GYI Getty Images

Getty Images, Inc. (NYSE:GYI), the world�s leading creator and distributor of visual content and other digital media, today reported results for the first quarter ended March 31, 2008. Revenue increased 9.7 percent to $233.2 million from $212.7 million in the first quarter of 2007. On a currency neutral basis, growth in the first quarter was 4.2 percent. This increase came mainly from increasing licenses of editorial and micropayment imagery. This increase was partially offset by lower revenues in the company�s traditional creative stills business when compared to the prior year. Sequentially, the traditional creative stills business achieved growth of about 1% over the fourth quarter of 2007 on a reported basis and was flat on a currency neutral basis. As a percentage of revenue, cost of revenue was 28.6 percent, compared to 25.8 percent in the prior year. This increase was due to changes in the composition of the company�s royalty-free business, mainly increases in licenses of micropayment imagery that bears higher costs of revenue, as well as the impact of growth in editorial imagery revenue, primarily due to the acquisition of MediaVast in 2007. Selling, general and administrative expenses (SG&A) totaled $96.5 million or 41.4 percent of revenue for the first quarter of 2008, compared to $81.4 million or 38.3 percent of revenue in the first quarter of 2007. Costs associated with the potential merger totaled approximately $5.3 million during the first quarter of 2008. Excluding these costs, SG&A was $91.1 million or 39.1 percent of revenue. The remaining increase over the prior year is attributable mainly to acquisitions made since that time, investments made by the company in areas of the business that we expect to drive future revenue growth and the negative impact of changes in foreign currency exchange rates. In the first quarter of 2007, SG&A included non-recurring costs of approximately $4.2 million. Income from operations was $44.7 million or 19.2 percent of revenue in the first quarter of 2008 compared to $55.7 million or 26.2 percent of revenue in the first quarter of 2007. Net income for the first quarter of 2008 was $23.9 million with diluted earnings per share of $0.40, compared to $38.0 million and $0.63, respectively, for the first quarter of 2007. The costs noted above relating to the potential merger had a $0.06 per diluted share negative impact on the current quarter. The effective tax rate for the first quarter of 2008 was 45.5 percent compared to 34.2 percent for the first quarter of the prior year. The effective tax rate for the current quarter was impacted primarily by lower profit in low tax jurisdictions and to a lesser extent the non-deductibility of costs related to the potential merger. Other non-operating expenses increased in the first quarter of 2008 as a result of foreign exchange losses, primarily related to the weakening of the US dollar against the euro and the impact of this currency movement on the revaluation of certain assets and liabilities. Total cash and cash equivalents and short-term investments were $336.5 million at March 31, 2008, compared to $364.5 million at December 31, 2007. The decline is due to the repayment of $80.0 million of borrowings under our senior credit facility during the quarter. Net cash provided by operating activities during the first quarter of 2008 was $62.3 million. As previously disclosed, the company is required to maintain certain financial results on a trailing four quarter basis as one condition of the closing of the merger. The financial results reported herein exceed that condition for the trailing four quarters. The company expects the transaction to close during the second quarter or early in the third quarter of 2008. 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 our business 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 us as well as from risks and uncertainties beyond our control. These risks and uncertainties include, among others, risks associated with our ability to close our previously disclosed merger with an affiliate of Hellman & Friedman, the risks associated with currency fluctuations, risks associated with our ability to integrate and grow recently acquired businesses and pursue new business strategies, 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 us with the Securities and Exchange Commission, in particular our�Annual Report on Form 10-K for the year ended December 31, 2007. About Getty Images Getty Images is the world�s leading creator and distributor of still imagery, footage and multimedia products, as well as a recognized provider of other forms of premium digital content, including music. Getty Images serves business customers in more than 100 countries and is the first place creative and media professionals turn to discover, purchase and manage images and other digital content. Its award-winning photographers and imagery help customers produce inspiring work which appears every day in the world�s most influential newspapers, magazines, advertising campaigns, films, television programs, books and Web sites. Visit Getty Images at http://www.GettyImages.com to learn more about how the company is advancing the unique role of digital media communications and business, and enabling creative ideas to come to life. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) � � THREE MONTHS ENDED MARCH 31, � 2008 � � 2007 � (In thousands, except per share amounts) � Revenue $ 233,216 $ 212,650 � Cost of revenue (exclusive of items shown separately below) 66,786 54,836 Selling, general and administrative expenses 96,465 81,403 Depreciation 16,758 14,544 Amortization 8,180 5,226 Other operating expenses � 350 � � 934 � Operating expenses � 188,539 � � 156,943 � Income from operations 44,677 55,707 Investment income 1,894 3,294 Interest expense (918 ) (434 ) Other non-operating expenses � (1,905 ) � (796 ) Income before income taxes 43,748 57,771 Income tax expense � (19,884 ) � (19,741 ) Net income $ 23,864 � � $ 38,030 � Earnings per share Basic $ 0.40 $ 0.64 Diluted � 0.40 � � � 0.63 � Shares used in computing earnings per share Basic 59,626 59,187 Diluted � � 60,010 � � � 60,031 � CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) � � � MARCH 31,2008 DECEMBER 31,2007 (In thousands) � ASSETS Current assets Cash and cash equivalents $ 316,069 $ 333,134 Short-term investments 20,405 31,330 Accounts receivable, net 128,658 117,326 Prepaid expenses 15,880 14,425 Deferred income taxes, net � 6,290 Other current assets � 3,956 � � 1,984 � Total current assets 484,968 504,489 Property and equipment, net 154,873 156,110 Goodwill 1,235,405 1,233,073 Identifiable intangible assets, net 108,646 116,611 Other long-term assets � 1,903 � � 1,872 � Total assets $ 1,985,795 � $ 2,012,155 � � LIABILITIES AND STOCKHOLDERS� EQUITY Current liabilities Accounts payable $ 74,630 $ 70,197 Accrued expenses 34,092 31,495 Income taxes payable 6,740 13,797 Short-term debt 265,000 345,000 Other current liabilities � 58,858 � � 20,357 � Total current liabilities 439,320 480,846 Deferred income taxes, net 11,531 39,904 Other long-term liabilities � 67,037 � � 63,477 � Total liabilities � 517,888 � � 584,227 � Stockholders� equity Common stock 632 631 Additional paid-in capital 1,347,236 1,343,103 Common stock repurchased (207,676 ) (207,676 ) Retained earnings 237,022 213,158 Accumulated other comprehensive income � 90,693 � � 78,712 � Total stockholders� equity � 1,467,907 � � 1,427,928 � Total liabilities and stockholders� equity � $ 1,985,795 � � $ 2,012,155 � CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) � � THREE MONTHS ENDED MARCH 31, � 2008 � � 2007 � (In thousands) � Cash flows from operating activities Net income $ 23,864 $ 38,030 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 16,758 14,544 Amortization of identifiable intangible assets 8,180 5,226 Stock-based compensation 4,580 2,920 Bad debt expense 545 875 Other changes in long-term assets, liabilities and equity 14,270 5,992 Changes in current assets and liabilities, net of effects of business acquisitions: Accounts receivable (5,414 ) (6,093 ) Accounts payable 3,288 3,487 Accrued expenses 2,066 (2,156 ) Income taxes payable (7,714 ) 2,616 Changes in other current assets and liabilities � 1,913 � � (467 ) Net cash provided by operating activities � 62,336 � � 64,974 � Cash flows from investing activities Acquisition of property and equipment (14,232 ) (16,196 ) Acquisitions of businesses, net of cash acquired � (4,263 ) Proceeds from available-for-sale investments � 10,543 � � � � Net cash used in investing activities � (3,689 ) � (20,459 ) Cash flows from financing activities Repayment of debt (80,000 ) � Proceeds from the issuance of common stock 360 1,792 Other financing activities � 3 � � (572 ) Net cash (used in) provided by financing activities � (79,637 ) � 1,220 � Effects of exchange rate changes � 3,925 � � 1,318 � Net increase in cash and cash equivalents (17,065 ) 47,053 Cash and cash equivalents, beginning of period � 333,134 � � 339,466 � Cash and cash equivalents, end of period � $ 316,069 � � $ 386,519 �