Segment Reporting

12 Months Ended

Dec. 31, 2012

Segment Reporting, Measurement Disclosures [Abstract]

Segment Reporting

Segment Reporting

Sotheby’s operations are organized under three segments: Auction, Finance, and Dealer. The Auction segment is an aggregation of operating segments in North and South America, Europe, and Asia, which have similar economic characteristics and are similar in their services, customers, and the manner in which their services are provided. Sotheby’s chief operating decision making group, which consists of its Chief Executive Officer, Chief Financial Officer, and Chief Operating Officer, regularly evaluates financial information about each operating segment in deciding how to allocate resources and assess performance. The performance of each segment is measured based on its pre-tax income (loss), excluding the unallocated items highlighted below in the reconciliation of segment income before taxes to income before taxes.

Sotheby’s Auction segment functions as an agent by accepting property on consignment, stimulating buyer interest through professional marketing techniques, and matching sellers (also known as consignors) to buyers through the auction or private sale process. Prior to offering a work of art for sale, Sotheby’s experts perform significant due diligence activities to authenticate and determine the ownership history of the property being sold.

Sotheby’s Finance segment provides certain collectors and art dealers with financing secured by works of art that Sotheby's either has in its possession or permits borrowers to possess (see Note E).

Sotheby’s Dealer segment includes the activities of NMP, an art dealer that sells works of art from inventory directly to private collectors and museums and, from time-to-time, acts as a broker in private purchases and sales of art. The activities of the Dealer segment also include the purchase and resale of artworks directly by Sotheby’s and, to a lesser extent, retail wine sales and the activities of certain equity investees, including Acquavella Modern Art (see Note G). Under certain circumstances, the Dealer segment, with the assistance of Finance segment employees, provides secured loans to certain art dealers to finance the purchase of works of art. In these situations, the Dealer segment acquires a partial ownership interest in the purchased property in addition to providing the loan. Upon its eventual sale, the loan is repaid and any profit or loss is shared by Sotheby's and the art dealer according to their respective ownership interests.

All Other primarily includes the results of Sotheby’s brand licensing activities and other ancillary businesses, which are not material to Sotheby’s consolidated financial statements.

The accounting policies of Sotheby’s segments are the same as those described in the summary of significant accounting policies (see Note B). Auction segment revenues are attributed to geographic areas based on the location of the auction or private sale. Dealer segment revenues are attributed to geographic areas based on the location of the entity that holds legal title to the property sold. Finance segment revenues are attributed to geographic areas based on the location of the entity that originated the loan.

The following table presents Sotheby’s segment information for 2012, 2011, and 2010 (in thousands of dollars):

Year ended December 31, 2012	Auction		Finance		Dealer			All Other		Reconciling items			Total
Revenues	$	717,231	$	25,486	$	26,180		$	7,374	$	(7,779	)	$	768,492
Interest income	$	2,465	$	—	$	6		$	—	$	(921	)	$	1,550
Interest expense	$	44,425	$	—	$	4		$	—	$	—		$	44,429
Depreciation and amortization	$	17,325	$	120	$	463		$	34	$	—		$	17,942
Segment income (loss) before taxes	$	152,240	$	18,595	$	(1,423	)	$	5,338	$	(15,314	)	$	159,436
Year ended December 31, 2011
Revenues	$	791,738	$	16,265	$	21,790		$	6,270	$	(4,227	)	$	831,836
Interest income	$	4,622	$	—	$	—		$	—	$	(620	)	$	4,002
Interest expense	$	41,492	$	—	$	6		$	—	$	—		$	41,498
Depreciation and amortization	$	17,228	$	113	$	231		$	32	$	—		$	17,604
Segment income (loss) before taxes	$	225,600	$	12,110	$	(9,289	)	$	4,604	$	(1,636	)	$	231,389
Year ended December 31, 2010
Revenues	$	731,021	$	17,200	$	29,092		$	4,511	$	(7,515	)	$	774,309
Interest income	$	2,217	$	—	$	—		$	—	$	(478	)	$	1,739
Interest expense	$	46,814	$	—	$	5		$	—	$	—		$	46,819
Depreciation and amortization	$	15,605	$	101	$	757		$	29	$	—		$	16,492
Segment income (loss) before taxes	$	217,227	$	14,776	$	(1,697	)	$	2,737	$	(7,464	)	$	225,579

For the years ended December 31, 2011 and 2010, Finance segment income before taxes includes $1 million and $3.4 million, respectively, in non-operating gains related to the remeasurement of foreign currency denominated client loans and intercompany balances. In 2012, the remeasurement of foreign currency denominated client loans and intercompany balances did not have a material impact on Finance segment results.

In the table of segment information above, the reconciling item related to Revenues represents charges from the Finance segment to the Auction segment for interest-free or other below market consignor advances with maturities typically ranging between 3 and 6 months (see Note E). The reconciling item related to Interest Income represents charges from the Auction segment to the Finance segment for intercompany borrowing costs.

The table below details the unallocated amounts and reconciling items related to segment income before taxes and provides a reconciliation of segment income before taxes to consolidated income before taxes for 2012, 2011, and 2010 (in thousands of dollars):

	2012			2011			2010
Auction	$	152,240		$	225,600		$	217,227
Finance	18,595			12,110			14,776
Dealer	(1,423		)	(9,289		)	(1,697		)
All Other	5,338			4,604			2,737
Segment income before taxes	174,750			233,025			233,043
Unallocated amounts and reconciling items:
Extinguishment of debt, net (see Note J)	(15,020		)	(1,529		)	(6,291		)
Equity in earnings of investees	(294		)	(107		)	(1,173		)
Income before taxes	$	159,436		$	231,389		$	225,579

Equity in earnings of investees in the table above represents Sotheby’s pre-tax share of earnings related to its equity investees. Such amounts are included in the table above as part of Dealer segment loss, but are presented net of taxes in the Consolidated Income Statements below Income Before Taxes.

In the third quarter of 2011, following the fifth anniversary of the acquisition of NMP and the expiration of the related financial performance targets (see Note N), management initiated a plan to restructure NMP’s business and sales strategy. As a result of the restructuring of its business and sales strategy, NMP has reduced its inventory of lower valued Old Master Paintings and shifted its focus to a select group of high-valued works of art. In furtherance of this strategy and due in part to a lower level of profitable sales, in the third quarter of 2012, management closed NMP's Amsterdam office and consolidated its operations into NMP's London office. These actions resulted in total exit costs of $1.3 million recognized in 2012, with employee severance charges of $0.5 million recorded in the second quarter of 2012 and lease termination costs of $0.8 million recorded in the third quarter of 2012. Despite the exit costs incurred in 2012, Dealer results for the year ended December 31, 2012, reflect an improvement from the prior year primarily due to a significantly lower level of inventory writedowns, which totaled $8.4 million in the prior year (see Note F).

The table below presents geographic information about Sotheby’s revenues for 2012, 2011, and 2010 (in thousands of dollars):

	2012			2011			2010
United States	$	338,162		$	319,364		$	318,135
United Kingdom	221,716			243,032			233,785
China	108,399			156,361			111,651
Switzerland	41,061			36,258			29,133
France	40,972			49,688			44,764
Other Countries	25,961			31,360			44,356
Reconciling item:
Intercompany revenue earned by Finance from Auction	(7,779		)	(4,227		)	(7,515		)
Total	$	768,492		$	831,836		$	774,309

No other individual country exceeds 5% of total revenues for any of the periods presented.

The table below presents assets for Sotheby’s segments, as well as a reconciliation of segment assets to consolidated assets as of December 31, 2012 and 2011 (in thousands of dollars):

December 31	2012		2011
Auction	$	1,977,620	$	2,005,177
Finance	427,871		225,244
Dealer	85,748		93,588
All Other	1,224		1,048
Total segment assets	2,492,463		2,325,057
Unallocated amounts:
Deferred tax assets and income tax receivable	82,632		74,357
Consolidated assets	$	2,575,095	$	2,399,414

Substantially all of Sotheby's capital expenditures in 2012, 2011, and 2010 were attributable to the Auction segment.