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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
February 5, 2004
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(Date of Report)
ITRON, INC.
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(Exact Name of Registrant as Specified in Charter)
Washington 000-22418 91-1011792
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(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
2818 N. Sullivan Road, Spokane, WA 99216
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(Address of Principal Executive Offices, including Zip Code)
(509) 924-9900
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(Registrant's Telephone Number, Including Area Code)
None
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(Former Name or Former Address, if Changed Since Last Report)
Item 7. Financial Statements and Exhibits. The following item is attached
as an exhibit hereto:
(c) Exhibits.
Exhibit No. 99.1 Press Release dated February 5, 2004
Item 12. Results of Operations and Financial Condition.
On February 5, 2004, Itron, Inc. issued a press release announcing
the financial results for the quarter and year ending December 31, 2003. A copy
of this press release and accompanying financial statements are attached as
Exhibit 99.1.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
ITRON, INC.
Dated: February 5, 2004 By: /s/ DAVID G. REMINGTON
----------------------
David G. Remington
Vice President and Chief Financial Officer
Exhibit 99.1
Itron Reports Q4 2003 and Full Year 2003 Results
SPOKANE, Wash.--(BUSINESS WIRE)--Feb. 5, 2004--Itron, Inc.
(Nasdaq:ITRI), today reported its financial results for the quarter
and full year ended December 31, 2003.
Fourth quarter revenues were $80 million, 3% higher than fourth
quarter 2002 revenues. Full year 2003 revenues were $317 million, up
11% over 2002.
-- AMR unit shipments increased 10% to 4.1 million in 2003. Gas
unit shipments increased 26% and water unit shipments
increased 44%, offset by a 12% decrease in electric unit
shipments. Several large electric customers delayed AMR orders
in 2003 as a result of ice storms, the electrical power
blackout in the eastern U.S., a hurricane and other
utility-specific delays in capital spending.
-- Most of the fourth quarter revenue growth and approximately
half of the year-over-year revenue growth came from
acquisitions.
-- Remaining 2003 revenue growth was driven by higher automatic
meter reading (AMR) hardware revenues offset by lower revenues
for installations related to meter reading systems.
On a GAAP basis, the company reported a loss of $1.6 million, or 8
cents per share for the fourth quarter, compared with a loss of
$640,000, or 3 cents per share in the fourth quarter of 2002. Full
year GAAP net income was $10.5 million, or 48 cents per diluted share
in 2003, compared with $8.7 million, or 41 cents per diluted share in
2002.
Fourth quarter and full year 2003 earnings were impacted by a
number of unusual items that netted to approximately $9.5 million in
pre-tax expenses, or approximately 26 cents per share pro forma
after-tax. The fourth quarter items include the following:
-- $8.6 million in increases to previous warranty estimates for
higher than expected electric meter module product failures
resulting from a defective component provided by a supplier.
-- $2.2 million of costs in excess of revenues on an AMR
installation contract with one large utility, resulting from
considerably lower than expected productivity of third-party
contractors.
-- $2.4 million associated with the impairments of minority
investments in two companies.
-- The above charges were partially offset by a reversal of
approximately $3.7 million in previously accrued management
bonus and employee profit sharing for 2003.
The net impact of these items exceeds the Company's previous
guidance issued in January of $5.5 million pre-tax, primarily due to
increases in estimated field labor charges to replace the failed
electric meter modules.
Pro forma net income for the fourth quarter of 2003 was $138,000,
or 1 cent per diluted share, compared with $6.5 million, or 30 cents
per diluted share, in the fourth quarter of 2002. Full year 2003 pro
forma net income was $18.9 million, compared with $24.0 million in
2002. Pro forma diluted earnings per share for the full year were 87
cents in 2003 compared with $1.12 in 2002. A schedule reconciling GAAP
basis income to pro forma income is attached to this release.
"While we managed to produce double digit revenue growth in a
difficult economic year for utilities, we are far from satisfied with
our results," commented LeRoy Nosbaum, Itron's chairman and CEO. "The
emergence of a major problem with a product component supplier late in
the year caused us to fall significantly short of our earnings
expectations. While very disappointing, the problem encountered is
highly unusual."
Gross margin was 34.8% for the fourth quarter of 2003, while full
year gross margin for 2003 was 45.3%. In comparison, gross margin was
47.6% in the fourth quarter of 2002, and 46.4% for the full year 2002.
Gross margin benefited in 2003 from higher manufacturing volumes,
lower component prices and changes in product mix. However, those
benefits were offset by the higher warranty estimates and installation
costs mentioned earlier in the release. The higher warranty and
installation costs, net of the $1.0 million in bonus reversal related
to cost of sales, had the effect of decreasing gross margin by 12.3%
and 3.1% for the fourth quarter and full year 2003.
Sales and marketing, product development and general and
administrative expenses were $25.2 million in the fourth quarter of
2003 compared with $26.5 million in 2002. Included in the fourth
quarter 2003 amount is $2.7 million of the $3.7 million bonus and
profit sharing reversal. For the full year in 2003 these expenses were
$108.6 million compared with $94.0 million in 2002, with the higher
spending in 2003 resulting primarily from acquisitions.
Operating cash flow was a negative $6.0 million for the quarter
compared with a positive cash generation of $16.4 million in the
fourth quarter of 2002. Operating cash flow in the fourth quarter of
2003 was negatively impacted by a $7.9 million payment to settle a
patent infringement suit the majority of which had been accrued in
2002. Full year operating cash flow was $10.3 million compared to
$49.2 million in 2002. In addition to the patent litigation payment,
full year 2003 operating cash flow was reduced by a $4 million payment
to a customer in connection with an amendment to a long-term warranty
and maintenance agreement. Also driving lower operating cash flow in
2003 were payments of bonus and profit sharing accrued in 2002 and a
large increase in accounts receivable at the end of 2003 as almost
half of fourth quarter 2003 sales occurred in December.
New order bookings were $45 million for the quarter and $214
million for the full year 2003, compared with $61 million and $231
million for the fourth quarter and full year 2002. Total backlog at
December 31, 2003 was $145 million, compared with $197 million at the
end of last year. Twelve-month backlog at December 31, 2003 was $62
million, down from $100 million at the end of last year, but down only
$7 million from the end of the prior quarter.
Backlog at the end of 2003 is lower primarily as a result of fewer
bookings in 2003 in our electric market due to large order push outs
from several utilities. In early January 2004, we received a large
order from one electric utility worth approximately $21 million. New
order bookings in our gas market were relatively flat in 2003. Water
and public power market new order bookings increased 18%, and
international market new order bookings were up almost 60%. Sales
through meter manufacturers and business associates, which often book
and ship within a quarter and are generally not included in
quarter-end backlog, grew 45% in 2003 and were approximately 19% of
2003 revenues, compared with 15% of revenues in 2002.
SEM Acquisition Update:
In July 2003, we announced an agreement to acquire Schlumberger
Electricity Metering, Inc. ("SEM") for a purchase price of $255
million. Both Itron and Schlumberger have certified to the FTC that we
are in substantial compliance with the FTC's second request for
information in connection with our filing under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 ("HSR"). We anticipate a
transaction close around the end of the first quarter of 2004.
Business Outlook:
The following statements are based on management's current
expectations. These statements are forward-looking and are made as of
the date of this press release. Actual results may differ materially
due to a number of risks and uncertainties. Itron undertakes no
obligation to update publicly or revise any forward-looking
statements.
For 2004, excluding the acquisition of SEM, the Company's outlook
is for revenue growth of 8% to 10% and pro forma EPS in the range of
$1.25 to $1.30. The SEM acquisition is expected to be accretive to
2004 revenues and earnings.
"The first quarter of 2004 will be challenging as the electric
utility order delays from Q4 03 will affect us in Q1 04 as well," said
Nosbaum. "We have recently taken some actions to eliminate
unprofitable activities and reduce manpower in some areas. We expect
order activity to begin to rebound in the second quarter."
Use of Pro Forma Financial Information:
To supplement our consolidated financial statements presented in
accordance with GAAP, we use pro forma measures of operating results,
net income and earnings per share. Pro forma results are adjusted from
GAAP-based results to exclude certain costs, expenses and expense
reversals that we believe are not indicative of our core operating
results. Pro forma results are one of the primary indicators
management uses for evaluating historical results and for planning and
forecasting future periods. We believe the pro forma results provide
useful information to investors in terms of enhancing their overall
understanding of our current financial performance as well as our
future prospects. We have historically provided pro forma results and
believe the inclusion of them provides investors with consistency in
our financial reporting. Pro forma results should be viewed in
addition to, and not in lieu of, GAAP results.
Earnings Conference Call:
Itron will host a conference call to discuss the financial results
for the quarter at 1:45 p.m. Pacific Time on February 5, 2004. The
call will be webcast live in a listen only mode, and later archived.
The call will be hosted by CCBN. The webcast will be accessible online
at www.itron.com, "About Itron - Investor Events." Investors may also
listen to the call through CCBN's investor centers at
www.companyboardroom.com or www.streetevents.com. The live webcast
will begin at 1:45 p.m. (PT) and webcast replays will begin shortly
after the conclusion of the call and will be available for
approximately 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 800-428-6051
(Domestic) or 973-709-2089 (International), and entering passcode
#329306.
About Itron:
Itron is a leading technology provider and critical source of
knowledge to the global energy and water industries. More than 2,800
utilities worldwide rely on Itron technology to deliver the knowledge
they require to optimize the delivery and use of energy and water.
Itron delivers value to its clients by providing industry-leading
solutions for meter data collection, energy information management,
demand side management and response, load forecasting, analysis and
consulting services, transmission and distribution system design and
optimization, Web-based workforce automation, commercial and
industrial customer care and residential energy management.
Forward Looking Statements:
This release contains forward-looking statements concerning
Itron's operations, economic performance, sales, earnings growth and
cost reduction programs. 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 1) FTC clearance and the
timing of the SEM acquisition, including completion of, or
satisfactory credit arrangements for, that acquisition, 2) the rate
and timing of customer demand for the Company's products, 3)
rescheduling of current customer orders, 4) changes in estimated
liabilities for product warranties 5) changes in law and regulation
(including FCC licensing actions), 6) and other factors which are more
fully described in our Annual Report on Form 10-K for the year ended
December 31, 2002 and 2003 Form 10-Qs on file with the Securities and
Exchange Commission. Itron undertakes no obligation to update publicly
or revise any forward-looking statements.
Statements of operations, reconciliation between reported and pro
forma income and EPS, balance sheets and segment information follow.
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands,
except per share data) Three Months Ended Twelve Months Ended
December 31, December 31,
Revenues 2003 2002 2003 2002
------- ------- -------- --------
Sales $69,253 $66,711 $273,783 $241,158
Service 10,724 10,560 43,182 43,684
------- ------- -------- --------
Total revenues 79,977 77,271 316,965 284,842
------- ------- -------- --------
Cost of revenues
Sales 38,640 33,707 135,940 122,189
Service 13,527 6,782 37,471 30,384
------- ------- -------- --------
Total cost of revenues 52,167 40,489 173,411 152,573
------- ------- -------- --------
Gross profit 27,810 36,782 143,554 132,269
Operating expenses
Sales and marketing 8,976 8,592 36,673 30,603
Product development 10,122 8,922 43,017 36,780
General and administrative 6,058 8,956 28,944 26,653
Amortization of intangibles 2,574 804 9,618 2,356
Restructurings - 3,135 2,208 3,135
In-process research and
development - - 900 7,200
Litigation accrual - 7,400 500 7,400
------- ------- -------- --------
Total operating expenses 27,730 37,809 121,860 114,127
------- ------- -------- --------
Operating income (loss) 80 (1,027) 21,694 18,142
Other income (expense)
Equity in affiliates (82) 29 80 126
Interest income (106) 183 159 1,187
Interest expense (421) 191 (2,638) (2,061)
Other income (expense), net (1,818) 246 (1,396) 1,465
------- ------- -------- --------
Total other income (expense) (2,427) 649 (3,795) 717
------- ------- -------- --------
Income (loss) before income
taxes (2,347) (378) 17,899 18,859
Income tax benefit (provision) 708 (262) (7,421) (10,176)
------- ------- -------- --------
Net income (loss) $(1,639) $ (640) $ 10,478 $ 8,683
------- ------- -------- --------
Earnings per share
Basic net income (loss) per
share $ (0.08) $ (0.03) $ 0.51 $ 0.45
------- ------- -------- --------
Diluted net income (loss) per
share $ (0.08) $ (0.03) $ 0.48 $ 0.41
------- ------- -------- --------
Weighted average number of
shares outstanding
Basic 20,556 20,177 20,413 19,262
Diluted 20,556 20,177 21,740 21,380
ITRON, INC.
RECONCILIATION BETWEEN GAAP AND PRO FORMA INCOME AND EPS
(Unaudited, in thousands,
except per share data) Three Months Ended Twelve Months Ended
December 31, December 31,
PRO FORMA NET INCOME 2003 2002 2003 2002
------- ------- -------- --------
GAAP basis income (loss) before
income taxes $(2,347) $ (378) $ 17,899 $ 18,859
Adjustments to net income (loss)
Amortization of intangibles 2,574 804 9,618 2,356
Restructurings - 3,135 2,208 3,135
In-process research and
development - - 900 7,200
Litigation accrual - 7,400 500 7,400
------- ------- -------- --------
Total adjustments 2,574 11,339 13,226 20,091
Adjusted income before income
taxes 227 10,961 31,125 38,950
Income tax provision (89) (4,461) (12,213) (14,957)
------- ------- -------- --------
Pro forma net income $ 138 $ 6,500 $ 18,912 $ 23,993
------- ------- -------- --------
PRO FORMA EARNINGS PER SHARE
Basic
Weighted average number of basic
shares outstanding 20,556 20,177 20,413 19,262
.
Basic pro forma net income per
share $ 0.01 $ 0.32 $ 0.93 $ 1.25
------- ------- -------- --------
Diluted
Weighted average number of basic
shares outstanding 20,556 20,177 20,413 19,262
Employee stock option shares 1,304 1,560 1,327 1,690
Convertible debt shares - - - 1,042
------- ------- -------- --------
Weighted average number of
diluted shares outstanding 21,860 21,737 21,740 21,994
Pro forma net income $ 138 $ 6,500 $ 18,912 $ 23,993
Interest on convertible debt,
net of taxes - - - 641
------- ------- -------- --------
Adjusted pro forma net income $ 138 $ 6,500 $ 18,912 $ 24,634
------- ------- -------- --------
Diluted pro forma net income per
share $ 0.01 $ 0.30 $ 0.87 $ 1.12
------- ------- -------- --------
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands) December 31, December 31,
2003 2002
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ASSETS
Current assets
Cash and cash equivalents $ 6,240 $ 32,564
Accounts receivable, net 70,782 57,571
Inventories 16,037 15,660
Deferred income taxes 11,673 5,927
Other 4,557 2,770
----------- ------------
Total current assets 109,289 114,492
Property, plant and equipment, net 32,414 30,168
Equipment used in outsourcing, net 10,404 11,589
Intangible assets, net 22,979 18,305
Goodwill 90,385 44,187
Deferred income taxes, net 31,755 24,050
Other 6,263 4,455
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Total assets $ 303,489 $ 247,246
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 40,175 $ 25,526
Wages and benefits payable 10,711 18,259
Accrued litigation - 7,400
Short-term borrowings 10,000 -
Current portion of debt 17,412 691
Unearned revenue 12,004 11,580
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Total current liabilities 90,302 63,456
Long-term debt 20,833 -
Project financing debt 4,024 4,762
Warranty and other obligations 11,086 17,427
----------- ------------
Total liabilities 126,245 85,645
Shareholders' equity
Common stock 200,567 195,546
Preferred stock - -
Accumulated other comprehensive loss (136) (280)
Accumulated deficit (23,187) (33,665)
----------- ------------
Total shareholders' equity 177,244 161,601
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Total liabilities and shareholders'
equity $ 303,489 $ 247,246
----------- ------------
ITRON, INC.
SEGMENT INFORMATION
(Unaudited, in thousands) Three Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
-------- -------- -------- --------
Revenues
Electric $ 35,615 $ 36,496 $150,557 $136,782
Natural Gas 14,061 12,433 56,036 50,353
Water and Public Power 23,688 23,722 93,609 84,069
International 5,440 4,620 14,369 13,638
End User Solutions 1,173 - 2,394 -
-------- -------- -------- --------
Total revenues $ 79,977 $ 77,271 $316,965 $284,842
-------- -------- -------- --------
Gross profit
Electric $ 6,535 $ 16,608 $ 61,755 $ 62,968
Natural Gas 8,855 7,165 34,029 28,818
Water and Public Power 7,885 10,481 37,659 35,771
International 1,946 1,403 3,854 5,094
End User Solutions 784 - 1,161 -
Corporate 1,805 1,125 5,096 (382)
-------- -------- -------- --------
Total gross profit $ 27,810 $ 36,782 $143,554 $132,269
-------- -------- -------- --------
Operating income (loss)
Electric $ 3,533 $ 14,247 $ 50,212 $ 54,698
Natural Gas 8,115 6,422 30,952 26,283
Water and Public Power 6,375 9,075 31,816 31,228
International 266 (3,518) (2,508) (5,242)
End User Solutions 216 - (752) -
Corporate (18,425) (27,253) (88,026) (88,825)
-------- -------- -------- --------
Total operating income
(loss) $ 80 $ (1,027) $ 21,694 $ 18,142
-------- -------- -------- --------
CONTACT: Itron, Inc.
Mima Scarpelli, 509-891-3565
mima.scarpelli@itron.com