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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
July 16, 2003
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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 July 16, 2003
Item 9. Regulation FD Disclosure (Information provided pursuant to Item 12)
On July 16, 2003, Itron, Inc. issued a press release regarding Q2 2003
earnings. 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: July 16, 2003 By: /s/ DAVID G. REMINGTON
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David G. Remington
Vice President and Chief Financial Officer
Exhibit 99.1
Itron Reports Second Quarter 2003 Results;
Q2 Revenues And EPS Slightly Better Than Consensus Estimates
SPOKANE, Wash.--(BUSINESS WIRE)--July 16, 2003--Itron, Inc.
(Nasdaq:ITRI), today reported its financial results for the quarter
ended June 30, 2003.
Second quarter revenues were $80.3 million, up $7.8 million, or
11% over second quarter 2002 revenues. Year-to-date revenues were
$154.9 million, up $20.4 million, or 15% over revenues in the first
half of 2002.
-- The increase in revenues in 2003 for both the second quarter
and year-to-date periods was primarily driven by higher sales
of automatic meter reading (AMR) systems and handheld meter
reading system upgrades.
-- We shipped 1.1 million AMR meter modules in the second
quarter, 8% more than in the second quarter of last year.
Year-to-date, we have shipped just over 2.0 million units,
for a 9% increase over last year.
-- In the second quarter we shipped a little more than 3,000
handheld computers for meter reading systems bringing the
total for the first six months of 2003 to approximately
6,000 units. Shipments for both the quarter and
year-to-date periods in 2003 are more than double the
volumes last year.
-- Also contributing to increased revenues in 2003 are software
and services revenues of $4.4 million for the quarter, and
$7.5 million year-to-date from two acquisitions completed
within the last twelve months.
-- Offsetting the increased revenues from hardware sales and
acquisitions are lower revenues in 2003 compared with 2002 for
AMR installation services and commercial and industrial meter
data collection software system sales.
On a GAAP basis, Itron had net income of $4.2 million in the
second quarter of 2003, or 19 cents per diluted share, compared with
$6.3 million in the second quarter of 2002, or 28 cents per diluted
share. Year-to-date net income was $7.1 million for 2003, or 33 cents
per diluted share, compared with $3.4 million, or 17 cents per diluted
share in the first six months of 2002.
Pro forma net income for the second quarter of 2003 was $6.1
million, or 28 cents per diluted share, compared with $6.5 million, or
29 cents per diluted share, in the second quarter of 2002.
Year-to-date pro forma net income was $12.4 million, or 57 cents per
diluted share compared with $11.8 million, or 53 cents per diluted
share. Pro forma results exclude intangible amortization expenses,
restructuring charges, and in-process R&D charges. A schedule
reconciling income between GAAP and pro forma is attached to this
release.
"We are quite pleased with our results so far in 2003," said LeRoy
Nosbaum, Itron chairman and CEO. "We are having a particularly good
year so far in our core meter reading business, with hardware sales up
twenty percent over last year. Economic conditions continue to affect
purchasing decisions for software and services, as we knew they would.
The good news there is that while we are experiencing a longer sales
cycle than we would like in software and services, we continue to have
a good pipeline. Customers that have recently implemented our software
products for transmission and distribution systems design (TDS), as
well as distribution asset management are seeing results quickly and
in a number of cases, cost savings well in excess of what they
targeted. That bodes well for future sales."
Gross margin for the second quarter of 2003 was 49%, compared with
47% in the second quarter of last year, and 49% in the previous
quarter. The higher gross margin in 2003 results principally from
continuing improvements in hardware margin due to changes in product
mix, higher manufacturing volumes, and lower component prices.
Operating expenses, which include intangible asset amortization
expenses, were higher in the second quarter and year-to-date periods
in 2003, compared with the same periods in 2002, due to the four
acquisitions completed since March 2002. In addition, general and
administrative expenses in 2003 were higher by approximately $800,000
related to legal defense costs for the Benghiat patent litigation
matter and increased consulting related to Sarbanes-Oxley compliance.
Net interest expense was $901,000 for the second quarter of 2003
compared with $366,000 in 2002. Year-to-date net interest expense in
2003 was $1.2 million in 2003 compared with $1.3 million last year.
Interest expense in 2003 includes interest on a $50 million term loan
related to the Silicon Energy acquisition in March 2003. Interest
expense in 2002 included interest expense for $53.2 million in
subordinated debt, which was converted to common stock during the
second quarter of 2002.
Operating cash flow for the second quarter was $1.5 million
compared to $15.1 million in the second quarter of 2002. Year-to-date
cash flow from operations was $9.3 million in 2003 compared with $21.8
million in 2002. During the second quarter of 2003, we paid $4 million
to a customer in connection with an amendment to a long-term warranty
and maintenance agreement. The payment did not impact net earnings as
it was charged against an accrued loss related to the agreement, but
it did result in a reduction of operating cash flow for the quarter
and year-to-date. Tax benefits from stock option exercises were $2.7
million and $3.5 million less in the second quarter and year-to-date
periods in 2003 compared with 2002 as fewer options were exercised.
Also driving the lower operating cash flow in 2003 was a large and
temporary increase in accounts receivable, primarily due to sales
later in the second quarter.
New order bookings were $41 million during the second quarter of
2003 compared with $45 million in the second quarter of 2002.
Year-to-date, new order bookings were $101 million, 22% higher than
the $83 million in new order bookings during the first six months of
2002. "The amount of bookings in any given quarter can be greatly
impacted by whether a larger sized order gets signed in the last few
days of the quarter or the first few days of the next quarter," said
Nosbaum. "Subsequent to quarter-end, we signed an AMR order with an
existing meter reading handheld system customer worth approximately
$11 million." Nosbaum also commented that while the Houston City
Council approved the continuation of the City's multi-year AMR roll
out of Itron AMR technology in June, that is not included in new order
bookings yet as the related documentation has not yet been received.
Total backlog, which represents the value of undelivered
contractual orders, excluding annual maintenance, joint pole use and
engineering services contracts, was $173 million at June 30, 2003,
compared with $203 million at March 31, 2003. Twelve-month backlog
represents the portion of backlog that will be earned over the next
twelve months and was $79 million at June 30, 2003, compared with $102
million at March 31, 2003.
Acquisition of SEM:
In a separate release issued today, we announced that we have
reached an agreement to acquire Schlumberger Electricity Metering,
Inc. ("SEM") for a purchase price of $255 million. The acquisition
combines the industry leader in automatic meter reading technology
("AMR") and meter data management solutions with the industry leader
in electric metering and expands Itron's business into the North
American electric meter market. A complete copy of that press release
can be accessed at www.itron.com.
Business Outlook:
The following statements are based on management's current
expectations and do not include the impact of the pending acquisition
of SEM. That acquisition is expected to be slightly accretive and we
will provide more detail on the expected financial impact of the SEM
acquisition at closing, which is expected to occur in the third or
fourth quarter. These forward-looking statements 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.
Our guidance for earnings for the full year 2003 remains unchanged
with pro forma EPS expected to be between $1.20 and $1.25. Pro forma
results for the year and quarter exclude restructuring charges,
intangible asset amortization, and in-process R&D. Our expected range
of revenues for 2003 is $320 to $330 million, approximately $10
million lower than previous guidance primarily due to continued
slowness in software and services businesses. Third quarter revenues
and EPS are expected to be slightly better than or comparable with
those of the second quarter.
"We are lowering our expectations for Transmission and
Distribution Solutions software and services revenues in the second
half of the year on the assumption that those orders are going to
continue to take longer to close," commented Nosbaum. "Sales so far in
2003 are comparable with 2002 and we have recently closed some smaller
TDS deals, including one in Spain. However, we acknowledge that an
increase in TDS revenues in 2003 over 2002 is unlikely unless we close
a large order within the next month or so. We remain bullish about the
long-term prospects for our TDS business."
Use of Pro Forma Financial Information:
To supplement our consolidated financial statements presented in
accordance with GAAP, Itron uses 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.
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 the Company's
current plans and expectations and are based on information currently
available to it. They rely on a number of assumptions and estimates,
which could be inaccurate, and which are subject to risks and
uncertainties that could cause the Company's actual results to vary
materially from those anticipated. Risks and uncertainties include 1)
the timing of the SEM acquisition closing or the failure to finalize
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) the outcome of appeals or any
negotiation efforts associated with the Benghiat litigation and
estimating costs associated with litigation defense, 5) changes in law
and regulation (including FCC licensing actions), 6) and other factors
which are more fully described in the Company's Annual Report on Form
10-K for the year ended December 31, 2002 and Form 10-Q for the
quarter ended March 31, 2003 on file with the Securities and Exchange
Commission. Itron undertakes no obligation to update publicly or
revise any forward-looking statements.
Investor Conference Call:
Itron will host a teleconference with institutional investors and
analysts at 6:00 a.m. Pacific Time (9:00 a.m. Eastern Time), on
Thursday, July 17, 2003 to discuss financial results for the second
quarter 2003 as well as the acquisition of SEM. Internet users can
hear a simultaneous live webcast of the teleconference at
www.itron.com, "About Itron - Investor Relations - Investor Events."
Webcast replays will begin shortly after the conclusion of the call
and will be available through August 31, 2003. 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),
passcode 299315.
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.
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, Three Months Ended Six Months Ended
except per share data)
June 30, June 30,
Revenues 2003 2002 2003 2002
-------- -------- --------- ---------
Sales $69,941 $61,858 $133,858 $112,044
Service 10,323 10,581 21,051 22,470
-------- -------- --------- ---------
Total revenues 80,264 72,439 154,909 134,514
-------- -------- --------- ---------
Cost of revenues
Sales 33,629 31,580 63,490 57,123
Service 7,281 7,008 15,203 16,253
-------- -------- --------- ---------
Total cost of revenues 40,910 38,588 78,693 73,376
-------- -------- --------- ---------
Gross profit 39,354 33,851 76,216 61,138
Operating expenses
Sales and marketing 9,786 7,669 18,223 14,328
Product development 11,459 10,388 21,617 17,895
General and administrative 7,486 6,176 15,259 11,035
Amortization of intangibles 2,765 573 4,653 910
Restructurings 43 - 2,208 -
In-process research and
development - (200) 900 7,200
-------- -------- --------- ---------
Total operating expenses 31,539 24,606 62,860 51,368
-------- -------- --------- ---------
Operating income 7,815 9,245 13,356 9,770
Other income (expense)
Equity in affiliates 30 50 52 46
Interest income 28 344 197 665
Interest expense (929) (710) (1,385) (2,002)
Other income (expense), net (61) 1,071 (36) 1,209
-------- -------- --------- ---------
Total other income (expense) (932) 755 (1,172) (82)
-------- -------- --------- ---------
Income before income taxes 6,883 10,000 12,184 9,688
Income tax provision (2,710) (3,675) (5,095) (6,333)
-------- -------- --------- ---------
Net income $ 4,173 $ 6,325 $ 7,089 $ 3,355
======== ======== ========= =========
Earnings per share
Basic net income per share $ 0.20 $ 0.32 $ 0.35 $ 0.18
======== ======== ========= =========
Diluted net income per share $ 0.19 $ 0.28 $ 0.33 $ 0.17
======== ======== ========= =========
Weighted average number of
shares outstanding
Basic 20,372 19,775 20,306 18,174
Diluted 21,765 22,672 21,603 20,051
ITRON, INC.
RECONCILIATION BETWEEN GAAP AND PRO FORMA INCOME AND EPS
(Unaudited, $ in thousands, except Three Months Six Months Ended
per share data) Ended
June 30, June 30,
PRO FORMA NET INCOME 2003 2002 2003 2002
-------- -------- -------- --------
GAAP basis income before income
taxes $ 6,883 $10,000 $12,184 $ 9,688
Adjustments to net income
Amortization of intangibles 2,765 573 4,653 910
Restructurings 43 - 2,208 -
In-process research and
development - (200) 900 7,200
-------- -------- -------- --------
Total adjustments 2,808 373 7,761 8,110
Adjusted income before income taxes 9,691 10,373 19,945 17,798
Income tax provision (3,623) (3,889) (7,567) (6,674)
-------- -------- -------- --------
Pro forma net income $ 6,068 $ 6,484 $12,378 $11,124
======== ======== ======== ========
PRO FORMA EARNINGS PER SHARE
Basic
Weighted average number of basic
shares outstanding 20,372 19,775 20,306 18,174
.
Basic pro forma net income per
share $ 0.30 $ 0.33 $ 0.61 $ 0.61
======== ======== ======== ========
Diluted
Weighted average number of basic
shares outstanding 20,372 19,775 20,306 18,174
Employee stock option shares 1,393 1,839 1,297 1,877
Convertible debt shares - 1,058 - 2,124
-------- -------- -------- --------
Weighted average number of diluted
shares outstanding 21,765 22,672 21,603 22,175
Pro forma net income $ 6,068 $ 6,484 $12,378 $11,124
Interest on convertible debt, net
of taxes - 89 - 650
-------- -------- -------- --------
Adjusted pro forma net income $ 6,068 $ 6,573 $12,378 $11,774
======== ======== ======== ========
Diluted pro forma net income per
share $ 0.28 $ 0.29 $ 0.57 $ 0.53
======== ======== ======== ========
ITRON, INC.
SEGMENT INFORMATION
(Unaudited, $ in thousands) Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
--------- --------- --------- ---------
Revenues
Electric $ 38,515 $ 36,528 $ 77,718 $ 67,301
Natural Gas 13,810 13,088 28,315 23,462
Water and Public Power 24,187 19,233 42,290 36,662
International 3,250 3,590 5,966 7,089
End User Solutions 502 - 620 -
--------- --------- --------- ---------
Total revenues $ 80,264 $ 72,439 $154,909 $134,514
========= ========= ========= =========
Gross profit
Electric $ 18,252 $ 17,428 $ 38,847 $ 31,619
Natural Gas 7,938 7,697 17,079 13,382
Water and Public Power 9,598 8,142 17,364 15,011
International 841 1,260 748 2,671
End User Solutions 136 - 153 -
Corporate 2,589 (676) 2,025 (1,545)
--------- --------- --------- ---------
Total gross profit $ 39,354 $ 33,851 $ 76,216 $ 61,138
========= ========= ========= =========
Operating income (loss)
Electric $ 15,172 $ 15,479 $ 33,166 $ 27,854
Natural Gas 7,134 7,107 15,520 12,293
Water and Public Power 8,161 7,178 14,690 13,094
International (638) (770) (2,425) (1,171)
End User Solutions (455) - (640) -
Corporate (21,559) (19,749) (46,955) (42,300)
--------- --------- --------- ---------
Total operating income $ 7,815 $ 9,245 $ 13,356 $ 9,770
========= ========= ========= =========
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, $ in thousands) June 30, December 31,
2003 2002
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ASSETS
Current assets
Cash and cash equivalents $ 9,909 $ 32,564
Accounts receivable, net 56,689 57,571
Inventories 16,018 15,660
Deferred income taxes 6,182 5,927
Other 3,684 2,770
--------- ------------
Total current assets 92,482 114,492
Property, plant and equipment, net 32,421 30,168
Equipment used in outsourcing, net 11,034 11,589
Intangible assets, net 30,598 18,305
Goodwill 86,797 44,187
Deferred income taxes, net 37,486 24,050
Other 5,435 4,455
--------- ------------
Total assets $296,253 $247,246
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 27,641 $ 25,526
Wages and benefits payable 14,408 18,259
Accrued litigation 7,400 7,400
Current portion of debt 17,388 691
Unearned revenue 10,420 11,580
--------- ------------
Total current liabilities 77,257 63,456
Long-term debt 29,167 -
Project financing debt 4,400 4,762
Warranty and other obligations 12,962 17,427
--------- ------------
Total liabilities 123,786 85,645
Shareholders' equity
Common stock 198,445 195,546
Preferred stock - -
Accumulated other comprehensive income (loss) 598 (280)
Accumulated deficit (26,576) (33,665)
--------- ------------
Total shareholders' equity 172,467 161,601
--------- ------------
Total liabilities and shareholders' equity $296,253 $247,246
========= ============
CONTACT: Itron, Inc.
Investor Relations and Corporate Communications
Mima Scarpelli, 509-891-3565
mima.scarpelli@itron.com