##### Table of Contents



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 quarterly period ended March 31, 2004 Commission file number 0-19433
 (TECHNOLOGY SOLUTIONS COMPANY LOGO) Technology Solutions Company Incorporated in the
State of Delaware
I.R.S. Employer Identification No. 36-3584201
 205 North Michigan Avenue
Suite 1500
Chicago, Illinois 60601
(312) 228-4500 Indicate by check mark whether the registrant (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 (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements
for the past 90 days. Yes
o No Indicate by check mark whether the registrant is an accelerated filer (as
defined by Exchange Act Rule
12b-2).
Yes            No o As of April 30, 2004, there were outstanding 40,859,705 shares of TSC
Common Stock, par value $.01.




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TECHNOLOGY SOLUTIONS COMPANY Index to Form 10-Q
 PageNumberPart IFINANCIAL INFORMATION (UNAUDITED)ITEM 1. FINANCIAL STATEMENTSConsolidated Balance Sheets as of
March 31, 2004 and December 31, 2003
    
    
    3Consolidated Statements of Operations for the
Three Months Ended March 31, 2004 and 2003
    
    
    4Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2004 and 2003
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    13ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
    
    
    23ITEM 4. CONTROLS AND PROCEDURES
    
    
    23Part IIOTHER INFORMATIONITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
    
    
    24ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
    
    
    24SIGNATURE
    
    
    25Employment Agreement with Michael R. GorsageEmployment Agreement with Stephen B. OresmanCEO CertificationCFO CertificationCertification of Michael R. GorsageCertification of Timothy P. Dimond
  Page 2




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PART I. FINANCIAL INFORMATION 
 ITEM 1. Financial Statements TECHNOLOGY SOLUTIONS COMPANY 
 CONSOLIDATED BALANCE SHEETS
  March 31,
    
    December 31,2004
    
    2003(unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    38,797
    
    
    $
    41,104Marketable securities held in trust
    
    
    
    
    
    
    6,712Receivables, less allowance for doubtful receivables
of $146 and $239
    
    
    5,988
    
    
    
    5,802Other current assets
    
    
    166
    
    
    
    696Total current assets
    
    
    44,951
    
    
    
    54,314COMPUTERS, FURNITURE AND EQUIPMENT, NET
    
    
    461
    
    
    
    201LONG-TERM RECEIVABLES AND OTHER
    
    
    5,638
    
    
    
    5,654Total assets
    
    $
    51,050
    
    
    $
    60,169LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    300
    
    
    $
    330Accrued compensation and related costs
    
    
    3,537
    
    
    
    3,575Deferred compensation
    
    
    
    
    
    
    6,712Restructuring accruals
    
    
    1,357
    
    
    
    2,417Other current liabilities
    
    
    2,480
    
    
    
    2,744Total current liabilities
    
    
    7,674
    
    
    
    15,778COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS 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 - 44,695,788;
shares outstanding 40,859,705 and 40,818,469
    
    
    447
    
    
    
    447Capital in excess of par value
    
    
    121,954
    
    
    
    121,974Accumulated deficit
    
    
    (73,774
    )
    
    
    (72,735
    )Treasury stock, at cost, 3,836,083 and 3,877,319 shares
    
    
    (5,466
    )
    
    
    (5,525
    )Accumulated other comprehensive income:Cumulative translation adjustment
    
    
    215
    
    
    
    230Total stockholders equity
    
    
    43,376
    
    
    
    44,391Total liabilities and stockholders equity
    
    $
    51,050
    
    
    $
    60,169
 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
  For the ThreeMonths EndedMarch 31,2004
    
    2003(unaudited)REVENUES:Revenues before reimbursements
    
    $
    8,635
    
    
    $
    15,181Reimbursements
    
    
    1,092
    
    
    
    1,3909,727
    
    
    
    16,571COSTS AND EXPENSES:Project personnel
    
    
    5,540
    
    
    
    8,963Other project expenses
    
    
    1,454
    
    
    
    1,672Reimbursable expenses
    
    
    1,092
    
    
    
    1,390Bad debt (credit) expense
    
    
    (120
    )
    
    
    121Management and administrative support
    
    
    3,378
    
    
    
    4,197Restructuring and other credits
    
    
    (579
    )
    
    
    Incentive compensation
    
    
    228
    
    
    
    31110,993
    
    
    
    16,654OPERATING LOSS
    
    
    (1,266
    )
    
    
    (83
    )OTHER INCOME:Net investment income
    
    
    227
    
    
    
    314(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (1,039
    )
    
    
    231INCOME TAX PROVISION
    
    
    
    
    
    
    92NET (LOSS) INCOME
    
    $
    (1,039
    )
    
    $
    139BASIC NET (LOSS) EARNINGS
PER COMMON SHARE
    
    $
    (0.03
    )
    
    $
    0.00WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
    
    
    40,819
    
    
    
    40,589DILUTED NET (LOSS) EARNINGS
PER COMMON SHARE
    
    $
    (0.03
    )
    
    $
    0.00WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING
    
    
    40,819
    
    
    
    41,154
 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
  For theThree Months EndedMarch 31,2004
    
    2003(unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (1,039
    )
    
    $
    139Restructuring and other credits
    
    
    (579
    )
    
    
    Adjustments to reconcile net (loss) income to net
cash from operating activities:Depreciation and amortization
    
    
    107
    
    
    
    140Provisions for receivable valuation allowances and
reserves for possible losses, net of recoveries
    
    
    (120
    )
    
    
    121Deferred income taxes
    
    
    
    
    
    
    22Changes in assets and liabilities:Receivables
    
    
    (66
    )
    
    
    2,329Purchases of trading securities related to deferred
compensation plan, net of market adjustments
    
    
    (2,201
    )
    
    
    (22
    )Sales of trading securities related to deferred
compensation plan
    
    
    8,913
    
    
    
    Other current assets
    
    
    530
    
    
    
    224Accounts payable
    
    
    (30
    )
    
    
    236Accrued compensation and related costs
    
    
    (42
    )
    
    
    (4,249
    )Deferred compensation liability
    
    
    (6,712
    )
    
    
    22Restructuring accruals
    
    
    (481
    )
    
    
    (31
    )Other current liabilities
    
    
    (225
    )
    
    
    (52
    )Other assets
    
    
    17
    
    
    
    387Net cash used in operating activities
    
    
    (1,928
    )
    
    
    (734
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from available-for-sale securities
    
    
    
    
    
    
    275Capital expenditures
    
    
    (367
    )
    
    
    (24
    )Net cash (used in) provided by investing activities
    
    
    (367
    )
    
    
    251CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from employee stock purchase plan
    
    
    38
    
    
    
    75Purchase of Company stock for treasury
    
    
    
    
    
    
    (251
    )Net cash provided by (used in) financing activities
    
    
    38
    
    
    
    (176
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS
    
    
    (50
    )
    
    
    4DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (2,307
    )
    
    
    (655
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    41,104
    
    
    
    47,004CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    38,797
    
    
    $
    46,349
 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  (Unaudited)
(In thousands, except share and per share data) 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 March 31, 2004, the consolidated statements of
operations for the three months ended March 31, 2004 and 2003 and the
consolidated statements of cash flows for the three months ended March 31, 2004
and 2003 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 March 31, 2004 and for all periods presented. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with accounting principles generally accepted in the United States
of America 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, 2003 filed with the United
States Securities and Exchange Commission (SEC) on March 19, 2004. NOTE 2  THE COMPANY Technology Solutions Company (TSC) is a consulting company that focuses on
rapid results. TSC helps clients plan, select, install, upgrade and optimize
the software systems that run their business operations. TSCs range of
services include project planning, software selection, reengineering,
implementation, systems integration, upgrades, training, and outsourcing. The
Companys clients are primarily located throughout the United States but the
Company also supports global deployments. Page 6




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TECHNOLOGY SOLUTIONS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued) NOTE 3  NEW ACCOUNTING STANDARDS In January 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities  an
interpretation of Accounting Research Bulletin No. 51 (FIN 46). FIN 46
clarified the application of Accounting Research Bulletin Number 51,
Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. Qualifying special purpose entities as defined by FASB Statement
Number 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, are excluded from the scope of Interpretation
No. 46. Interpretation No. 46 applied immediately to all variable interest
entities created after January 31, 2003 and was originally effective for fiscal
periods beginning after July 1, 2003 for existing variable interest entities.
In October 2003, the FASB postponed the effective date of Interpretation No. 46
to December 31, 2003. The Company does not have any variable interest entities
and, therefore, the adoption of the provisions of FIN 46 did not have a
material impact on the Companys results of operations or financial position. In December 2003, a revised version of Interpretation 46 (Revised
Interpretation No. 46) was issued by the FASB. The revisions clarify some
requirements, ease some implementation problems, add new scope exceptions, and
add applicability judgments. Revised Interpretation No. 46 is required to be
adopted by most public companies no later than March 31, 2004. The adoption of
Revised Interpretation No. 46 did not have a material impact on the Companys
results of operations or financial position. In December 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 132 (revised 2003), Employers Disclosures about Pensions and
Other Postretirement Benefits. SFAS No. 132 improves financial statement
disclosures for defined benefit plans and requires that companies provide more
details about their plan assets, benefit obligations, cash flows, benefit costs
and other relevant information. SFAS No. 132 is effective for fiscal years
ending after December 15, 2003 and for quarters beginning after December 15,
2003. The adoption of SFAS No. 132 did not have a material impact on the
Companys results of operations or financial position. NOTE 4  STOCK OPTIONS The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Compensation costs for employee stock options is measured as the excess, if
any, of the quoted market price of the Companys common stock at the date of
grant over the amount an employee must pay to acquire the stock. Page 7




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TECHNOLOGY SOLUTIONS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued) The following table illustrates the effect on net (loss) income and (loss)
earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to
stock-based compensation. The following table also provides the amount of
Stock-Based compensation cost included in net (loss) income as reported. For the Three MonthsEnded March 31,2004
    
    2003Net (loss) income:As reported
    
    $
    (1,039
    )
    
    $
    139Less: Stock-based compensation expense
determined under fair value method for all
awards, net of related taxes (as applicable)
    
    
    (485
    )
    
    
    (563
    )Pro forma
    
    $
    (1,524
    )
    
    $
    (424
    )Basic net (loss) earnings
per common share:As reported
    
    $
    (0.03
    )
    
    $
    0.00Pro forma
    
    $
    (0.04
    )
    
    $
    (0.01
    )Diluted net (loss) earnings
per common share:As reported
    
    $
    (0.03
    )
    
    $
    0.00Pro forma
    
    $
    (0.04
    )
    
    $
    (0.01
    )
 As of March 31, 2004 and 2003, options to purchase 9,988,063 and 10,602,965
shares of common stock were outstanding, respectively, and options to purchase
an additional 3,036,920 and 2,596,770 shares of common stock were available for
grant, respectively, under the Technology Solutions Company 1996 Stock
Incentive Plan. NOTE 5  CAPITAL STOCK The Company has a stock repurchase program, which allows for share repurchases
of up to 11,525,327 shares of outstanding Company common stock (the Repurchase
Program). During the three months ended March 31, 2004, the Company did not
purchase any shares. During the three months ended March 31, 2003, the Company
purchased 242,700 shares for $251. The Company has repurchased an aggregate
total of 6,762,627 shares since the inception of this Repurchase Program in
September 2000. As of March 31, 2004, there were 4,762,700 shares available to
be purchased under the Repurchase Program. The timing and size of any future stock repurchases are subject to market
conditions, stock prices, cash position and other cash requirements. Page 8




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TECHNOLOGY SOLUTIONS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued) NOTE 6  (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 SFAS No. 128,
"(Loss) Earnings Per Share. Diluted (loss) earnings per common share is
computed by dividing net (loss) income 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 1,633,574 were not
included in the diluted loss per share calculation as they were antidilutive
for the three months ended March 31, 2004. Basic (loss) earnings per common
share is computed by dividing net (loss) income by the weighted average number
of common shares outstanding during each period presented. Reconciliation of basic and diluted (loss) earnings per share for the three months ended: March 31, 2004
    
    March 31, 2003Shares
    
    
    
    
    
    
    
    
    
    Shares
    
    PerNet
    
    (In
    
    Per
    
    Net
    
    (In
    
    CommonLoss
    
    Thousands)
    
    Common Share
    
    Income
    
    Thousands)
    
    ShareBasic (loss) earnings
per share
    
    $
    (1,039
    )
    
    
    40,819
    
    
    $
    (0.03
    )
    
    $
    139
    
    
    
    40,589
    
    
    $
    0.00Effect of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    565Diluted (loss)
earnings per share
    
    $
    (1,039
    )
    
    
    40,819
    
    
    $
    (0.03
    )
    
    $
    139
    
    
    
    41,154
    
    
    $
    0.00
 NOTE 7  COMPREHENSIVE (LOSS) INCOME The Companys comprehensive (loss) income was as follows: For the Three MonthsEnded March 31,2004
    
    2003Net (loss) income
    
    $
    (1,039
    )
    
    $
    139Other comprehensive (loss) income:Net unrealized holding gains on
available-for-sale securities, net of tax
    
    
    
    
    
    
    127Translation adjustment
    
    
    (15
    )
    
    
    21Other comprehensive (loss) income
    
    
    (15
    )
    
    
    148Total comprehensive (loss) income
    
    $
    (1,054
    )
    
    $
    287
 Page 9




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TECHNOLOGY SOLUTIONS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued) NOTE 8  BUSINESS SEGMENTS The Company operates in a single business segment. The Companys clients are
primarily located throughout the United States but the Company also supports global
deployments. The following is revenue, including reimbursements, and long-lived
asset information by geographic area: For and as of theThree Months EndedMarch 31, 2004
    
    United States
    
    Foreign Subsidiary
    
    TotalRevenues
    
    $
    9,727
    
    
    
    
    
    
    $
    9,727Identifiable assets
    
    $
    50,826
    
    
    $
    224
    
    
    $
    51,050
 For and as of theThree Months EndedMarch 31, 2003
    
    United States
    
    Foreign Subsidiary
    
    TotalRevenues
    
    $
    16,281
    
    
    $
    290
    
    
    $
    16,571Identifiable assets
    
    $
    94,081
    
    
    $
    1,177
    
    
    $
    95,258
 Foreign revenues and identifiable assets are based on the country in which the
legal subsidiary is domiciled. No single foreign countrys revenues or
identifiable assets were material to the consolidated revenues or identifiable
assets of the Company. NOTE 9  OTHER EVENTS In the second quarter of 2003, the Company recorded $5,211 in restructuring and
other charges as a result of organizational changes announced in June 2003.
These charges consisted of the severance costs of professional personnel and
executives as well as office reductions and professional fees incurred in
connection with terminated negotiations with a party that had expressed
interest in acquiring the Company. During the three months ended March 31,
2004, this charge was reduced by $266 to $4,945 as the Company was able to
favorably terminate one of their office leases. As of March 31, 2004, there
was an accrual balance of $1,350. The Company expects to utilize this balance
by the end of 2005. The following table provides the components of this charge. Restructuring and Other
    
    
    
    
    
    Cash(1)
    
    Non-cash
    
    Balance as ofCharges - 2003
    
    Charge
    
    Payments
    
    Usage
    
    Mar. 31, 2004Severance costs (approximately 30
employees)
    
    $
    3,917
    
    
    $
    2,800
    
    
    $
    33
    
    
    $
    1,084Office reductions
    
    
    921
    
    
    
    377
    
    
    
    2
    
    
    
    542Professional fees
    
    
    373
    
    
    
    383
    
    
    
    
    
    
    
    (10
    )Total original charge
    
    
    5,211
    
    
    
    3,560
    
    
    
    35
    
    
    
    1,6162004 adjustment
    
    
    (266
    )
    
    
    
    
    
    
    
    
    
    
    (266
    )Total
    
    $
    4,945
    
    
    $
    3,560
    
    
    $
    35
    
    
    $
    1,350
 (1)Net cash payments totaling $473 were made during the
three months ended March 31, 2004. In 2000, the Company recorded a pre-tax charge of $4,701 for the closure of its
Latin American operations. Subsequently in 2000, the Company collected $400 of
accounts receivable previously written-off and, as a result, the cumulative
charge was reduced to $4,301. This charge was further Page 10




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TECHNOLOGY SOLUTIONS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued) reduced by $181 to $4,120 during the three months ended March 31, 2004 as the
Company completed the closure of its Latin American operations and,
accordingly, no further payments are due. The following table provides the
components of this charge. Cash(2)
    
    Non-cash
    
    Balance as ofLatin America Charge - 2000
    
    Charge
    
    Payments
    
    Usage
    
    Mar. 31, 2004Severance costs
(approximately 40
employees)
    
    $
    1,785
    
    
    $
    1,574
    
    
    $
    
    
    
    $
    211Other costs
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    (30
    )Asset write-offs
    
    
    2,916
    
    
    
    
    
    
    
    2,916
    
    
    
    Total original charge
    
    
    4,701
    
    
    
    1,604
    
    
    
    2,916
    
    
    
    181Accounts receivable
collections - 2000
    
    
    (400
    )
    
    
    (400
    )
    
    
    
    
    
    
    2004 adjustment
    
    
    (181
    )
    
    
    
    
    
    
    
    
    
    
    (181
    )Total
    
    $
    4,120
    
    
    $
    1,204
    
    
    $
    2,916
    
    
    $
    
 (2)There were no net cash payments during the three months
ended March 31, 2004. In 1999, the Company recorded $6,967 in restructuring and other charges
associated with lease terminations, former executive severance costs, CourseNet
Systems, Inc. acquisition costs and asset write-offs. On February 15, 2000, the
Company 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. The Company determined that a portion of the lease
terminations became unnecessary due to changes in TSC office usage by TSC and
eLoyalty and also determined that the actual costs for these lease terminations
would be less than previously anticipated and, as a result, the cumulative
charge was reduced by $2,036 to $4,931 during 2000, 2001 and 2002 and by $132
to $4,799 during the quarter ended March 31, 2004. As of March 31, 2004, there
was an accrual balance of $7, which relates to the net amount that the Company
is contractually obligated to pay through 2004 as a result of the lease
terminations. The following table provides the components of this charge. Page 11




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TECHNOLOGY SOLUTIONS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
(Continued) Restructuring and Other
    
    
    
    
    
    Cash(3)
    
    Non-cash
    
    Balance as ofCharges - 1999
    
    Charge
    
    Payments
    
    Usage
    
    Mar. 31, 2004Lease terminations
    
    $
    3,011
    
    
    $
    718
    
    
    $
    35
    
    
    $
    2,258Former executive
severance costs
    
    
    1,814
    
    
    
    1,747
    
    
    
    150
    
    
    
    (83
    )CourseNet Systems, Inc.
acquisition costs
    
    
    1,300
    
    
    
    
    
    
    
    1,300
    
    
    
    Asset write-offs
    
    
    842
    
    
    
    
    
    
    
    842
    
    
    
    Total original charge
    
    
    6,967
    
    
    
    2,465
    
    
    
    2,327
    
    
    
    2,1752000 adjustment
    
    
    (404
    )
    
    
    
    
    
    
    
    
    
    
    (404
    )2001 adjustment
    
    
    (1,488
    )
    
    
    
    
    
    
    
    
    
    
    (1,488
    )2002 adjustment
    
    
    (144
    )
    
    
    
    
    
    
    
    
    
    
    (144
    )2004 adjustment
    
    
    (132
    )
    
    
    
    
    
    
    
    
    
    
    (132
    )Total
    
    $
    4,799
    
    
    $
    2,465
    
    
    $
    2,327
    
    
    $
    7
 (3)Net cash payments totaling $8 were made during the three
months ended March 31, 2004. NOTE 10  RELATED PARTY During the three months ended March 31, 2004 and 2003, the Company provided
services to Bausch & Lomb, Inc (B&L). One of the Companys directors, John R.
Purcell and a former director, William H. Waltrip, also serve as directors for
B&L. The services performed related to B&Ls global IT integration project and
were awarded following a competitive bidding process. The amount of revenues
recognized for such services during the three months ended March 31, 2004 and
2003 represented 4 percent and 12 percent of the Companys total revenues
before reimbursements, respectively. The net accounts receivable balances from
these services as of March 31, 2004 and December 31, 2003 were $285 and $272,
respectively. Page 12




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\

TECHNOLOGY SOLUTIONS COMPANY 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS OVERVIEW On May 6, 2004, we announced that Michael R. Gorsage became our President and
Chief Executive Officer as well as a member of our Board of Directors. Stephen
B. Oresman, who was serving as our CEO, remains with the Company and is now our
Chairman of the Board. John R. Purcell resigned his position as
Chairman of the Board, but remains a member
of our Board of Directors. The results of our operations are affected by general economic conditions as
well as the level of economic activity and changes in the industries the we
serve. While the general economy and the information technology (IT)
consulting services market is improving, there is no assurance that these
improving conditions will result in an increase in our future revenues given
the fundamental changes in the IT service industry as set forth below. In
addition, increases in demand for our services generally tend to lag behind
economic cycles. Accordingly, any benefit to our business of any economic
recovery may take longer to realize. Beginning in the second half of 2003, we took steps to refocus and rebuild our
business. These steps included investing in a range of specialty services in
order to differentiate us from our competition and investing in marketing
initiatives to support these specialty services as well as maintaining our
project personnel headcount at a level to enable us to grow our business.
While our revenues in the first quarter increased as compared to the fourth
quarter of 2003, we completed several projects during the first quarter of 2004
that have not yet been fully replaced with new projects. Accordingly, we
expect quarterly revenues in the second quarter to decline as compared to the
first quarter of 2004. Despite our revenue improvement in the first quarter,
we incurred an operating loss in the first quarter of 2004 as well as all four
quarters during 2003 and we will likely continue to incur operating losses
during the remainder of 2004 as we continue our efforts to refocus and rebuild
our business. In addition to the challenges described above, we also believe that the
information technology services industry is undergoing some fundamental
changes, resulting in increased competitive pressure. These changes include
competition from application software firms as they continue to enhance
services and implementation capabilities to increase their revenue; offshore
application development and system consulting and support firms which typically
have much lower labor costs and billing rates; and the proliferation of
Enterprise Resource Planning (ERP) expertise within the IT departments of
organizations, reducing the need to engage outside consulting help. The
availability of off shore technical expertise has and will have an impact on
the IT consulting market. However, we believe the demand for high end
technically competent innovative consultants will increase over time. The
complexity of corporate IT functions is not diminishing. In addition, we
believe that the up coming baby boomerretirement will impact the supply of
trained consultants in the market. Page 13




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TECHNOLOGY SOLUTIONS COMPANY MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued) Our business is also driven by the pace of technological change, our ability to
differentiate ourselves from our competitors through specialty services that
address targeted industry and business concerns, and the type and level of
spending by our clients in the areas in which we provide services. Many factors
can result in a deferral, reduction or cancellation of services requested by
our prospective or current clients including budget constraints, economic
conditions and perceived project progress, success or value. The economic
uncertainties of recent years has lead many corporations to reassess their IT
goals and budgets. This, combined with the lack of significant new technology
to stimulate spending, has had a further dampening impact on demand for our
services. However, we also believe that many companies have very old systems
and technology and that real time business decision making will fuel growth
in many of our markets. During periods of decreased demand, pricing pressures emerge as companies try
to minimize costs and negotiate lower prices for our services. Our ability to
successfully identify and prepare for these changes is a key driver of our
performance. Therefore, our strategy is to try to anticipate these trends and
identify cost-management initiatives that will allow us to manage costs
relative to expected revenues as well as identifying opportunities to increase
revenues. Although we remain committed to spending our funds wisely, there is a
point at which further cost cutting can be counter-productive. Project personnel costs constitute the majority of our operating costs. Since
project personnel costs are primarily driven by the cost of billable personnel,
mainly compensation and benefits, maintaining these costs at a reasonable and
predictable percentage of revenue is critical to our financial performance.
Project personnel costs as a percentage of revenues are driven by utilization
and average hourly billing rates. Utilization represents the percentage of time
our billable professionals spend on billable work. It is our strategy to try to
match our project personnel supply with demand. At times this requires us to
reduce headcount and reassign employees to other active projects when they are
no longer needed on a particular project. However, because of the mix of skills
needed and project duration, implementation of this strategy may be delayed at
times. Accordingly, any decline in revenues without a corresponding and timely
reduction in staffing, or a staffing increase that is not accompanied by a
corresponding increase in revenues, would have an adverse effect on our
business, operating results and financial condition, which could be material. REVENUES For presentation purposes, we show two components of revenues: 1) revenues
before reimbursements, which consists of revenue for performing consulting
services; and 2) reimbursements, consisting of reimbursements we receive from
clients for out-of-pocket expenses incurred. We believe revenues before
reimbursements is a more meaningful representation of our economic activity
since it excludes pass-through, zero-margin expense reimbursements. Page 14




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TECHNOLOGY SOLUTIONS COMPANY MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued) COSTS AND EXPENSES Project Personnel Project personnel costs consist primarily of professional salaries and
benefits. Other Project Expenses Other project expenses consist of the cost for subcontractors hired for use on
our client projects and billed to our clients; employee termination costs; and
nonbillable expenses incurred for client projects and business development.
Nonbillable expenses include recruiting fees, certain selling expenses, and
personnel training. Reimbursable Expenses Reimbursable expenses represent project related and other out-of-pocket
expenses that are reimbursable by the client. An equivalent amount is included
in revenues under the caption Reimbursements. Bad Debt Expense We maintain an allowance for doubtful receivables resulting from the failure of
our customers to make required payments. We also analyze our notes receivable,
which are included in Long-Term Receivables and Other on our Consolidated
Balance Sheet. Management and Administrative Support Management and administrative support costs consist of client officer costs and
infrastructure costs. Client officer costs include client officer salaries and
travel, marketing costs and recruiting costs. Infrastructure costs include
senior corporate management and our board of directors; accounting; financial
reporting; finance; tax; legal; treasury; human resources; employee benefits;
marketing; public and investor relations; office operations; staffing of our
project personnel; recruiting; training; internal communications; internal
technology applications; management of new business opportunities; planning;
quality assurance; and risk management. Incentive Compensation Incentive compensation, if any, is accrued at a set percentage of base salary,
which varies by level of employee, and adjusted to reflect the amounts needed
for active employees and for performance against targets, goals and objectives.
Payments of incentive compensation, if any, are performance based and are
determined by both objective (financial-based) and subjective measures. These
objectives include both quarterly and full fiscal year parameters. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent Page 15




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TECHNOLOGY SOLUTIONS COMPANY MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued) assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Management bases its estimates on historical experience and other assumptions,
which it believes are reasonable. If actual amounts are ultimately different
from these estimates, the revisions are included in the Companys results of
operations for the period in which the actual amounts become known. Accounting policies are considered critical when they require management to
make assumptions about matters that are highly uncertain at the time the
estimate is made and when different estimates than management reasonably could
have used have a material impact on the presentation of the Companys financial
condition, changes in financial condition or results of operations. Revenue Recognition We derive our revenues from a variety of information technology services,
including systems integration, packaged software integration and implementation
services, programming, training and extended support services. Our services are
contracted on either a time and materials basis or a fixed price basis. For our
time and materials contracts, we recognize revenues as work is performed,
primarily based on hourly billing rates. For our fixed price contracts, we
recognize revenues using the percentage-of-completion method, which is based on
the percentage of work performed in the period compared to the total estimated
work to be performed over the entire contract. Revenues are subject to revision
as the contract progresses to completion. Any revisions in the estimate are
charged to operations in the period in which the facts that give rise to the
revision become known. Contracts are performed in phases. Losses on contracts,
if any, are reserved in full when determined. Contract losses are determined by
the amount by which the estimated cost of the contract exceeds the estimated
total revenues that will be generated by the contract. Extended support
revenues are recognized as services are rendered. Allowance for Doubtful Receivables An allowance for doubtful receivables is maintained for potential credit
losses. When evaluating the adequacy of our allowance for doubtful receivables,
management specifically analyzes accounts receivable on a client by client
basis, including customer credit worthiness and current economic trends, and
records any necessary bad debt expense based on the best estimate of the facts
known to date. Should the facts regarding the collectability of receivables
change, the resulting change in the allowance would be charged or credited to
income in the period such determination is made. Such a change could materially
impact our financial position and results of operations. Accounting for Income Taxes We use an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income taxes are provided using currently enacted
tax rates 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.
Significant management judgement is required in determining our provision Page 16




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TECHNOLOGY SOLUTIONS COMPANY MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued) for income taxes, deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We have generated
certain deferred tax assets as a result of operating losses and temporary
differences between book and tax accounting, as well as tax benefits resulting
from the exercise of employee stock options that were recorded as additional
paid-in capital in the period of exercise. Statement of Financial Accounting
Standards (SFAS) No. 109 Accounting for Income Taxes, requires the
establishment of a valuation allowance to reflect the likelihood of realization
of deferred tax assets. During 2003, we recorded a full valuation allowance
against our deferred tax assets. If the realization of our deferred tax assets
in future periods is considered more likely than not, an adjustment to our
deferred tax asset would increase net income in the period such determination
is made. The amount of deferred tax assets considered realizable is based on
significant estimates. Changes in these estimates could materially affect our
financial condition and results of operations in future periods. Stock-Based Compensation We account 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. Compensation costs
for employee stock options is measured as the excess, if any, of the quoted
market price of the Companys common stock at the date of grant over the amount
an employee must pay to acquire the stock. THREE MONTHS ENDED MARCH 31, 2004 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2003 Revenues Consolidated net revenues were $9.7 million for the three months ended March
31, 2004, a decrease of 41 percent from the same period in the prior year.
Revenues before reimbursements decreased 43 percent to $8.6 million from $15.2
million. We believe that this decline in revenues was primarily due to
decreased demand for our services and an increase in competitive pricing
arising out of the continuing economic uncertainties, fundamental changes in
the IT services industry, and a decline in corporate information technology
capital expenditures as large and small companies reassessed their goals and
budgets. During the three months ended March 31, 2004, no client accounted for more than
10 percent of revenues before reimbursements. During the three months ended
March 31, 2003, three clients accounted for 38 percent of revenues before
reimbursements (ExxonMobil Corp.  15 percent, Bausch &Lomb Inc.  12 percent
and Caterpillar Inc.  11 percent). We added 7 new clients and 27 new projects
during the three months ended March 31, 2004 compared to 10 new clients and 24
new projects during the same period in the prior year. In addition, we
performed work for 48 clients and 80 projects during the three months ended
March 31, 2004 compared to 50 clients and 107 projects during the same period
in the prior year. Page 17




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TECHNOLOGY SOLUTIONS COMPANY MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued) During the three months ended March 31, 2004 and 2003, we provided services to
Bausch & Lomb, Inc (B&L). One of our directors, John R. Purcell, and a former director,
William H. Waltrip, also serve as directors for B&L. The services performed
related to B&Ls global IT integration project and were awarded following a
competitive bidding process. The amount of revenues recognized for such
services during the three months ended March 31, 2004 and 2003 represented 4
percent and 12 percent of our total revenues before reimbursements,
respectively. The net accounts receivable balances from these services as of
March 31, 2004 and December 31, 2003 were $285 thousand and $272 thousand,
respectively. Costs and Expenses Project personnel costs were $5.5 million for the three months ended March 31,
2004, a decrease of 38 percent from the same period in the prior year. This
decrease was largely attributable to staff reductions in response to our
declining revenues and our ongoing efforts to keep headcount and costs in line
with demand for our services, as described earlier in this item. Professional
domestic headcount decreased to 167 as of March 31, 2004 compared to 248 as of
March 31, 2003. Annualized voluntary turnover increased to 36 percent from 9
percent for the three months ended March 31, 2003. Project personnel costs as a
percentage of revenues before reimbursements increased to 64 percent for the
three months ended March 31, 2004 from 59 percent from the same period in the
prior year primarily due to a decline in average hourly billing rates. Average
hourly billing rates decreased 18 percent to $141. The decline in average
hourly billing rates primarily reflects the increased competitive environment
in the information technology consulting market as well as lower rates for
post-go-live activities. Staff utilization improved to 72 percent from 63
percent for the three months ended March 31, 2003 as a result of our staff
reductions. Other project expenses were $1.5 million for the three months ended March 31,
2004, a decrease of 13 percent from the same period in the prior year. The
decrease in other project expenses consisted of the following: a decrease in
headcount related costs of $0.3 million, which includes travel, computer and
communication costs; a decrease in other project related costs of $0.1 million,
due to reduced revenues; and a decrease in employee termination costs of $0.1
million. These reductions were partially offset by an increase in subcontractor
costs of $0.3 million. Other project expenses as a percentage of revenues
before reimbursements increased to 17 percent for the three months ended March
31, 2004 from 11 percent for the same period in the prior year mainly due to
the increased use of subcontractors for certain specialized skills. Bad debt expense was a credit of $0.1 million for the three months ended March
31, 2004 compared to an expense of $0.1 million for the same period in the
prior year. This decrease was a result of recoveries of previously reserved
receivables as well as fewer collection issues during the three months ended
March 31, 2004. Management and administrative support costs decreased 20 percent to $3.4
million for the three months ended March 31, 2004 from $4.2 million in the same
period in the prior year. This decrease resulted from a decrease in labor costs
of $0.8 million as we reduced headcount as a result of our organizational
changes during the quarter ended June 30, 2003. Page 18




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TECHNOLOGY SOLUTIONS COMPANY MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued) During the quarter ended March 31, 2004, we reversed restructuring and other
charges of $0.6 million. This amount consisted of $0.3 million related to
certain lease terminations recorded during the three months ended June 30,
2003, $0.2 million related to the closure of our Latin American operations
recorded in 2000 and $0.1 million related to certain lease terminations
recorded in 1999. Incentive compensation expense was $0.2 million for the three months ended
March 31, 2004 compared with $0.3 million in the same period in the prior year.
Incentive compensation as a percentage of revenues excluding reimbursements
increased slightly to 3 percent during the three months ended March 31, 2004
compared to 2 percent in the same period in the prior year. If the Company and
our employees meet their 2004 quarterly and annual quantitative and qualitative
objectives, we expect to continue to accrue incentive compensation during 2004. Operating Loss/Income Consolidated operating loss was $1.3 million for the three months ended March
31, 2004 compared to $0.1 million for the same period in the prior year. Our
operating loss for 2004 included restructuring and other credits of $0.6
million. The operating loss, excluding these credits, mainly resulted from the
decline in revenues as well as higher project personnel costs as a percent of
revenues due to lower billing rates. Other Income Other income for the three months ended March 31, 2004 was $0.2 million
compared to $0.3 million for the same period in the prior year. This decrease
was a result of lower cash balances as well as lower interest rates year over
year. Our cash and cash equivalents were primarily invested in overnight money
market type accounts. Average interest rates were approximately 0.90 percent
for the three months ended March 31, 2004 compared to approximately 1.23
percent during the same period in the prior year. Income Tax Provision We did not recognize an income tax benefit for the three months ended March 31,
2004 since we recorded a full valuation allowance against our deferred taxes in
2003. Shares Outstanding Weighted average number of common shares outstanding and weighted average
number of common and common equivalent shares outstanding increased due to the
issuance of shares under our employee stock purchase plan and stock option
plans. In addition, since the three months ended June 30, 2003, we have not
repurchased any of our outstanding shares under our previously announced
repurchase program. During the three months ended March 31, 2003, we
repurchased 242,700 shares of our Common Stock at an average price of $1.03 per
share. Page 19




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued) LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities was $1.9 million and $0.7 million for the
three months ended March 31, 2004 and 2003, respectively. Net cash used in
operating activities for the three months ended March 31, 2004 primarily
related to the loss for the quarter, net of the non-cash restructuring and
other credits, as well as payments related to the June 30, 2003 restructuring
and other charges. These credits and payments resulted in a decrease in the
restructuring accruals. While days sales outstanding increased by 4 days to 55 days at March 31, 2004
as compared to March 31, 2003, it improved by 5 days from 60 days at December
31, 2003. Cash commitments relating to remaining restructuring and other charges are $1.1
million in severance costs and $0.3 million in office costs. The anticipated
cash outflows for these restructuring and other charges are as follows: $0.7
million for the remaining quarters in 2004 and the remaining balance of $0.7
million in 2005. Other estimated future cash commitments include various office
facilities, property and office equipment under operating leases and other
costs that expire at various dates. In the second quarter of 2004, we renewed
one of our office leases and also signed a lease for a new office. The minimum
cash commitments under these non-cancelable operating leases and other
obligations with terms in excess of one year, net of restructuring and other
charges, are as follows: $0.4 million for the remaining quarters in 2004, $0.9
million in 2005, $0.8 million in 2006 and $0.4 million in 2007. In addition, we
have an annual commitment for telecommunications of $0.1 million for the
remaining quarters in 2004 and $0.1 million for 2005 and 2006. The Company has
no guarantees of third party debt as of March 31, 2004 or other off-balance
sheet commitments. Net cash used in investing activities was $0.4 million for the three months
ended March 31, 2004 for computer purchases. We currently have no material
commitments for capital expenditures. Net cash provided by financing activities was virtually zero for the three
months ended March 31, 2004. Our primary sources of liquidity are our existing cash and cash equivalents.
Our cash and cash equivalents at March 31, 2004 were $38.8 million. Depending
on revenues and cash collections, we expect our cash and cash equivalent
balance at June 30, 2004 to be approximately $33 million to $35 million. While
we will likely continue to incur operating losses in 2004, we believe that our
cash and cash equivalents will be sufficient to meet our cash requirements. Our
investment policy is to maintain most of our cash and cash equivalents in
highly liquid, large money market type funds. This policy exposes us to
short-term interest rate fluctuations. Operating results and liquidity, including our ability to raise additional
capital if necessary, may be materially and adversely affected by continued low
demand for the Companys services. In addition, a number of other factors,
including general economic conditions, technological changes, competition and
other factors affecting the IT industry generally, and the suspension or
cancellation of a large project could have an adverse effect on future results
and liquidity. These aforementioned factors, as well as other factors, are
more fully described in the Companys Annual Report on Form 10-K for the year
ended December 31, 2003 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. Page 20




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued) We had a nonqualified deferred compensation plan. All Company executives
(defined as those at the level of Vice President and above) were eligible to
participate in this voluntary program, which permitted participants to defer
receipt of a portion of their compensation. We held deferred amounts in a
rabbi trust for the benefit of plan participants and investment earnings (or
losses) were credited to the participants accounts based on investment
allocation options selected by the participants. We did not guarantee these
investments or earnings thereon. These investments remained assets of the
Company and were available to the general creditors of the Company in the event
of our insolvency. On February 10, 2004, the Company announced that the
Compensation Committee of its Board of Directors decided to terminate the
Companys nonqualified executive deferred compensation plan. Because of
dwindling participation, coupled with recent and proposed changes in tax and
other legislation, the Compensation Committee decided the existence of the plan
was no longer a significant factor in attracting and retaining key executive
talent. Accordingly, the plan was terminated and all funds were distributed to
the participants in late February 2004. NEW ACCOUNTING STANDARDS In January 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities  an
interpretation of Accounting Research Bulletin No. 51 (FIN 46). FIN 46
clarified the application of Accounting Research Bulletin Number 51,
Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. Qualifying special purpose entities as defined by FASB Statement
Number 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, are excluded from the scope of Interpretation
No. 46. Interpretation No. 46 applied immediately to all variable interest
entities created after January 31, 2003 and was originally effective for fiscal
periods beginning after July 1, 2003 for existing variable interest entities.
In October 2003, the FASB postponed the effective date of Interpretation No. 46
to December 31, 2003. We do not have any variable interest entities and,
therefore, the adoption of the provisions of FIN 46 did not have a material
impact on our results of operations or financial position. In December 2003, a revised version of Interpretation 46 (Revised
Interpretation No. 46) was issued by the FASB. The revisions clarify some
requirements, ease some implementation problems, add new scope exceptions, and
add applicability judgments. Revised Interpretation No. 46 is required to be
adopted by most public companies no later than March 31, 2004. The adoption of
Revised Interpretation No. 46 did not have a material impact on the our results
of operations or financial position. Page 21




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TECHNOLOGY SOLUTIONS COMPANY MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued) In December 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 132 (revised 2003), Employers Disclosures about Pensions and Other
Postretirement Benefits. SFAS No. 132 improves financial statement disclosures
for defined benefit plans and requires that companies provide more details
about their plan assets, benefit obligations, cash flows, benefit costs and
other relevant information. SFAS No. 132 is effective for fiscal years ending
after December 15, 2003 and for quarters beginning after December 15, 2003. The
adoption of SFAS No. 132 did not have a material impact on our results of
operations or financial position. This Form 10-Q contains or may contain certain forward-looking statements
concerning our financial position, results of operations, cash flows, 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 we believe that the 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, our
ability to manage the pace of technological change including our ability to
refine and add to our service offerings to adapt to technological changes, our
ability to manage the current downturn in our business and in our industry and
the economy in general, our ability to manage our current decreased revenue
levels, our ability to attract new business and increase revenues, our ability
to attract and retain employees, our ability to accommodate a changing business
environment, general business and economic conditions in our operating regions,
market conditions and competitive and other factors, our ability to continue to
attract new clients and sell additional work to existing clients and our
ability to manage costs and headcount relative to expected revenues, all as
more fully described herein and in our Annual Report on Form 10-K for the year
ended December 31, 2003 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 our other SEC reports. Such forward-looking
statements speak only as of the date on which they are made and we do not
undertake any obligation to update any forward-looking statement to reflect
events or circumstances after the date of this Form 10-Q. If we do update or
correct one or more forward-looking statements, investors and others should not
conclude that we would make additional updates or corrections with respect
thereto or with respect to other forward-looking statements. Actual results
may vary materially. Page 22




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##### Table of Contents



TECHNOLOGY SOLUTIONS COMPANY PART I. FINANCIAL INFORMATION (Continued)
 
 ITEM 3-QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK TSC is exposed to interest rate fluctuations. Changes in interest rates affect
interest income and expense on cash and cash equivalents. The Companys cash
and cash equivalents are primarily invested in overnight money market type
accounts. Average interest rates were approximately 0.90 percent during the
three months ended March 31, 2004 compared to approximately 1.23 percent during
the same period in the prior year. Based on the cash and cash equivalents
balances as of March 31, 2004 and 2003, a hypothetical 1.00 percent increase in
interest rates would have resulted in approximately $0.1 million in additional
net investment income during each of the three months ended March 31, 2004 and
2003. The financial statements of the Companys non-U.S. subsidiaries are remeasured
into U.S. dollars using the local currency as the functional currency. The
market risk associated with the foreign currency exchange rates is not material
in relation to the Companys consolidated financial position, results of
operations or cash flows. The Company does not have any significant accounts
payable, account receivable or commitments in a currency other than that of the
reporting units functional currency. The Company does not utilize derivative
financial instruments to manage the exposure in non-U.S. operations. 
 ITEM 4-CONTROLS AND PROCEDURES The management of the Company, including the Chief Executive Officer and Chief
Financial Officer, have conducted an evaluation of the effectiveness of the
Companys disclosure controls and procedures pursuant to Exchange Act Rule
13a-15 (b) as of the end of the period covered by this quarterly report. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective
in ensuring that all material information relating to the Company that is
required to be included in the reports that the Company files with the SEC is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms. There have been no changes in the Companys
internal controls over financial reporting that were identified during the
evaluation that occurred during the Companys last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting. Page 23




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TECHNOLOGY SOLUTIONS COMPANY 
 PART II. OTHER INFORMATION 
 ITEM 2-CHANGES IN
SECURITIES AND USE OF PROCEEDS  (e)
    
    The Company has a stock repurchase program, which
allows for share repurchases of up to 11,525,327 shares of
outstanding Company common stock (the Repurchase Program).
During the three months ended March 31, 2004, the Company did
not purchase any shares. The Company has repurchased an
aggregate total of 6,762,627 shares since the inception of
this Repurchase Program in September 2000. As of March 31,
2004, there were 4,762,700 shares available to be purchased
under the Repurchase Program. The timing and size of any
future stock repurchases are subject to market conditions,
stock prices, cash position and other cash requirements. 
 ITEM 6-EXHIBITS AND REPORT ON FORM 8-K  (a)
    
    Exhibits Exhibit #
    
    Description of Document10.01*
    
    Employment Agreement with Michael R. Gorsage10.02*
    
    Employment Agreement with Stephen B. Oresman31.1*
    
    CEO Certification31.2*
    
    CFO Certification32.1*
    
    Certification of Michael R. Gorsage Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States Code.32.2*
    
    Certification of Timothy P. Dimond Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States Code.
  (b)
    
    Reports on Form 8-KOne report on Form 8-K was filed during the quarter
ended March 31, 2004. This report, dated February 11,
2004, announced the Companys year ended December 31, 2003
results of operations.All other items in Part II are either not applicable to the
Company during the quarter ended March 31, 2004, 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.   *Filed herewith Page 24




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SIGNATURE 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, thereunto duly authorized. TECHNOLOGY SOLUTIONS COMPANYDate: May 11, 2004
    By:
    /s/ TIMOTHY P. DIMONDTimothy P. DimondChief Financial Officer Page 25