##### Table of Contents



UNITED STATES SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549



---



Form 10-Q



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

For the quarterly period ended March 31, 2004

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                 |  | 98-0177556                          
|(State of Incorporation) |  | (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)



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



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



At April 30, 2004 there were 58,281,910 shares of the registrants common stock, par value $0.01 per share, outstanding.



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| |  |  |  |                    |  |  |  |          |  |  |  |           |  |  |  |  |  | 
| |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  |  |  |  |  | 
| |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  |  |  |  |  | 



TABLE OF CONTENTS



|                                 |  |                                                                                                                             |  |     
|-------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                 |  |                                                                                                                             |  | PAGE
|                                 | 
|PART I.    FINANCIAL INFORMATION |  |                                                                                                                            
|                                 |  |                                                                                                                            
|ITEM 1.                          |  | Financial Statements (unaudited):                                                                                           |  |     
|                                 |  |                                                                                                                            
|                                 |  | Condensed Consolidated Statements of Incomefor the three months ended March 31, 2004 and 2003                              |  | 1   
|                                 |  |                                                                                                                            
|                                 |  | Condensed Consolidated Balance Sheetsat March 31, 2004 and December 31, 2003                                               |  | 2   
|                                 |  |                                                                                                                            
|                                 |  | Condensed Consolidated Statement of Stockholders Equityat December 31, 2003 and for the three months ended March 31, 2004 |  | 3   
|                                 |  |                                                                                                                            
|                                 |  | Condensed Consolidated Statements of Cash Flowsfor the three months ended March 31, 2004 and 2003                          |  | 4   
|                                 |  |                                                                                                                            
|                                 |  | Notes to Condensed Consolidated Financial Statements                                                                        |  | 5   
|                                 |  |                                                                                                                            
|ITEM 2.                          |  | Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)                                |  | 13  
|                                 |  |                                                                                                                            
|ITEM 3.                          |  | Quantitative and Qualitative Disclosures about Market Risk                                                                  |  | 20  
|                                 |  |                                                                                                                            
|ITEM 4.                          |  | Controls and Procedures                                                                                                     |  | 21  
|                                 | 
|PART II.    OTHER INFORMATION    |  |                                                                                                                            
|                                 |  |                                                                                                                            
|ITEM 1.                          |  | Legal Proceedings                                                                                                           |  | 22  
|                                 |  |                                                                                                                            
|ITEM 2.                          |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities                                            |  | 22  
|                                 |  |                                                                                                                            
|ITEM 3.                          |  | Defaults Upon Senior Securities                                                                                             |  | 22  
|                                 |  |                                                                                                                            
|ITEM 4.                          |  | Submission of Matters to a Vote of Security Holders                                                                         |  | 22  
|                                 |  |                                                                                                                            
|ITEM 5.                          |  | Other Information                                                                                                           |  | 22  
|                                 |  |                                                                                                                            
|ITEM 6.                          |  | Exhibits and Reports on Form 8-K                                                                                            |  | 22  
|                                 | 
|SIGNATURE                        |  | 23                                                                                                                         
|                                 | 
|EXHIBIT INDEX                    |  | 24                                                                                                                         



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|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|1 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)



|                                             |  |      |         |   |      |   |         |  
|-------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|THREE MONTHS ENDED MARCH 31,                 |  | 2004 |         |   | 2003 |  
|                                             |  |      |         |   |      |   |         |  
|(In thousands, except per share amounts)     |  |      |         |   |      |  
|                                             |  |     
|Revenue                                      |  | $    | 156,512 |   |      | $ | 130,317 |  
|Cost of sales                                |  |      | 43,806  |   |      |   | 37,315  |  
|                                             |  |      |         |   |      |   |         |  
|Gross profit                                 |  |      | 112,706 |   |      |   | 93,002  |  
|                                             |  |      |         |   |      |   |         |  
|Selling, general and administrative expenses |  |      | 54,718  |   |      |   | 53,365  |  
|Depreciation                                 |  |      | 13,823  |   |      |   | 14,934  |  
|Amortization                                 |  |      | 1,094   |   |      |   | 934     |  
|Other operating expenses (income)            |  |      | 129     |   |      |   | (160    | )
|                                             |  |      |         |   |      |   |         |  
|Operating expenses                           |  |      | 69,764  |   |      |   | 69,073  |  
|                                             |  |      |         |   |      |   |         |  
|Income from operations                       |  |      | 42,942  |   |      |   | 23,929  |  
|Interest expense                             |  |      | (1,067  | ) |      |   | (3,758  | )
|Interest income                              |  |      | 1,753   |   |      |   | 602     |  
|Exchange (losses) gains, net                 |  |      | (708    | ) |      |   | 915     |  
|Other (expenses) income, net                 |  |      | (10     | ) |      |   | 5       |  
|                                             |  |      |         |   |      |   |         |  
|Income before income taxes                   |  |      | 42,910  |   |      |   | 21,693  |  
|Income tax expense                           |  |      | (16,824 | ) |      |   | (8,463  | )
|                                             |  |      |         |   |      |   |         |  
|Net income                                   |  | $    | 26,086  |   |      | $ | 13,230  |  
|                                             |  |      |         |   |      |   |         |  
|Earnings per share                           |  |      |         |   |      |   |         |  
|Basic                                        |  | $    | 0.45    |   |      | $ | 0.25    |  
|Diluted                                      |  |      | 0.43    |   |      |   | 0.23    |  
|                                             |  |      |         |   |      |   |         |  
|Shares used in computing earnings per share  |  |      |         |   |      |   |         |  
|Basic                                        |  |      | 57,666  |   |      |   | 53,989  |  
|Diluted                                      |  |      | 60,157  |   |      |   | 56,782  |  
|                                             | 



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



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|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|2 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)



|                                           |  |               |           |   |                  |   |           |  
|------------------------------------------ |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                           |  | MARCH 31,2004 |           |   | DECEMBER 31,2003 |  
|                                           |  |               |           |   |                  |   |           |  
|(In thousands)                             |  |               |           |   |                  |  
|                                           |  |              
|ASSETS                                     |  |               |           |   |                  |   |           |  
|Current assets                             |  |               |           |   |                  |   |           |  
|Cash and cash equivalents                  |  | $             | 132,476   |   |                  | $ | 140,058   |  
|Short-term investments                     |  |               | 224,140   |   |                  |   | 167,525   |  
|Accounts receivable, net                   |  |               | 83,865    |   |                  |   | 75,781    |  
|Prepaid expenses                           |  |               | 8,836     |   |                  |   | 9,693     |  
|Deferred income taxes, net                 |  |               | 12,697    |   |                  |   | 13,206    |  
|Other current assets                       |  |               | 2,459     |   |                  |   | 1,246     |  
|                                           |  |               |           |   |                  |   |           |  
|Total current assets                       |  |               | 464,473   |   |                  |   | 407,509   |  
|Property and equipment, net                |  |               | 119,304   |   |                  |   | 123,268   |  
|Goodwill                                   |  |               | 603,172   |   |                  |   | 603,024   |  
|Identifiable intangible assets, net        |  |               | 15,501    |   |                  |   | 16,615    |  
|Deferred income taxes, net                 |  |               | 53,483    |   |                  |   | 62,567    |  
|Other long-term assets                     |  |               | 10,490    |   |                  |   | 11,101    |  
|                                           |  |               |           |   |                  |   |           |  
|Total assets                               |  | $             | 1,266,423 |   |                  | $ | 1,224,084 |  
|                                           |  |               |           |   |                  |   |           |  
|                                           |  |              
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |               |           |   |                  |   |           |  
|Current liabilities                        |  |               |           |   |                  |   |           |  
|Accounts payable                           |  | $             | 71,834    |   |                  | $ | 64,454    |  
|Accrued expenses                           |  |               | 34,845    |   |                  |   | 42,459    |  
|Income taxes payable                       |  |               | 5,544     |   |                  |   | 8,170     |  
|                                           |  |               |           |   |                  |   |           |  
|Total current liabilities                  |  |               | 112,223   |   |                  |   | 115,083   |  
|Long-term debt                             |  |               | 265,000   |   |                  |   | 265,011   |  
|Other long-term liabilities                |  |               | 8,792     |   |                  |   | 8,184     |  
|                                           |  |               |           |   |                  |   |           |  
|Total liabilities                          |  |               | 386,015   |   |                  |   | 388,278   |  
|                                           |  |               |           |   |                  |   |           |  
|Commitments and contingencies (Note 4)     |  |               |           |   |                  |   |           |  
|Stockholders equity                       |  |               |           |   |                  |   |           |  
|Common stock                               |  |               | 580       |   |                  |   | 573       |  
|Additional paid-in capital                 |  |               | 1,114,832 |   |                  |   | 1,098,249 |  
|Unearned compensation                      |  |               | (367      | ) |                  |   | (448      | )
|Accumulated deficit                        |  |               | (249,167  | ) |                  |   | (275,253  | )
|Accumulated other comprehensive income     |  |               | 14,530    |   |                  |   | 12,685    |  
|                                           |  |               |           |   |                  |   |           |  
|Total stockholders equity                 |  |               | 880,408   |   |                  |   | 835,806   |  
|                                           |  |               |           |   |                  |   |           |  
|Total liabilities and stockholders equity |  | $             | 1,266,423 |   |                  | $ | 1,224,084 |  
|                                           | 



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



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##### Table of Contents



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|3 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(unaudited)



|                                       |  |                                          |  |             |     |                           |   |                      |  |   |                    |   |  |                                     |          |       |  |   |        |  |   |        
|-------------------------------------- |  | ---------------------------------------- |  | ----------- | --- | ------------------------- | - | -------------------- |  | - | ------------------ | - |  | ----------------------------------- | -------- | ----- |  | - | ------ |  | - | -------
|                                       |  | No. ofShares ofCommonStock$0.01Par Value |  | CommonStock |     | AdditionalPaid-In Capital |   | UnearnedCompensation |  |   | AccumulatedDeficit |   |  | AccumulatedOtherComprehensiveIncome |          | Total
|                                      
|(In thousands)                         |  |                                          |  |             |     |                           |   |                      |  |   |                    |   |  |                                     |          |      
|                                       |  |                                          |  |             |     |                           |  
|Balance at December 31, 2003           |  | 57,331                                   |  | $           | 573 |                           | $ | 1,098,249            |  | $ | (448               | ) |  | $                                   | (275,253 | )     |  | $ | 12,685 |  | $ | 835,806
|Net income                             |  |                                         |  |             |    |                           |   |                     |  |   |                   |   |  |                                     | 26,086   |       |  |   |       |  |   | 26,086 
|Other comprehensive income             |  |                                         |  |             |    |                           |   |                     |  |   |                   |   |  |                                     |         |       |  |   | 1,845  |  |   | 1,845  
|Amortization of unearned compensation  |  |                                         |  |             |    |                           |   |                     |  |   | 81                 |   |  |                                     |         |       |  |   |       |  |   | 81     
|Stock options exercised                |  | 690                                      |  |             | 7   |                           |   | 12,441               |  |   |                   |   |  |                                     |         |       |  |   |       |  |   | 12,448 
|Restricted stock vesting               |  |                                         |  |             |    |                           |   | 9                    |  |   |                   |   |  |                                     |         |       |  |   |       |  |   | 9      
|Tax benefit on stock options exercised |  |                                         |  |             |    |                           |   | 4,133                |  |   |                   |   |  |                                     |         |       |  |   |       |  |   | 4,133  
|                                       |  |                                          |  |             |     |                           |   |                      |  |   |                    |   |  |                                     |          |       |  |   |        |  |   |        
|Balance at March 31, 2004              |  | 58,021                                   |  | $           | 580 |                           | $ | 1,114,832            |  | $ | (367               | ) |  | $                                   | (249,167 | )     |  | $ | 14,530 |  | $ | 880,408
|                                      



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



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|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|4 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                   |  |      |          |   |      |   |         |  
|---------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | -
|THREE MONTHS ENDED MARCH 31,                                                       |  | 2004 |          |   | 2003 |  
|                                                                                   |  |      |          |   |      |   |         |  
|(In thousands)                                                                     |  |      |          |   |      |  
|                                                                                   |  |     
|Cash flows from operating activities                                               |  |      |          |   |      |   |         |  
|Net income                                                                         |  | $    | 26,086   |   |      | $ | 13,230  |  
|Adjustments to reconcile net income to net cash provided by operating activities   |  |      |          |   |      |   |         |  
|Deferred income taxes                                                              |  |      | 14,636   |   |      |   | 6,924   |  
|Depreciation                                                                       |  |      | 13,823   |   |      |   | 14,934  |  
|Bad debt expense                                                                   |  |      | 1,421    |   |      |   | 1,315   |  
|Amortization of identifiable intangible assets                                     |  |      | 1,094    |   |      |   | 934     |  
|Amortization of debt issuance costs                                                |  |      | 477      |   |      |   | 313     |  
|Other changes in long-term assets and liabilities                                  |  |      | 1,021    |   |      |   | (34     | )
|Changes in current assets and liabilities, net of effects of business acquisitions |  |      |          |   |      |   |         |  
|Accounts receivable                                                                |  |      | (11,154  | ) |      |   | (6,724  | )
|Accounts payable                                                                   |  |      | 7,024    |   |      |   | 1,467   |  
|Accrued expenses                                                                   |  |      | (8,035   | ) |      |   | (8,941  | )
|Income taxes payable                                                               |  |      | (3,144   | ) |      |   | (723    | )
|Changes in other current assets and liabilities                                    |  |      | 424      |   |      |   | (733    | )
|                                                                                   |  |      |          |   |      |   |         |  
|Net cash provided by operating activities                                          |  |      | 43,673   |   |      |   | 21,962  |  
|                                                                                   |  |      |          |   |      |   |         |  
|Cash flows from investing activities                                               |  |      |          |   |      |   |         |  
|Acquisition of available-for-sale investments                                      |  |      | (113,952 | ) |      |   | (14,664 | )
|Proceeds from the sale of available-for-sale investments                           |  |      | 58,232   |   |      |   |        |  
|Acquisition of property and equipment                                              |  |      | (9,097   | ) |      |   | (8,194  | )
|Acquisition of businesses, net of cash acquired                                    |  |      |         |   |      |   | (2,383  | )
|Proceeds from the sale of assets                                                   |  |      |         |   |      |   | 300     |  
|                                                                                   |  |      |          |   |      |   |         |  
|Net cash used in investing activities                                              |  |      | (64,817  | ) |      |   | (24,941 | )
|                                                                                   |  |      |          |   |      |   |         |  
|Cash flows from financing activities                                               |  |      |          |   |      |   |         |  
|Proceeds from the issuance of common stock                                         |  |      | 12,448   |   |      |   | 4,894   |  
|Debt issuance costs paid                                                           |  |      | (136     | ) |      |   |        |  
|                                                                                   |  |      |          |   |      |   |         |  
|Net cash provided by financing activities                                          |  |      | 12,312   |   |      |   | 4,894   |  
|                                                                                   |  |      |          |   |      |   |         |  
|Effects of exchange rate differences                                               |  |      | 1,250    |   |      |   | 316     |  
|                                                                                   |  |      |          |   |      |   |         |  
|Net (decrease) increase in cash and cash equivalents                               |  |      | (7,582   | ) |      |   | 2,231   |  
|Cash and cash equivalents, beginning of period                                     |  |      | 140,058  |   |      |   | 76,105  |  
|                                                                                   |  |      |          |   |      |   |         |  
|Cash and cash equivalents, end of period                                           |  | $    | 132,476  |   |      | $ | 78,336  |  
|                                                                                   | 



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



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##### Table of Contents



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|5 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Estimates and Assumptions

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



Principles of Consolidation

Our consolidated financial statements and notes thereto include the accounts of Getty Images, Inc. and its subsidiaries,
from the respective dates of acquisition. 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 Consolidated Financial Statements include all adjustments, which are of a normal recurring nature, necessary to a fair statement of the results of operations, financial position and cash flows for the interim periods presented.
The condensed information should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our latest Annual Report on Form 10-K.



Foreign Currency Derivatives

At March 31, 2004, we held
forward contracts to sell $10.7 million worth of Euros and $6.7 million worth of British pounds in U.S. dollar functional currency sets of books and forward contracts to sell $7.8 million worth of Euros in British pound functional currency sets of
books. We also held at March 31, 2004, contracts to sell Canadian and Australian dollars that were less than $3.0 million individually. At December 31, 2003, we held forward contracts to sell $9.5 million worth of Euros and $6.9 million worth of
British pounds in U.S. dollar functional currency sets of books and forward contracts to sell $3.5 million worth of Euros in British pound functional currency sets of books.



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##### Table of Contents



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|6 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



Earnings Per Share

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



|                                                                           |  |      |        |      |   |       
|-------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|THREE MONTHS ENDED MARCH 31,                                               |  | 2004 |        | 2003
|                                                                           |  |      |        |      |   |       
|(In thousands, except per share amounts)                                   |  |      |        |     
|                                                                           |  |     
|Basic Earnings Per Share                                                   |  |      |        |      |   |       
|Income available to common stockholders (numerator)                        |  | $    | 26,086 |      | $ | 13,230
|Weighted average common shares outstanding (denominator)                   |  |      | 57,666 |      |   | 53,989
|Basic earnings per share                                                   |  | $    | 0.45   |      | $ | 0.25  
|                                                                          
|Diluted Earnings Per Share                                                 |  |      |        |      |   |       
|Income available to common stockholders (numerator)                        |  | $    | 26,086 |      | $ | 13,230
|                                                                           |  |      |        |      |   |       
|Weighted average common shares outstanding                                 |  |      | 57,666 |      |   | 53,989
|Effect of dilutive securities                                              |  |      |        |      |   |       
|Stock options                                                              |  |      | 2,487  |      |   | 2,791 
|Restricted stock                                                           |  |      | 4      |      |   | 2     
|                                                                           |  |      |        |      |   |       
|Total weighted average common shares and dilutive securities (denominator) |  |      | 60,157 |      |   | 56,782
|                                                                           |  |      |        |      |   |       
|Diluted earnings per share                                                 |  | $    | 0.43   |      | $ | 0.23  
|                                                                          



Approximately 21,884 and 2.2 million other
common shares potentially issuable from stock options for the three months ended March 31, 2004 and 2003, respectively, were excluded from the computation of diluted earnings per share because they were anti-dilutive. Also excluded in 2003 because
they were anti-dilutive were 4.1 million common shares that were potentially issuable from our 5.0% convertible subordinated notes. The 5.0% convertible subordinated notes were redeemed on July 10, 2003.



The diluted earnings per share calculation for 2004 also excluded common shares potentially issuable
upon conversion of our 0.5% convertible subordinated debentures. These shares were excluded because none of the conversion contingencies were satisfied during the reporting period, nor would they have been satisfied if the end of the reporting
period were the end of the contingency period. The debentures may be converted to common stock at the holders option only if one or more of the following conditions are met: 1) the closing price of our common stock during a relevant
measurement period as defined in the indenture is more than 120% of the base conversion price (120% of $61.08, or $73.30); 2) the credit rating assigned to the debentures by Standard and Poors is below B- or by Moodys Investor Services
is below B3; 3) the trading price of the debenture during a relevant measurement period as defined in the indenture is less than 95% of the product of the closing price of our stock and the conversion rate in effect at such time; 4) the debentures
are called for redemption; or 5) upon the occurrence of certain corporate transactions as defined in the indenture.



If one or more of the conversion contingencies are satisfied in a future period, additional shares will be included in the calculation of earnings per share for that period. If the
holders of the debentures exercise their conversion rights, additional shares will be included in the calculation of both basic and diluted earnings per share. If the holders do not exercise their conversion rights, additional shares will be
included only in the calculation of diluted earnings per share. The number of shares included in these calculations will depend on the conversion rate in effect at the time one or more of the contingencies are satisfied. The minimum conversion rate
is 16.3720, which would result in the inclusion of an additional 4.3 million shares in the calculations, while the maximum conversion rate is 26.2054, which would result in the inclusion of an additional 6.9 million shares in the calculations. The
minimum conversion rate applies when our stock price is $61.08 per share or less, and the maximum conversion rate would apply only if our stock price were to rise to $153 per share.



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|7 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



Short-Term Investments

Short-term
investments consisted of the following at our consolidated balance sheet dates:



|                                          |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|----------------------------------------- |  | ------------- | ------- | -------------------- | - | --------------------- |  | - | ------------------- | - |  | - | -------
|MARCH 31, 2004                            |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | AggregateFair Value
|                                          |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|(In thousands)                            |  |               |         |                      |   |                       |  |   |                    
|                                          |  |               |         |                     
|Available-for-sale                        |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|Federal agency mortgage backed securities |  | $             | 152,727 |                      | $ | 828                   |  | $ | (118                | ) |  | $ | 153,437
|Corporate bonds                           |  |               | 51,471  |                      |   | 355                   |  |   | (41                 | ) |  |   | 51,785 
|U.S. Treasury obligations                 |  |               | 16,341  |                      |   | 321                   |  |   | (2                  | ) |  |   | 16,660 
|Money market                              |  |               | 2,258   |                      |   |                      |  |   |                    |   |  |   | 2,258  
|                                          |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|Total short-term investments              |  | $             | 222,797 |                      | $ | 1,504                 |  | $ | (161                | ) |  | $ | 224,140
|                                         
|                                          |  |               |         |                     
|DECEMBER 31, 2003                         |  | AmortizedCost |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | AggregateFair Value
|                                          |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|(In thousands)                            |  |               |         |                      |   |                       |  |   |                    
|                                          |  |               |         |                     
|Available-for-sale                        |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|Federal agency mortgage backed securities |  | $             | 96,143  |                      | $ | 263                   |  | $ | (144                | ) |  | $ | 96,262 
|Corporate bonds                           |  |               | 53,018  |                      |   | 67                    |  |   | (130                | ) |  |   | 52,955 
|U.S. Treasury obligations                 |  |               | 9,158   |                      |   | 67                    |  |   | (3                  | ) |  |   | 9,222  
|Money market                              |  |               | 9,086   |                      |   |                      |  |   |                    |   |  |   | 9,086  
|                                          |  |               |         |                      |   |                       |  |   |                     |   |  |   |        
|Total short-term investments              |  | $             | 167,405 |                      | $ | 397                   |  | $ | (277                | ) |  | $ | 167,525
|                                         



Available-for-sale investments are carried at
market value with associated unrealized holding gains and losses recorded in accumulated other comprehensive income. Investments outstanding at March 31, 2004 mature between 2004 and 2043. Available-for-sale investments with contractual maturities
beyond one year are classified as current in our consolidated balance sheets because they represent the investment of cash that is available for current operations.



Following is the detail of gross unrealized losses at March 31, 2004. The majority of these unrealized losses were generated as interest rates rose
and the rate of return on certain of our investments remained fixed at lower rates or as there were more sellers than buyers of the particular investment on March 31, 2004. These losses are considered temporary, as the investments represent
non-contingent contractual future cash flows, allowing us to fully recover the net carrying amount of the investments.



|                                          |  |                                           |        |                       |                                     |      |                     |                          |                       |       |  |                     |     |                       |  |   |        |  |   |      |  
|----------------------------------------- |  | ----------------------------------------- | ------ | --------------------- | ----------------------------------- | ---- | ------------------- | ------------------------ | --------------------- | ----- |  | ------------------- | --- | --------------------- |  | - | ------ |  | - | ---- | -
|MARCH 31, 2004                            |  | In a loss position for lessthan 12 months |        |                       | In a loss position 12months or more |      |                     | Total in a loss position |                      
|                                          |  |                                           |        |                       |                                     |      |                     |                          |                       |       |  |                    
|                                          |  | AggregateFair Value                       |        | GrossUnrealizedLosses |                                     |      | AggregateFair Value |                          | GrossUnrealizedLosses |       |  | AggregateFair Value |     | GrossUnrealizedLosses | 
|                                          |  |                                           |        |                       |                                     |      |                     |                          |                       |       |  |                     |     |                       |  |   |        |  |   |      |  
|(In thousands)                            |  |                                           |        |                       |                                     |      |                     |                          |                       |       |  |                     |     |                       | 
|                                          |  |                                           |        |                       |                                     |     
|Federal agency mortgage backed securities |  | $                                         | 18,792 |                       | $                                   | (118 | )                   |                          | $                     |      |  | $                   |    |                       |  | $ | 18,792 |  | $ | (118 | )
|Corporate bonds                           |  |                                           | 21,542 |                       |                                     | (20  | )                   |                          |                       | 1,689 |  |                     | (21 | )                     |  |   | 23,231 |  |   | (41  | )
|U.S. Treasury obligations                 |  |                                           | 464    |                       |                                     | (2   | )                   |                          |                       |      |  |                     |    |                       |  |   | 464    |  |   | (2   | )
|                                          |  |                                           |        |                       |                                     |      |                     |                          |                       |       |  |                     |     |                       |  |   |        |  |   |      |  
|Totals                                    |  | $                                         | 40,798 |                       | $                                   | (140 | )                   |                          | $                     | 1,689 |  | $                   | (21 | )                     |  | $ | 42,487 |  | $ | (161 | )
|                                          | 



Gains and losses realized on short-term
investments are included in interest income in our consolidated statements of operations and are calculated on the specific identification method.



Accounts Receivable

Accounts receivable represent trade receivables, net of allowances
for doubtful accounts and sales returns of $12.9 million and $12.1 million at March 31, 2004 and December 31, 2003, respectively. The provisions for doubtful accounts recorded during the first quarter of 2004 and 2003 were $1.4 million and $1.3
million, respectively. Estimated sales returns recorded during the first quarter of



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|8 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



2003 and 2004 were immaterial. Approximately 6% of our recorded investment in trade receivables, net of allowances for doubtful
accounts and sales returns, was more than 90 days old as of March 31, 2004, compared to 10% of our recorded net investment at December 31, 2003.



Property and Equipment

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



|                                             |  |                                          |  |                   |         |                         |   |              |  |                         |         |  |   |        
|-------------------------------------------- |  | ---------------------------------------- |  | ----------------- | ------- | ----------------------- | - | ------------ |  | ----------------------- | ------- |  | - | -------
|                                             |  | MARCH 31, 2004                           |  | DECEMBER 31, 2003
|                                             |  |                                          |  |                   |         |                         |   |              |  |                         |         |  |   |        
|                                             |  | Range of EstimatedUseful Lives(in years) |  | Gross Amount      |         | AccumulatedDepreciation |   | Gross Amount |  | AccumulatedDepreciation
|                                             |  |                                          |  |                   |         |                         |   |              |  |                         |         |  |   |        
|(In thousands, except years)                 |  |                                          |  |                   |         |                         |   |              |  |                        
|                                             |  |                                          |  |                   |        
|Contemporary image content                   |  | 4                                        |  | $                 | 219,120 |                         | $ | 177,174      |  | $                       | 212,296 |  | $ | 168,402
|Computer hardware and software purchased     |  | 3                                        |  |                   | 87,218  |                         |   | 76,766       |  |                         | 85,325  |  |   | 74,071 
|Computer software developed for internal use |  | 3                                        |  |                   | 62,084  |                         |   | 37,988       |  |                         | 67,903  |  |   | 42,788 
|Leasehold improvements                       |  | 2-20                                     |  |                   | 33,953  |                         |   | 12,612       |  |                         | 33,420  |  |   | 11,881 
|Furniture, fixtures and studio equipment     |  | 5                                        |  |                   | 29,519  |                         |   | 22,891       |  |                         | 30,782  |  |   | 23,904 
|Archival image content                       |  | 40                                       |  |                   | 18,733  |                         |   | 3,955        |  |                         | 18,205  |  |   | 3,743  
|Other property and equipment                 |  | 3-4                                      |  |                   | 381     |                         |   | 318          |  |                         | 430     |  |   | 304    
|                                             |  |                                          |  |                   |         |                         |   |              |  |                         |         |  |   |        
|Totals                                       |  |                                          |  | $                 | 451,008 |                         | $ | 331,704      |  | $                       | 448,361 |  | $ | 325,093
|                                            



Depreciation of internal use software was $4.4
million and $3.9 million in the first quarter of 2004 and 2003, respectively. In the first quarter of 2004, we wrote off approximately $9.1 million of internal use software that was fully depreciated and no longer in use.



Goodwill

Goodwill changed during the first quarter of 2004 as follows:



|                                                   |  |   |         |  
|-------------------------------------------------- |  | - | ------- | -
|                                                   |  |   |         |  
|(In thousands)                                     |  |   |        
|                                                   | 
|Goodwill at December 31, 2003                      |  | $ | 603,024 |  
|Purchase price adjustments                         |  |   | 172     |  
|Effect of foreign currency translation adjustments |  |   | (24     | )
|                                                   |  |   |         |  
|Goodwill at March 31, 2004                         |  | $ | 603,172 |  
|                                                   | 



Identifiable Intangible Assets

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



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



|                                       |  |                                          |  |                |        |                         |   |             |  |                         |        |  |   |       
|-------------------------------------- |  | ---------------------------------------- |  | -------------- | ------ | ----------------------- | - | ----------- |  | ----------------------- | ------ |  | - | ------
|                                       |  |                                          |  | MARCH 31, 2004 |        | DECEMBER 31, 2003      
|                                       |  |                                          |  |                |        |                         |   |             |  |                         |        |  |   |       
|                                       |  | Range of EstimatedUseful Lives(In years) |  | GrossAmount    |        | AccumulatedAmortization |   | GrossAmount |  | AccumulatedAmortization
|                                       |  |                                          |  |                |        |                         |   |             |  |                         |        |  |   |       
|(In thousands)                         |  |                                          |  |                |        |                         |   |             |  |                        
|                                       |  |                                          |  |                |       
|Customer lists                         |  | 5-7                                      |  | $              | 15,838 |                         | $ | 8,602       |  | $                       | 15,860 |  | $ | 7,993 
|Trademarks, trade names and copyrights |  | 2-10                                     |  |                | 11,095 |                         |   | 4,761       |  |                         | 11,086 |  |   | 4,465 
|Other identifiable intangible assets   |  | 3-10                                     |  |                | 3,044  |                         |   | 1,113       |  |                         | 3,139  |  |   | 1,012 
|                                       |  |                                          |  |                |        |                         |   |             |  |                         |        |  |   |       
|Totals                                 |  |                                          |  | $              | 29,977 |                         | $ | 14,476      |  | $                       | 30,085 |  | $ | 13,470
|                                      



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|9 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



Amortization of identifiable intangible assets was $1.1 million and $0.9 million for the three months ended March 31, 2004 and
2003, respectively. Based on balances at March 31, 2004, expected amortization of identifiable intangible assets for the next five years, including amortization recorded during the first quarter of 2004, is as follows:



|               |  |   |      
|-------------- |  | - | -----
|FISCAL YEAR    |  |  
|               |  |   |      
|(In thousands) |  |  
|               | 
|2004           |  | $ | 4,339
|2005           |  |   | 4,226
|2006           |  |   | 3,503
|2007           |  |   | 1,656
|2008           |  |   | 1,405
|              



Leases

Rent expense, net of sublease income, was $4.6 million and $4.4 million for the first quarter of 2004 and 2003, respectively. Sublease income recorded as an offset to rent expense
was insignificant in all periods presented.



Employee Stock-Based Compensation

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



|                                                                               |  |      |        |   |      |   |        |  
|------------------------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | -
|THREE MONTHS ENDED MARCH 31,                                                   |  | 2004 |        |   | 2003 |  
|                                                                               |  |      |        |   |      |   |        |  
|(In thousands, except per share amounts)                                       |  |      |        |   |      |  
|                                                                               |  |     
|Net income                                                                     |  |      |        |   |      |   |        |  
|As reported                                                                    |  | $    | 26,086 |   |      | $ | 13,230 |  
|Add: APB Opinion No. 25 employee stock-based compensation, net of income taxes |  |      | 55     |   |      |   | 75     |  
|Deduct: SFAS No. 123 employee stock-based compensation, net of income taxes    |  |      | (1,912 | ) |      |   | (1,799 | )
|                                                                               |  |      |        |   |      |   |        |  
|Pro forma net income                                                           |  | $    | 24,229 |   |      | $ | 11,506 |  
|                                                                               |  |      |        |   |      |   |        |  
|Basic earnings per share                                                       |  |      |        |   |      |   |        |  
|As reported                                                                    |  | $    | 0.45   |   |      | $ | 0.25   |  
|Pro forma                                                                      |  |      | 0.42   |   |      |   | 0.21   |  
|                                                                               |  |      |        |   |      |   |        |  
|Diluted earnings per share                                                     |  |      |        |   |      |   |        |  
|As reported                                                                    |  | $    | 0.43   |   |      | $ | 0.23   |  
|Pro forma                                                                      |  |      | 0.40   |   |      |   | 0.20   |  
|                                                                               |  |      |        |   |      |   |        |  
|Shares used in computing pro forma earnings per share                          |  |      |        |   |      |   |        |  
|Basic                                                                          |  |      | 57,666 |   |      |   | 53,989 |  
|Diluted                                                                        |  |      | 60,295 |   |      |   | 56,360 |  
|                                                                               | 



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



|                                         |  |           |  |          
|---------------------------------------- |  | --------- |  | ---------
|THREE MONTHS ENDED MARCH 31,             |  | 2004      |  | 2003     
|                                         |  |           |  |          
|                                         |  |          
|Expected share price volatility          |  | 60%       |  | 71%      
|Risk free rate of return                 |  | 2.89%     |  | 4.09%    
|Expected life of option (from vest date) |  | 11/2years |  | 11/2years
|Expected rate of dividends               |  | None      |  | None     
|                                        



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|10 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



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



Advertising and Marketing

Advertising and marketing costs charged to operations during the first quarter of 2004 and 2003 were $2.4 million and $4.9 million, respectively. Prepaid advertising costs at March 31, 2004 and December 31, 2003 were $0.1
million and $0.5 million, respectively.



Recent Accounting Pronouncements

Financial Accounting Standards Board (FASB) Staff Position (FSP) 129-1 Disclosure Requirements under FASB Statement No. 129, Disclosure of
Information about Capital Structure, Relating to Contingently Convertible Securities was issued April 9, 2004. The FASB staff confirmed through this FSP that the disclosure requirements of Statement No. 129 apply to all contingently
convertible financial instruments, including those containing contingent conversion requirements that have not been met and are not otherwise required to be included in the computation of diluted EPS. Our disclosures had previously conformed to
Statement No. 129, and therefore, adoption of this pronouncement did not have an impact on our consolidated financial statements.



NOTE 2. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of our long-term debt is
estimated based on quoted market prices and was approximately $327.3 million at March 31, 2004 and $301.2 million at December 31, 2003, or $62.3 million and $36.2 million, respectively, higher than its book value.



NOTE 3. ACCRUED EXPENSES

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



|                                             |  |               |        |                  |   |       
|-------------------------------------------- |  | ------------- | ------ | ---------------- | - | ------
|                                             |  | MARCH 31,2004 |        | DECEMBER 31,2003
|                                             |  |               |        |                  |   |       
|(In thousands)                               |  |               |        |                 
|                                             |  |              
|Accrued payroll and related costs            |  | $             | 12,020 |                  | $ | 16,903
|Accrued straight-line rent (current portion) |  |               | 5,087  |                  |   | 7,815 
|Other                                        |  |               | 17,738 |                  |   | 17,741
|                                             |  |               |        |                  |   |       
|Total accrued expenses                       |  | $             | 34,845 |                  | $ | 42,459
|                                            



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|11 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



NOTE 4. COMMITMENTS AND CONTINGENCIES



Commitments

The following table illustrates payments and
receipts associated with significant, enforceable and legally binding contractual obligations and rights that are non-cancelable without significant penalty. The figures in the table are based on commitments at March 31, 2004 and reflect each full
years payments and receipts. If a contract is cancelable with a penalty, the amount shown in the table below is the full contractual obligation, not the penalty, as we currently intend to fulfill each of these obligations and exercise each of
these rights. The table assumes that the 0.5% convertible subordinated debentures are repaid upon maturity in 2023 and that there are no borrowings under the senior credit facility, which may or may not reflect future events. The holders of the 0.5%
convertible subordinated debentures may require us to redeem the debentures in 2008, 2013 and 2018.



|                                                      |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |   |  |   |         |  |   |         |  
|----------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ---------- | - | ------ | - |  | - | ------- |  | - | ------- | -
|YEARS ENDED DECEMBER 31,                              |  | 2004 |        |   | 2005 |   |        | 2006 |  |   | 2007   |   |  | 2008 |        |   | THEREAFTER |   | TOTAL  |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |   |  |   |         |  |   |         |  
|(In thousands)                                        |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |  
|                                                      |  |      |        |   |      |   |       
|Convertible subordinated debenturesprincipal payment |  | $    |       |   |      | $ |       |      |  | $ |       |   |  | $    |       |   |            | $ |       |   |  | $ | 265,000 |  | $ | 265,000 |  
|Convertible subordinated debenturesinterest payments |  |      | 1,325  |   |      |   | 1,325  |      |  |   | 1,325  |   |  |      | 1,325  |   |            |   | 1,325  |   |  |   | 19,212  |  |   | 25,837  |  
|Operating lease payments                              |  |      | 20,407 |   |      |   | 20,175 |      |  |   | 19,773 |   |  |      | 18,787 |   |            |   | 18,672 |   |  |   | 99,782  |  |   | 197,596 |  
|Sublease receipts                                     |  |      | (5,440 | ) |      |   | (5,269 | )    |  |   | (5,275 | ) |  |      | (881   | ) |            |   | (51    | ) |  |   |        |  |   | (16,916 | )
|Minimum royalty guarantee payments                    |  |      | 7,399  |   |      |   | 6,949  |      |  |   | 4,661  |   |  |      | 1,927  |   |            |   | 1,100  |   |  |   |        |  |   | 22,036  |  
|Minimum guaranteed receipts                           |  |      | (2,146 | ) |      |   | (2,250 | )    |  |   | (937   | ) |  |      |       |   |            |   |       |   |  |   |        |  |   | (5,333  | )
|Other purchase commitments                            |  |      | 1,570  |   |      |   | 531    |      |  |   | 120    |   |  |      | 44     |   |            |   |       |   |  |   |        |  |   | 2,265   |  
|                                                      |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |   |  |   |         |  |   |         |  
|Net commitments                                       |  | $    | 23,115 |   |      | $ | 21,461 |      |  | $ | 19,667 |   |  | $    | 21,202 |   |            | $ | 21,046 |   |  | $ | 383,994 |  | $ | 490,485 |  
|                                                      | 



Purchase orders, certain sponsorships and
donations and other commitments that are not enforceable and legally binding contractual obligations are excluded from this table.



Contingencies

We indemnify certain customers from claims related to alleged infringements
of the intellectual property rights of third parties, such as claims arising from a photographers failure to secure model and property releases for an image we license. The standard terms of these guarantees require us to defend those claims
and pay related damages, if any. We mitigate this risk by contractually requiring our contributing photographers and other imagery partners to secure all necessary model and property releases prior to submitting any imagery to us, and by requiring
them to indemnify us in the event a claim arises in relation to an image they have provided. Other imagery partners are also required to carry insurance policies for losses related to such claims. We do not record any liabilities for these
guarantees until claims are made and we are able to assess the range of possible payments and available recourse from our image partners. Historically, our exposure to such claims has been immaterial, as were our recorded liabilities for
intellectual property infringement at March 31, 2004 and December 31, 2003.



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



The nature and terms of these indemnifications vary
from contract to contract, and generally a maximum obligation is not stated. Because we are unable to estimate our potential obligation, and because management does not expect these indemnifications to have a material adverse effect on our
consolidated financial position, results of operations or cash flows, no related liabilities are recorded



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|12 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



at March 31, 2004 or December 31, 2003. We hold insurance policies that mitigate potential losses arising from certain
indemnifications, and historically, we have not incurred significant costs related to performance under these obligations.



Certain subsidiaries of Getty Images, Inc., the parent company, have guaranteed the repayment of any outstanding balance on the $85.0 million senior credit facility in the event of
default by Getty Images, Inc. Letters of credit aggregating $3.7 million have been issued under this facility, which would require repayment by the subsidiaries under this guarantee if the parent company were to default.



NOTE 5. OTHER COMPREHENSIVE INCOME



Comprehensive income consisted of the following during the periods reported:



|                                                                                                             |  |      |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | -
|THREE MONTHS ENDED MARCH 31,                                                                                 |  | 2004 |        |   | 2003 |  
|                                                                                                             |  |      |        |   |      |   |        |  
|(In thousands)                                                                                               |  |      |        |   |      |  
|                                                                                                             |  |     
|Net income                                                                                                   |  | $    | 26,086 |   |      | $ | 13,230 |  
|Net unrealized gains (losses) on revaluation of foreign currency denominated long-term intercompany balances |  |      | 3,544  |   |      |   | (152   | )
|Foreign currency translation adjustment (losses) gains                                                       |  |      | (2,455 | ) |      |   | 319    |  
|Net unrealized gains (losses) on short-term investments                                                      |  |      | 1,223  |   |      |   | (29    | )
|Deferred taxes on net unrealized gains on short-term investments                                             |  |      | (467   | ) |      |   | 6      |  
|                                                                                                             |  |      |        |   |      |   |        |  
|Total comprehensive income                                                                                   |  | $    | 27,931 |   |      | $ | 13,374 |  
|                                                                                                             | 



Realized gains and losses (on investments sold)
transferred out of net unrealized holding gains and into our consolidated statements of operations were insignificant in all periods presented.



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



|                                                                                                    |  |               |         |   |                  |   |        |  
|--------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------ | -
|                                                                                                    |  | MARCH 31,2004 |         |   | DECEMBER 31,2003 |  
|                                                                                                    |  |               |         |   |                  |   |        |  
|(In thousands)                                                                                      |  |               |         |   |                  |  
|                                                                                                    |  |              
|Net unrealized gains on revaluation of foreign currency denominated long-term intercompany balances |  | $             | 25,810  |   |                  | $ | 22,266 |  
|Accumulated foreign currency translation adjustment losses                                          |  |               | (12,110 | ) |                  |   | (9,655 | )
|Net unrealized gains on short-term investments                                                      |  |               | 1,343   |   |                  |   | 120    |  
|Deferred taxes on net unrealized gains on short-term investments                                    |  |               | (513    | ) |                  |   | (46    | )
|                                                                                                    |  |               |         |   |                  |   |        |  
|Total accumulated other comprehensive income                                                        |  | $             | 14,530  |   |                  | $ | 12,685 |  
|                                                                                                    | 



NOTE 6. BUSINESS SEGMENTS AND GEOGRAPHIC
AREAS



As a provider of visual content, we operate in one business segment. Due to
the nature of our operations, revenue is generated through a diverse client base, and there is no reliance on a single customer or group of customers. Revenue is reported in the geographic area where it originates and is subject to the impact of
translation differences and therefore may not reflect the relative performance of individual areas. Revenue from customers is summarized below by geographic area, with countries experiencing 5% or more of revenue in a reportable period shown
separately.



|                             |  |      |         |      |   |        
|---------------------------- |  | ---- | ------- | ---- | - | -------
|THREE MONTHS ENDED MARCH 31, |  | 2004 |         | 2003
|                             |  |      |         |      |   |        
|(In thousands)               |  |      |         |     
|                             |  |     
|United States                |  | $    | 69,614  |      | $ | 62,076 
|United Kingdom               |  |      | 22,574  |      |   | 17,179 
|Germany                      |  |      | 12,677  |      |   | 10,142 
|France                       |  |      | 9,521   |      |   | 7,710  
|Rest of world                |  |      | 42,126  |      |   | 33,210 
|                             |  |      |         |      |   |        
|Total revenue                |  | $    | 156,512 |      | $ | 130,317
|                            



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|13 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



NOTE 7. ACQUISITION



During the first quarter of 2003, we acquired ImageDirect, Inc., an editorial photography agency, for a purchase price (including liabilities assumed) of $4.5 million. The portion
of the purchase price allocated to goodwill was $3.2 million, with the remaining purchase price allocated to identifiable intangible and tangible assets and liabilities, none of which were individually material. The goodwill recognized will not be
deductible for tax purposes. We acquired this company to expand our editorial offerings in order to meet growing demands for this type of imagery. The main factor that contributed to a purchase price in excess of the fair value of identifiable
tangible and intangible assets acquired is our ability to grow the revenue of this business more significantly than an average market participant through our gettyimages.com website without adding significant cost. This acquisition was accounted for
using the purchase method of accounting and, accordingly, the results of operations since the date of acquisition are included in our consolidated results. This acquisition was not significant to the company as a whole for any period presented;
therefore, pro forma financial information is not presented.



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



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 and projections about Getty Images, Inc. and its industry, and are made on the basis of managements views as of the time the statements are made. All
statements, analyses and other information contained in this report relative to trends in revenue, gross margin, anticipated expense levels, and liquidity and capital resources, as well as other statements including, but not limited to, words such
as anticipate, believe, plan, estimate, expect, seek, intend and other similar expressions, constitute forward-looking statements. These forward-looking statements
are not guarantees of future performance and are subject to certain risks and uncertainties that are difficult to predict and that could cause our actual results to differ materially from our past performance and our current expectations,
assumptions and projections. Differences may result from actions taken by the company as well as from risks and uncertainties beyond our control. Potential risks and uncertainties include, among others, those set forth herein under Factors
That May Affect the Business, as well as in Part II, Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2003. Except
as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise. Readers should carefully review the factors set forth in other 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



Executive Overview

In 2004, our main objective is to grow
revenue, primarily through an increased focus on a sales and marketing approach targeted to the specific product and pricing needs of various customer groups. In particular, we will strive to increase our penetration into the editorial market
segment, the Japanese market, and markets for new revenue streams, such as assignment photography. We have already made progress towards accomplishing these objectives. We reorganized our sales and marketing staff to target and better serve specific
customer groups, and we repriced licenses for selected customer groups, including editorial customers. In the second quarter, we plan to complete major upgrades to the editorial portion of our website and launch an editorial advertising campaign.
Also in the second quarter, we plan to launch our Japanese version of gettyimages.com, which will include localized language and content and will be supported by a local sales and marketing staff. We also continue to explore new revenue streams, and
as expected, we are achieving these objectives while increasing our operating margin.



There have been no material changes in our sources of revenue and cost of sales or our critical accounting policies and estimates and assumptions since December 31, 2003. In addition, we did not acquire any businesses or significant assets
of businesses during the first quarter of 2004.



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|14 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



MATERIAL CHANGES IN RESULTS OF OPERATIONS



Following is managements discussion of material changes in our results of operations with respect to the most recent interim period and the
corresponding interim period of the prior year. Income from operations and operating margin should not be considered alternatives to net income as indicators of our operating performance, but should be considered supplemental indicators. All figures
in tables are shown in thousands, except percentages and price per image figures.



Following are key revenue and gross margin metrics for the first quarter of 2004 and 2003:



|                                         |  |      |     |      |   |      |  
|---------------------------------------- |  | ---- | --- | ---- | - | ---- | -
|THREE MONTHS ENDED MARCH 31,             |  | 2004 |     | 2003 |  
|                                         |  |      |     |      |   |      |  
|                                         |  |     
|PORTFOLIOS AS A PERCENTAGE OF REVENUE    |  |      |     |      |   |      |  
|Rights-managed still imagery             |  |      | 51% |      |   | 57%  | 1
|Royalty-free still imagery               |  |      | 32% |      |   | 28%  |  
|Editorial imagery                        |  |      | 10% |      |   | 9%   | 1
|Film                                     |  |      | 5%  |      |   | 6%   | 1
|Other                                    |  |      | 2%  |      |   |     | 1
|                                         |  |     
|GROSS MARGIN                             |  |      |     |      |   |      |  
|Rights-managed still imagery             |  |      | 67% |      |   | 66%  |  
|Royalty-free still imagery               |  |      | 77% |      |   | 78%  |  
|Editorial imagery                        |  |      | 82% |      |   | 87%  |  
|Film                                     |  |      | 73% |      |   | 75%  |  
|                                         |  |     
|APPROXIMATE AVERAGE PRICE PER IMAGE 2, 3 |  |      |     |      |   |      |  
|Rights-managed still imagery 4           |  | $    | 605 |      | $ | 5501 |  
|Royalty-free still imagery 4             |  |      | 195 |      |   | 1301 |  
|Film 5                                   |  |      | 625 |      |   | 580  |  
|                                         | 

|1 |  | Certain prior period figures have been reclassified to correspond to the current presentation due to the movement of collections between portfolios.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

|2 |  | Because many editorial images are licensed on a subscription basis, price per image is not meaningful and therefore is not included in this table.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

|3 |  | All price per image figures are rounded to the nearest $5 and represent the approximate prices of single images (including flexible license packs but excluding prepackaged CDs)
licensed by us directly to our customers, not through distributors.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4 |  | These figures relate to images licensed in the Americas, Europe, Middle East and Africa only.
|- |  | ---------------------------------------------------------------------------------------------

|5 |  | These figures relate to rights-managed images licensed in North America, Europe, Middle East and Africa only.
|- |  | -------------------------------------------------------------------------------------------------------------



REVENUE



|        |  |                              |         |                |       |      |   |              |  |          |  |          |        |  |     
|------- |  | ---------------------------- | ------- | -------------- | ----- | ---- | - | ------------ |  | -------- |  | -------- | ------ |  | ----
|        |  | THREE MONTHS ENDED MARCH 31, |         | YEAR OVER YEAR
|        |  |                              |         |                |       |      |   |              |  |          |  |          |        |  |     
|        |  | 2004                         |         | % of revenue   |       | 2003 |   | % of revenue |  | $ change |  | % change
|        |  |                              |         |                |       |      |   |              |  |          |  |          |        |  |     
|        |  |                              |         |                |       |     
|Revenue |  | $                            | 156,512 |                | 100.0 |      | $ | 130,317      |  | 100.0    |  | $        | 26,195 |  | 20.1
|       



Revenue increased period over period due to:



| |  |  | an $11.8 million positive impact of changes in foreign currency exchange rates on the translation of revenue generated in foreign countries, mainly Europe and the United Kingdom (U.K.);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | pricing, including selective price increases in our rights-managed and royalty-free portfolios, reduced levels of discounting and a shift in the mix of licensed uses towards higher priced
uses; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | increased revenue from our editorial imagery portfolio (comprising news, sports, entertainment and archival imagery) beyond currency and pricing.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



Partially offsetting these increases were net decreases in the volume of images licensed from our
royalty-free (3% decline) and rights-managed (2% decline) portfolios. Royalty-free volumes declined period over period for lower revenue credit card customers only.



Excluding the impact of foreign-currency translation, revenue increased period over period in many countries, particularly the U.S. and the U.K.



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|15 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



GROSS PROFIT AND GROSS MARGIN



|                              |  |                              |         |                |      |      |   |              |  |          |  |          |        |  |     
|----------------------------- |  | ---------------------------- | ------- | -------------- | ---- | ---- | - | ------------ |  | -------- |  | -------- | ------ |  | ----
|                              |  | THREE MONTHS ENDED MARCH 31, |         | YEAR OVER YEAR
|                              |  |                              |         |                |      |     
|                              |  | 2004                         |         | % of revenue   |      | 2003 |   | % of revenue |  | $ change |  | % change
|                              |  |                              |         |                |      |      |   |              |  |          |  |          |        |  |     
|                              |  |                              |         |                |      |     
|Gross profit and gross margin |  | $                            | 112,706 |                | 72.0 |      | $ | 93,002       |  | 71.4     |  | $        | 19,704 |  | 21.2
|                             



Gross profit and gross margin increased in 2004
due to increased revenue and a shift in image license mix towards higher margin imagery, including royalty-free and wholly owned rights-managed imagery. Management expects gross margin to remain in the range of 71.5 to 72.0 percent for the remainder
of the year.



SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)



|     |  |                              |        |                |      |      |   |              |  |          |  |          |       |  |    
|---- |  | ---------------------------- | ------ | -------------- | ---- | ---- | - | ------------ |  | -------- |  | -------- | ----- |  | ---
|     |  | THREE MONTHS ENDED MARCH 31, |        | YEAR OVER YEAR
|     |  |                              |        |                |      |      |   |              |  |          |  |          |       |  |    
|     |  | 2004                         |        | % of revenue   |      | 2003 |   | % of revenue |  | $ change |  | % change
|     |  |                              |        |                |      |      |   |              |  |          |  |          |       |  |    
|     |  |                              |        |                |      |     
|SG&A |  | $                            | 54,718 |                | 35.0 |      | $ | 53,365       |  | 41.0     |  | $        | 1,353 |  | 2.5
|    



Selling, general and administrative expenses
increased in 2004 due to a $3.4 million negative impact of changes in foreign currency exchange rates on the translation of SG&A incurred in foreign countries. As a percentage of revenue, SG&A declined as we held costs steady while revenue
increased.



INCOME FROM OPERATIONS AND OPERATING MARGIN



|                                            |  |                              |        |                |      |      |   |              |  |          |  |          |        |  |     
|------------------------------------------- |  | ---------------------------- | ------ | -------------- | ---- | ---- | - | ------------ |  | -------- |  | -------- | ------ |  | ----
|                                            |  | THREE MONTHS ENDED MARCH 31, |        | YEAR OVER YEAR
|                                            |  |                              |        |                |      |      |   |              |  |          |  |          |        |  |     
|                                            |  | 2004                         |        | % of revenue   |      | 2003 |   | % of revenue |  | $ change |  | % change
|                                            |  |                              |        |                |      |      |   |              |  |          |  |          |        |  |     
|                                            |  |                              |        |                |      |     
|Income from operations and operating margin |  | $                            | 42,942 |                | 27.4 |      | $ | 23,929       |  | 18.4     |  | $        | 19,013 |  | 79.5
|                                           



Income from operations and operating margin
increased in the first quarter of 2004 due mainly to higher revenue and gross margin, both of which are discussed in detail above, as compared to relatively flat operating expenses.



INTEREST EXPENSE



|                 |  |                              |        |   |                |      |   |      |   |        |              |  |      |          |  |          |       |  |     
|---------------- |  | ---------------------------- | ------ | - | -------------- | ---- | - | ---- | - | ------ | ------------ |  | ---- | -------- |  | -------- | ----- |  | ----
|                 |  | THREE MONTHS ENDED MARCH 31, |        |   | YEAR OVER YEAR
|                 |  |                              |        |   |                |      |   |      |   |        |              |  |      |          |  |          |       |  |     
|                 |  | 2004                         |        |   | % of revenue   |      |   | 2003 |   |        | % of revenue |  |      | $ change |  | % change
|                 |  |                              |        |   |                |      |   |      |   |        |              |  |      |          |  |          |       |  |     
|                 |  |                              |        |   |                |     
|Interest expense |  | $                            | (1,067 | ) |                | (0.7 | ) |      | $ | (3,758 | )            |  | (2.9 | )        |  | $        | 2,691 |  | 71.6
|                



Interest expense decreased from 2003
principally due to the repayment of our 5.0% convertible subordinated notes and issuance of 0.5% convertible subordinated debentures in July and June of 2003, respectively. Interest expense on the new 0.5% convertible subordinated debentures will
approximate $1.3 million per year, compared to interest expense on the extinguished 5.0% convertible subordinated notes that approximated $12.5 million per year. Interest expense for the first quarter of 2004 also included $0.5 million in
amortization of debt issuance costs.



INTEREST INCOME



|                |  |                              |       |                |     |      |   |              |  |          |  |          |       |  |      
|--------------- |  | ---------------------------- | ----- | -------------- | --- | ---- | - | ------------ |  | -------- |  | -------- | ----- |  | -----
|                |  | THREE MONTHS ENDED MARCH 31, |       | YEAR OVER YEAR
|                |  |                              |       |                |     |      |   |              |  |          |  |          |       |  |      
|                |  | 2004                         |       | % of revenue   |     | 2003 |   | % of revenue |  | $ change |  | % change
|                |  |                              |       |                |     |      |   |              |  |          |  |          |       |  |      
|                |  |                              |       |                |     |     
|Interest income |  | $                            | 1,753 |                | 1.1 |      | $ | 602          |  | 0.5      |  | $        | 1,151 |  | 191.2
|               



Interest income increased in 2004 due to higher
cash and short-term investment balances.



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|16 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



INCOME TAX EXPENSE



|                   |  |                              |         |   |                       |       |   |      |   |        |                       |  |       |          |  |   |          |   |  |       |  
|------------------ |  | ---------------------------- | ------- | - | --------------------- | ----- | - | ---- | - | ------ | --------------------- |  | ----- | -------- |  | - | -------- | - |  | ----- | -
|                   |  | THREE MONTHS ENDED MARCH 31, |         |   | YEAR OVER YEAR        |      
|                   |  |                              |         |   |                       |       |   |      |   |        |                       |  |       |          |  |   |          |   |  |       |  
|                   |  | 2004                         |         |   | % of incomebefore tax |       |   | 2003 |   |        | % of incomebefore tax |  |       | $ change |  |   | % change |  
|                   |  |                              |         |   |                       |       |   |      |   |        |                       |  |       |          |  |   |          |   |  |       |  
|                   |  |                              |         |   |                       |      
|Income tax expense |  | $                            | (16,824 | ) |                       | (39.2 | ) |      | $ | (8,463 | )                     |  | (39.0 | )        |  | $ | (8,361   | ) |  | (98.8 | )
|                   | 



Income tax expense increased over the prior
year due to higher income before taxes. As of March 31, 2004, we had net deferred tax assets of $66.2 million, net of a valuation allowance of $3.1 million. Although realization is not assured, management believes, based on current estimates of
near-term future taxable income and our tax-planning strategies, that it is more likely than not that the net deferred tax assets will be realized.



MATERIAL CHANGES IN FINANCIAL CONDITION



Liquidity

Our working capital, or current assets less current liabilities, at March 31,
2004 and December 31, 2003 was $352.3 million and $292.4 million, respectively. Cash and cash equivalents and short-term investments at these dates were $356.6 million and $307.6 million, respectively. These balances plus cash that we expect to
generate through operating and financing activities are expected to meet our liquidity needs for the next 12 months. We continue to expect that our main sources of cash in 2004 will be revenue collections and proceeds from the issuance of stock
through employee stock option exercises.



CASH FLOWS
PROVIDED BY OPERATING ACTIVITIES



Net cash provided by operating activities was
$43.7 million for the first quarter of 2004. This represents a 99% increase over the first quarter of the prior year, due mainly to increased revenue collected (increased revenue and lower days sales outstanding). Management expects to continue to
see operating cash flows at amounts generally meeting or exceeding those of comparable prior year periods due to increased revenue and relatively proportional increases in cost of sales and relatively flat operating expenses.



CASH FLOWS PROVIDED BY FINANCING ACTIVITIES



Net cash provided by financing activities was $12.3 million for the first quarter of 2004. This
represents a 152% increase over the first quarter of the prior year due to increased proceeds from the issuance of stock through employee stock option exercises. Cash flows provided by financing activities in 2004 will likely continue to consist
mainly of proceeds from the issuance of stock through employee stock option exercises, which typically increase or decrease relative to changes in our stock price and are generally out of the control of management. Approximately 5.2 million stock
options were exercisable at March 31, 2004 with a weighted-average exercise price of $23.93.



Management believes we are in compliance with the financial covenants in the senior credit facility agreement. Management does not currently anticipate borrowing funds under the senior credit facility, but could elect to do so at any time
as long as we remain in compliance with the financial covenants and other terms and conditions of the facility.



There have been no other material changes since December 31, 2003 in our sources of liquidity, the factors likely to impact these sources or the adequacy of these sources to meet
our needs for at least the following 12 months.



Capital Expenditures, Contractual
Obligations and Rights and Guarantees



CAPITAL
EXPENDITURES

Our capital expenditures for the first quarter of 2004 were $9.1 million. This represents an 11% increase over the first quarter of 2003 due to
greater investments in image content, e-commerce enablement of the editorial portion of our website and the launch of a Japanese version of gettyimages.com. We continue to plan to spend approximately $35 million on capital expenditures in 2004,
mostly related to image content and technology. The anticipated sources of funds for these expenditures continue to be current cash and short-term investment balances and cash flows provided by operations, but could include any of the sources
discussed under Liquidity above.



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|17 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



CONTRACTUAL OBLIGATIONS AND RIGHTS

There have been no material changes in our contractual obligations and rights or guarantees since December 31, 2003, except for additional minimum royalty guarantees made in the
first quarter of 2004. The following table shows payments associated with these contracts, including payments that were made during the first quarter of 2004.



|                                   |  |      |       |      |   |       |  |      |       |      |   |            |  |       |       |  |   |   |  |   |       
|---------------------------------- |  | ---- | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ---------- |  | ----- | ----- |  | - | - |  | - | ------
|YEARS ENDED DECEMBER 31,           |  | 2004 |       | 2005 |   | 2006  |  | 2007 |       | 2008 |   | THEREAFTER |  | TOTAL
|                                   |  |      |       |      |   |       |  |      |       |      |   |            |  |       |       |  |   |   |  |   |       
|(In thousands)                     |  |      |       |      |   |       |  |      |       |      |   |            |  |      
|                                   |  |      |       |      |   |       | 
|Minimum royalty guarantee payments |  | $    | 7,399 |      | $ | 6,949 |  | $    | 4,661 |      | $ | 1,927      |  | $     | 1,100 |  | $ |  |  | $ | 22,036
|                                  



GUARANTEES

There have been no material changes in our guarantees since December 31, 2003.



RECENT ACCOUNTING PRONOUNCEMENTS



Financial Accounting Standards Board (FASB) Staff Position (FSP) 129-1 Disclosure Requirements under FASB Statement No. 129, Disclosure of Information about Capital
Structure, Relating to Contingently Convertible Securities was issued April 9, 2004. The FASB staff confirmed through this FSP that the disclosure requirements of Statement No. 129 apply to all contingently convertible financial
instruments, including those containing contingent conversion requirements that have not been met and are not otherwise required to be included in the computation of diluted EPS. Our disclosures had previously conformed to Statement No. 129, and
therefore, adoption of this pronouncement did not have an impact on our consolidated financial statements.



FACTORS THAT MAY AFFECT THE BUSINESS



WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST COMPETITORS

The market for visual content and related products and services is highly
competitive. We believe that the principal competitive factors are: name recognition; company reputation; the quality, relevance and diversity of the images in a companys collections; the quality of contributing photographers and filmmakers
under contract with a company; effective use of current and emerging technology; customer service; pricing; accessibility of imagery and speed of fulfillment. Some of our existing and potential competitors may have or may develop resources superior
to ours, or other such competitive advantages. If we are not able to complete effectively, we could lose market share, which could have an adverse affect on our results of operations. Our current and potential competitors include: other general
visual content providers such as Corbis, Creatas, Photonica, Superstock and ZefaVisual Media; specialized visual content companies that are well established in their local, content or product-specific market segments such as Reuters News Service,
the Associated Press, Action Images, WireImage and Zuma Press; stock film footage businesses such as Corbis Motion; and commissioned photographers. There are also hundreds of small stock photography and film footage agencies and image content
aggregators throughout the world.



OUR QUARTERLY
FINANCIAL RESULTS AND STOCK PRICE MAY FLUCTUATE

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



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

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

| |  |  | changes in the sales mix of our products and services, including the mix of licensed uses, company owned and licensed imagery, and the geographic distribution of such licenses;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  |  | costs related to potential acquisitions and development of technology, services, products, or new businesses; and
| | - |  | -----------------------------------------------------------------------------------------------------------------

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



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



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|18 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



OTHER IMAGERY PARTNERS ARE IMPORTANT TO OUR BUSINESS

We have entered into commercial agreements with other businesses to host and license their imagery on the gettyimages.com website. These arrangements require resource and personnel
commitments by us, limiting the number of images from other imagery partners we may host or integrate during a given period. Additionally, if there are problems with the relevancy, quality, or market and customer acceptance of this imagery, or if a
significant image partner were to terminate or fail to renew an agreement with us, our revenues and operating results may be adversely affected.



SYSTEMS SECURITY RISKS AND CONCERNS MAY HARM OUR BUSINESS

An important component of our business is the secure transmission of confidential information and the transaction of commerce over the Internet. Developments in computer capabilities, viruses, or other events could result in compromises or
breaches of our systems or those of other websites and networks, jeopardizing proprietary and confidential information belonging to us or our customers, or causing potentially serious interruptions in our services, sales or operations. We 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 may reduce
our customers desire to transact business over the Internet.



WE MAY EXPERIENCE SYSTEM FAILURES AND SERVICE INTERRUPTIONS

The digitization and Internet distribution of our visual content continues
to be a key component of our business and growth strategy. As a result, our revenues are dependent on the ability of our customers to access and conduct transactions through our website. In the past, we have experienced infrequent system
interruptions that made portions of our website unavailable or prevented us from efficiently taking or fulfilling orders. We cannot guarantee that we can prevent future interruptions. Additionally, we depend on certain third party software and
system providers for the processing and distribution of our imagery and related products and services. System failures or interruptions, whether as a result of our internally developed systems or those of the third-party providers, may inconvenience
our customers, result in negative publicity, and negatively affect our provision of services and the volume of images we license and deliver over the Internet.



We have focused significant resources and attention on the installation and development of enterprise systems for technology, business processes, sales and marketing systems,
finance and royalty systems, customer interfaces, and other corporate administrative functions. We will need to continue improving these enterprise systems and their efficiencies as well as our network infrastructure to accommodate increased traffic
on our website, sales volume, and the processing of the resulting information. Without continued improvement and enhancements to our enterprise systems and network infrastructure, we may face system interruptions, poor response times, diminished
customer service, impaired quality and speed of order fulfillment, and potential problems with our financial reporting.



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



CERTAIN OF OUR STOCKHOLDERS CAN EXERCISE SIGNIFICANT INFLUENCE
OVER OUR BUSINESS AND AFFAIRS

Some of our stockholders own substantial percentages of the outstanding shares of our common stock. Getty Investments L.L.C.; The
October 1993 Trust; The JD Klein Family Settlement; Mr. Mark H. Getty, our Executive Chairman; and Mr. Jonathan D. Klein, our Chief Executive Officer, collectively the Getty Group, owned approximately 18% of the outstanding shares of our common
stock at April 30, 2004. Getty Investments alone owned approximately 17% of the outstanding shares of our common stock at April 30, 2004. Mr. Mark H. Getty, our Executive Chairman, serves as the Chairman of the Board of Directors of Getty
Investments, while Mr. Jonathan D. Klein, our Chief Executive Officer, serves on the Board of Directors of Getty Investments.



As a result of their share ownership, the Getty Group has significant influence over all matters requiring approval of our stockholders, including the election of directors and the
approval of business combinations. The substantial percentage of our common stock held by the Getty Group could also make us a less attractive acquisition candidate or have the effect of delaying or preventing a third party from acquiring control
over us at a premium over the then-current price of our common stock. In addition to ownership of common stock, certain members of the Getty Group have management and/or director roles within our company that increase their influence over us.



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|19 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



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

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



AN INCREASE IN GOVERNMENT REGULATION OF THE INTERNET AND E-COMMERCE COULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS

We are subject to a
number of laws and regulations directly applicable to e-commerce. State, federal and foreign governments have 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 or effectiveness as a communications and commerce medium.



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



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

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

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

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



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

Our Board of Directors has the authority to issue up to 5 million shares of preferred stock and to fix the rights, preferences, privileges and restrictions of such shares without
any further vote, approval or action by our stockholders. This authority, together with 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, along with certain provisions of Delaware law, may have the effect of delaying, deterring or preventing a takeover of our company.



OUR ABILITY TO SERVICE OUR INDEBTEDNESS WILL DEPEND ON OUR FUTURE PERFORMANCE

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. We will dedicate a portion of our cash flow to pay principal and interest on any amounts outstanding under our senior credit facility and our 0.5% convertible subordinated debentures due 2023. 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.



OUR INDEBTEDNESS COULD REDUCE OUR FLEXIBILITY

Restrictive covenants in our senior credit facility may limit our flexibility in planning for, or reacting to, changes in our business and competitive environment. While we currently anticipate that our available sources of
liquidity will be sufficient to meet our needs for working capital and capital expenditures for at least the next 12 months, changes in U.S. and global capital markets and economies, including significant fluctuations in interest rates and the price
of our equity securities, or fluctuations in the results of our operations may impede our access to, or increase the cost of, external financing for our operations and any acquisitions.



For additional risks, please see our Annual Report on Form 10-K for the year ended December 31, 2003.



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|20 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 3



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Interest Rate Risk

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



|                                   |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |        |               |   |                  |  |   |         |  |   |         |  |   |        
|---------------------------------- |  | -------------------- | ----- | ---------- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ------ | ------------- | - | ---------------- |  | - | ------- |  | - | ------- |  | - | -------
|                                   |  | STATED MATURITY DATE |       | FAIR VALUE
|                                   |  |                      |       |            |   |       
|                                   |  | 2004                 |       | 2005       |   | 2006   |  | 2007 |        | 2008 |   | THEREAFTER |  | TOTAL |        | MARCH 31,2004 |   | DECEMBER 31,2003
|                                   |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |        |               |   |                  |  |   |         |  |   |         |  |   |        
|(In thousands, except percentages) |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |        |               |   |                 
|                                   |  |                      |       |            |   |        |  |      |       
|ASSETS                             |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |        |               |   |                  |  |   |         |  |   |         |  |   |        
|Short-term investments             |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |        |               |   |                  |  |   |         |  |   |         |  |   |        
|Fixed rate                         |  | $                    | 8,568 |            | $ | 10,891 |  | $    | 21,990 |      | $ | 19,357     |  | $     | 10,541 |               | $ | 11,132           |  | $ | 82,479  |  | $ | 82,479  |  | $ | 86,372 
|Weighted average interest rate     |  |                      | 4.17% |            |   | 1.57%  |  |      | 2.65%  |      |   | 2.94%      |  |       | 3.44%  |               |   | 4.82%            |  |   | 3.13%   |  |   |        |  |   |       
|Step up rate                       |  | $                    |      |            | $ | 10,063 |  | $    | 26,273 |      | $ | 60,188     |  | $     | 20,084 |               | $ | 15,064           |  | $ | 131,672 |  | $ | 131,672 |  | $ | 71,187 
|Weighted average interest rate     |  |                      |      |            |   | 2.00%  |  |      | 2.18%  |      |   | 2.42%      |  |       | 2.13%  |               |   | 2.87%            |  |   | 2.35%   |  |   |        |  |   |       
|Variable rate                      |  | $                    |      |            | $ |       |  | $    |       |      | $ |           |  | $     |       |               | $ | 9,989            |  | $ | 9,989   |  | $ | 9,989   |  | $ | 9,966  
|Weighted average interest rate     |  |                      |      |            |   |       |  |      |       |      |   |           |  |       |       |               |   | 3.11%            |  |   | 3.11%   |  |   |        |  |   |       
|                                   |  |                      |       |            |   |        |  |      |       
|LIABILITIES                        |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |        |               |   |                  |  |   |         |  |   |         |  |   |        
|Long-term debt                     |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |        |               |   |                  |  |   |         |  |   |         |  |   |        
|Fixed rate                         |  | $                    |      |            | $ |       |  | $    |       |      | $ |           |  | $     |       |               | $ | 265,000          |  | $ | 265,000 |  | $ | 327,275 |  | $ | 301,210
|Weighted average interest rate     |  |                      |      |            |   |       |  |      |       |      |   |           |  |       |       |               |   | 0.5%             |  |   | 0.5%    |  |   |        |  |   |       
|                                  



SHORT-TERM
INVESTMENTS

Short-term investments at March 31, 2004 consisted of available-for-sale federal agency mortgage backed securities ($153.4 million), corporate bonds
($51.8 million), U.S. Treasury obligations ($16.7 million) and money market funds ($2.3 million), carried at market value with associated unrealized holding gains and losses recorded in other comprehensive income. Available-for-sale investments with
contractual maturities beyond one year are classified as short-term in our consolidated balance sheets because they represent the investment of cash that is available for current operations.



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|21 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 3



Foreign Currency Exchange Rate Risk



FOREIGN CURRENCY TRANSACTIONS

Foreign-currency denominated assets and liabilities, other than long-term intercompany balances (discussed below), which are subject to transaction gains and losses each month, are outstanding at March 31, 2004, and are in excess of $3.0
million individually are summarized below by the functional currency of the operation or subsidiary where the balances are recorded. Changes in balances since December 31, 2003 are principally due to revenue, cash settlements, foreign currency
revaluation, and forward foreign exchange contract activity. All balances at March 31, 2004 are expected to settle within 12 months in the currencies listed.



|                                             |  |               |         |   |                  |   |        |  
|-------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------ | -
|                                             |  | MARCH 31,2004 |         |   | DECEMBER 31,2003 |  
|                                             |  |               |         |   |                  |   |        |  
|(In thousands)                               |  |               |         |   |                  |  
|                                             |  |              
|British Pound Functional Currency            |  |               |         |   |                  |   |        |  
|Receivables denominated in:                  |  |               |         |   |                  |   |        |  
|Euros                                        |  | $             | 11,914  |   |                  | $ | 7,394  |  
|Forward foreign currency exchange contracts: |  |               |         |   |                  |   |        |  
|Receive British Pounds/Pay Euros             |  |               |         |   |                  |   |        |  
|Contract amount (5,200 notional
amount)     |  | $             | (7,784  | ) |                  | $ | (3,456 | )
|Weighted average contractual settlement rate |  |               | 0.67    |   |                  |   | 0.70   |  
|                                             |  |              
|Euro Functional Currency                     |  |               |         |   |                  |   |        |  
|Receivables (payables) denominated in:       |  |               |         |   |                  |   |        |  
|British Pounds                               |  | $             | 6,533   |   |                  | $ | (3,796 | )
|U.S. Dollar Functional Currency              |  |               |         |   |                  |   |        |  
|Receivables denominated in:                  |  |               |         |   |                  |   |        |  
|British Pounds                               |  | $             | 3,548   |   |                  | $ | 8,513  |  
|Euros                                        |  |               | 4,646   |   |                  |   | 4,178  |  
|Forward foreign currency exchange contracts: |  |               |         |   |                  |   |        |  
|Receive U.S. Dollars/Pay British Pounds      |  |               |         |   |                  |   |        |  
|Contract amount (£3,665 notional amount)     |  | $             | (6,744  | ) |                  | $ | (6,869 | )
|Weighted average contractual settlement rate |  |               | 1.83    |   |                  |   | 1.71   |  
|Receive U.S. Dollars/Pay Euros               |  |               |         |   |                  |   |        |  
|Contract amount (8,737 notional
amount)     |  |               | (10,740 | ) |                  |   | (9,530 | )
|Weighted average contractual settlement rate |  |               | 1.24    |   |                  |   | 1.19   |  
|                                             | 



Foreign exchange gains of $3.5 million and
losses of $0.2 million for the first quarter of 2004 and 2003, respectively, arose from the revaluation of foreign-currency denominated long-term intercompany balances and were included in accumulated other comprehensive income. There were no
significant changes in these balances during the first quarter of 2004.



FOREIGN CURRENCY TRANSLATION



We recognized translation
adjustment losses of $2.5 million and gains of $0.3 million in the first quarter of 2004 and 2003, respectively. Accumulated translation adjustments at March 31, 2004 and December 31, 2003 were losses of $12.1 million and $9.7 million, respectively.
Changes from the first quarter of 2003 to the first quarter of 2004 in the exchange rates used to translate the results of operations of subsidiaries with non-U.S. dollar functional currencies resulted in increases in U.S. dollar reported revenue,
selling, general and administrative expenses and depreciation of $11.8 million, $3.4 million and $0.5 million, respectively.



ITEM 4. CONTROLS AND PROCEDURES



EVALUATION OF
DISCLOSURE CONTROLS AND PROCEDURES

The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the companys disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2004. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of
March 31, 2004, these disclosure controls and procedures were adequate.



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|22 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 4



CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING



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



PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS

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



ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES



None



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None



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



None



ITEM 5. OTHER INFORMATION



None



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



(A) EXHIBITS:



Reference is made to the Index of Exhibits beginning on page 18 for a list of all
exhibits filed as part of this report.



(B) REPORTS ON FORM 8-K:



We filed one and furnished one report on Form 8-K during the quarter ended March 31, 2004, as follows:



On January 22, 2004, we filed an 8-K for the purpose of filing as an exhibit the
consent of PricewaterhouseCoopers LLP, dated January 20, 2004, to insert the day inadvertently omitted, to be incorporated by reference into our Post-Effective Amendment No. 2 to Registration Statement on Form S-3 (File No. 333-107952), originally
filed on January 21, 2004.



On February 5, 2004, we furnished to the Securities and
Exchange Commission an 8-K with our press release announcing our financial results for the year ended December 31, 2003.



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|23 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | SIGNATURE



SIGNATURE



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



GETTY IMAGES, INC.By:

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




May 4, 2004



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|24 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2004 |  |  |  | FORM 10-Q |  | PART II |  |  |  | ITEM 6



EXHIBIT INDEX



|              |  |                                                                            
|------------- |  | ---------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                     
|              |  |                                                                            
|              | 
|10.42         |  | Notice Pursuant to Employment Agreement with Mark Getty dated March 3, 2004
|              | 
|12.1          |  | Statement Regarding Computation of Ratio of Earnings to Fixed Charges      
|              | 
|31.1          |  | Section 302 Certification by Jonathan D. Klein, CEO                        
|              | 
|31.2          |  | Section 302 Certification by Elizabeth J. Huebner, CFO                     
|              | 
|32.1          |  | Section 906 Certification by Jonathan D. Klein, CEO                        
|              | 
|32.2          |  | Section 906 Certification by Elizabeth J. Huebner, CFO