<PAGE>
--------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
---------------
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
COMMISSION FILE NUMBER 0-22010
------------------------
THOMAS GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 72-0843540
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
5221 NORTH O'CONNOR BOULEVARD
SUITE 500
IRVING, TX 75039-3714
(Address of principal executive offices, including zip code)
(972) 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 August 11, 2000 the following number of shares of the registrant's
stock were outstanding:
<TABLE>
<S> <C>
Common stock................................................ 4,587,105
Class B common stock........................................ 3,970
---------
Total..................................................... 4,591,075
=========
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THOMAS GROUP, INC.
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1--Financial Statements (unaudited)
Consolidated Balance Sheets, June 30, 2000 and
December 31, 1999...................................... 3
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 2000 and 1999................ 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999........................... 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.................... 13
</TABLE>
2
<PAGE>
ITEM I--FINANCIAL STATEMENTS
THOMAS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 6,880 $ 9,698
Trade accounts receivable, net of allowances of $39 and
$546 in 2000 and 1999, respectively..................... 8,738 11,481
Unbilled receivables...................................... 1,623 200
Deferred tax asset........................................ 3,252 3,252
Other assets.............................................. 1,957 1,317
-------- --------
Total Current Assets.................................... 22,450 25,948
-------- --------
Property and equipment, net................................. 2,963 2,430
Deferred tax asset.......................................... 1,401 1,401
Other assets................................................ 3,196 3,086
-------- --------
$ 30,010 $ 32,865
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities.................. $ 3,600 $ 4,679
Income taxes payable...................................... 120 1,014
Advance payments.......................................... -- 74
Current maturities of long-term obligations............... 645 822
-------- --------
Total Current Liabilities............................... 4,365 6,589
Long-term obligations....................................... 3,659 3,422
-------- --------
Total Liabilities....................................... 8,024 10,011
-------- --------
Commitments and Contingencies
Stockholders' Equity
Common stock, $.01 par value; 25,000,000 shares
authorized; 6,651,849 and 6,603,064 shares issued and
4,611,650 and 4,755,065 shares outstanding in 2000 and
1999, respectively...................................... 66 66
Class B common stock, $.01 par value; 1,200,000 shares
authorized; 3,970 shares issued and outstanding in 2000
and 1999, respectively.................................. -- --
Additional paid-in capital................................ 24,283 23,658
Retained earnings......................................... 18,245 17,468
Accumulated other comprehensive loss...................... (1,443) (1,182)
Treasury stock, 2,040,199 and 1,847,999 shares in 2000 and
1999, respectively...................................... (19,165) (17,156)
-------- --------
Total Stockholders' Equity.............................. 21,986 22,854
-------- --------
$ 30,010 $ 32,865
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
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,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue........................................... $ 15,016 $ 15,752 $ 31,291 $ 30,462
Cost of sales..................................... 8,889 8,875 17,795 17,734
--------- --------- --------- ---------
Gross profit...................................... 6,127 6,877 13,496 12,728
Selling, general and administrative............... 6,418 4,640 12,563 9,217
--------- --------- --------- ---------
Operating income (loss)........................... (291) 2,237 933 3,511
Interest income, net.............................. 60 29 113 66
--------- --------- --------- ---------
Income (loss) from continuing operations before
income taxes.................................... (231) 2,266 1,046 3,577
Income taxes (benefit)............................ (93) 905 418 1,429
--------- --------- --------- ---------
Income (loss) from continuing operations.......... (138) 1,361 628 2,148
Discontinued Operations:
Gain from discontinued operations, net of income
tax of $100..................................... 149 -- 149 --
--------- --------- --------- ---------
Net income........................................ $ 11 $ 1,361 $ 777 $ 2,148
========= ========= ========= =========
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations.......... $ (.03) $ .28 $ .13 $ .43
Gain from discontinued operations................. .03 -- .03 --
--------- --------- --------- ---------
Net Income........................................ $ .00 $ .28 $ .16 $ .43
========= ========= ========= =========
Diluted:
Income (loss) from continuing operations.......... $ (.03) $ .28 $ .13 $ .43
Gain from discontinued operations................. .03 -- .03 --
--------- --------- --------- ---------
Net Income........................................ $ .00 $ .28 $ .16 $ .43
========= ========= ========= =========
Weighted average shares:
Basic............................................. 4,663,786 4,895,870 4,713,387 4,950,961
Diluted........................................... 4,663,786 4,938,479 4,817,295 5,008,766
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
THOMAS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 628 $ 2,148
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation.......................................... 781 620
Amortization.......................................... 186 171
Allowance for doubtful accounts....................... (507) --
Deferred taxes........................................ -- 2,877
Amortization of stock option grants................... 146 146
Other................................................. (206) (3)
Change in operating assets and liabilities
(Increase) decrease in trade accounts receivable.... 2,931 1,557
(Increase) decrease in income tax receivable........ -- (1,793)
(Increase) decrease in unbilled receivables......... (1,340) 360
(Increase) decrease in other assets................. (728) 539
Increase (decrease) in accounts payable and accrued
liabilities....................................... (1,835) (571)
Increase (decrease) in advance payments............. 167 (532)
Increase (decrease) in income taxes payable......... (502) (606)
------- -------
Net Cash Provided By (Used In) Operating
Activities...................................... (279) 4,913
Cash Flows From Investing Activities:
Capital expenditures.................................... (1,316) (190)
------- -------
Net Cash Used In Investing Activities............. (1,316) (190)
Cash Flows From Financing Activities:
Purchase of treasury stock.............................. (2,009) (1,423)
Proceeds from exercise of stock options................. 386 112
Other long-term obligations............................. (117) 128
Advances--line of credit................................ 10,244 --
Repayment--line of credit............................... (9,162) --
------- -------
Net Cash Used In Financing Activities............. (658) (1,183)
Effect of Exchange Rate Changes on Cash..................... (814) (306)
------- -------
Net Cash Provided by (Used In) Continuing Operations........ (2,967) 3,234
------- -------
Discontinued Operations:
Net Cash Provided by Operating Activities............... 249 --
------- -------
Net Cash Provided by Discontinued Operations...... 249 --
------- -------
Cash and Cash Equivalents:
Beginning of period..................................... 9,698 6,376
------- -------
End of period........................................... $ 6,880 $ 9,610
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited consolidated financial statements of Thomas Group, Inc.
(the "Company") 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. The unaudited financial statements should be read in conjunction with
the consolidated financial statements and notes thereto in the Company's 1999
Annual Report to Stockholders. The results of operations for the three and six
months periods ended June 30, 2000 are not necessarily indicative of the results
of operations for the entire year ending December 31, 2000.
2. EARNINGS PER SHARE--Basic earnings per share is based on the number of
weighted average shares outstanding. Diluted earnings per share includes the
effect of dilutive securities such as stock options and warrants. The following
table reconciles basic earnings per share to diluted earnings per share under
the provisions of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C>
NUMERATOR:
Net income...................................... $ 11 $1,361 $ 777 $2,148
====== ====== ====== ======
DENOMINATOR:
Weighted Average Shares Outstanding:
Basic........................................... 4,664 4,896 4,713 4,951
Effect of Dilutive Securities:
Common Stock Options............................ -- 42 104 58
------ ------ ------ ------
Diluted......................................... 4,664 4,938 4,817 5,009
====== ====== ====== ======
EARNINGS (LOSS) PER SHARE:
Basic........................................... $ .00 $ .28 $ .16 $ .43
Diluted......................................... $ .00 $ .28 $ .16 $ .43
</TABLE>
3. SIGNIFICANT CLIENTS--The Company recorded revenues from one client of
$4.0 million and $7.7 million or 26.9% and 24.7% of revenue for the three and
six months ended June 30, 2000, respectively. Revenue for the same client
totaled $1.8 million or 11.4% of revenue for the three months ended June 30,
1999.
Revenues from a second client totaled $2.9 million and $7.1 million or 19.7%
and 22.6% of revenue for the three and six months ended June 30, 2000,
respectively. Revenue for the same client totaled $4.7 million and $9.7 million
or 29.8% and 31.8% of revenue for the three and six months ended June 30, 1999,
respectively.
Revenues from a third client totaled $2.3 million and $4.5 million or 15.0%
and 14.4% of revenue for the three and six months ended June 30, 2000,
respectively.
There were no other clients from whom revenue exceeded 10% of total revenue
in the three and six months periods ended June 30, 2000 and 1999, respectively.
6
<PAGE>
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. COMPREHENSIVE INCOME--Comprehensive income includes all changes in
equity (foreign currency translation) except those resulting from investments by
owners and distributions to owners.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C>
Net income................................................ $11 $1,361 $ 777 $2,148
Other comprehensive income (loss)......................... 48 (243) (261) (461)
--- ------ ----- ------
Comprehensive income...................................... $59 $1,118 $ 516 $1,687
=== ====== ===== ======
</TABLE>
5. REVOLVING CREDIT AGREEMENT--The Company maintains a $15 million
revolving credit agreement with Comerica Bank. The agreement is in place to
provide funding for potential future operating cash requirements or business
expansion purposes. Loans under this agreement bear interest at the prime rate
or other similar interest options. At June 30, 2000 the Company had
approximately $1.2 million outstanding on this agreement. The Company utilized
the credit line during the first half of 2000 to meet working capital
requirements when transferring funds between subsidiaries was not efficient.
6. LITIGATION--The Company is subject to various claims and other legal
matters, described below, in the course of conducting its business. The Company
believes that neither such claims and other legal matters nor the cost of
prosecuting and/or defending such claims and other legal matters will have a
material adverse effect on the Company's consolidated results of operations,
financial condition or cash flows.
The Company is party to an arbitration proceeding with the former Chairman
and CEO of the Company, styled Thomas Group, Inc. v. Philip Thomas. On June 6,
2000 the arbitration panel ruled that the former executive had received all
benefits due under a written employment agreement and was due no additional
compensation. The panel also ruled that Mr. Thomas could purchase the Company's
leasehold improvements at the CEO Center in Louisiana. The panel also awarded to
the Company a significant portion of the attorneys' fees incurred by the Company
in the arbitration proceeding.
The Company is party to a legal action styled Philip R. Thomas and Wayne
Heirtzler Thomas v. Thomas Group, Inc., before the U.S. District Court, Middle
District of Louisiana, consolidated with another action styled Thomas Group of
Louisiana, Inc. v. Philip R. Thomas and Wayne Heirtzler Thomas. Mr. and
Mrs. Thomas sought to "enforce leases" and seized, under a writ of
sequestration, movable assets at the Company's CEO Center in Louisiana. The
second suit was filed against Mr. and Mrs. Thomas by a subsidiary of the
Company, seeking to dissolve the writ of sequestration and asserting a claim for
damages. Following a hearing on the motions of the Company and its subsidiary to
dissolve the writ of sequestration, the court lifted the sequestration order.
The Company amended its complaint to seek a declaratory judgment from the
Federal Court that the Company is not in default under any of the leases
relating to the Louisiana property. By virtue of the arbitration panel ruling
(in the paragraph immediately above), the leasehold improvements at the
Company's CEO Center were conveyed to Mr. Thomas on July 2, 2000. Following the
panel's ruling, the parties and Mr. Thomas' counsel have orally indicated to the
Federal Magistrate that the lease-related claims in the Federal Court litigation
will not be pursued, having been effectively mooted. There is a related
proceeding pending in Louisiana State Court entitled Philip R. Thomas and Wayne
Heirtzler Thomas v. Thomas Group, Inc. et al. which involves alleged claims
relating
7
<PAGE>
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
to these same leases. No action has been taken by the Thomases in that
litigation, since the arbitration ruling. The Company maintains its claim for
attorneys' fees in the Federal Court litigation.
The Company was party to an arbitration proceeding with Overhead Door
Corporation ("ODC"), a former client, before the American Arbitration
Association in Dallas, Texas. The Company initiated this proceeding December 18,
1998 to collect unpaid fees in the amount of $1,050,000. ODC had terminated an
engagement with the Company and failed to pay the full amount of the fees under
that engagement, requiring the Company to request arbitration. ODC moved for
summary judgment in the proceeding, and that motion has been granted.
7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Interest paid............................................... $ 39 $ 22
Taxes paid.................................................. $569 $658
</TABLE>
8. RECENT ACCOUNTING STANDARDS--In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements." SAB 101 provides guidance on
applying generally accepted accounting principals to revenue recognition issues
in financial statements. The Company will adopt SAB 101 as required in the
fourth quarter of fiscal 2000. Management is currently evaluating the impact of
adopting SAB 101.
8
<PAGE>
ITEM 2-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company derives the majority of its revenue from monthly fixed and incentive
fees for the implementation of TOTAL CYCLE TIME and other business improvement
programs. Incentive fees are tied to improvements in a variety of client
performance measures typically involving response time, asset utilization and
productivity. Due to the Company's use of incentive fee contracts, variations in
revenue levels may cause fluctuations in quarterly results. Factors such as a
client's commitment to a TOTAL CYCLE TIME program, general economic and industry
conditions, and other issues could affect a client's business performance,
thereby affecting the Company's incentive fee revenue and quarterly earnings.
Quarterly revenue and earnings of the Company may also be impacted by the size
and timing of starts and completions of individual contracts.
The following table sets forth the percentages which items in the statement of
operations bear to revenue:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue.......................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................... 59.2 56.3 56.9 58.2
----- ----- ----- -----
Gross profit..................................... 40.8 43.7 43.1 41.8
Selling, general and administrative.............. 42.7 29.5 40.1 30.3
----- ----- ----- -----
Operating income (loss).......................... (1.9) 14.2 3.0 11.5
Interest income, net............................. 0.4 0.2 0.3 0.2
----- ----- ----- -----
Income (loss) from continuing operations before
income taxes................................... (1.5) 14.4 3.3 11.7
Income taxes (benefit)........................... (0.6) 5.8 1.3 4.7
----- ----- ----- -----
Net income (loss) from continuing operations..... (0.9)% 8.6% 2.0% 7.0%
===== ===== ===== =====
</TABLE>
The following table sets forth the Company's revenue by geographic distribution:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Business Improvement Programs
United States................................... $ 6,916 $ 8,834 $16,011 $19,266
Europe.......................................... 6,561 5,287 12,446 8,153
Asia/Pacific.................................... 1,539 1,631 2,834 3,043
------- ------- ------- -------
Total Revenue................................... $15,016 $15,752 $31,291 $30,462
======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
REVENUE--Revenue decreased $0.7 million or 4.7% in the second quarter of 2000
when compared to the second quarter of 1999. The primary reason for the decrease
was revenue from incentive fee contracts decreased $3.2 million, which was
offset by an increase in fixed fee contracts of $2.5 million. Fixed fee and
incentive fee contracts accounted for 99.3% and 0.7% of revenue, respectively
for the second quarter of 2000 and 78.9% and 21.1% of revenue, respectively for
the second quarter of 1999.
9
<PAGE>
ITEM 2-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Revenue relating to United States region operations decreased 21.7% due to
contract completions exceeding contract start-ups. European region revenues
increased 24.1% due to revenues associated with a major contract, which began
September 1, 1999. Asia/Pacific region revenues decreased 5.6% as revenue from
completed contracts exceeded revenues on new contracts.
GROSS PROFIT--Gross profit was 40.8% of revenue in the second quarter of 2000
compared to 43.7% during the second quarter of 1999. The decrease in gross
profit can be attributed to a $0.7 million decrease in revenue on virtually the
same cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES--Selling, general and
administrative expenses increased to $6.4 million from $4.6 million or 39.1%.
The increase in selling, general and administrative expenses is due primarily to
increased personnel, travel and marketing costs related to the Company's
investments in new product offerings and strategic alliances with new business
relationships.
DISCONTINUED OPERATIONS--Gain from discontinued operations resulted from a
$0.2 million reimbursement of legal fees in connection with prior litigation.
OTHER--The Company's effective tax rate was 40% for both the second quarter of
2000 and 1999.
RESULTS OF OPERATIONS--Net loss from continuing operations in the second quarter
of 2000 was $0.1 million, or $(.03) per diluted share ($(.03) per basic share)
compared to net income of $1.4 million, or $.28 per diluted share ($.28 per
basic share), in the second quarter of 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
REVENUE--Revenue increased 2.7% in the first half of 2000 compared to the first
half of 1999. The increase relates to a 21.0% increase in fixed fee revenue
offset by a 95.9% decrease in incentive fee revenue. Fixed fee and incentive fee
revenue represented 99.3% and 0.6%, respectively, of revenue in the first half
of 2000 and 84.3% and 15.7% of revenue, respectively, in the first half of 1999.
The United States region revenue decreased 16.9% as contract completions
exceeded new contract start-ups. European region revenue increased 52.7% due to
revenues associated with a major contract, which began September 1, 1999.
Asia/Pacific region revenue decreased 6.9% due to a decrease in contracts.
GROSS PROFIT--Gross profit was 43.1% of revenue in the first half of 2000
compared to 41.8% of revenue in the first half of 1999. The improvement in gross
profit is due to a $0.8 million increase in revenue while maintaining relatively
the same level of cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE--Selling, general and administrative
expense increased to $12.6 million from $9.2 million or 36.9%. The increase is
attributable to higher personnel, travel and marketing costs associated with the
Company's investments in new product offerings and strategic alliances. In
addition, the Company recognized, during the first half of 2000, a $0.6 million
bad debt write-off due to an adverse ruling relating to an arbitration
proceeding with Overhead Door Corporation. (See Note 6 to the Consolidated
Financial Statements.)
DISCONTINUED OPERATIONS--Gain from discontinued operations resulted from a
$0.2 million reimbursement of legal fees in connection with prior litigation.
OTHER--The Company's effective tax rate was 40% in the first half of 2000 and
the first half of 1999.
RESULTS OF OPERATIONS--Net income from continuing operations in the first half
of 2000 was $0.6 million, or $.13 per diluted share ($.13 per basic share),
compared to net income of $2.1 million, or $.43 per diluted share ($.43 per
basic share) in the first half of 1999.
10
<PAGE>
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 $2.8 million in the first half of 2000
compared to a $3.2 million increase in the first half of 1999. The major
components of these changes are discussed below:
CASH FLOWS USED IN OPERATING ACTIVITIES--Operating activities used cash of
$0.3 million in the first half of 2000 compared to cash provided by operations
of $4.9 million in the first half of 1999. This decrease is attributable to
decreased levels of accounts payable and other accrued liabilities.
CASH FLOWS USED IN INVESTING ACTIVITIES--Cash flows used in investing activities
totaled $1.3 million in the first half of 2000 and were attributable to computer
software and office and miscellaneous equipment. Capital expenditures for the
comparable period of the prior year were primarily for the purchase of office
and miscellaneous equipment.
CASH FLOWS USED IN FINANCING ACTIVITIES--Cash flows used in financing activities
were $0.7 million compared to $1.2 million when comparing the first half of 2000
to the first half of 1999. The primary reason for the use of cash was the
purchase of treasury stock.
In January and October of 1999, the Company announced two stock repurchase plans
for up to 250,000 and 500,000 shares, respectively. During 1999, the Company
purchased 289,150 shares at an average price of $8.38 per share. Through August
10, 2000, the Company had purchased 208,800 additional shares at an average
price of $10.24 per share.
In August of 2000, the Company announced an additional stock repurchase plan of
up to 750,000 shares.
The Company maintains a $15 million revolving credit agreement with Comerica
Bank. The agreement is in place to provide funding for potential future
operating cash requirements or business expansion purposes. Loans under this
agreement bear interest at the prime rate or other similar interest options. At
June 30, 2000 the Company had approximately $1.2 million outstanding on this
agreement. The Company utilized the credit line during the first half of 2000 to
meet working capital requirements when transferring funds between subsidiaries
was not efficient.
The Company also has a $1 million credit facility for the purchase of computer
equipment. The Company made draws of $0.9 million on this facility during 1997
to purchase computer equipment. Loans under this facility bear interest at
7.25%. At June 30, 2000 the Company had approximately $0.1 million outstanding
on this credit facility.
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.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT:
With the exception of historical information, the matters discussed in this
report are "forward looking statements" as that term is defined in Section 21E
of the Securities Exchange Act of 1934.
11
<PAGE>
ITEM 2-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
While the Company believes that its strategic plan is on target and its business
outlook remains strong, several important factors have been identified, which
could cause actual results to differ materially from those predicted, included
by way of example:
- 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.
- The time required by prospective clients to fully understand the value and
complexity of a typical Total Cycle Time (TCT) program may result in an
extended lead time to close new business.
- Performance-oriented fees are earned upon the achievement of improvements
in a client's business. The client's commitment to a TCT 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.
12
<PAGE>
THOMAS GROUP, INC.
PART II--OTHER INFORMATION
Item 6--Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K for the Quarter Ending June 30, 2000:
None
13
<PAGE>
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.
<TABLE>
<S> <C> <C>
THOMAS GROUP, INC.
------------------
Registrant
Date August 14, 2000 /s/ J. THOMAS WILLIAMS
------------------------------- --------------------------------------------------
J. Thomas Williams
President and Chief Executive Officer
Date August 14, 2000 /s/ LELAND L. GRUBB, JR.
------------------------------- --------------------------------------------------
Leland L. Grubb, Jr.
Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
</TABLE>
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