<PAGE> 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, 1996
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, 1996, the following number of shares of the
registrant's stock were outstanding:
<TABLE>
<S> <C>
Common Stock 5,869,766
Class B Common Stock 44,519
---------
Total 5,914,285
=========
</TABLE>
1
<PAGE> 2
THOMAS GROUP, INC.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheets, September 30, 1996 and December 31, 1995 ..................... 3
Consolidated Statements of Operations for the Three Months and Nine Months Ended
September 30, 1996 and 1995 ........................................................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 ........................................................... 5
Notes to Consolidated Financial Statements ................................................ 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.. 7
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K ...................................................... 12
</TABLE>
2
<PAGE> 3
THOMAS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents ...................................................... $ 7,010 $ 11,273
Trade accounts receivable, net of allowances of $100 and $245, respectively .... 11,913 14,476
Accounts and notes receivable -- affiliates .................................... 1,331 --
Other, net of allowances of $473 and $382, respectively ........................ 2,116 2,257
-------- --------
Total Current Assets ......................................................... 22,370 28,006
Net Property and Equipment ........................................................ 7,870 6,547
Capitalized Software Development Costs ............................................ 3,023 832
Other Assets ...................................................................... 6,450 4,772
-------- --------
$ 39,713 $ 40,157
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities ....................................... $ 3,725 $ 4,229
Accounts payable - affiliates .................................................. -- 1,027
Income taxes payable ........................................................... 1,447 2,428
Advance payments ............................................................... 368 294
Current maturities of long-term obligations .................................... -- 27
-------- --------
Total Current Liabilities .................................................... 5,540 8,005
Long-Term Obligations ............................................................. 1,443 1,101
-------- --------
Total Liabilities ............................................................ 6,983 9,106
-------- --------
Commitments and Contingencies
Stockholders' Equity
Common Stock, $.01 par value; 12,500,000 shares authorized; 6,169,088 and 5,983,903
shares issued ................................................................. 62 60
Class B Common Stock, $.01 par value; 1,200,000 shares
authorized; 43,919 and 152,133 shares issued and outstanding ................... -- 2
Additional paid-in capital ........................................................ 19,204 18,094
Retained earnings ................................................................. 17,877 13,745
Cumulative translation adjustment ................................................. (140) 283
Treasury stock, 302,360 and 90,603 shares of Common, at cost ...................... (4,273) (1,133)
-------- --------
Total Stockholders' Equity ................................................... 32,730 31,051
-------- --------
$ 39,713 $ 40,157
======== ========
</TABLE>
See accompanying notes to consolidated
financial statements.
3
<PAGE> 4
THOMAS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues ................................ $ 17,327 $ 16,371 $ 56,478 $ 48,205
Cost of Sales ....................... 11,676 10,331 35,902 29,924
---------- ---------- ---------- ----------
Gross Margin ............................ 5,651 6,040 20,576 18,281
Selling, General and Administrative.. 5,184 3,545 13,992 10,837
---------- ---------- ---------- ----------
Operating Income ........................ 467 2,495 6,584 7,444
Interest Income, Net .................... 90 120 224 324
---------- ---------- ---------- ----------
Income Before Income Taxes .............. 557 2,615 6,808 7,768
Income Taxes ............................ 212 1,025 2,676 3,086
---------- ---------- ---------- ----------
Net Income .............................. $ 345 $ 1,590 $ 4,132 $ 4,682
========== ========== ========== ==========
Earnings Per Common and Common
Equivalent Share .................... $ 0.05 $ 0.25 $ 0.65 $ 0.75
Weighted Average Shares and Share
Equivalents Outstanding ............. 6,339,616 6,364,651 6,368,045 6,247,576
</TABLE>
See accompanying notes to consolidated
financial statements.
4
<PAGE> 5
THOMAS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities
Net income .................................................. $ 4,132 $ 4,682
Adjustments to reconcile net income to net cash used
in operating activities
Depreciation and amortization ......................... 2,320 1,340
Allowance for doubtful accounts ....................... (104) --
Provision for expatriate costs ........................ (106) (57)
Other ................................................. 225 32
Deferred taxes ........................................ (762) 485
Change in operating assets and liabilities
Trade accounts receivable ............................ 2,402 1,023
Other assets ......................................... (563) 254
Accounts payable and accrued liabilities ............. 61 739
Advance payments ..................................... 77 (812)
Income taxes payable ................................. (255) 1,853
-------- --------
Net Cash Provided By Operating Activities ...... 7,427 9,539
-------- --------
Cash Flows Used In Investing Activities
Acquisition of subsidiary ................................ (2,308) (1,500)
(Increase) Decrease in short-term notes receivables ...... 598 (792)
Capital expenditures ..................................... (2,591) (787)
Capitalization of software development costs ............. (1,431) (49)
Acquisition of intangibles ............................... (250) --
-------- --------
Net Cash Used In Investing Activities ............... (5,982) (3,128)
-------- --------
Cash Flows From Financing Activities
Purchase of treasury stock .................................. (3,140) --
Net proceeds from exercise of stock options ................. 195 408
Repayment of other long-term obligations .................... (86) (93)
Net repayments from (advances to) affiliates ................ (1,331) 907
Repayment of obligations to affiliates ...................... (1,027) --
-------- --------
Net Cash Provided By (Used In) Financing Activities.. (5,389) 1,222
-------- --------
Effect of Exchange Rate Changes on Cash ..................... (319) (30)
-------- --------
Net Increase (Decrease) In Cash and Cash Equivalents .......... (4,263) 7,603
Cash and Cash Equivalents
Beginning of period ...................................... 11,273 3,942
-------- --------
End of period ............................................ $ 7,010 $ 11,545
======== ========
</TABLE>
See accompanying notes to consolidated
financial statements.
5
<PAGE> 6
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited consolidated financial statements include all
adjustments, which, in the opinion of management, are necessary to present
fairly the results of operations of the Company for the interim periods
presented. Such adjustments are of a normal and recurring nature. The
unaudited 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 1995 Annual Report to Stockholders. The results of
operations for the three and nine month periods ended September 30, 1996 are
not necessarily indicative of the results of operations for the entire year
ending December 31, 1996.
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 is not presented because the result is not materially different.
3. Significant Clients - The Company earned in excess of 10% of its total
revenues from each of two clients in the nine months ended September 30, 1996
and from one client in the nine months ended September 30, 1995. Revenues from
the two significant clients in the nine months ended September 30, 1996
totaled $12.9 million or 23% of revenues. Revenues from the significant client
in the nine months ended September 30, 1995 totaled $6.4 million or 13% of
revenues.
4. Acquisition - Effective July 1, 1996 the Company acquired
substantially all of the assets of Bermac Communications (Bermac), a
multimedia software company, for approximately $2.3 million in cash. The
acquisition was funded with cash from operations and accounted for under the
purchase method of accounting. Bermac's results of operations were included in
the Company's consolidated financial statements beginning July 1, 1996.
Bermac's operations are not material in relation to the Company's consolidated
financial statements; therefore, pro forma financial information has not been
presented.
5. Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
------ ------
<S> <C> <C>
Interest paid $ 22 $ 30
Income taxes paid 3,549 816
</TABLE>
6
<PAGE> 7
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- ---------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues ................................. 100.0 100.0 100.0 100.0
Cost of Sales ....................... 67.4 63.1 63.6 62.1
------- ------- ------- -------
Gross Margin .............................. 32.6 36.9 36.4 37.9
Selling, General and Administrative.. 29.9 21.6 24.8 22.5
------- ------- ------- -------
Operating Income .................... 2.7 15.3 11.6 15.4
Interest Income, Net ................ .5 .7 .4 .7
------- ------- ------- -------
Income Before Income Taxes .......... 3.2 16.0 12.0 16.1
Income Taxes ........................ 1.2 6.3 4.7 6.4
------- ------- ------- -------
Net Income .......................... 2.0 9.7 7.3 9.7
======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
RESULTS OF OPERATIONS - Net income for the three months ended September 30,
1996 was $0.3 million or $.05 per share, a decrease of $1.3 million compared
to $1.6 million or $.25 per share in the third quarter of 1995. Weighted
average shares outstanding decreased .4% compared to the third quarter of
1995.
Net income in the third quarter of 1996 reflected the results of lower sales
in Europe combined with increased spending on sales and marketing strategies
and Company expansion into specific industry segments and the Asia/Pacific
market.
REVENUES - Revenues were $17.3 million in the third quarter of 1996, an
increase of $0.9 million or 5% from $16.4 million in the third quarter of
1995. Interlink contributed $1.2 million in third quarter 1996 revenue and
$0.8 million in third quarter 1995 revenues. Revenues from traditional TCT(R)
programs were $15.9 million, a 2% increase from the third quarter of 1995.
Domestic TCT(R) program revenue increased 10% to $11.1 million as a result of
a number of large programs which were not present in 1995. International
revenues declined 13% to $4.7 million due to the winding down of several large
programs with two multi-national clients, and the replacement of such large
programs with programs having a high incentive content which typically are
earned several months into the program. In particular, a large European
contract contains provisions which preclude the Company from calculating or
recognizing certain incentive based revenues until the end of each calendar
year. International revenues comprised 27% of total revenues (including
Interlink) for the third quarter of 1996 and were $5.4 million or 33% of total
revenues for the third quarter of 1995.
7
<PAGE> 8
THOMAS GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
COST OF SALES - Cost of Sales (COS) includes all costs associated directly
with the generation of revenue. Such costs include certain personnel and
facilities costs, program-related travel and entertainment, hardware costs,
and incentive compensation expense.
COS was $11.7 million in the third quarter of 1996, a 13% increase compared to
$10.3 million in the third quarter of 1995. As a result of increased levels of
business in the U.S. and additional Interlink personnel and the acquisition of
Bermac, the Company employed an average of 299 direct personnel, which
consists of Resultants(SM) and certain administrative personnel, in the third
quarter of 1996 compared to 224 in the third quarter of 1995. Average European
direct personnel for the third quarter of 1996 was reduced by 11 as compared
to the third quarter of 1995. The company-wide personnel increase resulted in
compensation increases of approximately $1.9 million. This increase was
partially offset by a $0.7 million decrease in incentive compensation expense.
GROSS MARGIN - Gross margin was $5.7 million, representing 32.6% of revenues
in the third quarter of 1996 compared to $6.0 million or 36.9% of revenues in
the third quarter of 1995. Gross margin decreased primarily as a result of the
decline in European revenues coupled with overall direct personnel increases.
Sales in Europe began to decline in late 1995 as several large client
contracts were completed. While the Company has accelerated the implementation
of its enhanced sales process in Europe, due to the long sales cycle those
efforts have not yet succeeded in generating sufficient new business to offset
the decline in European revenue from the completion of prior programs.
Additionally, the Company has a large European program whose contract terms
are such that certain incentives earned, if any, will not be determinable
until year-end. This has further depressed European margins as the salaries of
Resultants assigned to this program are recognized and expensed as paid.
Additionally, personnel and other direct costs were incurred as the Company
develops new business in the Asia/Pacific region and specific industry
sectors.
SELLING, GENERAL, ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses (SG&A) consist of all operating expenses not directly
associated with the generation of revenue. A majority of SG&A expenses are for
corporate personnel (including certain officers), non-program-related travel
and entertainment, corporate facilities costs, and professional and legal
costs.
SG&A was $5.2 million in the third quarter of 1996, a 46% increase compared to
$3.5 million in the third quarter of 1995. This increase is due primarily to
sales and marketing expenses as the Company initiated several sales and
marketing strategies, particularly in Europe, the Asia/Pacific region and
specific industry sectors. The Company added a significant number of
administrative personnel in 1996, including a number of growth-oriented
professionals.
OTHER - The Company's effective tax rate was 38% in the third quarter of 1996
and 39% in the third quarter of 1995, reflecting a change in the mix of
foreign and domestic revenues.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
RESULTS OF OPERATIONS - Net income in the first nine months of 1996 was $4.1
million or $.65 per share, a decrease of $0.6 million compared to $4.7 million
or $.75 per share in the first nine months of 1995. Weighted average shares
outstanding increased 2% compared to the first nine months of 1995. Results of
the first nine months were adversely affected by significantly reduced net
income in the third quarter as the Company increased spending on sales and
marketing initiatives in identified growth opportunities.
8
<PAGE> 9
THOMAS GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
REVENUES - Revenues increased $8.3 million or 17% to $56.5 million in the
first nine months of 1996 from $48.2 million in the first nine months of 1995.
Revenues from traditional TCT(R) programs were $50.7 million, a 7% increase
over $47.4 million for the first nine months of 1995. Domestic TCT(R) program
revenue increased 34% to $35.4 million as a result of several new program
start-ups in the first part of 1996. International revenues were $15.4 million
or 27% of total revenues (including Interlink) for the first nine months of
1996 and $21.1 million or 44% of total revenues for the first nine months of
1995. International revenues declined by 27% as a result of the 1996
replacement of several large programs with two multi-national clients with
programs having high incentive content. Revenue on such incentive based
programs will generally not be realized until several months into the program.
COST OF SALES - COS was $35.9 million in the first nine months of 1996, a 20%
increase compared to $29.9 million in the first nine months of 1995. The
Company hired additional Resultants(SM) as it experienced increased levels of
domestic business. The additional Resultants(SM), the addition of Interlink
personnel and the acquisition of Bermac and annual salary adjustments, caused
the compensation component of COS to increase 26% in the first nine months of
1996 compared to the first nine months of 1995. Additionally, COS in the first
nine months of 1996 includes $1.8 million of Interlink hardware purchases
while the first nine months of 1995 only included two months: $0.4 million.
Such increases were partially offset by a $1.3 million decrease in incentive
compensation expense.
GROSS MARGIN - Gross margin was $20.6 million or 36.4% of revenues in the
first nine months of 1996 compared to $18.3 million or 37.9% of revenues in
the first nine months of 1995. Gross margin as a percent of revenues declined
as the result of several factors. First, the Company has added a significant
number of Resultants(SM) to its workforce in the first nine months of 1996. The
Company hires Resultants(SM) in anticipation of program requirements, in advance
of program starts so they can be extensively trained in the TCT(R)
methodology. This creates an increase in compensation costs, but no
corresponding increase in program revenue until the Resultant(SM) is assigned to
a program. This depresses margins during hiring periods. Over the comparable
period in 1995, Resultant(SM) headcount remained steady. Overall Company margins
were further depressed by the decline in European revenues coupled with the
high cost of European Resultants(SM) and only limited headcount reductions
because of the desire to reassign most trained and experienced Resultants(SM)
rather than undergo fully commensurate workforce reductions. Third, margins on
Interlink's operations are traditionally less than those realized on TCT(R)
programs. Sales from Interlink's operations were included in the Company's
results for only two of the first nine months of 1995.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES - SG&A was $14 million or 24.8%
of revenue in the first nine months of 1996, a 30% increase compared to $10.8
million or 22.5% of revenue in the first nine months of 1995. SG&A costs have
increased primarily due to aggressive spending on sales and marketing
initiatives, the addition of sales and marketing personnel, and the addition
of a Chief Growth Officer in May 1996.
OTHER -The Company's effective tax rate was 39% in the first nine months of
1996 and 40% in the first nine months of 1995, reflecting a change in the mix
of foreign and domestic revenues.
FULL YEAR RESULTS - The Company currently expects full year 1996 earnings to
be 10% to 20% below 1995 results. Revenue growth, although positive, will not
meet historical rates.
9
<PAGE> 10
THOMAS GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $4.3 million in the first nine months
of 1996 compared to an increase of $7.6 million in the first nine months of
1995. Following is a discussion of the changes in the major components:
CASH FLOWS FROM OPERATING ACTIVITIES - Net cash flow from operating activities
was $7.4 million. Depreciation and amortization increased compared to the
first nine months of 1995 due primarily to the acquisition of Interlink in
August 1995 and capital investments to expand the CEO Center. Depreciation and
amortization expense is expected to continue to increase as the Company
continues to depreciate/amortize assets acquired in the July 1996 Bermac
acquisition. Cash flows from operating activities in the first nine months of
1996 were used to fund capital additions during the period. Accounts
receivable balances at September 30, 1996 were $11.9 million, a decrease of
$2.6 million over the $14.5 million balance at December 31, 1995. Days sales
outstanding improved from 79 days at December 31, 1995 to 63 days at September
30, 1996.
CASH FLOWS FROM INVESTING ACTIVITIES - The use of cash for capital additions
and capitalized software development costs comprise most of the Company's
investing activities. Capital expenditures related primarily to the CEO Center
expansion and significant computer hardware upgrades for all Resultants(SM) in
the first half of 1996. In April 1996 the Company made a $1 million payment to
the former owners of Interlink Technologies for completed software
development.
In August 1995 the Company used $1.5 million cash to acquire Interlink
Technologies. In July 1996 the Company used $2.3 million cash to acquire
Bermac Communications.
CASH FLOWS FROM FINANCING ACTIVITIES - Cash flows used in financing activities
in the first nine months of 1996 were for the purchase of the Company's common
stock for $3.1 million, the settlement of 1995 amounts due to affiliates and
certain 1996 advances to affiliates.
The Company has no outstanding long-term indebtedness. The Company has a $6.0
million line of credit agreement with Comerica Bank expiring February 1998.
Loans under this agreement bear interest at the prime rate and are unsecured.
During the first nine months of 1996, the Company did not incur any borrowings
under this line of credit.
Effective August 30, 1996, the Company entered into an agreement in principle
with Comerica Bank regarding a $20 million revolving credit facility intended
to replace the Company's previous $6 million line of credit agreement and
assist in acquisition financing. The new facility will expire in November 2003
and will include a call option in November 2001. Additionally, the terms
provide for a $1 million per quarter reduction in any outstanding balances
after the first two years. Loans under this facility will bear interest at the
prime rate or an applicable Eurodollar or Comerica Fixed Rate Cost of Funds
plus a margin determined by the Company's ratio of Funded Debt to Earnings
Before Income Tax, Depreciation, and Amortization for the prior quarter.
In 1994 the Board of Directors approved a stock repurchase plan for up to
250,000 shares. The Company may purchase stock in the open market in the
future under this program. The Company purchased 226,600 shares in the first
nine months of 1996 for $3.1 million.
10
<PAGE> 11
THOMAS GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
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 operational needs and expansion plans in the
short and long term.
*****
"Safe Harbor" Statement Under The Private Securities Litigation Reform Act:
The discussions in this report on Form 10-Q contain both historical
information and "forward-looking statements" as the term is defined in Section
21E of the Securities Exchange Act of 1934. These forward-looking statements
involve risks and uncertainties that affect the Company's operations,
products, markets, services, prices and other factors. These risks and
uncertainties include, but are not limited to:
- A The competitive nature of the management consulting industry, in
light of new entrants into the industry and the difficulty of
differentiating the services offered to potential clients.
- A The time required by prospective clients to fully understand the
value and the comprehensive nature of a typical TCT(R)program may
result in an extended lead time to close new business.
- A Performance-oriented fees are earned upon the achievement of
improvements in a client's business. The client's commitment to a
Total Cycle Time(R) program, and general economic/industry conditions
could impact a client's business performance and consequently the
Company's ability to forecast the timing and ultimate realization of
performance-oriented fees.
- The ability of the Company to productively re-deploy personnel during
program transition periods.
- The ability of the Company to create alliances and make acquisitions
that are accretive to earnings.
- A The competitive nature of the software solutions industry and the
speed at which technology changes to meet customer needs.
11
<PAGE> 12
THOMAS GROUP, INC.
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE NO.
<S> <C>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Statement Regarding Computation of Earnings Per Share.................. 13
21 - Subsidiaries of Registrant............................................. 16
27 - Financial Data Schedule................................................ 17
</TABLE>
(b) Reports on Form 8-K for the Quarter Ending September 30, 1996:
On July 19, 1996 the Company filed Form 8-K/A No. 2 regarding the August 29,
1995 acquisition of substantially all the assets of Interlink Technologies,
Inc. Included as part of such report were the following financial statements:
- Audited Financial Statements of Interlink Technologies, Inc. as of an for
the Periods Ended August 31, 1994, and 1993.
- Pro Forma Consolidated Balance Sheet (Unaudited) of Thomas Group, Inc. as of
June 30, 1995.
- Pro Forma Consolidated Statements of Operations (Unaudited) of Thomas Group,
Inc. for the Year Ended December 31, 1994 and for the Six Months Ended June
30, 1995.
- Unaudited Statements of Operations of Interlink Technologies, Inc. for the
Ten Months Ended June 30, 1995 and June 30, 1994.
- Unaudited Statements of Cash Flows of Interlink Technologies, Inc. for the
Ten Months Ended June 30, 1995 and June 30, 1994.
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
<TABLE>
<S> <C>
November 13, 1996 /s/ Philip R. Thomas
- ------------------ --------------------
Date Philip R. Thomas
Chairman and Chief Executive Officer
November 13, 1996 /s/ Leland L. Grubb, Jr.
- ------------------ ------------------------
Date Leland L. Grubb, Jr.
Vice President, Chief Financial Officer and Treasurer
(Chief Accounting Officer)
</TABLE>
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11 - Statement Regarding Computation of Earnings Per Share
21 - Subsidiaries of Registrant
27 - Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
PAGE 1 OF 3
THOMAS GROUP, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY EPS
Weighted Average Shares Outstanding .............. 5,938,132 6,051,392 5,965,086 5,985,463
Weighted Average Options Outstanding (Table I) ... 391,573 313,259 398,041 262,114
Weighted Average Warrants Outstanding (Table II).. 9,911 -- 4,918 --
---------- ---------- ---------- ----------
Weighted Average Shares and Share Equivalents
Outstanding .................................. 6,339,616 6,364,651 6,368,045 6,247,576
========== ========== ========== ==========
Net Income ....................................... $ 345,000 $1,590,000 $4,132,000 $4,682,000
========== ========== ========== ==========
Earnings Per Common and Common Equivalent
Share ......................................... $ 0.05 $ 0.25 $ 0.65 $ 0.75
========== ========== ========== ==========
FULLY-DILUTED EPS
Weighted Average Shares Outstanding .............. 5,938,132 6,051,392 5,965,086 5,985,463
Weighted Average Options Outstanding (Table I) ... 391,248 363,991 406,172 397,274
Weighted Average Warrants Outstanding
(Table II) ................................... 9,911 -- 4,918 --
---------- ---------- ---------- ----------
Weighted Average Shares and Share Equivalents
Outstanding .................................. 6,339,291 6,415,383 6,376,176 6,382,737
========== ========== ========== ==========
Net Income ....................................... $ 345,000 $1,590,000 $4,132,000 $4,682,000
========== ========== ========== ==========
Earnings Per Common and Common Equivalent
Share ......................................... $ 0.05 $ 0.25 $ 0.65 $ 0.73
========== ========== ========== ==========
</TABLE>
13
<PAGE> 2
EXHIBIT 11
PAGE 2 OF 3
THOMAS GROUP, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
TABLE I - WEIGHTED AVERAGE OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRIMARY EPS
Weighted Average Options Outstanding .................. 1,215,565 1,213,118 1,261,101 1,284,032
Anti-Dilution Adjustment .............................. -- (2,490) -- (542,747)
------------ ------------ ------------ ------------
Adjusted Shares Outstanding ........................... 1,215,565 1,210,628 1,261,101 741,285
Average Exercise Price ................................ $ 9.537 $ 8.987 $ 9.3545 $ 5.717
------------ ------------ ------------ ------------
Exercise Proceeds ..................................... $ 11,592,984 $ 10,879,626 $ 11,797,008 $ 4,237,655
============ ============ ============ ============
Average FMV Per Share During Period ................... $ 16.0595 $ 13.358 $ 15.5881 $ 10.635
Shares Repurchased (limited to 20% of shares
outstanding) ..................................... (722,240) (814,496) (744,668) (398,474)
Shares Repurchased Assuming Utilization of Tax
Benefit on Exercise of Non-Qualified Options (1).. (102,077) (82,873) (110,261) (80,697)
------------ ------------ ------------ ------------
Total Shares Repurchased .............................. (824,317) (897,369) (854,929) (479,171)
------------ ------------ ------------ ------------
Incremental Shares from Options ....................... 391,248 313,259 406,172 262,114
============ ============ ============ ============
FULLY-DILUTED EPS
Weighted Average Options Outstanding .................. 1,215,565 1,213,118 1,261,101 1,284,032
Anti-Dilution Adjustment .............................. -- (603) -- (353)
------------ ------------ ------------ ------------
Adjusted Shares Outstanding ........................... 1,215,565 1,212,515 1,261,101 1,283,679
Average Exercise Price ................................ $ 9.537 $ 8.995 $ 9.3545 $ 8.639
------------ ------------ ------------ ------------
Exercise Proceeds ..................................... $ 11,592,984 $ 10,906,517 $ 11,797,008 $ 11,089,164
============ ============ ============ ============
FMV Per Share End of Period ........................... $ 16.0595 (2) $ 14.50 $ 16.0595 (2) $ 14.50
Shares Repurchased (limited to 20% of shares
outstanding) ..................................... (721,877) (747,987) (756,796) (767,236)
Shares Repurchased Assuming Utilization of Tax
Benefit on Exercise of Non-Qualified Options (1).. (102,114) (100,537) (106,265) (119,169)
------------ ------------ ------------ ------------
Total Shares Repurchased .............................. (823,991) (848,524) (863,061) (886,405)
------------ ------------ ------------ ------------
Incremental Shares from Options ....................... 391,573 363,991 398,041 397,274
============ ============ ============ ============
</TABLE>
(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.
14
<PAGE> 3
EXHIBIT 11
PAGE 3 OF 3
THOMAS GROUP, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
TABLE II - WEIGHTED AVERAGE WARRANTS OUTSTANDING
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
PRIMARY EPS
Weighted Average Warrants Outstanding.. 175,000 175,000 175,000 175,000
Exercise Price ........................ $ 15.15 $ 15.15 $ 15.15 $ 15.15
---------- -------------- ---------- --------------
Exercise Proceeds ..................... $2,651,250 $ 2,651,250 $2,651,250 $ 2,651,250
========== ============== ========== ==============
Average FMV Per Share During Period ... $ 16.0595 $ 13.358 $ 15.5881 $ 10.635
Shares Repurchased .................... 165,089 -- 170,082 --
---------- -------------- ---------- --------------
Incremental Shares from Warrants ...... 9,911 -- 4,918 --
========== ============== ========== ==============
FULLY-DILUTED EPS
Weighted Average Warrants Outstanding.. 175,000 175,000 175,000 175,000
Exercise Price ........................ $ 15.15 $ 15.15 $ 15.15 $ 15.15
---------- -------------- ---------- --------------
Exercise Proceeds ..................... $2,651,250 $ 2,651,250 $2,651,250 $ 2,651,250
========== ============== ========== ==============
FMV Per Share End of Period ........... $ 15.5881(1) $ 14.50 $ 15.5881(1) $ 14.50
Shares Repurchased .................... 165,089 -- 170,082 --
---------- -------------- ---------- --------------
Incremental Shares from Warrants ...... 9,911 -- 4,918 --
========== ============== ========== ==============
</TABLE>
(1) 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.
15
<PAGE> 1
EXHIBIT 21
PAGE 1 OF 1
THOMAS GROUP, INC.
SUBSIDIARIES OF THE COMPANY
JURISDICTION OF
SUBSIDIARY INCORPORATION
- -------------------------------------------- -------------------------------
Thomas Group GmbH Germany
Thomas Group (Switzerland) GmbH Switzerland
Thomas Group of Louisiana, Inc. Delaware
Thomas Group Acquisition Corp. Delaware
Bermac Communications, Inc. Delaware
Thomas Group Asia Pte. Ltd. Singapore
Thomas Group (UK) Ltd. United Kingdom
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,010
<SECURITIES> 0
<RECEIVABLES> 11,913
<ALLOWANCES> 100
<INVENTORY> 0
<CURRENT-ASSETS> 22,370
<PP&E> 7,870
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,713
<CURRENT-LIABILITIES> 5,540
<BONDS> 0
62
0
<COMMON> 0
<OTHER-SE> 32,668
<TOTAL-LIABILITY-AND-EQUITY> 39,713
<SALES> 0
<TOTAL-REVENUES> 56,478
<CGS> 0
<TOTAL-COSTS> 35,902
<OTHER-EXPENSES> 13,992
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (224)
<INCOME-PRETAX> 6,808
<INCOME-TAX> 2,676
<INCOME-CONTINUING> 4,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,132
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0
</TABLE>
