entering into asset based lending or factoring programs, or transferring a
portion of our subordinated loan balances, due from Supplies Distributors, to
third-parties. In conjunction with certain of these alternatives, we may be
required to provide certain letters of credit to secure these arrangements. No
assurances can be given that we will be successful in obtaining any additional
financing or the terms thereof. We currently believe that our cash position and
funds generated from operations (including our anticipated revenue growth and/or
cost reductions to offset lower than anticipated revenue growth) will satisfy
our presently known operating cash needs, our working capital and capital
expenditure requirements and our lease obligations, and additional subordinated
loans to Supplies Distributors, if necessary, for at least the next twelve
months.
The following is a schedule of our total contractual cash obligations,
which is comprised of operating leases, long-term debt and capital leases,
including interest (in millions):
LONG-TERM TOTAL
DEBT AND CONTRACTUAL
OPERATING CAPITAL CASH
LEASES LEASES OBLIGATIONS
------------ ------------ ------------
Twelve Months Ended June 30,
2003 ........................................... $ 6,053 $ 1,615 $ 7,668
2004 ........................................... 5,521 1,542 7,063
2005 ........................................... 3,012 921 3,933
2006 ........................................... 2,794 790 3,584
2007 ........................................... 2,254 447 2,701
Thereafter ..................................... 1,562 389 1,951
------------ ------------ ------------
Total contractual cash obligations ..... $ 21,196 $ 5,704 $ 26,900
============ ============ ============
In support of certain debt instruments and leases, as of June 30, 2002,
we had $2.9 million of cash restricted in the form of letters of credit. The
letters of credit expire at various dates through July 2004. As described above,
we have provided collateralized guarantees to secure the repayment of Supplies
Distributors' credit facilities. As of June 30, 2002, the outstanding balance of
the credit facilities guaranteed by PFSweb was approximately $57.4 million.
These guarantees expire concurrently with the expiration of the underlying
credit agreements. To the extent Supplies Distributors or its subsidiaries fails
to comply with its covenants, including its monthly financial covenant
requirements, and the lenders accelerate the repayment of the credit facility
obligations, Supplies Distributors or its subsidiaries would be required to
repay all amounts outstanding thereunder. In such event, we would be obligated
to perform under those guarantees and repay, to the extent Supplies Distributors
or its subsidiaries was unable to, Supplies Distributors' or its subsidiaries
credit facility obligations. Additionally, if we were unable to maintain our
required level of stockholders' equity of $25.0 million or if we were to violate
any of the restricted transactions pursuant to the IBM Credit, IBM Belgium, or
Congress agreements, we could also be obligated to perform under these
guarantees. Any requirement to perform under our guarantees would have a
material adverse impact on our financial condition and results of operations and
no assurance can be given that we will have the financial ability to repay all
of such guaranteed obligations. In addition, in the event Supplies Distributors
or its subsidiaries is, or would be, in default of its obligations under its
credit facilities, we are restricted from receiving any payment of our
subordinated loans and such event would also have a material adverse impact upon
our financial condition and results of operations. Furthermore, we are obligated
to repay any over-advance made to Supplies Distributors or its subsidiaries by
its lenders. An over-advance would arise in the event borrowings exceeded the
maximum amount available under the eligible borrowing base, as defined. Although
the parties to these credit facilities are currently in compliance with all of
the covenants and other provisions required thereunder, we may seek the consent
of the required lenders to modify, amend or waive some of the restrictions and
financial covenants thereunder prior to its maturity in March 2003. No assurance
can be given that we will be able to obtain such modifications, amendments or
waivers, and the failure to obtain one or more of such modifications, amendments
or waivers will have a material adverse effect upon Holdings, Supplies
Distributors and PFSweb and their respective financial condition and operations.
PFS has also provided a guarantee of the obligations of Supplies Distributors
and SDSA to IBM, excluding the trade payables that are financed by IBM credit.
No liabilities have been recorded in the accompanying financial statements for
these guarantee obligations. We do not have any other material commercial
commitments.
Currently, we believe that we are operating with and incurring costs
applicable to excess capacity in both our North American and European
operations. We believe that as we add revenue, we will be able to cover our
existing infrastructure and public company costs and reach profitability. We
currently estimate that the net service fee revenue needed to leverage our
infrastructure and reach profitability is approximately $14 million per quarter.
No assurance can be given that we can achieve such operating levels, or that, if
achieved, we will be profitable in any particular fiscal period.
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