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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
November 1, 2007
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Date of Report (Date of Earliest Event Reported)
ITRON, INC.
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(Exact Name of Registrant as Specified in its Charter)
Washington 000-22418 91-1011792
----------------------- --------------------- ---------------------
(State or Other (Commission File No.) (IRS Employer
Jurisdiction Identification No.)
of Incorporation)
2111 N. Molter Road, Liberty Lake, WA 99019
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices, Zip Code)
(509) 924-9900
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(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))
Item 2.02 Results of Operations and Financial Condition.
On November 1, 2007, Itron, Inc. issued a press release announcing the
financial results for the three months and nine months ending
September 30, 2007. A copy of this press release and accompanying
financial statements are attached as Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The following exhibit is filed as part of this report:
Exhibit
Number Description
- ---------- --------------------------------------------------------------
99.1 Press Release dated November 1, 2007.
The information presented in this Current Report on Form 8-K may contain
forward-looking statements and certain assumptions upon which such
forward-looking statements are in part based. Numerous important factors,
including those factors identified in Itron, Inc.'s Annual Report on Form 10-K
and other of the Company's filings with the Securities and Exchange Commission,
and the fact that the assumptions set forth in this Current Report on Form 8-K
could prove incorrect, could cause actual results to differ materially from
those contained in such forward-looking statements.
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: November 1, 2007 By: /s/ Steven M. Helmbrecht
------------------------------------------
Steven M. Helmbrecht
Sr. Vice President and Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description
- ---------- -------------------------------------------------------------
99.1 Press release dated November 1, 2007.
Exhibit 99.1
Itron Announces Third Quarter Results
Financial Results Include Full Quarter Operating Results for
Actaris
Consolidated Quarterly Revenue Exceeds $430 Million
Bookings in Excess of $440 Million
LIBERTY LAKE, Wash.--(BUSINESS WIRE)--Nov. 1, 2007--Itron, Inc.
(NASDAQ:ITRI), today reported financial results for its third quarter
ended September 30, 2007. Highlights include:
-- Quarterly and year-to-date revenues of $434 million and $984
million;
-- Quarterly and year-to-date non-GAAP diluted EPS of 65 cents
and $1.99 per share; and
-- Quarterly and year-to-date Adjusted EBITDA of $67 million and
$158 million.
"Our results for the quarter were about in line with our
expectations," said LeRoy Nosbaum, chairman and CEO. "We had our
highest bookings ever at $440 million and Actaris operating results
are showing the positive effect of a more geographically diverse
business model. Although we have experienced a pause in business in
the US that we thought might occur, we continue to drive revenue and
EPS growth in the short-term and believe that we are very well
positioned for the long-term."
Third Quarter Statement of Operations Highlights:
Revenues - Total revenues for the third quarter of $434 million
were $269 million, or 164%, higher than 2006 third quarter revenues of
$165 million. Itron North America (INA) revenues for the third quarter
of $153 million were about $12 million, or 7%, lower than the third
quarter of 2006. Actaris revenues of $281 million were comprised of
shipments to electric, gas and water utilities of approximately 40%,
32% and 28%, respectively.
Gross Margin - Gross margin for the third quarter of 2007 was 33%.
This compares with 41% in the third quarter of 2006. Third quarter
2007 INA gross margin of 40% was similar to the third quarter of 2006.
Actaris gross margin of 30% was comparable to the second quarter of
2007 without the effect of the inventory charge.
Operating Expenses - Total operating expenses for the third
quarter of 2007 were $116 million. INA operating expenses were $43
million, reflecting a $2 million decrease over the third quarter of
2006. INA operating expenses as a percentage of revenue were 28%,
which was similar to 2006. Actaris operating expenses of $64 million
were 23% of revenue. Corporate unallocated expenses were $8.5 million
for the quarter, or about $2.3 million higher than the third quarter
of 2006. The increase was primarily attributable to higher expenses
for internal controls for financial reporting and consulting services
for tax planning related to the Actaris acquisition. Corporate
unallocated expenses also include an impairment charge for our old
corporate headquarters building. A sale of this facility is currently
pending and is expected to close by year end.
Interest and Other Income - Net interest expense of $34 million in
the third quarter of 2007 was substantially higher than the $561,000
in the comparable period in 2006, primarily due to the placement of
$1.2 billion in senior secured bank debt for the Actaris acquisition.
Debt fee amortization expense, which is included in net interest
expense, was $9.2 million in the third quarter. Debt fee amortization
expense included $6.6 million of accelerated amortization related to
our convertible subordinated debt becoming subject to conversion. Our
convertible debt became subject to conversion during the quarter
because our stock price exceeded the conversion parameters. Other
expense of $873,000 was comprised primarily of foreign currency
revaluation of trade receivables and payables.
Income Taxes - We had a $2.7 million GAAP income tax benefit for
the third quarter of 2007. This compares with a GAAP income tax
provision of $5.9 million in the third quarter of 2006. The benefit is
due to the pre-tax GAAP loss and also includes a benefit related to
legislative reductions in tax rates in Germany and the United Kingdom
in the third quarter.
GAAP Net Income/Loss and EPS - Our GAAP net loss and fully diluted
EPS loss for the third quarter of 2007 was $3.4 million, or 11 cents
per share, compared with net income of $9.2 million, or 35 cents per
share, in the same period in 2006. The loss was primarily due to the
accelerated amortization of debt fees.
Non-GAAP Operating Income, Net Income and Diluted EPS - Non-GAAP
operating income, which excludes amortization expense related to
intangible assets, was $55 million, or 13% of revenues, in the third
quarter of 2007, compared with $24 million, or 15% of revenues, in the
third quarter of 2006. Non-GAAP net income, which also excludes
amortization of debt fees, was $21 million in 2007 compared with $15
million in the 2006 period. Non-GAAP diluted EPS, was 65 cents in the
2007 period compared with 56 cents in 2006. Fully diluted shares
outstanding in the third quarter of 2007 were approximately 6 million
higher than the same period in 2006. Non-GAAP net income and diluted
EPS are higher in the third quarter of 2007 primarily due to the
Actaris acquisition. Our non-GAAP tax rates were 27% and 38% for the
third quarter of 2007 and 2006, respectively. The lower 2007 rate is
due to lower tax rates for Actaris.
Year-To-Date Statement of Operations Highlights:
Revenues - Total revenues for the nine months ended September 30,
2007 of $984 million were $499 million or 103%, higher than 2006
nine-month revenues of $484 million. INA revenues for the first nine
months of 2007 of $453 million were approximately $31 million, or 6%,
lower than the same period in 2006.
Gross Margin - Total company gross margin for the nine months
ended September 30, 2007 was 34%. Business combination accounting
rules require the valuation of inventory on hand at the acquisition
date to equal the sales price, less costs to complete and a reasonable
profit allowance for selling effort. Accordingly, the historical cost
of inventory acquired was increased by $16 million, which lowered
gross margins by two percentage points for the nine months ended
September 30, 2007. Year-to-date 2007 INA gross margin of 41% was
slightly lower than the 42% for the first nine months of 2006
primarily due to lower production volumes for electricity meters.
Operating Expenses - Total operating expenses for the first nine
months of 2007 were $316 million and included $36 million of expense
related to in-process research and development (IPR&D). Without this
expense, operating expenses would have been $280 million, or 28% of
revenue. INA operating expenses were $135 million, reflecting a $4
million increase over the first nine months of 2006. The increase was
primarily due to increased product marketing and product development
expenses related to development of our next generation technology,
OpenWay. Corporate unallocated expenses were approximately $24 million
for the first nine months of 2007 or about $4 million higher than the
same period in 2006. The increase was primarily attributable to higher
expenses for internal controls for financial reporting and consulting
services for tax planning related to the Actaris acquisition.
Corporate unallocated also includes impairment charges of $1.6 million
for our old corporate headquarters building.
Interest and Other Income - Net interest expense of $54 million in
the first nine months of 2007 was substantially higher than the $8
million net interest expense in the comparable period in 2006. The
increased net interest expense in 2007 was due to the placement of
$1.2 billion in debt for the Actaris acquisition and the accelerated
expensing of debt fees. Other income of $6 million was primarily due
to realized gains of approximately $4 million for acquisition-related
foreign exchange transactions and other foreign currency exchange
gains.
Income Taxes - We had a $13 million GAAP income tax benefit for
the first nine months of 2007. This compares with a GAAP income tax
provision of $17 million in the first nine months of 2006. The benefit
is due to the pre-tax GAAP loss and a benefit related to legislative
reductions in tax rates in Germany and the United Kingdom.
GAAP Net Income/Loss and Diluted EPS - Our GAAP net loss and fully
diluted EPS loss for the first nine months of 2007 was $20 million, or
69 cents per share, compared with net income of $26 million, or $1.01
per share in the first nine months of 2006. The loss was primarily due
to acquisition-related charges for IPR&D and inventory and the
accelerated expensing of debt fees.
Non-GAAP Operating Income, Net Income and EPS - Non-GAAP operating
income, which excludes amortization expense related to intangibles
assets, and excludes acquisition related charges for IPR&D and
inventory was $125 million, or 13% of revenues, in the first nine
months of 2007, compared with $76 million or 16% of revenues, in the
same period in 2006. Non-GAAP net income and diluted EPS, which also
excludes amortization of debt fees was $61 million or $1.99 per share
in 2007 compared with $43 million and $1.64 per share in the 2006
period. Non-GAAP net income and diluted EPS are higher in 2007
primarily due to the Actaris acquisition. Fully diluted shares
outstanding for the first nine months of 2007 were approximately 4
million higher than the same period in 2006.
Other Financial Highlights:
New Order Bookings and Backlog - New order bookings for the third
quarter were $440 million, compared with $128 million in the third
quarter of 2006. Our third quarter 2007 book-to-bill ratio was 1.05 to
1. Total backlog was $668 million at September 30, 2007 compared to
$325 million at September 30, 2006. Twelve month backlog of $494
million at September 30, 2007 was higher than twelve month backlog at
September 30, 2006 of $194 million, but also higher than twelve month
backlog at June 30, 2007 of $491 million. The increased bookings and
backlog amount in 2007 are primarily due to the Actaris acquisition.
Cash Flows from Operations - Net cash provided by operating
activities was $90 million for the first nine months of 2007, compared
with $87 million in the same period in 2006. Adjusted earnings before
interest, taxes, depreciation and amortization (Adjusted EBITDA) in
the third quarter of 2007, was $67 million compared with $28 million
for the same period in 2006. Adjusted EBITDA for the first nine months
of 2007 was $158 million, or more than $72 million higher than the
first nine months of 2006, primarily due to the acquisition of
Actaris.
Forward Looking Statements:
This release contains forward-looking statements concerning our
expectations about operations, financial performance, sales, earnings
and cash flows. These statements reflect our current plans and
expectations and are based on information currently available. They
rely on a number of assumptions and estimates, which could be
inaccurate, and which are subject to risks and uncertainties that
could cause our actual results to vary materially from those
anticipated. Risks and uncertainties include the rate and timing of
customer demand for our products, rescheduling of current customer
orders, changes in estimated liabilities for product warranties,
changes in laws and regulations, our dependence on new product
development and intellectual property, future acquisitions, changes in
estimates for stock based compensation, changes in foreign exchange
rates, foreign business risks and other factors which are more fully
described in our Annual Report on Form 10-K for the year ended
December 31, 2006 and other reports on file with the Securities and
Exchange Commission. Itron undertakes no obligation to update publicly
or revise any forward-looking statements, including our business
outlook.
Business Outlook:
The outlook information provided below and elsewhere in this
release is based on information available today. Itron assumes no
obligation to publicly update or revise our business outlook. Our
future performance involves risks and uncertainties.
For the full year 2007, we expect
-- Revenues between $1.425 billion and $1.435 billion;
-- Diluted non-GAAP EPS of between $2.65 and $2.75; and
-- Adjusted EBITDA in excess of $220 million.
Non-GAAP Financial Information:
To supplement our consolidated financial statements presented in
accordance with GAAP, we use certain non-GAAP financial measures,
including non-GAAP operating income, non-GAAP net income and diluted
EPS and Adjusted EBITDA. We provide these non-GAAP financial measures
because we believe they provide greater transparency and represent
supplemental information used by management in its financial and
operational decision making. Specifically, these non-GAAP financial
measures are provided to enhance investors' overall understanding of
our current financial performance and our future anticipated
performance by excluding infrequent costs associated with
acquisitions. We exclude these expenses in our non-GAAP financial
measures as we believe that they are a measure of our core business
that is not subject to the variations of expenses associated with
these infrequently occurring items. Non-GAAP performance measures
should be considered in addition to, and not as a substitute for,
results prepared in accordance with GAAP. Finally, our non-GAAP
financial measures may be different from those reported by other
companies. A more detailed discussion of why we use non-GAAP financial
measures, the limitations of using such measures and reconciliations
between non-GAAP and the nearest GAAP financial measures are included
in this press release.
Earnings Conference Call:
Itron will host a conference call to discuss the financial results
contained in this release at 2:00 p.m. (PDT) on November 1, 2007. The
call will be webcast in a listen only mode and can be accessed online
at www.itron.com, Investors, Presentations. The live webcast will
begin at 2:00 p.m. (PDT). The webcast replay will begin after the
conclusion of the live call and will be available for two weeks. A
telephone replay of the call will also be available approximately one
hour after the conclusion of the live call, for 48 hours, and is
accessible by dialing 888-203-1112 (Domestic) or 719-457-0820
(International), entering passcode # 4780106.
About Itron:
Itron is a leading technology provider and critical source of
knowledge to the global energy and water industries. Itron operates in
two divisions; as Itron in North America and as Actaris outside of
North America. Our company is the world's leading provider of
metering, data collection and software solutions, with nearly 8,000
utilities worldwide relying on our technology to optimize the delivery
and use of energy and water. Itron delivers industry leading solutions
for electricity, gas and water utilities by offering meters; data
collection and communication systems, including automated meter
reading (AMR) and advanced metering infrastructure (AMI); meter data
management and utility software applications; as well as comprehensive
project management, installation and consulting services. To know
more, start here: www.itron.com.
Statements of operations, segment information, balance sheets,
cash flow statements and reconciliations of non-GAAP financial
measures to the most directly comparable financial measures follow.
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Revenues $434,034 $164,706 $983,504 $484,069
Cost of revenues 289,224 97,281 652,655 280,838
--------- --------- --------- ---------
Gross profit 144,810 67,425 330,849 203,231
Operating expenses
Sales and marketing 35,677 15,176 84,990 46,978
Product development 26,495 15,626 67,837 43,416
General and administrative 27,503 12,463 69,134 37,104
Amortization of intangible
assets 25,864 8,284 58,127 23,209
In-process research and
development 269 - 35,820 -
--------- --------- --------- ---------
Total operating expenses 115,808 51,549 315,908 150,707
--------- --------- --------- ---------
Operating income 29,002 15,876 14,941 52,524
Other income (expense)
Interest income 585 3,467 8,890 4,189
Interest expense (34,852) (4,028) (63,276) (12,359)
Other income (expense), net (873) (187) 6,068 (876)
--------- --------- --------- ---------
Total other income
(expense) (35,140) (748) (48,318) (9,046)
--------- --------- --------- ---------
Income (loss) before income
taxes (6,138) 15,128 (33,377) 43,478
Income tax benefit
(provision) 2,692 (5,913) 13,231 (16,990)
--------- --------- --------- ---------
Net income (loss) $ (3,446) $ 9,215 $(20,146) $ 26,488
--------- --------- --------- ---------
Earnings (loss) per share
Basic $ (0.11) $ 0.36 $ (0.69) $ 1.05
--------- --------- --------- ---------
Diluted $ (0.11) $ 0.35 $ (0.69) $ 1.01
--------- --------- --------- ---------
Weighted average number of shares
outstanding
Basic 30,415 25,552 29,239 25,343
Diluted 30,415 26,336 29,239 26,251
ITRON, INC.
SEGMENT INFORMATION
(Unaudited, in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Revenues
Itron North America $153,170 $164,706 $452,993 $484,069
Actaris 280,864 - 530,511 -
--------- --------- --------- ---------
Total Company $434,034 $164,706 $983,504 $484,069
--------- --------- --------- ---------
Gross profit
Itron North America $ 61,533 $ 67,425 $186,224 $203,231
Actaris 83,277 - 144,625 -
--------- --------- --------- ---------
Total Company $144,810 $ 67,425 $330,849 $203,231
--------- --------- --------- ---------
Operating income (loss)
Itron North America $ 18,157 $ 21,990 $ 51,053 $ 72,084
Actaris 19,296 - (12,354) -
Corporate unallocated (8,451) (6,114) (23,758) (19,560)
--------- --------- --------- ---------
Total Company $ 29,002 $ 15,876 $ 14,941 $ 52,524
--------- --------- --------- ---------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Unit Shipments (units in thousands)
Total meters (with and
without AMR)
Electricity 2,625 1,575 6,225 5,175
Gas 900 - 1,675 -
Water 1,775 - 3,625 -
--------- --------- --------- ---------
Total meters 5,300 1,575 11,525 5,175
AMR units (Itron and
Actaris)
Meters with AMR 850 850 2,250 3,325
AMR modules 1,150 1,275 3,500 3,525
--------- --------- --------- ---------
Total AMR units 2,000 2,125 5,750 6,850
Meters with other vendors'
AMR 225 325 650 700
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
September December
30, 31,
2007 2006
---------- --------
ASSETS
Current assets
Cash and cash equivalents $ 85,135 $361,405
Short-term investments, held to maturity - 34,583
Accounts receivable, net 320,973 109,924
Inventories 185,752 52,496
Deferred income taxes, net 27,291 20,916
Other 47,303 17,121
---------- --------
Total current assets 666,454 596,445
Property, plant and equipment, net 317,626 88,689
Intangible assets, net 703,961 112,682
Goodwill 1,218,378 126,266
Prepaid debt fees 23,026 13,161
Deferred income taxes, net 96,366 47,400
Other 16,832 3,879
---------- --------
Total assets $3,042,643 $988,522
---------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade payables $ 204,918 $ 35,803
Accrued expenses 47,103 6,402
Wages and benefits payable 63,912 24,214
Taxes payable 19,119 1,717
Current portion of long-term debt 356,798 -
Current portion of warranty 17,687 7,999
Unearned revenue 19,410 27,449
---------- --------
Total current liabilities 728,947 103,584
Long-term debt 1,255,376 469,324
Warranty 18,438 10,149
Pension plan benefits 65,538 -
Deferred income taxes, net 210,772 -
Other obligations 66,071 14,483
---------- --------
Total liabilities 2,345,142 597,540
Commitments and contingencies
Shareholders' equity
Preferred stock - -
Common stock 605,182 351,018
Accumulated other comprehensive income, net 74,089 1,588
Retained earnings 18,230 38,376
---------- --------
Total shareholders' equity 697,501 390,982
---------- --------
Total liabilities and shareholders' equity $3,042,643 $988,522
---------- --------
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
September 30,
-----------------------
2007 2006
------------ ----------
Operating activities
Net income (loss) $ (20,146) $ 26,488
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 85,329 34,266
In-process research and development 35,820 -
Employee stock plans income tax benefits 2,020 12,686
Excess tax benefits from stock-based
compensation - (9,108)
Stock-based compensation 8,998 6,811
Amortization of prepaid debt fees 12,034 3,766
Deferred income taxes, net (47,418) 2,784
Other, net (944) (1,208)
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (15,231) 9,416
Inventories 2,801 (8,549)
Trade payables, accrued expenses and taxes
payable 24,199 3,622
Wages and benefits payable (6,510) 1,088
Unearned revenue (8,390) 5,758
Warranty 764 3,328
Other long-term obligations 6,022 (237)
Effect of foreign exchange rate changes 11,307 -
Other, net (1,001) (3,923)
------------ ----------
Net cash provided by operating activities 89,654 86,988
Investing activities
Proceeds from the maturities of investments,
held to maturity 35,000 -
Purchases of investments, held to maturity - (170,434)
Acquisitions of property, plant and equipment (30,173) (25,878)
Business acquisitions, net of cash and cash
equivalents acquired (1,716,138) (7,321)
Other, net 53 1,507
------------ ----------
Net cash used in investing activities (1,711,258) (202,126)
Financing activities
Proceeds from borrowings 1,159,027 345,000
Payments on debt (37,278) (42,703)
Issuance of common stock 243,146 13,375
Excess tax benefits from stock-based
compensation - 9,108
Prepaid debt fees (22,009) (8,759)
------------ ----------
Net cash provided by financing activities 1,342,886 316,021
Effect of exchange rate changes on cash and
cash equivalents 2,448 -
Increase (decrease) in cash and cash
equivalents (276,270) 200,883
Cash and cash equivalents at beginning of
period 361,405 33,638
------------ ----------
Cash and cash equivalents at end of period $ 85,135 $ 234,521
------------ ----------
Itron, Inc.
About Non-GAAP Financial Measures
The accompanying press release dated November 1, 2007 contains
non-GAAP financial measures. To supplement our consolidated financial
statements, which are prepared and presented in accordance with GAAP,
we use certain non-GAAP financial measures, including non-GAAP
operating income, non-GAAP net income and EPS and Adjusted EBITDA. The
presentation of this financial information is not intended to be
considered in isolation or as a substitute for, or superior to, the
financial information prepared and presented in accordance with GAAP.
For more information on these non-GAAP financial measures please see
the table captioned "Reconciliations of Non-GAAP Financial Measures to
Most Directly Comparable GAAP Financial Measures" information
following.
We use these non-GAAP financial measures for financial and
operational decision making and as a means for determining executive
compensation. Management believes that these non-GAAP financial
measures provide meaningful supplemental information regarding our
performance and ability to service debt by excluding certain expenses
that may not be indicative of our recurring core operating results.
Our executive compensation plans exclude non-cash charges related to
amortization of intangibles and non-recurring discrete cash and
non-cash charges that are infrequent in nature such as in-process
research and development or purchase accounting adjustments. We
believe that both management and investors benefit from referring to
these non-GAAP financial measures in assessing our performance and
when planning, forecasting and analyzing future periods. These
non-GAAP financial measures also facilitate management's internal
comparisons to our historical performance and ability to service debt
as well as comparisons to our competitor's operating results. We
believe these non-GAAP financial measures are useful to investors
because they allow for greater transparency with respect to key
metrics used by management in its financial and operational decision
making and because they are used by our institutional investors and
the analyst community to help them analyze the health of our business.
Non-GAAP operating income - We define non-GAAP operating income as
operating income minus amortization of intangible expenses, business
combination accounting for inventory revaluation and IPR&D. We
consider this non-GAAP financial measure to be a useful metric for
management and investors because it excludes the effects of expenses
that are related to current and previous acquisitions. By excluding
these expenses we believe that it is easier for management and
investors to compare our financial results over multiple periods. We
believe that excluding amortization of intangible assets enables
management and investors to analyze trends in our operations. For
example, expenses related to amortization of intangible assets were
decreasing prior to the Actaris acquisition, which was improving GAAP
operating margins, yet the improvement in GAAP operating margins due
to this lower expense was not reflective of an improvement in our core
business. Additionally we exclude the effects of inventory revaluation
and IPR&D to provide investors gross and operating margins for the
business that are not impacted by purchase accounting adjustments.
There are some limitations related to the use of non-GAAP operating
income versus operating income calculated in accordance with GAAP.
Non-GAAP operating income excludes some costs that are recurring.
Additionally, the expenses that we exclude in our calculation of
non-GAAP operating income may differ from the expenses that our peer
companies exclude when they report the results of their operations. We
compensate for these limitations by providing specific information
about the GAAP amounts we have excluded from our non-GAAP operating
income and evaluating non-GAAP operating income together with GAAP
operating income.
Non-GAAP net income and non-GAAP EPS - We define non-GAAP net
income as net income minus the expenses associated with amortization
of intangible assets and amortization of debt fees, expenses related
to business combination accounting for inventory revaluation and
expenses for IPR&D as well as the tax effects of each item. We define
non-GAAP EPS as non-GAAP net income divided by the weighted average
shares, on a fully diluted basis, outstanding as of the end of each
period. We consider these financial measures to be a useful metric for
management and investors for the same reasons that we use non-GAAP
operating income. The same limitations described above regarding our
use of non-GAAP operating income apply to our use of non-GAAP net
income and non-GAAP EPS. We compensate for these limitations by
providing specific information regarding the GAAP amounts excluded
from non-GAAP net income and non-GAAP EPS and evaluating non-GAAP net
income and non-GAAP EPS together with GAAP net income and EPS.
Adjusted EBITDA - We define Adjusted EBITDA as net income minus
interest income, plus interest expense, tax expense and depreciation
and amortization expenses plus non-cash expenses for business
combination accounting for inventory revaluation and IPR&D. We feel
that providing this financial measure is important for management and
investors to understand our ability to service our debt and is a
measure of the cash generated by our core business. Management uses
Adjusted EBITDA as a performance measure for executive compensation. A
limitation to using Adjusted EBITDA is that it does not represent the
total increase or decrease in the cash balance for the period and the
measure includes some non-cash items and excludes other non-cash
items. Additionally, the expenses that we exclude in our calculation
of Adjusted EBITDA may differ from the expenses that our peer
companies exclude when they report the results. Management compensates
for this limitation by providing a reconciliation of this measure to
GAAP net income.
The accompanying tables have more detail on the GAAP financial
measures that are most directly comparable to the non-GAAP financial
measures and the related reconciliations between these financial
measures.
ITRON, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES
(Unaudited, in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2007 2006 2007 2006
--------- -------- --------- ---------
Non-GAAP operating income:
GAAP operating income $ 29,002 $15,876 $ 14,941 $ 52,524
Amortization of intangible
assets 25,864 8,284 58,127 23,209
In-process research and
development 269 - 35,820 -
Purchase accounting
adjustment - inventory - - 16,023 -
--------- -------- --------- ---------
Non-GAAP operating income $ 55,135 $24,160 $124,911 $ 75,733
--------- -------- --------- ---------
Non-GAAP net income:
GAAP net income (loss) $ (3,446) $ 9,215 $(20,146) $ 26,488
Amortization of intangible
assets 25,864 8,284 58,127 23,209
Amortization of debt
placement fees 9,144 597 11,850 3,633
In-process research and
development 269 - 35,820 -
Purchase accounting
adjustment - inventory - - 16,023 -
Income tax effect of non-GAAP
adjustments (10,677) (3,284) (40,852) (10,259)
--------- -------- --------- ---------
Non-GAAP net income $ 21,154 $14,812 $ 60,822 $ 43,071
--------- -------- --------- ---------
--------- -------- --------- ---------
Non-GAAP diluted EPS $ 0.65 $ 0.56 $ 1.99 $ 1.64
--------- -------- --------- ---------
Weighted average number of
shares outstanding - Diluted 32,374 26,336 30,545 26,251
--------- -------- --------- ---------
Adjusted EBITDA:
GAAP net income (loss) $ (3,446) $ 9,215 $(20,146) $ 26,488
Interest income (585) (3,467) (8,890) (4,189)
Interest expense 34,852 4,028 63,276 12,359
Income tax (benefit)
provision (2,692) 5,913 (13,231) 16,990
Depreciation and amortization 38,173 11,975 85,329 34,266
In-process research and
development 269 - 35,820 -
Purchase accounting
adjustment - inventory - - 16,023 -
--------- -------- --------- ---------
Adjusted EBITDA $ 66,571 $27,664 $158,181 $ 85,914
--------- -------- --------- ---------
CONTACT: Itron, Inc.
Vice President, Investor Relations and
Corporate Communications
Deloris Duquette, 509-891-3523
deloris.duquette@itron.com