| GETTY IMAGES INC ITEM 1A RISK FACTORS WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST COMPETITORS The market for visual content and related services is highly competitive |
| We believe 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 and licensing models, 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 otherwise have 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” within Item 1 above |
| 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 and licensing models, policies and practices; • changes in the mix of imagery licensed and services sold, 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 or expiration of certain image partner, distributor, or reseller agreements; and • changes in estimates and assumptions made by us 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 this 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 ACQUIRING OR INTEGRATING BUSINESSES As part of our business strategy, we have in the past acquired and invested in, 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 other risks related to acquisitions that may have a material impact on our business or prevent us from benefiting from an acquisition or investment 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; ______________________________________________________________________ [34]Table of Contents 7 GETTY IMAGES, INC 2005 FORM 10-K PART I ITEM 1A • amortization expense 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; • retention of key employees, customers, and suppliers of an acquired business; and • an adverse review of an acquisition or potential acquisition, or limitations put on such acquisitions, by a regulatory body |
| 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 |
| 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, on which we depend to manage and control our operations |
| We will need to continue to improve our website and systems, as well as our network infrastructure, to improve our customer experience and to accommodate anticipated increased traffic, sales volume, and processing of the resulting information |
| If we do not continue to update and upgrade our website, network and systems, or if we experience significant disruptions or difficulties as a result of or during any such updates or upgrades, we may face system interruptions, poor website 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 uploading images to our website, or taking, processing or fulfilling orders |
| 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 |
| In certain of our offices and facilities, we may 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, website or 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 |
| Significant 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 LLC, 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 17prca of the outstanding shares of our common stock at December 31, 2005 |
| Getty Investments alone owned approximately 15prca of the outstanding shares of our common stock at December 31, 2005 |
| 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 acquisitions |
| The substantial percentage of our common stock held by the Getty Group could also make us a less attractive acquisition candidate or have the effect of delaying or preventing a third party from acquiring control over us at a premium over the then-current price of our common stock |
| In addition to ownership of 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 |
| ______________________________________________________________________ [35]Table of Contents 8 GETTY IMAGES, INC 2005 FORM 10-K PART I ITEM 1A 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 LLC 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 |
| WE MAY NOT BE ABLE TO OBTAIN EXTERNAL FINANCING OR SERVICE OUR INDEBTEDNESS While we currently anticipate that our current cash and cash equivalents and short-term investments 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 our 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 up to the dlra265dtta0 million of principal borrowed potentially at any time upon certain conditions and no 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 |
| The conversion condition was met again at December 31, 2005 |
| Should all or some of the holders elect to convert, we would be required to repay the applicable principal in cash up to dlra265dtta0 million |
| The ability for the holders to convert will expire on March 31, 2006 unless the conversion condition is met again in the last 30 trading days ending on that date |
| See 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 Part II, Item 7 of this Annual Report on Form 10-K Should we need to obtain external financing, through debt or equity, our ability to do so could be affected by changes in US 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 |
| 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 |