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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: February 13, 2007
(Date of earliest event reported)
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GSI COMMERCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-16611 04-2958132
(State or other (Commission (IRS Employer
jurisdiction of incorporation) File No.) Identification No.)
935 First Avenue, King of Prussia, PA 19406
(Address of principal executive offices and zip code)
(610) 265-3229
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On February 13, 2007, GSI Commerce, Inc. ("we" or the "Registrant") issued
a press release announcing our results for our 2006 fiscal fourth quarter and
year ended December 30, 2006 and certain other information. A copy of the press
release is furnished as part of this report and incorporated herein by
reference.
The press release (included as Exhibit 99.1) contains the non-GAAP measures
merchandise sales, adjusted EBITDA, non-GAAP net income and free cash flow. We
also discuss certain ratios that use those measures.
We use these non-GAAP financial measures for financial and operational
decision making and as a means to evaluate our performance. In our opinion,
these non-GAAP measures provide meaningful supplemental information regarding
our performance. We believe that both management and investors benefit from
referring to these non-GAAP financial measures in assessing our performance and
when planning, forecasting and analyzing future periods. These non-GAAP
financial measures also facilitate management's internal comparisons to our
historical performance and liquidity as well as comparisons to our competitors'
operating results. We believe these non-GAAP financial measures are useful to
investors both because (1) they allow for greater transparency with respect to
key metrics used by management in its financial and operational decision making
and (2) they are used by institutional investors and the analyst community to
help them analyze the health of our business.
Merchandise sales. We define merchandise sales as the retail value of all
sales transactions, inclusive of freight charges and net of allowances for
returns and discounts, which flow through our platform, whether or not we are
the seller of the merchandise or record the full amount of such sales on our
financial statements. We consider merchandise sales to be a useful metric for
management and investors because a significant portion of our sales and
marketing expenses, including fulfillment and customer service labor expense,
order processing costs such as credit card and bank processing fees and
organizational costs such as business management, are related to the amount of
sales made through our platform, whether or not we record the revenue from such
sales. As a result, we use this metric as part of our revenue and expense
forecasting process and for capacity planning purposes. We monitor this metric
on a daily basis and consider it to be a critical measure of the health of our
business.
Adjusted EBITDA. Beginning with this release, we are defining adjusted EBITDA
as income from operations excluding stock-based compensation and depreciation
and amortization expenses. Although we previously defined adjusted EBITDA by
reference to net income, there is no material difference in the resulting
adjusted EBITDA calculation. We consider adjusted EBITDA to be a useful metric
for management and investors because it excludes certain non-cash items. We
believe that given the recent adoption of SFAS 123R, it is difficult for
investors to evaluate our income from operations relative to prior periods
because our income from operations prior to fiscal 2006 calculated our
stock-based compensation expense in a manner differently than required under
SFAS 123R. Moreover, because of varying available valuation methodologies,
subjective assumptions and the variety of award types that companies can use
when adopting SFAS 123R, we believe that viewing income from operations
excluding stock-based compensation expense allows investors to make meaningful
comparisons between our operating performance and those of other businesses.
Because we are growing rapidly and operate in an emerging and rapidly changing
industry, we believe that our level of capital expenditures and consequently the
level of depreciation and amortization expense relative to our revenues could be
meaningfully greater today than it will be over time. As a result, we believe it
is useful supplemental information to view income from operations excluding
depreciation and amortization expense as it provides a potential indicator of
the future operating margin potential of the business.
Non-GAAP net income. We define non-GAAP net income as net income excluding
stock-based compensation expense, amortization of acquisition-related
intangibles, cumulative effect of change in accounting principle related to the
adoption of SFAS 123R and income tax benefits related to the release of the
company's valuation allowances. We believe it is useful to exclude stock-based
compensation expense from non-GAAP net income for the same reason we exclude it
from adjusted EBITDA. We believe it is useful to exclude amortization of
acquisition related intangibles because in our opinion the benefits of these
assets could exceed to amortization period and this supplemental view enables
management and investors to measure the business without this potential effect.
The gain we recorded from the cumulative effect of change in accounting
principle related to the adoption of SFAS 123R is an item we view as
non-recurring in nature. We believe it is useful to view net income without the
benefit of this non-recurring item. Because we generated significant net losses
prior to fiscal 2005, we have a large deferred tax asset that represents the
value to us of our future net operating loss carry forwards. Prior to fiscal
2006, we had fully reserved this asset because we lacked a track record of
profitability. In fiscal 2006, due to establishing a track record of
profitability, we reversed a portion of this reserve which resulted in a
non-cash benefit. We will continue to evaluate our profitability trends and
believe we may further release this reserve over time. Because this benefit is
non-cash, is difficult to forecast, was not recorded historically and is not
typically contained in the financial statements of other companies, we believe
that it is useful to view net income without giving effect to this benefit.
Free cash flow. We define free cash flow as net cash provided by operating
activities minus capital expenditures, including capitalized software
development. We consider free cash flow to be a liquidity measure that provides
useful information to management and investors about the amount of cash
generated by the business that, after the acquisition of property and equipment,
including information technology infrastructure, can be used for strategic
opportunities, including investing in the business, making strategic
acquisitions and strengthening the balance sheet. Analysis of free cash flow
also facilitates management's comparisons of our operating results to
competitors' operating results. A limitation of using free cash flow as a means
for evaluating our performance is that free cash flow reflects changes in
working capital which is impacted by short-term changes in cash flow and the
seasonality of our business which may not be indicative of long-term
performance. Another limitation of free cash flow is that it excludes fixed
assets purchased and placed in service but not paid for during the applicable
period. Our management compensates for this limitation by providing information
about capital expenditures on the face of the cash flow statement in
supplemental disclosures in our Forms 10-K and 10-Q.
These financial measures should be considered in addition to, and not as a
substitute for, or superior to, other measures of financial performance prepared
in accordance with GAAP. The non-GAAP financial measures included in the press
release and to be included the conference call have been reconciled to the
nearest GAAP measure as is required under Securities and Exchange Commission
rules.
As used herein, "GAAP" refers to accounting principles generally accepted in
the United States.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
99.1 Press Release, dated February 13, 2007
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GSI COMMERCE, INC.
By: /s/ Michael G. Rubin
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Michael G. Rubin
Chairman and Chief Executive
Officer
Dated: February 13, 2007
Exhibit Index
Exhibit No. Description
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99.1 Press Release, dated February 13, 2007