<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 June 30, 1999
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 July 30, 1999, there were outstanding 41,913,666
shares of TSC Common Stock, par value $.01.
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
Index to Form 10-Q
=================================================================
Part I
Page
Number
------
FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations
for the Three Months and Six Months
Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
Part II
OTHER INFORMATION
Item 4 27
Item 6 27
SIGNATURES 28
EXHIBIT INDEX 29
Page 2
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PART I. FINANCIAL INFORMATION
===========================================================================
ITEM 1. Financial Statements
TECHNOLOGY SOLUTIONS COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
------
June 30, December 31,
1999 1998
--------- ---------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 60,374 $ 59,473
Marketable securities 24,017 25,269
Receivables, less allowance for
doubtful receivables of $5,834 and $4,845 84,303 69,212
Deferred income taxes 17,146 15,297
Other current assets 11,218 13,764
------- -------
Total current assets 197,058 183,015
COMPUTERS, FURNITURE AND EQUIPMENT, NET 7,651 9,372
COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES 14,630 17,901
LONG-TERM RECEIVABLES AND OTHER 6,583 8,811
-------- --------
Total assets $225,922 $219,099
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 2,864 $ 3,263
Accrued compensation and related costs 29,347 25,184
Deferred compensation 16,482 16,494
Restructuring accrual 3,483 --
Other current liabilities 7,037 5,913
------ ------
Total current liabilities 59,213 50,854
------ ------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; shares authorized -
10,000,000; none issued -- --
Common stock, $.01 par value; shares authorized -
100,000,000; shares issued - 41,698,359 417 412
Capital in excess of par value 93,765 94,886
Retained earnings 74,187 76,938
Accumulated other comprehensive loss:
Unrealized holding loss, net (61) (9)
Cumulative translation adjustment (1,599) (1,336)
------- ------
166,709 170,891
Less: treasury stock, at cost (0 and 275,911 shares) -- (2,646)
------- --------
Total stockholders' equity 166,709 168,245
-------- --------
Total liabilities and stockholders' equity $225,922 $219,099
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of this financial information.
Page 3
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TECHNOLOGY SOLUTIONS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
---------------- ---------------
1999 1998 1999 1998
------- ------- ------- ------
(Unaudited) (Unaudited)
REVENUES $78,411 $83,277 $155,346 $156,747
------- ------- -------- --------
COSTS AND EXPENSES:
Project personnel 37,750 38,285 78,442 72,440
Other project expenses 11,445 11,958 23,505 22,145
Management and administrative support 16,308 17,906 35,141 33,435
Goodwill amortization 1,249 972 2,573 1,877
Restructuring charge -- -- 10,522 --
Incentive compensation 5,405 2,400 9,707 4,405
------ ------ ------- --------
72,157 71,521 159,890 134,302
------ ------ ------- --------
OPERATING INCOME (LOSS) 6,254 11,756 (4,544) 22,445
------ ------ ------- -------
OTHER INCOME (EXPENSE):
Net investment income 775 673 1,627 1,369
Interest expense (25) (21) (69) (40)
--- --- ------ -----
750 652 1,558 1,329
--- --- ------ -----
INCOME (LOSS) BEFORE INCOME TAXES 7,004 12,408 (2,986) 23,774
INCOME TAX PROVISION (BENEFIT) 3,085 4,986 (235) 9,917
------ ------ ------- -------
NET INCOME (LOSS) $3,919 $ 7,422 $(2,751) $13,857
====== ======= ======= =======
EARNINGS (LOSS) PER COMMON SHARE $ 0.09 $ 0.19 $ (0.07) $ 0.35
====== ======= ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 41,554 39,855 41,281 39,645
====== ======= ======= =======
EARNINGS (LOSS) PER COMMON SHARE
ASSUMING DILUTION $ 0.09 $ 0.17 $(0.07) $ 0.32
====== ======= ======= =======
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 42,920 43,568 41,281 43,370
====== ======= ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral
part of this financial information.
Page 4
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TECHNOLOGY SOLUTIONS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the
Six Months Ended
June 30,
-----------------
1999 1998
------- -------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (2,751) $ 13,857
Restructuring charge 10,522 --
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation and amortization 4,898 4,177
Provisions for receivable valuation
allowances and reserves for possible losses 2,846 912
(Gain) loss on sale of investments (102) 67
Deferred income taxes (1,982) 2,516
Changes in assets and liabilities:
Receivables (18,946) (20,496)
Purchases of trading securities related
to deferred compensation program 12 (2,681)
Refundable income taxes -- 1,202
Other current assets 1,610 (5,949)
Accounts payable (332) 1,625
Accrued compensation and related costs 4,373 2,811
Deferred compensation funds from employees (12) 2,681
Other current liabilities (1,573) 4,938
Other assets 1,845 (1,495)
------- ------
Net cash provided by operating activities 408 4,165
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities (1,500) (5,950)
Proceeds from available-for-sale securities 2,820 3,705
Proceeds from held-to-maturity investments -- 1,320
Capital expenditures, net (938) (2,548)
Net assets of acquired businesses
and other assets -- (382)
Capitalized lease obligation -- 4
Net cash provided by ------- ------
(used in) investing activities 382 (3,851)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 2,164 2,544
Proceeds from employee stock purchase plan 2,132 2,244
Purchase of treasury stock (4,930) --
Net cash (used in) provided ------- ------
by financing activities (634) 4,788
------- ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 745 (63)
------- ------
INCREASE IN CASH AND CASH EQUIVALENTS 901 5,039
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 59,473 42,722
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $60,374 $47,761
======= =======
The accompanying Notes to Consolidated Financial Statements are an
integral part of this financial information.
Page 5
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
=================================================================
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
Technology Solutions Company and its subsidiaries ("TSC" or the
"Company"). The consolidated balance sheet as of June 30, 1999,
the consolidated statements of operations for the three months
and six months ended June 30, 1999 and 1998 and the consolidated
statements of cash flows for the six months ended June 30, 1999
and 1998 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 June 30, 1999 and for
all periods presented. All adjustments made have been of a normal
and recurring nature. Certain information and footnote
disclosures 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 Transition Report on Form 10-K for the seven
month transition period ended December 31, 1998 filed with the
United States Securities and Exchange Commission (SEC) on March
30, 1999.
Certain reclassifications have been made to prior periods to
conform to the current period classification.
NOTE 2 - THE COMPANY
TSC 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, Canada and Australia.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION-The accompanying consolidated
financial statements include the accounts of the Company and all
of its subsidiaries. All significant intercompany transactions
have been eliminated. Acquired businesses are included in the
results of operations since their acquisition dates.
FISCAL YEAR CHANGE-On November 22, 1998, the Company's Board of
Directors voted to change the fiscal year of the Company from a
fiscal year ending on the thirty-first day of May in each year to
a calendar year ending on the thirty-first day of December in
each year.
REVENUE RECOGNITION-The Company derives substantially all of its
revenues from information technology (IT), strategic business and
management consulting, systems integration, programming, and
packaged software integration and implementation services. The
Company recognizes revenue on contracts as work is performed
Page 6
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
=================================================================
primarily based on hourly billing rates. Out-of-pocket expenses
are presented net of amounts billed to clients in the
accompanying consolidated statements of operations. 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 and support contracts
for software licensed to clients.
CASH AND CASH EQUIVALENTS-The Company considers all highly liquid
investments readily convertible into cash (with original
maturities of three months or less) to be cash equivalents. 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 and trading securities. The
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 the Company's
consolidated statements of operations. Realized gains or losses
are determined on the specific identification method.
COMPUTERS, FURNITURE AND EQUIPMENT-Computers, furniture and
equipment are carried at cost and depreciated on a straight-line
basis over their estimated useful lives. Useful lives generally
are five years or less.
COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES-The excess of
cost over the fair market value of the net identifiable assets of
businesses acquired (goodwill) is amortized on a straight-line
basis, typically over a five-year period.
FOREIGN CURRENCY TRANSLATION-All assets and liabilities of
foreign subsidiaries are translated to U.S. dollars at end of
period exchange rates. The resulting translation adjustments are
recorded as a component of stockholders' equity. Income and
expense items are translated at average exchange rates prevailing
during the period. Gains and losses from foreign currency
transactions of these subsidiaries are included in the
consolidated statements of operations. The functional currencies
for the Company's foreign subsidiaries are their local
currencies.
FAIR VALUE OF FINANCIAL INSTRUMENTS-The carrying values of
current assets and liabilities and long-term receivables
approximated their fair values at June 30, 1999 and December 31,
1998. Investments pertaining to minor investments in companies
for which fair value is not readily available are believed to
approximate their carrying amount.
Page 7
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
=================================================================
STOCK-BASED COMPENSATION-The Company accounts for stock-based
compensation using the intrinsic value method prescribed in
Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. The
Company recognizes no compensation expense for its stock option
plan or employee stock purchase plan.
INCOME TAXES-The Company uses an asset and liability approach to
financial accounting and reporting for income taxes. Deferred
income taxes are provided when tax laws and financial accounting
standards differ with respect to the amount of income for a year
and the basis of assets and liabilities. The Company does not
provide U.S. deferred income taxes on earnings of foreign
subsidiaries which are expected to be indefinitely reinvested.
ESTIMATES AND ASSUMPTIONS-The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
NOTE 4 - STOCK OPTIONS
As of June 30, 1999, options to purchase 9.6 million shares of
common stock were outstanding and options to purchase an
additional 0.6 million shares of common stock were available for
grant under the Technology Solutions Company 1996 Stock Incentive
Plan.
eLoyalty Corporation, a wholly owned subsidiary of the Company,
has adopted the eLoyalty Corporation 1999 Stock Incentive Plan
(the "eLoyalty Plan"). The number of eLoyalty common shares
initially available for all grants of awards over the term of the
eLoyalty Plan is equal to approximately 12 percent of the aggregate
number of eLoyalty common shares that would be issued and
outstanding after the Asset Transfer (defined in Note 10) and after
giving effect to the purchase of eLoyalty common shares by the
unaffiliated investors described in Note 10. On July 1, 1999, options
to purchase approximately 89 percent of the number of eLoyalty shares
initially available for grant under the eLoyalty Plan were issued
to certain Company employees, all of which have an exercise price
representing the fair market value of an eLoyalty share on the
date of grant.
The eLoyalty Plan also provides that, in the event of a spin-off
of eLoyalty, substitute options to purchase eLoyalty common shares
("Substitute Options") are available for issuance to holders of
those options to purchase the Company's common shares ("Company
Options") that were granted prior to June 22, 1999. The number of
eLoyalty shares subject to Substitute Options will not exceed the
total number of eLoyalty shares that would be distributed in the
proposed spin-off with respect to shares of Company common stock
equal in number to the shares subject to Company options immediately
prior to the spin-off. The terms and conditions of each Substitute
Option, such as the term and the schedule of exercisability, shall
be the same as those of the Company Option to which the Substitute
Option relates.
NOTE 5 - CAPITAL STOCK
During the quarter ended March 31, 1999, the Company repurchased
480,000 shares of the Company's outstanding Common Stock for $4.9
million under a 2,000,000 share repurchase program announced in
November 1998. No shares were purchased during the quarter ended
June 30, 1999.
Page 8
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
=================================================================
NOTE 6 - EARNINGS (LOSS) PER COMMON SHARE
The Company discloses basic and diluted earnings (loss) per
common share in the consolidated statements of operations under
the provisions of SFAS No. 128, "Earnings Per Share." Earnings
(loss) per common share assuming dilution is computed by dividing
net income (loss) by the weighted average number of common shares
outstanding during each period presented, including common
equivalent shares arising from the assumed exercise of stock
options, where appropriate. Earnings (loss) per common share is
computed by dividing net income (loss) by the weighted average
number of common shares outstanding during each period presented.
All share and per share amounts have been adjusted to reflect all
of the Company's prior stock splits.
Reconciliation of Basic and Diluted Earnings Per Share
(In thousands, except per share data)
-------------------------------------------------------------
For the Three Months Ended For the Three Months Ended
June 30, 1999 June 30, 1998
-------------------------- --------------------------
Net Per Common Net Per Common
Income Shares Share Income Shares Share
------ ------ ---------- ------ ------ ----------
Basic
Earnings
Per Share $3,919 41,554 $0.09 $7,422 39,855 $0.19
===== =====
Effect
of
Stock
Options -- 1,366 -- 3,713
------ ------ ------ ------
Diluted
Earnings
Per Share $3,919 42,920 $0.09 $7,422 43,568 $0.17
====== ====== ===== ====== ====== =====
Page 9
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
===================================================================
Reconciliation of Basic and Diluted (Loss) Earnings Per Share
(In thousands, except per share data)
-------------------------------------------------------------
For the Six Months Ended For the Six Months Ended
June 30, 1999 June 30, 1998
-------------------------- --------------------------
Net Per Common Net Per Common
(Loss) Shares Share Income Shares Share
------ ------ ---------- ------ ------ ----------
Basic
(Loss)
Earnings
Per Share $(2,751) 41,281 $(0.07) $13,857 39,645 $0.35
===== =====
Effect
of
Stock
Options -- -- -- 3,725
------ ------ ------ ------
Diluted
(Loss)
Earnings
Per Share $(2,751) 41,281 $(0.07) $13,857 43,370 $0.32
====== ====== ===== ======= ====== =====
Page 10
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
================================================================
NOTE 7 - COMPREHENSIVE INCOME (LOSS)
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 130, "Reporting Comprehensive Income." The
Company adopted SFAS No. 130 during the transition period ended
December 31, 1998. This statement established new standards for
reporting and displaying comprehensive income and its components
in the financial statements. The Company's comprehensive income
(loss) was as follows:
For the Three Months Ended
(In thousands) June 30,
--------------------------
1999 1998
---------- ---------
Net Income $3,919 $7,422
Accumulated Other Comprehensive (Loss) Income:
Unrealized Holding Losses of
Available-for-Sale Securities, Net of Tax (29) --
Cumulative Translation Adjustment,Net of Tax (694) 15
------ ------
Other Comprehensive (Loss) Income (723) 15
------ ------
Total Comprehensive Income $3,196 $7,437
====== ======
For the Six Months Ended
(In thousands) June 30,
--------------------------
1999 1998
---------- ---------
Net (Loss) Income $(2,751) $13,857
Accumulated Other Comprehensive (Loss) Income:
Unrealized Holding (Losses) Gains of
Available-for-Sale Securities, Net of Tax (52) 65
Cumulative Translation Adjustment,Net of Tax (263) (209)
------ -------
Other Comprehensive (Loss) (315) (144)
------- -------
Total Comprehensive (Loss) Income $(3,066) $13,713
======= =======
Page 11
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
================================================================
NOTE 8 - BUSINESS SEGMENTS
The Company is organized into two business segments which each
have their own business focus and service offering expertise -
Enterprise Solutions (E-Solutions) and eLoyalty. Each serves the
Company's customers in the U.S. and international markets. The
Company believes that a structure based on these focused business
segments addresses its clients' needs for very specialized
industry and systems knowledge and allows its employees the
flexibility and opportunity to grow and develop. Each business
segment develops its own specific methodologies, tools, project
management plans, best practice and benchmark information and
templates. The E-Solutions business segment provides IT
consulting and business services that help clients in
implementing third-party application software packages, cost
controls and related services to implement strategic change in an
organization. The E-Solutions business segment has competencies
in the areas of Enterprise Resource Planning (ERP); Supply Chain
Management; e-business; Knowledge management including data
warehousing and business intelligence; and Change and Learning
Technologies. The eLoyalty business segment provides IT
consulting and strategic business consulting services that help
clients improve operations, transform customer relationships and
build and enhance customer loyalty.
Segment data also includes disclosing corporate infrastructure
costs and corporate adjustments separately as corporate and
Global Core Services (GCS). The objective of the GCS function is
to facilitate local decision-making and support the autonomy of
the business segments, practice areas and project managers, while
maintaining the internal structure necessary to support TSC's
goals. The functional areas within this area include: senior
corporate management; accounting; financial reporting; finance;
tax; legal; treasury; human resources; employee benefits;
marketing; public and investor relations; office operations;
recruiting support; training; internal communications; internal
technology applications; planning; quality assurance; and
insurance. GCS costs also include goodwill amortization.
There are no intersegment revenues. The Company evaluates the
performance of its segments and allocates resources to them based
on revenues, operating income and receivables.
Page 12
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
================================================================
The table below presents information about the reported revenue,
operating income (loss) and receivables of TSC (in thousands) for
the three months and six months ended June 30, 1999 and 1998.
Corporate and
Three Months Ended Global Core Consolidated
June 30, 1999 E-Solutions eLoyalty Services(a) Total
- ------------------ ----------- -------- ------------- ------------
Revenues $43,777 $34,634 $ -- $78,411
Operating income $10,281 $ 8,577 $ (12,604) $ 6,254
Receivables $44,217 $45,920 $ -- $90,137
Corporate and
Three Months Ended Global Core Consolidated
June 30, 1998 E-Solutions eLoyalty Services(a) Total
- ------------------ ----------- -------- ------------- ------------
Revenues $57,938 $25,339 $ -- $83,277
Operating income $15,161 $ 5,885 $ (9,290) $11,756
Receivables $47,607 $24,591 $ -- $72,198
(a) Operating results include goodwill amortization of $1,249 and $972
for the three months ended June 30, 1999 and 1998, respectively.
Corporate and
Six Months Ended Global Core Consolidated
June 30, 1999 E-Solutions eLoyalty Services(a) Total
- ------------------ ----------- -------- ------------- ------------
Revenues $89,979 $65,367 $ -- $155,346
Operating income (loss) $15,512 $15,766 $ (35,822)(b) $ (4,544)
Receivables $44,217 $45,920 $ -- $ 90,137
Corporate and
Six Months Ended Global Core Consolidated
June 30, 1998 E-Solutions eLoyalty Services(a) Total
- ------------------ ----------- -------- ------------- ------------
Revenues $108,313 $48,434 $ -- $156,747
Operating income $26,706 $10,200 $ (14,461) $ 22,445
Receivables $47,607 $24,591 $ -- $ 72,198
(a) Operating results include goodwill amortization of $2,573 and $1,877
for the six months ended June 30, 1999 and 1998,respectively.
(b) Operating results includes a restructuring charge of $10,522.
Page 13
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
================================================================
The following is revenue and long-lived asset information by
geographic area (in thousands):
Three Months Ended United Foreign Consolidated
June 30, 1999 States Subsidiaries Total
- ------------------ -------- ------------ ------------
Revenues $ 69,148 $ 9,263 $ 78,411
Identifiable assets $192,473 $33,449 $225,922
Three Months Ended United Foreign Consolidated
June 30, 1998 States Subsidiaries Total
- ------------------ -------- ------------ ------------
Revenues $ 76,855 $ 6,422 $ 83,277
Identifiable assets $181,895 $19,840 $201,735
Six Months Ended United Foreign Consolidated
June 30, 1999 States Subsidiaries Total
- ------------------ -------- ------------ ------------
Revenues $136,949 $18,397 $155,346
Identifiable assets $192,473 $33,449 $225,922
Six Months Ended United Foreign Consolidated
June 30, 1998 States Subsidiaries Total
- ------------------ -------- ------------ ------------
Revenues $143,258 $13,489 $156,747
Identifiable assets $181,895 $19,840 $201,735
Foreign revenue is based on the country in which the legal
subsidiary is domiciled. No single foreign country's revenue was
material to the consolidated revenues of the Company.
Page 14
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TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
================================================================
NOTE 9 - OTHER EVENTS
On March 30, 1999, the Company announced a number of changes to
its business operations and, as a result, the Company recorded a
restructuring charge of $10.5 million associated with those
changes and the severance of approximately 300 people, primarily
consulting personnel. The restructuring charge was determined
based on a plan prepared at the time the restructuring actions
were approved by management and the Board of Directors. During
the six months ended June 30, 1999, the Company used $7.0 million
of the restructuring accrual as a result of $5.6 million of costs
associated with the severance of approximately 240 employees and
$1.4 million in asset write-offs and other costs. The
restructuring accrual balance is considered adequate to cover the
remaining committed restructuring actions.
Additionally, the Company filed and received preliminary comments
from the U.S. Internal Revenue Service regarding the proposed
spin-off of the Company's eLoyalty business segment as a non-
taxable distribution for U.S. federal income tax purposes. The
Company expects to offer not more than 20 percent of the common
shares of eLoyalty in an initial public offering (IPO) during the
late fall of 1999, with the proposed tax-free distribution of the
remaining eLoyalty shares held by the Company in a spin-off to
follow at a later date (See Note 10).
NOTE 10 - SUBSEQUENT EVENT
On August 13, 1999, the Company sold 500,000 share of Common Stock
(the "Company Shares") to unaffiliated investors in a private
placement for cash proceeds of approximately $4.5 million. The
investors have a single demand registration right with respect to
the Company Shares, which expires twelve months after the date
of the purchase.
In addition, the investors have committed to purchase for
$8.4 million approximately 5 percent of the number of common shares
(the "eLoyalty Shares") of the Company's wholly owned subsidiary,
eLoyalty Corporation, that would be issued and outstanding after
the Company completes the proposed transfer to eLoyalty of the
assets and liabilities of the business historically conducted as
the Company's ECM division (the "Asset Transfer"). The agreement
with the investors provides that the prosposed purchase of
eLoyalty Shares is subject to the receipt of a favorable revenue
ruling from the Internal Revenue Service with respect to the
proposed tax-free spin-off of eLoyalty to the Company's stockholders,
the consummation of the Asset Transfer and certain other customary
conditions. The Company has agreed, pursuant to the agreement, to
use commercially reasonable efforts to effect the Asset Transfer
as soon as is reasonably practicable after receipt of a favorable
revenue ruling. In the event the Asset Transfer is not so
consummated and the invesors do not purchase the eLoyalty Shares,
the Company could become obligated to make a liquidated
damage payment of $1.2 million to the investors. Alternatively, if
the investors purchase the eLoyalty Shares and the proposed initial
public offering of eLoyalty common shares or the proposed spin-off
of eLoyalty does not occur within one year after the date of the
agreement, eLoyalty could become obligated to repurchase the
eLoyalty Shares then held by the investors at a
premium totaling $1.2 million over the price paid by the investors
for such shares. The agreement further provides that, after the
purchase of the eLoyalty Shares, a representative of each of the
two investor groups will be appointed to the eLoyalty Board of
Directors.
Page 15
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
=================================================================
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 Compared With Three Months Ended
June 30, 1998
Consolidated net revenues for the quarter ended June 30, 1999
decreased 6 percent to $78.4 million compared with $83.3 million
for the same period last year. Net revenues from the Enterprise
Solutions (E-Solutions) business contributed $43.8 million during
the quarter ended June 30, 1999 compared to $57.9 million in the
prior period, a decrease of 24 percent. This decrease was mainly
due to a decline in the demand for certain services of the E-
Solutions business as a result of clients facing budgetary
restraints as they focus on Year 2000 issues. This has been
evidenced by a reduction in new license sales by the package
software vendors such as PeopleSoft and Baan. Net revenues from
the eLoyalty business contributed $34.6 million during the
quarter ended June 30, 1999 compared to $25.3 million in the
prior period, an increase of 37 percent. This improvement was due
to an increased demand for eLoyalty consulting services.
Project personnel costs, which represent mainly professional
salaries and benefits, decreased slightly to $37.8 million for
the quarter ended June 30, 1999 from $38.3 million for the same
period last year, a decrease of 1 percent. The decrease was
mainly due to a decrease in average professional headcount.
Project personnel costs as a percentage of net revenues increased
to 48 percent for the quarter ended June 30, 1999 from
46 percent for the same period last year due to lower staff
utilization and the decline in E-Solutions revenues.
Other project expenses consist of nonbillable expenses directly
incurred for client projects and business development including
recruiting fees, sales and marketing expenses, personnel training
and provisions for valuation allowances and reserves for
potential losses on continuing projects. Other project expenses
for the quarter ended June 30, 1999 were $11.4 million, compared
with $11.9 million in the comparable period last year, a decrease
of $0.5 million, or 4 percent. The decrease in other project
expenses primarily included the following: a decrease of $0.9
million in domestic hiring, training, communication and computer
expenses due to a decrease in average headcount and a decrease of
$0.6 million in domestic practice area development including
marketing, business development, travel and sales commissions.
These decreases were offset by an increase in the provision for
valuation allowances and reserves for potential losses of $0.9
million and an increase in international costs of $0.2 million
associated with travel, marketing and business development
expenses. Other project expenses as a percentage of net revenues
remained virtually unchanged from the same period last year at
approximately 14 percent.
Management and administrative support costs decreased
$1.6 million to $16.3 million for the quarter ended June 30, 1999
from $17.9 million for the same period last year, a decrease of
9 percent. Approximately $0.6 million of this decrease was
attributable to the decrease in Global Core Service (GCS) costs
over last year. The decrease in GCS costs versus the same period
last year included: decreased expenses in the internal systems
and human resources areas of $0.4 million; a decrease in
corporate recruiting expenses of $0.4 million as a result of a
reduction
Page 16
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
=================================================================
in headcount; and a net decrease in various other costs of
$0.3 million including corporate legal, finance and investor
relations costs. These increases were offset by higher marketing
expenses of $0.5 million as a result of increased corporate
marketing efforts. The Company also had a decrease of
$1.0 million of practice area management and administrative
costs. This decrease primarily included a reduction of
international expenses of $0.7 million and a reduction in various
other domestic management and administrative expenses of
$0.5 million, which included items such as recruiting, sales and
other expenses. These decreases were partially offset by an
increase in regional management and practice area support
personnel of $0.2 million.
Goodwill amortization increased to $1.2 million for the quarter
ended June 30, 1999 compared to $1.0 million for the same period
last year. This increase reflects the effect of the earn-out
payments made during the seven month transition period ended
December 31, 1998 related to the acquisitions of The Bentley
Company, Inc. and Aspen Consultancy Ltd.
Incentive compensation of $5.4 million was accrued during the
quarter ended June 30, 1999 compared to $2.4 million for the same
period last year. Incentive compensation as a percentage of net
revenues increased to 7 percent for the quarter ended June 30,
1999 compared to 3 percent for the same period last year. The
increase was due to an increase in the incentive compensation
expense for non-vice president personnel to improve employee
retention, as well as an increase in vice president incentive
compensation expense as a result of the Company meeting its
performance target for the quarter. The Company expects to
continue to accrue incentive compensation throughout the 1999
calendar year.
Consolidated operating income was $6.3 million for the quarter
ended June 30, 1999 compared with consolidated operating income
of $11.8 million in the prior period due to the reasons outlined
above. Operating income from the E-Solutions business was $10.3
million during the quarter ended June 30, 1999 compared to $15.2
million in the prior period, a decrease of 32 percent. This
decrease was mainly due to a decrease in the demand for certain
services in the E-Solutions business, lower staff utilization and
lower billing rates. Operating income from the eLoyalty business
was $8.6 million during the quarter ended June 30, 1999 compared
to $5.9 million in the prior period, an increase of 46 percent.
This increase was primarily due to an increase in billing rates
and the increased demand for eLoyalty services, which was
consistent with its higher revenues, offset in part by
investments in product development.
Corporate and GCS costs for the quarter ended June 30, 1999 were
$12.6 million compared to $9.3 million in the prior period, an
increase of 36 percent. The increase in corporate and GCS costs
primarily represents a change in the corporate adjustment for
incentive compensation. (Note that all corporate adjustments are
included in the GCS category.) For the quarter ended June 30,
1998, the Company did not meet certain internal performance
targets and, accordingly, recorded a corporate adjustment to
reduce the consolidated incentive compensation accrual. However,
the Company fully met its internal performance targets in the
corresponding 1999 period and, therefore, no incentive
compensation adjustment was needed. Because the 1998 period
Page 17
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
=================================================================
included an adjustment to reduce consolidated incentive
compensation expense while the 1999 period included no such
adjustment, the 1999 corporate and GCS total costs increased
relative to the corresponding 1998 costs. In addition, goodwill
amortization for the quarter ended June 30, 1999 increased from
the prior period due to the earn-out payments made related to the
acquisitions of The Bentley Company, Inc. and Aspen Consultancy
Ltd. These increases were partially offset by the decrease in
GCS costs described above in the discussion of management and
administrative support costs.
Net investment income for the quarter ended June 30, 1999 was
$0.8 million compared to $0.7 million for the same period a year
ago. The increase is a result of higher cash and cash equivalent
balances for the quarter ended June 30, 1999 compared to the same
period a year ago.
The Company's effective tax rate for the quarter ended June 30,
1999 was 44 percent compared to 40 percent for the same period a
year ago. The rate for the quarter ended June 30, 1999 was higher
than the prior period due to a larger proportion of pre-tax
earnings being generated in foreign, high tax-rate jurisdictions.
Weighted average number of common shares outstanding increased
primarily due to the exercise of stock options and the issuance
of shares under the Company's employee stock purchase plan.
Weighted average number of common and common equivalent shares
outstanding decreased because the assumed exercise of certain
stock options were considered to be antidilutive, and therefore,
were excluded from the computation of diluted earnings per share.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1999 Compared With Six Months Ended
June 30, 1998
Consolidated net revenues for the six months ended June 30, 1999
was $155.3 million, essentially flat with the $156.7 million
reported in the same period last year. Net revenues from the E-
Solutions business contributed $90.0 million during the six
months ended June 30, 1999 compared to $108.3 million in the
prior period, a decrease of 17 percent. This decrease was
partially due to a decline in the demand for certain services of
the E-Solutions business as a result of clients facing budgetary
restraints as they focus on Year 2000 issues. This has been
evidenced by a reduction in new license sales by the package
software vendors such as PeopleSoft and Baan. Net revenues from
the eLoyalty business contributed $65.4 million during the six
months ended June 30, 1999 compared to $48.4 million in the prior
period, an increase of 35 percent. This improvement was due to an
increased demand for eLoyalty consulting services.
Project personnel costs, which represent mainly professional
salaries and benefits, increased to $78.4 million for the six
months ended June 30, 1999 from $72.4 million for the same period
last year, an increase of 8 percent. The increase was mainly due
to an increase in average professional salaries, partially offset
by a decrease in professional headcount. Project personnel costs
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<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
=================================================================
as a percentage of net revenues increased to 50 percent for the
six months ended June 30, 1999 from 46 percent for the same
period last year due to lower staff utilization and the decline
in E-Solutions revenues. To reduce these costs and improve
utilization, the Company streamlined and refocused the E-
Solutions business, which resulted in a restructuring charge of
$10.5 million (as discussed further in this section).
Other project expenses consist of nonbillable expenses directly
incurred for client projects and business development including
recruiting fees, sales and marketing expenses, personnel training
and provisions for valuation allowances and reserves for
potential losses on continuing projects. Other project expenses
for the six months ended June 30, 1999 were $23.5 million,
compared with $22.1 million in the comparable period last year,
an increase of $1.4 million, or 6 percent. The increase in other
project expenses primarily included the following: an increase in
the provision for valuation allowances and reserves for potential
losses of $1.9 million and an increase in international costs of
$0.7 million associated with travel, marketing and business
development expenses. These increases were partially offset by a
decrease of $1.2 million in domestic practice area development
including marketing, business development, travel and sales
commissions. Other project expenses as a percentage of net
revenues increased to 15 percent for the six months ended
June 30, 1999 from 14 percent for the same period last year
mainly as a result of the items mentioned above.
Management and administrative support costs increased
$1.7 million to $35.1 million for the six months ended June 30,
1999 from $33.4 million for the same period last year, an
increase of 5 percent. Approximately $1.6 million of this
increase was attributable to the increase in Global Core Service
(GCS) costs over last year. The increase in GCS costs versus the
same period last year included: increased expenses in the
internal systems and human resources areas of $0.6 million;
higher marketing expenses of $0.9 million as a result of
increased corporate marketing efforts; and a net increase in
various other costs of $0.3 million including corporate legal,
finance and investor relations costs. These costs were slightly
offset by a decrease in corporate recruiting expenses of $0.2
million as a result of a reduction in headcount. The Company also
incurred a slight increase of $0.1 million in practice area
management and administrative costs. These costs primarily
included additional domestic regional management and practice
area support personnel of $0.8 million offset by a decrease in
international expenses of $0.4 million and a decrease in various
other domestic management and administrative expenses of
$0.3 million, which include items such as practice area
marketing, recruiting, sales and other expenses.
Goodwill amortization increased to $2.6 million for the six
months ended June 30, 1999 compared to $1.9 million for the same
period last year. This increase reflects the effect of the earn-
out payments made during the seven month transition period ended
December 31, 1998 related to the acquisitions of The Bentley
Company, Inc. and Aspen Consultancy Ltd.
On March 30, 1999, the Company announced that it was making a
Page 19
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
=================================================================
number of changes to its business operations and, as a result,
the Company recorded a restructuring charge of $10.5 million
associated with those changes and the severance of approximately
300 people, primarily consulting personnel.
Incentive compensation of $9.7 million was accrued during the six
months ended June 30, 1999 compared to $4.4 million for the same
period last year. Incentive compensation as a percentage of net
revenues increased to 6 percent for the six months ended June 30,
1999 compared to 3 percent for the same period last year. The
increase was primarily due to an increase in the bonus accrual
for non-vice president personnel, as well as an increase in vice
president incentive compensation expense as a result of the
Company meeting its performance targets for the six months ended
June 30, 1999. The Company expects to continue to accrue
incentive compensation throughout the 1999 calendar year.
Consolidated operating loss was $4.5 million for the six months
ended June 30, 1999 compared with consolidated operating income
of $22.4 million in the prior period, due to the reasons outlined
above. Excluding the restructuring charge, consolidated operating
income was $6.0 million during the six months ended June 30,
1999. Operating income from the E-Solutions business was $15.5
million during the six months ended June 30, 1999 compared to
$26.7 million in the prior period, a decrease of 42 percent. This
decrease was mainly due to a decrease in the demand for certain
services in the E-Solutions business, lower staff utilization and
lower billing rates. Operating income from the eLoyalty business
was $15.8 million during the six months ended June 30, 1999
compared to $10.2 million in the prior period, an increase of 55
percent. This increase was primarily due to an increase in
billing rates and the increased demand for eLoyalty services,
which was consistent with its higher revenues, offset in part by
investments in product development.
Corporate and GCS costs for the six months ended June 30, 1999
were $35.8 million compared to $14.5 million in the prior period,
an increase of 148 percent. The increase in corporate and GCS
costs primarily represents the restructuring charge of $10.5
million as well as a change in the corporate adjustment for
incentive compensation. For the six months ended June 30, 1998,
the Company did not meet certain internal performance targets
and, accordingly, recorded a corporate adjustment to reduce the
consolidated incentive compensation accrual. However, the
Company fully met its internal performance targets in the
corresponding 1999 period and, therefore, no incentive
compensation adjustment was needed. In addition, goodwill
amortization for the six months ended June 30, 1999 increased
from the prior period due to the earn-out payments related to the
acquisitions of The Bentley Company, Inc. and Aspen Consultancy
Ltd. Finally, GCS costs also increased due to an increase in
management and administrative support costs, as previously
described. Excluding the restructuring charge, GCS costs were
$25.3 million for the six months ended June 30, 1999, an increase
of 75 percent over the prior period.
Net investment income for the six months ended June 30, 1999 was
$1.6 million compared to $1.3 million for the same period a year
ago. The increase is a result of higher cash and cash equivalent
Page 20
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
=================================================================
balances for the six months ended June 30, 1999 compared to the
same period a year ago.
The Company's effective tax rate for the six months ended
June 30, 1999 was an 8 percent benefit compared to a 42 percent
provision for the same period a year ago. The rate for the six
months ended June 30, 1999 was unusually low due to a portion of
the foreign restructuring charge being generated in lower tax-
rate jurisdictions. As the restructuring charge accounted for
the pre-tax loss, the consolidated effective tax rate was lower
this period than in the prior period.
Weighted average number of common shares outstanding increased
primarily due to the exercise of stock options and the issuance
of shares under the Company's employee stock purchase plan,
partially offset by the repurchase of treasury shares. Weighted
average number of common and common equivalent shares outstanding
decreased because there were no share adjustments for the effect
of stock options as the assumed exercise of options would have
been antidilutive.
On March 30, 1999, the Company filed and received preliminary
comments from the U.S. Internal Revenue Service regarding the
proposed spin-off of the Company's eLoyalty business segment as a
non-taxable distribution for U.S. federal income tax purposes.
The Company expects to offer not more than 20 percent of the
common shares of eLoyalty in an initial public offering (IPO)
during the late fall of 1999, with the proposed tax-free
distribution of the remaining eLoyalty shares held by the Company
in a spin-off to follow at a later date.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $0.4 million and
$4.2 million for the six months ended June 30, 1999 and 1998,
respectively. Operating cash flow for the six months ended
June 30, 1999 included the restructuring charge and other favorable
working capital activities. This benefit was offset by an
increase in net receivables of $18.9 million mainly due to the
growth in eLoyalty's revenues as well as cash outlays related to
the restructuring charge.
The Company's significant amounts of cash, cash equivalents and
marketable securities provide ample liquidity to handle the
Company's current cash requirements.
Net cash provided by investing activities was $0.4 million for
the six months ended June 30, 1999. The Company purchased
$1.5 million of available-for-sale securities and received
$2.8 million from the sale of available-for-sale securities. The
proceeds from available-for-sale securities were transferred to
cash and cash equivalents and reinvested in ongoing business
activities.
Capital expenditures for the six months ended June 30, 1999 were
$0.9 million. Capital expenditures may continue at the current
rate throughout the 1999 calendar year. The Company currently has
no material commitments for capital expenditures.
Page 21
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
=================================================================
The Company has a $10.0 million unsecured line of credit facility
(the "Facility") with Bank of America National Trust and Savings
Association (Bank of America). The agreement expires
October 4, 1999. At the Company's election, loans made under the
Facility bear interest at either the Bank of America reference
rate or the applicable Eurodollar interest rate plus
0.75 percent. The unused line fee is 0.125 percent of the unused
portion of the commitment. The Facility requires, among other
things, the Company to maintain certain financial ratios. As of
June 30, 1999, the Company was in compliance with these financial
ratio requirements. As of June 30, 1999, no borrowings had been
made under the Facility.
NEW ACCOUNTING STANDARDS
On June 15, 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 is effective for financial statements
issued for periods ending after June 15, 2000. SFAS No. 133
requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company anticipates that, due to its
limited use of derivative instruments, the adoption of SFAS No.
133 will not have a significant effect on the Company's results
of operations or its financial position.
SUBSEQUENT EVENTS
On August 13, 1999, the Company sold 500,000 share of Common Stock
(the "Company Shares") to unaffiliated investors in a private
placement for cash proceeds of approximately $4.5 million. The
investors have a single demand registration right with respect to
the Company Shares, which expires twelve months after the date
of the purchase.
In addition, the investors have committed to purchase for
$8.4 million approximately 5 percent of the number of common shares
(the "eLoyalty Shares") of the Company's wholly owned subsidiary,
eLoyalty Corporation, that would be issued and outstanding after
the Company completes the proposed transfer to eLoyalty of the
assets and liabilities of the business historically conducted as
the Company's ECM division (the "Asset Transfer"). The agreement
with the investors provides that the prosposed purchase of
eLoyalty Shares is subject to the receipt of a favorable revenue
ruling from the Internal Revenue Service with respect to the
proposed tax-free spin-off of eLoyalty to the Company's stockholders,
the consummation of the Asset Transfer and certain other customary
conditions. The Company has agreed, pursuant to the agreement, to
use commercially reasonable efforts to effect the Asset Transfer
as soon as is reasonably practicable after receipt of a favorable
revenue ruling. In the event the Asset Transfer is not so
consummated and the investors do not purchase the eLoyalty Shares,
the Company could become obligated to make a liquidated
damage payment of $1.2 million to the investors. Alternatively, if
the investors purchase the eLoyalty Shares and the proposed
initial public offering of eLoyalty common shares or the proposed
spin-off of eLoyalty does not occur within one year after the date
of the agreement, eLoyalty could become obligated to repurchase
the eLoyalty Shares then held by the investors at a
premium totaling $1.2 million over the price paid by the investors
for such shares. The agreement further provides that, after the
purchase of the eLoyalty Shares, a representative of each of the
two investor groups will be appointed to the eLoyalty Board of
Directors.
OTHER MATTERS
The Year 2000 issue is a general term used to address a class of
problems which are caused by the inability of computer programs
to recognize various date values around January 1, 2000. This
class of problems could result in a system failure or
miscalculations causing disruptions of operations such as, among
others, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
The Company has conducted an assessment of its computer
information systems by inventorying related hardware and software
systems and has determined the nature and extent of the work
required to ensure that its internal systems are Year 2000
compliant. The majority of the software used by the Company has
been purchased as packaged software. A minimal customization
practice has been followed to support a more direct transition
from an older version of a packaged software application to a
newer version of the same application. The Company's internal
systems can be grouped into three principal categories - its
accounting and human resources software, its legacy systems that
perform a variety of processes, and its office automation
software products. With respect to the suite of software products
licensed by the Company and relied upon in the administration of
accounting and human resources functions, which was licensed by
the Company in the first quarter of its 1997 fiscal year, the
licensor has indicated that the version currently employed by the
Company is not currently Year 2000 compliant and, therefore, the
Page 22
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
=================================================================
Company has replaced the production and development versions with
newer ones that are Year 2000 compliant. The Company plans to
apply future patches to address the Year 2000 issue as they are
made available. Based on currently available information, the
Company believes the expense associated with these efforts will
not be material. The Company expects that additional issues
concerning Year 2000 compliance will be reported by the licensor
to the Company and updates will be provided by the licensor. The
Company has received the most recent updates and enhancements
pursuant to a software support service agreement presently in
place with the licensor, an agreement which is in effect and that
the Company does not currently intend to terminate. Provided that
the licensor gives such assurances concerning the updates and
enhancements to its software product suite, the Company does not
expect that it will incur additional expense aside from the cost
of the software support service agreement in order to bring its
accounting and human resources software package into Year 2000
compliance.
Other important internal business processes of the Company, such
as time and expense reporting and labor distribution, (and their
associated back-office functions), are performed by legacy
systems that have been re-written to be Year 2000 compliant. The
remaining office automation products have been inventoried and
each vendor has been contacted for the product's Year 2000
status. All identified products have either been upgraded with
patches, entirely replaced, determined to be Year 2000 compliant,
or shown to possess no date-associated functions within the
product. The Company estimates that it is nearly completed with
the compliance project effort, and expects that the identified
systems will be compliant as of December 30, 1999. The Company
estimates that the cost associated with replacing/upgrading these
systems, excluding labor costs, will be less than $0.3 million,
and has provided for the replacement of these systems in its
operating and capital budgets for calendar year 1999.
Vendors of the standard software packages have been contacted and
patches and/or newer versions of the applications have been
secured. Distribution of the patches and newer versions of the
software will occur in the third and fourth quarters of the
calendar year 1999.
Based on presently available information, the Company believes
that any necessary compliance efforts concerning its internal
systems will not have a material adverse effect on its business,
operating results and financial condition. However, if compliance
efforts of which the Company is not currently aware are required
and are not completed on time, or if the cost of any required
updating, modification or replacement of the Company's
information systems exceeds the Company's estimates, the Year
2000 issue could have a material adverse impact on the Company's
business, operating results and financial condition.
In addition to the Company's internal systems, the Company relies
on third party vendors in the conduct of its business. For
example, third party vendors handle the payroll function for the
Company, and the Company also relies on the services of
telecommunication companies, banks, utilities, and commercial
Page 23
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
=================================================================
airlines, among others. The Company has sought assurances from
its material vendors and suppliers that there will be no
interruption of service as a result of the Year 2000 issue, and
to the extent such assurances have not been given, the Company is
finalizing contingency plans to mitigate the effects on the
conduct of the Company's business in the event the Year 2000
issue results in the unavailability of services. There can be no
assurance that any contingency plans developed by the Company
will prevent any such service interruption on the part of one or
more of the Company's third party suppliers from having a
material adverse effect on the Company's business, operating
results and financial condition. In addition, the failure on the
part of the accounting systems of the Company's clients due to
the Year 2000 issue could result in a delay in the payment of
invoices issued by the Company for services and expenses. A
failure of the accounting systems of a significant number of the
Company's clients would have a material adverse effect on the
Company's business, operating results and financial condition.
The Company has generally refrained from performing Year 2000
remediation services for its clients. It is possible, however,
that former, present and future clients could assert that certain
services performed by the Company from time to time involve, or
are related to, the Year 2000 issue. The Company has recommended,
implemented and customized various third party software packages
for its clients, and to the extent that such software programs
may not be Year 2000 compliant, the Company could be subjected to
claims as a result thereof. Since the Company's inception in
1988, it also has designed and developed software and systems for
its clients. Due to the large number of such engagements
undertaken by the Company over the years, there can be no
assurance that all such software programs and systems will be
Year 2000 compliant, which could also result in the assertion of
claims against the Company.
The Company's policy has been to endeavor to secure provisions in
its client contracts that, among other things, disclaim implied
warranties, limit the duration of the Company's express
warranties, relate the Company's liability to the amount of fees
paid by the client to the Company in connection with the project,
and disclaim any liability arising from third party software that
is implemented, customized or installed by the Company. There can
be no assurance that the Company will be able to secure
contractual protections in agreements concerning future projects,
or that any contractual protections secured by the Company in
agreements governing pending and completed projects will dissuade
the other party thereto from asserting claims against the Company
with respect to the Year 2000 issue.
Due to the complexity of the Year 2000 issue, upon any failure of
critical client systems or processes that may be directly or
indirectly connected or related to systems or software designed,
developed, customized or implemented by the Company as described
above, the Company may be subjected to claims, regardless of
whether the failure is related to the services provided by the
Company. There can be no assurance that the Company would be able
to establish that it did not cause or contribute to the failure
of a critical client system or process. There also can be no
assurance that the contractual protections, if any, secured by
Page 24
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
=================================================================
the Company in connection with any past, present or future
clients will operate to insulate the Company from, or limit the
amount of, any liability arising from claims asserted against the
Company. If asserted, the resolution of such claims (and the
associated defense costs) could have a material adverse effect on
the Company's business, operating results and financial
condition.
Page 25
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
=================================================================
This Form 10-Q includes or may include certain forward-looking
statements that involve risks and uncertainties. This Form 10-Q
contains certain forward-looking statements concerning the
Company's financial position, business strategy, budgets,
projected costs and plans and objectives of management for future
operations as well as other statements including words such as
"anticipate," "believe," "plan," "estimate," "expect," "intend,"
and other similar expressions. Although the Company believes its
expectations reflected in such forward-looking statements are
based on reasonable assumptions, readers are cautioned that no
assurance can be given that such expectations will prove correct
and that actual results and developments may differ materially
from those conveyed in such forward-looking statements. Important
factors that could cause actual results to differ materially from
the expectations reflected in the forward-looking statements in
this Form 10-Q include, among others, the pace of technological
change, the Company's ability to manage growth and attract and
retain employees, general business and economic conditions in the
Company's operating regions, market conditions and competitive
and other factors, all as more fully described in the Company's
Transition Report on Form 10-K for the transition period ended
December 31, 1998 under Management's Discussion and Analysis of
Financial Condition and Results of Operations "Assumptions
Underlying Certain Forward-Looking Statements and Factors that
May Affect Future Results" and elsewhere from time to time in the
Company's other SEC reports. Such forward-looking statements
speak only as of the date on which they are made and the Company
does not undertake any obligation to update any forward-looking
statement to reflect events or circumstances after the date of
this Form 10-Q. If the Company does update or correct one or more
forward-looking statements, investors and others should not
conclude that the Company will make additional updates or
corrections with respect thereto or with respect to other forward-
looking statements. Actual results may vary materially.
Page 26
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
PART II. OTHER INFORMATION
===================================================================
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
TSC's 1999 Annual Meeting of Stockholders (the
"Annual Meeting") was held on April 28, 1999.
Represented at the Annual Meeting, either in person
or by proxy, were 36,181,406 voting shares. The
following actions were taken by a vote of TSC's
stockholders at the Annual Meeting:
1. Messrs. Michael J. Murray, Stephen B. Oresman and
Raymond P. Caldiero were elected to serve as members of TSC's
Board of Directors receiving 34,491,342, 30,027,000 and
34,485,842 votes in favor of election, respectively, and
1,690,064, 6,154,406 and 1,695,564 votes withheld, respectively.
There were no votes against, abstentions or broker non-votes with
respect to the election of any nominee named above. In addition,
the terms of office for Messrs. Purcell and Waltrip continue
until the 2000 Annual Meeting, and Messrs. Kohler and Zucchini
continue until the 2001 Annual Meeting.
2. The appointment of PricewaterhouseCoopers LLP as
independent auditors for TSC for its fiscal year ending December
31, 1999 was ratified: 36,110,559 votes were cast for the
ratification; 53,929 votes were cast against the ratification and
there were 16,918 abstentions. There were no votes withheld or
broker non-votes.
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
(a) See Exhibit Index
All other items in Part II are either not applicable
to the Company during the quarter ended June 30,
1999, the answer is negative, or a response has been
previously reported and an additional report of the
information is not required, pursuant to the
instructions to Part II.
Page 27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized on the 16th day of August 1999.
TECHNOLOGY SOLUTIONS COMPANY
Date: August 16, 1999 By: /s/ TIMOTHY P. DIMOND
_____________________
Timothy P. Dimond
Chief Financial Officer
Page 28
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
4.1 First Amendment to Technology Solutions Company 1996
Stock Incentive Plan
4.2 Technology Solutions Company
Non-Statutory Stock Option Agreement
4.3 First Amendment to Technology Solutions Company 1995
Employee Stock Purchase Plan
10.1 Employment Agreement of Timothy P. Dimond
27 Financial Data Schedule
Page 29
<PAGE>
Exhibit 4.1
AMENDMENT NUMBER ONE
TO THE
TECHNOLOGY SOLUTIONS COMPANY
1996 STOCK INCENTIVE PLAN
WHEREAS, Technology Solutions Company (the
"Company") has heretofore adopted and maintains the
Technology Solutions Company 1996 Stock Incentive Plan (the
"Plan"); and
WHEREAS, the Company desires to amend the Plan in
certain respects.
NOW, THEREFORE, pursuant to the power of amendment
contained in Section 6.2 of the Plan, the Plan is hereby
amended as follows:
1. Effective as of the date hereof, Section 1.4
of the Plan is hereby amended by deleting the second
sentence thereof, and inserting the following sentence in
lieu thereof:
For purposes of this Plan, references to
employment shall also mean an agency or
independent contractor relationship and references
to employment by the Company shall also mean
employment by a Subsidiary or such other employer
designated in the Agreement evidencing the award.
2. Effective with respect to options granted on
or after the date hereof, Sections 5.2 and 5.3 of the Plan
are hereby deleted, and the following sections are inserted
in lieu thereof:
5.2 Grants of Stock Options. Each Non-Employee
Director shall be granted Non-Statutory Stock
Options as follows:
<PAGE>
(a) Time of Grant. On the date on which a
person is first elected or begins to serve as a
Non-Employee Director (other than by reason of
termination of employment), and, thereafter, if
such person is then a Non-Employee Director, on
the date that an option granted to such person
pursuant to this Article V becomes exercisable in
full in accordance with Section 5.2(b) hereunder,
such person shall be granted an option to purchase
40,500 shares of Common Stock at a purchase price
per share equal to the Fair Market Value of a
share of Common Stock on the date of grant of such
option.
(b) Option Period and Exercisability.
Except as otherwise provided herein, each option
granted under this Article V (an "Automatic Non-
Employee Director's Option") shall not be
exercisable until the last day of the calendar
month following the calendar month in which such
option is granted (the "Initial Date of
Exercisability"). Each Automatic Non-Employee
Director's Option shall become exercisable as to
1,125 shares of Common Stock on the date of its
Initial Date of Exercisability and as to an
additional 1,125 shares of Common Stock on the
last day of each of the next thirty-five calendar
months following the Initial Date of
Exercisability. An exercisable option, or portion
thereof, may be exercised in whole or in part only
with respect to whole shares of Common Stock.
Automatic Non-Employee Director's Options shall be
exercisable in accordance with Section 2.1(c).
5.3 Option Period and Termination of
Directorship. (a) Term and Termination of
Option. The maximum term of each Automatic Non-
Employee Director's Option shall be the date which
is 10 years after the date on which it was granted
(the "Expiration Date"). Each Automatic Non-
Employee Director's Option shall terminate, to the
extent not exercised or earlier terminated
pursuant to the terms of this Article V, on its
Expiration Date. In no event may an Automatic Non-
Employee Director's Option be exercised, in whole
or in part, after it terminates.
(b) Termination of Directorship Other
than by Death, Disability or Retirement. If the
holder of an Automatic Non-Employee Director's
Option ceases to be a director of the Company for
any reason other than death, Disability, or
Retirement, the option shall remain exercisable
with respect to the number of shares subject to
such option that are exercisable upon the
effective date of such holder's ceasing to be a
director and may thereafter be exercised for a
period of 90 days from the effective date of such
holder's ceasing to be a director or until the
Expiration Date, whichever period is shorter,
after which the Automatic Non-Employee Director's
Option shall terminate in its entirety.
<PAGE>
(c) Death. If the holder of an
Automatic Non-Employee Director's Option ceases to
be a director of the Company by reason of death,
the option shall become exercisable as of the date
of death with respect to any or all of the shares
subject to such option and may thereafter be
exercised for a period of one year from the date
of death or until the Expiration Date, whichever
period is shorter, after which the Automatic Non-
Employee Director's Option shall terminate in its
entirety.
(d) Disability. If the holder of an
Automatic Non-Employee Director's Option ceases to
be a director of the Company by reason of
Disability, the option shall become exercisable as
of the effective date of such holder's ceasing to
be a director with respect to any or all of the
shares subject to such option and may thereafter
be exercised for a period of 90 days from the
effective date of such termination or until the
Expiration Date, whichever period is shorter,
after which the Automatic Non-Employee Director's
Option shall terminate in its entirety. For
purposes of this Article V, "Disability" shall
mean the inability of an individual to fully
perform the duties of a director of the Company
for a continuous period in excess of 360 days, as
determined by the Board in its sole discretion.
(e) Retirement. If the holder of an
Automatic Non-Employee Director's Option ceases to
be a director of the Company by reason of
retirement after such holder has completed five
years of service as a director of the Company and
is at least 55 years of age ("Retirement"), the
option shall remain exercisable with respect to
the number of shares subject to such option that
are exercisable upon the effective date of such
Retirement, and may thereafter be exercised for a
period of two years from the effective date of
such Retirement or until the Expiration Date,
whichever period is shorter, after which the
Automatic Non-Employee Director's Option shall
terminate in its entirety.
(f) Death After Termination of
Directorship. If the holder of an Automatic Non-
Employee Director's Option dies after he or she
has ceased to be a director of the Company, the
option shall be exercisable only to the extent
that it is exercisable on the date of such
holder's death and may thereafter be exercised
only for that period of time for which the option
is exercisable immediately prior to the holder's
death pursuant to Sections 5.3(b) through (e).
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be executed by its duly authorized officer on
this 23rd day of July, 1999.
Technology Solutions Company
By: PAUL PETERSON
______________
<PAGE>
Exhibit 4.2
Technology Solutions Company
Non-Statutory
Stock Option Agreement
Technology Solutions Company, a Delaware corporation
(the "Company"), hereby grants to the employee whose name appears
below (the "Employee"), pursuant to the provisions of the
Technology Solutions Company 1996 Stock Incentive Plan (the
"Plan"), an option to purchase from the Company the (the
"Option") such number of shares of its Common Stock, $0.01 par
value ("Stock"), as set forth below at the price per share set
forth below but only upon and subject to the terms and conditions
set forth herein, in the Plan, and in Annex I hereto. All terms
and conditions set forth in Annex I and the Plan shall be deemed
to be incorporated herein in their entirety. All capitalized
terms used in this Agreement and not otherwise defined herein
shall have the respective meanings assigned to them in Annex I or
the Plan. The Option shall become null and void unless the
Employee shall accept this Agreement by executing it in the space
provided and returning it to the Company within 60 days after the
Option Date (as defined below).
Employee Name: _______________________
Number of Shares
Subject to Option: _______________________
Exercise Price
Per Share: _______________________
Exercise Provisions:
(a) The Option shall become exercisable (i) on the
first anniversary of the Option Date with respect to one-third of
the number of shares subject to the Option on the Option Date,
(ii) on the last day of each calendar month for 24 months
thereafter, beginning the month following the first anniversary
of the Option Date, with respect to an additional 1/36 of the
number of shares subject to the Option on the Option Date, and
(iii) as otherwise provided pursuant to paragraphs (b) through
(g) of the Agreement or Section 6.8 of the Plan.
(b) If, prior to the first anniversary of the Option
Date, the Employee's employment by the Company terminates for any
reason whatsoever (including, without limitation, involuntary
termination by the Company) other than death or Disability, the
Option shall terminate in its entirety upon the effective date of
Employee's termination of employment.
- 1 -
<PAGE>
(c) If, on or after the first anniversary of the
Option Date, the Employee's employment by the Company terminates
for any reason whatsoever (including, without limitation,
involuntary termination by the Company) other than death,
Disability, or Retirement, the Option shall remain exercisable
with respect to the number of shares subject to the Option that
are exercisable upon the effective date of the Employee's
termination of employment and may thereafter be exercised for a
period of 90 days from the effective date of the Employee's
termination of employment or until the Expiration Date, whichever
period is shorter, after which the Option shall terminate in its
entirety.
(d) If the Employee's employment by the Company
terminates by reason of the Employee's death, the Option shall
become exercisable as of the date of death with respect to any or
all of the shares subject to the Option on the Option Date and
may thereafter be exercised for a period of one year from the
date of death or until the Expiration Date, whichever period is
shorter, after which the Option shall terminate in its entirety.
(e) If the Employee's employment by the Company
terminates by reason of the Employee's Disability, the Option
shall become exercisable with respect to any or all of the shares
subject to the Option on the Option Date and may thereafter be
exercised for a period of 90 days from the effective date of the
Employee's termination of employment or until the Expiration
Date, whichever period is shorter, after which the Option shall
terminate in its entirety. For purposes of this Agreement,
"Disability" shall mean the inability of an individual to fully
perform the duties pertaining to his or her employment for a
continuous period in excess of 360 days, as determined by the
Board in its sole discretion.
(f) If the Employee's employment by the Company
terminates by reason of the Employee's retirement after the
Employee has completed five years of service as an Employee of
the Company and is at least 55 years of age ("Retirement"), the
Option shall remain exercisable with respect to the number of
shares subject to the Option that are exercisable upon the
effective date of Employee's Retirement, and may thereafter be
exercised for a period of two years from the effective date of
the Employee's Retirement or until the Expiration Date, whichever
period is shorter, after which the Option shall terminate in its
entirety.
(g) If the Employee dies following the termination of
the Employee's employment by the Company, the Option shall be
exercisable only to the extent that it is exercisable on the date
of the Employee's death and may thereafter be exercised only for
that period of time for which the Option is exercisable
immediately prior to the Employee's death.
General:
This Agreement is subject to the provisions of the
Plan, and shall be interpreted in accordance therewith. A copy
of the Plan is available upon request by contacting the Company's
Legal Department in the Chicago office. The Employee hereby
acknowledges that he or she has read a copy of the Plan and the
Prospectus. This Agreement may be executed in two counterparts
each of which shall constitute one and the same instrument.
- 2 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed
this _____ day of _______________, 1999 (the "Option Date").
Accepted and agreed this
___ day of ________________, 1999 TECHNOLOGY SOLUTIONS COMPANY
_____________________________ By:__________________________
Name: Name:
Title:
- 3 -
<PAGE>
Annex I
to
Stock Option Agreement
1. Meaning of Certain Terms. As used herein, the
following terms shall have the meanings set forth below. "Board"
shall mean the Board of Directors of the Company. "Code" shall
mean the Internal Revenue Code of 1986, as amended. "Committee"
shall mean the Committee designated by the Board, consisting of
two or more members of the Board, each of whom shall be a "Non-
Employee Director" within the meaning of Rule 16b-3 under the
Exchange Act and an "outside director" within the meaning of
section 162(m) of the Code. References to this "Agreement," the
"Option" and "herein" shall be deemed to include the Stock Option
Agreement and this Annex I to Stock Option Agreement taken as a
whole. This Annex I and the Stock Option Agreement shall be
deemed to be one and the same instrument. References herein to
sections of the Code shall be deemed to refer to any successor
section of the Code or any successor internal revenue law. The
terms "employment" and "employment by the Company" shall have the
meanings set forth in Section 1.4 of the Plan; provided however
that "employment by the Company" shall also include employment by
eLoyalty Corporation, its subsidiaries or affiliates or any
successors thereto.
2. Time and Manner of Exercise of Option.
2.1. Term and Termination of Option. The maximum term
of the Option shall be the date which is 10 years after the
Option Date (the "Expiration Date"). The Option shall terminate,
to the extent not exercised or earlier terminated pursuant to the
terms of this Agreement, on its Expiration Date. In no event may
the Option be exercised, in whole or in part, after it
terminates.
2.2. Exercisability of Option. The Option shall become
exercisable on the date or dates as set forth in this Agreement.
2.3. Procedure for Exercise; Payment of Purchase Price.
Subject to the limitations set forth in this Agreement, the
Option may be exercised by delivery of written notice to the
Company specifying the number of shares to be purchased,
accompanied by payment in full of the purchase price for such
number of shares. The purchase price shall be payable either (A)
in cash, (B) by delivery of Mature Shares having an aggregate
Fair Market Value, determined as of the date of exercise, equal
to the aggregate purchase price payable by reason of such
exercise, (C) in cash by a broker-dealer acceptable to the
Company to whom the Employee has submitted an irrevocable notice
of exercise or (D) a combination of (A) and (B). The Company
shall have sole discretion to disapprove of an election pursuant
to any of clauses (B)-(D) and if the Employee is subject to
Section 16 of the Exchange Act, the Company may require that the
method of making such payment be in compliance with Section 16
and the rules and regulations thereunder. Any fraction of a
share of Stock which would be required to pay such purchase price
shall be disregarded and the remaining amount due shall be paid
in cash by the Employee. No certificate representing Stock shall
be delivered until the full purchase price therefor has been paid
(or arrangement made for such payment to the Company's
satisfaction).
- 4 -
<PAGE>
3. Additional Terms and Conditions of Option.
3.1. Nontransferability of Option. Neither the Option
nor any right under this Agreement may be transferred by the
Employee other than (i) by will or the laws of descent and
distribution or (ii) to a Permitted Transferee, as hereinafter
defined. During the Employee's lifetime the Option is
exercisable only by the Employee or a Permitted Transferee. Upon
the Employee's death, the Option may be exercised by the
Employee's successor in interest in accordance with the terms and
conditions of this Agreement. Any other transfer or any
attempted assignment, pledge or hypothecation, whether or not by
operation of law, shall be void. The Option shall not be subject
to execution, attachment or other process, and no person shall be
entitled to exercise any rights of the Employee hereunder or
possess any rights hereunder by virtue of any attempted
execution, attachment or other process. For purposes of this
Agreement, a "Permitted Transferee" shall mean (i) the Employee's
spouse, (ii) any of the Employee's lineal descendants, (iii) a
trust or similar arrangement of which such spouse, a lineal
descendant of the Employee, or one or more of such persons are
the only current beneficiaries, or (iv) a charitable organization
described in Section 170(c) of the Code, provided that such
transferee has entered into a written agreement with the Company
authorizing the Company to withhold shares of Stock which would
otherwise be delivered to such person upon an exercise of the
Option to pay any federal, state, local or other taxes which may
be required to be withheld or paid in connection with such
exercise in the event that the Employee does not provide for an
arrangement satisfactory to the Company to assure that such taxes
will be paid.
3.2. Investment Representation. The Employee hereby
represents and covenants that (a) any share of Stock purchased
upon exercise of the Option will be purchased for investment and
not with a view to the distribution thereof within the meaning of
the Securities Act of 1933, as amended (the "Securities Act")
unless such purchase has been registered under the Securities Act
or applicable state securities law; (b) any subsequent resale of
any such shares shall be made either pursuant to an effective
registration statement under the Securities Act and any
applicable state securities laws, or pursuant to an exemption
from registration under the Securities Act and such state
securities laws; and (c) if requested by the Company, the
Employee shall submit a written statement, in form satisfactory
to counsel for the Company, to the effect that either
representation (a) above is true and correct as of the date of
purchase of any shares hereunder, or representation (b) above is
true and correct as of the date of any resale of any such shares,
as applicable. As a further condition precedent to any exercise
of the Option, the Employee shall comply with all regulations and
requirements of regulatory authority having control of or
supervision over the issuance of the shares and, in connection
therewith, shall execute any documents which the Company shall in
its sole discretion deem necessary or advisable. Unless covered
by an effective registration statement filed with the U.S.
Securities and Exchange Commission, all certificates representing
shares of Stock acquired pursuant to the exercise of the Option
shall bear the following legend:
- 5 -
<PAGE>
The shares represented by this certificate
have been acquired for investment and have
not been registered under the Securities Act
of 1933. The shares may not be sold or
transferred in the absence of such
registration or exemption therefrom under
said Act.
3.3. Withholding Taxes. As a condition precedent to
any exercise of the Option, the Employee shall, upon request by
the Company, pay to the Company in addition to the purchase price
of the Stock, such amount of cash as the Company may be required,
under all applicable federal, state or local laws or regulations,
to withhold and pay over as income or other withholding taxes
(the "Required Tax Payments") with respect to such exercise of
the Option. If the Employee shall fail to advance such Required
Tax Payments after request by the Company, the Company may, in
its discretion, deduct any such Required Tax Payments from the
amount to be paid hereunder, whether in Stock or in cash, or from
any other amount then or thereafter payable by the Company to the
Employee.
3.4. Adjustments in the Event of Capitalization
Changes. In the event of any stock split, stock dividend,
recapitalization, reorganization, merger, consolidation,
combination, exchange of shares, liquidation, spin-off or other
similar change in capitalization or event, or any distribution to
holders of Stock other than a regular cash dividend, the number
and class of securities subject to the Option and the purchase
price per security, shall be appropriately adjusted by the
Committee. The Committee may adjust the Option using any method
which it deems appropriate, which may be the same as or different
than the method used to adjust other options granted under the
Plan with respect to such change in capitalization or event. The
decision of the Committee regarding any such adjustment shall be
final, binding and conclusive. If any such adjustment would
result in a fractional security being subject to the Option, the
Company shall pay the Employee, in connection with the first
exercise of the Option in whole or in part occurring after such
adjustment, an amount in cash determined by multiplying (i) the
fraction of such security (rounded to the nearest hundredth) by
(ii) the excess, if any, of (A) the Fair Market Value on the
exercise date over (B) the exercise price of the Option.
3.5. Compliance with Applicable Law. The Option is
subject to the requirement that if at any time the Company
determines that the listing, registration or qualification of the
shares of Stock subject to the Option upon any securities
exchange or under any law, or the consent or approval of any
governmental body, or the taking of any other action is necessary
or desirable as a condition of, or in connection with, the
delivery of shares hereunder, such shares shall not be delivered
unless such listing, registration, qualification, consent,
approval or other action shall have been effected or obtained,
free of any conditions not acceptable to the Company. The Company
may require that certificates evidencing shares of Stock
delivered pursuant to the Option bear a legend indicating that
the sale, transfer or other disposition thereof by the holder is
prohibited except in compliance with the Securities Act of 1933,
as amended, and the rules and regulations thereunder.
- 6 -
<PAGE>
3.6. Indemnification. The Employee hereby covenants
and agrees to indemnify and hold harmless the Company, its
officers, directors, employees and agents from and against any
loss, claim, damage and expense (including, without limitation,
reasonable attorneys' fees) arising out of or based upon any
breach or failure by the Employee to comply with any
representation, warranty, covenant or agreement made by the
Employee herein or in any other document furnished by the
Employee in connection with this transaction.
3.7. Delivery of Certificates. Upon the exercise of
the Option in whole or in part, the Company shall deliver one or
more certificates representing the number of shares purchased
against full payment therefor. The Company shall pay all
original issue or transfer taxes and all fees and expenses
incident to such delivery, except as otherwise provided in
paragraph 3.3.
3.8. Option Confers No Rights as Stockholder. The
Employee shall have no rights as a stockholder of the Company
with respect to any shares of Stock or other equity security of
the Company which is subject to the Option hereunder unless and
until the Employee becomes a stockholder of record with respect
to such shares of Stock or equity security.
3.9. Option Confers No Rights to Continue Employment.
In no event shall the granting of the Option or its acceptance by
the Employee confer upon the Employee any right to continued
employment by the Company or any of its subsidiaries or
affiliates or affect in any manner the right of the Company or
any of its subsidiaries or affiliates to terminate the employment
of the Employee at any time without liability hereunder.
3.10. Decisions of Committee. Subject to Section 1.3
of the Plan, the Committee shall have the right to resolve all
questions which may arise in connection with the Option or its
exercise. Any interpretation, determination or other action made
or taken by the Committee regarding the Plan or this Agreement
shall be final, binding and conclusive.
3.11. Company to Reserve Shares. The Company shall at
all times prior to the expiration or termination of the Option
reserve and keep available, either in its treasury or out of its
authorized but unissued shares of Stock, the full number of
shares subject to the Option from time to time.
4. Miscellaneous Provisions.
4.1. Designation as Nonqualified Stock Option. The
Option is hereby designated as not constituting an "incentive
stock option" within the meaning of section 422A of the Code;
this Agreement shall be interpreted and treated consistently with
such designation.
4.2. Successors. This Agreement shall be binding upon
and inure to the benefit of any successor or successors of the
Company and any person or persons who shall acquire any rights
under paragraph 3.1.
- 7 -
<PAGE>
4.3. Notices. All notices, requests or other
communications provided for in this Agreement shall be made in
writing either (1) by actual delivery to the party entitled
thereto, or (2) by mailing in the U.S. mails to the last known
address of the party entitled thereto, via certified or
registered mail, return receipt requested. The notice shall be
deemed to be received in case (1) on the date of its actual
receipt by the party entitled thereto, and in case (2) on the
date of its mailing.
4.4. Governing Law. This Agreement, and all
determinations made and actions taken pursuant thereto, to the
extent not otherwise governed by the Code or the laws of the
United States, shall be governed by the laws of the State of
Delaware and construed in accordance therewith without giving
effect to the principles of conflicts of laws.
- 8 -
<PAGE>
Exhibit 4.3
AMENDMENT NUMBER ONE
TO THE
TECHNOLOGY SOLUTIONS COMPANY
1995 EMPLOYEE STOCK PURCHASE PLAN
WHEREAS, Technology Solutions Company (the
"Company") has heretofore adopted and maintains the
Technology Solutions Company 1995 Employee Stock Purchase
Plan (the "Plan"), an employee stock purchase plan within
the meaning of section 423 of the Internal Revenue Code of
1986, as amended (the "Code"); and
WHEREAS, the Company desires to amend the Plan in
certain respects in connection with the Company's proposed
spin-off of its subsidiary, eLoyalty Corporation, to the
stockholders of the Company.
NOW, THEREFORE, pursuant to the power of amendment
contained in Section 9(c) of the Plan, the Plan is hereby
amended as follows, effective as of the first day of the
first Purchase Period beginning after the date hereof:
1. Section 2 of the Plan is hereby amended (i) by deleting
clause (a) of the first sentence thereof, and inserting
the following clause in lieu thereof:
(a) who has been continuously employed by the
Participating Companies for at least three months,
<PAGE>
and (ii) by deleting the last sentence thereof, and
inserting the following sentence in lieu thereof:
In addition, the number of shares of Common Stock
which may be purchased by any Eligible Employee
during any Purchase Period shall not exceed 1,500,
subject to adjustment pursuant to Section 14.
2. Section 4 of the Plan is hereby amended by
adding the following at the end thereof:
In the event of a pro rata distribution by the
Company to its stockholders of all of the shares
of the common stock of eLoyalty Corporation then
owned by the Company (a "Spin-Off"), the Purchase
Period then in effect under the Plan shall end as
of the business day immediately preceding the
record date of the Spin-Off. The amounts credited
to the Purchase Accounts of all Participants as of
such date shall be applied to purchase shares of
Common Stock in accordance with Section 5 of the
Plan, and such shares shall be considered issued
and outstanding for purposes of the Spin-Off.
Thereafter, a new Purchase Period shall begin on
the first business day of each calendar quarter
beginning after the record date of the Spin-Off
and shall end on the last business day of each
such calendar quarter.
3. Section 5 of the Plan is hereby amended (i) by
deleting the first sentence of paragraph (i) of subsection
(a) thereof, and inserting the following sentence in lieu
thereof:
To enroll in the Plan, an Eligible Employee shall
execute and deliver a payroll deduction
authorization (the "Authorization") to the
Participating Company which is the employee's
employer, or its designated agent, in the time and
manner specified by the Committee.
and (b) by adding the following sentence at the end of
paragraph (ii) of subsection (a) thereof:
Payroll deductions (and any other amount paid
under the Plan) shall continue in accordance with
such Authorization notwithstanding any transfer of
employment between Participating Companies.
<PAGE>
4. Section 6 of the Plan is hereby amended by
deleting the reference to "clause (c) of the third paragraph
of Section 9," where it appears therein, and by inserting a
reference to "clause (iii) of Section 9(c)" in lieu thereof.
5. Section 7 of the Plan is hereby amended by
deleting the last sentence of subsection (a) thereof, and
inserting the following sentence in lieu thereof:
A Participant will be issued a certificate for his
or her shares upon the
request of the Participant in accordance with
procedures established by the Company.
6. Section 8 of the Plan is hereby amended (i) by
deleting subsection (a) thereof, and inserting the following
subsection in lieu thereof:
(a) A Participant may elect at any time to
terminate his or her participation in the Plan,
provided such termination is received by the
Company in writing prior to the last business day
of the Purchase Period for which such termination
is to be effective. Upon any such termination,
the Company shall promptly deliver to such
Participant cash in an amount equal to the balance
to his or her credit in his or her Purchase
Account on the date of such termination. At any
time after such termination, the Participant may
request the delivery to such Participant of one or
more certificates for the number of whole shares
of Common Stock held for his or her benefit, and
the cash equivalent for any fractional share so
held. Such cash equivalent shall be determined by
multiplying the fractional share by the fair
market value of a share of Common Stock on the
last day of the Purchase Period immediately
preceding such termination, determined as provided
in Section 6.
and (ii) by deleting subsections (b) and (c) thereof, and
inserting the following subsection (b) in lieu thereof:
(b) If the Participant dies, terminates
his or her employment with the Participating
Companies for any reason, or otherwise ceases to
be an Eligible Employee (including, without
limitation, as a result of a Participating Company
ceasing to be a Subsidiary Company), his or her
participation in the Plan shall immediately
terminate. Upon such terminating event, the
Company shall promptly deliver to such Participant
or his or her legal representative, as the case
may be, cash in an amount equal to the balance to
his or her credit in his or her Purchase Account
on the date of such termination.
<PAGE>
7. Section 10 of the Plan is hereby amended by
deleting the second sentence thereof.
8. Section 13 of the Plan is hereby amended by
deleting the second sentence thereof.
9. Sections 14 and 15 of the Plan, and all references
thereto, are hereby
redesignated as Sections 15 and 16, respectively, and the
following new Section 14 is added to the Plan:
14. Adjustment. In the event of any stock
split, stock dividend, recapitalization,
reorganization, merger, consolidation,
combination, exchange of shares, liquidation,
spin-off or other similar change in
capitalization or event, or any distribution to
holders of Common Stock other than a regular
cash dividend, the maximum number and class of
securities which may purchased under this Plan,
the maximum number and class of securities that
may be purchased by any Eligible Employee
during any Purchase Period, and the purchase
price per security shall be appropriately
adjusted by the Committee. The decision of the
Committee regarding any such adjustment shall
be final, binding and conclusive. If any such
adjustment would result in a fractional
security being available under this Plan, such
fractional security shall be disregarded.
10. Section 15 of the Plan (as heretofore
redesignated) is hereby amended (i) by deleting subsection
(a) thereof, and inserting the following subsection in lieu
thereof:
<PAGE>
(a) Except as otherwise expressly provided
herein, any Authorization, election, notice or
document under the Plan from an Eligible Employee
or Participant shall be delivered to the Company,
the Participating Company that is the employer of
such Eligible Employee, or their designated agents
and, subject to any limitations specified in the
Plan, shall be effective when so delivered.
and (ii) by deleting subsection (d) thereof, and
redesignating subsections (e) and (f), and all references
thereto, as subsections (d) and (e), respectively.
IN WITNESS WHEREOF, the Company has caused this
instrument to be executed by its duly authorized officer on
this 23rd day of July, 1999.
Technology Solutions Company
By: PAUL PETERSON
_________________________
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
Technology Solutions Company, doing business as TSC,
and Timothy P. Dimond ("Employee") enter into this
Employment Agreement ("Agreement") as of April 28, 1999.
In consideration of the agreements and covenants
contained in this Agreement, TSC and Employee agree as
follows:
1. Employment Duties: TSC shall employ Employee as
Senior Vice President and Chief Financial Officer. Employee
shall have such responsibilities, duties and authority as
the Chief Executive Officer may reasonably designate. The
Chief Executive Officer may from time to time expand or
contract such duties and responsibility and may enhance but
not diminish Employee's title or position. Employee shall
perform faithfully the duties assigned to him to the best of
his ability and shall devote his full and undivided business
time and attention to the transaction of TSC's business.
2. Term of Employment: The term of employment covered
by this Agreement shall commence as of the effective date of
this Agreement and continue until terminated pursuant to
Section 3 below.
3. Termination: TSC may terminate Employee's
employment and this Agreement for any reason upon giving
Employee 90 days notice of termination. TSC may make the
termination effective at any time within the 90 day notice
period. TSC must, however, continue Employee's normal
salary, bonus, and health insurance benefits for a period of
one year following the effective date of the termination
unless Employee is terminated for Serious Misconduct. TSC
may terminate Employee's employment and this Agreement
immediately without notice and with no salary and benefit
continuation if Employee engages in "Serious Misconduct".
"Serious Misconduct" means embezzlement or misappropriation
of corporate funds, other acts of dishonesty, significant
activities materially harmful to TSC's reputation, willful
refusal to perform or substantial disregard of Employee's
assigned duties (including, but not limited to, refusal to
travel or work the requested hours), or any significant
violation of any statutory or common law duty of loyalty to
TSC.
If following a Change in Control (which is defined as (i)
the acquisition by any individual, entity or group, of
beneficial ownership (within the meaning of Rule 13 d-3
promulgated under the Securities Exchange Act of 1934) of
40% or more of the outstanding shares of the common stock of
TSC; (ii) the approval of the stockholders of TSC of a
merger, where immediately after the merger, persons who were
the holders of a majority of TSC's outstanding common stock
immediately prior to the merger fail to own at least a
majority of the outstanding common stock of the surviving
entity in substantially the same proportions as their
holdings of TSC common stock immediately prior to the
merger; (iii) the sale of substantially all the assets of
- 1 -
<PAGE>
TSC other than to a corporation in which more that 60% of
the outstanding shares are beneficially owned by the
individuals and entities who are the beneficial owners of
the Company stock prior to the acquisition, or (iv) the
naming of a new CEO), Employee's title, position, duties, or
salary is diminished and Employee resigns within 90 days
after the diminishment becomes effective, or if Employee is
ordered to relocate permanently to any location outside of
the Chicago metropolitan area and employee declines and is
terminated, Employee shall be entitled to Employee's normal
salary, bonus, and health insurance benefits for a one-year
period following his resignation or termination. If
Employee dies or becomes permanently disabled and unable to
continue to work at TSC, TSC must continue Employee's normal
salary, bonus, and health insurance benefits for a period of
one year following the date of his death or his permanent
disability.
Employee may terminate employment upon giving TSC 90 day
notice. Upon receiving notice, TSC may waive its rights
under this paragraph and make Employee's resignation
effective immediately or anytime before the 90 day notice
period ends.
4. Salary: As compensation for his services, TSC
shall pay Employee a base salary in the amount listed in
Exhibit A to this Agreement. Employee's base salary shall be
subject to annual review and may, at the discretion of TSC's
management, be increased from that listed in Exhibit A
according to Employee's responsibilities, capabilities and
performance during the preceding year.
5. Bonuses: TSC may elect to pay Employee annual
bonuses. Payment of such bonuses, if any, shall be at the
sole discretion of TSC.
6. Employee Benefits: During the employment period,
Employee shall be entitled to participate in such employee
benefit plans, including group pension, life and health
insurance and other medical benefits, and shall receive all
other fringe benefits, as TSC may make available to its Vice
Presidents.
7. Business Expenses: TSC shall reimburse Employee
for all reasonable and necessary business expenses incurred
by Employee in performing his duties. Employee shall
provide TSC with supporting documentation sufficient to
satisfy reporting requirements of the Internal Revenue
Service and TSC. TSC's determination as to reasonableness
and necessary shall be final.
8. Noncompetition and Nondisclosure: Employee
acknowledges that the successful development and marketing
of TSC's professional services and products require
substantial time and expense. Such efforts generate for TSC
valuable and proprietary information ("confidential
information") which gives TSC a business advantage over
others who do not have such information. Confidential
information of TSC and its clients and prospects includes,
but is not limited to, the following: business strategies
and plans; proposals; deliverables; prospects and customer
lists; recruiting prospects and employee lists,
methodologies; training materials; and computer software.
Employee acknowledges that during the course of his
employment, he will obtain knowledge of such confidential
information. Accordingly, Employee agrees to undertake the
following obligations which he acknowledges to be reasonably
designed to protect TSC's legitimate business interests
without unnecessarily or unreasonably restricting Employee's
post-employment opportunities:
- 2 -
<PAGE>
(a) Upon termination of employment for any reason,
Employee shall return all TSC property, including but not
limited to computer programs, files, notes, records, charts,
or other documents or things containing in whole or in part
any of TSC's confidential information;
(b) During the course of his employment and
subsequent to termination, Employee agrees to treat all such
information as confidential and to take all necessary
precautions against disclosure of such information to third
parties during and after Employee's employment with TSC.
Employee shall refrain from using or disclosing to any
person, without the prior written approval of TSC's Chief
Executive Officer any confidential information unless at
that time the information has become generally and lawfully
known to TSC's competitors;
(c) Without limiting the obligations of paragraph
8(b), Employee shall not, for a period of one year following
his termination for any reason, for himself or as an agent,
partner or employee of any person, firm or corporation,
engage in the practice of consulting or related services for
any client of TSC for whom Employee performed services, or
prospective TSC client to whom Employee submitted, or
assisted in the submission of a proposal during the two year
period preceding his termination;
(d) During a one year period immediately following
Employee's termination for any reason, Employee shall not
induce or assist in the inducement of any TSC employee away
from TSC's employ or from the faithful discharge of such
employee's contractual and fiduciary obligations to serve
TSC's interests with undivided loyalty;
(e) For one year following his termination for any
reason, Employee shall keep TSC currently advised in writing
of the name and address of each business organization for
which he acts as agent, partner, representative or employee.
9. Remedies: Employee recognizes and agrees that a
breach of any or all of the provisions of paragraph 8 will
constitute immediate and irreparable harm to TSC's business
advantage, including but not limited to TSC's valuable
business relations, for which damages cannot be readily
calculated and for which damages are an inadequate remedy.
Accordingly, Employee acknowledges that TSC shall therefore
be entitled to an order enjoining any further breaches by
the Employee. Employee agrees to reimburse TSC for all
costs and expenses, including reasonable attorneys' fees,
incurred by TSC in connection with the enforcement of its
rights under any provision of this Agreement.
- 3 -
<PAGE>
10. Intellectual Property: During the employment
period, Employee shall disclose to TSC all ideas, inventions
and business plans which he develops during the course of
his employment with TSC which relate directly or indirectly
to TSC's business, including but not limited to any computer
programs, processes, products or procedures which may, upon
application, be protected by patent or copyright. Employee
agrees that any such ideas, inventions or business plans
shall be the property of TSC and that Employee shall at
TSC's request and cost, provide TSC with such assurances as
is necessary to secure a patent or copyright.
11. Assignment: Employee acknowledges that the
services to be rendered pursuant to this Agreement are
unique and personal. Accordingly, Employee may not assign
any of his rights or delegate any of his duties or
obligations under this Agreement. TSC may assign its rights,
duties or obligations under this Agreement to a purchaser or
transferee of all, or substantially all, of the assets of
TSC.
12. Notices: All notices shall be in writing, except
for notice of termination which may be oral if confirmed in
writing within 14 days. Notices intended for TSC shall be
sent by registered or certified mail addressed to it at 205
North Michigan Avenue, 15th Floor, Chicago, Illinois 60601
or its current principal office, and notices intended for
Employee shall be either delivered personally to his or sent
by registered or certified mail addressed to his last known
address.
13. Entire Agreement: This Agreement constitutes the
entire agreement between TSC and Employee. Neither Employee
nor TSC may modify this Agreement by oral agreements,
promises or representations. The parties may modify this
Agreement only by a written instrument signed by the
parties.
14. Applicable Law: This Agreement shall be governed
by and construed in accordance with the laws of the State of
Illinois.
15. Mediation of Disputes: Neither party shall
initiate arbitration or other legal proceedings (except for
any claim in equity under Sections 8(b), 8(c), or 8(d) of
this Agreement), against the other party, or, in the case of
TSC, any of its directors, officers, employees, agents, or
representatives, relating in any way to this Agreement, to
Employee's employment with TSC, the termination of his
employment or any or all other claims that one party might
have against the other party until 30 days after the party
against whom the claim[s] is made ("respondent") receives
written notice from the claiming party of the specific
nature of any purported claim and the amount of any
purported damages. Employee and TSC further agree that if
respondent submits the claiming party's claim to the Center
for Public Resources, 680 Fifth Avenue, New York, New York
10019, for nonbinding mediation prior to the expiration of
such 30 day period, the claiming party may not institute
arbitration or other legal proceedings against respondent
until the earlier of a) the completion of nonbinding
mediation efforts, or b) 90 days after the date on which the
respondent received written notice of the claimant's claim.
- 4 -
<PAGE>
16. Binding Arbitration: Employee and TSC agree that
all claims or disputes relating to his employment with TSC
or the termination of such employment, and any and all other
claims that Employee might have against TSC, any TSC
director, officer, employee, agent, or representative, and
any and all claims or disputes that TSC might have against
Employee (except for any claim in equity under Sections
8(b), 8(c), or 8(d) of this Agreement) shall be resolved
under the Expedited Commercial Rules of the American
Arbitration Association. If either party pursues a claim
and such claim results in an Arbitrator's decision, both
parties agree to accept such decision as final and binding.
17. Severability: Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
18. Employee acknowledges that he has read, understood
and accepts the provisions of this Agreement.
Technology Solutions Company Timothy P. Dimond
By: JOHN T. KOHLER TIMOTHY P. DIMOND
_________________________ ________________________
Position:___________________ Position: Senior Vice
President and Chief
Financial Officer
Date:_______________________ Date: 4/28/99
- 5 -
<PAGE>
EXHIBIT A
EMPLOYEE: Timothy P. Dimond
POSITION: Senior Vice President and Chief
Financial Officer
BASE SALARY: $240,000
EFFECTIVE DATE: April 28, 1999
TIMOTHY P. DIMOND
_______________________
Timothy P. Dimond
_______________________
Date 4/28/99
JOHN T. KOHLER
____________________________
Technology Solutions Company
_______________________
Date 4/28/99
- 6 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 60,374
<SECURITIES> 24,017
<RECEIVABLES> 90,137
<ALLOWANCES> 5,834
<INVENTORY> 0
<CURRENT-ASSETS> 197,058
<PP&E> 22,209
<DEPRECIATION> 14,558
<TOTAL-ASSETS> 225,922
<CURRENT-LIABILITIES> 59,213
<BONDS> 0
0
0
<COMMON> 417
<OTHER-SE> 166,292
<TOTAL-LIABILITY-AND-EQUITY> 225,922
<SALES> 155,346
<TOTAL-REVENUES> 155,346
<CGS> 0
<TOTAL-COSTS> 157,044
<OTHER-EXPENSES> (1,627)
<LOSS-PROVISION> 2,846
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> (2,986)
<INCOME-TAX> (235)
<INCOME-CONTINUING> (2,751)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,751)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
