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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 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER
1-9812
TENERA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-3213541
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
One Market, Spear Tower, Suite 1850, San Francisco, California 94105-1018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 536-4744
_________________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Stock
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ].
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 15, 1996, the aggregate market value of the Registrant's Common
Stock held by nonaffiliates of the Registrant was $5,320,887 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 15, 1996, was 10,322,443.
PART I
ITEM 1. BUSINESS
GENERAL
TENERA, Inc. ("TENERA" or the "Company"), a Delaware corporation, was
formed in connection with the conversion of TENERA, L.P. (the predecessor of
the Company, the "Predecessor Partnership") into corporate form (the "Merger"
or "Conversion"), completed on June 30, 1995. Pursuant to the Merger, the
Company succeeded to the business, assets, and liabilities of the Predecessor
Partnership. Therefore, the Company and the Predecessor Partnership are
sometimes collectively referred to herein as TENERA or the Company. (See Note
1 of the "Notes to Consolidated Financial Statements.")
The Company provides a broad range of professional services and software
products to solve complex management, engineering, environmental, and safety
challenges associated with the design, construction, licensing, operation,
asset management, and maintenance of power plants and large mass transit
systems. Its services and products cover the following general areas:
consulting and management services and software services, products, and
systems.
In the area of consulting and management services, TENERA provides services
and software to assist its commercial electric power industry clients with
respect to nuclear and fossil plant operations and maintenance, nuclear safety
and licensing, organizational effectiveness, management audits, utility and
project management, risk management, and certain environmental engineering
tasks, and also provides expert witness and analysis support for regulatory
and legal proceedings. For its governmental clients, TENERA provides the
Department of Energy ("DOE") and DOE prime contractors with assistance in
devising, implementing, and monitoring strategies to upgrade from an
operational, safety, and environmental perspective at DOE-owned nuclear
reactor sites. For the mass transit area, TENERA provides its clients with
consulting services associated with the maintenance of their rolling stock,
right-of-way, and facilities. The software services, products, and systems
area complements the management and consulting services areas providing
software services and information management products, specialized data bases,
and systems which support electric power generation and mass transit systems
in areas such as regulatory compliance, facility operations, equipment
maintenance, and data management.
TENERA has developed expertise in providing solutions to the complex
technical and regulatory issues facing the commercial electric power industry,
particularly with respect to nuclear facilities. Over the past several years,
commercial electric utilities have experienced increased competitive pressure
due to a continued deregulation of electric power production. For example,
utilities continue to find it more difficult to recover total capital
expenditures through rate increases, as well as facing increased competition
from independent power producers, alternative energy production, and
cogeneration. During the same period, utilities 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 production facilities. A massive program is underway
throughout the DOE complex of nuclear facilities to comply 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 utilities, as well
as a variety of other industries, have been subjected to extensive regulation
regarding environmentally safe handling of hazardous materials. 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, including software and data bases
which are used either in support of consulting projects or as the basis for
development of stand alone software products and systems. The Company assists
its clients in the initial identification and analysis of a problem, the
implementation of a technologically feasible solution that client management
believes will be sensitive to business and public interest constraints, and
the ongoing monitoring of that solution.
During 1995, the Company formed TENERA Rocky Flats, LLC ("LLC"), a Colorado
limited liability company, to provide consulting and management services in
connection with participation in the Performance
1
Based Integrating Management Contract ("Rocky Flats Contract") at the DOE's
Rocky Flats Environmental Technology Site ("Site").
BACKGROUND
The Company's principal market is the electric utility industry. It has
undergone considerable change in recent years and faces a complex mix of
economic and regulatory pressures. There has been gradual deregulation of the
production and distribution of electricity, and the associated desire by
utilities to meet demand for electricity through higher operating efficiency.
Some of the Company's largest clients have responded to a more competitive
environment by implementation of significant cost control measures.
Electric utilities are also facing increased scrutiny resulting from public
concern over health, safety, and the environment. The Company believes that
there is a clear trend toward increased enforcement of environmental laws and
regulations at all levels of government, prompted by increased publicity and
public awareness of environmental problems and health hazards posed by
hazardous materials and toxic wastes.
Economic pressures have resulted in certain changes in the focus of utility
management. For example, the rate-making process now represents a significant
area of risk to utilities. This has highlighted the importance of careful
planning and documentation in connection with rate case preparation.
Furthermore, rate base decisions apparently are shifting their emphasis to
ongoing performance reviews related to such measures as plant capacity
factors. This has resulted in substantial penalties for extended plant outages
and has stimulated actions by the utilities to assure more reliable
operations.
The market for electric utility professional services and software products
covers a broad range of activities. The typical market includes waste
management, outage support, operating plant services, licensing support,
safety management, maintenance and information services, decommissioning
consulting, risk assessment, quality assurance and control, organizational
effectiveness, engineering support, records management, fuel related services,
and plant security. In recent years, the slowdown in construction of power
plants has placed a premium on extending existing plant life and has shifted
the market emphasis.
This has also resulted in greater attention by utilities to management
systems for preventive maintenance and improved methods of plant operation.
Accordingly, it is TENERA's belief that the market for services and software
associated with the efficient and profitable operation of existing capacity
has expanded and the market for services and software related to initial
licensing and construction has contracted. This trend has resulted in some
electric utilities closure of their power plants and the curtailment of
certain activities which TENERA had traditionally supported. TENERA has
responded to these electric utility industry changes by refocusing its
operations significantly. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company's other market, mass transit systems, consists of public
entities that provide ground transportation services to the general public.
The properties are typically characterized as either bus or rail operators,
with rail and large bus operators comprising approximately 75% of the budgeted
mass transit funds for maintenance and capital assets. The transit industry
consists primarily of government or quasi-government agencies, which are
subject to swings in government subsidy levels, and operate in a political
arena. A significant portion of this funding is spent by the operators on
asset operation and maintenance. In several sectors of the country, the
transit infrastructure and fleets are aging and may require extensive
maintenance or replacement to the extent that capital budgets will allow.
Accordingly, it is TENERA's belief that the market for services and technology
focused on dramatically improving the performance of the operator's assets
while lowering the costs associated with managing the assets, may continue to
expand while available federal government subsidies contract.
The industrial association, American Public Transit Association ("APTA") is
a strong representative of the transit industry, with a membership comprised
of over 96% of the transit organizations. TENERA has established close and
active ties with APTA in order to maintain a clear understanding of the issues
facing this industry. The Company has sold total solution systems and services
to some of the most prestigious operators in the industry (i.e., New York
Metropolitan Transit Authority). The experience gained during these
engagements
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has provided the Company's transit consultants with additional insight into
the day-to-day, on-the-line problems which must be solved by the operator's
maintenance organizations.
SERVICES AND PRODUCTS
The Company provides its services by utilizing its professional skills and
technological resources in an integrated approach which combines technical and
project management capabilities with sophisticated software systems and data
bases. 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 provision for expert witnesses and analysis in support of
regulatory and legal proceedings. The Company operates in one business segment
providing services which cover these general areas: consulting and management
services and software services, products, and systems.
The following table reflects the percentage of revenues derived for each of
these areas for the period indicated during the fiscal years ended December
31, 1993 through 1995:
________________________________________________________________________
Year Ended December 31,
--------------------------
1995 1994 1993
________________________________________________________________________
Consulting and Management Services ......... 85.5% 83.6% 83.7%
Commercial Environmental Services* ......... -- -- 3.7%
Software Services, Products, and Systems ... 14.5% 16.4% 12.6%
________________________________________________________________________
* Commercial Environmental Services was curtailed in mid-1993.
Consulting and Management Services. The Company's consulting and management
services involve the determination of a solution to its client's problems and
challenges arising in the design, operation, and management of large
facilities and mass transit systems. 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 planning and
implementing a coordinated, effective response to such issues. The Company
applies its professional skills, software, and specialized data bases to all
aspects of problems and challenges in the following general areas:
- Operations and maintenance
- Engineering design review and verification
- Nuclear safety and licensing
- Organizational effectiveness
- Management audits
- Project management
- Expert witness and analysis support for regulatory and legal proceedings
- Nuclear safety and criticality at DOE facilities
- Environmental engineering issues at DOE and electric utility facilities
Software Services, Products, and Systems. To complement its professional
services, the Company offers a wide range of information software services,
products, and systems including data bases designed to support mass transit
and electric clients in areas such as asset management, regulatory compliance,
facility operations, and equipment maintenance and data management related to
management consulting, operating performance, and environmental engineering
requirements. The principal proprietary aspect of the software business lies
in the
3
ability to utilize it to solve client problems and to market this capability.
Software applications for a variety of industrial sectors and requirements
have been developed for PC, mini, and mainframe hardware installations. The
Company offers customized, interactive software applications for mass transit
systems or large facility information management requirements, which are
designed for use with IBM mainframe and networked personal computer
environments. Major core products which are customized to the client's
specifications include:
- An on-line interactive system for coordinating and controlling all
aspects of maintenance for large mass transit systems and electric
utility facilities
- Networked PC software to manage nuclear safety-related data bases and
engineering processes in conformance with rigorous software quality
assurance requirements
MARKETING AND CLIENTS
Marketing. The Company's marketing strategy emphasizes its ability to offer
a broad range of services and software designed to meet the needs of its
clients in a timely and cost-efficient manner. The Company has the
organization and capability to undertake not only small tasks requiring a few
professionals but also the management, staffing, design, and implementation of
major projects which may last for several years and involve hundreds of
professionals in several geographic locations. Characteristic of TENERA's
marketing strategy are significant projects in which initial contracts have
been only a small fraction of the ultimate sale. Historically, TENERA has
experienced a high retention rate of existing clients, however, there is no
assurance that the high retention rate will occur in the future.
The Company provides financial incentives to attract senior technical
professionals with extensive utility and transit industry experience and to
encourage these individuals to market the complete range of TENERA's services
and software throughout existing and potential customer organizations.
Incentives for senior technical staff to cross sell the range of TENERA's
capabilities is of particular importance to the Company's business. A software
sale, for example, may provide the opportunity to market a management
consulting contract. Likewise, a management consulting contract may result in
software product development and the sale of a software system or data base.
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 and mass transit industries 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. This assistance
can lead, in turn, to a request for TENERA to use existing software or to
develop software systems to solve the problem. If new services or products are
developed for a client, they generally are marketed to other clients with
similar needs.
TENERA's marketing efforts are led by account managers with specific
marketing and sales accountability. They are charged with the responsibility
of better understanding the market and their clients so that TENERA can tailor
its technology, products, and services to meet client needs and challenges. In
many instances, new contracts are acquired by the account managers and other
senior technical and management professionals who are responsible for staffing
and managing projects, monitoring the quality of deliverables, and integrating
the delivery of TENERA's services and software products. Senior professionals
are also responsible for developing and maintaining long-term working
relationships between clients' management and the Company, including marketing
additional services to existing clients.
Clients. During the year ended December 31, 1995, TENERA provided services
and software to over 66 clients involving over 150 contracts. During the year
ended December 31, 1994, TENERA provided services and software to over
73 clients involving over 200 contracts. Over 80% of TENERA's clients during
the year ended December 31, 1995, had previously used its services or
software.
During the year ended December 31, 1995, one customer, Kaiser-Hill Company,
LLC ("Kaiser-Hill") accounted for approximately 31% of the Company's total
revenue. During the year ended December 31, 1994, one customer, Westinghouse
accounted for approximately 29% of the Company's total revenue. The Company
4
has maintained working relationships with Kaiser-Hill and Westinghouse for
less than one and four years, respectively, during which time various
contracts have been completed and replaced with new or follow-on contracts.
There can be no assurance that such relationships will be maintained beyond
the current contracts, and the loss of such clients could have a material
adverse effect on the Company.
OPERATIONS
The Company contracts for the billing of its services in one of four ways:
time and materials ("T & M"), cost plus fixed fee ("CPFF"), cost plus
incentive fee ("CPIF"), or fixed price. T & M, CPFF, and CPIF contracts, which
cover a substantial amount of TENERA's revenues, are generally billed monthly
by applying a multiplier factor to specific labor costs or by use of a fixed
labor rate per hour charged to each project. T & M, CPFF, and CPIF 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 beyond the initial scope of work is required, the contract normally can
be renegotiated to include such additional work and to increase the contract
ceiling accordingly. The Company also receives license and annual maintenance
fees from contracts involving software products. During the year ended
December 31, 1995, such fees amounted to $978,000 ($393,000 in 1994).
Fixed-price contracts are generally applicable to instances in which TENERA
has been requested to deliver services and/or products previously developed or
products and/or services deliverable to multiple customers. Certain fixed
price contracts are established where TENERA is developing software products
or transferring the technology to a new platform.
TENERA generally receives payments on amounts billed 30 to 90 days after
billing, except for retention under contracts. Since the majority of TENERA's
clients are utility companies, DOE, DOE prime contractors, or major mass
transit systems, TENERA historically has experienced a low percentage of
losses due to poor credit risks.
BACKLOG
As of December 31, 1995, TENERA had contracted a backlog of approximately
$6.8 million, all of which is cancelable by the clients. Contracted backlog
represents the aggregate of the residual (unspent) value of those active
contracts entered into by TENERA for services which are limited by a
contractual amount and does not include any estimates of open-ended services
contracts or unfunded backlog that may result from additions to existing
contracts (as of December 31, 1995, unfunded backlog at Kaiser-Hill is
approximately $6 million).
Since all outstanding contracts are cancelable, there is no assurance that
the revenues from these contracts will be realized by the Company. If any
contract is canceled, there is no assurance that the Company will be
successful in replacing such contracts.
COMPETITION
The market for consulting and management services and related software
products and services is highly competitive and TENERA competes with several
larger firms with significantly greater resources. The primary competitive
factor in the market for consulting and management services is price, and a
number of TENERA's competitors are able to offer such services at prices that
are lower than those offered by TENERA.
RESEARCH AND DEVELOPMENT
It has been TENERA's policy to undertake development projects of software,
systems, and data bases only if they can be expected to lead directly to
proprietary products that may be generally marketable. A portion of TENERA's
research and development effort may be funded through customer-sponsored
projects, although the rights to the systems and data bases generally remain
with TENERA. Because TENERA's research and development activities involve the
integration of customer-funded, cost sharing, and TENERA-funded projects, it
is not possible to segregate on a historical basis all of the specific costs
allocable as research and development costs. In 1995 however, TENERA expended
in excess of $68,000 of its funds on software development designed to meet
customers needs for 1995 and beyond.
5
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 data bases. The license agreements under which
customers acquire the rights to use TENERA's products generally restrict the
customers' use of the products to their own operations and prohibit disclosure
to others.
PERSONNEL
At December 31, 1995, the Company employed a total of 238 consultants,
engineers, programmers, and scientists and a supporting administrative staff
of over 30 employees. Ten employees hold doctorates and 91 employees hold
master's degrees. TENERA also retains the services of 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 9,500 square feet of leased office space. TENERA also
leases approximately 9,000 square feet of office space in Rockville, Maryland.
These leases expire in 1997. Additionally, TENERA maintains leases covering
approximately 20,000 square feet in total in Boulder, Colorado; Shelton,
Connecticut; Idaho Falls, Idaho; Holbrook, New York; Knoxville, Tennessee; and
Richland, Washington which expire at various dates through 1999.
The Company believes that its facilities are well maintained and adequate
for its current needs.
ITEM 3. LEGAL PROCEEDINGS
On November 4, 1994, PLM Financial Services, Inc. ("PLM") filed an action
against the Predecessor Partnership, among others, in the Superior Court of
California for the County of Alameda. The action entitled PLM Financial
Services, Inc. v. TERA Corporation, et al., Case No. 743 439-0, seeks damages
in excess of $500,000 in unpaid equipment rent and other unspecified damages
allegedly owing to PLM under an equipment lease dated September 29, 1984
between PLM and TERA Power Corporation ("TERA Power"), a former subsidiary of
TERA Corporation (the "Predecessor Corporation"). PLM has named the
Predecessor Partnership in the action pursuant to a Guaranty dated September
24, 1984 of the lease obligations of TERA Power made by the Predecessor
Corporation. Upon the liquidation of the Predecessor Corporation in late 1986,
the stock of TERA Power was transferred to the TERA Corporation Liquidating
Trust (the "Trust") and was thereafter sold to Delta Energy Projects Phases
II, IV, and VI pursuant to a stock purchase agreement dated May 31, 1991.
Management understands that TERA Power has asserted various defenses to the
claims asserted by PLM in the action. Moreover, management believes that, even
if there is liability under the lease, the Guaranty has been exonerated and
the Company will be able to defend this action successfully. Management does
not believe that eventual resolution of this matter will have a material
effect on the Company's financial position; however, an adverse outcome could
have a material adverse impact on the results of operations and cash flows of
the Company.
On October 13, 1995, the League for Coastal Protection ("League") filed an
action on behalf of the League and the general public against the Company,
among others, in the Superior Court of California for the County of San
Francisco. The action entitled League for Coastal Protection v. Pacific Gas &
Electric Company ("PG&E"), et al., Case No. 973182, seeks injunctive relief
and disgorgement of unspecified profits under the California Business and
Professions Code, Section 17200, et seq. The plaintiff contends that certain
studies performed by the Company and its predecessors respecting the
requirements of 316(b) of the Clean Water Act, that ultimately were submitted
by PG&E to the Regional Water Quality Control Board ("RWQCB") in 1988 in
connection with the Diablo Canyon Nuclear Power facility at Diablo Canyon,
California, were deficient in various respects, and that the Company and PG&E
covered up those deficiencies from the RWQCB and other state agencies. The
League has threatened, but not yet filed, an action in Federal Court under the
Clean Water Act against PG&E and the Company respecting the studies and
subsequent activities described above. The Company will vigorously defend
these actions and management believes that the Company will be able to
6
defend this action successfully. Management does not believe that eventual
resolution of this matter will have a material effect on the Company's
financial position; however, an adverse outcome could have a material adverse
impact on the results of operations and cash flows of the Company.
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
The Shares of 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. The Units of the Predecessor Partnership were listed
for trading on AMEX under the symbol TLP. The first and last trading days on
AMEX for the Predecessor Partnership was January 28, 1988, and June 30, 1995,
respectively. There were approximately 600 Shareholders of record as of March
15, 1996.
___________________________________________________________________________________
1995 1994 1993
------------------ ------------------ ------------------
Price Range of Price Range of Price Range of
TENERA, Inc. Predecessor Predecessor
Shares (1) Partnership Units Partnership Units
------------------ ------------------ ------------------
High Low High Low High Low
___________________________________________________________________________________
First Quarter .... $ 0.9375 $ 0.50 $ 1.6875 $ 1.25 $ 3.125 $ 1.25
Second Quarter ... 1.1875 0.750 1.4375 1.0625 2.50 1.5625
Third Quarter .... 1.875 1.1875 1.1875 0.50 2.1875 1.375
Fourth Quarter ... 1.50 0.875 1.3125 0.625 1.6875 1.25
___________________________________________________________________________________
(1) Reflects trading prices of the Predecessor Partnership Units for the period
from January 1, 1995 to June 30, 1995.
The Board of Directors of the Company determines the amount of cash
dividends which the Company may make to Shareholders after consideration of
projected cash requirements and a determination of the amount of retained
funds necessary to provide for growth of the Company's business. The Company
and its Predecessor Partnership have made no distributions since June 1991.
The Company does not anticipate resumption of cash distributions in the
foreseeable future.
8
ITEM 6. SELECTED FINANCIAL DATA
The following combined selected financial data of the Company for the five
prior fiscal years should be read in conjunction with the combined financial
statements and related notes included elsewhere.
TENERA, INC.
FINANCIAL HIGHLIGHTS
(In thousands, except per unit and statistical amounts)
_______________________________________________________________________________________________________________
Year Ended December 31,
----------------------------------------------------
1995 1994 1993 1992 1991
_______________________________________________________________________________________________________________
OPERATIONS DATA
Revenue ................................................ $ 25,545 $ 23,600 $ 29,340 $ 36,648 $ 44,128
Operating Income (Loss) ................................ 1,203 (1,239) (315) 826 (6,176)
Net Earnings (Loss) .................................... 898 (1,202) (294) 795 (6,434)
Earnings (Loss) per Share/Equivalent Unit(1) ........... 0.07 (0.13) (0.03) 0.08 (0.66)
Cash Distributions per Share/Equivalent Unit(1) ........ -- -- -- -- 0.31
Portion of Cash Distributions per Share/Equivalent
Unit Representing a Return of Capital for
Original Unitholders ................................... -- -- -- -- 0.14
Weighted Average Shares/Equivalent Units(1) ............ 10,014 9,555 9,646 9,710 9,736
CASH FLOW DATA
Net Cash (Used) Provided by Operating Activities ....... (286) 17 1,472 (626) 6,632
Cash Dividends/Distributions ........................... -- -- -- -- 5,021
Net (Decrease) Increase In Cash and Cash Equivalents ... (469) 363 1,085 (1,418) 774
FINANCIAL POSITION AT DECEMBER 31
Cash and Cash Equivalents .............................. 1,474 1,943 1,580 495 1,913
Working Capital ........................................ 5,836 4,024 5,196 5,383 5,109
Total Assets ........................................... 10,087 8,616 9,345 11,111 13,402
Total Liabilities ...................................... 3,912 4,069 3,524 4,932 7,727
Shareholders' Equity/Partners' Capital ................. 6,175 4,547 5,821 6,179 5,675
Book Value per Share/Equivalent Unit(1) (2) ............ 0.60 0.48 0.60 0.64 0.58
OTHER INFORMATION
Number of Employees .................................... 270 170 202 263 361
_______________________________________________________________________________________________________________
(1) Equivalent Units represent both the general and limited partners' interest in Predecessor Partnership
earnings.
(2) Calculated as Shareholders' Equity divided by shares of Common Stock outstanding at December 31, 1995, and
as the Predecessor Partnership's Partners' Capital divided by Equivalent Units outstanding at December 31,
for the years 1991 to 1994, respectively.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
TENERA, INC.
RESULTS OF OPERATIONS
______________________________________________________________________________________________________
Year Ended December 31,
--------------------------------------------------------------
1995 1994 1993
---------------------- ---------------------- ----------
% Increase % Increase
(Decrease) (Decrease)
% of to Prior % of to Prior % of
Revenue Year Revenue Year Revenue
______________________________________________________________________________________________________
Revenue .............................. 100 8 100 (20) 100
Direct Costs ......................... 63 10 62 (22) 63
General and Administrative Expenses .. 32 (23) 45 (6) 39
Other Income (Expenses) .............. 0 (69) 0 (124) 1
Special Item ......................... -- (100) 2 -- --
---------- ---------- ---------- ---------- ----------
Operating Income (Loss) ............ 5 N/A (5) 293 (1)
Interest Income (Expense) ............ 0 (97) 0 76 0
---------- ---------- ---------- ---------- ----------
Net Earnings (Loss) Before Income
Tax Expense .......................... 5 N/A (5) 309 (1)
========== ========== ========== ========== ==========
______________________________________________________________________________________________________
YEAR ENDED DECEMBER 31, 1995 VERSUS YEAR ENDED DECEMBER 31, 1994
Higher revenue and lower general and administrative expenses resulted in
net earnings before income tax expense for 1995 of $1,204,000 versus a pre-tax
loss of $1,702,000 in 1994 before the special item for settlement with the
DOE.
The revenue increase is primarily a result of the impact of beginning the
Rocky Flats Contract at the Site on July 1, 1995. Under terms of the cost-plus
incentive fee Rocky Flats Contract, the LLC is scheduled to provide
approximately 130 technical staff (with an estimated revenue for direct and
overhead cost recovery exceeding $16 million and an incentive fee percentage
comprised of a 1% base and 4.5% maximum performance-based award) in various
positions at the Site during the first year of a two-year base period. The
total period of performance for the Rocky Flats Contract includes options to
extend the contract, upon the request of Kaiser-Hill, through June 30, 2000.
The Rocky Flats Contract, as with all TENERA contracts, are cancelable by the
clients (see Item 1. "Business"). Staffing for the Rocky Flats Contract was
derived from two sources; (i) recruitment of former Site employees; and
(ii) transfer to the LLC of certain Company employees from the Government
Services and Power Generation and Electric Utilities ("Power") Services
groups. The Rocky Flats Contract's impact on revenue for 1995 was partially
offset by the impact of reduced technical services sales and staffing in the
Power Services group when compared to 1994.
Concentration of revenue from the government sector increased to 49% of
total revenue for 1995 from 36% in 1994. This is primarily due to the Rocky
Flats Contract activity which represented 45% of total revenue in the final
six months of 1995 and 31% of total revenue for the entire year. The number of
clients served during the year decreased slightly to 66 from 73 in 1994.
Revenue from software license and maintenance fees during 1995 rose to
$978,000 from $393,000 in 1994, primarily due to the recognition of license
fees associated with
10
achieving certain milestones in the ongoing New York Metropolitan Transit
Authority and Long Island Rail Road installations.
Direct costs were higher in 1995, primarily reflecting the increased
staffing for the Rocky Flats Contract. Gross margin contribution from overall
project activity during the year, before consideration for the impact of the
Rocky Flats Contract, was up from 38% in 1994 to 43% in 1995. The 1995 margins
reflect improved pricing in Power Services and achievement of milestones under
software contracts. The gross margin contribution for the Rocky Flats Contract
was only 19%. This lower gross margin contribution is primarily due to the
cost-plus pricing characteristics of the contract, coupled with the low
overhead cost structure for the LLC.
General and administrative expenses decreased by $2,422,000 in 1995 as
compared to 1994, primarily due to overall reduced staff size during the first
half of the year, improved technical staff productivity on client projects,
and lower professional service, facilities, travel, and office equipment costs
in 1995, partially offset by costs associated with the Conversion incurred in
1995 and incentive compensation awards. These net cost reductions resulted in
a drop in general and administrative expenses as a percentage of revenue from
45% in 1994 to 32% in 1995.
Other expense for 1995 primarily relates to the Company's interest
($30,000) in the estimated loss of the Individual Plant Evaluation Partnership
("IPEP"), a technical services partnership in which it was an operating
participant, partially offset by a gain on the sale of assets related to
facility downsizing ($10,000).
Net interest income represents earnings from the investment of cash
balances in short-term, high-quality, corporate debt instruments, offset by
the interest costs associated with short-term borrowing on the Company's line
of credit during the first six months of 1995.
YEAR ENDED DECEMBER 31, 1994 VERSUS YEAR ENDED DECEMBER 31, 1993
Lower revenue in 1994 was not offset by the pace of lowered general and
administrative expenses, which included costs associated with additional
downsizing of the organization and consideration of the Conversion, resulting
in a net loss of $1,702,000, before the special item, versus a net loss of
$294,000 in 1993.
The revenue decrease was primarily a result of significantly reduced
technical services sales in the engineering services group compared to 1993,
and the closure of non-utility environmental operations in mid-1993. The
number of clients decreased from 117 to 73, primarily reflecting the
discontinuation of non-utility environmental consulting, and further increases
in the concentration of revenue from the government sector to 36% of total
revenue in 1994, from 27% in 1993. During 1994, the Company reallocated a
number of its engineering resources to government, commercial consulting, and
software services, while shutting down certain traditional engineering
business units facing significant pricing pressure from transformations in the
electric utility marketplace. The shift of resources to government services
supported an increased revenue stream from the DOE site contractors through
the first three quarters of the year. However 1995 fiscal year funding
setbacks, within DOE site contractors' budgets, led to government services
work stoppages and procurement slowdowns during the Company's fourth quarter,
resulting in excess technical staff. Work began to resume at the end of the
year, but was not sufficient to maintain a profitable level of employee
utilization in the final months of 1994 for government operations.
Direct costs were lower overall reflecting the reduced revenue levels and a
reduction in contract completion in the second quarter of 1994, and a
reduction of warranty accruals established in 1993, that resulted from
improved performance on these fixed-price projects.
General and administrative expenses decreased by $634,000, versus 1993,
primarily due to overall reduced staff size, facility costs, and professional
services, partially offset by costs ($220,000) associated with analyzing
whether to undertake the Conversion. Although reduced in total, general and
administrative expense as a percentage of revenue increased by 6 percentage
points to 45% in 1994, primarily resulting from maintaining key technical
staff on overhead during the fourth quarter government services work stoppage,
incurring additional downsizing costs related to reducing operations staffing
and facilities throughout TENERA, and the costs related to the Conversion.
11
Other expense in 1994, primarily related to the Company's interest
($34,000) in the estimated loss of IPEP, and the trade-in loss on the upgrade
of personal computer assets in 1994 ($24,000), as compared to other income in
1993 from a gain on the sale of assets related to facility downsizing
($42,000), a one-time fee charged to the Trust for accounting and
administrative services over the life of the Trust ($228,000), and a gain on
the sale of assets related to certain commercial environmental services
($42,000). The Trust was established in 1986 by the Predecessor Corporation to
wind down the operations not transferred to the Predecessor Partnership.
The special item of $500,000 in 1994, reflected the estimated settlement of
specific disputed costs on certain U.S. Government contracts with the DOE.
This positive earnings adjustment resulted from a partial reduction of the
reserve for sales adjustment established in 1991. The reserve was established
to provide for a dispute between the Company and the DOE with respect to the
allowability and amount of potential rate adjustments on U.S. Government
contracts for certain employee compensation costs.
Net interest income represented earnings from the investment of cash
balances in short-term, high-quality, corporate debt instruments.
LIQUIDITY AND CAPITAL RESOURCES
Year Ended December 31, 1995. Cash and cash equivalents decreased by
$469,000 in 1995. The decrease was due to cash used by operations ($286,000),
net equipment acquisitions ($163,000), and cash used by financing activities
($20,000).
Receivables increased by $2,137,000 from December 31, 1994, primarily due
to an increase in revenue during the last six months of 1995 versus the
comparable period in 1994.
Accounts payable decreased by $495,000 during the period, primarily due to
a decrease in overall general and administrative expenses. Accrued
compensation and related expenses increased by $764,000 during the year
reflecting the increased staffing during the last six months of 1995.
Income taxes payable increased by $306,000 during the period representing
the initial income tax provision for operation of the Company in a corporate
form.
Equity increased by $1,628,000 in the period primarily due to the receipt
of additional capital ($1,000,000) in connection with the Merger, and to net
earnings ($898,000), partially offset by the repurchase of Shares and Units
($270,000).
No cash dividends or distributions were declared in 1995.
The impact of inflation on revenue and projects of the Company was minimal.
At December 31, 1995, the Company had available a $5,000,000 revolving loan
facility with its lender which expires in May 1996. The Company has no
outstanding borrowings against the line, however, $500,000 was assigned to
support standby letters of credit. During 1995, the Company repaid $750,000 of
borrowings that were outstanding on the line of credit at December 31, 1994.
Management believes that cash expected to be generated by operations, the
Company's working capital, and its available loan facility are adequate to
meet its anticipated liquidity needs through December 31, 1996.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TENERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
___________________________________________________________________________
Year Ended December 31,
-------------------------------
1995 1994 1993
___________________________________________________________________________
Revenue .................................. $ 25,545 $ 23,600 $ 29,340
Direct Costs ............................. 16,082 14,612 18,626
General and Administrative Expenses ...... 8,240 10,662 11,296
Other Income (Expenses) .................. (20) (65) 267
Special Item ............................. -- 500 --
--------- --------- ---------
Operating Income (Loss) .............. 1,203 (1,239) (315)
Interest Income, Net ..................... 1 37 21
--------- --------- ---------
Net Earnings (Loss) Before Income
Tax Expense ............................ 1,204 $ (1,202) $ (294)
========= =========
Income Tax Expense ....................... 306
---------
Net Earnings ............................. $ 898
=========
Pro Forma Net Earnings per Share ......... $ 0.07
=========
Weighted Average Number of Shares
Outstanding .............................. 10,014
=========
___________________________________________________________________________
See accompanying notes.
13
TENERA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and unit amounts)
__________________________________________________________________________________________
December 31,
---------------------------
1995 1994
__________________________________________________________________________________________
ASSETS
Current Assets
Cash and cash equivalents .............................. $ 1,474 $ 1,943
Receivables, less allowances of $2,888 (1994 - $2,897)
Billed ............................................... 4,857 3,448
Unbilled ............................................. 2,758 2,021
Other current assets ................................... 641 681
---------- ----------
Total Current Assets ............................... 9,730 8,093
Property and Equipment, Net .............................. 340 476
Other Assets ............................................. 17 47
---------- ----------
Total Assets ..................................... $ 10,087 $ 8,616
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY/PARTNERS' CAPITAL
Current Liabilities
Bank loan payable ...................................... $ -- $ 750
Accounts payable ....................................... 1,170 1,665
Accrued compensation and related expenses .............. 2,418 1,654
Income taxes payable ................................... 216 --
Deferred income taxes .................................. 90 --
---------- ----------
Total Current Liabilities .......................... 3,894 4,069
Non-Current Liabilities .................................. 18 --
---------- ----------
Total Liabilities ................................ 3,912 4,069
Commitments and Contingencies
Shareholders' Equity
Common Stock, $0.01 par value, 25,000,000 authorized,
10,417,345 issued and outstanding ...................... 104 --
Paid in capital, in excess of par ...................... 5,698 --
Retained earnings ...................................... 461 --
Treasury stock -- 87,402 shares ........................ (88) --
Partners' Capital
General Partner ........................................ -- 312
Limited Partners' Units issued and
outstanding - (1994 - 9,351,284) ....................... -- 5,376
Treasury units - (1994 - 425,636) ...................... -- (1,141)
---------- ----------
Total Shareholders' Equity/Partners' Capital ..... 6,175 4,547
---------- ----------
Total Liabilities and Shareholders' Equity/
Partners' Capital .............................. $ 10,087 $ 8,616
========== ==========
__________________________________________________________________________________________
See accompanying notes.
14
TENERA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/PARTNERS' CAPITAL
(In thousands, except share and unit amounts)
____________________________________________________________________________________________________________________________
Shareholders' Equity Partners' Capital
-------------------------------------- --------------------------------------
Paid In
Capital Notes
In from
Common Excess Retained Treasury General Limited Treasury Limited
Stock of Par Earnings Stock Partner Partners Units Partners Total
____________________________________________________________________________________________________________________________
December 31, 1992 ................ $ -_ $ -- $ -- $ -- $ 341 $ 6,841 $ (940) $ (63) $ 6,179
Repurchase of 64,778 Units ....... -_ -- -- -- -- -- (125) -- (125)
Payment on Notes ................. -_ -- -- -- -- -- -- 13 13
Amortization of Notes ............ -_ -- -- -- -- 2 -- 46 48
Net Loss ......................... -_ -- -- -- (6) (288) -- -- (294)
-------- -------- -------- -------- -------- -------- -------- -------- --------
December 31, 1993 ................ -_ -- -- -- 335 6,555 (1,065) (4) 5,821
Repurchase of 51,507 Units ....... -_ -- -- -- -- -- (76) -- (76)
Amortization of Notes ............ -_ -- -- -- -- -- -- 4 4
Net Loss ......................... -_ -- -- -- (23) (1,179) -- -- (1,202)
-------- -------- -------- -------- -------- -------- -------- -------- --------
December 31, 1994 ................ -_ -- -- -- 312 5,376 (1,141) -- 4,547
Repurchase of 242,481 Units ...... -- -- -- -- -- -- (182) -- (182)
Net Earnings Through
June 30, 1995 .................... -- -- -- -- 9 428 -- -- 437
Merger of Predecessor
Partnership into TENERA, Inc. .... 93 4,709 -- -- (321) (5,804) 1,323 -- --
Common Stock Issued at
$0.89 per Share .................. 11 989 -- -- -- -- -- -- 1,000
Repurchase of 87,402 Shares ...... -_ -- -- (88) -- -- -- -- (88)
Net Earnings for July 1, 1995 to
December 31, 1995 ................ -_ -- 461 -- -- -- -- -- 461
-------- -------- -------- -------- -------- -------- -------- -------- --------
December 31, 1995 ................ $ 104 $ 5,698 $ 461 $ (88) $ -- $ -- $ -- $ -- $ 6,175
======== ======== ======== ======== ======== ======== ======== ======== ========
____________________________________________________________________________________________________________________________
See accompanying notes.
15
TENERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
_________________________________________________________________________________________________
Year Ended December 31,
----------------------------------
1995 1994 1993
_________________________________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) ....................................... $ 898 $ (1,202) $ (294)
Adjustments to reconcile net earnings (loss) to cash
provided (used) by operating activities:
Depreciation ............................................ 298 383 403
Loss (Gain) on sale of equipment ........................ 1 24 (84)
Decrease in allowance for sales adjustments ............. (9) (820) (152)
Deferred income taxes ................................... 90 -- --
Amortization of Limited Partners' notes ................. -- 4 48
Changes in assets and liabilities:
Receivables ........................................... (2,137) 1,919 2,929
Other current assets .................................. 40 (109) (97)
Other assets .......................................... 30 23 127
Accounts payable ...................................... (495) 286 (509)
Accrued compensation and related expenses ............. 764 (491) (899)
Income taxes payable .................................. 216 -- --
Non-Current liabilities ............................... 18 -- --
---------- ---------- ----------
Net Cash (Used) Provided by Operating Activities .... (286) 17 1,472
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment ..................... (164) (361) (367)
Proceeds from sale of equipment ........................... 1 33 92
---------- ---------- ----------
Net Cash Used in Investing Activities ............... (163) (328) (275)
CASH FLOWS FROM FINANCING ACTIVITIES
(Repayment) Borrowings under bank loan agreement .......... (750) 750 --
Payments on Limited Partners' notes ....................... -- -- 13
Net repurchase of equity .................................. (270) (76) (125)
Issuance of Common Stock .................................. 1,000 -- --
---------- ---------- ----------
Net Cash (Used) Provided by Financing Activities .... (20) 674 (112)
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ........ (469) 363 1,085
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .............. 1,943 1,580 495
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR .................... $ 1,474 $ 1,943 $ 1,580
========== ========== ==========
_________________________________________________________________________________________________
See accompanying notes.
16
TENERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1. ORGANIZATION
Company. TENERA, Inc. (the "Company"), a Delaware corporation, was formed
in connection with the conversion of TENERA, L.P. (the predecessor of the
Company; the "Predecessor Partnership") into corporate form (the
"Conversion"). Therefore the Company and the Predecessor Partnership are
sometimes collectively referred to herein as the Company.
On June 30, 1995, the Company completed the Conversion by means of a merger
(the "Merger") of the Predecessor Partnership, its General Partner (Teknekron
Technology MLP I Corporation) and its Operating Partnership (TENERA Operating
Company, L.P.) with, and into, TENERA, Inc. Pursuant to the Merger: (i) the
Company succeeded to the business, assets, and liabilities of the Predecessor
Partnership; (ii) each limited partner Unit previously held by Unitholders in
the Predecessor Partnership, (including 184,946 equivalent Units representing
the interest in the Partnership of the General Partner), automatically
converted to one share of Common Stock of TENERA, Inc.; and (iii) an
additional 1,123,596 shares of Common Stock were issued to the sole
shareholder of the General Partner in consideration of the contribution of
$1,000,000 made to TENERA, Inc. by the General Partner in connection with the
Merger. The Merger was approved by the Unitholders of the Predecessor
Partnership pursuant to the Consent Solicitation Statement/Prospectus dated
June 6, 1995, included in the Company's Registration Statement on Form S-4
(Registration Number 33-58393; the "Form S-4").
TENERA Rocky Flats, LLC ("LLC"), a Colorado limited liability company, was
formed by the Company to provide consulting services in connection with
participation in the Performance Based Integrating Management Contract ("Rocky
Flats Contract") at the Department of Energy's ("DOE") Rocky Flats
Environmental Technology Site ("Site").
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying consolidated financial statements
include the accounts of the Company and the LLC. All intercompany accounts and
transactions have been eliminated.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of demand
deposits, certificates of deposit, bank acceptances or repurchase agreements
of major banks having strong credit ratings, and commercial paper issued by
companies with strong credit ratings. The Company includes in cash and cash
equivalents, all short-term, highly liquid investments which mature within
three months of acquisition.
Property and Equipment. Property and equipment are stated at cost
($2,518,000 and $2,493,000 at December 31, 1995 and 1994, respectively), net
of accumulated depreciation ($2,178,000 and $2,017,000 at December 31, 1995
and 1994, respectively). Depreciation is calculated using the straight line
method over the estimated useful lives, which range from three to five years.
Revenue. Revenue from time-and-material and cost plus fixed-fee contracts
is recognized when costs are incurred; from fixed-price contracts, on the
basis of percentage of work completed (measured by costs incurred relative to
total estimated project costs); from software license fees at time of customer
acceptance; and from software maintenance agreements, equally over the period
of the maintenance support agreement (usually 12 months). The Company's
revenue recognition policy for its software contracts is in compliance with
the American Institute of Certified Public Accounts' Statement of Position 91-
1, "Software Revenue Recognition." The Company primarily offers its services
and software products to the electric power industry, the DOE, and the
municipal transit industry in North America.
17
The Company performs ongoing credit evaluations of these customers and
normally does not require collateral. Reserves are maintained for potential
sales adjustments and credit losses; such losses to date have been within
management's expectations. Actual revenue and cost of contracts in progress
may differ from management estimates and such differences could be material to
the financial statements.
During 1995, one client accounted for 31% of the Company's total revenue.
During 1994 and 1993, a different client accounted for 29%, and two clients
accounted for 15% and 10%, respectively, of the Company's total revenue.
Income Taxes. As a result of the Conversion, the Company is no longer
subject to partnership tax treatment whereby the Company pays no tax on
Company income. The Company became a C Corporation subject to federal and
state statutory income tax rates for income earned after the close of business
on June 30, 1995. Accordingly, a provision for income taxes has been made for
the six months ended December 31, 1995, and no provision for income taxes has
been made by the Company for the six months ended June 30, 1995.
Accounting for Stock-Based Corporation. In October 1995, the Statement of
Financial Standards No. 123, "Accounting for Stock-Based Compensation,"
("FAS 123") was issued and is effective for the Company's 1996 year. The
Company intends to continue to account for employee stock options in
accordance with APB Opinion No. 25 and will make the pro forma disclosures
required by FAS 123 in 1996.
Per Share Information. In accordance with financial reporting guidelines,
historical earnings per share information is deleted from the face of the
historical income statements because this data is not indicative of the
ongoing Company's change in tax treatment. Pro forma per share data for 1995
is shown. Pro forma per share data assumes the Company is taxed for federal
and state income tax purposes as a C Corporation at a 40% effective tax rate,
and is computed on the basis of: weighted average of shares of common stock
and common stock equivalents using the treasury stock method.
NOTE 3. RELATED PARTY TRANSACTIONS
Teknekron. The principal shareholder of Teknekron Corporation ("Teknekron")
beneficially owned approximately 36% of the Company's outstanding shares of
Common Stock at December 31, 1995. Teknekron provided management and related
services to the Predecessor Partnership under an advisory services agreement,
which expired on June 30, 1995. Charges to earnings for the services amounted
to $125,000 in 1995 ($600,000 in 1994, and in 1993).
Individual Plant Evaluation Partnership ("IPEP"). The Company was an equal
participant in a partnership, IPEP, with Westinghouse Electric Corporation and
Fauske & Associates, Inc., which provided executive consulting services to
commercial utility companies. IPEP ceased activities and dissolved in 1995.
Revenue recognized for services provided through IPEP amounted to $390,000 in
1995 ($173,000 in 1994 and $2,329,000 in 1993), and represented less than 1%
of total revenue in 1995 (less than 1% in 1994 and 8% in 1993).
The participants paid a royalty to IPEP, of from 2% to 4% of billed fees on
certain projects, for administrative services. Royalties paid to IPEP amounted
to $1,000 in 1995 ($4,000 in 1994 and $42,000 in 1993).
The Company's interest in IPEP was accounted for under the equity method.
Each of the participants shared equally in the earnings of IPEP. For 1995, the
Company recognized $30,000 as its share of IPEP's 1995 estimated losses
($34,000 in 1994 and $23,000 in 1993).
Notes Receivable. The Company includes in other current assets, notes
receivables from executive officers of $347,639 and $319,369 at December 31,
1995 and 1994.
TERA Corporation Liquidating Trust ("Trust"). The Trust was established by
TERA Corporation ("Predecessor Corporation") in 1986, to facilitate the
orderly sale or other disposition of the remaining assets and satisfaction of
all remaining debts and liabilities. The Company did not recognize any income
or expense from the Trust in 1995 and 1994.
18
Toltec Development Corporation ("Toltec"). The Company entered into a lease
for approximately 10,000 square feet of office space during 1993 for its
Berkeley facilities with Toltec, an affiliate of Teknekron. The lease expired
in 1995. Lease payments to Toltec totaling $141,000 were recorded in 1995
($224,000 in 1994).
NOTE 4. EMPLOYEE BENEFIT PLANS
Incentive Bonus Plans. The Company has incentive plans based on financial
performance. Bonus awards of cash and shares are discretionary and are
determined annually by the Board of Directors. During the year ended December
31, 1995, $150,000 was charged to earnings for incentive bonuses (none in 1994
and 1993).
Stock Option Plan. Under the provisions of the Company's Stock Option Plan,
1,500,000 shares were reserved for issuance upon the exercise of options
granted to key employees and consultants. During 1995, options were granted
for 130,000 units at an exercise price of $1.1875, the then fair market value,
expiring on July 1, 2001 (in 1994, options were granted for 315,000 units at
an exercise price of $1.31, and 290,000 units at an exercise price of $0.6875,
the then fair market values, expiring on February 7, 2004, and December 30,
2004, respectively, and in 1993 no options were granted). In connection with
the Merger, the Company amended its Option Plan to reflect the fact that
options will relate to shares of Common Stock, instead of limited partnership
units of the Predecessor Partnership. All outstanding options for units were
automatically converted to options to purchase an equal number of shares of
Common Stock at the original exercise price and on the same terms and
conditions as the original unit options. As of December 31, 1995,
968,000 share options were outstanding and 618,000 share options were
exercisable.
Director's Option Plan. Under the provisions of the 1993 Outside Directors
Compensation and Stock Option Plan, which was approved by the Board of
Directors, effective March 1, 1994, 150,000 shares were reserved for issuance
upon the exercise of options granted to Outside Directors. During 1995,
options were granted for 45,000 units at an exercise price of $0.6875, the
then fair market value, expiring on March 1, 2005 (in 1994, options were
granted for 30,000 units at an exercise price of $1.31, the then fair market
value, expiring on March 1, 2004). In connection with the Merger, the Company
amended the Option Plan to reflect the fact that options will relate to shares
of Common Stock, instead of limited partnership units of the Predecessor
Partnership. All outstanding options for units were automatically converted to
options for Common Stock at the original exercise price and on the same terms
and conditions as the original unit options. As of December 31, 1995,
80,000 options were outstanding and 20,000 options were exercisable.
Profit Sharing Plan ("PSP"). The PSP is administered through a trust that
covers substantially all employees. Amounts contributed to the plan, which
range through from 0-10% of salary, are discretionary and are determined
annually by the Company's Board of Directors. During 1995, 1994, and 1993,
there were no charges to earnings for the PSP.
401(k) Plan. As part of the PSP, a 401(k) Plan is administered through a
trust that covers substantially all employees. Employees can contribute
amounts to the plan, not exceeding 10% of salary. In 1993, the Company matched
these amounts with a 25% contribution on a matching contribution base, not
exceeding 5% of salary. As of January 1, 1994, the Company's matching
contribution amounts to 50% of a matching contribution base, not exceeding 6%
of the employee's salary.
Money Purchase Plan ("MPP"). The MPP is administered through a trust that
covers substantially all employees. The Company, which through 1993,
contributed 5% of eligible employees' salaries to the plan annually. As of
January 1, 1994, the Company's contribution amount was reduced to 3% of
eligible employees annual salaries. The Company merged the MPP into the 401(k)
Plan as of January 1, 1996, and eliminated the Company's MPP contribution.
During 1995, charges to earnings for the 401(k) and MPP Plans amounted to
$720,000 ($492,000 in 1994 and $694,000 in 1993).
19
NOTE 5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1995,
are as follows, using the liability method:
___________________________________________________________________________
Current Deferred Tax Assets
Contract reserves not currently deductible ............... $ 663
Accrued expense not currently deductible ................. 246
Other .................................................... 214
------------
Total Current Deferred Tax Assets ...................... 1,123
Current Deferred Tax Liabilities
Revenue differences related to timing .................... 1,213
------------
Net Current Deferred Tax Liabilities ................... $ 90
============
___________________________________________________________________________
The current and deferred tax provisions for the year ended December 31,
1995, are as follows:
___________________________________________________________________________
Current:
Federal .................................................. $ 212
State .................................................... 14
------------
216
------------
Deferred:
Federal .................................................. 77
State .................................................... 13
------------
$ 90
============
___________________________________________________________________________
The valuation allowance was $0 and $146 at June 30, 1995 (the Conversion
Date) and December 31, 1995, respectively.
The provision for income taxes differed from the amount computed by
applying the statutory federal income tax rate for the year ended December 31,
1995, are as follows:
___________________________________________________________________________
Federal Statutory Rate ..................................... 34 %
State Taxes, Net of Federal Benefit ........................ 6 %
Non-Taxable Partnership Earnings ........................... (15)%
------------
Income Tax Provision ....................................... 25 %
============
___________________________________________________________________________
20
NOTE 6. COMMITMENTS AND CONTINGENCIES
Leases. The Company occupies facilities under noncancelable operating
leases expiring at various dates through 1999. The leases call for
proportionate increases due to property taxes and certain other expenses. Rent
expense amounted to $734,000 for the year ended December 31, 1995 ($850,000 in
1994 and $1,331,000 in 1993).
Minimum rental commitments under operating leases, principally for real
property, are as follows:
(Year Ending December 31)
___________________________________________________________________________
1996 ....................................................... $ 591,000
1997 ....................................................... 407,000
1998 ....................................................... 145,000
1999 ....................................................... 80,000
2000 and Thereafter ........................................ --
------------
Total Minimum Payments Required ............................ $ 1,223,000
============
___________________________________________________________________________
Revolving Loan Agreement. A loan agreement with a bank provides for a
revolving line of credit of $5,000,000, through May 1996. At December 31,
1995, $4,500,000 was available under the credit line, and in addition,
$500,000 was assigned to support standby letters of credit. Amounts advanced
under the line of credit are secured by the Company's eligible accounts
receivable. Under the agreement, the Company is obligated to comply with
certain covenants related to equity, quick ratio, debt/equity ratio, and
profits. The interest rate under the agreement is the bank's prime rate plus
one percent (9.50% at December 31, 1995). During 1995, the Company paid
$39,000 of interest ($9,000 in 1994 and $4,000 in 1993).
Contingent Liabilities. In December 1986, the Predecessor Partnership
received a substantial portion of its Predecessor Corporation's net assets and
operations in connection with a restructuring plan approved by the
shareholders. The balance of the Predecessor Corporation's assets and
liabilities were transferred to the Trust for the benefit of the shareholders,
to facilitate the orderly sale or other disposition of the remaining assets,
and satisfaction of all remaining debts and liabilities. The Company has
assumed such contingent liabilities of the Trust to the extent they exceed the
assets of the Trust. Management believes that adequate assets exist to satisfy
all liabilities of the Trust, contingent or otherwise, not specifically
transferred to the Company.
21
NOTE 7. SELECTED QUARTERLY COMBINED FINANCIAL DATA (UNAUDITED)
A summary of the Company's quarterly financial results follows:
(In thousands, except per share or unit amounts)
__________________________________________________________________________________________________________________________
Quarter Ended Quarter Ended
-------------------------------------- --------------------------------------
12/31/95 9/30/95 6/30/95 3/31/95 12/31/94 9/30/94 6/30/94 3/31/94
__________________________________________________________________________________________________________________________
Revenue ............................... $ 7,288 $ 7,249 $ 5,664 $ 5,344 $ 4,196 $ 5,907 $ 6,418 $ 7,079
Direct Costs .......................... 4,585 5,033 3,265 3,199 2,944 3,666 3,690 4,312
General and Administrative Expenses ... 2,264 1,866 2,154 1,956 2,774 2,231 3,021 2,636
Other Income (Expenses) ............... (30) 1 2 7 (49) (13) (4) 1
Special Item .......................... -_ -- -- -- -- -- 500 --
-------- -------- -------- -------- -------- -------- -------- --------
Operating Income (Loss) ............... 409 351 247 196 (1,571) (3) 203 132
Interest Income (Expense) ............. 6 1 (6) -- 8 7 9 13
-------- -------- -------- -------- -------- -------- -------- --------
Net Earnings (Loss) Before Income
Tax Expense ........................... 415 352 $ 241 $ 196 $(1,563) $ 4 $ 212 $ 145
======== ======== ======== ======== ======== ========
Income Tax Expense .................... 165 141
-------- --------
Net Earnings .......................... $ 250 $ 211
======== ========
Pro Forma Net Earnings Per Share ...... $ 0.02 $ 0.02 $ 0.02 $ 0.01
======== ======== ======== ========
__________________________________________________________________________________________________________________________
See accompanying notes.
NOTE 8. LEGAL PROCEEDINGS
PLM Financial Services, Inc. ("PLM") filed an action on November 4, 1994,
in the Superior Court of California for the County of Alameda seeking damages
in excess of $500,000 in unpaid equipment rent and other payments allegedly
owing to PLM under an equipment lease between PLM and TERA Power Corporation,
a former subsidiary of the Predecessor Corporation. PLM has named the
Predecessor Partnership in the action pursuant to a guaranty of the lease
obligations made by the Predecessor Corporation. Management believes that the
guaranty has been exonerated and will be able to defend this action
successfully. Management does not believe that eventual resolution of this
matter will have a material effect on the Company's financial position,
however, an adverse outcome could have a material adverse impact on the
results of operations and cash flows of the Company.
On October 13, 1995, the League for Coastal Protection ("League") filed an
action against Pacific Gas & Electric Company ("PG&E"), a California
corporation and TENERA, Inc., in the Superior Court of California for the
County of San Francisco. The action entitled League for Coastal Protection v.
Pacific Gas & Electric Company, TENERA, Inc., et. al., Case No. 973182,
alleges that PG&E and TENERA engaged in unfair business practices, violation
of California and Federal environmental laws arising out of environmental
studies performed in connection with the issuance of regulatory permits at
PG&E's Diablo Canyon Power Plant, and seeks on behalf of the League and the
general public, injunctive relief and unspecified damages. The League has
named TENERA in the action pursuant to a belief that it was an agent of PG&E
and conspired with PG&E in the alleged violations. TENERA's management
anticipates that a claim based upon the same events may be filed in
22
Federal Court under the Clean Water Act against the Company in the near
future. Management believes that the Company will be able to defend this
action successfully and does not believe that the eventual resolution of this
matter will have a material effect on the Company's financial position.
However, an adverse outcome could have a material adverse impact on the
results of operations and cash flows of the Company.
NOTE 9. SPECIAL ITEM
The special item in 1994 reflects the estimated settlement of specific
disputed costs on certain U.S. Government contracts with the DOE. This
positive earnings adjustment resulted from a partial reduction of the reserve
for sales adjustment established in 1991. The reserve related to a dispute
between the Company and the DOE with respect to the allowability and amount of
potential rate adjustments on U.S. Government contracts for certain employee
compensation costs.
23
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
TENERA, Inc.
We have audited the accompanying consolidated balance sheets of TENERA,
Inc. at December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity (partners' capital), and cash flows for each
of the three years in the period ended December 31, 1995. 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 generally accepted auditing
standards. 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, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related consolidated 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.
ERNST & YOUNG LLP
San Francisco, California
January 19, 1996
24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
25
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:
Michael D. Thomas, 47, has served as Chairman of the Board of the
Company since his election in August 1991, and was named its Chief
Executive Officer in September 1994. He was President of Teknekron
Corporation from 1991 until December 31, 1994, and was Vice President of
Marketing and Corporate Business Development for Teknekron Corporation from
1989 to 1991.
Susan T. Cheng, Ph.D., 40, has served as a Director of the Company since
her election in February 1993. She was named Treasurer of Teknekron
Corporation in September 1992 and Vice President in November 1994.
Previously, Ms. Cheng was Portfolio Manager of Teknekron Corporation.
Ms. Cheng was formerly a professor at Columbia University School of
Business from 1986 to 1991.
William A. Hasler, 54, has served as a Director of the Company since his
election in March 1992. Mr. Hasler is dean of the Walter A. 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 The Gap, Inc., ESCAgenetics Corporation, Aphton Corporation,
Walker Systems, and TCSI Corporation.
George L. Turin, Sc.D., 66, 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.
Barry L. Williams, J.D., 51, has served as a Director of the Company
since his election in September 1993. Mr. Williams has been President of
Williams Pacific Venture, Inc., a venture capital consulting company, since
1987. From 1988 until its sale in 1992, Mr. Williams was also President of
C.N. Flagg Power, Inc., a company that provides construction services
primarily to the electric utility industry. Mr. Williams is also a director
of American President Companies, PG&E, and Simpson Manufacturing Co., Inc.
In addition to Mr. Thomas, the executive officers of the Company are as
follows:
Bradley C. Geddes, 39, has served as President since his election in
September 1994 and was named Chief Operating Officer of the Company in
June 1993. Previously, Mr. Geddes was a Vice President and Regional Manager
from 1991 to 1993, and Division Manager in Washington, D.C. from 1988 to
1991 for ABB Environmental Services, Inc.
Jeffrey R. Hazarian, 40, has served as Chief Financial Officer, Vice
President of Finance, and Corporate Secretary of the Company since his
election in 1992. Previously, Mr. Hazarian served in the position of Vice
President, Planning and Analysis of the Company from 1990 to 1992.
Joe C. Turnage, Ph.D., 50, has served as Senior Vice President of the
Company since his arrival at the Company in 1988.
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.
26
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 three
executive officers, other than the CEO of the Company, for services to TENERA
in all their capacities during the fiscal years ended December 31, 1995, 1994,
and 1993.
SUMMARY COMPENSATION TABLE
____________________________________________________________________________________________________________
Long-Term Compensation
----------------------
Annual Compensation Awards Payouts
---------- ---------- ---------- ----------
Securities
Underlying All Other
Options/ LTIP Compensa-
Name and Principal Position Year Salary Bonus SARs(2) Payouts(3) tion(1)
____________________________________________________________________________________________________________
Michael D. Thomas(4) ........ 1995 $ 214,000 $ -- 25,000 $ -- $ 8,602
Chief Executive Officer 1994 -- -- 100,000 -- --
Bradley C. Geddes ........... 1995 177,000 -- 22,000 -- 33,640(5)
President 1994 160,430 -- 120,000 -- 41,271(6)
1993 81,231 -- -- -- --
Joe C. Turnage .............. 1995 170,000 -- 20,000 55,750 8,703
Senior Vice President 1994 158,100 -- 35,000 55,751 8,452
1993 155,000 -- -- 55,750 19,226
Jeffrey R. Hazarian ......... 1995 142,192 -- 13,000 -- 8,058
Chief Financial Officer 1994 126,046 -- 20,000 -- 7,563
1993 125,000 -- -- 17,676 6,250
____________________________________________________________________________________________________________
(1) These amounts represent the amounts accrued for the Company's Profit Sharing/401(k) Plan for
1995, 1994, and 1993, respectively, and allocated to the named executive officers.
(2) Reflects options granted under the 1992 Stock Option Plan; no SARs have been issued.
(3) These amounts reflect forgiveness of certain indebtedness pursuant to notes executed by the
individual in payment for Partnership units acquired pursuant to the Entrepreneurial Equity Incentive
Plan ("EEIP"). The EEIP was discontinued in March 1992.
(4) Mr. Thomas was President of Teknekron Corporation until December 31, 1994. He assumed the
position of Chief Executive Officer of the Company in September 1994, for which he received
no compensation.
(5) This amount includes relocation reimbursement pursuant to company policy ($24,640).
(6) This amount includes relocation reimbursement pursuant to company policy ($32,271).
27
The following table sets forth certain information concerning options/SARs
granted during 1995 to the named executives:
OPTIONS/SAR GRANTS IN 1995
_______________________________________________________________________________________________
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
--------------------------------------------- --------------------
% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise
Options/ Employees or Base
SARs in Fiscal Price Expiration
Name Granted Year ($/Share) Date 5% 10%
_______________________________________________________________________________________________
Michael D. Thomas ..... 25,000 19.23 $ 1.1875 7/1/2001 $ 10,100 $ 22,900
Bradley C. Geddes ..... 22,000 16.92 1.1875 7/1/2001 8,900 20,200
Joe C. Turnage ........ 20,000 15.38 1.1875 7/1/2001 8,100 18,300
Jeffrey R. Hazarian ... 13,000 10.00 1.1875 7/1/2001 5,300 11,900
_______________________________________________________________________________________________
OTHER COMPENSATION ARRANGEMENTS
Joe C. Turnage, Senior Vice President, executed an employment agreement
with the Company upon joining the Company in 1988. The employment agreement
provided for purchases of partnership units by Mr. Turnage at the fair market
value upon the date of issuance, dependent upon meeting various objectives set
forth in the agreement. Pursuant to the Agreement and the EEIP, Mr. Turnage
purchased an aggregate of 289,371 partnership units, the purchase price of
which was payable by notes, which notes were to be forgiven over specified
periods, provided Mr. Turnage remained in the employ of the Company. In late
1991, the terms of the EEIP awards made to Mr. Turnage and others with similar
arrangements, were modified and the period over which the remaining balance of
the notes was extended and the conditions for future forgiveness modified. The
amount of indebtedness forgiven is included in the Summary Compensation Table
under the captions "LTIP Payouts." Mr. Turnage's employment may be terminated
at any time by the Company under the terms of the employment agreement.
The 1992 Stock 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 Stock Option Plan provides that a change in control of the
Company will result in immediate vesting of all options granted and not
previously vested.
DIRECTORS COMPENSATION
Except as described below, the directors of the Company are paid no
compensation by the Company for their services as directors. Susan T. Cheng,
William A. Hasler, George L. Turin, and Barry L. Williams as directors, are
paid a retainer of $1,000 per month. Ms. Cheng and Messrs. Hasler, Turin, and
Williams are also paid a fee of $1,000 for each meeting of the Board and any
Board Committee which they attend. The 1993 Outside Directors Compensation and
Stock Option Plan was approved by the Board effective March 1, 1994, which
provides for the annual issuance of options for outside directors (Ms. Cheng
and Messrs. Hasler, Turin, and Williams). During 1994, 10,000 stock options
were issued to each of Messrs. Hasler and Williams. During 1995, 15,000 stock
options were issued to each of Ms. Cheng and Messrs. Hasler, Turin, and
Williams. The options expire ten (10) years after, and vest on (1) year after
the date of grant, and have an exercise price equal to the fair market value
of the shares of Common Stock on 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.
28
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the Compensation Committee was composed of Susan T. Cheng,
William A. Hasler, and Barry L. Williams. Susan T. Cheng is Treasurer and Vice
President of Teknekron Corporation. (See Item 13. "Certain Relationships and
Related Transactions.")
EFFECT OF MERGER ON OPTION PLANS
In connection with the Conversion, the Company amended the Predecessor
Partnership's 1992 Unit Option Plan and 1993 Outside Director Compensation and
Unit Option Plan to reflect the fact that options now relate to shares of
Common Stock instead of Units. Except for the changes from Units to Common
Stock and minor conforming changes, the amended 1992 Stock Option Plan and the
1993 Outside Director Compensation and Stock Option Plan are identical to the
previous plans and all outstanding options for Units were automatically
converted to options for Common Stock at the original exercise price and on
the same terms and conditions as the original Unit options.
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 15, 1996,
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 35.9%(1)
P.O. Box 7463
Incline Village, NV 89450
Dr. Michael John Keaton ........................ 1,106,887 10.7%(2)
1950 Manzanita Drive
Oakland, CA 94611
_____________________________________________________________________________
(1) Such shares are held of record by Incline Village Investment Group
Limited Partnership, a Georgia limited partnership and were
contributed to the Incline Village Investment Group Limited
Partnership by Mr. Wagner in exchange for a 99% limited partnership
interest. An additional 37,460 shares, as to which Mr. Wagner
disclaims beneficial ownership, were contributed to the Incline
Village Investment Group Limited Partnership by Mr. Wagner's spouse,
Leslie Wagner, in exchange for a 1% general partner interest. The
Incline Village Investment Group Limited Partnership has sole voting
and investment power with respect to all such shares.
(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.
29
(b) SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of March 15, 1996, with
respect to current beneficial ownership of shares of Common Stock by (i) each
of the directors of the Company, (ii) each of the executive officers named in
the Summary Compensation Table (see Item 11), and (iii) all current directors
and executive officers as a group.
_____________________________________________________________________________
Shares
Beneficially Percentage
Name Owned(1) Ownership(2)
_____________________________________________________________________________
Susan T. Cheng ................................. --0-- --0--
Bradley C. Geddes .............................. 85,000(4) *
William A. Hasler .............................. 45,000(3) *
Jeffrey R. Hazarian ............................ 37,186(4) *
Michael D. Thomas .............................. 71,400(4) *
George L. Turin ................................ 60,504(3) *
Joe C. Turnage ................................. 124,421(4) 1.2%
Barry L. Williams .............................. 25,000(3) *
All Current Directors and Executive Officers
as a Group (8 persons) ......................... 448,511(4) 4.3%
_____________________________________________________________________________
(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) Asterisks represent less than 1% ownership.
(3) Includes options under the Company's 1993 Outside Directors
Compensation and Stock Option Plan which are exercisable on
March 15, 1996, or within 60 days thereafter.
(4) Includes options under the Company's 1992 Stock Option Plan which are
exercisable on February 21, 1996, or within 60 days thereafter.
Beneficial ownership as shown in the tables above has been determined in
accordance with Rule 13d-3 under the Exchange Act. Under this Rule, certain
securities may be deemed to be beneficially owned by more than one person
(such as where persons share voting power or investment power). In addition,
securities are deemed to be beneficially owned by a person if the person has
the right to acquire the securities (for example, upon exercise of an option
or the conversion of a debenture) within 60 days of the date as of which the
information is provided; in computing the percentage of ownership of any
person, the amount of securities outstanding is deemed to include the amount
of securities beneficially owned by such person (and only such person) by
reason of these acquisition rights. As a result, the percentage of outstanding
Units of any person as shown in the preceding tables do not necessarily
reflect the person's actual voting power at any particular date.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain members of management or stockholders of the Company have certain
direct or indirect interests in certain transactions involving the Company,
separate from their interests as stockholders, as follows:
(i) The Company has made certain loans to various employees, including
officers, generally pursuant to employee benefit plan(s) and generally in
connection with the purchase of stock or units. In making loans to
officers, the Company retains the right to offset all or some portion of
any cash bonuses due to recipients against the balance of the loans and
holds the stock as collateral for such loans. As of December 31, 1995, the
Company had notes receivables from its executive officers evidencing loans
in the following amounts: Mr. Turnage _ $347,639. The largest amount
outstanding during 1995 was $347,639.
30
(ii) The Predecessor Partnership had entered into an Advisory Services
Agreement with Teknekron Corporation, whereby Teknekron Corporation
provided management and other administrative services to the Predecessor
Partnership, and through December 31, 1994, paid a monthly management
services fee thereunder of $50,000 directly to Teknekron Corporation, and
affiliate of its General Partner. Effective January 1, 1995, the Advisory
Services Agreement was modified to provide that the compensation of
Mr. Thomas, Chairman of the Board and Chief Executive Officer of the
General Partner, would be paid directly by the Predecessor Partnership
instead of Teknekron Corporation, and as a result, the monthly fee was
reduced to $25,000 beginning January 1, 1995. The Advisory Services
Agreement terminated upon the Conversion. Mr. Wagner, the Company's largest
stockholder, is the sole stockholder and a director of Teknekron
Corporation.
(iii) The Company had entered into a lease for its former Berkeley
facilities with Toltec Development Corporation, and affiliate of Teknekron
Corporation ("Toltec"). The lease has terminated and the facilities were
vacated on August 31, 1995. Lease payments to Toltec totaling $141,000 were
recorded in 1995.
(iv) Susan T. Cheng, a director of the Company, is Treasurer and Vice
President of Teknekron Corporation.
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
(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 _ Year Ended December 31,
1995, 1994, and 1993 ............................................ 13
Consolidated Balance Sheets _ December 31, 1995 and 1994 ........ 14
Consolidated Statements of Shareholders' Equity/Partners'
Capital - Year Ended December 31, 1995, 1994, and 1993 .......... 15
Consolidated Statements of Cash Flows _ Year Ended December 31,
1995, 1994, and 1993 ............................................ 16
Notes to Consolidated Financial Statements ...................... 17
Report of Independent Auditors .................................. 24
(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 .. 34
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 on June 2, 1995 (the
"Registration Statement"), and is incorporated herein by this
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 Registrant (filed by
incorporation by reference to Exhibit 4.5 to the Registration
Statement).
10.1 Conveyance Agreement between TERA and TENERA Operating Company,
L.P., dated December 30, 1986 (filed as Exhibit 2.2 to the
Predecessor Partnership's Form 8-K filed with the SEC on
January 9, 1987, and incorporated by reference herein).
10.2 Registrant's lease on its Rockville, Maryland properties (filed as
Exhibit 10.2 to the Predecessor Partnership's Form 10-K filed with
the SEC on March 29, 1995, and incorporated herein by reference
("1994 Form 10-K")).
10.3 Registrants' lease on its Knoxville, Tennessee properties (filed as
Exhibit 10.4 to Form 10-K filed with the SEC on March 25, 1994,
and incorporated by reference herein ("1993 Form 10-K")).
32
10.4 Registrant's lease on its Company headquarters located in San
Francisco, California (filed as Exhibit 10.12 to Form 10-Q filed
with the SEC on November 14, 1995, and incorporated by reference
herein ("3rd Qtr 1995 Form 10-Q")).
11.1 Statement regarding computation of per share earnings: See "Notes
to Consolidated Financial Statements."
21.1(1) List of Subsidiaries of the Registrant.
23.1(1) Consent of Independent Auditors.
27.1(1) Financial Data Schedule.
(b) REPORTS ON FORM 8-K
None.
(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, 1995.
- ------------------------------
(1) Filed herewith.
33
SCHEDULE VIII
TENERA, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
_________________________________________________________________________________________________________
Additions Deductions
------------------------ ------------------------
Balance Charged to Charged to Credited to Balance
Beginning Costs and Other Special at End
Description of Year Expenses Accounts(1) Item Other of Year
_________________________________________________________________________________________________________
1993
Reserve for
Sales Adjustment
and Credit Losses .. $ 3,869 $ 85 $ 312 $ -- $ 549 $ 3,717
1994
Reserve for
Sales Adjustment
and Credit Losses .. 3,717 271 -- 500 591 2,897
1995
Reserve for
Sales Adjustment
and Credit Losses .. 2,897 131 -- -- 140 2,888
_________________________________________________________________________________________________________
(1) Represents amounts previously written-off, but reinstated to Accounts Receivables.
34
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 27, 1996
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
Chairman of the Board and
Chief Executive Officer
/s/ MICHAEL D. THOMAS (Principal Executive Officer) March 27, 1996
- ---------------------------
(Michael D. Thomas)
/s/ SUSAN T. CHENG Director March 27, 1996
- ---------------------------
(Susan T. Cheng)
/s/ WILLIAM A. HASLER Director March 27, 1996
- ---------------------------
(William A. Hasler)
/s/ GEORGE L. TURIN Director March 27, 1996
- ---------------------------
(George L. Turin)
/s/ BARRY L. WILLIAMS Director March 27, 1996
- ---------------------------
(Barry L. Williams)
Chief Financial Officer,
Corporate Secretary, and
Vice President, Finance
(Principal Financial and
/s/ JEFFREY R. HAZARIAN Accounting Officer) March 27, 1996
- ---------------------------
(Jeffrey R. Hazarian)
35
EXHIBIT INDEX
Ex. 21.2 List of Subsidiaries of the Registrant
Ex. 23.1 Consent of Independent Auditors
Ex. 27.1 Financial Data Schedule