<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 SEPTEMBER 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 November 9, 2000 the following number of shares of the registrant's
stock were outstanding:
<TABLE>
<S> <C>
Common stock................................................ 4,476,491
Class B common stock........................................ 3,970
---------
Total..................................................... 4,480,461
=========
</TABLE>
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--------------------------------------------------------------------------------
<PAGE>
THOMAS GROUP, INC.
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1--Financial Statements (unaudited)
Consolidated Balance Sheets, September 30, 2000 and
December 31, 1999...................................... 3
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 2000 and 1999.......... 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 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>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $ 6,087 $ 9,698
Trade accounts receivable, net of allowances of $14 and
$546 in 2000 and 1999, respectively..................... 10,578 11,481
Unbilled receivables...................................... 766 200
Deferred tax asset........................................ 3,252 3,252
Other assets.............................................. 2,900 1,317
-------- --------
Total Current Assets.................................... 23,583 25,948
-------- --------
Property and equipment, net................................. 2,876 2,430
Deferred tax asset.......................................... 1,401 1,401
Other assets................................................ 3,233 3,086
-------- --------
$ 31,093 $ 32,865
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities.................. $ 3,479 $ 4,679
Income taxes payable...................................... 1,042 1,014
Advance payments.......................................... -- 74
Current maturities of long-term obligations............... 585 822
-------- --------
Total Current Liabilities............................... 5,106 6,589
Long-term obligations....................................... 3,723 3,422
-------- --------
Total Liabilities....................................... 8,829 10,011
-------- --------
Commitments and Contingencies
Stockholders' Equity
Common stock, $.01 par value; 25,000,000 shares
authorized; 6,655,362 and 6,603,064 shares issued and
4,520,563 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................................ 24,389 23,658
Retained earnings......................................... 19,521 17,468
Accumulated other comprehensive loss...................... (1,826) (1,182)
Treasury stock, 2,134,799 and 1,847,999 shares in 2000 and
1999, respectively...................................... (19,886) (17,156)
-------- --------
Total Stockholders' Equity.............................. 22,264 22,854
-------- --------
$ 31,093 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue........................................... $ 17,601 $ 14,774 $ 48,892 $ 45,236
Cost of sales..................................... 9,247 7,971 27,042 25,705
--------- --------- --------- ---------
Gross profit...................................... 8,354 6,803 21,850 19,531
Selling, general and administrative............... 6,268 4,600 18,831 13,817
--------- --------- --------- ---------
Operating income.................................. 2,086 2,203 3,019 5,714
Interest income, net.............................. 41 73 154 139
--------- --------- --------- ---------
Income from continuing operations before income
taxes........................................... 2,127 2,276 3,173 5,853
Income taxes...................................... 851 831 1,269 2,260
--------- --------- --------- ---------
Income from continuing operations................. 1,276 1,445 1,904 3,593
Discontinued Operations:
Gain from discontinued operations, net of income
tax of $100..................................... -- -- 149 --
Loss on disposal, net of income tax benefit of
$1,428 in 1999.................................. -- (2,015) -- (2,015)
--------- --------- --------- ---------
Net income (loss)................................. $ 1,276 $ (570) $ 2,053 $ 1,578
========= ========= ========= =========
Earnings (loss) per common share:
Basic:
Income from continuing operations................. $ .28 $ .30 $ .41 $ .73
Gain (loss) from discontinued operations.......... -- (.42) .03 (.41)
--------- --------- --------- ---------
Net Income (loss)................................. $ .28 $ (.12) $ .44 $ .32
========= ========= ========= =========
Diluted:
Income from continuing operations................. $ .28 $ .29 $ .40 $ .73
Gain (loss) from discontinued operations.......... -- (.41) .03 (.41)
--------- --------- --------- ---------
Net Income (loss)................................. $ .28 $ (.12) $ .43 $ .32
========= ========= ========= =========
Weighted average shares:
Basic............................................. 4,581,680 4,829,770 4,669,166 4,892,438
Diluted........................................... 4,587,611 4,899,419 4,727,785 4,952,982
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
THOMAS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income from continuing operations....................... $ 1,904 $ 3,593
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 997 920
Amortization.............................................. 251 267
Allowance for doubtful accounts........................... (532) --
Deferred taxes............................................ -- 860
Amortization of stock option grants....................... 218 218
Other..................................................... (620) (3)
Change in operating assets and liabilities:
(Increase) decrease in trade accounts receivable........ 1,273 (85)
(Increase) decrease in income tax receivable............ -- (539)
(Increase) decrease in unbilled receivables............. (554) 668
(Increase) decrease in other assets..................... (1,844) 816
Increase (decrease) in accounts payable and accrued
liabilities........................................... (2,475) (1,009)
Increase (decrease) in advance payments................. (48) (532)
Increase (decrease) in income taxes payable............. (88) 609
------- -------
Net Cash Provided by (Used In) Operating Activities......... (1,518) 5,783
Cash Flows From Investing Activities:
Capital expenditures........................................ (1,392) (362)
------- -------
Net Cash Used In Investing Activities....................... (1,392) (362)
Cash Flows From Financing Activities:
Purchase of treasury stock.................................. (2,730) (1,768)
Proceeds from exercise of stock options..................... 388 315
Payment of other long-term obligations...................... (187) (58)
Net Advances--line of credit................................ 1,311 --
------- -------
Net Cash Used In Financing Activities....................... (1,218) (1,511)
Effect of Exchange Rate Changes on Cash..................... 268 (145)
------- -------
Net Cash Provided by (Used In) Continuing Operations........ (3,860) 3,765
------- -------
Discontinued Operations:
Net Cash Provided by Operating Activities................... 249 --
------- -------
Net increase (decrease) in cash and cash equivalents........ (3,611) 3,765
Cash and Cash Equivalents:
Beginning of period......................................... 9,698 6,376
------- -------
End of period............................................... $ 6,087 $10,141
======= =======
</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
nine months periods ended September 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 NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C>
NUMERATOR:
Net income................................................ $1,276 $ (570) $2,053 $1,578
====== ====== ====== ======
DENOMINATOR:
Weighted Average Shares Outstanding:
Basic................................................... 4,582 4,830 4,669 4,892
Effect of Dilutive Securities:
Common Stock Options.................................... 6 69 59 61
------ ------ ------ ------
Diluted................................................. 4,588 4,899 4,728 4,953
====== ====== ====== ======
EARNINGS (LOSS) PER SHARE:
Basic..................................................... $ .28 $ (.12) $ .44 $ .32
Diluted................................................... $ .28 $ (.12) $ .43 $ .32
</TABLE>
3. SIGNIFICANT CLIENTS--The Company recorded revenues from one client of
$4.7 million and $12.4 million or 26.8% and 25.5% of revenue for the three and
nine months ended September 30, 2000, respectively. Revenue for the same client
totaled $2.6 million and $5.4 million or 17.7% and 11.9% of revenue for the
three and nine months ended September 30, 1999.
Revenues from a second client totaled $2.8 million and $9.8 million or 15.7%
and 20.1% of revenue for the three and nine months ended September 30, 2000,
respectively. Revenue for the same client totaled $4.7 million and
$14.4 million or 31.9% and 31.9% of revenue for the three and nine months ended
September 30, 1999, respectively.
Revenues from a third client totaled $2.5 million and $7.0 million or 14.2%
and 14.3% of revenue for the three and nine months ended September 30, 2000,
respectively.
There were no other clients from whom revenue exceeded 10% of total revenue
in the three and nine months periods ended September 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 NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
IN THOUSANDS OF DOLLARS
<S> <C> <C> <C> <C>
Net income (loss).................................... $1,276 $(570) $2,053 $1,578
Other comprehensive income (loss).................... (383) 184 (644) (307)
------ ----- ------ ------
Comprehensive income (loss).......................... $ 893 $(386) $1,409 $1,271
====== ===== ====== ======
</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 September 30, 2000 the Company had
approximately $1.5 million outstanding on this agreement. The Company utilized
the credit line during the first nine months 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 in the course of conducting its business. The Company believes that such
claims and other legal matters will not have a material adverse effect on the
Company's consolidated results of operations, financial condition or cash flows.
The Company was party to an arbitration proceeding with the former Chairman
and CEO of the Company. 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 awarded to the
Company a significant portion of the attorneys' fees incurred by the Company in
the arbitration proceeding, and has reaffirmed that ruling.
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 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 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.
7
<PAGE>
THOMAS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Interest paid............................................... $101 $120
Taxes paid.................................................. $696 $803
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue.................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales............................ 52.5 54.0 55.3 56.8
------ ------ ------ ------
Gross profit............................. 47.5 46.0 44.7 43.2
Selling, general and administrative...... 35.6 31.1 38.5 30.5
------ ------ ------ ------
Operating income......................... 11.9 14.9 6.2 12.7
Interest income, net..................... 0.2 0.5 0.3 0.3
------ ------ ------ ------
Income from continuing operations before
income taxes........................... 12.1 15.4 6.5 13.0
Income taxes............................. 4.8 5.6 2.6 5.0
------ ------ ------ ------
Net income from continuing operations.... 7.3% 9.8% 3.9% 8.0%
====== ====== ====== ======
</TABLE>
The following table sets forth the Company's revenue by geographic distribution:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Business Improvement Programs
United States................................... $ 7,318 $ 9,411 $23,329 $28,677
Europe.......................................... 7,618 3,877 20,064 12,030
Asia/Pacific.................................... 2,665 1,486 5,499 4,529
------- ------- ------- -------
Total Revenue................................... $17,601 $14,774 $48,892 $45,236
======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
REVENUE--Revenue increased $2.8 million or 19.0% in the third quarter of 2000
when compared to the third quarter of 1999.
Revenue relating to United States region operations decreased 22.2% due to
contract completions exceeding contract start-ups. European region revenues
increased 96.5% due to revenues associated with a major contract, which began
September 1, 1999. Asia/Pacific region revenues increased 79.3% as revenue from
new contracts exceeded revenues on completed contracts from 1999.
9
<PAGE>
ITEM 2-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Fixed fee and incentive fee contracts accounted for 88.4% and 11.6% of revenue,
respectively, for the third quarter of 2000 and 95.7% and 4.2% of revenue,
respectively, for the third quarter of 1999.
GROSS PROFIT--Gross profit was 47.5% of revenue in the third quarter of 2000
compared to 46.0% during the third quarter of 1999. The improvement in gross
profit relates to improved productivity on increased sales. The Company was able
to improve margins while incurring an absolute increase of $1.3 million in cost
of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES--Selling, general and
administrative expenses increased to $6.3 million or 35.6% of revenue from $4.6
million or 31.1% of revenue. The increase in selling, general and administrative
expenses is due primarily to increased personnel and professional fees related
to the Company's investments in new product offerings and strategic alliances
with new business relationships.
DISCONTINUED OPERATIONS--Settlement of a lawsuit related to the disposition of
the Company's former Information Technologies business segment resulted in
revision to the estimated loss on disposal of $2.0 million in the third quarter
of 1999.
OTHER--The Company's effective tax rate was 40% and 37% for the third quarter of
2000 and 1999, respectively.
RESULTS OF OPERATIONS--Net income from continuing operations in the third
quarter of 2000 was $1.3 million, or $.28 per diluted share ($.28 per basic
share) compared to net income from continuing operations of $1.4 million, or
$.29 per diluted share ($.30 per basic share), in the third quarter of 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUE--Revenue increased $3.7 million or 8.1% in 2000 compared to 1999.
The United States region revenue decreased 18.6% as contract completions
exceeded new contract start-ups. European region revenue increased 66.8% due to
revenues associated with a major contract, which began September 1, 1999.
Asia/Pacific region revenue increased 21.4% as revenue on new contracts exceeded
revenues on completed contracts from 1999.
Fixed fee and incentive fee revenue represented 95.4% and 4.6%, respectively, of
revenue in 2000 and 88.0% and 11.9% of revenue, respectively, in 1999.
GROSS PROFIT--Gross profit was 44.7% of revenue in 2000 compared to 43.2% of
revenue in 1999. The improvement in gross profit is attributable to improved
productivity on increased sales. The Company was able to improve margins while
incurring an absolute increase of $1.3 million in cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE--Selling, general and administrative
expense increased to $18.8 million or 38.5% of revenue from $13.8 million or
30.5% of revenue. 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 a
$0.6 million bad debt write-off due to an adverse ruling relating to an
arbitration proceeding with a former client.
DISCONTINUED OPERATIONS--Gain from discontinued operations resulted from a
$0.2 million reimbursement of legal fees in connection with prior litigation.
Settlement of a lawsuit related to the disposition of the Company's former
Information Technologies business segment resulted in revision to the estimated
loss on disposal of $2.0 million in the third quarter of 1999.
OTHER--The Company's effective tax rate was 40% in 2000 and 39% in 1999.
10
<PAGE>
ITEM 2-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS--Net income from continuing operations in 2000 was $1.9
million, or $.40 per diluted share ($.41 per basic share), compared to net
income from continuing operations of $3.6 million, or $.73 per diluted share
($.73 per basic share) in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $3.6 million in the first nine months of
2000 compared to a $3.8 million increase in the first nine months of 1999. The
major components of these changes are discussed below:
CASH FLOWS FROM OPERATING ACTIVITIES--Operating activities used cash of $1.5
million in the first nine months of 2000 compared to cash provided by operations
of $5.8 million in the first nine months of 1999. This decrease is attributable
to decreased levels of accounts payable and an increase in other assets relating
to the purchase of a re-saleable software license from a strategic partner.
CASH FLOWS FROM INVESTING ACTIVITIES--Cash flows used in investing activities
totaled $1.4 million in the first nine months of 2000 and were attributable to
purchases of computer software and office and miscellaneous equipment. Capital
expenditures for the comparable period of the prior year were $0.4 million and
were primarily for the purchase of office and miscellaneous equipment.
CASH FLOWS FROM FINANCING ACTIVITIES--Cash flows used in financing activities
were $1.2 million compared to $1.5 million when comparing the first nine months
of 2000 to the first nine months of 1999. The primary reason for the use of cash
was the purchase of treasury stock, which was partially offset by net advances
on the line of credit totaling $1.3 million during the first nine months of
2000.
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
November 9, 2000, the Company had purchased 335,900 additional shares at an
average price of $9.11 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
September 30, 2000 the Company had approximately $1.5 million outstanding on
this agreement. The Company utilized the credit line during the first nine
months 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 September 30, 2000 the Company had approximately $10,000 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.
11
<PAGE>
ITEM 2-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
"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.
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 September 30, 2000:
<TABLE>
<CAPTION>
DATE OF EVENT SUBJECT
------------- -------
<S> <C>
October 23, 2000 Thomas Group, Inc. Third Quarter Earnings Release
</TABLE>
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.
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Registrant
Date November 13, 2000 /s/ J. THOMAS WILLIAMS
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J. Thomas Williams
President and Chief Executive Officer
Date November 13, 2000 /s/ LELAND L. GRUBB, JR.
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Leland L. Grubb, Jr.
Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
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