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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 September 30, 2002





OR





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




Commission File Number: 000-23747





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GETTY IMAGES, INC.


(Exact name of registrant as specified in its charter)





Delaware (State of
Incorporation)

98-0177556 (I.R.S. Employer
Identification No.)





601 N. 34th Street


Seattle, Washington 98103


(206) 925-5000


(Address, including zip code, and telephone number,


including area code, of principal executive
offices)





---




Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past ninety days.  Yes  x  No  ̈





As of November 1, 2002 there
were 53,606,376 shares of the registrants common stock, par value $0.01 per share, outstanding.





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##### Table of Contents




GETTY IMAGES, INC.





INDEX





Page No.PART I.    FINANCIAL INFORMATIONItem 1.

Financial Statements (unaudited):Condensed Consolidated Statements of Operationsfor the three and nine months ended September 30, 2002 and 2001

2Condensed Consolidated Balance Sheetsas of September 30, 2002 and December 31, 2001

3Condensed Consolidated Statement of Stockholders Equityas of December 31, 2001 and for the nine months ended September 30, 2002

4Condensed Consolidated Statements of Cash Flowsfor the nine months ended September 30, 2002 and 2001

5Notes to Condensed Consolidated Financial Statements

6Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

12Item 3.

Quantitative and Qualitative Disclosures about Market Risk

27Item 4.

Controls and Procedures

27PART II.    OTHER INFORMATIONItem 1.

Legal Proceedings

28Item 2.

Changes in Securities and Use of Proceeds

28Item 3.

Defaults Upon Senior Securities

28Item 4.

Submission of Matters to a Vote of Security Holders

28Item 5.

Other Information

28Item 6.

Exhibits and Reports on Form 8-K

28SIGNATURE

29CERTIFICATIONS

30EXHIBIT INDEX

32




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##### Table of Contents




PART I.    FINANCIAL INFORMATION





Item 1.    Financial Statements





GETTY IMAGES, INC.





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(unaudited)





Three months ended September 30,


Nine months ended September 30,2002


2001


2002


2001(In thousands, except per share amounts)Sales

$
118,189


$
107,505


$
345,339


$
349,148Cost of sales


33,449



27,941



93,534



95,888Gross profit


84,740



79,564



251,805



253,260Selling, general and administrative expenses


51,564



57,792



156,916



180,229Depreciation


15,073



14,676



46,137



42,168Amortization


3,070



18,546



13,689



55,816Loss on sale of a business










812



Integration and restructuring costs and loss on impairment of assets






4,776







18,094Income (loss) from operations


15,033



(16,226
)


34,251



(43,047
)Interest expense


(3,505
)


(4,244
)


(11,660
)


(12,934
)Interest income


515



540



1,078



1,729Exchange losses, net


(409
)


(618
)


(144
)


(1,315
)Other expense, net


(25
)


(227
)


(30
)


(84
)Loss on impairment of investments














(4,224
)Income (loss) before income taxes


11,609



(20,775
)


23,495



(59,875
)Income tax (expense) benefit


(4,793
)


2,541



(9,526
)


3,350Net income (loss)

$
6,816


$
(18,234
)

$
13,969


$
(56,525
)Earnings (loss) per share:Basic

$
0.13


$
(0.35
)

$
0.26


$
(1.09
)Diluted


0.13



(0.35
)


0.25



(1.09
)Weighted-average shares outstanding:Basic


53,525



51,870



52,871



51,653Diluted


54,217



51,870



55,207



51,653





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




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GETTY IMAGES, INC.





CONDENSED CONSOLIDATED BALANCE SHEETS


(unaudited)





September 30, 2002


December 31, 2001(In thousands, except per share amounts)ASSETSCurrent assetsCash and cash equivalents

$
67,243


$
46,173Short-term investments


28,476



Accounts receivable, net


76,864



71,162Inventories


2,249



3,404Deferred catalog costs






8,253Prepaid expenses


8,573



7,199Deferred income taxes, net


9,467



9,430Other current assets


5,149



5,020Total current assets


198,021



150,641Property and equipment, net


133,359



147,653Goodwill


603,011



600,428Identifiable intangible assets, net


30,507



36,031Deferred income taxes, net


54,908



55,638Other long-term assets


3,760



2,690Total assets

$
1,023,566


$
993,081LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable

$
51,840


$
50,913Accrued expenses


45,632



52,011Income taxes payable


14,617



14,498Current portion of long-term debt


33



19,944Total current liabilities


112,122



137,366Long-term debt


258,682



256,215Total liabilities


370,804



393,581Commitments and contingenciesStockholders equityPreferred stock, $0.01 per share par value, 5,000 shares authorized, no shares outstanding






Common stock, $0.01 per share par value, 100,000 shares authorized, 53,484 outstanding at September 30, 2002 and 51,924
outstanding at December 31, 2001


534



519Exchangeable preferred stock, no par value, 5,000 shares authorized, 45 outstanding at September 30, 2002 and 85
outstanding at December 31, 2001


1



1Additional paid-in capital


1,000,384



969,134Accumulated deficit


(346,769
)


(360,738
)Accumulated other comprehensive loss


(1,388
)


(9,416
)Total stockholders equity


652,762



599,500Total liabilities and stockholders equity

$
1,023,566


$
993,081





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




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GETTY IMAGES, INC.





CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY


(unaudited)





Number of shares of
common stock $0.01 par value

Number of shares of exchangeable preferred stock no par value


Common stock

Exchangeable preferred stock

Additional paid-in capital

Accumulated deficit


Accumulated other comprehensive loss


Total(In thousands)Balance at December 31, 2001

51,924

85


$
519

$
1

$
969,134

$
(360,738
)

$
(9,416
)

$
599,500Net income
















13,969







13,969Translation adjustment




















8,028



8,028Comprehensive income
























21,997Stock options exercised

1,070





11





18,175










18,186Stock options accelerated













39










39Issuance of shares upon conversion of debt

444





4





12,921










12,925Issuance of shares for acquisition of assets

6











115










115Exchange of shares

40

(40
)



















Balance at September 30, 2002

53,484

45


$
534

$
1

$
1,000,384

$
(346,769
)

$
(1,388
)

$
652,762





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







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GETTY IMAGES, INC.





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited)





Nine months ended September
30,2002


2001(In thousands)CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)

$
13,969


$
(56,525
)Adjustments to reconcile net income (loss) to net cash flows from operating activities:Depreciation and amortization


59,826



97,984Deferred income taxes


2,240



1,287Bad debt expense


5,412



2,169Amortization of debt issuance costs


1,546



1,479Loss on impairment of assets






6,465Loss on impairment of investments






4,224Tax benefit from employee stock option exercises






1,161Other items


145



(2,382
)Changes in assets and liabilities, net of effects of business acquisitions:Accounts receivable


(8,925
)


(4,398
)Inventories


498



2,516Accounts payable and accrued expenses


(7,217
)


(17,845
)Income taxes


522



(7,990
)Other


(2,807
)


(4,151
)Net cash provided by operating activities


65,209



23,994CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of property and equipment


(28,944
)


(58,611
)Acquisition of short-term investments


(28,598
)


Acquisition of intangible assets


(912
)


(1,745
)Proceeds from the sale of long-lived assets






2,495Acquisition of businesses, net of cash acquired






(736
)Other


65



Net cash used in investing activities


(58,389
)


(58,597
)CASH FLOWS FROM FINANCING ACTIVITIESRepayment of debt


(20,046
)


(485
)Proceeds from the issuance of common stock


18,186



6,566Proceeds from the issuance of long-term debt


15,000



Debt issuance costs


(714
)


Net cash provided by financing activities


12,426



6,081Effects of exchange rate differences


1,824



1,604Net increase (decrease) in cash and cash equivalents


21,070



(26,918
)Cash and cash equivalents, beginning of period


46,173



65,894Cash and cash equivalents, end of period

$
67,243


$
38,976NON-CASH INVESTING AND FINANCING ACTIVITIESAcquisition of businesses or intangibles with common stock

$
115


$
2,458Conversion of debt into common stock


12,925









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




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GETTY IMAGES, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





Estimates and Assumptions





The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America (U.S.) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses reported during the period. Some of the estimates and assumptions that require managements most difficult judgments include: i)
determining the appropriate level of deferred tax asset valuation allowances; ii) the designation of certain intercompany balances with foreign subsidiaries as long-term investments; iii) the appropriateness of the valuation and useful lives of
long-lived assets, including intangible assets, and iv) the appropriateness of the valuation of the allowance for doubtful accounts, accruals for abandoned and subleased property, and accruals for integration activities. These judgments are
difficult as matters that are inherently uncertain directly impact the accounting for these items. Actual results may vary from managements estimates and assumptions.





Principles of Consolidation





The condensed consolidated
financial statements and notes have been prepared by the company without audit and include the accounts of Getty Images, Inc. and its subsidiaries, from the respective dates of acquisition. Significant intercompany balances and transactions have
been eliminated.





Quarterly Results





Certain information and footnote disclosures normally included in annual financial statements, prepared in accordance with accounting principles generally accepted in the U.S., have been condensed or
omitted in accordance with the rules and regulations of the Securities and Exchange Commission. Management believes that the condensed 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. The condensed information should be read in conjunction with the financial statements and notes thereto included in the companys latest Annual Report on
Form 10-K.





Reclassifications





Certain prior year amounts have been reclassified to conform to the current years presentation with no effect on previously reported net assets, cash flows or income/losses.





Common Stock





At its May 21, 2002 meeting, the stockholders approved an amendment to the companys Certificate of Incorporation, increasing the number of authorized shares of our common stock from 75 million to 100 million.





Earnings (Loss) Per Share





Basic earnings (loss) per share is calculated based upon the weighted-average number of common shares outstanding during each period. For the periods in which the company incurred a net loss, diluted loss per share was
calculated based on the same number of shares as basic loss per share. For the periods in which the company incurred net income, diluted earnings per share was calculated based on the shares used to calculate basic earnings per share plus the
dilutive effect of certain stock options.




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Approximately 7.2 million, 9.5 million, 3.6 million and 4.8 million other common
shares potentially issuable from stock options for the three months ended September 30, 2002 and 2001 and the nine months ended September 30, 2002 and 2001, respectively, are excluded from the computation, because they are anti-dilutive. Also
excluded for the three and nine months ended September 30, 2002 and for all other periods presented are 4.1 million and 4.5 million common shares, respectively, potentially issuable from convertible subordinated notes, because they are
anti-dilutive.





Changes in Accounting Principles





Effective January 1, 2002, the company adopted Statement of Financial Accounting Standards (SFAS) No. 142 Goodwill and Other Intangible Assets. SFAS No. 142
incorporates provisions of SFAS No. 141 Business Combinations that require certain intangible assets, primarily business acquisition costs previously allocated to workforce in place, to be reclassified to goodwill as of January 1, 2002
due to a more restrictive definition of identifiable intangible assets. The impact of the reclassification on goodwill is as follows:





(In thousands)Goodwill at December 31, 2001

$
600,428Reclassifications upon adoption of SFAS No. 142


2,583Goodwill at March 31, June 30 and September 30, 2002

$
603,011





SFAS No. 142 also requires the company to discontinue amortization
of goodwill as of January 1, 2002. The following table presents the impact of SFAS No. 142 on net loss and loss per share had the standard been in effect for the three and nine months ended September 30, 2001:





Three months ended September
30,


Nine months ended September
30,2002

2001


2002

2001(In thousands, except per share amounts)Net income (loss):As reported

$
6,816

$
(18,234
)

$
13,969

$
(56,525
)Add back: Amortization of goodwill





16,529






49,594Add back: Amortization of workforce in place, net of taxes





265






797As adjusted

$
6,816

$
(1,440
)

$
13,969

$
(6,134
)Earnings (loss) per sharebasic:As reported

$
0.13

$
(0.35
)

$
0.26

$
(1.09
)Add back: Amortization of goodwill





0.31






0.96Add back: Amortization of workforce in place, net of taxes





0.01






0.01As adjusted

$
0.13

$
(0.03
)

$
0.26

$
(0.12
)Earnings (loss) per sharediluted:As reported

$
0.13

$
(0.35
)

$
0.25

$
(1.09
)Add back: Amortization of goodwill





0.31






0.96Add back: Amortization of workforce in place, net of taxes





0.01






0.01As adjusted

$
0.13

$
(0.03
)

$
0.25

$
(0.12
)Basic shares outstanding:As reported and as adjusted


53,525


51,870



52,871


51,653Diluted shares outstanding:As reported and as adjusted


54,217


51,870



55,207


51,653





In the first half of 2002, the company performed the transitional
impairment test for its single reporting unit, as required by SFAS No. 142, and noted no impairment of goodwill. The company is required to repeat this test on an annual basis and between annual tests in certain circumstances. The company selected
August 31 as its annual valuation date and noted no impairment when performing the valuation test as of this date in 2002. When




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assessing impairment, the company must determine the estimated implied fair value of its goodwill. Determining fair value involves significant assumptions and estimates based on managements
best judgments of current and future circumstances. As circumstances change, it is at least reasonably possible that future goodwill impairment tests could result in a charge to earnings. Any impairment would be recognized as a loss on impairment of
assets, which would be included in the calculation of income from operations.





Short-term Investments





Short-term investments at September 30, 2002 consisted of $24.6 million in held-to-maturity corporate bonds, carried at amortized cost,
and $3.9 million in certificates of deposit, carried at cost. Unamortized bond premium at September 30, 2002 was nominal.





Accounts
Receivable





Accounts receivable represents trade receivables, net of provisions for doubtful accounts of $20.5
million and $20.9 million at September 30, 2002 and December 31, 2001, respectively. The provisions recorded during the three months ended September 30, 2002 and 2001 and nine months ended September 30, 2002 and 2001, were $1.0 million, $1.4
million, $5.4 million and $2.2 million, respectively.





Catalogs





As part of its marketing efforts, the company produces and distributes catalogs containing images offered through its creative professional and editorial collections. The
costs of producing these catalogs through September 30, 2001, were deferred and amortized over the period during which revenue was generated by the catalog images.





In the fourth quarter of 2001, the company began the implementation of new financial information systems. These new systems are not capable of directly associating image
revenue with specific catalogs. Accordingly, as required by American Institute of Certified Public Accountants Statement of Position No. 93-7 Reporting on Advertising Costs, catalog production costs are deferred and expensed upon initial
distribution of each catalog effective October 1, 2001.





Amortization of deferred catalog costs of $1.7 million
and $9.6 million for the three and nine months ended September 30, 2002, respectively, was included in amortization expense, while catalog amortization of $2.7 million and $8.8 million for the three and nine months ended September 30, 2001,
respectively, was included in selling, general and administrative expenses. Direct catalog production costs of $2.1 million and $5.4 million for the three and nine months ended September 30, 2002, respectively, were included in selling, general and
administrative expenses, while direct catalog production costs of $0.5 million and $4.4 million for the three and nine months ended September 30, 2001, respectively, were capitalized into deferred catalog costs.





Property and Equipment





Property and equipment is stated at cost, net of accumulated depreciation of approximately $224.2 million and $194.7 million at September 30, 2002 and December 31, 2001, respectively.




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Identifiable Intangible Assets





Identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from two to 10 years. The gross carrying amounts and
related accumulated amortization as of the most recent quarter-end and year-end were as follows:





As of September 30, 2002

As of December 31, 2001Gross Amount

Accumulated Amortization

Gross Amount

Accumulated Amortization(In thousands)Film libraries

$
16,260

$
4,442

$
16,260

$
3,223Customer lists


14,935


4,999


13,530


3,355Trademarks/tradenames/copyrights


11,268


3,346


11,154


2,509Other identifiable intangible assets


1,862


1,031


10,330


6,156$
44,325

$
13,818

$
51,274

$
15,243





Amortization expense for identifiable intangible assets was $1.3
million and $4.1 million for the three and nine months ended September 30, 2002, respectively. Expected amortization expense for identifiable intangible assets for the next five years is as follows:





Year(In thousands)2002

$
5,5712003


5,1942004


5,1652005


5,0682006


4,750





Upon adoption of SFAS No. 142, the company reassessed the remaining
useful lives of its identifiable intangible assets and determined that no adjustments were necessary. The company is required to evaluate these lives each reporting period to determine whether events and circumstances warrant revisions to the
remaining periods of amortization. Such revisions would be applied prospectively.





Long-term Debt and Debt Conversion





On May 13, 2002, the company issued 443,839 shares of common stock for conversion of the remaining $12.7
million of 4.75% convertible subordinated notes at a price of $28.5075 per share. The company will save approximately $0.9 million in interest payments through May of 2003, the original maturity date of the notes, including $0.3 million of accrued
interest that did not come due, in accordance with the original terms of the debt.





On July 15, 2002, the company
terminated its $100 million senior credit facility with HSBC Investment Company plc and repaid the $20 million outstanding balance.





On July 19, 2002, the company entered into a new senior revolving credit facility with a consortium of banks led by Bank of America, N.A. Key terms and conditions of the new facility are:





| |  |  | $85 million revolving credit facility, which may be increased by $40 million within two years of closing at the election of the company without consent of the
lenders;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | secured by all of the capital stock of certain domestic subsidiaries of the company, 65% of the capital stock of certain foreign subsidiaries, and certain
assets, primarily trademarks and current assets, of the company and these subsidiaries;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | primary financial covenants include maintenance of: a maximum leverage ratio of 3.25, stepping down to 3.0 for fiscal quarters ending December 31, 2003 and
thereafter; a minimum fixed charge coverage ratio of 1.5; and a minimum consolidated net worth not less than $484.3 million, plus 50% of future consolidated quarterly net income, plus 100% of future aggregate increases in stockholders equity
through the issuance and sale of stock;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | annual interest rate of either i) LIBOR, plus a spread ranging from 0.875% to 1.625% depending on the companys leverage ratio or ii) the higher of a) the
Federal Funds rate, plus 0.500% or b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its prime rate, plus a spread ranging from zero to 0.250% depending on the companys
leverage ratio;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | commitment fee for unutilized facilities between 0.250% and 0.400% annually, depending on the companys leverage ratio;
| | - |  | -----------------------------------------------------------------------------------------------------------------------




| |  |  | expires three years after closing;
| | - |  | ----------------------------------




| |  |  | restrictions on payments include no principal payments on any subordinated debt in excess of $25 million, and no purchases of the companys own stock in
excess of the sum of the number of unexercised employee stock options as of the date of the agreement and any future employee stock option grants;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | acquisitions of and investments in third parties are allowed without consent of the lenders, provided they do not exceed $15 million in the aggregate in any
fiscal year or $30 million in any rolling three year period. If the cash price of any acquisition exceeds $15 million, lenders representing at least 50% of the total commitments under the facility must approve the transaction;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | letters of credit issued by the lender reduce the amount available under the line of credit.
| | - |  | --------------------------------------------------------------------------------------------




Letters of credit aggregating $3.9 million have been issued under the new senior credit facility, and short-term investments of $3.9
million have been pledged as collateral and are held in a segregated account with the lender.





On August 5, 2002,
the company borrowed $15 million under this new facility. The annual interest rate on this borrowing was 3.188% at September 30, 2002.





Accrued Loss on Abandoned and Subleased Property





During the fourth quarter of 2001, the
company re-evaluated its worldwide facilities requirements and identified excess space in New York, Seattle, San Francisco, Santa Monica, London and Munich. The company recorded a loss and a related accrual of $11.6 million during the fourth quarter
to account for future minimum rental payments and costs of subleasing the properties over the remaining lives of the leases, net of expected sublease income. Approximately $5.8 million of this accrual remains at September 30, 2002, and is expected
to be paid out in future periods through 2007.





Loss on Sale of a Business





During the first quarter of 2002, the company entered into an agreement to dispose of a subsidiary, American Royal Arts (ARA), a provider of animation art, and accrued
a loss of $0.8 million. The assets and liabilities of ARA were written off against the accrued loss upon consummation of the transaction on April 2, 2002. The net assets, results of operations and cash flows of ARA were not significant to the
company as a whole.





Integration Costs and Loss on Impairment of Assets





During the first quarter of 2001, the company continued the integration of three significant businesses acquired in the previous two years, The Image Bank, Art.com and the
Visual Communications Group. 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.





On May 17, 2001, the company terminated the operations of a
subsidiary, Art.com, a provider of framed and unframed art and art-related products on the Internet. In




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connection with this event, the company recorded integration costs of approximately $1.9 million during
the second quarter of 2001, including severance costs and costs to terminate the operations and exit the facilities of Art.com, as well as a loss on the impairment of related assets of $6.5 million.





During the second quarter of 2001, the company also recorded integration costs of $0.9 million, including severance costs and facilities
exit costs, relating primarily to the closure of a Canadian office and consolidation of those operations into other offices.





Restructuring Costs





During the third quarter of 2001, management announced that in
response to further weakening in the U.S. and global markets served by Getty Images, the company would reduce its workforce by approximately 300 people worldwide and across multiple functions by the end of the third quarter. The company recorded
$4.5 million in restructuring costs for a planned 320 employee terminations once management had committed the company to a formal plan of termination and had communicated to all employees the benefit arrangement they would receive if terminated. The
company also incurred $0.3 million in other related restructuring costs. As of March 31, 2002, all 320 planned employees had been terminated and all related termination costs had been paid.





Loss on Impairment of Investments





During the
second quarter of 2001, the company wrote off its minority cost basis investment in two small private companies after analyses showed that they suffered other than temporary declines in fair value. These analyses were based upon review of
quantitative and qualitative information provided to management, which indicated that these companies would be unable to return the carrying value of the companys investments. The total of these two impairment charges was $4.2 million.





Business Segments and Geographic Areas





As a provider of visual content, the company operates in one business segment. Due to the nature of the companys operations, 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 and are subject to the impact of translation differences and therefore may not reflect the relative performance of individual areas. Sales to
customers by geographic area, with countries experiencing 5% or more of sales in a reportable period shown separately, are summarized below:





Three months ended September 30,

Nine months ended September 30,2002

2001

2002

2001(In thousands)United States

$
59,788

$
46,168

$
176,114

$
157,314United Kingdom


16,564


15,027


47,179


48,609Germany


8,819


8,776


25,253


26,711France


5,561


5,476


16,084


17,541Canada


3,565


11,187


10,452


34,804Rest of world


23,892


20,871


70,257


64,169Total sales

$
118,189

$
107,505

$
345,339

$
349,148





In late 2001 and early 2002, the company closed its Canadian
offices and transitioned the associated customer accounts to a U.S. office. Many sales that were previously reported as originating in Canada are reported in 2002 as originating in the U.S., leaving only sales with a Canadian billing address
reported as Canadian sales above.





Income Taxes and Net Deferred Tax Assets





The effective tax rate used to calculate income tax expense for the first three quarters of 2002 was 40.5%, while the rate used to calculate income tax benefit for
2001 was 39.2%, on income (loss) before non-deductible amortization of goodwill. The increase in the effective tax rate was primarily due to the loss on the sale of a subsidiary for which no income tax benefit is expected to be realized. At




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September 30, 2002, the company had $64.4 million in net deferred tax assets, net of a valuation allowance of $16.6 million, which was
established in 2001 at $12.8 million and increased by $3.8 million in 2002. The increase in the valuation allowance relates primarily to tax benefits from stock options exercised, which will increase additional paid in capital if realized.





Recent Accounting Pronouncements





Effective January 1, 2002, the company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This pronouncement requires one model for accounting for
long-lived assets to be disposed of and broadens the presentation of discontinued operations to include more transactions. Adoption of this pronouncement did not have an impact on the companys reported financial position, results of operations
or cash flows, however, it could cause any future long-lived asset disposals to be accounted for or presented in a different manner than in the past.





Effective January 1, 2003, the company will adopt SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This pronouncement requires that liabilities associated
with exit or disposal activities be recognized when the liabilities are incurred and can be measured, as opposed to the date that management commits to the activities. In addition, under the new standard, employee liabilities are to be booked at the
present value of expected future cash outflows, and operating lease liabilities are to be booked net of reasonable sublease income, even if it is not managements intent to sublease the property. As managements current plans do not
include exit or disposal activities, management does not expect this pronouncement to have a significant effect on the companys financial position, results of operations or cash flows. However, if the company were to incur charges for exit or
disposal activities, any charges under SFAS No. 146 would be lower than under previous accounting guidance due to the recording of such amounts at present value.





Subsequent Event





On October 23, 2002, the company announced that the Board of
Directors authorized the company to repurchase up to $50 million of its common stock on the open market from time to time over the next six months. The number of shares purchased, if any, and the timing of the purchases will be based on the level of
cash balances, general business conditions and other factors, including alternative investment opportunities and restrictive covenants imposed by our senior credit facility.





Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)





The following should be read in conjunction with our 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.





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. We may, from time to time, make written or oral statements that are forward-looking, including statements contained in this
Quarterly Report on Form 10-Q, the documents incorporated herein by reference, and other filings with the Securities and Exchange Commission. These statements are based on managements current expectations, assumptions, estimates and
projections about Getty Images and its industry. All statements, trends, analyses and other information contained in this report relative to trends in sales, gross margin, anticipated expense levels and liquidity and capital resources, as well as
other statements including 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 in our Annual Report on Form 10-K for 2001 under




12




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Factors That May Affect the Business, as well as those set forth below under the same heading. You should not place undue
reliance on forward-looking statements since such statements speak only as of the date they are made. Except as required by law, the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new
information, future development or other events. Readers, however, should carefully review the factors set forth in the reports or documents that the company files from time to time with the Securities and Exchange Commission.





In this Quarterly Report, Getty Images, the company, we, us, and
our refer to Getty Images, Inc. and its consolidated subsidiaries, unless the context otherwise dictates.





GENERAL





The company is a leading provider of high quality, relevant imagery and related
services to creative professionals at advertising agencies, graphic design firms, corporations, and film and broadcasting companies; press and editorial customers involved in newspaper, magazine, book, CD-ROM and online publishing; and corporate
communications departments and other business customers.





Revenue





We generate our revenue from granting rights to use images and from providing related services. Revenue is principally derived from a large number of relatively small
transactions involving granting rights to use single still images, film clips or pre-packaged CD-ROM products containing between 100 and 300 images. We also generate revenue from subscription or bulk purchase agreements under which customers are
provided access to imagery online.





Still Imagery





The majority of the still imagery that the company licenses can be broken down into three collections: royalty-free, rights-managed, and news and sports. Royalty-free
images are licensed on a nonexclusive basis and can be used for multiple projects over an unlimited time period. License fees for pre-packaged royalty-free CD-ROM products are generally the same for each licensee, while license fees for single
royalty-free images differ depending on the file size of the selected image. For the third quarter of 2002, the average license fee for a single royalty-free image was approximately $103, and average gross margin was approximately 78%.





Rights-managed images are licensed on a use-by-use basis and generally have higher license fees based on the specific intended
use of the image, including type of media, total print run, geographical distribution, and level of rights protection. For the third quarter of 2002, the average license fee for a single rights-managed image was approximately $560, and average gross
margin was approximately 66%.





News and sports imagery is mainly editorial (that is, not for resale, trade,
packaging, promotion nor advertising), and partially rights-managed, and is licensed on a single image or subscription basis. Because many of these images are sold on a subscription basis, average license fee is not meaningful. However, average
gross margin for all news and sports images licensed in the third quarter of 2002 was approximately 85%.





Moving Imagery





The company also licenses moving imagery, or film, which may be
royalty-free or rights-managed, with fees based on the specific intended use of the imagery, including market, geographic area and duration of use. For the third quarter of 2002, the average price of a rights-managed film clip in North America was
approximately $575, and average gross margin for all film licensed during the quarter was approximately 76%.




13




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Cost of Sales





Our cost of sales primarily consists of commission payments to contributing photographers, cinematographers and third-party image providers. These suppliers are under
contract with the company and typically receive payments of up to 50% of the sales value, depending on the collection (as discussed above), how the imagery is delivered (digital delivery via download results in a lower commission), and where the
imagery is licensed (licenses outside a contributors home territory result in lower commissions). We own a significant number of the images in our collections, and these images do not require commission payments.





Aside from direct licensing to customers, the company licenses images through agents worldwide. These agents typically earn 40% of the
license fee, and we recognize the remaining 60% as revenue. Commissions paid to contributors on agent sales are generally 50% of the companys share of the license fee (generally 30% of the total license fee). This results in an average gross
margin of approximately 50% on agent sales.





Loss on Sale of a Business





During the first quarter of 2002, the company entered into an agreement to dispose of a subsidiary, American Royal Arts (ARA), a provider of animation art, and accrued a
loss of $0.8 million. The assets and liabilities of ARA were written off against the accrued loss upon consummation of the transaction on April 2, 2002. The net assets, results of operations and cash flows of ARA were not significant to the company
as a whole.





Integration Costs and Loss on Impairment of Assets





During the first quarter of 2001, the company continued the integration of three significant businesses acquired in the previous two years, The Image Bank, Art.com and the
Visual Communications Group. 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.





On May 17, 2001, the company terminated the operations of a
subsidiary, Art.com, a provider of framed and unframed art and art-related products on the Internet. In connection with this event, the company recorded integration costs of approximately $1.9 million during the second quarter of 2001, including
severance costs and costs to terminate the operations and exit the facilities of Art.com, as well as a loss on the impairment of related assets of $6.5 million.





During the second quarter of 2001, the company also recorded integration costs of $0.9 million, including severance costs and facilities exit costs, relating primarily to the closure of a Canadian
office and consolidation of those operations into other offices.





Restructuring Costs





During the third quarter of 2001, management announced that in response to further weakening in the U.S. and global markets served by
Getty Images, the company would reduce its workforce by approximately 300 people worldwide and across multiple functions by the end of the third quarter. The company recorded $4.5 million in restructuring costs for a planned 320 employee
terminations once management had committed the company to a formal plan of termination and had communicated to all employees the benefit arrangement they would receive if terminated. The company also incurred $0.3 million in other related
restructuring costs. As of March 31, 2002, all 320 planned employees had been terminated and all related termination costs had been paid.




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Loss on Impairment of Investments





During the second quarter of 2001, the company wrote off its minority cost basis investment in two small private companies after analyses showed that they suffered other
than temporary declines in fair value. These analyses were based upon review of quantitative and qualitative information provided to management, which indicated that these companies would be unable to return the carrying value of the companys
investments. The total of these two impairment charges was $4.2 million.





Changes in Accounting Principles





Effective January 1, 2002, the company adopted Statement of Financial Accounting Standards (SFAS) No. 142 Goodwill and
Other Intangible Assets. This accounting pronouncement requires the company to discontinue amortization of goodwill as of January 1, 2002 and to test goodwill for impairment on, at least, an annual basis. The following tables present the
impact of SFAS No. 142 on net loss and loss per share had the standard been in effect for the three and nine months ended September 30, 2001:





Three months ended September 30,


Year over year2002

% of sales

2001


% of sales


$ change

% change(In thousands, except percentages and per share amounts)Net income (loss)

$
6,816

5.8

$
(18,234
)

(17.0
)

$
25,050

137.4Earnings (loss) per share:Basic


0.13




(0.35
)





0.48

Diluted


0.13




(0.35
)





0.48

Net income (loss), adjusted for SFAS No. 142

$
6,816

5.8

$
(1,440
)

(1.3
)

$
8,256

573.3Earnings (loss) per share, adjusted for SFAS No. 142:Basic


0.13




(0.03
)





0.16

Diluted


0.13




(0.03
)





0.16







Nine months ended September 30,


Year over year2002

% of sales

2001


% of sales


$ change

% change(In thousands, except percentages and per share amounts)Net income (loss)

$
13,969

4.0

$
(56,525
)

(16.2
)

$
70,494

124.7Earnings (loss) per share:Basic


0.26




(1.09
)





1.35

Diluted


0.25




(1.09
)





1.34

Net income (loss), adjusted for SFAS No. 142

$
13,969

4.0

$
(6,134
)

(1.8
)

$
20,103

327.7Earnings (loss) per share, adjusted for SFAS No. 142:Basic


0.26




(0.12
)





0.38

Diluted


0.25




(0.12
)





0.37







In the first half of 2002, the company performed the transitional
impairment test for its single reporting unit, as required by SFAS No. 142, and noted no impairment of goodwill. The company is required to repeat this test on an annual basis and between annual tests in certain circumstances. The company selected
August 31 as its annual valuation date and noted no impairment when performing the valuation test as of this date in 2002. When assessing impairment, the company must determine the estimated implied fair value of its goodwill. Determining fair value
involves significant assumptions and estimates based on managements best judgments of current and future circumstances. As circumstances change, it is at least reasonably possible that future goodwill impairment tests could result in a charge
to earnings. Any impairment would be recognized as a loss on impairment of assets, which would be included in the calculation of income from operations.





Long-term Debt and Debt Conversion





On May 13, 2002, the company issued 443,839 shares of
common stock for conversion of the remaining $12.7 million of 4.75% convertible subordinated notes at a price of $28.5075 per




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share. The company will save approximately $0.9 million in interest payments through May of 2003, the
original maturity date of the notes, including $0.3 million of accrued interest that did not come due, in accordance with the original terms of the debt.





On July 15, 2002, the company terminated its $100 million senior credit facility with HSBC Investment Company plc and repaid the $20 million outstanding balance.





On July 19, 2002, the company entered into a new senior revolving credit facility with a consortium of banks led by Bank of America, N.A.
Key terms and conditions of the new facility are:





| |  |  | $85 million revolving credit facility, which may be increased by $40 million within two years of closing at the election of the company without consent of the
lenders;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | secured by all of the capital stock of certain domestic subsidiaries of the company, 65% of the capital stock of certain foreign subsidiaries, and certain
assets, primarily trademarks and current assets, of the company and these subsidiaries;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | primary financial covenants include maintenance of: a maximum leverage ratio of 3.25, stepping down to 3.0 for fiscal quarters ending December 31, 2003 and
thereafter; a minimum fixed charge coverage ratio of 1.5; and a minimum consolidated net worth not less than $484.3 million, plus 50% of future consolidated quarterly net income, plus 100% of future aggregate increases in stockholders equity
through the issuance and sale of stock;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | annual interest rate of either i) LIBOR, plus a spread ranging from 0.875% to 1.625% depending on the companys leverage ratio or ii) the higher of a) the
Federal Funds rate, plus 0.500% or b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its prime rate, plus a spread ranging from zero to 0.250% depending on the companys
leverage ratio;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | commitment fee for unutilized facilities between 0.250% and 0.400% annually, depending on the companys leverage ratio;
| | - |  | -----------------------------------------------------------------------------------------------------------------------




| |  |  | expires three years after closing;
| | - |  | ----------------------------------




| |  |  | restrictions on payments include no principal payments on any subordinated debt in excess of $25 million, and no purchases of the companys own stock in
excess of the sum of the number of unexercised employee stock options as of the date of the agreement and any future employee stock option grants;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | acquisitions of and investments in third parties are allowed without consent of the lenders, provided they do not exceed $15 million in the aggregate in any
fiscal year or $30 million in any rolling three year period. If the cash price of any acquisition exceeds $15 million, lenders representing at least 50% of the total commitments under the facility must approve the transaction;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | letters of credit issued by the lender reduce the amount available under the line of credit.
| | - |  | --------------------------------------------------------------------------------------------




Letters of credit aggregating $3.9 million have been issued under the new senior credit facility, and short-term investments of $3.9
million have been pledged as collateral and are held in a segregated account with the lender.





On August 5, 2002,
the company borrowed $15 million under this new facility. The annual interest rate on this borrowing was 3.188% at September 30, 2002.





RESULTS OF OPERATIONS





Below are selected financial highlights from the companys
unaudited results of operations and corresponding management discussion. Pro forma results represent the results of the consolidated company less the results of Art.com and ARA, if applicable. All figures are shown in thousands, except percentages.




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2002 Quarterly Results Compared to 2001 Quarterly Results





Sales








Three months ended September 30,

Year over year2002

% of sales

2001

% of sales

$ change

% changeSalesas reported

$
118,189

100.0

$
107,505

100.0

$
10,684

9.9Salespro forma


118,189

100.0


106,627

100.0


11,562

10.8





The sales increase from 2001 to 2002 reflected increases in prices,
increases in the volume of images licensed and the positive effect of foreign currency exchange rate changes. Volume increases resulted principally from the introduction of additional third-party royalty-free image collections to the gettyimages.com
website and the rebranding of an existing rights-managed collection early in the third quarter of 2002. Changes in foreign currency exchange rates, particularly British pounds to U.S. dollars, increased sales by approximately $3.7 million over the
prior year.





Geographically, the majority of the year over year sales increase was seen in the United States
(U.S.) and the United Kingdom (U.K.). Licensing of rights-managed still images and royalty-free still images comprised 56% and 28% of sales, respectively, for the third quarter of 2002, as compared to 55% and 28% of sales, respectively, for the
third quarter of 2001.





Gross Profit and Gross Margin








Three months ended September 30,

Year over year2002

% of sales

2001

% of sales

$ change

% changeGross profitas reported

$
84,740

71.7

$
79,564

74.0

$
5,176

6.5Gross profitpro forma


84,740

71.7


79,040

74.1


5,700

7.2





Despite an increase in the companys gross profit year over
year, gross margin declined principally due to an increase in licenses of lower margin images. During the third quarter of 2002, the company added third-party royalty-free images to the gettyimages.com website that contribute approximately 50% gross
margin, and both the volume and total sales value of these images were higher than expected. The gross margin on these images is expected to increase to approximately 60% in 2003, thereby mitigating the negative impact of these image licenses on
overall gross margin.





Selling, General and Administrative Expenses (SG&A)








Three months ended September 30,

Year over year2002

% of sales

2001

% of sales

$ change


% changeSG&Aas reported

$
51,564

43.6

$
57,792

53.7

$
(6,228
)

(10.8
)SG&Apro forma


51,564

43.6


57,260

53.7


(5,696
)

(9.9
)





Selling, general and administrative expenses were lower for the
third quarter of 2002 due to declines of approximately $2 million in advertising and marketing, $2 million in professional fees and $1 million in payroll and related costs. Advertising and marketing expenses and professional fees were down year over
year due to planned reductions in spending.





Full time equivalent employees at September 30, 2002 and 2001 were
approximately 1,648 and 1,965, respectively, a year over year decline of 317 employees or 16% of the workforce. Payroll and related expenses declined year over year, but not proportional to the decline in headcount. This is due to raises effective
in April 2002, increased commissions paid to sales personnel and bonuses accrued relative to 2002 year-to-date financial performance.




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Depreciation





Three months ended September 30,

Year over year2002

% of sales

2001

% of sales

$ change

% changeDepreciationas reported

$
15,073

12.8

$
14,676

13.7

$
397

2.7Depreciationpro forma


15,073

12.8


14,573

13.7


500

3.4





Depreciation increased from the third quarter of 2001 due mainly to
capital expenditures for new enterprise systems implemented worldwide beginning in the fourth quarter of 2001 and other technology investments. Management expects depreciation to stabilize in the final quarter of 2002 and decline slightly in 2003.





Amortization





Three months ended September 30,

Year over year2002

% of sales

2001

% of sales

$ change


% changeAmortizationas reported

$
3,070

2.6

$
18,546

17.3

$
(15,476
)

(83.4
)





Amortization decreased year over year due mainly to the cessation
of goodwill amortization in accordance with SFAS No. 142, offset in part by the inclusion of $1.7 million in amortization of deferred catalog costs in the third quarter of 2002. Goodwill amortization for the third quarter of 2001 was $16.5 million.





Management expects that amortization of identifiable intangible assets may increase gradually over time as the
company acquires or develops intangible assets such as trademarks, tradenames, patents, copyrights, customer lists and covenants not to compete.





Income/Loss from Operations





Three months ended September 30,


Year over year2002

% of sales

2001


% of sales


$ change

% changeIncome (loss) from operationsas reported

$
15,033

12.7

$
(16,226
)

(15.1
)

$
31,259

192.6Income (loss) from operationspro forma


15,033

12.7


(15,738
)

(14.8
)


30,771

195.5





Income from operations increased in the third quarter of 2002 over
the same period in 2001 due mainly to the cessation of goodwill amortization, higher sales, lower SG&A expenses, and restructuring costs incurred only in 2001, offset in part by lower gross margin, all of which are discussed in detail above.





Income Taxes





Three months ended September 30,


Year over year2002

% of sales

2001


% of sales


$ change

% changeIncome tax expense (benefit)as reported

$
4,793

4.1

$
(2,541
)

(2.4
)

$
7,334

288.6Income tax expense (benefit)pro forma


4,793

4.1


(2,346
)

(2.2
)


7,139

304.3





The effective tax rate used to calculate income tax expense for the
third quarter of 2002 was 41.3%, while the rate used to calculate income tax benefit for 2001 was 39.2%, on income (loss) before non-deductible amortization of goodwill. The increase in the effective tax rate was primarily due to the loss on the
sale of a subsidiary, as discussed above under Loss on Sale of a Business, for which no income tax benefit is expected to be realized. Income tax expense increased from the third quarter of 2001 primarily because of increased income
before non-deductible amortization of goodwill and certain identifiable intangible assets.




18




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##### Table of Contents




2002 Year-to-Date Results Compared to 2001 Year-to-Date Results





Sales





Nine months ended September 30,

Year over year2002

% of sales

2001

% of sales

$ change


% changeSalesas reported

$
345,339

100.0

$
349,148

100.0

$
(3,809
)

(1.1
)Salespro forma

$
344,636

100.0

$
342,611

100.0


2,025


0.6





The pro forma sales increase resulted from the significant year
over year growth seen in the third quarter of 2002, as discussed above, offset in part by the year over year sales declines seen in the first and second quarters of the year. Sales declines for the first half of 2002 from the prior year were due to
continuation of the downturn in the advertising and media sectors brought on in 2001 by general economic conditions in the U.S. and abroad and the negative impact of changes in foreign currency exchange rates. The net year-to-date impact of changes
in foreign currency exchange rates, particularly British pounds to U.S. dollars, was an increase in sales of approximately $1.1 million over the prior year.





Geographically, sales declined in most countries on a year-to-date basis year over year. Licensing of rights-managed still images and royalty-free still images comprised 56% and 27% of sales,
respectively, for the first three quarters of 2002, as compared to 54% and 27% of sales, respectively, for the first three quarters of 2001. The percentage of rights-managed licenses increased over the prior year, as the company focused on enhancing
its rights-managed image collection. In addition, customers were not as price sensitive as expected in a budget conscious economic climate, but instead focused on obtaining the right images for their needs. This contributed to an increase in the
percentage of licenses of higher priced rights-managed images and a decrease in the percentage of licenses of lower priced royalty-free images.





Gross Profit and Gross Margin





Nine months ended September 30,

Year over year2002

% of sales

2001

% of sales

$ change


% changeGross profitas reported

$
251,805

72.9

$
253,260

72.5

$
(1,455
)

(0.6
)Gross profitpro forma


251,461

73.0


250,115

73.0


1,346


0.5





The companys gross profit increased over the prior year due
to increased sales, while gross margin remained constant year over year at 73.0% due to a proportional increase in cost of sales.





Selling, General and Administrative Expenses (SG&A)





Nine months ended September 30,

Year over year2002

% of sales

2001

% of sales

$ change


% changeSG&Aas reported

$
156,916

45.4

$
180,229

51.6

$
(23,313
)

(12.9
)SG&Apro forma


156,322

45.4


174,182

50.8


(17,860
)

(10.3
)





Selling, general and administrative expenses were lower for the
first three quarters of 2002 due mainly to declines of approximately $9 million in advertising and marketing, $4 million in professional fees and $2 million in payroll and related costs. These declines were offset in part by an increase in bad debt
expense of approximately $3 million due to deterioration in the aging of customer accounts receivable.





Advertising and marketing expenses were down year over year due to planned reductions in spending and reduced catalog costs. Professional fees were also down year over year due to planned reductions in spending.




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Full time equivalent employees at September 30, 2002 and 2001 were approximately 1,648 and 1,965, respectively, a year over year decline of 317
employees or 16% of the workforce. Payroll and related expenses declined year over year, but not proportional to the decline in headcount. This is due to raises effective in April 2002, increased commissions paid to sales personnel and bonuses
accrued relative to 2002 year-to-date financial performance.





Depreciation





Nine months ended September 30,

Year over year2002

% of sales

2001

% of sales

$ change

% changeDepreciationas reported

$
46,137

13.4

$
42,168

12.1

$
3,969

9.4Depreciationpro forma


46,093

13.4


40,601

11.9


5,492

13.5





Depreciation increased for the first three quarters of 2002 from
the first three quarters of 2001 due mainly to capital expenditures for new enterprise systems implemented worldwide beginning in the fourth quarter of 2001 and other technology investments.





Amortization





Nine months ended September 30,

Year over year2002

% of sales

2001

% of sales

$ change


% changeAmortizationas reported

$
13,689

4.0

$
55,816

16.0

$
(42,127
)

(75.5
)





Amortization decreased from 2001 due mainly to the cessation of
goodwill amortization in accordance with SFAS No. 142, offset in part by the inclusion of $9.6 million in amortization of deferred catalog costs in the first three quarters of 2002. Goodwill amortization for the first three quarters of 2001 was
$49.6 million.





Income/Loss from Operations





Nine months ended September 30,


Year over year2002

% of sales

2001


% of sales


$ change

% changeIncome (loss) from operationsas reported

$
34,251

9.9

$
(43,047
)

(12.3
)

$
77,298

179.6Income (loss) from operationspro forma


34,545

10.0


(29,266
)

(8.5
)


63,811

218.0





Income from operations increased in the first three quarters of
2002 over the same period in 2001 due to the cessation of goodwill amortization, lower SG&A expenses, and integration and restructuring costs and loss on impairment of assets incurred only in 2001, offset in part by lower sales, increased
depreciation and catalog amortization, as discussed above. The pro forma loss from operations in 2001 is significantly lower than the reported loss due mainly to integration costs and loss on impairment of assets recorded at Art.com in 2001, as
discussed in the General section above.




20




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Income Taxes








Nine months ended September 30,


Year over year2002

% of sales

2001


% of sales


$ change

% changeIncome tax expense (benefit)as reported

$
9,526

2.8

$
(3,350
)

(1.0
)

$
12,876

384.4Income tax expensepro forma


9,644

2.8


2,057


0.6



7,587

368.8





The effective tax rate used to calculate income tax expense for the
first three quarters of 2002 was 40.5%, while the rate used to calculate income tax benefit for 2001 was 39.2%, on income (loss) before non-deductible amortization of goodwill. The increase in the effective tax rate was primarily due to the loss on
the sale of a subsidiary, as discussed above under Loss on Sale of a Business, for which no income tax benefit is expected to be realized. Income tax expense increased from the first three quarters of 2001 primarily because of increased
income before non-deductible amortization of goodwill and certain identifiable intangible assets.





Recent
Accounting Pronouncements





Effective January 1, 2002, the company adopted SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. This pronouncement requires one model for accounting for long-lived assets to be disposed of and broadens the presentation of discontinued operations to include more transactions. Adoption of
this pronouncement did not have an impact on the companys reported financial position, results of operations or cash flows, however, it could cause any future long-lived asset disposals to be accounted for or presented in a different manner
than in the past.





Effective January 1, 2003, the company will adopt SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This pronouncement requires that liabilities associated with exit or disposal activities be recognized when the liabilities are incurred and can be measured, as opposed to the date that management
commits to the activities. In addition, under the new standard, employee liabilities are to be booked at the present value of expected future cash outflows, and operating lease liabilities are to be booked net of reasonable sublease income, even if
it is not managements intent to sublease the property. As managements current plans do not include exit or disposal activities, management does not expect this pronouncement to have a significant effect on the companys financial
position, results of operations or cash flows. However, if the company were to incur charges for exit or disposal activities, any charges under SFAS No. 146 would be lower than under previous accounting guidance due to the recording of such amounts
at present value.





Subsequent Event





On October 23, 2002, the company announced that the Board of Directors authorized the company to repurchase up to $50 million of its common stock on the open market from
time to time over the next six months. The number of shares purchased, if any, and the timing of the purchases will be based on the level of cash balances, general business conditions and other factors, including alternative investment opportunities
and restrictive covenants imposed by our senior credit facility.





FINANCIAL CONDITION





At September 30, 2002, the company held $67.2 million in cash and cash equivalents, $28.5 million in short-term investments and
$66.1 million in unused credit facilities under an $85.0 million bank line of credit. This line of credit may be increased by $40 million until July 19, 2004 at the election of the company without consent of the lenders.





Working Capital





At
September 30, 2002, the companys working capital was $85.9 million, an increase of $72.6 million from the end of 2001. This growth resulted mainly from an increase in cash and short-term investments of $49.5 million and a decrease in the
current portion of long-




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term debt of $19.9 million. Cash increased due to increased operating cash flow and $18.2 million in
proceeds from the issuance of common stock through stock option exercises. Significant uses of cash during the first three quarters of 2002 were operating requirements, $28.9 million in capital expenditures, and a net $5.0 million repayment of debt.





Liquidity and Capital Resources





Management expects to invest approximately $40 million in capital expenditures during 2002, including the $28.9 million invested during the first three quarters of the year. Existing cash and
short-term investment balances, cash flows provided by operating activities and borrowing capacity are expected to be sufficient to fund operations, capital expenditures and debt servicing requirements for at least the following 12 months. In
addition, the company may repurchase up to $50 million of its common stock on the open market from time to time over the next six months.





Cash flows from operating activities are subject to many risks, particularly those discussed below under Factors That May Affect the Business. Should the company require funds beyond current cash and short-term
investment balances and cash flows from operating activities, additional amounts could be borrowed under the senior credit facility discussed under the Long-term Debt and Debt Conversion heading above if the company was in compliance
with the financial covenants of this facility. Management believes the company is currently in compliance with these covenants.





FACTORS THAT MAY AFFECT THE BUSINESS





Our Business Could be Affected by a Failure to Successfully Complete the
Implementation of New Enterprise Systems.





As a result of the acquisition strategy we have pursued since our
inception in 1995, we have focused significant resources and attention on integrating acquired businesses. The integration efforts focused on the installation and development of new enterprise systems for technology, business processes, sales and
marketing systems, finance and royalty systems, customer interfaces, and other corporate administrative functions for the continued transformation and consolidation of company-wide systems. The October 2001 launch of gettyimages.com, the subsequent
launch of localized language websites and e-commerce systems in key European markets, the continued migration of royalty-free stock photography products to gettyimages.com, and the move of News and Sport offerings to gettyimages.com have all been
important technology and integration milestones. However, our future performance will largely depend on our ability to complete the implementation of new enterprise systems for our finance, sales and customer database systems. These implementations
create risks such as:





| |  |  | disruption of our ongoing business;
| | - |  | -----------------------------------




| |  |  | delays in reporting systems, which could impact our ability to process information on a timely basis;
| | - |  | -----------------------------------------------------------------------------------------------------




| |  |  | delays in properly identifying and processing data necessary for management functions, including accounting, financial reporting and planning; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | diversion of attention of our senior management from existing operations and other potential business opportunities.
| | - |  | --------------------------------------------------------------------------------------------------------------------




We cannot guarantee that we will successfully complete the implementation of the new enterprise systems.




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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. 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 in a
companys collections, 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 or may develop
superior financial, marketing and other resources than we have, or other such competitive advantages.





Our future
performance also 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 relevant content. If we fail to determine such trends and add relevant new imagery in a
timely manner, customers requiring such content may use other visual content providers to obtain imagery.





We May Not Succeed in
Establishing the Getty Images Brand.





We have consolidated our companys collections and the
associated Web-based offerings, technology platforms and business practices under the Getty Images brand name. Continued 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 favorable customer reception and brand positioning is important to our future success. Additionally, securing the
Getty Images trademark is an important part of the branding strategy, and barriers arising from third parties or trademark officials in various countries may hinder our effort to secure trademarks in key markets or trademark classes.





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 for the names Getty Images and Getty,
and derivatives of those names and the related logo. We use Getty Images as a corporate identity, as do certain of our subsidiaries, and we use Getty Images as a product and service brand. We refer to the above as the
Getty Trademarks. In the event that a third party or parties not affiliated with the Getty family acquire control of Getty Images, Getty Investments L.L.C. (Getty Investments) 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 them. Getty Investments right to cause such an
assignment might have a negative impact on the amount of consideration that a potential acquirer would be willing to pay to acquire our common stock.





Getty Investments owns approximately 18% of the outstanding shares of our common stock as of September 30, 2002. Mr. Mark Getty, our Executive Chairman serves as the Chairman of the Board of Directors
of Getty Investments, while Mr. Jonathan Klein, our Chief Executive Officer, and Mr. Andrew Garb, a member of our Board of Directors, serve on the Board of Directors of Getty Investments.





Our Quarterly Financial Results and Stock Price May Fluctuate.





Historical trends and quarter-to-quarter comparisons of our operating results may not be good indicators of our future performance.





Our revenues and operating results are expected to vary from quarter to quarter due to a number of factors, including those listed in this Risk Factors section and the following:





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




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



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| |  |  | a continued slowdown in advertising or media spending;
| | - |  | ------------------------------------------------------




| |  |  | changes in the sales mix of our products and services, including the mix of sales of analog and digital imagery, company owned and licensed imagery, and the
geographic 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;
| | - |  | ------------------------------------------------------------------------------------------------------




| |  |  | the effect of fluctuations in foreign exchange rates on the results of our operations outside the U.S.;
| | - |  | -------------------------------------------------------------------------------------------------------




| |  |  | costs related to potential acquisitions of technology or businesses; and
| | - |  | ------------------------------------------------------------------------




| |  |  | changes in U.S. and global capital markets and economies, or in applicable tax laws and regulations.
| | - |  | ----------------------------------------------------------------------------------------------------




Because of these risks and others, it is possible that some future quarterly results may be below or above the expectations of public
market analysts and investors.





Impairment of the Value of Significant Assets 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 impairments to
the reported value of certain significant assets, the valuation of which require managements most difficult judgments as a result of the need to make estimates and assumptions about the effects of matters that are inherently uncertain.





Deferred Income Taxes





Deferred income taxes reflect the impact of temporary differences between financial and tax reporting and of tax loss carryforwards, and are reduced by a valuation
allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of September 30, 2002, the company had net deferred tax assets of $64.4 million, net of
a valuation allowance of $16.6 million. Although realization is not assured, management believes, based on its current estimates of future taxable income for its U.S. operations and tax-planning strategies, that it is more likely than not that the
net deferred tax assets will be realized within a reasonable period of time and substantially prior to the expiration of the net operating loss carryforwards. In the event that actual results differ from managements expectations, the valuation
allowance could materially change, directly impacting our financial position and results of operations. If domestic taxable income is not earned as planned, the domestic tax loss carryforwards will expire from 2018 to 2021, and the company may be
required to take the balance through the income statement as income tax expense in advance of the expiration of the loss carryforwards.





Goodwill and Identifiable Intangible Assets





Intangible assets comprise goodwill
and identifiable intangible assets. Goodwill is the excess of the purchase price and related costs over the fair value of net assets acquired in business combinations. Identifiable intangible assets consist mainly of film libraries, customer lists
and trademarks, tradenames and copyrights. The net balance of goodwill and identifiable intangible assets at September 30, 2002 was $633.5 million. Effective January 1, 2002, the company adopted Statement of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other Intangible Assets. This accounting pronouncement required us to cease amortization of goodwill, and alternatively test the goodwill balance for impairment annually and between annual tests in certain
circumstances. Should the company determine at some point in the future that all or a portion of the goodwill or identifiable intangible assets balances are impaired, the company would be required to write off the impaired portion through the income
statement in the period of that determination.







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Certain Assets





The useful lives of certain of the companys assets, including capitalized image duplication and digitization costs (included within property and equipment), are based
upon the estimated period over which the assets are expected to provide benefit to the company. This future benefit is inherently uncertain, and therefore, the lives of these assets require managements most difficult judgments. The balance of
image duplicates and digitization, net of accumulated depreciation, was $36.6 million at September 30, 2002 and is being depreciated over useful lives of two to four years. Should the company determine at some point in the future that the useful
lives of these assets are shorter than previously determined, the company would be required to accelerate the depreciation, or possibly write off the impaired portion, of the undepreciated balance of such assets.





Our Indebtedness Could Reduce Our Flexibility and Make Us More Vulnerable to Economic Downturns.





In the event of a business downturn, 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 will be dedicated to the payment of principal and interest on any amounts outstanding under our senior
credit facility and on our 5.0% convertible subordinated notes due in 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;
| | - |  | ----------------------------------------------------------------------------------------------




| |  |  | our flexibility in planning for, or reacting to, changes in our business and competitive environment could be reduced; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------




| |  |  | we may be more vulnerable to economic downturns.
| | - |  | ------------------------------------------------




We currently anticipate that our available cash resources and cash flow from operations will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the
following 12 months. However, changes in U.S. and global capital markets, including significant fluctuations in interest rates and the price of our equity securities or results of our operations, may impede our access to, or increase the cost of,
external financing for our operations and any acquisitions.





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





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





The Getty Group collectively owned approximately 20% of the outstanding shares of our common stock
as of September 30, 2002, 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 5% of the outstanding shares of our common stock as
of September 30, 2002, and comprises the following persons and entities: PDI, L.L.C.; Mr. Mark Torrance; Ms. Wade Ballinger (the former wife of Mr. Torrance); and certain of their family members.





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





As a result of their
share ownership, the Getty Group and the Torrance Group each have significant influence over all matters requiring approval of our stockholders, including




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the election of directors and the approval of mergers or other business combinations. The substantial
percentage of our stock held by the Getty Group and the Torrance Group could also make us a less attractive acquisition candidate or have the effect of delaying or preventing a third party from acquiring control over us at a premium over the
then-current price of our common stock. In addition to ownership of 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.





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 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, approval or action by our stockholders. This authority, together with certain provisions of our restated certificate of incorporation, may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of 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 and the Torrance Group, along with certain provisions of Delaware law, may have the effect of delaying, deterring or preventing a takeover of our company.





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 not unduly burdensome, state, federal and foreign governments have and may continue to adopt legislation regulating the Internet and e-commerce. Such legislation or
regulation could both increase our cost of doing business and impede the growth of the Internet while decreasing 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 license or use our online products and services.





Laws and regulations do now and
could potentially more significantly govern or restrict any of the following issues:





| |  |  | user privacy and data retention and transmission;
| | - |  | -------------------------------------------------




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




| |  |  | website content or the quality of products and services offered over the Internet; and
| | - |  | --------------------------------------------------------------------------------------




| |  |  | the liabilities for companies involved in the Internet or e-commerce.
| | - |  | ---------------------------------------------------------------------




Systems 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. Developments in computer capabilities, viruses, and advances in the field of cryptography or
other events could result in compromises or breaches of our security systems or those of other websites and networks, jeopardizing our proprietary and confidential information, or causing potentially seriousinterruptions in our services, sales or
operations. We may be required to expend significant additional resources to protect against the threat of security breaches or to alleviate problems caused by such breaches. Additionally, any well-publicized compromises of our security system or
the Internet generally may reduce our customers desire to transact business over the Web.




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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 dependent on the ability of our customers to access our websites, particularly the
gettyimages.com website. In the past, we have experienced infrequent system interruptions that made certain websites unavailable or prevented us from efficiently taking or fulfilling orders. While we have made improvements in this area, we cannot
guarantee that we 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 continue adding software and hardware, and
continue to upgrade our enterprise systems and network infrastructure to accommodate increased traffic on our websites and increased sales volume. Without these upgrades, we may 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 project the precise 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 functions are located in metropolitan areas worldwide. Any of these systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, earthquake and similar events. We do not have full
redundancy for all of our computer and telecommunications facilities.





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. Please see a full discussion of these risks under this same heading in the companys Annual Report on Form 10-K for 2001.





Interest Rate Risk





Our exposure to market rate risk for changes in interest rates relates primarily to our debt instruments, the largest of which is a fixed rate borrowing. The book values, before unamortized debt issuance costs, and
respective fair values of material long-term debt obligations are shown in the table below:





Maturities at Face Value


Fair Value2005


2006

2007


Total


Sept. 30, 2002


Dec. 31, 2001(In thousands, except percentages)Fixed rate debt

$



$


$
250,000


$
250,000


$
216,250


$
219,947Average year-to-date interest rate









5.00
%


5.00
%


5.00
%


4.99
%Variable rate debt

$
15,000









$
15,000


$
15,000


$
19,865Average year-to-date interest rate


3.14
%









3.14
%


3.14
%


5.74
%





Foreign Currency Risk





The company had no outstanding foreign exchange contracts or related deferred gains or losses as of September 30, 2002.





Item 4.Controls and Procedures





Evaluation of Disclosure Controls and Procedures





Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial
Officer, the company has evaluated the effectiveness




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of its disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934) within 90 days of the filing
date of this quarterly report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective.





Changes in Internal Controls





There have been no
significant changes in the companys internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.





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 for
images we license. We have accrued a liability and charged operations for the estimated costs of settlement or adjudication of claims for which we believe a loss is probable. 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





None





Item 3.Defaults Upon Senior Securities





None





Item 4.Submission of Matters to a Vote of Security Holders





None





Item 5.Other Information





Effective November 5, 2002, we transferred our public
market listing to the New York Stock Exchange under the ticker symbol GYI. The company had been listed on the Nasdaq National Market since the companys initial public offering in 1996.





Item 6.Exhibits and Reports on Form 8-K





(a)  Exhibits:





Reference is made to the Index of Exhibits beginning on page 32 for a list of all exhibits filed as part of
this report.





(b)  Reports on Form 8-K:





No reports on Form 8-K were filed during the quarter ended September 30, 2002.




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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.








GETTY IMAGES, INC.By:

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








November
12, 2002




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CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002





I, Jonathan D. Klein, Chief Executive Officer, certify that:





1.  I have reviewed this quarterly report on Form 10-Q of Getty Images, Inc.;





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





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





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





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





b)  evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly report (the Evaluation Date); and





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





5.  The registrants other certifying officers and I have disclosed, based on our most recent evaluation,
to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):





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





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





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








By:

/s/    JONATHAN D.
KLEINJonathan D. Klein Co-Founder
and Chief Executive Officer








November
12, 2002




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CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF
1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002





I, Elizabeth J. Huebner, Chief
Financial Officer, certify that:





1.  I have reviewed this quarterly report on Form 10-Q
of Getty Images, Inc.;





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





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





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





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





b)  evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the Evaluation Date); and





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





5.  The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors
and the audit committee of registrants board of directors (or persons performing the equivalent function):





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





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





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








By:

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








November
12, 2002




31




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##### Table of Contents




EXHIBIT INDEX





Exhibit Number

Description of Exhibit3.1*

Bylaws of Getty Images, Inc.99.1*

Certification by Jonathan D. Klein, CEO99.2*

Certification by Elizabeth J. Huebner, CFO


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|* |  | Filed herewith.
|- |  | ---------------



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