UNITED STATES SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549



---



Form 10-Q



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

For the quarterly period ended March 31, 2005

OR

 ̈ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File
Number: 001-31516



---



GETTY IMAGES, INC.



(Exact name of registrant as specified in its charter)



|                         |  |                                     
|------------------------ |  | ------------------------------------
|DELAWARE                 |  | 98-0177556                          
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)



601 NORTH 34TH STREET

SEATTLE, WASHINGTON 98103

(206)
925-5000

(Address, including zip code, and telephone number,

including area code, of principal executive offices)



---



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 twelve 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 ninety days.
Yes x No  ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No  ̈



At April 29, 2005 there were 61,238,707 shares of the registrants common stock, par value $0.01 per share, outstanding.



---



| |  |  |  |                    |  |  |  |          |  |  |  |           |  |  |  |  |  | 
| |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  |  |  |  |  | 
| |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  |  |  |  |  | 



TABLE OF CONTENTS



|                                  |  |                                                                                                                             |  |     
|--------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                  |  |                                                                                                                             |  | PAGE
|                                  | 
|PART I.    
FINANCIAL INFORMATION |  |                                                                                                                            
|                                  |  |                                                                                                                            
|ITEM 1.                           |  | Financial Statements (unaudited):                                                                                           |  |     
|                                  |  |                                                                                                                            
|                                  |  | Condensed Consolidated Statements of Incomefor the three months ended March 31, 2005 and 2004                              |  | 1   
|                                  |  |                                                                                                                            
|                                  |  | Condensed Consolidated Balance Sheetsat March 31, 2005 and December 31, 2004                                               |  | 2   
|                                  |  |                                                                                                                            
|                                  |  | Condensed Consolidated Statement of Stockholders Equityat December 31, 2004 and for the three months ended March 31, 2005 |  | 3   
|                                  |  |                                                                                                                            
|                                  |  | Condensed Consolidated Statements of Cash Flowsfor the three months ended March 31, 2005 and 2004                          |  | 4   
|                                  |  |                                                                                                                            
|                                  |  | Notes to Condensed Consolidated Financial Statements                                                                        |  | 5   
|                                  |  |                                                                                                                            
|ITEM 2.                           |  | Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)                                |  | 12  
|                                  |  |                                                                                                                            
|ITEM 3.                           |  | Quantitative and Qualitative Disclosures about Market Risk                                                                  |  | 18  
|                                  |  |                                                                                                                            
|ITEM 4.                           |  | Controls and Procedures                                                                                                     |  | 20  
|                                  | 
|PART II.    
OTHER INFORMATION    |  |                                                                                                                            
|                                  |  |                                                                                                                            
|ITEM 1.                           |  | Legal Proceedings                                                                                                           |  | 20  
|                                  |  |                                                                                                                            
|ITEM 2.                           |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                 |  | 20  
|                                  |  |                                                                                                                            
|ITEM 3.                           |  | Defaults Upon Senior Securities                                                                                             |  | 20  
|                                  |  |                                                                                                                            
|ITEM 4.                           |  | Submission of Matters to a Vote of Security Holders                                                                         |  | 20  
|                                  |  |                                                                                                                            
|ITEM 5.                           |  | Other Information                                                                                                           |  | 20  
|                                  |  |                                                                                                                            
|ITEM 6.                           |  | Exhibits                                                                                                                    |  | 20  
|                                  | 
|SIGNATURE                         |  | 21                                                                                                                         
|                                  | 
|EXHIBIT INDEX                     |  | 22                                                                                                                         



---



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|1 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)



|                                             |  |      |         |   |      |   |         |  
|-------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|THREE MONTHS ENDED MARCH 31,                 |  | 2005 |         |   | 2004 |  
|                                             |  |      |         |   |      |   |         |  
|(In thousands, except per share amounts)     |  |      |         |   |      |  
|                                             |  |     
|Revenue                                      |  | $    | 178,094 |   |      | $ | 156,512 |  
|Cost of sales                                |  |      | 51,254  |   |      |   | 43,806  |  
|                                             |  |      |         |   |      |   |         |  
|Gross profit                                 |  |      | 126,840 |   |      |   | 112,706 |  
|                                             |  |      |         |   |      |   |         |  
|Selling, general and administrative expenses |  |      | 60,054  |   |      |   | 54,718  |  
|Depreciation                                 |  |      | 12,035  |   |      |   | 13,823  |  
|Amortization                                 |  |      | 1,222   |   |      |   | 1,094   |  
|Other operating (income) expenses            |  |      | (16     | ) |      |   | 129     |  
|                                             |  |      |         |   |      |   |         |  
|Operating expenses                           |  |      | 73,295  |   |      |   | 69,764  |  
|                                             |  |      |         |   |      |   |         |  
|Income from operations                       |  |      | 53,545  |   |      |   | 42,942  |  
|Interest expense                             |  |      | (962    | ) |      |   | (1,067  | )
|Investment income                            |  |      | 2,889   |   |      |   | 1,743   |  
|Exchange losses, net                         |  |      | (490    | ) |      |   | (708    | )
|                                             |  |      |         |   |      |   |         |  
|Income before income taxes                   |  |      | 54,982  |   |      |   | 42,910  |  
|Income tax expense                           |  |      | (20,874 | ) |      |   | (16,824 | )
|                                             |  |      |         |   |      |   |         |  
|Net income                                   |  | $    | 34,108  |   |      | $ | 26,086  |  
|                                             |  |      |         |   |      |   |         |  
|Earnings per share                           |  |      |         |   |      |   |         |  
|Basic                                        |  | $    | 0.56    |   |      | $ | 0.45    |  
|Diluted                                      |  |      | 0.54    |   |      |   | 0.43    |  
|                                             |  |      |         |   |      |   |         |  
|Shares used in computing earnings per share  |  |      |         |   |      |   |         |  
|Basic                                        |  |      | 60,944  |   |      |   | 57,666  |  
|Diluted                                      |  |      | 63,692  |   |      |   | 60,190  |  
|                                             | 



The accompanying notes are an integral part of
these Condensed Consolidated Financial Statements.



---



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|2 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)



|                                                |  |                |           |   |                   |   |           |  
|----------------------------------------------- |  | -------------- | --------- | - | ----------------- | - | --------- | -
|                                                |  | MARCH 31, 2005 |           |   | DECEMBER 31, 2004 |  
|                                                |  |                |           |   |                   |   |           |  
|(In thousands)                                  |  |                |           |   |                   |  
|                                                |  |               
|ASSETS                                          |  |                |           |   |                   |   |           |  
|Current assets                                  |  |                |           |   |                   |   |           |  
|Cash and cash equivalents                       |  | $              | 274,589   |   |                   | $ | 194,752   |  
|Short-term investments                          |  |                | 298,154   |   |                   |   | 325,958   |  
|Accounts receivable, net                        |  |                | 100,632   |   |                   |   | 89,272    |  
|Prepaid expenses                                |  |                | 8,382     |   |                   |   | 10,651    |  
|Deferred income taxes, net                      |  |                | 8,335     |   |                   |   | 8,335     |  
|Other current assets                            |  |                | 2,687     |   |                   |   | 2,894     |  
|                                                |  |                |           |   |                   |   |           |  
|Total current assets                            |  |                | 692,779   |   |                   |   | 631,862   |  
|Property and equipment, net                     |  |                | 107,666   |   |                   |   | 112,501   |  
|Goodwill                                        |  |                | 628,073   |   |                   |   | 628,717   |  
|Identifiable intangible assets, net             |  |                | 12,567    |   |                   |   | 13,874    |  
|Deferred income taxes, net                      |  |                | 41,844    |   |                   |   | 54,652    |  
|Other long-term assets                          |  |                | 9,801     |   |                   |   | 9,978     |  
|                                                |  |                |           |   |                   |   |           |  
|Total assets                                    |  | $              | 1,492,730 |   |                   | $ | 1,451,584 |  
|                                                |  |                |           |   |                   |   |           |  
|                                                |  |               
|LIABILITIES AND STOCKHOLDERS EQUITY            |  |                |           |   |                   |   |           |  
|Current liabilities                             |  |                |           |   |                   |   |           |  
|Accounts payable                                |  | $              | 74,108    |   |                   | $ | 67,362    |  
|Accrued expenses                                |  |                | 31,209    |   |                   |   | 42,810    |  
|Income taxes payable                            |  |                | 5,252     |   |                   |   | 3,608     |  
|                                                |  |                |           |   |                   |   |           |  
|Total current liabilities                       |  |                | 110,569   |   |                   |   | 113,780   |  
|Long-term debt                                  |  |                | 265,000   |   |                   |   | 265,000   |  
|Other long-term liabilities                     |  |                | 10,254    |   |                   |   | 9,692     |  
|                                                |  |                |           |   |                   |   |           |  
|Total liabilities                               |  |                | 385,823   |   |                   |   | 388,472   |  
|                                                |  |                |           |   |                   |   |           |  
|Commitments and contingencies (Note 4)          |  |                |           |   |                   |   |           |  
|Stockholders equity                            |  |                |           |   |                   |   |           |  
|Common stock                                    |  |                | 611       |   |                   |   | 607       |  
|Additional paid-in capital                      |  |                | 1,227,877 |   |                   |   | 1,210,203 |  
|Unearned compensation                           |  |                | (2,506    | ) |                   |   |          |  
|Accumulated deficit                             |  |                | (134,495  | ) |                   |   | (168,603  | )
|Accumulated other comprehensive income (Note 5) |  |                | 15,420    |   |                   |   | 20,905    |  
|                                                |  |                |           |   |                   |   |           |  
|Total stockholders equity                      |  |                | 1,106,907 |   |                   |   | 1,063,112 |  
|                                                |  |                |           |   |                   |   |           |  
|Total liabilities and stockholders equity      |  | $              | 1,492,730 |   |                   | $ | 1,451,584 |  
|                                                | 



The accompanying notes are an integral part of
these Condensed Consolidated Financial Statements.



---



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|3 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(unaudited)



|                                                 |  |                                               |  |             |     |                             |   |                      |  |             |                    |  |             |                                      |  |   |        |   |  |   |           |  
|------------------------------------------------ |  | --------------------------------------------- |  | ----------- | --- | --------------------------- | - | -------------------- |  | ----------- | ------------------ |  | ----------- | ------------------------------------ |  | - | ------ | - |  | - | --------- | -
|                                                 |  | No. of Shares of Common Stock $0.01 Par Value |  | CommonStock |     | Additional Paid- In Capital |   | UnearnedCompensation |  |             | AccumulatedDeficit |  |             | Accumulated OtherComprehensiveIncome |  |   | Total  |  
|                                                 | 
|(In thousands)                                   |  |                                               |  |             |     |                             |   |                      |  |             |                    |  |             |                                      |  |   |        |  
|                                                 |  |                                               |  |             |     |                             |  
|Balance at December 31, 2004                     |  | 60,735                                        |  | $           | 607 |                             | $ | 1,210,203            |  | $          |                    |  | $  (168,603 | )                                    |  | $ | 20,905 |   |  | $ | 1,063,112 |  
|Net income                                       |  |                                              |  |             |    |                             |   |                     |  |            |                    |  | 34,108      |                                      |  |   |       |   |  |   | 34,108    |  
|Other comprehensive income                       |  |                                              |  |             |    |                             |   |                     |  |            |                    |  |            |                                      |  |   | (5,485 | ) |  |   | (5,485    | )
|Restricted stock units granted to employees      |  |                                              |  |             |    |                             |   | 2,745                |  | (2,745      | )                  |  |            |                                      |  |   |       |   |  |   |          |  
|Amortization of unearned compensation            |  |                                              |  |             |    |                             |   |                     |  | 239         |                    |  |            |                                      |  |   |       |   |  |   | 239       |  
|Restricted stock vesting                         |  |                                              |  |             |    |                             |   | 12                   |  |            |                    |  |            |                                      |  |   |       |   |  |   | 12        |  
|Stock options exercised                          |  | 379                                           |  |             | 4   |                             |   | 9,744                |  |            |                    |  |            |                                      |  |   |       |   |  |   | 9,748     |  
|Tax benefit from employee stock option exercises |  |                                              |  |             |    |                             |   | 5,173                |  |            |                    |  |            |                                      |  |   |       |   |  |   | 5,173     |  
|                                                 |  |                                               |  |             |     |                             |   |                      |  |             |                    |  |             |                                      |  |   |        |   |  |   |           |  
|Balance at March 31, 2005                        |  | 61,114                                        |  | $           | 611 |                             | $ | 1,227,877            |  | $  (2,506   | )                  |  | $  (134,495 | )                                    |  | $ | 15,420 |   |  | $ | 1,106,907 |  
|                                                 | 



The accompanying notes are an integral part of
these Condensed Consolidated Financial Statements.



---



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|4 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                 |  |      |         |   |      |   |          |  
|-------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | -
|THREE MONTHS ENDED MARCH 31,                                                     |  | 2005 |         |   | 2004 |  
|                                                                                 |  |      |         |   |      |   |          |  
|(In thousands)                                                                   |  |      |         |   |      |  
|                                                                                 |  |     
|Cash flows from operating activities                                             |  |      |         |   |      |   |          |  
|Net income                                                                       |  | $    | 34,108  |   |      | $ | 26,086   |  
|Adjustments to reconcile net income to net cash provided by operating activities |  |      |         |   |      |   |          |  
|Deferred income taxes                                                            |  |      | 17,329  |   |      |   | 14,636   |  
|Depreciation                                                                     |  |      | 12,035  |   |      |   | 13,823   |  
|Amortization                                                                     |  |      | 1,222   |   |      |   | 1,094    |  
|Bad debt expense                                                                 |  |      | 691     |   |      |   | 1,421    |  
|Amortization of debt issuance and exchange costs                                 |  |      | 590     |   |      |   | 477      |  
|Other changes in long-term assets and liabilities and equity                     |  |      | 675     |   |      |   | 1,021    |  
|Changes in current assets and liabilities                                        |  |      |         |   |      |   |          |  
|Accounts receivable                                                              |  |      | (14,429 | ) |      |   | (11,154  | )
|Accounts payable                                                                 |  |      | 7,452   |   |      |   | 7,024    |  
|Accrued expenses                                                                 |  |      | (12,143 | ) |      |   | (8,035   | )
|Income taxes payable                                                             |  |      | 2,606   |   |      |   | (3,144   | )
|Changes in other current assets and liabilities                                  |  |      | 4,004   |   |      |   | 424      |  
|                                                                                 |  |      |         |   |      |   |          |  
|Net cash provided by operating activities                                        |  |      | 54,140  |   |      |   | 43,673   |  
|                                                                                 |  |      |         |   |      |   |          |  
|Cash flows from investing activities                                             |  |      |         |   |      |   |          |  
|Acquisition of available-for-sale investments                                    |  |      | (65,641 | ) |      |   | (113,952 | )
|Proceeds from available-for-sale investments                                     |  |      | 90,947  |   |      |   | 77,782   |  
|Acquisition of property and equipment                                            |  |      | (8,102  | ) |      |   | (9,097   | )
|                                                                                 |  |      |         |   |      |   |          |  
|Net cash provided by (used in) investing activities                              |  |      | 17,204  |   |      |   | (45,267  | )
|                                                                                 |  |      |         |   |      |   |          |  
|Cash flows from financing activities                                             |  |      |         |   |      |   |          |  
|Proceeds from the issuance of common stock                                       |  |      | 9,748   |   |      |   | 12,448   |  
|Debt issuance and exchange costs paid                                            |  |      | (133    | ) |      |   | (136     | )
|                                                                                 |  |      |         |   |      |   |          |  
|Net cash provided by financing activities                                        |  |      | 9,615   |   |      |   | 12,312   |  
|                                                                                 |  |      |         |   |      |   |          |  
|Effects of exchange rate changes                                                 |  |      | (1,122  | ) |      |   | 1,250    |  
|                                                                                 |  |      |         |   |      |   |          |  
|Net increase in cash and cash equivalents                                        |  |      | 79,837  |   |      |   | 11,968   |  
|Cash and cash equivalents, beginning of period                                   |  |      | 194,752 |   |      |   | 57,018   |  
|                                                                                 |  |      |         |   |      |   |          |  
|Cash and cash equivalents, end of period                                         |  | $    | 274,589 |   |      | $ | 68,986   |  
|                                                                                 | 



The accompanying notes are an integral part of
these Condensed Consolidated Financial Statements.



---



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|5 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



NOTES TO CONDE
NSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)





NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S.) requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements and revenues and expenses reported during the period. Some of the estimates and assumptions that require
managements most difficult judgments are: a) the appropriateness of the valuation and useful lives, if applicable, of long-lived assets, including goodwill and identifiable intangible assets; b) determining the appropriate level of
accrued income taxes and deferred tax asset valuation allowances; c) the designation of certain foreign-currency denominated intercompany balances as long-term investments; and d) the sufficiency of the allowance for doubtful accounts. These
judgments are difficult as matters that are inherently uncertain directly impact their valuation and accounting. Actual results may vary from managements estimates and assumptions.



Principles of Consolidation

Our consolidated financial
statements and notes thereto include the accounts of Getty Images, Inc. and its subsidiaries, from the respective dates of acquisition. Intercompany balances and transactions have been eliminated.



Quarterly Results

Certain information and footnote disclosures normally included in annual financial statements, prepared in accordance with accounting principles generally accepted in the U.S., have been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. Management believes that the Condensed Consolidated Financial Statements include all adjustments, which are of a normal recurring nature, necessary to a fair statement of the results of
operations, financial position and cash flows for the interim periods presented. The condensed information should be read in conjunction with the Consolidated Financial Statements and the accompanying notes in our latest Annual Report on Form 10-K.



Foreign Currency Derivatives

We utilize derivative financial instruments, namely forward foreign currency exchange contracts, to reduce the impact of foreign currency exchange rate risks where natural hedging
strategies cannot be effectively employed. At March 31, 2005, we held forward contracts to sell $13.9 million worth of euros and $8.2 million worth of British pounds in U.S. dollar functional currency sets of books and forward contracts to sell
$11.2 million worth of euros in British pound functional currency sets of books. At December 31, 2004, we held forward contracts to sell $17.5 million worth of euros and $3.5 million worth of British pounds in U.S. dollar functional currency sets of
books and forward contracts to sell $10.0 million worth of euros in British pound functional currency sets of books. We also held at both of these dates, contracts to sell other currencies that were less than $3.0 million individually.



---



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|6 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



Earnings per Share

Basic earnings per
share are calculated based on the weighted average number of common shares outstanding during each period. Diluted earnings per share are calculated based on the shares used to calculate basic earnings per share plus the effect of dilutive stock
options, restricted stock and restricted stock unit awards and our convertible subordinated debentures.



|                                                                           |  |      |        |      |   |       
|-------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|THREE MONTHS ENDED MARCH 31,                                               |  | 2005 |        | 2004
|                                                                           |  |      |        |      |   |       
|(In thousands, except per share amounts)                                   |  |      |        |     
|                                                                           |  |     
|Basic Earnings per Share                                                   |  |      |        |      |   |       
|Income available to common stockholders (numerator)                        |  | $    | 34,108 |      | $ | 26,086
|Weighted average common shares outstanding (denominator)                   |  |      | 60,944 |      |   | 57,666
|Basic earnings per share                                                   |  | $    | 0.56   |      | $ | 0.45  
|                                                                          
|Diluted Earnings per Share                                                 |  |      |        |      |   |       
|Income available to common stockholders (numerator) 1                      |  | $    | 34,109 |      | $ | 26,088
|                                                                           |  |      |        |      |   |       
|Weighted average common shares outstanding                                 |  |      | 60,944 |      |   | 57,666
|Effect of dilutive securities                                              |  |      |        |      |   |       
|Stock options                                                              |  |      | 1,527  |      |   | 2,487 
|0.5% convertible subordinated debentures                                   |  |      | 1,219  |      |   | 33    
|Restricted stock                                                           |  |      | 2      |      |   | 4     
|                                                                           |  |      |        |      |   |       
|Total weighted average common shares and dilutive securities (denominator) |  |      | 63,692 |      |   | 60,190
|                                                                           |  |      |        |      |   |       
|Diluted earnings per share                                                 |  | $    | 0.54   |      | $ | 0.43  
|                                                                          

|  |  |                                                                                                                                                                                                                                                                           
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 |  | Income available to common stockholders is higher in the diluted earnings per share calculation due to adding back interest expense (after tax) relating to $2.0 million of the 0.5% convertible
subordinated debentures that were outstanding at March 31, 2005 and 2004.



Approximately 12,293 and 21,884 other common
shares potentially issuable from stock options for the quarter ended March 31, 2005 and 2004, respectively, were excluded from the computation of diluted earnings per share because they were anti-dilutive.



Short-Term Investments

Short-term investments consisted of the following available-for-sale investments held at our consolidated balance sheet dates:



|                                                       |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|------------------------------------------------------ |  | ------------- | ------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | -------
|MARCH 31, 2005                                         |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|                                                       |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|(In thousands)                                        
|                                                       |  |               |         |                     
|U.S. agency securities                                 |  | $             | 175,319 |                      | $ |                      |  |   | $  (3,448  | ) |  | $ | 171,871
|Auction rate securities and variable rate demand notes |  |               | 69,575  |                      |   |                      |  |   |           |   |  |   | 69,575 
|Corporate obligations                                  |  |               | 45,300  |                      |   | 6                     |  |   | (531       | ) |  |   | 44,775 
|U.S. Treasury obligations                              |  |               | 6,030   |                      |   |                      |  |   | (140       | ) |  |   | 5,890  
|Money market                                           |  |               | 6,043   |                      |   |                      |  |   |           |   |  |   | 6,043  
|                                                       |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Total short-term investments                           |  | $             | 302,267 |                      | $ | 6                     |  |   | $  (4,119  | ) |  | $ | 298,154
|                                                      
|                                                       |  |               |         |                     
|DECEMBER 31, 2004                                      |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|                                                       |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|(In thousands)                                        
|                                                       |  |               |         |                     
|U.S. agency securities                                 |  | $             | 176,546 |                      | $ | 3                     |  | $ | (1,762     | ) |  | $ | 174,787
|Auction rate securities and variable rate demand notes |  |               | 95,600  |                      |   |                      |  |   |           |   |  |   | 95,600 
|Corporate obligations                                  |  |               | 46,616  |                      |   | 27                    |  |   | (414       | ) |  |   | 46,229 
|U.S. Treasury obligations                              |  |               | 6,030   |                      |   |                      |  |   | (50        | ) |  |   | 5,980  
|Money market                                           |  |               | 3,362   |                      |   |                      |  |   |           |   |  |   | 3,362  
|                                                       |  |               |         |                      |   |                       |  |   |            |   |  |   |        
|Total short-term investments                           |  | $             | 328,154 |                      | $ | 30                    |  | $ | (2,226     | ) |  | $ | 325,958
|                                                      



---



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|7 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



Available-for-sale investments are carried at fair value, based on quoted market prices, with associated unrealized holding gains
and losses recorded in accumulated other comprehensive income. Investments outstanding at March 31, 2005 mature between 2005 and 2043. Investments with contractual maturities beyond one year are classified as short-term in our consolidated balance
sheets because they represent the investment of cash that is available for current operations.



Following is detail of gross unrealized losses at March 31, 2005. These unrealized losses were generated as interest rates rose and the rate of return on certain of our investments remained fixed at lower rates. Management has determined
that these losses are temporary, as: the duration of the decline in the value of the investments has been short; the extent of the decline, both in dollars and percentage of cost is not severe; and we have the ability and intent to hold the
investments until we recover at least substantially all of the cost of the investments.



|                          |  |                                           |         |                       |                                     |        |            |                          |                       |        |  |            |      |                       |  |   |         |  |   |        |  
|------------------------- |  | ----------------------------------------- | ------- | --------------------- | ----------------------------------- | ------ | ---------- | ------------------------ | --------------------- | ------ |  | ---------- | ---- | --------------------- |  | - | ------- |  | - | ------ | -
|MARCH 31, 2005            |  | In a loss position for lessthan 12 months |         |                       | In a loss position 12months or more |        |            | Total in a loss position |                      
|                          |  |                                           |         |                       |                                     |        |            |                          |                       |        |  |           
|                          |  | Fair Value                                |         | GrossUnrealizedLosses |                                     |        | Fair Value |                          | GrossUnrealizedLosses |        |  | Fair Value |      | GrossUnrealizedLosses | 
|                          |  |                                           |         |                       |                                     |        |            |                          |                       |        |  |            |      |                       |  |   |         |  |   |        |  
|(In thousands)            | 
|                          |  |                                           |         |                       |                                     |       
|U.S. agency securities    |  | $                                         | 158,419 |                       | $                                   | (2,992 | )          |                          | $                     | 13,452 |  | $          | (456 | )                     |  | $ | 171,871 |  | $ | (3,448 | )
|Corporate obligations     |  |                                           | 29,384  |                       |                                     | (495   | )          |                          |                       | 2,044  |  |            | (36  | )                     |  |   | 31,428  |  |   | (531   | )
|U.S. Treasury obligations |  |                                           | 5,450   |                       |                                     | (117   | )          |                          |                       | 440    |  |            | (23  | )                     |  |   | 5,890   |  |   | (140   | )
|                          |  |                                           |         |                       |                                     |        |            |                          |                       |        |  |            |      |                       |  |   |         |  |   |        |  
|Totals                    |  | $                                         | 193,253 |                       | $                                   | (3,604 | )          |                          | $                     | 15,936 |  | $          | (515 | )                     |  | $ | 209,189 |  | $ | (4,119 | )
|                          | 



Gains and losses realized on the sale of
short-term investments are included in investment income in our consolidated statements of income based on the specific identification method and were insignificant in all periods presented.



Our short-term investments comprise debt instruments issued by third parties and therefore expose us
to credit-related losses. We mitigate this risk by only buying investment grade debt securities. At March 31, 2005, 87% of our investments were in AAA rated debt instruments and no investments were rated below A. Significant concentrations of
investments at March 31, 2005 were Fannie Mae ($60.3 million fair value), Freddie Mac ($56.7 million fair value) and Federal Home Loan Bank ($53.9 million fair value). The majority (97%) of these concentrated investments are AAA rated.



Accounts Receivable

Accounts receivable represent trade receivables, net of allowances for doubtful accounts and sales returns of $13.7 million and $13.2 million at March 31, 2005 and December 31, 2004, respectively. The provisions for doubtful
accounts recorded during the first quarter of 2005 and 2004 were $0.7 million and $1.4 million, respectively. Estimated sales returns are recorded as a reduction of revenue and were insignificant in all periods presented. Approximately 6% of our
accounts receivable balance, net of allowances for doubtful accounts and sales returns, was more than 90 days old as of March 31, 2005, compared to 8% of our balance at December 31, 2004.



Property and Equipment

Property and equipment consisted of the following at the reported balance sheet dates:



|                                             |  |                                           |  |                |         |                         |   |              |  |                         |         |  |   |        
|-------------------------------------------- |  | ----------------------------------------- |  | -------------- | ------- | ----------------------- | - | ------------ |  | ----------------------- | ------- |  | - | -------
|                                             |  |                                           |  | MARCH 31, 2005 |         | DECEMBER 31, 2004      
|                                             |  |                                           |  |                |         |                        
|                                             |  | Range of EstimatedUseful Lives (in years) |  | Gross Amount   |         | AccumulatedDepreciation |   | Gross Amount |  | AccumulatedDepreciation
|                                             |  |                                           |  |                |         |                         |   |              |  |                         |         |  |   |        
|(In thousands, except years)                
|                                             |  |                                           |  |                |        
|Contemporary image content                   |  | 4                                         |  | $              | 239,819 |                         | $ | 203,874      |  | $                       | 237,690 |  | $ | 200,087
|Computer hardware and software purchased     |  | 3                                         |  |                | 94,634  |                         |   | 84,507       |  |                         | 94,960  |  |   | 83,280 
|Computer software developed for internal use |  | 3                                         |  |                | 73,435  |                         |   | 53,186       |  |                         | 71,407  |  |   | 50,192 
|Leasehold improvements                       |  | 2-20                                      |  |                | 35,610  |                         |   | 15,564       |  |                         | 35,404  |  |   | 14,978 
|Furniture, fixtures and studio equipment     |  | 5                                         |  |                | 32,575  |                         |   | 26,066       |  |                         | 32,026  |  |   | 25,491 
|Archival image content                       |  | 40                                        |  |                | 19,193  |                         |   | 4,526        |  |                         | 19,450  |  |   | 4,464  
|Other property and equipment                 |  | 3-4                                       |  |                | 469     |                         |   | 346          |  |                         | 406     |  |   | 350    
|                                             |  |                                           |  |                |         |                         |   |              |  |                         |         |  |   |        
|Totals                                       |  |                                           |  | $              | 495,735 |                         | $ | 388,069      |  | $                       | 491,343 |  | $ | 378,842
|                                            



---



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|8 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



Depreciation of internal use software was $3.3 million and $4.4 million in the first quarter of 2005 and 2004, respectively.



Goodwill

Goodwill changed during the first quarter of 2005 as follows:



|                                                   |  |   |         |  
|-------------------------------------------------- |  | - | ------- | -
|                                                   | 
|(In thousands)                                     | 
|                                                   | 
|Goodwill at December 31, 2004                      |  | $ | 628,717 |  
|Effect of foreign currency translation adjustments |  |   | (644    | )
|                                                   |  |   |         |  
|Goodwill at March 31, 2005                         |  | $ | 628,073 |  
|                                                   | 



Identifiable Intangible Assets

We reassess the remaining useful lives of our identifiable intangible assets each reporting period to determine whether events and circumstances warrant
revisions to the remaining periods of amortization. No revisions were determined to be necessary during the periods presented. Any future revisions would be applied prospectively.



The gross carrying amounts, related accumulated amortization and respective useful lives of identifiable intangible assets at the reported balance
sheet dates were as follows:



|                                       |  |                                           |  |                |        |                         |   |             |  |                         |        |  |   |       
|-------------------------------------- |  | ----------------------------------------- |  | -------------- | ------ | ----------------------- | - | ----------- |  | ----------------------- | ------ |  | - | ------
|                                       |  |                                           |  | MARCH 31, 2005 |        | DECEMBER 31, 2004      
|                                       |  |                                           |  |                |        |                        
|                                       |  | Range of EstimatedUseful Lives (in years) |  | GrossAmount    |        | AccumulatedAmortization |   | GrossAmount |  | AccumulatedAmortization
|                                       |  |                                           |  |                |        |                         |   |             |  |                         |        |  |   |       
|(In thousands)                        
|                                       |  |                                           |  |                |       
|Customer lists                         |  | 5-7                                       |  | $              | 16,782 |                         | $ | 11,193      |  | $                       | 16,846 |  | $ | 10,550
|Trademarks, trade names and copyrights |  | 2-10                                      |  |                | 11,667 |                         |   | 6,081       |  |                         | 11,682 |  |   | 5,742 
|Other identifiable intangible assets   |  | 2-10                                      |  |                | 3,329  |                         |   | 1,937       |  |                         | 3,382  |  |   | 1,744 
|                                       |  |                                           |  |                |        |                         |   |             |  |                         |        |  |   |       
|Totals                                 |  |                                           |  | $              | 31,778 |                         | $ | 19,211      |  | $                       | 31,910 |  | $ | 18,036
|                                      



Based on balances at March 31, 2005, expected
amortization of identifiable intangible assets for the next five years, including amortization recorded during the first quarter of 2005, is as follows:



|               |  |   |      
|-------------- |  | - | -----
|FISCAL YEAR   
|              
|(In thousands)
|               | 
|2005           |  | $ | 4,820
|2006           |  |   | 3,958
|2007           |  |   | 1,852
|2008           |  |   | 1,604
|2009           |  |   | 1,122
|              



Leases

Rent expense, net of sublease income, was $4.9 million and $4.6 million for the first quarter of 2005 and 2004, respectively. Sublease income recorded as an offset to rent expense
was insignificant in all periods presented.



---



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|9 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



Employee Stock-Based Compensation

Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, as amended, requires the disclosure of pro forma information as if we had adopted the fair-value method of accounting for employee
stock-based compensation. Under this method, compensation cost is measured on all awards based on the fair value of the awards at the grant date. The pro forma effect on our net income and earnings per share of applying the fair-value method of
accounting, utilizing the assumptions in the second table below would have been as follows:



|                                                                               |  |      |        |   |      |   |        |  
|------------------------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | -
|THREE MONTHS ENDED MARCH 31,                                                   |  | 2005 |        |   | 2004 |  
|                                                                               |  |      |        |   |      |   |        |  
|(In thousands, except per share amounts)                                       |  |      |        |   |      |  
|                                                                               |  |     
|Net income                                                                     |  |      |        |   |      |   |        |  
|As reported                                                                    |  | $    | 34,108 |   |      | $ | 26,086 |  
|Add: APB Opinion No. 25 employee stock-based compensation, net of income taxes |  |      | 148    |   |      |   | 55     |  
|Deduct: SFAS No. 123 employee stock-based compensation, net of income taxes    |  |      | (1,611 | ) |      |   | (1,912 | )
|                                                                               |  |      |        |   |      |   |        |  
|Pro forma net income                                                           |  | $    | 32,645 |   |      | $ | 24,229 |  
|                                                                               |  |      |        |   |      |   |        |  
|Basic earnings per share                                                       |  |      |        |   |      |   |        |  
|As reported                                                                    |  | $    | 0.56   |   |      | $ | 0.45   |  
|Pro forma                                                                      |  |      | 0.54   |   |      |   | 0.42   |  
|                                                                               |  |      |        |   |      |   |        |  
|Diluted earnings per share                                                     |  |      |        |   |      |   |        |  
|As reported                                                                    |  | $    | 0.54   |   |      | $ | 0.43   |  
|Pro forma                                                                      |  |      | 0.51   |   |      |   | 0.40   |  
|                                                                               |  |      |        |   |      |   |        |  
|Shares used in computing pro forma earnings per share                          |  |      |        |   |      |   |        |  
|Basic                                                                          |  |      | 60,944 |   |      |   | 57,666 |  
|Diluted                                                                        |  |      | 63,797 |   |      |   | 60,328 |  
|                                                                               | 



A Black-Scholes multiple option valuation model
was utilized in calculating the pro forma figures, with forfeitures recognized as they occurred and the following assumptions:



|                                         |  |         |  |          
|---------------------------------------- |  | ------- |  | ---------
|THREE MONTHS ENDED MARCH 31,             |  | 2005    |  | 2004     
|                                         |  |         |  |          
|                                         |  |        
|Expected share price volatility          |  | 45%     |  | 60%      
|Risk free rate of return                 |  | 2.65%   |  | 2.89%    
|Expected life of option (from vest date) |  | 2 years |  | 11/2years
|Expected rate of dividends               |  | None    |  | None     
|                                        



There were no stock option modifications
resulting in compensation expense for the periods presented in this report.



Advertising and Marketing

Advertising and marketing costs expensed during the first quarter of 2005 and 2004 were $2.7 million and $2.4 million,
respectively. Prepaid marketing materials were insignificant at March 31, 2005 and December 31, 2004.



Recent Accounting Pronouncements

SFAS NO. 123(R), SHARE-BASED PAYMENT

On December 16, 2004, the FASB issued SFAS No. 123(R), which addresses the accounting for employee services received in exchange for (a) equity instruments of the enterprise or (b)
liabilities that are based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such equity instruments. On April 14, 2005, the Securities and Exchange Commission delayed the effective date of SFAS
No. 123(R) until January 1, 2006 for calendar year companies. SFAS No. 123(R) eliminates our ability to account for employee stock options using the intrinsic value provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and related interpretations, and generally requires instead that we expense them using a fair-value-based method. Accordingly, we will expense the fair value of all share-based compensation beginning January 1, 2006 to



---



|   |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|10 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



selling, general and administrative expenses over the vesting period. Management is still assessing the full impact that adoption
will have on our consolidated financial statements.



NOTE 2. FAIR VALUE OF FINANCIAL
INSTRUMENTS

The fair value of our convertible subordinated debentures, based on quoted market prices, was approximately $407.4 million at March 31, 2005 and
$409.4 million at December 31, 2004, or $142.4 million and $144.4 million, respectively, higher than their book value.



NOTE 3. ACCRUED EXPENSES

Accrued expenses at the reported balance sheet dates are
summarized below, with balances representing 5% or more of total current liabilities at either date shown separately:



|                                  |  |               |        |                  |   |       
|--------------------------------- |  | ------------- | ------ | ---------------- | - | ------
|                                  |  | MARCH 31,2005 |        | DECEMBER 31,2004
|                                  |  |               |        |                  |   |       
|(In thousands)                    |  |               |        |                 
|                                  |  |              
|Accrued payroll and related costs |  | $             | 12,705 |                  | $ | 23,542
|Other                             |  |               | 18,504 |                  |   | 19,268
|                                  |  |               |        |                  |   |       
|Total accrued expenses            |  | $             | 31,209 |                  | $ | 42,810
|                                 



Accrued payroll and related costs decreased
significantly from year end primarily due to the payment of annual bonuses to employees in March of 2005.



NOTE 4. COMMITMENTS AND CONTINGENCIES

Commitments

There have been no material changes in our commitments since year end.



Contingencies

We indemnify certain customers from claims related to alleged infringements of the intellectual property rights of third parties, such
as claims arising from a photographers failure to secure model and property releases for an image we license. The standard terms of these guarantees require us to defend those claims and pay related damages, if any. We mitigate this risk by
contractually requiring our contributing photographers and other imagery partners to secure all necessary model and property releases prior to submitting any imagery to us, and by requiring them to indemnify us in certain circumstances in the event
a claim arises in relation to an image they have provided. Our imagery partners are also typically required to carry insurance policies for losses related to such claims. We do not record any liabilities for these guarantees until claims are made
and we are able to assess the range of possible payments and available recourse from our imagery partners, as applicable. Historically, our exposure to such claims has been immaterial, as were our recorded liabilities for intellectual property
infringement at March 31, 2005 and December 31, 2004. As such, we believe the estimated fair value of these liabilities is minimal.



In the ordinary course of business, we also enter into certain types of agreements that require us to indemnify counterparties against third-party claims. These may include:
agreements with vendors and suppliers, under which we may indemnify them against claims arising from our use of their products or services; agreements with customers other than those licensing images, under which we may indemnify them against claims
arising from their use of our products or services; agreements with delegates, under which we may indemnify them against claims arising from their distribution of our products or services; real estate and equipment leases, under which we may
indemnify lessors against third-party claims relating to use of their property; agreements with directors and officers, under which we indemnify them to the full extent allowed by Delaware law against claims relating to their service to us;
agreements with purchasers of businesses we have sold, under which we may indemnify the purchasers against claims arising from our operation of the businesses prior to sale; and agreements with initial purchasers and underwriters of our securities,
under which we indemnify them against claims relating to their participation in the transactions.



The nature and terms of these indemnification obligations vary from contract to contract, and generally a maximum obligation is not stated. Because we are unable to estimate our potential obligation, and because we believe the
estimated fair value of these liabilities is minimal, no related liabilities are recorded at March 31, 2005 or December 31, 2004. We hold insurance policies that mitigate potential losses arising from certain indemnifications, and historically, we
have not incurred significant costs related to performance under these obligations.



---



|   |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|11 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



NOTE 5. COMPREHENSIVE INCOME



Comprehensive income consisted of the following during the periods presented:



|                                                                                  |  |      |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|THREE MONTHS ENDED MARCH 31,                                                      |  | 2005 |        |   | 2004 |  
|                                                                                  |  |      |        |   |      |   |        |  
|(In thousands)                                                                    |  |      |        |   |      |  
|                                                                                  |  |     
|Net income                                                                        |  | $    | 34,108 |   |      | $ | 26,086 |  
|Net unrealized (losses) gains on revaluation of long-term intercompany balances 1 |  |      | (4,028 | ) |      |   | 3,544  |  
|Net foreign currency translation adjustment gains (losses) 2                      |  |      | 460    |   |      |   | (2,455 | )
|Net unrealized (losses) gains on short-term investments                           |  |      | (1,917 | ) |      |   | 1,223  |  
|Deferred taxes on net unrealized gains on short-term investments                  |  |      |       |   |      |   | (467   | )
|                                                                                  |  |      |        |   |      |   |        |  
|Total comprehensive income                                                        |  | $    | 28,623 |   |      | $ | 27,931 |  
|                                                                                  | 

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 |  | Unrealized gains and losses resulting from changes in the exchange rates underlying foreign-currency denominated intercompany balances that are long-term in nature and for which settlement
is not planned or anticipated in the foreseeable future are reported in the same manner as translation adjustments (see footnote 2 to this table below).                                                                                                                                                                      
|2 |  | Each reporting period, the balance sheets and statements of income of the parent company and each subsidiary are translated into U.S. dollars, our reporting currency, and then consolidated.
Monthly revenues and expenses are translated into U.S. dollars at the prior months average daily exchange rate, while assets and liabilities are translated into U.S. dollars at the rate of exchange on the last day of the current month. Due to
the use of these different exchange rates, translation adjustments arise.



Accumulated other comprehensive income
consisted of the following at the reported balance sheet dates:



|                                                                                   |  |               |         |   |                  |   |         |  
|---------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                   |  | MARCH 31,2005 |         |   | DECEMBER 31,2004 |  
|                                                                                   |  |               |         |   |                  |   |         |  
|(In thousands)                                                                     |  |               |         |   |                  |  
|                                                                                   |  |              
|Accumulated net unrealized gains on revaluation of long-term intercompany balances |  | $             | 31,442  |   |                  | $ | 35,470  |  
|Accumulated net foreign currency translation adjustment losses                     |  |               | (11,909 | ) |                  |   | (12,369 | )
|Accumulated net unrealized losses on short-term investments                        |  |               | (4,113  | ) |                  |   | (2,196  | )
|                                                                                   |  |               |         |   |                  |   |         |  
|Total accumulated other comprehensive income                                       |  | $             | 15,420  |   |                  | $ | 20,905  |  
|                                                                                   | 



Realized gains and losses (on investments sold)
transferred out of accumulated net unrealized losses on short-term investments above and into investment income were insignificant in all periods presented. Deferred taxes are not provided on unrealized gains and losses resulting from fluctuations
in the foreign currency exchange rates underlying foreign currency denominated long-term intercompany balances or on translation adjustments because management expects that these investments in our foreign subsidiaries will be permanent.



NOTE 6. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS



Our CEO (our chief operating decision maker) uses our consolidated financial statements to assess the
companys financial performance and to determine how to allocate resources. Therefore, we operate the company as one business segment. Our revenue is generated through a diverse customer base, and there is no reliance on a single customer or
small group of customers; no customer represented 10% or more of our total revenue in the periods presented. Revenue is summarized below by country based on the customers billing address, with countries comprising 5% or more of total revenue
in a reportable period shown separately. Due to the impact of foreign currency translation, these figures may not clearly reflect the relative performance of the individual countries.



|                             |  |         |         |              |      |         |   |              |  |     
|---------------------------- |  | ------- | ------- | ------------ | ---- | ------- | - | ------------ |  | ----
|THREE MONTHS ENDED MARCH 31, |  | 2005    |         | 2004        
|                             |  |         |         |             
|                             |  | Revenue |         | % of Revenue |      | Revenue |   | % of Revenue
|                             |  |         |         |              |      |         |   |              |  |     
|(In thousands)               |  |         |         |              |      |         |   |             
|                             |  |         |         |             
|United States                |  | $       | 78,067  |              | 44%  |         | $ | 69,614       |  | 44% 
|United Kingdom               |  |         | 25,431  |              | 14%  |         |   | 22,574       |  | 14% 
|Germany                      |  |         | 14,596  |              | 8%   |         |   | 12,677       |  | 8%  
|France                       |  |         | 10,113  |              | 6%   |         |   | 9,521        |  | 6%  
|Rest of world                |  |         | 49,887  |              | 28%  |         |   | 42,126       |  | 28% 
|                             |  |         |         |              |      |         |   |              |  |     
|Total revenue                |  | $       | 178,094 |              | 100% |         | $ | 156,512      |  | 100%
|                            



---



|   |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|12 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



NOTE 7. SUBSEQUENT EVENTS



On April 20, 2005, we acquired London-based Digital Vision Limited (Digital Vision), one of the worlds leading royalty-free photography businesses, for $165.0 million in
cash. Prior to the acquisition, we had a significant number of Digital Visions images available for license through our Image Partner program. The $165.0 million purchase price was funded from existing cash and cash equivalents balances. A
purchase price allocation is in process and is expected to be completed during the second quarter of 2005, with the majority of the purchase price expected to be allocated to goodwill and identifiable intangible assets. Amortization of identifiable
intangible assets is expected to increase as a result.



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)



The following should be read in conjunction with our Consolidated Financial Statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form
10-Q.



GENERAL



Our key initiatives for 2005 are to: grow the volume of imagery licensed; accelerate international growth; continue to grow the editorial portion of
our business; improve and customize the customer experience and search capabilities on gettyimages.com; and achieve a 30% operating margin. In the first quarter of 2005, we made progress towards achieving these objectives, licensing 6% more single
still creative images than in the first quarter of 2004 and growing international revenue and editorial revenue 15% and 28%, respectively, over the first quarter of 2004. We also achieved our 30% operating margin target.



There have been no material changes in our sources of revenue and cost of sales or our critical
accounting policies and estimates and assumptions since December 31, 2004. In addition, we did not acquire any businesses or significant assets of businesses during the first quarter of 2005.



MATERIAL CHANGES IN RESULTS OF OPERATIONS



Below are selected financial highlights from our results of operations. All figures in the tables are
shown in thousands, except percentages and price per image figures. Income from operations and operating margin should not be considered alternatives to net income as indicators of our operating performance, but should be considered supplemental
indicators.



|                                                   |  |      |     |      |   |     
|-------------------------------------------------- |  | ---- | --- | ---- | - | ----
|THREE MONTHS ENDED MARCH 31,                       |  | 2005 |     | 2004
|                                                   |  |      |     |      |   |     
|                                                   |  |     
|PORTFOLIO REVENUE AS A PERCENTAGE OF TOTAL REVENUE |  |      |     |      |   |     
|Rights-managed still imagery                       |  |      | 45% |      |   | 51% 
|Royalty-free still imagery                         |  |      | 35% |      |   | 32% 
|Editorial imagery                                  |  |      | 12% |      |   | 10% 
|Film                                               |  |      | 6%  |      |   | 5%  
|Other                                              |  |      | 2%  |      |   | 2%  
|                                                   |  |     
|GROSS MARGIN                                       |  |      |     |      |   |     
|Rights-managed still imagery                       |  |      | 67% |      |   | 67% 
|Royalty-free still imagery                         |  |      | 75% |      |   | 77% 
|Editorial imagery                                  |  |      | 76% |      |   | 82% 
|Film                                               |  |      | 71% |      |   | 73% 
|                                                   |  |     
|APPROXIMATE AVERAGE PRICE PER IMAGE 2, 3           |  |      |     |      |   |     
|Rights-managed single still imagery                |  | $    | 615 |      | $ | 5901
|Royalty-free single still imagery                  |  |      | 230 |      |   | 1951
|Film 4                                             |  |      | 680 |      |   | 6201
|                                                  

|  |  |                                                                                                                                                                                                                                                     
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 |  | These prior period figures have been adjusted to reflect the inclusion of data for Asia Pacific.                                                                                                                                                    
|2 |  | Because many editorial images are licensed on a subscription basis, price per image is not meaningful and therefore is not included in this table.                                                                                                  
|  | 
|3 |  | All price per image figures are rounded to the nearest $5 and represent the approximate prices of single images (including flexible license packs but excluding prepackaged CDs) licensed by
us directly to our customers, not through distributors.
|  | 
|4 |  | These figures relate to rights-managed film only.                                                                                                                                                                                                   



---



|   |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|13 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



|        |  |                              |         |                |       |      |   |              |  |          |  |          |        |  |     
|------- |  | ---------------------------- | ------- | -------------- | ----- | ---- | - | ------------ |  | -------- |  | -------- | ------ |  | ----
|        |  | THREE MONTHS ENDED MARCH 31, |         | YEAR OVER YEAR
|        |  |                              |         |                |       |     
|        |  | 2005                         |         | % of revenue   |       | 2004 |   | % of revenue |  | $ change |  | % change
|        |  |                              |         |                |       |      |   |              |  |          |  |          |        |  |     
|        |  |                              |         |                |       |     
|REVENUE |  | $                            | 178,094 |                | 100.0 |      | $ | 156,512      |  | 100.0    |  | $        | 21,582 |  | 13.8
|       



In the first quarter of 2005, revenue continued
to benefit from the impact of changes in foreign currency exchange rates, particularly the British pound and euro to the U.S. Dollar. These changes in exchange rates added approximately $4.3 million to revenue year over year. Excluding the impact of
exchange rate changes, revenue increased approximately $17.3 million or 11.1% year over year primarily due to continued increases in average price per image and to higher volumes of images licensed from our royalty-free and editorial portfolios.
Partially offsetting this volume growth was a decline in the volume of images licensed from our rights-managed portfolio. Increases in average price per image arose through selective price increases, a shift in the mix of images licensed within our
royalty-free and rights-managed portfolios towards higher priced imagery and reduced levels of discounting for certain uses of rights-managed imagery.



|                              |  |                              |         |                |      |      |   |              |  |          |  |          |        |  |     
|----------------------------- |  | ---------------------------- | ------- | -------------- | ---- | ---- | - | ------------ |  | -------- |  | -------- | ------ |  | ----
|                              |  | THREE MONTHS ENDED MARCH 31, |         | YEAR OVER YEAR
|                              |  | 2005                         |         | % of revenue   |      | 2004 |   | % of revenue |  | $ change |  | % change
|                              |  |                              |         |                |      |      |   |              |  |          |  |          |        |  |     
|                              |  |                              |         |                |      |     
|GROSS PROFIT AND GROSS MARGIN |  | $                            | 126,840 |                | 71.2 |      | $ | 112,706      |  | 72.0     |  | $        | 14,134 |  | 12.5
|                             



Although there was a shift in overall sales mix
towards higher margin royalty-free and editorial imagery, gross margin within these portfolios declined due mainly to a shift in image license mix towards Image Partner imagery, for which we pay higher royalties.



|                                           |  |                              |        |                |      |      |   |              |  |          |  |          |       |  |    
|------------------------------------------ |  | ---------------------------- | ------ | -------------- | ---- | ---- | - | ------------ |  | -------- |  | -------- | ----- |  | ---
|                                           |  | THREE MONTHS ENDED MARCH 31, |        | YEAR OVER YEAR
|                                           |  | 2005                         |        | % of revenue   |      | 2004 |   | % of revenue |  | $ change |  | % change
|                                           |  |                              |        |                |      |      |   |              |  |          |  |          |       |  |    
|                                           |  |                              |        |                |      |     
|SELLING, GENERAL AND ADMINISTRATIVE (SG&A) |  | $                            | 60,054 |                | 33.7 |      | $ | 54,718       |  | 35.0     |  | $        | 5,336 |  | 9.8
|                                          



SG&A increased $5.3 million year over year
primarily due to increased staff costs, professional fees and an approximately $1.1 million negative impact of exchange rate changes. Excluding the impact of changes in exchange rates, SG&A increased approximately 7.7%.



|                                            |  |                              |        |                |      |      |   |              |  |          |  |          |        |  |     
|------------------------------------------- |  | ---------------------------- | ------ | -------------- | ---- | ---- | - | ------------ |  | -------- |  | -------- | ------ |  | ----
|                                            |  | THREE MONTHS ENDED MARCH 31, |        | YEAR OVER YEAR
|                                            |  | 2005                         |        | % of revenue   |      | 2004 |   | % of revenue |  | $ change |  | % change
|                                            |  |                              |        |                |      |      |   |              |  |          |  |          |        |  |     
|                                            |  |                              |        |                |      |     
|INCOME FROM OPERATIONS AND OPERATING MARGIN |  | $                            | 53,545 |                | 30.1 |      | $ | 42,942       |  | 27.4     |  | $        | 10,603 |  | 24.7
|                                           



Income from operations and operating margin
increased in 2005 as we continued to grow revenue while increasing costs at a much lower rate.



|                  |  |                              |       |                |     |      |   |              |  |          |  |          |       |  |     
|----------------- |  | ---------------------------- | ----- | -------------- | --- | ---- | - | ------------ |  | -------- |  | -------- | ----- |  | ----
|                  |  | THREE MONTHS ENDED MARCH 31, |       | YEAR OVER YEAR
|                  |  | 2005                         |       | % of revenue   |     | 2004 |   | % of revenue |  | $ change |  | % change
|                  |  |                              |       |                |     |      |   |              |  |          |  |          |       |  |     
|                  |  |                              |       |                |     |     
|INVESTMENT INCOME |  | $                            | 2,889 |                | 1.6 |      | $ | 1,753        |  | 1.1      |  | $        | 1,136 |  | 64.8
|                 



Investment income increased in 2005 due to
higher cash and cash equivalent and short-term investment balances combined with an increase in interest rates.



---



|   |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|14 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



|                   |  |                              |   |  |                                 |   |  |            |   |  |                                 |   |  |            |   |  |          |  
|------------------ |  | ---------------------------- | - |  | ------------------------------- | - |  | ---------- | - |  | ------------------------------- | - |  | ---------- | - |  | -------- | -
|                   |  | THREE MONTHS ENDED MARCH 31, |   |  | YEAR OVER YEAR                  |  
|                   |  | 2005                         |   |  | % of income before income taxes |   |  | 2004       |   |  | % of income before income taxes |   |  | $ change   |   |  | % change |  
|                   |  |                              |   |  |                                 |   |  |            |   |  |                                 |   |  |            |   |  |          |  
|                   |  |                              |   |  |                                 |  
|INCOME TAX EXPENSE |  | $  (20,874                   | ) |  | (38.0                           | ) |  | $  (16,824 | ) |  | (39.2                           | ) |  | $   (4,050 | ) |  | (24.1    | )
|                   | 



Our effective tax rate for 2005 (38.0%)
decreased from 2004 (39.2%) primarily due to higher income in jurisdictions with lower tax rates and increased ability to recognize a greater benefit from foreign tax credits generated in the current year.



RESULTS OF OPERATIONS OUTLOOK



Many of the statements contained herein and for the remainder of the MD&A are forward-looking and are based on managements
current expectations, assumptions and projections about Getty Images, Inc. and its industry and are made on the basis of managements views as of the date this document is filed with the Securities and Exchange Commission (SEC). These
forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that are difficult to predict and that could cause our actual results to differ materially from our past performance and
managements current expectations, assumptions and projections. Differences may result from actions taken by us as well as from risks and uncertainties beyond our control. Potential risks and uncertainties include, among others, those
specifically set forth in this section and those under Factors That May Affect the Business below. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information,
future developments or otherwise. Readers should carefully review all documents that we file with, and furnish to, the SEC, as we will periodically update these forward-looking statements through these documents. Therefore, these forward-looking
statements should not be considered current beyond the date this document is filed with the SEC unless read in conjunction with all of our documents filed with, and furnished to, the SEC thereafter.



On April 20, 2005, we completed a business acquisition that will impact our forecasted results of
operations for 2005. See discussion of the impact of this transaction under Subsequent Events below. There have been no other significant changes in our Results of Operations Outlook from that contained in our Annual Report on Form 10-K
for the year ended December 31, 2004.



MATERIAL CHANGES IN FINANCIAL CONDITION



Liquidity and Capital Resources



|                                                     |  |                |         |                   |   |        
|---------------------------------------------------- |  | -------------- | ------- | ----------------- | - | -------
|                                                     |  | MARCH 31, 2005 |         | DECEMBER 31, 2004
|                                                     |  |                |         |                   |   |        
|(In thousands, except current ratio)                 |  |                |         |                   |   |        
|                                                     |  |               
|Cash and cash equivalents and short-term investments |  | $              | 572,743 |                   | $ | 520,710
|Working capital                                      |  | $              | 582,210 |                   | $ | 518,082
|Current ratio                                        |  |                | 6.27    |                   |   | 5.55   
|                                                    



Cash and cash equivalents and short-term
investments balances continued to increase in the first quarter of 2005, primarily due to $54.1 million in cash flows provided by operating activities. Cash flows provided by operating activities increased as revenue growth outpaced growth in cash
operating expenses, and days sales outstanding remained relatively flat.



In February of
2005, we cancelled our senior credit facility that would have expired in July of 2005 and elected not to replace this facility as it is anticipated that we will be able to satisfy our liquidity needs through exisiting cash and cash equivalents and
short-term investments balances and internally generated cash.



If the closing price of
our common stock exceeds $73.30 for at least 20 trading days in a 30 consecutive trading day period ending on the last trading day of a fiscal quarter, our 0.5% convertible subordinated debentures will become callable by the holder for the following
fiscal quarter and will be reclassified to current liabilities. The condition must be met again at the end of the next quarter for the debt to remain callable and classified as a current liability. This reclassification would materially decrease our
working capital and current ratio. For example, our working capital and current ratio at March 31, 2005 would have been $317,210 (in thousands) and 1.84, respectively, had the debentures been classified as current at that date. The closing price of
our common stock on April 29, 2005 was $71.55.



There were no other material changes in
our liquidity and capital resources during the first quarter of 2005.



---



|   |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|15 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



SUBSEQUENT EVENTS



On April 20, 2005, we acquired London-based Digital Vision Limited (Digital Vision), one of the worlds leading royalty-free photography businesses, for $165.0 million in
cash. Prior to the acquisition, we had a significant number of Digital Visions images available for license through our Image Partner program. The $165.0 million purchase price was funded from existing cash and cash equivalents balances. A
purchase price allocation is in process and is expected to be completed during the second quarter of 2005, with the majority of the purchase price expected to be allocated to goodwill and identifiable intangible assets. Amortization of identifiable
intangible assets is expected to increase as a result. In addition, we expect revenue, price per image and gross margin all to increase due to licenses of Digital Vision imagery, which commands a higher price and is largely wholly-owned. With the
wholly-owned imagery obtained through the acquisition, plus an additional $5.0 million we now plan to spend creating additional wholly-owned imagery, we will explore a royalty-free imagery subscription offering and offerings for broadband-enabled
platforms, such as wireless. This capital spending will bring our total planned capital expenditures for 2005 to $40 to $45 million, the bulk of which will be spent creating imagery and developing internal use software.



RECENT ACCOUNTING PRONOUNCEMENTS



SFAS No. 123(R), Share-Based Payment

On December 16, 2004, the FASB issued SFAS No. 123(R), which addresses the accounting for employee services received in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value
of the enterprises equity instruments or that may be settled by the issuance of such equity instruments. On April 14, 2005, the Securities and Exchange Commission delayed the effective date of SFAS No. 123(R) until January 1, 2006 for calendar
year companies. SFAS No. 123(R) eliminates our ability to account for employee stock options using the intrinsic value provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations, and generally requires instead that we expense them using a fair-value-based method. Accordingly, we will expense the fair value of all share-based compensation beginning January 1, 2006 to selling, general and administrative
expenses over the vesting period. Management is still assessing the full impact that adoption will have on our consolidated financial statements.



FACTORS THAT MAY AFFECT THE BUSINESS



We May Not be Able to Compete Effectively Against Competitors

The market for visual content and related services is highly competitive. We believe that the principal competitive factors are: name recognition; company reputation; the quality, relevance, timeliness and diversity of the images in a
companys collections; the quality of contributing photographers, filmmakers and other imagery partners under contract with a company; effective use of current and emerging technology; customer service; pricing policies and practices; and
accessibility of imagery and speed and ease of search and fulfillment. Some of our existing and potential competitors may have or may develop products, services or technology superior to ours, or other competitive advantages. If we are not able to
compete effectively, or if a significant image partner were to terminate or fail to renew an agreement with us, we could lose market share, which could have an adverse impact on our revenues and operating results. See the listing of some of our
current and potential competitors under Competition in Part I, Item 1 of our 2004 Annual Report on Form 10-K.



Our Financial Results and Stock Price May Fluctuate

We
expect our revenues and operating results to vary from quarter to quarter due to a number of factors, both within and outside of our control, including, but not limited to, the following:



| |  |  | demand for our existing and new imagery and related services, and those of our competitors;
| | - |  | -------------------------------------------------------------------------------------------

| |  |  | changes in our pricing policies and practices;
| | - |  | ----------------------------------------------

| |  |  | changes in the sales mix of our products and services, including the mix of licensed uses, company-owned versus contributor-supplied imagery, and the geographic distribution of such licenses,
each of which affect the price of a license and/or the royalty we pay on the license;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | our ability to attract and retain customers;
| | - |  | --------------------------------------------

| |  |  | costs related to potential acquisitions and the development and/or use of technology, services or products;
| | - |  | -----------------------------------------------------------------------------------------------------------

| |  |  | fluctuations in foreign currency exchange rates, changes in global capital markets and economic conditions, and changes to applicable tax laws and regulations; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|   |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|16 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



| |  |  | changes in estimates and assumptions made by management in preparing our financial statements, including those discussed in the Critical Accounting Policies and Estimates and
Assumptions section of Managements Discussion and Analysis of Financial Condition and Results of Operations under Item 7 in Part II of our 2004 Annual Report on Form 10-K.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Because of these risks and others, it is possible that our future results may differ from our
expectations and the expectations of analysts and investors, causing our stock price to fluctuate.



We May Not be Able to Obtain External Financing or Service Our Indebtedness

While management currently anticipates that our current cash and cash equivalents and short-term investment balances and future operating cash flows will be sufficient to meet our needs for working capital and capital
expenditures for at least the next 12 months, we could be required to obtain external financing should our financial results not meet managements expectations or should we need additional funds to acquire selected businesses or otherwise
achieve our objectives. In addition, our convertible subordinated debentures require cash repayment of the $265.0 million of principal borrowed potentially at any time upon certain conditions and no later than upon maturity in 2023. See discussion
of the terms of these debentures in the Financial Condition section of Managements Discussion and Analysis of Financial Condition and Results of Operations under Item 7 in Part II of our 2004 Annual Report on Form 10-K.
Should we need to obtain external financing, through debt or equity, our ability to do so could be affected by changes in U.S. and global capital markets and economies, significant fluctuations in interest rates, the price of our equity securities,
fluctuations in the results of our operations, and other financial and business conditions, many of which are beyond our control. In February of 2005, we cancelled our senior credit facility that would have expired in July of 2005 and elected not to
replace this facility.



We May Not be Successful in
Integrating Acquired Businesses

As part of our business strategy, we have in the past sought and may in the future seek to acquire or invest in businesses,
products or technologies that could complement or expand our business. The evaluation and negotiation of potential acquisitions, as well as the integration of acquired businesses, divert management time and other resources. Certain financial and
operational risks related to acquisitions that may have a material impact on our business or prevent us from benefiting from an acquisition include:



| |  |  | costs incurred in identifying and performing due diligence on potential acquisition targets that may or may not be successful;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------

| |  |  | use of cash resources, incurrence of debt or stockholder dilution through an issuance of our securities in funding acquisitions;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

| |  |  | assumption of certain or contingent liabilities that are or are not identified during due diligence;
| | - |  | ----------------------------------------------------------------------------------------------------

| |  |  | amortization expenses related to acquired intangible assets, impairment of any goodwill acquired and other adverse accounting consequences;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | difficulties and expenses in assimilating the operations, products, technology, information systems of an acquired company; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

| |  |  | retention of key employees, customers, and suppliers of the acquired business.
| | - |  | ------------------------------------------------------------------------------



We May Experience System and Service Disruptions and Difficulties

The digitization and Internet distribution of our visual content is a key component of our business, which involves operations in multiple countries using multiple localized areas of our website all of which use a common technology
platform. As a result, we are particularly dependent upon, and have expended significant resources to ensure, the efficient functioning of our website (and the technology behind it) to allow our customers to access and conduct transactions through
our website. We also have focused significant resources and attention on the installation and development of systems for technology, business processes, sales and marketing systems, royalty and other finance systems, customer interfaces, and other
corporate administrative functions, which we depend on to manage and control our operations.



We will need to continue to improve our website and these systems, as well as our network infrastructure, to improve our customer experience and to accommodate anticipated increased traffic on our website, sales volume, and the processing
of the resulting information. If we do not continue to update and upgrade our website and these other systems, or if we experience significant disruptions or difficulties as a result of any such upgrades, we may face system interruptions, poor
response times, diminished customer services, impaired quality and speed of order fulfillment, and potential problems with our internal control over financial reporting.



In the past, we have experienced infrequent and brief system interruptions that made portions of our website unavailable or prevented us from
efficiently taking, processing or fulfilling orders. We also have experienced infrequent difficulties with system updates and upgrades (including those to our website). We cannot guarantee that we can prevent future interruptions or difficulties.
Additionally, we depend on certain third party software and system providers for the processing and distribution of our imagery and related serv
-



---



|   |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|17 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



ices. System disruptions and difficulties, whether as a result of our internally developed systems or those of the third-party
providers, may inconvenience our customers and/or result in negative publicity, and may negatively affect our provision of services and the volume of images we license and deliver over the Internet.



Additionally, the computer and communications hardware necessary to operate our corporate functions
are located in metropolitan areas worldwide. Any of these systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, earthquake and similar events. We do not have complete redundancy for all of our
network and telecommunications facilities.



Systems
Security Risks and Concerns May Harm Our Business

An important component of our business is the secure transmission of confidential information and the
transaction of commerce over the Internet. Developments in computer capabilities, viruses, or other events could result in compromises or breaches of our systems or those of other websites and networks, jeopardizing proprietary and confidential
information belonging to us or our customers, or causing potentially serious interruptions in our services, sales or operations. We continue to expend significant resources to protect against the threat of security breaches or to alleviate problems
caused by such breaches. Any well-publicized compromises of our security system or the Internet may reduce our customers desire to transact business over the Internet.



Certain of Our Stockholders Can Exercise Significant Influence Over Our Business and Affairs

Some of our stockholders own substantial percentages of the outstanding shares of our common stock. Getty Investments L.L.C.; The October 1993 Trust; The JD Klein Family
Settlement; Mr. Mark H. Getty, our Chairman; and Mr. Jonathan D. Klein, our Chief Executive Officer, collectively the Getty Group, owned approximately 17% of the outstanding shares of our common stock at March 31, 2005. Getty Investments alone owned
approximately 16% of the outstanding shares of our common stock at March 31, 2005. Mr. Getty serves as the Chairman of the Board of Directors of Getty Investments, and Mr. Klein serves on the Board of Directors of Getty Investments.



As a result of their share ownership, the Getty Group has significant influence over all matters
requiring approval of our stockholders, including the election of directors and the approval of business combinations. The substantial percentage of our common stock held by the Getty Group could also make us a less attractive acquisition candidate
or have the effect of delaying or preventing a third party from acquiring control over us at a premium over the then-current price of our common stock. In addition to ownership of our common stock, Mr. Gettys role as the Chairman of our Board
of Directors, and Mr. Kleins role as Chief Executive Officer and as a member of our Board of Directors, increase the Getty Groups influence over us.



We May Lose the Right to Use Getty Images Trademarks in the Event We Experience a Change of Control

We own trademarks and trademark applications for the name Getty Images. We use Getty Images as a corporate identity, as do certain of our
subsidiaries, and we use Getty Images as a product and service brand. We refer to these trademarks and trademark applications as the Getty Images Trademarks. In the event that a third party or parties not affiliated with the Getty family
acquires control of Getty Images, Getty Investments L.L.C. has the right to call for an assignment to it, for a nominal sum, all rights to the Getty Images Trademarks. In the event of an assignment, we will have 12 months to continue to use the
Getty Images Trademarks, after which time we no longer would have the right to use them. Getty Investments right to cause such an assignment might have a negative impact on the amount of consideration that a potential acquirer would be willing
to pay to acquire our common stock.



An Increase in
Government Regulation of the Internet and E-commerce Could Have a Negative Impact on Our Business

We are subject to a number of laws and regulations directly
applicable to e-commerce. State, federal and foreign governments have adopted, and may continue to adopt, legislation regulating the Internet and e-commerce. Such regulation could both increase our cost of doing business and impede the growth of our
business or of the Internet, while decreasing the Internets acceptance or effectiveness as a communications and commerce medium.



Existing or future laws and other regulations that may impact our business include, but are not limited to, those that govern or restrict:

| |  |  | privacy issues and data collection, processing, retention and transmission;
| | - |  | ---------------------------------------------------------------------------

| |  |  | pricing and taxation of goods and services offered over the Internet;
| | - |  | ---------------------------------------------------------------------

| |  |  | website content, or the manner in which products and services may be offered and/or marketed over the Internet; and
| | - |  | -------------------------------------------------------------------------------------------------------------------

| |  |  | sources of liability for companies involved in Internet services or e-commerce.
| | - |  | -------------------------------------------------------------------------------



Certain Provisions of Our Corporate Documents and Delaware Corporate Law May Deter a Third Party From Acquiring Us

Our Board of Directors has the authority to issue up to five million shares of preferred stock and to fix the rights, preferences, privileges and restrictions of such shares
without any further vote, approval or action by our stockholders. This authority, together with



---



|   |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|18 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



certain provisions of our restated certificate of incorporation, may have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, control of us. This could occur even if our stockholders consider such change in control to be in their best interests. In addition, the concentration of beneficial ownership
of our common stock in the Getty Group, along with certain provisions of Delaware law, may have the effect of delaying, deterring or preventing a takeover of us.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Interest Rate Risk

The table below provides information about our financial instruments for which the fair values are sensitive to changes in
interest rates. For investments, the table presents cash flows and weighted average interest rates by stated maturity dates. For debt obligations, the table presents principal cash flows and weighted average interest rates by stated maturity dates.
The respective fair values are determined through market quotes. All instruments are denominated and presented in U.S. dollars.



|                                      |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |       |               |   |                  |  |   |         |  |   |         |  |   |        
|------------------------------------- |  | -------------------- | ----- | ---------- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ----- | ------------- | - | ---------------- |  | - | ------- |  | - | ------- |  | - | -------
|                                      |  | STATED MATURITY DATE |       | FAIR VALUE
|                                      |  | 2005                 |       | 2006       |   | 2007   |  | 2008 |        | 2009 |   | THEREAFTER |  | TOTAL |       | MARCH 31,2005 |   | DECEMBER 31,2004
|                                      |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |       |               |   |                  |  |   |         |  |   |         |  |   |        
|(In thousands, except interest rates) |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |       |               |   |                 
|                                      |  |                      |       |            |   |        |  |      |       
|Short-Term investments                |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |       |               |   |                  |  |   |         |  |   |         |  |   |        
|Fixed rate                            |  | $                    | 9,006 |            | $ | 48,832 |  | $    | 53,981 |      | $ | 12,729     |  | $     | 6,055 |               | $ | 2,454            |  | $ | 133,057 |  | $ | 133,057 |  | $ | 136,470
|Weighted average interest rate        |  |                      | 2.68% |            |   | 3.23%  |  |      | 3.36%  |      |   | 2.91%      |  |       | 2.76% |               |   | 3.84%            |  |   | 3.21%   |  |   |        |  |   |       
|Variable rate                         |  | $                    | 6,042 |            | $ | 2,949  |  | $    | 2,002  |      | $ |           |  | $     | 1,003 |               | $ | 69,864           |  | $ | 81,860  |  | $ | 81,860  |  | $ | 105,252
|Weighted average interest rate        |  |                      | 2.73% |            |   | 2.07%  |  |      | 1.62%  |      |   |           |  |       | 1.43% |               |   | 2.05%            |  |   | 2.08%   |  |   |        |  |   |       
|Step-up rate                          |  | $                    |      |            | $ |       |  | $    | 29,606 |      | $ | 43,830     |  | $     | 9,801 |               | $ |                 |  | $ | 83,237  |  | $ | 83,237  |  | $ | 84,236 
|Weighted average interest rate        |  |                      |      |            |   |       |  |      | 2.79%  |      |   | 2.28%      |  |       | 3.00% |               |   |                 |  |   | 2.55%   |  |   |        |  |   |       
|                                      |  |                      |       |            |   |        |  |      |       
|Long-Term debt                        |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |       |               |   |                  |  |   |         |  |   |         |  |   |        
|Fixed rate                            |  | $                    |      |            | $ |       |  | $    |       |      | $ |           |  | $     |      |               | $ | 265,000          |  | $ | 265,000 |  | $ | 407,438 |  | $ | 409,425
|Weighted average interest rate        |  |                      |      |            |   |       |  |      |       |      |   |           |  |       |      |               |   | 0.50%            |  |   | 0.50%   |  |   |        |  |   |       
|                                     



SHORT-TERM
INVESTMENTS

Short-term investments at March 31, 2005 consisted of available-for-sale U.S. agency securities ($171.9 million), auction rate securities and
variable rate demand notes ($69.6 million), corporate obligations ($44.8 million), U.S. Treasury obligations ($5.9 million) and money market funds ($6.0 million), carried at market value with associated unrealized holding gains and losses recorded
in other comprehensive income. Available-for-sale investments with contractual maturities beyond one year are classified as short-term in our consolidated balance sheets because they represent the investment of cash that is available for current
operations.



LONG-TERM DEBT

If the closing price of our common stock exceeds $73.30 for at least 20 trading days in a 30 consecutive trading day period ending on the last trading day of a fiscal quarter, our
0.5% convertible subordinated debentures will become callable by the holder for the following fiscal quarter and will be reclassified to current liabilities. The condition must be met again at the end of the next quarter for the debt to remain
callable and classified as a current liability. This reclassification would materially decrease our working capital and current ratio. The closing price of our common stock on April 29, 2005 was $71.55.



There have been no other material changes since year end in our long-term debt.



Credit Risk

In addition to interest rate risk, our short-term investments expose us to credit-related losses as they comprise debt instruments issued by third parties. We mitigate this risk by only buying investment grade debt securities. At March 31,
2005, 87% of our investments were in AAA rated debt instruments, as compared to 88% at December 31, 2004. No investments were rated below A at either date. Significant concentrations of investments at March 31, 2005 were Fannie Mae ($60.3 million
fair value), Freddie Mac ($56.7 million fair value) and Federal Home Loan Bank ($53.9 million fair value). Concentrations of investments at December 31, 2004 were Fannie Mae ($62.6 million fair value), Freddie Mac ($56.8 million fair value) and
Federal Home Loan Bank ($54.5 million fair value). The majority of these concentrated investments were AAA rated at March 31, 2005 (97%) and December 31, 2004 (98%).



---



|   |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|19 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 3



Foreign Currency Exchange Rate Risk



FOREIGN CURRENCY TRANSACTIONS

Short-Term Foreign Currency Balances Foreign-currency denominated assets and liabilities, other than long-term intercompany balances (discussed below), which are subject to transaction gains and losses each month, that were
outstanding at March 31, 2005 and December 31, 2004, and were in excess of $3.0 million individually at these dates are summarized below by the functional currency of the subsidiary where the balances are recorded. Changes in balances since December
31, 2004 are principally due to intercompany management charges and royalties, cash settlements, foreign currency revaluation, and forward foreign exchange contract activity. All balances at March 31, 2005 are expected to settle within 12 months in
the currencies listed.



|                                                                                                             |  |               |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                             |  | MARCH 31,2005 |         |   | DECEMBER 31,2004 |  
|                                                                                                             |  |               |         |   |                  |   |         |  
|(In thousands, except settlement rates)                                                                      |  |               |         |   |                  |  
|                                                                                                             |  |              
|British Pound Functional Currency                                                                            |  |               |         |   |                  |   |         |  
|Receivables denominated in:                                                                                  |  |               |         |   |                  |   |         |  
|Euros                                                                                                        |  | $             | 10,552  |   |                  | $ | 6,092   |  
|Forward foreign currency exchange contracts:                                                                 |  |               |         |   |                  |   |         |  
|Receive British pounds/pay euros                                                                             |  |               |         |   |                  |   |         |  
|Contract amount (8,535 and 7,500 notional amounts at March 31, 2005 and December 31, 2004, respectively)   |  | $             | (11,177 | ) |                  | $ | (10,037 | )
|Weighted average contractual settlement rate                                                                 |  |               | 0.69    |   |                  |   | 0.70    |  
|                                                                                                             |  |              
|Euro Functional Currency                                                                                     |  |               |         |   |                  |   |         |  
|Receivables denominated in:                                                                                  |  |               |         |   |                  |   |         |  
|British pounds                                                                                               |  | $             | 965     |   |                  | $ | 3,890   |  
|                                                                                                             |  |              
|U.S. Dollar Functional Currency                                                                              |  |               |         |   |                  |   |         |  
|Receivables denominated in:                                                                                  |  |               |         |   |                  |   |         |  
|British pounds                                                                                               |  | $             | 4,241   |   |                  | $ | 3,764   |  
|Euros                                                                                                        |  |               | 7,376   |   |                  |   | 4,215   |  
|Forward foreign currency exchange contracts:                                                                 |  |               |         |   |                  |   |         |  
|Receive U.S. Dollars/pay British pounds                                                                      |  |               |         |   |                  |   |         |  
|Contract amount (£4,350 and £1,850 notional amounts at March 31, 2005 and December 31, 2004, respectively)   |  | $             | (8,216  | ) |                  | $ | (3,545  | )
|Weighted average contractual settlement rate                                                                 |  |               | 1.89    |   |                  |   | 1.89    |  
|Receive U.S. Dollars/pay euros                                                                               |  |               |         |   |                  |   |         |  
|Contract amount (10,710 and 12,925 notional amounts at March 31, 2005 and December 31, 2004, respectively) |  |               | (13,890 | ) |                  |   | (17,498 | )
|Weighted average contractual settlement rate                                                                 |  |               | 1.30    |   |                  |   | 1.32    |  
|                                                                                                             | 



Long-Term Intercompany Balances Foreign
exchange losses of $4.0 million and gains of $3.5 million for the first quarter of 2005 and 2004, respectively, arose from the revaluation of foreign-currency denominated long-term intercompany balances and were included in accumulated other
comprehensive income. There were no changes in long-term intercompany balances during the first quarter of 2005 other than the foreign exchange losses arising from revaluation.



FOREIGN CURRENCY TRANSLATION

We recognized translation adjustment gains of $0.5 million and losses of $2.5 million in the first quarter of 2005 and 2004, respectively. Accumulated translation losses included in accumulated other comprehensive income at March 31, 2005
and December 31, 2004 were $11.9 million and $12.4 million, respectively. Changes from the first quarter of 2004 to the first quarter of 2005 in the exchange rates used to translate the results of operations of subsidiaries with non-U.S. dollar
functional currencies resulted in increases in U.S. dollar reported revenue, selling, general and administrative expenses and depreciation of approximately $4.3 million, $1.1 million and $0.2 million, respectively.



---



|   |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|20 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 3



ITEM 4. CONTROLS AND PROCEDURES



Evaluation of
Disclosure Controls and Procedures



The Chief Executive Officer and Chief Financial
Officer have evaluated the effectiveness of the companys disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2005. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2005, these disclosure controls and procedures were effective.



Changes in Internal Control Over Financial Reporting



During the period covered by this report, there were no changes in the companys internal control over financial reporting identified in connection with managements
evaluation of the effectiveness of the companys internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the companys internal control over financial reporting.



PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS

We have been, and may continue to be, subject to legal claims from time to time in the ordinary course of our
business, including those related to alleged infringements of the intellectual property rights of third parties, such as the alleged failure to secure model or property releases for imagery we license, or the alleged failure to secure licenses or
permissions for intellectual property rights for which a third party claims patent rights. Claims may also include those brought by photographers and filmmakers relating to our handling of images submitted to us or to the companies we have acquired.
We have accrued a liability for the anticipated costs of defending, adjudicating or settling claims for which we believe a loss is probable. There are no pending legal proceedings to which we are a party or to which any of our property is subject
that, either individually or in the aggregate, are expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



None



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None



ITEM 5. OTHER INFORMATION



None



ITEM 6. EXHIBITS



Reference is made to the Index of
Exhibits beginning on page 22 for a list of all exhibits filed as part of this report.



---



|   |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|21 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 4



SIGNATURE



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



GETTY IMAGES, INC.By:

/s/    ELIZABETH J. HUEBNERElizabeth J. Huebner Senior Vice President and Chief Financial
Officer




May 5, 2005



---



|   |  |  |  |                    |  |  |  |          |  |  |  |           |  |           |  |  |  | 
|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | --------- |  |  |  | 
|22 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | SIGNATURE



EXHIBIT INDEX



|               |  |                                                                                                                                             
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibit                                                                                                                      
|               | 
|10.1           |  | Share sale agreement dated April 20, 2005 between Shisheido Anstalt and Getty Images (UK) Limited relating to Digital Vision Limited. 1     
|               | 
|10.2           |  | Intellectual property assignment agreement dated April 20, 2005 between Getty Images (Cayman) Limited and Digital Holding & Licensing S.A. 1
|               | 
|12.1           |  | Statement Regarding Computation of Ratio of Earnings to Fixed Charges                                                                       
|               | 
|31.1           |  | Section 302 Certification by Jonathan D. Klein, CEO                                                                                         
|               | 
|31.2           |  | Section 302 Certification by Elizabeth J. Huebner, CFO                                                                                      
|               | 
|32.1           |  | Section 906 Certification by Jonathan D. Klein, CEO                                                                                         
|               | 
|32.2           |  | Section 906 Certification by Elizabeth J. Huebner, CFO                                                                                      

|  |  |                                                                                                                           
|- |  | --------------------------------------------------------------------------------------------------------------------------
|  | 
|1 |  | Incorporated by reference from the Exhibits to the Registrants Amended Current Report on Form 8-K/A filed April 21, 2005.