UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
[ ] 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.)
100 Bush Street, Suite 850, San Francisco, California 94104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 445-3200
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock
Securities registered pursuant to Section 12(g)of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
--------- ----------
The number of shares outstanding on September 30, 2001, was 9,984,259.
i
TABLE OF CONTENTS
PAGE
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited) ............................................. 1
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ..... 11
Item 3. Quantitative and Qualitative Disclosures of Market Risk.................................... 13
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings ......................................................................... *
Item 2. Changes in Securities ..................................................................... *
Item 3. Defaults Upon Senior Securities ........................................................... *
Item 4. Submission of Matters to a Vote of Security Holders ....................................... *
Item 5. Other Information ......................................................................... *
Item 6. Exhibits and Reports on Form 8-K .......................................................... 14
________________________
* None.
i
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
TENERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
-------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------------
Revenue .................................. $ 4,441 $ 7,673 $ 15,615 $ 25,659
Direct Costs ............................. 3,549 5,987 12,185 20,383
General and Administrative Expenses ...... 1,719 1,639 5,975 5,039
Other Income ............................. -- -- -- 4
------------ ------------- ------------ -------------
Operating (Loss) Income................. (827) 47 (2,545) 241
Interest (Expense) Income, Net ........... (18) 49 16 137
------------ ------------- ------------ -------------
Net (Loss) Earnings Before
Income Tax (Benefit) Expense............ (845) 96 (2,529) 378
Income Tax (Benefit) Expense.............. (245) 38 (734) 151
------------ ------------- ------------ -------------
Net (Loss) Earnings....................... $ (600) $ 58 $ (1,795) $ 227
============ ============= ============ =============
Net (Loss) Earnings per Share-- Basic .... $ (0.06) $ 0.01 $ (0.18) $ 0.02
============ ============= ============ =============
Net (Loss) Earnings per Share-- Diluted .. $ (0.06) $ 0.01 $ (0.18) $ 0.02
============ ============= ============ =============
Weighted Average
Number of Shares Outstanding-- Basic...... 9,984 9,969 9,984 9,952
============ ============= ============ =============
Weighted Average
Number of Shares Outstanding-- Diluted.... 9,984 10,123 9,984 10,266
============ ============= ============ =============
-------------------------------------------------------------------------------------------------------------------
See accompanying notes.
1
TENERA, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
----------------------------------------------------------------------------------------------------------------
September 30, December 31,
2001 2000
----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents ............................................... $ 871 $ 2,487
Receivables, less allowance of $555 (2000 - $964)
Billed ................................................................ 1,927 3,290
Unbilled .............................................................. 1,413 2,143
Other current assets .................................................... 1,109 704
------------- ------------
Total Current Assets ................................................ 5,320 8,624
Property and Equipment, Net ............................................... 630 759
Other Assets .............................................................. 1,189
691
------------- ------------
Total Assets ..................................................... $ 7,139 $ 10,074
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ........................................................ $ 1,046 $ 2,253
Accrued compensation and related expenses ............................... 1,899 1,832
Deferred revenue ........................................................ 94 96
------------- ------------
Total Current Liabilities ........................................... 3,039 4,181
Commitments and Contingencies
Stockholders' Equity
Common Stock, $0.01 par value, 25,000,000 authorized, 10,417,345 issued . 104 104
Paid in capital, in excess of par ....................................... 5,677 5,675
Retained (deficit) earnings.............................................. (1,188) 607
Treasury stock-- 433,086 shares (2000 - 433,086 shares).................. (493) (493)
------------- ------------
Total Stockholders' Equity ........................................ 4,100 5,893
------------- ------------
Total Liabilities and Stockholders' Equity ....................... $ 7,139 $ 10,074
============= ============
----------------------------------------------------------------------------------------------------------------
See accompanying notes.
2
TENERA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands)
-----------------------------------------------------------------------------------------------------------------------------
Paid-In
Common Stock Capital in Retained
----------------------------- Excess Earnings Treasury
Shares Amount of Par (Deficit) Stock Total
-----------------------------------------------------------------------------------------------------------------------------
December 31, 2000 ...... 9,984 $ 104 $ 5,675 $ 607 $ (493) $ 5,893
Net Loss ............... -- -- -- (513) -- (513)
------------ -------------- ---------------- --------------- -------------- ---------------
March 31, 2001 ......... 9,984 $ 104 $ 5,675 $ 94 $ (493) $ 5,380
Capital Contribution in
Subsidiary ............. -- -- 2 -- -- 2
Net Loss ............... -- -- -- (682) -- (682)
------------ -------------- ---------------- --------------- -------------- ---------------
June 30, 2001 .......... 9,984 $ 104 $ 5,677 $ (588) $ (493) $ 4,700
Net Loss ............... -- -- -- (600) -- (600)
------------ -------------- ---------------- --------------- -------------- ---------------
September 30, 2001 ..... 9,984 $ 104 $ 5,677 $ (1,188) $ (493) $ 4,100
============ ============== ================ =============== ============== ===============
-----------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
3
TENERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
----------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
-------------------------------
2001 2000
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) earnings ..................................................... $ (1,795) $ 227
Adjustments to reconcile net earnings to cash (used) provided by operating
activities:
Depreciation and amortization.......................................... 538 251
Gain on sale of assets ................................................ -- (4)
Changes in assets and liabilities:
Receivables, net of allowance ....................................... 2,093 1,275
Other current assets ................................................ (491) (169)
Other assets ........................................................ (675) (375)
Accounts payable .................................................... (1,207) (710)
Accrued compensation and related expenses ........................... 67 242
Deferred revenue .................................................... (2) 138
------------- ------------
Net Cash Used By Operating Activities ............................. (1,472) 875
CASH FLOWS FROM INVESTING ACTIVITIES
Net acquisition of property and equipment ............................... (146) (421)
Acquisition of application development software ......................... -- (125)
Proceeds from sale of assets ............................................ -- 7
------------- ------------
Net Cash Used in Investing Activities ............................. (146) (539)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of equity in subsidiary ........................................ 2 --
Issuance of common stock from Treasury................... -- 33
------------- ------------
Net Cash Provided by Financing Activities ......... 2 33
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ...................... (1,616) 369
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 2,487 3,493
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 871 $ 3,862
============= ============
----------------------------------------------------------------------------------------------------------------
See accompanying notes.
4
TENERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
(Unaudited)
Note 1. Organization
TENERA, Inc. (including its subsidiaries, "TENERA", or the "Company")
provides a broad range of technology-based professional and technical services,
and web-based e-Learning solutions. The Company's professional and technical
services are designed to solve complex management, engineering, environmental,
health and safety challenges associated with the management of federal
government properties, energy assets, and petrochemical and manufacturing
concerns. TENERA's web-based e-Learning products and services are designed to
provide a suite of on-line, interactive, compliance and regulatory-driven
training applications for use by clients' employees.
TENERA, Inc., a Delaware corporation, is the parent company of the
subsidiaries described below.
In 1995, the Company formed TENERA Rocky Flats, LLC ("Rocky Flats"), a
Colorado limited liability company, to provide consulting and management
services in connection with participation in the Performance Based Integrating
Management Contract ("Rocky Flats Contract") at the Department of Energy's
("DOE") Rocky Flats Environmental Technology Site ("Rocky Flats Site"). In
August 2000, Closure Mission Support Services, LLC ("CMSS"), a Colorado limited
liability company, was formed by Rocky Flats as a majority-owned joint venture
to provide professional and technical services in connection with a recompete of
the professional support services at the Rocky Flats Site. In the fourth quarter
of 2000, the Company was awarded a new contract for an initial three year period
followed by three one-year options exercisable by the prime contractor.
In 1997, the Company formed TENERA Energy, LLC ("Energy"), a Delaware
limited liability company, to consolidate its commercial electric power utility
business into a separate legal entity. Energy offers professional environmental
and ecological services, and risk management services to nuclear and fossil
plant operators.
In 1999, the Company initially formed TENERA GoTrain.Net, LLC
("GoTrain.net"), a Delaware limited liability company, as a joint venture
operation with a minority interest partner, SoBran, Inc., an Ohio corporation,
specializing in Internet technologies. In February 2000, the Company purchased
certain Internet-based development assets from SoBran, Inc. for $307,000,
including SoBran's minority interest in GoTrain.net. After the asset acquisition
from SoBran, the Company consolidated its technology enhanced training services
group into GoTrain.net. GoTrain.net, now a wholly-owned subsidiary, is an
e-Learning application service provider offering Web-based, e-Learning solutions
to selected industries needing regulatory-driven environmental, safety, and
health (ES&H) training, specifically manufacturing, utilities, petrochemical,
and selected Fortune 1000 companies. In March 2000, the Company and EnviroWin
Software, LLC, a Delaware limited liability company, an ES&H desktop solutions
provider, formed Training, LLC, a joint venture to produce certain Web-based
ES&H training products via the GoTrain.net distance learning platform. In June
2001, Training, LLC was dissolved with GoTrain.net free to use the training
courses developed by the joint venture. Also in June 2001, the GoTrain.net
entered into a five-year co-development and distribution agreement with
SmartForce, a leader in e-Learning solutions and content. The agreement provides
for collaborating in the creation of ES&H and regulatory content, and the
co-marketing and distribution of such content and other e-Learning offerings via
the SmartForce internet platform (see Note 4 to Consolidated Financial
Statements).
The Company is principally organized into two operating segments:
Professional and Technical Services and e-Learning (see Note 3 to Consolidated
Financial Statements).
5
Note 2. Summary of Significant Accounting Policies
Basis of Presentation. The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries and are unaudited. All
intercompany accounts and transactions have been eliminated. In the opinion of
management, all adjustments (which include normal recurring adjustments)
necessary to present fairly the financial position at September 30, 2001, and
the results of operations and cash flows for the three and nine month periods
ended September 30, 2001 and 2000, have been made. For further information,
refer to the financial statements and notes thereto contained in TENERA, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 2000, filed with the
Securities and Exchange Commission ("SEC").
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ materially from
these estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of demand
deposits, money market accounts, and commercial paper issued by companies with
strong credit ratings. Cash and cash equivalents are carried at cost, which
approximates fair value. The Company includes in cash and cash equivalents, all
short-term, highly liquid investments, which mature within three months of
acquisition.
Concentrations of Credit Risk and Credit Risk Evaluations. Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents and accounts receivable.
Cash and cash equivalents consist principally of demand deposit, money market
accounts, and commercial paper issued by companies with strong credit ratings.
Cash and cash equivalents are held with various domestic financial institutions
with high credit standing. The Company has not experienced any significant
losses on its cash and cash equivalents. The Company conducts business with
companies in various industries primarily in the United States. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral. Allowances are maintained for potential credit issues, and
such losses to date have been within management's expectations.
Property and Equipment. Property and equipment are stated at cost
($3,411,000 and $3,265,000 at September 30, 2001 and December 31, 2000,
respectively), net of accumulated depreciation ($2,781,000 and $2,506,000 at
September 30, 2001 and December 31, 2000, respectively). Depreciation is
calculated using the straight line method over the estimated useful lives, which
range from three to five years.
Other Assets. Included in this asset category are the costs of
internal-use e-Learning operating system software, both acquired and developed
by the Company, and certain costs related to the development of the Company's
e-Learning training courses. These costs have been capitalized in accordance
with Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". For the nine month period ended
September 30, 2001, the Company capitalized $675,000 of developed software
costs, compared to $500,000(included $125,000 of acquired software) for the same
period in 2000. The estimated useful life of costs capitalized is three years.
During the first nine months of 2001 and 2000, the amortization of capitalized
costs on the Company's books totaled $177,000 and $55,000, respectively.
Revenue. The Company's Professional and Technical Services Segment
primarily offers its services to the United States electric power industry and
the DOE. Revenue from time-and-material and cost plus fixed-fee contracts is
recognized when service is performed and costs are incurred. Revenue from
fixed-price contracts is recognized on the basis of percentage of work completed
(measured by costs incurred relative to total estimated project costs) under
compliance with Statement of Position 81-1, "Accounting for Performance of
Construction-Type and Certain Production-Type Contracts". Actual revenue and
cost of contracts in progress may differ from management estimates and such
differences could be material to the financial statements.
The Company's e-Learning Segment's nonrefundable upfront
subscription/license fees are recognized ratably over the contractual term,
which is typically one year. Revenue recognition commences when delivery of
product occurs. Usage fee revenue is recognized on an actual usage basis.
6
During the first six months of 2001, one client in the Professional and
Technical Services Segment accounted for 73% of the Company's total revenue. For
the like period in 2000, the same client accounted for 66% of total revenue.
Income Taxes. The Company uses the liability method to account for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
Accounting for Stock-Based Compensation. The Company accounts for employee
stock options in accordance with Accounting Principles Board Opinion No. 25
("APB 25").
Per Share Computation. Basic earnings per share is computed by dividing
net earnings by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of securities
by adding other common stock equivalents, including stock options, warrants and
convertible preferred stock, in the weighted average number of common shares
outstanding for a period, if dilutive.
The following table sets forth the computation of basic and diluted
earnings per share as required by Financial Accounting Standards Board Statement
No. 128:
(In thousands, except for per share amounts)
-------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, Nine Months Ended September 30,
30,
-------------------------------- --------------------------------
2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------------------
Numerator:
Net (loss) earnings ................... $ (600) $ 58 $ (1,795) $ 227
============= ============== ============= ==============
Denominator:
Denominator for basic earnings per
share-- weighted-average shares 9,984 9,969 9,984 9,952
outstanding............................
Effect of dilutive securities:
Employee & Director stock options
(Treasury stock method) ............. -- 154 -- 314
------------- -------------- ------------- --------------
Denominator for diluted earnings per
share--weighted-average common and
common equivalent shares ............... 9,984 10,123 9,984 10,266
============= ============== ============= ==============
Basic (loss) earnings per share ......... $ (0.06) $ 0.01 $ (0.18) $ 0.02
============= ============== ============= ==============
Diluted (loss) earnings per share ....... $ (0.06) $ 0.01 $ (0.18) $ 0.02
============= ============== ============= ==============
-------------------------------------------------------------------------------------------------------------------
Comprehensive Income. The Company does not have any components of
comprehensive income. Therefore, comprehensive income is equal to net earnings
reported for all periods presented.
Disclosures about Segments of an Enterprise. The Company has two
reportable operating segments, which are: Professional and Technical Services
and e-Learning (see Note 3 to Consolidated Financial Statements).
Recent Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"),
7
which establishes accounting and reporting standards for derivative instruments
and hedging activities. FAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. In June 1999, the FASB issued Statement No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133", which amended FAS 133 by
deferring the effective date to the fiscal year beginning after June 30, 2000.
In June 2000, the FASB issued Statement No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment to FASB
Statement No. 133", which amended FAS 133 with respect to four specific issues.
The Company is required to adopt FAS 133, as amended, for the year ending
December 31, 2001. The adoption of this statement did not have a material effect
on the consolidated financial position, results of operations, or cash flows.
Reclassifications. Certain reclassifications of prior year amounts have
been made to conform with current presentation.
8
Note 3. Segment Information
Based on the criteria established by Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (FAS 131"), the Company operates in two business segments based on
product/service differentiation. In accordance with FAS 131, the Company is
required to describe its reportable segments and provide data that is consistent
with the data made available to the Company's Chief Operating Decision Maker
("CODM") to assess performance and make decisions.
The measure of profit or loss used for each reportable segment is net
earnings (loss) before the effect of income taxes. The accounting policies for
the segments are the same as for the Company taken as a whole. Certain corporate
expenses are allocated to these operating segments and are included for
performance evaluation. Annual employee bonuses, if any, are recorded at the
corporate level. Assets are not allocated to operating segments for reporting to
the Company's CODM and the Company does not prepare segmental balance sheets.
Depreciation and amortization expenses are allocated to the operating segments
based on the fixed assets in the underlying subsidiaries comprising the
segments. There are no intersegment revenues on transactions between reportable
segments.
Information about the operating segments for the quarters and nine month
periods ended September 30, 2001 and 2000, respectively, and reconciliation to
the Consolidated Statements of Operations, are as follows:
(In thousands)
-----------------------------------------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------------------------------------------------------------------------------- ----------- -----------
REVENUE
Professional and Technical Services.............. $ 4,173 $ 7,570 $ 14,902 $ 25,365
e-Learning ....................................... 268 103 713 294
----------- ----------- ----------- -----------
Total ......................................... $ 4,441 $ 7,673 $ 15,615 $ 25,659
=========== =========== =========== ===========
NET (LOSS) EARNINGS BEFORE INCOME TAX
Professional and Technical Services ............. $ (39) $ 781 $ 493 $ 2,202
e-Learning ...................................... (773) (457) (2,731) (1,190)
Corporate and Other ............................. (33) (228) (291) (634)
----------- ----------- ----------- -----------
Total ......................................... $ (845) $ 96 $ (2,529) $ 378
=========== =========== =========== ===========
DEPRECIATION AND AMORTIZATION EXPENSE
Professional and Technical Services ............. $ 14 $ 21 $ 46 $ 68
e-Learning ...................................... 170 76 474 166
Corporate and Other ............................. 5 4 18 17
----------- ----------- ----------- -----------
Total ......................................... $ 189 $ 101 $ 538 $ 251
=========== =========== =========== ===========
-----------------------------------------------------------------------------------------------------------------
Revenues outside of the United States have been less than 1% of total
Company revenues in each of the quarters and nine month periods ended September
30, 2001 and 2000, respectively. Therefore, no enterprise-wide geographical data
has been provided. The Company provides services and products to clients
throughout the United States, and the geographical location of the client is not
used for decision-making or performance evaluation.
9
Note 4. Long-Term Obligations
In June 2001, GoTrain.net entered into a five-year agreement with
SmartForce to co-develop and distribute ES&H and regulatory content via the
SmartForce internet platform. Under the agreement, GoTrain.net is required to
make quarterly payments of $68,500 to SmartForce, commencing September 30, 2001,
for platform license and maintenance, and integration of existing GoTrain.net
content.
Minimum net payments are as follows (in thousands):
(Year Ending December 31)
----------------------------------------------------------------------------------------------------------------
2001 ......................................................................................... $ 137
2002 ......................................................................................... 274
2003 ......................................................................................... 274
2004 ......................................................................................... 274
2005 and Thereafter .......................................................................... 411
------------
Total Minimum Payments Required .............................................................. $ 1,370
============
----------------------------------------------------------------------------------------------------------------
10
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Forward-Looking Statements
With the exception of historical facts, the statements contained in this
discussion are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to the Safe Harbor
provisions created by that statute. Certain statements contained in the
following Management's Discussion and Analysis of Results of Operations and
Financial Condition, including, without limitation, statements containing the
words "believes", "anticipates", "estimates", "expects", "future", "intends",
and words of similar import, constitute forward-looking statements that involve
risks and uncertainties. Such risks, uncertainties and changes in condition,
significance, value and effect could cause the Company's actual results to
differ materially from those anticipated events. Such risks and uncertainties
include uncertainty of access to capital; the reliance on major customers and
concentration of revenue from the government sector; the uncertainty of future
profitability; uncertainty regarding competition; reliance on key personnel;
uncertainty regarding industry trends and customer demand; and government
contract audits. Additional risks are detailed in the Company's filings with the
SEC, including its Form 10-K for the year ended December 31, 2000.
TENERA, INC.
Results of Operations
(Unaudited)
------------------------------------------------------------------------------------------------------------------
Percent of Revenue Percent of Revenue
------------------------ -----------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
2001 2000 2001 2000
------------------------------------------------------------------------------------------------------------------
Revenue ................................................ 100.0% 100.0% 100.0% 100.0%
Direct Costs ........................................... 79.9 78.0 78.0 79.4
General and Administrative Expenses .................... 38.7 21.4 38.3 19.6
Other Income ........................................... -- -- -- *
--------- --------- --------- ---------
Operating (Loss) Income ............................. (18.6) 0.6 (16.3) 1.0
Interest (Expense)Income, Net .......................... (0.4) 0.6 0.1 0.5
--------- --------- --------- ---------
Net (Loss) Earnings Before Income Tax (Benefit) Expense. (19.0)% 1.2% (16.2)% 1.5%
========= ========= ========= =========
------------------------------------------------------------------------------------------------------------------
* Less than 0.05%
Results of Operations
Net losses before income tax benefit for the three and nine-month periods
ended September 30, 2001 were $845,000 and $2,529,000, respectively, compared to
net earnings before tax expense of $96,000 and $378,000, respectively, for the
same periods in 2000. The decreases in earnings for both periods primarily
result from lower Professional and Technical Services Segment revenue, coupled
with higher sales and marketing expenses in the e-Learning Segment.
During the third quarter of 2001, the Company received written contracts
and orders having an estimated value of approximately $3.0 million associated
with the Professional and Technical Services Segment and $1.1 million related to
the e-Learning Segment. The Professional and Technical Services activity
primarily reflects the additional funding of the Company's contract at the DOE's
Rocky Flats Site . The e-Learning activity primarily relates to the expected
11
revenue from the addition of the DOE as a training client, as well as expansion
of training academies of seven existing clients. Contracted backlog for current,
active projects totaled approximately $10.5 million as of September 30, 2001,
down from $11.0 million at December 31, 2000. The Professional and Technical
Services and e-Learning segments account for $6.6 million and $3.9 million,
respectively, of the backlog at September 30, 2001.
Professional and Technical Services Segment revenue for the three and
nine-month periods ended September 30, 2001 decreased $3.4 million and $10.5
million, respectively, from the same periods in 2000, primarily due to a lower
allocation at the Rocky Flats Site of work to lower-tier subcontractor teams,
including the Company under its new contract effective October 1, 2000, as
previously reported, and closure of the Company's commercial strategic
consulting business area. For the third quarter and first nine months of 2001,
the concentration of revenue from government projects decreased to 72% and 75%,
respectively, of total Company revenue, from 85% and 86%, respectively, in the
comparable periods in 2000.
Revenue in the e-Learning Segment increased by $165,000 and $419,000,
respectively, in the three and nine-month periods ended September 30, 2001, as
compared to the same periods in 2000, mainly due to a greater number of new
contracts.
Direct costs were lower in 2001, compared to a year ago, primarily as a
result of decreased revenue generation. Gross margin decreased to 20% in the
third quarter of 2001 from 22% in 2000 as a result of accrued costs associated
with the SmartForce alliance agreement, which commenced June 29, 2001 (see Note
4 to Consolidated Financial Statements). However, for the first nine months of
2001, gross margin increased to 22% from 21% in the same period of 2000, mainly
due to an decrease in the proportion of revenue derived from lower margin
government business.
General and administrative costs were 5% and 19% higher, respectively, in
the three and nine-month periods ended September 30, 2001, compared to a year
ago, primarily as a result of increased business development costs in the
e-Learning Segment and costs associated with pursuit of a DOE contract at Grand
Junction, Colorado for Professional and Technical Services. The award of this
contract is expected to be announced by DOE in the fourth quarter of 2001.
As reported previously, an electric utility client in the Company's
Professional and Technical Services Segment initiated bankruptcy proceedings in
early April 2001. The Company assigned all of its pre-petition receivables to a
third party in August 2001 in return for 75% of the amounts owed. Net interest
expense in the third quarter of 2001 reflects the 25% finance charge related to
the assignment of these receivables, partially offset by earnings from the
investment of cash balances in short-term, high quality, money market accounts
and corporate debt instruments. The lower net interest income in the nine month
period of 2001, as compared to a year ago, is primarily due to lower average
cash balances and lower interest rates, together with the impact of the
receivables assignment in the third quarter of 2001.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $1,616,000 during the first nine
months of 2001. The decrease was primarily due to cash used by operations
($1,472,000) and net acquisition of property and equipment ($146,000).
Receivables, net of sales allowance, decreased by $2,093,000 from December
31, 2000, primarily due to a decrease in the rate of revenue generation in 2001.
The allowance for sales adjustments decreased by $409,000 from December 31,
2000, related to the closure and settlement of old government contracts.
Other current assets and other assets increased by $491,000 and $675,000,
respectively, from December 31, 2000, primarily relating to training course and
operating system development in the e-Learning Segment (see Note 2 to
Consolidated Financial Statements).
Accounts payable decreased by $1,207,000 since the end of 2000 primarily
resulting from lower direct costs supporting decreased revenues. Accrued
compensation and related expenses increased by $67,000 during the period,
primarily reflecting the annual merit increases in employee salaries at the
beginning of 2001.
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No cash dividend was declared in the first nine months of 2001.
The impact of inflation on project revenue and costs of the Company was
minimal.
As previously reported, at December 31, 2000, the Company was not in
compliance with the quarterly profitability covenant of its $3,000,000 revolving
loan facility, which expired in May 2001, due to losses in its e-Learning
Segment related to expansion of its infrastructure and marketing and sales
program. The Company had no outstanding borrowings against the line of credit
during 2001 and 2000. The Company is currently pursuing a new credit facility
with its bank and others.
Management believes that even if the Company is able to secure a new bank
loan facility described above, cash expected to be generated by operations and
the Company's working capital will not be adequate to meet its anticipated
liquidity needs through the next twelve months due to the anticipated cash
requirements of its growing e-Learning Segment. The Company is currently seeking
private equity and debt financing to support the operations of its e-Learning
business.
During the third quarter, the Company commenced a working capital
preservation and labor cost reduction program designed to permit the Company to
continue all segments of its business. The Company will be required to curtail
or cease significant parts of its business unless additional funding is obtained
by the end of the fourth quarter of this year, through outside investment or
divestiture of a portion of its operating assets.
Item 3. Quantitative and Qualitative Disclosures of Market Risk
The Company has minimal exposure to market and interest risk as the
Company invests its excess cash in short-term instruments which mature within 90
days from the date of purchase. The Company does not have any derivative
instruments.
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PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.0 Statement regarding computation of per share earnings: See Notes
to Consolidated Financial Statements.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 14, 2001
TENERA, INC.
By /s/ JEFFREY R. HAZARIAN
-----------------------------------------------------
Jeffrey R. Hazarian
Executive Vice President and Chief Financial Officer
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