<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
----------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED FEBRUARY 28, 1997
COMMISSION FILE NUMBER 0-19433
[LOGO]
TECHNOLOGY SOLUTIONS COMPANY
INCORPORATED IN THE STATE OF DELAWARE
EMPLOYER IDENTIFICATION NO. 36-3584201
205 NORTH MICHIGAN AVENUE
SUITE 1500
CHICAGO, ILLINOIS 60601
(312) 228 -4500
TSC (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS, AND
(2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
AS OF APRIL 10, 1997, THERE WERE OUTSTANDING 16,362,894 SHARES OF TSC
COMMON STOCK, PAR VALUE
$.01.
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
INDEX TO FORM 10-Q
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PART I
PAGE
NUMBER
------
FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at
February 28, 1997 and May 31, 1996............. 1
Consolidated Statements of Income
For the Three Months Ended and Nine Months Ended
February 28, 1997 and February 29, 1996... 2
Consolidated Statements of Cash Flows
For the Nine Months Ended
February 28, 1997 and February 29, 1996.... 3
Notes to Consolidated Financial Information.......... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 7
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........... 11
Exhibit No. 11 -- Calculation of Earnings per Share.. 12
SIGNATURES.................................................... 13
EXHIBIT INDEX
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PAGE i
<PAGE>
PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
TECHNOLOGY SOLUTIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
February 28, May 31,
1997 1996
--------------- --------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................... $24,428 $12,990
Marketable securities............................................... 15,515 11,580
Accounts receivable, net............................................ 39,234 23,537
Refundable income taxes............................................. 1,732 5,117
Deferred income taxes............................................... 9,295 1,194
Other current assets................................................ 7,913 6,166
----------- -----------
Total current assets............................................ 98,117 60,584
COMPUTERS, FURNITURE AND EQUIPMENT, NET.............................. 4,977 4,443
LONG-TERM INVESTMENTS................................................ 8,771 17,140
COST IN EXCESS OF NET ASSETS OF ACQUIRED
BUSINESS AND OTHER INTANGIBLES...................................... 3,589 3,079
LONG-TERM RECEIVABLES AND OTHER...................................... 3,854 4,191
----------- -----------
Total assets.................................................... 119,308 $89,437
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................... 728 $ 1,344
Accrued compensation and related costs............................... 13,171 11,621
Capitalized lease obligations........................................ 1,551 2,616
Deferred compensation................................................ 6,248 2,660
Other current liabilities............................................ 429 1,167
------------ ------------
Total current liabilities........................................ 22,127 19,408
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; shares authorized --
10,000,000; none issued.......................................... -- --
Common stock, $.01 par value; shares authorized --
50,000,000; shares issued -- 17,903,593.......................... 179 179
Capital in excess of par value....................................... 62,047 50,344
Retained earnings.................................................... 45,847 35,983
Unrealized holding loss.............................................. (384) (642)
Cumulative translation adjustment.................................... (273) --
------------- ------------
107,416 85,864
Less: Treasury Stock, at cost (1,949,344 and 3,014,045 shares,
respectively).................................................... (10,235) (15,835)
----------- -----------
Total stockholders' equity....................................... 97,181 70,029
------------ ------------
Total liabilities and stockholders' equity....................... $119,308 $89,437
----------- -----------
----------- -----------
The accompanying Notes to Consolidated Financial Statements are an integral part of this
financial information.
</TABLE>
PAGE 1
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended February 28 and 29, Ended February 28 and 29,
------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Professional fees..................................... $42,120 $25,104 $113,456 $68,964
Software and hardware products........................ 226 362 573 534
---------- ---------- ------------ ----------
42,346 25,466 114,029 69,498
-------- -------- --------- --------
COSTS AND EXPENSES:
Project personnel..................................... 20,135 12,828 53,958 33,474
Other project expenses................................ 6,178 3,115 16,237 9,269
Cost of products sold................................. -- 384 54 405
Management and administrative support................. 8,086 5,836 21,729 17,047
Shareholder litigation settlement..................... -- -- -- 2,345
Company founder litigation settlement................. -- 944 -- 944
Incentive compensation................................ 1,944 1,807 6,969 4,781
--------- --------- ----------- ---------
36,343 24,914 98,947 68,265
-------- -------- ---------- --------
OPERATING INCOME......................................... 6,003 552 15,082 1,233
--------- ---------- ---------- ---------
OTHER INCOME (EXPENSE):
Net investment income................................. 578 549 1,637 1,521
Interest expense...................................... (40) (47) (146) (112)
----------- ------------ ------------- -----------
538 502 1,491 1,409
----------- ---------- ----------- ---------
INCOME BEFORE INCOME TAXES............................... 6,541 1,054 16,573 2,642
INCOME TAX PROVISION..................................... 2,548 286 6,709 676
--------- ---------- ----------- ----------
NET INCOME............................................... $ 3,993 $ 768 $ 9,864 $ 1,966
-------- --------- ---------- --------
-------- --------- ---------- --------
EARNINGS PER COMMON SHARE................................ $ 0.22 $ 0.05 $ 0.56 $ 0.12
--------- --------- ----------- ---------
--------- --------- ----------- ---------
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING........................................... 17,894,269 16,377,267 17,578,416 16,022,715
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The accompanying Notes to Consolidated Financial Statements are an integral part of this financial information.
</TABLE>
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<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Nine Months Ended
February 28 and 29,
---------------------------------
1997 1996
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 9,864 $ 1,966
Adjustments to reconcile net income to net
cash from operating activities:
Provisions for receivable valuation allowances and
reserves for possible losses............................. 2,086 1,081
Gain on sales of marketable securities.................... -- (18)
Deferred income taxes..................................... (8,241) (851)
Depreciation and amortization............................. 3,036 1,877
Changes in assets and liabilities:
Receivables.............................................. (17,783) (6,206)
Purchases of trading securities related to deferred
compensation program.................................... (3,588) (1,800)
Other current assets..................................... (1,696) (2,647)
Accounts payable......................................... (616) (423)
Accrued compensation and related costs................... 1,550 3,394
Income taxes payable/refundable.......................... 13,830 (177)
Accrued legal costs ..................................... (14) (566)
Capitalized lease obligations............................ (1,065) 738
Other current liabilities................................ (724) (62)
Deferred compensation funds from employees............... 3,588 1,800
--------- ---------
Net cash provided by (used in) operating activities..... 227 (1,894)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from available-for-sale securities.................. -- 1,075
Proceeds from maturity of held-to-maturity investments....... 8,140 4,015
Capital expenditures......................................... (2,140) (2,359)
Net assets of acquired business and other intangibles........ (1,562) --
Change in other assets....................................... 337 116
---------- ----------
Net cash provided by investing activities................ 4,775 2,847
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from employees stock purchase plan.................. 1,192 179
Proceeds from exercise of stock options...................... 5,517 6,053
--------- ---------
Net cash provided by financing activities................ 6,709 6,232
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS.................................. (273) --
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS........................... 11,438 7,185
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD..................................................... 12,990 7,595
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................ $24,428 $14,780
------- -------
------- -------
The accompanying Notes to Consolidated Financial Statements are an integral part of this financial information.
</TABLE>
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TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
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NOTE 1--BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Technology
Solutions Company and its subsidiaries ("the Company"). The consolidated
financial statements of income for the nine months and three months ended
February 28, 1997 and February 29, 1996, the consolidated balance sheet as of
February 28, 1997 and the consolidated statements of cash flows for the nine
months ended February 28, 1997 and February 29, 1996 have been prepared by the
Company without audit. In the opinion of management, these financial statements
include all adjustments necessary to present fairly the financial position,
results of operations and cash flows as of February 28, 1997 and for all periods
presented. All adjustments made have been of a normal recurring nature.
Certain information and footnote disclosure normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes that the disclosures
included are adequate and provide a fair presentation of interim period results.
Interim financial statements are not necessarily indicative of financial
position or operating results for an entire year. It is suggested that these
interim financial statements be read in conjunction with the audited financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996 filed with the Securities and
Exchange Commission on August 22, 1996.
Certain previously reported amounts have been reclassified to conform with the
current period presentation, specifically the restatement of earnings per
common share and weighted average number of common and common shares outstanding
to reflect the three for two stock split effected in July, 1996.
NOTE 2--THE COMPANY
The Company delivers business benefits through consulting and systems
integration services that help clients transform customer relationships and
improve operations. The Company's clients generally are located throughout the
United States and in Europe, Latin America, and Canada.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION--The Company recognizes revenue on contracts as work is
performed primarily based on hourly billing rates. Out-of-pocket expenses are
presented net of amounts billed to clients in the accompanying consolidated
statements of income. Substantially all of the Company's revenues are generated
from contracts for consulting services. These contracts are performed in phases.
Losses on contracts, if any, are reserved in full when determined. Revenue from
licensing of software is recognized upon delivery of the product. The Company
does not presently have any significant maintenance contracts for software
licensed to clients. Revenue from hardware sales is recognized upon delivery.
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TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION --(CONTINUED)
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CASH AND CASH EQUIVALENTS--The Company considers all highly liquid investments
readily convertible into cash to be cash equivalents with original maturities of
three months or less. These short-term investments are carried at cost plus
accrued interest, which approximates market.
MARKETABLE SECURITIES--The Company's marketable securities primarily consist of
preferred stocks. These preferred stocks, all of which are classified as
available-for-sale, are reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a net after-tax amount in a separate
component of stockholders' equity until realized. The Company's investments
related to the executive deferred compensation plan are classified as trading
securities, with unrealized gains and losses included in net investment income.
Realized gains or losses are determined by the specific identification method.
COMPUTERS, FURNITURE AND EQUIPMENT--Computers, furniture and equipment are
stated at cost, less accumulated depreciation. Depreciation is generally
provided over five years or less, using the straight-line method.
LONG-TERM INVESTMENTS--The Company's long-term investments consist of municipal
bonds with maturities primarily through 1998. Since the Company has the ability
and intent to hold the bonds to maturity, the investments are classified as
held-to-maturity under the provisions of SFAS 115 and, accordingly, are
accounted for at cost, net of accumulated amortization. Municipal bonds held by
the Company are regarded as investment grade by independent nationally
recognized rating agencies.
INCOME TAXES--The Company files its federal and state income tax returns on a
calendar year basis. The current income tax provision represents the Company's
federal, state and foreign income taxes for the fiscal year as though tax
returns were filed on a fiscal year basis ending on May 31. Deferred income
taxes are provided for the temporary differences between the financial reporting
basis and the tax basis of the Company's assets and liabilities in accordance
with SFAS 109.
EARNINGS PER COMMON SHARE--Earnings per common share are computed by dividing
net income per the modified treasury stock method by the weighted average number
of common shares outstanding during each period presented, including common
share equivalents arising from the assumed exercise of stock options.
NOTE 4--STOCKHOLDERS' EQUITY
During the first nine months of fiscal 1997, the Company issued 1,014,043
treasury shares as a result of the exercise of stock options and 50,658 shares
as a result of purchases through the employee stock purchase plan. The Company
had a balance of 1,949,344 shares of Treasury Stock carried at $10.2 million.
NOTE 5--STOCK OPTIONS
On September 26, 1996, the Company's stockholders approved the 1996 Stock
Incentive Plan (the "1996 Plan"). All awards made after this date have been made
under the
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TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION --(CONTINUED)
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1996 Plan. Additionally, all shares available for award under the
Technology Solutions Company 1992 Stock Incentive Plan and the Technology
Solutions Company 1993 Outside Director Stock Option Plan immediately prior to
the effectiveness of the 1996 Plan became available for award under the 1996
Plan on September 26, 1996.
For the nine months ended February 28, 1997, the Company authorized the grant to
employees, pursuant to Technology Solutions Company 1992 Stock Incentive Plan
and the 1996 Plan, of options to purchase 1,161,040 shares of the Company's
common stock.
At February 28, 1997, options to purchase 4.7 million shares of common stock
were outstanding and options to purchase an additional 2.0 million shares of
common stock were available for grant under the 1996 Plan.
NOTE 6--IMPACT OF NEW
ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS No. 123, "Accounting
for Stock-Based Compensation". The Company adopted this standard on June 1,
1996 and will make the required footnote disclosure only. Therefore, the
adoption of this standard will not have an effect on the Company's financial
position or results of operations.
NOTE 7--ACQUISITION OF GEISING
INTERNATIONAL
In February 1997, the Company acquired Geising International, a German-based
business consulting firm focused on customer relationship management services.
The results of Geising operations have been combined with those of the Company
since the date of acquisition. The acquisition was accounted for using the
purchase method of accounting. Accordingly, cost in excess of net assets of
acquired business (goodwill) is being recorded and amortized over five years on
a straight-line basis. The operations of Geising International are not
material to the Company's consolidated operations.
NOTE 8--SUBSEQUENT EVENT
On March 1, 1997, the Company combined with HRM Resources, Inc. through the
exchange of 374,026 shares of common stock of the Company for all the issued and
outstanding shares of HRM Resources. HRM Resources is a technology
implementation firm based in New York that specializes in large-scale financial
and human resources software packages. This transaction will be accounted for
as a pooling of interest. The operations of HRM Resources are not material to
the Company's consolidated operations.
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Page 6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1997 COMPARED WITH THREE MONTHS ENDED FEBRUARY
29, 1996
Consolidated net revenues for the third quarter ended February 28, 1997 were
$42.3 million, compared with $25.5 million for the same period last fiscal year,
an increase of 66.3%. The increase in revenues is attributable to the increase
in billable hours which is a result of the growth in the overall information
technology professional services market combined with the Company's increase in
consulting staff and marketing efforts. Also contributing to the revenue
increase is an increase in average hourly billing rates which is primarily
due to the hiring of a greater percentage of more senior personnel. The
increase in revenue includes a 58.9% increase in domestic billable hours, a
4.7% increase in the domestic billing rate and international revenues of $4.8
million.
Third quarter project personnel costs increased to $20.1 million in fiscal 1997
from $12.8 million in fiscal 1996, an increase of 57.0%. This increase is due to
headcount increases and is in line with the higher revenues reported in fiscal
1997. Project personnel costs as a percentage of net revenue was 47.5% for
the fiscal 1997 third quarter compared with project personnel costs as a
percentage of net revenue of 50.4% for the same period last year. This
decrease is primarily due to a more efficient utilization of professional
staff.
Total Company headcount at February 28, 1997 was 989 compared to 579 at
February 29, 1996, an increase of 410 people, or 71%. The total number of
project managers at February 28, 1997 was 108 compared to 66 at February 29,
1996, an increase of 42 people, or 63.6%. The increase in headcount was
necessary to support the large amount of new clients and projects the Company
has contracted with in the last year. In addition, the Company has broadened
its senior personnel to further support the Company's project management
model, add new senior expertise, and get closer to the client's business
needs.
TSC charges most of its project expenses directly to the client. Other project
expenses consist of non-billable expenses directly incurred for client projects
and business development efforts including recruiting fees, personnel training,
travel and provisions for valuation allowances and reserves for potential losses
on continuing projects. Other project expenses for the fiscal 1997 third quarter
increased $3.1 million to $6.2 million, as compared to $3.1 million during the
third quarter of fiscal 1996. This increase is primarily related to an increase
in training and related costs of $0.3 million, an increase in the provision for
valuation allowances of $0.8 million resulting from the growth of receivables in
fiscal 1997 and an increase in non-billable travel costs of $0.9 million. The
increase also includes $0.8 million related to foreign operations. The increase
in non-billable travel expense is primarily due to travel associated with
increased client proposal and business development activity.
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<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- (CONTINUED)
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Management and administrative support costs increased to $8.1 million in the
third quarter of fiscal 1997 from $5.8 million in fiscal 1996. This increase of
$2.3 million is primarily due to the international expansion of $0.9 million;
growth in the domestic regional practice area management, travel and hiring
costs of $0.6 million; and increased domestic administrative support of $0.8
million. During the third quarter of fiscal 1996, $0.9 million was accrued for
the employee retention program. This program expired in March 1996 and,
therefore, no accrual was made in fiscal 1997.
Third quarter fiscal 1996 results include a pre-tax charge to earnings of $0.9
million in connection with the settlement of litigation between the Company and
certain of its founders.
Incentive compensation of $1.9 million was accrued during the third quarter of
fiscal 1997 while $1.8 million was accrued during the third quarter of fiscal
1996. The Company expects to continue to accrue incentive compensation
throughout the fiscal year in order to retain our high quality work force.
The effective tax rate for the fiscal 1997 third quarter was 39.0% compared to
27.1% for the same period last year. The increase in the effective rate is due
to reduced nontaxable investment income in fiscal 1997.
Common and common equivalent shares increased primarily due to the exercise of
stock options during the period from the third quarter of fiscal 1996 to the
third quarter of fiscal 1997.
NINE MONTHS ENDED FEBRUARY 28, 1997 COMPARED WITH NINE MONTHS ENDED FEBRUARY 29,
1996
CONSOLIDATED NET REVENUES FOR THE NINE MONTHS ENDED FEBRUARY 28, 1997 WERE
$114.0 million, compared with $69.5 million for the same period last fiscal
year, an increase of 64.1%. The principal source of the increase was a 43.0%
increase in domestic billable hours which is a result of the growth in the
overall information technology professional services market, combined with the
Company's increase in consulting staff and marketing efforts. Average hourly
billing rates increased 5.0% domestically from last fiscal year. Additionally,
fiscal 1997 contained $13.2 million in international revenues compared to $1.7
million in 1996.
Project personnel costs for the first nine months of fiscal 1997 increased to
$54.0 million in fiscal 1997 from $33.5 million in fiscal 1996, an increase of
61.2%. This increase is due to headcount increases and is in line with the
higher revenues reported in fiscal 1997. Project personnel costs as a
percentage of net revenue was 47.3% for fiscal 1997 compared with project
personnel costs as a percentage of net revenue of 48.2% for the same period
last year. This decrease is primarily the result of a more efficient
utilization of professional staff.
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<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- (CONTINUED)
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Other project expenses for the first nine months of fiscal 1997 were $16.2
million as compared to $9.3 million for the first nine months of fiscal 1996, an
increase of 75.2%. This increase is primarily related to an increase in hiring,
training and related costs of $1.5 million and an increase in non-billable
travel costs of $2.8 million in the first nine months of fiscal 1997 as compared
to the comparable period in 1996.
Management and administrative support costs increased to $21.7 million in the
first nine months of fiscal 1997 from $17.0 million for the same period last
year, an increase of 27.5%. This increase of $4.7 million is principally due to
the international expenses of $3.6 million; growth in the domestic regional
practice area management, and travel and hiring costs of $1.1 million, slightly
offset by various other operating costs. During the first nine months of fiscal
1996, $2.9 million was accrued for the employee retention program. This program
expired in March 1996 and, therefore, no accrual was made in fiscal 1997.
During the nine months ended February 29, 1996, the Company settled certain
shareholder litigation resulting in a pre-tax charge to earnings of $2.4
million. Also settled during fiscal 1996 was litigation between the Company and
certain of its founders resulting in a pre-tax charge to earnings of $0.9
million.
Incentive compensation of $7.0 million was accrued for the first nine months of
fiscal 1997 as compared to $4.8 million in fiscal 1996. The Company expects to
continue to accrue incentive compensation throughout fiscal 1997.
The effective tax rate for the first nine months of fiscal 1997 was 40.5%
compared to 25.6% for the same period last year. The increase in the effective
rate is due to reduced nontaxable investment income in fiscal 1997.
The increase in common and common equivalent shares is primarily due to the
exercise of options.
DISCUSSION OF CASH FLOWS
Net cash provided by operating activities was $0.2 million compared with net
cash used of $1.9 million for the nine months ended February 28, 1997 and
February 29, 1996, respectively. The change is due mainly to the increase in
net income offset by the increase in receivables of $17.8 million. The
receivables increase is a result of the significant revenue growth of the
Company compared with the prior year, as well as the lengthening of the
collection periods. Cash flows provided by investing activities were $4.8
million in fiscal 1997 compared with $2.8 million in fiscal 1996. The
increase is primarily due to the maturity of held-to-maturity investments in
fiscal 1997. Proceeds of $8.1 million were received by the Company for these
investments. Capital expenditures did not change significantly between
years. Cash flows from financing activities were $6.7 million in fiscal 1997
compared to $6.2 million the same period last year. The increase is due to
the increased participation and activity in the employee stock purchase
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<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- (CONTINUED)
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plan slightly offset by decreases of proceeds from the exercise of stock
options.
The Company has a $5.0 million unsecured revolving credit facility with Bank of
America Illinois. The agreement expires September 5, 1997. The terms of the
agreement are not materially different from the previous agreement. There were
no outstanding balances on the credit facility as of February 28, 1997.
ANY FORWARD-LOOKING STATEMENTS INCLUDED IN THIS NEWS RELEASE, REFLECT
MANAGEMENT'S BEST JUDGMENT BASED ON FACTORS CURRENTLY KNOWN, INVOLVE RISKS AND
UNCERTAINTIES INCLUDING THE SUCCESSFUL COMPLETION OF CLIENT PROJECTS AND THE
DEVELOPMENT OF NEW CONSULTING SERVICES AND GEOGRAPHIC MARKETS, THE SUCCESSFUL
INTEGRATION OF THE OPERATIONS OF RECENTLY ACQUIRED BUSINESSES AND BUSINESS
COMBINATIONS, AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S SEC
REPORTS, INCLUDING THE REPORT ON FORM 10-K FOR THE YEAR ENDED MAY 31, 1996, AND
THE ANNUAL REPORT TO SHAREHOLDERS. ACTUAL RESULTS MAY VARY MATERIALLY.
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<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
PART II. OTHER INFORMATION
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ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 -- Computation of earnings per share
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended February
28, 1997.
All other items in Part II are either not applicable to the Company during
the quarter ended February 28, 1997, the answer is negative, or a response has
been previously reported and an additional report of the information need not be
made, pursuant to the instructions to Part II.
Page 11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, TSC has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TECHNOLOGY SOLUTIONS COMPANY
Date: April 11, 1997 By: /s/ Martin T. Johnson
------------------- -------------------------------
Martin T. Johnson
Senior Vice President and Chief Financial
Officer
Page 12
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Paper (P) or
Number Description Electronic (E)
- ------ ------------------------- --------------
11 Calculation of Earnings per Share (P)
27 Financial Data Schedule (E)
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<PAGE>
EXHIBIT 11
TECHNOLOGY SOLUTIONS COMPANY
AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(In thousands, except earnings per share)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
February 28 and 29, February 28 and 29,
----------------------- -----------------------
1997 1996 1997 1996
----- ----- ----- -----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income per statements of income $3,993 $ 768 $9,864 $1,966
Earnings resulting from modified treasury
stock method -- 61 -- 194
------ ------- ------ -----
Net earnings per modified treasury
stock method $3,933 $ 829 $9,864 $2,160
------ ------- ------ ------
------ ------- ------ ------
Shares:
Weighted average shares outstanding 15,822 13,969 15,474 13,712
Common stock equivalents 2,072 2,408 2,104 2,311
------ ------- ------- ------
Total 17,894 16,377 17,578 16,023
------ ------ ------ ------
------ ------ ------ ------
Earnings per share $ 0.22 $ 0.05 $ 0.56 $ 0.12
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 24,428
<SECURITIES> 15,515
<RECEIVABLES> 41,875
<ALLOWANCES> (2,641)
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<CURRENT-ASSETS> 98,117
<PP&E> 13,573
<DEPRECIATION> (8,596)
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<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> 97,002
<TOTAL-LIABILITY-AND-EQUITY> 119,308
<SALES> 226
<TOTAL-REVENUES> 42,346
<CGS> 0
<TOTAL-COSTS> 36,343
<OTHER-EXPENSES> (578)
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<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 6,541
<INCOME-TAX> 2,548
<INCOME-CONTINUING> 3,993
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<EXTRAORDINARY> 0
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<NET-INCOME> 3,993
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
