##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
    FORM 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal
    year ended January 2, 2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission file number 0-16611
    GSI COMMERCE, INC.
 (Exact name of registrant as
    specified in its charter)
   DELAWARE


04-2958132(State or other jurisdiction
    of
    incorporation or organization)


(I.R.S. Employer
    Identification No.
)935 FIRST AVENUE, KING OF PRUSSIA, PA


19406(Address of principal executive
    offices)


(Zip Code
)   Registrants telephone number, including area code
    (610) 491-7000
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value $.01 per share

NASDAQ Global Select MarketPreferred Stock Purchase Rights

NASDAQ Global Select Market   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  þ o
  o þ
  þ o
  Regulation S-T o o
   Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting company o   Rule 12b-2 o þ
  (1)
      DOCUMENTS INCORPORATED BY REFERENCE
    Form 10-K,
    (1)
    
    This amount equals the number of
    outstanding shares of the registrants common stock reduced
    by the number of shares that may be deemed held by the
    registrants executive officers, directors and stockholders
    owning in excess of 10% of the registrants common stock,
    multiplied by the last reported sale price for the
    registrants common stock on July 3, 2009 the last
    trading day prior to the last day of registrants second
    fiscal quarter. This information is provided solely for record
    keeping purposes of the Securities and Exchange Commission and
    shall not be construed as an admission that any executive
    officer, director or 10% stockholder of the registrant is an
    affiliate of the registrant or is the beneficial owner of any
    such shares. Any such inference is hereby disclaimed.




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##### 





GSI
    COMMERCE, INC.
    ANNUAL REPORT ON
    FORM 10-K
    FOR FISCAL YEAR ENDED JANUARY 2, 2010
  TABLE OF
    CONTENTS
   
 PagePART IItem 1.


Business


1Item 1A.


Risk Factors


8Item 1B.


Unresolved Staff Comments


25Item 2.


Properties


25Item 3.


Legal Proceedings


25Item 4.


Submission of Matters to a Vote of Security
    Holders


26Item 4.1.


Executive Officers of the Registrant


26PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


27Item 6.


Selected Financial Data


29Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


30Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


46Item 8.


Financial Statements and Supplementary Data


47Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


47Item 9A.


Controls and Procedures


47Item 9B.


Other Information


50PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


50Item 11.


Executive Compensation


50Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


50Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


51Item 14.


Principal Accounting Fees and Services


51PART IVItem 15.


Exhibits and Financial Statement Schedule


52Signatures


56EX-10.11EX-12.1EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1      References To

Refer to The Years Ended/EndingFiscal 2005

December 31, 2005Fiscal 2006

December 30, 2006Fiscal 2007

December 29, 2007Fiscal 2008

January 3, 2009Fiscal 2009

January 2, 2010Fiscal 2010

January 1, 2011Fiscal 2011

December 31, 2011Fiscal 2012

December 29, 2012Fiscal 2013

December 28, 2013Fiscal 2014

January 3, 2015




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PART I  ITEM 1:
    BUSINESS  Overview
  e-commerce e-commerce ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ®
  e-commerce
  e-commerce e-commerce end-to-end
  e-mail e-mail
    Segment Information Exhibits and
    Financial Statement Schedule Form 10-K.
  e-Commerce
    Services
  Overview
  e-commerce e-commerce e-commerce e-commerce e-commerce e-commerce
  e-commerce e-commerce e-commerce
 1




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e-commerce
  e-commerce
  e-commerce
  e-commerce e-commerce
  e-commerce e-commerce e-commerce e-commerce
    Technology
    Services
  e-commerce
     2




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Fulfillment
    and Drop Shipping Services
          Customer
    Care and Call Center Services
  360-degree
  Interactive
    Marketing Services
  Overview
  tm e-mail e-Dialog,
  Digital
    Marketing Agency Services
  e-commerce e-commerce e-commerce
 3




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e-commerce direct-to-consumer
    state-of-the-art
          e-Mail
    Marketing Services
  e-mail e-mail
  e-mail e-mail
  Consumer
    Engagement
  Overview
    Online
    Private Sale Channel
  e-mail e-mails
 4




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Off-Price
    Marketplace
    Growth
    Strategy
    
    expanding the
    e-commerce
    services client base;
    retaining clients, growing their businesses and selling
    additional services;
    growing the interactive marketing services business;
    growing the consumer engagement business;
    expanding globally; and
    selectively pursuing strategic acquisitions.  Expand
    the
    e-Commerce
    Services Client Base
  e-commerce e-commerce
  
    Leadership position and proven track record  We
    believe we are among the industrys leading providers of
    e-commerce
    services and we have successfully delivered our
    e-commerce
    services to clients since 1999.
    Broad and flexible suite of services  We believe we
    offer one of the industrys broadest suites of
    e-commerce
    services which can be delivered as integrated or modular
    solutions depending on specific client objectives.
    Expertise  We have knowledge that comes from working
    with
    e-commerce
    businesses for 10 years.
    Meaningful scale  We have large, aggregate volume on
    our
    e-commerce
    services platform with significant operating infrastructure.  Retain
    Clients, Grow Their Businesses and Sell Additional
    Services
  e-commerce e-commerce e-commerce
  e-commerce e-commerce e-commerce
  Grow
    Our Interactive Marketing Services Business
   5




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e-commerce
  Drive
    Consumer Engagement
    Expand
    Globally
  e-commerce e-commerce
  Selectively
    Pursue Strategic Acquisitions
  e-commerce,
  
    Accretive Commerce, an
    e-commerce
    solutions company;
    Zendor.com, a provider of fulfillment and customer care in the
    U.K.;
    e-Dialog, a
    provider of advanced
    e-mail
    marketing services and solutions;
    Silverlign, an integrated marketing strategy and design agency;
    Pepperjam, an affiliate marketing network and interactive
    marketing agency specializing in search; and
    Retail Convergence Inc., operator of Rue La La and
    SmartBargains.  Competition
  e-Commerce
    Services
  e-commerce e-commerce e-commerce e-commerce e-commerce
  e-commerce
  
    offering the choice of a complete integrated solution or a
    component-based solution, both of which are designed to increase
    efficiencies and improve integration;
    promoting the clients brand and business  not
    our own;
    providing scale and operating leverage with an enterprise focus; 6




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
    establishing our commitment to invest in and grow our
    platform; and
    aligning our financial interests with those of our clients.  Interactive
    Marketing Services
  e-mail Harte-Hanks
    
    offering digital marketing solutions that are integrated with
    our
    e-commerce
    platform, which provide a more strategic, cohesive and optimized
    approach to growing
    e-commerce
    businesses; and
    providing a services approach to
    e-mail
    marketing that utilizes a proprietary relevance technology to
    promote stronger customer engagements that are designed to
    increase revenues, profitability and return on investment.  Consumer
    Engagement
  e-Bay.
    
    offering effective solutions for brands to move inventory and
    drive brand revenue while maintaining brand desirability;
    securing desirable merchandise and providing products to
    consumers in an expanding list of merchandise categories
    including fashion, jewelry, accessories, footwear and home;
    using highly effective, viral marketing campaigns that drive
    membership growth with low acquisition costs; and
    having a low inventory investment with quick and discrete
    sell-through of merchandise.  Intellectual
    Property
  e-commerce e-mail
  e-commerce e-commerce
 7




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Employees
  e-commerce e-commerce
  Investor
    Information
  1-800-SEC-0330. (http://www.sec.gov)
  Form 10-K, Form 10-Q, Form 8-K Form 10-K
  (610) 491-7000.
  ITEM 1A:
    RISK
    FACTORS  We
    operate in rapidly changing industries and have recently entered
    new lines of business, all of which make our operating results
    difficult to predict.
  e-commerce
 8




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We may
    not achieve the expected benefits of acquisitions and
    investments.
    
    failure of acquired companies to achieve planned results;
    unanticipated problems and liabilities of acquired companies,
    including patent and trademark infringement claims, violations
    of laws, commercial disputes and tax liabilities;
    difficulties resolving indemnification disputes with previous
    owners;
    disruptions to our ongoing business;
    difficulties in retention and assimilation of the employees of
    the acquired business;
    difficulties in assimilation of acquired operations, technology,
    products
    and/or
    services;
    the difficulty of integrating a new companys accounting,
    financial reporting, management, information, human resource and
    other administrative systems to permit effective management, and
    the lack of control if such integration is delayed or not
    implemented; and
    diversion of management and employee time and focus.  other-than-temporary
  Our
    failure to manage growth and diversification of our business
    could harm us.
    We
    plan to continue to expand our business internationally which
    may cause our business to become increasingly susceptible to
    numerous international business risks and challenges. We have
    limited experience in international operations.
   9




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
    the need to develop new supplier and manufacturer relationships,
    particularly because major manufacturers may require that our
    international operations deal with local distributors;
    substantial competition with local companies;
    compliance with international legal and regulatory requirements
    and tariffs (see also  Existing or future laws
    or regulations could harm our business or marketing
    efforts, below);
    managing fluctuations in currency exchange rates;
    difficulties in staffing and managing foreign operations;
    greater difficulty in accounts receivable collection;
    potential adverse tax consequences;
    uncertain political and economic climates;
    potentially higher incidence of fraud;
    different employer/employee relationships;
    cultural ambivalence toward, or non-acceptance of,
    e-commerce
    businesses;
    language barriers;
    price controls or other restrictions on foreign
    currency; and
    difficulties in obtaining export and import licenses and
    compliance with applicable export controls.    We may
    not be able to compete successfully against current and future
    competitors.
    e-commerce e-commerce e-commerce e-commerce e-commerce e-commerce e-commerce e-commerce e-commerce
    e-commerce
 10




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Our
    business is highly seasonal; a weak fourth quarter would have a
    material adverse effect on our operating results for the
    year.
      
    we and our clients do not increase inventory levels for popular
    products in sufficient amounts or are unable to restock popular
    products in a timely manner, and we or our clients fail to meet
    customer demand;
    we overstock products and are required to take significant
    inventory markdowns or write-offs, which could reduce profits;
    too many consumers access our and our clients
    e-commerce
    Webstores within a short period of time due to increased holiday
    or other demand or we inaccurately forecast consumer traffic,
    and as a result we experience system interruptions that make our
    and our clients
    e-commerce
    Webstores unavailable or prevent us from transmitting orders to
    our fulfillment operations; or
    we are unable to adequately staff our fulfillment and customer
    service centers during these peak periods.    General
    economic conditions may adversely affect our results of
    operations and financial condition.
   11




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We
    have an accumulated deficit and may incur additional
    losses.
    We may
    not be able to access on satisfactory terms, or at all, the
    credit and capital markets as needed to finance a portion of our
    working capital requirements and support our liquidity
    needs.
      Our
    substantial leverage and significant debt service obligations
    could adversely affect our financial condition and our ability
    to fulfill our obligations and operate our
    business.
  and/or
    
    our debt level increases our vulnerability to general adverse
    economic and industry conditions;
    we may have difficulty obtaining financing in the future for
    working capital, capital expenditures, acquisitions or other
    purposes;
    we may need to use a substantial portion of our cash flow from
    operations to pay interest and principal on our debt, which
    would reduce the amount of money available to finance our
    operations and other business activities; 12




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
    our debt level could limit our flexibility in planning for, or
    reacting to, changes in our business and in our industry in
    general; and
    our substantial amount of debt and the amount we must pay to
    service our debt obligations could place us at a competitive
    disadvantage compared to our competitors that have less debt.  The
    terms of our secured revolving bank credit facility impose
    financial and operating restrictions on us.
    
    incur additional indebtedness or pre-pay existing indebtedness;
    pay dividends or make other distributions in respect of our
    equity securities;
    sell assets, including the capital stock of us and our
    subsidiaries;
    enter into certain transactions with our affiliates;
    transfer any capital stock of any subsidiary or permit any
    subsidiary to issue capital stock;
    create liens;
    make certain loans or investments; and
    effect a consolidation or merger or transfer of all or
    substantially all of our assets.    We may
    become obligated to make earnout payments to the former
    stockholders and employees of RCI, which may limit our available
    cash or affect our ability to engage in other business
    activities that may be in our best interests.
    If we
    fail to manage our exposure to global financial and securities
    market risk successfully, our operating results and financial
    condition could be materially impacted.
  other-than-temporary,
 13




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Our
    growth and success depend, in part, on our ability to add new
    clients and maintain and expand our relationships with existing
    clients.
  e-commerce and/or
  Our
    success is tied to the offline businesses of our
    clients.
  e-commerce,
  A
    large percentage of our revenue is derived from a small number
    of our clients businesses.
    We are
    subject to significant inventory risks.
  e-commerce e-commerce
   14




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Our
    business could suffer if we are unsuccessful in making,
    integrating, and maintaining commercial agreements and other
    business relationships.
  Relationships
    with Manufacturers, Retailers and Other Suppliers.
  e-commerce e-commerce e-commerce e-commerce e-commerce
  Marketing
    and Promotional Arrangements.
  e-commerce e-commerce
  Shipping
    Vendors.
  e-commerce
  Our
    revenue from our affiliate marketing network may fail to grow or
    may decline if the reputation of the affiliate marketing network
    is damaged by unscrupulous activities of network
    participants.
   15




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A
    disruption in our operations could materially and adversely
    affect our business, results of operations and financial
    condition.
      
    fire, flood, hurricane, tornado, earthquake or other natural
    disasters;
    power losses and interruptions;
    Internet, telecommunications or data network failures;
    physical and electronic break-ins or security breaches;
    computer viruses;
    acts of terrorism; and
    other similar events.  e-commerce e-commerce e-commerce
  e-commerce e-commerce
  Problems
    in our fulfillment operations could adversely affect our
    business.
    Our
    success is tied to the adequacy of the Internet
    infrastructure.
  e-commerce e-commerce
  We are
    dependent upon consumers willingness to use the Internet
    to purchase goods.
   16




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e-commerce e-commerce
  We may
    be liable if third parties misappropriate our customers
    personal information.
  e-commerce
  If we
    do not respond to rapid technological changes, our services and
    proprietary technology and systems may become
    obsolete.
  e-commerce
  Our
    business is heavily dependent on the use of
    e-mail, and
    any decrease in the use of
    e-mail may
    harm our business, results of operations and financial
    condition.
  e-mail e-commerce e-mail e-mail E-mail
  
    problems with technology that make our
    e-mail
    communications more difficult for us to deliver and for
    consumers to read, such as the ability of smart phones or
    similar communications devices to adequately display our
    e-mail;
    consumers may disregard marketing
    e-mails due
    to the large volume of such
    e-mails they
    receive;
    the inability of filters to effectively screen for unwanted
    e-mails,
    resulting in increased levels of junk mail, or spam,
    which may overwhelm consumers
    e-mail
    accounts;
    increased use of social networking sites may result in decreased
    use of
    e-mail as a
    primary means of communication;
    growth in the number of
    e-mails sent
    or received on a daily or regular basis;
    continued security concerns regarding Internet usage in general
    from viruses, worms or similar problems; and
    increased governmental regulation or restrictive policies
    adopted by Internet service providers, or ISPs, that
    make it more difficult or costly to utilize
    e-mail for
    marketing communications. 17




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e-mail e-mails. e-commerce e-mail
  We
    and/or our clients may be unable to protect our and their
    proprietary technology and intellectual property
    rights.
    We
    have been, and may in the future be subject to intellectual
    property claims or competition or trade practices claims that
    could be costly and could disrupt our business.
    We may
    be subject to product liability claims that could be costly and
    time-consuming.
  e-commerce
  Credit
    card and payment fraud could adversely affect our
    business.
  e-commerce e-commerce
 18




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If one
    or more states successfully assert that we should collect or
    should have collected sales or other taxes on the sale of our
    merchandise, our business could be harmed.
  out-of-state e-commerce. e-commerce
  We may
    have exposure to greater than anticipated tax
    liabilities.
    Our
    ability to use net operating loss carryforwards to reduce future
    tax payments may be limited.
        We
    rely on insurance to mitigate some risks facing our business,
    and to the extent our insurance does not mitigate the risks
    facing our business or our insurers are unable to meet their
    obligations, our operating results may be negatively
    impacted.
   19




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Variability
    in self-insurance liability estimates could significantly impact
    our financial results.
    
    historical claims experience;
    medical inflation;
    legislative changes to benefit levels;
    jury verdicts; and
    claim settlement patterns.    Existing
    or future laws or regulations could harm our business or
    marketing efforts.
  e-commerce e-commerce. e-commerce, e-commerce,
   20




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Existing
    federal, state and international laws regulating
    e-mail
    marketing practices impose certain obligations on the senders of
    commercial
    e-mails and
    could expose us to liability for violations, decrease the
    effectiveness of our
    e-mail
    marketing solutions, and expose us to financial, criminal and
    other penalties for non-compliance, which could increase our
    operating costs.
  e-mail e-mail e-mails e-mail e-mail e-mail e-mail e-mail e-mail e-mail e-mail e-mail, e-mail,
  
    payment of statutory, actual or other damages;
    criminal penalties;
    actions by state attorneys general;
    actions by private citizens or class actions; and
    penalties imposed by regulatory authorities of the
    U.S. government, state governments and foreign governments.    Loss
    of our credit card acceptance privileges or changes to credit
    card association fees, rules, or practices could harm our
    business.
  e-commerce and/or
 21




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Future
    changes in financial accounting standards or practices or
    taxation rules or practices may adversely affect our reported
    financial results.
  and/or
  Our
    success is dependent upon our executive officers and other key
    personnel.
    We may
    be unable to hire and retain skilled personnel which could limit
    our growth.
    There
    are limitations on the liabilities of our directors and
    executive officers. Under certain circumstances, we are
    obligated to indemnify our directors and executive officers
    against liability and expenses incurred by them in their service
    to us.
    If we
    fail to maintain an effective system of internal controls, we
    may not be able to accurately report our financial results or
    prevent fraud.
   22




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The
    price of our common stock may fluctuate
    significantly.
    
    our performance and prospects;
    the performance and prospects of our clients;
    fluctuations in our operating results;
    the timing and announcement of acquisitions by us or our
    competitors;
    the use of a significant portion of our available cash, issuance
    of equity securities, incurrence of debt or expenses, assumption
    of liabilities and incurrence of accounting write-offs in
    connection with acquisitions;
    government regulatory action;
    changes in our publicly available guidance of future results of
    operations;
    the depth and liquidity of the market for our common stock;
    the vesting of our equity awards resulting in the sale of large
    amounts of our common stock during concentrated trading windows;
    adverse or unfavorable publicity about us, our services, or our
    competitors;
    investor perception of us and the industries in which we operate;
    changes in earnings estimates or buy/sell recommendations by
    analysts;
    the commencement of material litigation, or an unfavorable
    judgment, against us;
    announcements of restatements of prior period financial results;
    terrorist attacks, war and threats of attacks and war;
    additions or departure of key personnel;
    sales of common stock; and
    general financial, economic and other market conditions.    Future
    sales of our common stock in the public market or the issuance
    of our common stock or securities senior to our common stock
    could adversely affect the trading price of our common
    stock.
   23




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
    1,504,070 shares available for new awards under our 2005
    plan;
    4,249,884 shares of common stock that were subject to
    awards granted under the 2005 plan (including 226,081 restricted
    stock awards which are issued and outstanding and subject to
    forfeiture under certain conditions);
    3,104,992 shares of common stock that were subject to
    awards granted under our 1996 plan (in the event of the
    cancellation, expiration, forfeiture or repurchase of any of
    these shares, such shares would become available for issuance
    under the 2005 plan); and
    outstanding notes convertible into a maximum of
    10,031,156 shares of common stock, subject to adjustment.    We
    have never paid dividends on our common stock and do not
    anticipate paying dividends in the foreseeable
    future.
    It may
    be difficult for a third party to acquire us and this could
    depress our stock price.
    and/or
    Holders
    of our common stock will be subordinated to our secured
    revolving bank credit facility, convertible notes and other
    indebtedness.
   24




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ITEM 1B:
    UNRESOLVED
    STAFF COMMENTS.    ITEM 2:
    PROPERTIES.    SquareUse

Footage


Locations

Segment(In thousands)Principal Office


104


King of Prussia, PAOffices


162


Los Angeles, CA;


e-Commerce servicesPacoima, CA;San Jose, CA;King of Prussia, PA;Roanoke, VA;Barcelona, Spain; andChadderton, United KingdomOffices


157


Campbell, CA;


Interactive Marketing servicesBurlington, MA;Lexington, MA;New York, NY;King of Prussia, PA;Wilkes-Barre, PA;Bellevue, WA; andLondon, EnglandOffices


47


Boston, MA; and


Consumer EngagementNew York, NYFulfillment Centers


2,688


Pacoima, CA;


e-Commerce servicesLouisville, KY;Richwood, KY;Shepherdsville, KY;Martinsville, VA;Mississauga, Ontario, Canada; andChadderton, United KingdomCall Centers


224


Pacoima, CA;


e-Commerce servicesMelbourne, FL;Brunswick, GA;Eau Claire, WI; andChadderton, United Kingdom       ITEM 3:
    LEGAL
    PROCEEDINGS.  e-commerce
 25




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and/or
  ITEM 4:
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS.    ITEM 4.1:
    EXECUTIVE
    OFFICERS OF THE REGISTRANT.    Name

Age(1)

TitleMichael G. Rubin


37


Chairman, President and Chief Executive OfficerMichael R. Conn


39


Executive Vice President, Finance and Chief Financial OfficerStephen J. Gold


50


Executive Vice President, Chief Information Officer and
    Corporate Chief Technology OfficerJ. Scott Hardy


48


Executive Vice President, Business ManagementArthur H. Miller


56


Executive Vice President and General CounselDamon Mintzer


44


Executive Vice President, Sales     (1)
    
    As of March 1, 2010    Michael G. Rubin
  Michael R. Conn
  Stephen J. Gold
  J. Scott Hardy
 26




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Arthur H. Miller
  Damon Mintzer
 PART II  ITEM 5:
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES.    Common StockPriceHigh


LowFiscal 2008First Quarter

$
19.75


$
9.54Second Quarter

$
16.63


$
10.91Third Quarter

$
18.24


$
11.15Fourth Quarter

$
15.81


$
5.69Fiscal 2009First Quarter

$
13.77


$
7.35Second Quarter

$
15.59


$
12.29Third Quarter

$
19.75


$
14.09Fourth Quarter

$
26.00


$
18.09                27




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STOCK
    PERFORMANCE GRAPH
    COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    Among GSI Commerce, Inc., The NASDAQ Composite
    Index And Morgan Stanley Internet Index
  
    *
    
    $100 invested on 1/1/05 in stock or 12/31/04 in index, including
    reinvestment of dividends.
    Indexes calculated on month-end basis.  Total
    Return Analysis
  1/1/2005


12/31/2005


12/30/2006


12/29/2007


1/3/2009


1/2/2010GSI Commerce, Inc.



100.00




84.87




105.46




109.90




60.69




142.80NASDAQ Composite



100.00




101.33




114.01




123.71




73.11




105.61Morgan Stanley Internet



100.00




100.98




115.05




152.45




78.57




143.86     EQUITY
    COMPENSATION PLAN INFORMATION
  Form 10-K.
 28




---



##### Table of Contents



ITEM 6:
    SELECTED
    FINANCIAL DATA.  Form 10-K. Form 10-K.
  Fiscal Year EndedDecember 31,


December 30,


December 29,


January 3,


January 2,2005


2006


2007


2009


2010Revenues:Net revenues from product sales

$
355,374


$
461,183


$
512,194


$
577,073


$
542,249Service fee revenues


85,018



148,370



237,763



389,853



461,966Net revenues


440,392



609,553



749,957



966,926



1,004,215Total costs and expenses(1)


437,514



600,116



745,638



977,186



993,949Income (loss) from operations


2,878



9,437



4,319



(10,260
)


10,266Total other expense


1,410



2,916



8,165



20,296



18,950Income (loss) before income taxes


1,468



6,521



(3,846
)


(30,556
)


(8,684
)Provision (benefit) for income taxes(2)


321



(38,140
)


(2,887
)


(7,585
)


2,344Net income (loss) before cumulative effect of change in
    accounting principle


1,147



44,661



(959
)


(22,971
)


(11,028
)Cumulative effect of change in accounting principle






268











Net income (loss)

$
1,147


$
44,929


$
(959
)

$
(22,971
)

$
(11,028
)Basic earnings (loss) per share:Prior to cumulative effect of change in accounting principle

$
0.03


$
0.98


$
(0.02
)

$
(0.49
)

$
(0.21
)Net income (loss) per share

$
0.03


$
0.99


$
(0.02
)

$
(0.49
)

$
(0.21
)Diluted earnings (loss) per share:Prior to cumulative effect of change in accounting principle

$
0.03


$
0.93


$
(0.02
)

$
(0.49
)

$
(0.21
)Net income (loss) per share(3)

$
0.03


$
0.94


$
(0.02
)

$
(0.49
)

$
(0.21
)BALANCE SHEET DATA:Total assets

$
331,922


$
457,456


$
670,104


$
716,025


$
1,061,848Total long-tem liabilities(4)


53,235



60,083



185,364



201,398



227,073Working capital(5)


109,804



125,172



165,822



40,938



21,789Stockholders equity(5)(6)


136,538



235,778



280,900



274,496



476,340     (1)
    
    Beginning in fiscal 2006, we adopted new accounting standards
    for recognizing stock-based compensation. We recognized
    $24.8 million in fiscal 2009, $19.4 million in fiscal
    2008, $9.0 million in fiscal 2007, $7.8 million in
    fiscal 2006, and $3.8 million in fiscal 2005. 29




---



##### Table of Contents



(2)
    
    Included in fiscal 2006 was a $38.1 million non-cash income
    tax benefit. For additional information, see Note 11,
    Income Taxes, to our consolidated financial statements
    included in Item 15, Exhibits and Financial Statement
    Schedule, of this Annual Report on
    Form 10-K.(3)
    
    For additional information on the diluted earnings (loss) per
    share calculation, see Note 12, Loss Per Share, to
    our consolidated financial statements included in Item 15,
    Exhibits and Financial Statement Schedule, of this Annual
    Report on
    Form 10-K.(4)
    
    In fiscal 2007, we completed a subordinated convertible notes
    offering of $150 million. For additional information, see
    Note 7, Long-Term Debt and Credit Facility, to our
    consolidated financial statements included in Item 15,
    Exhibits, Financial Statement Schedule, of this Annual
    Report on
    Form 10-K.(5)
    
    In fiscal 2008, we acquired
    e-Dialog,
    Inc. for approximately $150 million in cash, including
    acquisition costs. In fiscal 2009, we acquired Retail
    Convergence, Inc. for (i) $186 million at closing
    consisting of cash of $92 million and shares of our common
    stock valued at $94 million, and (ii) the obligation
    to make earnout payments of up to $170 million over a three
    year period beginning with fiscal year 2010 depending on
    RCIs achievement of certain financial performance targets.
    For additional information, see Note 6,
    Acquisitions, to our consolidated financial statements
    included in Item 15, Exhibits and Financial Statement
    Schedule, of this Annual Report on
    Form 10-K.(6)
    
    In fiscal 2009, we received approximately $88 million of
    net proceeds through the sale of 5.4 million shares of our
    common stock.  ITEM 7:
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS.  All
    statements made in this Annual Report on
    Form 10-K,
    other than statements of historical fact, are forward-looking
    statements, as defined under federal securities law. The words
    look forward to, anticipate,
    believe, estimate, expect,
    intend, may, plan,
    will, would, should,
    could, guidance, potential,
    opportunity, continue,
    project, forecast,
    confident, prospects,
    schedule, designed, future
    discussions, if and similar expressions
    typically are used to identify forward-looking statements.
    Forward-looking statements are based on the then-current
    expectations, beliefs, assumptions, estimates and forecasts
    about our business. These statements are not guarantees of
    future performance and involve risks, uncertainties and
    assumptions which are difficult to predict. Therefore, actual
    outcomes and results may differ materially from what is
    expressed or implied by these forward-looking statements.
    Factors which may affect our business, financial condition and
    operating results include the effects of changes in the economy,
    consumer spending, the financial markets and the industries in
    which we and our clients operate, changes affecting the Internet
    e-commerce
    and marketing service, our ability to develop and maintain
    relationships with clients and suppliers and the timing of our
    establishment, extension or termination of our relationships
    with clients, our ability to timely and successfully develop,
    maintain and protect our technology, confidential and
    proprietary information, and product and service offerings, our
    ability to execute operationally to attract and retain qualified
    personnel,, to successfully integrate our recent acquisitions,
    and the performance of acquired businesses. More information
    about potential factors that could affect us is described in
    Item 1A of Part I, Risk Factors. We
    expressly disclaim any intent or obligation to update these
    forward-looking statements.
  Executive
    Overview
    
    Net revenues grew $37.3 million, or 4%, over fiscal 2008.
    Service fee revenues grew 19% and net revenues from product
    sales decreased 6%.
    E-commerce
    services segment net revenues decreased 2%, interactive
    marketing services segment net revenues increased by 51% and we
    had $26.3 million in revenues from our new segment,
    consumer engagement.
    Net loss was $11.0 million in the 2009, inclusive of a
    provision for income taxes of $2.3 million, compared to a
    net loss of $23.0 million in fiscal 2008, inclusive of an
    income tax benefit of $7.6 million. Income from operations
    improved to $10.3 million in fiscal 2009 compared to a loss
    of $10.3 million in fiscal 2008. 30




---



##### Table of Contents




    In August 2009, we received approximately $88 million of
    net proceeds through the sale of 5.4 million shares of
    common stock. We plan to use the net proceeds for working
    capital and general corporate purposes, including possible
    acquisitions.
    In November 2009, we acquired Retail Convergence, Inc.
    (RCI) for (i) $186 million at closing
    consisting of cash of $92 million and shares of our common
    stock valued at $94 million, and (ii) the obligation
    to make earnout payments of up to $170 million over a three
    year period beginning with fiscal year 2010 depending on
    RCIs achievement of certain financial performance targets.
    RCI operates RueLaLa.com, an operator of online private sales
    and SmartBargains.com, an off-price
    e-commerce
    marketplace. We believe the acquisition will allow us to enter
    the private sale and off-price
    e-commerce
    marketplace markets and broaden our
    e-commerce
    solution offerings.    
    We expect an increase in net revenue, with the majority of the
    increase deriving from RCI and additional increases deriving
    from
    e-commerce
    services and interactive marketing services. We expect our
    income from operations to increase from fiscal 2009. We expect
    our capital expenditures to increase in fiscal 2010, and be
    similar to our capital expenditures in fiscal 2008. The increase
    in capital expenditures will come from investments in our
    infrastructure and technology as well as the integration of RCI.
    We believe will have a net loss in fiscal 2010.  Results
    of Operations
  Comparison
    of Fiscal 2009 and 2008 (amounts in tables in
    millions):
  Net
    Revenues
  e-commerce e-commerce
  Fiscal 2009vs.Fiscal 2008Fiscal 2008


Fiscal 2009


$ Change


% ChangeNet Revenues by Type:Net revenues from product sales

$
577.1



60
%

$
542.2



54
%

$
(34.9
)


(6
)%Service fee revenues


389.8



40
%


462.0



46
%


72.2



19
%Total net revenues

$
966.9



100
%

$
1,004.2



100
%

$
37.3



4
%Net Revenues by Segment:E-Commerce
    services

$
900.0



93
%

$
879.6



87
%

$
(20.4
)


(2
)%Interactive marketing services


84.5



9
%


127.6



13
%


43.1



51
%Consumer engagement






0
%


26.3



3
%


26.3



100
%Intersegment eliminations


(17.6
)


(2
)%


(29.3
)


(3
)%


(11.7
)


66
%Total net revenues

$
966.9



100
%

$
1,004.2



100
%

$
37.3



4
%   Net
    Revenues by Type
  Net Revenues from Product Sales. e-commerce
 31




---



##### Table of Contents



e-commerce
    Service Fee Revenues. e-commerce E-commerce e-commerce E-commerce
  e-commerce rd
    Net
    Revenues by Segment
  E-Commerce
    Services Segment Revenues. e-commerce
  e-commerce
  Interactive Marketing Services Segment
    Revenues. e-mail e-Dialog,
  Consumer Engagement Segment Revenues.
 32




---



##### Table of Contents



Costs and
    Expenses
  Fiscal 2009Fiscal 2008


Fiscal 2009


vs.% of





% of


Fiscal 2008Net





Net


$


%$


Revenues


$


Revenues


Change


ChangeCost of revenues from product sales

$
405.3



42
%

$
398.6



40
%

$
(6.7
)


(2
)%Marketing


70.3



7
%


54.8



6
%


(15.5
)


(22
)%Account management and operations


260.3



27
%


273.1



27
%


12.8



5
%Product development


104.2



11
%


120.2



12
%


16.0



15
%General and administrative


69.0



7
%


82.9



8
%


13.9



20
%Depreciation and amortization


68.1



7
%


63.4



6
%


(4.7
)


(7
)%Changes in fair value of deferred acquisition payments






0
%


0.9



0
%


0.9



100
%Total costs and expenses

$
977.2



101
%

$
993.9



99
%

$
16.7



2
%   Cost of Revenues from Product Sales. e-commerce
  Fiscal 2008

Fiscal 2009Cost of revenues from product sales

$
405.3


$
398.6As a percentage of net revenues from product sales


70
%


74
%         Marketing.
  Fiscal 2008

Fiscal 2009Marketing

$
70.3


$
54.8As a percentage of net revenues from product sales


12
%


10
%      33




---



##### Table of Contents



Account Management and Operations.
  e-commerce
  Product Development. e-commerce e-mail
  e-commerce e-commerce,
  General and Administrative.
    Depreciation and Amortization.
  e-Dialog
 34




---



##### Table of Contents



Changes in Fair Value of Deferred Acquisition
    Payments.
  Acquisitions Exhibits and Financial Statement Schedule Form 10-K.
    Comparison
    of Fiscal 2008 and 2007 (amounts in tables in
    millions):
  Net
    Revenues
  Fiscal 2008vs.Fiscal 2007$


%Fiscal 2007


Fiscal 2008


Change


ChangeNet Revenues by Type:Net revenues from product sales

$
512.2



68
%

$
577.1



60
%

$
64.9



13
%Service fee revenues


237.8



32
%


389.8



40
%


152.0



64
%Total net revenues

$
750.0



100
%

$
966.9



100
%

$
216.9



29
%Net Revenues by Segment:E-Commerce
    services

$
737.9



98
%

$
900.0



93
%

$
162.1



22
%Interactive marketing services


26.9



4
%


84.5



9
%


57.6



214
%Intersegment eliminations


(14.8
)


(2
)%


(17.6
)


(2
)%


(2.8
)


19
%Total net revenues

$
750.0



100
%

$
966.9



100
%

$
216.9



29
%   Net
    Revenues by Type
  Net Revenues from Product Sales.
  Service Fee Revenues. e-Dialog, e-Dialog
 35




---



##### Table of Contents



Net
    Revenues by Segment
  E-Commerce
    Services Segment Revenues. e-commerce
  e-commerce
  Net Revenues by Type  Net Revenues
    from Product Sales
  Interactive Marketing Services Segment
    Revenues. e-Dialog
  Costs and
    Expenses
  Fiscal 2008Fiscal 2007


Fiscal 2008


vs.% of





% of


Fiscal 2007Net





Net


$


%$


Revenues


$


Revenues


Change


ChangeCost of revenues from product sales

$
356.5



47
%

$
405.3



42
%

$
48.8



14
%Marketing


64.6



8
%


70.3



7
%


5.7



9
%Account management and operations


177.5



24
%


260.3



27
%


82.8



47
%Product development


66.0



9
%


104.2



11
%


38.2



58
%General and administrative


43.7



6
%


69.0



7
%


25.3



58
%Depreciation and amortization


37.3



5
%


68.1



7
%


30.8



83
%Total costs and expenses

$
745.6



99
%

$
977.2



101
%

$
231.6



31
%   Cost of
    Revenues from Product Sales
  Fiscal 2007

Fiscal 2008Cost of revenues from product sales

$
356.5


$
405.3As a percentage of net revenues from product sales


69.6
%


70.2
%    36




---



##### Table of Contents



Marketing
  Fiscal 2007

Fiscal 2008Marketing

$
64.6


$
70.3As a percentage of net revenues from product sales


13
%


12
%       Account Management and Operations. e-Dialog, start-up,
  Product Development. e-Dialog, e-commerce
  General and Administrative. e-Dialog, e-commerce
  Depreciation and Amortization.
 37




---



##### Table of Contents



e-Dialog
    Other
    (Income) Expense
    Fiscal 2009Fiscal 2008


Fiscal 2009


vs.% of





% of


Fiscal 2008Net





Net


$


%$


Revenues


$


Revenues


Change


ChangeInterest expense

$
18.8



3
%

$
19.4



2
%

$
0.6



3
%Interest income


(1.8
)


0
%


(0.5
)


0
%


1.3



(72
)%Other expense


1.6



0
%






0
%


(1.6
)


(100
)%Impairment of equity investments


1.7



0
%






0
%


(1.7
)


100
%Total other expenses

$
20.3



3
%

$
18.9



2
%

$
(1.4
)


(7
)%   other-than-temporary
  Fiscal 2008Fiscal 2007


Fiscal 2008


vs.% of





% of


Fiscal 2007Net





Net


$


%$


Revenues


$


Revenues


Change


ChangeInterest expense

$
12.2



1
%

$
18.8



3
%

$
6.6



54
%Interest income


(9.3
)


(1
)%


(1.8
)


0
%


7.5



(81
)%Other expense


0.2



0
%


1.6



0
%


1.4



700
%Loss on sale of marketable securities


5.0



1
%






0
%


(5.0
)


(100
)%Impairment of equity investments






0
%


1.7



0
%


1.7



100
%Total other expenses

$
8.1



1
%

$
20.3



3
%

$
12.2



151
%   other-than-temporary
 38




---



##### Table of Contents



Income
    Taxes
      
    A $3.1 million (or 37.4%) reduction in the tax benefit
    primarily resulting from the imposition of a valuation allowance
    on foreign losses,    
    A $2.1 million (or 6.8%) reduction in the tax benefit
    primarily resulting from the imposition of a valuation allowance
    on foreign losses; and
    a $0.6 million (or 1.9%) reduction in the tax benefit
    resulting from rate differences between U.S. and
    non-U.S. jurisdictions.    
    A $0.3 million (or 7.7%) increase in tax benefit resulting
    from the reversal of valuation allowance.  Seasonality
  e-commerce e-commerce Quarterly Results (Unaudited) Exhibits and Financial Statement Schedule Form 10-K.
  Liquidity
    and Capital Resources
  Fiscal Year EndedDecember 29,

January 3,

January 2,2007

2009

2010(In millions)Cash and cash equivalents

$
231.5


$
130.3


$
228.4Percentage of total assets


35
%


18
%


21
%   Sources
    of Cash
   39




---



##### Table of Contents



and/or
      Uses
    of Cash
      e-Dialog
  Outlook
  Risk Factors
 40




---



##### Table of Contents



and/or Long-Term Debt and Credit Facility Exhibits and Financial Statement Schedule Form 10-K.
  lines-of-credit
  Contractual
    Obligations
    Payments due by fiscal yearLess thanContractual Obligation(1)(2)(3)

Total


1 Year


1-3 Years


4-5 Years


ThereafterOperating lease obligations

$
95.4


$
20.6


$
33.9


$
21.9


$
19.0Purchase obligations and marketing commitments(4)


155.2



72.1



27.8



9.4



45.9Client revenue share payments


89.5



20.3



36.0



8.9



24.3Debt interest


30.4



5.9



9.0



6.7



8.8Debt obligations


220.0



57.7



0.8



150.5



11.0Capital lease obligations, including interest


23.8



6.4



11.9



5.5



Deferred acquisition payments


4.1



1.3



1.8



1.0



Total contractual obligations

$
618.4


$
184.3


$
121.2


$
203.9


$
109.0     (1)
    
    For additional information, see Note 7, Long-Term Debt
    and Credit Facility, and Note 8, Commitments and
    Contingencies, of the Notes to Consolidated Financial
    Statements, included in Item 15, Exhibits and Financial
    Statement Schedule, of this Annual Report on
    Form 10-K.(2)
    
    Approximately $2.1 million of unrecognized tax benefits
    have been recorded as liabilities in accordance with accounting
    standards for Accounting for Uncertainty in Income
    Taxes, and we are uncertain as to if or when such amounts
    may be settled; as a result, these obligations are not included
    in the table above.(3)
    
    We will be obligated to pay additional earnout payments of up to
    $170 million over a three year period beginning with fiscal
    year 2010 contingent on RCIs achievement of certain
    financial performance targets, of which we have the ability to
    pay up to $44.1 million with shares of our common stock. The
    contingent payments are not included in the table above.(4)
    
    Purchase obligations are defined as agreements to purchase goods
    or services that are enforceable and legally binding and that
    specify all significant terms, including fixed or minimum
    quantities to be purchased, fixed, minimum or variable pricing
    provisions and the approximate timing of the transactions. These
    obligations relate primarily to commitments to purchase
    inventory, which generally are cancelable without penalty if
    canceled prior to shipment. 41




---



##### Table of Contents



Off
    Balance Sheet Arrangements
    Critical
    Accounting Estimates
    Summary of Significant Accounting Policies Exhibits and Financial Statement Schedule Form 10-K.
  Revenue
    Recognition
  e-commerce
      e-commerce
     42




---



##### Table of Contents



Allowance
    for Accounts Receivable
      Accounting
    for Inventory
    Accounting
    for Internal Use Software
    and/or
 43




---



##### Table of Contents



Goodwill
    and Other Intangible Assets
             44




---



##### Table of Contents



Income
    Taxes and Deferred Taxes
    and/or
    2010-2015

$
59.3 million2016-2021


396.5 million2022-2029


338.8 million$
794.6 million          45




---



##### Table of Contents



Fair
    Value of Deferred Acquisition Payments
          Recent
    Accounting Pronouncements
  Summary of Significant Accounting
    Policies Exhibits and Financial Statement
    Schedule Form 10-K.
  ITEM 7A:
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.     46




---



##### Table of Contents



EstimatedFair ValueFiscal Year








at the End of2009


2010


2011


2012


Thereafter


Total


Fiscal 2009Money market mutual funds

$
13,606


$



$



$



$



$
13,606


$
13,606Weighted average interest rate


0.002
%


















0.002
%Cash equivalents

$
13,606


$



$



$



$



$
13,606


$
13,606         ITEM 8:
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA.  Form 10-K Form 10-K.
  ITEM 9:
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE.    ITEM 9A:
    CONTROLS
    AND PROCEDURES.  Evaluation of disclosure controls and
    procedures. Rule 13a-15(e).
  Rule 13a-15(e),
 47




---



##### Table of Contents



Changes in internal control over financial
    reporting. Rule 13a-15(d),
  Managements annual report on internal control over
    financial reporting. Rule 13a-15(f).
  Internal Control  Integrated
    Framework Internal Control  Integrated
    Framework
   48




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Internal Control  Integrated Framework
        Internal Control  Integrated Framework
    
    49




---



##### Table of Contents



ITEM 9B:
    OTHER
    INFORMATION.     PART III  ITEM 10:
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.    Executive Officers of the Registrant Form 10-K.
  Form 8-K
  ITEM 11:
    EXECUTIVE
    COMPENSATION.    ITEM 12:
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS.   50




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##### Table of Contents



Equity
    Compensation Plan Information as of the End of Fiscal
    2009
    Number of SecuritiesNumber of Securities





Remaining Available forto be Issued


Weighted-Average


Future Issuance Underupon Exercise of


Exercise Price of


Equity Compensation PlansOutstanding Options,


Outstanding Options,


(Excluding SecuritiesWarrants and Rights


Warrants and Rights


Listed in Column (a))Plan Category

(a)


(b)


(c)Equity compensation plans approved by stockholders(1)


7,533,335


$
9.90



1,493,835Equity compensation plans not approved by stockholders





$




Total


7,533,335


$
9.90



1,493,835     (1)
    
    These plans are the 1996 Equity Incentive Plan and the 2005
    Equity Incentive Plan (the Plans). The 2005 Equity
    Incentive Plan provides for the grant of incentive stock
    options, nonstatutory stock options, stock appreciation rights,
    stock purchase awards, stock bonus awards, stock unit awards,
    restricted stock awards and other forms of equity compensation.
    We have issued stock options, restricted stock units and
    restricted stock awards under these Plans. These stock options
    generally expire 10 years from the date of grant. The stock
    options, restricted stock units and restricted stock awards
    generally vest over four years, although some restricted stock
    units and restricted stock awards vest in less than four years.
    Upon the occurrence of a change in control, certain awards will
    immediately become exercisable in full. The weighted average
    exercise price in the table above does not take these restricted
    stock units and restricted stock awards into account. No future
    awards will be granted pursuant to the 1996 Equity Incentive
    Plan.  ITEM 13:
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE.    ITEM 14:
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES.   51




---



##### 



PART IV  ITEM 15:
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULE  (a)
    1.
    CONSOLIDATED FINANCIAL STATEMENTS   
 PageReport of Independent Registered Public
    Accounting Firm


F-1Consolidated Balance Sheets as of January 3,
    2009 and January 2, 2010


F-2Consolidated Statements of Operations for the
    Fiscal Years Ended December 29, 2007, January 3, 2009
    and January 2, 2010


F-3Consolidated Statements of Stockholders
    Equity for the Fiscal Years Ended December 29, 2007,
    January 3, 2009 and January 2, 2010


F-4Consolidated Statements of Cash Flows for the
    Fiscal Years Ended December 29, 2007, January 3, 2009
    and January 2, 2010


F-5Notes to Consolidated Financial Statements


F-6    2.
    FINANCIAL
    STATEMENT SCHEDULE  SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
  Balance at


Charged toBeginning


Costs and





Balance atof Year


Expenses


Deductions*


End of Year(In thousands)Allowance for Doubtful Accounts:Fiscal Year 2007

$
1,078


$
3,341


$
(2,586
)

$
1,833Fiscal Year 2008

$
1,833


$
5,475


$
(4,561
)

$
2,747Fiscal Year 2009

$
2,747


$
6,477


$
(4,576
)

$
4,648     *
    
    Deductions include write-offs  Balance at


Charged


ChargedBeginning


(Credited) to


(Credited) to


Balance atof Year


Expense


Goodwill


End of Year(In thousands)Valuation Allowance for Deferred Tax Assets:Fiscal Year 2007

$
115,381


$
(1,846
)

$
7,882


$
121,417Fiscal Year 2008

$
121,417


$
2,463


$
(389
)

$
123,491Fiscal Year 2009

$
123,491


$
3,122


$
31,347


$
157,960    52




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##### Table of Contents



3.
    EXHIBITS  ExhibitNumber

Description2
.1

Agreement and Plan of Merger, dated as of October 27, 2009,
    by and among GSI Commerce, Inc, Cola Acquisition Corporation,
    Retail Convergence, Inc., certain principal stockholders of
    Retail Convergence, Inc. and William J. Fitzgerald (as
    Stockholders Representative). The schedules and exhibits
    to the merger agreement are omitted pursuant to
    Item 601(b)(2) of
    Regulation S-K.
    GSI agrees to furnish supplementally to the SEC, upon request, a
    copy of any omitted schedule or exhibit. (filed with GSI
    Commerce, Inc.s Current Report on
    Form 8-K/A
    filed on November 17, 2009 and incorporated herein by
    reference)3
.1

Amended and Restated Certificate of Incorporation of Global
    Sports, Inc. (filed as Appendix B to GSI Commerce,
    Inc.s Definitive Proxy Statement on Schedule 14A
    filed on April 27, 2001 and incorporated herein by
    reference)3
.2

Certificate of Amendment to Amended and Restated Certificate of
    Incorporation of Global Sports, Inc. (filed with GSI Commerce,
    Inc.s Quarterly Report on
    Form 10-Q
    for the quarter ended June 29, 2002 and incorporated herein
    by reference)3
.3

Amended and Restated Bylaws of GSI Commerce, Inc. (filed with
    GSI Commerce, Inc.s Current Report on
    Form 8-K
    filed on March 16, 2009 and incorporated herein by
    reference)3
.4

Certificate of Designations, Preferences and Rights of
    Series A Junior Participating Preferred Stock (filed with
    GSI Commerce, Inc.s Current Report on
    Form 8-K
    filed on April 3, 2006 and incorporated herein by reference)4
.1

Specimen Common Stock Certificate (filed with GSI Commerce,
    Inc.s Quarterly Report on
    Form 10-Q
    for the Quarter ended June 29, 2002 and incorporated herein
    by reference)4
.2

Registration Rights Agreement, dated July 31, 1995, by and
    between Global Sports, Inc. and MR Acquisitions, Inc. (filed
    with GSI Commerce, Inc.s Current Report on
    Form 8-K
    filed on July 31, 1995 and incorporated herein by reference)4
.3

Registration Rights Agreement dated as of November 17, 2009
    between GSI Commerce, Inc. and the holders named therein (filed
    with GSI Commerce, Inc.s Registration Statement on
    Form S-3
    dated November 18, 2009 and incorporated herein by
    reference)4
.4

Rights Agreement, dated as of April 3, 2006, between GSI
    Commerce, Inc. and American Stock Transfer &
    Trust Company, as Rights Agent, including all exhibits
    thereto (filed with GSI Commerce, Inc.s Current Report on
    Form 8-K
    filed on April 3, 2006 and incorporated herein by reference)4
.5

Indenture dated as of June 1, 2005 by and between GSI
    Commerce, Inc. and JPMorgan Chase Bank, N.A. (filed with GSI
    Commerce, Inc.s Current Report on
    Form 8-K
    dated June 1, 2005 and incorporated herein by reference)4
.6

Form of 3% Convertible Note due 2025 (filed as
    Exhibit A to Exhibit 4.1 of GSI Commerce, Inc.s
    Current Report on
    Form 8-K
    dated June 1, 2005 and incorporated herein by reference)4
.7

Indenture dated as of July 2, 2007 between the Company and
    The Bank of New York, as trustee (filed with GSI Commerce,
    Inc.s Current Report on
    Form 8-K
    dated July 5, 2007 and incorporated herein by reference)4
.8

Form of 2.50% Convertible Senior Note due 2027 (filed with
    GSI Commerce, Inc.s Current Report on
    Form 8-K
    dated July 5, 2007 and incorporated herein by reference)4
.9

Senior Indenture of GSI Commerce, Inc. with The Bank of New York
    Mellon, as trustee (filed with GSI Commerce, Inc.s
    Registration Statement on
    Form S-3
    dated November 18, 2009 and incorporated herein by
    reference)4
.10

Subordinated Indenture of GSI Commerce, Inc. with The Bank of
    New York Mellon, as trustee (filed with GSI Commerce,
    Inc.s Registration Statement on
    Form S-3
    dated November 18, 2009 and incorporated herein by
    reference)10
.1+

GSI Commerce, Inc.s 1996 Equity Incentive Plan, amended
    and restated as of March 5, 2008 (filed with GSI Commerce,
    Inc.s Annual Report on
    Form 10-K
    for the fiscal year ended December 29, 2007 and
    incorporated herein by reference) 53




---



##### Table of Contents



ExhibitNumber

Description10
.2+

GSI Commerce, Inc.s 2005 Equity Incentive Plan as amended
    (filed as Appendix A to GSI Commerce, Inc.s
    Definitive Proxy Statement on Schedule 14A filed with the
    Securities Exchange Commission on April 25, 2008 and
    incorporated herein by reference)10
.3+

Form of Restricted Stock Unit Grant Notice (Basic) Under the GSI
    Commerce, Inc. 2005 Equity Incentive Plan (filed with GSI
    Commerce, Inc.s Annual Report on
    Form 10-K
    filed on March 16, 2009 and incorporated herein by
    reference)10
.4+

Form of Restricted Stock Unit Grant Notice Issued to Directors
    Under the 2005 Equity Incentive Plan (Annual Award) (filed with
    GSI Commerce, Inc.s Annual Report on
    Form 10-K
    filed on March 16, 2009 and incorporated herein by
    reference)10
.5+

Form of Restricted Stock Unit Grant Notice Issued to Directors
    Under the 2005 Equity Incentive Plan (Initial Election Award)
    (filed with GSI Commerce, Inc.s Annual Report on
    Form 10-K
    filed on March 16, 2009 and incorporated herein by
    reference)10
.6+

Stock Option Grant Notice (Basic) Under the 2005 Equity
    Incentive Plan (filed with GSI Commerce, Inc.s Annual
    Report on
    Form 10-K
    filed on March 15, 2006 and incorporated herein by
    reference)10
.7+

Stock Option Grant Notice (Alternate) Under the 2005 Equity
    Incentive Plan (filed with GSI Commerce, Inc.s Annual
    Report on
    Form 10-K
    filed on March 15, 2006 and incorporated herein by
    reference)10
.8+

GSI Commerce, Inc. Leadership Team Incentive Plan (filed as from
    Appendix B to GSI Commerce, Inc.s Definitive Proxy
    Statement on Schedule 14A filed with the Securities
    Exchange Commission on April 25, 2008 and incorporated
    herein by reference)10
.9+

Leadership Team Deferral Plan, as amended and restated effective
    March 5, 2008 (filed with GSI Commerce, Inc.s Annual
    Report on
    Form 10-K
    for the fiscal year ended December 29, 2007 and
    incorporated herein by reference)10
.10+

Form of Change in Control Agreement (filed with GSI Commerce,
    Inc.s Current Report on
    Form 8-K
    filed on August 7, 2006 and incorporated herein by
    reference)10
.11+

Form of Indemnification Agreement10
.12+

Employment Agreement, dated August 23, 2006, by and between
    GSI Commerce, Inc. and Michael G. Rubin (filed with GSI
    Commerce, Inc.s Current Report on
    Form 8-K
    filed on August 29, 2006 and incorporated herein by
    reference)10
.13+

Amendment
    2008-1 to
    the Employment Agreement between GSI Commerce, Inc. and Michael
    G. Rubin, dated as of December 30, 2008 (filed with GSI
    Commerce, Inc.s Annual Report on
    Form 10-K
    filed on March 16, 2009 and incorporated herein by
    reference)10
.14+

Michael Rubin Form of PRSU Agreement (filed with GSI Commerce,
    Inc.s Quarterly Report on
    Form 10-Q
    for the quarter ended April 4, 2009 and incorporated herein
    by reference)10
.15+

Michael Rubin Form of Restricted Stock Unit Agreement (filed
    with GSI Commerce, Inc.s Annual Report on
    Form 10-K
    filed on March 16, 2009 and incorporated herein by
    reference)10
.16+

Offer Letter, dated January 31, 2005, between GSI Commerce,
    Inc. and Stephen J. Gold (filed with GSI Commerce, Inc.s
    Current Report on
    Form 8-K
    on February 2, 2005 and incorporated herein by reference)10
.17+

Amendment, dated July 31, 2009, to Offer Letter, dated
    January 31, 2005, between GSI Commerce, Inc. and Stephen J.
    Gold (filed with GSI Commerce, Inc.s Current Report on
    Form 8-K
    on August 6, 2009 and incorporated herein by reference)10
.18+

Offer Letter, dated March 26, 2007, between GSI Commerce,
    Inc. and Scott Hardy (filed with GSI Commerce, Inc.s
    Quarterly Report on
    Form 10-Q
    for the quarter ended March 29, 2008 and incorporated
    herein by reference)10
.19

Promissory Note from 935 HQ Associates, LLC to CIBC Inc. dated
    June 9, 2004 (filed with GSI Commerce, Inc.s
    Quarterly Report on
    Form 10-Q
    for the quarter ended July 3, 2004 and incorporated herein
    by reference)10
.20

Mortgage, Assignment of Leases and Rents and Security Agreement
    from 935 HQ Associates, LLC in favor of CIBC Inc. dated as of
    June 9, 2004 (filed with GSI Commerce, Inc.s
    Quarterly Report on
    Form 10-Q
    for the quarter ended July 3, 2004 and incorporated herein
    by reference) 54




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##### Table of Contents



ExhibitNumber

Description10
.21

Credit Agreement, dated as of January 11, 2008, by and
    among GSI Commerce Solutions, Inc., the Guarantors named
    therein, the Lenders named therein, PNC Bank, National
    Association, as administrative agent, and Bank of America, N.A.,
    as syndication agent (filed with GSI Commerce, Inc.s
    Current Report on
    Form 8-K
    filed on January 17, 2008 and incorporated herein by
    reference)12
.1

Statement Regarding Computation of Ratios of Earnings to Fixed
    Charges21
.1

List of Subsidiaries23
.1

Consent of Deloitte & Touche LLP24
.1

Power of Attorney, incorporated by reference to the signature
    page of this Annual Report on
    Form 10-K31
.1

Certification of Chief Executive Officer pursuant to
    Rule 13a-14(a)
    under the Securities Exchange Act of 193431
.2

Certification of Chief Financial Officer pursuant to
    Rule 13a-14(a)
    under the Securities Exchange Act of 193432
.1

Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002     +
    
    Management contract or compensatory plan or arrangement
    
    Confidential treatment has been requested for certain portions
    of this exhibit. Omitted portions have been filed separately
    with the Securities and Exchange Commission. 55




---



##### Table of Contents



SIGNATURES        By:
    /s/  MICHAEL
    G. RUBIN     POWER OF
    ATTORNEY AND SIGNATURES
  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
    signature appears below constitutes and appoints Michael G.
    Rubin and Michael R. Conn, and each or any one of them, his true
    and lawful attorney-in-fact and agent, with full power of
    substitution and resubstitution, for him and in his name, place
    and stead, in any and all capacities, to sign any and all
    amendments to this
    Form 10-K,
    and to file the same, with all exhibits thereto, and other
    documents in connection therewith, with the Securities and
    Exchange Commission, granting unto said attorneys-in-fact and
    agents, and each of them, full power and authority to do and
    perform each and every act and thing requisite and necessary to
    be done in connection therewith, as fully to all intents and
    purposes as he might or could do in person, hereby ratifying and
    confirming all that said attorneys-in-fact and agents, or any of
    them, or their or his substitutes or substitute, may lawfully do
    or cause to be done by virtue hereof.
  Pursuant to the requirements of the Securities Exchange Act
    of 1934, this Report has been signed below by the following
    persons on behalf of the registrant and in the capacities and on
    the dates indicated.
  Signature

Title(s)

Date/s/  Michael
    G. RubinMichael
    G. Rubin

Chairman, President and Chief Executive Officer (principal
    executive officer)

March 5, 2010/s/  Michael
    R. ConnMichael
    R. Conn

Executive Vice President, Finance and Chief Financial Officer
    (principal financial officer and principal accounting officer)

March 5, 2010/s/  M.
    Jeffrey BranmanM.
    Jeffrey Branman

Director

March 5, 2010/s/  Michael
    DonahueMichael
    Donahue

Director

March 5, 2010/s/  Ronald
    D. FisherRonald
    D. Fisher

Director

March 5, 2010/s/  John
    A. HunterJohn
    A. Hunter

Director

March 5, 2010 56




---



##### Table of Contents



Signature

Title(s)

Date/s/  Mark
    S. MenellMark
    S. Menell

Director

March 5, 2010/s/  Jeffrey
    F. RayportJeffrey
    F. Rayport

Director

March 5, 2010/s/  Lawrence
    S. SmithLawrence
    S. Smith

Director

March 5, 2010/s/  Andrea
    M. WeissAndrea
    M. Weiss

Director

March 5, 2010  57




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            Internal Control  Integrated Framework
  
    F-1




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  January 3,


January 2,2009


2010(In thousands,except share data)ASSETSCurrent assets:Cash and cash equivalents

$
130,315


$
228,430Accounts receivable, net of allowance of $2,747 and $4,648


78,544



70,582Inventory


42,856



55,678Deferred tax assets


18,125



12,347Prepaid expenses and other current assets


11,229



13,187Total current assets


281,069



380,224Property and equipment, net


164,833



163,329Goodwill


194,996



373,003Intangible assets, net of accumulated amortization of $18,340
    and $29,172


46,663



132,875Long-term deferred tax assets


11,296



Other assets, net of accumulated amortization of $16,384 and
    $17,264


17,168



12,417Total assets

$
716,025


$
1,061,848LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
98,100


$
126,914Accrued expenses


116,747



150,173Deferred revenue


20,397



20,645Convertible notes






55,443Current portion of long-term debt


4,887



5,260Total current liabilities


240,131



358,435Convertible notes


161,951



116,948Long-term debt


32,609



28,142Deferred acquisition payments






63,763Deferred tax liabilities






8,534Deferred revenue and other long-term liabilities


6,838



9,686Total liabilities


441,529



585,508Commitments and contingencies (Note 8)Stockholders equity:Preferred stock, $0.01 par value, 5,000,000 shares
    authorized; 0 shares issued and outstanding as of
    January 3, 2009 and January 2, 2010






Common stock, $0.01 par value, 90,000,000 shares
    authorized; 47,630,824 and 60,033,393 shares issued as of
    January 3, 2009 and January 2, 2010 respectively;
    47,630,621 and 60,033,190 shares outstanding as of
    January 3, 2009 and January 2, 2010, respectively


476



600Additional paid in capital


430,933



642,852Accumulated other comprehensive loss


(2,327
)


(1,498
)Accumulated deficit


(154,586
)


(165,614
)Total stockholders equity


274,496



476,340Total liabilities and stockholders equity

$
716,025


$
1,061,848    F-2




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Fiscal Year EndedDecember 29,


January 3,


January 2,2007


2009


2010(In thousands, except per share data)Revenues:Net revenues from product sales

$
512,194


$
577,073


$
542,249Service fee revenues


237,763



389,853



461,966Net revenues


749,957



966,926



1,004,215Costs and expenses:Cost of revenues from product sales


356,541



405,254



398,604Marketing


64,573



70,282



54,831Account management and operations, inclusive of $3,241 $7,505
    and $9,028 of stock-based compensation


177,473



260,325



273,070Product development, inclusive of $1,749 $4,118 and $5,740 of
    stock-based compensation


66,032



104,208



120,176General and administrative, inclusive of $4,052 $7,780 and
    $9,994 of stock-based compensation


43,682



68,964



82,922Depreciation and amortization


37,337



68,153



63,395Changes in fair value of deferred acquisition payments










951Total costs and expenses


745,638



977,186



993,949Income (loss) from operations


4,319



(10,260
)


10,266Other (income) expense:Interest expense


12,191



18,841



19,430Interest income


(9,270
)


(1,772
)


(478
)Other expense


237



1,562



(2
)Loss on sale of marketable securities


5,007







Impairment of equity investments






1,665



Total other expense


8,165



20,296



18,950Loss before income taxes


(3,846
)


(30,556
)


(8,684
)(Benefit) provision for income taxes


(2,887
)


(7,585
)


2,344Net loss

$
(959
)

$
(22,971
)

$
(11,028
)Loss per share- basic and diluted

$
(0.02
)

$
(0.49
)

$
(0.21
)Weighted average shares outstanding  basic and diluted


46,433



47,347



51,457    F-3




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  AccumulatedAdditional








OtherCommon Stock


Paid in


Accumulated


Comprehensive


ComprehensiveShares


Dollars


Capital


Deficit


(Loss) Income


Loss


Total(In thousands)Consolidated balance at December 30, 2006


45,879


$
458


$
366,073


$
(130,656
)





$
(97
)

$
235,778Net loss














(959
)


(959
)






(959
)Net unrealized gain on
    available-
    for-sale
    securities, net of tax


















11



11



11Add: Reclassification adjustment for losses realized in net
    income


















80



80



80Cumulative translation adjustment, net of tax


















(150
)


(150
)


(150
)Comprehensive income

















$
(1,018
)Stock-based compensation expense










8,028















8,028Issuance of convertible notes










26,783















26,783Issuance of common stock and warrants upon exercise of options


805



8



8,072















8,080Issuance of stock awards upon vesting


164



2



(2
)














Share-based awards retained for taxes










(1,288
)














(1,288
)Tax benefit in connection with exercise of stock options and
    awards










4,537















4,537Consolidated balance at December 29, 2007


46,848


$
468


$
412,203


$
(131,615
)





$
(156
)

$
280,900Net loss














(22,971
)


(22,971
)






(22,971
)Cumulative translation adjustment, net of tax


















(2,171
)


(2,171
)


(2,171
)Comprehensive loss

















$
(25,142
)Stock-based compensation expense










18,494















18,494Issuance of common stock and warrants upon exercise of options


128



1



1,384















1,385Issuance of stock awards upon vesting


655



7



(7
)














Share-based awards retained for taxes










(222
)














(222
)Tax deficit in connection with exercise of stock options and
    awards










(919
)














(919
)Consolidated balance at January 3, 2009


47,631


$
476


$
430,933


$
(154,586
)





$
(2,327
)

$
274,496Net loss














(11,028
)


(11,028
)






(11,028
)Cumulative translation adjustment, net of tax


















829



829



829Comprehensive loss

















$
(10,199
)Stock-based compensation expense










23,749















23,749Issuance of common stock and warrants upon exercise of options


772



8



5,312















5,320Issuance of stock awards upon vesting


1,368



14



(14
)














Share-based awards retained for taxes










(60
)














(60
)Tax benefit in connection with exercise of stock options and
    awards










1,175















1,175Acquisition consideration


4,798



48



93,897















93,945Common stock issued in public offering, net of costs


5,464



54



87,860















87,914Consolidated balance at January 2, 2010


60,033


$
600


$
642,852


$
(165,614
)





$
(1,498
)

$
476,340    F-4




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Fiscal Year EndedDecember 29,


January 3,


January 2,2007


2009


2010(In thousands)Cash Flows from Operating Activities:Net loss

$
(959
)

$
(22,971
)

$
(11,028
)Adjustments to reconcile net loss to net cash provided by
    operating activities:Depreciation


32,763



54,557



52,633Amortization


4,574



13,596



10,762Amortization of discount on convertible notes


6,542



9,462



10,440Changes in fair value of deferred acquisition payments










951Stock-based compensation


9,042



19,403



24,762Foreign currency transaction losses






1,571



14Loss on sale of marketable securities


5,007







Impairment of equity investments






1,665



Loss (gain) on disposal of equipment


34



(354
)


(10
)Deferred income taxes


(3,305
)


(7,722
)


202Changes in operating assets and liabilities:Accounts receivable, net


(7,005
)


(8,130
)


10,010Inventory


(471
)


4,437



7,677Prepaid expenses and other current assets


(2,265
)


2,142



(544
)Other assets, net


739



1,724



2,159Accounts payable and accrued expenses and other


7,633



23,513



33,967Deferred revenue


5,805



3,076



(1,771
)Net cash provided by operating activities


58,134



95,969



140,224Cash Flows from Investing Activities:Payments for acquisitions of businesses, net of cash acquired


(100,574
)


(145,001
)


(88,892
)Cash paid for property and equipment, including internal use
    software


(54,196
)


(57,180
)


(43,007
)Proceeds from disposition of assets






1,500



Release of restricted cash escrow funds










1,052Cash paid for equity investments


(3,083
)






Purchases of marketable securities


(263,688
)






Sales of marketable securities


371,264







Net cash used in investing activities


(50,277
)


(200,681
)


(130,847
)Cash Flows from Financing Activities:Proceeds from convertible notes


150,000







Borrowings on revolving credit loan






70,000



Repayments on revolving credit loan






(70,000
)


Proceeds from sale of common stock










92,596Proceeds from capital lease financing






7,901



Equity issuance costs paid










(4,728
)Debt issuance costs paid


(5,042
)


(561
)


Repayments of capital lease obligations


(935
)


(3,032
)


(4,503
)Repayments of mortgage note


(182
)


(195
)


(184
)Excess tax benefit in connection with exercise of stock options
    and awards


359



14



92Proceeds from exercise of common stock options and warrants


8,080



1,385



5,320Net cash provided by financing activities


152,280



5,512



88,593Effect of exchange rate changes on cash and cash equivalents


(8
)


(1,996
)


145Net increase (decrease) in cash and cash equivalents


160,129



(101,196
)


98,115Cash and cash equivalents, beginning of period


71,382



231,511



130,315Cash and cash equivalents, end of period

$
231,511


$
130,315


$
228,430Supplemental Cash Flow InformationCash paid during the period for interest

$
5,622


$
9,798


$
8,055Cash paid during the period for income taxes


564



699



3,032Noncash Investing and Financing Activities:Accrual for purchases of property and equipment


2,943



3,712



2,363Equipment financed under capital lease


15,562



2,497



451    F-5




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (amounts
    in thousands, except per share data)
  NOTE 1 
    DESCRIPTION
    OF BUSINESS  e-commerce e-commerce e-commerce e-commerce end-to-end e-mail e-mail
  NOTE 2 
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES    Fiscal Year:
  Basis of Consolidation:
  Use of Estimates:
  Fair Values: Fair Value of Financial and Nonfinancial
    Instruments
  Cash and Cash Equivalents:
  Inventory:
   F-6




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
      Property and Equipment:
  
    Three to six years for office equipment;
    Three to four years for computer hardware and software including
    internal use software;
    Seven years for furniture and fulfillment center equipment;
    The lesser of fifteen years or lease term for leasehold
    improvements;
    Fifteen years for building improvements; and
    Thirty years for buildings.    Goodwill and Other Intangible Assets:
       F-7




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    Goodwill and Other Intangible Assets
  Long-Lived Assets:
  Other Assets, Net:
    January 3,


January 2,2009


2010Equity investments

$
5,374


$
3,420Unamortized debt issuance costs


3,835



2,754Deferred client revenue share charges


3,677



2,247Deferred compensation


991



1,396Other


3,291



2,600Total other assets, net

$
17,168


$
12,417     Accrued Expenses:
    Deferred Acquisition Payments:
 F-8




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    Revenue Recognition:
      Net Revenues from Product Sales: e-commerce
  e-commerce
  Service Fee Revenues: e-commerce
   F-9




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    e-commerce
      Cost of Revenues from Product Sales:
  e-commerce
  Vendor Allowances:
  Marketing: e-commerce
   F-10




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  e-commerce e-commerce
        Account Management and Operations:
    Product Development: e-commerce
  General and Administrative:
  Foreign Currency Translation and
    Transactions:
 F-11




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    Stock-Based Compensation:
  Stock Awards
  Income Taxes:
       F-12




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    Recent Accounting Pronouncements:
    Effective Date forSubject

Date Issued

Summary

Effect of Adoption

the CompanyEffective Date of Fair Value Measurements

February 2008

Delayed the effective date of previously issued accounting
    standards for Fair Value Measurements of
    nonfinancial assets and nonfinancial liabilities, except those
    that are recognized or disclosed at fair value on a recurring
    basis, at least annually, until fiscal years beginning after
    November 15, 2008, and interim periods within those fiscal years.

No material impact.

January 4, 2009Business Combinations

December 2007

Establishes principles and requirements for an acquirer in a
    business combination for recognizing and measuring the
    identifiable assets acquired, the liabilities assumed and any
    noncontrolling interest in the entity acquired in its financial
    statements. Provides guidance on the recognition and measurement
    of goodwill acquired in the business combination or a gain from
    a bargain purchase as well as what information to disclose to
    enable users of the financial statements to evaluate the nature
    and financial impact of the business combination. Also, requires
    recognition of assets and liabilities of noncontrolling
    interests acquired, fair value measurement of consideration and
    contingent consideration, expense recognition for transaction
    costs and certain integration costs, recognition of the fair
    value of contingencies, and adjustments to income tax expense
    for changes in an acquirers existing valuation allowances
    or uncertain tax positions that result from the business
    combination.

No material impact.

January 4, 2009Noncontrolling Interests in Consolidating Financial Statements

December 2007

Establishes principles and requirements of treatment for the
    portion of equity in a subsidiary that is not attributable
    directly or indirectly to a parent. This is commonly known as a
    minority interest. The objective is to improve relevance,
    comparability, and transparency concerning ownership interests
    in subsidiaries held by parties other than the parent by
    providing disclosures that clearly identify between interests of
    the parent and interest of the noncontrolling owners and the
    related impacts on the consolidated statement of income and the
    consolidated statement of financial position. Also provides
    guidance on disclosures related to changes in the parents
    ownership interest and deconsolidation of a subsidiary.

No material impact.

January 4, 2009 F-13




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  Effective Date forSubject

Date Issued

Summary

Effect of Adoption

the CompanyDisclosures about Derivative Instruments and Hedging Activities

March 2008

Requires companies with derivative instruments to disclose how
    and why a company uses derivative instruments, how derivative
    instruments and related hedged items are accounted for under
    accounting standards for Accounting for Derivative
    Instruments and Hedging Activities, and how derivative
    instruments and related hedged items affect a companys
    financial statements.

No material impact.

January 4, 2009Convertible Debt Instruments That May Be Settled in Cash upon
    Conversion (Including Partial Cash Settlement)

May 2008

Changes the accounting treatment for convertible debt
    instruments that allow for either mandatory or optional cash
    settlements. Requires the issuer of convertible debt instruments
    with cash settlement features to separately account for the
    liability and equity components of the instrument. The
    Companys $207,500 principal amount of subordinated
    convertible notes are subject to the provisions of these
    standards because under the notes the Company has the ability to
    elect cash settlement of the conversion value of the notes. The
    provisions require retrospective application.

The Company retrospecively applied this standard to all periods
    presented. See the Companys Current Report on Form 8-K
    filed with the Securities Exchange Commission on August 4, 2009
    for the impact of this standard on the Companys previously
    reported financial statements.

January 4, 2009Determining whether an Instrument (or Embedded Feature) is
    indexed to an Entitys Own Stock

June 2008

Provides a two-step model to be applied in determining whether a
    financial instrument or an embedded feature is indexed to an
    issuers own stock and thus able to qualify for the scope
    exception under accounting standards of Accounting for
    Derivative Instruments and Hedging Activities.

No material impact.

January 4, 2009Determining Whether Instruments Granted in Share-Based Payment
    Transactions are Participating Securities

June 2008

Requires that unvested stock-based compensation awards that
    contain non-forfeitable rights to dividends or dividend
    equivalents (whether paid or unpaid) should be classified as
    participating securities and should be included in the
    computation of earnings per share pursuant to the two-class
    method as described in accounting standards for Earnings
    Per Share.

No material impact.

January 4, 2009Interim Disclosures about Fair Value of Financial Instruments

April 2009

Requires companies to disclose in interim financial statements
    the fair value of financial instruments within the scope of
    accounting standards for Disclosures About Fair Value of
    Financial Instruments. Also requires that companies
    disclose the method or methods and significant assumptions used
    to estimate the fair value of financial instruments.

No material impact.

July 4, 2009Subsequent Events

May 2009, Amended February 2010

Sets forth the period after the balance sheet date during which
    management of a reporting entity should evaluate events or
    transactions that may occur for potential recognition or
    disclosure in the financial statements, the circumstances under
    which an entity should recognize events or transactions
    occurring after the balance sheet date in its financial
    statements, and the disclosures that an entity should make about
    events or transactions that occurred after the balance sheet
    date.

No material impact.

July 4, 2009 F-14




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  Effective Date forSubject

Date Issued

Summary

Effect of Adoption

the CompanyThe FASB Accounting Standards Codification and the Hierarchy of
    Generally Accepted Accounting Principles

June 2009

Identifies the FASB Accounting Standards Codification as the
    authoritative source of generally accepted accounting principles
    in the United States. Rules and interpretive releases of the
    Securities and Exchange Commission under federal securities laws
    are also sources of authoritative GAAP for SEC registrants.

No material impact.

July 5, 2009Multiple Element Arrangements

October 2009

Removes the objective-and-reliable-evidence-of-fair-value
    criterion from the separation criteria used to determine whether
    an arrangement involving multiple deliverables contains more
    than one unit of accounting. Replaces references to fair
    value with selling price to distinguish from
    the fair value measurements required under accounting standards
    for Fair Value Measurements. Provides a hierarchy
    that entities must use to estimate the selling price, eliminates
    the use of the residual method for allocation, and expands the
    ongoing disclosure requirements.

The Company does not expect the adoption of this statement to
    have a material on its consolidated financial statements

January 2, 2011, with early adoption permitted. The Company
    has chosen to prospectively adopt this standard as of
    January 3, 2010   NOTE 3 
    FAIR
    VALUE OF FINANCIAL AND NONFINANCIAL INSTRUMENTS              Fair Value Measurements on January 3, 2009Quoted Prices in


Significant


SignificantActive Markets for


Other Observable


UnobservableIdentical Assets


Inputs


Inputs(Level 1)


(Level 2)


(Level 3)AssetsCash and cash equivalents:(1)Money market mutual funds

$
97,849


$



$
  F-15




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    (1)
    
    Cash and cash equivalents total $130,315 as of January 3,
    2009, and are comprised of $97,849 of money market mutual funds
    and $32,466 of bank deposits.  Fair Value Measurements on January 2, 2010Quoted Prices in

Significant

SignificantActive Markets for

Other Observable

UnobservableIdentical Assets

Inputs

Inputs(Level 1)

(Level 2)

(Level 3)AssetsCash and cash equivalents:(1)Money market mutual funds

$
13,606


$



$
LiabilitiesDeferred acquisition payments(2)

$



$



$
60,963     (1)
    
    Cash and cash equivalents totaled $228,430 as of January 2,
    2010, and were comprised of $13,606 of money market mutual funds
    and $214,824 of bank deposits.(2)
    
    Deferred acquisition payments represent the fair value of
    estimated acquisition payments that are contingent upon RCI
    achieving specified minimum earnings thresholds over one or more
    years. The Company utilized a discounted cash flow model that
    incorporated several different assumptions of future performance
    and a discount rate of 13.6% to determine fair value. The
    Company accreted $951 of its deferred acquisition payments from
    the acquisition date of Retail Convergence, Inc.
    (RCI) through the end of fiscal 2009, and the
    corresponding charge was recorded to changes in fair value of
    deferred acquisition payments on the Consolidated Statements of
    Operations.    Fair Value Measurements on January 3, 2009Quoted Prices in

Significant

SignificantActive Markets for

Other Observable

UnobservableIdentical Assets

Inputs

Inputs(Level 1)

(Level 2)

(Level 3)AssetsOther assets:Equity investments

$



$



$
1,418      F-16




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
   NOTE 4 
    PROPERTY
    AND EQUIPMENT    January 3,


January 2,2009


2010Computer hardware and software

$
190,957


$
231,954Building and building improvements


44,721



44,822Furniture, warehouse and office equipment, and other


40,423



45,722Land


7,889



7,889Leasehold improvements


4,592



8,847Capitalized leases


28,141



29,132Construction in progress


1,497



318,220



368,366Less: Accumulated depreciation


(153,387
)


(205,037
)Property and equipment, net

$
164,833


$
163,329     NOTE 5 
    GOODWILL
    AND OTHER INTANGIBLE ASSETS    InteractiveE-Commerce


Marketing


ConsumerServices


Services


Engagement


ConsolidatedJanuary 3, 2009

$
82,758


$
112,238


$



$
194,996Acquisitions(1)






4,787



172,888



177,675Foreign currency translation


332











332January 2, 2010

$
83,090


$
117,025


$
172,888


$
373,003     (1)
    
    In April 2009, the Company completed the acquisition of
    Silverlign Group Inc., and the allocation of the purchase price
    over the fair value of the tangible and intangible assets
    acquired resulted in $3,162 of goodwill. In September 2009, the
    Company completed the acquisition of Pepperjam, and the
    allocation of the purchase price over the fair value of the
    tangible and intangible assets acquired resulted in $1,625 of
    goodwill. In November 2009, the Company completed the
    acquisition of RCI, and the allocation of the purchase price
    over the fair value of the tangible and intangible assets
    acquired resulted in $172,888 of goodwill. F-17




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
     Weighted-January 3,


January 2,


Average2009


2010


LifeGross carrying value of intangible assets subject to
    amortization:Customer contracts

$
38,773


$
41,190



2.4Member relationships






22,200



2.6Supplier relationships






11,186



3.4Non-compete agreements


3,838



4,079



3.0Purchased technology


4,493



4,805



4.0Trade names


470



840



1.5Foreign currency translation


(691
)


(482
)46,883



83,818



2.7Accumulated amortization:Customer contracts


(15,302
)


(22,907
)Member relationships






(489
)Supplier relationships






Non-compete agreements


(1,599
)


(2,888
)Purchased technology


(1,152
)


(2,428
)Trade names


(470
)


(532
)Foreign currency translation


183



72(18,340
)


(29,172
)Net carrying value:Customer contracts


23,471



18,283Member relationships






21,711Supplier relationships






11,186Non-compete agreements


2,239



1,191Purchased technology


3,341



2,377Trade names






308Foreign currency translation


(508
)


(410
)Total intangible assets subject to amortization, net


28,543



54,646Indefinite life intangible assets:Trade names


18,120



78,229Total intangible assets

$
46,663


$
132,875  F-18




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    Fiscal 2010

$
16,118Fiscal 2011


14,283Fiscal 2012


10,105Fiscal 2013


7,715Fiscal 2014


6,425$
54,646   NOTE 6 
    ACQUISITIONS    Retail
    Convergence
  e-commerce e-commerce e-commerce
     F-19




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    Total current assets

$
31,129Propery, plant and equipment


8,031Goodwill


172,888Identifiable intangible assets:Trade name


59,569Member relationships


22,200Supplier relationships


11,186Non-compete agreements


241Total assets acquired


305,244Total current liabilities


(29,718
)Long-term deferred tax liabilities and other


(29,436
)Total liabilities assumed


(59,154
)Total consideration


246,090Liability arising from contingent consideration


(60,012
)Consideration paid at acquisition date

$
186,078   e-Dialog,
    Inc.
  e-Dialog, (e-Dialog) e-Dialog e-mail e-Dialog e-commerce e-Dialog, e-Dialog
  e-Dialogs
 F-20




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  e-Dialog
  Total current assets

$
17,067Property, plant and equipment


4,530Goodwill


112,238Identifiable intangible assets:Customer contracts


19,470Internal-developed software


4,493Trade name


17,874Total assets acquired


175,672Total current liabilities


(6,564
)Long-term deferred tax liabilities


(19,042
)Total liabilities assumed


(25,606
)Net assets acquired

$
150,066   Zendor.com
    Ltd.
  e-commerce end-to-end e-commerce e-commerce
    Total current assets

$
9,830Property, plant and equipment


3,281Goodwill


1,878Identifiable intangible assets:Customer contracts


2,155Trade name


388Total assets acquired


17,532Total liabilities assumed


(7,612
)Net assets acquired

$
9,920  F-21




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  Accretive
    Commerce, Inc.
  e-commerce e-commerce e-commerce
    Total current assets

$
16,802Property, plant and equipment


9,197Identifiable intangible assets:Customer contracts


15,008Employee non-compete agreements


3,838Goodwill


61,916Other assets


8,638Total assets acquired


115,399Total current liabilities


(14,962
)Total non-current liabilities


(1,837
)Total liabilities assumed


(16,799
)Net assets acquired

$
98,600   Unaudited
    Pro Forma Financial Information
  e-Dialog
  Fiscal Year EndedJanuary 3,

January 2,2009

2010Net revenues

$
1,054,843


$
1,103,978Net loss

$
(44,400
)

$
(24,433
)  F-22




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
   NOTE 7 
    LONG-TERM
    DEBT AND CREDIT FACILITY    January 3,


January 2,2009


2010Convertible notes

$
161,951


$
172,391Notes payable(1)


12,663



12,479Capital lease obligations


24,833



20,923Total debt


199,447



205,793Less: Current portion of convertible notes






(55,443
)Less: Current portion of notes payable


(184
)


(195
)Less: Current portion of capital lease obligations


(4,703
)


(5,065
)Total long-term debt

$
194,560


$
145,090     (1)
    
    The estimated fair market value of the notes payable
    approximated their carrying value as of January 3, 2009 and
    January 2, 2010.    3%
    Convertible Notes due 2025
     F-23




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    As of


As ofJanuary 3,


January 2,2009


2010Carrying amount of the equity component

$
18,187


$
18,187Principal amount of the liability component

$
57,500


$
57,500Unamortized discount of liability component

$
6,574


$
2,057Net carrying amount of liability component

$
50,926


$
55,443Remaining amortization period of discount






5 monthsEffective interest rate on liability component






12.00
%     Fiscal Year EndedDecember 29,


January 3,


January 2,2007


2009


2010Amortization of the discount on the liability component

$
3,579


$
4,021


$
4,517Contract interest coupon


1,725



1,725



1,725Amortization of the liability component of the issue costs


331



359



391Interest expense

$
5,635


$
6,105


$
6,633     2.5% Convertible
    Notes due 2027
     F-24




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    As of


As ofJanuary 3,


January 2,2009


2010Carrying amount of the equity component

$
26,783


$
26,783Principal amount of the liability component

$
150,000


$
150,000Unamortized discount of liability component

$
38,975


$
33,052Net carrying amount of liability component

$
111,025


$
116,948Remaining amortization period of discount






53 monthsEffective interest rate on liability component






8.60
%     Fiscal Year EndedDecember 29,


January 3,


January 2,2007


2009


2010Amortization of the discount on the liability component

$
2,964


$
5,445


$
5,923Contract interest coupon


2,188



3,750



3,750Amortization of the liability component of the issue costs


243



434



457Interest expense

$
5,395


$
9,629


$
10,130     Note
    Payable
    Capital
    Lease Obligations
    January 2,2010Gross capital lease obligations

$
23,816Less: imputed interest


(2,893
)Total present value of future minimum lease payments


20,923Less: current portion


(5,065
)Long-term portion

$
15,858  F-25




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
   Credit
    Facilities
    NOTE 8 
    COMMITMENTS
    AND CONTINGENCIES  Legal
    Proceedings
    and/or
  Operating
    and Capital Commitments
    Payments due by fiscal year2010


2011


2012


2013


2014


Thereafter


TotalOperating lease obligations(1)

$
20,627


$
17,034


$
16,854


$
12,730


$
9,219


$
18,984


$
95,448Purchase obligations(1)


72,097



13,878



13,878



5,350



4,045



45,951



155,199Client revenue share payments(1)


20,274



21,400



14,658



4,368



4,491



24,269



89,460Debt interest(1)


5,882



4,509



4,497



4,481



2,278



8,784



30,431Debt obligations


57,696



209



563



237



150,252



11,022



219,979Capital lease obligations, including interest(2)


6,416



6,119



5,821



3,671



1,789







23,816Deferred acquisition payments(3)


1,250



1,050



750



1,000











4,050Total

$
184,242


$
64,199


$
57,021


$
31,837


$
172,074


$
109,010


$
618,383  F-26




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
     (1)
    
    Not required to be recorded in the Consolidated Balance Sheet as
    of January 2, 2010 in accordance with accounting principles
    generally accepted in the United States of America.(2)
    
    Capital lease obligations, excluding interest, are recorded in
    the Consolidated Balance Sheets.(3)
    
    The Company will be obligated to pay up to an additional
    $170,000 over a three year period beginning with fiscal 2010
    contingent on RCIs achievement of certain financial
    targets, of which the Company has the ability to pay up to
    $44,100 with shares of the Companys common stock. See
    Note 6, Acquisitions,for more information.      NOTE 9 
    STOCKHOLDERS
    EQUITY  Preferred
    Stock:
    Common
    Stock:
      Stockholders
    Right Plan:
   F-27




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
   NOTE 10 
    STOCK
    AWARDS    Stock
    Options and Warrants
    WeightedWeighted


AverageNumber of


Average


Remaining


AggregateShares


Exercise


Contractual


Intrinsic(In thousands)


Price


Life (In Years)


ValueOutstanding at January 3, 2009


4,244


$
9.50Granted






Exercised


(797
)

$
6.84Forfeited/Cancelled


(195
)

$
13.94Outstanding at January 2, 2010


3,252


$
9.88



2.82


$
50,434Vested and expected to vest at January 2, 2010


3,252


$
9.88



2.82


$
50,434Exercisable at January 2, 2010


3,252


$
9.88



2.82


$
50,434     Restricted
    Stock Units and Awards
    WeightedNumber of


AverageShares


Grant Date(In thousands)


Fair ValueNonvested shares at January 3, 2009


3,793


$
18.86Granted


1,809


$
11.13Vested


(1,015
)

$
15.97Forfeited/Cancelled


(293
)

$
13.72Nonvested shares at January 2, 2010


4,294


$
16.64  F-28




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
        NOTE 11 
    INCOME
    TAXES    Fiscal Year EndedDecember 29,


January 3,


January 2,2007


2009


2010Loss before income taxes:Domestic

$
(2,982
)

$
(20,588
)

$
1,541Foreign


(864
)


(9,968
)


(10,225
)Total

$
(3,846
)

$
(30,556
)

$
(8,684
)Provision for income taxes:Current:Federal

$
64


$
488


$
588State


682



1,765



1,554Foreign


10







Total Current

$
756


$
2,253


$
2,142Deferred:Federal

$
(1,420
)

$
(10,252
)

$
4,123State


(2,223
)


1,339



(3,921
)Foreign






(925
)


Total Deferred

$
(3,643
)

$
(9,838
)

$
202Total:Federal

$
(1,356
)

$
(9,764
)

$
4,711State


(1,541
)


3,104



(2,367
)Foreign


10



(925
)


Total

$
(2,887
)

$
(7,585
)

$
2,344  F-29




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    January 3,


January 2,2009


2010Deferred tax assets:Net operating loss carryforwards

$
160,284


$
195,484Deferred revenue


8,810



8,008Stock-based compensation


5,527



5,022Investment impairment and losses


3,669



3,479Allowance for sales returns


2,161



3,072Alternative minimum tax credits


1,674



2,250Research and development tax credits


1,217



1,390Provision for doubtful accounts


779



1,294Amortization


1,401



1,127Accrued expenses


713



384Inventory


1,264



104Restructuring


66



41Accrued bonus


2,758



Other


1,353



3,629Total deferred tax assets


191,676



225,284Valuation allowance


(123,491
)


(157,960
)Total deferred tax assets, net of valuation allowance


68,185



67,324Deferred tax liabilities:Property and equipment


(2,891
)


(3,174
)Amortization of intangibles


(17,518
)


(45,845
)Interest on convertible notes


(18,355
)


(14,492
)Total deferred tax liabilities


(38,764
)


(63,511
)Net deferred tax asset

$
29,421


$
3,813       2010-2015

$
59,3072016-2021


396,5262022-2029


338,782$
794,615    F-30




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
               F-31




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
      Fiscal Year EndedDecember 29,


January 3,


January 2,2007


2009


2010Statutory federal income tax rate


35.0
%


35.0
%


35.0
%Increase (decrease) in taxes resulting from:Foreign statutory rates differing from U.S. statutory rate


0.0
%


(1.9
)%


(5.7
)%Valuation allowance


7.7
%


(6.8
)%


(37.4
)%State taxes


31.1
%


(1.0
)%


18.4
%Non-deductible transaction costs


0.0
%


0.0
%


(8.5
)%Non-deductible officers compensation


0.0
%


0.0
%


(7.0
)%Non-deductible stock compensation expense


0.0
%


0.0
%


(10.7
)%Other non-deductible items


0.0
%


0.0
%


(6.7
)%Other


1.3
%


(0.5
)%


(4.4
)%Effective income tax rate


75.1
%


24.8
%


(27.0
)%       December 29,


January 3,


January 2,2007


2009


2010Balance at the beginning of the fiscal year

$
437


$
1,014


$
1,708Gross increases for tax positions related to current year


351



290



258Gross increases for tax positions related to prior years


281



112



109Gross increases acquired in acquisitions


0



347



Gross decreases for tax positions related to prior years


(28
)


(55
)Gross decreases as a result of a lapse of the statute of
    limitations


(27
)






(23
)Balance at the end of the fiscal year

$
1,014


$
1,708


$
2,052  F-32




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
          NOTE 12 
    LOSS PER
    SHARE      Fiscal Year EndedDecember 29,


January 3,


January 2,2007


2009


2010Stock units and awards


1,875



3,792



4,294Stock options and warrants


4,393



4,244



3,252Convertible notes


5,715



8,229



8,22911,983



16,265



15,775   NOTE 13 
    MAJOR
    SUPPLIERS/ECONOMIC DEPENDENCY    e-commerce e-commerce e-commerce
 F-33




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  e-commerce e-commerce e-commerce
  e-commerce e-commerce e-commerce
    NOTE 14 
    SEGMENT
    INFORMATION  e-commerce e-commerce e-mail e-mail
     F-34




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
    Fiscal Year Ended December 29, 2007E-Commerce


Interactive


Consumer


IntersegmentServices


Marketing Services


Engagement


Eliminations


ConsolidatedNet revenues

$
737,832


$
26,894


$



$
(14,769
)

$
749,957Costs and expenses before depreciation, amortization, changes in
    fair value of deferred acquisition payments and stock-based
    compensation expense


691,749



22,279







(14,769
)


699,259Operating income before depreciation, amortization, changes in
    fair value of deferred acquisition payments and stock-based
    compensation expense


46,083



4,615











50,698Depreciation and amortization


















37,337Changes in fair value of deferred acquisition payments


















Stock-based compensation expense


















9,042Income from operations


















4,319Interest expense


















12,191Interest income


















(9,270
)Other expense, net


















237Loss on sale of marketable securities


















5,007Loss before income taxes

















$
(3,846
)   Fiscal Year Ended January 3, 2009E-Commerce


Interactive


Consumer


IntersegmentServices


Marketing Services


Engagement


Eliminations


ConsolidatedNet revenues

$
900,040


$
84,508


$



$
(17,622
)

$
966,926Costs and expenses before depreciation, amortization changes in
    fair value of deferred acquisition payments and stock-based
    compensation expense


837,648



69,604







(17,622
)


889,630Operating income before depreciation, amortization changes in
    fair value of deferred acquisition payments and stock-based
    compensation expense


62,392



14,904











77,296Depreciation and amortization


















68,153Changes in fair value of deferred acquisition payments


















Stock-based compensation expense


















19,403Loss from operations


















(10,260
)Interest expense


















18,841Interest income


















(1,772
)Other expense, net


















1,562Impairment of equity investments


















1,665Loss before income taxes

















$
(30,556
)  F-35




---



##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  Fiscal Year Ended January 2, 2010E-Commerce


Interactive


Consumer


IntersegmentServices


Marketing Services


Engagement


Eliminations


ConsolidatedNet revenues

$
879,575


$
127,580


$
26,347


$
(29,287
)

$
1,004,215Costs and expenses before depreciation, amortization, changes in
    fair value of deferred acquisition payments and stock-based
    compensation expense


808,232



96,451



29,445



(29,287
)

$
904,841Operating income before depreciation, amortization, changes in
    fair value of deferred acquisition payments and stock-based
    compensation expense


71,343



31,129



(3,098
)





$
99,374Depreciation and amortization


















63,395Changes in fair value of deferred acquisition payments


















951Stock-based compensation expense


















24,762Income from operations


















10,266Interest expense


















19,430Interest income


















(478
)Other expense, net


















(2
)Loss before income taxes

















$
(8,684
)     Fiscal Year EndedDecember 29,


January 3,


January 2,2007


2009


2010Product groupings:General merchandise

$
429,324


$
456,886


$
409,198Freight


82,870



120,187



133,051Service fees


237,763



389,853



461,966Total net revenues

$
749,957


$
966,926


$
1,004,215     NOTE 15 
    RELATED
    PARTY TRANSACTIONS   F-36




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  e-commerce
  E-Commerce and/or and/or
        NOTE 16 
    QUARTERLY
    RESULTS (UNAUDITED)    For the Fiscal Year Ended January 2, 2009First


Second


Third


FourthQuarter


Quarter


Quarter


QuarterNet revenues

$
195,543


$
193,209


$
186,794


$
391,380Income (loss) from operations

$
(18,877
)

$
(17,372
)

$
(16,533
)

$
42,522Net income (loss)

$
(11,498
)

$
(20,347
)

$
(14,195
)

$
23,069Income (loss) per share  basic(1)

$
(0.25
)

$
(0.43
)

$
(0.30
)

$
0.48Income (loss) per share  diluted(1)

$
(0.25
)

$
(0.43
)

$
(0.30
)

$
0.45Weighted average shares outstanding  basic


46,924



47,364



47,488



47,595Weighted average shares outstanding  diluted


46,924



47,364



47,488



56,729   F-37




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##### Table of Contents



GSI
    COMMERCE, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 (amounts
    in thousands, except per share data)
  For the Fiscal Year Ended January 2, 2010First


Second


Third


FourthQuarter


Quarter


Quarter


QuarterNet revenues

$
196,475


$
187,181


$
190,311


$
430,248Income (loss) from operations

$
(14,534
)

$
(12,277
)

$
(9,913
)

$
46,990Net income (loss)

$
(12,110
)

$
(13,113
)

$
(9,406
)

$
23,601Income (loss) per share  basic(1)

$
(0.25
)

$
(0.27
)

$
(0.18
)

$
0.41Income (loss) per share  diluted(1)

$
(0.25
)

$
(0.27
)

$
(0.18
)

$
0.38Weighted average shares outstanding  basic


47,926



48,681



51,910



57,310Weighted average shares outstanding  diluted


47,926



48,681



51,910



68,595     (1)
    
    The sum of the quarterly per share amounts may not equal per
    share amounts reported for
    year-to-date
    periods. This is due to changes in the number of weighted
    average shares outstanding and the effects of rounding for each
    period.   F-38