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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(mark one)
- --X--- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
- ------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-22418
ITRON, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1011792
(State of Incorporation) (I.R.S. Employer Identification Number)
2818 North Sullivan Road
Spokane, Washington 99216-1897
(509) 924-9900
(Address and telephone number of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the
past 90 days. Yes__X___ No_____
As of July 31, 1997, there were outstanding 14,460,304 shares of the
registrant's common stock, no par value, which is the only class of common or
voting stock of the registrant.
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<PAGE>
ITRON, INC.
INDEX
Part 1: Financial Information
Page
Item 1: Financial Statements (Unaudited)
Consolidated Statements of
Operations.....................................................................1
Consolidated Balance
Sheets.........................................................................2
Consolidated Statements of Cash
Flows..........................................................................3
Notes to Consolidated Financial
Statements...................................................................4-5
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of
Operations...................................................................6-9
Part 2: Other Information
Item 1: Legal
Proceedings...................................................................10
Item 4: Submission of Matters to a Vote of Security Holders..................10
Item 6: Exhibits and Reports on Form
8-K...........................................................................11
Signature.....................................................................12
Exhibit 11 - Statement re Computation of Per Share
Earnings......................................................................13
<PAGE>
Part 1: Financial Information
Item 1: Financial Statements
<TABLE>
<CAPTION>
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three months ended June 30, Six months ended June 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
-------------- ------------- ------------- -------------
Revenues
AMR systems $ 32,644 $ 35,006 $ 57,904 $ 69,605
Handheld systems 13,465 13,102 23,025 23,860
Outsourcing services 6,623 87 12,386 2,782
-------------- ------------- ------------- -------------
Total revenues 52,732 48,195 93,315 96,247
Cost of sales and services
AMR systems 19,699 20,444 34,853 38,499
Handheld systems 9,101 6,699 16,070 13,273
Outsourcing services 4,641 58 9,482 1,979
-------------- ------------- ------------- -------------
Total costs of sales and services 33,441 27,201 60,405 53,751
-------------- ------------- ------------- -------------
Gross profit 19,291 20,994 32,910 42,496
Operating expenses
Sales and marketing 7,060 6,594 14,585 13,162
Product development 8,073 7,686 15,402 15,061
General and administrative 3,277 2,446 5,701 5,448
Amortization of intangibles 540 362 1,077 694
-------------- ------------- ------------- -------------
Total operating expenses 18,950 17,088 36,765 34,365
-------------- ------------- ------------- -------------
Operating income (loss) 341 3,906 (3,855) 8,131
Interest and other, net (1,326) 9 (2,389) 282
-------------- ------------- ------------- -------------
Income (loss) before income taxes (985) 3,915 (6,244) 8,413
Benefit (provision) for income taxes 310 (1,560) 2,310 (3,030)
-------------- ------------- ------------- -------------
Net income (loss) $ (675) $ 2,355 $ (3,934) $ 5,383
============== ============= ============= =============
Net income (loss) per share $ (0.05) $ 0.17 $ (0.28) $ 0.38
============== ============= ============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
June 30, December 31,
1997 1996
--------------- -------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 20,364 $ 2,243
Accounts receivable, net 38,183 44,376
Inventories 29,498 33,837
Deferred income taxes, net 6,483 4,171
Other 3,854 6,116
--------------- -------------------
Total current assets 98,382 90,743
--------------- -------------------
Property and equipment, net 51,213 51,699
Equipment used in outsourcing, net 32,948 19,650
Intangible assets, net 21,696 23,344
Long-term contracts receivable 10,662 1,187
Other 754 798
--------------- -------------------
Total assets $ 215,655 $ 187,421
=============== ===================
Liabilities and shareholders' equity
Current liabilities
Bank line of credit $ - $ 33,062
Accounts payable and accrued expenses 25,389 24,675
Deferred revenue 5,951 6,767
--------------- -------------------
Total current liabilities 31,340 64,504
--------------- -------------------
Noncurrent liabilities
Mortgage notes payable 6,440 6,440
Subordinated notes payable 61,238 -
Project financing 831 -
Warranty and other obligations 1,973 2,255
--------------- -------------------
Total noncurrent liabilities 70,482 8,695
--------------- -------------------
Shareholders' equity
Common stock 102,504 98,686
Retained earnings 11,371 15,305
Other (42) 231
--------------- -------------------
Total shareholders' equity 113,833 114,222
--------------- -------------------
Total liabilities and shareholders' equity $ 215,655 $ 187,421
=============== ===================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six months ended June 30,
1997 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (3,934) $ 5,383
Noncash charges (credits) to income:
Depreciation and amortization 8,101 4,676
Deferred income taxes (2,300) 1,106
Changes in operating accounts:
Accounts receivable 6,193 (9,166)
Inventories 4,339 (10,153)
Accounts payable and accrued expenses (106) 5,663
Long-term contracts receivable (9,475) (4,844)
Deferred revenue (816) (520)
Other, net (2,836) (3,144)
------------- -------------
Cash provided (used) by operating activities 4,838 (10,999)
INVESTING ACTIVITIES
Short-term investments - 25,074
Acquisition of property, plant and equipment (5,452) (15,453)
Equipment used in outsourcing (16,677) (2,036)
Proceeds from sale of outsourcing equipment 3,035 -
Other, net (74) (3,642)
------------- -------------
Cash provided (used) by investing activities (19,168) 3,943
------------- -------------
FINANCING ACTIVITIES
Change in bank line of credit, net (33,062) 3,162
Mortgage notes payable - 840
Borrowings under subordinated debt, net 61,238 -
Project financing 831 -
Issuance of common stock 3,480 2,709
Other, net (36) (237)
------------- -------------
Cash provided by financing activities 32,451 6,474
------------- -------------
Increase in cash and equivalents 18,121 (582)
Cash and cash equivalents at beginning of period 2,243 6,473
------------- -------------
Cash and cash equivalents at end of period $ 20,364 $ 5,891
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ITRON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
Note 1: Basis of Presentation
The consolidated financial statements presented in this Form 10-Q are unaudited
and reflect, in the opinion of management, all normal recurring adjustments
necessary for a fair presentation of operations for the three and six month
periods ended June 30, 1997. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. These condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Company's Form 10-K for the year ended December 31, 1996, as filed with the
Securities and Exchange Commission on March 5, 1997.
The Company reports revenue in three categories: AMR (automatic meter reading)
systems, Handheld Systems (EMR or electronic meter reading), and Outsourcing.
AMR and Handheld Systems revenues include all product and other revenue
associated with each business segment. Outsourcing includes revenues for
contracts under which the Company may install, own, and operate an AMR system to
provide meter reading and advanced communications services over a period of
time, typically 15 years.
The results of operations for the three and six month periods ended June 30,
1997, are not necessarily indicative of the results expected for the full fiscal
year or for any other fiscal period.
Note 2: Balance Sheet Components
<TABLE>
<CAPTION>
Inventories (unaudited, in thousands): June 30, December 31,
1997 1996
<S> <C> <C>
------------------- ----------------
Material $ 17,315 $ 22,687
Work in process 2,803 1,570
Finished goods 8,595 9,047
------------------- ----------------
Total manufacturing inventories 28,713 33,304
Service 785 533
------------------- ----------------
Total inventories $ 29,498 $ 33,837
=================== ================
</TABLE>
Note 3: Acquisition
On May 2, 1997, Itron, Inc., acquired Design Concepts, Inc. ("DCI"), through a
merger of DCI with a wholly owned subsidiary of the Company. Pursuant to the
Agreement and Plan of Merger dated April 30, 1997, (the "Merger Agreement") the
Company issued 759,297 shares of unregistered Itron common stock to the
shareholders of DCI in exchange for all outstanding shares of DCI. Pursuant to
the Merger Agreement, certificates representing 75,930 of the shares issued in
the Merger were placed in Escrow and are available to compensate Itron for any
losses incurred by reason of any breach by DCI of the Merger Agreement. The
Escrow terminates on May 2, 1998, at which time any shares not subject to a
disputed claim will be released to the DCI shareholders.
The Merger was accounted for as a pooling-of-interests transaction. In a
pooling-of-interests transaction all financial statements typically are restated
for prior periods. Because the DCI results of operations and financial position
are immaterial to the Company's statement of operations and balance sheet for
prior periods, the accompanying statements have not been restated for the
acquisition for prior periods. The Company's financial statements for the
quarter ended June 30, 1997, do, however, include the year to date results of
operations and financial position for DCI.
<PAGE>
Note 4: New Accounting Standards
In June 1997, the Financial Accounting Standard Board issued Statement No. 130,
Reporting Comprehensive Income. This statement requires than an enterprise (a)
classify items of other comprehensive income by their nature in the financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of the statement of financial position. The Statement is effective for
fiscal years beginning after December 15, 1997. The Company believes that the
adoption of the Statement will not have a material effect on the financial
statements or disclosures of the Company.
In June 1997, the Financial Accounting Standard Board issued Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
statement requires that a public business report financial and descriptive
information about its reportable operating segments. The Statement is effective
for financial statement for period beginning after December 15, 1997. The
Company believes that the adoption of the Statement will not have a material
effect on the financial statements or disclosures of the Company.
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS RESULTS OF OPERATIONS
The following table summarizes the major components of and changes in operating
income for the quarter ended June 30, 1997:
<TABLE>
<CAPTION>
Percentage of Total Revenue
-------------------------------- Percentage
Six months ended June 30, 1997 1996 Change
- ------------------------------------------------------ ------------- ------------ --------------
<S> <C> <C> <C>
Revenues
AMR systems 62% 72% (17%)
Handheld systems 25% 25% (4%)
Outsourcing 13% 3% 345%
------------- ------------
Total revenues 100% 100% (3%)
Cost of sales and services
AMR systems 60% 55% (10%)
Handheld systems 70% 56% 21%
Outsourcing 77% 71% 379%
------------- ------------
Total cost of sales and services 65% 56% 12%
------------- ------------
Gross profit 35% 44% (23%)
Operating expenses
Sales and marketing 16% 14% 11%
Product development 16% 15% 2%
General and administrative 6% 6% 5%
Amortization of intangibles 1% 1% 55%
------------- ------------
Total operating expenses 39% 36% 7%
-------------
------------
Operating income (loss) (4%) 8% (147)%
============= ============
</TABLE>
Revenues
The Company's total revenues increased $4.5 million, or 9%, to $52.7 million in
the second quarter of 1997 from $48.2 million in the second quarter in 1996. For
the six month period ended June 30, 1997, total revenues were $93.3 million
compared to $96.2 million in the same period one year ago.
AMR systems revenues for the three month and six month periods ended June 30,
1997, were $2.4 million and $11.7 million, respectively, less than the 1996
periods. Although the Company shipped approximately 1.3 million meter modules in
each of the comparative six month periods, a larger portion of 1997 shipments
were for outsourcing installations instead of shipments under sales contracts,
which caused AMR sales revenues to decline. Although average selling prices
decreased somewhat in the current quarter from the same period one year ago, the
effect was not material. Lower meter module sales revenues were partly offset by
initial sales of power billing software products in the 1997 quarter. The
Company expects that AMR sales will grow in the future. However, much of the
expected growth is dependent on the timing and resolution of mergers and
acquisitions in the utility industry, industry regulatory reform issues in the
United States, development of international markets, and various other factors.
Handheld Systems revenues increased $363,000, or 3%, in the current quarter from
the same quarter in 1996 primarily due to increased international shipments to a
South Korean utility. On a year to date basis, Handheld Systems revenues of
$23.0 million were $835,000, or 4%, lower than the year to date period ended
June 30, 1996. The lower 1997 revenues were mainly due to decreased software
revenue, the 1996 period included revenue from the release of a new EMR software
product. The Company expects that Handheld Systems revenues may decline as a
percentage of total revenues over time as utilities adopt more advanced meter
reading technologies. The Company expects future Handheld Systems revenues to be
driven by sales to new customers internationally and by upgrade and replacement
sales domestically.
Outsourcing revenues were $6.6 million and $12.4 million for the three and six
month periods ended June 30, 1997, respectively, compared to $87,000 and $2.8
million in the same periods in 1996. The majority of the current year
outsourcing revenues were derived from the Company's largest outsourcing
contract with the Duquesne Light Company. (See "Description of Business --
Certain Risk Factors -- Dependence on the Installation, Operations and
Maintenance of AMR Systems Pursuant to Outsourcing Contracts" in the Company's
most recent Annual Report on Form 10-K.) The Company had additional outsourcing
revenue of approximately $700,000 in the 1997 periods from a customer exercising
its option to convert its outsourcing contract with the Company to a sale. The
Company currently has two outsourcing contracts from which it is generating
revenue. Outsourcing revenues are expected to stay at the higher levels
experienced in the current periods through the remainder of the year. The
Company recognizes revenue for outsourcing agreements using the
percentage-of-completion method of accounting for long-term contracts. Under
this method, revenue is recognized as project costs are incurred. Revenue
recognition in any given period is equal to: (a) the ratio of actual costs
incurred during the period to total projected costs over the life of the
contract; multiplied by (b) total revenue to be received over the life of the
contract. Estimates of future costs will be reviewed periodically. To the extent
actual revenues or actual costs, or the timing of those revenues or costs,
differ from projected revenues and costs, outsourcing revenues and/or margins
could be affected.
Gross Profit
Overall gross profit was 37% of revenues for the current quarter and 35% for the
six month period ended June 30, 1997, compared to gross profit of 44% for each
of the same periods in 1996. The lower profit margins result from continued
excess manufacturing capacity and a higher portion of lower margin outsourcing
and international business.
AMR gross profit margins for the year to date 1997 period were 40% of AMR
systems sales as compared to 42% in 1996. This margin decline is primarily the
result of excess AMR manufacturing capacity. The Company is currently operating
at approximately 50% of capacity for meter modules. Additionally, higher gross
margins from power billing product sales in the 1997 quarter were offset by a
non-recurring rework accrual concerning a single model of the Company's meter
modules.
Handheld systems gross profit has declined from 44% of revenues in the 1996 six
month period to 30% of revenues in the 1997 six month period, mostly as a result
of a shift in mix to international sales. International handheld sales have
historically been at lower margins than domestic due to volume pricing and lower
software content. In addition, replacement and upgrade business, which now
comprises a significant amount of the Company's domestic handheld systems
business, has traditionally been discounted from standard pricing.
Outsourcing gross profit was 23% and 29% of revenues for the six month periods
ended June 30, 1997 and 1996, respectively. A large portion of the outsourcing
business results from a contract with Duquesne Light Company. This contract is
the Company's first, large scale, fixed network installation and consequently
has higher estimated costs. Outsourcing gross profit in the second quarter of
1997 had a one-time benefit from a customer's decision to convert its
outsourcing contract to a system purchase.
The Company's overall gross profit may be affected in the future by competitive
pricing pressure, the ability to utilize existing manufacturing capacity, the
risks inherent in cost estimation for outsourcing contracts, and other factors.
Operating Expenses
Sales and marketing expenses of $7.1 million for the three month period ended
June 30, 1997, increased 7% from the comparable period in 1996 but remained
level as a percentage of revenue at 14%. For the year to date period ended June
30, 1997, sales and marketing expenses were $14.6 million compared to $13.2
million for the same period in 1996, reflecting an 11% increase. The higher
expenses primarily resulted from consulting charges for the sales and marketing
organization along with increased commission, bonus and profit sharing expenses.
The Company expects that sales and marketing expenses will remain at
approximately 13% to 14% of total revenues for the remainder of the year.
Product development expenses of $8.1 million in the current quarter increased
$387,000, or 5%, over the comparable quarter ended June 30, 1996, but decreased
as a percentage of revenues from 16% to 15%. For the year to date period ended
June 30, 1997, product development expenses of $15.4 million were up slightly
from $15.1 million in the same period in 1996. The increases for both the
quarter and year to date periods were primarily the result of the DCI
acquisition. The Company expects that 1997 product development expenses will
remain at approximately 15% to 16% of total revenues for the remainder of the
year.
General and administrative expenses of $3.3 million in the second three months
of 1997 increased $831,000, or 34%, over the second quarter of 1996, and
increased as a percentage of total revenues from 5% to 6%. For the year to date
periods, general and administrative expenses increased $253,000, or 5%, yet
remained level as a percentage of revenues. The increase for both the quarter
and year to date periods were due to several factors including DCI acquisition
costs and administrative expenses, and bonus and profit sharing expenses.
General and administrative expenses are expected to remain at approximately 5%
to 6% of total revenues in the foreseeable future.
Amortization of intangibles increased $178,000 and $383,000 in the three and six
month periods, respectively, ended June 30, 1997, over the same periods in 1996,
yet remained at 1% of total revenues. The increased expenses were due to
amortization of patents and licenses acquired during the last half of 1996.
Interest and Other, Net
The Company had net interest and other expense of $1.3 million and $2.4 million
for second quarter and year to date periods of 1997, respectively. Interest
expense during the quarter and year to date periods was reduced by $190,000 and
$407,000, respectively, from capitalized interest related to outsourcing
installations. Interest expense in the 1997 periods was caused primarily by
borrowings under the Company's bank line of credit and 6 3/4% Convertible
Subordinated Notes. The Company completed a $63.4 million (including
over-allotment option) private placement of the Notes in March and April of
1997. In the 1996 periods, the Company generated net interest income of $9,000
and $282,000, respectively, from the investment of cash equivalents and
short-term investments.
Income Taxes
The Company had an income tax benefit of 37% of pre-tax earnings for the six
months ended 1997 compared to an income tax provision of 36% for the same period
in 1996. To the extent pre-tax earnings, or the components of those earnings,
differ from expectations, the effective tax rate for the year could change from
the current year-to-date rate.
FINANCIAL CONDITION
Operating activities generated $4.8 million in cash during the first six months
of 1997. Operating activities consumed $11.0 million during the same six month
period one year ago. The favorable turn in operating activities was caused to a
large degree by reductions in inventory and accounts receivable balances during
1997 from year-end levels. Inventory levels have steadily decreased since the
Company implemented a "build to order" production schedule in the fourth quarter
of 1996. During the first three quarters of 1996, the Company was operating
under a "build to expectation" production schedule. The Company collected a
large portion of an unbilled account receivable from one customer during the six
months ended June 30, 1997. Accounts receivable balances grew in the 1996 period
due to unusually large unbilled receivables balances for a single customer. The
Company's long-term contracts receivable balance, which represents the amount of
outsourcing revenues earned but not yet billed, increased $9.5 million during
the 1997 period. Long-term unbilled contracts receivable are expected to be
approximately double the current level by year end.
Investing activities consumed $19.2 million in the first six months of 1997.
Investing activities generated $3.9 million in the comparable period in 1996.
The Company generated cash in the 1996 period by liquidating $25.1 million in
short-term investments. Cash was used in the current six months to fund $5.5
million of property and equipment additions and $16.7 million of product costs
for the Company's outsourcing installations. In the first six months of 1996,
the Company invested $15.5 million in property and equipment, the majority of
which was for additional equipment to expand production capacity at both of the
Company's principal manufacturing locations. An additional $2.0 million for
product costs related to outsourcing installations was also invested in the 1996
period. Itron anticipates spending somewhat more on outsourcing equipment in
1997 than it did in 1996. Property and equipment additions for the Company are
expected to be substantially less than the 1996 level.
Financing activities in the first six months of 1997 provided $32.5 million in
cash. During the quarter the Company successfully closed an $8 million,
long-term, fixed rate project financing facility for an outsourcing agreement
and received $831,000 of the funds. Additionally, the Company generated $61.2
million in cash from the Convertible Subordinated Note offering in March and
April of 1997. The net proceeds from the offering were used to pay off the
Company's bank line of credit and fund operations. The remainder of the proceeds
is invested in short-term cash equivalents. The Company generated $6.5 million
in cash in the comparable six months of 1996 from the exercise of stock options
and borrowings under the Company's bank line of credit.
Existing sources of liquidity at June 30, 1997, include approximately $20.4
million of existing cash and cash equivalents and $50 million of available
borrowings under the Company's bank line of credit agreement which expires on
October 31, 1997, at which time it is expected to be renewed. Itron expects to
have cash requirements during the year for existing outsourcing installations
and intends to seek project financing for future outsourcing agreements. The
Company believes that existing cash and available borrowings are sufficient to
fund operations for the remainder of 1997 and into 1998.
Certain Forward-Looking Statements
When included in this Quarterly Report on Form 10-Q, the words "expects,"
"intends," "anticipates," "plans," "projects" and "estimates," and analogous or
similar expressions are intended to identify forward-looking statements. Such
statements, which include, but are not limited to, statements contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are inherently subject to a variety of risks and uncertainties that
could cause actual results to differ materially from those reflected in such
forward-looking statements. Such risks and uncertainties include, among others,
changes in the utility regulatory environment, delays or difficulties in
introducing new products, increased competition and various other matters, many
of which are beyond the Company's control. These and other risks are described
in more detail in "Description of Business -- Certain Risk Factors" in the
Company's most recent Annual Report on Form 10-K, and such description is hereby
incorporated herein by reference. These forward-looking statements speak only as
of the date of this report. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statement contained herein to reflect any change on the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.
<PAGE>
Part 2: Other Information
Item 1: Legal Proceedings
On October 3, 1996, Itron filed a patent infringement suit against CellNet Data
Systems ("CellNet") in the United States District Court for the District of
Minnesota, alleging that CellNet is infringing on the Company's United States
Patent No. 5,553,094, entitled "Radio Communication Network for Remote Data
Generating Stations," issued on September 3, 1996. The Company is seeking
injunctive relief as well as monetary damages, costs and attorneys' fees. The
discovery phase of this lawsuit has commenced. There can be no assurance that
the Company will prevail in this action or, even if it does prevail, that the
legal costs incurred by the Company in connection therewith will not have a
material adverse effect on the Company's financial condition.
On April 29, 1997, Itron was served by CellNet with a complaint alleging patent
infringement. The suit is pending in the United States District Court for the
Northern District of California. Itron's management has reviewed the complaint
and believes it to be without merit. The patent in question was issued in 1988.
Itron's management is unaware of any previous assertion by CellNet of any claim
of patent infringement by Itron. Itron intends to vigorously defend this suit.
The complaint seeks injunctive relief as well as monetary damages, costs and
attorneys' fees.
On May 29, 1997, Itron and its President and Chief Executive Officer, Johnny M.
Humphreys, were served with a complaint alleging securities fraud filed by Mark
G. Epstein, on his own behalf and alleged to be on behalf of all others
similarly situated, in the U.S. District Court for the Eastern District of
Washington (Civil Action No. CS-97-214 RHW). The complaint alleges, among other
matters, that Itron and Mr. Humphreys violated Section 10(b) of the Securities
Exchange Act of 1934, as amended, and Rule 10b-5 thereunder by making allegedly
false statements regarding the development status, performance and technological
capabilities of Itron's Fixed Network automatic meter reading ("AMR") system and
regarding the suitability of Itron's encoder receiver transmitter devices for
use with an advanced Fixed network AMR system. The complaint seeks monetary
damages, costs and attorneys' fees and unspecified equitable or injunctive
relief. On July 28, 1997, the Company and Mr. Humphreys filed a motion to
dismiss the complaint for failure to state a proper claim for relief for
securities fraud. The Company continues to believe it has good defenses to the
claims alleged and intends to defend itself vigorously in this action.
Item 4: Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on April 29, 1997. Four
directors were elected at the meeting, S. Edward White, whose term is for two
years, and Michael B. Bracy, Graham M. Wilson and Mary Ann Peters, all of whose
terms are for three years. Johnny M. Humphreys, Paul A. Redmond, Ted C.
DeMerritt and Jon E. Eliassen continued their terms as Directors. The following
summarizes all matters voted on at the meeting:
Item 1. Election of Directors:
Nominee In Favor Withheld
- -------------------------------- ------------------ ------------------
S. Edward White 11,412,376 61,301
Michael B. Bracy 11,411,988 61,689
Graham M. Wilson 11,213,753 259,924
Mary Ann Peters 11,409,138 61,539
Item 2. Amendment of the Company's 1989 Restated Stock Option Plan:
For Against Abstain Broker Non-Votes
- --------------- ----------------- ----------------- ----------------------
5,735,269 1,902,883 27,262 3,808,263
Item 3. Ratify Deloitte & Touche LLP as Independent Auditors:
For Against Abstain Broker Non-Votes
- --------------- ----------------- ----------------- ----------------------
11,466,344 2,345 4,988 -
Item 6: Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 11 - Statement re Computation of Earnings per Share
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
One report on Form 8-K, dated May 2, 1997, was filed during the quarter
ended June 30, 1997, pursuant to Items 5 and 7 of that form. The report
related to the acquisition of DCI by the Company.
One report on Form 8-K, dated May 29, 1997, was filed during the
quarter ended June 30, 1997, pursuant to Items 5 and 7 of that form.
The report related to the class action lawsuit filed against the
Company.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Commission Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ITRON, INC.
(Registrant)
By: /s/ DAVID G. REMINGTON
-----------------------
David G. Remington
Vice President and
Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
Date: August 13, 1997
ITRON, INC.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(Unaudited, shares in thousands)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30.
<S> <C> <C> <C> <C>
Primary Shares (Based on Average Price): 1997 1996 1997 1996
----------- ------------ ----------- ------------
Weighted average number of common shares outstanding 14,256 13,282 13,838 13,242
Dilutive effect of outstanding stock options and warrants 903 911
----------- ------------ ----------- ------------
Primary weighted average shares outstanding 14,256 14,185 13,383 14,153
=========== ============ =========== ============
Three months ended June 30, Six months ended June 30,
Fully Diluted Shares (Based on Ending Price): 1997 1996 1997 1996
----------- ------------ ----------- ------------
Weighted average number of common shares outstanding 14,256 13,282 13,838 13,242
Dilutive effect of outstanding stock options and warrants 599 626
----------- ------------ ----------- ------------
Fully diluted weighted average shares outstanding 14,256 13,881 13,838 13,868
=========== ============ =========== ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 20,364
<SECURITIES> 0
<RECEIVABLES> 39,397
<ALLOWANCES> (1,214)
<INVENTORY> 29,498
<CURRENT-ASSETS> 98,382
<PP&E> 119,635
<DEPRECIATION> (35,474)
<TOTAL-ASSETS> 215,655
<CURRENT-LIABILITIES> 31,340
<BONDS> 0
0
0
<COMMON> 102,504
<OTHER-SE> (42)
<TOTAL-LIABILITY-AND-EQUITY> 215,655
<SALES> 93,315
<TOTAL-REVENUES> 93,315
<CGS> 60,405
<TOTAL-COSTS> 60,405
<OTHER-EXPENSES> 36,765
<LOSS-PROVISION> (3,855)
<INTEREST-EXPENSE> (2,389)
<INCOME-PRETAX> (6,244)
<INCOME-TAX> 2,310
<INCOME-CONTINUING> (3,934)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,934)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
