##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

OR

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

COMMISSION FILE NUMBER: 000-23747

GETTY IMAGES, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


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

601 N. 34TH STREET
SEATTLE, WASHINGTON 98103
(206) 925-5000

(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF PRINCIPAL EXECUTIVE OFFICES)

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

As of October 31, 2001 there were 51,616,459 shares of the registrants
common stock, par value $0.01 per share, outstanding.



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##### 



GETTY IMAGES, INC. AND SUBSIDIARIES
INDEX

|                                   |  |                                                                                                                     |    |         
|---------------------------------- |  | ------------------------------------------------------------------------------------------------------------------- | -- | --------
|                                   |  |                                                                                                                     |    | PAGE NO.
|                                   |  |                                                                                                                     |    |         
|                                  
|                                  
|                                  
|                                  
|PART I.     
FINANCIAL INFORMATION |  |                                                                                                                    
|                                  
|                                  
|                                  
|                                  
|Item 1.                            |  | Financial Statements:                                                                                               |    |         
|                                  
|                                  
|                                  
|                                  
|                                   |  | Condensed Consolidated Statements of Operations -
for the quarter and nine months ended September 30, 2001 and 2000 |    | 2       
|                                  
|                                  
|                                  
|                                  
|                                   |  | Condensed Consolidated Balance Sheets -
September 30, 2001 and December 31, 2000                                    |    | 3       
|                                  
|                                  
|                                  
|                                  
|                                   |  | Condensed Consolidated Statements of Stockholders Equity -
September 30, 2001 and December 31, 2000                |    | 4       
|                                  
|                                  
|                                  
|                                  
|                                   |  | Condensed Consolidated Statements of Cash Flows -
for the nine months ended September 30, 2001 and 2000             |    | 5       
|                                  
|                                  
|                                  
|                                  
|                                   |  | Notes to Condensed Consolidated Financial Statements                                                                |    | 6       
|                                  
|                                  
|                                  
|                                  
|Item 2.                            |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations                               |    | 10      
|                                  
|                                  
|                                  
|                                  
|Item 3.                            |  | Quantitative and Qualitative Disclosures About Market Risk                                                          |    | 27      
|                                  
|                                  
|                                  
|                                  
|PART
II.     OTHER INFORMATION     |  |                                                                                                                    
|                                  
|                                  
|                                  
|                                  
|Item 1.                            |  | Legal Proceedings                                                                                                   |    | 28      
|                                  
|                                  
|                                  
|                                  
|Item 2.                            |  | Changes in Securities and Use of Proceeds                                                                           |    | 28      
|                                  
|                                  
|                                  
|                                  
|Item 5.                            |  | Other Information                                                                                                   |    | 28      
|                                  
|                                  
|                                  
|                                  
|Item 6.                            |  | Exhibits and Reports on Form 8-K                                                                                    |    | 28      
|                                  
|                                  
|                                  
|                                  
|SIGNATURE                          |  |                                                                                                                     |    | 29      
|                                  
|                                  
|                                  
|                                  
|EXHIBIT
INDEX                      |  |                                                                                                                     | 30

1



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##### 






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

|                                                                     |                                                 |      |                    |         |                   |      |         |         |   |   |         |         |   |   |         |         |  
|-------------------------------------------------------------------- | ----------------------------------------------- | ---- | ------------------ | ------- | ----------------- | ---- | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                     |                                                 |      | Three months ended |         | Nine months ended
|                                                                     |                                                 |      | September 30,      |         | September 30,    
|                                                                     |                                                 |      |                    |         |                  
|(In thousands, except per share amounts)                             |                                                 | 2001 |                    | 2000    |                   | 2001 |         | 2000   
|                                                                     |                                                 |      |                    |         |                   |      |         |        
|Sales                                                                |                                                 | $    | 107,505            |         |                   | $    | 126,998 |         |   | $ | 349,148 |         |   | $ | 355,470 |        
|Cost of sales                                                        |                                                 |      | 27,941             |         |                   |      | 37,481  |         |   |   | 95,888  |         |   |   | 105,087 |        
|                                                                     |                                                 |      |                    |         |                   |      |         |         |   |   |         |         |   |   |         |        
|                                                                     | Gross profit                                    |      |                    | 79,564  |                   |      |         | 89,517  |   |   |         | 253,260 |   |   |         | 250,383 |  
|Selling, general and administrative
expenses                         |                                                 |      | 57,792             |         |                   |      | 62,078  |         |   |   | 180,229 |         |   |   | 186,646 |        
|Amortization of intangible assets                                    |                                                 |      | 18,546             |         |                   |      | 30,654  |         |   |   | 55,816  |         |   |   | 87,101  |        
|Depreciation                                                         |                                                 |      | 14,676             |         |                   |      | 12,221  |         |   |   | 42,168  |         |   |   | 34,713  |        
|Integration and restructuring costs
and loss on impairment of assets |                                                 |      | 4,776              |         |                   |      | 3,891   |         |   |   | 18,094  |         |   |   | 12,640  |        
|                                                                     |                                                 |      |                    |         |                   |      |         |         |   |   |         |         |   |   |         |        
|                                                                     | Loss from operations                            |      |                    | (16,226 | )                 |      |         | (19,327 | ) |   |         | (43,047 | ) |   |         | (70,717 | )
|Interest expense                                                     |                                                 |      | (4,244             | )       |                   |      | (4,446  | )       |   |   | (12,934 | )       |   |   | (11,268 | )      
|Interest income                                                      |                                                 |      | 540                |         |                   |      | 995     |         |   |   | 1,729   |         |   |   | 3,302   |        
|Debt conversion expense                                              |                                                 |      |                   |         |                   |      |        |         |   |   |        |         |   |   | (6,689  | )      
|Exchange losses, net                                                 |                                                 |      | (618               | )       |                   |      | (210    | )       |   |   | (1,315  | )       |   |   | (983    | )      
|Other expense, net                                                   |                                                 |      | (227               | )       |                   |      | (46     | )       |   |   | (84     | )       |   |   | (59     | )      
|Loss on impairment of investments                                    |                                                 |      |                   |         |                   |      |        |         |   |   | (4,224  | )       |   |   |        |        
|                                                                     |                                                 |      |                    |         |                   |      |         |         |   |   |         |         |   |   |         |        
|                                                                     | Loss before income taxes and
extraordinary item |      |                    | (20,775 | )                 |      |         | (23,034 | ) |   |         | (59,875 | ) |   |         | (86,414 | )
|Income tax (expense) benefit                                         |                                                 |      | 2,541              |         |                   |      | (3,322  | )       |   |   | 3,350   |         |   |   | (2,937  | )      
|                                                                     |                                                 |      |                    |         |                   |      |         |         |   |   |         |         |   |   |         |        
|                                                                     | Loss before extraordinary item                  |      |                    | (18,234 | )                 |      |         | (26,356 | ) |   |         | (56,525 | ) |   |         | (89,351 | )
|Extraordinary item, net of tax                                       |                                                 |      |                   |         |                   |      |        |         |   |   |        |         |   |   | 384     |        
|                                                                     |                                                 |      |                    |         |                   |      |         |         |   |   |         |         |   |   |         |        
|Net loss                                                             |                                                 | $    | (18,234            | )       |                   | $    | (26,356 | )       |   | $ | (56,525 | )       |   | $ | (88,967 | )      
|                                                                     |                                                 |      |                    |         |                   |      |         |         |   |   |         |         |   |   |         |        
|Loss per share before extraordinary
item  basic and diluted         |                                                 | $    | (0.35              | )       |                   | $    | (0.52   | )       |   | $ | (1.09   | )       |   | $ | (1.77   | )      
|Extraordinary item                                                   |                                                 |      |                   |         |                   |      |        |         |   |   |        |         |   |   | 0.01    |        
|                                                                     |                                                 |      |                    |         |                   |      |         |         |   |   |         |         |   |   |         |        
|Net loss per share  basic and diluted                               |                                                 | $    | (0.35              | )       |                   | $    | (0.52   | )       |   | $ | (1.09   | )       |   | $ | (1.76   | )      
|                                                                     |                                                 |      |                    |         |                   |      |         |         |   |   |         |         |   |   |         |        
|Weighted-average
shares outstanding  basic and diluted              |                                                 |      | 51,870             |         |                   |      | 50,417  |         |   |   | 51,653  |         |   |   | 50,485  |        
|                                                                     |                                                 |      |                    |         |                   |      |         |         |   |   |         |         |   |   |         |        

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

2



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##### 






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

|                                     |                               |                                      |                                            |         |               |           |              |         |          |           | 
|------------------------------------ | ----------------------------- | ------------------------------------ | ------------------------------------------ | ------- | ------------- | --------- | ------------ | ------- | -------- | --------- | 
|                                     |                               |                                      |                                            |         | September 30, |           | December 31,
|(In thousands)                       |                               | 2001                                 |                                            | 2000   
|                                     |                               |                                      |                                            |        
|ASSETS                               |                               |                                      |                                            |         |               |           |              |        
|                                     | Current assets                |                                      |                                            |         |               |           |              |         |         
|                                     |                               | Cash and cash equivalents            |                                            | $       | 38,976        |           |              | $       | 65,894   |          
|                                     |                               | Accounts receivable, net             |                                            |         | 81,610        |           |              |         | 84,771   |          
|                                     |                               | Inventories, net                     |                                            |         | 3,924         |           |              |         | 7,616    |          
|                                     |                               | Prepaid expenses                     |                                            |         | 10,733        |           |              |         | 7,277    |          
|                                     |                               | Deferred catalog costs               |                                            |         | 14,967        |           |              |         | 17,998   |          
|                                     |                               | Deferred income taxes, net           |                                            |         | 6,100         |           |              |         | 6,082    |          
|                                     |                               | Other current assets                 |                                            |         | 20,221        |           |              |         | 14,387   |          
|                                     |                               |                                      |                                            |         |               |           |              |        
|                                     |                               |                                      | Total current assets                       |         |               | 176,531   |              |         |          | 204,025   | 
|                                     | Property and equipment, net   |                                      |                                            | 153,711 |               |           |              | 140,793 |         
|                                     | Intangible assets, net        |                                      |                                            | 654,336 |               |           |              | 707,408 |         
|                                     | Investments                   |                                      |                                            | 516     |               |           |              | 4,751   |         
|                                     | Deferred income taxes, net    |                                      |                                            | 43,514  |               |           |              | 43,659  |         
|                                     |                               |                                      |                                            |         |               |           |              |        
|                                     |                               |                                      | Total assets                               |         | $             | 1,028,608 |              |         | $        | 1,100,636 | 
|                                     |                               |                                      |                                            |         |               |           |              |        
|LIABILITIES AND STOCKHOLDERS EQUITY |                               |                                      |                                            |         |               |           |              |        
|                                     | Current liabilities           |                                      |                                            |         |               |           |              |         |         
|                                     |                               | Accounts payable                     |                                            | $       | 57,190        |           |              | $       | 74,216   |          
|                                     |                               | Accrued expenses                     |                                            |         | 48,519        |           |              |         | 51,424   |          
|                                     |                               | Income taxes payable                 |                                            |         | 8,126         |           |              |         | 16,283   |          
|                                     |                               | Current portion of long-term debt    |                                            |         | 566           |           |              |         | 739      |          
|                                     |                               |                                      |                                            |         |               |           |              |        
|                                     |                               |                                      | Total current liabilities                  |         |               | 114,401   |              |         |          | 142,662   | 
|                                     | Long-term debt                |                                      |                                            | 275,420 |               |           |              | 274,427 |         
|                                     |                               |                                      |                                            |         |               |           |              |        
|                                     |                               |                                      | Total
liabilities                          |         |               | 389,821   |              |         |          | 417,089   | 
|                                     |                               |                                      |                                            |         |               |           |              |        
|                                     | Commitments and contingencies |                                      |                                            |         |               |           |              |         |         
|                                     | Stockholders equity          |                                      |                                            |         |               |           |              |         |         
|                                     |                               | Preferred stock                      |                                            |         |              |           |              |         |         |          
|                                     |                               | Common stock                         |                                            |         | 516           |           |              |         | 508      |          
|                                     |                               | Exchangeable preferred stock         |                                            |         | 2             |           |              |         | 5        |          
|                                     |                               | Additional paid-in capital           |                                            |         | 967,344       |           |              |         | 957,108  |          
|                                     |                               | Accumulated deficit                  |                                            |         | (321,951      | )         |              |         | (265,426 | )        
|                                     |                               | Accumulated other comprehensive loss |                                            |         | (7,124        | )         |              |         | (8,648   | )        
|                                     |                               |                                      |                                            |         |               |           |              |        
|                                     |                               |                                      | Total stockholders equity                 |         |               | 638,787   |              |         |          | 683,547   | 
|                                     |                               |                                      |                                            |         |               |           |              |        
|                                     |                               |                                      | Total liabilities and stockholders equity |         | $             | 1,028,608 |              |         | $        | 1,100,636 | 
|                                     |                               |                                      |                                            |         |               |           |              |        

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

3



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##### 






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

|                                                          |                    |       |               |           |              |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |        |   |  |   |         |         |  
|--------------------------------------------------------- | ------------------ | ----- | ------------- | --------- | ------------ | ----- | --------- | ----- | --------- | ------- | ------------ | ------- | ----------- | ---- | ------------- | ----- |  | - | ------- |  |  | - | ----------- | - |  | - | ------ | - |  | - | ------- | ------- | -
|                                                          |                    |       |               |           |              |       | Number of |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |        |   |  |   |        
|                                                          |                    |       | Number of     |           | shares of    |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |        |   | 
|                                                          |                    |       | shares of     |           | exchangeable |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   | Accumulated |   |  |   |       
|                                                          |                    |       | common stock, |           | preferred    |       |           |       |           |         | Exchangeable |         | Additional  |      |               |       |  |   | other   |  |  |   |            
|                                                          |                    |       | $0.01 par     |           | stock, no    |       | Common    |       | preferred |         | paid-in      |         | Accumulated |      | comprehensive |       |  |   |        
|(In thousands)                                            |                    | value |               | par value |              | stock |           | stock |           | capital |              | deficit |             | loss |               | Total
|                                                          |                    |       |               |           |              |       |           |       |           |         |              |         |             |      |               |      
|Balance at
December 31, 2000                              |                    |       | 50,806        |           |              |       | 534       |       |           | $       | 508          |         |             | $    | 5             |       |  | $ | 957,108 |  |  | $ | (265,426    | ) |  | $ | (8,648 | ) |  | $ | 683,547 |        
|Net loss                                                  |                    |       |              |           |              |       |          |       |           |         |             |         |             |      |              |       |  |   |        |  |  |   | (56,525     | ) |  |   |       |   |  |   | (56,525 | )      
|Translation adjustment                                    |                    |       |              |           |              |       |          |       |           |         |             |         |             |      |              |       |  |   |        |  |  |   |            |   |  |   | 1,524  |   |  |   | 1,524   |        
|                                                          |                    |       |               |           |              |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |        |   |  |   |         |        
|                                                          | Comprehensive loss |       |               |           |              |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |        |   |  |   |         | (55,001 | )
|                                                          |                    |       |               |           |              |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |        |   |  |   |         |        
|Stock options exercised                                   |                    |       | 462           |           |              |       |          |       |           |         | 5            |         |             |      |              |       |  |   | 6,561   |  |  |   |            |   |  |   |       |   |  |   | 6,566   |        
|Stock options accelerated                                 |                    |       |              |           |              |       |          |       |           |         |             |         |             |      |              |       |  |   | 56      |  |  |   |            |   |  |   |       |   |  |   | 56      |        
|Tax benefit from employee
stock option exercises          |                    |       |              |           |              |       |          |       |           |         |             |         |             |      |              |       |  |   | 1,161   |  |  |   |            |   |  |   |       |   |  |   | 1,161   |        
|Issuance of shares for
acquisition of assets
and business |                    |       | 82            |           |              |       |          |       |           |         |             |         |             |      |              |       |  |   | 2,458   |  |  |   |            |   |  |   |       |   |  |   | 2,458   |        
|Exchange of shares                                        |                    |       | 262           |           |              |       | (262      | )     |           |         | 3            |         |             |      | (3            | )     |  |   |        |  |  |   |            |   |  |   |       |   |  |   |        |        
|                                                          |                    |       |               |           |              |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |        |   |  |   |         |        
|Balance at September 30, 2001                             |                    |       | 51,612        |           |              |       | 272       |       |           | $       | 516          |         |             | $    | 2             |       |  | $ | 967,344 |  |  | $ | (321,951    | ) |  | $ | (7,124 | ) |  | $ | 638,787 |        
|                                                          |                    |       |               |           |              |       |           |       |           |         |              |         |             |      |               |       |  |   |         |  |  |   |             |   |  |   |        |   |  |   |         |        

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

4



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##### 






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

|                                                           |                                           |      |                   |         |   |   |          |          |  
|---------------------------------------------------------- | ----------------------------------------- | ---- | ----------------- | ------- | - | - | -------- | -------- | -
|                                                           |                                           |      | Nine months ended
|                                                           |                                           |      | September 30,    
|                                                           |                                           |      |                  
|(In thousands)                                             |                                           | 2001 |                   | 2000   
|                                                           |                                           |      |                   |        
|CASH FLOWS FROM OPERATING ACTIVITIES                       |                                           |      |                   |         |   |   |          |         
|Net cash provided by operating activities                  |                                           | $    | 23,994            |         |   | $ | 22,331   |         
|                                                           |                                           |      |                   |         |   |   |          |         
|CASH FLOWS FROM INVESTING ACTIVITIES                       |                                           |      |                   |         |   |   |          |         
|Acquisition of businesses, net of cash acquired            |                                           |      | (736              | )       |   |   | (244,649 | )       
|Acquisition of property and equipment                      |                                           |      | (58,611           | )       |   |   | (57,389  | )       
|Acquisition of intangibles                                 |                                           |      | (1,745            | )       |   |   |         |         
|Proceeds from the sale of long-lived assets                |                                           |      | 2,495             |         |   |   |         |         
|Cash paid for security deposit on lease                    |                                           |      |                  |         |   |   | (2,139   | )       
|Other, net                                                 |                                           |      |                  |         |   |   | 293      |         
|                                                           |                                           |      |                   |         |   |   |          |         
|                                                           | Net cash used in investing activities     |      |                   | (58,597 | ) |   |          | (303,884 | )
|                                                           |                                           |      |                   |         |   |   |          |         
|CASH FLOWS FROM FINANCING ACTIVITIES                       |                                           |      |                   |         |   |   |          |         
|Proceeds from the issuance of long-term debt               |                                           |      |                  |         |   |   | 250,000  |         
|Proceeds from the issuance of common stock                 |                                           |      | 6,566             |         |   |   | 17,809   |         
|Payment of debt issuance costs                             |                                           |      |                  |         |   |   | (8,429   | )       
|Payment of debt conversion costs                           |                                           |      |                  |         |   |   | (6,689   | )       
|Repayment of debt                                          |                                           |      | (485              | )       |   |   | (12,650  | )       
|Other, net                                                 |                                           |      |                  |         |   |   | (904     | )       
|                                                           |                                           |      |                   |         |   |   |          |         
|                                                           | Net cash provided by financing activities |      |                   | 6,081   |   |   |          | 239,137  |  
|                                                           |                                           |      |                   |         |   |   |          |         
|Effect of exchange rate differences                        |                                           |      | 1,604             |         |   |   | (773     | )       
|                                                           |                                           |      |                   |         |   |   |          |         
|Net decrease in cash and cash equivalents                  |                                           |      | (26,918           | )       |   |   | (43,189  | )       
|Cash and cash equivalents at beginning of period           |                                           |      | 65,894            |         |   |   | 105,356  |         
|                                                           |                                           |      |                   |         |   |   |          |         
|Cash and cash equivalents at end of period                 |                                           | $    | 38,976            |         |   | $ | 62,167   |         
|                                                           |                                           |      |                   |         |   |   |          |         
|NON-CASH INVESTING AND FINANCING ACTIVITIES                |                                           |      |                   |         |   |   |          |         
|Conversion of notes to common stock, net of issuance costs |                                           | $    |                  |         |   | $ | 60,421   |         
|Acquisition of assets and businesses for common stock      |                                           |      | 2,458             |         |   |   | 15,636   |         

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

5



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##### 






NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

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

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the condensed
consolidated financial statements and the revenues and expenses reported during
the period. Actual results may vary from those estimates.

EARNINGS PER SHARE

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

ACCOUNTS RECEIVABLE AND PROVISIONS FOR DOUBTFUL ACCOUNTS

Accounts receivable represent trade receivables, net of provisions for doubtful
accounts. The provision for doubtful accounts recorded during the three months
ended September 30, 2001 and September 30, 2000 was $1.4 million and $1.7
million, respectively. The provision for doubtful accounts recorded during the
nine months ended September 30, 2001 and September 30, 2000 was $2.2 million
and $4.1 million, respectively.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, net of accumulated depreciation of
approximately $181.0 million and $147.6 million at September 30, 2001 and
December 31, 2000, respectively.

6



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INTANGIBLE ASSETS

Intangible assets consist principally of goodwill, which represents the excess
of the purchase price and related costs over the fair value of net assets
acquired in business combinations. Intangible assets are amortized on a
straight-line basis over their estimated lives, ranging from three to 30 years.

|                              |                       |      |               |         |              |   |         |         | 
|----------------------------- | --------------------- | ---- | ------------- | ------- | ------------ | - | ------- | ------- | 
|                              |                       |      | September 30, |         | December 31,
|(In thousands)                |                       | 2001 |               | 2000   
|                              |                       |      |               |        
|Goodwill                      |                       | $    | 767,537       |         |              | $ | 769,475 |        
|Other intangibles             |                       |      | 102,639       |         |              |   | 98,255  |        
|                              |                       |      |               |         |              |   |         |        
|                              |                       |      | 870,176       |         |              |   | 867,730 |        
|Less accumulated amortization |                       |      | 215,840       |         |              |   | 160,322 |        
|                              |                       |      |               |         |              |   |         |        
|                              | Net intangible assets |      | $             | 654,336 |              |   | $       | 707,408 | 
|                              |                       |      |               |         |              |   |         |        

ACCRUED ACQUISITION COSTS

Included in the net assets of Visual Communications Group (VCG) that were
acquired in March of 2000 were accrued costs of $5.8 million related to plans
to exit activities and to terminate or relocate employees of VCG. These costs
were recognized as liabilities and were included in the allocation of the
acquisition cost. During 2000 and the first three quarters of 2001, the company
paid cash of $3.1 million and $1.3 million, respectively, in connection with
actions taken. Accrued costs of $1.4 million remain at September 30, 2001,
consisting mainly of costs under lease agreements that no longer benefit the
company and that will be paid and charged against the accruals in future
periods.

Included in the net assets of The Image Bank, Inc. (TIB) that were
acquired in November of 1999 were accrued costs of $3.2 million related to
plans to exit activities and to terminate or relocate employees of TIB. These
costs were recognized as liabilities and were included in the allocation of the
acquisition cost. During 2000, the company increased these accrued costs by
$1.5 million in conjunction with modifications of the plans. During 2000 and
the first three quarters of 2001, the company paid cash of $3.5 million and
$1.1 million, respectively, in connection with actions taken. Accrued costs of
$0.1 million remain at September 30, 2001, consisting mainly of costs under
lease agreements that no longer benefit the company and that will be paid and
charged against the accruals in future periods.

INTEGRATION COSTS AND LOSS ON IMPAIRMENT OF ASSETS

In 1999, the company commenced integration of all of the companys businesses
after the acquisition of TIB and Art.com. Integration actions taken in the
third quarter of 2000 and the related costs were as follows: $3.0 million for
the review of processes and resultant actions to implement processes that would
benefit the fully-integrated company going forward; $0.6 million for contract
re-negotiations and terminations; and $0.3 million for consulting and other
professional assistance in determining what functions and facilities should be
combined. Integration actions taken in the first three quarters of 2000 and the
related costs were as follows: $9.5 million for the review of processes and
resultant actions to implement processes that would benefit the
fully-integrated company going forward; $1.8 million for contract
re-negotiations and terminations; and $1.4 million for consulting and other
professional assistance in determining what functions and facilities should be
combined. These costs were expensed as incurred during the three and nine
months ended September 30, 2000.

Subsequent to the VCG acquisition in 2000, management determined that further
integration of the companys operations and facilities was necessary to
eliminate duplicate facilities and functions and to take advantage of
opportunities for further leveraging cost and technology platforms. Integration
costs incurred during the first quarter of 2001 totaled $4.0 million,
including: $1.9 million for the termination of approximately 40 employees; $1.4
million for the abandonment of facilities; $0.4 million for the review of
processes

7



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and resultant actions to implement processes that would benefit the
fully-integrated company going forward; $0.2 million for consulting and other
professional assistance in determining what functions and facilities should be
combined; and $0.1 million for asset impairments. These actions were completed,
and the related costs were expensed as incurred during the quarter ended March
31, 2001.

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

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

RESTRUCTURING COSTS

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

As of September 30, 2001, 280 employees had been terminated and $3.4 million in
termination costs had been paid. The remaining 40 employees will exit the
company by the end of the first quarter of 2002. Management expects staff cost
reduction of approximately $15 to $20 million per year when all planned
employee terminations have been completed.

DEBT CONVERSION EXPENSE

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

LOSS ON IMPAIRMENT OF INVESTMENTS

During the second quarter of 2001, the company wrote off its minority
investment in two small private companies after analyses showed that they
suffered other than temporary declines in fair value. The total of these two
impairment charges was $4.2 million.

EXTRAORDINARY ITEM

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

8



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BUSINESS SEGMENTS AND GEOGRAPHIC AREAS

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

|               |             |      |                    |         |                   |      |        |         |  |   |         |         |  |   |         |         | 
|-------------- | ----------- | ---- | ------------------ | ------- | ----------------- | ---- | ------ | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|               |             |      | Three months ended |         | Nine months ended
|               |             |      | September 30,      |         | September 30,    
|               |             |      |                    |         |                  
|(In thousands) |             | 2001 |                    | 2000    |                   | 2001 |        | 2000   
|               |             |      |                    |         |                   |      |        |        
|United States  |             | $    | 46,168             |         |                   | $    | 62,120 |         |  | $ | 157,314 |         |  | $ | 181,038 |        
|United Kingdom |             |      | 15,027             |         |                   |      | 16,617 |         |  |   | 48,608  |         |  |   | 50,565  |        
|Canada         |             |      | 11,187             |         |                   |      | 10,426 |         |  |   | 34,804  |         |  |   | 30,220  |        
|Rest of world  |             |      | 35,123             |         |                   |      | 37,835 |         |  |   | 108,422 |         |  |   | 93,647  |        
|               |             |      |                    |         |                   |      |        |         |  |   |         |         |  |   |         |        
|               | Total sales |      | $                  | 107,505 |                   |      | $      | 126,998 |  |   | $       | 349,148 |  |   | $       | 355,470 | 
|               |             |      |                    |         |                   |      |        |         |  |   |         |         |  |   |         |        

INCOME TAXES

The estimated annual tax rate used to calculate the income tax benefit for the
first three quarters of 2001 was 39.2% on losses before permanent differences,
including amortization of goodwill and a valuation allowance associated with
the loss on impairment of investments, while the rate used to calculate the
income tax expense for the first three quarters of 2000 was 39.6% on income
before similar items.

RECENT ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2001, the company adopted Statement of Financial
Accounting Standards (SFAS) 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS 137 and 138, which requires recognition
of all derivatives as either assets or liabilities on the balance sheet at fair
value. The adoption of this statement did not have a significant impact on the
results of operations, financial position or cash flows of the company.

Effective July 1, 2001, the company adopted SFAS 141, Business Combinations.
This statement requires the use of the purchase method of accounting for all
new business combinations, requires that intangible assets be recorded separate
from goodwill only if they are contractual or legal rights or if they are
separable, and requires additional disclosures. The adoption of this statement
does not affect the companys reported results of operations, financial
position or cash flows. The statement does, however, more narrowly define
identifiable intangible assets, thus limiting the allocation of purchase price
on future acquisitions to such intangibles and expanding the allocation of
purchase price to goodwill. This will have the effect of decreasing future
amortization expense.

Effective January 1, 2002, the company will adopt SFAS 142, Goodwill and Other
Intangible Assets.This pronouncement will change the accounting for goodwill
from an amortization method to an impairment-only approach. Thus, amortization
of goodwill, including goodwill recorded in past business combinations, will
cease. Initial impairment tests are required to be completed by the end of the
first quarter of 2002 for intangible assets and by the end of 2002 for
goodwill. Any loss resulting from these initial impairment tests will be
recognized as the effect of a change in accounting principle. Annual impairment
tests are required every year thereafter, with any impairment recognized as a
loss on impairment of assets. Management has not yet completed an evaluation of
the effects this standard will have on the companys consolidated financial
statements. However, amortization of intangibles will be significantly lower in
2002 than in prior periods, and the company could incur significant charges as
a result of the impairment tests.

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Effective January 1, 2002, the company will adopt SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This pronouncement requires one
model for accounting for long-lived assets to be disposed of and broadens the
presentation of discontinued operations to include more transactions. This
accounting pronouncement does not immediately impact the company, however, it
could cause any future long-lived asset disposals to be accounted for or
presented in a different manner than in the past.




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

The following should be read in conjunction with our unaudited condensed
consolidated financial statements and the notes thereto and other financial
information contained elsewhere and incorporated by reference in this report on
Form 10-Q, including our annual report on Form 10-K. In the following
discussion, we, us, our and the company refer to Getty Images, Inc. and
its consolidated subsidiaries.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by or on behalf of Getty Images, Inc. This
Quarterly Report on Form 10-Q and the documents incorporated herein by
reference contain forward-looking statements based on current expectations,
estimates and projections about Getty Images, Inc.s industry, managements
beliefs, and certain assumptions made by management. All statements, trends,
analyses and other information contained in this report relative to trends in
sales, gross margin, anticipated expense levels, capital expenditures, and
liquidity and capital resources, as well as other statements including, but not
limited to, words such as anticipate, believe, plan, estimate,
expect, seek, intend and other similar expressions, constitute
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to certain risks and uncertainties that
are difficult to predict. Accordingly, actual results may differ materially
from those anticipated or expressed in such statements. Potential risks and
uncertainties include, among others, those set forth under FACTORS THAT MAY
AFFECT THE BUSINESS below. Except as required by law, the company undertakes
no obligation to update any forward-looking statement, whether as a result of
new information, future events or otherwise. Readers, however, should carefully
review the factors set forth in other reports or documents that the company
files from time to time with the Securities and Exchange Commission.

GENERAL

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

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

Our cost of sales primarily consists of commission payments to contributing
photographers and cinematographers. These suppliers are under contract with
subsidiaries of the company and receive payments of up to 50% of the sales
value, depending on the type of image and where and how the image is delivered.
We own a significant number of the images in our

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collections, and these images do not require commission payments. Cost of sales
also includes, to the extent applicable, shipping and handling costs for
duplicate transparencies and the costs of CD-ROM production. As a result, our
gross margin is impacted by the mix of sales conducted digitally on the
Internet, sales of wholly owned imagery, geographic distribution of sales and
brand sales mix.

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

ACQUISITIONS

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

INTEGRATION COSTS AND LOSS ON IMPAIRMENT OF ASSETS

In 1999, the company commenced integration of all of the companys businesses
after the acquisition of The Image Bank, Inc. and Art.com. Integration actions taken in the
third quarter of 2000 and the related costs were as follows: $3.0 million for
the review of processes and resultant actions to implement processes that would
benefit the fully-integrated company going forward; $0.6 million for contract
re-negotiations and terminations; and $0.3 million for consulting and other
professional assistance in determining what functions and facilities should be
combined. Integration actions taken in the first three quarters of 2000 and the
related costs were as follows: $9.5 million for the review of processes and
resultant actions to implement processes that would benefit the
fully-integrated company going forward; $1.8 million for contract
re-negotiations and terminations; and $1.4 million for consulting and other
professional assistance in determining what functions and facilities should be
combined. These costs were expensed as incurred during the three and nine
months ended September 30, 2000.

Subsequent to the VCG acquisition in 2000, management determined that further
integration of the companys operations and facilities was necessary to
eliminate duplicate facilities and functions and to take advantage of
opportunities for further leveraging cost and technology platforms. Integration
costs incurred during the first quarter of 2001 totaled $4.0 million,
including: $1.9 million for the termination of approximately 40 employees; $1.4
million for the abandonment of facilities; $0.4 million for the review of
processes and resultant actions to implement processes that would benefit the
fully-integrated company going forward; $0.2 million for consulting and other
professional assistance in determining what functions and facilities should be
combined; and $0.1 million for asset impairments. These actions were completed,
and the related costs were expensed as incurred during the quarter ended March
31, 2001.

On May 17, 2001, the company terminated the operations of one of its
subsidiaries, Art.com, a provider of framed and unframed art and art-related
products on the Internet. In connection with this event, the company recorded
integration costs of approximately

11



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$1.9 million during the second quarter of 2001, including severance costs and
costs to terminate the operations and exit the facilities of Art.com, as well
as a loss on the impairment of related assets of $6.5 million.

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

RESTRUCTURING COSTS

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

As of September 30, 2001, 280 employees had been terminated and $3.4 million in
termination costs had been paid. The remaining 40 employees will exit the
company by the end of the first quarter of 2002. Management expects staff cost
reduction of approximately $15 to $20 million per year when all planned
employee terminations have been completed.

DEBT CONVERSION EXPENSE

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

LOSS ON IMPAIRMENT OF INVESTMENTS

During the second quarter of 2001, the company wrote off its minority
investment in two small private companies after analyses showed that they
suffered other than temporary declines in fair value. The total of these two
impairment charges was $4.2 million.

EXTRAORDINARY ITEM

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

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RESULTS OF OPERATIONS

Three months ended September 30, 2001 and 2000

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

|                                                         |  |                                  |         |       |  |      |       |       |  |   |         |      |  |  |       |  
|-------------------------------------------------------- |  | -------------------------------- | ------- | ----- |  | ---- | ----- | ----- |  | - | ------- | ---- |  |  | ----- | -
|                                                         |  | Three months ended September 30,
|                                                         |  |                                 
|                                                         |  |                                  |         |       |  | % of |       |       |  |   |         | % of
|(In thousands, except
percentages and per share amounts) |  | 2001                             |         | sales |  | 2000 |       | sales
|                                                         |  |                                  |         |       |  |      |       |      
|Sales                                                    |  | $                                | 107,505 |       |  |      | 100.0 |       |  | $ | 126,998 |      |  |  | 100.0 |  
|Gross profit                                             |  |                                  | 79,564  |       |  |      | 74.0  |       |  |   | 89,517  |      |  |  | 70.5  |  
|Selling, general and administrative expenses             |  |                                  | (57,792 | )     |  |      | (53.7 | )     |  |   | (62,078 | )    |  |  | (48.9 | )
|Amortization of intangible assets                        |  |                                  | (18,546 | )     |  |      | (17.3 | )     |  |   | (30,654 | )    |  |  | (24.1 | )
|Depreciation                                             |  |                                  | (14,676 | )     |  |      | (13.7 | )     |  |   | (12,221 | )    |  |  | (9.6  | )
|Income tax (expense) benefit                             |  |                                  | 2,541   |       |  |      | 2.4   |       |  |   | (3,322  | )    |  |  | (2.6  | )
|Net loss                                                 |  |                                  | (18,234 | )     |  |      | (17.0 | )     |  |   | (26,356 | )    |  |  | (20.8 | )
|Net loss per share                                       |  | $                                | (0.35   | )     |  |      |      |       |  | $ | (0.52   | )    |  |  |      |  
|                                                        
|EBITDA                                                   |  | $                                | 21,772  |       |  |      | 20.3  |       |  | $ | 27,439  |      |  |  | 21.6  |  

NET LOSS AND NET LOSS PER SHARE

The company recognized a net loss of $18.2 million, or $0.35 per share, during
the third quarter of 2001 as compared to a net loss of $26.4 million, or $0.52
per share, during the same period in 2000.

SALES

Sales of $107.5 million for the third quarter of 2001 were down $19.5 million
or 15% from third quarter 2000 sales of $127.0 million. This sales decrease
reflected mainly volume decreases, offset in part by sales price increases. The
company experienced declines in nearly all geographies, particularly in the
United States where sales declined $16.0 million or 26%.

Sales for the third quarter of 2001 were lower than expected across nearly all
of the companys brands and geographies, due mainly to the continual worldwide
decline in marketing and advertising spending, as well as the terrorist attacks
on the United States on September 11, 2001. Management does not expect the
economy, either domestic or abroad, to improve during the remainder of 2001 and
cannot predict the impact that any further terrorist activities or worldwide
response to such activities would have on the company.

GROSS PROFIT AND GROSS MARGIN

The companys gross profit was $79.6 million for the third quarter of 2001, a
decrease from gross profit of $89.5 million for the same period in 2000. As a
percentage of sales, the companys gross margin was 74.0% for the third quarter
of 2001, an increase over a gross margin of 70.5% for the third quarter of
2000. The increase in gross margin in the current period was due to a larger
percentage of sales of higher margin items, mainly wholly owned images, in the
sales mix and a lower percentage of lower margin sales from businesses such as
Art.com.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $57.8 million for the third
quarter of 2001, a decrease of $4.3 million or 7% from $62.1 million for the
third quarter of 2000. This decrease resulted primarily from lower staff and
advertising and marketing costs, offset in part by an increase in professional
fees. As a percentage of sales, selling, general and administrative expenses
increased over the year ago period, due mainly to a larger percentage decline
in sales than in selling, general and administrative expenses.

As discussed above, management expects staff cost reduction of
approximately $15 to $20 million per year when all planned employee
terminations have been completed.

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

EBITDA for the third quarter of 2001 was $21.8 million or 20.3% of sales, as
compared to $27.4 million or 21.6% of sales for the third quarter of 2000. The
decrease in EBITDA and EBITDA margin resulted from gross profit that was
declining faster than selling, general and administrative expenses were
declining.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization of intangible assets decreased to $18.5 million in the third
quarter of 2001 from $30.7 million in the same period in 2000, due mainly to
the elimination of goodwill amortization related to Art.com. After performing a
cash flow analysis in the fourth quarter of 2000 of Art.com and a related
business that operated as a division of Art.com, the company determined that
the long-lived assets were impaired. As a result, the company wrote off $53.4
million of Art.com goodwill.

In accordance with a recent accounting pronouncement, the company will no
longer amortize goodwill beginning January 1, 2002, but will continue to
amortize other recognized intangible assets. Where the company assesses that
certain intangible assets should be recognized as goodwill under this new
pronouncement, these assets will be reclassified to goodwill and will no longer
be amortized. Management expects that the amortization of intangible assets
will be approximately $72 million for 2001 and $5 million for 2002, based on
unamortized balances at September 30, 2001.

DEPRECIATION

Depreciation expense increased to $14.7 million in the third quarter of 2001
from $12.2 million in the third quarter of 2000. This increase was primarily
related to the continued development of technology assets related to our
web-based sales strategy and an increase in our capitalized costs of image
digitization. Management expects depreciation expense for the remainder of 2001
and beyond to continue to increase as a result of these increased investments.

INCOME TAXES

The estimated annual tax rate used to calculate the $2.5 million income tax
benefit for the third quarter of 2001 was 39.2% on losses before permanent
differences, including amortization of goodwill and a valuation allowance
associated with the loss on impairment of investments. The rate used to
calculate the $3.3 million income tax expense for the third quarter of 2000 was
39.6% on income before similar items.

Nine months ended September 30, 2001 and 2000

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

|                                                         |  |                                 |          |       |  |      |       |       |  |   |          |      |  |  |       |  
|-------------------------------------------------------- |  | ------------------------------- | -------- | ----- |  | ---- | ----- | ----- |  | - | -------- | ---- |  |  | ----- | -
|                                                         |  | Nine months ended September 30,
|                                                         |  |                                
|                                                         |  |                                 |          |       |  | % of |       |       |  |   |          | % of
|(In thousands, except
percentages and per share amounts) |  | 2001                            |          | sales |  | 2000 |       | sales
|                                                         |  |                                 |          |       |  |      |       |      
|Sales                                                    |  | $                               | 349,148  |       |  |      | 100.0 |       |  | $ | 355,470  |      |  |  | 100.0 |  
|Gross profit                                             |  |                                 | 253,260  |       |  |      | 72.5  |       |  |   | 250,383  |      |  |  | 70.4  |  
|Selling, general and administrative expenses             |  |                                 | (180,229 | )     |  |      | (51.6 | )     |  |   | (186,646 | )    |  |  | (52.5 | )
|Amortization of intangible assets                        |  |                                 | (55,816  | )     |  |      | (16.0 | )     |  |   | (87,101  | )    |  |  | (24.5 | )
|Depreciation                                             |  |                                 | (42,168  | )     |  |      | (12.1 | )     |  |   | (34,713  | )    |  |  | (9.8  | )
|Income tax (expense) benefit                             |  |                                 | 3,350    |       |  |      | 1.0   |       |  |   | (2,937   | )    |  |  | (0.8  | )
|Net loss                                                 |  |                                 | (56,525  | )     |  |      | (16.2 | )     |  |   | (88,967  | )    |  |  | (25.0 | )
|Net loss per share                                       |  | $                               | (1.09    | )     |  |      |      |       |  | $ | (1.76    | )    |  |  |      |  
|                                                        
|EBITDA                                                   |  | $                               | 73,031   |       |  |      | 20.9  |       |  | $ | 63,737   |      |  |  | 17.9  |  

14



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NET LOSS AND NET LOSS PER SHARE

For the first three quarters of 2001, the company recognized a net loss of
$56.5 million, or $1.09 per share, as compared to a net loss of $89.0 million,
or $1.76 per share, in the year ago period. Excluding the extraordinary item,
the company recognized a net loss of $89.4 million, or $1.77 per share, for the
first three quarters of 2000.

SALES

Sales of $349.1 million for the first three quarters of 2001 were down $6.3
million or 2% from sales for the first three quarters of 2000 of $355.5
million. The sales decrease resulted primarily from volume decreases, offset in
part by sales price increases and the acquisition of VCG at the end of the
first quarter of 2000. The company experienced declines in nearly all
geographies, particularly in the United States where sales declined $23.7
million or 13%.

Sales for the third quarter of 2001 were lower than expected across nearly all
of the companys brands and geographies, due mainly to the continual worldwide
decline in marketing and advertising spending, as well as the terrorist attacks
on the United States on September 11, 2001. Management does not expect the
economy, either domestic or abroad, to improve during the remainder of 2001 and
cannot predict the impact that any further terrorist activities or worldwide
response to such activities would have on the company.

GROSS PROFIT AND GROSS MARGIN

Gross profit for the first three quarters of 2001 was $253.3 million or 72.5%
of sales, an increase over gross profit of $250.4 million or 70.4% of sales for
the same period in 2000. The increase in both gross profit and gross margin in
the current period was due to a larger percentage of sales of higher margin
items, mainly wholly owned images, in the sales mix and a lower percentage of
lower margin sales from businesses such as Art.com.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses were $180.2 million for the first
three quarters of 2001, a decrease of $6.4 million or 3% from $186.6 million
for the first three quarters of 2000. This decrease resulted primarily from
lower advertising and marketing costs, offset in part by an increase in staff
costs and professional fees. As a percentage of sales, selling, general and
administrative expenses decreased to 52%, down from 53% in the year ago period.

As discussed above, management expects staff cost reduction of
approximately $15 to $20 million per year when all planned employee
terminations have been completed.

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

EBITDA for the first three quarters of 2001 was $73.0 million or 20.9% of
sales, as compared to $63.7 million or 17.9% of sales for the first three
quarters of 2000. The increase in EBITDA and EBITDA margin resulted from
declining selling, general and administrative expenses as compared to
increasing gross profit.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization of intangible assets decreased to $55.8 million in the first three
quarters of 2001 from $87.1 million in the same period in 2000 as a result of
the write-off of Art.com goodwill described in the third quarter analysis.

In accordance with a recent accounting pronouncement, the company will no
longer amortize goodwill beginning January 1, 2002, but will continue to
amortize other recognized intangible assets. Where the company assesses that
certain intangible assets should be recognized as goodwill under this new
pronouncement, these assets will be reclassified to goodwill and will no longer
be amortized. Management expects that the amortization of intangible assets
will be approximately $72 million for 2001 and $5 million for 2002, based on
unamortized balances at September 30, 2001.

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DEPRECIATION

Depreciation expense increased to $42.2 million in the first three quarters of
2001 from $34.7 million in the first three quarters of 2000. This increase was
primarily related to business acquisitions in 2000, the continued development
of technology assets related to our web-based sales strategy and an increase in
our capitalized costs of image digitization. Management expects depreciation
expense for the remainder of 2001 and beyond to continue to increase as a
result of these increased investments.

INCOME TAXES

The estimated annual tax rate used to calculate the $3.4 million income tax
benefit for the first three quarters of 2001 was 39.2% on losses before
permanent differences, including amortization of goodwill and a valuation
allowance associated with the loss on impairment of investments. The rate used
to calculate the $2.9 million income tax expense for the first three quarters
of 2000 was 39.6% on income before similar items.

RECENT ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2001, the company adopted Statement of Financial
Accounting Standards (SFAS) 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS 137 and 138, which requires recognition
of all derivatives as either assets or liabilities on the balance sheet at fair
value. The adoption of this statement did not have a significant impact on the
results of operations, financial position or cash flows of the company.

Effective July 1, 2001, the company adopted SFAS 141, Business Combinations.
This statement requires the use of the purchase method of accounting for all
new business combinations, requires that intangible assets be recorded separate
from goodwill only if they are contractual or legal rights or if they are
separable, and requires additional disclosures. The adoption of this statement
does not affect the companys reported results of operations, financial
position or cash flows. The statement does, however, more narrowly define
identifiable intangible assets, thus limiting the allocation of purchase price
on future acquisitions to such intangibles and expanding the allocation of
purchase price to goodwill. This will have the effect of decreasing future
amortization expense.

Effective January 1, 2002, the company will adopt SFAS 142, Goodwill and Other
Intangible Assets.This pronouncement will change the accounting for goodwill
from an amortization method to an impairment-only approach. Thus, amortization
of goodwill, including goodwill recorded in past business combinations, will
cease. Initial impairment tests are required to be completed by the end of the
first quarter of 2002 for intangible assets and by the end of 2002 for
goodwill. Any loss resulting from these initial impairment tests will be
recognized as the effect of a change in accounting principle. Annual impairment
tests are required every year thereafter, with any impairment recognized as a
loss on impairment of assets. Management has not yet completed an evaluation of
the effects this standard will have on the companys consolidated financial
statements. However, amortization of intangibles will be significantly lower in
2002 than in prior periods, and the company could incur significant charges as
a result of the impairment tests.

Effective January 1, 2002, the company will adopt SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This pronouncement requires one
model for accounting for long-lived assets to be disposed of and broadens the
presentation of discontinued operations to include more transactions. This
accounting pronouncement does not immediately impact the company, however, it
could cause any future long-lived asset disposals to be accounted for or
presented in a different manner than in the past.

FINANCIAL CONDITION

At September 30, 2001, the company held $39.0 million in cash and cash
equivalents and had credit facilities under a $100.0 million bank line of
credit, of which $80.0 million was unused.

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WORKING CAPITAL

At September 30, 2001, the companys working capital was $62.1 million, an
increase of $0.7 million from working capital of $61.4 million at the end of
2000. Current assets decreased $27.5 million during the first three quarters of
2001, resulting from declines in nearly all categories, mainly cash and cash
equivalents, offset in part by a substantial increase in other current assets.
Current liabilities decreased $28.3 million during the first three quarters of
2001, with declines in all categories.

Cash and cash equivalents decreased $26.9 million during the first three
quarters of 2001. Significant uses of cash included $58.6 million in capital
expenditures, $13.0 million in interest payments, and the payment of accounts
payable. Significant cash inflows included $6.6 million in proceeds from the
issuance of common stock due to stock option exercises, $2.3 million in
proceeds from the sale of certain assets of a French subsidiary, and cash
receipts from customers.

Other current assets increased $5.8 million or 41% over year end. Approximately
$5.0 million of this increase resulted from an increase in other receivables
relating to reimbursable improvements made to our new offices in New York.

LIQUIDITY AND CAPITAL RESOURCES

Management expects to invest between $70 million and $75 million in capital
expenditures during 2001, including the $58.6 million invested year-to-date.
Existing cash balances and cash flows provided by operating activities and
borrowing capacity are expected to be sufficient to fund operations, capital
expenditures and long-term debt requirements for at least the following 12
months.

FACTORS THAT MAY AFFECT THE BUSINESS

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

OUR BUSINESS COULD BE AFFECTED BY A FAILURE TO SUCCESSFULLY COMPLETE THE
INTEGRATION OF ACQUIRED BUSINESSES.

As a result of the acquisition strategy we have pursued since our inception in
1995, we have focused significant resources and attention on integrating
acquired businesses. The October 6, 2001 launch of gettyimages.com marked a
significant milestone in the business wide initiative to integrate the
companys web offerings. Additionally, the company has established the
technology, business process, sales and marketing procedures, finance systems,
customer interface, and other corporate administrative functions for the
continued transformation and consolidation of company-wide systems. However,
our future performance will largely depend on our ability to complete the
integration of acquired companies and our finance, sales and customer database
systems. These acquisitions and integrations create risks such as:



| |  | disruption of our ongoing business;                                                                                                      
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | diversion of attention of our senior management from existing
operations and other potential business opportunities; and                 
| 
| |  | challenges associated with converting content from the analog format
to digital format, particularly the core collections of TIB and VCG.

17



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We cannot guarantee that we will successfully complete the integration of VCG
or TIB or any other acquired companies with our business.

FAILURE TO MANAGE CHANGE MAY ADVERSELY AFFECT OUR BUSINESS.

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

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

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

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

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



| |  | significant goodwill amortization charges or impairment losses related
to the goodwill or other intangible and tangible assets of acquired
companies; and
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | other related restructuring and integration charges.                                                                                                     

We could be required to write-down the unamortized value of such goodwill in
the future at an accelerated rate in the event that it suffers an impairment in
value. For example, in the fourth quarter of 2000, the company determined that
long-lived assets were impaired and wrote off $53.4 million of Art.com
goodwill. We also incurred an additional $6.5 million in asset impairments
resulting from the ultimate disposition of Art.com in the second quarter of
2001. Future acquisitions by us, if any, could generate goodwill and other
intangibles that could result in similar charges to be amortized or written off
against our future earnings as well as other asset impairments.

We incurred net integration and restructuring costs of $41.6 million during
1998, 1999 and 2000, and $11.6 million during the first three quarters of 2001,
following the plans to integrate all our businesses and to otherwise
restructure and reorganize our business to try to best serve our customers and
develop our business. Further integration of our existing businesses and
businesses we may acquire in the future may result in similar or greater
integration and restructuring costs, which will negatively affect our future
earnings.

During the second quarter of 2001, the company wrote off its minority
investment in two small private companies after analyses showed that they
suffered an other-than-temporary decline in fair value. The total of these two
impairment charges was $4.2 million.

OUR QUARTERLY FINANCIAL RESULTS MAY FLUCTUATE.

Historical trends and quarter-to-quarter comparisons of our operating results
may not be good indicators of our future performance. It is possible that some
future quarterly results may be below the expectations of public market
analysts and investors. For instance, on July 25, 2001 and April 25, 2001, we
announced that our second and first

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quarter results, respectively, were below these expectations. In this event,
the effect on the trading prices of our subordinated notes and our common stock
may be difficult to predict. Our revenues and operating results are expected to
vary from quarter-to-quarter due to a number of factors, including:



| |  | demand for our products;                                                                                                                                                                                              
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | our ability to continue to move customers to the digital distribution of imagery;                                                                                                                                     
| 
| |  | changes in sales mix, including the mix of sales of analog and digital imagery, wholly-owned and licensed imagery, and the
geographic and brand distribution of such sales;                                           
| 
| |  | our ability to attract visitors to our Websites and the frequency of repeat purchases by our customers;                                                                                                               
| 
| |  | shifts in the nature and amount of publicity about us, our competitors or the visual content industry;                                                                                                                
| 
| |  | changes in the growth rate of Internet commerce;                                                                                                                                                                      
| 
| |  | our ability to enhance our technology to accommodate any future growth in our operations or customers;                                                                                                                
| 
| |  | changes in our pricing policies or the pricing policies of our competitors;                                                                                                                                           
| 
| |  | changes in government regulation;                                                                                                                                                                                     
| 
| |  | costs related to potential acquisitions of technology or businesses;                                                                                                                                                  
| 
| |  | changes in U.S. and global financial and equity markets;                                                                                                                                                              
| 
| |  | changes in U.S., global or regional economic and political conditions; and                                                                                                                                            
| 
| |  | continued economic and political difficulties and uncertainty arising from the impacts of the September 11, 2001 attacks on
the World Trade Center and the Pentagon, and fears regarding additional terrorist actions.

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

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

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

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

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

19



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

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

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

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



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

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

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

Historically, we have marketed each Getty Images brand as its own collection.
On October 6, 2001, we launched gettyimages.com, a significant step toward
integrating the companys web-based offerings, supporting technology platform
and business practices under the Getty Images brand name. Continued
positioning of the Getty Images brand will largely depend on the success of
our advertising and promotional activities and our ability to provide customers
with high quality products and strong customer service. We believe that a
favorable customer reception of this brand is important to our future success.
If our brand enhancement strategies are unsuccessful, we may be unable to
realize potential benefits of Getty Images. See also Our Right to Use the
Getty Trademarks is Subject to Forfeiture in the Event We Experience a Change
of Control below.

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

Our future success depends, in part, on the continued service of Mr. Mark
Getty, our Executive Chairman, and Mr. Jonathan Klein, our Chief Executive
Officer. Mr. Getty and Mr. Klein are each party to an employment agreement with
us for a minimum period of three years, which absent a breach cannot be terminated except on twelve
months written notice. We do not have key person life insurance policies
covering either Mr. Getty or Mr. Klein.

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

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

Additionally, several members of our senior management team have joined us in
2000 and 2001. These individuals are currently becoming integrated with the
other members of our management team. We believe the successful integration of
our management team is critical to manage our operations effectively.

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

A key component of our growth strategy is the increased digitization of our
imagery and the distribution of such imagery and related products and services
over the Internet. As a result, our revenues are, and will continue to be,
dependent on the ability of our customers to access our Websites. In the past,
we have experienced occasional system interruptions that made our Websites
unavailable or prevented us from efficiently fulfilling orders. While we have
made improvements in this area, we cannot be sure that we can prevent these
interruptions in the future. System failures or interruptions will
inconvenience our users and may result in negative publicity and reduce the
volume of images we license online and the attractiveness of our online
products and services to our customers.

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

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

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

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

21



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

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

The Getty Group collectively owned approximately 21% of the outstanding shares
of our common stock as of September 30, 2001, and comprises the following
persons and entities: Getty Investments L.L.C.; The October 1993 Trust; The JD
Klein Family Settlement; Mr. Mark Getty, our Executive Chairman; and Mr.
Jonathan Klein, our Chief Executive Officer.

The Torrance Group collectively owned approximately 6% of the outstanding
shares of our common stock as of September 30, 2001, and comprises the
following persons and entities: PDI, L.L.C.; Mr. Mark Torrance; Ms. Wade
Ballinger (Torrance); and certain of their family members.

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

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

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

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

Getty Investments L.L.C. owns approximately 19% of the outstanding shares of
our common stock as of September 30, 2001. Mr. Getty serves as the Chairman of
Getty Investments, while Mr. Klein and Mr. Andrew Garb, a member of our Board
of Directors, serve on the Board of Getty Investments.

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

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

We have been subject to a variety of third-party infringement, misuse and
misappropriation claims in the past and will likely be subject to similar
claims in the future. We license

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

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

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



| |  | our ability to make principal and interest payments on the notes could
be negatively impacted;                                         
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | we may be unable to obtain necessary financing for working capital,
capital expenditures, debt service requirements and other purposes;
| 
| |  | our flexibility in planning for, or reacting to, changes in our
business and competition could be reduced; and                         
| 
| |  | we may be more vulnerable to economic downturns.                                                                                       

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

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

There has been a recent slowdown in advertising, which we believe has had an
impact on the demand for the companys products and services. Management does
not expect the economy, either domestic or abroad, to improve during the
remainder of 2001. Additionally, continued economic and political difficulties
and uncertainty arising from the impacts of the September 11, 2001 attacks on
the World Trade Center and the Pentagon, and fears regarding additional
terrorist actions may have a potential negative impact on our company and
customer base.

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

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

23



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

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

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

We currently anticipate that our available cash resources, cash flow from
operations and our senior credit facility will be sufficient to meet our
anticipated needs for working capital and capital expenditures for at least the
following 12 months. After this time, if we are unable to generate sufficient
cash flows from operations to meet our anticipated needs for working capital
and capital expenditures, we will need to raise additional funds to, among
other things, promote our products and services, develop new and enhanced
services, respond to competitive pressures or make acquisitions. We may be
unable to obtain any required additional financing on terms favorable to us, if
at all. If adequate funds are not available on acceptable terms, we may be
unable to promote our products and services successfully, develop or enhance
services, respond to competitive pressures or take advantage of acquisition
opportunities. If we raise additional funds through the issuance of equity
securities, our stockholders may experience dilution of their ownership
interest, and the newly-issued securities may have rights superior to those of
our common stock. If we raise additional funds by issuing new debt, the new
debt could be senior indebtedness and we may be subject to limitations on our
operations, including limitations on the payment of dividends. Changes in U.S.
and global financial and equity markets, including significant fluctuations in
interest rates and the price of our equity securities, may impede our access
to, or increase the cost of, external financing for our operations and
acquisitions.

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

Our board of directors has the authority, without stockholder approval, to
issue up to 5,000,000 shares of preferred stock and to fix the rights,
preferences, privileges and restrictions of such shares without any further
vote or action by our stockholders. This authority, together with certain
provisions of our amended and restated certificate of incorporation, may have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of our company.
This could occur even if our stockholders consider such change in control to be
in their best interests. In addition, the concentration of beneficial ownership
of our common stock in the Getty Group and the Torrance Group, along with
certain provisions of Delaware law, may have the effect of delaying, deterring
or preventing a takeover of our company.

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

We are subject to a number of regulations applicable to businesses generally,
as well as laws and regulations directly applicable to e-commerce. Although
existing laws and regulations affecting e-commerce are minimal, state, federal
and foreign governments may adopt legislation regulating the Internet and
e-commerce in the near future. Any such legislation or regulation could impede
the growth of the Internet and decrease its acceptance as a communications and
commerce medium. If a decline in the use of the

24



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Internet occurs, businesses and consumers may decide in the future not to use
our online services.

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



| |  | user privacy and data transmission;                                            
|- |  | -------------------------------------------------------------------------------
| 
| |  | pricing and taxation of goods and services over the Internet;                  
| 
| |  | Website content;                                                               
| 
| |  | consumer protection; and                                                       
| 
| |  | characteristics and quality of products and services offered over the Internet.

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

ONLINE SECURITY RISKS AND CONCERNS MAY HARM OUR BUSINESS.

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

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

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

The market price of our common stock has been volatile. For example, for
January 1, 2000 through September 30, 2001, the market price for our common
stock has ranged from $9.15 to $64.38. Fluctuations in the trading price of our
common stock may continue in response to a number of events and factors,
including the following:



| |  | quarterly variations in operating results and announcements of innovations;             
|- |  | ----------------------------------------------------------------------------------------
| 
| |  | new products, services and strategic developments by us or our competitors;             
| 
| |  | business combinations and investments by us or our competitors;                         
| 
| |  | variations in our revenues, expenses or profitability;                                  
| 
| |  | changes in financial estimates and recommendations by securities analysts and investors;

25



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| |  | failure to meet the expectations of securities analysts;                                                                                                                                                              
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | performance by other visual content companies;                                                                                                                                                                        
| 
| |  | news reports relating to trends in the visual content, Internet or other product or service industries;                                                                                                               
| 
| |  | changes in U.S. and global financial and equity markets;                                                                                                                                                              
| 
| |  | changes in U.S., global or regional economic and political conditions; and                                                                                                                                            
| 
| |  | continued economic and political difficulties and uncertainty arising from the impacts of the September 11, 2001 attacks on
the World Trade Center and the Pentagon, and fears regarding additional terrorist actions.

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

26



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##### 






Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

INTEREST RATE RISK

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

|                                   |  |            |        |               |  |              |        |       |  |      |         |      |  |   |         |   |  |            |         |   |  |   |         |  
|---------------------------------- |  | ---------- | ------ | ------------- |  | ------------ | ------ | ----- |  | ---- | ------- | ---- |  | - | ------- | - |  | ---------- | ------- | - |  | - | ------- | -
|                                   |  |            |        |               |  |              |        |       |  |      |         |      |  |   |         |   |  | Fair Value
|                                   |  | Maturities |        |              
|                                   |  |            |        | September 30, |  | December 31,
|(In thousands, except percentages) |  | 2002       |        | 2003          |  | 2007         |        | Total |  | 2001 |         | 2000
|                                   |  |            |        |               |  |              |        |       |  |      |         |     
|Fixed rate debt (U.S.D.)           |  | $          |       |               |  | $            | 12,653 |       |  | $    | 250,000 |      |  | $ | 262,653 |   |  | $          | 195,450 |   |  | $ | 208,104 |  
|Average interest rate              |  |            |       |               |  |              | 4.75   | %     |  |      | 5.0     | %    |  |   | 4.99    | % |  |            | 4.99    | % |  |   | 4.99    | %
|Variable rate debt (U.S.D.)        |  | $          | 20,000 |               |  |              |       |       |  |      |        |      |  | $ | 20,000  |   |  | $          | 19,370  |   |  | $ | 19,003  |  
|Average interest rate              |  |            | 5.02   | %             |  |              |       |       |  |      |        |      |  |   | 5.02    | % |  |            | 5.02    | % |  |   | 7.40    | %
|Other borrowings                   |  | $          | 435    |               |  |              |       |       |  |      |        |      |  | $ | 435     |   |  | $          | 435     |   |  | $ | 471     |  
|Average interest rate              |  |            | 2.71   | %             |  |              |       |       |  |      |        |      |  |   | 2.71    | % |  |            | 2.71    | % |  |   | 5.50    | %

The $250.0 million of 5% convertible subordinated notes are convertible into
common stock at $61.08 per share and are subordinated to senior indebtedness of
the company and to all debt and liabilities, including trade payables and lease
obligations, if any, of the companys subsidiaries. The 5% notes rank equal in
right of payment to the $12.7 million of 4.75% notes. The company may redeem
the notes, in whole or in part, at any time on or after March 20, 2003 at
specified redemption prices ranging from 102.857% beginning on March 20, 2003
to 100.714% beginning on March 15, 2006. Interest on the notes is payable on
March 15 and September 15 of each year.

The $12.7 million of 4.75% convertible
subordinated notes are convertible into common stock at $28.51 per
share, subject to adjustments in certain circumstances, and are
subordinated to senior indebtedness of the company and to all debt
and liabilities, including trade payables and lease obligations, if
any, of the company's subsidiaries. The company may redeem the notes,
in whole or in part, at any time on or after June 1, 2001 at
specified redemption prices ranging from 101.90% beginning on
June 1, 2001 to 100.95% beginning on June 1, 2002. Interest
on the notes is payable June 1 and December 1 of each
year.

The $20.0 million variable rate debt represents utilized credit facilities
under a $100.0 million bank line of credit. The $20.0 million balance matures
every one to three months and is rolled over into a new borrowing. Interest on
borrowings under this line of credit is due each time a borrowing matures.

FOREIGN CURRENCY RISK

The company had no outstanding foreign exchange contracts or related deferred
gains or losses as of September 30, 2001.

Unrealized net foreign exchange losses were $4.2 million as of September 30,
2001 and $14.4 million as of December 31, 2000. As of December 31, 1999,
unrealized net foreign exchange gains were $2.7 million. These unrealized gains
and losses arose from the revaluation of certain intercompany balances deemed
to be long-term in nature. The company has no plans to settle these balances in
the foreseeable future, and as such, has accounted for them in the same manner
as translation adjustments. If the company were to sell or terminate the
operations of a subsidiary with an unrealized gain or loss, the company would
recognize the foreign exchange gain or loss in the income statement as part of
the transaction.

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|        |  |  |                  
|------- |  |  | -----------------
|PART II |  |  | OTHER INFORMATION




|        |  |  |                  
|------- |  |  | -----------------
|Item 1. |  |  | Legal Proceedings

We have been, and may continue to be, subject to legal claims from time to time
in the ordinary course of our business, including those related to alleged
infringement of the trademarks and other intellectual property rights of third
parties, such as the failure to secure model and property releases. Presently,
there are no pending legal proceedings to which we are a party or to which any
of our property is subject which, either individually or in the aggregate, are
expected to have a material adverse effect on our consolidated financial
position, results of operations or liquidity.




|        |  |  |                                          
|------- |  |  | -----------------------------------------
|Item 2. |  |  | Changes in Securities and Use of Proceeds

On January 18, 2001, the company issued 17,305 shares of its common stock, in
addition to other consideration, in connection with the purchase of all of the
issued and outstanding capital stock of Sumer Australasia Pty Limited and all
of the units of The Image Bank Unit Trust. These acquisitions were made to
acquire the business of The Image Bank Australia, which was operated through
The Image Bank Unit Trust with Sumer Australasia Pty Limited acting as
corporate trustee.

On June 15, 2001, the company issued 64,821 shares of its common stock, in
addition to other consideration, in connection with the purchase of certain
assets of The Image Bank Brasil Ltda.




|        |  |  |                  
|------- |  |  | -----------------
|Item 5. |  |  | Other Information

Effective July 23, 2001, Lewis Blackwell was elected Senior Vice President,
Creative Direction, and James Bonaventura was elected Senior Vice President,
Sales.

During the third quarter of 2001, management announced that in response to
further weakening in the U.S. and global markets served by Getty Images, the
company would reduce its workforce by approximately 300 people worldwide and
across multiple functions by the end of the third quarter.




|        |  |  |                                 
|------- |  |  | --------------------------------
|Item 6. |  |  | Exhibits and Reports on Form 8-K



|(a) |  |  | Exhibits:                                                                                                               
|--- |  |  | ------------------------------------------------------------------------------------------------------------------------
|   
|    |  |  | Reference is made to the Index of Exhibits beginning on page 30 for a
list of all exhibits filed as part of this report.
|   
|(b) |  |  | Reports on Form 8-K:                                                                                                    
|   
|    |  |  | No reports on Form 8-K were filed
during the quarter ended September 30, 2001.                                          

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SIGNATURE

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



|November 14, 2001 | GETTY IMAGES, INC.
|----------------- | ------------------



| | By | /s/Elizabeth J. Huebner
| | -- | -----------------------

| | Elizabeth J. Huebner
Senior Vice President and
Chief Financial Officer
| | ----------------------------------------------------------------------

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EXHIBIT INDEX

|               |  |                                                                                 
|-------------- |  | --------------------------------------------------------------------------------
|EXHIBIT NUMBER |  | DESCRIPTION OF EXHIBIT                                                          
|               |  |                                                                                 
|3.1            |  | Amended and Restated Certificate of Incorporation of Getty
Images (1)           
|3.2            |  | Certificate of Amendment to the Certificate of
Incorporation of Getty Images (2)
|3.3            |  | Bylaws of Getty Images (1)                                                      



---

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

30