<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 September 30, 2000
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 October 31, 2000, there were outstanding 44,184,803 shares of TSC Common
Stock, par value $.01.
================================================================================
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
Index to Form 10-Q
================================================================================
Part I
------
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999.................................3
Consolidated Statements of Operations
for the Three Months and Nine Months Ended
September 30, 2000 and 1999..............................................4
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2000 and 1999....................6
Notes to Consolidated Financial Statements.................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................16
Part II
OTHER INFORMATION
Item 6....................................................................25
SIGNATURES...................................................................26
EXHIBIT INDEX................................................................27
</TABLE>
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Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
================================================================================
ITEM 1. Financial Statements
TECHNOLOGY SOLUTIONS COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 41,458 $ 81,002
Marketable securities...................................................... 17,785 17,826
Receivables, less allowance for doubtful receivables of $3,699 and $3,715.. 31,169 24,036
Deferred income taxes...................................................... 9,198 9,969
Refundable income taxes.................................................... 6,644 --
Other current assets....................................................... 3,431 4,664
-------- --------
Total current assets..................................................... 109,685 137,497
COMPUTERS, FURNITURE AND EQUIPMENT, NET...................................... 2,853 4,116
GOODWILL..................................................................... 3,756 4,446
LONG-TERM RECEIVABLES AND OTHER.............................................. 6,473 2,788
NET ASSETS OF DISCONTINUED OPERATIONS........................................ -- 74,462
-------- --------
Total assets............................................................. $122,767 $223,309
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable........................................................... $ 1,701 $ 2,995
Accrued compensation and related costs..................................... 13,243 18,453
Deferred compensation...................................................... 11,653 10,322
Restructuring and other accruals........................................... 2,739 12,708
Other current liabilities.................................................. 4,966 5,220
-------- --------
Total current liabilities................................................ 34,302 49,698
-------- --------
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 -- 44,566,404 and 43,354,725.................. 446 434
Capital in excess of par value............................................. 122,370 110,455
(Accumulated deficit) and retained earnings................................ (34,057) 63,704
Treasury stock, at cost, 39,075 shares..................................... (109) --
Accumulated other comprehensive (loss) income:
Unrealized holding loss, net.............................................. (227) (131)
Cumulative translation adjustment......................................... 42 (851)
-------- --------
Total stockholders' equity............................................... 88,465 173,611
-------- --------
Total liabilities and stockholders' equity............................... $122,767 $223,309
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this financial information.
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Page 3
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------------------ -------------------------
2000 1999 2000 1999
------- ------ -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES...................................... $31,044 $36,278 $100,480 $126,259
------- ------- -------- --------
COSTS AND EXPENSES:
Project personnel............................ 17,486 18,445 50,980 66,306
Other project expenses....................... 9,020 5,802 19,205 20,836
Management and administrative support........ 7,330 8,410 24,056 33,634
Goodwill amortization........................ 230 -- 690 72
Restructuring and other (credits) charges.... (926) -- 3,775 10,522
Incentive compensation....................... 1,015 2,671 6,061 8,192
------- ------- -------- --------
34,155 35,328 104,767 139,562
------- ------- -------- --------
OPERATING (LOSS) INCOME....................... (3,111) 950 (4,287) (13,303)
------- ------- -------- --------
OTHER INCOME (EXPENSE):
Net investment income........................ 741 879 2,604 2,501
Interest expense............................. -- (47) (14) (128)
------- ------- -------- --------
741 832 2,590 2,373
------- ------- -------- --------
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES............. (2,370) 1,782 (1,697) (10,930)
INCOME TAX (BENEFIT) PROVISION................ (853) 788 (530) (3,726)
------- ------- -------- --------
(LOSS) INCOME FROM
CONTINUING OPERATIONS........................ (1,517) 994 (1,167) (7,204)
INCOME FROM DISCONTINUED
OPERATIONS (net of income taxes)........... -- 2,358 -- 7,805
------- ------- -------- --------
NET (LOSS) INCOME............................. $(1,517) $ 3,352 $ (1,167) $ 601
======= ======= ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this financial information.
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Page 4
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(CONTINUED)
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
---------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
BASIC (LOSS) EARNINGS PER COMMON
SHARE:
CONTINUING OPERATIONS......................... $ (0.03) $ 0.03 $ (0.03) $ (0.17)
DISCONTINUED OPERATIONS....................... -- 0.05 -- 0.18
------- ------- ------- -------
NET (LOSS) EARNINGS PER COMMON
SHARE....................................... $ (0.03) $ 0.08 $ (0.03) $ 0.01
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING................... 44,456 42,369 44,152 41,722
======= ======= ======= =======
DILUTED (LOSS) EARNINGS
PER COMMON SHARE:
CONTINUING OPERATIONS......................... $ (0.03) $ 0.03 $ (0.03) $ (0.17)
DISCONTINUED OPERATIONS....................... -- 0.05 -- 0.18
------- ------- ------- -------
NET (LOSS) EARNINGS PER COMMON
SHARE....................................... $ (0.03) $ 0.08 $ (0.03) $ 0.01
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING................................. 44,456 44,422 44,152 43,239
======= ======= ======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this financial information.
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Page 5
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
Consolidated statements of cash Flows
(In thousands)
<TABLE>
<CAPTION>
For the
Nine Months Ended
September 30,
----------------------
2000 1999
---- ----
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................................ $ (1,167) $ 601
Restructuring and other charges.......................................... 3,775 10,522
Adjustments to reconcile net (loss) income to net cash from
operating activities:
Depreciation and amortization......................................... 3,292 7,631
Provisions for receivable valuation allowances and
reserves for possible losses....................................... 3,893 4,413
Loss (gain) on sale of investments.................................... 9 (102)
Deferred income taxes................................................. (41) (3,010)
Changes in assets and liabilities:
Receivables......................................................... (12,028) (13,507)
Purchases of trading securities related to deferred
compensation program.............................................. (1,331) (706)
Refundable income taxes............................................. (1,319) --
Other current assets................................................ 1,065 2,282
Accounts payable.................................................... (1,279) (446)
Accrued compensation and related costs.............................. (5,180) 5,202
Deferred compensation............................................... 1,331 706
Restructuring and other accruals.................................... (9,043) 2,121
Other current liabilities........................................... (1,961) (2,112)
Other assets........................................................ (3,685) 1,905
--------- ---------
Net cash (used in) provided by operating activities.............. (23,669) 15,500
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities................................ -- (1,500)
Proceeds from available-for-sale securities.............................. 1,225 2,820
Capital expenditures..................................................... (1,613) (1,847)
Additional cash contribution to eLoyalty Corporation..................... (20,000) --
Cash used by discontinued operations..................................... (2,311) --
--------- --------
Net cash used in investing activities............................ (22,699) (527)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options.................................. 4,943 5,990
Proceeds from employee stock purchase plan............................... 2,175 3,017
Purchase of treasury stock............................................... (573) (4,930)
Investment by venture capital firms...................................... -- 4,506
--------- ---------
Net cash provided by financing activities........................ 6,545 8,583
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS..................................................... 279 1,039
--------- ---------
(DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS................................................ (39,544) 24,595
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 81,002 59,473
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ 41,458 $ 84,068
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this financial information.
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Page 6
<PAGE>
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 September 30, 2000, the consolidated statements of
operations for the three and nine months ended September 30, 2000 and 1999 and
the consolidated statements of cash flows for the nine months ended September
30, 2000 and 1999 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 September 30, 2000 and for all periods presented. All
adjustments made, except those related to restructuring and other charges, 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 Annual Report on Form 10-K for the year ended December 31, 1999
filed with the United States Securities and Exchange Commission (SEC) on March
23, 2000.
Certain reclassifications have been made to prior periods to conform to the
current period classifications.
NOTE 2 -- THE COMPANY
TSC delivers business benefits through eBusiness consulting and systems
integration services that help clients transform their businesses, their
internal business processes and their relationships with customers, suppliers,
distributors and employees and help these organizations realize the full
benefits of information technology throughout the enterprise. The Company's
clients generally are located throughout the United States and in Europe.
On February 15, 2000, TSC distributed the common stock of eLoyalty Corporation
(eLoyalty) owned by the Company to the Company's stockholders (the Spin-Off).
eLoyalty operated within the Company prior to the Spin-Off and is now a
separate, publicly traded company (see Note 8). Accordingly, the consolidated
statements of operations for the three and nine months ended September 30, 1999
have been restated to report these operations as discontinued operations. The
consolidated statements of cash flows for the nine months ended September 30,
1999 have not been restated on a discontinued operations basis. There were no
discontinued operations in the Company's results of operations for the nine
months ended September 30, 2000, as the Company provided for the estimated net
loss on distribution in its results of operations for the year ended December
31, 1999.
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Page 7
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
================================================================================
NOTE 3 -- STOCK OPTIONS
As of September 30, 2000, options to purchase 11.5 million shares of common
stock were outstanding and options to purchase an additional 2.8 million shares
of common stock were available for grant under the Technology Solutions Company
1996 Stock Incentive Plan.
IMPACT OF THE FEBRUARY 15, 2000 SPIN-OFF ON TSC OPTIONS -- At the time of the
Spin-Off (see Note 2), TSC options were adjusted to reflect the impact of the
Spin-Off. TSC option holders (excluding eLoyalty employees and directors who
were not also directors of TSC) had each of their options granted prior to June
22, 1999 converted into one adjusted TSC option and one eLoyalty option. The
original strike price of the TSC option was split into a strike price for (1)
the adjusted TSC option and (2) the eLoyalty option, based on the relative
trading values of the two companies' common stock immediately after the Spin-
Off. Immediately after the Spin-Off, TSC stock traded at 16.5278 percent of the
combined value of one share of TSC stock and one share of eLoyalty stock.
Accordingly, the strike price for the adjusted TSC option was set at 16.5278
percent of the original TSC option strike price and the eLoyalty option strike
price was set at 83.4722 percent of the original TSC option strike price.
TSC option holders (excluding eLoyalty employees and directors who were not also
directors of TSC) with options granted subsequent to June 21, 1999 did not
receive any eLoyalty options in respect of post-June 21, 1999 TSC options, but
such options were adjusted by reducing the strike price and increasing the
number of shares subject thereto. The adjustments were calculated based on the
relative trading values of TSC and eLoyalty common stock immediately after the
Spin-Off. The adjusted strike price was determined by multiplying the original
strike price by 16.5278 percent. The adjusted number of shares subject to each
such option was determined by dividing the original number of shares subject to
the option by 16.5278 percent.
eLoyalty employees and directors (excluding eLoyalty directors who were also
directors of TSC) who held TSC options forfeited their TSC options at the time
of the Spin-Off and, in return, received additional eLoyalty options.
In all cases, the TSC and eLoyalty option adjustments described above were
calculated to (1) preserve the intrinsic value of the option as well as (2)
preserve the ratio of the exercise price to the fair market value of the stock
subject to the option.
As a net result of these adjustments, the number of shares of TSC common stock
subject to options increased by 2.9 million at the time of the Spin-Off.
================================================================================
Page 8
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
================================================================================
NOTE 4 -- CAPITAL STOCK
During the quarter ended September 30, 2000, the Company repurchased 206,000
shares of the Company's outstanding Common Stock for $0.6 million under a
3,000,000 share repurchase program announced in September 2000. As of September
30, 2000, 2,794,000 shares were available to be purchased under the share
repurchase program.
NOTE 5 -- (LOSS) EARNINGS PER COMMON SHARE
The Company discloses basic and diluted (loss) earnings per share in the
consolidated statements of operations under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." (Loss)
earnings per common share assuming dilution is computed by dividing net (loss)
earnings by the weighted average number of common shares outstanding during each
period presented, plus the dilutive effect of common equivalent shares arising
from the assumed exercise of stock options using the treasury stock method.
Common equivalent shares of 3,290 and 3,997 were not included in the diluted
loss per share calculation as they were antidilutive for the three and nine
months ended September 30, 2000. (Loss) earnings per common share is computed by
dividing net income 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.
<TABLE>
<CAPTION>
Reconciliation of Basic and Diluted (Loss) Earnings Per Share for the Three Months Ended
----------------------------------------------------------------------------------------------
(In thousands, except per share data)
September 30, 2000 September 30, 1999
-------------------------------- ---------------------------
(unaudited) (unaudited)
Per Per
Net Common Net Common
Loss Shares Share Income Shares Share
---- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Basic (Loss)
Earnings Per Share $(1,517) 44,456 $(0.03) $3,352 42,369 $ 0.08
====== ======
Effect of Stock Options -- -- -- 2,053
------- ------ ------ ------
Diluted (Loss)
Earnings Per Share $(1,517) 44,456 $(0.03) $3,352 44,422 $ 0.08
======= ====== ====== ====== ====== ======
</TABLE>
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Page 9
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
================================================================================
<TABLE>
<CAPTION>
Reconciliation of Basic and Diluted (Loss) Earnings Per Share for the Nine Months Ended
----------------------------------------------------------------------------------------------
(In thousands, except per share data)
September 30, 2000 September 30, 1999
-------------------------------- ---------------------------
(unaudited) (unaudited)
Per Per
Net Common Net Common
Loss Shares Share Income Shares Share
---- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Basic (Loss)
Earnings Per Share $(1,167) 44,152 $(0.03) $601 41,722 $ 0.01
====== ======
Effect of Stock Options -- -- -- 1,517
------- ------ ---- ------
Diluted (Loss)
Earnings Per Share $(1,167) 44,152 $(0.03) $601 43,239 $ 0.01
======= ====== ====== ==== ====== ======
</TABLE>
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Page 10
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
================================================================================
NOTE 6 -- COMPREHENSIVE (LOSS) INCOME
The Company's comprehensive (loss) income was as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
(In thousands) September 30,
--------------------------
2000 1999
---------- ---------
<S> <C> <C>
Net (Loss) Income................................................ $(1,517) $3,352
Other Comprehensive (Loss) Income:
Net Unrealized Holding Losses on
Available-for-Sale Securities, net of tax................... (15) (14)
Cumulative Translation Adjustment............................. (17) 604
------- ------
Total Other Comprehensive (Loss) Income.................... (32) 590
------- ------
Total Comprehensive (Loss) Income................................ $(1,549) $3,942
======= ======
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
(In thousands) September 30,
-------------------------
2000 1999
---------- ---------
<S> <C> <C>
Net (Loss) Income................................................ $(1,167) $ 601
Other Comprehensive (Loss) Income:
Net Unrealized Holding Losses on
Available-for-Sale Securities, net of tax................... (96) (66)
Cumulative Translation Adjustment............................. 50 341
------- -----
Total Other Comprehensive (Loss) Income.................... (46) 275
------- -----
Total Comprehensive (Loss) Income................................ $(1,213) $ 876
======= =====
</TABLE>
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Page 11
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
================================================================================
NOTE 7 -- BUSINESS SEGMENTS
Effective January 1, 2000, the Company began reporting its operations under
three segments: Digital Enterprise Consulting (DEC); Knowledge Management
(currently named Peer3); and application service provider services (ASP+ or
Extended Support). During the three months ended September 30, 2000, the Company
changed the structure of its internal organization and now the Extended Support
segment is included in the DEC segment. In addition, the financial information
stated below has been adjusted to reflect the change to the Company's current
two reportable segments. TSC serves customers in U.S. and international markets.
TSC believes that offering these bands of services allows the Company to serve
clients in their information technology and eBusiness needs. This structure also
allows the Company's employees the flexibility and opportunity to grow and
develop. The two areas work in an integrated manner that develops, shares and
cross references methodologies, tools, project management plans, benchmark
information, templates and best practices overall. The DEC segment provides
information technology consulting and business consulting services that help
clients in developing and implementing all aspects of their electronic business
capabilities. The DEC segment includes TSC's eBusiness Solutions, Supply Chain
Management, Extended Support and Enterprise Resource Planning (ERP)
implementation practices. The Peer3 segment is focused on harnessing the
intellectual capital of client companies.
There are no intersegment revenues. The Company currently evaluates the
performance of its segments and allocates resources to them based on revenues
and receivables.
The table below presents information about the reported revenues and receivables
of TSC (in thousands).
<TABLE>
<CAPTION>
For and as of the Three Months
Ended September 30, 2000 DEC Peer3 Total
------------------------ ------- ------- -------
<S> <C> <C> <C>
Revenues $27,511 $ 3,533 $31,044
Receivables $29,680 $ 5,188 $34,868
For and as of the Three Months
Ended September 30, 1999 DEC Peer3 Total
------------------------ ------- ------- -------
Revenues $33,018 $ 3,260 $36,278
Receivables $33,645 $ 3,668 $37,313
</TABLE>
================================================================================
Page 12
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
================================================================================
<TABLE>
<CAPTION>
For and as of the Three Months
Ended June 30, 2000 DEC Peer3 Total
------------------- -------- ------- --------
<S> <C> <C> <C>
Revenues $ 32,229 $ 4,025 $ 36,254
Receivables $ 30,644 $ 5,165 $ 35,809
For and as of the Three Months
Ended June 30, 1999 DEC Peer3 Total
------------------- -------- ------- --------
Revenues $ 40,230 $ 3,547 $ 43,777
Receivables $ 39,485 $ 3,984 $ 43,469
For and as of the Three Months
Ended March 31, 2000 DEC Peer3 Total
-------------------- -------- ------- --------
Revenues $ 29,540 $ 3,642 $ 33,182
Receivables $ 24,042 $ 3,736 $ 27,778
For and as of the Three Months
Ended March 31, 1999 DEC Peer3 Total
-------------------- -------- ------- --------
Revenues $ 42,436 $ 3,768 $ 46,204
Receivables $ 39,927 $ 4,940 $ 44,867
For and as of the Nine Months
Ended September 30, 2000 DEC Peer3 Total
------------------------ -------- ------- --------
Revenues $ 89,280 $11,200 $100,480
Receivables $ 29,680 $ 5,188 $ 34,868
For and as of the Nine Months
Ended September 30, 1999 DEC Peer3 Total
------------------------ -------- ------- --------
Revenues $115,684 $10,575 $126,259
Receivables $ 33,645 $ 3,668 $ 37,313
</TABLE>
================================================================================
Page 13
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
================================================================================
The following is revenue and long-lived asset information by geographic area (in
thousands):
<TABLE>
<CAPTION>
For and as of the Three Months United Foreign
Ended September 30, 2000 States Subsidiaries Total
------------------------ -------- ------------ --------
<S> <C> <C> <C>
Revenues $ 29,679 $1,365 $ 31,044
Identifiable assets $118,867 $3,900 $122,767
For and as of the Three Months United Foreign
Ended September 30, 1999 States Subsidiaries Total
------------------------ -------- ------------ --------
Revenues $ 33,858 $2,420 $ 36,278
Identifiable assets $144,076 $5,424 $149,500
For and as of the Nine Months United Foreign
Ended September 30, 2000 States Subsidiaries Total
------------------------ -------- ------------ --------
Revenues $ 95,410 $5,070 $100,480
Identifiable assets $118,867 $3,900 $122,767
For and as of the Nine Months United Foreign
Ended September 30,1999 States Subsidiaries Total
----------------------- -------- ------------ --------
Revenues $119,692 $6,567 $126,259
Identifiable assets $144,076 $5,424 $149,500
</TABLE>
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
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
================================================================================
NOTE 8 -- OTHER EVENTS
RESTRUCTURING AND OTHER CHARGES -- During the quarter ended March 31, 2000, the
Company recorded a pre-tax charge of $4.7 million for the closure of its Latin
American operations. During the quarter ended September 30, 2000, the Company
collected $0.4 million of accounts receivables previously written-off and, as a
result, the cumulative charge has been reduced to $4.3 million. As of September
30, 2000, the Company had used approximately $4.0 million of this charge for
cash payments of $2.8 million ($0.2 million paid during the quarter ended
September 30, 2000) related to severance costs for approximately 40 employees,
lease terminations and professional fees and $1.6 million in asset write-offs,
offset by the accounts receivables collections of $0.4 million. The remaining
accrual balance of $0.3 million as of September 30, 2000 is expected to be
utilized by the end of 2000.
During the quarter ended December 31, 1999, the Company recorded $7.0 million in
restructuring and other charges associated with lease terminations of $3.0
million, former executive severance costs of $1.8 million, CourseNet Systems,
Inc. acquisition costs of $1.3 million and write-offs of other assets of $0.9
million. During the quarter ended September 30, 2000, the Company determined
that a portion of the lease terminations became unnecessary due to changes in
TSC office usage by TSC and eLoyalty and, as a result, the cumulative charge has
been reduced by $0.4 million to $6.6 million. As of September 30, 2000, the
Company had used $4.2 million of these restructuring and other charges as a
result of cash payments of $1.8 million (paid during the quarter ended March 31,
2000) for executive severance costs and $2.4 million in asset and other write-
offs. The remaining accrual balance of $2.4 million as of September 30, 2000
relates to amounts the Company is contractually obligated to pay through 2004 as
a result of lease terminations.
In addition, on March 30, 1999, the Company announced that it was making 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 employees, primarily consulting personnel. During the
quarter ended September 30, 2000, the Company determined that $0.1 million of
this charge was overestimated and, as a result, the cumulative charge has been
reduced to $10.4 million. The Company has used the full restructuring accrual of
$10.4 million for cash payments of $8.8 million (paid prior to the quarter ended
September 30, 2000) associated with the severance of approximately 270 employees
and $1.6 million in asset write-offs and other costs.
SPIN-OFF -- On February 15, 2000 TSC completed the Spin-Off. The total net
assets contributed to eLoyalty at the Spin-Off was $96.6 million which consisted
of current assets of $104.4 million, non-current assets of $18.7 million,
current liabilities of $28.0 million and accumulated other comprehensive loss of
$1.5 million.
TSC also has provided a short-term guarantee for a $10.0 million revolving
credit facility entered into by eLoyalty with Bank of America National Trust and
Savings Association. TSC received a fee from eLoyalty. The guarantee will
terminate on December 30, 2000.
================================================================================
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 September 30, 2000 Compared with Three Months Ended September
30, 1999
On February 15, 2000 TSC completed the Spin-Off. Accordingly, this report
discusses the TSC consolidated statements of operations with eLoyalty's
operations presented on a discontinued operations basis for the quarter ended
September 30, 1999.
Consolidated net revenues for the quarter ended September 30, 2000 decreased 14
percent to $31.0 million compared with $36.3 million for the same period last
year. This decrease was mainly due to a decline in the demand for Enterprise
Resource Planning (ERP) solutions which is provided by TSC's Digital Enterprise
Consulting (DEC) segment. Historically, TSC's revenues consisted mainly of core
ERP solutions. Prospectively, the Company expects its expanded ERP offerings and
its other eBusiness solution offerings within the DEC segment to experience
greater future growth rates than core ERP.
Project personnel costs, which represent mainly professional salaries and
benefits, decreased to $17.5 million for the quarter ended September 30, 2000
from $18.4 million for the same period last year, a decrease of 5 percent. The
decrease was mainly due to a decrease in professional headcount. Project
personnel costs as a percentage of net revenues increased to 56 percent for the
quarter ended September 30, 2000 from 51 percent for the same period last year
due to lower utilization and declines in average revenue per professional and
overall revenues.
Other project expenses consist of nonbillable expenses directly incurred for
client projects and business development. These expenses include 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 September 30, 2000 were $9.0
million, compared with $5.8 million in the comparable period last year, an
increase of $3.2 million, or 55 percent. The increase in other project expenses
was primarily attributable to an increase of $2.5 million in the provision for
valuation allowances and reserves for potential losses due to an increase in
cash flow problems at dot-com clients and an increase of $1.3 million in
marketing, business development and travel expenses from increased selling and
business development efforts. These increases were offset by a decrease of $0.4
million in domestic hiring, training, communication and computer expenses due to
a decrease in headcount and a decrease of $0.2 million in international costs as
a result of the closure of the Latin American operations. Other project expenses
as a percentage of net revenues increased to 29 percent for the quarter ended
September 30, 2000 from 16 percent for the same period last year primarily due
to the increase in these expenses and the decline in revenues.
Management and administrative support costs decreased $1.1 million to $7.3
million for the quarter ended September 30, 2000 from $8.4 million for the same
period last
================================================================================
Page 16
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
================================================================================
year, a decrease of 13 percent. The decrease was mainly due to a decrease of
$3.5 million in corporate infrastructure or Global Core Service (GCS) costs over
the same period last year. This decrease in GCS costs included the following: a
decrease in the internal systems and human resources areas of $1.5 million as a
result of a reduction in headcount; a decrease in domestic office costs of $0.6
million due to certain offices being transferred to eLoyalty at the time of the
Spin-Off; a decrease in legal expenses of $0.4 million; a decrease in corporate
finance, accounting and investor relations costs of $0.3 million; and a decrease
in various other costs of $0.7 million including corporate marketing,
international and other costs. As a result of the Spin-Off, TSC and eLoyalty
entered into a Shared Services Agreement pursuant to which TSC provides to
eLoyalty certain administrative services. The Company has charged these services
to eLoyalty since the Spin-Off and $0.8 million of the decrease in GCS costs
discussed above reflects this charge. In addition, these decreases were offset
by an increase in practice area management and administrative costs of $2.4
million. This increase primarily resulted from an increase in practice area
support personnel of $0.9 million, an increase in selling and marketing costs of
$0.2 million and an increase in various other costs of $1.3 million including
travel, practice area recruiting costs and other expenses.
Goodwill amortization of $0.2 million was recorded during the quarter ended
September 30, 2000 as a result of the CourseNet Systems, Inc. (CourseNet)
acquisition in the fourth quarter of 1999.
During the quarter ended March 31, 2000, the Company recorded a pre-tax charge
of $4.7 million for the closure of its Latin American operations. During the
quarter ended September 30, 2000, the Company collected $0.4 million of accounts
receivables previously written-off and, as a result, the cumulative charge has
been reduced to $4.3 million. As of September 30, 2000, the Company had used
approximately $4.0 million of this charge for cash payments of $2.8 million
($0.2 million paid during the quarter ended September 30, 2000) related to
severance costs for approximately 40 employees, lease terminations and
professional fees and $1.6 million in asset write-offs, offset by the accounts
receivables collections of $0.4 million. The remaining accrual balance of $0.3
million as of September 30, 2000 is expected to be utilized by the end of 2000.
During the quarter ended December 31, 1999, the Company recorded $7.0 million in
restructuring and other charges associated with lease terminations of $3.0
million, former executive severance costs of $1.8 million, CourseNet acquisition
costs of $1.3 million and write-offs of other assets of $0.9 million. During the
quarter ended September 30, 2000, the Company determined that a portion of the
lease terminations became unnecessary due to changes in TSC office usage by TSC
and eLoyalty and, as a result, the cumulative charge has been reduced by $0.4
million to $6.6 million. As of September 30, 2000, the Company had used $4.2
million of these restructuring and other charges as a result of cash payments of
$1.8 million (paid during the quarter ended March 31, 2000) for
================================================================================
Page 17
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
================================================================================
executive severance costs and $2.4 million in asset and other write-offs. The
remaining accrual balance of $2.4 million as of September 30, 2000 relates to
amounts the Company is contractually obligated to pay through 2004 as a result
of lease terminations.
In addition, on March 30, 1999, the Company announced that it was making 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 employees, primarily consulting personnel. During the
quarter ended September 30, 2000, the Company determined that $0.1 million of
this charge was overestimated and, as a result, the cumulative charge has been
reduced to $10.4 million. The Company has used the full restructuring accrual of
$10.4 million for cash payments of $8.8 million (paid prior to the quarter ended
September 30, 2000) associated with the severance of approximately 270 employees
and $1.6 million in asset write-offs and other costs.
Incentive compensation of $1.0 million was accrued during the quarter ended
September 30, 2000 compared to $2.7 million for the same period last year.
Incentive compensation as a percentage of net revenues decreased to 3 percent
for the quarter ended September 30, 2000 compared to 7 percent for the same
period last year. The decrease was primarily a result of the Company not meeting
its revenues or earnings targets for the quarter ended September 30, 2000 as
compared to the same period a year ago. The Company expects to continue to
accrue incentive compensation during the fourth quarter.
Consolidated operating loss from continuing operations was $3.1 million for the
quarter ended September 30, 2000 compared to consolidated operating income from
continuing operations of $1.0 million in the prior period. This decrease was
mainly due to the reduction in revenues and an increase in the provision for
valuation allowances and reserves for potential losses, partially offset by the
adjustment of some previous restructuring and other charges (as discussed
previously in this section) and a decrease in incentive compensation.
Other income and expense decreased to $0.7 million for the quarter ended
September 30, 2000 compared to $0.8 million for the same period a year ago. The
decrease is a result of lower cash and cash equivalent balances during the
quarter ended September 30, 2000 compared to the same period a year ago.
The Company's effective tax rate for the quarter ended September 30, 2000 was a
tax benefit of 36 percent compared to a tax provision of 44 percent for the same
period a year ago. The tax benefit for the current period approximates the
federal tax rate.
Weighted average number of common shares outstanding and weighted average number
of common and common equivalent shares outstanding increased due to the exercise
of stock options, the issuance of shares under the Company's employee stock
purchase plan and the purchase of common stock by two venture capital firms in
August 1999, partially offset by the purchase of
================================================================================
Page 18
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
================================================================================
treasury stock.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000 Compared with Nine Months Ended September
30, 1999
On February 15, 2000 TSC completed the Spin-Off. Accordingly, this report
discusses the TSC consolidated statements of operations with eLoyalty's
operations presented on a discontinued operations basis for the nine months
ended September 30, 1999. For the nine months ended September 30, 2000, there
were no discontinued operations in the Company's results of operations, as the
Company provided for the estimated net loss on distribution in its results of
operations for the year ended December 31, 1999.
Consolidated net revenues for the nine months ended September 30, 2000 decreased
20 percent to $100.5 million compared with $126.3 million for the same period
last year. This decrease was mainly due to a decline in the demand for the
Enterprise Resource Planning (ERP) solutions which is provided by TSC's Digital
Enterprise Consulting (DEC) segment, as well as a decline in the demand for
certain TSC services as a result of clients facing budgetary restraints as they
continued to address Year 2000 issues during the first quarter. Historically,
TSC's revenues consisted mainly of core ERP solutions. Prospectively, the
Company expects its expanded ERP offerings and its other eBusiness solution
offerings within the DEC segment to experience greater future growth rates than
core ERP.
Project personnel costs, which represent mainly professional salaries and
benefits, decreased to $51.0 million for the nine months ended September 30,
2000 from $66.3 million for the same period last year, a decrease of 23 percent.
The decrease was mainly due to a decrease in professional headcount. Project
personnel costs as a percentage of net revenues decreased to 51 percent for the
nine months ended September 30, 2000 from 53 percent for the same period last
year. The Company reduced project personnel costs by streamlining and refocusing
its business, which resulted in a restructuring charge of $10.5 million during
the first quarter of 1999 (as discussed further in this section). This decrease
as a percentage of revenues was slightly offset by lower utilization.
Other project expenses consist of nonbillable expenses directly incurred for
client projects and business development. These expenses include 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 nine months ended September 30, 2000 were $19.2
million, compared with $20.8 million in the comparable period last year, a
decrease of $1.6 million, or 8 percent. The decrease in other project expenses
was primarily attributable to a decrease of $3.9 million in domestic hiring,
training, communication and computer expenses due to a decrease in headcount and
a decrease in international costs of $1.5 million as a result of the closure of
the Latin American
================================================================================
Page 19
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
================================================================================
operations during the first quarter of 2000 and the restructuring of the
European operations during the first half of 1999. These decreases were offset
by an increase of $3.1 million in marketing, selling, business development,
software development and travel expenses from increased selling and business
development efforts and an increase of $0.7 million in the provision for
valuation allowances and reserves for potential losses due to an increase in
cash flow problems at dot-com clients. Other project expenses as a percentage of
net revenues increased to 19 percent for the nine months ended September 30,
2000 from 17 percent for the same period last year mainly due to increased
selling and business development efforts and the decline in revenues.
Management and administrative support costs decreased $9.5 million to $24.1
million for the nine months ended September 30, 2000 from $33.6 million for the
same period last year, a decrease of 28 percent. The decrease was mainly due to
a decrease of $11.8 million in corporate infrastructure or Global Core Service
(GCS) costs over the same period last year. This decrease in GCS costs included
the following: a decrease in the internal systems and human resources areas of
$4.3 million and a decrease in corporate recruiting expenses of $0.8 million as
a result of a reduction in headcount; a decrease in domestic office costs of
$1.9 million due to the closing of several offices as well as certain offices
being transferred to eLoyalty at the time of the Spin-Off; a decrease in legal
expenses of $1.6 million; a decrease in corporate marketing expenses of $0.6
million; and a decrease in various other costs of $2.6 million including
corporate finance, accounting, investor relations and international costs. As a
result of the Spin-Off, TSC and eLoyalty entered into a Shared Services
Agreement pursuant to which TSC provides to eLoyalty certain administrative
services. The Company has charged these services to eLoyalty since the Spin-Off
and $3.5 million of the decrease in GCS costs discussed above reflects this
charge. In addition, these decreases were offset by an increase in practice area
management and administrative costs of $2.3 million. This increase primarily
resulted from an increase in practice area support personnel of $2.5 million due
to increased selling efforts, offset by a decrease in international costs,
depreciation and other costs of $0.2 million.
Goodwill amortization increased to $0.7 million for the nine months ended
September 30, 2000 compared to $0.1 million for the same period last year. This
increase resulted from the CourseNet Systems, Inc. (CourseNet) acquisition in
the fourth quarter of 1999.
During the quarter ended March 31, 2000, the Company recorded a pre-tax charge
of $4.7 million for the closure of its Latin American operations. During the
quarter ended September 30, 2000, the Company collected $0.4 million of accounts
receivables previously written-off and, as a result, the cumulative charge has
been reduced to $4.3 million. As of September 30, 2000, the Company had used
approximately $4.0 million of this charge for cash payments of $2.8 million
related to severance costs for approximately 40 employees, lease terminations
and
================================================================================
Page 20
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
================================================================================
professional fees and $1.6 million in asset write-offs, offset by the accounts
receivables collections of $0.4 million. The remaining accrual balance of $0.3
million as of September 30, 2000 is expected to be utilized by the end of 2000.
During the quarter ended December 31, 1999, the Company recorded $7.0 million in
restructuring and other charges associated with lease terminations of $3.0
million, former executive severance costs of $1.8 million, CourseNet acquisition
costs of $1.3 million and write-offs of other assets of $0.9 million. During the
quarter ended September 30, 2000, the Company determined that a portion of the
lease terminations became unnecessary due to changes in TSC office usage by TSC
and eLoyalty and, as a result, the cumulative charge has been reduced by $0.4
million to $6.6 million. As of September 30, 2000, the Company had used $4.2
million of these restructuring and other charges as a result of cash payments of
$1.8 million (paid during the quarter ended March 31, 2000) for executive
severance costs and $2.4 million in asset and other write-offs. The remaining
accrual balance of $2.4 million as of September 30, 2000 relates to amounts the
Company is contractually obligated to pay through 2004 as a result of lease
terminations.
In addition, on March 30, 1999, the Company announced that it was making 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 employees, primarily consulting personnel. During the
quarter ended September 30, 2000, the Company determined that $0.1 million of
this charge was overestimated and, as a result, the cumulative charge has been
reduced to $10.4 million. The Company has used the full restructuring accrual of
$10.4 million for cash payments of $8.8 million ($1.0 million paid during the
nine months ended September 30, 2000) associated with the severance of
approximately 270 employees and $1.6 million in asset write-offs and other
costs.
Incentive compensation of $6.1 million was accrued during the nine months ended
September 30, 2000 compared to $8.2 million for the same period last year.
Incentive compensation as a percentage of net revenues remained unchanged at 6
percent for the nine months ended September 30, 2000 compared to the same period
last year. The Company expects to continue to accrue incentive compensation
during the fourth quarter.
Consolidated operating loss from continuing operations was $4.3 million for the
nine months ended September 30, 2000 compared to $13.3 million in the prior
period. The Company's operating loss for the nine months ended September 30,
2000 included a charge for the closure of the Latin American operations of $4.3
million and $1.4 million in administrative costs with respect to the period
prior to the Spin-Off that would have been charged to eLoyalty if the Shared
Services Agreement had been in effect, offset by $0.5 million for the adjustment
of some previous restructuring and other charges (as discussed previously
================================================================================
Page 21
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
================================================================================
in this section). The Company's operating loss for the nine months ended
September 30, 1999 included restructuring and other charges of $10.5 million and
$7.1 million in administrative costs that would have been charged to eLoyalty if
the Shared Services Agreement had been in effect. Excluding these charges,
operating income for the nine months ended September 30, 2000 was $0.9 million
compared to $4.3 million for the same period last year. This decrease was mainly
due to the reduction in revenues partially offset by a reduction in overall
costs.
Other income and expense for the nine months ended September 30, 2000 was $2.6
million compared to $2.4 million for the same period a year ago. The increase is
a result of higher cash and cash equivalent balances during the first two months
of 2000 compared to the same period a year ago.
The Company's effective tax rate for the nine months ended September 30, 2000
was a tax benefit of 31 percent compared to 34 percent for the same period a
year ago. This decrease mainly resulted from nondeductible expenses representing
a larger percentage of the pre-tax loss for the nine months ended September 30,
2000 compared to the same period a year ago.
Weighted average number of common shares outstanding and weighted average number
of common and common equivalent shares outstanding increased due to the exercise
of stock options, the issuance of shares under the Company's employee stock
purchase plan and the purchase of common stock by two venture capital firms in
August 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $23.7 million for the nine months
ended September 30, 2000 and net cash provided by operating activities was $15.5
million for the nine months ended September 30, 1999. Net cash used in operating
activities for the nine months ended September 30, 2000 included the net loss,
an increase in receivables and other unfavorable working capital activities,
such as accrued compensation and related costs and restructuring and other
accruals, partially offset by restructuring and other charges.
The Company believes that its cash and cash equivalents and marketable
securities are sufficient to meet the Company's current cash requirements.
Net cash used in investing activities was $22.7 million for the nine months
ended September 30, 2000. This reflects a $20.0 million capital contribution to
eLoyalty Corporation and $2.3 million of cash used by discontinued operations.
The Company received $1.2 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 nine months ended September 30, 2000 were $1.6
million. Capital expenditures may continue at the current rate throughout the
2000 calendar year. The Company currently has no material commitments for
capital
================================================================================
Page 22
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
================================================================================
expenditures.
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 December 30, 2000. 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
September 30, 2000, the Company was in compliance with these financial ratio
requirements. As of September 30, 2000, no borrowings had been made under the
Facility. In connection with the Spin-Off, TSC also has provided a short-term
guarantee for a $10.0 million revolving credit facility entered into by eLoyalty
with Bank of America. TSC received a fee from eLoyalty. The guarantee will
terminate on December 30, 2000.
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, as amended is
effective for financial statements issued for fiscal years beginning 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.
In December 1999, the United States Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements," which provides the SEC's views in applying generally
accepted accounting principles to selected revenue recognition issues. Adoption
of SAB No. 101 is required in the fourth quarter of fiscal year 2000. The
Company does not expect SAB No. 101 to have a material impact on the Company's
consolidated results of operations or financial position.
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Page 23
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
================================================================================
This Form 10-Q contains or may contain 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. These
forward-looking statements involve significant risks and uncertainties. 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,
the Company's ability to accommodate a changing business environment, 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 Annual Report on Form 10-K for the year ended December 31, 1999 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 24
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
PART II. OTHER INFORMATION
================================================================================
ITEM 6--EXHIBITS AND REPORT ON FORM 8-K
(a) See Exhibit Index
(b) No reports on Form 8-K were filed during the quarter ended September
30, 2000.
All other items in Part II are either not applicable to the Company
during the quarter ended September 30, 2000, 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 25
<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 14th day of
November 2000.
TECHNOLOGY SOLUTIONS COMPANY
Date: November 14, 2000 By: /s/ TIMOTHY P. DIMOND
------------------- -----------------------------
Timothy P. Dimond
Chief Financial Officer
================================================================================
Page 26
<PAGE>
TECHNOLOGY SOLUTIONS COMPANY
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
================================================================================
Page 27
