##### 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 October 2, 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
    
    04-2958132(State or other jurisdiction of
    
    (I.R.S. employer identification no.)incorporation or organization)
 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
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



GSI COMMERCE, INC.
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 2, 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
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. (Reserved)
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    29Exhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 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,
    
    
    October 2,2010
    
    
    2010ASSETSCurrent assets:Cash and cash equivalents
    
    $
    228,430
    
    
    $
    66,709Accounts receivable, net
    
    
    70,582
    
    
    
    76,958Inventory
    
    
    55,678
    
    
    
    68,943Deferred tax assets
    
    
    12,347
    
    
    
    22,580Prepaid expenses and other current assets
    
    
    13,187
    
    
    
    16,919Total current assets
    
    
    380,224
    
    
    
    252,109Property and equipment, net
    
    
    163,329
    
    
    
    180,363Goodwill
    
    
    373,003
    
    
    
    396,041Intangible assets, net
    
    
    132,875
    
    
    
    148,959Long-term deferred tax assets
    
    
    
    
    
    
    10,886Other assets, net
    
    
    12,417
    
    
    
    31,253Total assets
    
    $
    1,061,848
    
    
    $
    1,019,611LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    126,914
    
    
    $
    77,991Accrued expenses and other
    
    
    150,173
    
    
    
    123,155Deferred revenue
    
    
    20,645
    
    
    
    20,724Convertible notes
    
    
    55,443
    
    
    
    Current portion  long-term debt
    
    
    5,260
    
    
    
    8,054Total current liabilities
    
    
    358,435
    
    
    
    229,924Convertible notes
    
    
    116,948
    
    
    
    121,747Long-term debt
    
    
    28,142
    
    
    
    53,378Deferred acquisition payments
    
    
    63,763
    
    
    
    68,935Deferred tax liabilities
    
    
    8,534
    
    
    
    Deferred revenue and other long-term liabilities
    
    
    9,686
    
    
    
    9,892Total liabilities
    
    
    585,508
    
    
    
    483,876Commitments 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 66,486
    
    
    600
    
    
    
    665Additional paid in capital
    
    
    642,852
    
    
    
    753,771Accumulated other comprehensive loss
    
    
    (1,498
    )
    
    
    (653
    )Accumulated deficit
    
    
    (165,614
    )
    
    
    (218,048
    )Total stockholders equity
    
    
    476,340
    
    
    
    535,735Total liabilities and stockholders equity
    
    $
    1,061,848
    
    
    $
    1,019,611
   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
    
    
    Nine Months EndedOctober 3,
    
    
    October 2,
    
    
    October 3,
    
    
    October 2,2009
    
    
    2010
    
    
    2009
    
    
    2010Revenues:Net revenues from product sales
    
    $
    90,767
    
    
    $
    153,238
    
    
    $
    288,150
    
    
    $
    458,667Service fee revenues
    
    
    99,544
    
    
    
    130,900
    
    
    
    285,817
    
    
    
    362,291Net revenues
    
    
    190,311
    
    
    
    284,138
    
    
    
    573,967
    
    
    
    820,958Costs and expenses:Cost of revenues from product sales
    
    
    67,548
    
    
    
    113,701
    
    
    
    217,345
    
    
    
    338,627Marketing
    
    
    9,087
    
    
    
    11,394
    
    
    
    27,002
    
    
    
    29,903Account management and operations
    
    
    60,173
    
    
    
    83,500
    
    
    
    176,969
    
    
    
    240,489Product development
    
    
    28,396
    
    
    
    42,410
    
    
    
    84,871
    
    
    
    118,789General and administrative
    
    
    19,365
    
    
    
    29,309
    
    
    
    58,169
    
    
    
    81,396Depreciation and amortization
    
    
    15,655
    
    
    
    21,971
    
    
    
    46,335
    
    
    
    61,306Changes in fair value of deferred acquisition payments
    
    
    
    
    
    
    2,074
    
    
    
    
    
    
    
    6,222Total costs and expenses
    
    
    200,224
    
    
    
    304,359
    
    
    
    610,691
    
    
    
    876,732Loss from operations
    
    
    (9,913
    )
    
    
    (20,221
    )
    
    
    (36,724
    )
    
    
    (55,774
    )Other (income) expense:Interest expense
    
    
    4,897
    
    
    
    3,648
    
    
    
    14,452
    
    
    
    13,595Interest income
    
    
    (99
    )
    
    
    (10
    )
    
    
    (304
    )
    
    
    (316
    )Other (income) expense
    
    
    (32
    )
    
    
    (506
    )
    
    
    (197
    )
    
    
    906Loss on investments
    
    
    
    
    
    
    736
    
    
    
    
    
    
    
    736Total other expense
    
    
    4,766
    
    
    
    3,868
    
    
    
    13,951
    
    
    
    14,921Loss before income taxes and equity-method
investment earnings
    
    
    (14,679
    )
    
    
    (24,089
    )
    
    
    (50,675
    )
    
    
    (70,695
    )Benefit for income taxes
    
    
    (5,273
    )
    
    
    (5,435
    )
    
    
    (16,046
    )
    
    
    (18,185
    )Equity-method investment earnings
    
    
    
    
    
    
    (76
    )
    
    
    
    
    
    
    (76
    )Net loss
    
    $
    (9,406
    )
    
    $
    (18,578
    )
    
    $
    (34,629
    )
    
    $
    (52,434
    )Basic and diluted loss per share
    
    $
    (0.18
    )
    
    $
    (0.28
    )
    
    $
    (0.70
    )
    
    $
    (0.83
    )Weighted average shares outstanding  basic and diluted
    
    
    51,910
    
    
    
    66,419
    
    
    
    49,506
    
    
    
    63,384
   4




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GSI COMMERCE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Nine Months EndedOctober 3,
    
    
    October 2,2009
    
    
    2010Cash Flows from Operating Activities:Net loss
    
    $
    (34,629
    )
    
    $
    (52,434
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    38,856
    
    
    
    46,538Amortization
    
    
    7,479
    
    
    
    14,768Amortization of discount on convertible notes
    
    
    7,765
    
    
    
    6,824Changes in fair value of deferred acquisition payments
    
    
    
    
    
    
    6,222Stock-based compensation
    
    
    18,722
    
    
    
    21,128Foreign currency transaction losses
    
    
    (184
    )
    
    
    (909
    )Loss on investments
    
    
    
    
    
    
    736Gain on disposal of equipment
    
    
    (10
    )
    
    
    Equity-method investment earnings
    
    
    
    
    
    
    (76
    )Deferred income taxes
    
    
    (16,046
    )
    
    
    (19,578
    )Changes in operating assets and liabilities:Accounts receivable, net
    
    
    14,602
    
    
    
    (3,022
    )Inventory
    
    
    (1,087
    )
    
    
    (13,265
    )Prepaid expenses and other current assets
    
    
    (1,900
    )
    
    
    (2,955
    )Other assets, net
    
    
    1,938
    
    
    
    744Accounts payable, accrued expenses and other
    
    
    (81,434
    )
    
    
    (78,572
    )Deferred revenue
    
    
    (2,224
    )
    
    
    (2,668
    )Net cash used in operating activities
    
    
    (48,152
    )
    
    
    (76,519
    )Cash Flows from Investing Activities:Payments for acquisitions of businesses, net of cash acquired
    
    
    (5,601
    )
    
    
    (47,850
    )Cash paid for property and equipment, including internal use software
    
    
    (29,585
    )
    
    
    (54,648
    )Purchase of investments
    
    
    
    
    
    
    (18,611
    )Release from restricted cash escrow funds
    
    
    1,052
    
    
    
    Net cash used in investing activities
    
    
    (34,134
    )
    
    
    (121,109
    )Cash Flows from Financing Activities:Borrowings on revolving credit loan
    
    
    
    
    
    
    25,000Proceeds from the sale of common stock
    
    
    92,596
    
    
    
    Equity issuance costs paid
    
    
    (4,179
    )
    
    
    Debt issuance costs paid
    
    
    (83
    )
    
    
    (887
    )Repayments of capital lease obligations
    
    
    (3,359
    )
    
    
    (4,446
    )Repayments of mortgage note
    
    
    (136
    )
    
    
    (145
    )Excess tax benefit in connection with exercise of stock options and awards
    
    
    
    
    
    
    978Proceeds from exercise of common stock options
    
    
    2,065
    
    
    
    14,693Net cash provided by financing activities
    
    
    86,904
    
    
    
    35,193Effect of exchange rate changes on cash and cash equivalents
    
    
    340
    
    
    
    714Net increase (decrease) in cash and cash equivalents
    
    
    4,958
    
    
    
    (161,721
    )Cash and cash equivalents, beginning of period
    
    
    130,315
    
    
    
    228,430Cash and cash equivalents, end of period
    
    $
    135,273
    
    
    $
    66,709Supplemental Cash Flow Information:Cash paid during the period for interest
    
    $
    4,672
    
    
    $
    5,316Cash paid during the period for income taxes
    
    
    2,620
    
    
    
    739Noncash Investing and Financing Activities:Accrual for purchases of property and equipment
    
    
    3,196
    
    
    
    2,636Equipment financed under capital lease
    
    
    257
    
    
    
    7,482
   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 and Other:
  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 forSubject
    
    Date Issued
    
    Summary
    
    Effect of Adoption
    
    The 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 inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable 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 October 2, 2010Quoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsCash and cash equivalents:(1)Money market mutual funds
    
    $
    
    
    
    $
    
    
    
    $
    LiabilitiesDeferred acquisition payments(2)
    
    $
    
    
    
    $
    
    
    
    $
    67,185
 (1)
    
    Cash and cash equivalents totaled $66,709 as of October 2, 2010, and were entirely comprised
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 RueLaLa, Inc., formerly known as 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 $6,222 of its deferred acquisition payments from the acquisition date of
Rue La La during the three- and nine-month periods ended October 2, 2010 and $0 during the
three- and nine-month periods ended October 3, 2009, and the corresponding charge was recorded
to changes in fair value of deferred acquisition payments in 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
    
    
    Nine Months EndedOctober 2, 2010
    
    
    October 2, 2010Balance, beginning of period
    
    $
    65,111
    
    
    $
    60,963Changes in fair value of deferred acquisition payments included
in the Companys Condensed Consolidated Statements of Operations
    
    
    2,074
    
    
    
    6,222Balance, end of period
    
    $
    67,185
    
    
    $
    67,185
 NOTE 4PROPERTY AND EQUIPMENT
  January 2,
    
    
    October 2,2010
    
    
    2010Computer hardware and software
    
    $
    231,954
    
    
    $
    282,365Building and building improvements
    
    
    44,822
    
    
    
    44,977Furniture, warehouse and office equipment, and other
    
    
    45,722
    
    
    
    47,570Land
    
    
    7,889
    
    
    
    7,889Leasehold improvements
    
    
    8,847
    
    
    
    11,406Capitalized leases
    
    
    29,132
    
    
    
    36,955368,366
    
    
    
    431,162Less: Accumulated depreciation
    
    
    (205,037
    )
    
    
    (250,799
    )Property and equipment, net
    
    $
    163,329
    
    
    $
    180,363
   8




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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
  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
    
    
    (226
    )
    
    
    
    
    
    
    
    
    
    
    (226
    )October 2, 2010
    
    $
    85,420
    
    
    $
    137,733
    
    
    $
    172,888
    
    
    $
    396,041
  Weighted-January 2,
    
    
    October 2,
    
    
    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
    )
    
    
    (528
    )83,818
    
    
    
    108,050
    
    
    
    2.7Accumulated amortization:Customer contracts
    
    
    (22,907
    )
    
    
    (29,387
    )Member relationships
    
    
    (489
    )
    
    
    (5,109
    )Supplier relationships
    
    
    
    
    
    
    (708
    )Non-compete agreements
    
    
    (2,888
    )
    
    
    (3,963
    )Purchased technology
    
    
    (2,428
    )
    
    
    (4,147
    )Trade names
    
    
    (532
    )
    
    
    (670
    )Foreign currency translation
    
    
    72
    
    
    
    89(29,172
    )
    
    
    (43,895
    )Net carrying value:Customer contracts
    
    
    18,283
    
    
    
    26,761Member relationships
    
    
    21,711
    
    
    
    17,091Supplier relationships
    
    
    11,186
    
    
    
    10,478Non-compete agreements
    
    
    1,191
    
    
    
    518Purchased technology
    
    
    2,377
    
    
    
    9,576Trade names
    
    
    308
    
    
    
    170Foreign currency translation
    
    
    (410
    )
    
    
    (439
    )Total intangible assets subject to amortization, net
    
    
    54,646
    
    
    
    64,155Indefinite life intangible assets:Trade names
    
    
    78,229
    
    
    
    84,804Total intangible assets
    
    $
    132,875
    
    
    $
    148,959
  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
    
    $
    5,358Fiscal 2011
    
    
    20,937Fiscal 2012
    
    
    16,122Fiscal 2013
    
    
    12,452Fiscal 2014
    
    
    8,044Thereafter
    
    
    1,242$
    64,155
 NOTE 6ACQUISITIONS AND INVESTMENTS
  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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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
    
    
    Nine Months EndedOctober 3,
    
    
    October 2,
    
    
    October 3,
    
    
    October 2,2009
    
    
    2010
    
    
    2009
    
    
    2010Net revenues
    
    $
    226,341
    
    
    $
    284,138
    
    
    $
    675,934
    
    
    $
    826,621Net loss
    
    $
    (14,826
    )
    
    $
    (18,578
    )
    
    $
    (48,089
    )
    
    $
    (52,722
    )
 Equity Method Investment
   Other 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,
    
    
    October 2,2010
    
    
    2010Convertible notes
    
    $
    172,391
    
    
    $
    121,747Notes payable (1)
    
    
    12,479
    
    
    
    12,334Capital lease obligations
    
    
    20,923
    
    
    
    24,098Line of credit
    
    
    
    
    
    
    25,000Total debt
    
    
    205,793
    
    
    
    183,179Less: Current portion of convertible notes
    
    
    (55,443
    )
    
    
    Less: Current portion of notes payable
    
    
    (195
    )
    
    
    (206
    )Less: Current portion of capital lease obligations
    
    (5,065
    )
    
    
    (7,848
    )Total long-term debt
    
    $
    145,090
    
    
    $
    175,125
 (1)
    
    The estimated fair market value of the notes payable approximated their carrying value
as of October 2, 2010 and January 2, 2010. 3% Convertible Notes due 2025
    As of
    
    
    As ofJanuary 2, 2010
    
    
    October 2, 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
    
    
    Nine Months EndedOctober 3,
    
    
    October 2,
    
    
    October 3,
    
    
    October 2,2009
    
    
    2010
    
    
    2009
    
    
    2010Amortization of the
discount on the
liability component
    
    $
    1,161
    
    
    $
    
    
    
    $
    3,354
    
    
    $
    2,053Contract interest coupon
    
    
    431
    
    
    
    
    
    
    
    1,294
    
    
    
    719Amortization of the
liability component of
the issue costs
    
    
    101
    
    
    
    
    
    
    
    292
    
    
    
    173Interest expense
    
    $
    1,693
    
    
    $
    
    
    
    $
    4,940
    
    
    $
    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
    
    
    October 2, 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
    
    
    $
    28,253Net carrying amount of liability component
    
    $
    116,948
    
    
    $
    121,747Remaining amortization period of discount
    
    
    
    
    
    44 monthsEffective interest rate on liability component
    
    
    
    
    
    
    8.60
    %
  Three Months Ended
    
    
    Nine Months EndedOctober 3,
    
    
    October 2,
    
    
    October 3,
    
    
    October 2,2009
    
    
    2010
    
    
    2009
    
    
    2010Amortization of the
discount on the
liability component
    
    $
    1,512
    
    
    $
    1,645
    
    
    $
    4,411
    
    
    $
    4,799Contract interest coupon
    
    
    937
    
    
    
    937
    
    
    
    2,812
    
    
    
    2,812Amortization of the
liability component of
the issue costs
    
    
    116
    
    
    
    122
    
    
    
    342
    
    
    
    360Interest expense
    
    $
    2,565
    
    
    $
    2,704
    
    
    $
    7,565
    
    
    $
    7,971
  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)
    
    $
    5,976
    
    
    $
    21,175
    
    
    $
    20,701
    
    
    $
    16,740
    
    
    $
    13,257
    
    
    $
    21,356
    
    
    $
    99,205Marketing commitments(1)
    
    
    344
    
    
    
    1,702
    
    
    
    2,570
    
    
    
    2,570
    
    
    
    2,570
    
    
    
    
    
    
    
    9,756Client revenue share payments(1)
    
    
    3,714
    
    
    
    21,400
    
    
    
    22,158
    
    
    
    23,368
    
    
    
    15,991
    
    
    
    33,269
    
    
    
    119,900Debt interest(1)
    
    
    2,664
    
    
    
    4,509
    
    
    
    4,498
    
    
    
    4,480
    
    
    
    1,921
    
    
    
    
    
    
    
    18,072Debt obligations
    
    
    50
    
    
    
    209
    
    
    
    563
    
    
    
    25,237
    
    
    
    161,275
    
    
    
    
    
    
    
    187,334Capital lease obligations, including
interest(2)
    
    
    2,145
    
    
    
    9,412
    
    
    
    8,171
    
    
    
    4,883
    
    
    
    1,800
    
    
    
    
    
    
    
    26,411Deferred acquisition payments(3)
    
    
    
    
    
    
    1,500
    
    
    
    750
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    3,250Total
    
    $
    14,893
    
    
    $
    59,907
    
    
    $
    59,411
    
    
    $
    78,278
    
    
    $
    196,814
    
    
    $
    54,625
    
    
    $
    463,928
 (1)
    
    Not required to be recorded in the Condensed Consolidated Balance Sheet as of October
2, 2010 in accordance with accounting principles generally accepted in the United States of
America.(2)
    
    Capital lease obligations, excluding interest, are recorded in the Condensed
Consolidated Balance Sheets.(3)
    
    The $3,250 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
    
    
    (1,651
    )
    
    $
    8.90Forfeited/Cancelled
    
    
    (2
    )
    
    $
    12.16Outstanding at October 2, 2010
    
    
    1,599
    
    
    $
    10.89
    
    
    
    2.81
    
    
    $
    21,588Vested and expected to vest at October 2, 2010
    
    
    1,599
    
    
    $
    10.89
    
    
    
    2.81
    
    
    $
    21,588Exercisable at October 2, 2010
    
    
    1,599
    
    
    $
    10.89
    
    
    
    2.81
    
    
    $
    21,588
 Restricted Stock Units and Awards
  WeightedNumber of
    
    
    AverageShares
    
    
    Grant Date(in thousands)
    
    
    Fair ValueNonvested shares at January 2, 2010
    
    
    4,294
    
    
    $
    16.64Granted
    
    
    1,402
    
    
    $
    27.19Vested
    
    
    (1,690
    )
    
    $
    14.25Forfeited/Cancelled
    
    
    (284
    )
    
    $
    16.78Nonvested shares at October 2, 2010
    
    
    3,722
    
    
    $
    21.69
  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
    
    
    Nine Months EndedOctober 3,
    
    
    October 2,
    
    
    October 3,
    
    
    October 2,2009
    
    
    2010
    
    
    2009
    
    
    2010Includes stock-based compensation as follows:Account management and operations
    
    $
    2,033
    
    
    $
    2,162
    
    
    $
    6,684
    
    
    $
    8,030Product development
    
    $
    1,207
    
    
    $
    1,603
    
    
    $
    3,843
    
    
    $
    5,231General and administrative
    
    $
    2,436
    
    
    $
    2,693
    
    
    $
    8,195
    
    
    $
    7,867
 NOTE 10INCOME TAXES
    NOTE 11LOSS PER SHARE
   October 3,
    
    
    October 2,2009
    
    
    2010Stock units and awards
    
    
    4,379
    
    
    
    3,722Stock options and warrants
    
    
    3,565
    
    
    
    1,599Convertible notes
    
    
    8,229
    
    
    
    5,00016,173
    
    
    
    10,321
  16




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GSI COMMERCE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
 NOTE 12  COMPREHENSIVE LOSS
  Three Months Ended
    
    
    Nine Months EndedOctober 3,
    
    
    October 2,
    
    
    October 3,
    
    
    October 2,2009
    
    
    2010
    
    
    2009
    
    
    2010Net loss
    
    $
    (9,406
    )
    
    $
    (18,578
    )
    
    $
    (34,629
    )
    
    $
    (52,434
    )Other comprehensive loss:Cumulative translation adjustment
    
    
    153
    
    
    
    2,354
    
    
    
    935
    
    
    
    845Comprehensive loss
    
    $
    (9,253
    )
    
    $
    (16,224
    )
    
    $
    (33,694
    )
    
    $
    (51,589
    )
 NOTE 13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 October 3, 2009E-Commerce
    
    
    Marketing
    
    
    Consumer
    
    
    IntersegmentServices
    
    
    Services
    
    
    Engagement
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    166,641
    
    
    $
    31,038
    
    
    $
    
    
    
    $
    (7,368
    )
    
    $
    190,311Segment costs and expenses
    
    
    161,003
    
    
    
    24,535
    
    
    
    
    
    
    
    (7,368
    )
    
    
    178,170Segment profit
    
    
    5,638
    
    
    
    6,503
    
    
    
    
    
    
    
    
    
    
    
    12,141Acquisition related integration, transaction, due diligence
expenses, non-cash inventory valuation adjustments, and
the cash portion of deferred acquisition payments
recorded as compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    723Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,655Changes in fair value of deferred acquisition payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,676Loss from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,913
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,897Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (99
    )Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (14,679
    )
 Three Months Ended October 2, 2010E-Commerce
    
    
    Marketing
    
    
    Consumer
    
    
    IntersegmentServices
    
    
    Services
    
    
    Engagement
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    203,067
    
    
    $
    50,838
    
    
    $
    51,524
    
    
    $
    (21,291
    )
    
    $
    284,138Segment costs and expenses
    
    
    197,480
    
    
    
    40,037
    
    
    
    54,650
    
    
    
    (21,291
    )
    
    
    270,876Segment profit (loss)
    
    
    5,587
    
    
    
    10,801
    
    
    
    (3,126
    )
    
    
    
    
    
    
    13,262Acquisition related integration, transaction, due diligence
expenses, non-cash inventory valuation adjustments, and
the cash portion of deferred acquisition payments
recorded as compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,980Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,971Changes in fair value of deferred acquisition payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,074Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,458Loss from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,221
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,648Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (506
    )Loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    736Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (24,089
    )
  18




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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)
 Nine Months Ended October 3, 2009E-Commerce
    
    
    Marketing
    
    
    Consumer
    
    
    IntersegmentServices
    
    
    Services
    
    
    Engagement
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    508,921
    
    
    $
    84,646
    
    
    $
    
    
    
    $
    (19,600
    )
    
    $
    573,967Segment costs and expenses
    
    
    495,245
    
    
    
    67,642
    
    
    
    
    
    
    
    (19,600
    )
    
    
    543,287Segment profit
    
    
    13,676
    
    
    
    17,004
    
    
    
    
    
    
    
    
    
    
    
    30,680Acquisition related integration, transaction, due diligence
expenses, non-cash inventory valuation adjustments, and
the cash portion of deferred acquisition payments
recorded as compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,347Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,335Changes in fair value of deferred acquisition payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,722Loss from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,724
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,452Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (304
    )Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (197
    )Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (50,675
    )
 Nine Months Ended October 2, 2010E-Commerce
    
    
    Marketing
    
    
    Consumer
    
    
    IntersegmentServices
    
    
    Services
    
    
    Engagement
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    592,311
    
    
    $
    133,249
    
    
    $
    147,663
    
    
    $
    (52,265
    )
    
    $
    820,958Segment costs and expenses
    
    
    571,603
    
    
    
    104,812
    
    
    
    154,353
    
    
    
    (52,265
    )
    
    
    778,503Segment profit (loss)
    
    
    20,708
    
    
    
    28,437
    
    
    
    (6,690
    )
    
    
    
    
    
    
    42,455Acquisition related integration, transaction, due diligence
expenses, non-cash inventory valuation adjustments, and
the cash portion of deferred acquisition payments
recorded as compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,573Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,306Changes in fair value of deferred acquisition payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,222Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,128Loss from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,774
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,595Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (316
    )Other expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    906Loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    736Loss before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (70,695
    )
   19




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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 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 $93.8 million, or 49%, net revenues from product sales
increased by $62.4 million, or 69%, and service fee revenues increased $31.4 million, or
32%.
 
    
    Loss from operations was $20.2 million compared to a loss of $9.9 million.
 
    
    Net loss was $18.6 million including a benefit for income taxes of $5.4 million,
compared to a net loss of $9.4 million including a benefit for income taxes of $5.3
million.
  20




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##### Table of Contents



Consolidated Results (amounts in tables in millions)
 Total Net Revenues, Costs and Expenses and Loss from Operations:
 Third Quarter
    
    
    Nine Months Ended% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofFiscal
    
    
    Net
    
    
    Fiscal
    
    
    Net
    
    
    Increase/
    
    
    
    
    
    
    Fiscal
    
    
    Net
    
    
    Fiscal
    
    
    Net
    
    
    Increase/2009
    
    
    Revenues
    
    
    2010
    
    
    Revenues
    
    
    (Decrease)
    
    
    % Change
    
    
    2009
    
    
    Revenues
    
    
    2010
    
    
    Revenues
    
    
    (Decrease)
    
    
    % ChangeRevenues:Net revenues from product sales
    
    $
    90.8
    
    
    
    48
    %
    
    $
    153.2
    
    
    
    54
    %
    
    $
    62.4
    
    
    
    69
    %
    
    $
    288.2
    
    
    
    50
    %
    
    $
    458.7
    
    
    
    56
    %
    
    $
    170.5
    
    
    
    59
    %Service fee revenues
    
    
    99.5
    
    
    
    52
    %
    
    
    130.9
    
    
    
    46
    %
    
    
    31.4
    
    
    
    32
    %
    
    
    285.8
    
    
    
    50
    %
    
    
    362.3
    
    
    
    44
    %
    
    
    76.5
    
    
    
    27
    %Total net revenues
    
    
    190.3
    
    
    
    100
    %
    
    
    284.1
    
    
    
    100
    %
    
    
    93.8
    
    
    
    49
    %
    
    
    574.0
    
    
    
    100
    %
    
    
    821.0
    
    
    
    100
    %
    
    
    247.0
    
    
    
    43
    %Costs and expenses:Cost of revenues from product sales
    
    
    67.5
    
    
    
    35
    %
    
    
    113.7
    
    
    
    40
    %
    
    
    46.2
    
    
    
    68
    %
    
    
    217.3
    
    
    
    38
    %
    
    
    338.7
    
    
    
    41
    %
    
    
    121.4
    
    
    
    56
    %Marketing
    
    
    9.1
    
    
    
    5
    %
    
    
    11.4
    
    
    
    4
    %
    
    
    2.3
    
    
    
    25
    %
    
    
    27.0
    
    
    
    4
    %
    
    
    29.9
    
    
    
    4
    %
    
    
    2.9
    
    
    
    11
    %Account management and operations
    
    
    60.2
    
    
    
    32
    %
    
    
    83.5
    
    
    
    29
    %
    
    
    23.3
    
    
    
    39
    %
    
    
    177.0
    
    
    
    31
    %
    
    
    240.5
    
    
    
    29
    %
    
    
    63.5
    
    
    
    36
    %Product development
    
    
    28.4
    
    
    
    15
    %
    
    
    42.4
    
    
    
    15
    %
    
    
    14.0
    
    
    
    49
    %
    
    
    84.9
    
    
    
    15
    %
    
    
    118.8
    
    
    
    15
    %
    
    
    33.9
    
    
    
    40
    %General and administrative
    
    
    19.4
    
    
    
    10
    %
    
    
    29.3
    
    
    
    10
    %
    
    
    9.9
    
    
    
    51
    %
    
    
    58.2
    
    
    
    10
    %
    
    
    81.4
    
    
    
    10
    %
    
    
    23.2
    
    
    
    40
    %Depreciation and amortization
    
    
    15.6
    
    
    
    8
    %
    
    
    21.9
    
    
    
    8
    %
    
    
    6.3
    
    
    
    40
    %
    
    
    46.3
    
    
    
    8
    %
    
    
    61.3
    
    
    
    7
    %
    
    
    15.0
    
    
    
    32
    %Changes in fair value of deferred
acquisitoin payments
    
    
    
    
    
    
    0
    %
    
    
    2.1
    
    
    
    1
    %
    
    
    2.1
    
    
    
    
    
    
    
    
    
    
    
    0
    %
    
    
    6.2
    
    
    
    1
    %
    
    
    6.2Total costs and expenses
    
    
    200.2
    
    
    
    105
    %
    
    
    304.3
    
    
    
    107
    %
    
    
    104.1
    
    
    
    52
    %
    
    
    610.7
    
    
    
    106
    %
    
    
    876.8
    
    
    
    107
    %
    
    
    266.1
    
    
    
    44
    %Loss from operations
    
    $
    (9.9
    )
    
    
    -5
    %
    
    $
    (20.2
    )
    
    
    -7
    %
    
    $
    (10.3
    )
    
    
    104
    %
    
    $
    (36.7
    )
    
    
    -6
    %
    
    $
    (55.8
    )
    
    
    -7
    %
    
    $
    (19.1
    )
    
    
    52
    %
 Net Revenues from Product Sales.
 Service Fee Revenues.
 Cost and Expenses.
 Cost of Revenues from Products Sales:
 Third Quarter
    
    
    Nine Months EndedOctober 3, 2009
    
    
    October 2, 2010
    
    
    October 3, 2009
    
    
    October 2, 2010Cost of revenues from product sales
    
    $
    67.5
    
    
    $
    113.7
    
    
    $
    217.3
    
    
    $
    338.7As a percentage of net revenues
from product sales
    
    
    74
    %
    
    
    74
    %
    
    
    75
    %
    
    
    74
    %
  Marketing:
  21




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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:
 Other (Income) Expense:
 Third Quarter
    
    
    Nine Months EndedOctober 3, 2009
    
    
    October 2, 2010
    
    
    Change
    
    
    October 3, 2009
    
    
    October 2, 2010
    
    
    ChangeInterest expense
    
    $
    4.9
    
    
    $
    3.7
    
    
    $
    (1.2
    )
    
    $
    14.5
    
    
    $
    13.6
    
    
    $
    (0.9
    )Interest income
    
    
    (0.1
    )
    
    
    
    
    
    
    0.1
    
    
    
    (0.3
    )
    
    
    (0.3
    )
    
    
    Other (income)
expense
    
    
    
    
    
    
    (0.5
    )
    
    
    (0.5
    )
    
    
    (0.2
    )
    
    
    0.9
    
    
    
    1.1Loss on investments
    
    
    
    
    
    
    0.7
    
    
    
    0.7
    
    
    
    
    
    
    
    0.7
    
    
    
    0.7Total other expense
    
    $
    4.8
    
    
    $
    3.9
    
    
    $
    (0.9
    )
    
    $
    14.0
    
    
    $
    14.9
    
    
    $
    0.9
  Income Taxes:
   22




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##### Table of Contents



Segment Results
 Third Quarter
    
    
    Nine Months EndedFiscal 2009
    
    
    Fiscal 2010
    
    
    $ Change
    
    
    % Change
    
    
    Fiscal 2009
    
    
    Fiscal 2010
    
    
    $ Change
    
    
    % ChangeE-Commerce services:Net revenues
    
    $
    166.7
    
    
    $
    203.1
    
    
    $
    36.4
    
    
    
    22
    %
    
    $
    508.9
    
    
    $
    592.3
    
    
    $
    83.4
    
    
    
    16
    %Segment profit
    
    $
    5.6
    
    
    $
    5.6
    
    
    $
    
    
    
    
    0
    %
    
    $
    13.7
    
    
    $
    20.7
    
    
    $
    7.0
    
    
    
    51
    %Marketing services:Net revenues
    
    $
    31.0
    
    
    $
    50.8
    
    
    $
    19.8
    
    
    
    64
    %
    
    $
    84.7
    
    
    $
    133.2
    
    
    $
    48.5
    
    
    
    57
    %Segment profit
    
    $
    6.5
    
    
    $
    10.8
    
    
    $
    4.3
    
    
    
    66
    %
    
    $
    17.0
    
    
    $
    28.4
    
    
    $
    11.4
    
    
    
    67
    %Consumer engagement:Net revenues
    
    $
    
    
    
    $
    51.5
    
    
    $
    51.5
    
    
    
    100
    %
    
    $
    
    
    
    $
    147.8
    
    
    $
    147.8
    
    
    
    100
    %Segment loss
    
    $
    
    
    
    $
    (3.1
    )
    
    $
    (3.1
    )
    
    
    100
    %
    
    $
    
    
    
    $
    (6.7
    )
    
    $
    (6.7
    )
    
    
    100
    %Intersegment eliminations:Net revenues
    
    $
    (7.4
    )
    
    $
    (21.3
    )
    
    $
    (13.9
    )
    
    
    188
    %
    
    $
    (19.6
    )
    
    $
    (52.3
    )
    
    $
    (32.7
    )
    
    
    167
    %Segment profit
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    0
    %
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    0
    %Consolidated net revenues
    
    $
    190.3
    
    
    $
    284.1
    
    
    $
    93.8
    
    
    
    49
    %
    
    $
    574.0
    
    
    $
    821.0
    
    
    $
    247.0
    
    
    
    43
    %Consolidated segment profit
    
    $
    12.1
    
    
    $
    13.3
    
    
    $
    1.2
    
    
    
    10
    %
    
    $
    30.7
    
    
    $
    42.4
    
    
    $
    11.7
    
    
    
    38
    %Segment Margins:E-Commerce services
    
    
    3.4
    %
    
    
    2.8
    %
    
    
    
    
    
    
    
    
    
    
    2.7
    %
    
    
    3.5
    %Marketing services
    
    
    21.0
    %
    
    
    21.3
    %
    
    
    
    
    
    
    
    
    
    
    20.1
    %
    
    
    21.3
    %Consumer engagement
    
    NA
    
    
    
    -6.0
    %
    
    
    
    
    
    
    
    
    
    NA
    
    
    
    -4.5
    %
 E-Commerce Services Segment:
    23




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##### Table of Contents



Marketing Services Segment:
   Consumer Engagement Segment:
  Seasonality
  Liquidity and Capital Resources
 As ofJanuary 2,
    
    
    October 2,2010
    
    
    2010(in millions)Cash and cash equivalents
    
    $
    228.4
    
    
    $
    66.7Percentage of total assets
    
    
    21
    %
    
    
    7
    %
    Sources of Cash
   24




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##### Table of Contents



Uses of Cash
    Commitments and Contingencies
 Outlook and Guidance
 Outlook
      25




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##### Table of Contents



Guidance
  
    
    Net revenues are expected to be $1.35 billion.
 
    
    Income/loss from operations is expected to be between a loss of $1.3 million and income
of $0.7 million.
 
    
    Capital expenditures are expected to be between $65 million and $70 million.
  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.We maintain disclosure controls and
procedures designed to provide reasonable assurance that information required
to be disclosed in reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms and
accumulated and communicated to our management, including our chief executive
officer and chief financial officer, or persons performing similar functions,
as appropriate to allow timely decisions regarding required disclosure. Our management, with
the participation of our chief executive officer and our chief financial
officer, conducted an evaluation, as of the end of the period covered by this
report, of the effectiveness of our disclosure controls and procedures, as such
term is defined in Exchange Act Rule 13a-15(e).  Based on this
evaluation, our chief executive officer and our chief financial officer have
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures, as defined in Rule 13a-15(e), were
effective at the reasonable assurance level.  26




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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.
  
 ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   
 ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4:
  
 ITEM 5: OTHER INFORMATION.
   27




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##### Table of Contents



ITEM 6: EXHIBITS.
 3.1
    
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation of GSI Commerce, Inc. (filed
as Appendix B 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)10.1
    
    
    Form of Performance Restricted Stock Unit Award Issued to Michael Rubin Under the GSI Commerce, Inc. 2010
Equity Incentive Plan.10.2
    
    
    Amended and Restated Credit Agreement, dated as of March 24, 2010, by and among GSI Commerce Solutions,
Inc., the Guarantors named therein, the Lenders named therein, PNC Bank, National Association, as
administrative agent, and PNC Capital Markets LLC and Bank of America, N.A., as joint lead arrangers and
joint bookrunners.+10.3
    
    

Form
of Indemnification 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
 +
    
    Confidential treatment has been requested for certain portions of this exhibit. Omitted portions
have been filed separately with the Securities and Exchange Commission.  28




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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)  29