<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER
1-9812
TENERA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-3213541
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
One Market, Spear Tower, Suite 1850, San Francisco, California 94105-1018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 536-4744
_________________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Common Stock
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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 [ ]
The number of shares outstanding on September 30, 1996, was 10,191,837.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PAGE
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) ............................. 1
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ........................... 7
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings ............................................ *
Item 2. Changes in Securities ........................................ *
Item 3. Defaults Upon Senior Securities .............................. *
Item 4. Submission of Matters to a Vote of Security Holders .......... *
Item 5. Other Information ............................................ *
Item 6. Exhibits and Reports on Form 8-K ............................. 10
</TABLE>
- --------------------
* None.
i
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TENERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
_____________________________________________________________________________________
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1996 1995 1996 1995
_____________________________________________________________________________________
<S> <C> <C> <C> <C>
Revenue ................................ $ 5,586 $ 7,249 $ 18,878 $ 18,257
Direct Costs ........................... 3,651 5,033 12,230 11,497
General and Administrative Expenses .... 2,734 1,866 7,602 5,976
Other Income ........................... -- 1 21 10
Special Item ........................... -- -- 250 --
--------- --------- --------- ---------
Operating (Loss) Income .............. (799) 351 (683) 794
Interest Income (Expense), Net.......... 43 1 118 (5)
--------- --------- --------- ---------
Net (Loss) Earnings Before
Income Tax (Benefit) Expense ......... (756) 352 (565) 789
Income Tax (Benefit) Expense ........... (76) 141 -- 141
--------- ---------- --------- ---------
Net (Loss) Earnings .................... $ (680) $ 211 $ (565) $ 648
========= ========== ========= =========
Net (Loss) Earnings per Share .......... $ (0.07) $ 0.02 $ (0.05)
========= ========== =========
Pro Forma Net Earnings Per Share ....... $ 0.05
=========
Weighted Average Number of
Shares Outstanding ..................... 10,192 10,588 10,267 9,861
========= ========= ========= =========
_____________________________________________________________________________________
See accompanying notes.
</TABLE>
1
<PAGE>
TENERA, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except share amounts)
__________________________________________________________________________________________
Sept. 30, Dec. 31,
1996 1995
__________________________________________________________________________________________
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .............................. $ 3,943 $ 1,474
Receivables, less allowance of $1,767 (1995 - $2,888):
Billed ............................................... 2,179 4,857
Unbilled ............................................. 1,264 2,758
Other current assets ................................... 940 641
---------- ----------
Total Current Assets ............................... 8,326 9,730
Property and Equipment, Net .............................. 308 340
Other Assets ............................................. -- 17
---------- ----------
Total Assets ................................... $ 8,634 $ 10,087
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable ....................................... $ 966 $ 1,170
Accrued compensation and related expenses .............. 2,075 2,418
Income taxes payable ................................... -- 216
Deferred income taxes ................................. 137 90
---------- ----------
Total Current Liabilities .......................... 3,178 3,894
Non-Current Liabilities .................................. 18 18
---------- ----------
Total Liabilities ................................ 3,196 3,912
Commitments and Contingencies
Shareholders' Equity
Common Stock, $0.01 par value, 25,000,000 authorized,
10,417,345 issued and outstanding
(1995 - 10,417,345 shares) ............................. 104 104
Paid in capital, in excess of par ...................... 5,698 5,698
Retained earnings ...................................... (104) 461
Treasury stock - 225,508 shares (1995 - 87,402 shares) . (260) (88)
---------- ----------
Total Shareholders' Equity ....................... 5,438 6,175
---------- ----------
Total Liabilities and Shareholders' Equity ..... $ 8,634 $ 10,087
========== ==========
__________________________________________________________________________________________
See accompanying notes.
</TABLE>
2
<PAGE>
TENERA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except share amounts)
____________________________________________________________________________________
Paid In
Capital
In
Common Excess Retained Treasury
Stock of Par Earnings Stock Total
____________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
December 31, 1995 ................ $ 104 $ 5,698 $ 461 $ (88) $ 6,175
Repurchase of 9,100 Shares ....... -- -- -- (11) (11)
Net Earnings ..................... -- -- 112 -- 112
-------- -------- -------- -------- --------
March 31, 1996 ................... 104 5,698 573 (99) 6,276
Repurchase of 129,006 Shares ..... -- -- -- (161) (161)
Net Earnings ..................... -- -- 3 -- 3
-------- -------- -------- -------- --------
June 30, 1996 .................... 104 5,698 576 (260) 6,118
Net Earnings ..................... -- -- (680) -- (680)
-------- -------- -------- -------- --------
September 30, 1996 ............... $ 104 $ 5,698 $ (104) $ (260) $ 5,438
======== ======== ======== ======== ========
____________________________________________________________________________________
See accompanying notes.
</TABLE>
3
<PAGE>
TENERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
_____________________________________________________________________________________
Nine Months Ended
September 30,
-----------------------
1996 1995
_____________________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) earnings ...................................... $ (565) $ 648
Adjustments to reconcile net earnings to cash provided
(used) by operating activities:
Depreciation ........................................... 204 215
Gain on sale of equipment .............................. (5) (8)
(Decrease) Increase in allowance for sales adjustments . (1,121) 10
Changes in assets and liabilities:
Receivables .......................................... 5,293 (1,896)
Other current assets ................................. (299) (82)
Other assets ......................................... 17 --
Accounts payable ..................................... (204) (752)
Accrued compensation and related expenses ............ (343) 532
Income taxes payable/deferred ........................ (169) 141
Non-current liabilities .............................. -- 25
-------- --------
Net Cash Provided (Used) By Operating Activities ... 2,808 (1,167)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment .................... (172) (108)
Proceeds from sale of equipment .......................... 5 9
-------- --------
Net Cash Used in Investing Activities .............. (167) (99)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment under bank loan agreement ...................... -- (750)
Net repurchase of equity ................................. (172) (182)
Issuance of equity ....................................... -- 1,000
-------- --------
Net Cash (Used) Provided by Financing Activities ... (172) 68
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... 2,469 (1,198)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........... 1,474 1,943
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 3,943 $ 745
======== ========
_____________________________________________________________________________________
See accompanying notes.
</TABLE>
4
<PAGE>
TENERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1995
(Unaudited)
NOTE 1. ORGANIZATION
The Company. TENERA, Inc. (the "Company"), a Delaware corporation, was
formed in connection with the conversion of TENERA, L.P. (the predecessor of
the Company; the "Predecessor Partnership") into corporate form (the
"Conversion"). Therefore the Company and the Predecessor Partnership are
sometimes collectively referred to herein as the Company.
On June 30, 1995, the Company completed the Conversion by means of a merger
(the "Merger") of the Predecessor Partnership, its General Partner (Teknekron
Technology MLP I Corporation) and its Operating Partnership (TENERA Operating
Company, L.P.) with, and into, TENERA, Inc. Pursuant to the Merger: (i) the
Company succeeded to the business, assets, and liabilities of the Predecessor
Partnership; (ii) each limited partner Unit previously held by Unitholders in
the Predecessor Partnership, (including 184,946 equivalent Units representing
the interest in the Partnership of the General Partner), automatically
converted to one share of Common Stock of TENERA, Inc.; and (iii) an
additional 1,123,596 shares of Common Stock were issued to the sole
shareholder of the General Partner in consideration of the contribution of
$1,000,000 made to TENERA, Inc. by the General Partner in connection with the
Merger. The Merger was approved by the Unitholders of the Predecessor
Partnership pursuant to the Consent Solicitation Statement/Prospectus dated
June 6, 1995, included in the Company's Registration Statement on Form S-4
(Registration Number 33-58393).
The LLC. TENERA Rocky Flats, LLC (the "LLC"), a Colorado limited liability
company, was formed by the Company to provide consulting services in
connection with participation in the Performance Based Integrating Management
Contract ("Rocky Flats Contract") at the Department of Energy's ("DOE") Rocky
Flats Environmental Technology Site ("Site").
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements
include the accounts of the Company and the LLC and have been prepared by the
Company without audit. All intercompany accounts and transactions have been
eliminated. In the opinion of management, all adjustments (which include
normal recurring adjustments) necessary to present fairly the financial
position at September 30, 1996, and the results of operations and cash flows
at September 30, 1996 and 1995, have been made. For further information, refer
to the financial statements and notes thereto contained in TENERA, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1995, filed with
the Securities and Exchange Commission.
Cash and Cash Equivalents. Cash and cash equivalents consist of demand
deposits, certificates of deposit, bank acceptances or repurchase agreements
of major banks having strong credit ratings, and commercial paper issued by
companies with strong credit ratings. The Company includes in cash and cash
equivalents, all short-term, highly liquid investments which mature within
three months of acquisition.
Property and Equipment. Property and equipment are stated at cost
($2,691,000 and $2,518,000 at September 30, 1996 and December 31, 1995,
respectively), net of accumulated depreciation ($2,383,000 and $2,178,000 at
September 30, 1996 and December 31, 1995, respectively). Depreciation is
calculated using the straight line method over the estimated useful lives,
which range from three to five years.
Revenue. Revenue from time-and-material and cost plus fixed-fee contracts
is recognized when costs are incurred; from fixed-price contracts, on the
basis of percentage of work completed (measured by costs incurred relative to
total estimated project costs); from software license fees, at time of
customer acceptance; and from software maintenance agreements, ratably over
the period of the maintenance support agreement (usually 12 months). The
Company's revenue recognition policy for its software contracts is in
compliance with the American Institute of Certified Public Accountants'
Statement of Position 91-1, "Software Revenue
5
<PAGE>
Recognition." The Company primarily offers its services and software products
to the electric power industry, the DOE, and the municipal transit industry in
North America.
The Company performs ongoing credit evaluations of these customers and
normally does not require collateral. Reserves are maintained for potential
sales adjustments and credit losses; such losses to date have been within
management's expectations. Actual revenue and cost of contracts in progress
may differ from management estimates and such differences could be material to
the Company's future financial statements.
Income Taxes. As a result of the Conversion, the Company is no longer
subject to partnership tax treatment whereby the Company pays no tax on
Company income. The Company became a C Corporation subject to federal and
state statutory income tax rates for income earned after the close of business
on June 30, 1995. Accordingly, a provision for income taxes was made for the
three months ended September 30, 1995, and no provision for income taxes was
made by the Company for the six months ended June 30, 1995. Furthermore, due
to the net loss for the three months and nine months ended September 30, 1996,
the Company has reversed the income tax provision made during the first six
months of 1996.
Per Share and Pro Forma Per Share Information. Per share data for 1996 and
the three-month period ended September 30, 1995, are computed on the basis of:
weighted average number of shares of common stock and common stock equivalents
using the treasury stock method. In accordance with financial reporting
guidelines, pro forma earnings per share information for the nine months ended
September 30, 1995, assumes the Company is taxed for federal and state income
tax purposes as a C Corporation at a 40% effective tax rate, and is computed
on the basis of: weighted average number of shares of common stock and common
stock equivalents using the treasury stock method. Historical earnings per
share information is deleted from the face of the historical income statements
because this data is not indicative of the ongoing Company's change in tax
treatment.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
TENERA, INC.
RESULTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
_______________________________________________________________________________________________________________
Percent of Revenue Percent of Revenue
---------------------- ----------------------
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
Percent Percent
Increase Increase
(Decrease) (Decrease)
from from
Prior Prior
1996 1995 Year 1996 1995 Year
_______________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Revenue .............................. 100.0% 100.0% (22.9)% 100.0% 100.0% 3.4%
Direct Costs ......................... 65.4 69.4 (27.5) 64.8 63.0 6.4
General and Administrative Expenses .. 48.9 25.8 46.5 40.2 32.7 27.2
Other Income ......................... -- -- (100.0) 0.1 -- 110.0
Special Item ......................... -- -- -- 1.3 -- 100.0
---------- ---------- ---------- ---------- ---------- ----------
Operating (Loss) Income .............. (14.3) 4.8 (327.6) (3.6) 4.3 (186.0)
Interest Income, Net.................. 0.8 -- 4,200.0 0.6 -- n/m
---------- ---------- ---------- ---------- ---------- ----------
Net (Loss) Earnings Before
Income Tax (Benefit) Expense ......... (13.5)% 4.8% (314.8)% (3.0)% 4.3% (171.6)%
========== ========== ========== ========== ========== ==========
_______________________________________________________________________________________________________________
n/m: Not meaningful.
</TABLE>
RESULTS OF OPERATIONS
Lower revenue and higher general and administrative expenses in the third
quarter of 1996, compared to 1995, resulted in a quarterly loss before income
taxes of $756,000, compared to net earnings before income tax expense of
$352,000 for the quarter in 1995. For the nine-month period of 1996, higher
revenue was offset by higher direct costs and general and administrative
expenses, resulting in a nine-month loss before income taxes of $565,000,
compared to net earnings before income tax expense of $789,000 in 1995.
During the third quarter, the Company received written contracts and orders
having an estimated value of approximately $6.0 million. The activity
primarily reflects the award of a significant contract, valued at
approximately $2.9 million, with the National Railroad Passenger Corporation
("Amtrak") to supply a fully integrated work management system for its rolling
stock; the next three months' funding at the DOE's Rocky Flats Environmental
Technology Site ("Rocky Flats"); and to a lesser extent, work for clients
serviced by the Company's other operating groups. Contracted backlog for
current, active projects totaled approximately $7.3 million as of
September 30, 1996, up from $6.8 million as of June 30, 1996.
The revenue decrease in the third quarter of 1996, compared to a year ago,
is primarily the result of reduced sales in the Government Services group and
a reduction in the Rocky Flats contract activity (due primarily to decreased
funding at various DOE sites), reduced non-strategic sales in the Power
Services group, and lower staffing in the Transportation group (due primarily
to staff reassignments to internal software product development). The increase
in revenue for the nine months ended September 30, 1996, compared to a year
ago, was primarily due to the Rocky Flats contract which was in existence for
the entire nine months of 1996, but commenced in mid-1995.
7
<PAGE>
Direct costs were lower in the third quarter of 1996, compared to a year
ago, primarily as a result of the reduced revenue generation opportunities.
Higher direct costs for the nine months ended September 30, 1996, were
primarily due to the continuation of the Rocky Flats contract, partially
offset by reduced revenue activity in the other operating groups.
General and administrative costs increased by $868,000 and $1.6 million in
the third quarter and first nine months of 1996, respectively, as compared to
the comparable periods in 1995, primarily reflecting increased professional
staff time spent on overhead activities, higher severance costs, and increased
internally-funded software development costs. Prior to January 1, 1996, the
Company's product development had been primarily funded by clients as part of
the development of software applications.
Other income for the first nine months of 1996 primarily relates to the
final liquidation, in April 1996, of the Company's interest in the Individual
Plant Evaluation Partnership, a technical services partnership in which it was
an operating participant until its termination in 1995. Other income in 1995
mainly reflects gains on the sale of assets related to facility downsizing.
The special item of $250,000 during the nine months ended September 30,
1996, reflects an adjustment in the second quarter of 1996, of the reserve
related to the settlement of specific disputed costs on certain U.S.
Government contracts with the DOE. This positive earnings impact resulted from
a further reduction of the reserve for sales adjustment established in 1991,
and is based upon the successful government audits and contract closeouts of
prior periods.
Net interest income in 1996 represents earnings from the investment of cash
balances in short-term, high-quality, government and corporate debt
instruments, partially offset by capital lease interest expense. The Company
had no borrowings under its line of credit during the first nine months of
1996. Net interest expense in 1995 reflects line of credit borrowings,
partially offset by interest income from the investment of cash balances.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $2,469,000 during the first nine
months of 1996. The increase was due to cash provided by operations
($2,808,000), offset by cash used in net acquisition of equipment ($167,000),
and in financing activities ($172,000).
Receivables decreased by $5,293,000 from December 31, 1995, primarily due
to an increase in collections during the first nine months of 1996. The
allowance for sales adjustments decreased by $1,121,000 since December 31,
1995, primarily due to contract closeouts of various government contracts from
prior periods.
Accounts payable decreased by $204,000 since the end of 1995, primarily due
to the net reduction of prepaid fixed-price project commitments. Accrued
compensation and related expenses decreased by $343,000 during the period
primarily reflecting the payment of the Company's 1995 contribution to the
employee retirement plan in the second quarter, as well as staff reductions.
Income taxes payable/deferred decreased by $169,000 during the period
resulting from payment of 1995 income taxes and reduced tax liability
associated with third quarter 1996 net losses.
Equity decreased by $737,000 in the first nine months ended September 30,
1996, due to net losses ($565,000) and the repurchase of stock ($172,000).
No cash dividend was declared in the first nine months of 1996.
The impact of inflation on revenue and projects of the Company was minimal.
At September 30, 1996, the Company had available $4,500,000 of a $5,000,000
revolving loan facility with its lender which expires in May 1998. The Company
has no outstanding borrowing against the line, however, $500,000 was assigned
to support standby letters of credit.
Management believes that cash expected to be generated by operations, the
Company's working capital, and its loan facility are adequate to meet its
anticipated liquidity needs through the next twelve months.
8
<PAGE>
Statements contained in this report, which are not historical facts, are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected. Such risks and uncertainties include fluctuations in
customer demand and the timing and acceptance of new product introductions.
Additional risks are detailed in the Company's filings with the Securities and
Exchange Commission, including its Registration Statement on Form S-4 (#33-
58393).
9
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11.0 Statement regarding computation of per share earnings:
See Notes to Consolidated Financial Statements.
27.0* Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
- --------------------
* Filed herewith.
10
<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.
TENERA, INC.
Dated: November 12, 1996 By: /s/ JEFFREY R. HAZARIAN
------------------------------
Jeffrey R. Hazarian
Chief Financial Officer,
Corporate Secretary, and
Vice President, Finance
11
<PAGE>
EXHIBIT INDEX
Ex. 27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 3,943
<SECURITIES> 0
<RECEIVABLES> 5,210
<ALLOWANCES> 1,767
<INVENTORY> 0
<CURRENT-ASSETS> 8,326
<PP&E> 308
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,634
<CURRENT-LIABILITIES> 3,178
<BONDS> 0
<COMMON> 5,802
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,634
<SALES> 0
<TOTAL-REVENUES> 18,878
<CGS> 0
<TOTAL-COSTS> 12,230
<OTHER-EXPENSES> 7,581
<LOSS-PROVISION> (250)
<INTEREST-EXPENSE> (118)
<INCOME-PRETAX> (565)
<INCOME-TAX> 0
<INCOME-CONTINUING> (565)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (565)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
