GSI Commerce has postponed the release of its fiscal 2005 third quarter operating results and conference call, but did issue preliminary estimated fiscal third quarter results and issued updated 2005 fiscal year guidance. The company tentatively is targeting to release its full fiscal 2005 third quarter operating results and hold a conference call on or before Nov. 10.

GSI Commerce postponed the release of its third quarter operating results to allow for more time to complete the evaluation of two issues.

First, in August 2005, GSI Commerce's internal auditor and GSI Commerce's controller found potential discrepancies with certain credits, amounting to approximately $283,000, that were recorded as part of the company's fiscal fourth quarter 2004 results, some portion of which potentially should have been recorded in fiscal year 2005. The company alerted both its audit committee and independent auditors of the potential discrepancies. The audit committee retained independent counsel and commenced an independent investigation. The investigation covers the specific credits initially identified as well as other entries recorded during the same period.

Second, during the third quarter of fiscal 2005, the company determined that a systemic control on which the company relied to reconcile its accounts payable balance had failed. The result meant the company could not validate its general ledger balance for the account. Subsequently, the company changed to a manual control to validate this account. The failure of the systemic control may be a material weakness and the change to a manual control may have materially affected GSI Commerce's internal control over financial reporting. Management has developed a plan to address the failure of this systemic control. Based on the manual calculation, the company currently estimates it may need to record a charge of as much as $300,000, or a gain of as much as $1.2 million. However, this range could change, plus or minus on either side, based on the results of the ongoing review. The company is evaluating whether an adjustment, if any, is required.

As a result of these two issues, GSI Commerce has not finalized its fiscal 2005 third quarter operating results. While the company is not announcing its final fiscal 2005 third quarter results at this time, it is issuing the following preliminary estimated results. The estimated results do not reflect any adjustments that may be made as a result of the issues discussed above in this news release. The actual results that the company reports could differ materially from the following estimated results and the estimated results should only be considered an indication of what management believes at this time.

Net revenues for the fiscal 2005 third quarter are expected to be approximately $84 million to $85 million compared to the company's guidance issued on July 27 of $79 million to $84 million. Net loss is expected to be approximately $4.2 million to $4.5 million, or a loss of approximately $0.10 per share compared to the company's guidance issued on July 27 of a net loss of $2.5 million to $3 million. Cash, cash equivalents and marketable securities at the end of the fiscal 2005 third quarter are expected to be approximately $112.2 million.

The company notes that the estimated shortfall in net income compared to its guidance issued for the third quarter on July 27 is the result of the cost of partner launches in the second half of fiscal 2005 being greater than anticipated, and to a lesser extent, because of delays in actual launch dates. These issues had a particularly negative impact on the second half of the third quarter. As a result of these factors, which the company also expects to impact its fiscal 2005 fourth quarter results, GSI Commerce now estimates net income for fiscal 2005 to be approximately $5.5 million to $6.5 million compared the company's guidance issued on July 27 of $9.5 million to $10.5 million. The estimated results do not reflect any adjustments that may be made as a result of the issues discussed earlier in this news release.

The company also announced that the following events occurred since July 27, 2005:

  • The company has launched new e-commerce operations for RadioShack, Bath
    & Body Works, Levis Brand and C.C. Filson & Co.

  • The company signed a multiyear extension with a partner in the health &
    beauty category.

  • The company signed a multiyear agreement to provide a new partner in
    the home category with an e-commerce solution that includes core
    technology platform, fulfillment services and customer care operations.
    The launch is expected to occur during the first quarter of 2006.
    Revenues from the new partner will be recorded as service fees. The
    addition of the new partner brings the total number of new partners
    announced in fiscal 2005 to 10.