Agreement from July 10, 2002 to August 11,
2002 and reduced the borrowing capacity from $120 million to $100 million. In
August 2002, the maturity date of the Revolving Facility was extended to
February 11, 2003.

In August 2002, the maturity date of the Term Facility under the Amended and
Restated Credit Agreement was extended from August 11, 2002 to February 11, 2003
and the borrowing capacity was reduced from $130 million to $100 million.

The Company paid fees of $2.0 million in connection with the August 2002
extension of the Amended and Restated Credit Agreement, which are being
amortized to interest expense over the extended term of the agreement.

The Company's obligations under the Amended and Restated Credit Agreement are
secured by substantially all of the assets of the Company and its domestic
subsidiaries, including a mortgage on the York Property. In addition, any
borrowings by the Company's U.K. affiliates and Swiss affiliate are secured by
their respective loan portfolios. Borrowings under the Amended and Restated
Credit Agreement may be used for general corporate purposes. Borrowings under
the Term Facility bear interest equal to LIBOR plus 3.5%. Borrowings under the
Revolving Facility generally bear interest equal to: (i) LIBOR plus 3.5% or
(ii) the Prime Rate plus 2.5%. The Amended and Restated Credit Agreement also
contains certain financial covenants, including covenants requiring the Company
to maintain a minimum net worth and to meet certain quarterly leverage ratio and
interest coverage ratio tests. Additionally, the Amended and Restated Credit
Agreement has a covenant that requires the Company to limit dividend payments.
The Company was in compliance with these financial covenants as of September 30,
2002.

The Company currently believes that operating cash flows, current cash balances,
and borrowings under the Amended and Restated Credit Agreement will be adequate
to meet its operating needs and capital requirements through February 11, 2003.
Such operating needs and capital requirements include peak seasonal working
capital requirements, other short-term commitments to consignors, the potential
funding of the Company's client loan program and capital expenditures, as well
as the European Commission fine (see Part II, Item 1 "Legal Proceedings"),
payments due in December 2002 and January 2003 under the Company's retention
programs

37

(see Note 11 of Notes to Consolidated Financial Statements), the payment due on
February 6, 2003 under the Company's Antitrust fine (see Part II, Item 1 "Legal
Proceedings") and the interest payment due on February 1, 2003 related to the
Company's long-term debt securities (see Note 6 of Notes to Consolidated
Financial Statements).

As discussed above, the Term Facility and Revolving Facility under the Company's
Amended and Restated Credit Agreement are available through February 11, 2003.
On this date, the Term Facility and the Revolving Facility will expire and any
outstanding borrowings will be due and payable to the Company's existing lender
group. In order to fund the repayment of any such outstanding borrowings and to
provide for the Company's long-term operating needs and capital requirements, as
well as to fund the long-term commitments detailed above including the remaining
payments due under the Company's Antitrust fine (see Part II, Item 1 "Legal
Proceedings"), the redemption of Discount Certificates to be distributed as part
of the U.S. Antitrust Litigation settlement (see Note 10 of Notes to
Consolidated Financial Statements and Part II, Item 1 "Legal Proceedings"),
payments due under the Company's retention programs (see Note 11 of Notes to
Consolidated Financial Statements) and interest payments related to the
Company's long-term debt securities (see Note 6 of Notes to Consolidated
Financial Statements), additional funding will be necessary to supplement
operating cash flows.

As previously disclosed, management has been exploring a sale-leaseback
transaction involving the York Property as a means of additional funding and is
currently focusing on such a transaction. It is management's intention that any
such sale-leaseback transaction would be done in conjunction with an extension,
amendment or refinancing of the Revolving Facility under the Amended and
Restated Credit Agreement. A portion of the proceeds from a sale-leaseback
transaction would be used to repay the outstanding borrowings under the Term
Facility due on February 11, 2003. Any remaining proceeds, together with amounts
available under an extended, amended, or refinanced Revolving Facility, would be
available for the Company's other funding needs described above. If consummated,
management currently believes that a sale-leaseback transaction in conjunction
with an extension, amendment or refinancing of the Revolving Facility under the
Amended and Restated Credit Agreement would be in place by February 11, 2003 and
would be priced at market rates that reflect the Company's current credit
rating.

Management currently believes that there are other potential financing options
that may be available to the Company as an alternative to a sale-leaseback
transaction including an extension, amendment or refinancing of both the Term
Facility and the Revolving Facility under the Amended and Restated Credit
Agreement, as well as any one or a

38

combination of one or more of the following in conjunction with an extension,
amendment or refinancing of the Revolving Facility under the Amended and
Restated Credit Agreement: a long-term mortgage on the York Property, the sale
of certain other corporate assets or operating units, or the collection of
client loans. If necessary, management would also explore other financing
options such as the issuance of various types of debt instruments with varying
maturities, including convertible debt, and the issuance of additional equity
securities. However, there can be no assurances that the Company would be
successful in securing funding from one of the options outlined above and some
of the above alternatives might come at a high cost or could limit the Company's
operating flexibility. Additionally, any convertible debt or equity security
issuance may be dilutive.

On June 3, 2002, A. Alfred Taubman, the controlling shareholder of the Company,
filed with the SEC an amended Schedule 13D in which he announced his intention
to work in cooperation with the Company to explore a possible sale or merger of
the Company or the sale of his stake in the Company (a "Transaction").
Management believes that, if a sale or merger is consummated by February 11,
2003, any new controlling shareholder would provide, arrange or facilitate the
financing necessary to conduct the Company's business.

If the Company were unable to secure adequate long-term funding or satisfy its
liquidity needs through a sale-leaseback transaction in conjunction with an
extension, amendment or refinancing of the Revolving Facility under the Amended
and Restated Credit Agreement or pursuant to one of the other options stated
above, or in conjunction with a Transaction, prior to the expiration of the
Amended and Restated Credit Agreement, this would have a material adverse effect
on the Company's business, results of operations, financial condition and/or
ability to operate.

RISK FACTORS AFFECTING OPERATING REVENUES AND LIQUIDITY - Operating revenues
from the Company's Auction, Finance and Real Estate operating segments, as well
as the Company's liquidity, are significantly influenced by a number of factors
not within the Company's control, including:

(1) The overall strength of the international economy and financial markets
and, in particular, the economies of the United States, the U.K., and
the major countries or territories of Continental Europe and Asia
(principally Japan and Hong Kong);

(2) Interest rates;

39

(3) Political conditions in various nations;

(4) Export and exchange controls;

(5) Competition with other auctioneers and art dealers;

(6) The amount of quality property being consigned to art auction houses
(and, in particular, the number of single-owner sale consignments);

(7) The level of guarantees or the terms of other financial arrangements
offered by other auction houses;

(8) The success of the Company in attracting and retaining qualified
personnel;

(9) The demand for art-related financing;

(10) The supply and demand for luxury residential real estate;

(11) The outcome of the process currently underway regarding a possible sale
or merger of the Company or sale of A. Alfred Taubman's stake in the
Company;

(12) The final resolution of various antitrust matters including the ultimate
outcome of the International Antitrust Litigation and the threatened
litigation by one of the parties that opted out of the class action
settlement in the U.S. Antitrust Litigation and

(13) The Company's ability to secure adequate financing subsequent to
February 11, 2003.

RECENTLY ISSUED ACCOUNTING STANDARDS - See Note 14 of Notes to Consolidated
Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES -- The Company's discussion and
analysis of its financial condition and results of operations are based upon the
Company's Consolidated Financial Statements, which have been prepared in
accordance with accounting principles generally accepted in the U.S. The
preparation of these financial statements requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. The
Company believes the following critical accounting policies and estimates
significantly affect the amounts recorded in its Consolidated Financial
Statements:

(1) The Company maintains allowances for doubtful accounts primarily related
to auction accounts receivable. Such allowances are established for
specific accounts receivable balances that management believes may not be
collectible. A reserve is also established for probable losses inherent in
the remainder of the accounts receivable balance based on historical
collections data. If the financial condition of the Company's clients were
to deteriorate, additional allowances would be required. (See Note 4 of
Notes to Consolidated Financial Statements.)

(2) The Company maintains allowances for credit losses related to its client
loan portfolio. Secured loans which may not be collectible are analyzed
based on the current estimated realizable value of the collateral securing
each loan. The Company establishes reserves for such secured loans that
management believes are under-collateralized, and with respect to which,
the under-collateralized amount may not be collectible from the borrower.
To the extent that the Company is looking wholly or partially to the
collateral for repayment of its loans, repayment can be adversely impacted
by a decline in the art market in general or in the value of the
particular collateral. In addition, in situations where the borrower
becomes subject to bankruptcy or insolvency laws, the Company's ability to
realize on its collateral may be limited or delayed by the application of
such laws. (See Note 4 of Notes to Consolidated Financial Statements.)

Unsecured loans are analyzed based on management's estimate of the current
collectibility of each loan. A reserve is established for probable losses
inherent in the remainder of the loan portfolio based on historical data
and current market conditions. If the financial condition of the Company's
clients were to deteriorate, additional allowances would be required. (See
Note 4 of Notes to Consolidated Financial Statements.)

(3) The carrying value of the Company's investment in Acquavella Modern Art
("AMA"), which is reflected in Investments in the Company's Consolidated
Balance Sheets, is based on management's estimate of the fair value of the
underlying inventory of fine art owned by AMA. If the market value of this
inventory were to decline, an allowance would be required to reduce the
carrying value of the Company's investment in AMA.

(4) The Company records a valuation allowance to reduce its deferred tax
assets to the amount that is more likely than not to be realized. While
the Company has considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for the valuation
allowance, in the event the Company were to determine that it would be
able to realize its deferred tax assets in the future in excess of its net
recorded amount, an adjustment to the deferred tax asset would increase
income in the period such determination was made. Likewise, should the
Company determine that it would not be able to realize all or part of its
net deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period such determination was
made.

(5) Included in the Company's net restructuring charges are estimates for
severance and employee termination benefits, as well as for the write-off
of certain impaired assets. When actual results differ from the estimates
made by management, the Company adjusts the restructuring liability in its
Consolidated Financial Statements. Any adjustment impacting earnings is
recorded within restructuring charges in the Company's Consolidated
Statements of Operations. (See Note 12 of Notes to Consolidated Financial
Statements.)

(6) The Company records a loss contingency if it is probable that a liability
has been incurred at the date of the financial statements and the amount
of the loss can be reasonably estimated. The Company bases its estimates
for loss contingencies on various assumptions that are believed to be
reasonable under the circumstances. When actual results differ from the
estimates made by management, the Company adjusts the related liability in
its Consolidated Financial Statements. Any adjustment impacting earnings
is recorded within the same line item where it was originally recorded in
the Company's Consolidated Statements of Operations. (See Notes 9 and 10
of Notes to Consolidated Financial Statements.)

(7) The Company's pension obligations under its U.K. defined benefit plan are
dependent on assumptions used in calculating such amounts. These
assumptions include the discount rate, the expected return on plan assets,
future compensation increases, and other factors. In accordance with
accounting principles generally accepted in the U.S., actual
results that differ from the assumptions are accumulated and amortized
over future periods and, therefore, generally affect recognized expense
and the recorded obligation in future periods. While management believes
that the assumptions used are appropriate, differences in actual
experience or changes in assumptions may affect the Company's pension
obligations and future expense.

FORWARD LOOKING STATEMENTS - This form 10-Q contains certain forward looking
statements, as such term is defined in Section 21E of the Securities Exchange
Act of 1934, as amended, relating to future events and the financial performance
of the Company. Such statements are only predictions and involve risks and
uncertainties, resulting in the possibility that the actual events or
performance will differ materially from such predictions. Major factors which
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 following, which are not ranked in any particular order:

40

(1) The factors listed under "Risk Factors Affecting Operating Revenues and
Liquidity" above;

(2) The Company's business is seasonal, with peak revenues and operating
income primarily occurring in the second and fourth quarters of each
year as a result of the traditional spring and fall art auction season;

(3) The effects of market risk and

(4) The successful implementation of the Company's restructuring plans.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company continually evaluates its market risk associated with its financial
instruments and forward exchange contracts during the course of its business.
The Company's financial instruments include cash and cash equivalents, notes
receivable, consignor advances, short-term borrowings and long-term debt. At
September 30, 2002, a hypothetical 10% strengthening or weakening of the United
States dollar relative to all other currencies would result in a decrease or
increase in cash flow of approximately $3.3 million. Excluding the potential
impact of this hypothetical strengthening or weakening of the United States
dollar, the market risk of the Company's financial instruments has not changed
significantly as of September 30, 2002 from that set forth in the Company's Form
10-K for the year ended December 31, 2001.

At September 30, 2002, the Company had $42.0 million of notional value forward
currency exchange contracts outstanding. Notional amounts do not quantify risk
or represent assets or liabilities of the Company, but are used in the
calculation of cash settlements under such contracts. The Company's Consolidated
Balance Sheet at September 30, 2002 includes an asset of approximately $0.1
million recorded within other current assets reflecting the fair value of the
Company's forward exchange contracts. See Note 7 of Notes to Consolidated
Financial Statements for additional information on the Company's use of
derivative instruments.

The Company is exposed to credit-related losses in the event of nonperformance
by counterparties to forward exchange contracts, but the Company does not expect
any counterparties to fail to meet their obligations given their high credit
ratings. At September 30, 2002, all of the Company's forward exchange contracts
were with one counterparty.

41

ITEM 4: CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective in
alerting them on a timely basis to material information relating to the Company
(including its consolidated subsidiaries) required to be included in the
Company's periodic filings with the SEC. There were no significant changes in
the Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of such evaluation.

42

PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

In April 1997, the Antitrust Division of the United States Department of Justice
(the "DOJ") began an investigation of certain art dealers and major auction
houses, including the Company and its principal competitor, Christie's
International, PLC ("Christie's"). The Company has pled guilty to a violation of
the United States ("U.S.") antitrust laws in connection with a conspiracy to fix
auction commission rates charged to sellers in the U.S. and elsewhere and, on
February 2, 2001, the U.S. District Court for the Southern District of New York
accepted the Company's plea and imposed on the Company a fine of $45 million
payable without interest over a period of five years. The Company has funded $6
million of the fine payable to the DOJ in accordance with the plea, and the
remaining $39 million of the fine is payable as follows: (a) $6 million due
February 6, 2003, (b) $6 million due February 6, 2004, (c) $12 million due
February 6, 2005 and (d) $15 million due February 6, 2006. The Canadian
Competition Bureau is also conducting an investigation regarding commissions
charged by the Company and Christie's for auction services, and the Company is
cooperating with this investigation.

The European Commission has been conducting an investigation regarding
anti-competitive practices by Christie's and the Company since January 2000. On
October 30, 2002, the European Commission issued a decision in which it
determined that the Company and Christie's had breached the competition
provisions of the Treaty Establishing the European Community by agreeing to fix
selling commissions and other trading terms in connection with auctions held in
the European Union. Pursuant to this decision, the European Commission imposed a
fine of approximately $20.1 million on the Company. The Company is considering
with its legal advisers whether to file an appeal of this decision. (See Note 9
of Notes to Consolidated Financial Statements.)

A number of private civil actions, styled as class actions, were also filed
against the Company alleging violations of federal and state antitrust laws
based upon alleged agreements between Christie's and the Company regarding
commissions charged to purchasers and sellers of property in the U.S. and
elsewhere, including actions (the "U.S. Antitrust Litigation") alleging
violations of federal antitrust laws in connection with auctions in the United
States. In addition, several shareholder class action complaints were filed
against the Company and certain of its directors and officers, alleging failure
to disclose the alleged agreements and their impact on the Company's financial
condition

43

and results of operations (the "Shareholder Litigation"). And a number of
shareholder derivative suits were filed against the directors of the Company
based on allegations related to the foregoing lawsuits and investigations. The
U.S. Antitrust Litigation, the Shareholder Litigation and all of the shareholder
derivative suits have been settled pursuant to non-appealable court-approved
settlement agreements that have been fully funded or reserved for. (See Note 9
of Notes to Consolidated Financial Statements.)

Under the Settlement Agreement relating to the U.S. Antitrust Litigation, the
Company has deposited into an escrow account for the benefit of members of the
class (a) $206 million in cash and (b) a global vendor's commission discount
certificate with a face value of $62.5 million. The court determined that the
$62.5 million face value of the global vendor's commission discount certificate
had a fair market value of not less than $50 million. Of these amounts, $156
million in cash was funded by A. Alfred Taubman, holder of approximately 13.2
million shares of the Company's Class B Common Stock, the Company's former
Chairman and a co-defendant in the U.S. Antitrust Litigation. The vendor's
commission discount certificates may be used to pay vendor's commissions and
certain other sale charges at the Company or Christie's during the five years
after their distribution to members of the class and are redeemable for cash at
the end of four years.

One of the parties that opted out of the class action settlement in the U.S.
Antitrust Litigation has threatened to commence a lawsuit against the Company
and Christie's alleging antitrust violations and is seeking approximately $20
million in damages. The Company believes that its maximum potential exposure in
this matter is substantially less than the amount of the claim. The parties have
agreed to enter into non-binding mediation to attempt to resolve this claim, and
the mediation process is underway. Although there were other opt-outs from the
settlement of the U.S. Antitrust Litigation, no other claims have been asserted
to date.

Three other purported class action lawsuits were filed in the U.S. District
Court for the Southern District of New York against the Company and its
wholly-owned subsidiary, Sotheby's, Inc., beginning in August 2000, alleging
violations of the federal antitrust laws and international law, on behalf of
purchasers and sellers in auctions conducted outside the U.S. Christie's was
also named as a defendant in these actions along with several current or former
directors and/or officers of both the Company and Christie's. The complaints in
these actions (the "International Antitrust Litigation") contained allegations
identical to the complaints in the U.S. Antitrust Litigation, but were
considered separately from the U.S. Antitrust Litigation. On October 30,

44

2000, plaintiffs filed a consolidated amended complaint in the International
Antitrust Litigation. On January 30, 2001, the court granted the Company's
motion to dismiss the International Antitrust Litigation on the grounds of lack
of jurisdiction over auctions held by the Company and its subsidiaries outside
of the U.S. Plaintiffs appealed the court's decision to the U.S. Court of
Appeals for the Second Circuit. On March 13, 2002, the Second Circuit Court of
Appeals reversed the District Court's ruling that it lacked jurisdiction over
auctions held by the Company, its subsidiaries and Christie's outside of the
U.S. and remanded the case to the District Court to consider whether the
International Antitrust Litigation should be dismissed on other grounds -
namely, the plaintiffs' lack of standing or the fact that New York is an
improper venue for consideration of this matter. The Company and Christie's have
filed a petition for certiorari seeking review of the Court of Appeals' decision
by the U.S. Supreme Court.

In addition to the federal actions, six indirect purchaser class action lawsuits
have been filed against the Company, its subsidiary, Sotheby's, Inc. and
Christie's in the Superior Court of the State of California, alleging violations
of the Cartwright Act, California's antitrust statute, and the California Unfair
Competition Act. The complaints in these lawsuits purport to be brought on
behalf of individuals that indirectly purchased items in California from one or
more of the defendants. The complaints generally allege, among other things,
that the Company along with Christie's conspired to fix and raise the
commissions charged to buyers and sellers of art and other items at auction, and
that, as a result, such indirect purchasers paid more for art and other items
than they otherwise would have paid in the absence of defendants' conduct. The
complaints seek, among other things, treble damages in unspecified amounts,
interest, disgorgement of gains, equitable relief, attorneys' fees and costs. On
May 3, 2002, the Company agreed, subject to court approval, to pay $192,500 to
settle all of these lawsuits. The Company entered into this agreement without
any admission of liability.

The Company's agreement with A. Alfred Taubman, pursuant to which Mr. Taubman
provided certain funding for the settlements of the U.S. Antitrust Litigation
and the Shareholder Litigation, also provided for mutual releases by the Company
and Mr. Taubman of claims against each other relating to the DOJ investigation
and related investigations and civil litigation. In addition, the agreement
provides for the Company to bear all liability and to indemnify Mr. Taubman for
damages in connection with any civil proceeding relating to any antitrust claim
asserted by buyers or sellers at auctions conducted outside of the U.S.,
including the International Antitrust Litigation, and for legal fees and

45

expenses incurred by Mr. Taubman after April 12, 2001 in connection with any
such proceeding.

In the U.K., on June 12, 2002, the Company and Christie's each received a letter
of claim from a law firm purporting to be acting on behalf of 41 identified and
an unspecified number of unidentified individuals and businesses who sold items
at auctions held by the Company and Christie's in London, England, during the
period from September 1995 through at least February 7, 2000. The letter of
claim was sent in anticipation of possible litigation seeking damages on behalf
of the law firm's clients as a result of an alleged anti-competitive agreement
between the Company and Christie's relating to sellers' commissions. The Company
has requested further information from the law firm regarding the number and
identity of its clients and the nature and amounts of their claims. The Company
cannot predict at this time whether any legal proceedings will ultimately result
from this letter of claim or what the amount of any damages claimed in any such
legal proceedings might be.

In Canada, a purported class action has been commenced in the Superior Court of
Ontario against the Company, Sotheby's (Canada) Limited, Christie's and other
defendants claiming damages in the amount of approximately $14 million plus
costs for alleged anticompetitive activities. It is anticipated that a Statement
of Defense will be filed denying any liability with respect to the claim.

The Company is also aware of a governmental investigation in Italy arising from
certain allegations of improper conduct by current and former Company employees.
These allegations arose from an early 1997 television program aired in the U.K.
as well as the publication of a related book. The Company has been in contact
during the past several years with, and is continuing to work with, the relevant
authorities.

The Company also becomes involved, from time to time, in various claims and
lawsuits incidental to the ordinary course of its business. The Company does not
believe that the outcome of any such pending claims or proceedings will have a
material effect upon its business or financial condition. (See statement on
Forward Looking Statements.)

46

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10(a) Amendment No. 2 dated as of July 30, 2002 to the Amended and
Restated Credit Agreement dated as of July 10, 2001 among
Sotheby's Holdings, Inc., Sotheby's, Inc., Oatshare Limited,
Sotheby's, Sotheby's Global Trading GmbH; the lenders party
thereto; and JPMorgan Chase Bank (f/k/a The Chase Manhattan
Bank)

10(b) Employment Agreement between Sotheby's Holdings, Inc. and
Mitchell Zuckerman

99(a) Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99(b) Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

(i) On October 30, 2002, the Company reported on Form 8-K regarding
the fine imposed by the European Commission.

47

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

SOTHEBY'S HOLDINGS, INC.

By: /s/ Michael L. Gillis
----------------------
Michael L. Gillis
Senior Vice President,
Controller and Chief
Accounting Officer

Date: November 13, 2002

48

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, William F. Ruprecht, Chief Executive Officer of Sotheby's Holdings, Inc.
("the Company"), certify that:

(1) I have reviewed this quarterly report on Form 10-Q of the Company;

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

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

(4) The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we
have:

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

(b) evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

49

(5) The Company's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit
committee of the Company's board of directors:

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial data
and have identified for the Company's auditors any material
weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's
internal controls; and

(6) The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

/s/ William F. Ruprecht
-------------------------

William F. Ruprecht
Chief Executive Officer
Sotheby's Holdings, Inc.
November 13, 2002

50

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, William S. Sheridan, Chief Financial Officer of Sotheby's Holdings, Inc.
("the Company"), certify that:

(1) I have reviewed this quarterly report on Form 10-Q of the Company;

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

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

(4) The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and we
have:

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

(b) evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

51

(5) The Company's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit
committee of the Company's board of directors:

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial data
and have identified for the Company's auditors any material
weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's
internal controls; and

(6) The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

/s/ William S. Sheridan
-------------------------

William S. Sheridan
Chief Financial Officer
Sotheby's Holdings, Inc.
November 13, 2002

52

EXHIBIT INDEX