<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 MARCH 31, 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 March 31, 1996, was 10,320,843.
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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 .......... *
Item 5. Other Information ............................................ *
Item 6. Exhibits and Reports on Form 8-K ............................. 9
</TABLE>
- --------------------
* 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
March, 31
--------------------
1996 1995
___________________________________________________________________________________
<S> <C> <C>
Revenue ..................................................... $ 7,256 $ 5,344
Direct Costs ................................................ 4,901 3,199
General and Administrative Expenses ......................... 2,205 1,956
Other Income ................................................ 4 7
--------- ---------
Operating Income .......................................... 154 196
Interest Income, Net ........................................ 32 --
--------- ---------
Net Earnings Before Income Tax Expense .................... 186 $ 196
=========
Income Tax Expense .......................................... 74
---------
Net Earnings ................................................ $ 112
=========
Net Earnings per Share ...................................... $ 0.01
=========
Pro Forma Net Earnings per Share ............................ $ 0.01
=========
Weighted Average Number of Shares Outstanding ............... 10,422 9,541
========= =========
___________________________________________________________________________________
See accompanying notes.
</TABLE>
1
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TENERA, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except share amounts)
__________________________________________________________________________________________
March 31, December 31,
1996 1995
__________________________________________________________________________________________
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .............................. $ 4,777 $ 1,474
Receivables, less allowance of $3,005 (1995 - $2,888):
Billed ............................................... 2,306 4,857
Unbilled ............................................. 2,242 2,758
Other current assets ................................... 547 641
---------- ----------
Total Current Assets ............................... 9,872 9,730
Property and Equipment, Net .............................. 308 340
Other Assets ............................................. 17 17
---------- ----------
Total Assets ................................... $ 10,197 $ 10,087
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable ....................................... $ 914 $ 1,170
Accrued compensation and related expenses .............. 2,851 2,418
Income taxes payable ................................... 48 216
Deferred income taxes ................................. 90 90
---------- ----------
Total Current Liabilities .......................... 3,903 3,894
Non-Current Liabilities .................................. 18 18
---------- ----------
Total Liabilities ................................ 3,921 3,912
Commitments and Contingencies
Shareholders' Equity
Common Stock, $0.01 par value, 25,000,000 authorized,
10,417,345 issued and outstanding ...................... 104 104
Paid in capital, in excess of par ...................... 5,698 5,698
Retained earnings ...................................... 573 461
Treasury stock - 96,502 shares (1995 - 87,402 shares) .. (99) (88)
---------- ----------
Total Shareholders' Equity ....................... 6,276 6,175
---------- ----------
Total Liabilities and Shareholders' Equity ..... $ 10,197 $ 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
======== ======== ======== ======== ========
____________________________________________________________________________________
See accompanying notes.
</TABLE>
3
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TENERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
_____________________________________________________________________________________
Three Months Ended
March 31,
-----------------------
1996 1995
_____________________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ............................................. $ 112 $ 196
Adjustments to reconcile net earnings to cash provided
(used) by operating activities:
Depreciation ........................................... 75 78
Gain on sale of equipment .............................. (4) (7)
Increase in allowance for sales adjustments ............ 117 --
Changes in assets and liabilities:
Receivables .......................................... 2,950 (678)
Other current assets ................................. 94 (77)
Accounts payable ..................................... (256) (226)
Accrued compensation and related expenses ............ 433 224
Income taxes payable ................................. (168) --
-------- --------
Net Cash Provided (Used) By Operating Activities ... 3,353 (490)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment .................... (43) (21)
Proceeds from sale of equipment .......................... 4 7
-------- --------
Net Cash Used in Investing Activities .............. (39) (14)
CASH FLOWS FROM FINANCING ACTIVITIES
Net repurchase of equity ................................. (11) --
-------- --------
Net Cash Used by Financing Activities .............. (11) --
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... 3,303 (504)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........... 1,474 1,943
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 4,777 $ 1,439
======== ========
_____________________________________________________________________________________
See accompanying notes.
</TABLE>
4
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TENERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 "Form S-4").
The LLC. TENERA Rocky Flats, LLC ("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 March 31, 1996, and the results of operations and cash flows at
March 31, 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.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
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
($2,561,000 and $2,518,000 at March 31, 1996 and December 31, 1995,
respectively), net of accumulated depreciation ($2,253,000 and $2,178,000 at
March 31, 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, equally 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 contacts 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 months ended March 31, 1996, and no provision for income taxes has
been made by the Company for the three months ended March 31, 1995.
Accounting for Stock-Based Corporation. In October 1995, the Statement of
Financial Standards No. 123, "Accounting for Stock-Based Compensation,"
("FAS 123") was issued and is effective for the Company's 1996 year. The
Company intends to continue to account for employee stock options in
accordance with APB Opinion No. 25 and will make the pro forma disclosures
required by FAS 123 in 1996.
Per Share and Pro Forma Per Share Information. Per share data for 1996 is
computed on the basis of: weighted average 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 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
---------------------- Increase
Quarter Ended (Decrease)
March, 31 from
---------------------- Prior
1996 1995 Year
__________________________________________________________________________
<S> <C> <C> <C>
Revenue .............................. 100.0% 100.0% 35.8%
Direct Costs ......................... 67.5 59.9 53.2
General and Administrative Expenses .. 30.4 36.6 12.6
Other Income ......................... -- 0.1 (42.9)
---------- ---------- ----------
Operating Income ................... 2.1 3.7 (21.4)
Interest Income ...................... 0.5 -- n/m
---------- ---------- ----------
Net Earnings Before
Income Tax Expense ................... 2.6% 3.7% (5.1)%
========== ========== ==========
__________________________________________________________________________
n/m: Not meaningful.
</TABLE>
RESULTS OF OPERATIONS
Higher revenue from the government sector, and increased general and
administrative expenses resulted in lowering net earnings before income tax
expense to $186,000 in the first quarter of 1996, from $196,000 in the
comparable period of 1995.
The revenue increase in the first quarter of 1996 compared to a year ago,
is primarily the result of the Rocky Flats Contract which began on July 1,
1995. This also resulted in the concentration of revenue from the government
sector increasing to 63% of total revenue for 1996 from 34% 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.
Direct costs were higher in the first three months of 1996, and the
corresponding gross margin contribution was lower than the comparable period,
primarily reflecting the increased staffing and the lower cost-plus pricing
characteristics of the Rocky Flats Contract.
Although general and administrative costs increased by $249,000 in the
first quarter of 1996 as compared to the comparable period in 1995, primarily
due to higher internally-funded research and development costs and lower
professional staff productivity on client projects, they dropped as a
percentage of revenue from 36.6% in 1995 to 30.4% in 1996. Prior to January 1,
1996, the Company's product development had been primarily funded by customers
as part of the development of software applications.
Other income for the first three months of 1996 includes gains on the sale
of assets related to facility downsizing.
7
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Net interest income 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 quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $3,303,000 during the first quarter
of 1996. The increase was due to cash provided by operations ($3,353,000),
offset by cash used in net acquisition of equipment ($39,000), and in
financing activities ($11,000).
Receivables decreased by $2,950,000 from December 31, 1995, while revenue
during the first quarter of 1996 remained at a relatively constant level with
the fourth quarter of 1995, primarily due to an increase in collections during
the quarter ended March 31, 1996. The allowance for sales adjustments
increased by $117,000 since December 31, 1995.
Accounts payable decreased by $256,000 during the period, primarily due to
the net reduction of prepaid fixed-price project commitments. Accrued
compensation and related expenses increased by $433,000 during the period
reflecting lower vacation and holiday usage and annual salary adjustments.
Income taxes payable decreased by $168,000 during the period representing
payment of 1995 income taxes.
Equity increased by $101,000 in the quarter ended March 31, 1996, due to
net earnings ($112,000), partially offset by the repurchase of stock
($11,000).
No cash dividend was declared in the first quarter of 1996.
The impact of inflation on revenue and projects of the Company was minimal.
At March 31, 1996, the Company had available $4,500,000 of a $5,000,000
revolving loan facility with its lender which expires in May 1996. The Company
has received a commitment to extend the loan facility from its lender. 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
On April 17, 1996, the registrant, TENERA, Inc. ("TENERA" or the
"Company"), learned that TENERA was named in civil actions in federal court
relating to the pending action brought in the California Superior Court by the
League for Coastal Protection (the "League") on October 13, 1995. The pending
state court action was previously disclosed in the Company's Form 10-Q filed
with the Securities and Exchange Commission ("SEC") on November 13, 1995, and
its Form 10-K, filed with the SEC on March 27, 1996. As previously disclosed,
the filing of federal claims was anticipated by the Company and the actions
relate to the same factual allegations contained in the League's pending state
court action. The federal actions were filed in the United States District
Court, Northern District of California, by the League on April 16, 1996 and by
John W. Carter ("Carter") on behalf of the United States and the State of
California in an action filed in camera and under seal with the court on
February 5, 1996.
Both the League's state and federal court actions were filed on behalf of
the League and the general public. The state court action alleges that TENERA
and Pacific Gas & Electric Company ("PG&E") violated California and federal
law in connection with environmental studies at PG&E's Diablo Canyon Power
Plant. Similarly, the League's federal court action alleges that TENERA and
PG&E violated the Federal Clean Water Act in connection with those same
environmental studies. Both actions seek injunctive relief and unspecified
damages.
The Carter action, which seeks unspecified damages and statutory penalties,
asserts claims that TENERA and PG&E violated the State and Federal False
Claims Acts in connection with the same environmental studies.
As with the pending state court action, the Company will vigorously defend
these actions, and management believes that the Company will be successful and
will ultimately prevail in all these actions. An adverse outcome, however,
would have a material adverse effect on the financial condition of the
Company.
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.
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: May 13, 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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<CASH> 4,777
<SECURITIES> 0
<RECEIVABLES> 4,548
<ALLOWANCES> 3,005
<INVENTORY> 0
<CURRENT-ASSETS> 9,872
<PP&E> 308
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,197
<CURRENT-LIABILITIES> 3,903
<BONDS> 0
<COMMON> 5,702
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,197
<SALES> 0
<TOTAL-REVENUES> 7,256
<CGS> 0
<TOTAL-COSTS> 4,901
<OTHER-EXPENSES> 2,201
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 186
<INCOME-TAX> 74
<INCOME-CONTINUING> 112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
