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
March 31, 2000
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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)
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Item 5. Other Events
Completion of Duquesne project sale
As a continuation of discussions which began in 1999, on February 8,
2000, the Company signed a memorandum of understanding with DQE, the parent of
Duquesne Light Company ("Duquesne") for the purchase by Duquesne or an affiliate
of our network-based system that provides AMR services to Duquesne. Negotiations
for this transaction have been completed and the transaction closed March 31,
2000. The sales price was $33 million. The Company received $32 million in cash,
with another $1 million held in escrow pending the completion of post-closing
items.
The Company also entered into a warranty and maintenance agreement with
the purchaser, which is an affiliate of Duquesne, pursuant to which the Company
will provide certain maintenance and support services for the network from
closing over a term ending December 31, 2013. The Company will receive
approximately $10 million over that term for those services. In connection with
its performance responsibilities thereunder, the Company furnished to the
purchasing affiliate of Duquesne a $5 million letter of credit.
Restated Fourth Quarter and Year 1999 Financial Results
In the fourth quarter of 1999, in the course of updating its estimates
of future revenues and costs concerning the Duquesne project, the Company
recorded a provision for an estimated future loss on the sale of its fixed
network project. The loss included the write-down of the carrying value of
project fixed assets to the expected sales price, the write-off of existing
contract receivables, and the estimated economics of its remaining warranty and
maintenance obligations. The Company has since determined that its currently
estimated net costs of the above sale and its warranty and maintenance
obligations are higher than previously estimated, primarily related to ongoing
maintenance and support requirements, expansion of the network to 95% of
Duquesne's service territory and the replacement of certain telephone modules.
The Company uses the cost-to-cost, percentage of completion method of accounting
for long-term contracts. As such, it is recording an additional charge of
approximately $12.6 million for the fourth quarter of 1999 to reflect the
Company's current estimate of the cost of its remaining obligations that are in
excess of the amounts it will receive upon the sale and over the course of the
warranty and maintenance contract. This additional charge results in an
after-tax loss of $64.6 million and $68.6 million for the fourth quarter and
year-ended 1999, versus the previously reported $56.5 million and $60.6 million
after-tax loss for the quarter and year, respectively. The revised diluted net
loss per share for the fourth quarter and year is $4.32 and $4.62, respectively,
versus the previously reported diluted net loss per share of $3.78 and $4.07 for
the fourth quarter and year, respectively.
Revised statements of operations and balance sheets for the fourth
quarter and year ended 1999 are attached.
Second Amendment to Credit Agreement
In connection with the revised estimates concerning the sale of the
Duquesne project and the restated fourth quarter and year 1999 financial results
mentioned above, the Company has entered into a Second Amendment to Credit
Agreement with General Electric Capital Corporation, effective March 30, 2000,
which is attached.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Twelve Months Ended
December 31, December 31,
(in thousands, except per share data) 1999 (restated) 1998 1999 (restated) 1998
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Revenues
AMR systems $ 26,751 $ 33,511 $111,449 $164,148
Handheld systems 18,129 20,731 69,557 53,957
Outsourcing (3,167) 7,844 12,406 23,297
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Total revenues 41,713 62,086 193,412 241,402
Cost of revenues
AMR systems 22,605 24,613 76,826 117,519
Handheld systems 10,273 9,820 39,704 27,415
Outsourcing 70,322 6,644 83,574 19,665
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Total cost of revenues 103,200 41,077 200,104 164,599
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Gross profit (61,487) 21,009 (6,692) 76,803
Operating expenses
Sales and marketing 7,280 6,457 27,780 26,668
Product development 7,248 7,139 26,764 33,493
General and administrative 4,060 3,411 13,497 12,834
Amortization of intangibles 553 485 1,986 2,261
Restructuring charges 6,737 683 16,686 3,930
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Total operating expenses 25,878 18,713 86,713 79,186
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Operating Income (Loss) (87,365) 2,834 (93,405) (2,383)
Other income (expense)
Equity in affiliates (187) 70 (600) (1,154)
Interest, net (1,680) (1,897) (6,261) (6,508)
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Total other income (expense) (1,867) (1,827) (6,861) (7,662)
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Income (loss) before income taxes and extraordinary item (89,232) 1,007 (100,266) (10,045)
Income tax benefit(provision) 24,659 (380) 28,010 3,820
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Income (loss) before extraordinary item (64,573) 627 (72,256) (6,225)
Extraordinary gain on early extinguishment of debt,
net of income taxes of $1,970 - - 3,660 -
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Net income (loss) $ (64,573) $ 627 $(68,596) $ (6,225)
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Basic net income (loss) per share:
Before extraordinary item $ (4.32) $ 0.04 $ (4.87) $ (.42)
Extraordinary item - - 0.25 -
Basic net income (loss) per share $ (4.32) $ 0.04 $ (4.62) $ (.42)
Diluted net income (loss) per share
Before extraordinary item $ (4.32) $ 0.04 $(4.87) $(.42)
Extraordinary item - - .25 -
Diluted net income (loss) per share $ (4.32) $ 0.04 $(4.62) $(.42)
Average Number of Shares Outstanding:
Basic 14,953 14,588 14,851 14,668
Diluted 14,953 14,877 14,851 14,668
CONSOLIDATED BALANCE SHEETS
December 31,
1999 December 31,
(in thousands, except share data) (restated) 1998
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Assets
Current assets
Cash and cash equivalents $1,538 $2,743
Accounts receivable, net 46,561 62,253
Current portion of long-term contracts receivable 2,579 13,498
Inventories, net 15,300 20,654
Equipment held for sale, net 32,750 -
Deferred income tax asset 8,016 6,938
Other 1,340 2,306
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Total current assets 108,084 108,392
Property, plant and equipment, net 31,627 42,390
Equipment used in outsourcing, net 5,951 50,746
Intangible assets, net 15,196 18,142
Long-term contracts receivable 1,813 23,712
Deferred income tax asset 26,922 1,906
Other 2,486 2,467
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Total assets $192,079 $247,755
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Liabilities and shareholders' equity
Current liabilities
Short-term borrowings $ 3,646 $ 14,000
Accounts payable and accrued expenses 51,765 31,509
Deferred revenue 8,413 8,653
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Total current liabilities 63,824 54,162
Convertible subordinated debt 57,234 63,400
Mortgage notes payable 6,075 6,242
Project financing 7,216 7,722
Warranty and other obligations 10,205 1,207
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Total liabilities 144,554 132,733
Shareholders' equity
Common stock 107,603 106,039
Retained earnings (deficit) (58,506) 10,090
Accumulated other comprehensive income (1,572) (1,107)
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Total shareholders' equity 47,525 115,022
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Total liabilities and shareholders' equity $192,079 $247,755
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SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT ("Amendment") is
entered into as of March 30, 2000, by and among ITRON, INC., a Washington
corporation ("Itron"), and UTILITY TRANSLATION SYSTEMS, INC., a North Carolina
corporation ("UTS") (Itron and UTS are sometimes collectively referred to herein
as the "Borrowers" and individually as a "Borrower"); the other Credit Parties
signatory hereto; the lenders signatory hereto (each individually a "Lender" and
collectively the "Lenders"); and GENERAL ELECTRIC CAPITAL CORPORATION, a New
York corporation (in its individual capacity, "GE Capital"), for itself, as a
Lender, and as administrative agent for Lenders (in such capacity, "Agent").
RECITALS
A. Borrowers, the other Credit Parties signatory hereto,
Lenders, and Agent have entered into that certain Credit Agreement dated as of
January 18, 2000, as amended by the First Amendment to Credit Agreement dated as
of February 28, 2000 (the "Credit Agreement"), pursuant to which Agent and
Lenders are providing financial accommodations to or for the benefit of
Borrowers upon the terms and conditions contained therein. Unless otherwise
defined herein, capitalized terms or matters of construction defined or
established in Annex A to the Credit Agreement shall be applied herein as
defined or established therein.
B. Borrower has requested that Agent and Lenders make certain
amendments to the Credit Agreement and other Loan Documents, and Agent and
Lenders are willing to do so subject to the terms and conditions of this
Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the continued performance
by Borrowers and each other Credit Party of their respective promises and
obligations under the Credit Agreement and the other Loan Documents, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrowers, the other Credit Parties signatory hereto,
Lenders, and Agent hereby agree as follows:
1. Ratification and Incorporation of Credit Agreement and
Other Loan Documents. Except as expressly modified under this Amendment, (a)
each of each Borrower and each other Credit Party hereby acknowledges, confirms,
and ratifies all of the terms and conditions set forth in, and all of their
respective obligations under, the Credit Agreement and the other Loan Documents,
including the provisions of Section 12 of the Credit Agreement, and (b) all of
the terms and conditions set forth in the Credit Agreement and the other Loan
Documents are incorporated herein by this reference as if set forth in full
herein.
2. Amendments to Credit Agreement.
a. Section 6.2(h) of the Credit Agreement is
hereby amended by deleting the references therein to "one year" and substituting
"13 months" in lieu thereof.
b. Section 6.14 of the Credit Agreement is
hereby deleted in its entirety, and the following is substituted therefor:
6.14 Restricted Payments. No Credit Party shall
make any Restricted Payment, except, without duplication, any of the following:
(a) intercompany loans and advances
between Borrowers to the extent permitted by Section 6.3;
(b) dividends and distributions by
Subsidiaries of any Borrower paid to such Borrower;
(c) employee loans permitted under
Section 6.4(b);
(d) scheduled payments of interest with
respect to the Subordinated Debt;
(e) the repurchase of Itron's Subordinated
Debt: (i) in a swap of Itron common Stock pursuant to which
such Stockholder would not have any cash redemption rights or
other potential cash outlay requirements or entitlements to be
paid directly or indirectly by Itron in exchange for
Subordinated Debt involving no cash or other consideration
given in exchange for the Subordinated Debt other than such
Itron common Stock; or (ii) in an amount not to exceed the net
cash proceeds received by Itron from the issuance of common
Stock by Itron, in each case so long as such issuance would
not result in a Default or Event of Default; and
(f) the purchase of Subordinated Debt in the
aggregate face amount of $3,775,000 from Forest Fulcrum Fund
LC for $2,098,785 in a series of six transactions, four of
which occurred on March 2, 2000, one of which occurred on
March 6, 2000, and one of which occurred on March 13, 2000;
provided, that (i) no Default or Event of Default shall have occurred
and be continuing or would result after giving effect to any payment or
transaction pursuant to clauses (d) or (e) above, and (ii) with respect
to any payment pursuant to clause (e)(ii) above, the sum of (A)
Borrowers' collective Net Borrowing Availability and (B) amounts (other
than funds or Cash Equivalents held by Agent in a Cash Collateral
Account) maintained in Disbursement Accounts and investments maintained
pursuant to Section 6.2(h) shall be in excess of $5,000,000 after
giving effect (including pro forma effect during the 90-day period
prior to such payment) to any such payment at all times during the
period from the date that is 90 days prior to any such payment and
through and including the date that is 90 days after such payment.
Prior to making any payment under clauses (d) or (e) of this Section
6.14, such Borrower shall deliver a certification of the Chief
Financial Officer of such Borrower to Agent certifying that the
conditions set forth in such clauses have been satisfied and that the
information presented is true, correct and complete in all material
respects, which certificate shall be in form and substance satisfactory
to Agent.
c. Paragraph (c) of Annex G of the Credit
Agreement is hereby amended by deleting the reference to "$(71,000,000)" and
replacing it with "($84,000,000)."
d. Paragraph (e) of Annex G of the Credit
Agreement is hereby amended by deleting the reference to "$13,750,000" and
replacing it with "$26,500,000."
3. Extension of Deadline for Certain Open Items. At Borrowers'
request, Agent agrees that Paragraph 1 in that certain open items letter
agreement dated January 18, 2000 (the "Open Items Letter"), is amended as
follows:
1. On or before April 15, 2000, Borrowers shall
deliver or cause to be delivered to Agent:
(a) with respect to UTS, a tax good
standing certificate for the State
of Washington;
(b) with respect to Itron, a tax good
standing certificate for the State
of Connecticut and the District of
Columbia; and
(c) with respect to Itron Finance, a tax
good standing certificate for the
State of Washington.
If Borrowers are unable to deliver or cause the delivery of each of the
aforementioned certificates by April 15, 2000, then such failure shall
constitute an Event of Default under the Credit Agreement.
4. Application of Proceeds. The aggregate purchase price
received by Itron from its sale of certain assets to DataCom Information
Systems, LLC, a Delaware limited liability company ("DataCom"), shall be applied
to the Obligations in accordance with Section 1.3(c) of the Credit Agreement;
provided, that the application mechanics in the sixth step of Section 1.3(c)
shall be modified solely for the purpose of the application of proceeds from
such sale to require that only Letter of Credit Obligations relating to
irrevocable standby Letter of Credit No. S820478 in favor of DataCom in the
original face amount of $5,000,000 be cash collateralized in accordance with the
terms of Annex B of the Credit Agreement.
5. Conditions to Effectiveness. The effectiveness of this
Amendment is subject to satisfaction of each of the following conditions:
(a) receipt by Agent of copies of this Amendment
duly executed by each Borrower, each other Credit Party, and Lenders
constituting Requisite Lenders;
(b) (i) receipt by Agent of copies of each of
the letter agreements by and among each Borrower, each other Credit Party, and
GE Capital, as Agent and Lender, pursuant to which (A) GE Capital is consenting
to Itron's sale of certain assets to DataCom, and (B) Borrowers are
acknowledging certain matters with respect to (I) Account No. 67130500 at Bank
of America N.A. and (II) Account Nos. 4375688983 and 4375689015 at Wells Fargo
Bank, N.A. ("Wells Fargo"), and (ii) satisfaction of all conditions set forth in
each such letter agreement;
(c) receipt by Agent of fully executed copies of
(i) the Cash Collateral Agreement of even date herewith by and between Itron and
Agent, (ii) the Restricted Account Agreement of even date herewith by and among
Itron, Agent and Wells Fargo (the "Restricted Account Agreement"), and (iii) the
Control Agreement of even date herewith by and among Itron, Agent and Wells
Fargo;
(d) receipt by GE Capital of a $50,000 amendment
fee; and
(e) the absence of any Defaults or Events of
Default as of the date hereof.
6. Condition Subsequent. As soon as practicable after the next
regularly scheduled Board of Directors? meeting of Itron, Itron shall deliver a
copy of a secretary?s certificate to Wells Fargo that attaches the duly
authorized and adopted resolutions by its Board of Directors in form and
substance satisfactory to Wells Fargo regarding the Restricted Account
Agreement.
7. Entire Agreement. This Amendment, together with the Credit
Agreement and the other Loan Documents, is the entire agreement between the
parties hereto with respect to the subject matter hereof. This Amendment
supersedes all prior and contemporaneous oral and written agreements and
discussions with respect to the subject matter hereof.
8. Representations and Warranties. Each of each Borrower and
each other Credit Party hereby represents and warrants that the representations
and warranties contained in the Credit Agreement were true and correct in all
material respects when made and, except to the extent that (a) a particular
representation or warranty by its terms expressly applies only to an earlier
date or (b) Borrowers or any other Credit Party, as applicable, has previously
advised Agent in writing as contemplated under the Credit Agreement, are true
and correct in all material respects as of the date hereof.
9. Guarantor Consents. By signing this Amendment, each
Guarantor hereby (a) ratifies and reaffirms, as of the date hereof, all of the
provisions of that certain Continuing Guaranty dated as of January 18, 2000, in
favor of Agent, (b) acknowledges receipt of a copy of this Amendment, and (c)
consents to all of the provisions of this Amendment.
10. Miscellaneous.
(a) Counterparts. This Amendment may be
executed in identical counterpart copies, each of which shall be an original,
but all of which shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this Amendment by facsimile
transmission shall be effective as delivery of a manually executed counterpart
thereof.
(b) Headings. Section headings used herein are
for convenience of reference only, are not part of this Amendment, and are not
to be taken into consideration in interpreting this Amendment.
(c) Recitals. The recitals set forth at the
beginning of this Amendment are true and correct, and such recitals are
incorporated into and are a part of this Amendment.
(d) Governing Law. This Amendment shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California applicable to contracts made and performed in such state,
without regard to the principles thereof regarding conflict of laws.
(e) STATUTE OF FRAUDS. ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
(f) Effect. Upon the effectiveness of this
Amendment, from and after the date hereof, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof," or words of like import
shall mean and be a reference to the Credit Agreement as amended hereby and each
reference in the other Loan Documents to the Credit Agreement, "thereunder,"
"thereof," or words of like import shall mean and be a reference to the Credit
Agreement as amended hereby.
(g) No Novation. Except as expressly provided
in Sections 2 and 3 of this Amendment, the execution, delivery, and
effectiveness of this Amendment shall not (i) limit, impair, constitute a waiver
of, or otherwise affect any right, power, or remedy of Agent or any Lender under
the Credit Agreement or any other Loan Document, (ii) constitute a waiver of any
provision in the Credit Agreement or in any of the other Loan Documents, or
(iii) alter, modify, amend, or in any way affect any of the terms, conditions,
obligations, covenants, or agreements contained in the Credit Agreement or any
other Loan Document, all of which are ratified and affirmed in all respects and
shall continue in full force and effect.
(h) Conflict of Terms. In the event of any
inconsistency between the provisions of this Amendment and any provision of the
Credit Agreement, the terms and provisions of this Amendment shall govern and
control.
[Remainder of Page Intentionally Left Blank]
SECOND AMENDMENT TO CREDIT AGREEMENT IN WITNESS WHEREOF, this Second Amendment
to Credit Agreement has been duly executed as of the date first written above.
ITRON, INC., as a Borrower and a Credit Party
By: /s/ David G. Remington
David G. Remington
Vice President and Chief Financial
Officer
UTILITY TRANSLATION SYSTEMS, INC., as a
Borrower and a Credit Party
By: /s/ David G. Remington
David G. Remington
Vice President and Chief Financial
Officer
ITRON INTERNATIONAL, INC., as a Guarantor and a
Credit Party
By: /s/ David G. Remington
David G. Remington
Vice President and Chief Financial
Officer
ITRON FINANCE, INC., as a Guarantor and a
Credit Party
By: /s/ David G. Remington
David G. Remington
Vice President and Chief Financial
Officer
GENERAL ELECTRIC CAPITAL CORPORATION, as Agent
and a Lender
By: /s/ Mark Mascia
Mark Mascia
Duly Authorized Signatory