<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22010
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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 July 31, 1997, the following number of shares of the
registrant's stock were outstanding:
<TABLE>
<S> <C>
Common Stock 5,897,039
Class B Common Stock 178,094
----------
Total 6,075,133
==========
</TABLE>
1
<PAGE> 2
THOMAS GROUP, INC.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
Item 1 - Financial Statements
<S> <C> <C>
Consolidated Balance Sheets, June 30, 1997 and December 31, 1996................................ 3
Consolidated Statements of Operations for the Three Months and Six Months Ended
June 30, 1997 and 1996...................................................................... 4
Consolidated Statements of Cash Flows for the Six Months Ended June 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........... 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K................................................................ 13
</TABLE>
2
<PAGE> 3
THOMAS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
Current Assets
Cash and cash equivalents ...................................................... $ 2,470 $ 5,711
Trade accounts receivable, net of allowances of $306 .......................... 14,418 8,904
Unbilled receivables ........................................................... 2,628 1,363
Accounts and notes receivable - affiliates ..................................... 2,213 1,500
Other .......................................................................... 2,676 3,944
---------- ----------
Total Current Assets ....................................................... 24,405 21,422
Net Property and Equipment .......................................................... 7,959 7,641
Capitalized Software Development Costs .............................................. 3,145 3,069
Other Assets ........................................................................ 7,362 6,758
---------- ----------
$ 42,871 $ 38,890
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities ....................................... $ 4,410 $ 3,901
Income taxes payable ........................................................... 1,604 1,420
Advance payments ............................................................... 347 396
Short-term borrowings .......................................................... 800 --
---------- ----------
Total Current Liabilities .................................................. 7,161 5,717
Long-Term Obligations ............................................................... 1,830 1,661
---------- ----------
Total Liabilities .......................................................... 8,991 7,378
---------- ----------
Commitments and Contingencies
Stockholders' Equity
Common Stock, $.01 par value; 12,500,000 shares authorized; 6,211,758 and
6,179,117 shares issued ...................................................... 62 62
Class B Common Stock, $.01 par value; 1,200,000 shares
authorized; 184,947 and 185,189 shares issued and outstanding ............... 2 2
Additional paid-in capital ..................................................... 20,859 20,143
Retained earnings .............................................................. 17,779 15,570
Cumulative translation adjustment .............................................. (403) (32)
Treasury stock, 312,391 and 295,991 shares of Common, at cost .................. (4,419) (4,233)
---------- ----------
Total Stockholders' Equity ................................................. 33,880 31,512
---------- ----------
$ 42,871 $ 38,890
========== ==========
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues ......................................... $ 20,662 $ 19,895 $ 37,511 $ 39,151
Cost of Sales .............................. 12,590 11,405 23,484 23,905
---------- ---------- ---------- ----------
Gross Margin ..................................... 8,072 8,490 14,027 15,246
Selling, General and Administrative ........ 5,471 4,987 10,414 9,129
---------- ---------- ---------- ----------
Operating Income ................................. 2,601 3,503 3,613 6,117
Interest Income, Net ............................. 60 58 68 134
---------- ---------- ---------- ----------
Income Before Income Taxes ....................... 2,661 3,561 3,681 6,251
Income Taxes ..................................... 1,064 1,389 1,472 2,464
---------- ---------- ---------- ----------
Net Income ....................................... $ 1,597 $ 2,172 $ 2,209 $ 3,787
========== ========== ========== ==========
Earnings Per Common and Common
Equivalent Share ............................. $ 0.25 $ 0.34 $ 0.35 $ 0.59
Weighted Average Shares and Share
Equivalents Outstanding ...................... 6,303,113 6,396,358 6,276,517 6,381,276
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
THOMAS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities
Net income ................................................................................. $ 2,209 $ 3,787
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization ................................................... 1,776 1,526
Allowance for doubtful accounts ................................................. -- (95)
Provision for expatriate costs .................................................. 100 (60)
Other ........................................................................... (29) 126
Collection of income tax refund ................................................. 1,800 --
Deferred taxes .................................................................. (404) --
Change in operating assets and liabilities
Trade accounts receivable .................................................... (5,776) (2,078)
Unbilled receivables ......................................................... (1,265) 599
Other assets ................................................................. (360) (1,406)
Accounts payable and accrued liabilities ..................................... 607 (193)
Advance payments ............................................................. (49) (150)
Income taxes payable ......................................................... 332 558
---------- ----------
Net Cash Provided By (Used In) Operating Activities ......................... (1,059) 2,614
---------- ----------
Cash Flows Used In Investing Activities
Decrease in short-term receivables ......................................................... -- 598
Capital expenditures ....................................................................... (1,430) (1,844)
Capitalization of software development cost ................................................ (616) (1,171)
Acquisition of intangibles ................................................................. (51) (250)
---------- ----------
Net Cash Used In Investing Activities ....................................... (2,097) (2,667)
---------- ----------
Cash Flows From Financing Activities
Purchase of treasury stock ................................................................. (186) (2,275)
Net proceeds from exercise of stock options ................................................ 154 124
Net advances/(repayments) - line of credit ................................................. 800 --
Repayment of other long-term obligations ................................................... 11 (38)
Net advances to affiliates ................................................................. (713) (765)
Repayment of obligations to affiliates ..................................................... -- (1,027)
---------- ----------
Net Cash Provided By (Used In) Financing Activities ........................ 66 (3,981)
---------- ----------
Effect of Exchange Rate Changes on Cash .................................................... (151) (202)
---------- ----------
Net Increase (Decrease) In Cash and Cash Equivalents .......................................... (3,241) (4,236)
Cash and Cash Equivalents
Beginning of period ................................................................. 5,711 11,273
---------- ----------
End of period ....................................................................... $ 2,470 $ 7,037
========== ==========
</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 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 six month periods
ended June 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 - The company earned in excess of 10% of its total
revenues from two clients in the six months ended June 30, 1997 and from two
clients in the six months ended June 30, 1996. Revenues from the two
significant clients in the six months ended June 30, 1997 totaled $8.1 million
or 21% of revenues. Revenues from the two significant clients in the six months
ended June 30, 1996 totaled $9.0 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 six months of 1997 would not have had a material
effect on the reported earnings per share.
Reclassifications - Certain income statement amounts have been
reclassified from the previously reported financial statements in order to
conform with the current presentation.
5. Related Party Transactions
A summary of receivables from affiliates follows:
<TABLE>
<CAPTION>
------------------------------------
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
Philip R. Thomas - incentive compensation advances $ 2,113 $ 1,500
Other affiliates - long term 200 200
Celerity Partners 100 --
</TABLE>
6
<PAGE> 7
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Effective January 1, 1997, the company modified its agreement with Celerity
Partners, a limited partnership (the "Partnership") in which Mr. Thomas and Mr.
Gerald K. Beckmann (company director and former company director, respectively)
have ownership interests in the general partner. The company has terminated the
employee status of the two individuals who, in addition to previously working
for the company, also provided certain services to the Partnership. The company
now makes quarterly advances to the Partnership which are earned as the
Partnership brings qualified client prospects through the company's sales
process.
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 six months of 1997 to meet working
capital requirements. The average daily balance outstanding under the credit
line was $.3 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:
<TABLE>
<CAPTION>
BUSINESS
IMPROVEMENT
SERVICES SOFTWARE SOLUTIONS CORPORATE TOTAL
---------------------------------------------------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED:
JUNE 30, 1997
Sales to unafffiliated clients $ 18,564 $ 2,098 $ 20,662
Operating income (loss) $ 7,103 $ (861) $ (3,641) $ 2,601
JUNE 30, 1996
Sales to unaffiliated clients $ 18,211 $ 1,684 $ 19,895
Operating income (loss) $ 7,209 $ (352) $ (3,354) $ 3,503
SIX MONTHS ENDED:
JUNE 30, 1997
Sales to unaffiliated clients $ 34,012 $ 3,499 $ 37,511
Operating income (loss) $ 11,896 $ (1,993) $ (6,290) $ 3,613
JUNE 30, 1996
Sales to unaffiliated clients $ 34,900 $ 4,251 $ 39,151
Operating income (loss) $ 12,623 $ (154) $ (6,352) $ 6,117
</TABLE>
8. Software Development Costs - Due to declining sales at the company's
software subsidiaries in the first quarter of 1997, in April 1997 the company
began an evaluation of alternatives for one of the subsidiary's 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 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.
7
<PAGE> 8
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Interest paid $ 72 $ 15
Income taxes paid 1,580 1,227
</TABLE>
8
<PAGE> 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues ........................................ 100.0 100.0 100.0 100.0
Cost of Sales .............................. 60.9 57.3 62.6 61.1
-------- -------- -------- --------
Gross Margin ..................................... 39.1 42.7 37.4 38.9
Selling, General and Administrative ....... 26.5 25.1 27.8 23.3
-------- -------- -------- --------
Operating Income ................................ 12.6 17.6 9.6 15.6
Interest Income, Net ............................ .3 .3 .2 .4
-------- -------- -------- --------
Income Before Income Taxes ...................... 12.9 17.9 9.8 16.0
Income Taxes .................................... 5.2 7.0 3.9 6.3
-------- -------- -------- --------
Net Income ...................................... 7.7 10.9 5.9 9.7
======== ======== ======== ========
</TABLE>
The following table sets forth the company's revenues by geographic and
industry segment:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Business Improvement Programs
United States $ 14,005 $ 13,248 $ 25,678 $ 24,235
Europe 3,419 4,524 6,648 10,080
Asia/Pacific 1,140 439 1,686 585
-------- -------- -------- --------
Total Business Improvement Programs 18,564 18,211 34,012 34,900
Software Solutions 2,098 1,684 3,499 4,251
-------- -------- -------- --------
Total Revenue $ 20,662 $ 19,895 $ 37,511 $ 39,151
======== ======== ======== ========
</TABLE>
9
<PAGE> 10
THOMAS GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
REVENUE - Revenue increased 4% in the second quarter of 1997 over the second
quarter of 1996. Business Improvement Program revenue increased 2% over the
second quarter of 1996. This increase consisted of a $2.7 million (23%)
increase in fixed fee revenue offset by a $2.4 million (37%) decline in
incentive revenue. Fixed fee and incentive revenues represent 78% and 22%,
respectively, of Business Improvement Program revenue in the second quarter of
1997 and 65% and 32%, respectively, of Business Improvement Program revenue in
the second quarter of 1996.
The United States component of Business Improvement Program revenue increased
6% as a result of 1996 investments in business development. European Business
Improvement Program revenue declined 24% due to the strengthening of the U.S.
dollar against the Swiss Franc and German Mark. Asia/Pacific revenue increased
160% 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 increased 24% in the second quarter of 1997
over the second quarter of 1996 primarily as a result of increased hardware
content in the second quarter of 1997.
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 $12.6 million in the second quarter of 1997, an 11% increase,
compared to $11.4 million in the second quarter of 1996. This increase is
attributable to a $0.5 million increase in the Business Improvement Programs
segment and a $0.7 million increase in Software Solutions, comprised primarily
of hardware purchases.
GROSS MARGIN - Total company gross margin was 39.1% in the second quarter of
1997 compared to 42.7% in the second quarter of 1996. Business Improvement
Program gross margin was 44% in the second quarter of 1997 versus 46% in the
second quarter of 1996. This decline was primarily the result of lower
incentive revenue as a percentage of total revenue in the second quarter of
1997 compared to the second quarter of 1996.
Software Solutions gross margin was a negative 5% in the first quarter of 1997
and a positive 9% in the second quarter of 1996. This decrease is due primarily
to a higher content of lower margin hardware sales combined with fewer higher
margin license fee 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 to 27% in the second quarter of 1997 from 25% in the second quarter
of 1996: a $0.5 million quarter to quarter increase. This increase was
primarily the result of $0.3 million spending related to upgrading information
systems infrastructure and $0.2 million in legal and other professional
services.
10
<PAGE> 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 40% in the second quarter of 1997
and 39% in the second quarter of 1996.
RESULTS OF OPERATIONS - Net income in the second quarter of 1997 was $1.6
million, or $0.25 per share, a decrease of $0.6 million compared to $2.2
million, or $.34 per share, in the second quarter of 1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUE - Revenue in the first half of 1997 was 4% lower than revenue in the
first half of 1996. Revenue from Business Improvement Programs declined 2% from
the first six months of 1996. This decrease consisted of a $2.3 million (10%)
increase in fixed fee revenue offset by a $3.2 million (29%) decline in
incentive revenue. Fixed fee and incentive revenues represent 77% and 23%,
respectively, of Business Improvement Program revenue in the first half of
1997, and 68% and 35% of Business Improvement Program revenue in the first half
of 1996.
United States' Business Improvement Program revenue increased 6% as a result of
1996 investments in business development. European Business Improvement Program
revenue declined 34% due to fewer active programs and the strengthening of the
U.S. dollar against the Swiss Franc and German Mark. Asia/Pacific revenue
increased 188% in the first half of 1997 compared to the first half of 1996 as
the number and size of active programs increased.
Software Solutions revenue decreased 18% in the first six months of 1997
compared to the first six months of 1996 primarily as a result of lower
software license revenue.
COST OF SALES - Cost of sales was $23.5 million in the first six months of 1997
compared to $23.9 million in the first six months of 1996. This decrease is
attributable to improved cost control in the Business Improvement Program
segment which resulted in decreases of $0.8 million. This decrease was
partially offset by the Software Solutions segment increases of $0.4 million,
comprised primarily of hardware purchases.
GROSS MARGIN - Total company gross margin was 37.4% in the first half of 1997
compared to 38.9% in the first half of 1996. Business Improvement Program gross
margin was 42% in the first half of 1997 versus 41% in the first half of 1996.
This improvement was primarily the result of improved cost control measures.
Software Solutions gross margin was a negative 10% for the first half of 1997
and a positive 7% in the first half 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 six months of 1997 from 23% in the first six months of 1996. Selling,
general and administrative was $10.4 million in the first six months of 1997, a
14% increase, compared to $9.1 million in the first half of 1996. This $1.3
million increase was primarily the result of a $0.7 million increase in
business development expenses and a $0.5 million increase in information
systems spending.
11
<PAGE> 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 six months of 1997
and 39% in the first six months of 1996.
RESULTS OF OPERATIONS - Net income in the first half of 1997 was $2.2 million
or $.35 per share, a decrease of $1.6 million compared to $3.8 million or $.59
per share in the first half of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $3.2 million in the first six months of
1997 compared to a decrease of $4.2 million in the first six months of 1996. A
discussion of the components of these changes follows:
CASH FLOWS FROM OPERATING ACTIVITIES - Net cash flow used in operating
activities was $1.1 million. Significant items positively affecting operating
activities cash flow include: net income of $2.2 million; depreciation and
amortization of $1.8 million; collection of an income tax refund of $1.8
million; and increases in accounts payable of $0.6 million. The principal item
negatively affecting cash flow is a $5.8 million increase in trade accounts
receivable and the $1.3 million increase in unbilled receivables. The primary
elements of the increase in trade accounts receivable are: a) an increase in
days sales outstanding from 50 days at December 31, 1996 to 55 days at June 30,
1997 resulted in an absolute increase of $0.8 million; and b) a $4.9 million
increase in trade accounts receivable due to increased quarterly revenues in
the second quarter of 1997 over the fourth quarter of 1996.
CASH FLOWS FROM INVESTING ACTIVITIES - Capital expenditures of $1.4 million in
1997 have related primarily to computer hardware and network upgrades and
office infrastructure enhancements, while those in the first half of 1996
related primarily to CEO Center expansion. Capitalized software development
costs in 1997 of $0.6 million includes $0.3 million in purchased software and
$0.3 million in capitalized internal development costs. Capitalized software
development costs in the first half 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
were insignificant in the first six months of 1997. In the first six months of
1996, the company spent $2.3 million to purchase 165,700 treasury shares at an
average price per share of $13.88. 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, 165,700 shares at an average price per share of $13.88
in the first half of 1996 and 60,900 shares at an average price per share of
$15.50. 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 June 30, 1997 is $14.15.
12
<PAGE> 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.
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. As of June 30, 1997, the
company had borrowed $0.8 million under this facility. These borrowings were
repaid on July 8, 1997.
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
<PAGE> 14
THOMAS GROUP, INC.
PART II - OTHER INFORMATION
<TABLE>
<S> <C> <C>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Statement Regarding Computation of Earnings Per Share
22 - Published Report Regarding Matters Submitted to Vote of Security Holders
27 - Financial Data Schedule
(b) Reports on Form 8-K for the Quarter Ending June 30, 1997 - None.
</TABLE>
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
August 18, 1997 /s/ Philip R. Thomas
--------------- --------------------
Date Philip R. Thomas
Chairman and Chief Executive Officer
August 18, 1997 /s/ Leland L. Grubb
--------------- -------------------
Date Leland L. Grubb
Vice President, Chief Financial Officer
and Treasurer
(Chief Accounting Officer)
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
11 Statement Regarding Computation of Earnings Per Share
22 Published Report Regarding Matters Submitted to Vote of
Security Holders
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY EPS
Weighted Average Shares Outstanding ................... 6,080,673 5,931,101 6,080,748 5,983,124
Weighted Average Options Outstanding (Table I) ........ 222,440 448,682 195,769 397,256
Weighted Average Warrants Outstanding (Table II) ...... -- 16,575 -- 896
---------- ---------- ---------- ----------
Weighted Average Shares and Share Equivalents
Outstanding ....................................... 6,303,113 6,396,358 6,276,517 6,381,276
========== ========== ========== ==========
Net Income ............................................ $1,597,000 $2,172,000 $2,209,000 $3,787,000
========== ========== ========== ==========
Earnings Per Common and Common Equivalent Share ....... $ 0.25 $ 0.34 $ 0.35 $ 0.59
========== ========== ========== ==========
FULLY-DILUTED EPS
Weighted Average Shares Outstanding ................... 6,080,673 5,931,101 6,080,748 5,983,124
Weighted Average Options Outstanding (Table I) ........ 225,750 499,014 213,792 499,689
Weighted Average Warrants Outstanding (Table II) ...... -- 30,226 -- 30,226
---------- ---------- ---------- ----------
Weighted Average Shares and Share Equivalents
Outstanding ....................................... 6,308,551 6,460,341 6,296,668 6,513,039
========== ========== ========== ==========
Net Income ............................................ $1,597,000 $2,172,000 $2,209,000 $3,787,000
========== ========== ========== ==========
Earnings Per Common and Common Equivalent Share ....... $ 0.25 $ 0.34 $ 0.35 $ 0.58
========== ========== ========== ==========
</TABLE>
<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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
PRIMARY EPS
Weighted Average Options Outstanding ............................ 1,438,575 1,296,405 1,411,918 1,283,951
Anti-Dilution Adjustment ........................................ -- -- -- (56,078)
------------ ------------ ------------ ------------
Adjusted Shares Outstanding ..................................... 1,438,575 1,296,405 1,411,918 1,227,873
Average Exercise Price .......................................... $ 9.580 $ 9.370 $ 9.642 $ 8.981
------------ ------------ ------------ ------------
Exercise Proceeds ............................................... $ 13,783,144 $ 12,151,936 $ 13,613,502 $ 11,027,004
============ ============ ============ ============
Average FMV Per Share During Period ............................. $ 9.512 $ 16.735 $ 9.332 $ 15.228
Shares Repurchased (limited to 20% of shares
outstanding) ................................................ (1,216,135) (726,122) (1,216,149) (742,132)
Shares Repurchased Assuming Utilization of Tax Benefit
on Exercise of Non-Qualified Options (1) .................... -- (121,601) -- (106,486)
------------ ------------ ------------ ------------
Total Shares Repurchased ........................................ (1,216,135) (847,723) (1,216,149) (830,618)
------------ ------------ ------------ ------------
Incremental Shares from Options ................................. 222,440 448,682 195,769 397,256
============ ============ ============ ============
FULLY-DILUTED EPS
Weighted Average Options Outstanding ............................ 1,438,575 1,296,405 1,411,918 1,283,951
Anti-Dilution Adjustment ........................................ -- -- -- (348)
------------ ------------ ------------ ------------
Adjusted Shares Outstanding ..................................... 1,438,575 1,296,405 1,411,918 1,283,604
Average Exercise Price .......................................... $ 9.580 $ 9.370 $ 9.642 $ 9.268
------------ ------------ ------------ ------------
Exercise Proceeds ............................................... $ 13,783,144 $ 12,151,936 $ 13,613,502 $ 11,892,209
============ ============ ============ ============
FMV Per Share End of Period ..................................... $ 11.750 $ 18.313 $ 11.750 $ 18.313
Shares Repurchased (limited to 20% of shares
outstanding) ............................................... (1,173,021) (660,956) (1,159,490) (646,798)
Shares Repurchased Assuming Utilization of Tax Benefit
on Exercise of Non-Qualified Options (1) .................... (39,804) (136,435) (38,636) (137,117)
------------ ------------ ------------ ------------
Total Shares Repurchased ........................................ (1,212,825) (797,391) (1,198,126) (783,915)
------------ ------------ ------------ ------------
Incremental Shares from Options ................................. 225,750 499,014 213,792 499,689
============ ============ ============ ============
</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.
<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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
PRIMARY EPS
Weighted Average Warrants Outstanding ....... 225,000 175,000 200,000 175,000
Exercise Price .............................. $ 14.28 $ 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 ......... $ 9.512 $ 16.735 $ 9.332 $ 15.228
Shares Repurchased .......................... -- 158,425 -- 174,104
-------------- -------------- -------------- --------------
Incremental Shares from Warrants ............ -- 16,575 -- 896
============== ============== ============== ==============
FULLY-DILUTED EPS
Weighted Average Warrants Outstanding ....... 225,000 175,000 200,000 175,000
Exercise Price .............................. $ 14.28 $ 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 ................. $ 11.750 $ 18.313 $ 11.750 $ 18.313
Shares Repurchased .......................... -- 144,774 -- 144,774
-------------- -------------- -------------- --------------
Incremental Shares from Warrants ............ -- 30,226 -- 30,226
============== ============== ============== ==============
</TABLE>
<PAGE> 1
[LETTERHEAD FOR HARRIS BANK]
May 16, 1997
Roger Crabb
Secretary and Legal Counsel
Thomas Group, Inc.
5215 N. O'Connor, Suite 2500
Irving, TX 75031
Gentlemen:
The undersigned Harris Trust and Savings Bank acting as independent agent for
the purpose of tabulating the votes in connection with the Annual Meeting of
Stockholders of Thomas Group, Inc. held on May 15, 1997, hereby reports that in
accordance with the canvass made, there were 5,392,121 shares received
represented by valid proxies and no shares voted in person, making a total of
5,392,121 shares received constituting 88.37% of the 6,101,914 shares
outstanding on the record date and entitled to vote.
With regard to the proposals offered for consideration, the following voted
were cast:
PROPOSAL I
(ELECTION OF DIRECTORS)
<TABLE>
<CAPTION>
Nominee For % Withheld %
- ------- --- - -------- -
<S> <C> <C> <C> <C>
Phillip Thomas 5,219,721 96.80 172,400 3.20
J. Fred Bucy 5,219,721 96.80 172,400 3.20
Hollis L. Caswell 5,219,021 96.79 173,100 3.21
Donald J. Almquist 5,219,721 96.80 172,400 3.20
John T. Chain 5,219,021 96.79 173,100 3.21
James E. Dykes 5,219,021 96.79 173,100 3.21
Alex W. Young 5,219,721 96.80 172,400 3.20
Gerald K. Beckman 5,218,297 96.78 173,824 3.22
</TABLE>
<PAGE> 2
Page 2
Proposal II
(Proposal to amend the amended and restated 1988 Stock Option Plan)
For %
- --- -
3,665,379 67.98
Against %
- ------- -
782,739 14.52
Abstain %
- ------- -
5,550 .10
Broker Non-Vote %
- --------------- -
938,453 17.40
Proposal III
(Proposal to adopt the 1997 Stock Option Plan)
For %
- --- -
4,199,402 77.88
Against %
- ------- -
376,904 6.99
Abstain %
- ------- -
5,550 .10
Broker Non-Vote %
- --------------- -
810,265 15.03
Respectively submitted,
/s/ CINDY BENNETT
Cindy Bennett
Trust Officer
Harris Trust and Savings Bank
CB/tmy
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,470
<SECURITIES> 0
<RECEIVABLES> 14,724
<ALLOWANCES> 306
<INVENTORY> 0
<CURRENT-ASSETS> 24,405
<PP&E> 7,959
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,871
<CURRENT-LIABILITIES> 7,161
<BONDS> 0
0
0
<COMMON> 62
<OTHER-SE> 33,818
<TOTAL-LIABILITY-AND-EQUITY> 42,871
<SALES> 37,511
<TOTAL-REVENUES> 0
<CGS> 23,484
<TOTAL-COSTS> 33,898
<OTHER-EXPENSES> (68)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (68)
<INCOME-PRETAX> 3,681
<INCOME-TAX> 1,472
<INCOME-CONTINUING> 2,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,209
<EPS-PRIMARY> $.35
<EPS-DILUTED> 0.00
</TABLE>
