Amendment No. 2 to Form 8-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K/A

Amendment No. 2

 


 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

February 7, 2005

(Date of Report)

 


 

ITRON, INC.

(Exact Name of Registrant as Specified in Charter)

 


 

Washington   000-22418   91-1011792

(State or Other Jurisdiction

of Incorporation)

  (Commission File No.)  

(IRS Employer

Identification No.)

 

2818 N. Sullivan Road, Spokane, WA 99216

(Address of Principal Executive Offices, including Zip Code)

 

(509) 924-9900

(Registrant’s Telephone Number, Including Area Code)

 

None

(Former Name or Former Address, if Changed Since Last Report)

 


 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 


 


The registrant hereby amends its Current Report on Form 8-K/A dated September 2, 2004 as follows:

 

Item 9.01 Financial Statements and Exhibits

 

(b) Pro forma financial information.

 

The pro forma financial information required to be filed pursuant to Item 9.01(b) of Form 8-K is included as Exhibit 99.3 of this Amendment Number 2 to the Current Report on Form 8-K/A, which removes the reference to the independent appraisal in connection with the valuation of the tangible and intangible assets acquired in the Acquisition.

 

The other items and disclosures included in this Amendment Number 2 to the Current Report on Form 8-K/A have not been updated for any events subsequent to the previously filed Amendment Number 1 to the Current Report on Form 8-K/A, as filed on September 2, 2004.

 

(c) Exhibits.

 

The following exhibits are filed as part of this report:

 

Exhibit
Number


  

Description


99.3    Unaudited pro forma condensed combined balance sheet of Itron, Inc. and the Electricity Products Business of Schlumberger Ltd. (SEM) as of June 30, 2004 and the unaudited pro forma condensed combined statements of operations of Itron, Inc. and SEM for the year ended December 31, 2003 and the six months ended June 30, 2004.

 


SIGNATURE

 

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, hereunto duly authorized.

 

       

ITRON, INC.

Dated:

 

February 7, 2005

     

By:

 

/s/ Steven M. Helmbrecht

               

Steven M. Helmbrecht

Sr. Vice President and Chief Financial Officer

 


EXHIBIT INDEX

 

Exhibit
Number


  

Description


99.3    Unaudited pro forma condensed combined balance sheet of Itron, Inc. and the Electricity Products Business of Schlumberger Ltd. (SEM) as of June 30, 2004 and the unaudited pro forma condensed combined statements of operations of Itron, Inc. and SEM for the year ended December 31, 2003 and the six months ended June 30, 2004.

 

Unaudited pro forma condensed combined balance sheet

Exhibit 99.3

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma condensed combined balance sheet and statements of operations give effect to the acquisition of Schlumberger’s Electricity Products Business (SEM), which was completed on July 1, 2004. The acquisition has been accounted for under the purchase method of accounting in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. Under the purchase method of accounting, the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. The estimated fair values contained herein are preliminary in nature and are likely to change as management completes its assessment and valuation of intangible assets. Such preliminary estimates of fair values of the assets and liabilities of SEM have been combined with the recorded values of the assets and liabilities of Itron, Inc. and subsidiaries (Itron) in the unaudited pro forma condensed combined financial information.

 

The unaudited pro forma condensed combined balance sheet has been prepared to reflect the acquisition of SEM as if it had occurred on June 30, 2004. The two unaudited pro forma condensed statements of operations reflect the condensed combined results of operations of Itron and SEM for the year ended December 31, 2003 and the six months ended June 30, 2004, in both cases as if the acquisition had occurred on January 1, 2003.

 

The unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statements of operations are presented for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had Itron and SEM been a combined company during the specified periods. Certain of SEM’s historical financial information has been reclassified to conform with Itron’s financial statement presentation. The unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statements of operations should be read in conjunction with the historical financial statements and notes thereto of Itron and SEM.

 

On March 4, 2003, we purchased Silicon Energy Corp. (Silicon), for approximately $71.1 million in cash. We financed a portion of the purchase price of Silicon with our existing $50.0 million, three-year senior secured loan. The unaudited pro forma condensed combined financial data also gives effect to the acquisition of Silicon as if it occurred on January 1, 2003 with respect to the statement of operations for the year ended December 31, 2003.


Itron, Inc.

 

Unaudited Pro Forma Condensed Combined Statement of Operations

For the year ended December 31, 2003

 

     Historical
Itron


    Historical
Silicon


    Historical
SEM


    Pro Forma
Adjustments


    Pro Forma
Itron


 
     (in thousands)  

Revenues

   $ 316,965     $ 1,722     $ 294,165     $ (6,335 )(1)   $ 606,517  

Cost of revenues

     173,411       2,082       201,003       (12,100 )(2)     364,396  
    


 


 


 


 


Gross profit (loss)

     143,554       (360 )     93,162       5,765       242,121  

Operating expenses

                                        

Sales and marketing

     36,673       1,573       14,093       (777 )(3)     51,562  

Product development

     43,017       2,213       9,420       (1,190 )(4)     53,460  

General and administrative

     28,944       2,030       18,695       (563 )(5)     49,106  

Amortization of intangibles

     9,618       85       —         19,548  (6)     29,251  

Restructurings

     2,208       —         —         —         2,208  

In-process research and development

     900       —         —         —         900  

Litigation accrual

     500       —         23,000       —         23,500  
    


 


 


 


 


Total operating expenses

     121,860       5,901       65,208       17,018       209,987  
    


 


 


 


 


Operating income (loss)

     21,694       (6,261 )     27,954       (11,253 )     32,134  

Interest expense

     2,638       266       20       16,893  (7)     19,817  

Other income (expense), net

     (1,157 )     24       (40 )     (8 )(8)     (1,181 )
    


 


 


 


 


Income (loss) before income taxes

     17,899       (6,503 )     27,894       (28,154 )     11,136  

Income tax provision

     (7,421 )     —         (11,571 )     14,315  (9)     (4,677 )
    


 


 


 


 


Net income (loss)

   $ 10,478     $ (6,503 )   $ 16,323     $ (13,839 )   $ 6,459  
    


 


 


 


 


Earnings per share

                                        

Basic net income per common share

   $ 0.51                             $ 0.32  
    


                         


Diluted net income per common share

   $ 0.48                             $ 0.30  
    


                         


Weighted average number of shares outstanding

                                        

Basic

     20,413                               20,413  

Diluted

     21,740                               21,740  

 

See accompanying notes to unaudited pro forma condensed combined financial information.


Itron, Inc.

 

Unaudited Pro Forma Condensed Combined Statement of Operations

For the six months ended June 30, 2004

 

     Historical
Itron


    Historical
SEM


    Pro Forma
Adjustments


    Pro Forma
Itron


 
     (in thousands)  

Revenues

   $ 145,244     $ 154,519     $ (2,588 )(10)   $ 297,175  

Cost of revenues

     79,114       99,898       (5,549 )(11)     173,463  
    


 


 


 


Gross profit

     66,130       54,621       2,961       123,712  

Operating expenses

                                

Sales and marketing

     19,926       7,924       (277 )(12)     27,573  

Product development

     20,776       4,921       (393 )(13)     25,304  

General and administrative

     15,278       3,749       (229 )(14)     18,798  

Amortization of intangibles

     4,054       —         8,216  (15)     12,270  

Restructurings

     2,434       —         —         2,434  
    


 


 


 


Total operating expenses

     62,468       16,594       7,317       86,379  
    


 


 


 


Operating income

     3,662       38,027       (4,356 )     37,333  

Interest expense

     3,015       8       8,208  (16)     11,231  

Other income (expense), net

     (607 )     (61 )     —         (668 )
    


 


 


 


Income before income taxes

     40       37,958       (12,564 )     25,434  

Income tax (provision) benefit

     40       (14,968 )     5,009  (17)     (9,919 )
    


 


 


 


Net income

   $ 80     $ 22,990     $ (7,555 )   $ 15,515  
    


 


 


 


Earnings per share

                                

Basic net income per common share

   $ 0.00                     $ 0.75  
    


                 


Diluted net income per common share

   $ 0.00                     $ 0.71  
    


                 


Weighted average number of shares outstanding

                                

Basic

     20,750                       20,750  

Diluted

     21,987                       21,987  

 

See accompanying notes to unaudited pro forma condensed combined financial information.


Itron, Inc.

 

Unaudited Pro Forma Condensed Combined Balance Sheet

At June 30, 2004

 

     Historical
Itron


   Historical
SEM


   Pro Forma
Adjustments


    Pro Forma
Itron


     (in thousands)

ASSETS

                            

Current assets

                            

Cash and cash equivalents

   $ 2,227    $ 2,631    $ 196  (18)   $ 5,054

Accounts receivable, net

     61,716      33,240      13,006  (19)     107,962

Inventories

     20,357      20,184      1,635  (20)     42,176

Other current assets

     9,120      4,975      (8,410 )(21)     5,685
    

  

  


 

Total current assets

     93,420      61,030      6,427       160,877

Property, plant and equipment, net

     44,427      14,838      2,410  (22)     61,675

Intangible assets, net

     18,925      52      97,000  (23)     115,977

Goodwill

     90,440      —        105,209  (24)     195,649

Restricted cash

     128,310      —        (128,310 )(25)     —  

Other

     49,333      34,957      (22,431 )(26)     61,859
    

  

  


 

Total assets

   $ 424,855    $ 110,877    $ 60,305     $ 596,037
    

  

  


 

LIABILITIES AND SHAREHOLDERS’ EQUITY

                            

Current liabilities

                            

Accounts payable and accrued expenses

   $ 22,824    $ 20,939    $ (1,956 )(27)   $ 41,807

Wages and benefits payable

     10,920      8,033      (1,287 )(28)     17,666

Short-term borrowings

     21,000      —        (21,000 )(29)     —  

Current portion of debt

     17,435      —        (14,817 )(29)     2,618

Current portion of warranty

     7,995      —        —         7,995

Other current liabilities

     11,240      10,817      (350 )(30)     21,707
    

  

  


 

Total current liabilities

     91,414      39,789      (39,410 )     91,793

Long-term debt

     140,225      —        170,650  (29)     310,875

Warranty

     3,768      —        —         3,768

Other long-term liabilities

     7,259      69,368      (69,368 )(31)     7,259
    

  

  


 

Total liabilities

     242,666      109,157      61,872       413,695

Minority interest

     —        153      —         153

Shareholders’ equity

     182,189      1,567      (1,567 )(32)     182,189
    

  

  


 

Total liabilities and shareholders’ equity

   $ 424,855    $ 110,877    $ 60,305     $ 596,037
    

  

  


 

 

See accompanying notes to unaudited pro forma condensed combined financial information.


Itron, Inc.

Notes to Unaudited Pro Forma Condensed Combined Financial Information

(in thousands)

 

Note 1: Purchase Price

 

On July 1, 2004, Itron, Inc. (Itron) completed the acquisition of Schlumberger’s Electricity Products Business (SEM). The purchase price was $248 million, not including direct transaction costs, and is subject to post closing working capital adjustments. Itron used proceeds from a new $240 million senior secured credit facility and $125 million in Senior Subordinated Notes to finance the acquisition, pay related fees and expenses, and repay approximately $50.2 million of outstanding Itron debt under an existing credit facility.

 

The unaudited pro forma condensed combined financial information reflects a preliminary allocation of the purchase price and represents Itron’s expectations of the significant tangible and intangible assets and liabilities that will be recognized in connection with the acquisition. The estimated fair values of the assets and liabilities are preliminary and are subject to future adjustments. The significant items which could change are intangible assets and goodwill. The valuations of certain tangible and intangible assets are dependent on the finalization of appraisals.

 

The preliminary purchase price, which includes estimated direct transaction costs and other consideration, is summarized as follows:

 

Cash paid

   $ 248,077

Estimated direct transaction costs

     5,404
    

Total acquisition costs

   $ 253,481
    

 

For pro forma purposes only, assuming the transaction was consummated on June 30, 2004 and not on the actual closing date of July 1, 2004, the preliminary allocation of the purchase price would be as follows:

 

Net current assets and liabilities

   $ 34,125  

Property, plant and equipment

     17,248  

Intangible assets

     97,052  

Goodwill

     105,209  

Minority interest

     (153 )
    


Total net assets acquired

   $ 253,481  
    


 

The excess of the purchase price over the fair value of net assets acquired has been classified as goodwill.

 

Preliminary intangible assets are comprised of the following:

 

          Weighted Average
Useful Life (in months)


Core development technology

   $ 70,000    60

Contract backlog

     3,000    12

Customer relationships

     23,000    120

Trademarks and tradenames

     1,000    96

Other

     52    120
    

    

Total intangible assets

   $ 97,052     
    

    

 

The preliminary values assigned to the identifiable intangible assets were determined using the income approach. Under the income approach, the fair value reflects the present value of the projected cash flows that are expected to be generated by the products. The intangible assets will be amortized over the estimated useful lives of the estimated discounted cash flows assumed in the valuation models.

 

The pro forma condensed combined financial information is intended for information purposes only, and does not purport to represent what the combined companies’ results of operations or financial position would actually have been had the transaction in fact occurred at an earlier date, or project the results for any future date or period.


Itron, Inc.

Notes to Unaudited Pro Forma Condensed Combined Financial Information - (continued)

(in thousands)

 

Note 2: Pro Forma Adjustments

 

The following adjustments are reflected in the unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statements of operations to reflect the estimated impact of the merger on the historical combined results of Itron and SEM.

 

(1) Adjustment to eliminate intercompany sales activity, which consists primarily of royalty sales.

 

(2) Net adjustment to remove $(4,585) in pension and post retirement costs related to SEM retirement plans that Itron will not be assuming, to remove intercompany royalty cost of sales of $(6,024), to reflect a decrease in depreciation expense of $(1,621) based on estimated fair values of Silicon and SEM’s property, plant and equipment depreciated in accordance with Itron’s policy over the estimated useful lives and to remove the SEM LIFO inventory reserve impact of $130 to conform with Itron’s FIFO inventory accounting policy.

 

(3) Net adjustment consists of a decrease of $(12) in depreciation expense calculated in accordance with Itron’s policy over the estimated useful lives and $(765) to remove pension and post retirement costs related to SEM retirement plans that Itron will not be assuming.

 

(4) Net adjustment consists of a decrease of $(9) in depreciation expense calculated in accordance with Itron’s policy over the estimated useful lives and $(1,181) to remove pension and post retirement costs related to SEM retirement plans that Itron will not be assuming.

 

(5) Net adjustment consists of a decrease of $(147) in depreciation expense calculated in accordance with Itron’s policy over the estimated useful lives and $(416) to remove pension and post retirement costs related to SEM retirement plans that Itron will not be assuming.

 

(6) Net adjustment to eliminate historical amortization expense of $(85) for Silicon and to increase amortization expense by $19,633 for intangible assets associated with Silicon and SEM.

 

(7) Net adjustment consists of an increase in interest expense for new debt issued in connection with the acquisition along with amortization of deferred financing costs of $19,349 and a decrease in interest expense of $(2,456) for debt repaid upon the acquisition closing. A change in the interest rate of  1/8% would result in a change in interest expense of $234.

 

(8) Adjustment to remove Silicon interest income related to note receivables from Silicon officers that were not assumed by Itron.

 

(9) Adjustment to revise income tax provision utilizing Itron’s statutory rate of 42.0%.

 

(10) Adjustment to eliminate intercompany sales activity, which consists primarily of royalty sales.

 

(11) Net adjustment to remove $(2,504) in pension and post retirement costs related to SEM retirement plans that Itron will not be assuming, to remove intercompany royalty cost of sales of $(2,614), to reflect a decrease in depreciation expense of $(431) based on estimated fair values of SEM’s property, plant and equipment depreciated in accordance with Itron’s policy over the estimated useful lives. There was no SEM LIFO inventory reserve impact for the six months ended June 30, 2004.

 

(12) Net adjustment consists of a decrease of $(10) in depreciation expense calculated in accordance with Itron’s policy over the estimated useful lives and $(267) to remove pension and post retirement costs related to SEM retirement plans that Itron will not be assuming.

 

(13) Net adjustment consists of a decrease of $(25) in depreciation expense calculated in accordance with Itron’s policy over the estimated useful lives and $(368) to remove pension and post retirement costs related to SEM retirement plans that Itron will not be assuming.

 

(14) Net adjustment consists of a decrease of $(29) in depreciation expense calculated in accordance with Itron’s policy over the estimated useful lives and $(200) to remove pension and post retirement costs related to SEM retirement plans that Itron will not be assuming.

 

(15) Adjustment to increase amortization expense for intangible assets associated with the acquisition.

 

(16) Net adjustment consists of an increase in interest expense for new debt issued in connection with the acquisition along with amortization of deferred financing costs of $9,660 and a decrease in interest expense of $(1,452) for debt repaid upon the acquisition closing. A change in the interest rate of  1/8% would result in a change in interest expense of $119.

 

(17) Adjustment to revise income tax provision utilizing Itron’s statutory rate of 39.0%.

 

(18) Adjustments represent $(960) in payments for professional services related to the acquisition and $1,156 in cash remaining from debt financing.

 

(19) Net adjustment to eliminate $(981) in intercompany accounts receivable and to add $13,987 for tax liabilities that are reflected on the opening balance sheet that will be reimbursed by Schlumberger, Ltd.

 

(20) Adjustment to remove SEM’s LIFO inventory reserve in order to conform with Itron’s FIFO inventory accounting policy.

 

(21) Net adjustment to remove the current portion of deferred income taxes of $(4,556) as the acquisition will involve a 338(h)10 tax election (deemed asset purchase for which certain deferred tax assets will not be acquired), $1,550 to capitalize the current portion of debt issuance costs that will be amortized over the related financing and $(5,404) to eliminate prepaid professional services related to the acquisition.

 

(22) Adjustment to reflect a net increase in property, plant and equipment based on estimated fair values. These fair value estimates are preliminary and are subject to future adjustment based on finalization of a valuation conducted by a third party.

 

(23) Adjustment to reflect intangible assets identified and the fair values assigned, which are preliminary and subject to future adjustment based upon an evaluation by a third party.


Itron, Inc.

Notes to Unaudited Pro Forma Condensed Combined Financial Information - (continued)

(in thousands)

 

(24) Adjustment reflects goodwill from the acquisition after allocating the purchase price to the fair value of net assets acquired.

 

(25) Adjustment to reflect the use of restricted cash for the purchase of the acquisition.

 

(26) Net adjustment to remove $(25,557) in long-term deferred income taxes as the acquisition will involve a 338(h)10 tax election (deemed asset purchase for which certain deferred tax assets will not be acquired), to eliminate a $(9,234) prepaid pension asset Itron is not assuming, plus $12,360 to capitalize the long-term portion of debt issuance costs that will be amortized over the related financing.

 

(27) Net adjustment to remove SEM’s accrued royalties payable to Itron of $(996) and $(960) of accrued professional services related to the acquisition.

 

(28) Net adjustment to remove the liabilities that Itron will not be assuming which include $(85) for vacation in excess of defined hours, $(652) related to a pension plan and $(550) for 401(k) contributions.

 

(29) Net adjustment to short-term borrowings and current and long-term debt is as follows:

 

     Short-term
borrowings


    Current
debt


    Long-term
debt


 
     (in thousands)  

New term debt

   $ —       $ 1,850     $ 183,150  

Existing revolving line of credit

     (21,000 )     —         —    

Existing term loan

     —         (16,667 )     (12,500 )
    


 


 


     $ (21,000 )   $ (14,817 )   $ 170,650  
    


 


 


 

(30) Adjustment to remove the current portion of an environmental accrual that Itron will not be assuming.

 

(31) Net adjustment to remove a post retirement liability of $(65,418) and the long-term portion of an environmental accrual of $(3,950) that Itron will not be assuming.

 

(32) Net adjustment to eliminate SEM’s equity.