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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 April 4, 2009 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
    
    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
 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)
 o þ




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##### 



GSI COMMERCE, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED APRIL 4, 2009
 INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited):Condensed Consolidated Balance Sheets as of January 3, 2009 and April 4, 2009
    
    
    3Condensed Consolidated Statements of Operations for the three-month periods ended
March 29, 2008 and April 4, 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the three-month periods ended
March 29, 2008 and April 4, 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    27Exhibit 10.2Exhibit 31.1Exhibit 31.2Exhibit 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, 2013
  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 share data)
(unaudited)
 January 3,
    
    
    April 4,2009(1)
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    130,315
    
    
    $
    48,105Accounts receivable, less allowance for doubtful accounts of $2,747
and $1,727
    
    
    78,544
    
    
    
    61,712Inventory
    
    
    42,856
    
    
    
    39,373Deferred tax assets
    
    
    18,125
    
    
    
    17,742Prepaid expenses and other current assets
    
    
    11,229
    
    
    
    11,840Total current assets
    
    
    281,069
    
    
    
    178,772Property and equipment, net
    
    
    164,833
    
    
    
    159,153Goodwill
    
    
    194,996
    
    
    
    194,888Intangible assets, net of accumulated amortization of $18,340 and $20,788
    
    
    46,663
    
    
    
    44,254Long-term deferred tax assets
    
    
    10,505
    
    
    
    17,747Other assets, net of accumulated amortization of $16,384 and $17,010
    
    
    17,168
    
    
    
    15,448Total assets
    
    $
    715,234
    
    
    $
    610,262LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    98,100
    
    
    $
    47,664Accrued expenses
    
    
    116,747
    
    
    
    68,993Deferred revenue
    
    
    20,397
    
    
    
    17,375Current portion of long-term debt
    
    
    4,887
    
    
    
    4,898Total current liabilities
    
    
    240,131
    
    
    
    138,930Convertible notes
    
    
    161,951
    
    
    
    164,497Long-term debt
    
    
    32,609
    
    
    
    31,356Deferred revenue and other long-term liabilities
    
    
    6,838
    
    
    
    7,645Total liabilities
    
    
    441,529
    
    
    
    342,428Commitments and contingencies (Note 7)Stockholders equity:Preferred stock, $0.01 par value, 5,000,000 shares authorized; 0
shares issued and
outstanding as of January 3, 2009 and April 4, 2009
    
    
    
    
    
    
    Common stock, $0.01 par value, 90,000,000 shares authorized;
47,630,824 and
48,534,843 shares issued as of January 3, 2009 and April 4, 2009
respectively; 47,630,621 and 48,534,640 shares outstanding as of
January 3,
2009 and April 4, 2009, respectively
    
    
    476
    
    
    
    485Additional paid in capital
    
    
    428,852
    
    
    
    434,115Accumulated other comprehensive loss
    
    
    (2,327
    )
    
    
    (2,389
    )Accumulated deficit
    
    
    (153,296
    )
    
    
    (164,377
    )Total stockholders equity
    
    
    273,705
    
    
    
    267,834Total liabilities and stockholders equity
    
    $
    715,234
    
    
    $
    610,262
 (1)
    
    As adjusted due to the retrospective application of Financial Accounting Standards Board
Staff Position (FSP) APB 14-1, Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement), (FSP APB 14-1). See
Note 2, Summary of Significant Accounting Policies.   3




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GSI COMMERCE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 Three Months EndedMarch 29,
    
    
    April 4,2008(1)
    
    
    2009Revenues:Net revenues from product sales
    
    $
    123,120
    
    
    $
    106,191Service fee revenues
    
    
    72,423
    
    
    
    90,284Net revenues
    
    
    195,543
    
    
    
    196,475Costs and expenses:Cost of revenues from product sales
    
    
    85,417
    
    
    
    79,355Marketing
    
    
    16,875
    
    
    
    10,861Account management and operations, inclusive of $1,134
and $1,807 of stock-based compensation
    
    
    59,111
    
    
    
    57,292Product development, inclusive of $426
and $1,126 of stock-based compensation
    
    
    22,436
    
    
    
    28,049General and administrative, inclusive of $2,061
and $2,519 of stock-based compensation
    
    
    15,724
    
    
    
    18,549Depreciation and amortization
    
    
    13,809
    
    
    
    15,401Total costs and expenses
    
    
    213,372
    
    
    
    209,507Loss from operations
    
    
    (17,829
    )
    
    
    (13,032
    )Other (income) expense:Interest expense
    
    
    4,370
    
    
    
    4,796Interest income
    
    
    (1,039
    )
    
    
    (151
    )Other expense
    
    
    145
    
    
    
    229Total other expense
    
    
    3,476
    
    
    
    4,874Loss before income
taxes
    
    
    (21,305
    )
    
    
    (17,906
    )Benefit for income taxes
    
    
    (10,457
    )
    
    
    (6,825
    )Net loss
    
    $
    (10,848
    )
    
    $
    (11,081
    )Basic and diluted loss per share
    
    $
    (0.23
    )
    
    $
    (0.23
    )Weighted average shares outstanding  basic and diluted
    
    
    46,924
    
    
    
    47,926
 (1)
    
    As adjusted due to the retrospective application of FSP APB 14-1. See Note 2, Summary of
Significant Accounting Policies.   4




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GSI COMMERCE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Three Months EndedMarch 29,
    
    
    April 4,2008(1)
    
    
    2009Cash Flows from Operating Activities:Net loss
    
    $
    (10,848
    )
    
    $
    (11,081
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    11,910
    
    
    
    12,962Amortization
    
    
    1,899
    
    
    
    2,439Amortization of discount on convertible notes
    
    
    2,308
    
    
    
    2,546Stock-based compensation
    
    
    3,621
    
    
    
    5,452Foreign currency transaction losses
    
    
    
    
    
    
    238Deferred income taxes
    
    
    (10,457
    )
    
    
    (6,777
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    18,750
    
    
    
    16,802Inventory
    
    
    1,239
    
    
    
    3,483Prepaid expenses and other current assets
    
    
    1,121
    
    
    
    (549
    )Other assets, net
    
    
    1,662
    
    
    
    1,965Accounts payable and accrued expenses
    
    
    (65,295
    )
    
    
    (97,854
    )Deferred revenue
    
    
    3,640
    
    
    
    (2,236
    )Net cash used in operating activities
    
    
    (40,450
    )
    
    
    (72,610
    )Cash Flows from Investing Activities:Payments for acquisitions of businesses, net of cash acquired
    
    
    (145,001
    )
    
    
    (750
    )Cash paid for property and equipment, including internal use software
    
    
    (17,482
    )
    
    
    (7,411
    )Net cash used in investing activities
    
    
    (162,483
    )
    
    
    (8,161
    )Cash Flows from Financing Activities:Borrowings on revolving credit loan
    
    
    15,000
    
    
    
    Debt issuance costs paid
    
    
    (454
    )
    
    
    (38
    )Repayments of capital lease obligations
    
    
    (468
    )
    
    
    (1,195
    )Repayments of mortgage note
    
    
    (68
    )
    
    
    (47
    )Proceeds from exercise of common stock options
    
    
    158
    
    
    
    72Net cash provided by (used in) financing activities
    
    
    14,168
    
    
    
    (1,208
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    4
    
    
    
    (231
    )Net decrease in cash and cash equivalents
    
    
    (188,761
    )
    
    
    (82,210
    )Cash and cash equivalents, beginning of period
    
    
    231,511
    
    
    
    130,315Cash and cash equivalents, end of period
    
    $
    42,750
    
    
    $
    48,105Supplemental Cash Flow InformationCash paid during the period for interest
    
    $
    782
    
    
    $
    703Cash paid during the period for income taxes
    
    
    357
    
    
    
    1,458Noncash Investing and Financing Activities:Accrual for purchases of property and equipment
    
    
    3,401
    
    
    
    3,581
 (1)
    
    As adjusted due to the retrospective application of FSP APB 14-1. See Note 2, Summary of
Significant Accounting Policies.   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:
 Reclassifications:
  Client Revenue Share:
 Shipping and Handling Costs:
  6




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
 Fulfillment Costs:
 Recent Accounting Pronouncements:
      7




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
  As of January 3, 2009AsAs Originally
    
    
    RetrospectivelyCondensed Consolidated Balance Sheet
    
    Reported
    
    
    Applied
    
    
    Increase/(Decrease)AssetsLong-term deferred tax assets
    
    $
    28,862
    
    
    $
    10,505
    
    
    $
    (18,357
    )Other assets
    
    
    18,473
    
    
    
    17,168
    
    
    
    (1,305
    )Total assets
    
    
    734,896
    
    
    
    715,234
    
    
    
    (19,662
    )LiabilitiesConvertible notes
    
    
    207,500
    
    
    
    161,951
    
    
    
    (45,549
    )Total liabilities
    
    
    487,078
    
    
    
    441,529
    
    
    
    (45,549
    )Stockholders EquityAdditional paid in capital
    
    
    383,883
    
    
    
    428,852
    
    
    
    44,969Accumulated deficit
    
    
    (134,214
    )
    
    
    (153,296
    )
    
    
    (19,082
    )Total stockholders equity
    
    
    247,818
    
    
    
    273,705
    
    
    
    25,887Total liabilities and stockholders equity
    
    
    734,896
    
    
    
    715,234
    
    
    
    (19,662
    )Three Months Ended March 29, 2008AsAs Originally
    
    
    Retrospectively
    
    
    Effect of Change onCondensed Consolidated Statement of Operations
    
    Reported
    
    
    Applied
    
    
    Net LossInterest expense
    
    $
    2,177
    
    
    $
    4,370
    
    
    $
    (2,193
    )Total other expense
    
    
    1,283
    
    
    
    3,476
    
    
    
    (2,193
    )Loss before income taxes
    
    
    (19,112
    )
    
    
    (21,305
    )
    
    
    (2,193
    )Benefit for income taxes
    
    
    (9,547
    )
    
    
    (10,457
    )
    
    
    910Net loss
    
    
    (9,565
    )
    
    
    (10,848
    )
    
    
    (1,283
    )Basic and diluted loss per share
    
    
    (0.20
    )
    
    
    (0.23
    )
    
    
    (0.03
    )Change in Net CashProvided By (Used In)Condensed Consolidated Statement of Cash Flows
    
    
    
    
    
    
    
    
    
    Operating ActivitiesNet loss
    
    
    (9,565
    )
    
    
    (10,848
    )
    
    
    (1,283
    )Amortization of discount on convertible notes
    
    
    
    
    
    
    2,308
    
    
    
    2,308Deferred income taxes
    
    
    (9,547
    )
    
    
    (10,457
    )
    
    
    (910
    )Other assets, net
    
    
    1,777
    
    
    
    1,662
    
    
    
    (115
    )Net cash used in operating activities
    
    
    (40,450
    )
    
    
    (40,450
    )
    
    
    
    8




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
 NOTE 3 FAIR VALUE OF FINANCIAL INSTRUMENTS
  Fair Value Measurements on January 3, 2009Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsRecurring Fair Value Measures
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsCash and
cash
equivalents(1)Money market mutual funds
    
    $
    97,849
    
    
    $
    
    
    
    $
    Other assetsCash surrender value of life insurance policies
    
    
    
    
    
    
    991
    
    
    
    $
    97,849
    
    
    $
    991
    
    
    $
    
 (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 April 4, 2009Quoted Prices in
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsRecurring Fair Value Measures
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsCash and
cash equivalents(1)Money market mutual funds
    
    $
    20,499
    
    
    $
    
    
    
    $
    Other assetsCash surrender value of life insurance policies
    
    
    
    
    
    
    964
    
    
    
    $
    20,499
    
    
    $
    964
    
    
    $
    
 (1)
    
    Cash and cash equivalents total $48,105 as of April 4, 2009, and are comprised of $20,499 of
money market mutual funds and $27,606 of bank deposits.  9




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
  Fair Value Measurements on January 3, 2009Quoted Prices in
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsNonrecurring Fair Value Measures
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsOther assetsEquity investments
    
    $
    
    
    
    $
    
    
    
    $
    1,418$
    
    
    
    $
    
    
    
    $
    1,418
   NOTE 4PROPERTY AND EQUIPMENT
  January 3,
    
    
    April 4,2009
    
    
    2009Computer hardware and software
    
    $
    190,957
    
    
    $
    196,892Building and building improvements
    
    
    44,721
    
    
    
    44,729Furniture, warehouse and office equipment, and other
    
    
    40,423
    
    
    
    40,785Land
    
    
    7,889
    
    
    
    7,889Leasehold improvements
    
    
    4,592
    
    
    
    4,724Capitalized leases
    
    
    28,141
    
    
    
    28,141Construction in progress
    
    
    1,497
    
    
    
    1,497318,220
    
    
    
    324,657Less: Accumulated depreciation
    
    
    (153,387
    )
    
    
    (165,504
    )Property and equipment, net
    
    $
    164,833
    
    
    $
    159,153
   10




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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
  InteractiveE-Commerce
    
    
    MarketingServices
    
    
    Services
    
    
    ConsolidatedJanuary 3, 2009
    
    $
    82,758
    
    
    $
    112,238
    
    
    $
    194,996Foreign currency translation
    
    
    (108
    )
    
    
    
    
    
    
    (108
    )April 4, 2009
    
    $
    82,650
    
    
    $
    112,238
    
    
    $
    194,888
  January 3,
    
    
    April 4,
    
    
    Weighted-Average2009
    
    
    2009
    
    
    Life(in years)Gross carrying value of intangible assets
subject to amortization:Customer contracts
    
    $
    38,773
    
    
    $
    38,773
    
    
    
    2.5Non-compete agreements
    
    
    3,838
    
    
    
    3,838
    
    
    
    3.0Purchased technology
    
    
    4,493
    
    
    
    4,493
    
    
    
    4.0Trade name
    
    
    470
    
    
    
    470
    
    
    
    1.1Foreign currency translation
    
    
    (691
    )
    
    
    (652
    )46,883
    
    
    
    46,922
    
    
    
    2.5Accumulated amortization:Customer contracts
    
    
    (15,302
    )
    
    
    (17,099
    )Non-compete agreements
    
    
    (1,599
    )
    
    
    (1,919
    )Purchased technology
    
    
    (1,152
    )
    
    
    (1,463
    )Trade name
    
    
    (470
    )
    
    
    (470
    )Foreign currency translation
    
    
    183
    
    
    
    163(18,340
    )
    
    
    (20,788
    )Net carrying value:Customer contracts
    
    
    23,471
    
    
    
    21,674Non-compete agreements
    
    
    2,239
    
    
    
    1,919Purchased technology
    
    
    3,341
    
    
    
    3,030Trade name
    
    
    
    
    
    
    Foreign currency translation
    
    
    (508
    )
    
    
    (489
    )Total intangible assets subject to amortization, net
    
    
    28,543
    
    
    
    26,134Indefinite life intangible assets:Trade name
    
    
    18,120
    
    
    
    18,120Total intangible assets
    
    $
    46,663
    
    
    $
    44,254
  11




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
  Fiscal 2009
    
    $
    7,284Fiscal 2010
    
    
    7,892Fiscal 2011
    
    
    5,641Fiscal 2012
    
    
    2,538Fiscal 2013
    
    
    1,786Thereafter
    
    
    1,482$
    26,623
 NOTE 6LONG-TERM DEBT AND CREDIT FACILITY
  January 3,
    
    
    April 4,2009
    
    
    2009Convertible notes
    
    $
    161,951
    
    
    $
    164,497Notes payable (1)
    
    
    12,663
    
    
    
    12,615Capital lease obligations
    
    
    24,833
    
    
    
    23,639Credit facility (2)
    
    
    
    
    
    
    199,447
    
    
    
    200,751Less: Current portion of notes payable
    
    
    (184
    )
    
    
    (187
    )Less: Current portion of capital lease obligations
    
    
    (4,703
    )
    
    
    (4,711
    )$
    194,560
    
    
    $
    195,853
 (1)
    
    The estimated fair market value of the notes payable
approximated their carrying
value as of April 4, 2009 and January 3, 2009.(2)
    
    The Company had no outstanding borrowings and $1,575 of outstanding letters of
credit under its $90,000 secured revolving credit facility as of April 4, 2009.  3% Convertible Notes due 2025
   12




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
   As of
    
    
    As ofJanuary 3, 2009
    
    
    April 4, 2009Carrying amount of the equity component
    
    
    18,187
    
    
    
    18,187Principal amount of the liability component
    
    
    57,500
    
    
    
    57,500Unamortized discount of liability component
    
    
    6,574
    
    
    
    5,478Net carrying amount of liability component
    
    
    50,926
    
    
    
    52,022Remaining amortization period of discount
    
    
    
    
    
    14 monthsEffective interest rate on liability component
    
    
    
    
    
    
    12.00
    %
   2.5% Convertible Notes due 2027
    As of
    
    
    As ofJanuary 3, 2009
    
    
    April 4, 2009Carrying amount of the equity component
    
    
    26,783
    
    
    
    26,783Principal amount of the liability component
    
    
    150,000
    
    
    
    150,000Unamortized discount of liability component
    
    
    38,975
    
    
    
    37,525Net carrying amount of liability component
    
    
    111,025
    
    
    
    112,475Remaining amortization period of discount
    
    
    
    
    
    62 monthsEffective interest rate on liability component
    
    
    
    
    
    
    8.60
    %
   13




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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 7COMMITMENTS AND CONTINGENCIES
 Legal Proceedings
   Operating and Capital Commitments
  Payments due by fiscal year2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    TotalOperating lease obligations(1)
    
    $
    12,462
    
    
    $
    15,775
    
    
    $
    12,747
    
    
    $
    9,347
    
    
    $
    7,402
    
    
    $
    18,057
    
    
    $
    75,790Purchase obligations(1)
    
    
    69,546
    
    
    
    5,953
    
    
    
    992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,491Client revenue share payments(1)
    
    
    14,951
    
    
    
    27,173
    
    
    
    27,683
    
    
    
    20,818
    
    
    
    8,707
    
    
    
    53,850
    
    
    
    153,182Debt interest(1)
    
    
    6,589
    
    
    
    5,241
    
    
    
    4,509
    
    
    
    4,497
    
    
    
    4,481
    
    
    
    11,062
    
    
    
    36,379Debt obligations
    
    
    136
    
    
    
    57,696
    
    
    
    209
    
    
    
    563
    
    
    
    237
    
    
    
    161,275
    
    
    
    220,116Capital
lease obligations, including interest(2)
    
    
    4,513
    
    
    
    5,976
    
    
    
    5,925
    
    
    
    5,705
    
    
    
    3,608
    
    
    
    1,747
    
    
    
    27,474Total
    
    $
    108,197
    
    
    $
    117,814
    
    
    $
    52,065
    
    
    $
    40,930
    
    
    $
    24,435
    
    
    $
    245,991
    
    
    $
    589,432
 (1)
    
    Not required to be recorded in the Condensed Consolidated Balance Sheet as of April 4,
2009 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.  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 8STOCK AWARDS
  Stock Options and Warrants
  Weighted
    
    
    WeightedAverageNumber of
    
    
    Average
    
    
    Remaining
    
    
    AggregateShares
    
    
    Exercise
    
    
    Contractual
    
    
    Intrinsic(in thousands)
    
    
    Price
    
    
    Life (in years)
    
    
    ValueOutstanding at January 3, 2009
    
    
    4,244
    
    
    $
    9.50Granted
    
    
    
    
    
    
    Exercised
    
    
    (12
    )
    
    $
    6.11Forfeited/Cancelled
    
    
    (94
    )
    
    $
    11.41Outstanding at April 4, 2009
    
    
    4,138
    
    
    $
    9.47
    
    
    
    3.39
    
    
    $
    19,097Vested and expected to vest at April 4, 2009
    
    
    4,138
    
    
    $
    9.47
    
    
    
    3.39
    
    
    $
    19,097Exercisable at April 4, 2009
    
    
    3,938
    
    
    $
    9.83
    
    
    
    3.46
    
    
    $
    16,877
  Restricted Stock Units and Awards
   15




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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)
  WeightedNumber of
    
    
    AverageShares
    
    
    Grant Date(in thousands)
    
    
    Fair ValueNonvested shares at January 3, 2009
    
    
    3,793
    
    
    $
    18.86Granted
    
    
    1,643
    
    
    $
    10.58Vested
    
    
    (579
    )
    
    $
    15.36Forfeited/Cancelled
    
    
    (105
    )
    
    $
    14.63Nonvested shares at April 4, 2009
    
    
    4,752
    
    
    $
    16.52
  NOTE 9INCOME TAXES
      16




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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 10LOSS PER SHARE
   March 29,
    
    
    April 4,2008
    
    
    2009Stock units and awards
    
    
    3,791
    
    
    
    4,752Stock options and warrants
    
    
    4,372
    
    
    
    4,138Convertible notes
    
    
    8,229
    
    
    
    8,22916,392
    
    
    
    17,119
  NOTE 11  COMPREHENSIVE LOSS
  Three Months EndedMarch 29,
    
    
    April 4,2008
    
    
    2009Net loss
    
    $
    (10,848
    )
    
    $
    (11,081
    )Other comprehensive income (loss):Cumulative translation adjustment
    
    
    46
    
    
    
    (62
    )Comprehensive loss
    
    $
    (10,802
    )
    
    $
    (11,143
    )
 NOTE 12SEGMENT INFORMATION
   17




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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)
    Three Months Ended March 29, 2008E-Commerce
    
    
    Interactive
    
    
    IntersegmentServices
    
    
    Marketing Services
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    187,599
    
    
    $
    12,085
    
    
    $
    (4,141
    )
    
    $
    195,543Costs and expenses before depreciation, amortization
and stock-based compensation expense
    
    
    188,891
    
    
    
    11,192
    
    
    
    (4,141
    )
    
    
    195,942Operating (loss) income before depreciation,
amortization and stock-based compensation expense
    
    
    (1,292
    )
    
    
    893
    
    
    
    
    
    
    
    (399
    )Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,809Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,621Loss from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,829
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,370Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,039
    )Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (21,305
    )
 Three Months Ended April 4, 2009E-Commerce
    
    
    Interactive
    
    
    IntersegmentServices
    
    
    Marketing Services
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    178,510
    
    
    $
    25,122
    
    
    $
    (7,157
    )
    
    $
    196,475Costs and expenses before depreciation, amortization
and stock-based compensation expense
    
    
    174,841
    
    
    
    20,970
    
    
    
    (7,157
    )
    
    
    188,654Operating income before depreciation, amortization
and stock-based compensation expense
    
    
    3,669
    
    
    
    4,152
    
    
    
    
    
    
    
    7,821Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,401Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,452Loss from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,032
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,796Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (151
    )Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (17,906
    )
 
  18




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##### Table of Contents



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 and e-commerce, our
ability to develop and maintain relationships with strategic clients and suppliers and the timing
of our establishment, extension or termination of our relationships with strategic clients, our
ability to timely and successfully develop, maintain and protect our technology, confidential and
proprietary information, and product and service offerings and execute operationally, our ability
to attract and retain qualified personnel, our ability to successfully integrate our acquisitions
of other businesses, and the performance of acquired businesses. In addition, the current global
economic environment could have a significant impact on many of these risks. 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 3, 2009, filed with the SEC on March 16, 2009. We expressly disclaim any
intent or obligation to update these forward-looking statements.
 Executive Overview
  
    
    Net revenues remained relatively constant compared to the first quarter of fiscal 2008.
Service fee revenues grew 25% and net revenues from product sales decreased 14%. E-commerce
services segment net revenues decreased by 5% and interactive marketing services segment
net revenues increased by 107%.
 
    
    Net loss was $11.1 million in the first quarter of fiscal 2009, inclusive of a benefit
for income taxes of $6.8 million, compared to a net loss of $10.8 million in the first
quarter of fiscal 2008, inclusive of a tax benefit of $10.5 million. Loss from operations
improved to $13.0 million in the first quarter of fiscal 2009 compared to a loss of $17.8
million in the first quarter of 2008.
  
    
    For the remainder of fiscal 2009, compared to the same period in fiscal 2008, we expect
a modest decrease in net revenues due primarily to the termination of a client relationship
of one our top ten contributors of service fee revenues in fiscal 2008 as a result of the
clients liquidation, and the transition during fiscal 2009 of one owned inventory client
to a non-owned inventory deal structure. We believe that the client transition will result
in a decrease in net revenues from product sales partially offset by an increase in service
fee revenues and will have no material effect on earnings. We also expect this transition
will decrease our cost of revenues from product sales and our marketing expenses. In
addition, we believe, due to the current economic environment, same store e-commerce
revenues for the remainder of fiscal 2009 will grow at a more moderate rate than in fiscal
2008 and that capital expenditures will modestly decrease in fiscal 2009. We continue to
expect that we will have a net loss in fiscal 2009.
 Results of Operations
 Three-month period ended April 4, 2009 and March 29, 2008 (amounts in tables in millions):
 Net Revenues
   19




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##### Table of Contents



Net Revenues from Product Sales
 Service Fee Revenues.
 First Qtr Fiscal 2009vs.First Qtr Fiscal 2008First Qtr Fiscal 2008
    
    
    First Qtr Fiscal 2009
    
    
    Change
    
    
    ChangeNet Revenues by Type:Net revenues from product sales
    
    $
    123.1
    
    
    
    63
    %
    
    $
    106.2
    
    
    
    54
    %
    
    $
    (16.9
    )
    
    
    (14
    %)Service fee revenues
    
    
    72.4
    
    
    
    37
    %
    
    
    90.3
    
    
    
    46
    %
    
    
    17.9
    
    
    
    25
    %Total net revenues
    
    $
    195.5
    
    
    
    100
    %
    
    $
    196.5
    
    
    
    100
    %
    
    $
    1.0
    
    
    
    1
    %Net Revenues by Segment:E-Commerce services
    
    $
    187.5
    
    
    
    96
    %
    
    $
    178.5
    
    
    
    91
    %
    
    $
    (9.0
    )
    
    
    (5
    %)Interactive marketing services
    
    
    12.1
    
    
    
    6
    %
    
    
    25.1
    
    
    
    13
    %
    
    
    13.0
    
    
    
    107
    %Intersegment eliminations
    
    
    (4.1
    )
    
    
    (2
    %)
    
    
    (7.1
    )
    
    
    (4
    %)
    
    
    (3.0
    )
    
    
    73
    %Total net revenues
    
    $
    195.5
    
    
    
    100
    %
    
    $
    196.5
    
    
    
    100
    %
    
    $
    1.0
    
    
    
    1
    %
 Net Revenues by Type
 Net Revenues from Product Sales.
 Service Fee Revenues.
   20




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##### Table of Contents



Net Revenues by Segment
 E-Commerce Services Segment Revenues.
  Net Revenues by Type  Net Revenues from Product Sales
 Interactive Marketing Services Segment Revenues.
 Costs and Expenses
  Costs of Revenues from Product Sales.
 Marketing.
 Account Management and Operations.
 Product Development
 General and Administrative.
  21




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##### Table of Contents



Depreciation and Amortization.
 First Quarter
    
    
    First Quarter
    
    
    First Quarter of Fiscal 2009vs.of Fiscal 2008
    
    
    of Fiscal 2009
    
    
    First Quarter of Fiscal 2008% of
    
    
    
    
    
    
    % ofNet
    
    
    
    
    
    
    Net$
    
    
    Revenues
    
    
    $
    
    
    Revenues
    
    
    $ Change
    
    
    % ChangeCost of revenues from product sales
    
    $
    85.4
    
    
    
    44
    %
    
    $
    79.4
    
    
    
    41
    %
    
    $
    (6.0
    )
    
    
    (7
    %)Marketing
    
    
    16.9
    
    
    
    9
    %
    
    
    10.9
    
    
    
    6
    %
    
    
    (6.0
    )
    
    
    (36
    %)Account management and operations
    
    
    59.1
    
    
    
    30
    %
    
    
    57.3
    
    
    
    29
    %
    
    
    (1.8
    )
    
    
    (3
    %)Product development
    
    
    22.4
    
    
    
    11
    %
    
    
    28.0
    
    
    
    14
    %
    
    
    5.6
    
    
    
    25
    %General and administrative
    
    
    15.7
    
    
    
    8
    %
    
    
    18.5
    
    
    
    9
    %
    
    
    2.8
    
    
    
    18
    %Depreciation and amortization
    
    
    13.8
    
    
    
    7
    %
    
    
    15.4
    
    
    
    8
    %
    
    
    1.6
    
    
    
    12
    %Total costs and expenses
    
    $
    213.3
    
    
    
    109
    %
    
    $
    209.5
    
    
    
    107
    %
    
    $
    (3.8
    )
    
    
    (2
    %)
 Cost of Revenues from Product Sales:
 First Qtr
    
    
    First QtrFiscal 2008
    
    
    Fiscal 2009Cost of revenues from product sales
    
    $
    85.4
    
    
    $
    79.4As a percentage of net revenues from product sales
    
    
    69
    %
    
    
    75
    %
   Marketing:
 First Qtr
    
    
    First QtrFiscal 2008
    
    
    Fiscal 2009Marketing
    
    $
    16.9
    
    
    $
    10.9As a percentage of net revenues from product sales
    
    
    14
    %
    
    
    10
    %
   Account Management and Operations.
  22




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##### Table of Contents



Product Development.
 General and Administrative.
 Depreciation and Amortization.
 Other (Income) Expense
 First Quarter
    
    
    First Quarter
    
    
    First Quarter of Fiscal 2009vs.of Fiscal 2008
    
    
    of Fiscal 2009
    
    
    First Quarter of Fiscal 2008% of
    
    
    
    
    
    
    % ofNet
    
    
    
    
    
    
    Net$
    
    
    Revenues
    
    
    $
    
    
    Revenues
    
    
    $ Change
    
    
    % ChangeInterest expense
    
    $
    4.4
    
    
    
    0.6
    %
    
    $
    4.8
    
    
    
    0.5
    %
    
    $
    0.4
    
    
    
    9
    %Interest income
    
    
    (1.0
    )
    
    
    (0.1
    %)
    
    
    (0.1
    )
    
    
    0.0
    %
    
    
    0.9
    
    
    
    (90
    %)Other expense
    
    
    0.1
    
    
    
    0.0
    %
    
    
    0.2
    
    
    
    0.0
    %
    
    
    0.1
    
    
    
    100
    %Total other expenses
    
    $
    3.5
    
    
    
    0.5
    %
    
    $
    4.9
    
    
    
    0.5
    %
    
    $
    1.4
    
    
    
    40
    %
  Income Taxes
    23




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##### Table of Contents



Seasonality
  Liquidity and Capital Resources
 As ofJanuary 3,
    
    
    April 4,2009
    
    
    2009(in millions)Cash and cash equivalents
    
    $
    130.3
    
    
    $
    48.1Percentage of total assets
    
    
    18
    %
    
    
    8
    %
  Sources of Cash
    Uses of Cash
    24




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##### Table of Contents



Critical Accounting Policies
  Recent Accounting Pronouncements
  
 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  
 ITEM 4: CONTROLS AND PROCEDURES.
 Evaluation of disclosure controls and procedures.
  Changes in internal control over financial reporting.
 
 PART II  OTHER INFORMATION
 
 ITEM 1: LEGAL PROCEEDINGS .
  
 ITEM 1A: RISK FACTORS.
   25




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##### Table of Contents



ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS WHO ARE NOT ALSO DIRECTORS .
  
 ITEM 5: OTHER INFORMATION.
  
 ITEM 6: EXHIBITS.
 3.1
    
    

Amended and Restated Bylaws of GSI Commerce, Inc. (filed with the Companys current Report on Form 8-K filed
on January 29, 2009 and incorporated herein by reference)10.1
    
    
    Termination Agreement, dated as of January 28, 2009, by and among GSI Commerce, Inc., Bulldog Acquisition
Corp. and Innotrac Corporation (filed with the Companys current Report on Form 8-K filed on March 16, 2009
and incorporated herein by reference)10.2
    
    
    Michael
Rubin Form of PRSU Agreement31.1
    
    
    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
  26




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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)  27




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description3.1
    
    

Amended
and Restated Bylaws of GSI Commerce, Inc. (filed with the Companys current Report on Form 8-K filed
on January 29, 2009 and incorporated herein by reference)10.1
    
    
    Termination Agreement, dated as of January 28, 2009, by and among GSI Commerce, Inc., Bulldog Acquisition
Corp. and Innotrac Corporation (filed with the Companys current Report on Form 8-K filed on March 16, 2009
and incorporated herein by reference)10.2
    
    
    Michael
Rubin Form of PRSU Agreement31.1
    
    
    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
  28