Derivative Financial Instruments

12 Months Ended

Dec. 31, 2014

Summary of Derivative Instruments [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Sotheby’s utilizes forward exchange contracts to hedge cash flow exposures related to foreign currency exchange rate movements, which primarily arise from short-term foreign currency denominated intercompany balances and, to a much lesser extent, foreign currency denominated client payable balances, as well as foreign currency denominated auction guarantee obligations. Such forward exchange contracts are typically short-term with settlement dates less than six months from their inception. Additionally, on rare occasions, Sotheby’s may purchase foreign currency option contracts to hedge risks associated with foreign currency denominated client payable balances. All derivative financial instruments are entered into by Sotheby’s global treasury function, which is responsible for monitoring and managing Sotheby's exposure to foreign currency exchange rate movements.

As of December 31, 2014, the notional value of outstanding forward exchange contracts was $29 million. Notional values do not quantify risk or represent assets or liabilities of Sotheby’s, but are used to calculate cash settlements under outstanding forward exchange contracts. Sotheby’s is exposed to credit-related risks in the event of nonperformance by the three counterparties to its outstanding forward exchange contracts. Sotheby’s does not expect any of these counterparties to fail to meet their obligations, given their high short-term (A1/P1) credit ratings.

As of December 31, 2014, the carrying value of outstanding forward exchange contracts recorded as an asset on Sotheby's Consolidated Balance Sheets within Prepaid Expenses and Other Current Assets was $0.3 million. As of December 31, 2014, the carrying value of outstanding forward exchange contracts recorded as a liability on Sotheby's Consolidated Balance Sheets within Accounts Payable and Accrued Liabilities was $0.1 million. As of December 31, 2013, the aggregate carrying value of Sotheby's outstanding forward exchange contracts was $0.2 million, which was recorded as a liability on the Consolidated Balance Sheets within Accounts Payable and Accrued Liabilities. These carrying values reflect the aggregate fair values of the outstanding derivative instruments on each balance sheet date based on referenced market rates.