View:
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
November 2, 2004
--------------------------------------
Date of Report (Date of Earliest Event Reported)
ITRON, INC.
----------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Washington 000-22418 91-1011792
- ---------------------------- --------------------- ----------------------
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
2818 N. Sullivan Road, Spokane, WA 99216
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices, Zip Code)
(509) 924-9900
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
None
- --------------------------------------------------------------------------------
(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.
(c) Exhibits.
On November 2, 2004, Itron, Inc. issued a press release announcing
the financial results for the third quarter ending September 30,
2004. A copy of this press release and accompanying financial
statements are attached as Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits.
The following exhibits are filed as part of this report:
Exhibit
Number Description
- ----------- ----------------------------------------------------------------
99.1 Press Release dated November 2, 2004.
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: November 2, 2004 By: /s/ DAVID G. REMINGTON
----------------------
David G. Remington
Vice President and Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description
- ----------- ----------------------------------------------------------------
99.1 Press release dated November 2, 2004
EXHIBIT 99.1
Itron Reports Third Quarter Financial Results
SPOKANE, Wash.--(BUSINESS WIRE)--Nov. 2, 2004--
Q3 04 EPS of 8 cents (GAAP) and 32 cents (Pro forma) on Revenues
of $122.5 Million $20.4 Million of Cash Flow from Operations in Q3 04
Itron, Inc. (NASDAQ:ITRI), today reported its financial results
for the quarter ended September 30, 2004.
On July 1, 2004, we completed the acquisition of Schlumberger's
Electricity Metering Business (SEM). The SEM acquisition included
Schlumberger's electricity meter manufacturing and sales operations in
the United States and the electricity meter operations of certain
foreign affiliates of Schlumberger in Canada, Mexico, Taiwan and
France. This acquisition now represents our Hardware Solutions
Electricity Metering operating segment.
Third quarter total Company revenues were $122.5 million compared
with $82.1 million in the third quarter of 2003. For the nine months
ended September 30, total Company revenues were $267.7 million in
2004, compared with $237.0 million in 2003.
-- Hardware Solutions Electricity Metering revenues in the
quarter were $54.2 million.
-- Hardware Solutions Meter Data Collection revenues declined 18%
and 10% in the third quarter and year-to-date periods in 2004,
compared with 2003, due to lower handheld meter reading
revenues and lower shipments of automatic meter reading (AMR)
hardware.
-- Software Solutions revenues declined 13% and 7% in the third
quarter and year-to-date periods in 2004, compared with 2003,
due to lower license fees for certain commercial and
industrial software products and fewer implementation and
consulting services.
Excluding Electricity Metering, third quarter results continued to
reflect the trend we have experienced over the past twelve to eighteen
months -- industry-wide order activity from large investor owned
utilities has slowed compared to prior periods, primarily due to a
lower level of capital spending by utilities. However, our estimated
share of the AMR market remained essentially constant.
-- New order bookings for Meter Data Collection and Software
Solutions were $45 million for the quarter compared with $67
million in the third quarter of 2003. Year-to-date, new order
bookings for these businesses increased slightly and were $177
million compared with $168 million in 2003.
-- Total Meter Data Collection and Software Solutions backlog at
September 30, 2004 was $140 million compared with $169 million
a year ago. Twelve-month backlog, which represents the portion
of backlog that will be earned over the next twelve months,
was $67 million at September 30, 2004, compared with $69
million a year ago.
-- At September 30, 2004, our Electricity Metering segment had
meter purchase orders in hand of $36.9 million for shipments
that extend through the first quarter of 2005.
-- In the first week of October, we signed a $15 million order
with Xcel Energy for 50,000 meters and approximately 200,000
AMR endpoints along with installation and contract management
services.
On a GAAP basis, Itron had net income of $1.7 million in the
quarter, or 8 cents per diluted share, compared with $5.0 million, or
23 cents per diluted share in the third quarter of 2003. Year-to-date
GAAP net income was $1.8 million, or 8 cents per diluted share,
compared with $12.1 million, or 56 cents per diluted share in 2003.
Pro forma net income for the third quarter was $7.1 million, or 32
cents per diluted share, compared with $6.8 million, or 31 cents per
diluted share in the third quarter of 2003. Year-to-date pro forma net
income was $11.5 million, or 52 cents per diluted share, compared with
$19.5 million, or 90 cents per diluted share in 2003. Pro forma
earnings exclude intangible asset and debt placement fee amortization
expenses, restructurings, in-process R&D and extraordinary litigation
accruals. A schedule reconciling income between GAAP and pro forma is
attached to this release.
Total company gross margin for the third quarter was 40% in 2004
compared with 48% in 2003. Year-to-date gross margin was 43% in 2004
compared with 49% in 2003.
-- Electricity Metering gross margin was 39% for the quarter and
year-to-date. Segment gross margin would have been
approximately 4% higher except for a purchase accounting
adjustment of finished goods inventory sold in the quarter
which valued finished goods inventory at net realizable value.
The $2.3 million purchase accounting adjustment resulted in
lower GAAP and pro forma EPS in the third quarter of
approximately 6 cents.
-- Meter Data Collection gross margin was 42% and 46% for the
quarter and year-to-date periods in 2004, compared with 52%
for the same periods in 2003. The decrease in gross margin in
2004 reflects a mix shift in hardware, including the mix of
AMR units, as well as increased sales through indirect
channels.
Software Solutions gross margin was 36% and 35% for the quarter
and year-to-date periods in 2004, compared with 31% for the same
periods in 2003. Improved margin resulted from staffing reductions
earlier in 2004 and higher maintenance revenues due to a higher
installed base.
Sales and marketing, product development and general and
administrative expenses were 27% and 33% of revenues for the third
quarter and year-to-date periods in 2004, compared with 35% for the
same periods in 2003. The decreases as a percentage of revenues in
2004 reflect the lower level of spending required for Electricity
Metering marketing and product development due to its more narrowly
focused product line.
The purchase price for SEM was approximately $256 million which
consists of approximately $249 million in cash plus approximately $7
million of capitalized direct transaction costs. In addition, we
incurred approximately $14 million of debt related costs which will be
amortized over the life of the borrowings. We used proceeds from a new
$185 million senior secured credit facility term loan and $125 million
in Senior Subordinated Notes to finance the acquisition, pay related
fees and expenses and repay approximately $50 million of outstanding
debt under our existing credit facility. The preliminary allocation of
the SEM purchase price includes, among other items, approximately $58
million for the fair value of net assets acquired, approximately $97
million of intangible assets and approximately $101 million of
goodwill. The preliminary values of intangible assets, and the
consequent value of goodwill, are based on a high level analysis
completed prior to closing the acquisition of SEM.
We are in the process of completing a more comprehensive valuation
analysis that is based on more detailed information that was not
available to us prior to the closing. The initial indication from that
analysis is that a significantly higher amount will be allocated to
identifiable intangible assets, with a significantly lower amount of
resulting goodwill. In addition, a portion of the purchase price will
be allocated to in-process R&D, which will be expensed. Allocating a
higher amount of the purchase price to identifiable intangible assets,
and the allocation to in-process R&D, will have a material impact on
the amount of our reported GAAP net income and EPS but will not have
an impact on pro forma net income or EPS. We expect to issue an 8-K in
the fourth quarter that reflects an updated reallocation of the SEM
purchase price when our review of the more detailed valuation analysis
is completed and expect the anticipated higher figures will result in
negative GAAP net income and GAAP EPS for the fourth quarter.
Higher intangible amortization expenses and interest expenses for
the quarter and year-to-date periods in 2004 are attributable to the
SEM acquisition. Approximately $4.4 million of the $5.1 million in
interest expense for the third quarter represents interest to be paid
in cash with the balance representing amortization of debt fees and
debt discount amortization. Year-to-date interest to be paid in cash
was $7.0 million of the $8.2 million in interest expense.
Operating activities generated $20.4 million in cash during the
quarter compared to $7.0 million in the third quarter of last year.
Year-to-date, cash generated by operations was $27.5 million in 2004
compared with $16.2 million in 2003. The higher operating cash flow in
2004 results partially from our new Electricity Metering operations,
but as well, from higher collections on accounts receivable, offset by
inventory build ups and the use of cash for a warranty issue accrued
for during 2003.
We made an optional $10 million repayment at the end of the
quarter on the term loan issued on July 1, 2004 in connection with the
SEM acquisition. At September 30, 2004 the term loan balance was
$174.5 million, $1.9 million of which was reflected as current. On
October 18, 2004, we made an additional optional repayment on the term
loan of $10 million.
"We exceeded our third quarter earnings forecast with a strong
performance from our electricity metering operations," said LeRoy
Nosbaum, chairman and CEO. "We are also achieving better performance
in other areas of our business as some of our recent cost cutting
actions begin to yield results. We are very pleased with our strong
execution and financial results in the first quarter following a major
acquisition. We believe we have positioned the company for improved
profitability despite what continues to be a challenging environment
for utility capital spending."
Business Outlook:
We have slightly reduced our expectations for revenues but are
maintaining the low end of the range of our previous expectations for
pro forma earnings for the second half of 2004. For the fourth quarter
of 2004, we expect revenues to be between $122 and $125 million
resulting in revenues for the full year 2004 between $390 and $393
million. We expect pro forma net income for the fourth quarter of 2004
to be between $8.4 and $9.1 million, or 38 to 41 cents per diluted
share, resulting in full year 2004 pro forma net income between $19.9
and $20.6 million, or 90 to 93 cents per share.
The company intends to provide guidance on its 2005 outlook early
in 2005. "While we believe we are seeing signs that the capital
spending environment is improving for some of our customers, we need
to get further through the fourth quarter and our planning process for
2005 before we will be ready to provide more specifics about our
outlook for 2005," added Nosbaum.
Use of Pro Forma Financial Information:
To supplement our consolidated financial statements presented in
accordance with GAAP, we use pro forma measures of operating results,
net income and earnings per share. Pro forma results are adjusted from
GAAP-based results to exclude certain costs, expenses and expense
reversals that we believe are not indicative of our core operating
results. In the current quarter, we modified our calculation of pro
forma results to exclude the amortization of debt placement fees, as
the fees capitalized in connection with the SEM acquisition are
significant, the amount of debt placement fee amortization can vary
from period to period depending on the amount of optional repayments
of the debt, and we believe our results without that amortization are
a more meaningful measure of our business performance.
Pro forma results are one of the primary indicators management
uses for evaluating historical results and for planning and
forecasting future periods. We believe the pro forma results provide
useful information to investors that enhance their overall
understanding of our current financial performance as well as our
future prospects. We have historically provided pro forma results and
believe the inclusion of them provides investors with consistency in
our financial reporting. Pro forma results should be viewed in
addition to, and not in lieu of, GAAP results.
Earnings Conference Call:
Itron will host a conference call to discuss the financial results
for the quarter at 1:45 p.m. PT on November 2, 2004. The call will be
webcast in a listen only mode by Thomson/CCBN and can be accessed
online at www.itron.com, "About Itron - Investor Events." Investors
may also listen to the live call through Thomson's StreetEvents
Network at www.fulldisclosure.com or www.streetevents.com. The live
webcast will begin at 1:45 p.m. (PT) and webcast replays will begin
shortly after the conclusion of the live call and will be available
for two weeks. A telephone replay of the call will also be available
approximately one hour after the conclusion of the live call, for 48
hours, and is accessible by dialing (888) 203-1112 (Domestic) or (719)
457-0820 (International), and entering passcode #911864.
Forward-Looking Statements:
This release contains forward-looking statements concerning
Itron's operations, financial performance, sales, earnings and cash
flow. These statements reflect our current plans and expectations and
are based on information currently available. They rely on a number of
assumptions and estimates, which could be inaccurate, and which are
subject to risks and uncertainties that could cause our actual results
to vary materially from those anticipated. Risks and uncertainties
include the rate and timing of customer demand for the Company's
products, potential disruptions in operations associated with further
integration of the SEM acquisition, rescheduling of current customer
orders, changes in estimated liabilities for product warranties,
changes in laws and regulations, and other factors which are more
fully described in our Annual Report on Form 10-K for the year ended
December 31, 2003 and Form 10-Qs for the quarters ended March 31, 2004
and June 30, 2004 on file with the Securities and Exchange Commission.
Itron undertakes no obligation to update publicly or revise any
forward-looking statements.
About Itron:
Itron is a leading technology provider and critical source of
knowledge to the global energy and water industries. More than 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, reconciliation between reported and pro
forma income and EPS, balance sheets and segment information follow.
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands,
except per share data) Three Months Nine Months
Ended Ended
September 30, September 30,
Revenues 2004 2003 2004 2003
--------- -------- --------- ---------
Sales $107,327 $70,672 $230,358 $204,530
Service 15,177 11,407 37,390 32,458
--------- -------- --------- ---------
Total revenues 122,504 82,079 267,748 236,988
--------- -------- --------- ---------
Cost of revenues
Sales 61,428 33,810 127,259 97,300
Service 11,591 8,741 24,874 23,944
--------- -------- --------- ---------
Total cost of revenues 73,019 42,551 152,133 121,244
--------- -------- --------- ---------
Gross profit 49,485 39,528 115,615 115,744
Operating expenses
Sales and marketing 12,045 10,672 31,971 30,961
Product development 11,893 10,841 32,669 31,774
General and administrative 9,201 6,866 24,479 20,743
Amortization of intangibles 7,217 2,391 11,271 7,044
Restructurings 1,571 - 4,005 2,208
In-process research and
development - - - 900
Litigation accrual - 500 - 500
--------- -------- --------- ---------
Total operating expenses 41,927 31,270 104,395 94,130
--------- -------- --------- ---------
Operating income 7,558 8,258 11,220 21,614
Other income (expense)
Equity in affiliates 13 110 13 162
Interest income 24 68 152 265
Interest expense (5,147) (832) (8,162) (2,217)
Other income (expense), net 248 458 (487) 422
--------- -------- --------- ---------
Total other income (expense) (4,862) (196) (8,484) (1,368)
--------- -------- --------- ---------
Income before income taxes 2,696 8,062 2,736 20,246
Income tax provision (1,026) (3,034) (986) (8,129)
--------- -------- --------- ---------
Net income $1,670 $5,028 $1,750 $12,117
--------- -------- --------- ---------
Earnings per share
Basic net income per share $0.08 $0.25 $0.08 $0.60
--------- -------- --------- ---------
Diluted net income per share $0.08 $0.23 $0.08 $0.56
--------- -------- --------- ---------
Weighted average number of
shares outstanding
Basic 20,978 20,478 20,827 20,364
Diluted 22,050 21,880 22,005 21,699
ITRON, INC.
RECONCILIATION BETWEEN GAAP AND PRO FORMA INCOME AND EPS
(Unaudited, in thousands, except per
share data) Three Months Nine Months
Ended Ended
September 30, September 30,
PRO FORMA NET INCOME 2004 2003 2004 2003
------- ------- -------- --------
GAAP basis income before income
taxes $2,696 $8,062 $2,736 $20,246
Adjustments to net income
Amortization of intangibles 7,217 2,391 11,271 7,044
Amortization of debt placement
fees 714 204 1,112 490
Restructurings 1,571 - 4,005 2,208
In-process research and
development - - - 900
Litigation accrual - 500 - 500
------- ------- -------- --------
Total adjustments 9,502 3,095 16,388 11,142
Adjusted income before income taxes 12,198 11,157 19,124 31,388
Income tax provision (5,099) (4,326) (7,688) (11,893)
------- ------- -------- --------
Pro forma net income $7,099 $6,831 $11,436 $19,495
------- ------- -------- --------
PRO FORMA EARNINGS PER SHARE
Basic
Weighted average number of basic
shares outstanding 20,978 20,478 20,827 20,364
.
Basic pro forma net income per share $0.34 $0.33 $0.55 $0.96
------- ------- -------- --------
Diluted
Weighted average number of basic
shares outstanding 20,978 20,478 20,827 20,364
Employee stock option shares 1,072 1,402 1,178 1,335
------- ------- -------- --------
Weighted average number of diluted
shares outstanding 22,050 21,880 22,005 21,699
Pro forma net income $7,099 $6,831 $11,436 $19,495
------- ------- -------- --------
Diluted pro forma net income per
share $0.32 $0.31 $0.52 $0.90
------- ------- -------- --------
ITRON, INC.
RECONCILIATION BETWEEN GAAP NET INCOME AND EBITDA
(Unaudited, in thousands)
Three Months Nine Months
Ended Ended
September 30, September 30,
2004 2003 2004 2003
-------- -------- -------- --------
GAAP basis net income $1,670 $5,028 $1,750 $12,117
Adjustments to net income
Interest income (24) (68) (152) (265)
Interest expense 5,147 832 8,162 2,217
Income tax expense 1,026 3,034 986 8,129
Depreciation and amortization 10,096 4,816 18,926 14,090
In-process research and
development - - - 900
-------- -------- -------- --------
Total adjustments 16,245 8,614 27,922 25,071
-------- -------- -------- --------
EBITDA $17,915 $13,642 $29,672 $37,188
-------- -------- -------- --------
ITRON, INC.
SEGMENT INFORMATION
(Unaudited, in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
--------- -------- --------- ---------
Revenues
Hardware Solutions
Meter Data Collection $56,798 $68,876 $178,714 $199,516
Electricity Metering 54,195 - 54,195 -
--------- -------- --------- ---------
Total Hardware Solutions 110,993 68,876 232,909 199,516
Software Solutions 11,511 13,203 34,839 37,472
--------- -------- --------- ---------
Total Company $122,504 $82,079 $267,748 $236,988
--------- -------- --------- ---------
Gross profit
Hardware Solutions
Meter Data Collection $24,129 $35,495 $82,215 $104,223
Electricity Metering 21,183 - 21,183 -
--------- -------- --------- ---------
Total Hardware Solutions 45,312 35,495 103,398 104,223
Software Solutions 4,173 4,033 12,217 11,521
--------- -------- --------- ---------
Total Company $49,485 $39,528 $115,615 $115,744
--------- -------- --------- ---------
Operating income (loss)
Hardware Solutions
Meter Data Collection $18,925 $29,800 $66,767 $86,936
Electricity Metering 17,285 - 17,285 -
Other unallocated costs (281) (70) (604) (208)
--------- -------- --------- ---------
Total Hardware Solutions 35,929 29,730 83,448 86,728
Software Solutions (3,817) (4,559) (12,982) (16,196)
Corporate unallocated (24,554) (16,913) (59,246) (48,918)
--------- -------- --------- ---------
Total Company $7,558 $8,258 $11,220 $21,614
--------- -------- --------- ---------
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands) September December
30, 31,
2004 2003
--------- ---------
ASSETS
Current assets
Cash and cash equivalents $11,324 $6,240
Accounts receivable, net 80,018 70,782
Inventories 50,946 16,037
Deferred income taxes, net 13,600 11,673
Other 7,080 4,557
--------- ---------
Total current assets 162,968 109,289
Property, plant and equipment, net 61,268 42,818
Intangible assets, net 108,763 22,979
Goodwill 191,712 90,385
Prepaid debt fees 11,719 -
Deferred income taxes, net 31,055 31,755
Other 1,810 6,263
--------- ---------
Total assets $569,295 $303,489
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $34,127 $26,236
Wages and benefits payable 15,841 10,711
Short-term borrowings - 10,000
Current portion of debt 2,632 38,245
Current portion of warranty 6,950 13,939
Unearned revenue 10,886 12,004
--------- ---------
Total current liabilities 70,436 111,135
Long-term debt 296,802 -
Project financing debt 3,432 4,024
Warranty 6,336 3,536
Other obligations 6,730 7,550
--------- ---------
Total liabilities 383,736 126,245
Shareholders' equity
Preferred stock - -
Common stock 206,902 200,567
Accumulated other comprehensive income (loss) 94 (136)
Accumulated deficit (21,437) (23,187)
--------- ---------
Total shareholders' equity 185,559 177,244
--------- ---------
Total liabilities and
shareholders' equity $569,295 $303,489
--------- ---------
CONTACT: Itron, Inc.
Mima Scarpelli,
VP, Investor Relations and Corporate Communications
509-891-3565
mima.scarpelli@itron.com
KEYWORD: WASHINGTON
INDUSTRY KEYWORD: HARDWARE UTILITIES EARNINGS CONFERENCE CALLS
SOURCE: Itron, Inc.