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FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 13, 2000
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TECHNOLOGY SOLUTIONS COMPANY
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(Exact name of registrant as specified in its charter)
Delaware (Commission (IRS Employer
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(State or other jurisdiction File Number) Identification No.)
of incorporation)
205 North Michigan Avenue, Suite 1500, Chicago Illinois 60601
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: ( 312) 228-4500
Not Applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
The Board of Directors of Technology Solutions (TSC) has decided to spin off its
eLoyalty division to its shareholders. It plans on accomplishing the spin off by
transferring the eLoyalty division to eLoyalty Corporation, a newly created
subsidiary, and thereafter distributing all its shares in the corporation to its
shareholders. In order to accomplish the transaction, TSC has filed a revenue
ruling request with the Internal Revenue Service and a registration statement
with the Securities Exchange Commission. Assuming the spin off is successfully
consummated eLoyalty will be traded on The Nasdaq National Market under the
symbol "ELOY".
TSC will continue to be a public company traded on The Nasdaq NationalMarket
under the symbol "TSCC." It will focus on the work of the remaining division,
the E-Solutions division. This division provides consulting and systems
integration services that help companies apply technology to improve the way
they do business, specifically in the areas of eBusiness including eCommerce,
supply chain management, computer based training and resource planning. A more
detailed description of the solution offerings of TSC after the spin off and
consolidated statements of operations excluding eLoyalty is set forth below.
"TSC" as used hereinafter refers to post-spin off TSC.
The information contained herein contains forward-looking statements that
involve risks and uncertainties. You should not rely on these forward-looking
statements. We use words such as "believe," "plan," "expect," "estimate,"
"goal," "future," and similar expressions to identify such forward-looking
statements. Our actual results could differ materially from those anticipated in
the forward-looking statements for many reasons.
TSC SOLUTION OFFERINGS
TSC provides end-to-end eBusiness solutions that encompass electronic commerce,
electronic procurement, electronic learning and knowledge management, supply
chain management, customer relationship management, web-enabled ERP, core ERP
and extended application service providing. Industry analysts such as AMR,
Gartner, and ASTD foresee significant growth in this market. TSC is being
strategically positioned to take full advantage of the rising demand for these
solutions.
THE FOUNDATION OF EBUSINESS: ENTERPRISE BUSINESS PROCESSES AND CORE ENTERPRISE
RESOURCE PLANNING (ERP) SOLUTIONS
Enterprise business processes that are automated with core ERP solutions provide
the foundation that allow companies to integrate their front-end web sites with
their core business processes, (e.g., order entry, order fulfillment, and
delivery), allowing them to realize the true benefits of eBusiness. TSC provides
system integration services for core Enterprise Resource Planning (ERP)
solutions from SAP, Oracle, PeopleSoft/Vantive and Baan. Historically, core ERP
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solutions have been TSC's main offering and currently represent about 80% of the
business by revenue. We expect the other eBusiness solution types to experience
greater future growth at TSC than core ERP. We estimate that the core ERP
revenue will be 35% of TSC's revenue at the end of 2001.
END-TO-END EBUSINESS SOLUTIONS
TSC's eBusiness strategy includes the implementation of eBusiness solutions for
some of its 500+ existing core ERP clients. These solutions may include:
- - Automating the complex process of parts procurement, including interfacing
electronic data interchange and integrating trading exchanges
- - Leveraging the Internet for information sharing among employees and to
simplify the process for employees benefits administration;
- - Building the front-to-back end technology infrastructure for a dot.com
business, including the application integration, outsourcing and hosting;
or
- - Providing Web-based and CD ROM-based training (eLearning) to users of newly
implemented systems.
TSC currently provides eBusiness solutions with in-house expertise and by
teaming with best-in-class software providers, including:
- - In eCommerce: ARIBA (TSC has implemented seven of the company's first 40
live sites, including the largest U.S. electronic procurement project to
date, done for a major electronics company. Ten TSC employees are fully
trained on Ariba technologies.); BLUESTONE SOFTWARE; BROADVISION;
COMMERCEONE (TSC is in final proposals on several opportunities with
CommerceOne, and also offers its services to existing clients
independently. TSC also provides training to CommerceOne clients, and
currently has 12 employees trained on CommerceOne technologies.);
CYBERCASH; EAGLE DEVELOPMENT; and HAHT
- - In Supply Chain Management: HK SYSTEMS; I2; MCHUGH; LOGILITY; MANUGISTICS;
and TANDATA
- - In Customer Relationship Management: SIEBEL; VANTIVE; and CLARIFY
- - In Web-enabled ERP: SAP, ORACLE, PEOPLESOFT/VANTIVE, and BAAN
About 20% of TSC's workforce is currently assigned full time to eBusiness
projects that extend the enterprise beyond core ERP. TSC is placing significant
emphasis on growing these offerings and expects them to contribute an increasing
percentage of the total Company revenue.
OUTSOURCING AND HOSTING: APPLICATION SERVICE PROVIDING (ASP) SOLUTIONS
Industry analysts foresee extensive growth in the ASP market as a result of many
factors, including:
- - The growth of the Internet, which opens new business possibilities for
companies who chose to implement complex and costly technological changes;
- - The complexity of eBusiness solutions, which often include applications
from multiple vendors and result in higher ongoing support requirements;
and
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- - The need to operationalize eBusiness strategies quickly, which often
includes building infrastructure from the ground up.
TSC believes there is significant demand for ASP solutions in the eBusiness
market and has recently entered this market with a total solution offering. The
TSC solution includes solution integration and implementation, customer support,
operations support and network services. TSC provides customer support and
operations support in conjunction with various providers and solutions support
through its own personnel. It is working with SUPPORT TECHNOLOGIES for customer
support and UUNET and AMQUEST for operations support. It is pricing the support
on a monthly fee and/or fee per user basis. The support offerings can be used
with single or multiple applications ranging from back-office ERP systems to Web
site front-ends. TSC's goal is to derive most of its revenue from these ASP
solutions through its provision of solutions support and the Company will be
seeking to produce monthly revenues approaching $1million by the end of the year
2000 and approaching $2million by the end of year 2001. The Company believes
that it is common in the industry for these contracts to extend an average of
three years.
LEADERSHIP TEAM
The TSC leadership team includes:
Jack Hayden, president - Hayden has an eight-year track record at TSC. He
founded and grew the ERP business from $10million to $160million in four years.
Hayden also served as vice president of operations at McDonnell Douglas.
Tim Dimond, CFO - Formerly of Ernst & Young .
Ard Geller, SVP - Former a technology executive at Mobil, currently heading
TSC's ASP plus business.
Matt Harbin, SVP - Formerly with Boeing, currently heading TSC's eLearning
business.
John Page, SVP - Formerly with KPMG, currently heading eBusiness initiative.
Don Scales, SVP - Formerly of Arthur D. Little and EXE Technologies, now heading
the SCM business.
Jimmy Smith, SVP - Formerly of Price Waterhouse, now heads the East and West
sales region.
David Wasson, SVP - Formerly of Andersen Consulting, now heads eProcurement and
Central region.
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KEY BUSINESS METRICS
Q3-99 2000 Target
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Gross Profit (%)* 44% 46%
Billing Rate ($/hr) $176 / hour 180/hour
Utilization (%) 68% 70%
Revenue/Billable employee 243,000 / year 250,000 / year
*Represents revenues less project personnel costs plus related incentive
compensation
SUMMARY BALANCE SHEET
* Post Distribution (i)
- Cash & cash equivalents $ 60 million
- Net Working capital $ 90 million
- Total assets $ 140 million
- Long term debt - 0 -
- Total shareholder equity $ 100 million
- Days sales outstanding 78 days
(i) This summary balance sheet information is based on the unaudited
balance sheet of the combined company as of November 30, 1999 and
excludes the assets and liabilities expected to be transferred to the
eLoyalty Corporation as part of the spin off . This summary balance
sheet information may not necessarily reflect the balance sheet of TSC
at the spin off or during any other future period.
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SUMMARY OF TSC'S OPERATING RESULTS, EXCLUDING ELOYALTY
The financial information shown below is a summary of TSC's operating results
excluding eLoyalty on a carve out basis. It was derived by adjusting the
financial information found in the Company's Form 10-Q's for the quarters ended
March 31, June 30, and September 30, 1999 and the Company's Form 10-K for the
June 1, 1998 to December 31, 1998 transition period in accordance with Notes (a)
and (b) set forth below. This financial information may not necessarily reflect
the results of the operations of TSC, excluding the eLoyalty division, as a
stand-alone entity during the periods presented or in the future.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED (UNAUDITED)
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MARCH 31, JUNE 30, SEPT. 30, Dec. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
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<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES ............................................ $ 50,376 $ 57,938 $ 57,260 $49,567 $ 46,204 $ 43,777 $36,278
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COSTS AND EXPENSES:
PROJECT PERSONNEL .................................. 23,210 26,564 26,536 25,668 26,242 21,619 18,445
OTHER PROJECT EXPENSES ............................. 7,112 8,695 8,132 8,589 8,294 6,740 5,802
MANAGEMENT AND ADMINISTRATIVE SUPPORT (A) .......... 9,732 11,062 11,587 11,324 11,032 9,068 6,587
GOODWILL AMORTIZATION .............................. . 111 111 111 73 72 - -
NON-RECURRING CHARGES - - - 5,200 - -
COSTS RELATED TO ELOYALTY TRANSACTION .............. - - - - - - 1,117
RESTRUCTURING CHARGE ............................... - - - - 10,522 - -
INCENTIVE COMPENSATION (A) ......................... 985 1,481 3,719 1,696 2,309 2,915 2,537
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41,150 47,913 50,085 52,550 58,471 40,342 34,488
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OPERATING INCOME (LOSS) TSC (EX. EL.) ON A CARVE OUT
BASIS (A) ........................................... $ 9,226 $ 10,025 $ 7,175 $(2,983) $ (12,267) $ 3,435 $ 1,790
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RECONCILIATION OF OPERATING INCOME (LOSS) TSC (EX. EL.) ON A CARVE OUT BASIS TO OPERATING INCOME (LOSS) FROM CONTINUING
OPERATIONS (B):
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OPERATING INCOME (LOSS)TSC (EX. EL.) ON A CARVE OUT
BASIS PER ABOVE $ 9,226 $ 10,025 $ 7,175 $(2,983) $ (12,267) $ 3,435 $ 1,790
ADJUSTMENTS:
MANAGEMENT AND ADMINISTRATIVE SUPPORT AND RELATED
INCENTIVE COMPENSATION (B) ........................ (2,324) (2,683) (1,922) (2,601) (3,156) (2,265) (1,957)
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OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS .. $ 6,902 $ 7,342 $ 5,253 $(5,584) $ (15,423) $ 1,170 $ (167)
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</TABLE>
Notes:
(a) Management and administrative support and incentive compensation
include certain corporate infrastructure costs that have been allocated
between TSC (excluding eLoyalty) and eLoyalty primarily on a
proportional allocation method based on revenues and headcount.
(b) Certain corporate infrastructure costs that are allocated to eLoyalty
do not appear under management and administrative support and incentive
compensation on a carve out basis, notwithstanding that these costs are
required to be reported as part of continuing operations pursuant to
discontinuing operations accounting requirements under generally
accepted accounting principles.
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SUMMARY
TSC is well-positioned to create the extended enterprise through end-to-end
eBusiness solutions, and is gaining momentum in this market. The Company
possesses a seasoned management team and solid expertise in enterprise business
processes and core ERP operations, and with its ASP + solutions business can
provide recurring revenue and round out the Company's end-to-end offering. The
Company hopes to create market momentum using the Company's 500+ client base as
the platform for new growth.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
TECHNOLOGY SOLUTIONS COMPANY
(Registrant)
Date: January 13, 2000 By: /s/ Paul Peterson
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Paul Peterson
Senior Vice President,
General Counsel and Secretary
