<PAGE>
FORM 8-K A 1
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
----------------
TECHNOLOGY SOLUTIONS COMPANY
(Exact name of registrant as specified in its charter)
----------------------------------------------------
Delaware 0-19433 36-3584201
(State or other jurisdiction (Commission (IRS Employer)
of incorporation) File Number) Identification No.)
205 North Michigan Avenue, Suite 1500, Chicago Illinois 60601
(Address of principal executive offices) (Zip Code)
------------------------------------------------------- --------
Registrant's telephone number, including area code: ( 312) 228-4500
Not Applicable
-----------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
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 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.
<PAGE>
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;
<PAGE>
- - The complexity of eBusiness solutions, which often include
applications from multiple vendors and result in higher ongoing
support requirements; and
- - 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 $10 million to
$160 million in four years. Hayden also served as vice president
of operations at McDonnell Douglas.
Tim Dimond, CFO - Formerly of Ernst & Young .
Ard Geller, SVP - Former a technology executive at Mobil,
currently heading TSC's ASP plus business.
Matt Harbin, SVP - Formerly with Boeing, currently heading TSC's
eLearning business.
John Page, SVP - Formerly with KPMG, currently heading eBusiness
initiative.
Don Scales, SVP - Formerly of Arthur D. Little and EXE
Technologies, now heading the SCM business.
Jimmy Smith, SVP - Formerly of Price Waterhouse, now heads the
East and West sales region.
David Wasson, SVP - Formerly of Andersen Consulting, now heads
eProcurement and Central region.
<PAGE>
Key Business Metrics
Q3-99 2000 Target
-------- -----------
Gross Profit (%)* 44% 46%
Billing Rate ($/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.
<PAGE>
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 (i) the
Company's Form 10-Q's for the quarters ended March 31, June 30,
and September 30, 1999, (ii) the Company's Form 10-K for the
June 1, 1998 to December 31, 1998 transition period and (iii)
the financial results for the fourth quarter of calendar 1999
announced by the Company on January 26, 2000, all 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)
--------------------------------------------------------------------------
Mar.31, June 30, Sept. 30, Dec.31, Mar.31, June 30, Sept. 30, Dec.31,
1998 1998 1998 1998 1999 1999 1999 1999
------- ------- ------- ------ ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $ 50,376 $ 57,938 $ 57,260 $ 49,567 $ 46,204 $ 43,777 $ 36,278 $30,061
-------- -------- -------- -------- -------- ------- -------- -------
COSTS AND EXPENSES:
Project personnel 23,210 26,564 26,536 25,668 26,242 21,619 18,445 15,269
Other project expenses 7,112 8,695 8,132 8,589 8,294 6,740 5,802 4,511
Mgmt. and admin.
support (a) 9,732 11,062 11,587 11,324 11,032 9,068 6,587 7,123
Goodwill amortization 111 111 111 73 72 -- -- 153
Non-recurring charges -- -- -- 5,200 -- -- -- --
Restructuring charge -- -- -- -- 10,522 -- -- 6,967
Incentive compensation(a) 985 1,481 3,719 1,696 2,309 2,915 2,537 1,580
----- ------ ------ ------ ------ ----- ------ -----
41,150 47,913 50,085 52,550 58,471 40,342 33,371 35,603
------ ------ ------ ------ ------ ------ ------ -----
OPERATING INCOME (LOSS)
TSC (ex. eL.) ON A CARVE
OUT BASIS (a) $ 9,226 $ 10,025 $ 7,175 $ (2,983) $(12,267) $ 3,435 $ 2,907 $(5,542)
======= ======== ======== ======== ======== ======== ======== =======
Reconciliation of Operating Income (Loss) on a Carve Out Basis to Operating Income (Loss) From
Continuing Operations(b):
- --------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS)
ON A CARVE OUT
BASIS PER ABOVE $ 9,226 $ 10,025 $ 7,175 $ (2,983) $(12,267) $ 3,435 $ 2,907 $(5,542)
Adjustments:
Mgmt. and admin. support
and related Incentive
compensation (b) (2,324) (2,683) (1,922) (2,601) (3,156) (2,265) (1,957) (1,852)
Costs related to eLoyalty
transaction -- -- -- -- -- -- (1,117) --
------- ----- ----- ----- ----- ----- ----- ------
OPERATING INCOME (LOSS)
FROM CONTINUING
OPERATIONS $ 6,902 $ 7,342 $ 5,253 $ (5,584) $(15,423) $ 1,170 $ (167) $(7,394)
------- ------- -------- -------- -------- -------- -------- ------
</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.
<PAGE>
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.
# # #
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
------------------------
Paul Peterson
Senior Vice President,
General Counsel and Secretary
