##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 3, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission file number 0-16611
 
 GSI COMMERCE, INC.
  DELAWARE
(State or other jurisdiction of 
incorporation or organization)
    
    04-2958132
(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
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



GSI COMMERCE, INC.
FORM 10-Q
FOR THE QUARTER ENDED JULY 3, 2010
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited):Condensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    30Item 4. (Reserved)
    
    
    30Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    30SIGNATURES
    
    
    31Exhibit 2.1Exhibit 10.3Exhibit 10.4Exhibit 10.5Exhibit 10.6Exhibit 10.7Exhibit 31.1Exhibit 31.2Exhibit 32.1
   References To
    
    Refer to the Years Ended/EndingFiscal 2009
    
    January 2, 2010Fiscal 2010
    
    January 1, 2011Fiscal 2011
    
    December 31, 2011Fiscal 2012
    
    December 29, 2012Fiscal 2013
    
    December 28, 2013Fiscal 2014
    
    January 3, 2015
  2




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##### Table of Contents



PART I
 
 ITEM 1:
    
    FINANCIAL STATEMENTS
 GSI COMMERCE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except per share data)
 (unaudited)
 January 2,
    
    
    July 3,2010
    
    
    2010ASSETSCurrent assets:Cash and cash equivalents
    
    $
    228,430
    
    
    $
    63,660Accounts receivable, net
    
    
    70,582
    
    
    
    61,078Inventory
    
    
    55,678
    
    
    
    61,945Deferred tax assets
    
    
    12,347
    
    
    
    15,484Prepaid expenses and other current assets
    
    
    13,187
    
    
    
    15,155Total current assets
    
    
    380,224
    
    
    
    217,322Property and equipment, net
    
    
    163,329
    
    
    
    172,981Goodwill
    
    
    373,003
    
    
    
    395,541Intangible assets, net
    
    
    132,875
    
    
    
    154,614Long-term deferred tax assets
    
    
    
    
    
    
    10,925Other assets, net
    
    
    12,417
    
    
    
    30,667Total assets
    
    $
    1,061,848
    
    
    $
    982,050LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    126,914
    
    
    $
    70,107Accrued expenses
    
    
    150,173
    
    
    
    114,194Deferred revenue
    
    
    20,645
    
    
    
    21,026Convertible notes
    
    
    55,443
    
    
    
    Current portion  long-term debt
    
    
    5,260
    
    
    
    7,529Total current liabilities
    
    
    358,435
    
    
    
    212,856Convertible notes
    
    
    116,948
    
    
    
    120,102Long-term debt
    
    
    28,142
    
    
    
    27,138Deferred acquisition payments
    
    
    63,763
    
    
    
    67,161Deferred tax liabilities
    
    
    8,534
    
    
    
    Deferred revenue and other long-term liabilities
    
    
    9,686
    
    
    
    9,447Total liabilities
    
    
    585,508
    
    
    
    436,704Commitments and contingenciesStockholders equity:Preferred stock, $0.01 par value:Authorized shares  5,000Issued and outstanding shares  none
    
    
    
    
    
    
    Common stock, $0.01 par value:Authorized shares  90,000 and 180,000Issued and outstanding shares  60,033 and 66,327
    
    
    600
    
    
    
    663Additional paid in capital
    
    
    642,852
    
    
    
    747,160Accumulated other comprehensive loss
    
    
    (1,498
    )
    
    
    (3,007
    )Accumulated deficit
    
    
    (165,614
    )
    
    
    (199,470
    )Total stockholders equity
    
    
    476,340
    
    
    
    545,346Total liabilities and stockholders equity
    
    $
    1,061,848
    
    
    $
    982,050
   3




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GSI COMMERCE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share data)
 (unaudited)
 Three Months Ended
    
    
    Six Months EndedJuly 4,
    
    
    July 3,
    
    
    July 4,
    
    
    July 3,2009
    
    
    2010
    
    
    2009
    
    
    2010Revenues:Net revenues from product sales
    
    $
    91,192
    
    
    $
    146,154
    
    
    $
    197,383
    
    
    $
    305,429Service fee revenues
    
    
    95,989
    
    
    
    118,075
    
    
    
    186,273
    
    
    
    231,391Net revenues
    
    
    187,181
    
    
    
    264,229
    
    
    
    383,656
    
    
    
    536,820Costs and expenses:Cost of revenues from product sales
    
    
    70,442
    
    
    
    107,452
    
    
    
    149,797
    
    
    
    224,926Marketing
    
    
    7,054
    
    
    
    7,702
    
    
    
    17,915
    
    
    
    18,509Account management and operations
    
    
    59,055
    
    
    
    79,295
    
    
    
    116,796
    
    
    
    156,989Product development
    
    
    28,101
    
    
    
    42,062
    
    
    
    56,475
    
    
    
    76,379General and administrative
    
    
    19,527
    
    
    
    27,689
    
    
    
    38,804
    
    
    
    52,087Depreciation and amortization
    
    
    15,279
    
    
    
    20,575
    
    
    
    30,680
    
    
    
    39,335Changes in fair value of deferred acquisition payments
    
    
    
    
    
    
    2,074
    
    
    
    
    
    
    
    4,148Total costs and expenses
    
    
    199,458
    
    
    
    286,849
    
    
    
    410,467
    
    
    
    572,373Loss from operations
    
    
    (12,277
    )
    
    
    (22,620
    )
    
    
    (26,811
    )
    
    
    (35,553
    )Other (income) expense:Interest expense
    
    
    4,759
    
    
    
    4,739
    
    
    
    9,555
    
    
    
    9,947Interest income
    
    
    (54
    )
    
    
    (71
    )
    
    
    (205
    )
    
    
    (305
    )Other (income) expense
    
    
    (394
    )
    
    
    938
    
    
    
    (165
    )
    
    
    1,412Total other expense
    
    
    4,311
    
    
    
    5,606
    
    
    
    9,185
    
    
    
    11,054Loss before income taxes
    
    
    (16,588
    )
    
    
    (28,226
    )
    
    
    (35,996
    )
    
    
    (46,607
    )Benefit for income taxes
    
    
    (3,475
    )
    
    
    (2,495
    )
    
    
    (10,773
    )
    
    
    (12,751
    )Net loss
    
    $
    (13,113
    )
    
    $
    (25,731
    )
    
    $
    (25,223
    )
    
    $
    (33,856
    )Basic and diluted loss per share
    
    $
    (0.27
    )
    
    $
    (0.41
    )
    
    $
    (0.52
    )
    
    $
    (0.55
    )Weighted average shares outstanding  basic and diluted
    
    
    48,681
    
    
    
    63,286
    
    
    
    48,304
    
    
    
    61,866
   4




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GSI COMMERCE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 (unaudited)
 Six Months EndedJuly 4,
    
    
    July 3,2009
    
    
    2010Cash Flows from Operating Activities:Net loss
    
    $
    (25,223
    )
    
    $
    (33,856
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    25,821
    
    
    
    30,252Amortization
    
    
    4,859
    
    
    
    9,083Amortization of discount on convertible notes
    
    
    5,092
    
    
    
    5,180Changes in fair value of deferred acquisition payments
    
    
    
    
    
    
    4,148Stock-based compensation
    
    
    13,046
    
    
    
    14,670Foreign currency transaction losses
    
    
    (153
    )
    
    
    1,414Deferred income taxes
    
    
    (10,737
    )
    
    
    (13,812
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    28,156
    
    
    
    12,701Inventory
    
    
    5,721
    
    
    
    (6,267
    )Prepaid expenses and other current assets
    
    
    (923
    )
    
    
    (1,263
    )Other assets, net
    
    
    1,824
    
    
    
    352Accounts payable and accrued expenses
    
    
    (97,290
    )
    
    
    (95,832
    )Deferred revenue
    
    
    155
    
    
    
    (1,817
    )Net cash used in operating activities
    
    
    (49,652
    )
    
    
    (75,047
    )Cash Flows from Investing Activities:Payments for acquisitions of businesses, net of cash acquired
    
    
    (2,273
    )
    
    
    (47,355
    )Cash paid for property and equipment, including internal use software
    
    
    (17,929
    )
    
    
    (34,298
    )Purchase of investments
    
    
    
    
    
    
    (18,391
    )Release from restricted cash escrow funds
    
    
    1,052
    
    
    
    Net cash used in investing activities
    
    
    (19,150
    )
    
    
    (100,044
    )Cash Flows from Financing Activities:Debt issuance costs paid
    
    
    (42
    )
    
    
    (887
    )Repayments of capital lease obligations
    
    
    (2,353
    )
    
    
    (2,912
    )Repayments of mortgage note
    
    
    (91
    )
    
    
    (97
    )Excess tax benefit in connection with exercise of stock options and awards
    
    
    
    
    
    
    978Proceeds from exercise of common stock options
    
    
    522
    
    
    
    14,675Net cash provided by (used in) financing activities
    
    
    (1,964
    )
    
    
    11,757Effect of exchange rate changes on cash and cash equivalents
    
    
    284
    
    
    
    (1,436
    )Net decrease in cash and cash equivalents
    
    
    (70,482
    )
    
    
    (164,770
    )Cash and cash equivalents, beginning of period
    
    
    130,315
    
    
    
    228,430Cash and cash equivalents, end of period
    
    $
    59,833
    
    
    $
    63,660Supplemental Cash Flow InformationCash paid during the period for interest
    
    $
    4,080
    
    
    $
    4,428Cash paid during the period for income taxes
    
    
    2,352
    
    
    
    603Noncash Investing and Financing Activities:Accrual for purchases of property and equipment
    
    
    4,494
    
    
    
    2,964Equipment financed under capital lease
    
    
    
    
    
    
    4,136
   5




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GSI COMMERCE, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
 NOTE 1BASIS OF PRESENTATION
     NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Use of Estimates:
 Accrued Expenses:
  Client Revenue Share:
 Fulfillment Costs:
  6




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
 Recent Accounting Pronouncements:
  Effective Date for TheSubject
    
    Date Issued
    
    Summary
    
    Effect of Adoption
    
    CompanyMultiple 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.
    
    No material impact.
    
    January 2, 2011, with
early adoption
permitted. The
Company chose to
prospectively adopt this
standard on January 3,
2010
 NOTE 3FAIR VALUE OF FINANCIAL AND NONFINANCIAL INSTRUMENTS
  Fair Value Measurements on January 2, 2010Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable 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
 Fair Value Measurements on July 3, 2010Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsCash and cash equivalents:(1)Money market mutual funds
    
    $
    3,577
    
    
    $
    
    
    
    $
    LiabilitiesDeferred acquisition
payments(2)
    
    $
    
    
    
    $
    
    
    
    $
    65,111
 (1)
    
    Cash and cash equivalents totaled $63,660 as of July 3, 2010, and were comprised of $3,577
of money market mutual funds and $60,083 of bank deposits. 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 Retail Convergence, Inc. (Rue La La) achieving specified minimum
earnings thresholds over one or more years. The Company utilized a discounted cash flow model
and a discount rate of 13.6% to determine fair value. The Company accreted $2,074 and $4,148
of its deferred acquisition payments from the acquisition date of Rue La La during the three-
and six-month periods ended July 3, 2010 and $0 during the three- and six-month periods ended
July 4, 2009, and the
corresponding charge was recorded to changes in fair value of deferred acquisition payments on
the Condensed Consolidated Statements of Operations.  7




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
  Three Months Ended
    
    
    Six Months EndedJuly 3, 2010
    
    
    July 3, 2010Balance, beginning of period
    
    $
    63,037
    
    
    $
    60,963Changes in fair value of deferred acquisition payments included
in the Companys Condensed Consolidated Statements of
Operations
    
    
    2,074
    
    
    
    4,148Balance, end of period
    
    $
    65,111
    
    
    $
    65,111
 NOTE 4PROPERTY AND EQUIPMENT
  January 2,
    
    
    July 3,2010
    
    
    2010Computer hardware and software
    
    $
    231,954
    
    
    $
    264,284Building and building improvements
    
    
    44,822
    
    
    
    44,923Furniture, warehouse and office equipment, and other
    
    
    45,722
    
    
    
    46,556Land
    
    
    7,889
    
    
    
    7,889Leasehold improvements
    
    
    8,847
    
    
    
    10,279Capitalized leases
    
    
    29,132
    
    
    
    33,315368,366
    
    
    
    407,246Less: Accumulated depreciation
    
    
    (205,037
    )
    
    
    (234,265
    )Property and equipment, net
    
    $
    163,329
    
    
    $
    172,981
   8




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##### Table of Contents



GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
 NOTE 5GOODWILL AND OTHER INTANGIBLE ASSETS
  E-Commerce
    
    
    Marketing
    
    
    ConsumerServices
    
    
    Services
    
    
    Engagement
    
    
    ConsolidatedJanuary 2, 2010
    
    $
    83,090
    
    
    $
    117,025
    
    
    $
    172,888
    
    
    $
    373,003Acquisitions
    
    
    2,556
    
    
    
    20,708
    
    
    
    
    
    
    
    23,264Foreign currency
translation
    
    
    (726
    )
    
    
    
    
    
    
    
    
    
    
    (726
    )July 3, 2010
    
    $
    84,920
    
    
    $
    137,733
    
    
    $
    172,888
    
    
    $
    395,541
  Weighted-January 2,
    
    
    July 3,
    
    
    Average2010
    
    
    2010
    
    
    Life(in years)Gross carrying value of intangible assets
subject to amortization:Customer contracts
    
    $
    41,190
    
    
    $
    56,148
    
    
    
    2.5Member relationships
    
    
    22,200
    
    
    
    22,200
    
    
    
    2.6Supplier relationships
    
    
    11,186
    
    
    
    11,186
    
    
    
    3.4Non-compete agreements
    
    
    4,079
    
    
    
    4,481
    
    
    
    3.0Purchased technology
    
    
    4,805
    
    
    
    13,723
    
    
    
    3.6Trade names
    
    
    840
    
    
    
    840
    
    
    
    1.5Foreign currency translation
    
    
    (482
    )
    
    
    (606
    )83,818
    
    
    
    107,972
    
    
    
    2.7Accumulated amortization:Customer contracts
    
    
    (22,907
    )
    
    
    (26,721
    )Member relationships
    
    
    (489
    )
    
    
    (3,569
    )Supplier relationships
    
    
    
    
    
    
    (472
    )Non-compete agreements
    
    
    (2,888
    )
    
    
    (3,590
    )Purchased technology
    
    
    (2,428
    )
    
    
    (3,332
    )Trade names
    
    
    (532
    )
    
    
    (624
    )Foreign currency translation
    
    
    72
    
    
    
    146(29,172
    )
    
    
    (38,162
    )Net carrying value:Customer contracts
    
    
    18,283
    
    
    
    29,427Member relationships
    
    
    21,711
    
    
    
    18,631Supplier relationships
    
    
    11,186
    
    
    
    10,714Non-compete agreements
    
    
    1,191
    
    
    
    891Purchased technology
    
    
    2,377
    
    
    
    10,391Trade names
    
    
    308
    
    
    
    216Foreign currency translation
    
    
    (410
    )
    
    
    (460
    )Total intangible assets subject to
amortization, net
    
    
    54,646
    
    
    
    69,810Indefinite life intangible assets:Trade names
    
    
    78,229
    
    
    
    84,804Total intangible assets
    
    $
    132,875
    
    
    $
    154,614
  9




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
  Fiscal 2010
    
    $
    11,027Fiscal 2011
    
    
    20,922Fiscal 2012
    
    
    16,122Fiscal 2013
    
    
    12,452Fiscal 2014
    
    
    8,044Thereafter
    
    
    1,243$
    69,810
 NOTE 6ACQUISITIONS AND INVESTMENT
  MBS
   Total current assets
    
    $
    2,472Property, plant, and equipment
    
    
    949Goodwill
    
    
    11,563Indentifiable intangible assets:Customer relationships
    
    
    8,611Technology
    
    
    2,551Trade name
    
    
    1,710Total assets acquired
    
    
    27,856Total current liabilities
    
    
    (1,476
    )Long-term deferred tax liabilities
    
    
    (4,180
    )Total liabilities assumed
    
    
    (5,656
    )Net Assets Acquired
    
    $
    22,200
  10




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##### Table of Contents



GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
 Rue La La
  Other Acquisitions
  Unaudited Pro Forma Financial Information
  Three Months Ended
    
    
    Six Months EndedJuly 4,
    
    
    July 3,
    
    
    July 4,
    
    
    July 3,2009
    
    
    2010
    
    
    2009
    
    
    2010Net revenues
    
    $
    223,258
    
    
    $
    265,611
    
    
    $
    449,593
    
    
    $
    542,483Net loss
    
    $
    (15,631
    )
    
    $
    (25,791
    )
    
    $
    (33,263
    )
    
    $
    (34,174
    )
 Equity Method Investment
   11




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
 NOTE 7LONG-TERM DEBT AND CREDIT FACILITY
  January 2,
    
    
    July 3,2010
    
    
    2010Convertible notes
    
    $
    172,391
    
    
    $
    120,102Notes payable (1)
    
    
    12,479
    
    
    
    12,382Capital lease obligations
    
    
    20,923
    
    
    
    22,285Line of credit
    
    
    
    
    
    
    Total debt
    
    
    205,793
    
    
    
    154,769Less: Current portion of convertible notes
    
    
    (55,443
    )
    
    
    Less: Current portion of notes payable
    
    
    (195
    )
    
    
    (202
    )Less: Current portion of capital lease
obligations
    
    
    (5,065
    )
    
    
    (7,327
    )Total long-term debt
    
    $
    145,090
    
    
    $
    147,240
 (1)
    
    The estimated fair market value of the notes payable approximated their carrying value
as of July 3, 2010 and January 2, 2010. 3% Convertible Notes due 2025
    As of
    
    
    As ofJanuary 2, 2010
    
    
    July 3, 2010Carrying amount of the equity component
    
    $
    18,187
    
    
    $
    Principal amount of the liability
component
    
    $
    57,500
    
    
    $
    Unamortized discount of liability
component
    
    $
    2,057
    
    
    $
    Net carrying amount of liability component
    
    $
    55,443
    
    
    $
    
  Three Months Ended
    
    
    Six Months EndedJuly 4,
    
    
    July 3,
    
    
    July 4,
    
    
    July 3,2009
    
    
    2010
    
    
    2009
    
    
    2010Amortization of the
discount on the
liability component
    
    $
    1,097
    
    
    $
    821
    
    
    $
    2,193
    
    
    $
    2,053Contract interest coupon
    
    
    432
    
    
    
    288
    
    
    
    863
    
    
    
    719Amortization of the
liability component of
the issue costs
    
    
    94
    
    
    
    69
    
    
    
    191
    
    
    
    173Interest expense
    
    $
    1,623
    
    
    $
    1,178
    
    
    $
    3,247
    
    
    $
    2,945
  12




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
 2.5% Convertible Notes due 2027
    As of
    
    
    As ofJanuary 2, 2010
    
    
    July 3, 2010Carrying amount of the equity component
    
    $
    26,783
    
    
    $
    26,783Principal amount of the liability
component
    
    $
    150,000
    
    
    $
    150,000Unamortized discount of liability
component
    
    $
    33,052
    
    
    $
    29,898Net carrying amount of liability component
    
    $
    116,948
    
    
    $
    120,102Remaining amortization period of discount
    
    
    
    
    
    47 monthsEffective interest rate on liability
component
    
    
    
    
    
    
    8.60
    %
  Three Months Ended
    
    
    Six Months EndedJuly 4,
    
    
    July 3,
    
    
    July 4,
    
    
    July 3,2009
    
    
    2010
    
    
    2009
    
    
    2010Amortization of the
discount on the
liability component
    
    $
    1,449
    
    
    $
    1,577
    
    
    $
    2,899
    
    
    $
    3,154Contract interest coupon
    
    
    937
    
    
    
    937
    
    
    
    1,875
    
    
    
    1,875Amortization of the
liability component of
the issue costs
    
    
    114
    
    
    
    119
    
    
    
    226
    
    
    
    238Interest expense
    
    $
    2,500
    
    
    $
    2,633
    
    
    $
    5,000
    
    
    $
    5,267
  Credit Facility
   13




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
 NOTE 8COMMITMENTS AND CONTINGENCIES
 Legal Proceedings
   Operating and Capital Commitments
  Payments due by fiscal year2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    Thereafter
    
    
    TotalOperating lease obligations(1)
    
    $
    10,684
    
    
    $
    20,715
    
    
    $
    20,870
    
    
    $
    16,678
    
    
    $
    13,212
    
    
    $
    21,216
    
    
    $
    103,375Purchase obligations and marketing
commitments(1)
    
    
    76,468
    
    
    
    12,386
    
    
    
    13,403
    
    
    
    6,875
    
    
    
    5,570
    
    
    
    45,000
    
    
    
    159,702Client revenue share payments(1)
    
    
    8,824
    
    
    
    21,400
    
    
    
    22,158
    
    
    
    23,368
    
    
    
    15,991
    
    
    
    33,269
    
    
    
    125,010Debt interest(1)
    
    
    2,802
    
    
    
    4,509
    
    
    
    4,498
    
    
    
    4,481
    
    
    
    2,277
    
    
    
    8,784
    
    
    
    27,351Debt obligations
    
    
    99
    
    
    
    209
    
    
    
    563
    
    
    
    237
    
    
    
    150,253
    
    
    
    11,022
    
    
    
    162,383Capital lease obligations, including interest(2)
    
    
    3,872
    
    
    
    8,168
    
    
    
    7,085
    
    
    
    3,819
    
    
    
    1,800
    
    
    
    
    
    
    
    24,744Deferred acquisition payments(3)
    
    
    500
    
    
    
    1,500
    
    
    
    750
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    3,750Total
    
    $
    103,249
    
    
    $
    68,887
    
    
    $
    69,327
    
    
    $
    56,458
    
    
    $
    189,103
    
    
    $
    119,291
    
    
    $
    606,315
 (1)
    
    Not required to be recorded in the Condensed Consolidated Balance Sheet as of July 3,
2010 in accordance with accounting principles generally accepted in the United States of
America.(2)
    
    Capital lease obligations, excluding interest, are recorded in the Condensed
Consolidated Balance Sheets.(3)
    
    The $3,750 of deferred acquisition payments in the table above represent fixed
contractual future payments. The Company is also obligated to pay up to an additional
$208,400 from fiscal 2011 through fiscal 2016 based on the
achievement of certain financial targets by some of our acquired companies, of which the
Company has the ability to pay up to $45,800 with shares of the Companys common stock. The
Company is uncertain as to if or when such amounts may be settled; as a result, these
obligations are not included in the table above.  14




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##### Table of Contents



GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
  NOTE 9STOCK AWARDS
    Stock Options and Warrants
  WeightedWeighted
    
    
    AverageNumber of
    
    
    Average
    
    
    Remaining
    
    
    AggregateShares
    
    
    Exercise
    
    
    Contractual
    
    
    Intrinsic(in thousands)
    
    
    Price
    
    
    Life (in years)
    
    
    ValueOutstanding at January 2, 2010
    
    
    3,252
    
    
    $
    9.88Granted
    
    
    
    
    
    $
    Exercised
    
    
    (1,649
    )
    
    $
    8.90Forfeited/Cancelled
    
    
    (1
    )
    
    $
    14.21Outstanding at July 3, 2010
    
    
    1,602
    
    
    $
    10.88
    
    
    
    3.07
    
    
    $
    26,891Vested and expected to vest at July 3, 2010
    
    
    1,602
    
    
    $
    10.88
    
    
    
    3.07
    
    
    $
    26,891Exercisable at July 3, 2010
    
    
    1,602
    
    
    $
    10.88
    
    
    
    3.07
    
    
    $
    26,891
 Restricted Stock Units and Awards
  WeightedNumber of
    
    
    AverageShares
    
    
    Grant Date(in thousands)
    
    
    Fair ValueNonvested shares at January 2, 2010
    
    
    4,294
    
    
    $
    16.64Granted
    
    
    1,323
    
    
    $
    27.42Vested
    
    
    (1,537
    )
    
    $
    14.16Forfeited/Cancelled
    
    
    (216
    )
    
    $
    16.26Nonvested shares at July 3, 2010
    
    
    3,864
    
    
    $
    21.34
  15




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
 Stock-based Compensation Expense
  Three Months Ended
    
    
    Six Months EndedJuly 4,
    
    
    July 3,
    
    
    July 4,
    
    
    July 3,2009
    
    
    2010
    
    
    2009
    
    
    2010Includes stock-based compensation
as follows:Account management and operations
    
    $
    2,394
    
    
    $
    3,422
    
    
    $
    4,650
    
    
    $
    5,868Product development
    
    $
    1,185
    
    
    $
    1,759
    
    
    $
    2,636
    
    
    $
    3,628General and administrative
    
    $
    2,513
    
    
    $
    2,558
    
    
    $
    5,760
    
    
    $
    5,174
 NOTE 10INCOME TAXES
    NOTE 11LOSS PER SHARE
   16




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
  July 4,
    
    
    July 3,2009
    
    
    2010Stock units and awards
    
    
    4,465
    
    
    
    3,864Stock options and warrants
    
    
    4,047
    
    
    
    1,602Convertible notes
    
    
    8,229
    
    
    
    5,00016,741
    
    
    
    10,466
 NOTE 12COMPREHENSIVE LOSS
  Three Months Ended
    
    
    Six Months EndedJuly 4,
    
    
    July 3,
    
    
    July 4,
    
    
    July 3,2009
    
    
    2010
    
    
    2009
    
    
    2010Net loss
    
    $
    (13,113
    )
    
    $
    (25,731
    )
    
    $
    (25,223
    )
    
    $
    (33,856
    )Other comprehensive loss:Cumulative
translation
adjustment
    
    
    845
    
    
    
    (806
    )
    
    
    782
    
    
    
    (1,509
    )Comprehensive loss
    
    $
    (12,268
    )
    
    $
    (26,537
    )
    
    $
    (24,441
    )
    
    $
    (35,365
    )
 NOTE 13SEGMENT INFORMATION
    17




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
   Three Months Ended July 4, 2009E-Commerce
    
    
    Marketing
    
    
    Consumer
    
    
    IntersegmentServices
    
    
    Services
    
    
    Engagement
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    163,770
    
    
    $
    28,486
    
    
    $
    
    
    
    $
    (5,075
    )
    
    $
    187,181Segment costs and expenses
    
    
    160,843
    
    
    
    22,154
    
    
    
    
    
    
    
    (5,075
    )
    
    
    177,922Segment profit
    
    
    2,927
    
    
    
    6,332
    
    
    
    
    
    
    
    
    
    
    
    9,259Acquisition related integration, transaction, due
diligence
expenses, non-cash inventory valuation adjustments,
and
the cash portion of deferred acquisition payments
recorded as compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,279Changes in fair value of deferred acquisition payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,092Loss from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,277
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,759Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54
    )Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (394
    )Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (16,588
    )
 Three Months Ended July 3, 2010E-Commerce
    
    
    Marketing
    
    
    Consumer
    
    
    IntersegmentServices
    
    
    Services
    
    
    Engagement
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    187,872
    
    
    $
    44,040
    
    
    $
    51,686
    
    
    $
    (19,369
    )
    
    $
    264,229Segment costs and expenses
    
    
    181,959
    
    
    
    35,735
    
    
    
    54,091
    
    
    
    (19,369
    )
    
    
    252,416Segment profit (loss)
    
    
    5,913
    
    
    
    8,305
    
    
    
    (2,405
    )
    
    
    
    
    
    
    11,813Acquisition related integration, transaction, due
diligence
expenses, non-cash inventory valuation adjustments,
and
the cash portion of deferred acquisition payments
recorded as compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,045Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,575Changes in fair value of deferred acquisition payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,074Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,739Loss from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,620
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,739Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71
    )Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    938Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (28,226
    )
  18




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 (unaudited)
 Six Months Ended July 4, 2009E-Commerce
    
    
    Marketing
    
    
    Consumer
    
    
    IntersegmentServices
    
    
    Services
    
    
    Engagement
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    342,280
    
    
    $
    53,608
    
    
    $
    
    
    
    $
    (12,232
    )
    
    $
    383,656Segment costs and expenses
    
    
    334,242
    
    
    
    43,107
    
    
    
    
    
    
    
    (12,232
    )
    
    
    365,117Segment profit
    
    
    8,038
    
    
    
    10,501
    
    
    
    
    
    
    
    
    
    
    
    18,539Acquisition related integration, transaction, due
diligence
expenses, non-cash inventory valuation adjustments,
and
the cash portion of deferred acquisition payments
recorded as compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,624Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,680Changes in fair value of deferred acquisition payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,046Loss from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,811
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,555Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (205
    )Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (165
    )Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (35,996
    )
 Six Months Ended July 3, 2010E-Commerce
    
    
    Marketing
    
    
    Consumer
    
    
    IntersegmentServices
    
    
    Services
    
    
    Engagement
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    389,244
    
    
    $
    82,411
    
    
    $
    96,139
    
    
    $
    (30,974
    )
    
    $
    536,820Segment costs and expenses
    
    
    374,123
    
    
    
    64,775
    
    
    
    99,703
    
    
    
    (30,974
    )
    
    
    507,627Segment profit (loss)
    
    
    15,121
    
    
    
    17,636
    
    
    
    (3,564
    )
    
    
    
    
    
    
    29,193Acquisition related integration, transaction, due
diligence
expenses, non-cash inventory valuation adjustments,
and
the cash portion of deferred acquisition payments
recorded as compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,593Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,335Changes in fair value of deferred acquisition payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,148Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,670Loss from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,553
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,947Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (305
    )Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,412Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (46,607
    )
   19




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ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.
 All statements made in this Quarterly Report on Form 10-Q , 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 to timely and successfully enhance, develop and maintain its
product and service offerings; our ability to execute operationally to attract and retain qualified
personnel, to successfully integrate our recent acquisitions of other businesses; and the
performance of acquired businesses. More information about potential factors that could affect us
are described in Part I, Item 1A in our Form 10-K for the fiscal year ended January 2, 2010, filed
with the SEC on March 5, 2010, and in Part II, Item 1A of this Quarterly Report. We expressly
disclaim any intent or obligation to update these forward-looking statements.
 Executive Overview
  
    
    Net revenues increased by $77.0 million, or 41%, compared to the second quarter of
fiscal 2009. Net revenues from product sales increased by $54.9 million and service fee
revenues increased $22.1 million.
 
    
    Net loss was $25.7 million in the second quarter of fiscal 2010, including a benefit for
income taxes of $2.5 million, compared to a net loss of $13.1 million in the second quarter
of fiscal 2009, including a benefit for income taxes of $3.5 million. Loss from operations
was $22.6 million in the second quarter of fiscal 2010 compared to a loss of $12.3 million
in the second quarter of fiscal 2009.
    
    We made the following acquisitions:
 
    
    MBS Insight, Inc. (MBS), a database solutions provider;
    
    FetchBack, a provider of comprehensive retargeting solutions;
    
    VendorNet, a provider of supply chain management services; and
    
    M3 Mobile, a mobile marketing agency.
 
    
    In June 2010, our 3% convertible notes were converted into 3.2 million shares of our common stock.
  
    
    We continue to expect an increase in net revenue in fiscal 2010, with the majority of
the increase to be generated by our consumer engagement segment. We also expect increased
revenues in fiscal 2010 from e-commerce services and marketing services. We expect to have
a loss from operations in fiscal 2010. We expect our capital expenditures to increase in
fiscal 2010 as we increase investments in technology and infrastructure. We believe we will
have a net loss in fiscal 2010.
 Results of Operations (amounts in tables in millions)
 Net Revenues
   20




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##### Table of Contents



Net Revenues from Product Sales.
 Service Fee Revenues.
 Second Qtr Fiscal 2010vs.Second Qtr Fiscal 2009Second Qtr Fiscal 2009
    
    
    Second Qtr Fiscal 2010
    
    
    Increase/(Decrease)
    
    
    % ChangeNet Revenues by Type:Net revenues from
product sales
    
    $
    91.2
    
    
    
    49
    %
    
    $
    146.1
    
    
    
    55
    %
    
    $
    54.9
    
    
    
    60
    %Service fee revenues
    
    
    96.0
    
    
    
    51
    %
    
    
    118.1
    
    
    
    45
    %
    
    
    22.1
    
    
    
    23
    %Total net revenues
    
    $
    187.2
    
    
    
    100
    %
    
    $
    264.2
    
    
    
    100
    %
    
    $
    77.0
    
    
    
    41
    %First Six Months of Fiscal 2010vs.First Six Months
    
    
    First Six Months
    
    
    First Six Months of Fiscal 2009of Fiscal 2009
    
    
    of Fiscal 2010
    
    
    Increase/(Decrease)
    
    
    % ChangeNet Revenues by Type:Net revenues from
product sales
    
    $
    197.4
    
    
    
    51
    %
    
    $
    305.4
    
    
    
    57
    %
    
    $
    108.0
    
    
    
    55
    %Service fee revenues
    
    
    186.3
    
    
    
    49
    %
    
    
    231.4
    
    
    
    43
    %
    
    
    45.1
    
    
    
    24
    %Total net revenues
    
    $
    383.7
    
    
    
    100
    %
    
    $
    536.8
    
    
    
    100
    %
    
    $
    153.1
    
    
    
    40
    %
 Net Revenues by Type
 Net Revenues from Product Sales.
 Service Fee Revenues.
  21




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##### Table of Contents



Supplemental Information
  Second Qtr Fiscal 2010vs.Second Qtr Fiscal 2009Second Qtr Fiscal 2009
    
    
    Second Qtr Fiscal 2010
    
    
    Increase/(Decrease)
    
    
    % ChangeNet Revenues by Segment:E-Commerce services
    
    $
    163.8
    
    
    
    88
    %
    
    $
    187.9
    
    
    
    71
    %
    
    $
    24.1
    
    
    
    15
    %Marketing services
    
    
    28.5
    
    
    
    15
    %
    
    
    44.0
    
    
    
    17
    %
    
    
    15.5
    
    
    
    54
    %Consumer engagement
    
    
    
    
    
    
    0
    %
    
    
    51.7
    
    
    
    19
    %
    
    
    51.7
    
    
    
    100
    %Intersegment
eliminations
    
    
    (5.1
    )
    
    
    (3
    %)
    
    
    (19.4
    )
    
    
    (7
    %)
    
    
    (14.3
    )
    
    
    280
    %Total net revenues
    
    $
    187.2
    
    
    
    100
    %
    
    $
    264.2
    
    
    
    100
    %
    
    $
    77.0
    
    
    
    41
    %First Six Months of Fiscal 2010vs.First Six Months
    
    
    First Six Months
    
    
    First Six Months of Fiscal 2009of Fiscal 2009
    
    
    of Fiscal 2010
    
    
    Increase/(Decrease)
    
    
    % ChangeNet Revenues by Segment:E-Commerce services
    
    $
    342.3
    
    
    
    89
    %
    
    $
    389.3
    
    
    
    73
    %
    
    $
    47.0
    
    
    
    14
    %Marketing services
    
    
    53.6
    
    
    
    14
    %
    
    
    82.4
    
    
    
    15
    %
    
    
    28.8
    
    
    
    54
    %Consumer engagement
    
    
    
    
    
    
    0
    %
    
    
    96.1
    
    
    
    18
    %
    
    
    96.1
    
    
    
    100
    %Intersegment
eliminations
    
    
    (12.2
    )
    
    
    (3
    %)
    
    
    (31.0
    )
    
    
    (6
    %)
    
    
    (18.8
    )
    
    
    154
    %Total net revenues
    
    $
    383.7
    
    
    
    100
    %
    
    $
    536.8
    
    
    
    100
    %
    
    $
    153.1
    
    
    
    40
    %
 Costs and Expenses
 Cost of Revenues from Product Sales.
 Marketing.
 Account Management and Operations.
 Product Development
 General and Administrative.
 Depreciation and Amortization.
  22




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##### Table of Contents



Changes in Fair Value of Deferred Acquisition Payments.
 Second Quarter of Fiscal 2010Second Quarter
    
    
    Second Quarter
    
    
    vs.of Fiscal 2009
    
    
    of Fiscal 2010
    
    
    Second Quarter of Fiscal 2009% of
    
    
    
    
    
    
    % ofNet
    
    
    
    
    
    
    Net
    
    
    Increase/$
    
    
    Revenues
    
    
    $
    
    
    Revenues
    
    
    (Decrease)
    
    
    % ChangeCost of revenues from product sales
    
    $
    70.4
    
    
    
    38
    %
    
    $
    107.4
    
    
    
    41
    %
    
    $
    37.0
    
    
    
    53
    %Marketing
    
    
    7.1
    
    
    
    4
    %
    
    
    7.7
    
    
    
    3
    %
    
    
    0.6
    
    
    
    8
    %Account management and operations
    
    
    59.1
    
    
    
    32
    %
    
    
    79.3
    
    
    
    30
    %
    
    
    20.2
    
    
    
    34
    %Product development
    
    
    28.1
    
    
    
    15
    %
    
    
    42.0
    
    
    
    16
    %
    
    
    13.9
    
    
    
    49
    %General and administrative
    
    
    19.5
    
    
    
    10
    %
    
    
    27.7
    
    
    
    10
    %
    
    
    8.2
    
    
    
    42
    %Depreciation and amortization
    
    
    15.3
    
    
    
    8
    %
    
    
    20.6
    
    
    
    8
    %
    
    
    5.3
    
    
    
    35
    %Changes in fair value of deferred
acquisition payments
    
    
    
    
    
    
    0
    %
    
    
    2.1
    
    
    
    1
    %
    
    
    2.1
    
    
    
    100
    %Total costs and expenses
    
    $
    199.5
    
    
    
    107
    %
    
    $
    286.8
    
    
    
    109
    %
    
    $
    87.3
    
    
    
    44
    %
 First Six Months of Fiscal 2010First Six Months
    
    
    First Six Months
    
    
    vs.of Fiscal 2009
    
    
    of Fiscal 2010
    
    
    First Six Months of Fiscal 2009% of
    
    
    
    
    
    
    % ofNet
    
    
    
    
    
    
    Net
    
    
    Increase /$
    
    
    Revenues
    
    
    $
    
    
    Revenues
    
    
    (Decrease)
    
    
    % ChangeCost of revenues from product sales
    
    $
    149.8
    
    
    
    39
    %
    
    $
    224.9
    
    
    
    42
    %
    
    $
    75.1
    
    
    
    50
    %Marketing
    
    
    17.9
    
    
    
    5
    %
    
    
    18.5
    
    
    
    4
    %
    
    
    0.6
    
    
    
    3
    %Account management and operations
    
    
    116.8
    
    
    
    30
    %
    
    
    157.0
    
    
    
    29
    %
    
    
    40.2
    
    
    
    34
    %Product development
    
    
    56.5
    
    
    
    15
    %
    
    
    76.4
    
    
    
    14
    %
    
    
    19.9
    
    
    
    35
    %General and administrative
    
    
    38.8
    
    
    
    10
    %
    
    
    52.1
    
    
    
    10
    %
    
    
    13.3
    
    
    
    34
    %Depreciation and amortization
    
    
    30.7
    
    
    
    8
    %
    
    
    39.3
    
    
    
    7
    %
    
    
    8.6
    
    
    
    28
    %Changes in fair value of deferred
acquisition payments
    
    
    
    
    
    
    0
    %
    
    
    4.2
    
    
    
    1
    %
    
    
    4.2
    
    
    
    100
    %Total costs and expenses
    
    $
    410.5
    
    
    
    107
    %
    
    $
    572.4
    
    
    
    107
    %
    
    $
    161.9
    
    
    
    39
    %
 Cost of Revenues from Product Sales:
 Second Qtr
    
    
    Second Qtr
    
    
    First Six Months
    
    
    First Six MonthsFiscal 2009
    
    
    Fiscal 2010
    
    
    of Fiscal 2009
    
    
    of Fiscal 2010Cost of revenues from product sales
    
    $
    70.4
    
    
    $
    107.4
    
    
    $
    149.8
    
    
    $
    224.9As a percentage of net revenues
from product sales
    
    
    77
    %
    
    
    74
    %
    
    
    76
    %
    
    
    74
    %
  Marketing:
 Second Qtr
    
    
    Second Qtr
    
    
    First Six Months
    
    
    First Six MonthsFiscal 2009
    
    
    Fiscal 2010
    
    
    of Fiscal 2009
    
    
    of Fiscal 2010Marketing
    
    $
    7.1
    
    
    $
    7.7
    
    
    $
    17.9
    
    
    $
    18.5As a percentage of
net revenues from
product sales
    
    
    8
    %
    
    
    5
    %
    
    
    9
    %
    
    
    6
    %
   23




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##### Table of Contents



Account Management and Operations.
 Product Development.
 General and Administrative.
 Depreciation and Amortization.
 Changes in Fair Value of Deferred Acquisition Payments.
  24




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##### Table of Contents



Other (Income) Expense
 Second Quarter of Fiscal 2010Second Quarter
    
    
    Second Quarter
    
    
    vs.of Fiscal 2009
    
    
    of Fiscal 2010
    
    
    Second Quarter of Fiscal 2009% of
    
    
    
    
    
    
    % ofNet
    
    
    
    
    
    
    Net
    
    
    Increase /$
    
    
    Revenues
    
    
    $
    
    
    Revenues
    
    
    (Decrease)
    
    
    % ChangeInterest expense
    
    $
    4.8
    
    
    
    2
    %
    
    $
    4.8
    
    
    
    2
    %
    
    
    
    
    
    $
    0
    %Interest income
    
    
    (0.1
    )
    
    
    0
    %
    
    
    (0.1
    )
    
    
    0
    %
    
    
    
    
    
    
    0
    %Other (income) expense
    
    
    (0.4
    )
    
    
    0
    %
    
    
    0.9
    
    
    
    0
    %
    
    
    1.3
    
    
    
    (325
    %)Total other expense
    
    $
    4.3
    
    
    
    2
    %
    
    $
    5.6
    
    
    
    2
    %
    
    $
    1.3
    
    
    
    30
    %
 First Six Months of Fiscal 2010First Six Months
    
    
    First Six Months
    
    
    vs.of Fiscal 2009
    
    
    of Fiscal 2010
    
    
    First Six Months of Fiscal 2009% of
    
    
    
    
    
    
    % ofNet
    
    
    
    
    
    
    Net
    
    
    Increase /$
    
    
    Revenues
    
    
    $
    
    
    Revenues
    
    
    (Decrease)
    
    
    % ChangeInterest expense
    
    $
    9.6
    
    
    
    2
    %
    
    $
    10.0
    
    
    
    2
    %
    
    $
    0.4
    
    
    
    4
    %Interest income
    
    
    (0.2
    )
    
    
    0
    %
    
    
    (0.3
    )
    
    
    0
    %
    
    
    (0.1
    )
    
    
    50
    %Other (income) expense
    
    
    (0.2
    )
    
    
    0
    %
    
    
    1.4
    
    
    
    0
    %
    
    
    1.6
    
    
    
    (800
    %)Total other expense
    
    $
    9.2
    
    
    
    2
    %
    
    $
    11.1
    
    
    
    2
    %
    
    $
    1.9
    
    
    
    21
    %
  Income Taxes
    25




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##### Table of Contents



Guidance
  
    
    Net revenues are expected to be $1.3 billion.
 
    
    Loss from operations is expected to be $0.9 million.
  Seasonality
  Liquidity and Capital Resources
 As ofJanuary 2,
    
    
    July 3,2010
    
    
    2010(in millions)Cash and cash equivalents
    
    $
    228.4
    
    
    $
    63.7Percentage of total assets
    
    
    21
    %
    
    
    6
    %
  Sources of Cash
      26




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##### Table of Contents



Uses of Cash
    Outlook
   Critical Accounting Policies
  Recent Accounting Pronouncements
 Summary of Significant Accounting
Policies
 
 ITEM 3:
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  
 ITEM 4: CONTROLS AND PROCEDURES.
 Evaluation of disclosure controls and procedures.
  27




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##### Table of Contents



Changes in internal control over financial reporting.
 
 PART II  OTHER INFORMATION
 
 ITEM 1:
    
    LEGAL PROCEEDINGS.
 Commitments and Contingencies
 
 ITEM 1A:
    
    RISK FACTORS.
  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.
   
    
    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;
    
    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.
  28




---



##### Table of Contents



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.
  Our ability to use net operating loss carryforwards to reduce future tax payments may be limited.
    
 ITEM 2:
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
     29




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##### Table of Contents



ITEM 3:
    
    DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4:
    
    [Reserved]
  
 ITEM 5:
    
    OTHER INFORMATION.
  
 ITEM 6:
    
    EXHIBITS.
 2.1
    
    
    Stock Purchase Agreement by and among e-Dialog, Inc. (a
wholly-owned subsidiary of GSI Commerce, Inc.), MBS Insight,
Inc., and World Marketing, Inc., dated April 30, 2010. 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.+10.1
    
    
    GSI Commerce, Inc. 2010 Equity Incentive Plan (filed as Appendix A to
GSI Commerce, Inc.s Definitive Proxy Statement
on Schedule 14A filed with the Securities and Exchange Commission on
April 13, 2010 and incorporated herein by
reference).10.2
    
    
    Separation Agreement, dated May 28, 2010, between GSI Commerce, Inc.
and Stephen J. Gold (filed with GSI Commerce,
Inc.s Current Report on Form 8-K filed with the Securities and
Exchange Commission on June 3, 2010 and incorporated
herein by reference).10.3
    
    
    Form of Restricted Stock Unit Grant Notice Issued to Directors Under
the GSI Commerce, Inc. 2010 Equity Incentive Plan
(Initial Award).10.4
    
    
    Form of Restricted Stock Unit Grant Notice Issued to Directors Under
the GSI Commerce, Inc. 2010 Equity Incentive Plan
(Annual Award).10.5
    
    
    Form of Restricted Stock Unit Grant Notice Under the GSI Commerce,
Inc. 2010 Equity Incentive Plan.10.6
    
    
    Form of Performance Restricted Stock Unit Award Under the GSI
Commerce, Inc. 2010 Equity Incentive Plan.10.7
    
    
    Employment Agreement, between GSI Commerce, Inc. and Christopher
Saridakis, dated March 23, 2010.31.1
    
    
    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
 +
    
    Confidential treatment has been requested for certain portions of this exhibit. Omitted
portions have been filed separately with the Securities and Exchange Commission.  30




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##### Table of Contents



SIGNATURES
   GSI COMMERCE, INC.By:
    /s/ MICHAEL G. RUBINMichael G. RubinChairman, President and Chief Executive OfficerBy:
    /s/ MICHAEL R. CONNMichael R. ConnExecutive Vice President,
Finance
and Chief Financial Officer
(principal financial officer &
principal accounting officer)  31