##### Table of Contents



UNITED STATES SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549



---



Form 10-Q



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

For the quarterly period ended June 30, 2005

OR

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

Commission File
Number: 001-31516



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GETTY IMAGES, INC.



(Exact name of registrant as specified in its charter)



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



601 NORTH 34TH STREET

SEATTLE, WASHINGTON 98103

(206)
925-5000

(Address, including zip code, and telephone number,

including area code, of principal executive offices)



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



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



At July 29, 2005 there were 61,618,870 shares of the registrants common stock, par value $0.01 per share, outstanding.



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##### Table of Contents



| |  |  |  |                    |  |  |  |          |  |  |  |           |  |  |  |  |  | 
| |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  |  |  |  |  | 
| |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  |  |  |  |  | 



TABLE OF CONTENTS



|                                 |  |                                                                                                                          |  |     
|-------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ----
|                                 |  |                                                                                                                          |  | PAGE
|                                 | 
|PART I.    FINANCIAL INFORMATION |  |                                                                                                                         
|                                 |  |                                                                                                                         
|ITEM 1.                          |  | Financial Statements (unaudited):                                                                                        |  |     
|                                 |  |                                                                                                                         
|                                 |  | Condensed Consolidated Statements of Incomefor the three and six months ended June 30, 2005 and 2004                    |  | 1   
|                                 |  |                                                                                                                         
|                                 |  | Condensed Consolidated Balance Sheetsat June 30, 2005 and December 31, 2004                                             |  | 2   
|                                 |  |                                                                                                                         
|                                 |  | Condensed Consolidated Statement of Stockholders Equityat December 31, 2004 and for the six months ended June 30, 2005 |  | 3   
|                                 |  |                                                                                                                         
|                                 |  | Condensed Consolidated Statements of Cash Flowsfor the six months ended June 30, 2005 and 2004                          |  | 4   
|                                 |  |                                                                                                                         
|                                 |  | Notes to Condensed Consolidated Financial Statements                                                                     |  | 5   
|                                 |  |                                                                                                                         
|ITEM 2.                          |  | Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)                             |  | 13  
|                                 |  |                                                                                                                         
|ITEM 3.                          |  | Quantitative and Qualitative Disclosures about Market Risk                                                               |  | 21  
|                                 |  |                                                                                                                         
|ITEM 4.                          |  | Controls and Procedures                                                                                                  |  | 23  
|                                 | 
|PART II.    OTHER INFORMATION    |  |                                                                                                                         
|                                 |  |                                                                                                                         
|ITEM 1.                          |  | Legal Proceedings                                                                                                        |  | 23  
|                                 |  |                                                                                                                         
|ITEM 2.                          |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                              |  | 23  
|                                 |  |                                                                                                                         
|ITEM 3.                          |  | Defaults Upon Senior Securities                                                                                          |  | 23  
|                                 |  |                                                                                                                         
|ITEM 4.                          |  | Submission of Matters to a Vote of Security Holders                                                                      |  | 23  
|                                 |  |                                                                                                                         
|ITEM 5.                          |  | Other Information                                                                                                        |  | 24  
|                                 |  |                                                                                                                         
|ITEM 6.                          |  | Exhibits                                                                                                                 |  | 24  
|                                 | 
|SIGNATURE                        |  | 25                                                                                                                      
|                                 | 
|EXHIBIT INDEX                    |  | 26                                                                                                                      



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##### Table of Contents



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|1 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)



|                                             |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|-------------------------------------------- |  | --------------------------- | ------- | - | ------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                             |  | THREE MONTHS ENDED JUNE 30, |         |   | SIX MONTHS ENDED JUNE 30, |  
|                                             |  |                             |         |   |                           |   |         |     
|                                             |  | 2005                        |         |   | 2004                      |   |         | 2005 |  |   | 2004    |  
|                                             |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|(In thousands, except per share amounts)     |  |                             |         |   |                           |   |         |      |  |   |         |  
|                                             |  |                             |         |  
|Revenue                                      |  | $                           | 185,305 |   |                           | $ | 150,327 |      |  | $ | 363,399 |   |  | $ | 306,839 |  
|Cost of sales                                |  |                             | 49,495  |   |                           |   | 41,789  |      |  |   | 100,749 |   |  |   | 85,595  |  
|                                             |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Gross profit                                 |  |                             | 135,810 |   |                           |   | 108,538 |      |  |   | 262,650 |   |  |   | 221,244 |  
|                                             |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Selling, general and administrative expenses |  |                             | 64,908  |   |                           |   | 54,411  |      |  |   | 124,962 |   |  |   | 109,128 |  
|Depreciation                                 |  |                             | 12,296  |   |                           |   | 13,321  |      |  |   | 24,331  |   |  |   | 27,144  |  
|Amortization                                 |  |                             | 2,455   |   |                           |   | 1,091   |      |  |   | 3,677   |   |  |   | 2,185   |  
|Other operating expenses (income)            |  |                             | 643     |   |                           |   | (128    | )    |  |   | 627     |   |  |   | 2       |  
|                                             |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Operating expenses                           |  |                             | 80,302  |   |                           |   | 68,695  |      |  |   | 153,597 |   |  |   | 138,459 |  
|                                             |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Income from operations                       |  |                             | 55,508  |   |                           |   | 39,843  |      |  |   | 109,053 |   |  |   | 82,785  |  
|Interest expense                             |  |                             | (5,850  | ) |                           |   | (913    | )    |  |   | (6,812  | ) |  |   | (1,980  | )
|Investment income                            |  |                             | 3,038   |   |                           |   | 2,041   |      |  |   | 5,927   |   |  |   | 3,783   |  
|Exchange gains (losses), net                 |  |                             | 140     |   |                           |   | (44     | )    |  |   | (350    | ) |  |   | (751    | )
|                                             |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Income before income taxes                   |  |                             | 52,836  |   |                           |   | 40,927  |      |  |   | 107,818 |   |  |   | 83,837  |  
|Income tax expense                           |  |                             | (18,846 | ) |                           |   | (15,775 | )    |  |   | (39,720 | ) |  |   | (32,599 | )
|                                             |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Net income                                   |  | $                           | 33,990  |   |                           | $ | 25,152  |      |  | $ | 68,098  |   |  | $ | 51,238  |  
|                                             |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Earnings per share                           |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Basic                                        |  | $                           | 0.55    |   |                           | $ | 0.43    |      |  | $ | 1.11    |   |  | $ | 0.88    |  
|Diluted                                      |  |                             | 0.53    |   |                           |   | 0.41    |      |  |   | 1.06    |   |  |   | 0.84    |  
|                                             |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Shares used in computing earnings per share  |  |                             |         |   |                           |   |         |      |  |   |         |   |  |   |         |  
|Basic                                        |  |                             | 61,330  |   |                           |   | 58,590  |      |  |   | 61,138  |   |  |   | 58,128  |  
|Diluted                                      |  |                             | 64,425  |   |                           |   | 61,174  |      |  |   | 64,285  |   |  |   | 60,857  |  
|                                             | 



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



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##### Table of Contents



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|2 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)



|                                                       |  |               |           |   |                   |   |           |  
|------------------------------------------------------ |  | ------------- | --------- | - | ----------------- | - | --------- | -
|                                                       |  | JUNE 30, 2005 |           |   | DECEMBER 31, 2004 |  
|                                                       |  |               |           |   |                   |   |           |  
|(In thousands)                                         |  |               |           |   |                   |  
|                                                       |  |              
|ASSETS                                                 |  |               |           |   |                   |   |           |  
|Current assets                                         |  |               |           |   |                   |   |           |  
|Cash and cash equivalents                              |  | $             | 117,656   |   |                   | $ | 194,752   |  
|Short-term investments                                 |  |               | 301,184   |   |                   |   | 325,958   |  
|Accounts receivable, net                               |  |               | 101,518   |   |                   |   | 89,272    |  
|Prepaid expenses                                       |  |               | 11,713    |   |                   |   | 10,651    |  
|Deferred income taxes, net                             |  |               | 8,335     |   |                   |   | 8,335     |  
|Other current assets                                   |  |               | 3,835     |   |                   |   | 2,894     |  
|                                                       |  |               |           |   |                   |   |           |  
|Total current assets                                   |  |               | 544,241   |   |                   |   | 631,862   |  
|Property and equipment, net                            |  |               | 115,407   |   |                   |   | 112,501   |  
|Goodwill                                               |  |               | 794,110   |   |                   |   | 628,717   |  
|Identifiable intangible assets, net                    |  |               | 53,804    |   |                   |   | 13,874    |  
|Deferred income taxes, net                             |  |               | 22,241    |   |                   |   | 54,652    |  
|Other long-term assets                                 |  |               | 4,665     |   |                   |   | 9,978     |  
|                                                       |  |               |           |   |                   |   |           |  
|Total assets                                           |  | $             | 1,534,468 |   |                   | $ | 1,451,584 |  
|                                                       |  |               |           |   |                   |   |           |  
|                                                       |  |              
|LIABILITIES AND STOCKHOLDERS EQUITY                   |  |               |           |   |                   |   |           |  
|Current liabilities                                    |  |               |           |   |                   |   |           |  
|Accounts payable                                       |  | $             | 82,582    |   |                   | $ | 67,362    |  
|Accrued expenses                                       |  |               | 34,104    |   |                   |   | 42,810    |  
|Income taxes payable                                   |  |               | 1,131     |   |                   |   | 3,608     |  
|Short-term debt                                        |  |               | 265,000   |   |                   |   |          |  
|                                                       |  |               |           |   |                   |   |           |  
|Total current liabilities                              |  |               | 382,817   |   |                   |   | 113,780   |  
|Long-term debt                                         |  |               |          |   |                   |   | 265,000   |  
|Other long-term liabilities                            |  |               | 11,680    |   |                   |   | 9,692     |  
|                                                       |  |               |           |   |                   |   |           |  
|Total liabilities                                      |  |               | 394,497   |   |                   |   | 388,472   |  
|                                                       |  |               |           |   |                   |   |           |  
|Commitments and contingencies (Note 6)                 |  |               |           |   |                   |   |           |  
|Stockholders equity                                   |  |               |           |   |                   |   |           |  
|Common stock                                           |  |               | 615       |   |                   |   | 607       |  
|Additional paid-in capital                             |  |               | 1,245,466 |   |                   |   | 1,210,203 |  
|Unearned compensation                                  |  |               | (3,222    | ) |                   |   |          |  
|Accumulated deficit                                    |  |               | (100,505  | ) |                   |   | (168,603  | )
|Accumulated other comprehensive (loss) income (Note 7) |  |               | (2,383    | ) |                   |   | 20,905    |  
|                                                       |  |               |           |   |                   |   |           |  
|Total stockholders equity                             |  |               | 1,139,971 |   |                   |   | 1,063,112 |  
|                                                       |  |               |           |   |                   |   |           |  
|Total liabilities and stockholders equity             |  | $             | 1,534,468 |   |                   | $ | 1,451,584 |  
|                                                       | 



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



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##### Table of Contents



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|3 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(unaudited)



|                                                 |  |                                               |  |             |     |                             |   |                      |  |             |                    |  |             |                                             |  |   |         |   |  |   |           |  
|------------------------------------------------ |  | --------------------------------------------- |  | ----------- | --- | --------------------------- | - | -------------------- |  | ----------- | ------------------ |  | ----------- | ------------------------------------------- |  | - | ------- | - |  | - | --------- | -
|                                                 |  | No. of Shares of Common Stock $0.01 Par Value |  | CommonStock |     | Additional Paid- In Capital |   | UnearnedCompensation |  |             | AccumulatedDeficit |  |             | Accumulated OtherComprehensive(Loss) Income |  |   | Total   |  
|                                                 | 
|(In thousands)                                   |  |                                               |  |             |     |                             |   |                      |  |             |                    |  |             |                                             |  |   |         |  
|                                                 |  |                                               |  |             |     |                             |  
|Balance at December 31, 2004                     |  | 60,735                                        |  | $           | 607 |                             | $ | 1,210,203            |  | $          |                    |  | $  (168,603 | )                                           |  | $ | 20,905  |   |  | $ | 1,063,112 |  
|Net income                                       |  |                                              |  |             |    |                             |   |                     |  |            |                    |  | 68,098      |                                             |  |   |        |   |  |   | 68,098    |  
|Other comprehensive (loss) income                |  |                                              |  |             |    |                             |   |                     |  |            |                    |  |            |                                             |  |   | (23,288 | ) |  |   | (23,288   | )
|Restricted stock units granted to employees      |  |                                              |  |             |    |                             |   | 3,803                |  | (3,803      | )                  |  |            |                                             |  |   |        |   |  |   |          |  
|Amortization of unearned compensation            |  |                                              |  |             |    |                             |   |                     |  | 581         |                    |  |            |                                             |  |   |        |   |  |   | 581       |  
|Restricted stock vesting                         |  |                                              |  |             |    |                             |   | 25                   |  |            |                    |  |            |                                             |  |   |        |   |  |   | 25        |  
|Stock options exercised                          |  | 777                                           |  |             | 8   |                             |   | 19,933               |  |            |                    |  |            |                                             |  |   |        |   |  |   | 19,941    |  
|Tax benefit from employee stock option exercises |  |                                              |  |             |    |                             |   | 11,502               |  |            |                    |  |            |                                             |  |   |        |   |  |   | 11,502    |  
|                                                 |  |                                               |  |             |     |                             |   |                      |  |             |                    |  |             |                                             |  |   |         |   |  |   |           |  
|Balance at June 30, 2005                         |  | 61,512                                        |  | $           | 615 |                             | $ | 1,245,466            |  | $  (3,222   | )                  |  | $  (100,505 | )                                           |  | $ | (2,383  | ) |  | $ | 1,139,971 |  
|                                                 | 



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



---

##### Table of Contents



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|4 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                   |  |      |          |   |      |   |          |  
|---------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|SIX MONTHS ENDED JUNE 30,                                                          |  | 2005 |          |   | 2004 |  
|                                                                                   |  |      |          |   |      |   |          |  
|(In thousands)                                                                     |  |      |          |   |      |  
|                                                                                   |  |     
|Cash flows from operating activities                                               |  |      |          |   |      |   |          |  
|Net income                                                                         |  | $    | 68,098   |   |      | $ | 51,238   |  
|Adjustments to reconcile net income to net cash provided by operating activities   |  |      |          |   |      |   |          |  
|Deferred income taxes                                                              |  |      | 32,915   |   |      |   | 27,719   |  
|Depreciation                                                                       |  |      | 24,331   |   |      |   | 27,144   |  
|Amortization of debt issuance and exchange costs                                   |  |      | 6,060    |   |      |   | 954      |  
|Amortization of identifiable intangible assets                                     |  |      | 3,677    |   |      |   | 2,185    |  
|Bad debt expense                                                                   |  |      | 1,330    |   |      |   | 2,023    |  
|Other changes in long-term assets and liabilities and equity                       |  |      | 1,568    |   |      |   | 1,853    |  
|Changes in current assets and liabilities, net of effects of business acquisitions |  |      |          |   |      |   |          |  
|Accounts receivable                                                                |  |      | (11,460  | ) |      |   | (8,034   | )
|Accounts payable                                                                   |  |      | 3,489    |   |      |   | 6,908    |  
|Accrued expenses                                                                   |  |      | (9,544   | ) |      |   | (9,253   | )
|Income taxes payable                                                               |  |      | (824     | ) |      |   | (1,726   | )
|Changes in other current assets and liabilities                                    |  |      | 552      |   |      |   | (682     | )
|                                                                                   |  |      |          |   |      |   |          |  
|Net cash provided by operating activities                                          |  |      | 120,192  |   |      |   | 100,329  |  
|                                                                                   |  |      |          |   |      |   |          |  
|Cash flows from investing activities                                               |  |      |          |   |      |   |          |  
|Acquisition of businesses, net of cash acquired                                    |  |      | (214,517 | ) |      |   | (915     | )
|Acquisition of available-for-sale investments                                      |  |      | (74,418  | ) |      |   | (217,677 | )
|Proceeds from available-for-sale investments                                       |  |      | 98,056   |   |      |   | 77,284   |  
|Acquisition of property and equipment                                              |  |      | (22,767  | ) |      |   | (18,052  | )
|                                                                                   |  |      |          |   |      |   |          |  
|Net cash used in investing activities                                              |  |      | (213,646 | ) |      |   | (159,360 | )
|                                                                                   |  |      |          |   |      |   |          |  
|Cash flows from financing activities                                               |  |      |          |   |      |   |          |  
|Proceeds from the issuance of common stock                                         |  |      | 19,941   |   |      |   | 37,536   |  
|Debt issuance and exchange costs paid                                              |  |      | (557     | ) |      |   | (178     | )
|                                                                                   |  |      |          |   |      |   |          |  
|Net cash provided by financing activities                                          |  |      | 19,384   |   |      |   | 37,358   |  
|                                                                                   |  |      |          |   |      |   |          |  
|Effects of exchange rate changes                                                   |  |      | (3,026   | ) |      |   | (463     | )
|                                                                                   |  |      |          |   |      |   |          |  
|Net decrease in cash and cash equivalents                                          |  |      | (77,096  | ) |      |   | (22,136  | )
|Cash and cash equivalents, beginning of period                                     |  |      | 194,752  |   |      |   | 140,058  |  
|                                                                                   |  |      |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                           |  | $    | 117,656  |   |      | $ | 117,922  |  
|                                                                                   | 



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



---

##### Table of Contents



|  |  |  |  |                    |  |  |  |          |  |  |  |           |  |        |  |  |  |       
|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|5 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)





NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Estimates and Assumptions

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



Principles of Consolidation

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



Quarterly Results

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



Foreign Currency Derivatives

We utilize derivative financial instruments, namely forward foreign currency exchange contracts, to reduce the impact of foreign currency exchange rate risks where natural hedging
strategies cannot be effectively employed. At June 30, 2005, we held forward contracts to sell $13.3 million worth of euros, $8.0 million worth of British pounds and $3.9 million worth of Japanese yen in U.S. dollar functional currency sets of books
and forward contracts to sell $11.2 million worth of euros in British pound functional currency sets of books. At December 31, 2004, we held forward contracts to sell $17.5 million worth of euros and $3.5 million worth of British pounds in U.S.
dollar functional currency sets of books and forward contracts to sell $10.0 million worth of euros in British pound functional currency sets of books. We also held at both of these dates, contracts to sell other currencies that were less than $3.0
million individually.



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|6 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



Earnings per Share

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



|                                                                           |  |                             |        |                           |   |        |  |      |        |  |   |       
|-------------------------------------------------------------------------- |  | --------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                                           |  | THREE MONTHS ENDED JUNE 30, |        | SIX MONTHS ENDED JUNE 30,
|                                                                           |  |                             |        |                          
|                                                                           |  | 2005                        |        | 2004                      |   | 2005   |  | 2004
|                                                                           |  |                             |        |                           |   |        |  |      |        |  |   |       
|(In thousands, except per share amounts)                                   |  |                             |        |                           |   |        |  |     
|                                                                           |  |                             |        |                          
|Basic Earnings per Share                                                   |  |                             |        |                           |   |        |  |      |        |  |   |       
|Income available to common stockholders (numerator)                        |  | $                           | 33,990 |                           | $ | 25,152 |  | $    | 68,098 |  | $ | 51,238
|Weighted average common shares outstanding (denominator)                   |  |                             | 61,330 |                           |   | 58,590 |  |      | 61,138 |  |   | 58,128
|Basic earnings per share                                                   |  | $                           | 0.55   |                           | $ | 0.43   |  | $    | 1.11   |  | $ | 0.88  
|                                                                          
|Diluted Earnings per Share                                                 |  |                             |        |                           |   |        |  |      |        |  |   |       
|Income available to common stockholders (numerator) 1                      |  | $                           | 33,990 |                           | $ | 25,154 |  | $    | 68,098 |  | $ | 51,241
|                                                                           |  |                             |        |                           |   |        |  |      |        |  |   |       
|Weighted average common shares outstanding                                 |  |                             | 61,330 |                           |   | 58,590 |  |      | 61,138 |  |   | 58,128
|Effect of dilutive securities                                              |  |                             |        |                           |   |        |  |      |        |  |   |       
|0.5% convertible subordinated debentures                                   |  |                             | 1,673  |                           |   | 33     |  |      | 1,673  |  |   | 33    
|Stock options                                                              |  |                             | 1,415  |                           |   | 2,543  |  |      | 1,470  |  |   | 2,689 
|Restricted stock and restricted stock units                                |  |                             | 7      |                           |   | 8      |  |      | 4      |  |   | 7     
|                                                                           |  |                             |        |                           |   |        |  |      |        |  |   |       
|Total weighted average common shares and dilutive securities (denominator) |  |                             | 64,425 |                           |   | 61,174 |  |      | 64,285 |  |   | 60,857
|                                                                           |  |                             |        |                           |   |        |  |      |        |  |   |       
|Diluted earnings per share                                                 |  | $                           | 0.53   |                           | $ | 0.41   |  | $    | 1.06   |  | $ | 0.84  
|                                                                          

|  |  |                                                                                                                                                                                                                                                                       
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 |  | Income available to common stockholders is higher in the 2004 diluted earnings per share calculations due to adding back interest expense (after tax) relating to $2.0 million of the 0.5% convertible
subordinated debentures that were outstanding at June 30, 2004.



Approximately 3,956 and 27,523 other common
shares potentially issuable from stock options for the quarter and six months ended June 30, 2004, respectively, were excluded from the computation of diluted earnings per share because they were anti-dilutive. There were no common shares
potentially issuable excluded from the computations in 2005.



Short-Term Investments

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



|                                                       |  |                |         |                        |   |                         |  |            |            |  |   |        
|------------------------------------------------------ |  | -------------- | ------- | ---------------------- | - | ----------------------- |  | ---------- | ---------- |  | - | -------
|JUNE 30, 2005                                          |  | Amortized Cost |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  |            | Fair Value
|                                                       |  |                |         |                        |   |                         |  |            |            |  |   |        
|(In thousands)                                        
|                                                       |  |                |         |                       
|U.S. agency securities                                 |  | $              | 177,078 |                        | $ | 1                       |  | $  (2,269) |            |  | $ | 174,810
|Auction rate securities and variable rate demand notes |  |                | 70,700  |                        |   |                        |  |           |            |  |   | 70,700 
|Corporate obligations                                  |  |                | 43,804  |                        |   | 7                       |  | (358       | )          |  |   | 43,453 
|U.S. Treasury obligations                              |  |                | 6,032   |                        |   |                        |  | (93        | )          |  |   | 5,939  
|Money market funds                                     |  |                | 6,282   |                        |   |                        |  |           |            |  |   | 6,282  
|                                                       |  |                |         |                        |   |                         |  |            |            |  |   |        
|Total short-term investments                           |  | $              | 303,896 |                        | $ | 8                       |  | $  (2,720) |            |  | $ | 301,184
|                                                      
|                                                       |  |                |         |                       
|DECEMBER 31, 2004                                      |  | Amortized Cost |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  |            | Fair Value
|                                                       |  |                |         |                        |   |                         |  |            |            |  |   |        
|(In thousands)                                        
|                                                       |  |                |         |                       
|U.S. agency securities                                 |  | $              | 176,546 |                        | $ | 3                       |  | $  (1,762  | )          |  | $ | 174,787
|Auction rate securities and variable rate demand notes |  |                | 95,600  |                        |   |                        |  |           |            |  |   | 95,600 
|Corporate obligations                                  |  |                | 46,616  |                        |   | 27                      |  | (414       | )          |  |   | 46,229 
|U.S. Treasury obligations                              |  |                | 6,030   |                        |   |                        |  | (50        | )          |  |   | 5,980  
|Money market funds                                     |  |                | 3,362   |                        |   |                        |  |           |            |  |   | 3,362  
|                                                       |  |                |         |                        |   |                         |  |            |            |  |   |        
|Total short-term investments                           |  | $              | 328,154 |                        | $ | 30                      |  | $  (2,226  | )          |  | $ | 325,958
|                                                      



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|7 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



Available-for-sale investments are carried at fair value, based on quoted market prices, with associated unrealized holding gains
and losses recorded in accumulated other comprehensive income. Investments outstanding at June 30, 2005 mature between 2005 and 2043. Investments with contractual maturities beyond one year are classified as short-term in our consolidated balance
sheets because they represent the investment of cash that is available for current operations.



Following is detail of gross unrealized losses at June 30, 2005. These unrealized losses were generated as interest rates rose and the rate of return on certain of our investments remained fixed at lower rates. Management has determined
that these losses are temporary, as: we have the ability and intent to hold the investments until we recover at least substantially all of their cost; the extent of the decline, both in dollars and percentage of cost is not severe; and the duration
of the decline in the value of the investments has been relatively short.



|                          |  |                                            |        |                       |                                      |      |            |                          |                       |         |  |            |        |                       |  |   |         |  |   |        |  
|------------------------- |  | ------------------------------------------ | ------ | --------------------- | ------------------------------------ | ---- | ---------- | ------------------------ | --------------------- | ------- |  | ---------- | ------ | --------------------- |  | - | ------- |  | - | ------ | -
|JUNE 30, 2005             |  | In a loss position for less than 12 months |        |                       | In a loss position 12 months or more |      |            | Total in a loss position |                      
|                          |  |                                            |        |                       |                                      |      |            |                          |                       |         |  |           
|                          |  | Fair Value                                 |        | GrossUnrealizedLosses |                                      |      | Fair Value |                          | GrossUnrealizedLosses |         |  | Fair Value |        | GrossUnrealizedLosses | 
|                          |  |                                            |        |                       |                                      |      |            |                          |                       |         |  |            |        |                       |  |   |         |  |   |        |  
|(In thousands)            | 
|                          |  |                                            |        |                       |                                      |     
|U.S. agency securities    |  | $                                          | 56,033 |                       | $                                    | (402 | )          |                          | $                     | 116,998 |  | $          | (1,867 | )                     |  | $ | 173,031 |  | $ | (2,269 | )
|Corporate obligations     |  |                                            | 13,593 |                       |                                      | (103 | )          |                          |                       | 18,910  |  |            | (255   | )                     |  |   | 32,503  |  |   | (358   | )
|U.S. Treasury obligations |  |                                            | 3,914  |                       |                                      | (52  | )          |                          |                       | 2,025   |  |            | (41    | )                     |  |   | 5,939   |  |   | (93    | )
|                          |  |                                            |        |                       |                                      |      |            |                          |                       |         |  |            |        |                       |  |   |         |  |   |        |  
|Totals                    |  | $                                          | 73,540 |                       | $                                    | (557 | )          |                          | $                     | 137,933 |  | $          | (2,163 | )                     |  | $ | 211,473 |  | $ | (2,720 | )
|                          | 



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



The majority of our short-term investments comprise debt instruments issued by third parties and
therefore expose us to credit-related losses. We mitigate this risk by only buying investment grade debt securities. At June 30, 2005, 89% of our investments were in AAA rated debt instruments and no investments were rated below A. Significant
concentrations of investments at June 30, 2005 were Fannie Mae ($62.7 million fair value), Freddie Mac ($57.0 million fair value) and Federal Home Loan Bank ($54.2 million fair value). The majority (97%) of these concentrated investments are AAA
rated.



Accounts Receivable

Accounts receivable represent trade receivables, net of allowances for doubtful accounts and sales returns of $13.9 million and $13.2 million at June 30, 2005 and December 31,
2004, respectively. Provisions for doubtful accounts recorded during the three months ended June 30, 2005 and 2004 totaled $0.6 million in both periods. Provisions recorded during the six months ended June 30, 2005 and 2004 totaled $1.3 million and
$2.0 million, respectively. Estimated sales returns are recorded as a reduction of revenue and were insignificant in all periods presented. Approximately 8% of our accounts receivable balance, net of allowances for doubtful accounts and sales
returns, was more than 90 days old at both June 30, 2005 and December 31, 2004.



Property and Equipment

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



|                                             |  |                                           |  |               |         |                          |   |            |  |              |         |                          |   |            |  |   |         |  |   |        
|-------------------------------------------- |  | ----------------------------------------- |  | ------------- | ------- | ------------------------ | - | ---------- |  | ------------ | ------- | ------------------------ | - | ---------- |  | - | ------- |  | - | -------
|                                             |  |                                           |  | JUNE 30, 2005 |         | DECEMBER 31, 2004       
|                                             |  |                                           |  |               |         |                         
|                                             |  | Range of EstimatedUseful Lives (in years) |  | Gross Amount  |         | Accumulated Depreciation |   | Net Amount |  | Gross Amount |         | Accumulated Depreciation |   | Net Amount
|                                             |  |                                           |  |               |         |                          |   |            |  |              |         |                          |   |            |  |   |         |  |   |        
|(In thousands, except years)                 |  |                                           |  |              
|                                             |  |                                           |  |               |         |                          |  
|Contemporary image content                   |  | 4                                         |  | $             | 245,568 |                          | $ | 204,265    |  | $            | 41,303  |                          | $ | 237,690    |  | $ | 200,087 |  | $ | 37,603 
|Computer hardware and software purchased     |  | 3                                         |  |               | 95,208  |                          |   | 84,379     |  |              | 10,829  |                          |   | 94,960     |  |   | 83,280  |  |   | 11,680 
|Computer software developed for internal use |  | 3                                         |  |               | 76,614  |                          |   | 56,394     |  |              | 20,220  |                          |   | 71,407     |  |   | 50,192  |  |   | 21,215 
|Leasehold improvements                       |  | 2-20                                      |  |               | 35,319  |                          |   | 15,265     |  |              | 20,054  |                          |   | 35,404     |  |   | 14,978  |  |   | 20,426 
|Furniture, fixtures and studio equipment     |  | 5                                         |  |               | 31,988  |                          |   | 26,118     |  |              | 5,870   |                          |   | 32,026     |  |   | 25,491  |  |   | 6,535  
|Archival image content                       |  | 40                                        |  |               | 21,489  |                          |   | 4,438      |  |              | 17,051  |                          |   | 19,450     |  |   | 4,464   |  |   | 14,986 
|Other property and equipment                 |  | 3-4                                       |  |               | 426     |                          |   | 346        |  |              | 80      |                          |   | 406        |  |   | 350     |  |   | 56     
|                                             |  |                                           |  |               |         |                          |   |            |  |              |         |                          |   |            |  |   |         |  |   |        
|Totals                                       |  |                                           |  | $             | 506,612 |                          | $ | 391,205    |  | $            | 115,407 |                          | $ | 491,343    |  | $ | 378,842 |  | $ | 112,501
|                                            



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|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|8 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



Depreciation of computer software developed for internal use was $3.3 million, $4.4 million, $6.6 million and $8.8 million for the
three and six months ended June 30, 2005 and 2004, respectively.



Goodwill

Goodwill changed during the first half of 2005 as follows:



|                                                   |  |   |         |  
|-------------------------------------------------- |  | - | ------- | -
|                                                   | 
|(In thousands)                                     | 
|                                                   | 
|Goodwill at December 31, 2004                      |  | $ | 628,717 |  
|Business combinations                              |  |   | 175,679 |  
|Purchase price adjustments                         |  |   | 50      |  
|Effect of foreign currency translation adjustments |  |   | (10,336 | )
|                                                   |  |   |         |  
|Goodwill at June 30, 2005                          |  | $ | 794,110 |  
|                                                   | 



Identifiable Intangible Assets

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



Identifiable intangible assets consisted of the following at the reported balance sheet dates:



|                                       |  |                                           |  |               |        |                          |   |            |  |              |        |                          |   |            |  |   |        |  |   |       
|-------------------------------------- |  | ----------------------------------------- |  | ------------- | ------ | ------------------------ | - | ---------- |  | ------------ | ------ | ------------------------ | - | ---------- |  | - | ------ |  | - | ------
|                                       |  |                                           |  | JUNE 30, 2005 |        | DECEMBER 31, 2004       
|                                       |  |                                           |  |               |        |                         
|                                       |  | Range of EstimatedUseful Lives (in years) |  | Gross Amount  |        | Accumulated Amortization |   | Net Amount |  | Gross Amount |        | Accumulated Amortization |   | Net Amount
|                                       |  |                                           |  |               |        |                          |   |            |  |              |        |                          |   |            |  |   |        |  |   |       
|(In thousands)                         |  |                                           |  |              
|                                       |  |                                           |  |               |        |                          |  
|Customer lists                         |  | 5-7                                       |  | $             | 31,725 |                          | $ | 12,526     |  | $            | 19,199 |                          | $ | 16,846     |  | $ | 10,550 |  | $ | 6,296 
|Trademarks, trade names and copyrights |  | 2-10                                      |  |               | 36,332 |                          |   | 6,807      |  |              | 29,525 |                          |   | 11,682     |  |   | 5,742  |  |   | 5,940 
|Other identifiable intangible assets   |  | 2-10                                      |  |               | 7,249  |                          |   | 2,169      |  |              | 5,080  |                          |   | 3,382      |  |   | 1,744  |  |   | 1,638 
|                                       |  |                                           |  |               |        |                          |   |            |  |              |        |                          |   |            |  |   |        |  |   |       
|Totals                                 |  |                                           |  | $             | 75,306 |                          | $ | 21,502     |  | $            | 53,804 |                          | $ | 31,910     |  | $ | 18,036 |  | $ | 13,874
|                                      



Based on balances at June 30, 2005, expected
amortization of identifiable intangible assets for the next five years, including amortization recorded during the first half of 2005, is as follows:



|               |  |   |       
|-------------- |  | - | ------
|FISCAL YEAR   
|              
|(In thousands)
|               | 
|2005           |  | $ | 9,687 
|2006           |  |   | 11,221
|2007           |  |   | 9,038 
|2008           |  |   | 8,713 
|2009           |  |   | 5,685 
|              



Leases

Rent expense, net of sublease income, was $4.9 million, $4.6 million, $9.8 million and $9.2 million for the three and six months ended June 30, 2005 and 2004, respectively.
Sublease income recorded as an offset to rent expense was insignificant in all periods presented.



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|- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|9 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



Employee Stock-Based Compensation

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



|                                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------ |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                               |  | THREE MONTHS ENDEDJUNE 30, |        |   | SIX MONTHS ENDEDJUNE 30, |  
|                                                                               |  |                            |        |   |                          |  
|                                                                               |  | 2005                       |        |   | 2004                     |   |        | 2005 |  |   | 2004   |  
|                                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|(In thousands, except per share amounts)                                       |  |                            |        |   |                          |   |        |      |  |   |        |  
|                                                                               |  |                            |        |  
|Net income                                                                     |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|As reported                                                                    |  | $                          | 33,990 |   |                          | $ | 25,152 |      |  | $ | 68,098 |   |  | $ | 51,238 |  
|Add: APB Opinion No. 25 employee stock-based compensation, net of income taxes |  |                            | 190    |   |                          |   | 80     |      |  |   | 338    |   |  |   | 160    |  
|Deduct: SFAS No. 123 employee stock-based compensation, net of income taxes    |  |                            | (1,565 | ) |                          |   | (1,799 | )    |  |   | (3,179 | ) |  |   | (3,710 | )
|                                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Pro forma net income                                                           |  | $                          | 32,615 |   |                          | $ | 23,433 |      |  | $ | 65,257 |   |  | $ | 47,688 |  
|                                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Basic earnings per share                                                       |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|As reported                                                                    |  | $                          | 0.55   |   |                          | $ | 0.43   |      |  | $ | 1.11   |   |  | $ | 0.88   |  
|Pro forma                                                                      |  |                            | 0.53   |   |                          |   | 0.40   |      |  |   | 1.07   |   |  |   | 0.82   |  
|                                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Diluted earnings per share                                                     |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|As reported                                                                    |  | $                          | 0.53   |   |                          | $ | 0.41   |      |  | $ | 1.06   |   |  | $ | 0.84   |  
|Pro forma                                                                      |  |                            | 0.51   |   |                          |   | 0.38   |      |  |   | 1.01   |   |  |   | 0.78   |  
|                                                                               |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Shares used in computing pro forma earnings per share                          |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                          |  |                            | 61,330 |   |                          |   | 58,590 |      |  |   | 61,138 |   |  |   | 58,128 |  
|Diluted                                                                        |  |                            | 64,540 |   |                          |   | 61,272 |      |  |   | 64,401 |   |  |   | 60,945 |  
|                                                                               | 



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



|                                          |  |                            |  |                          |  |         |  |          
|----------------------------------------- |  | -------------------------- |  | ------------------------ |  | ------- |  | ---------
|                                          |  | THREE MONTHS ENDEDJUNE 30, |  | SIX MONTHS ENDEDJUNE 30,
|                                          |  |                            |  |                         
|                                          |  | 2005                       |  | 2004                     |  | 2005    |  | 2004     
|                                          |  |                            |  |                          |  |         |  |          
|                                          |  |                            |  |                         
|Expected share price volatility           |  | 39%                        |  | 55%                      |  | 42%     |  | 57%      
|Risk free rate of return                  |  | 3.69%                      |  | 2.77%                    |  | 3.17%   |  | 2.83%    
|Expected life of options (from vest date) |  | 2 years                    |  | 11/2years                |  | 2 years |  | 11/2years
|Expected rate of dividends                |  | None                       |  | None                     |  | None    |  | None     
|                                         



There were no equity award modifications
resulting in compensation expense for the periods presented in this report.



Advertising and Marketing

Advertising and marketing costs expensed were $2.8 million, $1.8 million, $5.5 million and $4.2 million for the three and
six months ended June 30, 2005 and 2004, respectively. Prepaid marketing materials were insignificant at June 30, 2005 and December 31, 2004.



Recent Accounting Pronouncements

STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 123(R), SHARE-BASED PAYMENT

In December of 2004, the FASB issued SFAS No. 123(R), which addresses the
accounting for employee services received in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such equity
instruments. On April 14, 2005, the SEC delayed the effective date of



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|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|10 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



SFAS No. 123(R) until January 1, 2006 for calendar year companies. SFAS No. 123(R) eliminates our ability to account for employee stock options using the intrinsic
value provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations, and generally requires instead that we expense them using a fair-value-based method. Accordingly, we
will expense the fair value of all share-based compensation beginning January 1, 2006 to selling, general and administrative expenses over the vesting period. Though management is still assessing the full impact SFAS No. 123(R) will have on our
consolidated financial statements, SFAS No. 123(R) will reduce our net income and earnings per share. The magnitude of the impact will depend on future equity awards made to employees and the assumptions used in the valuation model.



SEC STAFF ACCOUNTING BULLETIN (SAB) NO. 107

In March of 2005, the SEC issued SAB No. 107, which interprets SFAS No. 123(R). In particular, this SAB includes interpretive guidance that may be applicable to us related to:
share-based payment transactions with nonemployees; methods of valuing share-based payments; the classification of compensation expense in the income statement; capitalization of compensation cost related to share-based payment arrangements; the
accounting for income tax effects of share-based payment arrangements upon adoption of SFAS No. 123(R); the modification of employee share options prior to adoption of SFAS No. 123(R); and disclosures in Managements Discussion and Analysis
subsequent to adoption of SFAS No. 123(R).



SFAS NO.
154, ACCOUNTING FOR CHANGES AND ERROR CORRECTIONS

In May of 2005, the FASB issued SFAS No. 154, which changes the requirements for the accounting
for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principle were recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting
principle. This Statement requires retrospective application to prior periods financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the
change. This Statement also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. This
Statement is effective for us for accounting principles changed on or after January 1, 2006.



NOTE 2. ACQUISITIONS OF BUSINESSES

On April 20, 2005, we acquired London-based Digital Vision Limited (Digital Vision), one of the worlds
leading royalty-free photography businesses, for a purchase price of $177.5 million ($165.0 million of cash and $12.5 million of direct acquisition costs and liabilities assumed). Prior to the acquisition, we had a significant number of Digital
Visions images available for license through our Image Partner program. A purchase price allocation was completed during the second quarter of 2005, with the majority of the purchase price allocated to goodwill ($134.7 million) and
identifiable intangible assets ($38.3 million).



On June 8, 2005, we acquired Amana
America, Inc., Amana Europe Limited and Iconica Limited (collectively Photonica) for a purchase price of $63.4 million ($48.1 million in cash and $15.3 million of direct acquisition costs and liabilities assumed). Photonica is a rights-managed stock
photography agency with its principal offices in New York and London. A purchase price allocation was completed during the second quarter of 2005, with the majority of the purchase price allocated to goodwill ($41.0 million) and identifiable
intangible assets ($11.6 million).



These acquisitions were accounted for using the
purchase method of accounting and, accordingly, the results of operations of the acquired businesses since the respective dates of acquisition are included in our consolidated financial statements. These acquisitions were not material, individually
or in the aggregate, to the company as a whole and, therefore, pro forma financial information is not presented.



NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS

Our financial instruments consist of cash and
cash equivalents, short-term investments, forward foreign currency exchange contracts, accounts receivable, accounts payable and debt instruments. Short-term investments and forward foreign currency exchange contracts are carried at fair value as
discussed above under Short-Term Investments and Foreign Currency Derivatives within Note 1. The fair value of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying values due to their
short-term nature. The fair value of our convertible subordinated debentures (our debt), based on quoted market prices, was approximately $412.1 million at June 30, 2005 and $409.4 million at December 31, 2004, or $147.1 million and $144.4 million,
respect-ively, higher than their book value.



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|11 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



NOTE 4. ACCRUED EXPENSES

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



|                                  |  |              |        |                  |   |       
|--------------------------------- |  | ------------ | ------ | ---------------- | - | ------
|                                  |  | JUNE 30,2005 |        | DECEMBER 31,2004
|                                  |  |              |        |                  |   |       
|(In thousands)                    |  |              |        |                 
|                                  |  |             
|Accrued payroll and related costs |  | $            | 14,653 |                  | $ | 23,542
|Other                             |  |              | 19,451 |                  |   | 19,268
|                                  |  |              |        |                  |   |       
|Total accrued expenses            |  | $            | 34,104 |                  | $ | 42,810
|                                 



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



NOTE 5. DEBT

On June 21, 2005, we announced that our 0.5% convertible subordinated debentures will become convertible by the holders on
July 1, 2005 due to a conversion condition having been met. The conversion condition was met June 21, when the closing price of our common stock exceeded $73.30 for 20 trading days within the last 30 trading days ended June 30, 2005. As a result, we
have classified the $265.0 million of debentures as short-term debt on our June 30, 2005 balance sheet and accelerated the amortization of the remaining $5.0 million of associated unamortized debt issuance costs. This amortization is included within
interest expense for the second quarter of 2005 in our consolidated statement of income. If the holders elect to convert the debentures, we will be required to repay the $265.0 million principal portion in cash. The ability for the holders to
convert will expire on September 30, 2005 unless the conversion condition is met again in the last 30 trading days ending September 30, 2005. If the condition is not met during that period, we will reclassify the debt back to long-term. The closing
price of our common stock on July 29, 2005 was $80.75.



NOTE 6. COMMITMENTS AND
CONTINGENCIES



Commitments

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



Contingencies

We indemnify certain customers from claims related to alleged infringements
of the intellectual property rights of third parties, such as claims arising from a photographers failure to secure model and property releases for an image we license. The standard terms of these indemnifications require us to defend those
claims and pay related damages, if any. We typically mitigate this risk by contractually requiring our contributing photographers and other imagery partners to secure all necessary model and property releases prior to submitting any imagery to us,
and by requiring them to indemnify us in certain circumstances in the event a claim arises in relation to an image they have provided. Our imagery partners are also typically required to carry insurance policies for losses related to such claims. We
do not record any liabilities for these indemnifications until claims are made and we are able to assess the range of possible payments and available recourse from our imagery partners, as applicable. Historically, our exposure to such claims has
been immaterial, as were our recorded liabilities for intellectual property infringement at June 30, 2005 and December 31, 2004. As such, we believe the estimated fair value of these liabilities is minimal.



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



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|12 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



The nature and terms of these indemnification obligations vary from contract to contract, and generally a maximum obligation is not
stated. Because we are unable to estimate our potential obligation, and because we believe the estimated fair value of these liabilities is minimal, no related liabilities are recorded at June 30, 2005 or December 31, 2004. We hold insurance
policies that mitigate potential losses arising from certain indemnifications, and historically, we have not incurred significant costs related to performance under these obligations.



NOTE 7. COMPREHENSIVE INCOME



Comprehensive income consisted of the following during the periods presented:



|                                                                          |  |                            |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                                          |  | THREE MONTHS ENDEDJUNE 30, |         |   | SIX MONTHS ENDEDJUNE 30, |  
|                                                                          |  |                            |         |   |                          |  
|                                                                          |  | 2005                       |         |   | 2004                     |   |        | 2005 |  |   | 2004    |  
|                                                                          |  |                            |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|(In thousands)                                                            |  |                            |         |   |                          |   |        |      |  |   |         |  
|                                                                          |  |                            |         |  
|Net income                                                                |  | $                          | 33,990  |   |                          | $ | 25,152 |      |  | $ | 68,098  |   |  | $ | 51,238 |  
|Net unrealized losses on revaluation of long-term intercompany balances 1 |  |                            | (18,301 | ) |                          |   | (3,644 | )    |  |   | (22,329 | ) |  |   | (101   | )
|Net foreign currency translation adjustment (losses) gains 2              |  |                            | (903    | ) |                          |   | 1,619  |      |  |   | (443    | ) |  |   | (836   | )
|Net unrealized gains (losses) on short-term investments                   |  |                            | 1,401   |   |                          |   | (4,487 | )    |  |   | (516    | ) |  |   | (3,265 | )
|Deferred taxes on net unrealized gains on short-term investments          |  |                            |        |   |                          |   | 513    |      |  |   |        |   |  |   | 46     |  
|                                                                          |  |                            |         |   |                          |   |        |      |  |   |         |   |  |   |        |  
|Total comprehensive income                                                |  | $                          | 16,187  |   |                          | $ | 19,153 |      |  | $ | 44,810  |   |  | $ | 47,082 |  
|                                                                          | 

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 |  | Unrealized gains and losses resulting from changes in the exchange rates underlying foreign-currency denominated intercompany balances that are long-term in nature and for which settlement is not
planned or anticipated in the foreseeable future are reported in the same manner as translation adjustments (see footnote 2 to this table below). In connection with the acquisition of Digital Vision in the second quarter of 2005, a new $165.0
million long-term intercompany loan payable was established on the books of a subsidiary whose functional currency is the British pound.
|2 |  | Each reporting period, the balance sheets and statements of income of the parent company and each subsidiary are translated into U.S. dollars, our reporting currency, and then consolidated. Monthly
revenues and expenses are translated into U.S. dollars at the prior months average daily exchange rate, while assets and liabilities are translated into U.S. dollars at the rate of exchange on the last day of the reported month. Due to the use
of these different exchange rates, translation adjustments arise.                                                                   



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



|                                                                                   |  |              |         |   |                  |   |         |  
|---------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                   |  | JUNE 30,2005 |         |   | DECEMBER 31,2004 |  
|                                                                                   |  |              |         |   |                  |   |         |  
|(In thousands)                                                                     |  |              |         |   |                  |  
|                                                                                   |  |             
|Accumulated net unrealized gains on revaluation of long-term intercompany balances |  | $            | 13,141  |   |                  | $ | 35,470  |  
|Accumulated net foreign currency translation adjustment losses                     |  |              | (12,812 | ) |                  |   | (12,369 | )
|Accumulated net unrealized losses on short-term investments                        |  |              | (2,712  | ) |                  |   | (2,196  | )
|                                                                                   |  |              |         |   |                  |   |         |  
|Total accumulated other comprehensive (loss) income                                |  | $            | (2,383  | ) |                  | $ | 20,905  |  
|                                                                                   | 



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



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|13 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 1



NOTE 8. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS



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



|                                   |  |                             |         |                           |      |      |   |              |  |      |  |              |         |      |      |              |   |         |  |     
|---------------------------------- |  | --------------------------- | ------- | ------------------------- | ---- | ---- | - | ------------ |  | ---- |  | ------------ | ------- | ---- | ---- | ------------ | - | ------- |  | ----
|                                   |  | THREE MONTHS ENDED JUNE 30, |         | SIX MONTHS ENDED JUNE 30,
|                                   |  |                             |         |                          
|                                   |  | 2005                        |         | % of Revenue              |      | 2004 |   | % of Revenue |  | 2005 |  | % of Revenue |         | 2004 |      | % of Revenue
|                                   |  |                             |         |                           |      |      |   |              |  |      |  |              |         |      |      |              |   |         |  |     
|(In thousands, except percentages) |  |                             |         |                           |      |      |   |              |  |      |  |              |         |      |      |             
|                                   |  |                             |         |                           |      |      |   |             
|United States                      |  | $                           | 76,964  |                           | 42%  |      | $ | 67,569       |  | 45%  |  | $            | 155,031 |      | 43%  |              | $ | 137,184 |  | 45% 
|United Kingdom                     |  |                             | 28,032  |                           | 15%  |      |   | 21,388       |  | 14%  |  |              | 53,464  |      | 15%  |              |   | 43,962  |  | 14% 
|Germany                            |  |                             | 14,785  |                           | 8%   |      |   | 10,555       |  | 7%   |  |              | 29,381  |      | 8%   |              |   | 23,232  |  | 8%  
|France                             |  |                             | 11,242  |                           | 6%   |      |   | 8,615        |  | 6%   |  |              | 21,355  |      | 6%   |              |   | 18,136  |  | 6%  
|Rest of world                      |  |                             | 54,282  |                           | 29%  |      |   | 42,200       |  | 28%  |  |              | 104,168 |      | 28%  |              |   | 84,325  |  | 27% 
|                                   |  |                             |         |                           |      |      |   |              |  |      |  |              |         |      |      |              |   |         |  |     
|Total revenue                      |  | $                           | 185,305 |                           | 100% |      | $ | 150,327      |  | 100% |  | $            | 363,399 |      | 100% |              | $ | 306,839 |  | 100%
|                                  



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



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



GENERAL



Our key initiatives for 2005 are to: grow the volume of imagery licensed; accelerate international growth; continue to grow the editorial portion of
our business; improve and customize the customer experience and search capabilities on gettyimages.com; and achieve a 31% operating margin. In the first half of 2005, we made progress towards achieving these objectives; we licensed 12% more single
still creative images than in the first half of 2004; we grew international revenue 23% over the first half of 2004 (approximately 17% excluding changes in foreign currency exchange rates); editorial revenue increased 23% over the first half of
2004; and we achieved a 30% operating margin for the first half of 2005 compared to an operating margin of 27% for the first half of 2004.



There have been no material changes in our sources of revenue and cost of sales or our critical accounting policies and estimates and assumptions since December 31, 2004.



Acquisitions of Businesses

On April 20, 2005, we acquired London-based Digital Vision Limited (Digital Vision), one of the worlds leading royalty-free photography businesses, for a purchase price of
$177.5 million ($165.0 million of cash and $12.5 million of direct acquisition costs and liabilities assumed). Prior to the acquisition, we had a significant number of Digital Visions images available for license through our Image Partner
program. A purchase price allocation was completed during the second quarter of 2005, with the majority of the purchase price allocated to goodwill ($134.7 million) and identifiable intangible assets ($38.3 million).



On June 8, 2005, we acquired Amana America, Inc., Amana Europe Limited and Iconica Limited
(collectively Photonica) for a purchase price of $63.4 million ($48.1 million in cash and $15.3 million of direct acquisition costs and liabilities assumed). Photonica is a rights-managed stock photography agency with its principal offices in New
York and London. A purchase price allocation was completed during the second quarter of 2005, with the majority of the purchase price allocated to goodwill ($41.0 million) and identifiable intangible assets ($11.6 million).



These acquisitions were accounted for using the purchase method of accounting and, accordingly, the
results of operations of the acquired businesses since the respective dates of acquisition are included in our consolidated financial statements. These acquisitions were not material, individually or in the aggregate, to the company as a whole.



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|14 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



MATERIAL CHANGES IN RESULTS OF OPERATIONS



Below are selected financial highlights from our results of operations. All figures in the tables are shown in thousands, except percentages and price
per image figures.



|                                                   |  |                             |     |                          |   |       |  |      |     |  |   |     |  
|-------------------------------------------------- |  | --------------------------- | --- | ------------------------ | - | ----- |  | ---- | --- |  | - | --- | -
|                                                   |  | THREE MONTHS ENDED JUNE 30, |     | SIX MONTHS ENDEDJUNE 30, |  
|                                                   |  |                             |     |                          |  
|                                                   |  | 2005                        |     | 2004                     |   | 2005  |  | 2004 |    
|                                                   |  |                             |     |                          |   |       |  |      |     |  |   |     |  
|                                                   |  |                             |     |                         
|PORTFOLIO REVENUE AS A PERCENTAGE OF TOTAL REVENUE |  |                             |     |                          |   |       |  |      |     |  |   |     |  
|Rights-managed still imagery                       |  |                             | 43% |                          |   | 49%   |  |      | 44% |  |   | 50% |  
|Royalty-free still imagery                         |  |                             | 38% |                          |   | 32%   |  |      | 37% |  |   | 32% |  
|Editorial imagery                                  |  |                             | 11% |                          |   | 12%   |  |      | 11% |  |   | 11% |  
|Film                                               |  |                             | 5%  |                          |   | 5%    |  |      | 6%  |  |   | 5%  |  
|Other                                              |  |                             | 3%  |                          |   | 2%    |  |      | 2%  |  |   | 2%  |  
|                                                   |  |                             |     |                         
|GROSS MARGIN                                       |  |                             |     |                          |   |       |  |      |     |  |   |     |  
|Rights-managed still imagery                       |  |                             | 67% |                          |   | 67%   |  |      | 67% |  |   | 67% |  
|Royalty-free still imagery                         |  |                             | 79% |                          |   | 77%   |  |      | 77% |  |   | 77% |  
|Editorial imagery                                  |  |                             | 81% |                          |   | 84%   |  |      | 79% |  |   | 83% |  
|Film                                               |  |                             | 72% |                          |   | 71%   |  |      | 71% |  |   | 72% |  
|                                                   |  |                             |     |                         
|APPROXIMATE AVERAGE PRICE PER IMAGE 2, 3           |  |                             |     |                          |   |       |  |      |     |  |   |     |  
|Rights-managed single still imagery                |  | $                           | 580 |                          | $ | 560 1 |  | $    | 600 |  | $ | 575 | 1
|Royalty-free single still imagery                  |  |                             | 240 |                          |   | 195 1 |  |      | 235 |  |   | 195 | 1
|Film                                               |  |                             | 580 |                          |   | 560 1 |  |      | 595 |  |   | 565 | 1
|                                                   | 

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



REVENUE



|                           |  |      |         |              |       |      |   |              |  |          |  |          |        |  |     
|-------------------------- |  | ---- | ------- | ------------ | ----- | ---- | - | ------------ |  | -------- |  | -------- | ------ |  | ----
|                           |  | 2005 |         | % of revenue |       | 2004 |   | % of revenue |  | $ change |  | % change
|                           |  |      |         |              |       |      |   |              |  |          |  |          |        |  |     
|                           |  |      |         |              |       |     
|Three months ended June 30 |  | $    | 185,305 |              | 100.0 |      | $ | 150,327      |  | 100.0    |  | $        | 34,978 |  | 23.3
|Six months ended June 30   |  |      | 363,399 |              | 100.0 |      |   | 306,839      |  | 100.0    |  |          | 56,560 |  | 18.4
|                          



Year over year, revenue for the second quarter
and first half of 2005 continued to benefit from the impact of changes in foreign currency exchange rates, particularly the British pound and euro to the U.S. dollar. These European currencies strengthened against the U.S. dollar in 2004 and early
2005, but the U.S. dollar recovered partially late in the first quarter and in the second quarter of 2005. Net year over year changes in exchange rates added approximately $6.0 million and $10.2 million to revenue for the second quarter and first
half of 2005, respectively.



Excluding the impact of exchange rate changes, revenue
increased approximately $29.0 million or 19.3% and $46.4 million or 15.1% year over year for the second quarter and first half of 2005, respectively. These increases were due primarily to significantly higher volumes of images licensed from our
royalty-free portfolio, particularly in Europe, at a higher average price per image. Increases in average price per image arose through selective price increases and a shift in the mix of images licensed within our royalty-free portfolio towards
higher priced imagery. Year over year, revenue from licenses of editorial imagery and film also increased by double digit percentages excluding the impact of changes in exchange rates. The volume of rights-managed imagery licensed for the second
quarter of 2005 also increased modestly over the second quarter of the prior year, in contrast to the first quarter of 2005 when we saw a year over year decline.



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|15 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 2



GROSS PROFIT



|                           |  |            |  |                             |  |            |  |                             |  |           |  |         
|-------------------------- |  | ---------- |  | --------------------------- |  | ---------- |  | --------------------------- |  | --------- |  | --------
|                           |  | 2005       |  | % of revenue (gross margin) |  | 2004       |  | % of revenue (gross margin) |  | $ change  |  | % change
|                           |  |            |  |                             |  |            |  |                             |  |           |  |         
|                           |  |            |  |                             |  |           
|Three months ended June 30 |  | $  135,810 |  | 73.3                        |  | $  108,538 |  | 72.2                        |  | $  27,272 |  | 25.1    
|Six months ended June 30   |  | 262,650    |  | 72.3                        |  | 221,244    |  | 72.1                        |  | 41,406    |  | 18.7    
|                          



Gross profit and gross margin grew year over
year due to a shift in overall sales mix towards higher margin royalty-free imagery, and a shift within our royalty-free portfolio to wholly-owned imagery. The shift towards wholly-owned imagery occurred as we acquired a significant number of images
in the second quarter of 2005 through both business combinations and individual asset purchases.



SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)



|                           |  |      |         |              |      |      |   |              |  |          |  |          |        |  |     
|-------------------------- |  | ---- | ------- | ------------ | ---- | ---- | - | ------------ |  | -------- |  | -------- | ------ |  | ----
|                           |  | 2005 |         | % of revenue |      | 2004 |   | % of revenue |  | $ change |  | % change
|                           |  |      |         |              |      |      |   |              |  |          |  |         
|                           |  |      |         |              |      |     
|Three months ended June 30 |  | $    | 64,908  |              | 35.0 |      | $ | 54,411       |  | 36.2     |  | $        | 10,497 |  | 19.3
|Six months ended June 30   |  |      | 124,962 |              | 34.4 |      |   | 109,128      |  | 35.6     |  |          | 15,834 |  | 14.5
|                          



Excluding the impact of changes in exchange
rates, SG&A increased $9.0 million or 16.6% and $13.2 million or 12.1% year over year for the second quarter and first half of 2005, respectively. The year over year increase was due mainly to increased staff costs related to employees who
joined the company through business acquisitions during the last year and to annual salary increases effective April of 2005. Approximately $2 million of costs related to business acquisitions will not be recurring, as efficiencies were realized
upon integration of the acquired companies at the end of the second quarter. SG&A decreased as a percentage of revenue year over year as we continue to grow revenue without growing costs proportionally.



INTEREST EXPENSE



|                           |  |      |        |   |              |      |   |      |   |        |              |  |      |          |  |   |          |   |  |      
|-------------------------- |  | ---- | ------ | - | ------------ | ---- | - | ---- | - | ------ | ------------ |  | ---- | -------- |  | - | -------- | - |  | -----
|                           |  | 2005 |        |   | % of revenue |      |   | 2004 |   |        | % of revenue |  |      | $ change |  |   | % change
|                           |  |      |        |   |              |      |   |      |   |        |              |  |      |          |  |   |         
|                           |  |      |        |   |              |     
|Three months ended June 30 |  | $    | (5,850 | ) |              | (3.2 | ) |      | $ | (913   | )            |  | (0.6 | )        |  | $ | (4,937   | ) |  | 540.7
|Six months ended June 30   |  |      | (6,812 | ) |              | (1.9 | ) |      |   | (1,980 | )            |  | (0.6 | )        |  |   | (4,832   | ) |  | 244.0
|                          



Interest expense increased in 2005 as a
conversion condition of our convertible subordinated debentures was met during the second quarter, requiring accelerated amortization in June of 2005 of the remaining $5.0 million of unamortized debt issuance costs. The conversion condition was met
when the closing price of our common stock exceeded $73.30 for 20 trading days within the last 30 trading days ended June 30, 2005. See discussion of the debentures under Liquidity and Capital Resources below for more information.



INVESTMENT INCOME



|                           |  |      |       |              |     |      |   |              |  |          |  |          |       |  |     
|-------------------------- |  | ---- | ----- | ------------ | --- | ---- | - | ------------ |  | -------- |  | -------- | ----- |  | ----
|                           |  | 2005 |       | % of revenue |     | 2004 |   | % of revenue |  | $ change |  | % change
|                           |  |      |       |              |     |      |   |              |  |          |  |         
|                           |  |      |       |              |     |     
|Three months ended June 30 |  | $    | 3,038 |              | 1.6 |      | $ | 2,041        |  | 1.4      |  | $        | 997   |  | 48.8
|Six months ended June 30   |  |      | 5,927 |              | 1.6 |      |   | 3,783        |  | 1.2      |  |          | 2,144 |  | 56.7
|                          



Investment income increased in 2005 due to
higher cash and cash equivalent and short-term investment balances (prior to funding business acquisitions in the second quarter of 2005) combined with an increase in interest rates.



INCOME TAX EXPENSE



|                           |  |      |         |   |                    |       |   |      |   |         |                    |  |       |          |  |   |          |   |  |     
|-------------------------- |  | ---- | ------- | - | ------------------ | ----- | - | ---- | - | ------- | ------------------ |  | ----- | -------- |  | - | -------- | - |  | ----
|                           |  | 2005 |         |   | effective tax
rate |       |   | 2004 |   |         | effective tax
rate |  |       | $ change |  |   | % change
|                           |  |      |         |   |                    |       |   |      |   |         |                    |  |       |          |  |   |         
|                           |  |      |         |   |                    |      
|Three months ended June 30 |  | $    | (18,846 | ) |                    | (35.7 | ) |      | $ | (15,775 | )                  |  | (38.5 | )        |  | $ | (3,071   | ) |  | 19.5
|Six months ended June 30   |  |      | (39,720 | ) |                    | (36.8 | ) |      |   | (32,599 | )                  |  | (38.9 | )        |  |   | (7,121   | ) |  | 21.8
|                          



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Our effective tax rate for 2005 decreased from 2004 due to higher income in jurisdictions with lower tax rates, reduction in
non-deductible compensation expense, increased ability to recognize a greater benefit from foreign tax credits generated in the current year, and favorable developments in tax audits.



RESULTS OF OPERATIONS OUTLOOK



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



During the first half of 2005, we grew revenue 18%, at a gross margin of 72.3% and an operating margin of 30%. For the full year of 2005, management expects the company to report:
double digit revenue growth at a rate slightly higher than in 2004 (excluding the impact of changes in foreign currency exchange rates); overall gross margin of approximately 73%, slightly higher than 2004; a moderate increase in selling, general
and administrative expenses; a moderate decline in depreciation expense; a significant increase in amortization expense due to intangible assets acquired through business combinations late in 2004 and in the first half of 2005; and an operating
margin of approximately 31%. Management also expects an effective income tax rate for 2005 slightly lower than that of 2004 and 2003 (excluding the valuation allowance reversal in 2003). These expectations reflect business acquisitions completed
during the first half of the year but do not include the effect of future acquisitions of businesses, if any.



Our ability to meet managements expectations is subject to the risks and uncertainties specific to results of operations that are outlined in the Results of Operations Outlook in Part II, Item 7 of our 2004
Annual Report on Form 10-K, as well as the general risks and uncertainties outlined below under Factors that May Affect the Business.



MATERIAL CHANGES IN FINANCIAL CONDITION



|                                                     |  |               |         |                   |   |        
|---------------------------------------------------- |  | ------------- | ------- | ----------------- | - | -------
|                                                     |  | JUNE 30, 2005 |         | DECEMBER 31, 2004
|                                                     |  |               |         |                   |   |        
|(In thousands, except current ratio)                 |  |               |         |                   |   |        
|                                                     |  |              
|Cash and cash equivalents and short-term investments |  | $             | 418,840 |                   | $ | 520,710
|Working capital                                      |  | $             | 161,424 |                   | $ | 518,082
|Current ratio                                        |  |               | 1.42    |                   |   | 5.55   
|                                                    



Cash and cash equivalents and short-term
investment balances decreased in the first half of 2005, primarily due to $214.5 million in cash paid for businesses acquired in the second quarter of 2005. This significant use of cash was offset in part by cash flows provided by operating
activities of $120.2 million for the first half of 2005.



On June 21, 2005, we announced
that our 0.5% convertible subordinated debentures will become convertible by the holders on July 1, 2005 due to a conversion condition having been met. The conversion condition was met June 21, when the closing price of our common stock exceeded
$73.30 for 20 trading days within the last 30 trading days ended June 30, 2005. As a result, we have classified the $265.0 million of debentures as short-term debt on our June 30, 2005 balance sheet. This reclassification caused a significant
decrease in our working capital and current ratio during the quarter. Had we not reclassified the debentures, our working capital would have been $426.4 million and our current ratio would have been 4.62 at June 30, 2005.



We believe that the likelihood of a significant number of debentures being tendered for conversion is
remote; however, should all or some of the holders elect to convert, we would be required to repay the $265.0 million principal in cash, which we would likely fund



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with existing cash and short-term investments. The ability for the holders to convert will expire on September 30, 2005 unless the conversion condition is met again in
the last 30 trading days ending September 30, 2005. If the condition is not met during that period, we will reclassify the debt back to long-term. The closing price of our common stock on July 29, 2005 was $80.75.



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



Cash Flows Provided by Operating Activities

Cash flows provided by operating activities increased to $120.2 million for the first half of 2005 from $100.3 million for the first half of 2004 as revenue growth outpaced growth
in cash operating expenses, and days sales outstanding (DSO) remained relatively flat at 51 days. Management expects to see cash flows provided by operating activities continue to grow for the remainder of 2005.



Cash Flows Used in Investing Activities

Cash flows used in investing activities grew to $213.6 million for the first half of 2005 from $159.4 million for the first half of 2004, due mainly to business acquisitions in the
second quarter of 2005 and increased capital expenditures relating to a collection of archival imagery acquired in the second quarter of 2005. These acquisitions were completed in order to supplement our wholly-owned imagery portfolio. Management
expects capital expenditures to total approximately $50 million for the full year of 2005.



There were no material changes in our contractual obligations and rights nor any other material changes in our financial condition during the first half of 2005.



RECENT ACCOUNTING PRONOUNCEMENTS



Statement of Financial Accounting Standards No. 123(R), Share-Based Payment

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



SEC Staff Accounting Bulletin (SAB) No. 107

In March of 2005, the SEC issued SAB No. 107, which interprets SFAS No. 123(R). In particular, this SAB
includes interpretive guidance that may be applicable to us related to: share-based payment transactions with nonemployees; methods of valuing share-based payments; the classification of compensation expense in the income statement; capitalization
of compensation cost related to share-based payment arrangements; the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS No. 123(R); the modification of employee share options prior to adoption of SFAS No.
123(R); and disclosures in Managements Discussion and Analysis subsequent to adoption of SFAS No. 123(R).



SFAS No. 154, Accounting for Changes and Error Corrections

In May of 2005, the FASB issued SFAS No. 154, which changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principle were recognized
by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods financial statements of changes in accounting
principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial
assets be accounted for as a change in accounting estimate effected by a change in accounting principle. This Statement is effective for us for accounting principles changed on or after January 1, 2006.



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FACTORS THAT MAY AFFECT THE BUSINESS



We May Not be Able to Compete Effectively Against Competitors

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



Our Financial Results and Stock Price May Fluctuate

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



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

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

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

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

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

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

| |  |  | the termination of certain image partner, distributor, or reseller agreements; and
| | - |  | ----------------------------------------------------------------------------------

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



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



We May Not be Successful in Integrating Acquired Businesses

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



| |  |  | costs incurred in performing due diligence relating to potential acquisitions;
| | - |  | ------------------------------------------------------------------------------

| |  |  | use of cash resources, incurrence of debt or stockholder dilution through issuances of our securities to fund acquisitions;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------

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

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

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

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



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

While management currently anticipates that our current cash and cash equivalents and short-term investment balances and future operating cash flows will be sufficient to meet our needs for working capital and capital
expenditures for at least the next 12 months, we could be required to obtain external financing should our financial results not meet managements expectations or should we need additional funds to acquire selected businesses or otherwise
achieve our objectives. In addition, our convertible subordinated debentures require cash repayment of the $265.0 million of principal borrowed potentially at any time upon certain conditions and no



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later than upon maturity in 2023. On June 21, 2005, we announced that the debentures were convertible by the holders as of July 1, 2005, due to a conversion condition
having been met. See Item 2.04 of the 8-K we filed on June 21, 2005, and the discussion of the terms of these debentures in the Financial Condition section of Managements Discussion and Analysis of Financial Condition and
Results of Operations under Item 7 in Part II of our 2004 Annual Report on Form 10-K. Should the holders elect to convert, we would be required to repay the $265.0 million principal in cash. The ability for the holders to convert will expire
on September 30, 2005 unless the conversion condition is met again in the last 30 trading days ending September 30, 2005. Should we need to obtain external financing, through debt or equity, our ability to do so could be affected by changes in U.S.
and global capital markets and economies, significant fluctuations in interest rates, the price of our equity securities, fluctuations in the results of our operations, and other financial and business conditions, many of which are beyond our
control.



We May Experience System and Service
Disruptions and Difficulties

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



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



In the past, we
have experienced infrequent and brief system interruptions that made portions of our website unavailable or prevented us from efficiently taking, processing or fulfilling orders. We also have experienced infrequent difficulties with system updates
and upgrades (including those to our website). We cannot guarantee that we can prevent future interruptions or difficulties. Additionally, we depend on certain third party software and system providers for the processing and distribution of our
imagery and related services. System disruptions and difficulties, whether as a result of our internally developed systems or those of the third-party providers, may inconvenience our customers and/or result in negative publicity, and may negatively
affect our ability to provide services and the volume of images we license and deliver over the Internet.



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



Systems Security Risks and Concerns May Harm Our Business

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



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

Some of our stockholders own substantial percentages of the outstanding shares of our common stock. Getty Investments L.L.C.; The October 1993 Trust; The JD Klein Family
Settlement; Mr. Mark H. Getty, our Chairman; and Mr. Jonathan D. Klein, our Chief Executive Officer, collectively the Getty Group, owned approximately 17% of the outstanding shares of our common stock at June 30, 2005. Getty Investments alone owned
approximately 16% of the outstanding shares of our common stock at June 30, 2005. Mr. Getty serves as the Chairman of the Board of Directors of Getty Investments, and Mr. Klein serves on the Board of Directors of Getty Investments.



As a result of their share ownership, the Getty Group has significant influence over all matters
requiring approval of our stockholders, including the election of directors and the approval of business combinations. The substantial percentage of our common stock held



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by the Getty Group could also make us a less attractive acquisition candidate or have the effect of delaying or preventing a third party from acquiring control over us
at a premium over the then-current price of our common stock. In addition to ownership of our common stock, the Getty Groups influence over us is increased by Mr. Gettys role as the Chairman of our Board of Directors, and
Mr. Kleins role as Chief Executive Officer and as a member of our Board of Directors.



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

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



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

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



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



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

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

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

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



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

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



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Interest Rate Risk

The table below provides information about our financial instruments for which the fair values are sensitive to changes in
interest rates. For investments, the table presents cash flows and weighted average interest rates by stated maturity dates. For our debt obligation, the table presents principal cash flows by stated maturity date, though the principal of the
debentures would be required to be paid in cash if the debentures are converted by the holders on or after July 1, 2005 (see discussion under Debt below). The respective fair values are determined through market quotes. All instruments
are denominated and presented in U.S. dollars.



|                                      |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |        |              |   |                  |  |   |         |  |   |         |  |   |        
|------------------------------------- |  | -------------------- | ----- | ---------- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ------ | ------------ | - | ---------------- |  | - | ------- |  | - | ------- |  | - | -------
|                                      |  | STATED MATURITY DATE |       | FAIR VALUE
|                                      |  | 2005                 |       | 2006       |   | 2007   |  | 2008 |        | 2009 |   | THEREAFTER |  | TOTAL |        | JUNE 30,2005 |   | DECEMBER 31,2004
|                                      |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |        |              |   |                  |  |   |         |  |   |         |  |   |        
|(In thousands, except interest rates) |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |        |              |   |                 
|                                      |  |                      |       |            |   |        |  |      |       
|Short-term investments                |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |        |              |   |                  |  |   |         |  |   |         |  |   |        
|Fixed rate                            |  | $                    | 5,717 |            | $ | 51,152 |  | $    | 55,043 |      | $ | 12,987     |  | $     | 6,178  |              | $ | 2,518            |  | $ | 133,595 |  | $ | 131,928 |  | $ | 136,470
|Weighted average interest rate        |  |                      | 2.85% |            |   | 3.22%  |  |      | 3.36%  |      |   | 3.36%      |  |       | 3.38%  |              |   | 3.84%            |  |   | 3.29%   |  |   |        |  |   |       
|Variable rate                         |  | $                    | 6,282 |            | $ | 3,834  |  | $    | 3,250  |      | $ |           |  | $     | 1,000  |              | $ | 70,940           |  | $ | 85,306  |  | $ | 85,308  |  | $ | 105,252
|Weighted average interest rate        |  |                      | 3.24% |            |   | 3.27%  |  |      | 3.38%  |      |   |           |  |       | 3.47%  |              |   | 2.24%            |  |   | 2.90%   |  |   |        |  |   |       
|Step-up rate                          |  | $                    |      |            | $ |       |  | $    | 29,995 |      | $ | 45,000     |  | $     | 10,000 |              | $ |                 |  | $ | 84,995  |  | $ | 83,948  |  | $ | 84,236 
|Weighted average interest rate        |  |                      |      |            |   |       |  |      | 2.96%  |      |   | 2.78%      |  |       | 3.25%  |              |   |                 |  |   | 2.41%   |  |   |        |  |   |       
|                                      |  |                      |       |            |   |        |  |      |       
|Debt                                  |  |                      |       |            |   |        |  |      |        |      |   |            |  |       |        |              |   |                  |  |   |         |  |   |         |  |   |        
|Fixed rate                            |  | $                    |      |            | $ |       |  | $    |       |      | $ |           |  | $     |       |              | $ | 265,000          |  | $ | 265,000 |  | $ | 412,075 |  | $ | 409,425
|Weighted average interest rate        |  |                      |      |            |   |       |  |      |       |      |   |           |  |       |       |              |   | 0.50%            |  |   | 0.50%   |  |   |        |  |   |       
|                                     



SHORT-TERM
INVESTMENTS

Short-term investments at June 30, 2005 consisted of available-for-sale U.S. agency securities ($174.8 million), auction rate securities and variable
rate demand notes ($70.7 million), corporate obligations ($43.5 million), U.S. Treasury obligations ($5.9 million) and money market funds ($6.3 million), carried at market value with associated unrealized holding gains and losses recorded in other
comprehensive income. Available-for-sale investments with contractual maturities beyond one year are classified as short-term in our consolidated balance sheets because they represent the investment of cash that is available for current operations.



DEBT

The debt shown in the table above represents our convertible subordinated debentures. As discussed in Item 2 under Material Changes in Financial Condition, we believe
that the likelihood of a significant number of debentures being tendered for conversion is remote. Therefore, we have included it in the table at its stated maturity date; however, should all or some of the holders convert, we would likely fund the
required $265.0 million principal cash repayment with existing cash and short-term investment balances. The ability for the holders to convert will expire on September 30, 2005 unless the conversion condition is met again in the last 30 trading days
ending September 30, 2005. The closing price of our common stock on July 29, 2005 was $80.75.



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



Credit
Risk

In addition to interest rate risk, our short-term investments expose us to credit-related losses as they comprise debt instruments issued by third parties.
We mitigate this risk by only buying investment grade debt securities. At June 30, 2005, 89% of our investments were in AAA rated debt instruments, as compared to 88% at December 31, 2004. No investments were rated below A at either date.
Significant concentrations of investments at June 30, 2005 were Fannie Mae ($62.7 million fair value), Freddie Mac ($57.0 million fair value) and Federal Home Loan Bank ($54.2 million fair value). Concentrations of investments at December 31, 2004
were Fannie Mae ($62.6 million fair value), Freddie Mac ($56.8 million fair value) and Federal Home Loan Bank ($54.5 million fair value). The majority of these concentrated investments were AAA rated at June 30, 2005 (97%) and December 31, 2004
(98%).



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|-- |  |  |  | ------------------ |  |  |  | -------- |  |  |  | --------- |  | ------ |  |  |  | ------
|22 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 3



Foreign Currency Exchange Rate Risk



FOREIGN CURRENCY TRANSACTIONS

Short-Term Foreign Currency Balances Foreign-currency denominated assets and liabilities, other than long-term intercompany balances (discussed below), which are subject to transaction gains and losses each month, that were
outstanding at June 30, 2005 and December 31, 2004, and were in excess of $3.0 million individually at these dates are summarized below by the functional currency of the subsidiary where the balances are recorded. Changes in balances since December
31, 2004 are due to intercompany management charges and royalties, cash settlements, foreign currency revaluation, and forward foreign exchange contract activity. All balances at June 30, 2005 are expected to settle within 12 months in the
currencies listed.



|                                                                                                              |  |              |          |   |                  |   |          |  
|------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---------------- | - | -------- | -
|                                                                                                              |  | JUNE 30,2005 |          |   | DECEMBER 31,2004 |  
|                                                                                                              |  |              |          |   |                  |   |          |  
|(In thousands, except settlement rates)                                                                       |  |              |          |   |                  |  
|                                                                                                              |  |             
|British Pound Functional Currency                                                                             |  |              |          |   |                  |   |          |  
|Receivables (payables) denominated in:                                                                        |  |              |          |   |                  |   |          |  
|Euros                                                                                                         |  | $            | 7,658    |   |                  | $ | 6,092    |  
|U.S. dollars                                                                                                  |  |              | 11,435   |   |                  |   | (1,986   | )
|Forward foreign currency exchange contracts:                                                                  |  |              |          |   |                  |   |          |  
|Receive British pounds/pay euros                                                                              |  |              |          |   |                  |   |          |  
|Contract amount (9,285 and 7,500 notional amounts at June 30, 2005 and December 31, 2004, respectively)     |  | $            | (11,234  | ) |                  | $ | (10,037  | )
|Weighted average contractual settlement rate                                                                  |  |              | 0.67     |   |                  |   | 0.70     |  
|                                                                                                              |  |             
|Euro Functional Currency                                                                                      |  |              |          |   |                  |   |          |  
|Receivables (payables) denominated in:                                                                        |  |              |          |   |                  |   |          |  
|British pounds                                                                                                |  | $            | (1,308   | ) |                  | $ | 3,890    |  
|                                                                                                              |  |             
|U.S. Dollar Functional Currency                                                                               |  |              |          |   |                  |   |          |  
|Receivables denominated in:                                                                                   |  |              |          |   |                  |   |          |  
|British pounds                                                                                                |  | $            | 12,001   |   |                  | $ | 3,764    |  
|Euros                                                                                                         |  |              | 5,980    |   |                  |   | 4,215    |  
|Japanese yen                                                                                                  |  |              | 4,382    |   |                  |   | 2,364    |  
|Forward foreign currency exchange contracts:                                                                  |  |              |          |   |                  |   |          |  
|Receive U.S. dollars/pay British pounds                                                                       |  |              |          |   |                  |   |          |  
|Contract amount (£4,450 and £1,850 notional amounts at June 30, 2005 and December 31, 2004, respectively)     |  | $            | (7,979   | ) |                  | $ | (3,545   | )
|Weighted average contractual settlement rate                                                                  |  |              | 1.83     |   |                  |   | 1.89     |  
|Receive U.S. dollars/pay Japanese yen                                                                         |  |              |          |   |                  |   |          |  
|Contract amount (¥429,000 and ¥190,000 notional amounts at June 30, 2005 and December 31, 2004, respectively) |  |              | (3,868)  |   |                  |   | (1,850)  |  
|Weighted average contractual settlement rate                                                                  |  |              | 108.10   |   |                  |   | 104.05   |  
|Receive U.S. dollars/pay euros                                                                                |  |              |          |   |                  |   |          |  
|Contract amount (10,975 and 12,925 notional amounts at June 30, 2005 and December 31, 2004, respectively)   |  |              | (13,278) |   |                  |   | (17,498) |  
|Weighted average contractual settlement rate                                                                  |  |              | 1.25     |   |                  |   | 1.32     |  
|                                                                                                              | 



Long-Term Intercompany Balances Foreign
exchange losses of $22.3 million and $0.1 million for the first half of 2005 and 2004, respectively, arose from the revaluation of foreign-currency denominated long-term intercompany balances and were included in accumulated other comprehensive
income. In connection with the acquisition of Digital Vision in the second quarter of 2005, a new $165.0 million long-term intercompany loan payable was established on the books of a subsidiary whose functional currency is the British pound. This
new loan doubled that subsidiarys long-term U.S. dollar exposure. There were no other changes in long-term intercompany balances during the second quarter of 2005.



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|23 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART I |  |  |  | ITEM 3



FOREIGN CURRENCY TRANSLATION

We recognized translation adjustment losses of $0.4 million and $0.8 million in the first half of 2005 and 2004, respectively. Accumulated translation losses included in accumulated other comprehensive income at June 30, 2005
and December 31, 2004 were $12.8 million and $12.4 million, respectively. Changes from the first half of 2004 to the first half of 2005 in the exchange rates used to translate the results of operations of subsidiaries with non-U.S. dollar functional
currencies resulted in increases in U.S. dollar reported revenue, selling, general and administrative expenses and depreciation of approximately $10.2 million, $2.6 million and $0.4 million, respectively.



ITEM 4. CONTROLS AND PROCEDURES



Evaluation of
Disclosure Controls and Procedures



The Chief Executive Officer and Chief Financial
Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2005. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that as of June 30, 2005, these disclosure controls and procedures were effective.



Changes in Internal Control Over Financial Reporting



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



PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS

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



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



None



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None



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



Our annual meeting of stockholders was held on Tuesday, May 3, 2005, in Seattle, Washington, at which the following matters were submitted to a vote of the stockholders:



|(a) |  | Votes regarding the election of two directors for a term expiring in 2008 were as follows:
|--- |  | ------------------------------------------------------------------------------------------



|                        |  |            |  |          
|----------------------- |  | ---------- |  | ---------
|Term Expiring in 2008   |  | For        |  | Withheld 
|                        |  |            |  |          
|                        |  |           
|Christopher H. Sporborg |  | 55,533,951 |  | 1,002,231
|Mark H. Getty           |  | 55,278,636 |  | 1,257,546
|                       



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|24 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q1  2005 |  |  |  | FORM 10-Q |  | PART II |  |  |  | ITEM 4



Additional directors, whose terms of office as directors continued after the meeting, are as follows:



|                      |  |                      
|--------------------- |  | ---------------------
|Term Expiring in 2006 |  | Term Expiring in 2007
|                      |  |                      
|                      | 
|Jonathan D. Klein     |  | James N. Bailey      
|Michael A. Stein      |  | Andrew S. Garb       
|                      |  | David Landau         
|                     



|(b) |  | Votes regarding ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm to serve for the fiscal year ending December 31, 2005 were
as follows:
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|           |  |         |  |                                 
|---------- |  | ------- |  | --------------------------------
|For        |  | Against |  | Abstentions and Broker Non-Votes
|           |  |         |  |                                 
|           |  |        
|55,486,752 |  | 794,291 |  | 255,139                         
|          



|(c) |  | Votes regarding the approval of the proposed amendment to the Amended and Restated Getty Images, Inc. 1998 Stock Incentive Plan to rename it the Getty Images, Inc. 2005 Incentive Plan, to
increase the number of shares available for award under the Plan from 13,000,000 to 16,000,000, and to make certain other changes to the Plan were as follows:
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|           |  |            |  |                                 
|---------- |  | ---------- |  | --------------------------------
|For        |  | Against    |  | Abstentions and Broker Non-Votes
|           |  |            |  |                                 
|           |  |           
|39,910,370 |  | 11,658,400 |  | 4,967,412                       
|          



ITEM 5. OTHER INFORMATION



Effective August 1, 2005, Getty
Images, Inc. entered into an amended and restated employment agreement with Jonathan D. Klein, the companys Chief Executive Officer (CEO) and co-founder. Through this employment agreement, Mr. Kleins term of employment was extended to
two years from the effective date of the agreement, after which point the term will automatically renew for successive one-year periods until either party gives 12 months written notice of termination. Mr. Kleins annual salary remains at
$950,000 and the target annual cash incentive bonus remains at 70% of his base salary, with Mr. Kleins base salary to be reviewed by the Compensation Committee annually. The amended and restated employment agreement provides that, subject to
Mr. Kleins satisfactory performance, the Compensation Committee will award Mr. Klein options to purchase 250,000 shares of common stock of the company effective April 1, 2006. These options will have an exercise price equal to the fair market
value of the companys common stock on the date of grant and will vest over a period of four years from the date of grant, as follows: 20% (50,000 shares) on April 1, 2007; 20% (50,000 shares) on April 1, 2008; 20% (50,000 shares) on April 1,
2009; and 40% (100,000 shares) on April 1, 2010. Mr. Kleins other benefits per the amended and restated employment agreement remain unchanged from the prior agreement.



A copy of the amended and restated employment agreement is attached hereto as exhibit 10.4. The summary of the agreement provided herein is qualified
in its entirety by reference to this exhibit.



ITEM 6. EXHIBITS



Reference is made to the Exhibit Index
beginning on page 26 for a list of all exhibits filed as part of this report.



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|25 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | SIGNATURE |  | 



SIGNATURE



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



GETTY IMAGES, INC.By:

/s/    ELIZABETH J. HUEBNERElizabeth J. Huebner Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer)




August 4, 2005



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|26 |  |  |  | GETTY IMAGES, INC. |  |  |  | Q2  2005 |  |  |  | FORM 10-Q |  | PART II |  |  |  | ITEM 6



EXHIBIT INDEX



|               |  |                                                                                                                                             
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibit                                                                                                                      
|               | 
|10.4           |  | Amended and Restated Employment Agreement between Getty Images, Inc. and Jonathan D. Klein, effective August 1, 2005                        
|               | 
|10.34          |  | Form of Employee Stock Option Agreement                                                                                                     
|10.37          |  | Share sale agreement dated April 20, 2005 between Shisheido Anstalt and Getty Images (UK) Limited relating to Digital Vision Limited. 1     
|               | 
|10.38          |  | Intellectual property assignment agreement dated April 20, 2005 between Getty Images (Cayman) Limited and Digital Holding & Licensing S.A. 1
|               | 
|12.1           |  | Statement Regarding Computation of Ratio of Earnings to Fixed Charges                                                                       
|               | 
|31.1           |  | Section 302 Certification by Jonathan D. Klein, CEO                                                                                         
|               | 
|31.2           |  | Section 302 Certification by Elizabeth J. Huebner, CFO                                                                                      
|               | 
|32.1           |  | Section 906 Certification by Jonathan D. Klein, CEO                                                                                         
|               | 
|32.2           |  | Section 906 Certification by Elizabeth J. Huebner, CFO                                                                                      

|  |  |                                                                                                                           
|- |  | --------------------------------------------------------------------------------------------------------------------------
|  | 
|1 |  | Incorporated by reference from the Exhibits to the Registrants Amended Current Report on Form 8-K/A filed April 22, 2005.