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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
February 13, 2007
-------------------------------------------------
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
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices, Zip Code)
(509) 924-9900
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(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 February 13, 2007, Itron, Inc. issued a press release announcing the
financial results for the three and twelve months ending December 31, 2006.
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.
The following exhibit is filed as part of this report:
Exhibit
Number Description
- --------- --------------------------------------------------------------------
99.1 Press Release dated February 13, 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: February 13, 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 February 13, 2007.
Exhibit 99.1
Itron Announces Strong Fourth Quarter and Record Full-Year Results
Sets Records for Backlog and Full-Year Revenue, Cash Flows from
Operations and Non-GAAP EPS
LIBERTY LAKE, Wash.--(BUSINESS WIRE)--Feb. 13, 2007--Itron, Inc.
(NASDAQ:ITRI), today reported financial results for its fourth quarter
and full-year ended December 31, 2006. Highlights include:
-- Quarterly and full-year revenues of $160 million and $644
million;
-- Quarterly and full-year new order bookings of $211 million and
$652 million;
-- Quarterly and full-year GAAP diluted EPS of $.28 and $1.28;
-- Quarterly and full-year non-GAAP diluted EPS of $.56 and
$2.39; and
-- Full-year cash flows from operations of $95 million.
"2006 was a banner year for Itron," said LeRoy Nosbaum, chairman
and CEO. "We set new records for revenue, backlog, non-GAAP earnings
per share and cash flow from operations. We delivered results to our
shareholders while continuing to build a platform to drive growth."
Full-Year Financial Summary:
Revenue was $644 million, an increase of 16.5% over 2005 revenue
of $553 million. Gross margin of 41.5% in 2006 was lower than gross
margin of 42.3% in 2005 due primarily to an increase in lower margin
installation revenue in 2006.
We report operating income, net income and earnings per share
(EPS) on a GAAP basis and on a non-GAAP basis. The non-GAAP measures
are described below and are reconciled to their most directly
comparable GAAP measures in the accompanying financial information.
GAAP net income and diluted EPS for 2005 included tax benefits of
approximately $14 million related to the restructuring of certain
foreign operations and prior year research and development credits.
These tax benefits are not reflected in non-GAAP measures of net
income or EPS. Operating income, net income and diluted EPS in 2006
were all positively impacted by the increase in revenues. Stock based
compensation in 2006 was $9.7 million compared to $739,000 in 2005.
The increase in 2006 was due to the adoption of FAS 123(R) on January
1, 2006.
-- GAAP operating income for 2006 was $61.7 million, or 9.6% of
revenues. This compares to GAAP operating income of $46.2
million, or 8.4% of revenues for 2005.
-- Non-GAAP operating income for 2006 of $101.5 million was 19%
higher than the $85.5 million for 2005.
-- GAAP net income for 2006 was a record $33.8 million, compared
with $33.1 million for 2005.
-- Non-GAAP net income for 2006 of $62.8 million was 38% higher
than 2005.
-- Despite slightly higher net income, diluted GAAP EPS of $1.28
for 2006 was less than 2005 diluted GAAP EPS of $1.33 due to
increased shares outstanding in 2006.
-- Non-GAAP diluted EPS for 2006 of $2.39 was approximately 30%
higher than 2005 non-GAAP diluted EPS of $1.84.
Q4 Financial Summary:
Revenue was $160 million, equal to revenue in the fourth quarter
of 2005 although we shipped about 250,000 fewer electricity meters in
the 2006 quarter due to the substantial completion of the Progress
Energy contract. Gross margin of 40.1% was slightly lower than the
40.5% in 2005 due primarily to shipments of our first-generation
advanced metering infrastructure (AMI) meters, which have higher costs
as expected. Quarterly GAAP net income and diluted EPS for 2005
included a tax benefit of approximately $8 million related to the
restructuring of certain foreign operations. This tax benefit was
excluded from non-GAAP results for 2005. 2006 operating income, net
income and diluted EPS were all negatively impacted by lower margin
AMI shipments as well as unplanned legal and accounting due diligence
fees of $1.1 million related to an acquisition opportunity we did not
complete and a $639,000 impairment charge related to our former
headquarters building. Stock based compensation was $2.9 million in
2006 compared with $340,000 in 2005.
-- GAAP operating income for 2006 was $9.2 million, or 5.8% of
revenues. This compares to GAAP operating income of $16.0
million, or 10.0% of revenues for 2005.
-- Non-GAAP operating income of $19.8 million in 2006 was
approximately $6 million lower than 2005.
-- GAAP net income for 2006 was $7.3 million compared with $16.9
million in 2005.
-- Non-GAAP net income of $14.7 million in 2006 was approximately
$1 million lower than 2005.
-- Diluted GAAP EPS in 2006 was 28 cents per diluted share
compared with 65 cents per diluted share in the 2005 period.
-- Diluted non-GAAP EPS for the fourth quarter was 56 cents
compared with 59 cents in the fourth quarter of 2005.
"We had excellent financial results for both the quarter and the
year," said Nosbaum. "Although our fourth quarter net income was
slightly less than we would have liked, it was caused in part by
activities that Itron will eventually benefit from, including our
initial AMI product shipments and related development efforts. The AMI
products were shipped at lower than normal margins because they are
new, which we expected. We also incurred legal and accounting charges
related to a potential acquisition opportunity that came up during the
quarter. We did not complete the acquisition, but felt that evaluating
the opportunity was in our best interest."
2006 Financial Highlights:
Revenue -- Hardware solutions revenue for the fourth quarter and
full-year 2006 of approximately $144 million and $585 million,
respectively was $2 million lower than the fourth quarter of 2005 but
$84 million higher than the full-year 2005. Electricity metering
revenue in 2006 was $8 million higher in the fourth quarter and $85
million higher in the full-year 2006 compared with 2005 due to a
strategic shift toward selling new electric meters with embedded AMR.
Shipments of electricity meters increased 12% in the fourth quarter
and 42% for the full-year of 2006 compared with the same periods in
2005. Meter data collection (MDC) revenues decreased approximately $10
million in the fourth quarter, yet full-year 2006 revenues were
comparable with 2005. The decrease in the quarter was due to lower
shipments of standalone electric meter modules and related royalties
due to the strategic selling shift to new electric meters with
embedded AMR and lower shipments of handheld computers in the fourth
quarter of 2006 offset somewhat by increased shipments of stand alone
gas AMR modules. Software revenues were $2 million and $8 million
higher in the quarter and full-year 2006 periods due to an increased
number of software projects.
Gross Margin -- Electricity metering gross margin of 34% was five
percentage points lower in the fourth quarter of 2006 and 2 percentage
points lower for the full-year than the same periods of 2005 due to a
larger level of lower margin installation revenue and initial
shipments of AMI products to a customer. There was no installation
revenue reflected in electricity metering in the 2005 period. MDC
gross margin of 46% in the fourth quarter and 45% in the full year of
2006 was six percentage points and two percentage points higher than
the comparable 2005 periods due to an increased proportion of revenue
associated with gas meter modules. Software solutions gross margin of
44% in the fourth quarter of 2006 was three percentage points lower
and full year margins were one percentage point lower than the same
periods of 2005 due primarily to the timing of completion of several
projects.
Operating Expenses -- Total operating expenses for the quarter of
$55 million were approximately $6 million higher than the fourth
quarter of 2005. The higher operating expenses in the quarter were
primarily driven by increased research and development expenses
related to our AMI initiative; unplanned legal and accounting due
diligence expenses for an acquisition opportunity we pursued but did
not complete; an impairment charge related to our former headquarter
building which is classified as held for sale; costs associated with
our corporate headquarters move; and an upgrade of our ERP system.
Operating expenses for the full-year 2006 are more than $18 million
higher than the full year of 2005 for the same reasons. Although
operating expenses were higher in the 2006 full-year, as a percentage
of revenue they decreased two percentage points from the full-year
2005.
Stock-Based Compensation -- In the fourth quarter of 2006 total
stock based compensation expense was $2.9 million, $2.7 million of
which is due to the adoption of FAS 123(R). For the full-year 2006 our
total stock-based compensation was $9.7 million, $8.6 million of which
was due to the adoption of FAS 123(R). Stock-based compensation in the
2005 periods was $340,000 and $739,000, respectively.
Interest and Other Income -- Interest income of $5.3 million in
the fourth quarter and $9.5 million for the full-year 2006 was
substantially higher than the $135,000 and $302,000 in the comparable
periods of 2005. The increased interest income in the 2006 periods is
due to interest earned on the investment of net proceeds from our $345
million convertible debt issuance in August of 2006. Interest expense
of $5.4 million for the fourth quarter of 2006 was higher than the
fourth quarter of 2005 due to interest expense and debt amortization
fees associated with our outstanding convertible debt. Interest
expense of $17.8 million for the full-year 2006 was lower than 2005
due primarily to repayment of variable rate debt in 2005 and early
2006.
Income Taxes -- Our effective tax rate was 17% for the fourth
quarter of 2006 and 35.4% for the full year. The effective rate for
the quarter includes the annual benefit of the federal research and
development tax credit which was recently renewed. Our effective rate
in the fourth quarter and full year 2005 was a benefit of 37% and
20.1%, respectively. The effective rate in 2005 was impacted
positively by $8.2 million and $14.1 million for the quarter and
full-year related to discrete tax benefits from restructuring of
certain foreign operations and the recognition of prior year research
and development credits. Our non-GAAP tax rates were 27% and 34.8% for
the fourth quarter and full-year 2006 compared to 32.6% and 36.4% for
the fourth quarter and full-year 2005.
New Order Bookings and Backlog -- New order bookings for the
fourth quarter were $211 million compared to $149 million in the
fourth quarter of 2005. New order bookings for 2006 were $652 million,
compared to $655 million in 2005. Full-year 2005 new order bookings
included our largest contract to date of $118 million for Progress
Energy, which has been substantially completed. Our 2006 book-to-bill
ratios were 1.4 for the quarter and 1.1 for the full-year. Total
backlog at December 31, 2006 was $392 million compared to $324 million
one year ago. Twelve month backlog at December 31, 2006 was $225
million, which is 20% higher than the $188 million in twelve-month
backlog at the end of 2005.
Cash Flow from Operations -- Net cash provided by operating
activities of $95 million for the full-year 2006 was up 19% from $80
million in 2005. Earnings before interest, taxes, depreciation and
amortization and non-cash stock based compensation expenses in 2006
(Adjusted EBITDA), which is used as an internal performance indicator
and a measure of our ability to service debt, was $115 million for the
year compared with $98 million for the full year 2005.
Forward Looking Statements:
This release contains forward-looking statements concerning our
expectations about our 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 and other factors which are
more fully described in our Annual Report on Form 10-K for the year
ended December 31, 2005 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 and does not include
the effect of any pending or future acquisitions. 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 $680 and $700 million;
-- Diluted non-GAAP EPS of between $2.70 and $2.90 (excludes
approximately $0.27 - $0.31 of stock-based compensation
expense);
-- Adjusted EBITDA of $130 to $135 million; and
-- First quarter revenues between $140 and $150 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, EBITDA 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 and non-cash stock based compensation. 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 or
non-cash 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. (PST) on February 13, 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. (PST). 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 # 5745059.
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, 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, segment information, balance sheets,
cash flow statements and reconciliations between GAAP and non-GAAP
financial measures follow.
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended Twelve Months Ended
December 31, December 31,
---------------------------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Revenues
Sales $147,056 $147,574 $593,990 $503,270
Service 12,917 12,378 50,052 49,420
--------- --------- --------- ---------
Total revenues 159,973 159,952 644,042 552,690
Cost of revenues
Sales 88,931 88,257 349,210 291,445
Service 6,831 6,841 27,390 27,624
--------- --------- --------- ---------
Total cost of
revenues 95,762 95,098 376,600 319,069
--------- --------- --------- ---------
Gross profit 64,211 64,854 267,442 233,621
Operating expenses
Sales and marketing 16,609 16,186 63,587 56,642
Product development 15,358 11,942 58,774 47,077
General and
administrative 15,109 11,047 52,213 44,428
Amortization of
intangible assets 7,916 9,703 31,125 38,846
Restructurings - - - 390
--------- --------- --------- ---------
Total operating
expenses 54,992 48,878 205,699 187,383
--------- --------- --------- ---------
Operating income 9,219 15,976 61,743 46,238
Other income (expense)
Interest income 5,308 135 9,497 302
Interest expense (5,426) (3,664) (17,785) (18,944)
Other income (expense),
net (344) (88) (1,220) (68)
--------- --------- --------- ---------
Total other income
(expense) (462) (3,617) (9,508) (18,710)
--------- --------- --------- ---------
Income before income taxes 8,757 12,359 52,235 27,528
Income tax (provision)
benefit (1,486) 4,570 (18,476) 5,533
--------- --------- --------- ---------
Net income $ 7,271 $ 16,929 $ 33,759 $ 33,061
--------- --------- --------- ---------
Earnings per share
Basic $ 0.28 $ 0.68 $ 1.33 $ 1.41
--------- --------- --------- ---------
Diluted $ 0.28 $ 0.65 $ 1.28 $ 1.33
--------- --------- --------- ---------
Weighted average number of shares
outstanding
Basic 25,624 24,823 25,414 23,394
Diluted 26,378 25,984 26,283 24,777
ITRON, INC.
SEGMENT INFORMATION
(Unaudited, in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
---------------------------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Revenues
Hardware Solutions
Electricity Metering $ 74,611 $ 66,437 $325,031 $239,763
Meter Data Collection 69,101 79,489 260,399 261,995
--------- --------- --------- ---------
Total Hardware Solutions 143,712 145,926 585,430 501,758
Software Solutions 16,261 14,026 58,612 50,932
--------- --------- --------- ---------
Total Company $159,973 $159,952 $644,042 $552,690
--------- --------- --------- ---------
Gross profit
Hardware Solutions
Electricity Metering $ 25,484 $ 26,163 $125,876 $ 99,386
Meter Data Collection 31,614 32,092 116,746 112,504
--------- --------- --------- ---------
Total Hardware Solutions 57,098 58,255 242,622 211,890
Software Solutions 7,113 6,599 24,820 21,731
--------- --------- --------- ---------
Total Company $ 64,211 $ 64,854 $267,442 $233,621
--------- --------- --------- ---------
Operating income (loss)
Hardware Solutions
Electricity Metering $ 21,192 $ 21,514 $110,262 $ 82,018
Meter Data Collection 25,175 26,811 92,847 91,412
Other unallocated costs (8,879) (7,252) (37,048) (25,395)
--------- --------- --------- ---------
Total Hardware Solutions 37,488 41,073 166,061 148,035
Software Solutions (1,799) (1,977) (11,497) (10,547)
Corporate unallocated (26,470) (23,120) (92,821) (91,250)
--------- --------- --------- ---------
Total Company $ 9,219 $ 15,976 $ 61,743 $ 46,238
--------- --------- --------- ---------
Three Months Ended Twelve Months Ended
December 31, December 31,
---------------------------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Unit Shipments by Segment
Electricity Metering
Total Meters 1,450 1,300 6,625 4,675
With Itron AMR 675 875 4,000 2,250
With Other AMR 225 100 925 675
Meter Data Collection
AMR standalone modules 1,075 1,225 4,300 4,300
Licensed AMR (other
vendors' meters) 25 250 325 800
(1)Total Units Itron with
AMR 1,775 2,350 8,625 7,350
Growth in total Itron AMR
shipments -24% 17%
(1)Includes Itron meters with Itron AMR, Itron AMR standalone modules
and other vendors' electronic electricity meters with Itron AMR.
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
December 31,
-------------------
2006 2005
--------- ---------
ASSETS
Current assets
Cash and cash equivalents $361,405 $ 33,638
Short-term investments, held to maturity 34,583 -
Accounts receivable, net 109,924 104,428
Inventories 52,496 49,456
Deferred income taxes, net 20,916 23,194
Other 17,121 10,941
--------- ---------
Total current assets 596,445 221,657
Property, plant and equipment, net 88,689 77,623
Intangible assets, net 112,682 123,293
Goodwill 126,266 116,032
Deferred income taxes, net 47,400 48,955
Other 17,040 11,324
--------- ---------
Total assets $988,522 $598,884
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 43,922 $ 46,215
Wages and benefits payable 24,214 23,732
Current portion of debt - 4,376
Current portion of warranty 7,999 8,497
Unearned revenue 27,449 22,758
--------- ---------
Total current liabilities 103,584 105,578
Long-term debt 469,324 160,186
Project financing debt - 2,367
Warranty 10,149 6,779
Contingent purchase price 5,879 -
Other obligations 8,604 6,440
--------- ---------
Total liabilities 597,540 281,350
Commitments and contingencies
Shareholders' equity
Preferred stock - -
Common stock 351,018 312,046
Accumulated other comprehensive income, net 1,588 871
Retained earnings 38,376 4,617
--------- ---------
Total shareholders' equity 390,982 317,534
--------- ---------
Total liabilities and shareholders'
equity $988,522 $598,884
--------- ---------
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Year Ended December
31,
---------------------
2006 2005
---------- ----------
Operating activities
Net income $ 33,759 $ 33,061
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 46,234 51,572
Employee stock plans income tax benefits 13,547 15,146
Excess tax benefits from stock-based
compensation (9,717) -
Stock-based compensation 9,689 739
Amortization of prepaid debt fees 4,526 5,031
Deferred income taxes, net 1,624 (22,017)
Other, net 828 2,278
Changes in operating assets and liabilities, net
of acquisitions:
Accounts receivable (3,275) (14,183)
Inventories (1,599) (3,997)
Accounts payable and accrued expenses (8,278) 4,432
Wages and benefits payable (1,774) 9,282
Unearned revenue 5,698 156
Warranty 2,872 3,831
Other long-term obligations (486) (511)
Other, net 1,125 (5,203)
---------- ----------
Net cash provided by operating
activities 94,773 79,617
Investing activities
Purchases of investments, held to maturity (204,995) -
Proceeds from the maturities of investments,
held to maturity 170,434 -
Acquisitions of property, plant and equipment (31,739) (31,973)
Business acquisitions, net of cash and cash
equivalents acquired (21,121) -
Other, net 1,922 1,402
---------- ----------
Net cash used in investing activities (85,499) (30,571)
Financing activities
Proceeds from borrowings 345,000 14,800
Payments on debt (42,703) (126,196)
Issuance of common stock 15,250 84,727
Excess tax benefits from stock-based
compensation 9,717 -
Prepaid debt fees (8,771) (391)
Other, net - 28
---------- ----------
Net cash provided by (used in) financing
activities 318,493 (27,032)
Increase in cash and cash equivalents 327,767 22,014
Cash and cash equivalents at beginning of year 33,638 11,624
---------- ----------
Cash and cash equivalents at end of year $ 361,405 $ 33,638
---------- ----------
Itron, Inc.
About Non-GAAP Financial Measures
The accompanying press release dated February 13, 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
stock option compensation expense and amortization of intangibles and
non-recurring discrete cash charges that are infrequent in nature such
as in-process research and development. 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 stock-based compensation, restructuring and
amortization of intangible expenses. We consider this non-GAAP
financial measure to be a useful metric for management and investors
because it excludes the effects of expenses that were not in prior
periods or are related to 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,
given our recent adoption of SFAS 123 (R), it is difficult for
investors to evaluate our GAAP results of operations on a
year-over-year basis because GAAP results in 2005 did not include
stock-based compensation expenses. Additionally, we believe that
excluding restructuring charges and amortization of intangible assets
enables management and investors to analyze trends in our operations.
For example, expenses related to amortization of intangible assets has
been decreasing, which is improving GAAP operating margins, yet the
improvement in GAAP operating margins due to this lower expense is not
reflective of an improvement in our core business. 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, namely stock-based compensation,
that are recurring and are an important part of our employee's
compensation and impacts their performance. 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, restructuring charges, amortization of debt fees
and stock-based compensation as well as the tax effects of each item.
In 2005 we had tax benefits related to restructuring foreign entities
and prior year research and development tax credits that we exclude
from non-GAAP income as we believe the benefit was not indicative of
an improvement in our core business operations. 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,
amortization expenses and non-cash stock-based compensation. We feel
that providing this financial measure is important for management and
investors to understand our ability to service our debt and measures
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 Twelve Months Ended
December 31, December 31,
---------------------------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Non-GAAP Operating Income:
GAAP operating income $ 9,219 $ 15,976 $ 61,743 $ 46,238
Amortization of
intangible assets 7,916 9,703 31,125 38,846
Restructurings - - - 390
Non-cash stock based
compensation expense 2,702 - 8,646 -
--------- --------- --------- ---------
Non-GAAP operating income $ 19,837 $ 25,679 $101,514 $ 85,474
--------- --------- --------- ---------
Non-GAAP Net Income:
GAAP net income $ 7,271 $ 16,929 $ 33,759 $ 33,061
Amortization of
intangible assets 7,916 9,703 31,125 38,846
Amortization of debt
placement fees 742 665 4,377 4,888
Restructurings - - - 390
Non-cash stock based
compensation expense 2,702 - 8,646 -
Discrete tax benefits - (8,200) - (14,100)
Income tax effect of
non-GAAP adjustments (3,960) (3,778) (15,065) (17,529)
--------- --------- --------- ---------
Non-GAAP net income $ 14,671 $ 15,319 $ 62,842 $ 45,556
--------- --------- --------- ---------
--------- --------- --------- ---------
Non-GAAP diluted EPS $ 0.56 $ 0.59 $ 2.39 $ 1.84
--------- --------- --------- ---------
Shares used in diluted
EPS 26,378 25,984 26,283 24,777
--------- --------- --------- ---------
Adjusted EBITDA:
GAAP net income $ 7,271 $ 16,929 $ 33,759 $ 33,061
Interest income (5,308) (135) (9,497) (302)
Interest expense 5,426 3,664 17,785 18,944
Income tax provision
(benefit) 1,486 (4,570) 18,476 (5,533)
Depreciation and
amortization 11,968 12,787 46,234 51,572
Non-cash stock based
compensation expense 2,702 - 8,646 -
--------- --------- --------- ---------
Adjusted EBITDA $ 23,545 $ 28,675 $115,403 $ 97,742
--------- --------- --------- ---------
See "About non-GAAP Financial Measures" immediately preceding this
table for information on these measures, the items excluded from the
most directly comparable GAAP measures in arriving at non-GAAP
financial measures and the reasons that management uses each measure
and excludes the specified amounts in arriving at each non-GAAP
financial measure.
CONTACT: Itron, Inc.
Deloris Duquette, 509-891-3523
Vice President, Investor Relations and
Corporate Communications
deloris.duquette@itron.com