GSI COMMERCE INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED OCTOBER 2, 2004.

¨	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.

(Exact name of registrant as specified in its charter)

Delaware

04-2958132

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)


1075 First Avenue, King of Prussia, PA		19406
(Address of principal executive offices)		(Zip Code)

610-265-3229

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 1, 2004:


Common Stock, $.01 par value		41,219,632
(Title of each class)		(Number of Shares)

FORM 10-Q

FOR THE QUARTER ENDED OCTOBER 2, 2004

TABLE OF CONTENTS


		Page
PART I— FINANCIAL INFORMATION

Item 1. Financial Statements:
	Condensed Consolidated Balance Sheets as of January 3, 2004 and October 2, 2004 (Unaudited)	1
	Condensed Consolidated Statements of Operations for the three- and nine-month periods ended September 27, 2003 and October 2, 2004 (Unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 27, 2003 and October 2, 2004 (Unaudited)	3
	Notes to Condensed Consolidated Financial Statements (Unaudited)	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3. Quantitative and Qualitative Disclosures About Market Risk		32
Item 4. Controls and Procedures		32

PART II— OTHER INFORMATION

Item 1. Legal Proceedings		33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		33
Item 3. Defaults Upon Senior Securities		33
Item 4. Submission of Matters to a Vote of Security Holders		33
Item 5. Other Information		34
Item 6. Exhibits		34

SIGNATURES		34

For all years prior to 1999, our fiscal year ended on December 31. Effective for 1999, we changed our fiscal year from the last day of December to the Saturday nearest the last day of December. Accordingly, references to fiscal 1999, fiscal 2000, fiscal 2001, fiscal 2002, fiscal 2003 and fiscal 2004 refer to the years ended January 1, 2000, December 30, 2000, December 29, 2001, December 28, 2002, January 3, 2004 and the year ending January 1, 2005.

Although we refer to the retailers, branded manufacturers, entertainment companies and professional sports organizations for which we develop and operate e-commerce businesses as our “partners,” we do not act as an agent or legal representative for any of our partners. We do not have the power or authority to legally bind any of our partners. Similarly, our partners do not have the power or authority to legally bind us. In addition, we do not have the types of liabilities for our partners that a general partner of a partnership would have.

Certain financial information is presented on a rounded basis, which may cause minor differences.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GSI COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	January 3, 2004			October 2, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	57,558		$	28,732
Marketable securities		11,912			16,748
Accounts receivable, net of allowance of $709 and $714, respectively		4,898			9,482
Inventory		22,910			27,304
Current portion – notes receivable		1,377			—
Prepaid expenses and other current assets		1,848			1,980

Total current assets		100,503			84,246
Property and equipment, net		44,840			66,495
Goodwill, net		13,453			13,453
Notes receivable		2,356			—
Other equity investments		2,159			2,847
Other assets, net of accumulated amortization of $2,644 and $3,734, respectively		12,272			11,385

Total assets	$	175,583		$	178,426

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	27,677		$	27,568
Accrued expenses and other		22,538			23,161
Deferred revenue		14,998			10,958
Current portion – long-term debt and other		—			995

Total current liabilities		65,213			62,682
Long-term debt and other		—			13,590
Mandatorily redeemable preferred stock, Series A, $0.01 par value, 10,000 shares authorized; 0 shares issued and outstanding as of January 3, 2004 and October 2, 2004, respectively		—			—

Total liabilities		65,213			76,272
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 4,990,000 shares authorized; 0 shares issued and outstanding as of January 3, 2004 and October 2, 2004, respectively		—			—
Common stock, $0.01 par value, 90,000,000 shares authorized; 40,781,036 and 41,194,664 shares issued as of January 3, 2004 and October 2, 2004, respectively; 40,779,826 and 41,193,454 shares outstanding as of January 3, 2004 and October 2, 2004, respectively		408			412
Additional paid in capital		287,571			289,644
Accumulated other comprehensive loss		—			(72	)
Accumulated deficit		(177,609	)		(187,830	)

		110,370			102,154
Less: Treasury stock, at par		—			—

Total stockholders’ equity		110,370			102,154

Total liabilities and stockholders’ equity	$	175,583		$	178,426

The accompanying notes are an integral part of these condensed consolidated financial statements.

GSI COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 27, 2003			October 2, 2004			September 27, 2003			October 2, 2004
Revenues:
Net revenues from product sales	$	42,521		$	55,873		$	132,416		$	165,882
Service fee revenues		4,962			12,715			14,294			33,663

Net revenues		47,483			68,588			146,710			199,545
Cost of revenues from product sales		30,778			42,171			95,938			123,243

Gross profit		16,705			26,417			50,772			76,302

Operating expenses:
Sales and marketing, exclusive of $419, $388, $927 and $1,077 reported below as stock-based compensation, respectively		12,107			16,818			36,326			51,054
Product development, exclusive of $38, $1, $38 and $3 reported below as stock-based compensation, respectively		3,542			5,137			10,659			14,118
General and administrative, exclusive of $171, $1, $355 and $90 reported below as stock-based compensation, respectively		3,078			4,499			9,616			12,794
Restructuring costs related to Ashford.com		19			—			19			—
Stock-based compensation		628			390			1,320			1,170
Depreciation and amortization		3,119			2,733			8,551			7,978

Total operating expenses		22,493			29,577			66,491			87,114

Other (income) expense:
Other expense		—			66			—			66
Interest expense		—			244			—			298
Interest income		(243	)		(423	)		(914	)		(955	)

Total other (income) expense		(243	)		(113	)		(914	)		(591	)

Net loss	$	(5,545	)	$	(3,047	)	$	(14,805	)	$	(10,221	)

Losses per share—basic and diluted:
Net loss	$	(0.14	)	$	(0.07	)	$	(0.38	)	$	(0.25	)

Weighted average shares outstanding—basic and diluted		40,109			41,081			39,243			40,980

The accompanying notes are an integral part of these condensed consolidated financial statements.

GSI COMMERCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended
	September 27, 2003			October 2, 2004
Cash Flows from Operating Activities:
Net loss	$	(14,805	)	$	(10,221	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		8,551			7,978
Stock-based compensation		1,320			1,170
Gain on exchange of note receivable		—			(6	)
Changes in operating assets and liabilities:
Accounts receivable, net		340			(4,584	)
Inventory		1,954			(4,394	)
Prepaid expenses and other current assets		206			(30	)
Notes receivable		(163	)		(195	)
Other assets, net		—			(204	)
Accounts payable and accrued expenses and other		(22,774	)		514
Deferred revenue		807			(4,040	)

Net cash used in operating activities		(24,564	)		(14,012	)

Cash Flows from Investing Activities:
Acquisition of property and equipment, net		(5,129	)		(28,105	)
Payments received on notes receivable		675			3,246
Purchases of marketable securities		(10,990	)		(7,513	)
Sales of marketable securities		12,475			2,605
Sales of short-term investments		2,280			—

Net cash used in investing activities		(689	)		(29,767	)

Cash Flows from Financing Activities:
Repayments of capital lease obligations		(78	)		—
Proceeds from mortgage note		—			13,000
Repayments of mortgage note		—			(20	)
Proceeds from sales of common stock		211			—
Proceeds from exercises of common stock options

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