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                                  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 MARCH 31, 1999

                                       OR

/ /       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 0-22418


                                   ITRON, INC.
             (Exact name of registrant as specified in its charter)

       WASHINGTON                                     91-1011792
(State of Incorporation)               (I.R.S. Employer Identification Number)


                            2818 NORTH SULLIVAN ROAD
                         SPOKANE, WASHINGTON 99216-1897
                                 (509) 924-9900
   (Address and telephone number of registrant's principal executive offices)


     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 
                                              -----     -----

     As of April 30, 1999, there were outstanding 14,806,246 shares of the
registrant's common stock, no par value, which is the only class of common or
voting stock of the registrant.

===============================================================================



                                   ITRON, INC.



                                      INDEX

PART 1:  FINANCIAL INFORMATION                                                      Page
                                                                                    ---- 
                                                                              
Item 1:  Financial Statements (Unaudited)

         Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . .  1

         Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . .  2

         Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . .  3

         Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 4-6

Item 2:  Management's Discussion and Analysis of Financial Condition
         and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 7-12

PART 2:  OTHER INFORMATION

Item 1:  Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Item 6:  Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . 13

Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14




                          PART 1: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

                                   ITRON, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (Unaudited, in thousands, except per share data)



                                                                       THREE MONTHS ENDED MARCH 31,   
===================================================================================================   
                                                                                  1999       1998
- ---------------------------------------------------------------------------------------------------   
                                                                                     
REVENUES
    AMR systems                                                                $ 30,919    $ 50,356   
    Handheld systems                                                             16,347       9,680   
    Outsourcing                                                                   4,679       3,672   
                                                                               --------    --------   
    Total revenues                                                               51,945      63,708   
COST OF REVENUES
    AMR systems                                                                  19,671      34,768   
    Handheld systems                                                              9,140       5,125   
    Outsourcing                                                                   3,833       3,020   
                                                                               --------    --------   
    Total costs of revenues                                                      32,644      42,913   
                                                                               --------    --------   
GROSS PROFIT                                                                     19,301      20,795   

OPERATING EXPENSES
  Sales and marketing                                                             6,434       6,595   
  Product development                                                             6,602       8,923   
  General and administrative                                                      3,025       3,017   
  Amortization of intangibles                                                       490         590   
  Restructuring charges                                                           1,121           -   
                                                                               --------    --------   
  Total operating expenses                                                       17,672      19,125   
                                                                               --------    --------   
OPERATING INCOME (LOSS)                                                           1,629       1,670   

OTHER INCOME (EXPENSE)
  Equity in affiliates                                                             (165)       (120)  
  Interest, net                                                                  (1,855)     (1,297)  
                                                                               --------     --------  
  Total other income (expense)                                                   (2,020)     (1,417)  

Income (loss) before extraordinary item and income taxes                           (391)        253   
Income tax (provision) benefit                                                      160        (100)  
                                                                               --------    --------   
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                                        (231)        153   
Extraordinary gain on extinguishment of debt, net of income taxes of $1,970       3,660           -   
                                                                               --------    --------   
NET INCOME (LOSS)                                                              $  3,429    $    153   
                                                                               --------    --------   
BASIC NET INCOME (LOSS) PER SHARE:
  Before extraordinary item                                                    $  (0.02)   $   0.01
  Extraordinary item                                                                .25           -
                                                                               --------    --------   
  Basic net income per share                                                   $    .23    $   0.01

DILUTED NET INCOME (LOSS) PER SHARE:
  Before extraordinary item                                                    $  (0.02)   $   0.01
  Extraordinary item                                                                .24           -
                                                                               --------    --------   
  Diluted net income per share                                                 $    .22    $   0.01


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                       1


                                   ITRON, INC.
                           CONSOLIDATED BALANCE SHEETS
                            (Unaudited, in thousands)



                                                              MARCH 31,           DECEMBER 31,
============================================================================================== 
                                                                 1999                1998
- ---------------------------------------------------------------------------------------------- 
                                                                            
ASSETS
Current assets
   Cash and cash equivalents                                  $   1,917           $   2,743
   Accounts receivable, net                                      53,087              62,253
   Current portion of long-term contracts receivable             14,673              13,498
   Inventories                                                   20,167              20,654
   Deferred income taxes, net                                     5,132               6,938
   Other                                                          3,134               2,306
                                                              ---------           --------- 
   Total current assets                                          98,110             108,392
                                                              ---------           --------- 
Property, plant and equipment, net                               40,794              42,390
Equipment used in outsourcing, net                               52,109              50,746
Intangible assets, net                                           17,374              18,142
Long-term contracts receivable                                   24,496              23,712
Other                                                             4,144               4,373
                                                              ---------           --------- 
TOTAL ASSETS                                                  $ 237,027           $ 247,755
                                                              ---------           --------- 
                                                              ---------           --------- 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
   Short-term borrowings                                      $  10,370           $  14,000
   Accounts payable and accrued expenses                         23,278              25,263
   Wages and benefits payable                                     6,945               6,246
   Deferred revenue                                               5,720               8,653
                                                              ---------           --------- 
   Total current liabilities                                     46,313              54,162
                                                              ---------           --------- 
Convertible subordinated debt                                    57,234              63,400
Mortgage notes payable                                            6,202               6,242
Project financing                                                 7,599               7,722
Warranty and other obligations                                    1,160               1,207
                                                              ---------           --------- 
   Total noncurrent liabilities                                  72,195              78,571
                                                              ---------           --------- 
Shareholders' equity
   Common stock                                                 106,415             106,039
   Retained earnings                                             13,519              10,090
   Other                                                         (1,415)             (1,107)
                                                              ---------           --------- 
   Total shareholders' equity                                   118,519             115,022
                                                              ---------           --------- 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                    $ 237,027           $ 247,755
                                                              ---------           --------- 
                                                              ---------           --------- 


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                       2


                                   ITRON, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Unaudited, in thousands)



                                                             THREE MONTHS ENDED MARCH 31,
========================================================================================= 
                                                                1999              1998
- -----------------------------------------------------------------------------------------
                                                                          
OPERATING ACTIVITIES
Net income (loss)                                            $  3,429           $    153
Noncash charges (credits) to income:
     Depreciation and amortization                              4,668              4,657
     Deferred income tax provision (benefit)                     (166)               160
     Equity in affiliates, net                                    165                120
     Extraordinary gain on extinguishment of debt              (3,660)                 -
Changes in operating accounts:
     Accounts receivable                                        9,142             (6,587)
     Inventories                                                  487              6,214
     Accounts payable and accrued expenses                     (2,242)            (4,942)
     Wages and benefits payable                                   699             (3,196)
     Long-term contracts receivable                            (1,959)            (2,334)
     Deferred revenue                                          (2,933)              (255)
     Other, net                                                (1,533)            (1,300)
                                                             --------           -------- 
     Cash provided (used) by operating activities               6,097             (7,310)
                                                             --------           -------- 
INVESTING ACTIVITIES
Acquisition of property, plant and equipment                   (1,543)            (2,737)
Equipment used in outsourcing                                  (2,109)            (4,504)
Acquisition of intangibles and patent defense costs               (22)              (481)
Other, net                                                        221               (287)
                                                             --------           -------- 
     Cash used by investing activities                         (3,453)            (8,009)
                                                             --------           -------- 
FINANCING ACTIVITIES
Change in short-term borrowings, net                           (3,630)            12,939
Project financing                                                (123)                 -
Issuance of common stock                                          376                543
Other, net                                                        (93)               535
                                                             --------           -------- 
     Cash provided (used) by financing activities              (3,470)            14,017
                                                             --------           -------- 
Increase in cash and equivalents                                 (826)            (1,302)

Cash and cash equivalents at beginning of period                2,743              3,023
                                                             --------           -------- 
Cash and cash equivalents at end of period                   $  1,917           $  1,721
                                                             --------           -------- 
                                                             --------           -------- 


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

                                       3


                                   ITRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1999


NOTE 1:  BASIS OF PRESENTATION

The consolidated financial statements presented in this Form 10-Q are unaudited
and reflect, in the opinion of management, all normal recurring adjustments
necessary for a fair presentation of operations for the three month period ended
March 31, 1999. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Company's Form 10-K for the year ended December 31, 1998, as filed with the
Securities and Exchange Commission on March 30, 1999. The results of operations
for the three month period ended March 31, 1999, are not necessarily indicative
of the results expected for the full fiscal year or for any other fiscal period.

NOTE 2:  EARNINGS PER SHARE AND CAPITAL STRUCTURE



                                                         THREE MONTHS ENDED MARCH 31,
=====================================================================================
(in thousands)                                                   1999            1998
- ------------------------------------------------------------------------------------- 
                                                                         
Weighted average shares outstanding                            14,757          14,631
Effect of dilutive securities:
  Stock options                                                   555             221
  Convertible debt                                                  -               -
                                                               ------          ------ 
Weighted average shares outstanding assuming conversion        15,312          14,852
                                                               ------          ------ 
                                                               ------          ------ 


The Company has granted options to purchase common stock to directors, employees
and other key personnel at fair market value on the date of grant. The dilutive
effect of these options is included for purposes of calculating dilutive
earnings per share ("EPS") using the "treasury stock" method. The Company also
has subordinated convertible notes outstanding. These notes are not included in
the above calculation as the shares are anti-dilutive in all periods when using
the "if converted" method.

NOTE 3:  RESTRUCTURING

In 1998, in connection with management's measures to reduce costs and improve
operating efficiencies, the Company recorded a restructuring charge of $3.9
million. During the first quarter of 1999 the Company recorded a further
restructuring charge of $1.1 million as part of its ongoing efforts to improve
operating efficiencies. The restructuring measures primarily involved a
workforce reduction, the write-off of certain of the Company's intangible assets
and the closure and consolidation of facilities. Cumulative restructuring
charges of $5.1 million are as follows:



                                                                                   Reserve
                                      Cash/          Restructuring                 Balance
(in thousands)                        Non-Cash          Charge         Activity    03/31/99
=========================================================================================== 
                                                                        
Severance and related charges         Cash              $2,658         $ 1,830      $   828
Write-down of intangible assets       Non-Cash           1,104           1,104           -
Consolidation of facilities           Cash               1,048               -        1,048
Other                                 Non-Cash             241             241            -
                                                        ------         -------      ------- 
Total restructuring charge                              $5,051         $ 3,175      $ 1,876
                                                        ------         -------      ------- 
                                                        ------         -------      ------- 



                                       4


NOTE 4:  BALANCE SHEET COMPONENTS



                                                MARCH 31,     DECEMBER 31,
==========================================================================  
(Inventories, in thousands)                         1999             1998
- -------------------------------------------------------------------------- 
                                                        
Material                                         $ 7,684          $ 9,041
Work in process                                    1,704            1,599
Finished goods                                     6,716            6,947
Field inventories awaiting installation            1,371                -
                                                 -------          ------- 
Total manufacturing inventories                   17,475           17,587
Service inventories                                2,692            3,067
                                                 -------          ------- 
Total inventories                                $20,167          $20,654
                                                 -------          ------- 
                                                 -------          ------- 


NOTE 5:  SEGMENT INFORMATION

The Company reviews its operations using a variety of matrices, however, the
chief executive officer primarily reviews the Company's manufacturing and sales
operations on a domestic vs. international basis and revenues and cost of sales
are reviewed based on the Company's major product lines of AMR systems, handheld
systems and outsourcing. The Company has outsourcing agreements in which it both
owns and operates the system. These agreements require a large amount of capital
investment and related project and other debt, and are included in the Company's
finance operations. Outsourcing contracts in which the Company operates, but
does not own, the equipment are included in the Company's normal manufacturing
and sales operations. The chief executive officer reviews financing operations
separately from manufacturing and sales operations because they are essentially
different businesses with significantly different operating and leverage
characteristics.

Segment debt and interest expense related to the Company's finance and
international operations includes both direct and allocated debt and interest
expense. Segment debt and related interest expense are allocated based on each
segment's funding requirements for capital or operations. Intersegment revenues
include shipments to various Company-owned subsidiaries and are eliminated in
consolidation. EBITDA includes earnings for each segment before interest, taxes,
depreciation and amortization and is used to allow a comparison of each
segment's operating results. Segment Debt/EBITDA is a ratio that is used to
compare segment leverage ratios to comparable industry ratios. The Company does
not allocate income taxes to its operating segments.



                                                                                     THREE MONTHS ENDED MARCH 31, 1999
======================================================================================================================
                                            MANUFACTURING AND SALES
                                     --------------------------------------
(in thousands, except ratios)        DOMESTIC      INTERNATIONAL      TOTAL       FINANCE    ELIMINATED   CONSOLIDATED   
                                                                                        
Revenues from external customers:
  AMR systems                       $  30,525        $    394        $ 30,919    $      -     $      -      $ 30,919     
  Handheld systems                     13,666           2,681          16,347           -            -        16,347     
  Outsourcing                             300               -             300       4,379            -         4,679     
  Intersegment revenues                   379               7             386           -         (386)            -     
                                      -------          ------          ------      ------                     ------
  Total revenues                    $  44,870        $  3,082        $ 47,952    $  4,379     $   (386)     $ 51,945     

Segment income (loss) (1)               2,501          (2,264)            237       4,897          105         5,239     

Segment assets                        171,366          10,655         182,021      91,622      (36,616)      237,027     
Segment debt                            6,966          20,212          27,178      72,860      (17,843)       82,195     

Cash flows:
  Operating activities              $  10,989        $   (427)       $ 10,562    $ (4,465)    $      -      $  6,097     
  Investing activities (2)             (1,426)              -          (1,426)     (2,027)           -        (3,453)    
                                      -------          ------          ------      ------                     ------
  Net operating and investing       $   9,563        $   (427)       $  9,136    $ (6,492)                  $  2,644     

EBITDA (3)                          $   6,023        $ (1,368)       $  4,655    $  7,107     $      -      $ 11,762     
Segment debt/annual EBITDA(4)            0.29             *              1.46        2.56          *            1.75     



                                       5




                                                                                     THREE MONTHS ENDED MARCH 31, 1998
======================================================================================================================
                                            MANUFACTURING AND SALES
                                     --------------------------------------
(in thousands, except ratios)        DOMESTIC      INTERNATIONAL      TOTAL       FINANCE    ELIMINATED   CONSOLIDATED   
                                                                                        
Revenues from external customers:
  AMR systems                       $  48,121        $  2,235        $ 50,356    $      -     $      -      $ 50,356     
  Handheld systems                      7,216           2,464           9,680           -            -         9,680     
  Outsourcing                              41               -              41       3,631            -         3,672     
  Intersegment revenues                   729             102             831           -         (831)            -     
                                    ---------        --------        --------    --------     --------      --------
  Total revenues                    $  56,107        $  4,801        $ 60,908    $  3,631     $   (831)     $ 63,708     

Segment income (loss) (1)               1,808            (895)            913        (392)        (268)          253     

Segment assets                        184,106          11,509         195,615      69,135      (18,773)      245,977     
Segment debt                           16,190          16,720          32,910      54,695            -        87,605     

Cash flows:
  Operating activities              $  (3,986)       $ (1,281)       $ (5,267)   $ (2,043)    $      -      $ (7,310)    
  Investing activities (2)             (3,354)           (166)         (3,520)     (4,489)           -        (8,009)    
                                    ---------        --------        --------    --------     --------      --------
  Net operating and investing       $  (7,340)       $ (1,447)       $ (8,787)   $ (6,532)           -      $(15,319)

EBITDA (3)                          $   5,092        $   (217)       $  4,875    $  1,332     $      -      $  6,207     
Segment debt/annual EBITDA (4)           0.79             *              1.69       10.27          *            3.53     


(1)  SEGMENT INCOME (LOSS) INCLUDES $5.6 MILLION PRE-TAX GAIN ON DEBT
     EXTINGUISHMENT IN 1999. ITRON DOES NOT ALLOCATE INCOME TAXES TO ITS
     SEGMENTS.
(2)  INVESTING ACTIVITIES PRIMARILY CONSIST OF CAPITAL EXPENDITURES FOR EACH
     SEGMENT.
(3)  EBITDA IS CALCULATED BY ADDING NET INTEREST, DEPRECIATION AND AMORTIZATION
     EXPENSE TO PRE-TAX INCOME OR LOSS AFTER EXTRAORDINARY ITEM AND IS PRESENTED
     BECAUSE THE COMPANY BELIEVES THAT IT ALLOWS FOR A MORE COMPLETE ANALYSIS OF
     THE COMPANY'S RESULTS OF OPERATIONS. THIS INFORMATION SHOULD NOT BE
     CONSIDERED AS AN INDICATOR OF THE COMPANY'S OVERALL FINANCIAL PERFORMANCE.
     ADDITIONALLY, EBITDA AS REPORTED HEREIN MAY NOT BE COMPARABLE TO SIMILARLY
     TITLED MEASURES REPORTED BY OTHER COMPANIES. 
(4)  TOTAL DEBT TO ANNUALIZED EBITDA IS CALCULATED BY DIVIDING TOTAL SEGMENT 
     DEBT BY THE PRODUCT OF EBITDA MULTIPLIED BY 4. 
* NOT MEANINGFUL.

NOTE 6:  CONTINGENCIES

The Company, together with Johnny M. Humphreys, Chairman, President and Chief
Executive Officer, is a defendant in a class action filed by certain former
shareholders in federal court, alleging violations of the federal securities
laws arising out of alleged misleading disclosures or omissions made by the
Company regarding its business and technology. The Company believes this action
is without merit and intends to vigorously defend against it. At this time, it
is not possible to predict the ultimate outcome of the proceedings.


                                       6


ITEM 2:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

OVERVIEW

Itron is a leading global provider of integrated systems solutions for
collecting, communicating, analyzing, and managing information about electric,
gas and water usage. The Company designs, develops, manufactures, markets,
installs and services hardware, software and integrated systems that enable
customers to obtain, analyze and use meter data. The Company's major product
lines include Automatic Meter Reading ("AMR") systems and Electronic Meter
Reading ("EMR") or Handheld systems. The Company both sells its products and
provides outsourcing services.

The Company's AMR solutions primarily utilize radio and telephone technology to
collect meter data and include Off-Site AMR, Mobile AMR and Network AMR
technology reading options. Off-Site AMR utilizes a radio device attached to an
Itron handheld computer that collects data from meters equipped with the
Company's radio meter modules. Mobile AMR uses a transceiver in a vehicle to
collect data from meters equipped with the Company's radio meter modules as the
vehicle passes by. The Company offers a number of Network AMR solutions that
utilize radio, telephone, cellular or a combination of these technologies to
collect and transmit meter information from a variety of fixed locations. The
Company's EMR systems product line includes the sale and service of ruggedized
handheld computers and supporting products that record visually obtained meter
data. Outsourcing services typically involve the installation, operation and/or
maintenance of meter reading systems to provide meter information for billing
and management purposes. Outsourcing contracts usually cover long timeframes and
typically involve contracts in which either a customer owns the equipment and
the Company provides meter information for a specified fee, or the Company both
owns and operates the system.

The Company currently derives substantially all of its revenues from sales of
its products and services to utilities, however, the Company's business may
increasingly consist of sales to other utility industry participants such as
energy service providers, end user customers and others. The Company has
experienced variability of operating results on both an annual and a quarterly
basis due primarily to utility purchasing patterns and delays of purchasing
decisions. In recent years these delays have generally been a result of changes
or potential changes to the federal and state regulatory frameworks within which
the electric utility industry operates and mergers and acquisitions in the
utility industry.

RESULTS OF OPERATIONS

REVENUES

Total Company revenues for the quarter ended March 31, 1999 decreased $11.8
million, or 18%, from the comparable quarter in 1998.



                                                   THREE MONTHS ENDED MARCH 31,
===============================================================================  
                                                         INCREASE
Revenues (in millions)                        1999      (DECREASE)         1998
- -------------------------------------------------------------------------------  
                                                                
    AMR systems                             $ 30.9         (39%)         $ 50.4
    Handheld systems                          16.3          69%             9.7
    Outsourcing                                4.7          27%             3.7
                                            ------                       ------ 
    Total revenues                          $ 51.9         (18%)         $ 63.7
                                            ------                       ------ 
                                            ------                       ------ 


AMR systems revenues decreased $19.4 million, or 39%, in the quarter ended 
March 31, 1999 from the comparable quarter one year ago. AMR systems revenues 
were lower in 1999 because the Company shipped approximately 35% fewer meter 
modules in the current quarter than the same quarter in 1998. The decreased 
shipments were largely due to the near completion in 1998 of meter module and 
fixed network product shipments under a large contract that the Company had 
with Virginia Power Company. Average selling prices increased during the 
three months ended March 31, 1999 compared to the comparable period one year 
ago, primarily because of a shift in mix from electric meter modules to water 
meter modules. The Company expects that AMR systems revenue will grow over 
the longer term. However, this growth continues to depend on the timing and 
resolution of electric utility industry regulatory reform issues in the 
United States, mergers and acquisitions in the utility industry, acceptance 
of new products, development of international markets and 

                                       7


other factors. Revenue growth in the near term is expected to depend on 
continued penetration and growth of the AMR water market.

Handheld systems revenues for the three months ended March 31, 1999 increased
$6.7 million, or 69%, from the same three month period in 1998. The largest
increase was due to shipments of the Company's newest Portable Network ("PN")
card, which was released in late 1998, and upgrades to Year 2000 compliant
systems. The Company expects handheld systems revenue to increase somewhat in
1999 over the previous year, however, handheld systems revenues are expected to
decline as a percentage of total revenues over time. Future handheld systems
revenues are expected to be derived primarily from upgrade and replacement
business domestically and penetration into international markets.

Outsourcing revenues increased $1.0 million, or 27%, in the first quarter of
1999 over the comparable quarter of 1998. The higher revenues were due to
increased installation of multi-function meters in connection with the Company's
contract with the Duquesne Light Company ("Duquesne"). The Company is now in the
operations phase of its contract with Duquesne, which allows for increased
billings, according to the terms of the contract. While such increased billings
will not affect the Company's reported revenues, increased cash payments from
Duquesne should continue to improve the Company's cash flows. Outsourcing
revenues are expected to decrease somewhat in 1999 from the level experienced in
1998 unless the Company signs additional outsourcing contracts.

GROSS MARGIN

Overall gross margins for the quarter ended March 31, 1999 of 37% of revenues
were four percentage points higher than the 33% in the same period in 1998. The
percentages for 1999 and 1998 in the table below reflect gross margins as a
percentage of corresponding revenues and the percentage point change from the
prior year.



                                     THREE MONTHS ENDED MARCH 31,
=================================================================
                                           INCREASE
Gross Margin                 1999         (DECREASE)         1998
- -----------------------------------------------------------------  
                                                    
  AMR systems                 36%             5%              31%
  Handheld systems            44%            (3%)             47%
  Outsourcing                 18%             0%              18%
  Total gross margin          37%             4%              33%


AMR systems gross margin of 36% increased five percentage points in the first 
quarter of 1999 over the comparable quarter in 1998. The margin improvement 
reflects the substantial completion of shipments and installation of meter 
modules and fixed network products relating to the Company's lower margin 
contract with Virginia Power in the fourth quarter of 1998. This contract had 
a low margin due to the early life cycle status of the Company's network 
products and related installation activities. Additional improvements in 1999 
margin result from a lower proportion of installation activities, which tend 
to have lower margins, in 1999 than in 1998. The Company expects AMR systems 
margins to be higher in 1999 than 1998 primarily because of a higher 
proportion of water meter module shipments than electric meter modules.

Handheld systems margin decreased slightly in the first three months of 1999
compared to the first three months of 1998. The lower margin in the current
period was primarily due to somewhat lower service margins caused by new
warranty periods (during which the Company does not receive service revenues)
that the Company provides for customer upgrades. The Company expects that
handheld systems margin may decrease somewhat in 1999 from the level experienced
in 1998 due to the large number of system upgrades expected in the 1999 period
as a result of Year 2000 system upgrade requirements.

Outsourcing margin was level at 18% of revenues in both the 1999 and 1998
periods. The low margin in both periods is a result of the Company's contract
with Duquesne. The gross margin on the Duquesne contract is low because it was
the Company's first large sale Network AMR system. The Company expects
outsourcing costs as a percentage of revenues in 1999 to be comparable to those
in 1998, unless the Company signs additional outsourcing agreements.

                                       8


OPERATING EXPENSES

Total operating expenses for the three months ended March 31, 1999 were $17.7
million, significantly lower than the $19.1 million of operating expenses in the
first quarter of 1998. Additionally, the 1999 period included $1.1 million of
restructuring charges principally for severance and other expenses related to
the closure of the Company's Saratoga, California product development office.
The development activities from this office will be consolidated into the
Company's other product development locations. Without this restructuring
charge, the Company would have had total operating expenses of $16.6 million,
which reflects a $2.6 million, or 13%, decrease from the comparable quarter in
1998.



                                                   THREE MONTHS ENDED MARCH 31,
=============================================================================== 
                                                      INCREASE
Operating expenses (in millions)          1999       (DECREASE)           1998
- -------------------------------------------------------------------------------
                                                                
   Sales and marketing                 $  6.5            (2%)            $ 6.6
   Product development                    6.6           (26%)              8.9
   General and administrative             3.0             0%               3.0
   Amortization of intangibles            0.5           (17%)              0.6
   Restructuring charge                   1.1            N/A                 -
                                       ------                           ------ 
   Total operating expenses            $ 17.7            (8%)           $ 19.1
                                       ------                           ------ 
                                       ------                           ------ 


Sales and marketing expenses of $6.5 million for the three months ended March
31, 1999 remained fairly level with the $6.6 million in the same period in 1998.
Sales and marketing expenses are expected to remain at approximately 12% to 13%
of total revenues for the remainder of the year.

Product development expenses of $6.6 million in the current quarter are
significantly lower than the $8.9 million in the same quarter last year. The
lower expenses are primarily the result of management's restructuring measures,
which the Company began to implement in the third quarter of 1998 (see
restructuring charge discussed below). Product development expenses are expected
to remain at approximately 12% to 14% of total revenues for the remainder of the
year.

General and administrative expenses of $3.0 million in the first quarter of 1999
were level with the comparable three months of 1998. General and administrative
expenses are expected to remain at approximately 5% to 6% of total revenues for
the remainder of the year.

Amortization of intangibles decreased slightly in the first three months of 1999
over the first three months of 1998, yet remained at 1% of total revenues.
Amortization expenses are lower in the current period because the Company wrote
off certain intangible assets as part of its restructuring measures in the third
quarter of 1998.

In the third quarter of 1998 the Company announced, and began the implementation
of, restructuring measures to reduce costs and improve operating efficiencies.
These measures resulted in a $3.9 million restructuring charge in 1998.
Additionally, in the first quarter of 1999 the Company announced the closure of
its product development facility in Saratoga, California, resulting in an
additional restructuring charge of $1.1 million. Restructuring measures involved
a workforce reduction - primarily in product development, the write-off of
certain intangible assets due to a reduction in the scope of planned technology
development, closure of some of the Company's facilities and discontinuation of
a jointly owned entity. (See Note 3 of the accompanying financial statements.)
The Company believes that its comparatively high product development spending in
the prior years has expanded the number of meter modules produced, enhanced
module functionality, and expanded network capabilities and products. As a
result of product expansion and lower bookings than had been anticipated, the
Company scaled back its product development spending to lower levels. The
Company expects that operating expenses will be reduced in 1999 because of the
restructuring measures. Although the Company has expensed all known
restructuring charges as of March 31, 1999, additional charges may be incurred
in the future if other measures to increase operating efficiencies are
identified.

INTEREST AND OTHER, NET

                                       9




                                                        THREE MONTHS ENDED MARCH 31,
==================================================================================== 
                                                            INCREASE
Other income (expense) (in millions)            1999       (DECREASE)           1998
- ------------------------------------------------------------------------------------ 
                                                                     
  Equity in affiliates loss                   $ (0.2)          38%            $ (0.1)
  Net interest income (expense)                 (1.8)          43%              (1.3)
                                              ------                          ------ 
  Total other income (expense)                $ (2.0)          43%            $ (1.4)
                                              ------                          ------ 
                                              ------                          ------ 


The Company had net interest expense of $1.8 million for the first quarter of
1999 compared to net interest expense of $1.3 million in the same period of
1998. The Company capitalized interest related to outsourcing installations of
$260,000 in the first quarter of 1998. No interest was capitalized in the 1999
period. Interest expense was higher in the 1999 period due to a higher level of
borrowing for both project financing and line of credit during the 1999 period.

INCOME TAXES

The Company had an income tax benefit of approximately 42% of pre-tax earnings
from continuing operations for the three months ended March 31, 1999 compared to
a benefit of 38% for the full year 1998. The higher comparative tax rate in 1999
primarily results from a concentration of state tax obligations and lower
expected R&D tax credits. To the extent pre-tax earnings from continuing
operations, or the components of those earnings, differ from expectations, the
effective tax rate for the year could change.


EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT

In March 1999 the Company completed its offer ("Exchange Offer") to exchange up
to $15.8 million principal amount of its 6 3/4% Convertible Subordinated Notes
due 2004 ("Exchange Notes"), for up to $22.0 million principal amount of its 
6 3/4% Convertible Subordinated Notes due 2004 ("Original Notes"). The Exchange
Offer was made on the basis of $720 principal amount of Exchange Notes for
$1,000 principal amount of Original Notes. A total of $15.8 million aggregate
principal amount of Exchange Notes was issued as of March 12, 1999, with $6,000
in cash paid in lieu of fractional interests to tendering noteholders pursuant
to the terms of the Exchange Offer. The Exchange Notes have the same terms and
conditions as the Original Notes except for a reduction in the conversion price
for converting the Exchange Notes into Common Stock to $9.65, an extension of
the date before which the Company may not call the Exchange Notes to March 12,
2002, and the removal of the redemption premium. The principal purpose of the
exchange was to reduce the Company's long-term debt and debt service obligations
by taking advantage of market discounts. The Company generated a pre-tax gain on
extinguishment of debt, net of debt issuance expenses, of $5.6 million in the
first quarter of 1999 related to the exchange. The after-tax effect of the gain
on extinguishment was $3.7 million.


                                      10


FINANCIAL CONDITION



                                                THREE MONTHS ENDED MARCH 31,
===========================================================================
                                                     INCREASE
Cash flows information (in millions)      1999      (DECREASE)       1998
- ---------------------------------------------------------------------------
                                                          
Operating activities                    $  6.1         183%        $  (7.3)
Investing activities                      (3.4)         57%           (8.0)
Financing activities                      (3.5)       (125%)          14.0
                                        ------                     -------  
Net increase (decrease) in cash         $ (0.8)        (37%)       $  (1.3)
                                        ------                     -------  
                                        ------                     -------  


Operating activities generated $6.1 million of cash in the first quarter of 1999
compared to a usage of $7.3 million in cash in the first quarter of 1998. The
$13.4 million improvement of cash flow for the first quarter of 1999 compared to
the first quarter of 1998 was primarily driven by increased collections of
accounts receivable and a reduction in the Company's unbilled receivables.
Unbilled receivables were higher in the 1998 period because of a high level of
turnkey installations, which typically have deferred billing terms. The 1998
quarter also included cash used for payment of 1997 performance incentives.

Investments totaled $3.4 million during the 1999 quarter, down from $8.0 million
in the prior year's quarter due primarily to a slowing of equipment needed for
outsourcing installations and lower capital acquisitions for internal use.
Unless the Company enters into additional outsourcing agreements, the Company
expects to spend less in 1999 on equipment used for outsourcing installations
than it did in 1998 because outsourcing installations are nearing completion.
The Company expects to spend somewhat more on capital assets for internal use
during 1999 than it did in 1998.

Financing activities used $3.5 million in the first three months of 1999
compared to generating $14.0 million during the first three months of 1998.
Financing activities in the 1999 quarter primarily consisted of paying down the
Company's bank line of credit. During the 1998 quarter the Company primarily
generated cash from financing activities by borrowing against the bank line of
credit.

Existing sources of liquidity at March 31, 1999 include approximately $1.9
million of existing cash and cash equivalents and $24 million of available
borrowings under the revolving credit facility. The Company believes that
existing cash, together with available borrowings and cash generated from
operations, will be sufficient to fund operations, exclusive of any new
outsourcing arrangements, for the remainder of 1999 and into 2000. The Company
expects to fund the majority of future outsourcing contracts with project
financing.

YEAR 2000 COMPLIANCE

In general, the "Year 2000 problem" concerns software programs that contain only
a two-digit year value (99 to 00) rather than a four-digit year value (1999 to
2000) to indicate a change from 1999 to 2000. The issue is whether computer
systems and non-information technology systems, such as embedded
micro-controllers, will properly recognize date sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. The Company instituted
a Year 2000 program in 1997 to identify potential risks and to develop solutions
to mitigate those risks. The Company believes that it will be successful in
implementing the identified solutions in a timely manner in order to mitigate
potential Year 2000 problems.

The Company has potential risks related to the Year 2000 problem in three areas:
1) suppliers, 2) internally developed software and hardware the Company sells,
and 3) internal software and hardware systems. The following discussion
addresses each of these potential risk areas.

SUPPLIERS: The Company identified its key suppliers from which it purchases the
majority of its materials and has received confirmation that approximately 90%
of such suppliers expected to be Year 2000 compliant by April 1999. The Company
is pursuing the issue with suppliers who have not yet responded.

INTERNALLY DEVELOPED SOFTWARE AND HARDWARE FOR SALE TO CUSTOMERS: The Company
has completed the process of identifying which of its products available for
sale to customers were not Year 2000 compliant. The Company began the process of
upgrading software and hardware in late 1997 and completed all major standard
applications updates by December 1998. A small number of hardware and software

                                      11


platforms will not be upgraded and all customers affected have been notified.
Alternatives, including upgrading systems, have been developed for them.
Substantially all of the customers with maintenance contracts with the Company
have had their systems upgraded.

INTERNAL SOFTWARE AND HARDWARE SYSTEMS: The Company upgraded its financial
software including general ledger, manufacturing and sales order processing to
be Year 2000 compliant during the second quarter of 1998 for domestic and
Australian operations and during the fourth quarter of 1998 for the Company's
United Kingdom operations. The Company's subsidiary in France is schedule to be
upgraded by the end of the second quarter of 1999. The Company also has a
variety of other software and hardware, including personal computer software and
software used in engineering functions, whose Year 2000 compliance is in the
process of being ensured. All internal software is expected to be compliant by
mid-1999.

The Company believes that the reasonably most likely worst-case scenario it
might confront with respect to Year 2000 issues has to do with the possible
failure of third party systems over which the Company has no control. These
systems may include, but are not limited to, power and telecommunications
services. The Company is in the process of developing contingency plans for any
unforeseen critical business systems issues arising from the Year 2000 problem.
Some problems, however, may remain uncorrected, and could materially adversely
affect the Company's business, financial condition and operating results. The
Company may also experience reduced sales of its products as potential current
customers reduce their budgets for meter-reading and data management solutions
because of increased expenditures on their own Year 2000 compliance efforts. The
Company does not anticipate that it will incur further significant operating
expenses or be required to invest heavily in computer systems improvements to be
Year 2000 compliant. Total costs for the Year 2000 issue are estimated to be
approximately $1.5 million, of which approximately $1.2 million has been spent
to date. However, as the compliance process is not yet complete, uncertainty
exists concerning total costs associated with Year 2000 compliance. Any Year
2000 compliance problem of either the Company or its collaborative partners
could have a material adverse effect on the Company's business, financial
condition and results of operations.


CERTAIN FORWARD-LOOKING STATEMENTS
  WHEN INCLUDED IN THIS DISCUSSION, THE WORDS "EXPECTS," "INTENDS,"
  "ANTICIPATES," "PLANS," "PROJECTS" AND "ESTIMATES," AND SIMILAR EXPRESSIONS
  ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS, ARE
  INHERENTLY SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES THAT COULD CAUSE
  ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH
  FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG
  OTHERS, CHANGES IN THE UTILITY REGULATORY ENVIRONMENT, DELAYS OR DIFFICULTIES
  IN INTRODUCING NEW PRODUCTS AND ACCEPTANCE OF THOSE PRODUCTS, ABILITY TO
  OBTAIN PROJECT FINANCING IN AMOUNTS NECESSARY TO FUND FUTURE OUTSOURCING
  AGREEMENTS, INCREASED COMPETITION AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE
  BEYOND THE COMPANY'S CONTROL. FOR A MORE COMPLETE DESCRIPTION OF THESE AND
  OTHER RISKS, SEE "CERTAIN RISK FACTORS" INCLUDED IN THE COMPANY'S ANNUAL
  REPORT OF FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998. THESE
  FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS REPORT. THE
  COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY
  ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT CONTAINED HEREIN TO
  REFLECT ANY CHANGE ON THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY
  CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS
  BASED.

                                      12


                            PART 2: OTHER INFORMATION

ITEM 1:  LEGAL PROCEEDINGS

On May 29, 1997, Itron and its President and Chief Executive Officer, Johnny M.
Humphreys, were served with a complaint alleging securities fraud filed by Mark
G. Epstein (EPSTEIN V ITRON, ET AL.) on his own behalf and alleged to be on
behalf of a class of all others similarly situated, in the U.S. District Court
for the Eastern District of Washington (Civil Action No. CS-97-214 RHW). The
complaint alleges, among other matters, that Itron and Mr. Humphreys violated
Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5
thereunder by making allegedly false statements regarding the development
status, performance and technological capabilities of Itron's Fixed Network AMR
system and regarding the suitability of Itron's encoder receiver transmitter
devices for use with an advanced Fixed Network AMR system. The complaint seeks
monetary damages, costs and attorneys' fees and unspecified equitable or
injunctive relief. On March 10, 1999, the Court certified this action as a class
action on behalf of all purchasers of Itron Common Stock between September 11,
1995 and October 22, 1996 except for the Defendants and persons or entities
having a relationship with the Defendants. The discovery phase of this lawsuit
is continuing and the case is set for trial on November 1, 1999. The Company
believes it has good defenses to the claims alleged and intends to defend itself
vigorously against this action.

ITEM 6:  EXHIBITS AND REPORTS ON FORM 8-K

a)   EXHIBITS

     Exhibit 27 - Financial Data Schedule

b)   REPORTS ON FORM 8-K

          A report on Form 8-K, dated January 28, 1999, was filed during the 
          quarter ended March 31, 1999, pursuant to Item 5 of that form. The 
          report related to a decision by the United States District Court 
          for the District of Minnesota granting the Company's motion on the 
          issue of validity of its Patent and granting CellNet's motion on 
          the issue of non-infringement of the patent.

          A report on Form 8-K, dated February 11, 1999, was filed during the 
          quarter ended March 31, 1999, pursuant to Item 5 of that form. The 
          report was filed in connection with the commencement of the 
          Company's exchange offer relating to its 6 3/4% Convertible 
          Subordinated Notes.

          A report on Form 8-K, dated March 18, 1999, was filed during the 
          quarter ended March 31, 1999, pursuant to Item 5 of that form. The 
          report stated that the Exchange Offer terminated on Friday, March 
          12, 1999, and that the Company accepted $22,000,000 aggregate 
          principal amount of its original its 6 3/4% Convertible 
          Subordinated Notes for exchange, and issued $15,834,000 aggregate 
          principal amount of exchange notes.

                                      13


                                    SIGNATURE


Pursuant to the requirements of the Securities Exchange Commission Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                       ITRON, INC.
                                       (Registrant)



                                       By: /s/ DAVID G. REMINGTON
                                          -------------------------------------
                                          David G. Remington
                                          Vice President and
                                          Chief Financial Officer
                                          (Authorized Officer and Principal
                                          Financial Officer)


Date: May 11, 1999




                                      14
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1,917 0 54,575 (1,488) 20,167 98,110 151,660 (58,757) 237,027 46,313 0 0 0 106,415 12,104 237,027 51,945 51,945 32,644 32,644 17,672 0 (2,020) (391) 160 (231) 0 3,660 0 3,429 .23 .22