<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, 1999
[ ] 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 or 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, 1999, was 10,129,403.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited) ............................................. 1
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ..... 8
Item 3. Quantitative and Qualitative Disclosures of Market Risk ................................... 10
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 .......................................................... 11
</TABLE>
_______________________
* None
i
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
TENERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue ................................................................... $ 9,282 $ 6,091
Direct Costs .............................................................. 7,285 4,498
General and Administrative Expenses ....................................... 1,489 1,302
Special Item Income ....................................................... -- 300
Other Income .............................................................. -- 86
------------- ------------
Operating Income ........................................................ 508 677
Interest Income, Net ...................................................... 27 31
------------- ------------
Net Earnings Before Income Tax Expense................................... 535 708
Income Tax Expense ........................................................ 230 175
------------- ------------
Net Earnings .............................................................. $ 305 $ 533
============= ============
Net Earnings per Share-- Basic ............................................ $ 0.03 $ 0.05
============= ============
Net Earnings per Share-- Diluted .......................................... $ 0.03 $ 0.05
============= ============
Weighted Average Number of Shares Outstanding-- Basic ..................... 10,129 10,123
============= ============
Weighted Average Number of Shares Outstanding-- Diluted ................... 10,542 10,123
============= ============
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
1
<PAGE>
TENERA, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
March 31, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ............................................... $ 3,164 $ 3,361
Receivables, less allowance of $1,300 (1998 - $1,300)
Billed ................................................................ 3,262 2,692
Unbilled .............................................................. 3,408 2,734
Other current assets .................................................... 196 225
------------- ------------
Total Current Assets ................................................ 10,030 9,012
Property and Equipment, Net ............................................... 206 194
============= ============
Total Assets ..................................................... $ 10,236 $ 9,206
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable ........................................................ $ 2,906 $ 2,514
Accrued compensation and related expenses ............................... 2,107 1,924
Income taxes payable .................................................... 250 100
------------- ------------
Total Current Liabilities ........................................... 5,263 4,538
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 ....................................... 5,699 5,699
Retained earnings (Accumulated deficit) ................................. (530) (835)
Treasury stock-- 287,942 shares ......................................... (300) (300)
------------- ------------
Total Shareholders' Equity ........................................ 4,973 4,668
------------- ------------
Total Liabilities and Shareholders' Equity ....................... $ 10,236 $ 9,206
------------- ------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
2
<PAGE>
TENERA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Paid-In Retained
Common Capital Earnings Treasury Total
Stock in (Accumulated Stock
Excess Deficit)
of Par
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1998 .......... $ 104 $ 5,699 $ (835) $ (300) $ 4,668
Net Earnings ............... -- -- 305 -- 305
------------ ------------ ------------ ------------ ------------
March 31, 1999 ............. $ 104 $ 5,699 $ (530) $ (300) $ 4,973
============ ============ ============ ============ ============
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
3
<PAGE>
TENERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
------------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ............................................................ $ 305 $ 533
Adjustments to reconcile net earnings to cash (used) provided by
operating activities:
Depreciation .......................................................... 48 23
Gain on sale of Technologies business ................................. -- (300)
Changes in assets and liabilities:
Receivables ......................................................... (1244) (605)
Other current assets ................................................ 29 24
Accounts payable .................................................... 392 824
Accrued compensation and related expenses ........................... 183 183
Income taxes payable ................................................ 150 168
------------- ------------
Net Cash (Used) Provided By Operating Activities .................. (137) 850
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment ................................... (60) (36)
Proceeds from repayment of Asset Sale note .............................. -- 300
------------- ------------
Net Cash (Used) Provided in Investing Activities ................. (60) 264
------------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ...................... (197) 1,114
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 3,361 2,292
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 3,164 $ 3,406
------------- ------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
4
<PAGE>
TENERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(Unaudited)
Note 1. Organization
TENERA, Inc.(the "Company"), a Delaware corporation, is the parent company
of the subsidiaries described below.
TENERA Rocky Flats, LLC ("Rocky Flats"), a Colorado limited liability
company, was formed by the Company in 1995, 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. In May 1997, the Company's other government
business was consolidated within the Rocky Flats subsidiary. This business
provides consulting and management services to the DOE directly and through
subcontracts with DOE prime contractors. These services provide assistance to
DOE-owned nuclear facilities in devising, implementing, and monitoring
strategies to upgrade from an operational, safety, and environmental
perspective.
TENERA Energy, LLC ("Energy"), a Delaware limited liability company, was
formed by the Company in May 1997, to consolidate its commercial electric power
utility business into a separate legal structure. The Energy subsidiary provides
consulting, management services, and training programs in organizational
effectiveness and organizational development, environmental outsourcing and
monitoring, risk analysis and modeling, and business process improvement.
TENERA Technologies, LLC ("Technologies"), a Delaware limited liability
company, was formed by the Company in May 1997 to consolidate its mass
transportation business into a separate legal entity. Before the Asset Sale
described below, Technologies provided computerized maintenance management
software and consulting to the mass transit industry. On November 14, 1997, the
Company consummated the sale of all of the assets ("Asset Sale") related to
Technologies' mass transportation business, to Spear Technologies, Inc., a
California corporation newly formed by former members of the Company's
management. The Company received $1,300,000 in cash, a promissory note in the
amount of $300,000, and a warrant to acquire 4% of the buyer's then outstanding
shares of common stock exercisable upon an initial public offering or a change
of control (as defined in the warrant). The buyer also assumed all liabilities
associated with the Technologies business.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation. The accompanying condensed consolidated financial
statements include the accounts of the Company and its subsidiaries 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, 1999, and the results of operations and cash
flows for the three-month periods ended March 31, 1999 and 1998, 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, 1998, filed with the Securities and Exchange Commission.
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, money market accounts, 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.
5
<PAGE>
Property and Equipment. Property and equipment are stated at cost
($2,401,000 and $2,382,000 at March 31, 1999 and December 31, 1998,
respectively), net of accumulated depreciation ($2,195,000 and $2,188,000 at
March 31, 1999 and December 31, 1998, respectively). Depreciation is calculated
using the straight line method over the estimated useful lives, which range from
three to five years.
Revenue. The Company primarily offers its services to the electric power
industry and the DOE. 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).
The Company performs credit evaluations of these clients 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 financial
statements.
During the first quarter of 1999, three clients accounted for 31%, 24%,
and 18% of the Company's total revenue. During the same period in 1998, three
clients accounted for 37%, 25% and 14% of the total revenue.
Income Taxes. The Company is a C Corporation subject to federal and state
statutory income tax rates for income earned. For the three-month period ended
March 31, 1999, a provision for federal and state income taxes was made at a
combined rate of approximately 43%. For the comparable period in 1998, a
provision for income taxes was made at a rate of approximately 25% on a combined
federal and state basis, which reflects the benefit of net operating loss
carryforwards.
Per Share Information. In 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share" ("FAS 128"). FAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share and includes the effect of dilutive
stock options. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the FAS 128
requirements. A reconciliation of the denominators of the basic and diluted
earnings per share computations required by FAS 128 are presented in Note 3.
Comprehensive Income. In 1997, the Financial Accounting Standards Board
issued No. 130, "Reporting Comprehensive Income" ("FAS 130"), which requires
that all items that are required to be recognized under accounting standards as
comprehensive income (revenues, expenses, gains and losses) be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company does not have material components of other
comprehensive income. Therefore, comprehensive income is equal to net earnings
reported for all periods presented.
Disclosures about Segments of an Enterprise. In 1997, the Financial
Accounting Standards Board issued No. 131, "Disclosures about Segments of an
Enterprise and Related Information," (FAS 131"), which establishes standards for
the way public business enterprises report information about operating segments
in annual financial statements. The Company has one reportable operating segment
under this statement, which is providing services with respect to operations,
maintenance, safety, strategic business and risk management, and
environmental/ecological issues for electric utility and DOE facilities. The
required disclosures are reflected in the financial statements.
6
<PAGE>
Note 3. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Quarter Ended March 31,
-----------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Numerator:
Net earnings .................................................. $ 305 $ 533
============= ============
Denominator:
Denominator for basic earnings per share --
weighted-average shares outstanding............................. 10,129 10,123
Effect of dilutive securities:
Employee & Director stock options (Treasury stock method) ... 413 --
------------- ------------
Denominator for diluted earnings per share --
weighted-average common and common equivalent shares ........... 10,542 10,123
============= ============
Basic earnings per share ........................................ $ 0.03 $ 0.05
============= ============
Diluted earnings per share ...................................... $ 0.03 $ 0.05
============= ============
- --------------------------------------------------------------------------------------------------------
</TABLE>
7
<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
-----------------------
Quarter Ended March 31,
-----------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue ......................................................................... 100.0% 100.0%
Direct Costs .................................................................... 78.5 73.8
General and Administrative Expenses ............................................. 16.0 21.4
Special Item Income ............................................................. -- 4.9
Other Income .................................................................... -- 1.4
--------- ---------
Operating Income .............................................................. 5.5 11.1
Interest Income, Net ............................................................ 0.3 0.5
--------- ---------
Net Earnings Before Income Tax Expense .......................................... 5.8% 11.6%
========= =========
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Results of Operations
The Company's increased revenue in its Rocky Flats subsidiary resulted in
quarterly net earnings before income tax expense of $535,000 for the three month
period ended March 31, 1999. Net earnings before income tax expense and special
item income for the comparable quarter in 1998 was $408,000.
During the first quarter, the Company received written contracts and
orders having an estimated value of approximately $5.6 million. The activity
primarily reflects the additional funding of the Company's contract at the DOE's
Rocky Flats Environmental Technology Site and the extension of consulting
contracts with two large electric utility clients. Contracted backlog for
current, active projects totaled approximately $14.8 million as of March 31,
1999, down from $18.5 million at December 31, 1998.
The 52% revenue increase in the first quarter of 1999, compared to a year
ago, is primarily the result of increased Rocky Flats Contract activity. For the
first quarter of 1999, the concentration of revenue from the government sector
increased to 82% of total revenue, from 73% for the same period in 1998.
Direct costs were higher in the first quarter of 1999, compared to a year
ago, primarily as a result of increased revenue generation opportunities and the
related use of subcontractor teams under the Rocky Flats Contract. Gross margins
decreased to 22% in the first quarter of 1999, from 26% for the same period in
1998, primarily due to an increase in the proportion of lower margin government
projects.
General and administrative costs were 14% higher in the first quarter of
1999, compared to a year ago, primarily reflecting higher labor related costs
associated with the increase in revenue. General and administrative expenses, as
a percentage of revenue, for the three-month period, decreased to 16% in 1999
from 21% in 1998.
The special item of $300,000 in the first quarter of 1998, reflects the
additional realized gain from the Asset Sale associated with the repayment of
the Promissory Note (see Note 1 to the Consolidated Financial Statements).
8
<PAGE>
Other income of $86,000 for the first quarter of 1998, reflects certain
accounting and administrative services provided on a temporary basis to the
purchaser in the Asset Sale. These services ceased in November 1998.
Net interest income in 1999 and 1998 represents earnings from the
investment of cash balances in short-term, high-quality, government and
corporate debt instruments. The lower net interest income in 1999, as compared
to a year ago, primarily reflects smaller average cash balances and lower
interest rates. The Company had no borrowings under its line of credit during
the first three months of 1999 and 1998.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $197,000 during the first three
months of 1999. The decrease was due to cash used by operations ($137,000) and
the acquisition of equipment ($60,000).
Receivables increased by $1,244,000 from December 31, 1998, primarily due
to an increase in Rocky Flats and Energy services revenue in the first quarter
of 1999. The allowance for sales adjustments remained at the same level as
December 31, 1998.
Accounts payable increased by $392,000 since the end of 1998, primarily
associated with supporting increased revenues. Accrued compensation and related
expenses increased by $183,000 during the period, primarily reflecting the
annual merit increases in employee salaries and fewer holiday and vacation days
in the first quarter of the year.
No cash dividend was declared in the first three months of 1999.
The impact of inflation on project revenue and costs of the Company was
minimal.
At March 31, 1999, the Company had available $2,500,000 of a $3,000,000
revolving loan facility. The Company has no outstanding borrowing against the
line; however, $500,000 is assigned to support standby letters of credit. The
line of credit expires in May 2000.
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.
Year 2000 Issue
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. The Year 2000 issue affects virtually all companies and organizations. The
Company's technical personnel are in the process of assessing the impact of the
Year 2000 issue on the Company's products and services.
The Company has established a two-phase program to ensure that its
proprietary software and internal computer systems are Year 2000 compliant. The
initial phase, which included planning, inventory and assessment, has been
substantially completed. The final phase, which consists of correction, testing,
deployment and acceptance, is in process and is expected to be completed by
mid-1999. The Company expects that the cost of making its proprietary software
and internal systems compliant will be less than $50,000 and will not have a
material effect on its overall financial position or results of operations.
The Company is also beginning the same two-phase program to assess the
risks to the Company of systems owned and operated by outside parties but used
by the Company in its leased and rented facilities which have embedded
technology, such as elevator and telephone systems, security systems, and other
physical office infrastructure. The Company is examining infrastructure issues
on an office-by-office basis and the initial phase was completed at the end of
1998. No costs have been expended by the Company through the first quarter of
1999. The final phase is planned to be completed by mid-1999 and the Company
expects to develop contingency plans to address any such embedded technology
issues as they are identified.
The Company is in the process of communicating with its major clients,
subcontractors, banking institution, and payroll vendor to determine whether
they are or will be Year 2000 compliant. By mid-1999, the Company expects to
9
<PAGE>
have identified and develop contingency plans for any such clients and vendors
who will not be Year 2000 ready.
Even with the effort to address the Year 2000 issue made by the Company to
date, there can be no assurance that the systems of other entities on which the
Company relies, including the Company's internal systems and proprietary
software, will be timely remediated, or that a failure to remediate by another
entity and/or the Company, would not have a material effect on the Company's
results of operations.
The Company will utilize both internal and external resources to
reprogram, or replace, and test software for Year 2000 modifications. The total
cost associated with the required modifications and conversions is not expected
to exceed $50,000, including infrastructure and embedded technology.
Forward-Looking Statements
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 the uncertainty of
future profitability; reliance on major customers; uncertainty regarding
industry trends and customer demand; uncertainty of access to additional
capital; reliance on key personnel; uncertainty regarding competition;
government contract audits; and Year 2000 issues, including the costs of
compliance and anticipated results, described above. Additional risks are
detailed in the Company's filings with the Securities and Exchange Commission
("SEC"), including its Form 10-K for the year ended December 31, 1998.
Item 3. Quantitative and Qualitative Disclosures of Market Risk
Not applicable.
10
<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.
11
<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.
Dated: May 10, 1999
TENERA, INC.
By /s/ JEFFREY R. HAZARIAN
-------------------------------------------------------
Jeffrey R. Hazarian
Executive Vice President and Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 3,164
<SECURITIES> 0
<RECEIVABLES> 6,670
<ALLOWANCES> 1,300
<INVENTORY> 0
<CURRENT-ASSETS> 10,030
<PP&E> 206
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,236
<CURRENT-LIABILITIES> 5,263
<BONDS> 0
<COMMON> 5,803
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,236
<SALES> 0
<TOTAL-REVENUES> 9,282
<CGS> 0
<TOTAL-COSTS> 7,285
<OTHER-EXPENSES> 1,489
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (27)
<INCOME-PRETAX> 535
<INCOME-TAX> 230
<INCOME-CONTINUING> 305
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 305
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
