-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MM2Zn6iNzqrNz5s/+hh+Wc4oOgeNhkon+DW94p30c4a3xAIOYAaSW0WppFfktnkH XrjeC1QXk6t+vsEswu7T5w== 0000950134-97-008266.txt : 19971114 0000950134-97-008266.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950134-97-008266 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: THOMAS GROUP INC CENTRAL INDEX KEY: 0000900017 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 720843450 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22010 FILM NUMBER: 97713277 BUSINESS ADDRESS: STREET 1: 5215 N OCONNOR BLVD STE 2500 CITY: IRVING STATE: TX ZIP: 75039 BUSINESS PHONE: 2148693400 MAIL ADDRESS: STREET 1: 5215 N OCONNOR SUITE 2500 CITY: IRVING STATE: TX ZIP: 75039 10-Q 1 FORM 10-Q FOR QUARTER ENDED 09/30/97 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-Q ----------- [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-22010 ----------- THOMAS GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 72-0843540 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5215 NORTH O'CONNOR BOULEVARD SUITE 2500 IRVING, TEXAS 75039 (Address of principal executive offices, including zip code) (214) 869-3400 (Registrant's telephone number, including area code) ----------- NONE (Former name, former address and former fiscal year, if changed since last report) ----------- 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 [X] No [ ] As of October 31, 1997, the following number of shares of the registrant's stock were outstanding:
Common Stock 5,950,589 Class B Common Stock 176,594 --------- Total 6,127,183 =========
1 2 THOMAS GROUP, INC. PART I - FINANCIAL INFORMATION
PAGE NO. Item 1 - Financial Statements Consolidated Balance Sheets, September 30, 1997 and December 31, 1996 ......................... 3 Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 1997 and 1996 ............................................................... 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 ...................................................................................... 5 Notes to Consolidated Financial Statements .................................................... 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 9 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K .............................................................. 14
2 3 THOMAS GROUP, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
ASSETS September 30, December 31, 1997 1996 -------- -------- Current Assets Cash and cash equivalents ........................................ $ 9,267 $ 5,711 Trade accounts receivable, net of allowances of $306 ............. 11,368 8,904 Unbilled receivables ............................................. 1,861 1,363 Accounts and notes receivable - affiliate ........................ 2,565 1,500 Other ............................................................ 2,730 3,944 -------- -------- Total Current Assets ........................................... 27,791 21,422 Net Property and Equipment ....................................... 8,429 7,641 Capitalized Software Development Costs ........................... 2,807 3,069 Other Assets ..................................................... 7,645 6,758 -------- -------- $ 46,672 $ 38,890 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities ......................... $ 5,312 $ 3,901 Income taxes payable ............................................. 2,609 1,420 Advance payments ................................................. 265 396 Current portion of long-term obligations ......................... 275 -- -------- -------- Total Current Liabilities ...................................... 8,461 5,717 Long-Term Obligations .............................................. 2,584 1,661 -------- -------- Total Liabilities .............................................. 11,045 7,378 -------- -------- Commitments and Contingencies Stockholders' Equity Common Stock, $.01 par value; 12,500,000 shares authorized; 6,259,842 and 6,179,117 shares issued .......................... 62 62 Class B Common Stock, $.01 par value; 1,200,000 shares authorized; 176,594 and 185,189 shares issued and outstanding... 2 2 Additional paid-in capital ....................................... 21,320 20,143 Retained earnings ................................................ 19,079 15,570 Cumulative translation adjustment ................................ (417) (32) Treasury stock, 312,391 and 295,991 shares of Common, at cost .... (4,419) (4,233) -------- -------- Total Stockholders' Equity ..................................... 35,627 31,512 -------- -------- $ 46,672 $ 38,890 ======== ========
See accompanying notes to consolidated financial statements. 3 4 THOMAS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Revenues ................................ $ 19,493 $ 17,327 $ 57,004 $ 56,478 Cost of Sales ..................... 11,605 11,817 35,089 35,722 ---------- ---------- ---------- ---------- Gross Margin ............................ 7,888 5,510 21,915 20,756 Selling, General and Administrative.. 5,725 5,043 16,139 14,172 ---------- ---------- ---------- ---------- Operating Income ........................ 2,163 467 5,776 6,584 Interest Income, Net .................... 35 90 103 224 ---------- ---------- ---------- ---------- Income Before Income Taxes .............. 2,198 557 5,879 6,808 Income Taxes ............................ 897 212 2,369 2,676 ---------- ---------- ---------- ---------- Net Income .............................. $ 1,301 $ 345 $ 3,510 $ 4,132 ========== ========== ========== ========== Earnings Per Common and Common Equivalent Share .................... $ 0.20 $ 0.05 $ 0.56 $ 0.65 Weighted Average Shares and Share Equivalents Outstanding ............. 6,392,031 6,339,616 6,308,096 6,368,045
See accompanying notes to consolidated financial statements. 4 5 THOMAS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1997 1996 ------- -------- Cash Flows From Operating Activities Net income ............................................................................. $ 3,510 $ 4,132 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization ............................................... 2,889 2,320 Allowance for doubtful accounts ............................................. -- (104) Provision for expatriate costs .............................................. 190 (106) Other ....................................................................... (30) 225 Collection of income tax refund ............................................. 1,800 -- Deferred taxes .............................................................. (839) (762) Change in operating assets and liabilities Trade accounts receivable .................................................. (2,710) 903 Unbilled receivables ....................................................... (498) 1,499 Other assets ............................................................... (499) (563) Accounts payable and accrued liabilities ................................... 1,600 61 Advance payments ........................................................... (132) 77 Income taxes payable ....................................................... 1,492 (255) ------- -------- Net Cash Provided By Operating Activities ............................ 6,773 7,427 ------- -------- Cash Flows Used In Investing Activities Acquisition of subsidiary .............................................................. -- (2,308) Decrease in short-term receivables...................................................... -- 598 Capital expenditures.................................................................... (2,498) (2,591) Capitalization of software development cost............................................. (617) (1,431) Acquisition of intangibles ............................................................. (150) (250) ------- -------- Net Cash Used In Investing Activities ................................ (3,265) (5,982) ------- -------- Cash Flows From Financing Activities Purchase of treasury stock ............................................................. (186) (3,140) Net proceeds from exercise of stock options ............................................ 397 195 Advances - computer line of credit ..................................................... 871 -- Repayment of other long-term obligations ............................................... -- (86) Net advances to affiliates ............................................................. (865) (1,331) Repayment of obligations to affiliates ................................................. -- (1,027) ------- -------- Net Cash Provided By (Used In) Financing Activities .................. 217 (5,389) ------- -------- Effect of Exchange Rate Changes on Cash ................................................ (169) (319) ------- -------- Net Increase (Decrease) In Cash and Cash Equivalents ..................................... 3,556 (4,263) Cash and Cash Equivalents Beginning of period ................................................................. 5,711 11,273 ------- -------- End of period ....................................................................... $ 9,267 $ 7,010 ======= ========
See accompanying notes to consolidated financial statements. 5 6 THOMAS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The unaudited consolidated financial statements include all adjustments, which include only normal recurring adjustments, which are, in the opinion of management, necessary to present fairly the results of operations of the company for the interim periods presented. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the company's 1996 Annual Report to Stockholders. The results of operations for the three and nine month periods ended September 30, 1997 are not necessarily indicative of the results of operations for the entire year ending December 31, 1997. 2. Earnings Per Share - Earnings per share amounts are based on the weighted average number of shares and dilutive share equivalents outstanding during the respective periods. Fully diluted earnings per share and share equivalents are not presented because the result is not materially different. 3. Significant Clients - There were no clients from which the company earned in excess of 10% of its total revenues in the nine months ended September 30, 1997. The company earned in excess of 10% of its total revenues from two clients in the nine months ended September 30, 1996. Revenues from the two significant clients in the nine months ended September 30, 1996 totaled $12.9 million or 23% of revenues. 4. Summary of Significant Accounting Policies Unbilled Receivables - Fixed fees are recognized when earned, generally on a straight line basis over the life of the contract. Although fixed fee recognition generally coincides with billings, as an accommodation to its clients the company may structure fixed fee billings to increase in the latter stages of a program. In such instances, straight line recognition results in unbilled receivables. Unbilled receivables are reduced as the program proceeds to its latter stages and the cumulative billings more closely approximate aggregate fees recognized. Recent Accounting Standards - The Financial Accounting Standards Board recently adopted Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). SFAS 128 requires a calculation of book "Basic" and "Diluted" earnings per share. Basic earnings per share includes no dilution. The company will adopt the standard effective December 31, 1997. Implementation of SFAS 128 in the first nine months of 1997 would not have had a material effect on the reported earnings per share. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. SFAS 130 is effective for financial statements for periods beginning after December 15, 1997 and requires comparative information for earlier years to be restated. Because of the recent issuance of this standard, management has been unable to fully evaluate the impact, if any, the standard may have on future financial statement disclosures. Results of operations and financial position, however, will be unaffected by implementation of this standard. Reclassifications - Certain income statement amounts have been reclassified from the previously reported financial statements in order to conform with the current presentation. 6 7 THOMAS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. Related Party Transactions Philip R. Thomas - Principal Stockholder - Mr. Thomas did not earn incentive compensation in 1996 and therefore executed a $1.5 million promissory note, due September 25, 1997, for advances made to him. This note has been amended to extend the due date to January 25, 1998. This note carries an interest rate of prime plus 1/4. A summary of receivables from affiliates follows:
----------------------------------------------- SEPTEMBER 30, 1997 DECEMBER 31, 1996 -------------------- ------------------- Philip R. Thomas - incentive compensation advances $ 2,565 $ 1,500 Other affiliates - long term 229 200
6. Revolving Credit Agreement - The company maintains a $20 million revolving credit agreement with Comerica Bank - Texas. This agreement expires in December 2003 and includes a call option in December 2001. Additionally, terms of the agreement provide for a $1 million per quarter reduction in any outstanding balances after the first two years. Loans under this agreement bear interest at the prime rate or other similar interest options. The company utilized the credit line during the first nine months of 1997 to meet working capital requirements. The average daily balance outstanding under the credit line was $0.2 million and total interest paid, at an annual rate of 8.25%, was less than $0.1 million. 7. Segment Data - Information regarding the company's two business segments follows:
BUSINESS IMPROVEMENT SERVICES SOFTWARE SOLUTIONS CORPORATE TOTAL --------------------------------------------------------- THREE MONTHS ENDED: SEPTEMBER 30, 1997 Sales to unaffiliated clients $18,456 $ 1,037 $ 19,493 Operating income (loss) $ 7,536 $(1,314) $ (4,059) $ 2,163 SEPTEMBER 30, 1996 Sales to unaffiliated clients $15,834 $ 1,493 $ 17,327 Operating income (loss) $ 4,521 $ (884) $ (3,170) $ 467 NINE MONTHS ENDED: SEPTEMBER 30, 1997 Sales to unaffiliated clients $52,468 $ 4,536 $ 57,004 Operating income (loss) $19,432 $(3,307) $(10,349) $ 5,776 SEPTEMBER 30, 1996 Sales to unaffiliated clients $50,734 $ 5,744 $ 56,478 Operating income (loss) $17,144 $(1,038) $ (9,522) $ 6,584
8. Software Development Costs - Due to declining sales at the company's software subsidiaries, in April 1997 the company began an evaluation of alternatives for one of the subsidiaries' software products. This evaluation has led the company, beginning in the second quarter of 1997, to revise the amortization period on this product from 36 to 21 months, which reflects the company's estimate of the remaining economic life of the product. This adjustment 7 8 THOMAS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) to the amortization was the result of a strategic decision to focus the subsidiaries' efforts on the alternatives to this product. The company intends to continue to market, provide technical support and customization, and develop minor enhancements to the existing product. 9. Supplemental Disclosure of Cash Flow Information
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- 1997 1996 ---------- ---------- Interest paid $ 110 $ 22 Income taxes paid $ 1,660 $ 3,549
8 9 THOMAS GROUP, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The company derives its revenues from monthly fixed and incentive (or performance-oriented) fees for the implementation of Total Cycle Time(R) programs. Performance-oriented fees are tied to improvements in a variety of client performance measures typically involving response time, asset utilization, productivity and profitability. The following table sets forth the statements of operations as a percentage of revenues.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------- --------------- 1997 1996 1997 1996 ---- ---- ---- ---- Revenues...................................... 100.0 100.0 100.0 100.0 Cost of Sales............................ 59.5 68.2 61.6 63.3 ----- ----- ----- ----- Gross Margin................................... 40.5 31.8 38.4 36.7 Selling, General and Administrative...... 29.4 29.1 28.3 25.1 ----- ----- ----- ----- Operating Income.............................. 11.1 2.7 10.1 11.6 Interest Income, Net.......................... .2 .5 .2 .4 ----- ----- ----- ----- Income Before Income Taxes.................... 11.3 3.2 10.3 12.0 Income Taxes.................................. 4.6 1.2 4.2 4.7 ----- ----- ----- ----- Net Income.................................... 6.7 2.0 6.1 7.3 ===== ===== ===== =====
The following table sets forth the company's revenues by geographic and industry segment:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- -------------------- 1997 1996 1997 1996 ------- ------- ------- ------- Business Improvement Programs United States....................... $13,004 $11,132 $38,682 $35,368 Europe.............................. 3,908 4,281 10,556 14,360 Asia/Pacific........................ 1,544 421 3,230 1,006 ------- ------- ------- ------- Total Business Improvement Programs.... 18,456 15,834 52,468 50,734 Software Solutions..................... 1,037 1,493 4,536 5,744 ------- ------- ------- ------- Total Revenue.......................... $19,493 $17,327 $57,004 $56,478 ======= ======= ======= =======
9 10 THOMAS GROUP, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1996 REVENUE - Revenue increased 13% in the third quarter of 1997 over the third quarter of 1996. Business Improvement Program revenue increased 17% over the third quarter of 1996. This increase consisted of a $1.1 million (10%) increase in fixed fee revenue and a $1.5 million (33%) increase in incentive revenue. Fixed fee and incentive revenues represent 66% and 34%, respectively, of Business Improvement Program revenue in the third quarter of 1997 and 71% and 29%, respectively, of Business Improvement Program revenue in the third quarter of 1996. The United States component of Business Improvement Program revenue increased 17% as a result of 1996 investments in business development. European Business Improvement Program revenue declined 9% due to the strengthening of the U.S. dollar against the Swiss Franc and German Mark. Asia/Pacific revenue increased 267% for the comparable quarters as a result of two new programs and the expansion of an existing program in this region. Revenue from Software Solutions decreased 30% in the third quarter of 1997 as compared to the third quarter of 1996 primarily as a result of decreased closing of software license contracts. COST OF SALES - Cost of Sales includes all costs associated with the generation of revenue. Such costs include certain personnel and facilities costs, program-related travel and entertainment, and hardware costs. Cost of sales was $11.6 million in the third quarter of 1997, a 2% decrease, compared to $11.8 million in the third quarter of 1996. This decrease is attributable to general cost containment measures undertaken in the beginning of 1997. These measures include the closing of two regional U.S. offices: Princeton and San Jose. GROSS MARGIN - Total company gross margin was 41% in the third quarter of 1997 compared to 32% in the third quarter of 1996. Business Improvement Program gross margin was 45% in the third quarter of 1997 versus 36% in the third quarter of 1996. This improvement was primarily the result of higher incentive revenue as a percentage of total revenue in the third quarter of 1997 compared to the third quarter of 1996, as well as cost containment measures mentioned earlier. Software Solutions gross margin was a negative 37% in the third quarter of 1997 and a negative 9% in the third quarter of 1996. This decrease is due primarily to fewer license fee and hardware sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and administrative expenses consist of all operating expenses not directly associated with the generation of revenue. A majority of selling, general, and administrative expenses are for corporate personnel (including corporate officers), non-program-related travel and entertainment, corporate facilities costs, and professional and legal costs. Selling, general and administrative expense as a percentage of total revenue increased slightly to 30% in the third quarter of 1997 from 29% in the third quarter of 1996: a $0.7 million quarter to quarter increase. This increase was primarily the result of $0.3 million spending related to upgrading information systems infrastructure and $0.4 million in CEO incentive compensation. 10 11 THOMAS GROUP, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OTHER - The company's effective tax rate was 41% in the third quarter of 1997 and 38% in the third quarter of 1996. RESULTS OF OPERATIONS - Net income in the third quarter of 1997 was $1.3 million, or $0.20 per share, an increase of $1.0 million compared to $0.3 million, or $0.05 per share, in the third quarter of 1996. NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996 REVENUE - Revenue in the first nine months of 1997 was 1% higher than revenue in the first nine months of 1996. Revenue from Business Improvement Programs increased 3% from the first nine months of 1996. This increase consisted of a $3.4 million (10%) increase in fixed fee revenue offset by a $1.6 million (9%) decline in incentive revenue. Fixed fee and incentive revenues represent 73% and 27%, respectively, of Business Improvement Program revenue in the first nine months of 1997, and 69% and 31% of Business Improvement Program revenue in the first nine months of 1996. United States Business Improvement Program revenue increased 9% as a result of 1996 investments in business development. European Business Improvement Program revenue declined 26% due to fewer active programs and the strengthening of the U.S. dollar against the Swiss Franc and German Mark. Asia/Pacific revenue increased 221% in the first nine months of 1997 compared to the first nine months of 1996 as the number and size of active programs increased. Software Solutions revenue decreased 21% in the first nine months of 1997 compared to the first nine months of 1996 primarily as a result of lower software license revenue. COST OF SALES - Cost of sales was $35.1 million in the first nine months of 1997 compared to $35.7 million in the first nine months of 1996. This decrease is attributable to improved cost control in the Business Improvement Program segment which resulted in decreases of $0.9 million. This decrease was partially offset by the Software Solutions segment increases of $0.2 million, comprised primarily of hardware purchases. GROSS MARGIN - Total company gross margin was 38% in the first nine months of 1997 compared to 37% in the first nine months of 1996. Business Improvement Program gross margin was 43% in the first nine months of 1997 versus 40% in the first nine months of 1996. This improvement was primarily the result of improved cost control measures. Software Solutions gross margin was a negative 16% for the first nine months of 1997 and a positive 12% in the first nine months of 1996. This decline was the result of higher hardware content in Software Solutions revenue and the overall decline in software business volume. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES - Selling, general and administrative expense as a percentage of revenues increased to 28% in the first nine months of 1997 from 25% in the first nine months of 1996. Selling, general and administrative expense was $16.2 million in the first nine months of 1997, a 14% increase, compared to $14.2 million in the first nine months of 1996. This $2.0 million increase was primarily the result of a $0.8 million increase in business development expenses and a $0.8 million increase in information systems spending. 11 12 THOMAS GROUP, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OTHER - The company's effective tax rate was 40% in the first nine months of 1997 and 39% in the first nine months of 1996. RESULTS OF OPERATIONS - Net income in the first nine months of 1997 was $3.5 million or $0.56 per share, a decrease of $0.6 million compared to $4.1 million or $.65 per share in the first nine months of 1996. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents increased by $3.6 million in the first nine months of 1997 compared to a decrease of $4.3 million in the first nine months of 1996. A discussion of the components of these changes follows: CASH FLOWS FROM OPERATING ACTIVITIES - Net cash flow provided by operating activities was $6.8 million. Significant items positively affecting operating activities cash flow include: net income of $3.5 million; depreciation and amortization of $2.9 million; collection of an income tax refund of $1.8 million; and increases in accounts payable of $1.6 million. The principal item negatively affecting cash flow is a $2.7 million increase in trade accounts receivable and the $0.5 million increase in unbilled receivables. The primary cause of the increase in trade accounts receivable is the increase in quarterly revenues in the third quarter of 1997 over the fourth quarter of 1996. Days sales outstanding decreased from 50 days at December 31, 1996 to 43 days at September 30, 1997. CASH FLOWS FROM INVESTING ACTIVITIES - Capital expenditures of $2.5 million in 1997 have related primarily to computer hardware and network upgrades and office infrastructure enhancements, while those in the first nine months of 1996 related primarily to CEO Center expansion. Capitalized software development costs of $0.6 million in 1997 includes $0.3 million in purchased software and $0.3 million in capitalized internal development costs. Capitalized software development costs in the first nine months of 1996 are the result of a $1 million payment to the former owners of Interlink for developed software. CASH FLOWS FROM FINANCING ACTIVITIES - Net cash flows from financing activities was $0.2 million in the first nine months of 1997. In the first nine months of 1996, the company spent $3.1 million to purchase 226,600 treasury shares at an average price per share of $13.68. Additionally, the company made a payment of $1.0 million to an officer of the company for the purchase of a suite at Texas Stadium and for prepaid rent for its CEO Center facility. In 1994 the Board of Directors approved a stock repurchase plan for up to 250,000 shares. The company purchased 7,000 shares at an average price per share of $10.71 in 1994 and 226,600 shares at an average price per share of $14.74 in 1996. The company completed the purchase of the remaining 16,400 shares in the second quarter of 1997, at an average price per share of $11.37. The average price per share of treasury shares at September 30, 1997 is $14.15. 12 13 THOMAS GROUP, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The company has a $20 million revolving credit facility with Comerica Bank - Texas. This facility expires in December 2003 and includes a call option in December 2001. Additionally, the terms provide for a $1 million per quarter reduction in any outstanding balances after the first two years. Loans under this agreement bear interest at the prime rate or other options. In addition the company has a $1.0 million credit facility with Comerica Bank - Texas for the purchase of computer equipment. The company made draws of $0.9 million on this facility to purchase computer equipment. FINANCIAL CONDITION - The company believes that its financial condition remains strong and that it has the financial resources necessary to meet its needs. Cash provided by operating activities and the company's credit facility should be sufficient to meet short and long-term operational needs. 13 14 THOMAS GROUP, INC. PART II - OTHER INFORMATION
SEQUENTIAL PAGE NO. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 11 - Statement Regarding Computation of Earnings Per Share.......................... 15 (b) Reports on Form 8-K for the Quarter Ending September 30, 1997 - None.
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 thereunto duly authorized. THOMAS GROUP, INC. -------------------- Registrant October 11, 1997 /s/ Philip R. Thomas ---------------- -------------------- Date Philip R. Thomas Chairman and Chief Executive Officer October 11, 1997 /s/ Mitchell D. Bohn ---------------- -------------------- Date Mitchell D. Bohn Vice President, Chief Financial Officer and Treasurer (Chief Accounting Officer) 14 15 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------- 11 Statement Regarding Computation of Earnings Per Share 27 Financial Data Schedule
EX-11 2 STMT RE: COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 PAGE 1 OF 3 THOMAS GROUP, INC. STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Primary EPS Weighted Average Shares Outstanding .............. 6,102,645 5,938,132 6,085,812 5,965,086 Weighted Average Options Outstanding (Table I) ... 289,286 391,573 222,284 398,041 Weighted Average Warrants Outstanding (Table II).. 4,725 9,911 -- 4,918 ---------- ---------- ---------- ---------- Weighted Average Shares and Share Equivalents Outstanding .................................. 6,392,031 6,339,616 6,308,096 6,368,045 ========== ========== ========== ========== Net Income ....................................... $1,301,000 $ 345,000 $3,510,000 $4,132,000 ========== ========== ========== ========== Earnings Per Common and Common Equivalent Share... $ 0.20 $ 0.05 $ 0.56 $ 0.65 ========== ========== ========== ========== FULLY-DILUTED EPS Weighted Average Shares Outstanding .............. 6,102,645 5,938,132 6,085,812 5,965,086 Weighted Average Options Outstanding (Table I) ... 326,048 391,248 314,021 406,172 Weighted Average Warrants Outstanding (Table II).. 6,311 9,911 3,154 4,918 ---------- ---------- ---------- ---------- Weighted Average Shares and Share Equivalents Outstanding .................................. 6,435,003 6,339,291 6,402,987 6,376,176 ========== ========== ========== ========== Net Income ....................................... $1,301,000 $ 345,000 $3,510,000 $4,132,000 ========== ========== ========== ========== Earnings Per Common and Common Equivalent Share... $ 0.20 $ 0.05 $ 0.55 $ 0.65 ========== ========== ========== ==========
15 2 EXHIBIT 11 PAGE 2 OF 3 THOMAS GROUP, INC. STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE TABLE I - WEIGHTED AVERAGE OPTIONS OUTSTANDING
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------- 1997 1996 1997 1996 ------------ ------------ ------------ -------------- PRIMARY EPS Weighted Average Options Outstanding ............... 1,490,456 1,215,565 1,439,447 1,261,101 Average Exercise Price ............................. $ 9.649 $ 9.537 $ 9.645 $ 9.3545 ------------ ------------ ------------ ------------ Exercise Proceeds .................................. $ 14,382,040 $ 11,592,984 $ 13,884,106 $ 11,797,008 ============ ============ ============ ============ Average FMV Per Share During Period ................ $ 12.4241 $ 16.0595 $ 10.3837 $ 15.5881 Shares Repurchased (limited to 20% of shares outstanding) ................................... (1,157,592) (722,240) (1,217,163) (744,668) Shares Repurchased Assuming Utilization of Tax Benefit on Exercise of Non-Qualified Options(1). (43,478) (102,077) (110,261) ------------ ------------ ------------ ------------ Total Shares Repurchased ........................... (1,201,070) (824,317) (1,217,163) (854,929) ------------ ------------ ------------ ------------ Incremental Shares from Options .................... 289,386 391,248 222,284 406,172 ============ ============ ============ ============ FULLY-DILUTED EPS Weighted Average Options Outstanding ............... 1,490,456 1,215,565 1,439,447 1,261,101 Average Exercise Price ............................. $ 9.649 $ 9.537 $ 9.645 $ 9.3545 ------------ ------------ ------------ ------------ Exercise Proceeds .................................. $ 14,382,040 $ 11,592,984 $ 13,884,106 $ 11,797,008 ============ ============ ============ ============ FMV Per Share End of Period ........................ $ 12.875 $ 16.0595 (2) $ 12.875 $ 16.0595 (2) Shares Repurchased (limited to 20% of shares outstanding) .................................. (1,116,591) (721,877) (1,078,759) (756,796) Shares Repurchased Assuming Utilization of Tax Benefit on Exercise of Non-Qualified Options(1)..................................... (37,817) (102,114) (46,667) (106,265) ------------ ------------ ------------ ------------ Total Shares Repurchased ........................... (1,164,408) (823,991) (1,125,426) (863,061) ------------ ------------ ------------ ------------ Incremental Shares from Options .................... 326,048 391,573 314,021 398,041 ============ ============ ============ ============
(1) Non-qualified options generate a tax deduction for the company in the amount of the employee's taxable gain, if any, on exercise. The savings in taxes payable are also assumed to be used to purchase outstanding shares of common stock. (2) FMV at end of period was less than the average FMV during the period. Average FMV per share was therefore used for fully-diluted computation. 16 3 EXHIBIT 11 PAGE 3 OF 3 THOMAS GROUP, INC. STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE TABLE II - WEIGHTED AVERAGE WARRANTS OUTSTANDING
THREE MONTHS ENDED Nine Months Ended SEPTEMBER 30, September 30, -------------------------- -------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- PRIMARY EPS Weighted Average Warrants Outstanding.. 225,000 175,000 200,000 175,000 Exercise Price ........................ $ 14.283 $ 15.15 $ 14.66 $ 15.15 ---------- ---------- ---------- ---------- Exercise Proceeds ..................... $3,213,750 $2,651,250 $2,932,500 $2,651,250 ========== ========== ========== ========== Average FMV Per Share During Period ... $ 12.4241 $ 16.0595 $ 10.3837 $ 15.5881 Shares Repurchased .................... 45,275 165,089 -- 170,082 ---------- ---------- ---------- ---------- Incremental Shares from Warrants ...... 4,725 9,911 -- 4,918 ========== ========== ========== ========== FULLY-DILUTED EPS Weighted Average Warrants Outstanding.. 225,000 175,000 200,000 175,000 Exercise Price ........................ $ 14.283 $ 15.15 $ 14.66 $ 15.15 ---------- ---------- ---------- ---------- Exercise Proceeds ..................... $3,213,750 $2,651,250 $2,932,500 $2,651,250 ========== ========== ========== ========== FMV Per Share End of Period ........... $ 12.875 $ 15.5881 (1) $ 12.875 $ 15.5881 (1) Shares Repurchased .................... 43,689 165,089 21,846 170,082 ---------- ---------- ---------- ---------- Incremental Shares from Warrants ...... 6,311 9,911 3,154 4,918 ========== ========== ========== ==========
17 EX-27 3 FINANCIAL DATA SCHEDULE
5 0000900017 THOMAS GROUP, INC 1,000 U. S. DOLLARS 9-MOS DEC-31-1997 SEP-30-1997 1 9,267 0 11,674 306 0 27,791 8,429 0 46,672 8,461 0 0 0 62 35,565 46,672 0 57,004 35,089 51,228 (103) 0 0 5,879 2,369 3,510 0 0 0 3,510 0.56 0
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