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PFSWEB, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OVERVIEW AND BASIS OF PRESENTATION:
In June 1999, Daisytek International Corporation ("Daisytek") created a
separate wholly-owned subsidiary named PFSweb, Inc. (the "Company" or "PFSweb"),
a Delaware corporation, to become a holding company for certain of Daisytek's
wholly-owned subsidiaries ("PFS") in contemplation of an initial public offering
of PFSweb. Daisytek contributed $20,000 for 14,305,000 shares of common stock of
PFSweb. In December 1999, PFSweb sold 3,565,000 shares of common stock at a
price of $17 per share (the "Offering"). Net proceeds from the Offering
aggregated approximately $53.0 million and were used to repay the Company's
payable to Daisytek and to acquire from Daisytek all fixed assets in its Memphis
distribution facility as well as certain assets providing information technology
services for approximately $5 million (see Note 5). Simultaneous with the
completion of the Offering, Daisytek contributed to PFSweb all the assets,
liabilities and equity comprising PFS.
On June 8, 2000, the Daisytek Board of Directors approved the separation of
PFSweb from Daisytek by means of a tax-free dividend of Daisytek's remaining
ownership of PFSweb after receiving a favorable ruling from the IRS to the
effect that the distribution by Daisytek of its shares of PFSweb stock would be
tax-free to Daisytek and to Daisytek's shareholders for U.S. federal income tax
purposes. The distribution of Daisytek's 14,305,000 shares of PFSweb (the
"Spin-off") occurred at the close of business on July 6, 2000, to Daisytek
shareholders of record as of June 19, 2000.
PFSweb is an international provider of integrated business process
outsourcing services to major brand name companies seeking to maximize their
supply chain efficiencies and to extend their traditional and e-commerce
initiatives in the United States, Canada, and Europe. The Company offers such
services as professional consulting, technology collaboration, managed hosting
and creative web development, order management, web-enabled customer contact
centers, customer relationship management, billing and collection services,
information management, and international distribution services.
For all periods prior to the Spin-off, the accompanying consolidated
financial statements are presented on a carve-out basis and reflect the
consolidated historical results of operations, financial position and cash flows
of the Company. For all periods presented, certain expenses reflected in the
consolidated financial statements include an allocation of certain Daisytek
corporate expenses and infrastructure costs (see Note 5). Management believes
that the methods used to allocate expenses are reasonable, although the cost of
services could be higher if obtained from other sources. In addition, certain
service fee revenue and cost of service fee revenue have been reflected by
PFSweb for services subcontracted to PFSweb by Daisytek. The service fee
revenue, cost of service fee revenue and allocated expenses have been reflected
on bases that Daisytek and PFSweb consider to be a reasonable reflection of the
services provided and revenue earned by PFSweb and the utilization of services
provided by Daisytek and the benefit received by PFSweb. The financial
information included herein may not reflect the consolidated financial position,
operating results, shareholders' equity and cash flows of PFSweb in the future
or what it would have been had PFSweb been a separate, stand-alone entity during
the periods presented.
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
Prior to the Offering, the financial position, results of operations and
cash flows of PFS were referred to as the combined financial statements of
PFSweb. Subsequent to the Offering and for all periods presented herein, the
financial position, results of operations and cash flows of the Company are
referred to as the consolidated financial statements of PFSweb, Inc. and
subsidiaries. All intercompany accounts and transactions have been eliminated in
consolidation.
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