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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-22418
ITRON, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1011792
(State of Incorporation) (I.R.S. Employer Identification Number)
2818 NORTH SULLIVAN ROAD
SPOKANE, WASHINGTON 99216-1897
(509) 924-9900
(Address and telephone number of registrant's principal executive
offices)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes /X/ No / /
As of April 30, 1996, there were outstanding 13,254,849 shares of the
registrant's common stock, no par value, which is the only class of
common or voting stock of the registrant.
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Part 1: Financial Information
Item 1: Financial Statements
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three months ended March 31,
199 1995
Revenues
AMR systems $ 37,294 $21,015
Handheld systems 10,758 17,106
Total revenues 48,052 38,121
------ ------
Cost of revenues 26,550 21,316
Gross profit 21,502 16,805
Operating expenses
Sales and marketing 6,568 4,512
Product development 7,375 6,108
General and administrative 3,002 1,576
Amortization of intangibles 332 566
------ ------
Total operating expenses 17,277 12,762
------ ------
Operating income 4,225 4,043
Interest and other, net 273 450
------ ------
Income before income taxes 4,498 4,493
Provision for income taxes (1,470) (1,230)
------ ------
Net income $ 3,028 $ 3,263
====== ======
Net income per share $ .21 $ .24
PRO FORMA INFORMATION (1)
Income before income taxes$ 4,498 $ 4,493
Provision for income taxes (1,580) (1,580)
------ ------
Net income $ 2,918 $ 2,913
====== ======
Net income per share $ .21 $ .21
_____________
(1) See Note 1 of Notes to Consolidated Financial Statements.
The accompanying notes are an integral part of these financial
statements.
Page 2
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
March 31, December 31,
1996 1995
ASSETS
Current assets
Cash and cash equivalents $ 7,726 $ 6,473
Short-term investments 8,550 25,074
Accounts receivable, net 45,820 38,015
Inventories 21,663 18,065
Deferred income tax benefit, net 4,531 4,531
Other 2,639 1,388
------ ------
Total current assets 90,929 93,546
Property, plant and equipment, net 37,573 31,741
Intangible assets, net 19,321 20,230
Other 5,190 4,201
------ ------
Total assets $ 153,013 $ 149,718
======= ========
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities
Accts payable and acc. expenses $ 21,479 $ 20,804
Deferred revenue 6,383 8,206
------ ------
Total current liabilities 27,862 29,010
Noncurrent liabilities
Note payable 5,600 5,600
Warranty and other obligations 2,232 2,160
Deferred income taxes, net 2,163 1,675
------ ------
Total noncurrent liabilities 9,995 9,435
Shareholders' equity
Common stock 95,132 94,108
Retained earnings 19,797 16,969
Other 227 196
------- -------
Total shareholders' equity 115,156 111,273
------- -------
Total liab. and shareholders' equity $ 153,013 $ 149,718
======= =======
The accompanying notes are an integral part of these financial
statements.
Page 3
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three months ended March 31,
1996 1995
OPERATING ACTIVITIES
Net income $ 3,028 $ 3,263
Noncash charges to income:
Depreciation and amortization 2,200 2,055
Deferred income taxes 488 323
Changes in operating accounts:
Accounts receivable (7,805) 4,434
Inventories (3,598) (3,746)
Accounts payable and acc. exp. 718 701
Deferred revenue (1,823) 53
Other, net (1,140) (1,551)
------- -------
Cash provided (used) by oper act. (7,932) 5,532
INVESTING ACTIVITIES
Short-term investments 16,524 (1,452)
Acquisition of prop, plant and equip. (7,594) (2,924)
Capitalized software 0 (62)
Other, net (487) 507
------- -------
Cash used by investing act. 8,443 (3,931)
FINANCING ACTIVITIES
Issuance of common stock 941 2,016
Dividends paid to UTS shareholders (200) (100)
Payments of capital lease obligations 1 (276)
Cash provided (used) by fin. act. 742 1,640
------- -------
Increase (dec.) in cash and equivalents 1,253 3,241
Cash and cash equiv. at beg. of period 6,473 11,000
------- -------
Cash and cash equiv. at end of period $ 7,726 $ 14,241
======= =======
The accompanying notes are an integral part of these financial
statements.
Page 4
ITRON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
Note 1: Basis of Presentation
The consolidated financial statements presented in this Form 10-Q are
unaudited and reflect, in the opinion of management, all normal
recurring adjustments necessary for a fair presentation of operations
for the three month period ended March 31, 1996. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These condensed
consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and the notes thereto
included in the Company's Form 10-K for the year ended December 31,
1995 as filed with the Securities and Exchange Commission on March 31,
1996.
Itron acquired Utility Translation Systems, Inc. (UTS), on March 25,
1996, in a pooling-of-interests business combination. Accordingly,
the accompanying financial statements have been restated to include
the financial position and results of operations for the combined
companies for all periods presented. Prior to the acquisition UTS was
treated as an S corporation under the internal revenue code. The
income of an S corporation is taxed directly to the shareholders and
no federal or state income taxes are paid by the company.
Consequently, the combined results of operations for the first quarter
of 1996 and 1995 exclude an income tax provision on UTS' earnings.
Pro forma net income per share, which reflects a provision for income
taxes as if UTS was taxed as a C corporation, is provided in the
accompanying statement of operations.
The results of operations for the three month period ended March 31,
1996 are not necessarily indicative of the results expected for the
full fiscal year or for any other fiscal period.
Note 2: Inventories
Inventories consist of the following (unaudited, in thousands):
March 31, December 31,
1996 1995
Material $12,914 $ 9,594
Work in process 1,141 555
Finished goods 7,079 7,433
-------- ---------
Total manufacturing inventories 21,134 17,582
Service 529 483
-------- ---------
Total inventories $21,663 $18,065
======== =========
Page 5
Note 3: Acquisition
On March 25, 1996 the Company acquired UTS through a merger of UTS
with a wholly owned subsidiary of the Company. Pursuant to the
Agreement and Plan of Merger dated March 24, 1996 the Company issued
971,427 shares of unregistered Itron Common Stock to the shareholders
of UTS in exchange for all of the UTS outstanding shares. The Merger
was accounted for as a pooling-of-interests and is treated as a tax-
free exchange.
Page 6
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
When used in this discussion the words "expects", "anticipates" and
similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially
from those projected. Factors which could affect the Company's
financial results are described below and in the Company's latest
Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on
these forward-looking statements which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements that may
be made to reflect events or circumstances after the date hereof or to
reflect the occurrences of unanticipated events.
The following table summarizes the major components of and changes in
operating income for the quarter ended March 31, 1996.
Percentage of total revenue Percentage
Quarter ended March 31, 1996 1995 Change
Revenues
AMR systems 78% 55% 77%
Handheld systems 22% 45% (37%)
Total revenues 100% 100% 26%
Gross profit 45% 44% 28%
Operating expenses
Sales and marketing 14% 12% 46%
Product development 15% 16% 21%
General and administrative 6% 4% 90%
Amortization of intangibles 1% 1% (41%)
Total operating expenses 36% 33% 35%
Operating income 9% 11% 5%
REVENUES
Total revenues for the Company increased $9.9 million, or 26%, to
$48.1 million in the first quarter of 1996 from $38.1 million in the
comparable quarter in 1995. Total revenues excluding UTS increased
$10.5 million, or 29%, in the current quarter over the same quarter in
1995.
AMR systems revenues grew $16.3 million, or 77%, in the current
quarter over the first quarter of 1995. The higher revenues were
driven by increased shipments of the Company's encoder, receiver,
transmitter (ERT) meter
Page 7
modules. The Company shipped 82% more ERT modules in the quarter
ended March 31, 1996 than the same quarter last year. The increased
volumes resulted from a substantial amount of ERTs shipped for a large
multi-year contract signed in October of last year, an increase in the
number of customers involved in AMR pilots or permanent installations
and initial AMR outsourcing revenues.
Outsourcing revenues incorporate a variety of sales and services
performed by the Company which include, but are not limited to, AMR
product sales, system installation, meter reading services and meter
shop services. The Company began installation efforts for its first
outsourcing agreement at the end of 1995 and initial meter reading
services for that agreement during the current quarter. Outsourcing
revenues for the quarter were not material and are included as a
component of AMR revenues. The Company announced its second, and
largest, outsourcing agreement in January of 1996. Under this
agreement the Company will install, own and operate a fixed network
and provide meter reading and advanced communications services over a
fifteen year period. There were no revenues related to this agreement
during the current quarter. The Company expects that outsourcing
revenues will become a larger percentage of total revenues in the
future.
Handheld systems revenues were down $6.3 million, or 37%, in the
current quarter from the same quarter in 1995 primarily due to lower
international shipments. The Company generated approximately $7.6
million in revenues in the first quarter of 1995 from shipments to a
Japanese utility as part of the largest handheld systems order that
the Company has ever received. Shipments relating to this order were
completed in the fourth quarter of 1995. International revenues were
6% of total Company revenues in the quarter ended March 31, 1996
compared to 25% in the comparable quarter in 1995. Handheld systems
revenues have historically been nonlinear and are expected to continue
to be so in the future. The Company expects that handheld systems
revenues will continue to decline as a percentage of total revenues
compared to the previous year. Future handheld systems revenues are
expected to be driven by sales to new customers internationally and by
upgrade and replacement sales domestically.
GROSS PROFIT
Gross margins of 45% for the current quarter improved one percentage
point over gross margins of 44% in the same quarter in 1995. The
improvement was due to higher margins on handheld systems which were
partially offset by a slight decline in AMR gross margins in the
current quarter compared to the same quarter last year. Handheld
systems margins were higher in the current quarter because of the
shipment to a Japanese utility in 1995 which had a lower than usual
margin.
OPERATING EXPENSES
Sales and marketing expenses of $6.6 million increased $2.1 million,
or 46%, from the first three months of 1995 to the first three months
of 1996, and also increased from 12% to 14% of revenues. The higher
expenses resulted from
Page 8
the Company's increased focus on strengthening and expanding its AMR
sales and marketing staff. The Company expects that sales and
marketing expenses will
continue to increase in total in the future and may also increase as
a percentage of revenues compared to 1995.
Product development expenses of $7.4 million in the current quarter
increased $1.3 million, or 21%, over the same period in 1995 primarily
due to development of next generation fixed network components and AMR
cost reduction efforts. The Company expects that the increased level
of development will continue but will begin to gradually decrease as a
percentage of revenues over the long-term.
General and administrative expenses of $3.0 million increased $1.4
million, or 90%, in the first quarter of 1996 from the first quarter
of 1995. The increase was due to several factors which included UTS
acquisition costs, salaries and related employment costs for new
personnel including the Chief Operating Officer and increased legal
and other expenses related to outsourcing agreements.
INTEREST AND OTHER, NET
Net interest income for the three months ended March 31, 1996
decreased 39% from the comparable three months in 1995 due to a lower
level of cash and short-term investments.
INCOME TAXES
Income taxes for the first quarter of 1996 were 33% of pre-tax income
compared to 27% in the corresponding period of 1995. There was no
provision for income taxes in either quarter for UTS' results of
operations. The lower 1995 rate was due to a larger proportion of
earnings from UTS in the quarter ended March 31, 1995 than in the
current quarter. The effective income tax rate for 1995 was 34% of
pre-tax income. The Company expects the full year 1996 tax rate may
be slightly higher than the full year 1995 rate.
Page 9
FINANCIAL CONDITION
Operating activities consumed $7.9 million in cash in the first
quarter of 1996 compared to generating $5.5 million in cash during the
same quarter in 1995. The primary reason for the difference was the
timing of accounts receivable collections during the first quarter of
1996 caused by having non-linear shipments during the quarter as well
as unusually fast payment terms on the Japanese shipments during the
1995 quarter.
Investing activities generated $8.4 million in the three month period
ended March 31, 1996 compared to consuming $3.9 million in the
comparable period in 1995. The Company generated cash by liquidating
$16.5 million in short-term investments in the current quarter. The
cash was used to fund $7.6 million of additional property and
equipment in the first quarter of 1996 compared to $2.9 million for
the first quarter of 1995. The additions in the current quarter were
primarily for additional equipment at both of the Company's
manufacturing locations. Itron anticipates spending substantially
more on capital additions during the remainder of the year for
expansion of manufacturing capacity and equipment to be installed
under long-term outsourcing contracts.
Financing activities in the first quarter of 1996 provided $742,000
due to the exercise of stock options. The Company generated $1.6
million in the comparable quarter in 1995 primarily due to the
exercise of the overallotment of 75,000 shares related to the
Company's follow-on offering in December 1994. Dividends paid to UTS
shareholders for both periods relate to distributions prior to the
acquisition. Itron has never paid dividends to its common
shareholders nor does the Company anticipate paying dividends to
common shareholders in the foreseeable future.
Existing sources of liquidity at March 31, 1996 include approximately
$16.3 million of cash and short-term investments and $15.0 million of
available borrowings under the Company's bank line of credit
agreement. Itron expects to need a substantial amount of cash in 1996
because of its outsourcing agreements and is in the process of
expanding its bank line of credit. The Company also plans to obtain
financing through structured project financing, public offerings of
equity or debt securities , bank borrowings or any combination
thereof.
Page 10
Part 2: Other Information
Item 6: Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 11 - Statement re Computation of Earnings per Share
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
One report on Form 8-K, dated January 15, 1996, was filed during
the quarter ended March 30, 1996, pursuant to Item 5 of that form.
The report related to the Utility Automated Meter Data Acquisition
Equipment Lease and Services Agreement entered into by the Company and
Duquesne Light Company. No financial statements were filed as part of
that report.
Subsequent to the end of the first quarter of 1996, on April 18,
1996 the Company filed a report on Form 8-K dated March 25, 1996
relating to the UTS acquisition. The report was filed pursuant to
Item 5 of Form 8-K and included restated quarterly financial
information for 1995.
Page 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Commission Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ITRON, INC.
(Registrant)
By: DAVID G. REMINGTON
David G. Remington
Vice President and
Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
Date: May 15, 1996
Page 12
5
1,000
3-MOS
DEC-31-1995
MAR-31-1996
7,726
8,550
46,011
(191)
21,663
90,929
61,712
(24,139)
153,013
27,862
0
0
0
95,132
227
153,013
48,052
48,052
26,550
26,550
17,277
0
273
4,498
1,470
3,028
0
0
0
3,028
.21
.21
ITRON, INC.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(Unaudited, shares in thousands)
For the three months ended March 31,
PRIMARY EARNINGS PER SHARE CALCULATION 1996 1995
Weighted average number of common shares outstanding 13,202 13,010
Dilutive effect of outstanding common stock options and
warrants based on average market price 908 656
------ ------
Primary weighted average shares outstanding based on
average market price 14,110 13,666
====== ======
Primary EPS based on average market price $0.21 $0.24
FULLY DILUTIVE EPS CALCULATION
Weighted average number of common shares outstanding 13,202 13,010
Dilutive effect of outstanding common stock options and
warrants based on ending market price 962 656
------ ------
Fully dilutive weighted average shares outstanding
based on ending market price 14,164 13,666
====== ======
Fully Diluted EPS based on ending market price $0.21 $0.24
