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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
July 26, 2005
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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 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, 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)
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 July 26, 2005, Itron, Inc. issued a press release announcing
the financial results for the three and six months ending June 30,
2005. A copy of this press release and accompanying financial
statements are attached as Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits.
The following exhibits are filed as part of this report:
Exhibit
Number Description
- -------------- -------------------------------------------------------------
99.1 Press Release dated July 26, 2005.
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: July 26, 2005 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 July 26, 2005.
Exhibit 99.1
Itron Reports Record Financial Results for Second Quarter 2005;
New Quarterly-Highs Achieved for Revenues, Earnings and New Order Bookings
SPOKANE, Wash.--(BUSINESS WIRE)--July 26, 2005--Itron, Inc.
(Nasdaq:ITRI), today reported its financial results for the quarter
ended June 30, 2005.
Revenues were $135.1 million for the quarter, compared with second
quarter revenues in 2004 of $79.6 million. Year-to-date revenues were
$251.6 million compared with $145.2 million in 2004. The majority of
the increases in 2005 resulted from the acquisition of Schlumberger's
electricity metering business which was completed July 1, 2004.
On a GAAP basis, net income was $9.3 million, or 38 cents per
diluted share for the quarter, compared with $818,000, or 4 cents per
diluted share in the second quarter of 2004. GAAP net income for the
quarter included a $5.9 million tax benefit for additional research
and development (R&D) tax credits for the years 1997 through 2004.
Year-to-date, on a GAAP basis, net income was $10.1 million, or 43
cents per diluted share, compared with approximately break-even GAAP
net income in the six months ended June 30, 2004.
Pro forma net income was $10.4 million, or 42 cents per diluted
share for the quarter, compared with $2.3 million, or 11 cents per
diluted share in the second quarter of 2004. Year-to-date pro forma
net income was $17.7 million, or 75 cents per diluted share, compared
with $4.5 million, or 20 cents per diluted share in 2004. Pro forma
net income excludes the amortization of intangible assets and debt
placement fees, restructurings and the benefit of the prior year R&D
tax credits. A schedule reconciling GAAP and pro forma net income is
attached to this release.
"Itron delivered very strong results again this quarter," said
LeRoy Nosbaum, Chairman and CEO. "Record new order bookings are
evidence of the increasing momentum we are seeing in the AMR and
electricity metering markets. Utility customers are embracing our
solutions as they look for ways to operate more efficiently, reduce
costs, and provide better customer service. 2005 is shaping up to be a
very good year for Itron."
Additional segment revenue details for the quarter are as follows:
-- Electricity Metering revenues, which include meters with
embedded automatic meter reading (AMR) technology, were $60.6
million in the quarter and $114.7 million for the six months
ended June 30, 2005. There were no Electricity Metering
revenues in the 2004 comparable periods as the acquisition was
completed July 1, 2004. We shipped more than 1.1 million
electricity meters in the quarter, approximately 7% more than
in the first quarter. Of those, approximately 38% were
equipped with Itron AMR technology.
-- Meter Data Collection (MDC) revenues were $62.2 million during
the quarter compared with $67.2 million in the second quarter
of 2004. Year-to-date, MDC revenues were $111.9 million
compared with $121.9 million in 2004. The lower revenues
during the quarter and year-to-date periods in 2005 are
primarily due to lower average selling prices for electric AMR
modules as shipments of total standalone AMR modules
(electric, gas and water) were comparable. Shipments of
standalone AMR modules were approximately 1.1 million in the
second quarters of 2005 and 2004 and 1.9 million for the
year-to-date periods in 2005 and 2004.
New order bookings (which do not include maintenance revenues)
were strong during the quarter. Details for new order bookings and
quarter-end backlog are as follows:
-- New order bookings during the quarter were $177 million,
compared with $66 million in the second quarter of last year.
New order bookings in the first six months of 2005 were $294
million, compared with $132 million in the first six months of
2004.
-- Total backlog increased to $243 million at June 30, 2005. By
comparison, total backlog was $190 million at March 31, 2005
and $153 million at June 30, 2004.
-- Twelve-month backlog, which represents the estimated portion
of backlog that will be earned over the next twelve months,
was $151 million at June 30, 2005, compared with $116 million
at March 31, 2005 and $76 million at June 30, 2004.
-- Not included in the above bookings or backlog is a contract
with Progress Energy, worth approximately $120 million over
two years, that was signed in July 2005.
Gross margins for the quarter and year-to-date periods in 2005
were 42% and 43%, respectively, compared with 46% in the second
quarter and year-to-date periods in 2004. Lower MDC gross margins in
2005 are due primarily to lower average selling prices for standalone
electric AMR modules. Electricity Metering gross margin was 41% during
the quarter compared with 45% during the first quarter of 2005. The
decrease from the previous quarter results from pass-through sales of
third party equipment for a smart metering system in Ontario along
with changes in the mix of meters sold.
Sales and marketing, product development and general and
administrative expenses were $36.7 million and $71.8 million in the
quarter and year-to-date periods in 2005 compared with $29.5 million
and $56.0 million in the comparable periods in 2004, with the
increased spending primarily due to the Electricity Metering
acquisition. Intangible asset amortization expenses also increased as
a result of the acquisition and were $9.7 million and $19.4 million in
the 2005 periods compared with $2.0 million and $4.1 million in the
2004 periods.
Excluding intangible asset amortization expenses and
restructurings, operating income was $20.0 million and $35.9 million,
or 14.8% and 14.3% of revenues for the quarter and six months ended
2005, compared with $6.8 and $10.2 million, or 8.5% and 7.0% of
revenues for the same periods in 2004. The improved operating leverage
in 2005 reflects the lower level of spending required for Electricity
Metering marketing and product development as well as operating
efficiencies and cost savings from headcount reductions in 2004.
During the quarter, we conducted a study of tax credits for
research activities for the years 1997 through 2004 (prior periods)
and for 2005. Second quarter 2005 GAAP results include an income tax
benefit for prior period R&D tax credits of approximately $5.9
million. Additionally, we estimate that our R&D tax credit in 2005
will be approximately $1.2 million, which is reflected in our
estimated annual GAAP tax rate of approximately 34%. R&D tax credits
will be used to offset future federal tax liabilities.
The income tax benefit of $4.8 million for the quarter ended June
30, 2005 reflects the $5.9 million prior period tax benefit, a
provision for income taxes using the estimated full year GAAP rate of
34.0%, and other miscellaneous adjustments. Our estimated tax rate for
pro forma purposes in 2005 is 38.3%. For comparative purposes, our
full year tax rates in 2004 were 44.1% for GAAP and 39.8% for pro
forma.
We generated $12.9 million of cash from operations during the
quarter compared to a use of cash of $6.8 million during the second
quarter of last year. Cash flow decreased from $23.9 million in the
prior quarter primarily due to the increase in accounts receivable
during the quarter driven by higher revenues, and due to a semi-annual
interest payment on our senior subordinated notes during the quarter
of approximately $4.8 million. Cash flow from operations was $36.8
million for the six months ended June 30, 2005 compared with $7.2
million for the same period in 2004.
In May 2005, we received approximately $60 million in net proceeds
from the issuance of 1,725,000 shares of common stock. We made a total
of $87.0 million in optional repayments on our term bank debt during
the quarter, bringing the balance to $42.3 million at June 30, 2005,
which means in the twelve months since the Electricity Metering
acquisition, we have repaid $142.7 million of the $185 million term
bank debt borrowed in connection with the acquisition.
Itron also announced today the retirement of Rob Neilson as
president and chief operating officer and as a member of the Company's
Board of Directors, effective December 31, 2005. Mr. Neilson has been
with Itron since 1983 and was named president and COO in 2000 and
elected a director in 2002. Mr. Neilson's wife Randi, will retire as
vice president of marketing effective December 31, 2005 as well.
"As my trusted partner, Rob has worked closely with me in
developing Itron's growth strategies and plans," commented LeRoy
Nosbaum, chairman and CEO. "His focus on organizational excellence and
efficiency improvements in running operations has been a big factor in
Itron's improved financial performance. For two decades, Rob and Randi
have been significant contributors to the success of Itron. Their
influence has been strongly felt within the company from strategy
development through operations and they are recognized thought leaders
within the industry -- with customers, regulators and others. We will
miss their contributions, but we understand and respect their decision
to spend more time with their family and to pursue other areas of
personal, public and community interest."
Nosbaum added that the Company will not fill the position of
president and COO. Instead, the Hardware and Software Solutions Group
vice presidents will report directly to Nosbaum. "With the
Company-wide reorganization in 2004 into hardware and software, we set
the stage for two strong operations groups and we have been very
pleased with the performance of both." The Company has already begun a
search for a new vice president of marketing.
Business Outlook:
Our outlook for 2005 does not include any impact related to the
expensing of stock options. We expect to implement FASB's Statement
123R, which requires the expensing of stock options and ESPP shares
issued at a discount, in 2006. Expensing of stock options will
decrease gross margin, increase operating expenses and influence our
effective tax rate.
For the full year 2005, we expect:
-- Revenues to be between $535 and $545 million (previous
guidance was $510 to $520 million).
-- Pro forma diluted earnings per share between $1.65 and $1.70
(previous guidance was $1.50 to $1.55).
Use of Non-GAAP Financial Information:
To supplement our consolidated financial statements presented in
accordance with GAAP, we use certain non-GAAP measures, including pro
forma earnings and EPS and EBITDA. Pro forma earnings and EPS are
adjusted from GAAP-based results to exclude certain costs and expenses
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 pro forma results provide consistency in our
financial reporting which enhances our investor's understanding of our
current financial performance as well as our future prospects. Pro
forma results along with EBITDA measures 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
contained in this release at 1:45 p.m. PDT on July 26, 2005. The call
will be webcast in a listen only mode and can be accessed online at
www.itron.com, "About Itron -- Investor Events." The live webcast will
begin at 1:45 p.m. (PDT). The webcast replay will begin shortly 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 #4296398.
Forward Looking Statements:
This release contains forward-looking statements concerning
Itron's operations, financial performance, sales, earnings and cash
flow. 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 the Company's
products, rescheduling of current customer orders, changes in
estimated liabilities for product warranties, changes in laws and
regulations and other factors which are more fully described in our
Annual Report on Form 10-K for the year ended December 31, 2004 and
our Form 10-Q for the quarter ended March 31, 2005 on file with the
Securities and Exchange Commission. Itron undertakes no obligation to
update publicly or revise any forward-looking statements.
About Itron:
Itron is a leading technology provider and critical source of
knowledge to the global energy and water industries. Nearly 3,000
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 electricity metering, 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. To know more, start here: www.itron.com.
Statements of operations, reconciliations between GAAP and pro
forma results, segment information, balance sheets and cash flows
follow.
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------
2005 2004 2005 2004
-------- ------- -------- --------
Revenues
Sales $122,811 $68,015 $227,013 $123,031
Service 12,312 11,627 24,580 22,213
-------- ------- -------- --------
Total revenues 135,123 79,642 251,593 145,244
Cost of revenues
Sales 70,810 37,852 130,009 67,459
Service 7,574 5,532 13,847 11,655
-------- ------- -------- --------
Total cost of revenues 78,384 43,384 143,856 79,114
-------- ------- -------- --------
Gross profit 56,739 36,258 107,737 66,130
Operating expenses
Sales and marketing 13,529 10,272 26,768 19,926
Product development 11,414 10,554 23,328 20,776
General and administrative 11,770 8,652 21,736 15,278
Amortization of intangible
assets 9,715 2,027 19,431 4,054
Restructurings - 52 390 2,434
-------- ------- -------- --------
Total operating expenses 46,428 31,557 91,653 62,468
-------- ------- -------- --------
Operating income 10,311 4,701 16,084 3,662
Other income (expense)
Interest income 94 111 98 128
Interest expense (6,385) (2,261) (10,952) (3,015)
Other income (expense), net 454 (1,001) 555 (735)
-------- ------- -------- --------
Total other income (expense) (5,837) (3,151) (10,299) (3,622)
-------- ------- -------- --------
Income before income taxes 4,474 1,550 5,785 40
Income tax (provision) benefit 4,839 (732) 4,345 40
-------- ------- -------- --------
Net income $ 9,313 $ 818 $ 10,130 $ 80
-------- ------- -------- --------
Earnings per share
Basic net income per share $ 0.41 $ 0.04 $ 0.46 $ 0.00
-------- ------- -------- --------
Diluted net income per share $ 0.38 $ 0.04 $ 0.43 $ 0.00
-------- ------- -------- --------
Weighted average number of
shares outstanding
Basic 22,811 20,845 22,135 20,750
Diluted 24,416 22,111 23,677 21,987
ITRON, INC.
RECONCILIATIONS BETWEEN GAAP AND PRO FORMA
(Unaudited, in thousands, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
-----------------------------------
2005 2004 2005 2004
------- ------- -------- -------
PRO FORMA OPERATING INCOME
GAAP basis operating income $10,311 $ 4,701 $ 16,084 $ 3,662
Adjustments to GAAP basis
operating income before income
taxes
Amortization of intangible
assets 9,715 2,027 19,431 4,054
Restructurings - 52 390 2,434
------- ------- -------- -------
Total adjustments 9,715 2,079 19,821 6,488
------- ------- -------- -------
Pro forma operating income $20,026 $ 6,780 $ 35,905 $10,150
------- ------- -------- -------
PRO FORMA NET INCOME
GAAP basis income before income
taxes $ 4,474 $ 1,550 $ 5,785 $ 40
Adjustments to GAAP basis income
before income taxes
Amortization of intangible
assets 9,715 2,027 19,431 4,054
Amortization of debt placement
fees 2,302 207 2,978 398
Restructurings - 52 390 2,434
Non-cash stock compensation - - 73 -
------- ------- -------- -------
Total adjustments 12,017 2,286 22,872 6,886
Adjusted income before income
taxes 16,491 3,836 28,657 6,926
Income tax provision (a) (6,135) (1,510) (10,967) (2,432)
------- ------- -------- -------
Pro forma net income $10,356 $ 2,326 $ 17,690 $ 4,494
------- ------- -------- -------
PRO FORMA EARNINGS PER SHARE
Basic
Weighted average number of basic
shares outstanding 22,811 20,845 22,135 20,750
Basic pro forma net income per
share $ 0.45 $ 0.11 $ 0.80 $ 0.22
------- ------- -------- -------
Diluted
Weighted average number of basic
shares outstanding 22,811 20,845 22,135 20,750
Employee stock option shares 1,605 1,266 1,542 1,237
------- ------- -------- -------
Weighted average number of diluted
shares outstanding 24,416 22,111 23,677 21,987
Diluted pro forma net income per
share $ 0.42 $ 0.11 $ 0.75 $ 0.20
------- ------- ------- -------
(a) The pro forma tax provision excludes the $5.9 million research and
development tax credit reported for GAAP during the second quarter
of 2005.
ITRON, INC.
RECONCILIATION BETWEEN GAAP NET INCOME AND EBITDA
(Unaudited, in thousands)
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------------
2005 2004 2005 2004
-------- ------- -------- --------
GAAP basis net income $9,313 $818 $10,130 $80
Adjustments to GAAP basis net income
Interest income (94) (111) (98) (128)
Interest expense 6,385 2,261 10,952 3,015
Income tax provision (benefit) (4,839) 732 (4,345) (40)
Depreciation and amortization 13,144 4,390 26,124 8,830
-------- ------- -------- --------
Total adjustments 14,596 7,272 32,633 11,677
EBITDA $23,909 $8,090 $42,763 $11,757
-------- ------- -------- --------
ITRON, INC.
SEGMENT INFORMATION
(Unaudited, in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2005 2004 2005 2004
-------- -------- -------- --------
Revenues
Hardware Solutions
Meter Data Collection $ 62,192 $ 67,170 $111,868 $121,916
Electricity Metering 60,622 - 114,728 -
-------- -------- -------- --------
Total Hardware Solutions 122,814 67,170 226,596 121,916
Software Solutions 12,309 12,472 24,997 23,328
-------- -------- -------- --------
Total Company $135,123 $ 79,642 $251,593 $145,244
-------- -------- -------- --------
Gross profit
Hardware Solutions
Meter Data Collection $ 27,283 $ 31,309 $ 48,327 $ 58,086
Electricity Metering 24,710 - 48,987 -
-------- -------- -------- --------
Total Hardware Solutions 51,993 31,309 97,314 58,086
Software Solutions 4,746 4,949 10,423 8,044
-------- -------- -------- --------
Total Company $ 56,739 $ 36,258 $107,737 $ 66,130
-------- -------- -------- --------
Operating income (loss)
Hardware Solutions
Meter Data Collection $ 21,912 $ 25,953 $ 37,940 $ 47,727
Electricity Metering 20,437 - 40,326 -
Other unallocated costs (6,184) (4,056) (12,205) (7,405)
-------- -------- -------- --------
Total Hardware Solutions 36,165 21,897 66,061 40,322
Software Solutions (2,917) (4,918) (5,569) (11,892)
Corporate unallocated (22,937) (12,278) (44,408) (24,768)
-------- -------- -------- --------
Total Company $ 10,311 $ 4,701 $ 16,084 $ 3,662
-------- -------- -------- --------
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands) June 30, Dec. 31,
2005 2004
-------- --------
ASSETS
Current assets
Cash and cash equivalents $ 9,958 $ 11,624
Accounts receivable, net 85,921 90,097
Inventories 46,351 45,459
Deferred income taxes, net 10,912 22,733
Other 6,143 5,477
-------- --------
Total current assets 159,285 175,390
Property, plant and equipment, net 53,979 59,690
Intangible assets, net 142,704 162,137
Goodwill 115,512 117,471
Deferred income taxes, net 51,583 27,252
Other 12,998 15,211
-------- --------
Total assets $536,061 $557,151
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 39,556 $ 37,439
Wages and benefits payable 16,720 13,947
Current portion of debt 2,124 35,647
Current portion of warranty 6,148 7,243
Unearned revenue 19,122 22,991
-------- --------
Total current liabilities 83,670 117,267
Long-term debt 165,172 239,361
Project financing debt 2,805 3,227
Warranty 5,116 6,331
Other obligations 5,662 6,535
-------- --------
Total liabilities 262,425 372,721
Shareholders' equity
Preferred stock - -
Common stock 291,458 211,920
Accumulated other comprehensive income, net 492 954
Accumulated deficit (18,314) (28,444)
-------- --------
Total shareholders' equity 273,636 184,430
-------- --------
Total liabilities and shareholders' equity $536,061 $557,151
-------- --------
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
Six Months
Ended June 30,
----------------------
2005 2004
--------- ---------
(in thousands)
Operating activities
Net income $ 10,130 $ 80
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 26,124 8,830
Employee stock plan income tax benefits 7,047 1,121
Amortization of prepaid debt fees 3,048 415
Impairment of investments - 775
Deferred income tax benefit (12,380) (1,393)
Other, net 1,203 272
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable 4,324 9,066
Inventories (892) (4,320)
Long-term notes receivable, net (877) -
Accounts payable and accrued expenses 2,179 (1,568)
Wages and benefits payable 2,756 209
Unearned revenue (4,110) (847)
Warranty (181) (5,712)
Other long-term obligations (644) (208)
Other, net (936) 462
--------- ---------
Cash provided by operating activities 36,791 7,182
Investing activities
Proceeds from the sale of property, plant and
equipment 2,642 11
Acquisition of property, plant and equipment (5,276) (6,830)
Pre-acquisition activities - (4,629)
Payment of contingent purchase price for
acquisition - (1,957)
Other, net 276 348
--------- ---------
Cash used by investing activities (2,358) (13,057)
Financing activities
New borrowings - 124,081
Transfer to escrow for senior subordinated
notes - (128,310)
Change in short-term borrowings, net - 11,000
Payments on debt (108,178) (8,696)
Issuance of common stock 72,318 3,967
Prepaid debt fees (267) (174)
Other, net 28 (6)
--------- ---------
Cash provided (used) by financing
activities (36,099) 1,862
Decrease in cash and cash equivalents (1,666) (4,013)
Cash and cash equivalents at beginning of
period 11,624 6,240
--------- ---------
Cash and cash equivalents at end of period $ 9,958 $ 2,227
--------- ---------
CONTACT: Itron, Inc.
Mima Scarpelli, 509-891-3565
mima.scarpelli@itron.com