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, 2001

OR



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

COMMISSION FILE NUMBER: 000-23747

GETTY IMAGES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

|                                  |  |                                                
|--------------------------------- |  | -----------------------------------------------
|DELAWARE
(STATE OF INCORPORATION) |  | 98-0177556
(I.R.S. EMPLOYER IDENTIFICATION NO.)

701 N. 34TH STREET
SUITE 400
SEATTLE, WASHINGTON 98103
(206) 268-2000

(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 [   ]

As of April 30, 2001 there were 51,173,544 shares of the registrants common
stock, par value $0.01 per share, outstanding.





---



GETTY IMAGES, INC. AND SUBSIDIARIES

INDEX

|          |                       |                                                                                                  |  |          |    | 
|--------- | --------------------- | ------------------------------------------------------------------------------------------------ |  | -------- | -- | 
|          |                       |                                                                                                  |  | PAGE NO.
|          |                       |                                                                                                  |  |         
|PART I    | FINANCIAL INFORMATION
|         
|         
|         
|         
|Item 1.   |                       | Financial Statements:                                                                           
|         
|         
|         
|         
|          |                       | Condensed Consolidated Statements of Operations -
for the quarters ended March 31, 2001 and 2000 |  |          | 2  | 
|         
|         
|         
|         
|          |                       | Condensed Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000                     |  |          | 3  | 
|         
|         
|         
|         
|          |                       | Condensed Consolidated Statement of Stockholders Equity -
March 31, 2001 and December 31, 2000  |  |          | 4  | 
|         
|         
|         
|         
|          |                       | Condensed Consolidated Statements of Cash Flows -
for the quarters ended March 31, 2001 and 2000 |  |          | 5  | 
|         
|         
|         
|         
|          |                       | Notes to Condensed Consolidated Financial Statements                                             |  |          | 6  | 
|         
|         
|         
|         
|Item 2.   |                       | Managements Discussion and Analysis of Financial
Condition and Results of Operations            |  |          | 9  | 
|         
|         
|         
|         
|Item 3.   |                       | Quantitative and Qualitative Disclosures about Market Risk                                       |  |          | 22 | 
|         
|         
|         
|         
|PART II   | OTHER INFORMATION     |                                                                                                 
|         
|         
|         
|         
|Item 1.   |                       | Legal Proceedings                                                                                |  |          | 23 | 
|         
|         
|         
|         
|Item 2.   |                       | Changes in Securities and Use of Proceeds                                                        |  |          | 23 | 
|         
|         
|         
|         
|Item 5.   |                       | Other Information                                                                                |  |          | 23 | 
|         
|         
|         
|         
|Item 6.   |                       | Exhibits and Reports on Form 8-K                                                                 |  |          | 23 | 
|         
|         
|         
|         
|SIGNATURE |                       |                                                                                                  |  |          | 24 | 

1



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GETTY IMAGES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

|                                                             |                                                 |      |                    |         |   |   |         |         |  
|------------------------------------------------------------ | ----------------------------------------------- | ---- | ------------------ | ------- | - | - | ------- | ------- | -
|                                                             |                                                 |      | Three months ended
|                                                             |                                                 |      | March 31,         
|(In thousands, except per share amounts)                     |                                                 | 2001 |                    | 2000   
|                                                             |                                                 |      |                    |        
|Sales                                                        |                                                 | $    | 125,787            |         |   | $ | 104,825 |        
|                                                            
|                                                            
|                                                            
|                                                            
|Cost of sales                                                |                                                 |      | 35,624             |         |   |   | 30,518  |        
|                                                             |                                                 |      |                    |         |   |   |         |        
|                                                             | Gross profit                                    |      |                    | 90,163  |   |   |         | 74,307  |  
|                                                            
|                                                            
|                                                            
|                                                            
|Selling, general and administrative expenses                 |                                                 |      | 61,526             |         |   |   | 60,429  |        
|                                                            
|                                                            
|                                                            
|                                                            
|Amortization of intangible assets                            |                                                 |      | 19,278             |         |   |   | 25,035  |        
|                                                            
|                                                            
|                                                            
|                                                            
|Depreciation                                                 |                                                 |      | 13,229             |         |   |   | 10,202  |        
|                                                            
|                                                            
|                                                            
|                                                            
|Integration costs                                            |                                                 |      | 3,977              |         |   |   | 4,191   |        
|                                                             |                                                 |      |                    |         |   |   |         |        
|                                                             | Loss from operations                            |      |                    | (7,847  | ) |   |         | (25,550 | )
|                                                            
|                                                            
|                                                            
|                                                            
|Interest expense                                             |                                                 |      | (4,389             | )       |   |   | (2,323  | )      
|                                                            
|                                                            
|                                                            
|                                                            
|Interest income                                              |                                                 |      | 518                |         |   |   | 1,241   |        
|                                                            
|                                                            
|                                                            
|                                                            
|Debt conversion expense                                      |                                                 |      |                   |         |   |   | (6,689  | )      
|                                                            
|                                                            
|                                                            
|                                                            
|Exchange loss, net                                           |                                                 |      | (301               | )       |   |   | (515    | )      
|                                                            
|                                                            
|                                                            
|                                                            
|Other income (expense), net                                  |                                                 |      | 91                 |         |   |   | (19     | )      
|                                                             |                                                 |      |                    |         |   |   |         |        
|                                                             | Loss before income taxes and extraordinary item |      |                    | (11,928 | ) |   |         | (33,855 | )
|                                                            
|                                                            
|                                                            
|                                                            
|Income tax (expense) benefit                                 |                                                 |      | (2,631             | )       |   |   | 1,134   |        
|                                                             |                                                 |      |                    |         |   |   |         |        
|                                                             | Loss before extraordinary item                  |      |                    | (14,559 | ) |   |         | (32,721 | )
|                                                            
|                                                            
|                                                            
|                                                            
|Extraordinary item, net of tax                               |                                                 |      |                   |         |   |   | 384     |        
|                                                             |                                                 |      |                    |         |   |   |         |        
|Net loss                                                     |                                                 | $    | (14,559            | )       |   | $ | (32,337 | )      
|                                                             |                                                 |      |                    |         |   |   |         |        
|Loss per share before extraordinary item  basic and diluted |                                                 | $    | (0.28              | )       |   | $ | (0.69   | )      
|                                                            
|                                                            
|                                                            
|                                                            
|Extraordinary item                                           |                                                 |      |                   |         |   |   | 0.01    |        
|                                                             |                                                 |      |                    |         |   |   |         |        
|Net loss per share  basic and diluted                       |                                                 | $    | (0.28              | )       |   | $ | (0.68   | )      
|                                                             |                                                 |      |                    |         |   |   |         |        
|Weighted-average shares outstanding  basic and diluted      |                                                 |      | 51,447             |         |   |   | 47,569  |        
|                                                             |                                                 |      |                    |         |   |   |         |        

The accompanying notes are an integral part of these condensed consolidated financial statements.

2



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GETTY IMAGES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

|                                     |                               |                                      |                                            |         |           |           |          |         |          |           | 
|------------------------------------ | ----------------------------- | ------------------------------------ | ------------------------------------------ | ------- | --------- | --------- | -------- | ------- | -------- | --------- | 
|                                     |                               |                                      |                                            |         | March 31, |           | Dec. 31,
|(In thousands)                       |                               | 2001                                 |                                            | 2000   
|                                     |                               |                                      |                                            |        
|ASSETS                              
|                                    
|                                    
|                                    
|                                    
|                                     | Current assets               
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Cash and cash equivalents            |                                            | $       | 52,020    |           |          | $       | 65,894   |          
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Accounts receivable, net             |                                            |         | 87,277    |           |          |         | 84,771   |          
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Inventories, net                     |                                            |         | 6,463     |           |          |         | 7,616    |          
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Deferred catalog costs               |                                            |         | 16,413    |           |          |         | 17,998   |          
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Prepaid expenses and other assets    |                                            |         | 24,412    |           |          |         | 21,664   |          
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Deferred income taxes, net           |                                            |         | 6,100     |           |          |         | 6,082    |          
|                                     |                               |                                      |                                            |         |           |           |          |        
|                                     |                               |                                      | Total current assets                       |         |           | 192,685   |          |         |          | 204,025   | 
|                                    
|                                    
|                                    
|                                    
|                                     | Property and equipment, net   |                                      |                                            | 140,024 |           |           |          | 140,793 |         
|                                    
|                                    
|                                    
|                                    
|                                     | Intangible assets, net        |                                      |                                            | 687,931 |           |           |          | 707,408 |         
|                                    
|                                    
|                                    
|                                    
|                                     | Investments                   |                                      |                                            | 4,741   |           |           |          | 4,751   |         
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred income taxes, net    |                                      |                                            | 44,205  |           |           |          | 43,659  |         
|                                     |                               |                                      |                                            |         |           |           |          |        
|                                     |                               |                                      | Total assets                               |         | $         | 1,069,586 |          |         | $        | 1,100,636 | 
|                                     |                               |                                      |                                            |         |           |           |          |        
|LIABILITIES AND STOCKHOLDERS EQUITY
|                                    
|                                    
|                                    
|                                    
|                                     | Current
liabilities          
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Accounts payable                     |                                            | $       | 62,934    |           |          | $       | 74,216   |          
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Accrued expenses                     |                                            |         | 45,761    |           |          |         | 51,424   |          
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Income taxes payable                 |                                            |         | 16,783    |           |          |         | 16,283   |          
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Current portion of long-term debt    |                                            |         | 808       |           |          |         | 739      |          
|                                     |                               |                                      |                                            |         |           |           |          |        
|                                     |                               |                                      | Total current liabilities                  |         |           | 126,286   |          |         |          | 142,662   | 
|                                    
|                                    
|                                    
|                                    
|                                     | Long-term debt                |                                      |                                            | 274,467 |           |           |          | 274,427 |         
|                                     |                               |                                      |                                            |         |           |           |          |        
|                                     |                               |                                      | Total liabilities                          |         |           | 400,753   |          |         |          | 417,089   | 
|                                     |                               |                                      |                                            |         |           |           |          |        
|                                     | Commitments and contingencies
|                                    
|                                    
|                                    
|                                    
|                                     | Stockholders
equity         
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Preferred stock                      |                                            |         |          |           |          |         |         |          
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Common stock                         |                                            |         | 510       |           |          |         | 508      |          
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Exchangeable preferred stock         |                                            |         | 5         |           |          |         | 5        |          
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Additional paid-in capital           |                                            |         | 960,508   |           |          |         | 957,108  |          
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Accumulated deficit                  |                                            |         | (279,985  | )         |          |         | (265,426 | )        
|                                    
|                                    
|                                    
|                                    
|                                     |                               | Accumulated other comprehensive loss |                                            |         | (12,205   | )         |          |         | (8,648   | )        
|                                     |                               |                                      |                                            |         |           |           |          |        
|                                     |                               |                                      | Total stockholders equity                 |         |           | 668,833   |          |         |          | 683,547   | 
|                                     |                               |                                      |                                            |         |           |           |          |        
|                                     |                               |                                      | Total liabilities and stockholders equity |         | $         | 1,069,586 |          |         | $        | 1,100,636 | 
|                                     |                               |                                      |                                            |         |           |           |          |        

The accompanying notes are an integral part of these condensed consolidated financial statements.

3



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GETTY IMAGES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(unaudited)

|                                                 |                    |       |               |           |              |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |         |   |  |   |         |         |  
|------------------------------------------------ | ------------------ | ----- | ------------- | --------- | ------------ | ----- | --------- | ----- | --------- | ------- | ------------ | ------- | ----------- | ---- | ------------- | ----- |  | - | ------- |  |  | - | ----------- | - |  | - | ------- | - |  | - | ------- | ------- | -
|                                                 |                    |       |               |           |              |       | Number of
|                                                 |                    |       | Number of     |           | shares of   
|                                                 |                    |       | shares of     |           | exchangeable |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   | Accumulated
|                                                 |                    |       | common stock, |           | preferred    |       |           |       |           |         | Exchangeable |         | Additional  |      |               |       |  |   | other  
|                                                 |                    |       | $0.01 par     |           | stock, no    |       | Common    |       | preferred |         | paid-in      |         | Accumulated |      | comprehensive
|(In thousands)                                   |                    | value |               | par value |              | stock |           | stock |           | capital |              | deficit |             | loss |               | Total
|                                                 |                    |       |               |           |              |       |           |       |           |         |              |         |             |      |               |      
|Balance at
December 31, 2000                     |                    |       | 50,806        |           |              |       | 534       |       |           | $       | 508          |         |             | $    | 5             |       |  | $ | 957,108 |  |  | $ | (265,426    | ) |  | $ | (8,648  | ) |  | $ | 683,547 |        
|                                                
|                                                
|                                                
|                                                
|Net loss                                         |                    |       |              |           |              |       |          |       |           |         |             |         |             |      |              |       |  |   |        |  |  |   | (14,559     | ) |  |   |        |   |  |   | (14,559 | )      
|                                                
|                                                
|                                                
|                                                
|Translation adjustment                           |                    |       |              |           |              |       |          |       |           |         |             |         |             |      |              |       |  |   |        |  |  |   |            |   |  |   | (3,557  | ) |  |   | (3,557  | )      
|                                                 |                    |       |               |           |              |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |         |   |  |   |         |        
|                                                 | Comprehensive loss |       |               |           |              |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |         |   |  |   |         | (18,116 | )
|                                                 |                    |       |               |           |              |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |         |   |  |   |         |        
|Stock options exercised                          |                    |       | 172           |           |              |       |          |       |           |         | 2            |         |             |      |              |       |  |   | 2,435   |  |  |   |            |   |  |   |        |   |  |   | 2,437   |        
|                                                
|                                                
|                                                
|                                                
|Tax benefit from employee
stock option exercises |                    |       |              |           |              |       |          |       |           |         |             |         |             |      |              |       |  |   | 572     |  |  |   |            |   |  |   |        |   |  |   | 572     |        
|                                                
|                                                
|                                                
|                                                
|Issuance of shares for
acquisition               |                    |       | 17            |           |              |       |          |       |           |         |             |         |             |      |              |       |  |   | 393     |  |  |   |            |   |  |   |        |   |  |   | 393     |        
|                                                
|                                                
|                                                
|                                                
|Exchange of shares                               |                    |       | 48            |           |              |       | (48       | )     |           |         |             |         |             |      |              |       |  |   |        |  |  |   |            |   |  |   |        |   |  |   |        |        
|                                                 |                    |       |               |           |              |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |         |   |  |   |         |        
|Balance at March 31, 2001                        |                    |       | 51,043        |           |              |       | 486       |       |           | $       | 510          |         |             | $    | 5             |       |  | $ | 960,508 |  |  | $ | (279,985    | ) |  | $ | (12,205 | ) |  | $ | 668,833 |        
|                                                 |                    |       |               |           |              |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |         |   |  |   |         |        

The accompanying notes are an integral part of these condensed consolidated financial statements.

4



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GETTY IMAGES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

|                                                           |                                           |      |                    |         |   |   |          |          |  
|---------------------------------------------------------- | ----------------------------------------- | ---- | ------------------ | ------- | - | - | -------- | -------- | -
|                                                           |                                           |      | Three months ended
|                                                           |                                           |      | March 31,         
|(In thousands)                                             |                                           | 2001 |                    | 2000   
|                                                           |                                           |      |                    |        
|CASH FLOWS FROM OPERATING ACTIVITIES                      
|                                                          
|                                                          
|                                                          
|                                                          
|Net cash provided by (used in) operating activities        |                                           | $    | 312                |         |   | $ | (2,604   | )       
|                                                           |                                           |      |                    |         |   |   |          |         
|CASH FLOWS FROM INVESTING ACTIVITIES                      
|                                                          
|                                                          
|                                                          
|                                                          
|Acquisition of business, net of cash acquired              |                                           |      | (737               | )       |   |   | (220,716 | )       
|                                                          
|                                                          
|                                                          
|                                                          
|Acquisition of property and equipment                      |                                           |      | (16,620            | )       |   |   | (12,658  | )       
|                                                          
|                                                          
|                                                          
|                                                          
|Proceeds from the sale of long-lived assets                |                                           |      | 2,250              |         |   |   |         |         
|                                                          
|                                                          
|                                                          
|                                                          
|Other, net                                                 |                                           |      | (556               | )       |   |   | 369      |         
|                                                           |                                           |      |                    |         |   |   |          |         
|                                                           | Net cash used in investing activities     |      |                    | (15,663 | ) |   |          | (233,005 | )
|                                                           |                                           |      |                    |         |   |   |          |         
|CASH FLOWS FROM FINANCING ACTIVITIES                      
|                                                          
|                                                          
|                                                          
|                                                          
|Proceeds from the issuance of long-term debt               |                                           |      |                   |         |   |   | 250,000  |         
|                                                          
|                                                          
|                                                          
|                                                          
|Proceeds from the issuance of common stock                 |                                           |      | 2,437              |         |   |   | 6,338    |         
|                                                          
|                                                          
|                                                          
|                                                          
|Payment of debt issuance costs                             |                                           |      |                   |         |   |   | (7,908   | )       
|                                                          
|                                                          
|                                                          
|                                                          
|Payment of debt conversion costs                           |                                           |      |                   |         |   |   | (6,689   | )       
|                                                          
|                                                          
|                                                          
|                                                          
|Repayment of debt                                          |                                           |      | (92                | )       |   |   | (2,650   | )       
|                                                          
|                                                          
|                                                          
|                                                          
|Other, net                                                 |                                           |      |                   |         |   |   | 100      |         
|                                                           |                                           |      |                    |         |   |   |          |         
|                                                           | Net cash provided by financing activities |      |                    | 2,345   |   |   |          | 239,191  |  
|                                                           |                                           |      |                    |         |   |   |          |         
|Effect of exchange rate differences                        |                                           |      | (868               | )       |   |   | (3,883   | )       
|                                                           |                                           |      |                    |         |   |   |          |         
|Net decrease in cash and cash equivalents                  |                                           |      | (13,874            | )       |   |   | (301     | )       
|                                                          
|                                                          
|                                                          
|                                                          
|Cash and cash equivalents at beginning of period           |                                           |      | 65,894             |         |   |   | 105,356  |         
|                                                           |                                           |      |                    |         |   |   |          |         
|Cash and cash equivalents at end of period                 |                                           | $    | 52,020             |         |   | $ | 105,055  |         
|                                                           |                                           |      |                    |         |   |   |          |         
|NON-CASH INVESTING ACTIVITIES                             
|                                                          
|                                                          
|                                                          
|                                                          
|Conversion of notes to common stock, net of issuance costs |                                           | $    |                   |         |   | $ | 60,421   |         
|                                                          
|                                                          
|                                                          
|                                                          
|Acquisition of business for common stock                   |                                           |      | 393                |         |   |   | 2,300    |         

The accompanying notes are an integral part of these condensed consolidated financial statements.

5



---






NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

The condensed consolidated financial statements and notes have been prepared by
the Company without audit. Certain information and footnote disclosures
normally included in annual financial statements, prepared in accordance with
accounting principles generally accepted in the United States of America
(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 statements include all necessary adjustments, which are of a
normal and recurring nature and are adequate to present results of operations,
financial position and cash flows for the interim periods. Significant
intercompany balances and transactions have been eliminated. Certain prior year
amounts have been reclassified to conform to the current years presentation
with no effect on previously reported losses. The condensed information should
be read in conjunction with the financial statements and notes incorporated by
reference in the Companys latest annual report on Form 10-K.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the 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 the condensed
consolidated financial statements and the revenues and expenses reported during
the period. Actual results may vary from those estimates.

EARNINGS PER SHARE

Basic earnings per share is calculated based upon the weighted-average number
of shares outstanding during each period. For the periods in which the Company
incurred a net loss, diluted earnings per share were calculated based on the
same shares as basic earnings per share. All stock options and convertible
securities are excluded from the computation because of their antidilutive
effect.

ACCRUED ACQUISITION COSTS

Included in the net assets of Visual Communications Group (VCG) that were
acquired in March of 2000 were accrued costs of $5.8 million related to plans
to exit activities and to terminate or relocate employees of VCG. These costs
were recognized as liabilities and were included in the allocation of the
acquisition cost. During 2000 and the first quarter of 2001, the Company paid
cash of $3.1 million and $0.3 million, respectively, in connection with actions
taken. Accrued costs of $2.4 million remain at March 31, 2001, consisting
mainly of costs under lease agreements that no longer benefit the Company and
that will be paid in future periods. These costs will be charged against the
accruals as they are paid.

Included in the net assets of The Image Bank, Inc. (TIB) that were acquired in
November of 1999 were accrued costs of $3.2 million related to plans to exit
activities and to terminate or relocate employees of TIB. These costs were
recognized as liabilities and were included in the allocation of the
acquisition cost. During 2000, the Company increased these accrued costs by
$1.5 million in conjunction with modifications of the plans. During 2000 and
the first quarter of 2001, the Company paid cash of $3.5 million and $0.5
million, respectively, in connection with actions taken. Accrued costs of $0.7
million remain at March 31, 2001, consisting mainly of costs under lease
agreements that no longer benefit the Company and that will be paid in future
periods. These costs will be charged against the accruals as they are paid.



6



---



INTEGRATION COSTS

In 1999, the Company commenced integration of all of the
Companys then existing businesses
following the acquisition of TIB and Art.com. Integration actions taken in the
first quarter of 2000 and the related costs were as follows: $2.6 million for
the review of processes and resultant actions to implement processes that would
benefit the fully-integrated company going forward; $1.0 million for consulting
and other professional assistance in determining what functions and facilities
should be combined; and $0.6 million for contract re-negotiations and
terminations. These actions and related costs were not incurred as a direct
result of a formal restructuring plan and as such, were expensed as incurred
during the quarter ended March 31, 2000.

Subsequent to the VCG acquisition in 2000, management determined that further
integration of the Companys operations and facilities was necessary to
eliminate duplicate facilities and functions and to take advantage of
opportunities for further leveraging cost and technology platforms. Integration
costs incurred during the first quarter of 2001 totaled $4.0 million,
including: $1.9 million for the termination of approximately 40 employees; $1.4
million for the abandonment of facilities; $0.4 million for the review of
processes and resultant actions to implement processes that would benefit the
fully-integrated company going forward; $0.2 million for consulting and other
professional assistance in determining what functions and facilities should be
combined; and $0.1 million for asset impairments. These costs were expensed as
incurred during the quarter ended March 31, 2001, as they were not incurred as
a direct result of a formal restructuring plan.

LONG-TERM DEBT AND DEBT CONVERSION EXPENSE

In March 2000, the Company redeemed $62.3 million of the then outstanding $75.0
million of 4.75% convertible subordinated notes, and issued 2,187,034 shares of
the Companys common stock in redemption of such notes. In connection with the
redemption, the Company paid the note holders a cash premium of approximately
$6.7 million. This premium is included in the Condensed Consolidated Statement
of Operations as debt conversion expense. The carrying value of the converted
debt, net of issuance costs of $1.9 million, was credited to common stock and
additional paid-in capital.

On March 13, 2000, the Company issued $250.0 million of 5% convertible
subordinated notes due March 15, 2007. These notes are convertible into common
stock at $61.08 per share and are subordinated to senior indebtedness of the
Company and to all debt and liabilities, including trade payables and lease
obligations, if any, of the Companys subsidiaries. The 5% notes rank equal in
right of payment to the remaining 4.75% notes that were not converted into
common stock. The Company may redeem the notes, in whole or in part, at any
time on or after March 20, 2003 at specified redemption prices ranging from
102.857% beginning on March 20, 2003 to 100.714% beginning on March 15, 2006.
Interest on the notes is payable on March 15 and September 15 of each year.

EXTRAORDINARY ITEM

In January 2000, a subsidiary of the Company retired $3.3 million of debt at a
discount prior to maturity. This resulted in an extraordinary gain of $0.4
million, net of income taxes of $0.3 million, or $0.01 per share.

7



---



BUSINESS SEGMENTS

As a provider of visual content, the Company operates in one business segment.
Due to the nature of the operations of the Company, sales are made to a diverse
client base and there is no reliance on a single customer or group of
customers. Sales are reported in the geographic area where they originate.
Sales to customers by geographic area, which are subject to the impact of
translation differences and therefore are not necessarily reflective of the
relative performance of individual areas, are summarized below:

|               |             |      |                    |         |  |   |        |         | 
|-------------- | ----------- | ---- | ------------------ | ------- |  | - | ------ | ------- | 
|               |             |      | Three months ended
|               |             |      | March 31,         
|(In thousands) |             | 2001 |                    | 2000   
|               |             |      |                    |        
|Americas       |             | $    | 74,085             |         |  | $ | 63,287 |        
|              
|              
|              
|              
|Europe         |             |      | 45,834             |         |  |   | 36,639 |        
|              
|              
|              
|              
|Rest of world  |             |      | 5,868              |         |  |   | 4,899  |        
|               |             |      |                    |         |  |   |        |        
|               | Total sales |      | $                  | 125,787 |  |   | $      | 104,825 | 
|               |             |      |                    |         |  |   |        |        

INCOME TAXES

The effective tax rate used to calculate income tax expense for the first
quarter of 2001 was 39.2% on income before non-deductible amortization of
goodwill, while the rate used to calculate the income tax benefit for the first
quarter of 2000 was 39.6% on income before non-deductible amortization of
goodwill.

RECENT ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS No. 137 and No. 138, which requires
recognition of all derivatives as either assets or liabilities on the balance
sheet at fair value. The adoption of this statement did not have a significant
impact on the results of operations, financial position or cash flows of the
Company.

8



---






Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations

THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO AND OTHER FINANCIAL
INFORMATION CONTAINED ELSEWHERE AND INCORPORATED BY REFERENCE IN THIS REPORT ON
FORM 10-Q, INCLUDING OUR ANNUAL REPORT ON FORM 10-K. IN THE FOLLOWING
DISCUSSION, WE, US, OUR AND THE COMPANY REFER TO GETTY IMAGES, INC. AND
ITS CONSOLIDATED SUBSIDIARIES.

THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A SAFE HARBOR FOR
FORWARD-LOOKING STATEMENTS MADE BY OR ON BEHALF OF GETTY IMAGES, INC. THIS
QUARTERLY REPORT ON FORM 10-Q AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE CONTAIN FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS,
ESTIMATES AND PROJECTIONS ABOUT GETTY IMAGES, INC.S INDUSTRY, MANAGEMENTS
BELIEFS, AND CERTAIN ASSUMPTIONS MADE BY MANAGEMENT. ALL STATEMENTS, TRENDS,
ANALYSES AND OTHER INFORMATION CONTAINED IN THIS REPORT RELATIVE TO TRENDS IN
SALES, GROSS MARGIN, ANTICIPATED EXPENSE LEVELS, CAPITAL EXPENDITURES, AND
LIQUIDITY AND CAPITAL RESOURCES, AS WELL AS OTHER STATEMENTS INCLUDING, BUT NOT
LIMITED TO, WORDS SUCH AS ANTICIPATE, BELIEVE, PLAN, ESTIMATE,
EXPECT, SEEK, INTEND AND OTHER SIMILAR EXPRESSIONS, CONSTITUTE
FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES
OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT
ARE DIFFICULT TO PREDICT. ACCORDINGLY, ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE ANTICIPATED OR EXPRESSED IN SUCH STATEMENTS. POTENTIAL RISKS AND
UNCERTAINTIES INCLUDE, AMONG OTHERS, THOSE SET FORTH UNDER FACTORS THAT MAY
AFFECT THE BUSINESS BELOW. EXCEPT AS REQUIRED BY LAW, THE COMPANY UNDERTAKES
NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF
NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. READERS, HOWEVER, SHOULD CAREFULLY
REVIEW THE FACTORS SET FORTH IN OTHER REPORTS OR DOCUMENTS THAT THE COMPANY
FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION.

GENERAL

The Company is a leading e-commerce provider of visual content and related
products and services to creative professionals at advertising agencies,
graphic design firms, corporations and broadcasting companies; press and
editorial customers involved in newspaper, magazine, book, CD-ROM and online
publishing; and business users and small office/home office users worldwide. We
work with more than 4,500 active, contributing photographers and an estimated
850 cinematographers and film producers to obtain or create our content. We
control an estimated 70 million still images and an estimated 30,000 hours of
film footage.

Our revenue is derived from granting rights to use images and from providing
related services. Revenue principally consists of a large number of relatively
small transactions involving granting rights to use single images, video and
film clips or CD-ROM products containing between 100 and 300 images. We also
generate revenue from subscription or bulk purchase agreements where customers
are provided access to imagery online. We use a variety of distribution
platforms, including digital distribution via the Internet and CD-ROMs as well
as analog distribution of 35mm film, video and analog transparencies. Price is
generally determined by resolution size and the extent of rights granted over
the use of the image or clip and can vary significantly across geographic
markets and customer groups.

Our cost of sales primarily consists of commission payments to contributing
photographers and cinematographers. These suppliers are under contract with
subsidiaries of the Company and receive payments of up to 50% of the sales
value, depending on the type of image and where and how the image is delivered.
We own a significant number of the images in our collections, and these images
do not require commission payments. Cost of sales also includes, to the extent
applicable, shipping and handling costs for duplicate transparencies, the costs
of CD-ROM production and costs associated with framing and shipping art
products. As a result, our gross margin is impacted by the mix of sales
conducted digitally on the Internet, sales of wholly owned imagery, geographic
distribution of sales and brand sales mix.

9



---



ACQUISITION

On March 22, 2000, the Company acquired Visual Communications Group Holdings,
Ltd., VCG Holdings LLC, Definitive Stock, Inc. and Visual Communications Group
Deutschland GmbH. These acquired companies are collectively referred to as VCG,
and provide stock photography, specialty image collections and news and feature
photography internationally. The total purchase price was $226.9 million,
including $204.7 million in cash, $18.7 million in debt assumed and paid and
$3.5 million in related transaction costs. Net assets of $1.1 million were
acquired, as well as $25.8 million in identifiable intangibles that are
amortized over their useful lives ranging from five to 10 years. The remaining
goodwill of $200.0 million is amortized over 10 years. The transaction was
accounted for by the purchase method of accounting, and accordingly, the
results of operations of the acquired company are consolidated in the Companys
financial statements from the date of acquisition.

INTEGRATION COSTS

In 1999, the Company commenced integration of all of the
Companys then existing businesses
following the acquisition of TIB and Art.com. Integration actions taken in the
first quarter of 2000 and the related costs were as follows: $2.6 million for
the review of processes and resultant actions to implement processes that would
benefit the fully-integrated company going forward; $1.0 million for consulting
and other professional assistance in determining what functions and facilities
should be combined; and $0.6 million for contract re-negotiations and
terminations. These actions and related costs were not incurred as a direct
result of a formal restructuring plan and as such, were expensed as incurred
during the quarter ended March 31, 2000.

Subsequent to the VCG acquisition in 2000, management determined that further
integration of the Companys operations and facilities was necessary to
eliminate duplicate facilities and functions and to take advantage of
opportunities for further leveraging cost and technology platforms. Integration
costs incurred during the first quarter of 2001 totaled $4.0 million,
including: $1.9 million for the termination of approximately 40 employees; $1.4
million for the abandonment of facilities; $0.4 million for the review of
processes and resultant actions to implement processes that would benefit the
fully-integrated company going forward; $0.2 million for consulting and other
professional assistance in determining what functions and facilities should be
combined; and $0.1 million for asset impairments. These costs were expensed as
incurred during the quarter ended March 31, 2001, as they were not incurred as
a direct result of a formal restructuring plan.

DEBT CONVERSION EXPENSE

In March 2000, the Company redeemed $62.3 million of the then outstanding $75.0
million of 4.75% convertible subordinated notes, and issued 2,187,034 shares of
the Companys common stock in redemption of such notes. In connection with the
redemption, the Company paid the note holders a cash premium of approximately
$6.7 million. This premium is included in the Condensed Consolidated Statement
of Operations as debt conversion expense. The carrying value of the converted
debt, net of issuance costs of $1.9 million, was credited to common stock and
additional paid-in capital.

EXTRAORDINARY ITEM

In January 2000, a subsidiary of the Company retired $3.3 million of debt at a
discount prior to maturity. This resulted in an extraordinary gain of $0.4
million, net of income taxes of $0.3 million, or $0.01 per share.

10



---



RESULTS OF OPERATIONS

Three months ended March 31, 2001 vs. 2000

Below are selected highlights from the Companys results of operations:

|                                             |  |                              |         |       |  |      |       |       |  |   |         |      |  |  |       |  
|-------------------------------------------- |  | ---------------------------- | ------- | ----- |  | ---- | ----- | ----- |  | - | ------- | ---- |  |  | ----- | -
|                                             |  | Three months ended March 31,
|                                             |  |                             
|                                             |  |                              |         |       |  | % of |       |       |  |   |         | % of
|(In thousands, except percentages)           |  | 2001                         |         | sales |  | 2000 |       | sales
|                                             |  |                              |         |       |  |      |       |      
|Sales                                        |  | $                            | 125,787 |       |  |      | 100.0 |       |  | $ | 104,825 |      |  |  | 100.0 |  
|                                            
|                                            
|                                            
|                                            
|Gross profit                                 |  |                              | 90,163  |       |  |      | 71.7  |       |  |   | 74,307  |      |  |  | 70.9  |  
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |  |                              | (61,526 | )     |  |      | (48.9 | )     |  |   | (60,429 | )    |  |  | (57.6 | )
|                                            
|                                            
|                                            
|                                            
|Amortization of intangible assets            |  |                              | (19,278 | )     |  |      | (15.3 | )     |  |   | (25,035 | )    |  |  | (23.9 | )
|                                            
|                                            
|                                            
|                                            
|Depreciation                                 |  |                              | (13,229 | )     |  |      | (10.5 | )     |  |   | (10,202 | )    |  |  | (9.7  | )
|                                            
|                                            
|                                            
|                                            
|Income tax (expense) benefit                 |  |                              | (2,631  | )     |  |      | (2.1  | )     |  |   | 1,134   |      |  |  | 1.1   |  
|                                            
|                                            
|                                            
|                                            
|Net loss                                     |  |                              | (14,559 | )     |  |      | (11.6 | )     |  |   | (32,337 | )    |  |  | (30.8 | )
|                                             |  |                              |         |       |  |      |       |       |  |   |         |      |  |  |       |  
|                                            
|                                            
|                                            
|                                            
|EBITDA                                       |  | $                            | 28,637  |       |  |      | 22.8  |       |  | $ | 13,878  |      |  |  | 13.2  |  

NET LOSS

The Company recognized a net loss of $14.6 million, or $0.28 per share, during
the first quarter of 2001 as compared to a net loss of $32.3 million, or $0.68
per share, during the same period in 2000. Excluding extraordinary items, the
Company recognized a net loss of $32.7 million, or $0.69 per share, for the
first quarter of 2000.

SALES

Sales of $125.8 million for the first quarter of 2001 were up $21.0 million or
20% over first quarter 2000 sales of $104.8 million. The Company experienced
growth in nearly all geographies, with sales in the Americas growing $10.8
million or 17% and sales in Europe growing $9.2 million or 25%. Growth was
realized across most brands, with particularly strong sales from Stone.
Stone sales increased mainly due to increased customer usage of e-commerce as a
means of selecting and taking delivery of images. This sales growth reflected
mainly volume increases, but sales price increases were reflected as well. VCG
sales also increased significantly over the first quarter of 2000, however,
this was due mainly to the inclusion of a full quarter of sales for
VCG in 2001, as compared to only nine days in 2000.

Although the Companys sales grew year over year, sales for the first quarter of 2001 were lower than
expected across all of the Companys brands. We believe this shortfall
resulted from the slowdown in the U.S. economy and particularly from delays and
cancellations in marketing and advertising spending. Many of our domestic customers have
expressed limited visibility regarding their outlook for marketing and
advertising expenses for the remainder of the year. With respect to customers in overseas markets, the Company is cautious about sales levels
towards the second half of the year. We believe the slowdown in the U.S.
economy could have a delayed impact on these markets, particularly Australia
and Europe.

GROSS PROFIT

The Companys gross profit was $90.2 million or 71.7% of net sales for the
first quarter of 2001, an increase over gross profit of $74.3 million or 70.9 %
of net sales for the same period in 2000. The increase in gross margin in the
current period was due to a larger percentage of sales of higher margin items,
mainly wholly owned images, in the sales mix and a lower percentage of lower
margin sales from businesses such as Art.com.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $61.5 million for the first
quarter of 2001, an increase of $1.1 million from $60.4 million for the first
quarter of 2000. This increase resulted primarily from the inclusion of a full
quarter of expense for VCG in 2001, as compared to only nine days in 2000. As a
percentage of net sales, selling, general and administrative expenses decreased
to 49%, down from 58% in the year ago

11



---



period. This decrease resulted from the Companys ongoing efforts to reduce
overall costs and increase efficiencies.

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA)

For the Company, EBITDA is defined as earnings before interest, income taxes,
depreciation, amortization, exchange gains and losses and, when applicable,
loss on impairment of long-lived assets, debt conversion expense, integration
and restructuring costs, extraordinary items and other income and expenses.
This figure can more easily be calculated as gross profit less selling, general
and administrative expenses in the periods presented. Due to our various
acquisitions and the related impact on net loss, we believe that EBITDA
provides an appropriate measure of our operating performance. EBITDA should
not, however, be considered as an alternative to operating income as an
indicator of our operating performance, or to cash flows as a measure of our
liquidity.

EBITDA for the first quarter of 2001 was $28.6 million or 22.8% of net sales,
as compared to $13.9 million or 13.2% of net sales for the first quarter of
2000. The increase in EBITDA and EBITDA margin resulted from improvements in
gross margins and declining selling, general and administrative expenses as a
percentage of sales.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization of intangible assets decreased to $19.3 million in the first
quarter of 2001 from $25.0 million in the same period in 2000, due mainly to
the elimination of goodwill amortization related to Art.com. After performing a
cash flow analysis in the fourth quarter of 2000 of Art.com and a related
business that operates as a division of Art.com, the Company determined that
the long-lived assets were impaired. As a result, the Company wrote off $53.4
million of Art.com goodwill.

We expect that the amortization of intangible assets will result in substantial charges
against our earnings in future periods, including approximately $72 million
and $71 million in 2001 and 2002, respectively, based on unamortized balances
at March 31, 2001. Any additional acquisitions involving intangibles, fair value adjustments or disposals
of intangibles could materially impact these amounts.

DEPRECIATION

Depreciation expense increased to $13.2 million in the first quarter of 2001
from $10.2 million in the first quarter of 2000. The increase was primarily
related to business acquisitions in 2000, together with increased capital
expenditures related to the continued development of technology assets related
to our web-based sales strategy and an increase in our capitalized costs of
image digitization. The Company expects depreciation expense in 2001 and beyond
to continue to increase as a result of these increased investments.

INCOME TAXES

The effective tax rate used to calculate income tax expense for the first
quarter of 2001 was 39.2% on income before non-deductible amortization of
goodwill, while the rate used to calculate the income tax benefit for the first
quarter of 2000 was 39.6% on income before non-deductible amortization of
goodwill. Income taxes increased from a $1.1 million benefit for the first
quarter of 2000 to a $2.6 million expense for the first quarter of 2001 due to
the increase in income before non-deductible amortization of goodwill.

RECENT ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS No. 137 and No. 138, which requires
recognition of all derivatives as either assets or liabilities on the balance
sheet at fair value. The adoption of this statement did not have a significant
impact on the results of operations, financial position or cash
flows of the Company.

12



---



FINANCIAL CONDITION

At March 31, 2001, the Company held $52.0 million in cash and cash equivalents
and had credit facilities under a bank line of credit totaling $100.0 million,
of which $80.0 million was unused.

WORKING CAPITAL

At March 31, 2001, the Companys working capital was $66.4 million, an increase
of $5.0 million from working capital of $61.4 million at the end of 2000.
Current assets decreased $11.3 million during the first quarter of 2001,
resulting mainly from a decrease in cash and cash equivalents. Current
liabilities decreased $16.4 million during the first quarter of 2001, due
mainly to the payment of accounts payable and accrued expenses.

Cash and cash equivalents decreased $13.9 million during the first quarter of
2001. Significant uses of cash included $16.6 million in capital expenditures,
$14.3 million in the payment of accounts payable and accrued expenses,
including $6.7 million in interest payments, and $4.2 million in prepaid
expenses and other assets. Significant cash inflows included $2.4 million in
proceeds from the issuance of common stock due to stock option
exercises, $2.3
million in proceeds from the sale of certain assets of a French subsidiary, as
well as cash receipts from customers.

LIQUIDITY AND CAPITAL RESOURCES

The Company expects to invest approximately $75.0 million in capital
expenditures during 2001, including the $16.6 million invested during the first
quarter. Existing cash balances and cash flows provided by operating activities
and borrowing capacity are expected to be sufficient to fund operations,
capital expenditures and long-term debt requirements for at least the following
12 months. However, we continue to seek opportunities to grow both organically
and by acquisition. Accordingly, we may be required, or we may elect, to raise
additional funds through debt or equity offerings in addition to the sources
mentioned above to finance acquisitions, as we did in the first quarter of 2000
to fund the acquisition of VCG. On March 13, 2000, the Company issued $250.0
million of 5% convertible subordinated notes due March 15, 2007 to fund this
acquisition.

FACTORS THAT MAY AFFECT THE BUSINESS

IN ADDITION TO OTHER INFORMATION IN THIS QUARTERLY REPORT ON FORM 10-Q, THE
FOLLOWING IMPORTANT FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING OUR
COMPANY BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT IMPACT OR MAY HAVE A
SIGNIFICANT IMPACT ON OUR BUSINESS, PROSPECTS, FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND CASH FLOWS. THE FOLLOWING LIST IS NOT INTENDED TO BE EXHAUSTIVE.

IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE COMPANIES WE ACQUIRE, INCLUDING
VISUAL COMMUNICATIONS GROUP (VCG) AND THE IMAGE BANK (TIB), OUR BUSINESS COULD
BE ADVERSELY AFFECTED.

As a result of the acquisition strategy we have pursued since our inception in
1995, our senior management has focused significant attention on integrating
acquired businesses. Our future performance will largely depend on our ability
to integrate the operations of acquired companies, particularly VCG (acquired
in March 2000) and TIB (acquired in November 1999). These acquisitions create
risks such as:



| |  |  | disruption of our ongoing business;                                                                                                                                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | difficulty assimilating the operations, including financial and
accounting functions, sales and marketing procedures, technology and
other corporate administrative functions of the combined companies;
|
| |  |  | diversion of attention of our senior management from existing
operations and other potential business opportunities;                                                                                    
|
| |  |  | challenges associated with converting content from the analog
format to digital format, particularly the core collections of TIB
and VCG;                                                               

13



---





| |  |  | problems combining personnel of the acquired companies with our
existing personnel; and
| | - |  | ---------------------------------------------------------------------------------------
|
| |  |  | problems retaining key employees from the acquired companies.                          

We cannot guarantee that we will successfully integrate VCG or TIB or any other
acquired companies with our business.

FAILURE TO MANAGE CHANGE MAY ADVERSELY AFFECT OUR BUSINESS.

The changes that have occurred, and that we anticipate may continue to occur,
in our industry and operations have and may continue to place a significant
strain on our resources, particularly in light of the fact that we conduct
business around the world. To manage this change, we are implementing new
operational and financial systems and procedures and controls, are attempting
to train and upgrade our employee base, and are working to ensure close
coordination among our technical, accounting, finance, marketing, sales and
editorial staffs.

WE MAY LOSE CUSTOMERS IF WE ARE UNABLE TO DETERMINE CURRENT OR FUTURE TRENDS AND
MAINTAIN UP-TO-DATE CONTENT IN OUR COLLECTIONS.

Our future performance depends on our ability to review and refresh our
collections based on current and future trends in order to provide our
customers with the most up-to-date content. Many of our customers are sensitive
to the latest trends and require new and fashionable content to meet their
needs. If we are unable to determine such trends and add new imagery, or fail
to do so in a timely manner, customers requiring such content may use other
visual content providers to obtain imagery.

ACQUISITION-RELATED CHARGES AND RESTRUCTURING COSTS COULD HAVE AN ADVERSE
IMPACT ON OUR OPERATING RESULTS.

Our operating results and earnings in future periods may be adversely affected
as a result of acquisition-related charges, including:



| |  |  | significant goodwill amortization charges;          
| | - |  | ----------------------------------------------------
|
| |  |  | transaction costs; and                              
|
| |  |  | other related restructuring and integration charges.

We could be required to write-down the unamortized value of such goodwill in
the future at an accelerated rate in the event that it suffers an impairment in
value. For example, in the fourth quarter of 2000, the Company determined that
long-lived assets were impaired and wrote off $53.4 million of Art.com
goodwill. Future acquisitions by us, if any, could generate goodwill and other
intangibles that could result in similar charges to be amortized or
written off against our
future earnings.

We incurred net integration and restructuring costs of $41.6 million during
1998, 1999 and 2000, and $4.0 million during the first quarter of 2001,
following the plans to integrate all our businesses and to otherwise
restructure and reorganize our business to try to best serve our customers and
develop our business. Further integration of our existing businesses and
businesses we may acquire in the future may result in similar or greater
integration and restructuring costs, which will negatively affect our future
earnings.

OUR QUARTERLY FINANCIAL RESULTS MAY FLUCTUATE.

Historical trends and quarter-to-quarter comparisons of our operating results
may not be good indicators of our future performance. It is possible that some
future quarterly results may be below the expectations of public market
analysts and investors. For instance, on April 25, 2001, we announced that our
first quarter results were below these expectations. In this event, the effect on the trading prices of our subordinated
notes and our common stock may be difficult to predict. Our revenues and
operating results are expected to vary from quarter-to-quarter due to a number
of factors, including:



| |  |  | demand for our products;
| | - |  | ------------------------





14



---





| |  |  | our ability to continue to move customers to the digital
distribution of imagery;                                                                                          
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in sales mix, including the mix of sales of analog and
digital imagery, wholly-owned and licensed imagery, and the
geographic and brand distribution of such sales;
|
| |  |  | our ability to attract visitors to our Websites and the
frequency of repeat purchases by our customers;                                                                    
|
| |  |  | shifts in the nature and amount of publicity about us, our
competitors or the visual content industry;                                                                     
|
| |  |  | changes in the growth rate of Internet commerce;                                                                                                                           
|
| |  |  | our ability to enhance our technology to accommodate any future
growth in our operations or customers;                                                                     
|
| |  |  | changes in our pricing policies or the pricing policies of our
competitors;                                                                                                
|
| |  |  | changes in government regulation;                                                                                                                                          
|
| |  |  | costs related to potential acquisitions of technology or
businesses;                                                                                                       
|
| |  |  | changes in U.S. and global financial and equity markets; and                                                                                                               
|
| |  |  | changes in U.S., global or regional economic and political
conditions.                                                                                                     

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST OUR EXISTING OR POTENTIAL
COMPETITORS.

The visual content industry is highly competitive. We compete directly with a
number of large and small visual content companies and commissioned
photographers to provide imagery to businesses and consumers.

We believe that the principal competitive factors in the visual content
industry are name recognition, company reputation, the quality, relevance and
diversity of the images, the quality of the contributing photographers and
cinematographers under contract with a company, effective use of developing
technology, customer service, pricing, accessibility of imagery, distribution
capability and speed of fulfillment.

Some of our existing and potential competitors may have significantly greater
financial, marketing and other resources or greater name recognition than we
have. Some of these competitors may be able to respond more quickly to new or
expanding technology and devote more resources to the development or promotion
of their services than we can. In addition, possible new entrants into the
visual content industry could increase if technological advances make
archiving, searching and digital delivery systems more affordable.

We cannot guarantee that we will be able to compete successfully against
existing or potential competitors.

WE MAY NOT BE ABLE TO TAKE ADVANTAGE OF THE GROWTH OF NEW MARKETS.

Our strategy depends largely on our ability to attract customers to our
Websites and to encourage and take advantage of the growth of new markets. We
will continue to seek strategic alliances and acquisitions to create new
markets, products and services. We believe that our ability to facilitate
market acceptance of our imagery, related products and services and our brands,
and enhance our sales and marketing capabilities depends on our ability to
develop and maintain Internet-related strategic alliances and acquisitions. The
market for Internet-related alliances and acquisitions can be competitive and
we cannot guarantee that we will be successful in negotiating additional
alliances or acquisitions on favorable terms, if at all. We also cannot be sure
that any such alliances or acquisitions will assist us in attaining our goals.



15



---



THE SUCCESS OF OUR BUSINESS DEPENDS ON THE GROWTH IN DEMAND FOR THE DIGITAL
DOWNLOAD OF VISUAL CONTENT.

The success of our business depends on the continued and increasing acceptance
of the digital download method for purchasing visual content. The growth and
market acceptance of digital download is subject to a number of factors,
including:



| |  |  | the availability of sufficient network bandwidth to enable
purchasers to rapidly download images;                                               
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the number of relevant images available for purchase through
digital download as compared to those available through traditional
analog methods;
|
| |  |  | the level of customer comfort with the process of downloading
visual content;                                                                   
|
| |  |  | the relative ease of the downloading process;                                                                                                   
|
| |  |  | concerns about the security of online transactions; and                                                                                         
|
| |  |  | specific customer requirements that dictate the continued
reliance on analog imagery.                                                           

Our strategy is based in part on increasing acceptance of the Internet as a
method for distributing images. We may not overcome future technical challenges
associated with electronically delivering visual content reliably on a
long-term basis.

WE MAY NOT SUCCEED IN ESTABLISHING THE GETTY IMAGES BRAND.

Historically, we have marketed each Getty Images brand as its own collection.
We have begun marketing certain of our images using the Getty Images brand.
Successful positioning of the Getty Images brand will largely depend on the
success of our advertising and promotional activities and our ability to
provide customers with high quality products and strong customer service. We
believe that a favorable customer reception of this brand is important to our
future success. If our brand enhancement strategies are unsuccessful, we may be
unable to realize potential benefits of Getty Images. See also Our Right
to Use the Getty Trademarks is Subject to Forfeiture in the Event We Experience a Change
of Control below.

OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO RETAIN OUR EXECUTIVE CHAIRMAN AND
CHIEF EXECUTIVE OFFICER.

Our future success depends, in part, on the continued service of Mr. Mark
Getty, our Executive Chairman, and Mr. Jonathan Klein, our Chief Executive
Officer. Mr. Getty and Mr. Klein are each party to an employment agreement with
us for a minimum period of three years, commencing in February 1998 and June
1999, respectively. We do not have key person life insurance policies
covering either Mr. Getty or Mr. Klein.

OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO IDENTIFY, ATTRACT, RETAIN AND
MOTIVATE HIGHLY SKILLED EMPLOYEES.

Our future success will depend upon our ability to identify, attract, retain
and motivate highly skilled technical, managerial, new product development,
editorial, merchandising, sales, marketing and customer service employees.
Competition for qualified personnel can be intense in the visual content
industry. We cannot guarantee that we will be successful in our efforts to
attract and retain such personnel.

Additionally, several members of our senior management team joined us in 2000.
These individuals are currently becoming integrated with the other members of
our management team. We believe the successful integration of our management
team is critical to manage our operations effectively.

WE MAY EXPERIENCE SYSTEM FAILURES AND SERVICE INTERRUPTIONS ON OUR WEBSITES
THAT COULD RESULT IN ADVERSE PUBLICITY, CUSTOMER DISSATISFACTION AND REVENUE
LOSSES.

A key component of our growth strategy is the increased digitization of our
imagery and the distribution of such imagery and related products and services
over the Internet. As a result, our revenues are, and will continue to be,
dependent on the ability of our customers to access our Websites. In the past,
we have experienced occasional system interruptions that made our Websites
unavailable or prevented us from efficiently fulfilling orders. While we have
made improvements in this area, we cannot be sure that we





16



---



can prevent these interruptions in the future. System failures or interruptions
will inconvenience our users and may result in negative publicity and reduce
the volume of images we license online and the attractiveness of our online
products and services to our customers.

We will need to add software and hardware and upgrade our systems and network
infrastructure to accommodate increased traffic on our Websites and increased
sales volume. Without these upgrades, we will face additional system
interruptions, slower response times, diminished customer service, impaired
quality and speed of order fulfillment, and delays in our financial reporting.
We cannot accurately project the rate or timing of any increases in traffic or
sales volume on our Websites and, therefore, the integration, timing and cost
of these upgrades are uncertain.

The computer and communications hardware necessary to operate our corporate
group and much of our e-commerce operations is located at facilities in the
Seattle, Washington metropolitan area. Our other businesses have systems in
other locations worldwide. Any of these systems and operations could be damaged
or interrupted by fire, flood, power loss, telecommunications failure,
earthquake and similar events. In addition, while we take steps to ensure the
security and integrity of our systems, computer viruses, physical or electronic
break-ins and similar disruptions could cause system interruptions or delays
that could temporarily prevent us from providing services and accepting and
fulfilling customer orders. We do not have full redundancy for all of our
computer and telecommunications facilities.

WE MAY NOT BE ABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGES RELATING TO THE
INTERNET.

To be successful, we must adapt to rapidly changing Internet technologies by
continually enhancing our products and services and introducing new services to
address the changing needs of our customers. We could incur substantial
development or acquisition costs if we are required to modify our services or
infrastructure to adapt to changes affecting companies providing services on
the Internet. If we are unsuccessful in adapting to these changes, or do not
sufficiently increase the features and functionality of our products and
services, our customers may ultimately switch to the product and service
offerings of our competitors. Our existing or potential competitors may develop
an improved method for distributing visual content through the Internet. If we
are unable to keep pace with the evolving technology of the Internet, the
demand for our imagery and related products and services may decrease.

CERTAIN OF OUR STOCKHOLDERS CAN EXERCISE SIGNIFICANT INFLUENCE OVER OUR
BUSINESS AND AFFAIRS AND MAY HAVE INTERESTS THAT ARE DIFFERENT THAN YOURS.

Some of our stockholders own substantial percentages of the outstanding shares
of our common stock.

The Getty Group collectively owned approximately 23.3% of the outstanding
shares of our common stock as of March 31, 2001, and comprises the following
persons and entities: Getty Investments L.L.C.; The October 1993 Trust; The JD
Klein Family Settlement; Mr. Mark Getty, our Executive Chairman; and
Mr. Jonathan Klein, our Chief Executive Officer.

The Torrance Group collectively owned approximately 6.5% of the outstanding
shares of our common stock as of March 31, 2001, and comprises the following
persons and entities: PDI, L.L.C.; Mr. Mark Torrance; Ms. Wade Ballinger
(Torrance); and certain of their family members.

Pursuant to shareholders agreements among us, the Getty Group and the Torrance
Group, none of the members of the Getty Group or the Torrance Group may
transfer their shares of our common stock except in accordance with the terms
of those agreements.

Two other stockholders, Pilgrim Baxter & Associates Ltd. and Waddell & Reed
Investment Management Company, owned approximately 8.0% and 7.4%, respectively,
of the outstanding shares of our common stock as of March 1, 2001.

As a result of their share ownership, each of the Getty Group, the Torrance
Group, Pilgrim Baxter and Waddell & Reed has significant influence over all
matters requiring approval of our stockholders, including the election of
directors and the approval of mergers or other business combinations. The
substantial percentage of our stock held by each of the Getty

17



---



Group, the Torrance Group, Pilgrim Baxter and Waddell & Reed 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 common
stock, certain members of the Getty Group and the Torrance Group have
management and/or director roles within our Company that increase their
influence over us.

OUR RIGHT TO USE THE GETTY TRADEMARKS IS SUBJECT TO FORFEITURE IN THE EVENT WE
EXPERIENCE A CHANGE OF CONTROL.

We own trademarks and trademark applications through our subsidiaries regarding
the names Getty Images and Hulton Getty, and derivatives of those names,
including the name Getty, and the related logo. We will use Getty as a
corporate identity as do our subsidiaries and we may use Getty as a product
or service brand in the future. We refer to the above as the Getty
Trademarks. In the event that a third party or parties not affiliated with the
Getty family acquire control of us, Getty Investments L.L.C. has the right to
call for an assignment to it, for a nominal sum, of all rights to the Getty
Trademarks. In the event of an assignment, we will have 12 months to continue
to use the Getty Trademarks, after which time we no longer would have the right
to use the Getty Trademarks. 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.

Getty Investments L.L.C. owns approximately 21.1% of the outstanding shares of
our common stock as of March 31, 2001. Mr. Getty serves as the Chairman of Getty
Investments, while Mr. Klein and Mr. Andrew Garb, a member of our Board of
Directors, serve on the Board of Getty Investments.

WE MAY NOT BE ABLE TO PREVENT THE MISUSE OF OUR IMAGERY AND WE MAY BE SUBJECT
TO INFRINGEMENT CLAIMS.

We rely on intellectual property laws and contractual restrictions to protect
our rights to our imagery. These afford us only limited protection.
Unauthorized parties have attempted, and may attempt, to improperly use our
owned or licensed imagery. We cannot guarantee that we will be able to prevent
the unauthorized use of our imagery or that we will be successful in ceasing
such use once it is detected.

We have been subject to a variety of third-party infringement, misuse and
misappropriation claims in the past and will likely be subject to similar
claims in the future. We license a portion of our visual content from
photographers and cinematographers. While we require the photographers and
cinematographers to obtain and provide us with adequate releases for the people
and property in the imagery, we cannot guarantee that each photographer or
cinematographer holds the rights or releases it claims or that such rights and
releases are adequate. As a result, we may be subject to infringement, misuse
and misappropriation claims by third parties.

OUR INDEBTEDNESS COULD REDUCE OUR FLEXIBILITY AND MAKE US MORE VULNERABLE TO
ECONOMIC DOWNTURNS.

Our level of indebtedness may pose substantial risks to our security holders,
including the risk that we may not be able to generate sufficient cash flow to
satisfy our obligations under our indebtedness or to meet our capital
requirements. A portion of our cash flow from operations will be dedicated to
the payment of principal and interest on our senior credit facility, our 4.75%
convertible subordinated notes due 2003 and our 5.0% convertible subordinated
notes due 2007. Our ability to service our indebtedness will depend on our
future performance, which will be affected by general economic conditions and
financial, business and other factors, many of which are beyond our control.
Such indebtedness could have important consequences to our security holders,
including the following:



| |  |  | our ability to make principal and interest payments on the
notes could be negatively impacted;
| | - |  | ----------------------------------------------------------------------------------------------

18



---





| |  |  | we may be unable to obtain necessary financing for working
capital, capital expenditures, debt service requirements and other
purposes;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our flexibility in planning for, or reacting to, changes in our
business and competition could be reduced; and                         
|
| |  |  | we may be more vulnerable to economic downturns.                                                                                       

OUR BUSINESS IS SENSITIVE TO CHANGES IN ECONOMIC AND POLITICAL
CONDITIONS.

Any economic, business or industry conditions that cause customers or potential
customers to reduce, postpone or stop their use of imagery, or to reduce
the value of each image used, could have a negative effect on our
sales and profitability. The success and profitability of our international
operations are subject to numerous risks and uncertainties, including local,
regional and global economic conditions, political instability, and changes in
applicable tax laws (including U.S. tax laws on our foreign operations).

There has been a recent slowdown in advertising, which we believe has had an
impact on the demand for the Companys products and services. We remain
cautious about the economic outlook for the remainder of 2001 and the potential
impact on our business.

FLUCTUATIONS IN FOREIGN EXCHANGE RATES COULD HAVE A NEGATIVE IMPACT ON THE
RESULTS OF OUR NON-U.S. BASED OPERATIONS.

We publish our consolidated financial statements in U.S. dollars and conduct a
portion of our business in currencies other than U.S. dollars, particularly
United Kingdom pounds sterling, Deutsche marks, French francs and the Euro. As
a result, we are exposed to changes in the value of currencies against the U.S.
dollar. Fluctuations in the values of currencies against the U.S. dollar could
affect the translation of the results of our non-U.S. based operations into
U.S. dollars for inclusion in our consolidated financial statements. We cannot
accurately predict the impact that future exchange rate fluctuations may have
on our results.

THE TRANSITION TO THE EURO WILL REQUIRE US TO MODIFY OUR EXISTING OPERATIONS
AND SYSTEMS.

In January 1999, eleven member countries of the European Union established
irrevocable, fixed conversion rates between their existing currencies and the
European Unions common currency (the Euro). The Euro was established to
replace the separate currencies of these eleven countries. The number of
countries adopting the Euro has since increased to twelve. The Euro is
scheduled to be phased in over a three-year period ending January 1, 2002. In
order to effectively handle transactions in the new currency, we are modifying
our systems and commercial arrangements. Modifications are necessary in areas
such as tax, payroll, benefits and pension systems, contracts with suppliers
and customers, internal financial reporting systems and information technology
systems. Although transactions may also be made in the currencies of the member
countries during the three-year transition period, we will use dual currency
processes for our operations during the transition period. We may not be able
to identify or successfully solve all problems associated with the transition
and a material disruption of our business may occur.

WE MAY NOT BE ABLE TO SECURE ADDITIONAL FINANCING TO MEET OUR FUTURE CAPITAL
NEEDS.

We currently anticipate that our available cash resources, cash flow from
operations and our senior credit facility will be sufficient to meet our
anticipated needs for working capital and capital expenditures for at least the
following 12 months. After this time, if we are unable to generate sufficient
cash flows from operations to meet our anticipated needs for working capital
and capital expenditures, we will need to raise additional funds to, among
other things, promote our products and services, develop new and enhanced
services, respond to competitive pressures or make acquisitions. We may be
unable to obtain any required additional financing on terms favorable to us, if
at all. If adequate funds are not available on acceptable terms, we may be
unable to promote our products and services successfully, develop or enhance
services, respond to competitive pressures or take advantage of acquisition
opportunities. If we raise additional funds through the issuance of equity
securities, our stockholders may experience dilution of their ownership

19



---



interest, and the newly-issued securities may have rights superior to those of
our common stock. If we raise additional funds by issuing new debt, the new
debt could be senior indebtedness and we may be subject to limitations on our
operations, including limitations on the payment of dividends. Changes in U.S.
and global financial and equity markets, including significant fluctuations in
interest rates and the price of our equity securities, may impede our access
to, or increase the cost of, external financing for our operations and
acquisitions.

CERTAIN PROVISIONS OF OUR CORPORATE DOCUMENTS AND DELAWARE CORPORATE LAW MAY
DETER A THIRD-PARTY FROM ACQUIRING OUR COMPANY.

Our board of directors has the authority, without stockholder approval, to
issue up to 5,000,000 shares of preferred stock and to fix the rights,
preferences, privileges and restrictions of such shares without any further
vote or action by our stockholders. This authority, together with certain
provisions of our amended and 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 our company.
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, the Torrance Group, Pilgrim Baxter and
Waddell & Reed, along with certain provisions of Delaware law, may have the
effect of delaying, deterring or preventing a takeover of our company.

IF THE USE OF THE INTERNET AND E-COMMERCE DOES NOT GROW AS ANTICIPATED, OUR
BUSINESS COULD BE SERIOUSLY HARMED.

Our growth strategy largely depends on the increased acceptance of the Internet
as a medium of commerce. Rapid growth in the use of the Internet is a recent
phenomenon. As a result, acceptance and use may not continue to develop at
historical rates and a broad base of our customers may not adopt or use the
Internet as a medium of commerce. Demand and market acceptance of our imagery
and related products over the Internet may not continue.

Our business could be harmed if:



| |  |  | use of the Internet and other online services does not continue
to increase or increases more slowly than anticipated;                                                                                
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the technology underlying the Internet and other online
services does not effectively support any necessary expansion;
and                                                                            
|
| |  |  | the Internet and other online services do not create a viable
commercial marketplace, inhibiting the development of
e-commerce and reducing the need for delivery of our products and
services online.

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 regulations applicable to businesses generally,
as well as laws and regulations directly applicable to e-commerce. Although
existing laws and regulations affecting e-commerce are minimal, state, federal
and foreign governments may adopt legislation regulating the Internet and
e-commerce in the near future. Any such legislation or regulation could impede
the growth of the Internet and decrease its acceptance as a communications and
commerce medium. If a decline in the use of the Internet occurs, businesses and
consumers may decide in the future not to use our online services.

New laws and regulations could potentially govern or restrict any of the
following issues:



| |  |  | user privacy;                                                
| | - |  | -------------------------------------------------------------
|
| |  |  | pricing and taxation of goods and services over the Internet;
|
| |  |  | Website content;                                             

20



---





| |  |  | consumer protection; and                                                       
| | - |  | -------------------------------------------------------------------------------
|
| |  |  | characteristics and quality of products and services offered over the
Internet.

Future legislation could expose companies involved in the Internet or
e-commerce to potential liability.

ONLINE SECURITY RISKS AND CONCERNS MAY HARM OUR BUSINESS.

A significant barrier to e-commerce and online communications is the secure
transmission of confidential information over public networks. Advances in
computer capabilities, new discoveries in the field of cryptography or other
events or developments could result in compromises or breaches of our security
systems or those of other Websites to protect proprietary information. If any
well-publicized compromises of security were to occur, it could have the effect
of substantially reducing the use of the Internet for commerce and
communications. Anyone who circumvents our security measures could
misappropriate proprietary information or cause interruptions in our services
or operations.

The Internet is a public network, and data is sent over it from many sources.
In the past, computer viruses, programs that disable or impair computers, have
been distributed and have rapidly spread over the Internet. Computer viruses
could be introduced into our systems or those of our customers, which could
disrupt the delivery of our imagery products and services or make them
inaccessible to our customers. We may be required to expend significant capital
resources to protect against the threat of security breaches or to alleviate
problems caused by such breaches. To the extent that our activities may involve
the storage and transmission of proprietary information, such as credit card
numbers, security breaches could expose us to a risk of loss or litigation and
possible liability. Our security measures may be inadequate to prevent security
breaches and our business could be harmed if we do not prevent them.

OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE.

The market price of our common stock has been volatile. For example, for
January 1, 2000 through March 31, 2001, the market price for our common stock
has ranged from $13.94 to $64.38. Fluctuations in the trading price of our
common stock may continue in response to a number of events and factors,
including the following:



| |  |  | quarterly variations in operating results and announcements of
innovations;                            
| | - |  | -------------------------------------------------------------------------------------------------------
|
| |  |  | new products, services and strategic developments by us or our
competitors;                            
|
| |  |  | business combinations and investments by us or our competitors;                                        
|
| |  |  | variations in our revenues, expenses or profitability;                                                 
|
| |  |  | changes in financial estimates and recommendations by securities
analysts and investors;               
|
| |  |  | failure to meet the expectations of securities analysts;                                               
|
| |  |  | performance by other visual content companies;                                                         
|
| |  |  | news reports relating to trends in the visual content, Internet
or other product or service industries;
|
| |  |  | changes in U.S. and global financial and equity markets; and                                           
|
| |  |  | changes in U.S., global or regional economic and political conditions.                                 

Any of these events may cause the price of our shares to change. In addition, the
stock market in general and the market prices for e-commerce companies in
particular have experienced significant volatility (including, recent steep
declines) that in some cases has been unrelated to the operating performance of
such companies. These broad market and industry fluctuations may adversely affect the market price of our shares,
regardless of our operating performance.

21



---






Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to a variety of market risks, primarily related to
fluctuations in interest rates and foreign currency rates.

INTEREST RATE RISK

Our exposure to market rate risk for a change in interest rates relates
primarily to our debt instruments, the majority of which are fixed rate
borrowings. The book value and respective fair values are shown in the table
below:

|                                   |  |            |        |            |  |          |        |       |  |      |         |      |  |   |         |   |  |   |         |   |  |   |         |  
|---------------------------------- |  | ---------- | ------ | ---------- |  | -------- | ------ | ----- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                   |  | Maturities |        | Fair Value
|                                   |  |            |        |            |  |          |        |       |  |      |         |      |  |   |         |   | 
|                                   |  |            |        | March 31,  |  | Dec. 31,
|(In thousands, except percentages) |  | 2002       |        | 2003       |  | 2007     |        | Total |  | 2001 |         | 2000
|                                   |  |            |        |            |  |          |        |       |  |      |         |     
|Fixed rate debt (USD)              |  | $          |       |            |  | $        | 12,653 |       |  | $    | 250,000 |      |  | $ | 262,653 |   |  | $ | 171,238 |   |  | $ | 208,104 |  
|                                  
|                                  
|                                  
|                                  
|Average interest rate              |  |            |       |            |  |          | 4.75   | %     |  |      | 5.0     | %    |  |   | 4.99    | % |  |   | 4.99    | % |  |   | 4.99    | %
|                                  
|                                  
|                                  
|                                  
|Variable rate debt (USD)           |  | $          | 20,000 |            |  |          |       |       |  |      |        |      |  | $ | 20,000  |   |  | $ | 19,077  |   |  | $ | 19,003  |  
|                                  
|                                  
|                                  
|                                  
|Average interest rate              |  |            | 6.31   | %          |  |          |       |       |  |      |        |      |  |   | 6.31    | % |  |   | 6.31    | % |  |   | 7.40    | %
|                                  
|                                  
|                                  
|                                  
|Other borrowings                   |  | $          | 468    |            |  |          |       |       |  |      |        |      |  | $ | 468     |   |  | $ | 468     |   |  | $ | 471     |  
|                                  
|                                  
|                                  
|                                  
|Average interest rate              |  |            | 4.65   | %          |  |          |       |       |  |      |        |      |  |   | 4.65    | % |  |   | 4.65    | % |  |   | 5.50    | %

FOREIGN CURRENCY RISK

The Company had no outstanding foreign exchange contracts or
related deferred gains or
losses as of March 31, 2001.

22



---






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
infringement of the trademarks and other intellectual property rights of third
parties, such as the failure to secure model and property releases. Presently,
there are no pending legal proceedings to which we are a party or to which any
of our property is subject which, either individually or in the aggregate, are
expected to have a material adverse effect on our consolidated financial
position, results of operations or liquidity.




Item 2. Changes in Securities and Use of Proceeds

On January 18, 2001, the Company issued 17,305 shares of its common stock, in
addition to other consideration, in connection with the purchase of all of the
issued and outstanding capital stock of Sumer Australasia Pty Limited and all
of the units of The Image Bank Unit Trust. These acquisitions were made to
acquire the business of The Image Bank Australia, which was operated through
The Image Bank Unit Trust with Sumer Australasia Pty Limited acting as
corporate trustee. The shares were issued in a private placement to
sophisticated investors pursuant to an exemption under Regulation S of the
Securities Act of 1933, as amended.




Item 5. Other Information

Effective May 1, 2001, John Hallberg resigned as our Senior Vice President and
General Manager of Art.com.




Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits:
| | --- |  | ---------



| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | Reference is made to the Index of Exhibits beginning on
page 25 for a
list of all exhibits filed as part of this report.



| | (b) |  | Reports on Form 8-K:
| | --- |  | --------------------



| |      
| | -----
| | None.

23



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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.

|            |                    |                                                                       
|----------- | ------------------ | ----------------------------------------------------------------------
|May 7, 2001 | GETTY IMAGES, INC.
|           
|            | By                 | /s/ ELIZABETH J. HUEBNER                                              
|            |                    |                                                                       
|            |                    | Elizabeth J. Huebner
Senior Vice President and
Chief Financial Officer

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EXHIBIT INDEX

|        |  |                                                                                  
|------- |  | ---------------------------------------------------------------------------------
|EXHIBIT
|NUMBER  |  | DESCRIPTION OF EXHIBIT                                                           
|        |  |                                                                                  
|3.1     |  | Amended and Restated Certificate of Incorporation of Getty
Images (1)            
|       
|       
|       
|       
|3.2     |  | Certificate of Amendment to the Certificate of
Incorporation of Getty Images (2) 
|       
|       
|       
|       
|3.3     |  | Bylaws of Getty Images (1)                                                       
|       
|       
|       
|       
|10.1*   |  | Separation Agreement between the Company and John Hallberg,
dated April 10, 2001.



---

|*   |  | Filed herewith.                                                                                                
|--- |  | ---------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(1) |  | Incorporated by reference from the Exhibits to the Registrants Form S-4
Registration Statement, No. 333-38777.
|   
|   
|   
|   
|(2) |  | Incorporated by reference from the Exhibits to the Registrants Form 8-K,
dated November 10, 1998.             



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