PFSweb, Inc. (Nasdaq:PFSW), a global provider of business process
outsourcing (�BPO�) solutions for both online and traditional
commerce, today announced its financial results for the fourth
quarter and fiscal year ended December 31, 2006. �2006 was a major
year of strategic evolution and transition for PFSweb,� stated Mark
Layton, Chairman and Chief Executive Officer of PFSweb. �We entered
the year with a clear strategy for achieving certain milestones and
invigorating a new sense of excitement and growth objectives
throughout the company. During this period we exceeded our internal
goals for our Service Fee and Supplies Distributors businesses. For
our eCOST.com business, while we encountered several unexpected
roadblocks along the way, we accomplished our target of
substantially completing our integration related work and are now
operating on a stable platform with improved financial results for
the December quarter. I look forward to carrying the momentum we
have generated into 2007 and taking PFSweb to the next phase of our
growth strategy while driving improved overall financial
performance.� Summary of consolidated results for the fourth
quarter: -- Total reported revenue for the period was $109.0
million, compared to $83.4 million for the fourth quarter of 2005
-- Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization (Adjusted EBITDA) was $0.9 million versus $2.7 million
for the same period last year -- Excluding eCOST.com, PFSweb's
Adjusted EBITDA was $2.5 million -- Net loss was $6.5 million, or
$0.13 per basic and diluted share, compared to net income of $0.5
million, or $0.02 per basic and diluted share, for the fourth
quarter of fiscal 2005 -- Excluding eCOST.com's results, which
includes a goodwill charge, PFSweb's net loss was $0.7 million --
Merchandise sales (as defined) totaled approximately $789 million
for the fourth quarter of 2006 Summary of consolidated results for
fiscal 2006: Please note that 2006 consolidated results only
include eCOST.com financial results for the eleven month period
from the date of the merger closing, February 1, 2006, through
December 31, 2006. Also, the comparable period, fiscal 2005, does
not contain financial results for eCOST.com. -- Total reported
revenue for the period was $423.3 million, compared to $331.7
million for 2005 -- Adjusted EBITDA was $2.5 million compared to
$9.5 million for 2005 -- Excluding eCOST.com's operations, Adjusted
EBITDA was $12.2 million for 2006 -- Income from Operations
decreased to $(11.3) million from $2.0 million for 2005 --
Excluding eCOST.com's operations, Income from Operations was $4.9
million for 2006 -- Net loss was $14.5 million, or $0.34 per basic
and diluted share, compared to a net loss of $0.7 million, or $0.03
per basic and diluted share, for 2005 -- Excluding eCOST.com's
operations, net income was $1.6 million in 2006 -- Merchandise
sales increased 22% to approximately $2.7 billion -- Total cash,
cash equivalents and restricted cash totaled $17.7 million as of
December 31, 2006 Service Fee Business: For the fourth quarter of
2006, Service Fee revenue was $19.4 million, an increase of 25%,
compared with $15.5 million in 2005. This increase in revenue is
attributable to a combination of organic client growth and project
work from existing clients, as well as fees related to new client
growth that occurred in the fourth quarter of 2006. The Service Fee
business reported Adjusted EBITDA of $1.2 million for the fourth
quarter of 2006, compared to $0.6 million for the same period last
year. For the year ended December 31, 2006, the Service fee revenue
was $67.1 million, an increase of 10%, compared to $60.8 million
for 2005. The Service Fee business reported Adjusted EBITDA of $4.6
million for 2006, compared to $2.2 million for 2005. Supplies
Distributors Business: For the fourth quarter of 2006, Supplies
Distributors revenue was $59.8 million, compared to $63.6 million
for the same period last year. Supplies Distributors business
reported Adjusted EBITDA of $1.3 million for the fourth quarter of
2006, compared to $2.2 million for the same period last year. For
the year ended December 31, 2006, Supplies Distributors revenue was
$245.0 million, a 3% decrease, compared to $252.9 million for 2005.
Supplies Distributors business reported Adjusted EBITDA of $7.6
million for 2006, compared to $7.3 million for 2005. eCOST.com
Business: For the fourth quarter of 2006, eCOST.com revenue was
$21.1 million, compared to $40.5 million for the same period in
2005, which was prior to our February 1, 2006 merger. Adjusted
EBITDA for eCOST.com in the quarter was a loss of $1.6 million,
compared to a loss of $2.2 million for the same period last year.
For the period from February 1, 2006, when the merger closed,
through December 31, 2006, eCOST.com revenue was $88.3 million.
Adjusted EBITDA for eCOST.com during the same period was a loss of
$9.7 million. For the twelve months ended December 31, 2005,
eCOST.com reported revenue of $174.8 million and Adjusted EBITDA
loss of $9.6 million. While the eCOST.com business declined in
terms of top line results, the overall health and outlook of the
business is improved from its operations prior to the merger.
However, given the smaller business size, and the capital infusion
into the business to support eCOST.com�s operating loss in 2006,
PFSweb was required to adjust the goodwill value of eCOST.com,
which resulted in a non-cash charge of $3.5 million during the
fourth quarter of 2006. For eCOST.com�s selected operating data for
the quarter and eleven months ended December 31, 2006 and quarter
and year ended December 31, 2005, please see the table below.
Layton continued, �In 2006, our operating results for our Service
Fee Business continued to experience top and bottom line growth.
Through our continued efforts, eCOST.com improved operating
performance and experienced a solid 2006 holiday season. As a
result of the merger and our restructuring efforts, eCOST.com
improved its Adjusted EBITDA in the December quarter by $0.6
million, compared to the same period in 2005. In 2007, we are
looking to ramp up the sales and marketing efforts for eCOST.com to
grow revenue and improve financial performance. In addition, we
anticipate recognizing the cost savings previously described as one
of the benefits of the merger, though a portion of such originally
targeted savings will be dependent on sales volumes.� Financial
Guidance for Fiscal Year 2007 As a result of the turnaround efforts
for eCOST.com and new contracts signed in 2006 for the Service Fee
Business, PFSweb is currently targeting total consolidated
revenues, excluding pass-through revenues, of approximately $420
million to $435 million and consolidated Adjusted EBITDA of $8 �
$10 million for 2007. Capital expenditures for 2007 are estimated
to be approximately $3 - $5 million, excluding costs related to the
implementation of new business contracts for the Service Fee
Business. Achieving these targets will appropriately reflect the
significant improvement in operations from eCOST.com and continued
strong performance from our Service Fee and Supplies businesses on
a year-over-year basis. Significant operating events for Fourth
Quarter of 2006 and 2007 year to date: -- PFSweb substantially
completed its integration of eCOST.com in time for the 2006 holiday
season, which included cost cutting measures, and implementing its
world-class technology platform and customer service capabilities
to support eCOST.com. -- PFSweb enhanced its Entente Suite(TM) with
the introduction of EntentePartnerConnect(TM), a data repository
and retrieval service for providing its clients with access to
comprehensive rich product and service information across a wide
variety of product and service categories. Information provided
through EntentePartnerConnect(TM) is aggregated from multiple
sources including business partners such as Etilize that specialize
in creating rich product content in specific categories.
EntentePartnerConnect(TM) is initially available to PFSweb clients
using our EntenteWeb hosted web service and GlobalMerchant
Commerceware platform including eCOST.com. This enhancement will
provide eCOST.com as well as Service Fee business clients the
opportunity to minimize their inventory obsolescence risks. --
eCOST.com launched a redesigned website that offers customers
easier navigation and an enhanced list of products to find the
latest deals. Through the rich product content subscription
agreement with Etilize and leveraging PFSweb's
EntentePartnerConnect(TM), eCOST.com has enhanced its ability to
update new products on its site. -- PFSweb's Service Fee Business
launched logistics and order fulfillment services in Canada for
Katun Corporation, a leading global alternative supplier to the
office equipment industry. -- The Service Fee Business announced a
new five-year agreement with LEGO Brand Retail, Inc., one of the
world's largest toy manufacturers and a global leader in
construction toys. PFSweb will support order fulfillment through
Lego's direct to consumer online store, www.shop.lego.com. -- The
Service Fee Business announced an agreement with Fathead, LLC, a
provider of professionally licensed, life-sized sports wall
graphics, whereby PFSweb provides an order processing, fulfillment
and customer care solutions. -- The Service Fee Business launched a
customized order management and logistics solution for Riverbed
Technology, a performance leader in wide-area data services (WDS)
solutions. This solution utilizes PFSweb's distribution facility in
Memphis, TN, advanced order management systems, supply chain and
transportation management applications and warehouse management
systems. -- PFSweb's Service Fee Business also increased its
capacity to manage new and expanded agreements by: -- Opening an
expanded Canadian facility in Eastern Toronto to support existing
and new client growth. The new facility is 22,000 square feet and
will allow for implementation of expanded or new customer
contracts. -- Expanding PFSweb's North American headquarters in
Texas and Memphis, TN distribution center by a combined 170 call
seats, for a total of 480 call seats at the two facilities. The
Plano headquarters now features a 40,000 square foot customer care
facility. -- Opened a new 6,500 square foot facility in Manila,
Philippines, with a dedicated staff of highly trained customer
service representatives to supplement PFSweb's existing call center
operations in the U.S. The facility will initially be used to
support certain functions for eCOST.com. Also located at the
facility will be an expanded staff of web development
professionals. The additional capacity will increase PFSweb's
ability to quickly address development plans for its web commerce
capabilities for both eCOST.com and its service clients. -- PFSweb
recently completed renewals, extensions or amendments on all asset
based financing facilities for all of its business units with terms
that are similar to or improved from prior agreements. These
extensions range from one to two years. Michael Willoughby,
President of Priority Fulfillment Services, stated, �We have signed
agreements with several recognizable brands over the past several
months, including Lego, Riverbed Technology, Katun and Fathead. We
believe partnering with these leading companies further underscores
our position as a major player in the business process outsourcing
industry and the high level of services we are able to provide our
customers. These new contracts are either already operational or in
the process of being implemented in the U.S. and Canada. To
implement these contracts, support the expansion of existing
agreements, and support potential new contracts, we recently
announced increased capacity at our U.S. and Canadian facilities.
While we are pleased with the new business we have signed recently,
we are aggressively looking to continue to grow our Service Fee
Business and have taken the needed steps to fully support these
efforts.� Conference Call Information Management will host a
conference call at 4:00 p.m. Central Time (5:00 p.m. Eastern Time)
on April 2, 2007 to discuss the latest corporate developments and
results. To listen to the call, please dial 888-200-2794 and enter
the pin number (8611715) at least five minutes before the scheduled
start time. Investors can also access the call in a �listen only�
mode via the Internet at the company�s website, www.pfsweb.com.
Please allow extra time prior to the call to visit the site and
download any necessary audio software. A digital replay of the
conference call will be available through May 2nd at 877-519-4471,
pin number (8611715). The replay also will be available at the
company�s web site for a limited time. Non-GAAP Financial Measures
This news release contains the non-GAAP measures EBITDA and
adjusted EBITDA. EBITDA represents earnings (or losses) before
interest, taxes, depreciation, and amortization. Adjusted EBITDA
further eliminates the effect of stock-based compensation, merger
integration related expenses, a loss on sales transaction to a
former eCOST.com customer, goodwill impairment and
relocation-related costs. EBITDA and Adjusted EBITDA are used by
management, analysts, investors and other interested parties in
evaluating our operating performance compared to that of other
companies in our industry, as the calculation of EBITDA and
Adjusted EBITDA eliminates the effect of financing, income taxes,
the accounting effects of capital spending, stock-based
compensation, merger related expenses and certain other expenses
which items may vary from different companies for reasons unrelated
to overall operating performance. For 2005, prior to our merger, a
reconciliation of eCOST.com�s net loss to EBITDA and Adjusted
EBITDA is as follows: Three MonthsEndedDecember 31, Twelve
MonthsEndedDecember 31, 2005� 2005� Net loss $ (4,840) $ (18,238)
Income tax provision -� 5,350� Interest income, net (17) (156)
Depreciation and amortization � 139� � 471� EBITDA $ (4,718) $
(12,573) Stock-based compensation 125� 500� Loss on sales
transaction to former eCOST customer 1,272� 1,272� Merger related
expenses � 1,153� � 1,153� Adjusted EBITDA $ (2,168) $ (9,648)
Merchandise Sales Merchandise sales represent the estimated value
of all fulfillment activity that flows through PFSweb including
whether or not PFSweb is the seller of the merchandise or records
the full amount of such sales on its financial statements,
excluding service fee revenues that PFSweb might recognize for the
underlying sales transactions. PFSweb uses merchandise sales as an
operating metric to allow investors to gain a more thorough
understanding of its business and business volume, in addition to
GAAP net revenue. About PFSweb, Inc. PFSweb develops and deploys
integrated business infrastructure solutions and fulfilment
services for Fortune 1000, Global 2000 and brand name companies,
including third party logistics, call center support and e-commerce
services. The company serves a multitude of industries and company
types, including such clients as LEGO, Riverbed, Fathead, CHiA�SSO,
FLAVIA� Beverage Systems, Hewlett-Packard, International Business
Machines, Hawker Beechcraft Corp., formerly Raytheon Aircraft
Company, Rene Furterer USA, Roots Canada Ltd., The Smithsonian
Institution and Xerox. Through its wholly owned eCOST.com
subsidiary, PFSweb also serves as a leading multi-category online
discount retailer of high-quality new, "close-out" and manufacturer
recertified brand-name technology and consumer electronics for
consumers and small to medium size business buyers. The eCOST.com
brand markets more than 100,000 different products from leading
manufacturers such as Apple, Canon, Citizen, Denon,
Hewlett-Packard, Nikon, Onkyo, Seiko, Sony, and Toshiba primarily
over the Internet and through direct marketing. To find out more
about PFSweb, Inc. (NASDAQ: PFSW), visit the company's websites at
http://www.pfsweb.com and http://www.ecost.com. The matters
discussed herein consist of forward-looking information under the
Private Securities Litigation Reform Act of 1995 and is subject to
and involves risks and uncertainties, which could cause actual
results to differ materially from the forward-looking information.
PFSweb's Annual Report on Form 10-K for the year ended December 31,
2006 identifies certain factors that could cause actual results to
differ materially from those projected in any forward looking
statements made and investors are advised to review the Annual
Report and the Risk Factors described therein. These factors
include: our ability to retain and expand relationships with
existing clients and attract and implement new clients; our
reliance on the fees generated by the transaction volume or product
sales of our clients; our reliance on our clients' projections or
transaction volume or product sales; our dependence upon our
agreements with IBM; our dependence upon our agreements with our
major clients; our client mix, their business volumes and the
seasonality of their business; our ability to finalize pending
contracts; the impact of strategic alliances and acquisitions;
trends in the market for our services; trends in e-commerce;
whether we can continue and manage growth; changes in the trend
toward outsourcing; increased competition; our ability to generate
more revenue and achieve sustainable profitability; effects of
changes in profit margins; the customer and supplier concentration
of our business; the unknown effects of possible system failures
and rapid changes in technology; trends in government regulation
both foreign and domestic; foreign currency risks and other risks
of operating in foreign countries; potential litigation; our
dependency on key personnel; the impact of new accounting standards
and rules regarding revenue recognition, stock options and other
matters; changes in accounting rules or the interpretations of
those rules; our ability to raise additional capital or obtain
additional financing; our ability and the ability of our
subsidiaries to borrow under current financing arrangements and
maintain compliance with debt covenants; relationship with and our
guarantees of certain of the liabilities and indebtedness of our
subsidiaries; whether outstanding warrants issued in a prior
private placement will be exercised in the future; the transition
costs resulting from our merger with eCOST; our ability to
successfully integrate eCOST into our business to achieve the
anticipated benefits of the merger: eCOST's potential
indemnification obligations to its former parent; eCOST's ability
to maintain existing and build new relationships with manufacturers
and vendors and the success of its advertising and marketing
efforts; eCOST's ability to increase its sales revenue and sales
margin and improve operating efficiencies and eCOST�s ability to
generate projected cash flows to support the fair value of its
intangible assets. PFSweb undertakes no obligation to update
publicly any forward-looking statement for any reason, even if new
information becomes available or other events occur in the future.
There may be additional risks that we do not currently view as
material or that are not presently known. PFSWEB, INC. AND
SUBSIDIARIES Unaudited Condensed Consolidated Statements of
Operations (A) (In Thousands, Except Per Share Data) � Three Months
Ended Twelve Months Ended DECEMBER 31, DECEMBER 31, 2006� 2005�
2006� 2005� Revenues: Product revenue, net $ 80,864� $ 63,550� $
333,311� $ 252,902� Service fee revenue 19,375� 15,509� 67,056�
60,783� Pass-through revenue � 8,758� � 4,371� � 22,886� � 17,972�
Total revenues � 108,997� � 83,430� � 423,253� � 331,657� Costs of
revenues: Cost of product revenue 75,719� 58,933� 311,417� 235,584�
Cost of service fee revenue 14,685� 11,737� 49,274� 45,597�
Pass-through cost of revenue � 8,758� � 4,371� � 22,886� � 17,972�
Total costs of revenues � 99,162� � 75,041� � 383,577� � 299,153�
Gross profit � 9,835� � 8,389� � 39,676� � 32,504� Selling, general
and administrative expenses 10,824� 7,148� 44,290� 30,505�
Stock-based compensation 214� 14� 899� 16� Merger integration
expense 365� �� 1,495� �� Amortization of identifiable intangibles
194� �� 749� �� Goodwill impairment � 3,507� � �� � 3,507� � ��
Total operating expenses � 15,104� � 7,162� � 50,940� � 30,521�
Income (loss) from operations (5,269) 1,227� (11,264) 1,983�
Interest expense, net � 607� � 404� � 2,112� � 1,729� Loss before
income taxes (5,876) 823� (13,376) 254� Income tax expense � 574� �
357� � 1,154� � 1,001� Net loss $ (6,450) $ 466� $ (14,530) $ (747)
Net loss per share: Basic $ (0.14) $ 0.02� $ (0.34) $ (0.03)
Diluted $ (0.14) $ 0.02� $ (0.34) $ (0.03) � Weighted average
number of shares outstanding: Basic � 46,461� � 22,526� � 42,762� �
22,394� Diluted � 46,461� � 24,041� � 42,762� � 22,394� � EBITDA
(B) $ (3,226) $ 2,732� $ (3,788) $ 8,095� Adjusted EBITDA (B) $
860� $ 2,746� $ 2,502� $ 9,492� (A) THE FINANCIAL DATA ABOVE SHOULD
BE READ IN CONJUNCTION WITH THE AUDITED CONSOLIDATED FINANCIAL
STATEMENTS OF PFSWEB, INC. INCLUDED IN ITS FORM 10-K AND 10-K/A FOR
THE YEAR ENDED DECEMBER 31, 2006. (B) A RECONCILIATION OF NET LOSS
TO EBITDA AND ADJUSTED EBITDA IS AS FOLLOWS: Three Months Ended
Twelve Months Ended DECEMBER 31, DECEMBER 31, 2006� 2005� 2006�
2005� Net loss $ (6,450) $ 466� $ (14,530) $ (747) Income tax
provision 574� 357� 1,154� 1,001� Interest expense, net 607� 404�
2,112� 1,729� Depreciation and amortization � 2,043� � 1,505� �
7,476� � 6,112� EBITDA $ (3,226) $ 2,732� $ (3,788) $ 8,095�
Stock-based compensation 214� 14� 899� 16� Loss on sales
transaction to former eCOST customer -� -� 389� -� Merger related
integration expenses 365� -� 1,495� -� Goodwill impairment 3,507�
-� 3,507� -� Relocation-related costs � -� � -� � -� � 1,381�
Adjusted EBITDA $ 860� $ 2,746� $ 2,502� $ 9,492� PFSWEB, INC. AND
SUBSIDIARIES Consolidated Balance Sheets (In Thousands, Except
Share Data) � December 31, 2006 December 31, 2005 ASSETS CURRENT
ASSETS: Cash and cash equivalents $ 15,066� $ 13,683� Restricted
cash 2,653� 2,077� Accounts receivable, net of allowance for
doubtful accounts of $2,352 and $484 at December 31, 2006 and
December 31, 2005, respectively 48,717� 44,556� Inventories, net of
reserves of $2,987 and $1,539 at December 31, 2006 and 2005,
respectively 47,670� 43,654� Other receivables 10,774� 9,866�
Prepaid expenses and other current assets � 3,531� � 3,213� Total
current assets � 128,411� � 117,049� � PROPERTY AND EQUIPMENT, net
12,884� 13,040� RESTRICTED CASH --� 150� IDENTIFIABLE INTANGIBLES
6,647� --� GOODWILL 15,362� --� OTHER ASSETS � 848� � 1,487� �
Total assets $ 164,152� LIABILITIES AND SHAREHOLDERS� EQUITY
CURRENT LIABILITIES: Current portion of long-term debt and capital
lease obligations $ 23,802� $ 21,626� Trade accounts payable
61,972� 60,053� Accrued expenses � 21,934� � 12,011� Total current
liabilities � 107,708� � 93,690� LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion � 6,076� � 6,289� OTHER
LIABILITIES 1,528� 1,813� � COMMITMENTS AND CONTINGENCIES �
SHAREHOLDERS� EQUITY: Preferred stock, $1.00 par value; 1,000,000
shares authorized; none issued and outstanding --� --� Common
stock, $0.001 par value; 75,000,000 shares authorized; 46,553,752
and 22,613,314 shares issued at December 31, 2006 and December 31,
2005, respectively; and 46,467,452 and 22,527,014 outstanding at
December 31, 2006 and December 31, 2005, respectively � � 47� � �
23� Additional paid-in capital 91,302� 58,736� Accumulated deficit
(44,354) (29,824) Accumulated other comprehensive income 1,930�
1,084� Treasury stock at cost, 86,300 shares � (85) � (85) Total
shareholders� equity � 48,840� � 29,934� PFSWEB, INC. AND
SUBSIDIARIES Unaudited Consolidating Statements of Operations for
the Three Months Ended December 31, 2006 (In Thousands) � � PFSWEB
SUPPLIESDISTRIBUTORS � ECOST � ELIMIN-ATIONS � CONSOLI-DATED �
REVENUES: Product revenue, net $ -� $ 59,780� $ 21,084� $ -� $
80,864� Service fee revenue 19,375� -� -� -� 19,375� Service fee
revenue, affiliate 2,103� -� -� (2,103) -� Pass-through revenue �
8,901� � -� � -� � (143) � 8,758� Total revenues 30,379� 59,780�
21,084� (2,246) 108,997� � COSTS OF REVENUES: Cost of product
revenue -� 56,093� 19,626� -� 75,719� Cost of service fee revenue
15,258� -� -� (573) 14,685� Pass-through cost of revenue � 8,901� �
-� � -� � (143) � 8,758� Total costs of revenues � 24,159� �
56,093� � 19,626� � (716) � 99,162� Gross profit � 6,220� � 3,687�
� 1,458� � (1,530) � 9,835� SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 6,770� 2,437� 3,147� (1,530) 10,824� STOCK-BASED
COMPENSATION 214� -� -� -� 214� MERGER INTEGRATION EXPENSE -� -�
365� -� 365� AMORTIZATION OF IDENTIFIABLE INTANGIBLES -� -� 194� -�
194� GOODWILL IMPAIRMENT � -� � -� � 3,507� � -� � 3,507� Total
operating expenses � 6,984� � 2,437� � 7,213� � (1,530) � 15,104�
Income (loss) from operations (764) 1,250� (5,755) -� (5,269)
INTEREST EXPENSE (INCOME), NET � (13) � 623� � (3) � -� � 607�
Income (loss) before income taxes (751) 627� (5,752) -� (5,876) �
INCOME TAX PROVISION (BENEFIT) � 328� � 246� � -� � -� � 574� � NET
INCOME (LOSS) $ (1,079) $ 381� $ (5,752) $ -� $ (6,450) � EBITDA $
995� $ 1,254� $ (5,475) $ -� $ (3,226) Adjusted EBITDA $ 1,209� $
1,254� $ (1,603) $ -� $ 860� � � � A reconciliation of net income
(loss) to EBITDA and Adjusted EBITDA follows: Net income (loss) $
(1,079) $ 381� $ (5,752) $ -� $ (6,450) Income tax expense
(benefit) 328� 246� -� -� 574� Interest expense (income) (13) 623�
(3) -� 607� Depreciation and amortization � 1,759� � 4� � 280� � -�
� 2,043� EBITDA $ 995� $ 1,254� $ (5,475) $ -� $ (3,226)
Stock-based compensation 214� -� -� -� 214� Merger integration
related expenses -� -� 365� -� 365� Goodwill impairment � -� � -� �
3,507� � -� � 3,507� Adjusted EBITDA $ 1,209� $ 1,254� $ (1,603) $
-� $ 860� PFSWEB, INC. AND SUBSIDIARIES Unaudited Consolidating
Statements of Operations for the Year Ended December 31, 2006 (In
Thousands) � � PFSWEB SUPPLIES DISTRIBUTORS � ECOST � ELIMIN-ATIONS
� CONSOLI-DATED � REVENUES: Product revenue, net $ -� $ 244,979� $
88,332� $ -� $ 333,311� Service fee revenue 67,056� -� -� -�
67,056� Service fee revenue, affiliate 8,518� -� -� (8,518) -�
Pass-through revenue � 23,372� � -� � -� � (486) � 22,886� Total
revenues 98,946� 244,979� 88,332� (9,004) 423,253� � COSTS OF
REVENUES: Cost of product revenue -� 227,362� 84,107� (52) 311,417�
Cost of service fee revenue 51,813� -� -� (2,539) 49,274�
Pass-through cost of revenue � 23,372� � -� � -� � (486) � 22,886�
Total costs of revenues � 75,185� � 227,362� � 84,107� � (3,077) �
383,577� Gross profit � 23,761� � 17,617� � 4,225� � (5,927) �
39,676� SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 25,592�
10,003� 14,622� (5,927) 44,290� STOCK-BASED COMPENSATION 899� -� -�
-� 899� MERGER INTEGRATION EXPENSE -� -� 1,495� -� 1,495�
AMORTIZATION OF IDENTIFIABLE INTANGIBLES -� -� 749� -� 749�
GOODWILL IMPAIRMENT � -� � -� � 3,507� � -� � 3,507� Total
operating expenses � 26,491� � 10,003� � 20,373� � (5,927) �
50,940� Income (loss) from operations (2,730) 7,614� (16,148) -�
(11,264) INTEREST EXPENSE (INCOME), NET � (111) � 2,215� � 8� � -�
� 2,112� Income (loss) before income taxes (2,619) 5,399� (16,156)
-� (13,376) � INCOME TAX PROVISION (BENEFIT) � (883) � 2,037� � -�
� -� � 1,154� � NET INCOME (LOSS) $ (1,736) $ 3,362� $ (16,156) $
-� $ (14,530) � EBITDA $ 3,690� $ 7,625� $ (15,103) $ -� $ (3,788)
Adjusted EBITDA $ 4,589� $ 7,625� $ (9,712) $ -� $ 2,502� � � � A
reconciliation of net income (loss) to EBITDA and Adjusted EBITDA
follows: Net income (loss) $ (1,736) $ 3,362� $ (16,156) $ -� $
(14,530) Income tax expense (benefit) (883) 2,037� -� -� 1,154�
Interest expense (income) (111) 2,215� 8� -� 2,112� Depreciation
and amortization � 6,420� � 11� � 1,045� � -� � 7,476� EBITDA $
3,690� $ 7,625� $ (15,103) $ -� $ (3,788) Stock-based compensation
899� -� -� -� 899� Loss on sales transaction to former eCOST
customer -� -� 389� -� 389� Merger integration related expenses -�
-� 1,495� -� 1,495� Goodwill impairment � -� � -� � 3,507� � -� �
3,507� Adjusted EBITDA $ 4,589� $ 7,625� $ (9,712) $ -� $ 2,502�
PFSWEB, INC. AND SUBSIDIARIES Unaudited Condensed Consolidating
Balance Sheets as of December 31, 2006 (In Thousands) � � PFSWEB
SUPPLIESDISTRIBUTORS ECOST ELIMIN-ATIONS CONSOLI-DATED � ASSETS �
CURRENT ASSETS: Cash and cash equivalents $ 11,691� $ 2,021� $
1,354� $ -� $ 15,066� Restricted cash 196� 2,249� 208� -� 2,653�
Accounts receivables, net 18,667� 27,306� 3,023� (279) 48,717�
Inventories, net -� 41,552� 6,118� -� 47,670� Other receivables
147� 10,627� -� -� 10,774� Prepaid expenses and other current
assets � 1,995� � 1,454� � 82� � -� � 3,531� Total current assets �
32,696� � 85,209� � 10,785� � (279) � 128,411� � PROPERTY AND
EQUIPMENT, net 12,617� 40� 227� -� 12,884� NOTE RECEIVABLE FROM
AFFILIATE 17,145� -� -� (17,145) -� INVESTMENT IN AFFILIATE 37,049�
-� -� (37,049) -� IDENTIFIABLE INTANGIBLES -� -� 6,647� -� 6,647�
GOODWILL -� -� 15,362� -� 15,362� OTHER ASSETS � 722� � -� � 126� �
-� � 848� � Total assets $ 100,229� $ 85,249� $ 33,147� $ (54,473)
$ 164,152� � � LIABILITIES AND SHAREHOLDERS� EQUITY � CURRENT
LIABILITIES: Current portion of long-term debt and capital lease
obligations $ 10,252� $ 13,550� $ -� $ -� $ 23,802� Trade accounts
payable 6,531� 48,770� 6,950� (279) 61,972� Accrued expenses �
10,902� � 7,398� � 3,634� � -� � 21,934� Total current liabilities
� 27,685� � 69,718� � 10,584� � (279) � 107,708� LONG-TERM DEBT AND
CAPITAL LEASE OBLIGATIONS, less current portion � 6,076� � -� � -�
� -� � 6,076� NOTE PAYABLE TO AFFILIATE -� 6,505� 10,640� (17,145)
-� OTHER LIABILITIES 1,528� -� -� -� 1,528� COMMITMENTS AND
CONTINGENCIES � SHAREHOLDERS� EQUITY: Common stock 47� -� 19� (19)
47� Capital contributions -� 1,000� -� (1,000) -� Additional
paid-in capital 91,302� -� 28,060� (28,060) 91,302� Retained
earnings (accumulated deficit) (28,254) 5,865� (16,156) (5,809)
(44,354) Accumulated other comprehensive income 1,930� 2,161� -�
(2,161) 1,930� Treasury stock � (85) � -� � -� � -� � (85) Total
shareholders� equity � 64,940� � 9,026� � 11,923� � (37,049) �
48,840� � Total liabilities and shareholders� equity $ 100,229� $
85,249� $ 33,147� $ (54,473) $ 164,152� PFSweb, Inc. and
Subsidiaries Unaudited Consolidating Statements of Operations for
the Three Months Ended December 31, 2005 (In Thousands) � � PFSWEB
SUPPLIESDISTRIBUTORS � ELIMINATIONS � CONSOLIDATED � REVENUES:
Product revenue, net $ -� $ 63,550� $ -� $ 63,550� Service fee
revenue 15,509� -� -� 15,509� Service fee revenue, affiliate 2,247�
-� (2,247) -� Pass-through revenue � 4,453� � -� � (82) � 4,371�
Total revenues 22,209� 63,550� (2,329) 83,430� � COSTS OF REVENUES:
Cost of product revenue -� 58,933� -� 58,933� Cost of service fee
revenue 12,440� -� (703) 11,737� Pass-through cost of revenue �
4,453� � -� � (82) � 4,371� Total costs of revenues � 16,893� �
58,933� � (785) � 75,041� Gross profit 5,316� 4,617� (1,544) 8,389�
Selling, general and administrative expenses 6,248� 2,444� (1,544)
7,148� Stock-based compensation � 14� � -� � -� � 14� Total
operating expenses 6,262� 2,444� (1,544) 7,162� Income (loss) from
operations (946) 2,173� -� 1,227� INTEREST EXPENSE (INCOME), NET �
(80) � 484� � -� � 404� Income (loss) before income taxes (866)
1,689� -� 823� � INCOME TAX PROVISION (BENEFIT) � (444) � 801� � -�
� 357� � NET INCOME (LOSS) $ (422) $ 888� $ -� $ 466� � EBITDA $
559� $ 2,173� $ -� $ 2,732� Adjusted EBITDA $ 573� $ 2,173� $ -� $
2,746� � � � A reconciliation of net income (loss) to EBITDA and
Adjusted EBITDA follows: Net income (loss) $ (422) $ 888� $ -� $
466� Income tax expense (benefit) (444) 801� -� 357� Interest
expense (income) (80) 484� -� 404� Depreciation and amortization �
1,505� � -� � -� � 1,505� EBITDA $ 559� $ 2,173� -� $ 2,732�
Stock-based compensation � 14� � -� � -� � 14� Adjusted EBITDA $
573� $ 2,173� $ -� $ 2,746� PFSweb, Inc. and Subsidiaries Unaudited
Consolidating Statements of Operations for the Year Ended December
31, 2005 (In Thousands) � � PFSWEB SUPPLIESDISTRIBUTORS �
ELIMINATIONS � CONSOLIDATED � REVENUES: Product revenue, net $ -� $
252,902� $ -� $ 252,902� Service fee revenue 60,783� -� -� 60,783�
Service fee revenue, affiliate 8,883� -� (8,883) -� Pass-through
revenue � 18,217� � -� � (245) � 17,972� Total revenues 87,883�
252,902� (9,128) 331,657� � COSTS OF REVENUES: Cost of product
revenue -� 235,584� -� 235,584� Cost of service fee revenue 48,385�
-� (2,788) 45,597� Pass-through cost of revenue � 18,217� � -� �
(245) � 17,972� Total costs of revenues � 66,602� � 235,584� �
(3,033) � 299,153� Gross profit 21,281� 17,318� (6,095) 32,504�
Selling, general and administrative expenses 26,556� 10,044�
(6,095) 30,505� Stock-based compensation � 16� � -� � -� � 16�
Total operating expenses 26,572� 10,044� (6,095) 30,521� Income
(loss) from operations (5,291) 7,274� -� 1,983� INTEREST EXPENSE
(INCOME), NET � (273) � 2,002� � -� � 1,729� Income (loss) before
income taxes (5,018) 5,272� -� 254� � INCOME TAX PROVISION
(BENEFIT) � (1,056) � 2,057� � -� � 1,001� � NET INCOME (LOSS) $
(3,962) $ 3,215� $ -� $ (747) � EBITDA $ 821� $ 7,274� $ -� $
8,095� Adjusted EBITDA $ 2,218� $ 7,274� $ -� $ 9,492� � � � A
reconciliation of net income (loss) to EBITDA and Adjusted EBITDA
follows: Net income (loss) $ (3,962) $ 3,215� $ -� $ (747) Income
tax expense (benefit) (1,056) 2,057� -� 1,001� Interest expense
(income) (273) 2,002� -� 1,729� Depreciation and amortization �
6,112� � -� � -� � 6,112� EBITDA $ 821� $ 7,274� -� $ 8,095�
Stock-based compensation 16� -� -� 16� Relocation-related costs �
1,381� � -� � -� � 1,381� Adjusted EBITDA $ 2,218� $ 7,274� $ -� $
9,492� ECOST.COM, INC. SELECTED OPERATING DATA � THREE MONTHS ENDED
DECEMBER 31, 2006� 2005� � TOTAL CUSTOMERS (1) 1,645,645�
1,415,055� ACTIVE CUSTOMERS (2) 287,601� 467,760� NEW CUSTOMERS (3)
29,915� 71,066� NUMBER OF ORDERS (4) 74,770� 114,928� AVERAGE ORDER
VALUE (5) $ 272� $ 374� ADVERTISING EXPENSE (6) $ 438,000� $
1,378,000� COST TO ACQUIRE A NEW CUSTOMER $ 14.63� $ 19.39� (1)
TOTAL CUSTOMERS HAVE BEEN CALCULATED AS THE CUMULATIVE NUMBER OF
CUSTOMERS FOR WHICH ORDERS HAVE BEEN TAKEN FROM ECOST.COM�S
INCEPTION TO THE END OF THE REPORTED PERIOD. � (2) ACTIVE CUSTOMERS
CONSIST OF THE APPROXIMATE NUMBER OF CUSTOMERS WHO PLACED ORDERS
DURING THE 12 MONTHS PRIOR TO THE END OF THE REPORTED PERIOD. � (3)
NEW CUSTOMERS REPRESENT THE NUMBER OF PERSONS THAT ESTABLISHED A
NEW ACCOUNT AND PLACED AN ORDER DURING THE REPORTED PERIOD. � (4)
NUMBER OF ORDERS REPRESENTS THE TOTAL NUMBER OF ORDERS SHIPPED
DURING THE REPORTED PERIOD (NOT REFLECTING RETURNS). � (5) AVERAGE
ORDER VALUE HAS BEEN CALCULATED AS GROSS SALES DIVIDED BY THE TOTAL
NUMBER OF ORDERS DURING THE PERIOD PRESENTED. THE IMPACT OF RETURNS
IS NOT REFLECTED IN AVERAGE ORDER VALUE. � (6) ADVERTISING EXPENSE
INCLUDES THE TOTAL DOLLARS SPENT ON ADVERTISING DURING THE REPORTED
PERIOD, INCLUDING INTERNET, DIRECT MAIL, PRINT AND E-MAIL
ADVERTISING, AS WELL AS CUSTOMER LIST ENHANCEMENT SERVICES.
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