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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 .
--------- ----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy as information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of March 1, 2000, the aggregate market value of the Registrant's Common
Stock held by nonaffiliates of the Registrant was $10,717,937 based on the last
transaction price as reported on the American Stock Exchange. This calculation
does not reflect a determination that certain persons are affiliates of the
Registrant for any other purposes.
The number of shares outstanding on March 1, 2000 was 9,933,759.
(This page intentionally left blank.)
PART I
Item 1. Business
General
TENERA, Inc. ("TENERA" or 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 in 1995 to provide consulting and management services in
connection with participation in the Performance Based Integrating Management
Contract ("Rocky Flats Contract") at the DOE's Rocky Flats Environmental
Technology Site ("Site").
In 1997, the Company formed TENERA Energy, LLC ("Energy"), a Delaware
limited liability company, to consolidate its commercial electric power utility
business into a separate legal entity.
In November 1997, the Company consummated the sale of all of the assets
("Asset Sale") of its TENERA Technologies, LLC ("Mass Transportation")
subsidiary (see Notes 1 and 8 to Consolidated Financial Statements).
In 1999, the Company formed TENERA GoTrain.Net, LLC ("GoTrain.Net"), a
Delaware limited liability company, to engage in the joint venture design,
development, marketing, sale and maintenance of a web-based Corporate Distance
Learning Center ("CDLC"). The joint venture operation was established with its
minority interest partner, SoBran, Inc., an Ohio corporation, specializing in
Internet technologies. The CDLC is a robust, fully scaleable application tool
for managing all levels of training needs, from corporate universities to the
individual learner. The CDLC is also the Internet delivery platform for TENERA's
line of interactive, multi-media, regulatory-driven training products and
services (Technology Enhanced Training or "TET").
In February 2000, the Company purchased the Internet-based development and
support services business of SoBran, Inc., to provide support for TENERA's
Technology Enhanced Training Services group ("TET Group") and for its line of
Internet-based, regulatory-driven training products and services. The
acquisition also included SoBran's minority interest in TENERA GoTrain.Net, LLC.
The Company's subsidiaries provide a broad range of professional
consulting, management, and technical services, along with business-to-business
(B2B) delivery of web-based driven training services ("TET Courses"), to solve
complex management, engineering, environmental, and safety challenges associated
with the operation, asset management, and maintenance of electric generating
plants, federal government properties, and capital intensive industries.
TENERA provides services and TET Courses to assist its commercial electric
power generation clients with respect to nuclear and fossil plant operations,
maintenance, and safety. This includes accelerated change management,
organizational diagnostics and effectiveness, online, interactive compliance and
regulatory-driven training applications, strategic business management, risk
management, and ecological services. For its governmental clients, TENERA
provides the Department of Energy ("DOE") and DOE prime contractors with
assistance in devising, implementing, and monitoring strategies to improve
performance and cost effectiveness from an operational, safety, and
environmental perspective at DOE-owned nuclear reactor sites and national
research laboratories.
TENERA has developed expertise in providing solutions to complex technical
and regulatory issues facing the commercial electric power generation industry.
Over the past several years, commercial electric utilities have experienced
increased competitive pressure due to continued deregulation. For example,
utilities are no longer able to recover capital expenditures through rate
increases, due to increasing competition from independent power producers,
alternative energy production, and cogeneration. During the same period,
utilities and independent power producers have responded to continued regulatory
pressures to comply with complex safety and environmental guidelines. Safety
problems and environmental issues have also emerged at government-owned weapons
production facilities. The end of the "Cold War" has prompted DOE to shut down
1
many of its aging weapons production facilities and begin the challenging task
of dismantling, disposal, and clean-up of the facilities. A massive program is
underway throughout the DOE complex of nuclear weapons production facilities and
national laboratories to implement this new shutdown mission, while complying
with health, safety, and environmental requirements similar to those applicable
to commercial facilities, principally in the areas of hazardous wastes,
decontamination, decommissioning, and remediation. Electric power generators, as
well as a variety of other industries, have been subjected to extensive
regulation regarding environmentally safe handling of hazardous materials.
Responding to this shift in national defense mission, as well as the
associated emerging regulatory compliance issues, the Company, using its joint
venture operation and strategic alliances, created the CDLC and a suite of
regulatory-driven training courses for delivery to its clients in a productive
and cost-effective manner, interactively via the Internet.
It has been TENERA's strategy to provide solutions to these issues by
providing clients with a high level of professional skills and a broad range of
scientific, technological, and management resources. These include software and
databases, which are used either in support of consulting projects or as the
basis for development of stand alone software products and systems. The Company
assists its clients in the initial identification and analysis of a problem, the
implementation of a feasible solution that the client believes will be sensitive
to business and public interest constraints, and the ongoing monitoring of that
solution.
Background
The Company's principal markets are the DOE-owned nuclear materials
production sites and national research laboratories, and the electric power
generation industry, including regulated and deregulated producers. The emerging
market for the Company's TET Courses includes those commercial operations that
are subject to compliance with federally mandated regulatory training
requirements.
The Company's largest business area, DOE-owned nuclear weapons production
sites, faces close scrutiny resulting from public concern over health, safety,
and the environment. The Company believes that DOE's new mission of closing
aging weapons plants, coupled with increased enforcement of environmental laws
and regulations continues to be prompted by publicity and public awareness of
environmental problems and health hazards posed by hazardous materials and toxic
wastes. The dismantlement and cleanup of the aging DOE weapons complex
represents a significant market for the Company's service offerings.
The DOE has begun the implementation of programs to address safety
problems and environmental concerns, which have emerged at its nuclear
facilities. These programs are designed to bring the operations into compliance
with a variety of health, safety, and environmental requirements, similar to
those applicable to the commercial electric utility industry. The DOE's
decontamination, decommissioning, and remediation programs are also aimed at
achieving significant cleanup of its hazardous waste production and storage
facilities and the partial shutdown of nuclear operations at a number of its
sites
The electric utility industry has undergone considerable change in recent
years and faces a complex mix of economic and regulatory pressures. There is
continuing deregulation of the production and distribution of electricity,
accompanied by the desire of utilities to meet demand for electricity through
higher operating efficiency. Some of the Company's largest electric utility
clients have responded to a more competitive environment by implementation of
significant cost control measures and activity in the merger and acquisition
arena.
Economic pressures have resulted in certain changes in the focus of
electric utility management. For example, the ratemaking process now represents
a significant area of risk to utilities. This has highlighted the importance of
careful planning and documentation in connection with rate case preparation.
Furthermore, utilities appear to be shifting their emphasis to ongoing
performance reviews in making their rate base decisions, related to such
measures as plant capacity factors. These changes in the ratemaking process
subject the utilities to substantial economic penalties for extended plant
outages and have stimulated actions by them to assure more reliable operations.
2
The markets for electric utility and DOE facility professional services
and software products cover a broad range of activities. Typical markets include
waste management, outage support, operating plant services, licensing support,
safety and health management, maintenance and information services,
decommissioning consulting, risk assessment, quality assurance and control,
organizational effectiveness, engineering support, records management, fuel
related services, plant security, and surplus asset disposal.
The market for the Company's emerging technology enhanced training
services is broad and encompasses those commercial operations that are subject
to compliance and regulatory-driven training requirements. The Company's initial
market penetration has been focused in the electric utility industry.
Traditionally a marketplace for instructor-led training, the Company believes
that Internet-based training will grow significantly over the next few years as
an important resource to meet the needs of this market.
Services and Products
The Company provides its services by utilizing its professional skills and
technological resources in an integrated approach, which combines strategic
consulting, technical, and project management capabilities with software systems
and databases. Services performed by the Company typically include one or more
of the following: consultation with the client to determine the nature and scope
of the problem, identification and evaluation of the problem and its impact,
development and design of a process for correcting the problem, preparation of
business plans, preparation of reports for obtaining regulatory agency permits,
and analysis in support of regulatory and legal proceedings. The Company
operates in one business segment providing services, which cover these general
areas: strategic consulting, management, and technical services.
The following table reflects the percentage of revenues derived for each
of these areas for the period indicated during the fiscal years ended December
31, 1997 through 1999:
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
Consulting, Management, and Technical Services ........................ 100.0% 100.0% 86.4%
Software Services, Products, and Systems* ............................. 0% 0% 13.6%
- ----------------------------------------------------------------------------------------------------------------
* Reflects only 10 months of revenues in 1997 due to the Asset Sale.
Consulting and Management Services. The Company's consulting and
management services involve determining a solution to client problems and
challenges in the design, operation, and management of large facilities. Focus
is also placed on providing expertise in the wide range of disciplines required
to resolve complex legal and regulatory issues and offering executives guidance
in strategic planning and implementing a coordinated, effective response to such
issues. The Company applies its professional skills, software, and specialized
databases to all aspects of these problems and challenges in the following
general areas:
o Strategic business management
o Organizational effectiveness and change management
o Web-based technology enhanced training services
o Risk management
o Environmental and ecological issues at DOE and electric
utility facilities
o Operations and maintenance performance improvement
o Plant safety
o Nuclear safety and criticality at DOE facilities
o Engineering design review and verification
o Company/organized labor union consulting
o Surplus property management and disposal services
3
Marketing and Clients
Marketing. The Company's marketing strategy emphasizes its ability to
offer a broad range of services designed to meet the needs of its clients in a
timely and cost-efficient manner. The Company can undertake not only small tasks
requiring a few professionals but also the management, staffing, design, and
implementation of major projects which may last for many months and involve
large numbers of professionals and subcontractors in several geographic
locations. Characteristic of TENERA's marketing strategy are significant
projects in which initial contracts have been only a fraction of the ultimate
sale.
The Company provides financial incentives to attract senior technical
professionals with extensive utility industry experience and to encourage these
individuals to market the complete range of TENERA's services throughout
existing and potential customer organizations.
TENERA's marketing efforts are facilitated by the technical reputation and
industry recognition often enjoyed by its professional staff. TENERA's
reputation in the electric power industry and as a DOE contractor often leads to
invitations to participate at an early stage in the conceptualization of a
project. During this phase, the Company assists clients in developing an
approach for efficiently and productively solving a problem. If new services or
products are developed for a client, they generally are marketed to other
clients with similar needs.
The Company's reputation also leads to invitations to participate in
multi-company teams assembled to bid on large DOE or utility projects.
Clients. During the year ended December 31, 1999, TENERA provided services
to over 35 clients involving over 55 contracts. During the year ended December
31, 1998, TENERA provided services to over 35 clients involving over 65
contracts. Over 80% of TENERA's clients during the year ended December 31, 1999,
had previously used its services.
During the year ended December 31, 1999, three clients, Kaiser-Hill
Company, LLC ("Kaiser-Hill"), prime contractor of the Rocky Flats Contract,
Rocky Mountain Remediation Services, LLC ("RMRS"), a prime subcontractor of the
Rocky Flats Contract, and Safe Sites of Colorado, LLC ("Safe Sites"), a prime
subcontractor of the Rocky Flats Contract, accounted for 75% of the Company's
total revenue (Kaiser-Hill - 32%; RMRS - 26%; Safe Sites - 17%). During the year
ended December 31, 1998, two clients accounted for 64% of the Company's total
revenue (Kaiser-Hill - 37%; Safe Sites - 27%;). The Company has maintained
working relationships with Kaiser-Hill, RMRS, and Safe Sites for five years,
during which time various contracts have been completed and replaced with new or
follow-on contracts. There can be no assurance that these relationships will be
maintained at current levels or beyond the existing contracts, and the loss of
these clients would have a material adverse effect on the Company (see
"Operating Risks").
Operations
The Company primarily contracts for its services in one of three ways:
time and materials ("T & M"), time and materials plus incentive fee ("TMIF"), or
fixed price. T & M and TMIF contracts, which cover the majority of TENERA's
revenues, are generally billed monthly by applying a multiplier factor to
specific labor costs or by use of a fixed hourly labor rate charged to each
project. T & M and TMIF contracts are generally structured to include
"not-to-exceed" ceilings; however, if after initial review or after work has
started, it is noted that additional work is required, the contract normally can
be renegotiated to include such additional work and to increase the contract
ceiling accordingly. Also, prior to the Asset Sale, the Company received license
and annual maintenance fees from contracts involving software products. During
the year ended December 31, 1997, such fees amounted to $600,000.
4
Fixed-price contracts are generally applicable where TENERA has been
requested to deliver services and/or products previously developed by it or
deliverable to multiple customers. At December 31, 1999, of the total
outstanding contracts, less than 10% were fixed-price.
TENERA generally receives payments on amounts billed 30 to 90 days after
billing, except for retention under contracts. Since the majority of TENERA's
clients are utility companies, DOE, or DOE prime contractors, TENERA
historically has experienced a low percentage of losses due to poor credit
risks.
Backlog
As of December 31, 1999, TENERA had contracted a backlog of approximately
$15.3 million, all of which is cancelable by the clients. The Rocky Flats and
Energy subsidiaries account for $14.9 million and $.4 million, respectively, of
the backlog. Contracted backlog represents the aggregate of the remaining value
of those active contracts entered into by TENERA for services which are limited
by a contractual amount and does not include any estimates of open-ended
services contracts or unfunded backlog that may result from additions to
existing contracts.
Since all outstanding contracts are cancelable, there is no assurance that
the revenues from these contracts will be realized by the Company. If any
contract is canceled, there is no assurance that the Company will be successful
in replacing such contract.
Competition
The market for consulting and management services is highly competitive
and TENERA competes with several larger firms with significantly greater
resources. The primary competitive factor in the market for consulting and
management services is price, and certain of TENERA's competitors are able to
offer similar services at prices that are lower than those offered by TENERA
(see "Operating Risks").
Research and Development
It has been TENERA's policy to undertake development projects of software,
systems, and data bases only if they can be expected to lead directly to
proprietary products that may be generally marketable. A portion of TENERA's
research and development effort may be funded through customer-sponsored
projects, although the rights to the systems and databases generally remain with
TENERA. Because TENERA's research and development activities involve the
integration of customer-funded, cost sharing, and TENERA-funded projects, it is
not possible to segregate on a historical basis all of the specific costs
allocable as research and development costs. In 1999 and 1998, TENERA spent in
excess of $100,000 annually on software development related to its TET and
consulting services businesses, in contrast to expending in excess of $1.5
million in 1997 on software development related to its Mass Transportation
business prior to the Asset Sale.
Patents and Licenses
The Company does not hold any patents material to its business. TENERA
relies upon trade secret laws and contracts to protect its proprietary rights in
software systems and databases. The service and license agreements under which
clients acquire certain rights to access and use TENERA's software technology
generally restrict the clients' use of the systems to their own operations and
prohibit disclosure to others.
Personnel
At December 31, 1999, the Company employed a total of 164 consultants,
engineers, and scientists and a supporting administrative staff of 23 employees.
Eight employees hold doctorates and 52 employees hold master's degrees. TENERA
also retains the services of numerous independent contractors in order to
fulfill specific needs for particular projects. None of TENERA's employees are
represented by a labor union.
5
Item 2. Properties
The Company's headquarters are located in San Francisco, California, and
consist of approximately 13,500 square feet of leased office space, expiring in
October 2000. TENERA also leases approximately 6,500 square feet in Louisville,
Colorado, expiring in October 2000 and approximately 3900 square feet in
Knoxville, Tennessee, expiring in December 2000. Additionally, TENERA maintains
a 900 square feet project office in San Luis Obispo, California on a
month-to-month lease basis. As a result of the Asset Sale, TENERA vacated its
office space in Hartford, Connecticut, and is subleasing the space until lease
expiration in May 2000.
The Company believes that its facilities are well maintained and adequate
for its current needs. However, the Company expects to face a substantially
higher lease rate upon expiration of its San Francisco lease in October 2000,
which may result in relocation of its headquarters.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Shares of the Company's Common Stock are listed for trading on AMEX under
the symbol TNR. The first trading day on AMEX was June 30, 1995, at which time
10,417,345 shares were outstanding. There were approximately 500 shareholders of
record as of March 1, 2000.
- ----------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
Price Range of Price Range of Price Range of
TENERA, Inc. Shares TENERA, Inc. Shares TENERA, Inc. Shares
------------------------- ------------------------- -------------------------
High Low High Low High Low
- ----------------------------------------------------------------------------------------------------------------
First Quarter ...... $ 2.00 $ 1.0625 $ 0.875 $ 0.50 $ 0.9375 $ 0.625
Second Quarter ..... 1.625 1.00 1.00 0.5625 0.8125 0.50
Third Quarter ...... 1.50 1.00 1.6875 0.6875 0.625 0.50
Fourth Quarter ..... 1.125 0.75 2.75 0.75 0.8125 0.50
- ----------------------------------------------------------------------------------------------------------------
The Board of Directors of the Company determines the amount of cash
dividends which the Company may make to shareholders after consideration of
projected cash requirements and a determination of the amount of retained funds
necessary to provide for growth of the Company's business. The Company has made
no distributions since 1991. The Company does not anticipate resumption of
dividends in the foreseeable future.
7
Item 6. Selected Financial Data
The following consolidated selected financial data of the Company for the
five prior years should be read in conjunction with the consolidated financial
statements and related notes included elsewhere.
TENERA, INC.
FINANCIAL HIGHLIGHTS
(In thousands, except per share and statistical amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
OPERATIONS DATA
Revenue ......................................... $37,922 $27,445 $21,121 $24,003 $25,545
Operating Income (Loss) ......................... 2,336 1,874 (2,139) (1,382) 1,203
Net Earnings (Loss) ............................. 1,342 1,674 (1,890) (1,080) 898
Earnings (Loss) per Share-- Basic ............... 0.13 0.17 (0.19) (0.11) 0.07
Earnings (Loss) per Share-- Diluted ............. 0.13 0.16 (0.19) (0.11) 0.07
Weighted Average Shares-- Basic.................. 10,050 10,124 10,123 10,248 9,920
Weighted Average Shares-- Diluted................ 10,409 10,450 10,123 10,248 10,014
CASH FLOW DATA
Net Cash Provided (Used) by Operating Activities $ 631 $ 906 $(2,681) $ 2,954 $ (286)
Net Increase (Decrease) in Cash and Cash Equivalents 132 1,069 (1,672) 2,490 (469)
FINANCIAL POSITION AT DECEMBER 31
Cash and Cash Equivalents ....................... 3,493 3,361 2,292 3,964 1,474
Working Capital ................................. 5,467 4,474 2,831 4,555 5,836
Total Assets .................................... 10,710 9,206 6,052 7,940 10,087
Total Liabilities ............................... 4,950 4,538 3,065 3,062 3,912
Stockholders' Equity............................. 5,760 4,668 2,987 4,878 6,175
OTHER INFORMATION
Number of Employees ............................. 187 196 187 208 270
- ----------------------------------------------------------------------------------------------------------------
8
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
TENERA, INC.
RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Percent of Revenue
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
Revenue ............................................................. 100.0% 100.0% 100.0%
Direct Costs ........................................................ 77.4 75.5 61.7
General and Administrative Expenses ................................. 16.4 19.7 38.5
Software Development Costs........................................... -- -- 7.2
Special Item Income ................................................. -- 1.1 1.7
Litigation Judgment Cost............................................. -- (0.1) 4.5
Other Income ........................................................ * 0.8 0.1
--------- --------- ----------
Operating Income (Loss) .......................................... 6.2 6.8 (10.1)
Interest Income, Net ................................................ 0.3 0.5 0.5
--------- --------- ----------
Net Earnings (Loss) Before Income Tax Expense (Benefit).............. 6.5% 7.3% (9.6)%
========= ========= ==========
- -----------------------------------------------------------------------------------------------------------------
* Less than 0.05%
Year Ended December 31, 1999 versus Year Ended December 31, 1998
The Company's increased revenue in its Rocky Flats subsidiary resulted in
net earnings, before income tax expense of $2,455,000, compared to net earnings
of $1,653,000 in 1998 before income tax expense, special item, and adjustment to
litigation judgment costs.
The revenue increase in 1999 is primarily the result of increased Rocky
Flats Contract activity. For 1999, the concentration of revenue from the
government sector increased to 81% of total revenue from 78% in 1998. Revenue
concentration from the government sector is expected to remain high in 2000. The
number of clients served during 1999 totaled over 35, approximately the same as
1998.
Direct costs were higher in 1999, primarily as a result of increased
revenue generation and the related use of subcontractor teams under the Rocky
Flats Contract. Gross margins decreased to 23%, in 1999 from 25% in 1998, mainly
due to an increase in the proportion of revenue derived from lower margin
government projects.
General and administrative costs were higher compared to a year ago,
primarily reflecting increased costs associated with the development of TET
Courses and the establishment of GoTrain.Net, and higher performance bonuses to
employees based on higher operating income. However, general and administrative
expenses, as a percentage of revenue, decreased to 16% in 1999 from 20% in 1998.
The special item of $300,000 in 1998, reflects the additional realized
gain from the Asset Sale associated with the repayment of the Promissory Note
(see Notes 1 and 8 to Consolidated Financial Statements).
The litigation judgment cost adjustment in 1998 relates to the settlement
of litigation for $50,000 less than the amount accrued in 1997 (see Note 7 to
Consolidated Financial Statements).
Other income in 1999 was immaterial. Other income in 1998 reflects certain
accounting and administrative services provided on a temporary basis to the
purchaser in the Asset Sale. These services ceased during the fourth quarter of
1998.
9
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 lower interest rates. The Company had no
borrowings under its line of credit during 1999 and 1998.
Year Ended December 31, 1998 versus Year Ended December 31, 1997
The Company's increased revenue in its Rocky Flats subsidiary, lower
overall general and administrative expenses, and the elimination of significant
ongoing development costs as a result of the Asset Sale in the fourth quarter of
1997, resulted in net earnings, before income tax expense, special item, and
adjustment to litigation judgment costs, of $1,653,000, compared to a loss of
$1,434,000 in 1997 before income tax benefit, special item, and accrual for
litigation judgment costs.
The revenue increase in 1998 was primarily the result of increased Rocky
Flats Contract activity, partially offset by the absence of Mass Transportation
revenue as a result of the Asset Sale. For 1998, the concentration of revenue
from the government sector increased to 78% of total revenue from 53% in 1997.
Approximately one-half of the increase in revenue concentration related to the
loss of Mass Transportation revenue as a result of the Asset Sale. The other
one-half of the revenue concentration increase was due to higher levels of Rocky
Flats Contract activity versus 1997. The number of clients served during the
year decreased to 35 from 40 (excluding 20 clients associated with the Mass
Transportation business) in 1997.
Direct costs were higher in 1998, primarily as a result of increased
revenue generation and the related use of subcontractor teams under the Rocky
Flats Contract. Gross margins decreased to 25%, in 1998 from 38% in 1997, mainly
due to an increase in the proportion of revenue derived from lower margin
government projects.
General and administrative costs were lower compared to the prior year,
primarily reflecting increased utilization of employees on billable contracts
and reduced corporate and subsidiary administrative staffs. General and
administrative expenses also decreased, as a percentage of revenue, to 20% in
1998 from 39% in 1997.
Due to the Asset Sale, the Company's software product development
expenditures were not material in 1998, as compared to $1,531,000 in 1997.
Effective November 14, 1997, the Company consummated the sale of all of
the assets related to the Mass Transportation business for $1,300,000 in cash, a
promissory note in the amount of $300,000, a warrant to acquire 4% of the then
outstanding shares of the buyer's common stock, exercisable upon the occurrence
of an initial public offering or a change of control (as defined in the
warrant), plus the assumption of all liabilities associated with the Mass
Transportation business. The Mass Transportation subsidiary was not expected to
produce profitable results in the subsequent twelve months due to the
anticipated high level of investment needs to develop its products and for its
business development activities. The special item of $355,000 in 1997 reflected
the realized gain (exclusive of the effect of the note and warrant) from the
Asset Sale (see Notes 1 and 8 to Consolidated Financial Statements). The note
was repaid in full in February 1998, and an additional gain of $300,000 was
reported in 1998 as a special item. In December 1999, the warrant was exchanged
for convertible preferred stock equivalent to 4% ownership of the buyer on a
fully diluted basis under the capital structure at the time of the exchange, and
a redemption right equal to $525,000 in the event of the buyer's liquidation
(see Note 8 to Consolidated Financial Statements).
On February 10, 1998, the Company was notified by the Superior Court for
Alameda County of the trial judge's decision against the defendants in the
action entitled PLM Financial Services, Inc. v TERA Corporation, et al. (Case
No. 743 439-0, the "PLM Litigation"), in which TENERA and others were named as
defendants. Damages were not specified in the Court's decision, but based on
exposure estimates by the Company's counsel, the Company accrued litigation
judgment expenses of $950,000 in 1997 related to this matter. In May 1998, the
Company settled the case for $950,000 in cash, of which approximately $50,000
was paid by a co-defendant, TERA Corporation Liquidating Trust. The litigation
judgment cost adjustment of $50,000 in 1998 reflected the lower amount paid by
the Company versus the accrual established in 1997 (see Note 7 to Consolidated
Financial Statements).
10
Other income in 1998 reflected temporary accounting and administrative
services provided to the buyer in the Asset Sale. These services ceased during
the fourth quarter of 1998. Other income in 1997 reflects gains on the sale of
assets related to facility downsizing.
Net interest income in 1998 and 1997 represents earnings from the
investment of cash balances in short-term, high-quality, government and
corporate debt instruments. The higher net interest income in 1998, as compared
to a year ago, primarily reflects larger average cash balances. The Company had
no borrowings under its line of credit during 1998 and 1997.
Liquidity and Capital Resources
Cash and cash equivalents increased by $132,000 during 1999. The increase
was due to cash provided by operations ($631,000), partially offset by the net
acquisition of equipment ($249,000) and the repurchase of the Company's Common
Stock ($250,000).
Receivables increased by $1,127,000 from December 31, 1998, primarily due
to an increase in revenue in 1999. The allowance for sales adjustments decreased
$2,000 from December 31, 1998.
Accounts payable increased by $598,000 since the end of 1998, primarily
associated with higher direct costs supporting increased revenues. Accrued
compensation and related expenses decreased by $86,000 during 1999, primarily
reflecting lower usage of self-insured medical benefits in 1999.
No cash dividend was declared in 1999.
The impact of inflation on project revenue and costs of the Company was
minimal.
At December 31, 1999, the Company had available $2,500,000 of a $3,000,000
revolving loan facility with its lender which expires in May 2000. The Company
expects to renew on substantially the same terms. 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.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $40,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly (see "Operating Risks").
Operating Risks
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
the risks and uncertainties which could cause actual results to differ
materially from those projected, including those risks and uncertainties
discussed below.
Reliance on Major Customers; Concentration of Revenue from the Government
Sector. During fiscal 1999, three customers, Kaiser-Hill, RMRS, and Safe Sites,
accounted for approximately 75% of the Company's total revenues, and during
1998, two customers, Kaiser-Hill and Safe Sites, accounted for approximately 64%
of the Company's total revenues. Additionally, for 1999, the concentration of
11
the Company's total revenue from the government sector increased to 81% of total
revenue from 78% in 1998. This level of concentration of revenues from the lower
margin government sector is expected to continue and possibly increase in the
future. Further, all outstanding customer contracts are cancelable upon notice
by either party, and therefore, there can be no assurance that relationships
with customers will be maintained at existing levels, or at all. The
discontinuation or material reduction of business relations with any of these
customers would have a material adverse impact on TENERA's business (see Item 1,
"Business -- Marketing and Clients").
History of Losses; Uncertainty of Future Profitability. Although the
Company had net earnings of $0.8 million in 1992, $1.7 million in 1998, and $1.3
million in 1999, net (losses) over the period 1991 through 1997 were $(6.4
million) in 1991, $(0.3 million) in 1993, $(1.2 million) in 1994, $0.9 million
in 1995, $(1.1 million) in 1996, $(1.9 million) in 1997. There can be no
assurance of the level of earnings, if any, that the Company will be able to
derive in the future.
Uncertainty Regarding Industry Trends and Customer Demand. As a result of
the slowdown in the construction of power plants and the absence of new power
plants scheduled for construction, as well as the gradual deregulation of the
production and distribution of electricity, the market for engineering services
relating to licensing and construction of power plants has contracted, and the
market for services related to efficient and profitable operation of existing
capacity has expanded. There can be no assurance that (i) TENERA will have the
financial and other resources necessary to successfully research, develop,
introduce, and market new products and services, (ii) if, or when, such new
products or services are introduced, they will be favorably accepted by current
or potential customers, or (iii) TENERA will be otherwise able to fully adjust
its services and products to meet the changing needs of the industry (see Item
1, "Business -- Background").
Uncertainty of Access to Capital. Management currently believes that cash
expected to be generated from operations, the Company's working capital, and its
available loan facility, are adequate to meet its anticipated near-term needs.
If cash from operations is less than currently anticipated, TENERA may need to
seek other sources of capital. There can be no guarantee that such sources will
be available in sufficient amounts or on terms favorable to TENERA, or at all.
Reliance on Key Personnel. Due to the nature of the consulting and
professional services business, the Company's success depends, to a significant
extent, upon the continued services of its officers and key technical personnel
and the ability to recruit additional qualified personnel. The Company
experienced a historically high rate of turnover as revenue and earnings began
to decline in 1991 and thereafter. Further loss of such officers and technical
personnel, and the inability to recruit sufficient additional qualified
personnel, could have a material adverse effect on the Company.
Government Contracts Audits. The Company's United States government
contracts are subject in all cases to audit by governmental authorities. In
1994, an audit was concluded, which began in 1991, of certain of its government
contracts with the DOE relating to the allowability of certain employee
compensation costs. The Company made a special charge to earnings in 1991 for a
$2.4 million provision for the potential rate adjustments then disputed by the
Company and the government. As a result of resolving certain issues in the
dispute, the Company recognized increases to earnings of $500,000 in 1994 and
$250,000 in 1996. Cash payments to clients associated with the settlement, which
are estimated to be between $400,000 and $500,000, which were accrued for in the
1991 Special Charge to earnings, are expected to be made as government contracts
with individual clients are closed out. There can be no assurance that no
additional charges to earnings of the Company may result from future audits of
the Company's government contracts.
Competition. The market for management and consulting services is highly
competitive and TENERA competes with several larger firms with significantly
greater resources. Significant competitive factors in the market for engineering
and management services are price and the ability to offer new products and
services designed to meet changing customer demand. A number of TENERA's
competitors are able to offer such services at prices that are lower than those
offered by TENERA, and to devote far greater resources toward the development of
new products and services. This competition has had, and is expected to continue
to have, a material adverse impact on TENERA's business.
12
Year 2000 Issue. The Company has corrected its known internal Year 2000
system problems and has received notification from key vendors and clients that
their systems are Year 2000 compliant. Furthermore, the Company has not
experienced any material problems subsequent to the date change. However, the
Company has no control over the systems of third parties and it is possible that
Year 2000 problems may occur at a later date, which could materially affect the
Company's business operations and financial condition. For example, if a major
client has a Year 2000 problem with its accounts payable system, payment of the
Company's invoices could be delayed, adversely affecting cash flow.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The Company has minimal exposure to market and interest risk as the
Company invests its excess cash in instruments, which mature within 90 days from
the date of purchase. The Company does not have any derivative instruments.
13
Item 8. Financial Statements and Supplementary Data
TENERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
Revenue .................................................... $ 37,922 $ 27,445 $ 21,121
Direct Costs ............................................... 29,351 20,718 13,038
General and Administrative Expenses ........................ 6,236 5,416 8,131
Software Development Costs ................................. -- -- 1,531
Special Item Income ........................................ -- 300 355
Litigation Judgment Cost ................................... -- (50) 950
Other Income ............................................... 1 213 35
------------- ------------ ------------
Operating Income (Loss).................................. 2,336 1,874 (2,139)
Interest Income, Net ....................................... 119 129 110
------------- ------------ ------------
Net Earnings (Loss) Before Income Tax Expense (Benefit).. 2,455 2,003 (2,029)
Income Tax Expense (Benefit)............................... 1,113 329 (139)
------------- ------------ ------------
Net Earnings (Loss)......................................... $ 1,342 $ 1,674 $ (1,890)
============= ============ ============
Net Earnings (Loss) per Share-- Basic ...................... $ 0.13 $ 0.17 $ (0.19)
============= ============ ============
Net Earnings (Loss) per Share-- Diluted .................... $ 0.13 $ 0.16 $ (0.19)
============= ============ ============
Weighted Average Number of Shares Outstanding-- Basic....... 10,050 10,124 10,123
============= ============ ============
Weighted Average Number of Shares Outstanding-- Diluted..... 10,409 10,450 10,123
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
14
TENERA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
- ----------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents ............................................... $ 3,493 $ 3,361
Receivables, less allowances of $1,298 (1998 - $1,300)
Billed ................................................................ 3,587 2,692
Unbilled .............................................................. 2,968 2,734
Other current assets .................................................... 369 225
------------ ------------
Total Current Assets ................................................ 10,417 9,012
Property and Equipment, Net ................................................ 293 194
------------ ------------
Total Assets ...................................................... $ 10,710 $ 9,206
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable......................................................... $ 3,112 $ 2,514
Accrued compensation and related expenses ............................... 1,838 1,924
Income taxes payable .................................................... -- 100
------------ ------------
Total Current Liabilities ........................................... 4,950 4,538
Stockholders' Equity
Common Stock, $0.01 par value, 25,000,000 authorized, 10,417,345 issued . 104 104
Paid in capital, in excess of par ....................................... 5,699 5,699
Retained earnings (Accumulated deficit).................................. 507 (835)
Treasury stock-- 483,586 shares (1998 - 287,942 shares) ................. (550) (300)
------------ ------------
Total Stockholders' Equity .......................................... 5,760 4,668
------------ ------------
Total Liabilities and Stockholders' Equity ........................ $ 10,710 $ 9,206
============ ============
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
15
TENERA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
- --------------------------------------------------------------------------------------------------------------
Paid-In Retained
Capital in Earnings
Common Excess (Accumulated Treasury
Stock of Par Deficit) Stock Total
- --------------------------------------------------------------------------------------------------------------
December 31, 1996 ...... $ 104 $ 5,698 $ (619) $ (305) $ 4,878
Repurchase of 1,694 Shares -- -- -- (1) (1)
Net Loss ............... -- -- (1,890) -- (1,890)
------------- ------------- ------------- -------------- ---------------
December 31, 1997 ...... 104 5,698 (2,509) (306) 2,987
Issuance of 6,250 Shares -- 1 -- 6 7
Net Earnings ........... -- -- 1,674 -- 1,674
------------- ------------- ------------- -------------- ---------------
December 31, 1998 ...... 104 5,699 (835) (300) 4,668
Repurchase of 195,644 Shares -- -- -- (250) (250)
Net Earnings ........... -- -- 1,342 -- 1,342
------------- ------------- ------------- -------------- ---------------
December 31, 1999 ...... $ 104 $ 5,699 $ 507 $ (550) $ 5,760
============= ============= ============= ============== ===============
- --------------------------------------------------------------------------------------------------------------
See accompanying notes.
16
TENERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)...................................... $ 1,342 $ 1,674 $ (1,890)
Adjustments to reconcile net earnings (loss) to
cash provided (used) by operating activities:
Depreciation .......................................... 151 108 231
Gain on sale of equipment ............................. (1) (2) (21)
Gain on sale of Mass Transportation business .......... -- (300) (355)
Decrease in allowance for sales adjustments ........... (2) (58) (146)
Changes in assets and liabilities:
Receivables ......................................... (1,127) (1,999) (1,243)
Other current assets ................................ (144) 10 222
Accounts payable .................................... 598 1,876 (128)
Accrued compensation and related expenses ........... (86) 447 (301)
Litigation judgment accrual ......................... -- (950) 950
Income taxes payable ................................ (100) 100 --
------------- ------------ ------------
Net Cash Provided (Used) by Operating Activities .. 631 906 (2,681)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment ................... (250) (146) (311)
Proceeds from sale of equipment ......................... 1 2 21
Proceeds from sale of Mass Transportation business ...... -- 300 1,300
------------- ------------ ------------
Net Cash (Used) Provided by Investing Activities . (249) 156 1,010
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of Common Stock .............................. (250) -- (1)
Issuance of common stock from Treasury................... -- 7 --
------------- ------------ ------------
Net Cash (Used) Provided by Financing Activities .. (250) 7 (1)
------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......
132 1,069 (1,672)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .............
3,361 2,292 3,964
------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................... $ 3,493 $ 3,361 $ 2,292
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
17
TENERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 technology enhanced training programs in
organizational effectiveness and organizational development, environmental
outsourcing and monitoring, risk analysis and modeling, and business process
improvement.
TENERA Technologies, LLC ("Mass Transportation"), 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, Mass Transportation 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 the Mass Transportation business, to Spear Technologies, Inc.
("Spear"), a California corporation newly formed by former members of the
Company's management (see Note 8).
TENERA GoTrain.Net, LLC ("GoTrain.Net"), a Delaware limited liability
company, was formed by the Company in October 1999, as a joint venture operation
to design, develop, market, and maintain a web-based Corporate Distance Learning
Center ("CDLC"). The joint venture was established with its minority interest
partner, SoBran, Inc., an Ohio corporation specializing in Internet
technologies. In February 2000, the Company purchased the Internet-based
development and support business of SoBran, Inc., including SoBran's minority
interest in GoTrain.Net.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation. The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries. All intercompany
accounts and transactions have been eliminated.
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 materially 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. Cash and cash equivalents are carried at cost, which
approximates fair value. The Company includes in cash and cash equivalents, all
short-term, highly liquid investments, which mature within three months of
acquisition.
Concentrations of Credit Risk and Credit Risk Evaluations. Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents and accounts receivable.
Cash and cash equivalents consist principally of demand deposit, money market
accounts, and commercial paper issued by companies with strong credit ratings.
Cash and cash equivalents are held with various domestic financial institutions
18
with high credit standing. The Company has not experienced any significant
losses on its cash and cash equivalents. The Company conducts business with
companies in various industries primarily in the United States. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral. Allowances are maintained for potential credit issues, and
such losses to date have been within management's expectations.
Property and Equipment. Property and equipment are stated at cost
($2,587,000 and $2,382,000 at December 31, 1999 and 1998, respectively), net of
accumulated depreciation ($2,294,000 and $2,188,000 at December 31, 1999 and
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 United States
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 1999, three clients accounted for 32%, 26%, and 17% of total
revenue. In 1998, two clients accounted for 37%, and 27% of the Company's total
revenue, and in 1997, three clients accounted for 43%, 14%, and 10% of total
revenue.
Income Taxes. The Company uses the liability method to account for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. The Company is a C Corporation subject to federal and state statutory
income tax rates for income earned. Due to a net loss in 1997, an income tax
benefit was recorded for that year. During 1998, a provision for income taxes
was made after taking into account net operating loss carryforwards from
previous years. In 1999, a provision for federal and state income taxes was made
at a combined rate of 45% (see Note 5).
Accounting for Stock-Based Compensation. The Company accounts for employee
stock options in accordance with Accounting Principles Board Opinion No. 25
("APB 25") and has provided the pro forma disclosures required by Statement of
Financial Standards No. 123, "Accounting for Stock-Based Compensation," ("FAS
123") in Note 4.
Per Share Computation. Basic earnings (loss) per share is computed by
dividing net earnings (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities by adding other common stock equivalents, including stock
options, warrants and convertible preferred stock, in the weighted average
number of common shares outstanding for a period, if dilutive. Due to the loss
from operations in 1997, loss per share is based on the weighted average number
of common shares only, as the effect of including equivalent shares from stock
options would be anti-dilutive.
19
The following table sets forth the computation of basic and diluted (loss)
earnings per share as required by Financial Accounting Standards Board Statement
No. 128:
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
Numerator:
Net earnings (loss) ..................................... $ 1,342 $ 1,674 $ (1,890)
Denominator:
Denominator for basic earnings per share--
weighted-average shares outstanding....................... 10,050 10,124 10,123
Effect of dilutive securities:
Employee & Director stock options (Treasury stock
method) .................................................... 359 326 --
Denominator for diluted earnings per share--
weighted-average common and common equivalent shares ..... 10,409 10,450 10,123
============= ============ ============
Basic earnings (loss) per share ........................... $ 0.13 $ 0.17 $ (0.19)
============= ============ ============
Diluted earnings (loss) per share ......................... $ 0.13 $ 0.16 $ (0.19)
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
Comprehensive Income (Loss). The Company does not have material components
of other comprehensive income. Therefore, comprehensive income (loss) is equal
to net earnings (loss) reported for all periods presented.
Disclosures about Segments of an Enterprise. The Financial Accounting
Standards Board Statement 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.
Recent Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"),
which establishes accounting and reporting standards for derivative instruments
and hedging activities. FAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The Company will be required to adopt FAS 133
effective January 1, 2001. Management of the Company does not believe the
adoption of this statement will have a material effect on the Company's
consolidated financial position, results of operations, or cash flows.
Note 3. Related Party Transactions
TERA Corporation Liquidating Trust ("Trust"). The Trust was established by
TERA Corporation ("Predecessor Corporation") in 1986, to facilitate the orderly
sale or other disposition of the remaining assets and satisfaction of all
remaining debts and liabilities of the Predecessor Corporation. As of May 31,
1998, the Trust was terminated after the total liquidation of its assets in
connection with the settlement of litigation with PLM Financial Services, Inc.
(see Note 7). The Company did not recognize any income or expense from the Trust
in 1999, 1998, and 1997.
20
Note 4. Employee Benefit Plans
401(k) Savings Plan. The 401(k) Savings Plan is administered through a
trust that covers substantially all employees. Employees can contribute amounts
to the plan, not exceeding 15% of salary. Effective January 1, 1998, the Company
matches employee contributions equal to 50% of the first 4% of salary deferred.
The Company, at its discretion, may also contribute funds to the plan for the
benefit of employees. In 1999 and 1998, charges to earnings for the 401(k)
Savings Plan were $164,000 and $233,000, respectively. There were no charges to
earnings in 1997 for the 401(k) Savings Plan. During 1999, 1998, and 1997, no
discretionary amounts were contributed to the plan by the Company.
Stock Option Plans. The Company has elected to follow APB 25 and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FAS
123 requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Under the provisions of the Company's 1992 Option Plan, 1,500,000 shares
are reserved for issuance upon the exercise of options granted to key employees
and consultants. During 1999, options were granted for 285,000 shares at an
exercise price of $1.3625, the then fair market value, expiring on March 9,
2005. In 1998, options were granted for 300,000, 20,000 and 50,000 shares at an
exercise price of $0.725, $0.5875 and $0.675, respectively, the then fair market
values, expiring on February 19, 2004, April 20, 2004 and July 1, 2004,
respectively. In 1997, options were granted for 370,000 and 50,000 shares at an
exercise price of $0.70 and $0.65, respectively, the then fair market values,
expiring on March 12, 2003 and May 1, 2003, respectively. During 1999, options
for 94,000 shares were canceled due to employee terminations (660,750 and
122,500 in 1998 and 1997, respectively). Options for 6,250 shares were exercised
in 1998, but no options were exercised in 1999 and 1997. As of December 31,
1999, options for 1,272,500 shares were outstanding and options for 921,250
shares were exercisable.
Under the provisions of the 1993 Outside Directors Compensation and Option
Plan, which was approved by the Board of Directors, effective March 1, 1994, as
amended in 1998, 300,000 shares are reserved for issuance upon the exercise of
options granted to non-employee directors. During 1999, options were granted for
62,500 shares at an exercise price of $1.375, the then fair market value,
expiring on March 1, 2009. In 1998, options were granted for 37,500 and 25,000
shares at an exercise price of $0.5625 and $0.75, respectively, the then fair
market value, expiring on March 1, 2008 and July 1, 2008, respectively. In 1997,
options were granted for 32,000 shares at an exercise price of $0.6875, the then
fair market value, expiring on March 1, 2007. During 1999, 12,500 options were
forfeited (8,000 share options were canceled in 1998 and 12,500 in 1997). No
options were exercised in 1999, 1998, and 1997. As of December 31, 1999, options
for 254,000 shares were outstanding and 204,000 were exercisable.
21
The combined stock option activity of the Company's two option plans is
summarized below:
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- ----------------------------------------------------------------------------------------------------------------
Outstanding--
Beginning of Year .. 1,285 $ 0.91 1,528 $ 0.98 1,211 $ 1.09
Granted ............ 347 1.36 432 0.70 452 0.69
Exercised .......... -- -- (6) 1.19 -- --
Forfeited .......... (106) 1.05 (669) 0.90 (135) 1.18
---------- ---------- ---------- ---------- ---------- ----------
Outstanding--
End of Year ........ 1,526 $ 1.00 1,285 $ 0.91 1,528 $ 0.98
========== ========== ========== ========== ========== ==========
Exercisable at
End of Year ........ 1,125 $ 0.99 811 $ 1.01 813 $ 1.09
- ----------------------------------------------------------------------------------------------------------------
Exercise prices for options outstanding as of December 31, 1999, ranged
from $0.5625 to $1.75. The weighted-average remaining contractual life of those
options is 4.4 years.
Proforma Disclosures of the Effect of Stock-Based Compensation. Pro forma
information regarding net earnings (loss) and earnings (loss) per share is
required by FAS 123 for fiscal years beginning after December 31, 1994, and has
been determined as if the Company had accounted for its stock options under the
fair value method of FAS 123. The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1999, 1998, and 1997: risk-free interest rates
of 5.3% for the March 1999 grants; 5.0% each for the February, March, April, and
July 1998 grants; and 6.0% and 5.85%, respectively, for the March and May 1997
grants; dividend yield of 0% for all years; volatility factors of the expected
market price of the Company's common stock of 0.56, 0.48, and 0.51,
respectively; and a weighted-average expected life of the option of five years
for all employee grants and seven years for director grants.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, options valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting periods of the options. The
Company has elected to base its initial estimate of compensation expense on the
total number of options granted. Subsequent revisions to reflect actual
forfeitures are made in the period the forfeitures occur through a catch-up
adjustment.
22
Pro forma information regarding the Company's net earnings (loss) and
earnings (loss) per share follows:
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
Net Earnings (Loss)-- As Reported .......................... $ 1,342 $ 1,674 $ (1,890)
Pro Forma Net Earnings (Loss)--FAS 123 ..................... 1,278 1,672 (1,940)
Net Earnings (Loss) per Share-- As Reported Basic .......... $ 0.13 $ 0.17 $ (0.19)
============= ============ ============
Net Earnings (Loss) per Share-- As Reported Diluted ........ $ 0.13 $ 0.16 $ (0.19)
============= ============ ============
Pro Forma Net Earnings (Loss) per Share-- FAS 123 Basic .... $ 0.13 $ 0.17 $ (0.19)
============= ============ ============
Pro Forma Net Earnings (Loss) per Share-- FAS 123 Diluted .. $ 0.12 $ 0.16 $ (0.19)
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
The weighted-average grant-date fair value of options granted, which is
the value assigned to the options under FAS 123, was $0.75, $0.35, and $0.36 for
grants made during years ended December 31, 1999, 1998, and 1997, respectively.
Note 5. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1999 and
1998, are as follows, using the liability method:
- ----------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------------
Current Deferred Tax Assets
Contract provisions not currently deductible .......................... $ -- $ 466
Accrued expenses not currently deductible ............................. 771 427
Fixed assets .......................................................... 40 --
Other ................................................................. 15 --
------------ ------------
Total Current Gross Deferred Tax Assets ........................... 826 893
------------ ------------
Less: Valuation Allowance ............................................ (727) (772)
Current Deferred Tax Liabilities
Revenue differences related to timing ................................. 99 121
------------ ------------
Net Current Deferred Tax Liabilities .............................. $ -- $ --
============ ============
- ----------------------------------------------------------------------------------------------------------------
23
The current tax provision (benefit) for the years ended December 31, 1999,
1998, and 1997, are as follows:
- -----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
Current:
Federal ..................................................... $ 927 $ 256 $ (137)
State ....................................................... 186 73 (2)
----------- ------------ ------------
Tax Provision (Benefit) ..................................... $ 1,113 $ 328 $ (139)
=========== ============ ============
- -----------------------------------------------------------------------------------------------------------------
The valuation allowance decreased by $45,000, during the year ended
December 31, 1999, for those deferred tax assets, which may not be realized. The
decrease primarily relates to the reduction of employee vacation and holiday
accrual balances during 1999.
The provision (benefit) for income taxes differed from the amount computed
by applying the statutory federal and state income tax rate for the years ended
December 31, 1999, 1998, and 1997, as follows:
- -----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
Federal Statutory Rate ........................................... 34% 34% (34)%
State Taxes, Net of Federal Benefit .............................. 5% 2% (3)%
Permanent Differences ............................................ 1% 1% (2)%
Valuation Allowance .............................................. (2)% (21)% 39 %
Other ............................................................ 7% -- --
Net Operating Loss Carryback ..................................... -- -- (7)%
----------- ------------ ------------
Income Tax (Benefit) Provision ................................... 45% 16% (7)%
=========== ============ ============
- -----------------------------------------------------------------------------------------------------------------
The Company paid income taxes of $1,363,000 in 1999 and $222,000 in 1998.
Note 6. Commitments and Contingencies
Leases. The Company occupies facilities under noncancelable operating
leases expiring at various dates through 2000. The leases call for proportionate
increases due to property taxes and certain other expenses. Rent expense
amounted to $349,000 for the year ended December 31, 1999 ($309,000 in 1998 and
$524,000 in 1997).
Minimum rental commitments under operating leases, principally for real
property, are as follows (in thousands):
(Year Ending December 31)
- ----------------------------------------------------------------------------------------------------------------
2000 ......................................................................................... $ 458
============
- ----------------------------------------------------------------------------------------------------------------
Revolving Loan Agreement. A loan agreement with a bank provides for a
revolving line of credit of $3,000,000, through May 2000. At December 31, 1999,
$2,500,000 was available under the credit line, and in addition, $500,000 was
24
assigned to support standby letters of credit. Amounts advanced under the line
of credit are secured by the Company's eligible accounts receivable. Under the
agreement, the Company is obligated to comply with certain covenants related to
equity, quick ratio, debt/equity ratio, and profits. The interest rate under the
agreement is the bank's prime rate (8.5% at December 31, 1999). During 1999,
1998, and 1997, the Company paid no interest expense, as there were no
borrowings.
Note 7. Litigation Judgment
On November 4, 1994, PLM Financial Services, Inc. ("PLM") filed an action,
entitled PLM Financial Services, Inc. v. TERA Corporation, et al., Case No. 743
439-0, against TENERA, L.P. (the predecessor of the Company; the "Predecessor
Partnership"), among others, in the Superior Court of California for the County
of Alameda, seeking damages in excess of $4.6 million in unpaid equipment rent
and other unspecified damages allegedly owing to PLM under an equipment lease
dated September 29, 1984 between PLM and TERA Power Corporation ("TERA Power"),
a former subsidiary of TERA Corporation (the "Predecessor Corporation"). PLM
named the Predecessor Partnership in the action pursuant to a Guaranty dated
September 24, 1984 of the lease obligations of TERA Power made by the
Predecessor Corporation. Upon the liquidation of the Predecessor Corporation in
late 1986, the stock of TERA Power was transferred to the TERA Corporation
Liquidating Trust (the "Trust") and was thereafter sold to Delta Energy Projects
Phases II, IV, and VI pursuant to a stock purchase agreement dated May 31, 1991.
TERA Power asserted various defenses to the claims asserted by PLM in the action
and the trial in this matter was concluded in August 1997. In February 1998, the
trial judge issued a minute order rendering his decision against the defendants
in the action. Accordingly, for the year 1997, the Company accrued litigation
judgment expenses of $950,000 related to this matter. In April 1998, the trial
judge entered a judgment in the amount of approximately $830,000 plus costs and
attorney fees, against TERA Power and TENERA, as guarantor. Counsel for PLM had
advised counsel for TENERA that PLM had incurred costs and attorney fees
exceeding $600,000, and, if this matter was not settled, PLM would file a cost
bill and motion for attorney fees in the action for such amounts.
On May 1, 1998, the Company settled the case for $950,000 in cash, which
was less than the Company's total exposure in the litigation. Of this amount,
approximately $50,000 was paid by the Trust (to the extent of its assets) and
the remainder was paid by the Company.
Note 8. Special Items
On November 14, 1997, the Company consummated the sale of all of the
assets related to Mass Transportation' 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 Spear's then
outstanding shares of common stock exercisable upon an initial public offering
or a change of control (as defined in the warrant). Spear also assumed all
liabilities associated with the Mass Transportation business. The special item
of $355,000 in 1997, reflects the gain on sale from the Asset Sale, exclusive of
the effect of the note and warrant. Full repayment of the note was contingent
upon a minimum amount of equity funding of the buyer, which had not occurred at
December 31, 1997. Therefore, the Company provided an allowance for the
potential uncollectability of the note in 1997. The note was repaid in full in
February 1998, and the additional gain of $300,000 was reported as a special
item in 1998. In December 1999, the warrant was exchanged for convertible
preferred stock, equivalent to 4% ownership of Spear on a fully diluted basis
under the capital structure at the time of the exchange, and a redemption right
equal to $525,000 in the event of Spear's liquidation. Neither the warrant nor
the preferred stock has been assigned any value in the financial statements as
the Company is not able to determine the recoverability of these assets.
25
Note 9. Selected Quarterly Combined Financial Data (Unaudited)
A summary of the Company's quarterly financial results follows.
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Quarter Ended Quarter Ended
--------------------------------------------- ---------------------------------------------
12/31/99 9/30/99 6/30/99 3/31/99 12/31/98 9/30/98 6/30/98 3/31/98
- ----------------------------------------------------------------------------------------------------------------
Revenue ..... $ 9,065 $10,163 $ 9,412 $ 9,282 $ 7,887 $ 7,014 $ 6,453 $ 6,091
Direct Costs 6,881 7,970 7,215 7,285 6,060 5,363 4,797 4,498
General and
Administrative
Expenses .... 1,847 1,385 1,515 1,489 1,486 1,283 1,345 1,302
Special Item
Income ..... -- -- -- -- -- -- -- 300
Litigation
Judgment Cost -- -- -- -- -- -- (50) --
Other Income -- -- 1 -- 32 42 53 86
-------- -------- -------- -------- -------- -------- -------- --------
Operating
Income ...... 337 808 683 508 373 410 414 677
Interest
Income ...... 36 30 26 27 33 31 34 31
-------- -------- -------- -------- -------- -------- -------- --------
Net Earnings
Before Income
Tax Expense.. 373 838 709 535 406 441 448 708
Income Tax
Expense ..... 174 404 305 230 80 20 54 175
-------- -------- -------- -------- -------- -------- -------- --------
Net Earnings $ 199 $ 434 $ 404 $ 305 $ 326 $ 421 $ 394 $ 533
======== ======== ======== ======== ======== ======== ======== ========
Net Earnings Per
Share-- Basic $ 0.02 $ 0.04 $ 0.04 $ 0.03 $ 0.03 $ 0.04 $ 0.04 $ 0.05
======== ======== ======== ======== ======== ======== ======== ========
Net Earnings Per
Share-- Diluted $ 0.02 $ 0.04 $ 0.04 $ 0.03 $ 0.03 $ 0.04 $ 0.04 $ 0.05
======== ======== ======== ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------
26
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
TENERA, Inc.
We have audited the accompanying consolidated balance sheets of TENERA,
Inc. at December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
TENERA, Inc. at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole presents fairly, in all material respects, the information set forth
therein.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
January 21, 2000
27
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
28
PART III
Item 10. Directors and Executive Officers of the Registrant
The following tables set forth certain information with respect to the
directors and executive officers of the Company.
The directors of the Company are as follows:
William A. Hasler, 58, has served as a Director of the Company since
his election in March 1992 and Chairman of the Board of the Company since
July 1998. Mr. Hasler is Co-Chief Executive Officer of Aphton Corporation,
a bio-technology firm. Previously, Mr. Hasler was dean of the Walter A.
Hass School of Business at the University of California, Berkeley. Prior
to his appointment as dean in 1991, Mr. Hasler was Vice Chairman of
Management Consulting for KPMG Peat Marwick from 1986 to 1991. Mr. Hasler
is also a director of Solectron Corporation., Aphton Corporation, Walker
Systems, and TCSI Corporation.
Jeffrey R. Hazarian, 44, has served as a Director of the Company
since his election in October 1996, and was named its Executive Vice
President in November 1997. He has also served as its Chief Financial
Officer and Corporate Secretary since 1992. Previously, Mr. Hazarian held
the position of Vice President of Finance from 1992 to 1997.
Thomas S. Loo, Esq., 56, was elected as a Director of the Company in
February 1997. He previously served as a Director of the Company from
August 1987 to September 1993. Mr.Loo has been a partner, since 1986, of
Bryan Cave LLP, general counsel to the Company. Mr.Loo has also served as
a director of Teknekron Corporation since March 1989.
Robert C. McKay, 48, has served as a Director of the Company since
his election in June 1997, and was appointed its Chief Executive Officer
and President in November 1997. Previously, Mr. McKay was Chief Operating
Officer of the Company since April 1997. He was elected Senior Vice
President of the Company in December 1992.
Andrea W. O'Riordan, 28, has served as Director of the Company since
her election in June 1998. Ms. O'Riordan is an Applications Marketing
Coordinator for Oracle Corporation. Prior to her joining Oracle
Corporation in 1996, Ms.O'Riordan was Marketing Coordinator,Latin America,
for a Reuters Company, from 1993 to 1995.
George L. Turin, Sc.D., 70, has served as a Director of the Company
since his election in March 1995. Previously, Mr. Turin served as a
Professor of Electrical Engineering and Computer Science at the University
of California at Berkeley from 1960 to 1990. Mr. Turin also served as Vice
President, Technology for Teknekron Corporation from 1988 to 1994.
Officers of the Company hold office at the pleasure of the Board of
Directors. There are no familial relationships between or among any of the
executive officers or directors of the Company.
29
Item 11. Executive Compensation
The following tables set forth certain information covering compensation
paid by TENERA to the Chief Executive Officer and each of the Company's other
executive officers, whose total annual salary and bonus exceeded $100,000 (the
"named executives") for services to TENERA in all their capacities during the
fiscal years ended December 31, 1999, 1998, and 1997.
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------
Annual Compensation Awards
------------------------------ -------------
Securities All Other
Name and Underlying Compensa-
Principal Position Year Salary Bonus(1) Options(2) tion(3)
- ---------------------------------------------------------------------------------------------------------------
Robert C. McKay, Jr. 1999 $ 223,958 $ 90,000 40,000 $ 3,200
Chief Executive Officer 1998 200,000 152,500 -- 3,200
President 1997 179,375 2,179 90,000 --
Jeffrey R. Hazarian 1999 181,064 67,500 40,000 3,200
Executive 1998 159,000 50,400 75,000 3,180
Vice President and 1997 145,875 25,000 -- --
Chief Financial Officer
- ---------------------------------------------------------------------------------------------------------------
[FN]
(1) Includes $100,000 retention bonus paid to Mr. McKay in 1998 (see "Other
Compensation Arrangements" below). Mr. Hazarian's bonus amounts in 1999
and 1998 include accrued bonuses of $4,000 and $3,000, respectively, paid
in the beginning of the subsequent years.
(2) Reflects the number of options granted under the Company's 1992 Option
Plan. The options expire at the earlier of the end of the option period,
generally six years, or three months after employment termination.
(3) These amounts represent the amounts accrued for the benefit of the named
executives under the Company's 401(k) Plan.
The following table sets forth certain information concerning options
granted during 1999 to the named executives:
OPTIONS GRANTS IN 1999
- ----------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Individual Grants Price Appreciation
for Option Term
---------------------------------------------------- -----------------------
% of Total
Number of Options
Securities Granted to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Name Granted Year ($/Share) Date 5% 10%
- ----------------------------------------------------------------------------------------------------------------
Robert C. McKay, Jr. ..... 40,000 14.04 $ 1.3625 3/09/05 $ 18,535 $ 42,050
Jeffrey R. Hazarian....... 40,000 14.04 1.3625 3/09/05 18,535 42,050
- ----------------------------------------------------------------------------------------------------------------
30
Other Compensation Arrangements
The Company's 1992 Option Plan provides that options may become
exercisable over such periods as provided in the agreement evidencing the option
award. Options granted to date, including options granted to executive officers
and set forth in the above tables, generally call for vesting over a four-year
period. The 1992 Option Plan provides that a change in control of the Company
will result in immediate vesting of all options granted and not previously
vested.
Other than as set forth below for Mr. McKay, the Company has no employment
contracts or arrangements for its executive officers.
Mr. McKay, upon appointment to Chief Operating Officer in 1997, was
granted a retention bonus arrangement, amounting to $100,000, dependent upon his
continued employment through June 30, 1998. The bonus was paid to Mr. McKay in
1998 in accordance with the arrangement.
Directors Compensation
Except as described below, the directors of the Company are paid no
compensation by the Company for their services as directors. William A. Hasler,
Thomas S. Loo, Andrea W. O'Riordan, and George L. Turin as non-employee
directors, are paid a retainer of $1,000 per month. These non-employee directors
are also paid a fee of $1,000 for each meeting of the Board, and any Board
Committee meeting not held on the same day as a Board meeting, which they
attend. The 1993 Outside Directors Compensation and Option Plan was approved by
the Board effective March 1, 1994, as amended by the Board in 1998, and reserves
up to 300,000 options for issuance to non-employee directors. During 1999,
12,500 stock options were issued to each of Messrs. Hasler, Loo, Turin, Bunch
(resigned in July 1999), and Ms. O'Riordan. During 1998, 12,500 stock options
were granted to each of Messrs. Hasler, Loo, Turin, Bunch, and Ms. O'Riordan.
During 1997, 8,000 stock options were issued to each of Messrs. Hasler, Loo,
Turin, and Williams (resigned in December 1997). The options expire ten (10)
years after, vest one (1) year after the date of grant, and have an exercise
price equal to the fair market value of the shares of the Company's Common Stock
on the date of grant. Upon exercise of the options, a director may not sell or
otherwise transfer more than 50% of the shares until six (6) months after the
date on which the director ceases to be a director of the Company. Due to their
resignations, Mr. Bunch's 1999 options and Mr. Williams' 1997 options did not
vest and were forfeited.
Compensation Committee Interlocks and Insider Participation
During 1999, the Compensation Committee was composed of William A. Hasler,
Thomas S. Loo, Andrea W. O'Riordan, and George Turin. Thomas S. Loo is a partner
in the law firm of Bryan Cave LLP, general counsel to the Company and Teknekron
Corporation, and is a director of Teknekron Corporation. Andrea W. O'Riordan, a
director of the Company since June 29, 1998, is the daughter of Harvey E.
Wagner, the Company's largest stockholder by virtue of a limited partnership
interest in Incline Village Investment Group Limited Partnership (see Item 12).
Mr. Wagner is also the sole stockholder and a director of Teknekron Corporation.
31
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth certain information as of March 1, 2000,
with respect to beneficial ownership of the shares of Common Stock of the
Company by each person who is known by the Company to own beneficially more than
5% of the shares of Common Stock:
- ----------------------------------------------------------------------------------------------------------------
Approximate
Shares Percent
Beneficially Beneficially
Name and Address Owned Owned
- ----------------------------------------------------------------------------------------------------------------
Harvey E. Wagner .......................................................... 3,708,658 37.3%(1)
P.O. Box 7463
Incline Village, NV 89450
Dr. Michael John Keaton Trust ............................................. 1,106,887 11.1%(2)
C/O Bryan Cave LLP
120 Broadway, Suite 500
Santa Monica, CA 90401
- ----------------------------------------------------------------------------------------------------------------
[FN]
(1) Such shares are held of record by Incline Village Investment Group Limited
Partnership, a Georgia limited partnership, and were contributed to such
partnership by Mr. Wagner in exchange for a 99% limited partnership
interest. An additional 37,462 shares, as to which Mr. Wagner disclaims
beneficial ownership, were contributed to such partnership by Mr. Wagner's
spouse, Leslie Wagner, in exchange for a 1% general partner interest. Such
partnership has sole voting and investment power with respect to all such
shares. Mr. Wagner subsequently transferred a 14.7% limited partnership
interest in the partnership to Ms. O'Riordan, a director of the Company,
who disclaims beneficial ownership of all the shares held by such
partnership.
(2) Mr. Keaton has sole voting and investment power with respect to all shares
shown as beneficially owned by him, subject to community property laws
where applicable.
32
(b) Security Ownership of Management
The following table sets forth information as of March 1, 2000, with
respect to current beneficial ownership of shares of Common Stock by (i) each of
the directors of the Company, (ii) each of the named executive officers (see
Item 11. "Executive Compensation"), and (iii) all current directors and
executive officers as a group.
- -------------------------------------------------------------------------------------------------------------------
Shares Shares
Beneficially Acquirable Percentage
Name Owned(1) Within 60 Ownership(2)
Days(3)(4)
- -------------------------------------------------------------------------------------------------------------------
William A. Hasler ............................................. 20,000 70,500(3) *
Jeffrey R. Hazarian ........................................... 7,186 156,250(4) 1.6%
Thomas S. Loo.................................................. -- 33,000(3) *
Robert C. McKay, Jr............................................ 1,789 225,500(4) 2.2%
Andrea W. O'Riordan (5)........................................ -- 25,000 *
George L. Turin................................................ 45,504 60,500(3) 1.0%
------------ ------------- ------------
All Directors and Executive Officers as a Group (6 persons) ... 74,479 570,750 6.1%
- -------------------------------------------------------------------------------------------------------------------
[FN]
(1) The persons named above have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by them, subject
to community property laws where applicable.
(2) Based on the number of shares outstanding at, or acquirable within 60 days
of March 1, 2000. Asterisks represent less than 1% ownership.
(3) Represents options under the Company's 1993 Outside Directors Compensation
and Option Plan which are exercisable on March 1, 2000, or within 60 days
thereafter.
(4) Represents options under the Company's 1992 Option Plan which are
exercisable on March 1, 2000, or within 60 days thereafter.
(5) Ms. O'Riordan is the daughter of Harvey E. Wagner, the Company's largest
stockholder by virtue of a limited partnership interest in Incline Village
Investment Group Limited Partnership (see Item 12(a), "Security Ownership
of Certain Beneficial Owners").
Beneficial ownership as shown in the tables above has been determined in
accordance with Rule 13d-3 under the Exchange Act. Under this Rule, certain
securities may be deemed to be beneficially owned by more than one person (such
as where persons share voting power or investment power). In addition,
securities are deemed to be beneficially owned by a person if the person has the
right to acquire the securities (for example, upon exercise of an option or the
conversion of a debenture) within 60 days of the date as of which the
information is provided; in computing the percentage of ownership of any person,
the amount of securities outstanding is deemed to include the amount of
securities beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding shares of
any person as shown in the preceding tables do not necessarily reflect the
person's actual voting power at any particular date.
Item 13. Certain Relationships and Related Transactions
See "Compensation Committee Interlocks and Insider Participation."
33
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
The following financial statements of the Company are filed with this
report and can be found in Part II, Item 8, on the pages indicated below:
PAGE
Consolidated Statements of Operations--
Years Ended December 31, 1999, 1998, and 1997 ................. 13
Consolidated Balance Sheets-- December 31, 1999 and 1998 ...... 14
Consolidated Statements of Stockholders' Equity--
Years Ended December 31, 1999, 1998, and 1997 ................. 15
Consolidated Statements of Cash Flows--
Years Ended December 31, 1999, 1998, and 1997 ................. 16
Notes to Consolidated Financial Statements .................... 17
Report of Independent Auditors ................................ 27
(a)(2) Financial Statement Schedules
The following financial statement schedules with respect to the Company
are filed in this report:
Schedule VIII-- Valuation and Qualifying Accounts and Reserves . 36
All other schedules are omitted because they are either not required or
not applicable.
(a)(3) Exhibits
2.1 Agreement and Plan of Merger dated as of June 6, 1995 among
the Registrant, Teknekron Technology MLP I Corporation,
TENERA, L.P., and TENERA Operating Company, L.P. (a form of
which is attached as Annex A to the Registrant's Consent
Solicitation Statement/Prospectus included in the Registration
Statement on Form S-4 (Registration No. 33-58393) declared
effective by the Securities and Exchange Commission ("SEC") on
June 2, 1995 (the "Registration Statement"), and is
incorporated herein by this reference).
2.2 Asset Acquisition Agreement dated November 14, 1997, between
the Registrant and Spear Technologies, Inc. (filed as Exhibit
2.1 to the Registrant's Form 8-K filed with the SEC on
November 14, 1997 and incorporated by reference herein (the
"Form 8-K")).
2.3(1) Series C Preferred Stock Purchase Agreement dated March __, 2000
between the Registrant and Spear Technologies, Inc.
2.4(1) Asset Acquisition Agreement dated February 10, 2000 between the
Registrant and SoBran, Inc.
3.1 Certificate of Incorporation of the Registrant dated October 27,
1994 (filed by incorporation by reference to Exhibit 3.3 to
the Registration Statement).
3.2 By-Laws of the Registrant (filed by incorporation by reference to
Exhibit 3.4 to the Registration Statement).
4.1 Form of Certificate of Common Stock of the Registrant (filed by
incorporation by reference to Exhibit 4.5 to the Registration
Statement).
------------------------------------
(1) Filed herewith.
34
11.1 Statement regarding computation of per share earnings: See "Note
5 to Consolidated Financial Statements."
21.1(1) List of Subsidiaries of the Registrant.
23.1(1) Consent of Ernst & Young LLP, Independent Auditors.
27.1(1) Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the last
quarter of 1999.
(c) Exhibits (see Item 14(a)(3) above.)
(d) Financial Statement Schedules
The schedules listed in Item 14(a)(2) above should be used in conjunction
with the Consolidated Financial Statements of the Company for the year ended
December 31, 1999.
-----------------------------
(1) Filed herewith.
35
SCHEDULE VIII
TENERA, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
- ----------------------------------------------------------------------------------------------------------------
Additions Deductions
------------ ---------------------------
Balance Charged to
Beginning Costs and Credited to Balance at
Description of Year Expenses Special Item Other End of Year
- ----------------------------------------------------------------------------------------------------------------
1997
Reserve for Sales Adjustment
and Credit Losses ............. $ 1,626 $ 36 $ 122 $ 182 $ 1,358
1998
Reserve for Sales Adjustment
and Credit Losses ............. 1,358 9 -- 67 1,300
1999
Reserve for Sales Adjustment
and Credit Losses ............. 1,300 -- -- 2 1,298
- ----------------------------------------------------------------------------------------------------------------
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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: March 28, 2000
TENERA, INC.
By /s/ JEFFREY R. HAZARIAN
----------------------------------------
Jeffrey R. Hazarian
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ WILLIAM A. HASLER Director March 28, 2000
- --------------------------
(William A. Hasler)
Director, Chief Financial Officer,
Executive Vice President, and
Corporate Secretary
/s/ JEFFREY R. HAZARIAN (Principal Financial Officer) March 28, 2000
- --------------------------
(Jeffrey R. Hazarian)
/s/ THOMAS S. LOO Director March 28, 2000
- --------------------------
(Thomas S. Loo)
Director,
Chief Executive Officer, and President
/s/ ROBERT C. MCKAY (Principal Executive Officer) March 28, 2000
- --------------------------
(Robert C. McKay)
/s/ ANDREA W. O'RIORDAN Director March 28, 2000
- --------------------------
(Andrea W. O'Riordan)
Controller and Treasurer
/s/ JAMES A. ROBISON, JR. (Principal Accounting Officer) March 28, 2000
- --------------------------
(James A. Robison, Jr.)
/s/ GEORGE L. TURIN Director March 28, 2000
- --------------------------
(George L. Turin)
37
EXHIBIT INDEX
Ex. 2.3 Series C Preferred Stock Purchase Agreement between the
Registrant and Spear Technologies, Inc.
Ex. 2.4 Asset Acquisition Agreement between the Registrant and SoBran,
Inc.
Ex. 21.1 List of Subsidiaries of the Registrant
Ex. 23.1 Consent of Ernst & Young LLP, Independent Auditors
Ex. 27.1 Financial Data Schedule