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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
August 1, 2007
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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.)
2111 N. Molter Road, Liberty Lake, WA 99019
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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)
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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 August 1, 2007, Itron, Inc. issued a press release announcing the
financial results for the three and six months ending June 30, 2007. A
copy of this press release and accompanying financial statements are
attached as Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit Number Description
- -------------- --------------------------------------------------------
99.1 Press Release dated August 1, 2007.
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: August 1, 2007 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 August 1, 2007.
Exhibit 99.1
Itron Announces Record Second Quarter Results
Financial Results Include Actaris
Consolidated Quarterly Revenue Exceeds $400 Million, Setting New Record
LIBERTY LAKE, Wash.--(BUSINESS WIRE)--Aug. 1, 2007--Itron, Inc.
(Nasdaq:ITRI), today reported financial results for its second quarter
ended June 30, 2007. Highlights include:
-- Quarterly and year-to-date revenues of $402 million and $549
million;
-- Quarterly and year-to-date non-GAAP diluted EPS of 89 cents
and $1.34 per share; and
-- Quarterly and year-to-date Adjusted EBITDA of $69 and $92
million.
"We are obviously pleased with our financial results for the
quarter," said LeRoy Nosbaum, chairman and CEO. "As expected, the
acquisition of Actaris dramatically improved the operating profile of
our company and provides a platform for future growth opportunities in
the global energy and water markets."
We completed the acquisition of Actaris on April 18, 2007. Actaris
products include electricity meters sold outside of the U.S. and
Canada and gas and water meters sold around the world. We have changed
our segment reporting starting this quarter to now reflect our two
operating businesses: Itron North America ("INA"), which includes the
operating results for Itron prior to the acquisition, and Actaris.
Comparisons for the current periods to 2006 will focus on INA since
there were no consolidated results related to Actaris in the 2006
periods.
Quarter Statement of Operations Highlights:
Revenue -- Total revenues for the second quarter 2007 of $402
million were $238 million, or 145%, higher than 2006 second quarter
revenues of $164 million. INA revenues for the second quarter of $152
million were approximately $12 million, or 7%, lower than the second
quarter of 2006. 2006 second quarter revenues included over $30
million from our contract with Progress Energy. This contract also
contributed to the higher number of meters shipped during the second
quarter of 2006. Actaris revenues of $250 million were comprised of
shipments to electric, gas and water utilities of approximately 40%,
31% and 29%, respectively.
Gross Margin -- Gross margin for the second quarter of 2007 was
31%. Business combination accounting rules require that we revalue
inventory at the sales price, less costs to complete and a reasonable
profit allowance for selling effort. This is a specific expense during
the quarter and is not expected to impact the remainder of the year.
The value of the inventory acquired was increased by $16 million for
this purchase accounting requirement, which resulted in a 4% decrease
in total gross margin in the quarter ended June 30, 2007. Second
quarter 2007 INA gross margin of 42% was similar to the second quarter
of 2006. Actaris gross margin of 25% included the effect of the
inventory purchase accounting adjustment. Actaris gross margin would
have been 31% without the purchase accounting adjustment.
Operating Expenses -- Total operating expenses for the second
quarter of 2007 were $148 million and included $36 million for
in-process research and development ("IPR&D") expenses related to the
Actaris acquisition, which is a one-time expense. Operating expenses
without the acquisition-related IPR&D expense were $112 million, or
28% of revenue. INA operating expenses were $47 million, reflecting a
more than $2 million increase over the second quarter of 2006. The
increase was primarily due to higher product marketing and product
development expenses in support of our OpenWay platform. Actaris
operating expenses of $93 million included $36 million of IPR&D
expense related to the acquisition. Without this expense, Actaris
operating expenses were $57 million, or 23% of revenue. Corporate
unallocated expenses were nearly $8 million for the quarter, or about
$1.6 million higher than the second quarter of 2006. The increase was
attributable to higher depreciation expenses for our new corporate
facilities and ERP system as well as an impairment charge for our
previous corporate headquarters, which is held for sale.
Interest and Other Income -- Net interest expense of nearly $21
million in the second quarter of 2007 was $18 million higher than the
comparable period in 2006. The increased net interest expense in 2007
was primarily due to the placement of $1.2 billion in debt for the
Actaris acquisition. Other income included net realized gains of $2.2
million of acquisition-related foreign exchange transactions and $3.3
million of unrealized foreign currency exchange gains.
Income Taxes -- We had a $14.8 million GAAP income tax benefit for
the second quarter of 2007. This compares with a GAAP income tax
provision of $5 million in the second quarter of 2006. The benefit is
due to the pre-tax GAAP loss.
GAAP Net Income/Loss and EPS -- Our GAAP net loss and fully
diluted EPS loss for the second quarter of 2007 was $24 million, or 79
cents per share, compared with net income of $10 million, or 39 cents
per share, in the same period in 2006. The loss was primarily due to
acquisition-related charges for IPR&D and inventory.
Non-GAAP Operating Income, Net Income and Diluted EPS -- Non-GAAP
operating income, which excludes amortization expense related to
intangible assets, and excludes acquisition related charges for IPR&D
and inventory, was $53 million, or 13% of revenues, in the second
quarter of 2007, compared with $25 million, or 15% of revenues, in the
second quarter of 2006. Non-GAAP net income and diluted EPS, which
also excludes amortization of debt fees, was $27.7 million or 89 cents
per share in 2007 compared with $15 million or 57 cents per share in
the 2006 period. Non-GAAP net income and diluted EPS are higher in the
second quarter of 2007 primarily due to the Actaris acquisition. Our
non-GAAP tax rates were 31% and 35% for the second quarter of 2007 and
2006, respectively. The lower 2007 rate is due to lower tax rates for
Actaris.
Year-To-Date Statement of Operations Highlights:
Revenue -- Total revenues for the six-months ended June 30, 2007
of $549 million were $230 million or 72%, higher than 2006 six-month
revenues of $319 million. INA revenues for the first six months of
2007 of $300 million were approximately $20 million, or 6%, lower than
the same period of 2006. 2006 revenues included $63 million from our
contract with Progress Energy. We shipped 1.6 million meters to
Progress Energy during the first six months of 2006.
Gross Margin -- Total company gross margin for the six months
ended June 30, 2007 was 34% and also included the 3% decrease in
margins from the revaluation of inventory described above.
Year-to-date 2007 INA gross margin of 42% was slightly lower than the
43% for the first six months of 2006 primarily due to lower production
volumes for electricity meters.
Operating Expenses -- Total operating expenses for the first six
months of 2007 were $200 million and included $36 million of expense
related to IPR&D. Without this expense, operating expenses would have
been $164 million, or 30% of revenue. INA operating expenses were $92
million, reflecting a $6 million increase over the first half of 2006.
The increase was primarily due to increased product marketing and
product development expenses related to our OpenWay development.
Corporate unallocated expenses were approximately $15 million for the
first six months of 2007 or about $2 million higher than the same
period in 2006. The increase was attributable to higher depreciation
expenses for our new corporate facilities and ERP system as well as an
impairment charge for our previous corporate headquarters, which is
held for sale.
Interest and Other Income -- Net interest expense of $20 million
in the first six months of 2007 was $13 million higher than the
comparable period of 2006. The increased net interest expense in 2007
was due to the placement of $1.2 billion in debt for the Actaris
acquisition offset by interest income related to interest on the cash
invested from the net proceeds of the convertible debt offering in the
third quarter of 2006 and the net proceeds from the placement of
equity in the first quarter of 2007. Other income included net
realized gains of $3.8 million of acquisition-related foreign exchange
transactions and $3.3 million of unrealized foreign currency exchange
gains.
Income Taxes -- We had a $10.5 million GAAP income tax benefit for
the first six months of 2007. This compares with a GAAP income tax
provision of $11.1 million in the first six months of 2006. The
benefit is due to the pre-tax GAAP loss.
GAAP Net Income/Loss and Diluted EPS -- Our GAAP net loss and
fully diluted EPS loss for the first six months of 2007 was $16.7
million, or 58 cents per share, compared with net income of $17
million, or 66 cents per share in the first six months of 2006. The
loss was primarily due to acquisition-related charges for IPR&D and
inventory.
Non-GAAP Operating Income, Net Income and EPS -- Non-GAAP
operating income, which excludes amortization expense related to
intangibles assets, and excludes acquisition-related charges for IPR&D
and inventory was $70 million, or 13% of revenues, in the first six
months of 2007, compared with $52 million or 16% of revenues, in the
same period of 2006. Non-GAAP net income and diluted EPS, which also
excludes amortization of debt fees was $39.7 million or $1.34 per
share in 2007 compared with $28.3 million and $1.08 per share in the
2006 period. Non-GAAP net income and diluted EPS are higher in the
first half of 2007 primarily due to the Actaris acquisition.
Other Financial Highlights:
New Order Bookings and Backlog -- New order bookings for the
second quarter were $413 million, compared with $107 million in the
second quarter of 2006. New order bookings in 2007 included bookings
for Actaris from April 18, 2007 through June 30, 2007. Our second
quarter 2007 book-to-bill ratio was 1.06 to 1. Total backlog was $656
million at June 30, 2007 compared to $351 million at June 30, 2006.
Twelve month backlog of $491 million at June 30, 2007 was higher than
twelve month backlog at June 30, 2006 of $225 million, primarily due
to the Actaris acquisition. Acquired backlog from the Actaris
acquisition was $262 million.
Cash Flows from Operations -- Net cash provided by operating
activities was $63 million for the first six months of 2007, compared
with $57 million in the same period of 2006. Adjusted earnings before
interest, taxes, depreciation and amortization (Adjusted EBITDA) in
the second quarter of 2007, was $69 million compared with $29 million
for the same period in 2006. Adjusted EBITDA for the first six months
of 2007 was $92 million, or more than $33 million higher than the
first six months of 2006, primarily due to the acquisition of Actaris.
Forward Looking Statements:
This release contains forward-looking statements concerning our
expectations about operations, financial performance, sales, earnings
and cash flows. 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 our products, rescheduling of current customer
orders, changes in estimated liabilities for product warranties,
changes in laws and regulations, our dependence on new product
development and intellectual property, future acquisitions, changes in
estimates for stock based compensation, changes in foreign exchange
rates, foreign business risks and other factors which are more fully
described in our Annual Report on Form 10-K for the year ended
December 31, 2006 and other reports on file with the Securities and
Exchange Commission. Itron undertakes no obligation to update publicly
or revise any forward-looking statements, including our business
outlook.
Business Outlook:
The outlook information provided below and elsewhere in this
release is based on information available today. Itron assumes no
obligation to publicly update or revise our business outlook. Our
future performance involves risks and uncertainties.
For the full year 2007, we expect
-- Revenues between $1.42 billion and $1.44 billion;
-- Diluted non-GAAP EPS of between $2.75 and $3.00; and
-- Adjusted EBITDA in excess of $230 million.
Third quarter revenues are expected to be between $425 million and
$445 million.
Non-GAAP Financial Information:
To supplement our consolidated financial statements presented in
accordance with GAAP, we use certain non-GAAP financial measures,
including non-GAAP operating income, non-GAAP net income and diluted
EPS and Adjusted EBITDA. We provide these non-GAAP financial measures
because we believe they provide greater transparency and represent
supplemental information used by management in its financial and
operational decision making. Specifically, these non-GAAP financial
measures are provided to enhance investors' overall understanding of
our current financial performance and our future anticipated
performance by excluding infrequent costs associated with
acquisitions. We exclude these expenses in our non-GAAP financial
measures as we believe that they are a measure of our core business
that is not subject to the variations of expenses associated with
these infrequently occurring items. Non-GAAP performance measures
should be considered in addition to, and not as a substitute for,
results prepared in accordance with GAAP. Finally, our non-GAAP
financial measures may be different from those reported by other
companies. A more detailed discussion of why we use non-GAAP financial
measures, the limitations of using such measures and reconciliations
between non-GAAP and the nearest GAAP financial measures are included
in this press release.
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 August 1, 2007. The
call will be webcast in a listen only mode and can be accessed online
at www.itron.com, "Investors - Investor Events." The live webcast will
begin at 1:45 p.m. (PDT). The webcast replay will begin 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 # 4792735.
About Itron:
Itron is a leading technology provider and critical source of
knowledge to the global energy and water industries. Itron operates in
two divisions: as Itron in North America and as Actaris outside of
North America. Our company is the world's leading provider of
metering, data collection and software solutions, with nearly 8,000
utilities worldwide relying on our technology to optimize the delivery
and use of energy and water. Itron delivers industry leading solutions
for electricity, gas and water utilities by offering meters; data
collection and communication systems, including automated meter
reading (AMR) and advanced metering infrastructure (AMI); meter data
management and utility software applications; as well as comprehensive
project management, installation and consulting services. To know
more, start here: www.itron.com.
Statements of operations, segment information, balance sheets,
cash flow statements and reconciliations of non-GAAP financial
measures to the most directly comparable financial measures follow.
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Revenues $401,559 $163,810 $549,470 $319,363
Cost of revenues 276,845 94,778 363,431 183,557
--------- --------- --------- ---------
Gross profit 124,714 69,032 186,039 135,806
Operating expenses
Sales and marketing 34,393 16,321 49,313 31,802
Product development 25,521 14,920 41,342 27,790
General and administrative 27,387 12,519 41,631 24,641
Amortization of intangible
assets 25,223 7,612 32,263 14,925
In-process research and
development 35,551 - 35,551 -
--------- --------- --------- ---------
Total operating expenses 148,075 51,372 200,100 99,158
--------- --------- --------- ---------
Operating income (loss) (23,361) 17,660 (14,061) 36,648
Other income (expense)
Interest income 2,216 360 8,305 722
Interest expense (22,927) (2,585) (28,424) (8,331)
Other income (expense), net 5,433 (241) 6,941 (689)
--------- --------- --------- ---------
Total other income
(expense) (15,278) (2,466) (13,178) (8,298)
--------- --------- --------- ---------
Income (loss) before income
taxes (38,639) 15,194 (27,239) 28,350
Income tax benefit (provision) 14,759 (4,990) 10,539 (11,077)
--------- --------- --------- ---------
Net income (loss) $(23,880) $ 10,204 $(16,700) $ 17,273
========= ========= ========= =========
Earnings (loss) per share
Basic $ (0.79) $ 0.40 $ (0.58) $ 0.68
========= ========= ========= =========
Diluted $ (0.79) $ 0.39 $ (0.58) $ 0.66
========= ========= ========= =========
Weighted average number of shares
outstanding
Basic 30,068 25,415 28,641 25,237
Diluted 30,068 26,360 28,641 26,216
ITRON, INC.
SEGMENT INFORMATION
(Unaudited, in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Revenues
Itron North America $151,912 $163,810 $299,823 $319,363
Actaris 249,647 - 249,647 -
--------- --------- --------- ---------
Total Company $401,559 $163,810 $549,470 $319,363
========= ========= ========= =========
Gross profit
Itron North America $ 63,366 $ 69,032 $124,691 $135,806
Actaris 61,348 - 61,348 -
--------- --------- --------- ---------
Total Company $124,714 $ 69,032 $186,039 $135,806
========= ========= ========= =========
Operating income (loss)
Itron North America $ 16,130 $ 23,884 $ 32,896 $ 50,094
Actaris (31,650) - (31,650) -
Corporate unallocated (7,841) (6,224) (15,307) (13,446)
--------- --------- --------- ---------
Total Company $(23,361) $ 17,660 $(14,061) $ 36,648
========= ========= ========= =========
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2007 2006 2007 2006
--------- --------- --------- ---------
Unit Shipments (units in thousands)
Total meters (with and
without AMR)
Electricity 2,450 1,850 3,600 3,575
Gas 775 - 775 -
Water 1,850 - 1,850 -
--------- --------- --------- ---------
Total meters 5,075 1,850 6,225 3,575
AMR units (Itron and
Actaris)
Meters with AMR 900 1,300 1,400 2,500
AMR modules 1,150 1,000 2,350 2,075
--------- --------- --------- ---------
Total AMR units 2,050 2,300 3,750 4,575
Other vendors' AMR 175 225 425 375
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
June 30, Dec. 31,
2007 2006
----------- --------
ASSETS
Current assets
Cash and cash equivalents $ 105,873 $361,405
Short-term investments, held to maturity - 34,583
Accounts receivable, net 325,970 109,924
Inventories 171,141 52,496
Deferred income taxes, net 25,525 20,916
Other 48,521 17,121
----------- --------
Total current assets 677,030 596,445
Property, plant and equipment, net 309,954 88,689
Intangible assets, net 623,375 112,682
Goodwill 1,248,794 126,266
Prepaid debt fees 32,159 13,161
Deferred income taxes, net 88,814 47,400
Other 15,123 3,879
----------- --------
Total assets $2,995,249 $988,522
=========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade payables $ 210,203 $ 35,803
Accrued expenses 71,032 6,402
Wages and benefits payable 59,218 24,214
Taxes payable 23,834 1,717
Current portion of debt 11,561 -
Current portion of warranty 18,861 7,999
Unearned revenue 30,701 27,449
----------- --------
Total current liabilities 425,410 103,584
Long-term debt 1,611,027 469,324
Warranty 17,329 10,149
Pension plan and long term employee benefits 65,040 -
Deferred income taxes, net 210,390 -
Other obligations 50,239 14,483
----------- --------
Total liabilities 2,379,435 597,540
Commitments and contingencies
Shareholders' equity
Preferred stock - -
Common stock 598,860 351,018
Accumulated other comprehensive income (loss),
net (4,722) 1,588
Retained earnings 21,676 38,376
----------- --------
Total shareholders' equity 615,814 390,982
----------- --------
Total liabilities and shareholders' equity $2,995,249 $988,522
=========== ========
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
June 30,
----------------------
2007 2006
------------ ---------
Operating activities
Net income (loss) $ (16,700) $ 17,273
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 47,156 22,291
In-process research and development 35,551 -
Employee stock plans income tax benefits 5,773 11,686
Excess tax benefits from stock-based
compensation (5,029) (8,371)
Stock-based compensation 5,849 4,096
Amortization of prepaid debt fees 2,813 3,155
Deferred income taxes, net (30,133) (953)
Other, net 394 435
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (12,604) 18,038
Inventories 17,983 (9,575)
Trade payables, accrued expenses and taxes
payable 25,811 1,142
Wages and benefits payable (7,299) (3,623)
Unearned revenue (4,348) 4,230
Warranty 391 1,678
Other long-term obligations (47) (181)
Other, net (2,642) (4,550)
------------ ---------
Net cash provided by operating activities 62,919 56,771
Investing activities
Proceeds from the maturities of investments,
held to maturity 35,000 -
Acquisitions of property, plant and equipment (18,306) (14,420)
Business acquisitions, net of cash and cash
equivalents acquired (1,715,626) (7,778)
Other, net 5,897 1,444
------------ ---------
Net cash used in investing activities (1,693,035) (20,754)
Financing activities
Proceeds from borrowings 1,159,027 -
Change in short-term borrowings, net - -
Payments on debt (2,890) (42,703)
Issuance of common stock 236,220 11,326
Excess tax benefits from stock-based
compensation 5,029 8,371
Prepaid debt fees (23,058) (62)
------------ ---------
Net cash provided by (used in) financing
activities 1,374,328 (23,068)
Effect of exchange rate changes on cash and
cash equivalents 256 -
Increase (decrease) in cash and cash
equivalents (255,532) 12,949
Cash and cash equivalents at beginning of
period 361,405 33,638
------------ ---------
Cash and cash equivalents at end of period $ 105,873 $ 46,587
============ =========
Itron, Inc.
About Non-GAAP Financial Measures
The accompanying press release dated August 1, 2007 contains
non-GAAP financial measures. To supplement our consolidated financial
statements, which are prepared and presented in accordance with GAAP,
we use certain non-GAAP financial measures, including non-GAAP
operating income, non-GAAP net income and EPS and Adjusted EBITDA. The
presentation of this financial information is not intended to be
considered in isolation or as a substitute for, or superior to, the
financial information prepared and presented in accordance with GAAP.
For more information on these non-GAAP financial measures please see
the table captioned "Reconciliations of Non-GAAP Financial Measures to
Most Directly Comparable GAAP Financial Measures" information
following.
We use these non-GAAP financial measures for financial and
operational decision making and as a means for determining executive
compensation. Management believes that these non-GAAP financial
measures provide meaningful supplemental information regarding our
performance and ability to service debt by excluding certain expenses
that may not be indicative of our recurring core operating results.
Our executive compensation plans exclude non-cash charges related to
amortization of intangibles and non-recurring discrete cash and
non-cash charges that are infrequent in nature such as in-process
research and development or purchase accounting adjustments. We
believe that both management and investors benefit from referring to
these non-GAAP financial measures in assessing our performance and
when planning, forecasting and analyzing future periods. These
non-GAAP financial measures also facilitate management's internal
comparisons to our historical performance and ability to service debt
as well as comparisons to our competitor's operating results. We
believe these non-GAAP financial measures are useful to investors
because they allow for greater transparency with respect to key
metrics used by management in its financial and operational decision
making and because they are used by our institutional investors and
the analyst community to help them analyze the health of our business.
Non-GAAP operating income -- We define non-GAAP operating income
as operating income minus amortization of intangible expenses,
business combination accounting for inventory revaluation and IPR&D.
We consider this non-GAAP financial measure to be a useful metric for
management and investors because it excludes the effects of expenses
that are related to current and previous acquisitions. By excluding
these expenses we believe that it is easier for management and
investors to compare our financial results over multiple periods. We
believe that excluding amortization of intangible assets enables
management and investors to analyze trends in our operations. For
example, expenses related to amortization of intangible assets were
decreasing prior to the Actaris acquisition, which was improving GAAP
operating margins, yet the improvement in GAAP operating margins due
to this lower expense was not reflective of an improvement in our core
business. Additionally we exclude the affects of inventory revaluation
and IPR&D to provide investors gross and operating margins for the
business that are not impacted by purchase accounting adjustments.
There are some limitations related to the use of non-GAAP operating
income versus operating income calculated in accordance with GAAP.
Non-GAAP operating income excludes some costs that are recurring.
Additionally, the expenses that we exclude in our calculation of
non-GAAP operating income may differ from the expenses that our peer
companies exclude when they report the results of their operations. We
compensate for these limitations by providing specific information
about the GAAP amounts we have excluded from our non-GAAP operating
income and evaluating non-GAAP operating income together with GAAP
operating income.
Non-GAAP net income and non-GAAP EPS -- We define non-GAAP net
income as net income minus the expenses associated with amortization
of intangible assets and amortization of debt fees, expenses related
to business combination accounting for inventory revaluation and
expenses for IPR&D as well as the tax effects of each item. We define
non-GAAP EPS as non-GAAP net income divided by the weighted average
shares, on a fully diluted basis, outstanding as of the end of each
period. We consider these financial measures to be a useful metric for
management and investors for the same reasons that we use non-GAAP
operating income. The same limitations described above regarding our
use of non-GAAP operating income apply to our use of non-GAAP net
income and non-GAAP EPS. We compensate for these limitations by
providing specific information regarding the GAAP amounts excluded
from non-GAAP net income and non-GAAP EPS and evaluating non-GAAP net
income and non-GAAP EPS together with GAAP net income and EPS.
Adjusted EBITDA -- We define Adjusted EBITDA as net income minus
interest income, plus interest expense, tax expense and depreciation
and amortization expenses plus non-cash expenses for business
combination accounting for inventory revaluation and IPR&D. We feel
that providing this financial measure is important for management and
investors to understand our ability to service our debt and is a
measure of the cash generated by our core business. Management uses
Adjusted EBITDA as a performance measure for executive compensation. A
limitation to using Adjusted EBITDA is that it does not represent the
total increase or decrease in the cash balance for the period and the
measure includes some non-cash items and excludes other non-cash
items. Additionally, the expenses that we exclude in our calculation
of Adjusted EBITDA may differ from the expenses that our peer
companies exclude when they report the results. Management compensates
for this limitation by providing a reconciliation of this measure to
GAAP net income.
The accompanying tables have more detail on the GAAP financial
measures that are most directly comparable to the non-GAAP financial
measures and the related reconciliations between these financial
measures.
ITRON, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES
(Unaudited, in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2007 2006 2007 2006
--------- -------- --------- --------
Non-GAAP operating income:
GAAP operating income (loss) $(23,361) $17,660 $(14,061) $36,648
Amortization of intangible
assets 25,223 7,612 32,263 14,925
In-process research and
development 35,551 - 35,551 -
Purchase accounting
adjustment - inventory 16,023 - 16,023 -
--------- -------- --------- --------
Non-GAAP operating income $ 53,436 $25,272 $ 69,776 $51,573
--------- -------- --------- --------
Non-GAAP net income:
GAAP net income $(23,880) $10,204 $(16,700) $17,273
Amortization of intangible
assets 25,223 7,612 32,263 14,925
Amortization of debt
placement fees 1,964 301 2,706 3,036
In-process research and
development 35,551 - 35,551 -
Purchase accounting
adjustment - inventory 16,023 - 16,023 -
Income tax effect of non-
GAAP adjustments (27,200) (3,077) (30,175) (6,975)
--------- -------- --------- --------
Non-GAAP net income $ 27,681 $15,040 $ 39,668 $28,259
--------- -------- --------- --------
--------- -------- --------- --------
Non-GAAP diluted EPS $ 0.89 $ 0.57 $ 1.34 $ 1.08
--------- -------- --------- --------
Shares used in diluted EPS 31,248 26,360 29,621 26,216
--------- -------- --------- --------
Adjusted EBITDA:
GAAP net income (loss) $(23,880) $10,204 $(16,700) $17,273
Interest income (2,216) (360) (8,305) (722)
Interest expense 22,927 2,585 28,424 8,331
Income tax (benefit)
provision (14,759) 4,990 (10,539) 11,077
Depreciation and
amortization 35,696 11,353 47,156 22,291
In-process research and
development 35,551 - 35,551 -
Purchase accounting
adjustment - inventory 16,023 - 16,023 -
--------- -------- --------- --------
Adjusted EBITDA $ 69,342 $28,772 $ 91,610 $58,250
--------- -------- --------- --------
CONTACT: Itron, Inc.
Vice President, Investor Relations and
Corporate Communications
Deloris Duquette, 509-891-3523
deloris.duquette@itron.com