Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 30, 2014 |
Principles of Consolidation | ' |
Principles of Consolidation |
All intercompany balances and transactions have been eliminated in consolidation. |
Use of Estimates | ' |
Use of Estimates |
The preparation of consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The recognition and allocation of certain revenues and selling, general and administrative expenses in these consolidated financial statements also require management estimates and assumptions. |
Estimates and assumptions about future events and their effects cannot be determined with certainty. The Company bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as the operating environment changes. These changes have been included in the consolidated financial statements as soon as they became known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. These uncertainties are discussed in this report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 in the section entitled “Risk Factors.” Based on a critical assessment of accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes the Company’s consolidated financial statements are fairly stated in accordance with U.S. GAAP, and provide a fair presentation of the Company’s financial position and results of operations. |
Investment in Subsidiaries | ' |
Investment in Subsidiaries |
Priority Fulfillment Services, Inc. (“PFS”), a wholly-owned subsidiary of PFSweb, Inc., has made advances to Supplies Distributors that are evidenced by a Subordinated Demand Note (the “Subordinated Note”). Under the terms of certain of the Company’s debt facilities, the outstanding balance of the Subordinated Note cannot be increased to more than $5.0 million or decreased to less than $2.5 million without prior approval of certain of the Company’s lenders. As of June 30, 2014 and December 31, 2013, the outstanding balance of the Subordinated Note was $2.5 million and $3.5 million, respectively. The Subordinated Note is eliminated in the Company’s consolidated financial statements. |
PFS has also made advances to Retail Connect, which totaled $11.1 million at both June 30, 2014 and December 31, 2013. PFS has received the approval of its lender to advance incremental amounts to certain of its subsidiaries and/or affiliates, if needed, subject to certain financial covenants, as defined. PFSweb, Inc. has also advanced to Retail Connect an additional $8.5 million as of June 30, 2014 and December 31, 2013. As of June 30, 2014, PFSweb, Inc. has approximately $14.5 million available to be advanced to Retail Connect and/or other subsidiaries. All of these advances are eliminated upon consolidation. |
Concentration of Business and Credit Risk | ' |
Concentration of Business and Credit Risk |
No service fee client or product revenue customer represented more than 10% of the Company’s consolidated total net revenues during the six months ended June 30, 2014 or the Company’s consolidated accounts receivable as of June 30, 2014. |
A summary of the nonaffiliated customer and client concentrations is as follows: |
|
| Six Months Ended | |
| June 30, | |
| 2014 | | | 2013 | |
Product Revenue (as a percentage of total Product Revenue): | | | | | | | |
Customer 1 | | 12 | % | | | 15 | % |
Customer 2 | | 12 | % | | | 12 | % |
Service Fee Revenue (as a percentage of total Service Fee Revenue): | | | | | | | |
Client 1 | | — | | | | 14 | % |
|
The Company’s contractual relationship with Client 1 ended during 2013, and the Company currently anticipates that its product revenue from the customers identified above will decline during the next twelve months. |
The Company has provided certain collateralized guarantees of its subsidiaries’ financings and credit arrangements. These subsidiaries’ ability to obtain financing on similar terms would be significantly impacted without these guarantees. |
The Company has multiple arrangements with International Business Machines Corporation (“IBM”) and Ricoh and is dependent upon the continuation of such arrangements. These arrangements, which are critical to the Company’s ongoing operations, include Supplies Distributors’ distributor agreements and certain of Supplies Distributors’ working capital financing agreements. The majority of Supplies Distributors’ revenue is generated by its sale of product purchased from Ricoh. Supplies Distributors also relies upon Ricoh’s sales force and product demand generation activities and the discontinuance of such services would have a material impact upon Supplies Distributors’ business. In addition, Supplies Distributors has product sales to IBM and Ricoh business affiliates. |
As a result of certain operational restructuring of its business, Ricoh has implemented, and will continue to implement, certain changes in the sale and distribution of Ricoh products. The changes have resulted, and are expected to continue to result, in reduced revenues and profitability for Supplies Distributors. |
Inventories | ' |
Inventories |
Inventories (all of which are finished goods) are stated at the lower of weighted average cost or market. The Company establishes inventory reserves based upon estimates of declines in values due to inventories that are slow moving or obsolete, excess levels of inventory or values assessed at lower than cost. |
Supplies Distributors assumes responsibility for slow-moving inventory under its Ricoh distributor agreements, subject to certain termination rights, but has the right to return product rendered obsolete by engineering changes, as defined. In the event PFS, Supplies Distributors and Ricoh terminate the distributor agreements, the agreements provide for the parties to mutually agree on a plan of disposition of Supplies Distributors’ then existing inventory. |
Operating Leases | ' |
Operating Leases |
The Company leases certain real estate for its warehouse, call center and corporate offices, as well as certain equipment, under non-cancelable operating leases that expire at various dates through 2024. Management expects that, in the normal course of business, leases that expire will be renewed or replaced by other similar leases. The Company recognizes escalating lease payments on a straight-line basis over the term of each respective lease with the difference between cash payments and rent expense recognized being recorded as deferred rent in the accompanying consolidated balance sheets. |
Property and Equipment | ' |
Property and Equipment |
The Company’s property held under capital leases totaled approximately $3.3 million and $4.0 million, net of accumulated amortization of approximately $4.7 million and $4.4 million, at June 30, 2014 and December 31, 2013, respectively. Depreciation and amortization expense related to capital leases during the six months ended June 30, 2014 and 2013 was $1.2 million and $1.3 million, respectively. |
Income Taxes | ' |
Income Taxes |
The Company records a tax provision primarily associated with state income taxes and its foreign operations. The Company has recorded a valuation allowance for the majority of its net deferred tax assets, which are primarily related to its net operating loss carryforwards and certain foreign deferred tax assets. |
Cash Paid for Interest and Taxes | ' |
Cash Paid for Interest and Taxes |
The Company made payments for interest of approximately $0.3 million and $0.4 million in the six month periods ended June 30, 2014 and 2013, respectively. Income taxes of approximately $0.4 million and $0.2 million were paid by the Company during the six month periods ended June 30, 2014 and 2013, respectively. |
Impact of Recently Issued Accounting Standards | ' |
Impact of Recently Issued Accounting Standards |
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU 2014-09 is applicable for fiscal years beginning after December 15, 2016, including interim periods therein, and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is not permitted. We are currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures. |