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fiscal 1999 and $5.2 million for fiscal 1997. Net cash used in financing
activities was $4.0 million in fiscal 1998, representing a repayment to
Daisytek. Additionally, during fiscal 1999, Daisytek made a capital contribution
of $0.5 million to its PFSweb Canadian subsidiary.
Cash flows provided by operating activities totaled $14.0 million during
the six months ended September 30, 1999. Cash flows used in operating activities
totaled $5.5 million during the six months ended September 30, 1998. For the six
months ended September 30, 1999, the net cash provided by operating activities
primarily reflected a reduction in accounts payable and accrued expenses of
$31.5 million, accounts receivable of $16.0 million and inventory of $29.9
million. These reductions primarily related to the transfer of the IBM related
working capital assets from us to Daisytek in conjunction with the new IBM
agreements. For the six months ended September 30, 1998, the net cash used in
operating activities was primarily due to an increase in inventory of $9.9
million and accounts receivable of $6.4 million, which were partially offset by
a reduction in accounts payable and accrued expenses of $10.7 million.
Net cash used in operating activities was $12.3 million for fiscal 1999 and
$5.2 million for fiscal 1997. Net cash provided by operating activities was $4.5
million for fiscal 1998. Working capital requirements increased in fiscal 1999
compared to fiscal 1998 primarily due to product revenue growth under our North
American IBM master distributor agreements. We also entered into new master
distributor agreements in December 1998 to provide services for IBM in Europe.
Our North American revenue growth, as well as the new European contracts,
resulted in significant increases in IBM contract related accounts receivable,
inventory and accounts payable.
Our principal use of funds for investing activities was capital
expenditures of $6.2 million for the first six months of fiscal 2000 as compared
to $0.5 million for the first six months of fiscal 1999. Capital expenditures
were $2.7 million for fiscal 1999, $0.3 million for fiscal 1998 and $0.1 million
for fiscal 1997. In addition, we have entered into a long-term contractual
agreement with one of our clients pursuant to which, as part of the services
that we provide, we finance certain of the client's inventory. This amount was
$12.4 million at September 30, 1999 and $12.1 million at March 31, 1999 (see
Note 2 of Notes to Combined Financial Statements). Capital expenditures have
consisted primarily of additions to upgrade our management information systems,
including our Internet-based customer tools, other methods of e-commerce and
general expansion of our facilities, both domestic and foreign. We expect to
incur significant capital expenditures in order to support new contracts and
anticipated future growth opportunities. We anticipate that our total investment
in upgrades and additions to facilities and information technology services for
fiscal 2000 will be approximately $13.0 to $15.0 million. This amount includes
the transfer to us of certain assets from Daisytek for approximately $5.7
million ($5.4 million in cash and the assumption of $0.3 million of capital
lease obligations) plus the assumption of certain lease obligations. The
increase in anticipated capital expenditures over fiscal 1999 relates primarily
to our asset purchase from Daisytek and capital expenditures applicable to our
new Belgium distribution facility, combined with expansion of our U.S. and
Canadian sales and distribution facilities. Some of these expenditures may be
financed through operating or capital leases.
We believe that international markets represent further opportunities for
growth. We may consider entering into forward exchange contracts in order to
hedge our net investment in our Canadian or European operations or in other
international countries in which we establish a presence, although no assurance
can be given that we will be able to do so on acceptable terms.
In the future, we may attempt to acquire other businesses to expand our
services or capabilities in connection with our efforts to grow our business. We
currently have no binding agreements to acquire any such businesses. Should we
be successful in acquiring other businesses, we may require additional
financing. Acquisitions involve certain risks and uncertainties. Therefore, we
can give no assurance with respect to whether we will be successful in
identifying businesses to acquire, whether we will be able to obtain financing
to complete an acquisition, or whether we will be successful in operating the
acquired business.
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