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UNITED STATES

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

For The Fiscal Year Ended December 31, 2001

Commission File Number: 000-23747

GETTY IMAGES, INC.

601 N. 34th Street,

Registrant’s Telephone Number, Including Area Code:

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

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 12 months (or for such shorter period that registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $1,046.3 million as of March 1, 2002 based upon the closing price of $26.89 on the Nadsaq National Market reported on such date.

As of March 1, 2002, the registrant had 52,059,743 shares of Common Stock, $0.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Information required by Part III of this document is incorporated by reference to certain portions of the company’s definitive Proxy Statement (to be filed) for the Annual Meeting of Stockholders to be held May 21, 2002.

An Index to Exhibits appears at Part IV, Item 14, pages 29 - 31 herein

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GETTY IMAGES, INC.

FORM 10-K

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PART I

Item 1. Business

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of Getty Images, Inc. We may, from time to time, make written or oral statements that are “forward-looking,” including statements contained in this Annual Report on Form 10-K, the documents incorporated herein by reference, and other filings with the Securities and Exchange Commission. These statements are based on management’s current expectations, assumptions, estimates and projections about Getty Images, Inc. and its industry and are made on the basis of management’s views as of the time the statements are made. All statements, trends, analyses and other information contained in this report relative to trends in sales, gross margin, anticipated expense levels and liquidity and capital resources, as well as other statements including, but not limited to, words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “seek,” “intend” and other similar expressions, constitute forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that are difficult to predict. Accordingly, actual results may differ materially from those anticipated or expressed in such statements. Potential risks and uncertainties include, among others, those set forth herein under “Factors That May Affect the Business,” as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Except as required by law, the company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. Readers, however, should carefully review the factors set forth in other reports or documents that the company files from time to time with the Securities and Exchange Commission.

In this Annual Report, “Getty Images,” “the company,” “we,” “us,” and “our” refer to Getty Images, Inc. and its consolidated subsidiaries, unless the context otherwise dictates.

A. Overview

Getty Images, Inc. was founded in 1995 and is a leading provider of imagery and related products and services to businesses worldwide, distributing products digitally via the Internet and on CD-ROMs, as well as in film transparency form. The company is headquartered in Seattle and has customers in more than 55 countries. We pioneered the solution to aggregate and distribute visual content and, since 1995, have brought many of the visual content industry’s leading collections under one centralized corporate structure.

We provide our high quality, relevant imagery to creative professionals at advertising agencies, graphic design firms, corporations and film and broadcasting companies; press and editorial customers involved in newspaper, magazine, book, CD-ROM and online publishing; and corporate communications departments and other business customers. By aggregating the content of our various leading imagery collections on the Internet and partnering with third-party providers, we offer a comprehensive and user-friendly solution for our customers’ imagery and related product needs, including still and moving images and related products and services. We seek to leverage our internally developed search and e-commerce technology to enhance our position as a leader in the visual content industry.

B. Background

The company was formed in 1995 as a United Kingdom (U.K.) corporation under the name Getty Communications plc. We commenced operations on March 14, 1995, with the acquisition of Tony Stone Images (now “Stone”), a leading provider of contemporary stock photography. We registered as a Delaware corporation on September 4, 1997, under the name of Getty Communications (USA), Inc. The company’s name was changed to Getty Images, Inc. on October 6, 1997, and Getty Images became the worldwide corporate entity following the acquisition of PhotoDisc, Inc. on February 9, 1998.

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C. Products, Services and Customers

Products and Services

We offer our customers a variety of visual content products, including creative imagery (both still and moving images), news and sports photography, archival imagery, illustrations and related products and services. Our imagery is offered to customers through our creative photography collections (The Image Bank, PhotoDisc, Stone, Eyewire and others), Getty Images Motion, our news and sports business and HultonyArchive. These products and services are offered through our website, CD-ROMs, catalogs and our international distribution network of company-operated offices in approximately 25 cities and agents and distributors in approximately 55 countries.

Customers

We serve a variety of customers in three major categories: advertising and design agencies, publishing and media companies and corporate communications departments.

Advertising and Design Agencies. For our advertising and design agency customers, we supply images that cover a wide variety of contemporary subjects including lifestyles, business, science, health and beauty, sports, transportation and travel. These customers usually have a commercial, advertising or editorial message they are trying to convey and, consequently, are typically looking for a specific conceptual image. Image quality and relevance are important factors in the customer’s decision. Advertising and design agency customers need to access imagery as part of their everyday working life. Their workflow is becoming increasingly digital, which we believe will spur further demand for our images and services in this market.

Publishing and Media Companies. We supply images to a customer base of professional image users who are involved in the publication of newspapers, books and magazines, both online and in traditional media, as well as the production of commercial motion pictures, documentaries and other editorial media. The imagery that is provided to these customers ranges from contemporary news, celebrity and feature material and sports imagery, to archival imagery covering major political, social and sporting events since the beginning of photography in the early nineteenth century. These customers are looking for imagery that conveys information to illustrate the story they are covering and often require the imagery to be delivered rapidly after the event has occurred.

Corporate Communications Departments. We offer a variety of still and moving imagery to corporate communications departments and other business users. These customers need imagery for a wide range of business communication materials for internal and external use, including brochures, employee communications, annual reports, newsletters, websites and presentations.

D. Content Development

For our customers requiring creative imagery, we have creative teams in London, Los Angeles, Munich, Paris, Seattle and New York that analyze customer requests and buying behavior and perform research in key markets in order to target and source images. We have contractual relationships with contributing photographers to serve the creative professional, including highly respected, internationally renowned professional photographers representing a variety of styles, specialties and backgrounds. In many cases, we provide art direction for our photographers while they are taking the photographs, working with them on location around the world. We accept into our creative photography collections approximately 30,000 to 40,000 new images each year. All new images accepted into our collections are digitized, keyworded, posted on our website and available for search, selection, purchase and download 24 hours a day, seven days a week.

For customers seeking film footage, we maintain and license a growing library of commercially desirable cinematography covering a broad range of contemporary and archival subject matter. Our film business represents imagery from hundreds of cinematographers and film producers, which is cataloged on computer for quick access and retrieval in film, tape and digital formats.

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For our publishing and media customers, our ability to source imagery from news and sports events as they occur and to make them immediately available to customers is critical to our success. To this end, we have production hubs in New York, Los Angeles, London and Sydney to which photographers can submit imagery at any time. To serve our publishing and media customers, we employ staff photographers and have contractual relationships with hundreds of additional photographers. In addition to topics that we believe will be of interest perennially, we seek to identify upcoming events that will generate demand for particular archival images. We also offer in-depth research services for our customers’ more extensive projects in addition to editorial and corporate assignment services, handling the special photo assignment needs of our editorial or corporate customers. We receive hundreds of digital images per week from our photographers around the world, and make these available through a proprietary online subscription service and over the Internet. By using digital technologies, we are able to make new images available online within fifteen minutes of creation from major news and sports events such as the war in Afghanistan or The Olympic Games.

E. Marketing, Sales and Distribution

Marketing

We reach our customers through a diverse set of marketing methods, such as print ads, direct mail, e-mail communications, our website and printed catalogs. We believe that these methods create brand awareness and, in many cases, act as sales tools in the selection of image products for license. We also serve our international markets by producing localized marketing materials where appropriate.

Online Marketing. Our website acts as a marketing tool as well as a sales tool, making the images of each collection available for research and selection online. For example, we often promote on our website new collections of images available on CD-ROM. In addition, our news and sports business regularly provides a summary of the latest breaking stories in the news section of our website where customers can see, purchase and download available imagery.

Printed Catalogs and Direct Mail. We use catalogs to market the contemporary photography of our creative photography and editorial collections. We believe that our catalog quality contributes to our strong reputation and that the catalogs drive demand for our images both to our website and into our customer service centers.

Demonstration Reels. We market our film footage through demonstration reels sent directly to our existing and potential customers. These demonstration reels contain samples of available footage.

Sales and Distribution

We license our imagery through our broad international distribution network of company-operated offices, agents and distributors in approximately 55 countries. We believe that control of our outlets results in more focused sales and marketing activities and better brand maintenance. A direct sales force and key account management team targets advertising, publishing and communications companies, as well as other high volume users of images. Our direct sales force focuses on reaching image purchasers who are generally responsible for large order purchases. In order to assist our customers in using the images, our sales force includes technical support staff and training personnel who provide assistance to customers. These consultants have expertise in digital image applications, design tools and photo manipulation methodologies.

We encourage our customers to take advantage of the comprehensive image search capabilities of our website and digital delivery of selected images. Over the past few years, the percentage of our business that originates on our website and is digitally delivered over the Internet to our customers has increased substantially. We believe the ability to search for, select, purchase and download images over the Web offers our customers advantages in terms of convenience, speed and cost efficiency, and enables us to achieve greater economies of scale. We will continue to focus on digital delivery as the primary method of delivering images to our customers. Direct communication with our customers, however, remains a significant component of our sales strategy. Our sales representatives assist customers in finding the images they need and keep them informed about new products and services offered by the company. We also support and serve our customers who wish to receive our imagery through traditional analog means, which involves the physical distribution of imagery

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Product Rights. We maintain ownership or control of our products at all times. Customers may purchase the rights, on an exclusive or non-exclusive basis, to use single images, video and film clips or CD-ROM products containing multiple images. Customers may also purchase rights to our press and editorial products on a subscription basis. Ownership of the images never passes to the customer.

F. Operations and Technology

In 2001, we achieved significant milestones in the implementation of new enterprise-wide systems to enable customers to search, select, purchase and download digital content on our gettyimages.com website, as well as the back-office systems to support our site, including sales order processing, customer database management, finance and accounting. These new systems span multiple operational activities, including customer interaction, transaction processing, order fulfillment and invoicing.

The October 6, 2001 launch of gettyimages.com marked a significant milestone in the business-wide initiative to integrate the company’s Web offerings and business processes. The gettyimages.com website provides one centralized source for all of our products and services, including photographs, film clips, illustrations, fonts and services to manage, present, commission and license imagery. The website provides advanced search capabilities as well as enhancements to the price calculator enabling customers to obtain precise real-time pricing 24 hours a day. An additional milestone was reached in February 2002 with the launch of localized language websites that enable customers to search for and purchase imagery and related materials in United States (U.S.) English, U.K. English, French and German and complete transactions in U.S. dollars, Euros and British pounds. Additionally, with the February 2002 system enterprise upgrade, we migrated a significant portion of our royalty-free stock photography business to the new gettyimages.com website.

The technology architecture supporting gettyimages.com employs a set of software applications for:

	•	categorizing digital content and embedding appropriate keywords and search data (metadata);
	•	searching large information databases across languages and linguistic context;
	•	presenting detailed information related to specific digital content elements;
	•	managing online e-commerce transactions for the purchase of digital content;
	•	managing invoice generation and accounts receivable from customers; and
	•	tracking a broad range of intellectual property rights and permissions.

These services and systems use a combination of our proprietary technologies and commercially available, licensed technologies. We focus our internal development efforts on creating and enhancing the specialized, proprietary software that is unique to our business. We intend to continue to investigate, qualify and develop technology and internal systems that support key areas of our business to enhance the online and offline experience for our customers. In particular, we have implemented and continue to develop a flexible infrastructure that will facilitate the sale and distribution of third party digital content through our online e-commerce systems.

Certain of our image search, image selection, rights management, customer interaction, order collection, fulfillment and back-office systems are proprietary. Our online platform architecture is primarily based on Microsoft technologies. These systems were designed to provide reliable e-commerce connectivity and responsive online customer interaction. Our systems infrastructure is hosted internally at multiple locations and externally at Cable & Wireless Internet Services. Both internal and external hosting centers provide 24-hour monitoring, power generators and limited back-up systems.

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G. Competition

The market for visual content and related products and services is highly competitive. We believe that the principal competitive factors are name recognition, company reputation, the quality, relevance and diversity of the images, the quality of contributing photographers and cinematographers under contract with a company, effective use of developing technology, customer service, pricing, accessibility of imagery, distribution capability and speed of fulfillment. Our current or potential competitors include: other general visual content providers such as Corbis Corporation, Digital Vision, Superstock and Zefa Visual Media; specialized visual content companies that are well established in their local, content or product-specific markets such as Reuters News Service, the Associated Press, Agence France Presse, Action Images plc and Science Photo Library; stock film footage businesses such as Sekani, Inc.; and commissioned photographers. There are also hundreds of small stock photography and film footage agencies and image content aggregators throughout the world.

Please see Item 1. Business — I. “Factors That May Affect the Business” for more information about the competitive conditions in the visual content industry.

H. Intellectual Property

Most of the images licensed by us are obtained from independent photographers and cinematographers on an exclusive basis. Professional photographers and cinematographers prefer to retain ownership of their work. As a result, copyright to an image remains with the contributing photographer or cinematographer in most cases, while we obtain the exclusive right to market the image on behalf of the photographer or cinematographer for a period of time. A substantial portion of the news and sports images, HultonyArchive images and certain images of our other collections are owned by us or are in the public domain.

We also own numerous trademarks that are important to our business. Depending upon the jurisdiction, trademarks are valid as long as they are in use and/or their registrations are properly maintained and they have not been found to have become generic. Registrations of trademarks generally can be renewed indefinitely as long as the trademarks are in use (please see below at Item 1. Business — I. “Factors That May Affect the Business — Our Right to Use the Getty Trademarks Is Subject to Forfeiture in The Event We Experience a Change of Control” for more information about certain of our trademarks).

I. Factors That May Affect the Business

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

As a result of the acquisition strategy we have pursued since our inception in 1995, we have focused significant resources and attention on integrating acquired businesses. The integration focused on the installation and development of new enterprise systems for technology, business processes, sales and marketing systems, finance and royalty systems, customer interface, and other corporate administrative functions for the continued transformation and consolidation of company-wide systems. The October 6, 2001 launch of gettyimages.com marked a significant milestone in the company-wide initiative to integrate the company’s Web offerings and business processes. An additional milestone was reached in February 2002 with the launch of localized language websites and commerce systems in France, Germany and the U.K., and with the migration of a significant portion of our royalty-free stock photography business to the gettyimages.com website. However, our future performance will largely depend on our ability to complete the implementation of new enterprise systems for our finance, sales and customer database systems. These implementations create risks such as:

	•	disruption of our ongoing business;
	•	delays in reporting systems, which could impact our ability to process information on a timely basis;
	•	delays in properly identifying and processing data necessary for management functions, including accounting, financial reporting and planning; and
	•	diversion of attention of our senior management from existing operations and other potential business opportunities.

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

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We May Not be Able to Respond to Rapid Technological Changes Relating to the Internet.

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

We May Not be Able to Compete Effectively Against Our Existing or Potential Competitors.

The visual content industry is highly competitive. We compete directly with a number of large and small visual content companies and commissioned photographers to provide imagery to businesses. We believe that the principal competitive factors in the visual content industry are name recognition, company reputation, the quality, relevance and diversity of the images, the quality of the contributing photographers and cinematographers under contract with a company, effective use of developing technology, customer service, pricing, accessibility of imagery, distribution capability and speed of fulfillment. Some of our existing and potential competitors may have significantly greater financial, marketing and other resources or greater name recognition than we have. In addition, possible new entrants into the visual content industry could increase if technological advances make archiving, searching and digital delivery systems more affordable.

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

We May Not Succeed in Establishing the “Getty Images” Brand.

Historically, we have marketed each of Getty Images’ brands as its own collection. On October 6, 2001, we launched gettyimages.com, a significant step toward integrating the company’s Web-based offerings, supporting technology platform and business practices under the “Getty Images” brand name. Continued positioning of the “Getty Images” brand will largely depend on the success of our advertising and promotional activities and our ability to provide customers with high quality products and strong customer service. We believe that a favorable customer reception of this brand is important to our future success. If our brand enhancement strategies are unsuccessful, we may be unable to realize potential benefits of “Getty Images.” Additionally, securing the “Getty Images” trademark is an important part of the branding strategy, and barriers arising from third parties or trademark officials in various countries may hinder our effort to secure trademarks in key markets or trademark classes.

Our Right to Use the “Getty” Trademarks is Subject to Forfeiture in the Event We Experience a Change of Control.

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

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Getty Investments L.L.C. owns approximately 18% of the outstanding shares of our common stock as of March 1, 2002. Mr. Mark Getty, the Executive Chairman serves as the Chairman of the Board of Directors of Getty Investments, while Mr. Jonathan Klein, the CEO of Getty Images, and Mr. Andrew Garb, a member of our Board of Directors, serve on the Board of Directors of Getty Investments.

Our Future Success Depends on Our Ability to Retain Key Employees.

Our future success will depend upon our ability to identify, retain and motivate highly skilled technical, managerial, product development, editorial, merchandising, sales, marketing and customer service employees. Our success will also depend, in part, on the continued service of Mr. Mark Getty, our Executive Chairman, and Mr. Jonathan Klein, our Chief Executive Officer. Mr. Getty and Mr. Klein are each party to an employment agreement with us for a minimum period of three years, which absent a breach cannot be terminated except on twelve months’ written notice. We do not have “key person” life insurance policies covering either Mr. Getty or Mr. Klein.

Our Business is Sensitive to Changes in Economic and Political Conditions.

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

There was a slowdown in advertising and media spending in 2001, which we believe has had an impact on the demand for the company’s products and services. Management does not know when the domestic or international economic climate will improve. Additionally, continued economic and political difficulties, the uncertainty arising from the impacts of the September 11, 2001 attacks on the World Trade Center and the Pentagon, and fears regarding war or additional terrorist actions may have a potential negative impact on our company and customer base.

Fluctuations in Foreign Exchange Rates Could Have a Negative Impact on the Results of Our Non-U.S. Based Operations.

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

Our Quarterly Financial Results May Fluctuate.

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

	•	demand for our products;
	•	changes in sales mix, including the mix of sales of analog and digital imagery, company owned and licensed imagery, and the geographic distribution of such sales;
	•	our ability to attract visitors to our websites and the frequency of repeat purchases by our customers;

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	•	shifts in the nature and amount of publicity about us, our competitors or the visual content industry;
	•	changes in the growth rate of Internet commerce;
	•	our ability to enhance our technology to accommodate any future growth in our operations or customers;
	•	changes in our pricing policies or the pricing policies of our competitors;
	•	costs related to potential acquisitions of technology or businesses; and
	•	changes in U.S. and global financial and equity markets.

Our Stock Price has Been and May Continue to be Volatile.

The market price of our common stock has been volatile, with a broad ranging market price in the past two years alone. Fluctuations in the trading price of our common stock may continue in response to a number of events and factors, including the following:

	•	new products, services and strategic developments by us or our competitors;
	•	business combinations and investments by us or our competitors;
	•	variations in our revenues, expenses or profitability;
	•	changes in financial estimates and recommendations by securities analysts;
	•	failure to meet the expectations of securities analysts and investors; and
	•	performance by other visual content or media industry companies.

Any of these events may cause the price of our shares to change. Additionally, broad market and industry fluctuations may adversely affect the market price of our shares, regardless of our operating performance.

Impairment of the Value of Significant Assets Could Have an Adverse Impact on Our Operating Results.

Our operating results and earnings in future periods may be adversely affected as a result of impairments to the reported value of certain significant assets, the valuation of which require management’s most difficult judgments as a result of the need to make estimates and assumptions about the effect of matters that are inherently uncertain.

Deferred Income Taxes

Deferred income taxes reflect the impact of temporary differences between financial and tax reporting and of tax loss carryforwards, and are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2001, the company had net deferred tax assets of $65.1 million, net of a valuation allowance of $12.8 million that was established in 2001. Although realization is not assured, management believes, based on its current estimates of future taxable income for its U.S. operations and tax-planning strategies, that it is more likely than not that the net deferred tax assets will be realized within a reasonable period of time and substantially prior to the expiration of the net operating loss carryforwards. In the event that actual results differ from management’s expectations, the valuation allowance could materially change, directly impacting our financial position and results of operations. If domestic taxable income is not earned as planned, the domestic tax loss carryforwards will expire from 2018 to 2021, and the company may be required to take the balance through the income statement as income tax expense in advance of the expiration of the loss carryforwards.

Goodwill and Identifiable Intangibles

Intangible assets comprise goodwill and identifiable intangibles. Goodwill is the excess of the purchase price and related costs over the fair value of net assets acquired in business combinations. Identifiable intangibles consist mainly of customer lists, covenants not to compete, photographer contracts, trademarks and

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Certain Assets

The useful lives of certain of the company’s assets, including capitalized image duplication and digitization costs (included within property and equipment), are based upon the estimated period over which the assets are expected to provide benefit to the company. This future benefit is inherently uncertain, and therefore, the lives of these assets require management’s most difficult judgments. The balance of image duplicates and digitization, net of accumulated depreciation, was $39.6 million at December 31, 2001 and is being depreciated over useful lives of two to four years. Should the company determine at some point in the future that the useful lives of these assets are shorter than previously determined, the company would be required to accelerate the depreciation, or possibly write off the impaired portion, of the undepreciated balance of such assets.

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

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

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

We May Not be Able to Secure Additional Financing to Meet Our Future Capital Needs.

We currently anticipate that our available cash resources, cash flow from operations and our senior credit facility will be sufficient to meet our anticipated needs for working capital and capital expenditures for at least the following 12 months. After this time, if we are unable to generate sufficient cash flows from operations to meet our anticipated needs for working capital and capital expenditures, we will need to raise additional funds to, among other things, promote our products and services, develop new and enhanced services, respond to competitive pressures or make acquisitions. Our senior credit facility expires in October 2002. While we are working to establish a new senior credit facility to replace our expiring facility, we may be unable to obtain any required additional financing on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to complete our systems integration or other capital improvements, promote our products and services successfully, develop or enhance services, respond to competitive pressures or take advantage of acquisition opportunities. If we raise additional funds through the issuance of equity securities, our stockholders may experience dilution of their ownership interest, and the newly issued securities may have rights superior to those of our common stock. If we raise additional funds by issuing new debt, the

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Certain of Our Stockholders Can Exercise Significant Influence Over Our Business and Affairs and May Have Interests That Are Different Than Yours.

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

The Getty Group collectively owned approximately 21% of the outstanding shares of our common stock as of March 1, 2002, and comprises the following persons and entities: Getty Investments L.L.C.; The October 1993 Trust; The JD Klein Family Settlement; Mr. Mark Getty, our Executive Chairman; and Mr. Jonathan Klein, our Chief Executive Officer.

The Torrance Group collectively owned approximately 6% of the outstanding shares of our common stock as of March 1, 2002, and comprises the following persons and entities: PDI, L.L.C.; Mr. Mark Torrance; Ms. Wade Ballinger (the former wife of Mark Torrance); and certain of their family members.

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

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

Certain Provisions of Our Corporate Documents and Delaware Corporate Law May Deter a Third Party From Acquiring Our Company.

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

An Increase in Government Regulation of the Internet and E-Commerce Could Have a Negative Impact On Our Business.

We are subject to a number of regulations applicable to businesses generally, as well as laws and regulations directly applicable to e-commerce. Although existing laws and regulations affecting e-commerce are not unduly burdensome, state, federal and foreign governments have and may continue to adopt legislation regulating the Internet and e-commerce. Such legislation or regulation could both increase our cost of doing business, and impede the growth of the Internet while decreasing its acceptance as a communications and commerce medium. If a decline in the use of the Internet occurs, businesses and consumers may decide in the future not to use our online services.

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

	•	user privacy and data transmission;
	•	pricing and taxation of goods and services over the Internet;
	•	website content;
	•	characteristics and quality of products and services offered over the Internet; and
	•	the liabilities for companies involved in the Internet or e-commerce.

Systems Security Risks and Concerns May Harm Our Business.

A significant barrier to e-commerce and online communications is the secure transmission of confidential information over public networks. Developments in computer capabilities, viruses, and advances in the field of cryptography or other events could result in compromises or breaches of our security systems or those of other websites, jeopardizing our proprietary and confidential information. Anyone who circumvents our security measures could misappropriate proprietary or confidential information or cause potentially serious interruptions in our services, sales or operations.

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

We May Experience System Failures and Service Interruptions on Our Websites That Could Result in Adverse Publicity, Customer Dissatisfaction and Revenue Losses.

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

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

The computer and communications hardware necessary to operate our corporate functions and much of our e-commerce operations is located at facilities in the Seattle, Washington metropolitan area. Our other businesses have systems in other locations worldwide. Any of these systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, earthquake and similar events. In addition, while we take steps to ensure the security and integrity of our systems, computer viruses, physical or electronic break-ins and similar disruptions could cause system interruptions or delays that could temporarily

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J. Relationship With Our Employees

At December 31, 2001, we had 1,845 employees. Of these, 1,007 were located in North America, 739 in Europe and 99 in the rest of the world. We believe that we have satisfactory relations with our employees.

K. Governmental Regulation

All of our facilities, including those in the U.S., are subject to environmental laws and regulations. Compliance with these provisions has not had, and we do not expect such compliance to have, any material adverse effect upon our business, financial condition or results of operations.

L. Recent Significant Events

None.

Item 2. Properties

Our principal executive offices and worldwide headquarters are in Seattle, Washington. We also have a significant presence in New York City, New York and London, England.

In Seattle, we are the lessee of approximately 297,100 square feet of office space pursuant to six leases. Leases covering approximately 8,700 square feet, 78,600 square feet, 29,600 square feet and 180,200 square feet expire in December 2002, March 2003, September 2004 and August 2013, respectively. Approximately 90,700 square feet of the total leased space has been identified as excess, of which 59,400 square feet is currently subleased.

In New York, we are the lessee of approximately 283,900 square feet of office space pursuant to five leases. Leases covering approximately 16,000 square feet, 10,000 square feet and 257,900 square feet expire in January 2003, December 2005 and March 2015, respectively. Approximately 161,800 square feet of the total leased space has been identified as excess, all of which is currently subleased.

In London, we are the lessee of approximately 95,700 square feet of office space pursuant to seven leases. Leases covering approximately 13,900 square feet, 1,500 square feet, 13,000 square feet, 23,200 square feet, 9,700 square feet, 14,400 square feet and 20,000 square feet expire in December 2002, June 2004, August 2010, October 2010, March 2014, October 2015 and August 2016, respectively. We also own one freehold property of approximately 8,000 square feet in London. Approximately 26,900 square feet of the total leased space has been identified as excess, none of which is currently subleased.

In addition, we lease office space for our wholly owned offices throughout the world in key business centers.

Our existing facilities are adequate and appropriate for our operations.

Item 3. Legal Proceedings

We have been, and may continue to be, subject to legal claims from time to time in the ordinary course of our business, including those related to alleged infringement of the trademarks and other intellectual property rights of third parties, such as the failure to secure model and property releases, and claims by photographers relating to our handling of images submitted to us. We have accrued a liability and charged operations for the estimated costs of settlement or adjudication of claims for which we believe a loss is probable. Presently, there are no pending legal proceedings to which we are a party or to which any of our property is subject which, either individually or in the aggregate, are expected to have a material adverse effect on our consolidated financial position, results of operations or liquidity.

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

No matter was submitted to a vote of the company’s stockholders, through solicitation of proxies or otherwise, during the fourth quarter of fiscal year 2001.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Our common stock is traded on the Nasdaq National Market (Nasdaq) under the symbol “GETY.” The following table sets forth, for each of the quarterly periods indicated, the high and low sale prices of our common stock as reported on the Nasdaq.

On March 1, 2002, the closing market price of our common stock as reported on the Nasdaq was $26.89 per share. There were approximately 143 holders of record of our common stock on that date.

We have not paid or declared any dividends on our common stock since our inception and anticipate that we will retain our future earnings to finance the continuing development of our business. The payment of any future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, the success of our business activities, regulatory and capital requirements, our general financial condition and general business conditions. In addition, our current senior credit facility prohibits the payment of dividends. Our Board of Directors does not expect to declare cash dividends on our common stock in the near future.

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Item 6. Selected Consolidated Financial Data

The following selected consolidated financial data is qualified by reference to, and should be read in conjunction with, our consolidated financial statements and notes thereto included in Item 14(A) and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7. Historical results are not necessarily indicative of the results to be expected in the future.

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Item 7. 

The following should be read in conjunction with our consolidated financial statements and the notes thereto, Item 1. “Business,” Item 6. “Selected Consolidated Financial Data,” and the other financial information contained elsewhere and incorporated by reference in this Annual Report. In the following discussion, “we,” “us” and “our” refer to Getty Communications plc for 1997, Getty Communications plc combined with Getty Images, Inc. and subsidiaries (the company) for 1998, and the company for 1999, 2000 and 2001.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of Getty Images, Inc. We may, from time to time, make written or oral statements that are “forward-looking,” including statements contained in this Annual Report on Form 10-K, the documents incorporated herein by reference, and other filings with the Securities and Exchange Commission. These statements are based on management’s current expectations, assumptions, estimates and projections about Getty Images, Inc. and its industry and are made on the basis of management’s views as of the time the statements are made. All statements, trends, analyses and other information contained in this report relative to trends in sales, gross margin, anticipated expense levels and liquidity and capital resources, as well as other statements including, but not limited to, words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “seek,” “intend” and other similar expressions, constitute forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that are difficult to predict. Accordingly, actual results may differ materially from those anticipated or expressed in such statements. Potential risks and uncertainties include, among others, those set forth herein under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as “Factors That May Affect the Business.” Except as required by law, the company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. Readers, however, should carefully review the factors set forth in other reports or documents that the company files from time to time with the Securities and Exchange Commission.

GENERAL

Overview

The company is a leading provider of imagery and related products and services to businesses worldwide. We pioneered the solution to aggregate and distribute visual content and, since 1995, have brought many of the visual content industry’s leading collections under one centralized corporate structure.

We provide our high quality, relevant imagery to creative professionals at advertising agencies, graphic design firms, corporations and film and broadcasting companies; press and editorial customers involved in newspaper, magazine, book, CD-ROM and online publishing; and corporate communications departments and other business customers. By aggregating the content of our various leading imagery collections on the Internet and partnering with third party providers, we offer a comprehensive and user-friendly solution for our customers’ imagery and related product needs, including still and moving images and related products and services.

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

Our cost of sales primarily consists of commission payments to contributing photographers and cinematographers. These suppliers are under contract with the company and receive payments of up to 50% of the sales value, depending on the type of product and where and how the product is licensed. We own a significant number of the images in our collections and these images do not require commission payments. Cost of sales also includes, to the extent applicable, shipping and handling costs for duplicate transparencies and the costs of

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For the company, EBITDA is defined as earnings before income taxes, depreciation, amortization, interest, exchange gains and losses and, when applicable, integration costs and impairment of assets, loss on excess office space, restructuring costs, loss on impairment of investments, debt conversion expense, extraordinary items and other income and expenses. This figure can more easily be calculated as gross profit less selling, general and administrative expenses in the years presented. We believe that EBITDA provides investors and analysts with a measure of operating income unaffected by the financing and accounting effects of acquisitions and integration and restructuring activities, and assists in explaining trends in our operating performance. EBITDA should not be considered as an alternative to operating income as an indicator of our operating performance or to cash flows as a measure of our liquidity. EBITDA may not be comparable to other similarly titled measures used by other companies.

Critical Accounting Policies and Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the revenues and expenses reported during the period. Following are accounting policies that management believes are both most important to the portrayal of the company’s financial condition and results of operations and that require management’s most difficult judgments as a result of the need to make estimates and assumptions about the effect of matters that are inherently uncertain.

Income Taxes