Getty Images Reports Financial Results for the Fourth Quarter and Full

Getty Images Reports Financial Results for the Fourth Quarter and Full Year of 2004

    Business Editors

    SEATTLE--(BUSINESS WIRE)--Jan. 27, 2005--

Industry Leader Grows Revenue, Operating Margin and Net Income to Record Levels and Raises Guidance for 2005
    Getty Images, Inc. (NYSE:GYI), the world's leading imagery company, today reported results for the fourth quarter and the year ended December 31, 2004.

    Quarterly Highlights

--	Revenue grew 21 percent over the fourth quarter of 2003
--	Operating margin improved to 27 percent
--	Earnings per diluted share increased 53 percent (excluding a credit to income tax expense in the fourth quarter of 2003) over the fourth quarter of 2003
--	Net cash provided by operating activities was $63.8 million

    "A strong December capped another record-setting year for Getty Images -- we achieved the highest level of revenue, operating margin and net income in our ten-year history, for both the fourth quarter and full year," said Jonathan Klein, Getty Images' co-founder and CEO. "We met or exceeded every 2004 target we set for the company, including achieving significant growth in our editorial business, launching the first fully localized e-commerce site in Japan and achieving a 27 percent operating margin, two full percentage points ahead of our target."
    For the fourth quarter, revenue grew 20.6 percent to $162.1 million, compared to $134.4 million in the fourth quarter of 2003. Excluding the effects of changes in currency exchange rates, revenue grew 15.5 percent. Operating income for the fourth quarter of 2004 grew 54.1 percent to $43.8 million, or 27.0 percent of revenue, compared to $28.4 million, or 21.1 percent of revenue, in the same quarter last year.
    Net income was $28.7 million, or $0.46 per diluted share, compared to $28.2 million, or $0.48 per diluted share for the fourth quarter of 2003. Results for the fourth quarter of 2003 included a credit to income tax expense of $10.2 million, or $0.18 per share, to reflect a reduction in the balance of the valuation allowance on deferred tax assets. Excluding the effect of the reduction in the valuation allowance, net income grew 60.0 percent to $28.7 million from $17.9 million and diluted EPS grew 53.3 percent to $0.46 from $0.30 in the fourth quarter of 2003.
    Gross margin for the quarter rose to 72.4 percent from 72.0 in the fourth quarter of 2003. Selling, general & administrative expenses (SG&A) totaled $61.3 million, compared to $53.3 million in the year ago quarter. As a percentage of revenue, SG&A declined to 37.8 percent from 39.7 percent in the fourth quarter of 2003. Fourth quarter 2004 SG&A includes costs associated with the convertible debt exchange of approximately $1.5 million.
    For the fourth quarter, net cash provided by operating activities was $63.8 million, compared to $54.9 million for the same quarter last year. The acquisition of property and equipment was $11.0 million for the fourth quarter compared to $12.8 million for the same quarter last year.

    Full Year Highlights

    -- Revenue grew 19 percent over 2003

    -- Operating margin reached 27 percent

    -- Net income grew 75 percent and earnings per diluted share
    increased 65 percent over 2003 (excluding the net effect of
    one-time charges in 2003)

    -- Net cash provided by operating activities was $202.6 million

    For 2004, revenue grew 19.0 percent to $622.4 million compared to $523.2 million in the prior year. Excluding the effects of changes in currency exchange rates, revenue rose 12.7 percent compared to 2003. Operating income for the full year of 2004 rose 62.9 percent to $168.3 million, or 27.0 percent of revenue. In 2003, operating income totaled $103.3 million, or 19.7 percent of revenue.
    For 2004, net income was $106.7 million, or $1.72 per diluted share, compared to $64.0 million, or $1.11 per diluted share for 2003. Results for 2003 included a $10.2 million credit to income tax expense, equating to $0.20 per diluted share on a full-year basis. In addition, 2003 results included debt extinguishment costs of $11.8 million, or $0.12 per diluted share. Excluding the effect of the credit to income tax expense and the debt extinguishment costs, net income grew 75.0 percent to $106.7 million from $61.0 million and earnings per diluted share grew 65.3 percent to $1.72 from $1.04 in 2003.
    Gross margin for the year increased to 72.3 percent from 71.6 percent for 2003. SG&A in 2004 totaled $225.1 million, or 36.2 percent of revenue, compared to $210.0 million, or 40.1 percent of revenue in 2003.
    Cash and short-term investment balances were $520.7 million at December 31, 2004, up from $307.6 million at December 31, 2003.
    For 2004, net cash provided by operating activities was $202.6 million, compared to $158.1 million for 2003. The acquisition of property and equipment was $36.7 million for 2004, compared to $35.3 million for 2003.

    Business Outlook

    The following forward-looking statements reflect Getty Images' expectations as of January 27, 2005. The company currently does not intend to update or revise these forward-looking statements until the next quarterly results announcement.
    For the first quarter of 2005, the company expects to report revenue in the range of $175 million to $180 million and earnings per diluted share of $0.51 to $0.54.
    For 2005, the company is raising guidance and expects revenue in the range of $705 million to $715 million and earnings per diluted share of $2.10 to $2.20. The number of fully diluted shares assumed in the guidance is approximately 64 million for both the first quarter and full year. Guidance for 2005 does not include the impact of expensing share-based compensation, which becomes mandatory in the company's quarter ending September 30, 2005 pursuant to Financial Accounting Standards Board Statement No.123R.

    Webcast information

    The company will host a conference call today at 2:00 pm PT. The dial-in number is 800-967-7185 (North America) or 719-457-2634 (international), confirmation number 341685. There will be a live webcast of the conference call, which can be accessed from the Investors page in the About Us section of the Getty Images Web site at www.gettyimages.com. The company will also provide a replay of the conference call at 888-203-1112 (North America) or 719-457-0820 (international), confirmation number 341685, until January 28, at 9:00 pm PT. The webcast will be archived on the Getty Images Web site and will be available until January 27, 2006.

    Some of the statements in this press release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's expectations, assumptions and projections about Getty Images and its industry as of the time the statements are made. These forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that could cause our actual results to differ materially from our past performance and our current expectations, assumptions and projections. Differences may result from actions taken by the company as well as from risks and uncertainties beyond the company's control. These risks and uncertainties include, among others, the risks associated with currency fluctuations, changes in the economic, political, competitive and technological environments, and the risks associated with system security, upgrades, updates and service interruptions. The foregoing list of risks and uncertainties is illustrative, but by no means exhaustive. For more information on factors that may affect future performance, please review the reports filed by Getty Images with the Securities and Exchange Commission, in particular our Form 10-Q for the quarter ended September 30, 2004 and Annual Report on Form 10-K for the year ended December 31, 2003. Except as required by law, Getty Images undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future developments or other events.

    About Getty Images

    Getty Images is the world's leading imagery company, creating and providing the largest and most relevant collection of still and moving images to communication professionals around the globe. From news and sports photography to contemporary and archival imagery, Getty Images' products are found each day in newspapers, magazines, advertising, films, television, books and Web sites. Gettyimages.com is the first place customers turn to search, purchase and download powerful imagery. Seattle-headquartered Getty Images is a global company with customers in more than 100 countries.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

(In thousands, except per share amounts)

THREE MONTHS ENDED YEARS ENDED DECEMBER 31, DECEMBER 31, 2004 2003 2004 2003 -------- -------- -------- -------- Revenue $162,100 $134,383 $622,427 $523,196 Cost of sales 44,745 37,643 172,684 148,343 -------- -------- -------- -------- Gross profit 117,355 96,740 449,743 374,853 -------- -------- -------- -------- Selling, general and administrative expenses 61,337 53,308 225,128 210,011 Depreciation 12,246 13,785 52,976 57,348 Amortization 1,199 1,054 4,559 4,052 Other operating (income) expenses (1,197) 190 (1,187) 173 -------- -------- -------- -------- Operating expenses 73,585 68,337 281,476 271,584 -------- -------- -------- -------- Income from operations 43,770 28,403 168,267 103,269 Interest expense (941) (909) (3,828) (9,765) Investment income 2,667 965 9,133 3,847 Exchange gains, net 1,083 474 467 2,142 Debt extinguishment costs - - - (11,777) -------- -------- -------- -------- Income before income taxes 46,579 28,933 174,039 87,716 Income tax expense (17,898) (754) (67,389) (23,699) -------- -------- -------- -------- Net income $ 28,681 $ 28,179 $106,650 $ 64,017 -------- -------- -------- -------- Earnings per share Basic $ 0.48 $ 0.50 $ 1.81 $ 1.16 Diluted 0.46 0.48 1.72 1.11 -------- -------- -------- -------- Shares used in computing earnings per share Basic 60,343 56,711 59,006 55,412 Diluted 62,908 58,869 62,031 57,514 -------- -------- -------- --------

CONSOLIDATED BALANCE SHEETS (unaudited)

DECEMBER 31, (In thousands) 2004 2003 ---------- ---------- ASSETS Current assets Cash and cash equivalents $ 290,352 $ 140,058 Short-term investments 230,358 167,525 Accounts receivable, net 89,272 75,781 Prepaid expenses 10,651 9,693 Deferred income taxes, net 8,335 13,206 Other current assets 2,894 1,246 ---------- ---------- Total current assets 631,862 407,509 Property and equipment, net 112,501 123,268 Goodwill 628,717 603,024 Identifiable intangible assets, net 13,874 16,615 Deferred income taxes, net 54,652 62,567 Other long-term assets 9,978 11,101 ---------- ---------- Total assets $1,451,584 $1,224,084 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 67,362 $ 64,454 Accrued expenses 42,810 42,459 Income taxes payable 3,608 8,170 ---------- ---------- Total current liabilities 113,780 115,083 Long-term debt 265,000 265,011 Other long-term liabilities 9,692 8,184 ---------- ---------- Total liabilities 388,472 388,278 ---------- ---------- Stockholders' equity Preferred stock - - Common stock 607 573 Additional paid-in capital 1,210,203 1,098,249 Unearned compensation - (448) Accumulated deficit (168,603) (275,253) Accumulated other comprehensive income 20,905 12,685 ---------- ---------- Total stockholders' equity 1,063,112 835,806 ---------- ---------- Total liabilities and stockholders' equity $1,451,584 $1,224,084 ---------- ----------

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) YEARS ENDED DECEMBER 31, (In thousands) 2004 2003 --------- --------- Cash flows from operating activities Net income $ 106,650 $ 64,017 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 52,976 57,348 Deferred income taxes 51,197 20,569 Amortization of identifiable intangible assets 4,559 4,052 Bad debt expense 3,239 4,058 Reduction of income taxes paid due to the tax benefit from employee stock option exercises 3,233 -- Amortization of debt issuance costs 1,915 1,837 Debt extinguishment costs -- 11,777 Reversal of deferred tax asset valuation allowance relating to net operating losses -- (10,249) Other changes in long-term assets and liabilities 3,607 1,359 Changes in current assets and liabilities, net of effects of business acquisitions Accounts receivable (16,006) (914) Accounts payable (530) 2,585 Accrued expenses (2,510) (6,979) Income taxes payable (4,039) 3,314 Changes in other current assets and liabilities (1,709) 5,280 --------- --------- Net cash provided by operating activities 202,582 158,054 --------- --------- Cash flows from investing activities Acquisition of available-for-sale investments (242,661) (158,636) Proceeds from the sale of available-for-sale investments 176,948 10,898 Acquisition of property and equipment (36,723) (35,347) Acquisition of businesses, net of cash acquired (25,611) (5,496) Proceeds from the maturity of held-to-maturity investments -- 20,388 Other investing activities 46 309 --------- --------- Net cash used in investing activities (128,001) (167,884) --------- --------- Cash flows from financing activities Proceeds from the issuance of common stock 73,998 70,866 Debt issuance and exchange costs paid (1,429) (7,965) Repayment of debt -- (250,000) Proceeds from the issuance of long-term debt -- 265,000 Payment of debt premium -- (7,142) --------- --------- Net cash provided by financing activities 72,569 70,759 --------- ---------

Effects of exchange rate differences 3,144 3,024 --------- --------- Net increase in cash and cash equivalents 150,294 63,953 Cash and cash equivalents, beginning of period 140,058 76,105 --------- --------- Cash and cash equivalents, end of period $ 290,352 $ 140,058 --------- ---------

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CONTACT: Getty Images, Inc. Liz Huebner, 206-925-6003 (Investors) liz.huebner@gettyimages.com Deb Trevino, 206-925-6474 (Media) deb.trevino@gettyimages.com

KEYWORD: WASHINGTON INDUSTRY KEYWORD: BANKING INTERNET E-COMMERCE EARNINGS CONFERENCE CALLS SOURCE: Getty Images, Inc.

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