Table of Contents
SECURITIES AND EXCHANGE COMMISSION
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) |
Large accelerated filero | Accelerated filerþ | Non-accelerated filero(Do not check if a smaller reporting company) | Smaller reporting companyo |
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 2, 2010
INDEX
Page | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
20 | ||||||||
26 | ||||||||
26 | ||||||||
27 | ||||||||
27 | ||||||||
27 | ||||||||
27 | ||||||||
27 | ||||||||
27 | ||||||||
28 | ||||||||
29 | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 10.2 | ||||||||
Exhibit 10.3 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 |
References To | Refer to the Years Ended/Ending | |
Fiscal 2009 | January 2, 2010 | |
Fiscal 2010 | January 1, 2011 | |
Fiscal 2011 | December 31, 2011 | |
Fiscal 2012 | December 29, 2012 | |
Fiscal 2013 | December 28, 2013 | |
Fiscal 2014 | January 3, 2015 |
2
Table of Contents
ITEM 1: | FINANCIAL STATEMENTS |
(in thousands, except per share data)
(unaudited)
January 2, | October 2, | |||||||
2010 | 2010 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 228,430 | $ | 66,709 | ||||
Accounts receivable, net | 70,582 | 76,958 | ||||||
Inventory | 55,678 | 68,943 | ||||||
Deferred tax assets | 12,347 | 22,580 | ||||||
Prepaid expenses and other current assets | 13,187 | 16,919 | ||||||
Total current assets | 380,224 | 252,109 | ||||||
Property and equipment, net | 163,329 | 180,363 | ||||||
Goodwill | 373,003 | 396,041 | ||||||
Intangible assets, net | 132,875 | 148,959 | ||||||
Long-term deferred tax assets | — | 10,886 | ||||||
Other assets, net | 12,417 | 31,253 | ||||||
Total assets | $ | 1,061,848 | $ | 1,019,611 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 126,914 | $ | 77,991 | ||||
Accrued expenses and other | 150,173 | 123,155 | ||||||
Deferred revenue | 20,645 | 20,724 | ||||||
Convertible notes | 55,443 | — | ||||||
Current portion — long-term debt | 5,260 | 8,054 | ||||||
Total current liabilities | 358,435 | 229,924 | ||||||
Convertible notes | 116,948 | 121,747 | ||||||
Long-term debt | 28,142 | 53,378 | ||||||
Deferred acquisition payments | 63,763 | 68,935 | ||||||
Deferred tax liabilities | 8,534 | — | ||||||
Deferred revenue and other long-term liabilities | 9,686 | 9,892 | ||||||
Total liabilities | 585,508 | 483,876 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.01 par value: | ||||||||
Authorized shares — 5,000 | ||||||||
Issued and outstanding shares — none | — | — | ||||||
Common stock, $0.01 par value: | ||||||||
Authorized shares — 90,000 and 180,000 | ||||||||
Issued and outstanding shares — 60,033 and 66,486 | 600 | 665 | ||||||
Additional paid in capital | 642,852 | 753,771 | ||||||
Accumulated other comprehensive loss | (1,498 | ) | (653 | ) | ||||
Accumulated deficit | (165,614 | ) | (218,048 | ) | ||||
Total stockholders’ equity | 476,340 | 535,735 | ||||||
Total liabilities and stockholders’ equity | $ | 1,061,848 | $ | 1,019,611 | ||||
3
Table of Contents
(in thousands, except per share data)
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
October 3, | October 2, | October 3, | October 2, | |||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Revenues: | ||||||||||||||||
Net revenues from product sales | $ | 90,767 | $ | 153,238 | $ | 288,150 | $ | 458,667 | ||||||||
Service fee revenues | 99,544 | 130,900 | 285,817 | 362,291 | ||||||||||||
Net revenues | 190,311 | 284,138 | 573,967 | 820,958 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenues from product sales | 67,548 | 113,701 | 217,345 | 338,627 | ||||||||||||
Marketing | 9,087 | 11,394 | 27,002 | 29,903 | ||||||||||||
Account management and operations | 60,173 | 83,500 | 176,969 | 240,489 | ||||||||||||
Product development | 28,396 | 42,410 | 84,871 | 118,789 | ||||||||||||
General and administrative | 19,365 | 29,309 | 58,169 | 81,396 | ||||||||||||
Depreciation and amortization | 15,655 | 21,971 | 46,335 | 61,306 | ||||||||||||
Changes in fair value of deferred acquisition payments | — | 2,074 | — | 6,222 | ||||||||||||
Total costs and expenses | 200,224 | 304,359 | 610,691 | 876,732 | ||||||||||||
Loss from operations | (9,913 | ) | (20,221 | ) | (36,724 | ) | (55,774 | ) | ||||||||
Other (income) expense: | ||||||||||||||||
Interest expense | 4,897 | 3,648 | 14,452 | 13,595 | ||||||||||||
Interest income | (99 | ) | (10 | ) | (304 | ) | (316 | ) | ||||||||
Other (income) expense | (32 | ) | (506 | ) | (197 | ) | 906 | |||||||||
Loss on investments | — | 736 | — | 736 | ||||||||||||
Total other expense | 4,766 | 3,868 | 13,951 | 14,921 | ||||||||||||
Loss 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
Table of Contents
(in thousands)
(unaudited)
Nine Months Ended | ||||||||
October 3, | October 2, | |||||||
2009 | 2010 | |||||||
Cash 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 | 46,538 | ||||||
Amortization | 7,479 | 14,768 | ||||||
Amortization of discount on convertible notes | 7,765 | 6,824 | ||||||
Changes in fair value of deferred acquisition payments | — | 6,222 | ||||||
Stock-based compensation | 18,722 | 21,128 | ||||||
Foreign currency transaction losses | (184 | ) | (909 | ) | ||||
Loss on investments | — | 736 | ||||||
Gain 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 | 744 | ||||||
Accounts 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 | — | 25,000 | ||||||
Proceeds 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 | — | 978 | ||||||
Proceeds from exercise of common stock options | 2,065 | 14,693 | ||||||
Net cash provided by financing activities | 86,904 | 35,193 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 340 | 714 | ||||||
Net increase (decrease) in cash and cash equivalents | 4,958 | (161,721 | ) | |||||
Cash and cash equivalents, beginning of period | 130,315 | 228,430 | ||||||
Cash and cash equivalents, end of period | $ | 135,273 | $ | 66,709 | ||||
Supplemental Cash Flow Information: | ||||||||
Cash paid during the period for interest | $ | 4,672 | $ | 5,316 | ||||
Cash paid during the period for income taxes | 2,620 | 739 | ||||||
Noncash Investing and Financing Activities: | ||||||||
Accrual for purchases of property and equipment | 3,196 | 2,636 | ||||||
Equipment financed under capital lease | 257 | 7,482 |
5
Table of Contents
(in thousands, except per share data)
(unaudited)
6
Table of Contents
(in thousands, except per share data)
(unaudited)
Effective Date for | ||||||||
Subject | Date Issued | Summary | Effect of Adoption | The Company | ||||
Multiple 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 |
Fair Value Measurements on January 2, 2010 | ||||||||||||
Quoted Prices in | ||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||
Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||
(Level 1) | (Level 2) | (Level 3) | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents:(1) | ||||||||||||
Money market mutual funds | $ | 13,606 | $ | — | $ | — | ||||||
Liabilities | ||||||||||||
Deferred acquisition payments(2) | $ | — | $ | — | $ | 60,963 |
Fair Value Measurements on October 2, 2010 | ||||||||||||
Quoted Prices in | ||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||
Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||
(Level 1) | (Level 2) | (Level 3) | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents:(1) | ||||||||||||
Money market mutual funds | $ | — | $ | — | $ | — | ||||||
Liabilities | ||||||||||||
Deferred 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
Table of Contents
(in thousands, except per share data)
(unaudited)
Three Months Ended | Nine Months Ended | |||||||
October 2, 2010 | October 2, 2010 | |||||||
Balance, beginning of period | $ | 65,111 | $ | 60,963 | ||||
Changes in fair value of deferred acquisition payments included in the Company’s Condensed Consolidated Statements of Operations | 2,074 | 6,222 | ||||||
Balance, end of period | $ | 67,185 | $ | 67,185 | ||||
January 2, | October 2, | |||||||
2010 | 2010 | |||||||
Computer hardware and software | $ | 231,954 | $ | 282,365 | ||||
Building and building improvements | 44,822 | 44,977 | ||||||
Furniture, warehouse and office equipment, and other | 45,722 | 47,570 | ||||||
Land | 7,889 | 7,889 | ||||||
Leasehold improvements | 8,847 | 11,406 | ||||||
Capitalized leases | 29,132 | 36,955 | ||||||
368,366 | 431,162 | |||||||
Less: Accumulated depreciation | (205,037 | ) | (250,799 | ) | ||||
Property and equipment, net | $ | 163,329 | $ | 180,363 | ||||
8
Table of Contents
(in thousands, except per share data)
(unaudited)
E-Commerce | Marketing | Consumer | ||||||||||||||
Services | Services | Engagement | Consolidated | |||||||||||||
January 2, 2010 | $ | 83,090 | $ | 117,025 | $ | 172,888 | $ | 373,003 | ||||||||
Acquisitions | 2,556 | 20,708 | — | 23,264 | ||||||||||||
Foreign currency translation | (226 | ) | — | — | (226 | ) | ||||||||||
October 2, 2010 | $ | 85,420 | $ | 137,733 | $ | 172,888 | $ | 396,041 | ||||||||
Weighted- | ||||||||||||
January 2, | October 2, | Average | ||||||||||
2010 | 2010 | Life | ||||||||||
(in years) | ||||||||||||
Gross carrying value of intangible assets subject to amortization: | ||||||||||||
Customer contracts | $ | 41,190 | $ | 56,148 | 2.5 | |||||||
Member relationships | 22,200 | 22,200 | 2.6 | |||||||||
Supplier relationships | 11,186 | 11,186 | 3.4 | |||||||||
Non-compete agreements | 4,079 | 4,481 | 3.0 | |||||||||
Purchased technology | 4,805 | 13,723 | 3.6 | |||||||||
Trade names | 840 | 840 | 1.5 | |||||||||
Foreign currency translation | (482 | ) | (528 | ) | ||||||||
83,818 | 108,050 | 2.7 | ||||||||||
Accumulated 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 | 26,761 | ||||||||||
Member relationships | 21,711 | 17,091 | ||||||||||
Supplier relationships | 11,186 | 10,478 | ||||||||||
Non-compete agreements | 1,191 | 518 | ||||||||||
Purchased technology | 2,377 | 9,576 | ||||||||||
Trade names | 308 | 170 | ||||||||||
Foreign currency translation | (410 | ) | (439 | ) | ||||||||
Total intangible assets subject to amortization, net | 54,646 | 64,155 | ||||||||||
Indefinite life intangible assets: | ||||||||||||
Trade names | 78,229 | 84,804 | ||||||||||
Total intangible assets | $ | 132,875 | $ | 148,959 | ||||||||
9
Table of Contents
(in thousands, except per share data)
(unaudited)
Fiscal 2010 | $ | 5,358 | ||
Fiscal 2011 | 20,937 | |||
Fiscal 2012 | 16,122 | |||
Fiscal 2013 | 12,452 | |||
Fiscal 2014 | 8,044 | |||
Thereafter | 1,242 | |||
$ | 64,155 | |||
Total current assets | $ | 2,472 | ||
Property, plant, and equipment | 949 | |||
Goodwill | 11,563 | |||
Indentifiable intangible assets: | ||||
Customer relationships | 8,611 | |||
Technology | 2,551 | |||
Trade name | 1,710 | |||
Total assets acquired | 27,856 | |||
Total current liabilities | (1,476 | ) | ||
Long-term deferred tax liabilities | (4,180 | ) | ||
Total liabilities assumed | (5,656 | ) | ||
Net assets acquired | $ | 22,200 | ||
10
Table of Contents
(in thousands, except per share data)
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
October 3, | October 2, | October 3, | October 2, | |||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Net revenues | $ | 226,341 | $ | 284,138 | $ | 675,934 | $ | 826,621 | ||||||||
Net loss | $ | (14,826 | ) | $ | (18,578 | ) | $ | (48,089 | ) | $ | (52,722 | ) |
11
Table of Contents
(in thousands, except per share data)
(unaudited)
January 2, | October 2, | |||||||
2010 | 2010 | |||||||
Convertible notes | $ | 172,391 | $ | 121,747 | ||||
Notes payable(1) | 12,479 | 12,334 | ||||||
Capital lease obligations | 20,923 | 24,098 | ||||||
Line of credit | — | 25,000 | ||||||
Total debt | 205,793 | 183,179 | ||||||
Less: 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. |
As of | As of | |||||||
January 2, 2010 | October 2, 2010 | |||||||
Carrying 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 Ended | |||||||||||||||
October 3, | October 2, | October 3, | October 2, | |||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Amortization of the discount on the liability component | $ | 1,161 | $ | — | $ | 3,354 | $ | 2,053 | ||||||||
Contract interest coupon | 431 | — | 1,294 | 719 | ||||||||||||
Amortization of the liability component of the issue costs | 101 | — | 292 | 173 | ||||||||||||
Interest expense | $ | 1,693 | $ | — | $ | 4,940 | $ | 2,945 | ||||||||
12
Table of Contents
(in thousands, except per share data)
(unaudited)
As of | As of | |||||||
January 2, 2010 | October 2, 2010 | |||||||
Carrying amount of the equity component | $ | 26,783 | $ | 26,783 | ||||
Principal amount of the liability component | $ | 150,000 | $ | 150,000 | ||||
Unamortized discount of liability component | $ | 33,052 | $ | 28,253 | ||||
Net carrying amount of liability component | $ | 116,948 | $ | 121,747 | ||||
Remaining amortization period of discount | 44 months | |||||||
Effective interest rate on liability component | 8.60 | % |
Three Months Ended | Nine Months Ended | |||||||||||||||
October 3, | October 2, | October 3, | October 2, | |||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Amortization of the discount on the liability component | $ | 1,512 | $ | 1,645 | $ | 4,411 | $ | 4,799 | ||||||||
Contract interest coupon | 937 | 937 | 2,812 | 2,812 | ||||||||||||
Amortization of the liability component of the issue costs | 116 | 122 | 342 | 360 | ||||||||||||
Interest expense | $ | 2,565 | $ | 2,704 | $ | 7,565 | $ | 7,971 | ||||||||
13
Table of Contents
(in thousands, except per share data)
(unaudited)
Payments due by fiscal year | ||||||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | ||||||||||||||||||||||
Operating lease obligations(1) | $ | 5,976 | $ | 21,175 | $ | 20,701 | $ | 16,740 | $ | 13,257 | $ | 21,356 | $ | 99,205 | ||||||||||||||
Marketing commitments(1) | 344 | 1,702 | 2,570 | 2,570 | 2,570 | — | 9,756 | |||||||||||||||||||||
Client revenue share payments(1) | 3,714 | 21,400 | 22,158 | 23,368 | 15,991 | 33,269 | 119,900 | |||||||||||||||||||||
Debt interest(1) | 2,664 | 4,509 | 4,498 | 4,480 | 1,921 | — | 18,072 | |||||||||||||||||||||
Debt obligations | 50 | 209 | 563 | 25,237 | 161,275 | — | 187,334 | |||||||||||||||||||||
Capital lease obligations, including interest(2) | 2,145 | 9,412 | 8,171 | 4,883 | 1,800 | — | 26,411 | |||||||||||||||||||||
Deferred acquisition payments(3) | — | 1,500 | 750 | 1,000 | — | — | 3,250 | |||||||||||||||||||||
Total | $ | 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
Table of Contents
(in thousands, except per share data)
(unaudited)
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Number of | Average | Remaining | Aggregate | |||||||||||||
Shares | Exercise | Contractual | Intrinsic | |||||||||||||
(in thousands) | Price | Life (in years) | Value | |||||||||||||
Outstanding at January 2, 2010 | 3,252 | $ | 9.88 | |||||||||||||
Granted | — | $ | — | |||||||||||||
Exercised | (1,651 | ) | $ | 8.90 | ||||||||||||
Forfeited/Cancelled | (2 | ) | $ | 12.16 | ||||||||||||
Outstanding at October 2, 2010 | 1,599 | $ | 10.89 | 2.81 | $ | 21,588 | ||||||||||
Vested and expected to vest at October 2, 2010 | 1,599 | $ | 10.89 | 2.81 | $ | 21,588 | ||||||||||
Exercisable at October 2, 2010 | 1,599 | $ | 10.89 | 2.81 | $ | 21,588 | ||||||||||
Weighted | ||||||||
Number of | Average | |||||||
Shares | Grant Date | |||||||
(in thousands) | Fair Value | |||||||
Nonvested shares at January 2, 2010 | 4,294 | $ | 16.64 | |||||
Granted | 1,402 | $ | 27.19 | |||||
Vested | (1,690 | ) | $ | 14.25 | ||||
Forfeited/Cancelled | (284 | ) | $ | 16.78 | ||||
Nonvested shares at October 2, 2010 | 3,722 | $ | 21.69 | |||||
15
Table of Contents
(in thousands, except per share data)
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
October 3, | October 2, | October 3, | October 2, | |||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Includes stock-based compensation as follows: | ||||||||||||||||
Account management and operations | $ | 2,033 | $ | 2,162 | $ | 6,684 | $ | 8,030 | ||||||||
Product development | $ | 1,207 | $ | 1,603 | $ | 3,843 | $ | 5,231 | ||||||||
General and administrative | $ | 2,436 | $ | 2,693 | $ | 8,195 | $ | 7,867 |
October 3, | October 2, | |||||||
2009 | 2010 | |||||||
Stock units and awards | 4,379 | 3,722 | ||||||
Stock options and warrants | 3,565 | 1,599 | ||||||
Convertible notes | 8,229 | 5,000 | ||||||
16,173 | 10,321 | |||||||
16
Table of Contents
(in thousands, except per share data)
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
October 3, | October 2, | October 3, | October 2, | |||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Net loss | $ | (9,406 | ) | $ | (18,578 | ) | $ | (34,629 | ) | $ | (52,434 | ) | ||||
Other comprehensive loss: | ||||||||||||||||
Cumulative translation adjustment | 153 | 2,354 | 935 | 845 | ||||||||||||
Comprehensive loss | $ | (9,253 | ) | $ | (16,224 | ) | $ | (33,694 | ) | $ | (51,589 | ) | ||||
17
Table of Contents
(in thousands, except per share data)
(unaudited)
Three Months Ended October 3, 2009 | ||||||||||||||||||||
E-Commerce | Marketing | Consumer | Intersegment | |||||||||||||||||
Services | Services | Engagement | Eliminations | Consolidated | ||||||||||||||||
Net revenues | $ | 166,641 | $ | 31,038 | $ | — | $ | (7,368 | ) | $ | 190,311 | |||||||||
Segment costs and expenses | 161,003 | 24,535 | — | (7,368 | ) | 178,170 | ||||||||||||||
Segment profit | 5,638 | 6,503 | — | — | 12,141 | |||||||||||||||
Acquisition related integration, transaction, due diligence expenses, non-cash inventory valuation adjustments, and the cash portion of deferred acquisition payments recorded as compensation expense | 723 | |||||||||||||||||||
Depreciation and amortization | 15,655 | |||||||||||||||||||
Changes in fair value of deferred acquisition payments | — | |||||||||||||||||||
Stock-based compensation expense | 5,676 | |||||||||||||||||||
Loss from operations | (9,913 | ) | ||||||||||||||||||
Interest expense | 4,897 | |||||||||||||||||||
Interest income | (99 | ) | ||||||||||||||||||
Other expense, net | (32 | ) | ||||||||||||||||||
Loss before income taxes | $ | (14,679 | ) | |||||||||||||||||
Three Months Ended October 2, 2010 | ||||||||||||||||||||
E-Commerce | Marketing | Consumer | Intersegment | |||||||||||||||||
Services | Services | Engagement | Eliminations | Consolidated | ||||||||||||||||
Net revenues | $ | 203,067 | $ | 50,838 | $ | 51,524 | $ | (21,291 | ) | $ | 284,138 | |||||||||
Segment costs and expenses | 197,480 | 40,037 | 54,650 | (21,291 | ) | 270,876 | ||||||||||||||
Segment profit (loss) | 5,587 | 10,801 | (3,126 | ) | — | 13,262 | ||||||||||||||
Acquisition related integration, transaction, due diligence expenses, non-cash inventory valuation adjustments, and the cash portion of deferred acquisition payments recorded as compensation expense | 2,980 | |||||||||||||||||||
Depreciation and amortization | 21,971 | |||||||||||||||||||
Changes in fair value of deferred acquisition payments | 2,074 | |||||||||||||||||||
Stock-based compensation expense | 6,458 | |||||||||||||||||||
Loss from operations | (20,221 | ) | ||||||||||||||||||
Interest expense | 3,648 | |||||||||||||||||||
Interest income | (10 | ) | ||||||||||||||||||
Other expense, net | (506 | ) | ||||||||||||||||||
Loss on investments | 736 | |||||||||||||||||||
Loss before income taxes | $ | (24,089 | ) | |||||||||||||||||
18
Table of Contents
(in thousands, except per share data)
(unaudited)
Nine Months Ended October 3, 2009 | ||||||||||||||||||||
E-Commerce | Marketing | Consumer | Intersegment | |||||||||||||||||
Services | Services | Engagement | Eliminations | Consolidated | ||||||||||||||||
Net revenues | $ | 508,921 | $ | 84,646 | $ | — | $ | (19,600 | ) | $ | 573,967 | |||||||||
Segment costs and expenses | 495,245 | 67,642 | — | (19,600 | ) | 543,287 | ||||||||||||||
Segment profit | 13,676 | 17,004 | — | — | 30,680 | |||||||||||||||
Acquisition related integration, transaction, due diligence expenses, non-cash inventory valuation adjustments, and the cash portion of deferred acquisition payments recorded as compensation expense | 2,347 | |||||||||||||||||||
Depreciation and amortization | 46,335 | |||||||||||||||||||
Changes in fair value of deferred acquisition payments | — | |||||||||||||||||||
Stock-based compensation expense | 18,722 | |||||||||||||||||||
Loss from operations | (36,724 | ) | ||||||||||||||||||
Interest expense | 14,452 | |||||||||||||||||||
Interest income | (304 | ) | ||||||||||||||||||
Other expense, net | (197 | ) | ||||||||||||||||||
Loss before income taxes | $ | (50,675 | ) | |||||||||||||||||
Nine Months Ended October 2, 2010 | ||||||||||||||||||||
E-Commerce | Marketing | Consumer | Intersegment | |||||||||||||||||
Services | Services | Engagement | Eliminations | Consolidated | ||||||||||||||||
Net revenues | $ | 592,311 | $ | 133,249 | $ | 147,663 | $ | (52,265 | ) | $ | 820,958 | |||||||||
Segment costs and expenses | 571,603 | 104,812 | 154,353 | (52,265 | ) | 778,503 | ||||||||||||||
Segment profit (loss) | 20,708 | 28,437 | (6,690 | ) | — | 42,455 | ||||||||||||||
Acquisition related integration, transaction, due diligence expenses, non-cash inventory valuation adjustments, and the cash portion of deferred acquisition payments recorded as compensation expense | 9,573 | |||||||||||||||||||
Depreciation and amortization | 61,306 | |||||||||||||||||||
Changes in fair value of deferred acquisition payments | 6,222 | |||||||||||||||||||
Stock-based compensation expense | 21,128 | |||||||||||||||||||
Loss from operations | (55,774 | ) | ||||||||||||||||||
Interest expense | 13,595 | |||||||||||||||||||
Interest income | (316 | ) | ||||||||||||||||||
Other expense, net | 906 | |||||||||||||||||||
Loss on investments | 736 | |||||||||||||||||||
Loss before income taxes | $ | (70,695 | ) | |||||||||||||||||
19
Table of Contents
• | 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
Table of Contents
Third Quarter | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||||||||||||||||||||||||||||
Fiscal | Net | Fiscal | Net | Increase/ | Fiscal | Net | Fiscal | Net | Increase/ | |||||||||||||||||||||||||||||||||||||||
2009 | Revenues | 2010 | Revenues | (Decrease) | % Change | 2009 | Revenues | 2010 | Revenues | (Decrease) | % Change | |||||||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||
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 | % | 6.2 | ||||||||||||||||||||||||||||||||||
Total 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 | % | ||||||||||||||||||
Third Quarter | Nine Months Ended | |||||||||||||||
October 3, 2009 | October 2, 2010 | October 3, 2009 | October 2, 2010 | |||||||||||||
Cost of revenues from product sales | $ | 67.5 | $ | 113.7 | $ | 217.3 | $ | 338.7 | ||||||||
As a percentage of net revenues from product sales | 74 | % | 74 | % | 75 | % | 74 | % |
21
Table of Contents
Third Quarter | Nine Months Ended | |||||||||||||||||||||||
October 3, 2009 | October 2, 2010 | Change | October 3, 2009 | October 2, 2010 | Change | |||||||||||||||||||
Interest 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 | 1.1 | |||||||||||||||
Loss on investments | — | 0.7 | 0.7 | — | 0.7 | 0.7 | ||||||||||||||||||
Total other expense | $ | 4.8 | $ | 3.9 | $ | (0.9 | ) | $ | 14.0 | $ | 14.9 | $ | 0.9 | |||||||||||
22
Table of Contents
Third Quarter | Nine Months Ended | |||||||||||||||||||||||||||||||
Fiscal 2009 | Fiscal 2010 | $ Change | % Change | Fiscal 2009 | Fiscal 2010 | $ Change | % Change | |||||||||||||||||||||||||
E-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 | % | ||||||||||||||||||||||||||
23
Table of Contents
As of | ||||||||
January 2, | October 2, | |||||||
2010 | 2010 | |||||||
(in millions) | ||||||||
Cash and cash equivalents | $ | 228.4 | $ | 66.7 | ||||
Percentage of total assets | 21 | % | 7 | % |
24
Table of Contents
25
Table of Contents
• | 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. |
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
Table of Contents
27
Table of Contents
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 Agreement | |||
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 | |||
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 | |||
32.1 | 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
Table of Contents
GSI COMMERCE, INC. | ||||
By: | /s/ MICHAEL G. RUBIN | |||
Michael G. Rubin | ||||
Chairman, President and Chief Executive Officer | ||||
By: | /s/ MICHAEL R. CONN | |||
Michael R. Conn | ||||
Executive Vice President, Finance and Chief Financial Officer (principal financial officer & principal accounting officer) | ||||
29