<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 JUNE 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 June 30, 1996, was 10,191,837.
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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 ............................................ 9
Item 2. Changes in Securities ........................................ *
Item 3. Defaults Upon Senior Securities .............................. *
Item 4. Submission of Matters to a Vote of Security Holders .......... 9
Item 5. Other Information ............................................ *
Item 6. Exhibits and Reports on Form 8-K ............................. 9
</TABLE>
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* None.
i
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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 Six Months Ended
June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
_____________________________________________________________________________________
<S> <C> <C> <C> <C>
Revenue ................................ $ 6,036 $ 5,664 $ 13,292 $ 11,008
Direct Costs ........................... 3,678 3,265 8,579 6,464
General and Administrative Expenses .... 2,663 2,154 4,868 4,110
Other Income ........................... 17 2 21 9
Special Item ........................... 250 -- 250 --
--------- --------- --------- ---------
Operating (Loss) Income .............. (38) 247 116 443
Interest Income (Expense), Net.......... 43 (6) 75 (6)
--------- --------- --------- ---------
Net Earnings Before
Income Tax Expense ................... 5 $ 241 191 $ 437
========= =========
Income Tax Expense ..................... 2 76
--------- ---------
Net Earnings ........................... $ 3 $ 115
========= =========
Net Earnings per Share ................. $ 0.00 $ 0.01
========= =========
Pro Forma Net Earnings Per Share ....... $ 0.02 $ 0.03
========= =========
Weighted Average Number of
Shares Outstanding ..................... 10,282 9,380 10,304 9,451
========= ========= ========= =========
_____________________________________________________________________________________
See accompanying notes.
</TABLE>
1
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TENERA, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except share amounts)
__________________________________________________________________________________________
June 30, December 31,
1996 1995
__________________________________________________________________________________________
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .............................. $ 4,430 $ 1,474
Receivables, less allowance of $2,832 (1995 - $2,888):
Billed ............................................... 2,271 4,857
Unbilled ............................................. 1,209 2,758
Other current assets ................................... 841 641
---------- ----------
Total Current Assets ............................... 8,751 9,730
Property and Equipment, Net .............................. 326 340
Other Assets ............................................. 0 17
---------- ----------
Total Assets ................................... $ 9,077 $ 10,087
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable ....................................... $ 654 $ 1,170
Accrued compensation and related expenses .............. 2,097 2,418
Income taxes payable ................................... 100 216
Deferred income taxes ................................. 90 90
---------- ----------
Total Current Liabilities .......................... 2,941 3,894
Non-Current Liabilities .................................. 18 18
---------- ----------
Total Liabilities ................................ 2,959 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 ...................................... 576 461
Treasury stock - 225,508 shares (1995 - 87,402 shares) . (260) (88)
---------- ----------
Total Shareholders' Equity ....................... 6,118 6,175
---------- ----------
Total Liabilities and Shareholders' Equity ..... $ 9,077 $ 10,087
========== ==========
__________________________________________________________________________________________
See accompanying notes.
</TABLE>
2
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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
======== ======== ======== ======== ========
____________________________________________________________________________________
See accompanying notes.
</TABLE>
3
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TENERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
_____________________________________________________________________________________
Six Months Ended
June 30,
-----------------------
1996 1995
_____________________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ............................................. $ 115 $ 437
Adjustments to reconcile net earnings to cash provided
(used) by operating activities:
Depreciation ........................................... 139 149
Gain on sale of equipment .............................. (4) (7)
Decrease in allowance for sales adjustments ............ (56) (89)
Changes in assets and liabilities:
Receivables .......................................... 4,191 (258)
Other current assets ................................. (200) 59
Other assets ......................................... 17 --
Accounts payable ..................................... (516) (841)
Accrued compensation and related expenses ............ (321) (59)
Income taxes payable ................................. (116) --
-------- --------
Net Cash Provided (Used) By Operating Activities ... 3,249 (609)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment .................... (125) (21)
Proceeds from sale of equipment .......................... 4 7
-------- --------
Net Cash Used in Investing Activities .............. (121) (14)
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 ....... 2,956 (555)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........... 1,474 1,943
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 4,430 $ 1,388
======== ========
_____________________________________________________________________________________
See accompanying notes.
</TABLE>
4
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TENERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 30, 1996, and the results of operations and cash flows at
June 30, 1996 and 1995, have been made. For further information, refer to the
financial statements and notes thereto contained in the Form 10-K for the year
ended December 31, 1995.
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
($2,643,000 and $2,518,000 at June 30, 1996 and December 31, 1995,
respectively), net of accumulated depreciation ($2,317,000 and $2,178,000 at
June 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
5
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American Institute of Certified Public Accountants' Statement of Position 91-
1, "Software Revenue 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 has been made for
the three and six months ended June 30, 1996, and no provision for income
taxes has been made by the Company for the three and six months ended June 30,
1995.
Per Share and Pro Forma Per Share Information. Per share data for 1996 is
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 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
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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 Six Months Ended
June 30, June 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% 6.6% 100.0% 100.0% 20.8%
Direct Costs ......................... 60.9 57.6 12.7 64.5 58.7 32.7
General and Administrative Expenses .. 44.1 38.0 23.6 36.7 37.3 18.4
Other Income ......................... 0.3 -- 750.0 0.2 0.1 133.3
Special Item ......................... 4.1 -- 100.0 1.9 -- 100.0
---------- ---------- ---------- ---------- ---------- ----------
Operating (Loss) Income .............. (0.6) 4.4 (115.4) 0.9 4.1 (73.8)
Interest Income (Expense), Net........ 0.7 0.1 n/m 0.5 (0.1) n/m
---------- ---------- ---------- ---------- ---------- ----------
Net Earnings (Loss) Before
Income Tax Expense .................... 0.1% 4.3% (97.9)% 1.4% 4.0% (56.3)%
========== ========== ========== ========== ========== ==========
_______________________________________________________________________________________________________________
n/m: Not meaningful.
</TABLE>
RESULTS OF OPERATIONS
Higher revenue in the second quarter and first half of 1996, compared to
1995, was offset by higher direct costs and general and administrative
expenses. This resulted in a quarterly loss before income tax expense and the
special item of $245,000, compared to net earnings before income tax expense
of $241,000 for the quarter in 1995. Similarly, the Company reported a first
half loss before income tax expense and the special item of $59,000, compared
to net earnings before income tax expense of $437,000 in 1995.
During the first quarter, the Company received written contracts and orders
having an estimated value of approximately $6.3 million. The contract activity
primarily reflects 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 $6.8 million as of
June 30, 1996, up slightly from $6.5 million as of March 31, 1996.
The revenue increase in the second quarter and first half of 1996, compared
to a year ago, is primarily the result of the Rocky Flats Contract which began
July 1, 1995. This also resulted in the concentration of revenue from the
government sector increasing to 67% and 65% of total revenue in the second
quarter and first half of 1996, respectively, from 34% for both periods in
1995. The Rocky Flats Contract's impact on revenue for 1996 was partially
offset by the impact of reduced sales in the Government Services group (due
primarily to decreased funding at various other DOE sites), reduced sales in
the Power Services group, and reduced staffing in the Transportation group
(due primarily to reassignment for internal development). The Rocky Flats
Contract, as with all TENERA contracts, is cancelable by the clients.
7
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Direct costs were higher in the second quarter and first half of 1996, with
the corresponding gross margin contribution lower than the comparable periods.
These items reflect the increased staffing and the lower project margin
characteristics of the Rocky Flats Contract.
General and administrative costs increased by $509,000 and $758,000 in the
second quarter and first half of 1996, respectively, as compared to the
comparable periods in 1995. These items reflect lower professional staff
productivity on client projects, and higher internally-funded research and
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 second quarter and first half of 1996 primarily
relates to the liquidation 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 in the second quarter of 1996, reflects an
adjustment 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 half 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 $2,956,000 during the first half of
1996. The increase was due to cash provided by operations ($3,249,000), offset
by cash used in net acquisition of equipment ($121,000), and in financing
activities ($172,000).
Receivables decreased by $4,191,000 from December 31, 1995, primarily due
to an increase in collections during the first half of 1996. The allowance for
sales adjustments decreased by $56,000 since December 31, 1995.
Accounts payable decreased by $516,000 since the end of 1995, primarily due
to the net reduction of prepaid fixed-price project commitments. Accrued
compensation and related expenses decreased by $321,000 during the period
primarily reflecting the payment of the Company's 1995 contribution to the
employee retirement plan in the second quarter.
Income taxes payable decreased by $116,000 during the period representing
payment of 1995 income taxes.
Equity decreased by $57,000 in the first half ended June 30, 1996, due to
net earnings ($115,000), offset by the repurchase of stock ($172,000).
No cash dividend was declared in the first half of 1996.
The impact of inflation on revenue and projects of the Company was minimal.
At June 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 December 31, 1996.
8
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Refer to Item 1 of the Company's Form 10-Q, filed with the Securities and
Exchange Commission (the "SEC") on May 13, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At an Annual Meeting of Shareholders on June 18, 1996, the shareholders
voted on, and approved the following actions, as described in the proxy
statement for such meeting:
(i) Elected Messrs. William A. Hasler and Michael D. Thomas as
directors of the Company, to serve for the three-year terms ending in
1999 (with 8,511,006 votes cast in favor of Mr. Hasler, 8,511,611 votes
cast in favor of Mr. Thomas, and 48,629 and 48,024 votes cast against the
nominees, respectively). In addition, the three-year terms of directors
Susan T. Cheng, Barry L. Williams, and George L. Turin continued after the
meeting, until the Annual Meeting of Shareholders in 1997, 1997, and 1998,
respectively.
(ii) Ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ending
December 31, 1996 (with 8,524,076 votes cast in favor, 8,331 votes cast
against, and 27,228 votes cast to abstain).
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
A Form 8-K was filed with the SEC on May 10, 1996, reporting on the
filing of federal civil claims in the United States District Court,
Northern District of California, by the League for Coastal Protection (the
"League") and John W. Carter, on behalf of the United States and the State
of California, on April 16, 1996 and February 5, 1996, respectively. The
federal claims, the filing of which was anticipated by the Company, relate
to the same factual allegations contained in the League's pending state
court action. The pending state court action was previously disclosed in
the Company's Form 10-Q, filed with the SEC on November 13, 1995, and its
Form 10-K, filed with the SEC on March 27, 1996.
- --------------------
* Filed herewith.
9
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SIGNATURES
PURSUANT TO THE REQUIREMENT 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: August 12, 1996 By: /s/ JEFFREY R. HAZARIAN
------------------------------
Jeffrey R. Hazarian
Chief Financial Officer,
Corporate Secretary, and
Vice President, Finance
10
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EXHIBIT INDEX
Ex. 27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<CASH> 4,430
<SECURITIES> 0
<RECEIVABLES> 6,312
<ALLOWANCES> 2,832
<INVENTORY> 0
<CURRENT-ASSETS> 8,751
<PP&E> 326
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,077
<CURRENT-LIABILITIES> 2,941
<BONDS> 0
<COMMON> 5,802
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,077
<SALES> 0
<TOTAL-REVENUES> 13,292
<CGS> 0
<TOTAL-COSTS> 8,579
<OTHER-EXPENSES> 4,847
<LOSS-PROVISION> (250)
<INTEREST-EXPENSE> (75)
<INCOME-PRETAX> 191
<INCOME-TAX> 76
<INCOME-CONTINUING> 115
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
