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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, 2000
[ ] 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.)
100 Bush Street, Suite 850, San Francisco, California 94104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 445-3200
----------------------------
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, 2001, the aggregate market value of the Registrant's Common
Stock held by nonaffiliates of the Registrant was $2,883,479 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 9,984,259.
(This page intentionally left blank.)
PART I
Item 1. Business
Except for historical information, the following description of the Company's
business contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
set forth in these forward-looking statements as a result of a number of
factors, including those set forth in this Annual Report under the heading,
"Risk Factors".
General
TENERA, Inc. (including its subsidiaries, "TENERA", or the "Company")
provides a broad range of technology-based professional and technical services,
and business-to-business web-based e-Learning services. The Company's
professional and technical services are designed to solve complex management,
engineering, environmental, health and safety challenges associated with the
management of federal government properties, energy assets, and petrochemical
and manufacturing concerns. TENERA's web-based e-Learning products and services
are designed to provide a suite of on-line, interactive, compliance and
regulatory-driven training applications for use by clients' employees.
TENERA, Inc., a Delaware corporation, is the parent company of the
subsidiaries described below.
In 1995, the Company formed TENERA Rocky Flats, LLC ("Rocky Flats"), a
Colorado limited liability company, to provide professional and technical
services in connection with participation in the Performance Based Integrating
Management Contract ("Rocky Flats Contract") at the Department of Energy's
("DOE") Rocky Flats Environmental Technology Site ("Site"). In August 2000,
Closure Mission Support Services, LLC ("CMSS"), a Colorado limited liability
company, was formed by Rocky Flats as a majority-owned joint venture to provide
professional and technical services in connection with a recompete of the
professional support services at the Site. In the fourth quarter of 2000, the
Company was awarded a new contract for an initial three (3) year period followed
by three one-year renewal options exercisable by the prime contractor.
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. Energy offers professional environmental
and ecological services, and risk management services to nuclear and fossil
plant operators.
In November 1997, the Company consummated the sale of all of the assets
("Asset Sale") of its former subsidiary, TENERA Technologies, LLC ("Mass
Transportation"; see Notes 1 and 6 to Consolidated Financial Statements).
In 1999, the Company initially formed TENERA GoTrain.Net, LLC
("GoTrain.net"), a Delaware limited liability company, as a joint venture
operation with a minority interest partner, SoBran, Inc., an Ohio corporation,
specializing in Internet technologies. In February 2000, the Company purchased
certain Internet-based development assets of SoBran, Inc., including SoBran's
minority interest in TENERA GoTrain.Net, LLC. GoTrain.net, now a wholly-owned
subsidiary, is an e-Learning application service provider offering Web-based,
e-Learning solutions to selected industries needing regulatory-driven
environmental, safety, and health (ES&H) training, specifically manufacturing,
utilities, petrochemical, and Fortune 1000 companies. In March 2000, GoTrain.net
and EnviroWin Software, LLC, a Delaware limited liability company, an ES&H
desktop solutions provider, formed Training, LLC, a joint venture to produce
certain Web-based ES&H training products for delivery via the GoTrain.net
distance learning platform.
The Company is principally organized into two operating segments:
Professional and Technical Services and e-Learning (see Note 7 to Consolidated
Financial Statements for additional information regarding Company segments).
1
Markets and Business Strategy
Professional and Technical Services Segment. TENERA provides professional
and technical services to DOE owned sites and national research laboratories,
commercial electric generating plants and other regulatory-impacted industries
to solve complex management, engineering, environmental, health and safety
issues associated with their properties and energy assets. TENERA's services
primarily focus on environmental and ecological services, and risk management,
which assist its commercial clients with respect to their nuclear and fossil
plant operations, maintenance, and safety. TENERA provides its governmental
clients, the 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 of the electric
industry. For example, utilities are no longer able to recover capital
expenditures through rate increases, due to mandated rate changes, and
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 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.
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
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 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 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.
2
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.
The markets for electric utility and DOE facility professional and
technical services 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.
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 in support of consulting projects. 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.
e-Learning Segment. The Company, through its GoTrain.net subsidiary,
develops, markets, and delivers an "off-the-shelf" library of e-Learning
products designed to provide "just-in-time," cost-effective solutions to
regulatory mandated ES&H-related training needs for its clients. The Company
also provides custom e-Learning products and services in response to all aspects
of enterprise and workforce effectiveness, safety, compliance, and performance.
The Company's proprietary Training Management Operating System ("Training
System") is designed to provide a set of e-Learning tools that is generally
scalable to any size client.
e-Learning courses and tools are applicable to large companies, often with
geographically distributed work forces involved in complex "around-the-clock"
operations, as well as, small companies that lack dedicated training resources.
The Company believes that the transition to internet-based training will replace
a substantial portion of instructor-led training, currently representing 70% of
all training programs.
The Company serves clients required to comply with a wide range of Federal
and state laws and regulations governing environmental, health, and safe work
practices in the workplace. The Company applies its expertise in adult learning,
regulatory processes, performance improvement techniques, and Web designed and
delivered interactive content, to improve the competitive position for its
clients by supporting a safe, productive, and compliant work environment.
The Company believes many factors affect the ES&H Web-based e-Learning
market. Highly competitive marketplaces encourage many companies to seek
performance gains from lowered costs and improved competitive positioning.
e-Learning provides opportunities to lower training costs and establish a safer,
more productive, and compliant work force spending more time at their respective
workstations, leading to improved competitive positioning. Recently promulgated
standards from OSHA, EPA, DOT and ISO 9000 present new opportunities for the
e-Learning products that contain, manage and report the training data necessary
to demonstrate compliance.
Services and Products
The following table reflects the percentage of revenues derived for each
of these segments for the period indicated during the fiscal years ended
December 31, 1998 through 2000:
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Professional and Technical Services ................................... 98.7% 98.1% 99.7%
e-Learning ............................................................ 1.3% 1.9% 0.3%
- ----------------------------------------------------------------------------------------------------------------
3
Professional and Technical Services Segment. 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's professional and technical
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 Environmental and ecological issues at DOE and electric utility facilities
o Risk management
o Operations and maintenance performance improvement
o Plant safety
o Nuclear safety and criticality at DOE facilities
o Engineering design review and verification
e-Learning Segment. The Company's products include a suite of on-line
interactive, compliance and regulatory-driven training applications for business
clients' use with their employee base. The applications support a suite of
automated back office functions and tools that manage training curriculum and
records for business clients. These training applications are provided "off the
shelf", "on demand", or with "customization". GoTrain.net products and services
include:
o Training Management Operating System (Web-based delivery platform)
o Library of ES&H Web-based e-Learning
o Custom Web-based e-Learning
o Courseware tools
o Multi-lingual e-Learning
Marketing
Professional and Technical Services Segment. 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 that 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.
4
e-Learning Segment. The Company uses a multiple sales channel strategy to
penetrate targeted markets. The Company uses a sales channel approach to connect
products to markets. Field salesmen activity currently accounts for a majority
of sales, however, other channels used by the Company include a customer service
center and via-Internet sales. In late 2000, the Company began its marketing and
communications campaign designed to gain market attention, generate sales leads,
achieve brand recognition, and grow market share. Multiple venues used in
implementing the strategy include direct advertising, publication interviews and
reviews, speaking circuits, trade shows, and industry and trade associations.
The Company has developed, and has opportunities to expand, a number of
strategic alliances. Alliances form an integral component in the Company's
ability to obtain product content and in establishing its full-service
e-Learning approach. Alliances pursued by the Company can be categorized into
the following three primary groups: teaming agreements, distributorships, and
content or technology partners.
The Company is seeking private equity financing of its e-Learning business
to provide additional working capital to support a significant expansion in its
marketing and sales program (see "Risk Factors").
Clients
During the year ended December 31, 2000, TENERA provided services to over
40 clients involving over 50 contracts. During the year ended December 31, 1999,
TENERA provided services to over 35 clients involving over 55 contracts. Over
80% of TENERA's clients during the year ended December 31, 2000, had previously
used its services. Less than 1% of all revenues were from clients outside of the
United States.
Professional and Technical Services Segment. During the year ended
December 31, 2000, one Professional and Technical Services Segment client,
Kaiser-Hill Company, LLC ("Kaiser-Hill"), prime contractor of the Rocky Flats
Contract, accounted for 70% of the Company's total revenue. During the year
ended December 31, 1999, three Professional and Technical Services Segment
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%). The Company has maintained a working relationship with Kaiser-Hill for
five years, during which time various contracts have been completed and replaced
with new or follow-on contracts. The new contract awarded in the fourth quarter
of 2000 is for a lower value than the Company's prior contract, reflecting
Kaiser-Hill's decision to discontinue use of lower-tier subcontractor teams at
the Site. There can be no assurance that this relationship will be maintained
beyond the existing contract, and the loss of this client would have a material
adverse effect on the Company (see "Risk Factors").
e-Learning Segment. The Company provided services to ten e-Learning
Segment clients during 2000. At December 31, 2000, seven e-Learning Segment
clients had contracted access for over 10,000 learners in the Company's
Web-based Training System for use within the next twelve months.
Operations
TENERA generally receives payments on amounts billed 30 to 90 days after
billing, except for retention under contracts. TENERA has historically
experienced a low percentage of losses due to poor credit risks since the
majority of TENERA's clients are utility companies, DOE, or DOE prime
contractors,.
Professional and Technical Services Segment. 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. 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, 2000, of the total outstanding contracts, less than 10% were
fixed-price.
5
e-Learning Segment. The typical medium and large business contract for
GoTrain.net products has annual renewal options and is volume priced based on
the individual learner annual subscriptions. Custom training course development
is provided to clients on a non-refundable fixed-price contract basis, with
entitlement to unlimited client use of the product. However, a per-use fee
(learner seat) is charged in custom training course contracts for use of the
Training System. For small businesses and individual learners, the buying
process typically involves use of credit cards or pre-established task orders.
Backlog
As of December 31, 2000, TENERA had contracted a backlog of approximately
$11.0 million, all of which is cancelable by the clients. The Professional and
Technical Services and e-Learning segments account for $10.0 million and $1.0
million, respectively, of the backlog. Contracted backlog represents the
aggregate of the remaining value of those active contracts entered into by
TENERA for services that 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 Company will realize the revenues from these contracts. If any contract is
canceled, there is no assurance that the Company will be successful in replacing
such contract (see "Risk Factors").
Competition
The markets for professional and technical services, and e-Learning are
highly competitive. TENERA competes with several larger firms with significantly
greater resources (see "Risk Factors").
The primary competitive factor in the market for Professional and
Technical 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.
In the e-Learning marketplace, the most significant competitive factors
are product features and price. Although many larger competitors offer
broad-based e-Learning solutions for various industries, no competitors
currently dominate the Company's targeted niche of the e-Learning marketplace:
ES&H compliance and regulatory driven training.
Product Development
Professional and Technical Services Segment. TENERA's policy is to
undertake development projects of software, systems, and databases only if they
can be expected to lead directly to proprietary products that may be generally
marketable. A portion of TENERA's product development effort may be funded
through customer-sponsored projects, although the rights to the systems and
databases generally remain with TENERA. Because TENERA's 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 development costs.
e-Learning Segment. In 2000, TENERA spent approximately $700,000 in
acquiring and developing products related to its e-Learning business. In 1999
and 1998, the Company spent approximately $100,000 annually on development for
similar activities. These development efforts were responsible for the Company's
successful launch, operation and access to its Web-based Training System and
accompanying training course library.
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 e-Learning software
technologies generally restrict the clients' use of the systems to their own
operations and prohibit disclosure to others.
6
Personnel
At December 31, 2000, the Company employed a total of 170 consultants,
engineers, scientists and software developers, and a supporting administrative
staff of 22 employees. Many employees hold advanced 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.
Item 2. Properties
The Company's headquarters are located in San Francisco, California, and
consist of approximately 5,400 square feet of leased office space, expiring in
December 2005. TENERA also leases approximately 12,800 square feet in Knoxville,
Tennessee, expiring in January 2004, 6,500 square feet in Louisville, Colorado
on a month-to-month basis, and approximately 4,000 square feet in San Luis
Obispo, California, with 44% of the space expiring in December 2002 and 56%
expiring in December 2004.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
7
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, 2001.
- ----------------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------- ------------------------- -------------------------
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 ...... $ 2.25 $ 0.8125 $ 2.00 $ 1.0625 $ 0.875 $ 0.50
Second Quarter ..... 1.625 0.875 1.625 1.00 1.00 0.5625
Third Quarter ...... 1.25 0.75 1.50 1.00 1.6875 0.6875
Fourth Quarter ..... 0.875 0.50 1.125 0.75 2.75 0.75
- ----------------------------------------------------------------------------------------------------------------
The Board of Directors of the Company determines the amount of cash
dividends that 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.
8
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,
---------------------------------------------------------
2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
OPERATIONS DATA
Revenue ......................................... $ 32,443 $ 37,922 $ 27,445 $ 21,121 $ 24,003
Operating Income (Loss) ......................... (19) 2,336 1,874 (2,139) (1,382)
Net Earnings (Loss) ............................. 100 1,342 1,674 (1,890) (1,080)
Earnings (Loss) per Share-- Basic ............... 0.01 0.13 0.17 (0.19) (0.11)
Earnings (Loss) per Share-- Diluted ............. 0.01 0.13 0.16 (0.19) (0.11)
Weighted Average Shares-- Basic.................. 9,960 10,050 10,124 10,123 10,248
Weighted Average Shares-- Diluted................ 10,195 10,409 10,450 10,123 10,248
CASH FLOW DATA
Net Cash (Used) Provided by Operating Activities $ (164) $ 631 $ 906 $ (2,681) $ 2,954
Net Increase (Decrease) in Cash and Cash
Equivalents ..................................... (1,006) 132 1,069 (1,672) 2,490
FINANCIAL POSITION AT DECEMBER 31
Cash and Cash Equivalents ....................... 2,487 3,493 3,361 2,292 3,964
Working Capital ................................. 4,443 5,467 4,474 2,831 4,555
Total Assets .................................... 10,074 10,710 9,206 6,052 7,940
Total Liabilities ............................... 4,181 4,950 4,538 3,065 3,062
Stockholders' Equity............................. 5,893 5,760 4,668 2,987 4,878
OTHER INFORMATION
Number of Employees ............................. 192 187 196 187 208
- ----------------------------------------------------------------------------------------------------------------
9
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Forward-Looking Statements
With the exception of historical facts, the statements contained in this
discussion are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to the Safe Harbor
provisions created by that statute. Certain statements contained in the
following Management's Discussion and Analysis of Results of Operations and
Financial Condition, including, without limitation, statements containing the
words "believes", "anticipates", "estimates", "expects", "future", "intends",
and words of similar import, constitute forward-looking statements that involve
risks and uncertainties. Such statements are based on current expectations and
are subject to risk, uncertainties and changes in condition, significance, value
and effect, including those described in the Risk Factors section of this report
and other recent documents the Company files with the Securities and Exchange
Commission, specifically forms 10-Q and 8-K. Such risks, uncertainties and
changes in condition, significance, value and effect could cause the Company's
actual results to differ materially from those anticipated events.
TENERA, INC.
RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Percent of Revenue
-----------------------------------------
Year Ended December 31,
-----------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
Revenue ............................................................. 100.0% 100.0% 100.0%
Direct Costs ........................................................ 78.5 77.4 75.5
General and Administrative Expenses ................................. 21.6 16.4 19.6
Special Item Income ................................................. -- -- 1.1
Other Income ........................................................ * * 0.8
-------- --------- ----------
Operating Income (Loss) .......................................... (0.1) 6.2 6.8
Interest Income, Net ................................................ 0.6 0.3 0.5
-------- --------- ----------
Net Earnings Before Income Tax Expense .............................. 0.5% 6.5% 7.3%
======== ========= ==========
- -----------------------------------------------------------------------------------------------------------------
* Less than 0.05%
Year Ended December 31, 2000 versus Year Ended December 31, 1999
Net earnings before income tax expense for the year ended December 31,
2000 was $163,000, compared to $2,455,000 for the same period in 1999. The
decrease in earnings primarily results from lower Professional and Technical
Services Segment revenue, coupled with higher sales and marketing expenses in
the e-Learning Segment.
Professional and Technical Services Segment revenue for 2000 decreased 13%
($5.2 million) from 1999, primarily due to a decline in the use of the Company's
subcontractor teams at the Site, and closure of the commercial strategic
consulting business area, partially offset by increased contract activity in the
commercial environmental and ecological services business area. For the year
2000, the concentration of revenue from government projects increased to 85% of
total Company revenue from 81% in 1999.
Revenue in the e-Learning Segment decreased by $280,000 in 2000, as
compared to 1999, mainly due to less fixed-priced contract work in 2000 than
1999. The majority of the contracts in 2000 were based on a per-use structure
(see Item 1, "Business"), which began in the fourth quarter.
10
Direct costs were lower in 2000, compared to a year ago, primarily as a
result of decreased revenue generation. Gross margin decreased to 22% in 2000
from 23% in 1999, mainly due to an increase in the proportion of revenue derived
from lower margin government business.
General and administrative costs were 12% higher in 2000, compared to a
year ago, primarily reflecting increased costs associated with the
infrastructure and business development of the e-Learning Segment, and the
purchase of the Internet-based development and support business of SoBran, Inc.
(see Note 1 to Consolidated Financial Statements). General and administrative
expenses, as a percentage of revenue, increased to 22% in 2000 from 16% in 1999.
Net interest income in 2000 and 1999 represents earnings from the
investment of cash balances in short-term, high quality, money market accounts
and corporate debt instruments. The higher net interest income in 2000, as
compared to a year ago, primarily reflects larger average cash balances and
higher interest rates. The Company had no borrowings under its line of credit
during 2000 and 1999.
As previously reported, in July 2000, the prime contractor at the Rocky
Flats Site requested that the Company, along with other Rocky Flats
subcontractors, submit proposals to recompete the professional support services
presently performed by these companies at the Site. In the fourth quarter of
2000, the Company was awarded a new contract with an initial term of three years
followed by three one-year renewal options exercisable by the prime contractor.
The Company currently anticipates that under the new contract, revenues and
gross margin generated by the Company at the Site will decrease.
Year Ended December 31, 1999 versus Year Ended December 31, 1998
The Company's increased Professional and Technical Services Segment
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 was primarily the result of increased
government project activity in the Professional and Technical Services Segment.
For 1999, the concentration of revenue from the government sector increased to
81% of total Company revenue from 78% in 1998. Revenue in the e-Learning Segment
increased by $617,000 in 2000, as compared to 1999, mainly due to the effect of
a full year of operations in 2000, versus only five months in 1998. This new
business segment began in August 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 the
e-Learning Segment, 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 reflected the additional realized
gain from the Asset Sale associated with the repayment of the Promissory Note
(see Notes 1 and 6 to Consolidated Financial Statements).
Other income in 1999 was immaterial. Other income in 1998 reflected
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.
Net interest income in 1999 and 1998 represented 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 1998, primarily reflected lower interest rates. The Company had no borrowings
under its line of credit during 1999 and 1998.
11
Liquidity and Capital Resources
Cash and cash equivalents decreased by $1,006,000 during 2000. The
decrease was due to investing activities in the e-Learning Segment ($875,000)
and cash used by operations ($164,000), partially offset by cash received from
the exercising of stock options ($33,000).
Receivables, net of sales allowance, decreased by $1,122,000 from December
31, 1999, primarily due to a decrease in the rate of revenue generation in 2000.
The allowance for sales adjustments decreased by $334,000 from December 31,
1999, related to the closure and settlement of old government contracts.
Accounts payable decreased by $857,000 since the end of 1999 primarily
resulting from lower direct costs supporting decreased revenues. Accrued
compensation and related expenses decreased by $6,000 during 2000, primarily
reflecting lower group insurance expenses, partially offset by higher bonus and
vacation accruals at December 31, 2000, as well as higher accrued salary costs
associated with the growth of GoTrain.net personnel.
No cash dividend was declared in 2000.
The impact of inflation on project revenue and costs of the Company was
minimal.
At December 31, 2000, the Company was not in compliance with the quarterly
profitability covenant of its $3,000,000 revolving loan facility, which expires
in May 2001, due to losses in its e-Learning Segment related to infrastructure
and sales growth. The Company is requesting a waiver of the breached covenant
from the bank. The Company has no outstanding borrowings against the line of
credit. There can be no assurance that such sources of capital will be available
in sufficient amounts or on terms favorable to the Company, or at all (see "Risk
Factors").
Management believes that even with a reinstatement of its loan facility,
cash expected to be generated by operations and the Company's working capital
will not be adequate to meet its anticipated liquidity needs through the next
twelve months due to the anticipated cash requirements of its growing e-Learning
Segment. The Company is currently seeking private equity financing of its
e-Learning business to provide adequate working capital to support a significant
expansion in its marketing and sales program. If additional sources of capital
are not found at terms favorable to the Company, management will reassess its
rapid growth business development strategy of the e-Learning Segment, which may
adversely affect the segment's viability.
Risk Factors
The following risk factors and other information included in this Annual
Report should be carefully considered. The risks and uncertainties described
below are not the only ones the Company faces. Additional risks and
uncertainties not presently known to the Company or that management currently
deems immaterial, also may impair the business operations. If any of the
following risks occur, the Company's business, financial condition, operating
results and cash flows could be materially adversely affected.
Uncertainty of Access to Capital. Management currently believes that cash
expected to be generated from operations and the Company's working capital will
not be adequate to support the anticipated cash requirements of the e-Learning
Segment. The Company is seeking private equity financing of its e-Learning
business and is requesting a waiver of a breached covenant from its bank in
order to reinstate its line of credit borrowing ability. 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 Major Customers; Concentration of Revenue from the Government
Sector. During 2000, one customer, Kaiser-Hill, accounted for approximately 70%
of the Company's total revenues, and during 1999, three customers, Kaiser-Hill,
RMRS, and Safe Sites, accounted for approximately 75% of the Company's total
revenues, and Additionally, for 2000, the concentration of the Company's total
revenue from the government sector increased to 85% of total revenue from 81% in
1999. This level of concentration of revenues from the lower margin government
sector is expected to continue and possibly increase in the future. However, the
new contract awarded to the Company by Kaiser-Hill in the fourth quarter of 2000
was a lower value and margin than the Company's prior contract, reflecting
Kaiser-Hill's decision to discontinue use of lower-tier subcontract teams at the
Site. Further, all outstanding customer contracts are cancelable upon notice by
12
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 --
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, $1.3
million in 1999, and $0.1 million in 2000, 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, and $(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. Management expects a significant
loss in 2001 related to anticipated accelerated sales and marketing expenditures
in its e-Learning Segment.
Competition. The market for professional and technical services, and
e-Learning is highly competitive and TENERA competes with several larger firms
with significantly greater resources. Significant competitive factors in the
market for the Company's offerings 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.
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.
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 -- General").
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,
$250,000 in 1996, and $150,000 in 2000. 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.
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,
----------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Revenue .................................................... $ 32,443 $ 37,922 $ 27,445
Direct Costs ............................................... 25,465 29,351 20,718
General and Administrative Expenses ........................ 7,001 6,236 5,366
Special Item Income ........................................ -- -- 300
Other Income ............................................... 4 1 213
------------- ------------ ------------
Operating (Loss) Income.................................. (19) 2,336 1,874
Interest Income, Net ....................................... 182 119 129
------------- ------------ ------------
Net Earnings Before Income Tax Expense .................. 163 2,455 2,003
Income Tax Expense ......................................... 63 1,113 329
------------- ------------ ------------
Net Earnings ............................................... $ 100 $ 1,342 $ 1,674
============= ============ ============
Net Earnings per Share-- Basic ............................. $ 0.01 $ 0.13 $ 0.17
============= ============ ============
Net Earnings per Share-- Diluted ........................... $ 0.01 $ 0.13 $ 0.16
============= ============ ============
Weighted Average Number of Shares Outstanding-- Basic....... 9,960 10,050 10,124
============= ============ ============
Weighted Average Number of Shares Outstanding-- Diluted..... 10,195 10,409 10,450
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
14
TENERA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
- ----------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------
2000 1999
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents ............................................... $ 2,487 $ 3,493
Receivables, less allowances of $964 (1999 - $1,298)
Billed ................................................................ 3,290 3,587
Unbilled .............................................................. 2,143 2,968
Other current assets .................................................... 704 369
------------ ------------
Total Current Assets ................................................ 8,624 10,417
Property and Equipment, Net ................................................ 759 237
Other Assets ............................................................... 691 56
------------ ------------
Total Assets ...................................................... $ 10,074 $ 10,710
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable......................................................... $ 2,253 $ 3,110
Accrued compensation and related expenses ............................... 1,832 1,838
Deferred revenue ........................................................ 96 2
------------ ------------
Total Current Liabilities ........................................... 4,181 4,950
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 ....................................... 5,675 5,699
Retained earnings ....................................................... 607 507
Treasury stock-- 433,086 shares (1999 - 483,586 shares) ................. (493) (550)
------------ ------------
Total Stockholders' Equity .......................................... 5,893 5,760
------------ ------------
Total Liabilities and Stockholders' Equity ........................ $ 10,074 $ 10,710
============ ============
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
15
TENERA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------
Paid-In Retained
Common Stock Capital in Earnings
----------------------------- Excess (Accumulated Treasury
Shares Amount of Par Deficit) Stock Total
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 1997 ...... 10,123 $ 104 $ 5,698 $ (2,509) $ (306) $ 2,987
Exercise of Stock Options 6 -- 1 -- 6 7
Net Earnings ........... -- -- -- 1,674 -- 1,674
------------ -------------- ---------------- --------------- -------------- ---------------
December 31, 1998 ...... 10,129 104 5,699 (835) (300) 4,668
Repurchase of Stock .... (195) -- -- -- (250) (250)
Net Earnings ........... -- -- -- 1,342 -- 1,342
------------ -------------- ---------------- --------------- -------------- ---------------
December 31, 1999 ...... 9,934 104 5,699 507 (550) 5,760
Exercise of Stock Options 50 -- (24) -- 57 33
Net Earnings ........... -- -- -- 100 -- 100
------------ -------------- ---------------- --------------- -------------- ---------------
December 31, 2000 ...... 9,984 $ 104 $ 5,675 $ 607 $ (493) $ 5,893
============ ============== ================ =============== ============== ===============
See accompanying notes.
16
TENERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ............................................ $ 100 $ 1,342 $ 1,674
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization ......................... 392 151 108
Gain on sale of assets ................................ (4) (1) (302)
Changes in assets and liabilities:
Receivables, net of allowance........................ 1,122 (1,129) (2,057)
Other current assets ................................ (407) (144) 10
Other assets ........................................ (598) -- --
Accounts payable .................................... (857) 596 1,876
Accrued compensation and related expenses ........... (6) (86) 447
Litigation judgment accrual ......................... -- -- (950)
Deferred revenue .................................... 94 2 --
Income taxes payable ................................ -- (100) 100
------------- ------------ ------------
Net Cash (Used) Provided by Operating Activities . (164) 631 906
CASH FLOWS FROM INVESTING ACTIVITIES
Net acquisition of property and equipment ............... (756) (250) (146)
Acquisition of application development software ......... (125) -- --
Proceeds from sale of assets ............................ 6 1 302
------------- ------------ ------------
Net Cash (Used) Provided by Investing Activities .. (875) (249) 156
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of equity .................................... -- (250) --
Exercise of common stock options ........................ 33 -- 7
------------- ------------ ------------
Net Cash Provided (Used) by Financing Activities .. 33 (250) 7
------------- ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ....... (1,006) 132 1,069
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............. 3,493 3,361 2,292
------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................... $ 2,487 $ 3,493 $ 3,361
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes.
17
TENERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
Note 1. Organization
TENERA, Inc. (including its subsidiaries, "TENERA", or the "Company")
provides a broad range of technology-based professional and technical services,
and business-to-business web-based e-Learning services. The Company's
professional and technical services are designed to solve complex management,
engineering, environmental, health and safety challenges associated with the
management of federal government properties, energy assets, and petrochemical
and manufacturing concerns. TENERA's web-based e-Learning products and services
are designed to provide a suite of on-line, interactive, compliance and
regulatory-driven training applications for use by clients' employees.
TENERA, Inc., a Delaware corporation, is the parent company of the
subsidiaries described below.
In 1995, the Company formed TENERA Rocky Flats, LLC ("Rocky Flats"), a
Colorado limited liability company, to provide consulting and management
services in connection with participation in the Performance Based Integrating
Management Contract ("Rocky Flats Contract") at the Department of Energy's
("DOE") Rocky Flats Environmental Technology Site ("Site"). In August 2000,
Closure Mission Support Services, LLC ("CMSS"), a Colorado limited liability
company, was formed by Rocky Flats as a majority-owned joint venture to provide
professional and technical services in connection with a recompete of the
professional support services at the Site. In the fourth quarter of 2000, the
Company was awarded a new contract for an initial three year period followed by
three one-year options exercisable by the prime contractor.
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. Energy offers professional environmental
and ecological services, and risk management services to nuclear and fossil
plant operators.
In November 1997, the Company consummated the sale of all of the assets
("Asset Sale") of its former subsidiary, TENERA Technologies, LLC ("Mass
Transportation"; see Note 6 to Consolidated Financial Statements).
In 1999, the Company initially formed TENERA GoTrain.Net, LLC
("GoTrain.net"), a Delaware limited liability company, as a joint venture
operation with a minority interest partner, SoBran, Inc., an Ohio corporation,
specializing in Internet technologies. In February 2000, the Company purchased
certain Internet-based development assets from SoBran, Inc. for $307,000,
including SoBran's minority interest in GoTrain.net. The purchase consideration
was allocated to the acquired assets based on deemed fair values as follows:
computer equipment and software ($289,000); office equipment ($18,000). After
the asset acquisition from SoBran, the Company consolidated its technology
enhanced training services group into GoTrain.net. GoTrain.net, now a
wholly-owned subsidiary, is an e-Learning application service provider offering
Web-based, e-Learning solutions to selected industries needing regulatory-driven
environmental, safety, and health (ES&H) training, specifically manufacturing,
utilities, petrochemical, and selected Fortune 1000 companies. In March 2000,
the Company and EnviroWin Software, LLC, a Delaware limited liability company,
an ES&H desktop solutions provider, formed Training, LLC, a joint venture to
produce certain Web-based ES&H training products via the GoTrain.net distance
learning platform.
The Company is principally organized into two operating segments:
Professional and Technical Services and e-Learning (see Note 7 to Consolidated
Financial Statements).
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.
18
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
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
($3,265,000 and $2,531,000 at December 31, 2000 and 1999, respectively), net of
accumulated depreciation ($2,506,000 and $2,294,000 at December 31, 2000 and
1999, respectively). Depreciation is calculated using the straight-line method
over the estimated useful lives, which range from three to five years.
Other Assets. Included in this asset category are the costs of
internal-use e-Learning operating system software, both acquired and developed
by the Company, and certain costs related to the development of the Company's
e-Learning training courses. These costs have been capitalized in accordance
with Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". The Company capitalized $723,000 of
acquired and developed software costs during 2000, compared to $56,000 in 1999.
The estimated useful life of costs capitalized during 2000 is three years. In
2000, the amortization of capitalized costs on the Company's books totaled
$88,000.
Revenue. The Company's Professional and Technical Services Segment
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 service is performed and costs are incurred. Revenue from
fixed-price contracts is recognized on the basis of percentage of work completed
(measured by costs incurred relative to total estimated project costs) under
compliance with Statement of Position 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts".
The Company's e-Learning Segment's nonrefundable upfront
subscription/license fees are recognized ratably over the contractual term,
which is typically one year. Revenue recognition commences when delivery of
product occurs. Usage fee revenue is recognized on an actual usage basis.
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 2000, one client accounted for 70% of total revenue. In 1999, three
clients accounted for 32%, 26%, and 17% of the Company's total revenue, and in
1998, two clients accounted for 37% and 27% of total revenue. All the above
concentrations relate to Professional and Technical Services Segment clients.
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.
19
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 3.
Per Share Computation. Basic earnings per share is computed by dividing
net earnings 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.
The following table sets forth the computation of basic and diluted
earnings per share as required by Financial Accounting Standards Board Statement
No. 128:
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Numerator:
Net earnings ............................................ $ 100 $ 1,342 $ 1,674
Denominator:
Denominator for basic earnings per share--
weighted-average shares outstanding....................... 9,960 10,050 10,124
Effect of dilutive securities:
Employee & Director stock options (Treasury stock
method) ............................................... 235 359 326
Denominator for diluted earnings per share--
weighted-average common and common equivalent shares ..... 10,195 10,409 10,450
============= ============ ============
Basic earnings per share .................................. $ 0.01 $ 0.13 $ 0.17
============= ============ ============
Diluted earnings per share ................................ $ 0.01 $ 0.13 $ 0.16
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
Comprehensive Income. The Company does not have any components of
comprehensive income. Therefore, comprehensive income is equal to net earnings
reported for all periods presented.
Disclosures about Segments of an Enterprise. The Company has two
reportable operating segments, which are: Professional and Technical Services
and e-Learning (see Note 7 to Consolidated Financial Statements).
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. In June 1999, the FASB issued Statement No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133", which amended FAS 133 by
deferring the effective date to the fiscal year beginning after June 30, 2000.
In June 2000, the FASB issued Statement No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment to FASB
Statement No. 133", which amended FAS 133 with respect to four specific issues.
The Company is required to adopt FAS 133, as amended, for the year ending
December 31, 2001. The Company does not expect that the adoption of this
statement will have a material effect on the consolidated financial position,
results of operations, or cash flows.
20
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements of all public registrants. With
respect to the Company's operations, SAB 101 primarily impacts the revenue
recognition related to nonrefundable up-front subscription/license and custom
content development fees. SAB 101 generally requires that such fees be
recognized as revenue ratably over the contractual service period commencing
upon the delivery of our e-Learning products. The e-Learning Segment's revenue
recognition has been consistent with the provisions of SAB 101 from its
inception in 2000 and, accordingly, the adoption of SAB 101, effective as of
January 1, 2000, had no impact on the Company's financial position or
operations.
Reclassifications. Certain reclassifications of prior year amounts have
been made to conform with current presentation.
Note 3. 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 2000, 1999, and 1998, charges to earnings for the
401(k) Savings Plan were $143,000, $164,000, and $233,000, respectively. During
2000, 1999, and 1998, the Company contributed no discretionary amounts to the
plan.
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 2000, options were granted for 30,000 shares at an
exercise price of $1.2625, the then fair market value, expiring on April 18,
2006. In 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. During
2000, options for 70,000 shares were canceled due to employee terminations
(94,000 and 660,750 in 1999 and 1998, respectively). Options for 15,000 shares
were exercised in 2000 (none in 1999 and 6,250 in 1998). As of December 31,
2000, options for 1,217,500 shares were outstanding and options for 1,100,000
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 2000, options were granted for
46,000 shares at an exercise price of $2.125, the then fair market value,
expiring on March 1, 2010. In 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. During 2000, no options were
forfeited (12,500 share options were canceled in 1999 and 8,000 in 1998).
Options for 35,500 were exercised in 2000 (no options were exercised in 1999 and
1998). As of December 31, 2000, options for 264,500 shares were outstanding and
218,500 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,
-------------------------------------------------------------------------------------
2000 1999 1998
------------------------- ------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- ----------------------------------------------------------------------------------------------------------------
Outstanding--
Beginning of Year .. 1,526 $ 1.00 1,285 $ 0.91 1,528 $ 0.98
Granted ............ 76 1.78 347 1.36 432 0.70
Exercised .......... (50) .67 -- -- (6) 1.19
Forfeited .......... (70) .87 (106) 1.05 (669) 0.90
---------- ---------- ---------- ---------- ---------- ----------
Outstanding--
End of Year ........ 1,482 $ 1.06 1,526 $ 1.00 1,285 $ 0.91
========== ========== ========== ========== ========== ==========
Exercisable at
End of Year ........ 1,319 $ 1.02 1,125 $ 0.99 811 $ 1.01
- ----------------------------------------------------------------------------------------------------------------
Exercise prices for options outstanding as of December 31, 2000, ranged
from $0.5625 to $1.75. The weighted-average remaining contractual life of those
options is 3.6 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 2000, 1999, and 1998: risk-free interest rates
of 6.25% for the March and April 2000 grants; 5.3% for the March 1999 grants;
and 5.0% each for the February, March, April, and July 1998 grants; dividend
yield of 0% for all years; volatility factors of the expected market price of
the Company's common stock of 0.65, 0.56, and 0.48 for the years 2000, 1999, and
1998, 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. Since 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 per share follows:
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Net Earnings -- As Reported ................................ $ 100 $ 1,342 $ 1,674
Pro Forma Net Earnings (Loss)--FAS 123 ..................... (2) 1,278 1,672
Net Earnings per Share-- As Reported Basic ................. $ 0.01 $ 0.13 $ 0.17
============= ============ ============
Net Earnings per Share-- As Reported Diluted ............... $ 0.01 $ 0.13 $ 0.16
============= ============ ============
Pro Forma Net Earnings per Share-- FAS 123 Basic ........... $ -- $ 0.13 $ 0.17
============= ============ ============
Pro Forma Net Earnings per Share-- FAS 123 Diluted ......... $ -- $ 0.12 $ 0.16
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
The weighted-average grant-date fair value of options granted, which is
the value assigned to the options under FAS 123, was $1.20, $0.75, and $0.35 for
grants made during years ended December 31, 2000, 1999, and 1998, respectively.
Note 4. 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, 2000 and
1999 are as follows, using the liability method:
- ----------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------
2000 1999
- ----------------------------------------------------------------------------------------------------------------
Current Deferred Tax Assets
Accrued Expenses Not Currently Deductible ............................. 640 771
Differences Between Book and Tax Depreciation and Amortization ........ 74 40
Other ................................................................. 19 15
------------ ------------
Total Current Gross Deferred Tax Assets ........................... 733 826
------------ ------------
Less: Valuation Allowance ............................................ (695) (727)
Current Deferred Tax Liabilities
Other ................................................................. 38 --
Revenue Differences Related to Timing ................................. -- 99
------------ ------------
Net Current Deferred Tax Liabilities .............................. $ -- $ --
============ ============
- ----------------------------------------------------------------------------------------------------------------
23
The current tax provision for the years ended December 31, 2000, 1999, and
1998, are as follows:
- -----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
Current:
Federal ..................................................... $ 42 $ 927 $ 256
State ....................................................... 21 186 73
----------- ------------ ------------
Tax Provision ............................................... $ 63 $ 1,113 $ 329
=========== ============ ============
- -----------------------------------------------------------------------------------------------------------------
The valuation allowance decreased by $32,000 and $45,000 during the years
ended December 31, 2000 and 1999, respectively, for those deferred tax assets
that may not be realized. The decrease primarily relates to a reduction in the
allowance for bad debts.
The provision for income taxes differed from the amount computed by
applying the statutory federal and state income tax rate for the years ended
December 31, 2000, 1999, and 1998, as follows:
- -----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
Federal Statutory Rate ........................................... 34% 34% 34%
State Taxes, Net of Federal Benefit .............................. 8% 5% 2%
Permanent Differences ............................................ 12% 1% 1%
Decrease in Valuation Allowance .................................. (20%) (2%) (21)%
Other ............................................................ 5% 7% --
----------- ------------ ------------
Income Tax Provision ............................................. 39% 45% 16%
=========== ============ ============
- -----------------------------------------------------------------------------------------------------------------
The Company paid income taxes of $64,000 in 2000 and $1,363,000 in 1999.
24
Note 5. Commitments and Contingencies
Leases. The Company occupies facilities under noncancelable operating
leases expiring at various dates through 2005. The leases call for proportionate
increases due to property taxes and certain other expenses. Rent expense
amounted to $537,000 for the year ended December 31, 2000 ($349,000 in 1999 and
$309,000 in 1998).
Minimum rental commitments under operating leases, principally for real
property, are as follows (in thousands):
(Year Ending December 31)
- ----------------------------------------------------------------------------------------------------------------
2001 ......................................................................................... $ 601
2002 ......................................................................................... 610
2003 ......................................................................................... 593
2004 ......................................................................................... 437
2005 and Thereafter .......................................................................... 382
------------
Total Minimum Payments Required .............................................................. $ 2,623
============
- ----------------------------------------------------------------------------------------------------------------
Revolving Loan Agreement. A loan agreement with a bank provides for a
revolving line of credit of $3,000,000, through May 2001. At December 31, 2000,
no amounts were outstanding under the credit line. 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. At December 31, 2000,
the Company was not in compliance with the quarterly profitability covenant due
to losses in its e-Learning Segment related to infrastructure and sales growth
expenditures. The Company is requesting a waiver of the breached covenant from
the bank.
The interest rate under the agreement is the bank's prime rate (9.5% at
December 31, 2000). During 2000, 1999, and 1998, the Company paid no interest
expense, as there were no borrowings.
Note 6. 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. ("Spear"), 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
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 7. Segment Information
Based on the criteria established by Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (FAS 131"), the Company operates in two business segments based on
product/service differentiation. In accordance with FAS 131, the Company is
required to describe its reportable segments and provide data that is consistent
with the data made available to the Company's Chief Operating Decision Maker to
assess performance and make decisions.
The measure of profit or loss used for each reportable segment is net
earnings (loss) before the effect of income taxes. The accounting policies for
the segments are the same as for the Company taken as a whole. Certain corporate
expenses are allocated to these operating segments and are included for
performance evaluation. Annual employee bonuses, if any, are recorded at the
corporate level. Assets are not allocated to operating segments for reporting to
the Company's Chief Operating Decision Maker ("CODM") and the Company does not
prepare segmental balance sheets. Depreciation and amortization expenses are
allocated to the operating segments based on the fixed assets in the underlying
subsidiaries comprising the segments. Depreciation and amortization expenses for
the e-Learning segment were combined with the Professional and Technical
Services Segment in the years 1999 and 1998. There are no intersegment revenues
on transactions between reportable segments.
Information about the operating segments for the years 2000, 1999, and
1998, and reconciliation to the Consolidated Statements of Operations, are as
follows:
(In thousands)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------
REVENUE
Professional and Technical Services...................... $ 32,013 $ 37,212 $ 27,352
e-Learning .............................................. 430 710 93
------------- ------------ ------------
Total ................................................. $ 32,443 $ 37,922 $ 27,445
============= ============ ============
NET EARNINGS (LOSS) BEFORE INCOME TAX
Professional and Technical Services ..................... $ 2,981 $ 3,977 $ 2,536
e-Learning .............................................. (1,827) (109) (103)
Corporate and Other ..................................... (991) (1,413) (430)
------------- ------------ ------------
Total ................................................. $ 163 $ 2,455 $ 2,003
============= ============ ============
DEPRECIATION AND AMORTIZATION EXPENSE
Professional and Technical Services ..................... $ 88 $ 108 $ 77
e-Learning .............................................. 281 NA NA
Corporate and Other ..................................... 19 43 30
------------- ------------ ------------
Total ................................................. $ 388 $ 151 $ 107
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
Revenues outside of the United States have been less than 1% of total
Company revenues in each of the years ended December 31, 2000, 1999, and 1998,
respectively. Therefore, no enterprise-wide geographical data has been provided.
The Company provides services and products to clients throughout the United
States, and the geographical location of the client is not used for
decision-making or performance evaluation.
26
Note 8. 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
--------------------------------------------- ---------------------------------------------
12/31/00 9/30/00 6/30/00 3/31/00 12/31/99 9/30/99 6/30/99 3/31/99
- ----------------------------------------------------------------------------------------------------------------
Revenue ..... $ 6,784 $ 7,673 $ 8,339 $ 9,647 $ 9,065 $10,163 $ 9,412 $ 9,282
Direct Costs 5,082 5,987 6,675 7,721 6,881 7,970 7,215 7,285
General and
Administrative
Expenses .... 1,962 1,639 1,619 1,781 1,847 1,385 1,515 1,489
Other Income -- -- -- 4 -- -- 1 --
-------- ------- -------- -------- -------- -------- -------- --------
Operating
Income(Loss) (260) 47 45 149 337 808 683 508
Interest
Income ...... 45 49 37 51 36 30 26 27
-------- ------- -------- -------- -------- -------- -------- --------
Net Earnings
Before Inc.Tax
Exp(Benefit) (215) 96 82 200 373 838 709 535
Income Tax
Exp(Benefit) (88) 38 33 80 174 404 305 230
-------- ------- -------- -------- -------- -------- -------- --------
Net Earn(Loss) $ (127) $ 58 $ 49 $ 120 $ 199 $ 434 $ 404 $ 305
======== ======= ======== ======== ======== ======== ======== ========
Net Earn(Loss)
Per Share-Basic $ (0.01) $ 0.01 $ 0.01 $ 0.01 $ 0.02 $ 0.04 $ 0.04 $ 0.03
======== ======= ======== ======== ======== ======== ======== ========
Net Earn(Loss)
Per
Share-Diluted $ (0.01) $ 0.01 $ 0.01 $ 0.01 $ 0.02 $ 0.04 $ 0.04 $ 0.03
======== ======= ======== ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------
27
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, 2000 and 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, 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
San Francisco, California
January 19, 2001
28
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
29
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, 59, 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 international biotechnology firm. Previously, Mr. Hasler was Dean and
Department Chair of the Haas 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, Ditech Communications Corporation, The Schwab
Funds, and TCSI Corporation.
Jeffrey R. Hazarian, 45, 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., 57, 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, 49, 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, 30, has served as Director of the Company since
her election in June 1998. Ms. O'Riordan is Communications Manager of
field sales, process and automation, and core technologies training 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., 71, 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.
30
Item 11. Executive Compensation
The following tables set forth certain information covering compensation
paid by TENERA to the Chief Executive Officer ("CEO") and each of the Company's
other executive officers, other than the CEO, 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, 2000, 1999, and
1998.
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. 2000 $ 231,469 $ -- -- $ 3,400
Chief Executive Officer 1999 223,958 90,000 40,000 3,200
President 1998 200,000 152,500 -- 3,200
Jeffrey R. Hazarian 2000 180,031 7,000 -- 3,400
Executive 1999 181,064 67,500 40,000 3,200
Vice President and 1998 159,000 50,400 75,000 3,180
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.
There were no options granted during 2000 to the named executives.
31
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 2000,
11,500 stock options were issued to each of Messrs. Hasler, Loo, Turin, and Ms.
O'Riordan. 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. The options expire ten (10) years after the date of
the grant, 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 his
resignation, Mr. Bunch's 1999 options did not vest and were forfeited.
Compensation Committee Interlocks and Insider Participation
During 2000, 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 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 "Security Ownership of Directors, Officers, and Principal
Shareholders"). Mr. Wagner is also the sole stockholder and a director of
Teknekron Corporation.
32
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, 2001,
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 37.1%(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 300
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.
33
(b) Security Ownership of Management
The following table sets forth information as of March 1, 2001, 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 ............................................. 55,500 46,500(3) 1.0%
Jeffrey R. Hazarian ........................................... 7,186 185,000(4) 1.9%
Thomas S. Loo.................................................. -- 44,500(3) *
Robert C. McKay, Jr............................................ 1,789 258,000(4) 2.5%
Andrea W. O'Riordan (5)........................................ -- 36,500 *
George L. Turin................................................ 45,504 72,000(3) 1.2%
------------ ------------- ------------
All Directors and Executive Officers as a Group (6 persons) ... 109,979 642,500 7.1%
- -------------------------------------------------------------------------------------------------------------------
[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, 2001. 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, 2001, or within 60 days
thereafter.
(4) Represents options under the Company's 1992 Option Plan which are
exercisable on March 1, 2001, 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 Securities Exchange Act of 1934. 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 does 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."
34
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, 2000, 1999, and 1998 ....... 14
Consolidated Balance Sheets-- December 31, 2000 and 1999 .................................... 15
Consolidated Statements of Stockholders' Equity--
Years Ended December 31, 2000, 1999, and 1998 ............................................... 16
Consolidated Statements of Cash Flows-- Years Ended December 31, 2000, 1999, and
1998 ........................................................................................ 17
Notes to Consolidated Financial Statements .................................................. 18
Report of Independent Auditors .............................................................. 28
(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 .............................. 37
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 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 Series C Preferred Stock Purchase Agreement dated April 6, 2000
between the Registrant and Spear Technologies, Inc. (filed as
Exhibit 2.3 to the Registrant's 1999 Form 10-K and
incorporated hereinby reference).
2.4 Asset Acquisition Agreement dated February 10, 2000 between the
Registrant and SoBran, Inc. (filed as Exhibit 2.4 to the
Registrant's 1999 Form 10-K and incorporated herein by
reference).
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
35
10.1 Registrant's lease, dated May 3, 2000, for its property
located in Knoxville, Tennessee (filed as Exhibit 10.1 to the
Registrant's June 30, 2000 Form 10-Q and incorporated herein
by reference).
10.2 Registrant's lease, dated May 30, 2000, for its headquarters
located in San Francisco, California filed as Exhibit 10.2 to
the Registrant's June 30, 2000 Form 10-Q and incorporated
herein by reference).
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 2000.
(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, 2000.
_________________________
(1) Filed herewith.
36
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
- ----------------------------------------------------------------------------------------------------------------
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
2000
Reserve for Sales Adjustment
and Credit Losses ............. 1,298 -- -- 334 964
- ----------------------------------------------------------------------------------------------------------------
37
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 29, 2001
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 29, 2001
- ------------------------
(William A. Hasler)
Director, Chief Financial Officer,
Executive Vice President, and
Corporate Secretary
/s/ JEFFREY R. HAZARIAN (Principal Financial Officer) March 29, 2001
- ------------------------
(Jeffrey R. Hazarian)
/s/ THOMAS S. LOO Director March 29, 2001
- ------------------------
(Thomas S. Loo)
Director,
Chief Executive Officer, and President
/s/ ROBERT C. MCKAY (Principal Executive Officer) March 29, 2001
- ------------------------
(Robert C. McKay)
/s/ ANDREA W. O'RIORDAN Director March 29, 2001
- ------------------------
(Andrea W. O'Riordan)
Controller and Treasurer
/s/ JAMES A. ROBISON, JR. (Principal Accounting Officer) March 29, 2001
- ------------------------
(James A. Robison, Jr.)
/s/ GEORGE L. TURIN Director March 29, 2001
- ------------------------
(George L. Turin)
38
EXHIBIT INDEX
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