ITRON INC /WA/
10-Q, 1997-05-15
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                             
                                    FORM 10-Q

                            
(mark one)
n  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15(d) OF THE  SECURITIES
                              EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 1997

                                       OR


o  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
                              EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
                        For the transition period from to

                         Commission file number 0-22418


                                   ITRON, INC.
             (Exact name of registrant as specified in its charter)
Washington                                                          91-1011792  
(State of Incorporation)                 (I.R.S. Employer Identification Number)


                            2818 North Sullivan Road
                         Spokane, Washington 99216-1897
                                 (509) 924-9900
     (Address and telephone number of registrant's principal executive offices)


       Indicate by check mark whether the  registrant  (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities  Exchange Act of
  1934  during the  preceding  12 months (or for such  shorter  period  that the
  registrant  was  required to file such  reports),  and (2) has been subject to
  such filing requirements for the
                         past 90 days. Yes__X___ No_____

     As of April 30,  1997,  there  were  outstanding  13,445,768  shares of the
registrant's  common stock,  no par value,  which is the only class of common or
voting stock of the registrant.


<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

Item 2:  Management's Discussion and Analysis of Financial Condition
         and Results of
Operations.................................................................5-7

Part 2:  Other Information

Item 1:  Legal
Proceedings................................................................8

Item 2(c): Changes in
Securities.................................................................8-9

Item 6:  Exhibits and Reports on Form
8-K........................................................................9

Signature..................................................................10

Exhibit 11 - Statement re Computation of Per Share
Earnings...................................................................11


<PAGE>    


                          Part 1: Financial Information

Item 1:  Financial Statements


                                                  ITRON, INC.
                                     CONSOLIDATED STATEMENTS OF OPERATIONS
                               (Unaudited, in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                          Three months ended March 31,
                                                                                   1997              1996
                                                                           -------------     -------------
<S>                                                                     <C>                <C>

Revenues                                                                   $     40,583       $    48,052

Cost of revenues                                                                 26,964            26,550

Gross profit                                                                     13,619            21,502

Operating expenses
     Sales and marketing                                                          7,525             6,568
     Product development                                                          7,329             7,375
     General and administrative                                                   2,424             3,002
     Amortization of intangibles                                                    537               332
                                                                           -------------     -------------
     Total operating expenses                                                    17,815            17,277

Operating income (loss)                                                         (4,196)             4,225

Interest and other, net                                                         (1,063)               273
                                                                           -------------     -------------

Income (loss) before income taxes                                               (5,259)             4,498
Income tax (provision) benefit                                                    2,000           (1,470)
                                                                           -------------     -------------

Net income (loss)                                                          $    (3,259)       $     3,028
                                                                           =============     =============

Net income (loss) per share                                                $      (.24)       $       .21
                                                                           =============     =============

</TABLE>

The accompanying notes are an integral part of these financial statements.


<PAGE>


                                                  ITRON, INC.
                                          CONSOLIDATED BALANCE SHEETS
                                           (Unaudited, in thousands)
<TABLE>
<CAPTION>
                                                                                March 31,         December 31,
                                                                                 1997                 1996
                                                                           ---------------     ----------------

<S>                                                                      <C>                  <C>
ASSETS
Current assets
     Cash and cash equivalents                                              $      18,922        $       2,243
     Accounts receivable, net                                                      36,862               44,376
     Inventories                                                                   30,568               33,837
     Deferred income tax benefit, net                                               6,169                4,171
     Other                                                                          4,868                6,116
                                                                           ---------------     ----------------
     Total current assets                                                          97,389               90,743

Property, plant and equipment, net                                                 80,242               71,349
Intangible assets, net                                                             22,495               23,344
Other                                                                               7,426                1,985
                                                                           ---------------     ----------------

     Total assets                                                           $     207,552       $      187,421
                                                                           ===============     ================

LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities
     Bank line of credit                                                    $       -             $     33,062
     Accounts payable and accrued expenses                                         19,188               20,671
     Wages and benefits payable                                                     4,148                4,004
     Deferred revenue                                                               6,622                6,767
                                                                           ---------------     ----------------
     Total current liabilities                                                     29,958               64,504

Noncurrent liabilities
     Mortgage notes payable                                                         6,440                6,440
     Subordinated notes payable, net                                               57,800                  -
     Warranty and other obligations                                                 2,124                2,255
                                                                           ---------------     ----------------
     Total noncurrent liabilities                                                  66,364                8,695

Shareholders' equity
     Common stock                                                                  98,968               98,686
     Retained earnings                                                             12,046               15,305
     Other                                                                            216                  231
                                                                           ---------------     ----------------
     Total shareholders' equity                                                   111,230              114,222
                                                                           ---------------     ----------------

     Total liabilities and shareholders' equity                             $     207,552       $      187,421
                                                                           ===============     ================


</TABLE>





The accompanying notes are an integral part of these financial statements.


<PAGE>


                                                  ITRON, INC.
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           (Unaudited, in thousands)
<TABLE>
<CAPTION>
                                                                             Three months ended March 31,
                                                                                1997              1996
                                                                           -------------     -------------
<S>                                                                     <C>               <C>

OPERATING ACTIVITIES
Net income (loss)                                                          $    (3,259)       $     3,028
Noncash charges (credits) to income:
     Depreciation and amortization                                               3,774              2,200
     Deferred income taxes                                                      (1,994)               488
Changes in operating accounts:
     Accounts receivable                                                         7,514             (7,805)
     Inventories                                                                 3,269             (3,598)
     Accounts payable and accrued expenses                                      (1,483)               610
     Deferred revenue                                                             (145)            (1,714)
     Other, net                                                                 (3,939)            (1,526)
                                                                           -------------     -------------
     Cash provided (used) by operating activities                                3,737             (8,317)

INVESTING ACTIVITIES
Short-term investments                                                           -                 16,524
Acquisition of property, plant  and equipment                                   (2,894)            (6,767)
Equipment used in outsourcing                                                   (8,864)              (827)
Other, net                                                                         (73)              (101)
                                                                           -------------     -------------
     Cash provided (used) by investing activities                              (11,831)             8,829
                                                                           -------------     -------------

FINANCING ACTIVITIES
Change in bank line of credit, net                                             (33,062)              -
Borrowings under subordinated debt, net                                         57,800               -
Issuance of common stock                                                            52                941
Other, net                                                                         (17)
                                                                                                     (200)
                                                                           -------------     -------------
     Cash provided by financing activities                                      24,773                741
                                                                           -------------     -------------

Increase in cash and equivalents                                                 16,679             1,253

Cash and cash equivalents at beginning of period                                  2,243             6,473
                                                                           -------------     -------------

 Cash and cash equivalents at end of period                                $     18,922       $     7,726
                                                                           =============     =============


</TABLE>

The accompanying notes are an integral part of these financial statements.


<PAGE>


                                   ITRON, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 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 month period ended
March 31, 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 results of  operations  for the three month  period ended March 31, 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):                                          March 31,          December 31,
                                                                                  1997                  1996
<S>                                                                      <C>                   <C>
                                                                           ---------------      ----------------
Material                                                                   $       20,353        $       22,687
Work in process                                                                     2,034                 1,570
Finished goods                                                                      7,711                 9,047
                                                                           ---------------      ----------------
Total manufacturing inventories                                                    30,098                33,304
Service                                                                               470                   533
                                                                           ---------------      ----------------
Total inventories                                                          $       30,568        $       33,837
                                                                           ===============      ================
</TABLE>

Note 3:  New Accounting Standard

In February 1997, the Financial  Accounting  Standard Board issued Statement No.
128, Earnings per Share. This statement specifies the computation,  presentation
and disclosure  requirements for earnings per share and requires presentation of
basic and dilutive  earnings per share by all entities that have common stock or
potential  common  stock that  trades in the public  market.  The  Statement  is
effective for financial  statements  for both interim and annual  periods ending
after December 15, 1997, and earlier  application is not permitted.  The Company
believes that the adoption of the Statement  will not have a material  effect on
the financial statements 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 March 31, 1997:
<TABLE>
<CAPTION>

                                                         Percentage of total revenue            Percentage
                                                        --------------------------------
<S>                                                    <C>                 <C>               <C>
                                                       
Quarter ended March 31,                                          1997               1996            Change
- ------------------------------------------------------
                                                         -------------       ------------     -------------
Revenues
    AMR systems                                                   76%                78%             (17%)
    Handheld systems                                              24%                22%             (11%)
                                                         -------------       ------------
    Total revenues                                               100%               100%             (16%)

Gross profit                                                      34%                45%             (37%)

Operating expenses
    Sales and marketing                                           19%                14%               15%
    Product development                                           18%                15%                0%
    General and administrative                                     6%                 6%             (19%)
    Amortization of intangibles                                    1%                 1%               62%
                                                         -------------       ------------
    Total operating expenses                                      44%                36%                3%
                                                         -------------       ------------

Operating income (loss)                                         (10)%                 9%            (199)%
                                                         =============       ============
</TABLE>

Revenues
     Total  revenues for the Company  decreased  $7.5 million,  or 16%, to $40.6
million  in the first  quarter  of 1997 from  $48.1  million  in the  comparable
quarter in 1996.

AMR systems revenues were down $6.3 million, or 17%, in the current quarter from
the first quarter of 1996.  Although the Company shipped  approximately  600,000
AMR meter  modules  in the first  quarter of each 1997 and 1996,  a much  larger
percentage of the 1997 shipments were for outsourcing  installations  instead of
sales contracts.  Revenue for outsourcing  installations is recognized over time
rather than upon shipment.  Average selling prices changed little from the first
quarter of 1996 to the first quarter of 1997 and did not have a material  effect
on total  revenues.  The  Company  expects  that AMR  revenues  will grow in the
future,  however,  growth  depends 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.

The Company currently has three  outsourcing  contracts to provide meter reading
services to utilities  over 15 year  periods.  Revenues  related to  outsourcing
contracts  are shown as a component of AMR revenues and were $5.8 million in the
first quarter of 1997 compared to $2.7 million in the first quarter of 1996. The
majority of the  increase in  outsourcing  revenues  came from  initial  revenue
recognition  under the Company's  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 recognizes revenue for outsourcing agreements using the cost-to-cost
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;  times (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.
Handheld systems revenues were down $1.2 million, or 11%, in the current quarter
from the same quarter in 1996  primarily due to lower  domestic  shipments.  The
first  quarter  of  1996  included  initial  shipments  of the  next  generation
Premierplus software systems. The Company expects that handheld systems revenues
will  continue to decline as a percentage of total  revenues  over time.  Future
handheld  systems  revenues are expected to be driven by sales to new  customers
internationally and by upgrade and replacement sales domestically.

Gross Profit
Gross margin of 34% for the current  quarter was 11 percentage  points less than
gross  margin of 45% in the same  quarter  in 1996,  but only  three  percentage
points lower than the fourth quarter of 1996. The decreased margin was caused by
outsourcing  revenues  being a higher  percentage of total  revenues than in the
past.  Outsourcing  revenues  currently have a lower margin than  historical AMR
sales for a significant  customer.  Continued higher costs resulting from excess
manufacturing  capacity also contributed to the lower margin. In the future, the
Company's  gross  margin may  continue to be  affected  by excess  manufacturing
capacity costs and changes in revenue mix.

Operating Expenses
Sales and  marketing  expenses for the three months ended March 31, 1997 of $7.5
million increased $1.0 million,  or 15%, from the first three months of 1996 and
also  increased  from 14% to 19% of  revenues.  The  higher  expenses  primarily
resulted from consulting charges for the sales and marketing  organization.  The
Company expects that sales and marketing  expenses for the remainder of the year
will be approximately the same as 1996 levels.

Product  development  expenses of $7.3 million in the current quarter were level
with the first  quarter one year ago.  The  Company  expects  that 1997  product
development  expenses will remain fairly level with 1996 and gradually  begin to
decrease as a percentage of revenues over the long term.

General and administrative  expenses of $2.4 million decreased $578,000, or 19%,
in the first quarter of 1997 from the first quarter of 1996,  yet remained level
as a percentage  of total  revenues.  The  decrease  was due to several  factors
including UTS  acquisition  costs and legal and other  expenses for  outsourcing
agreements in the 1996 quarter. General and administrative expenses are expected
to remain at approximately 5% to 6% of total revenues in the foreseeable future.

Amortization of intangibles in the first quarter of 1997 increased $205,000,  or
62%,  over the same  quarter  of 1996,  yet  remained  approximately  level as a
percentage of revenues.  The  increased  expenses  were due to  amortization  of
patents and licenses acquired during 1996.

Interest and Other, Net
The Company had net  interest  expense for the three months ended March 31, 1997
of $1.1  million.  Interest  expense  during  the  quarter  has been  reduced by
$217,000 of capitalized interest related to outsourcing. Interest expense in the
current quarter was caused primarily by borrowings under the Company's bank line
of credit.  The  Company  completed a $60 million  private  placement  of 6 3/4%
Convertible  Subordinated Notes in March 1997 and used approximately $40 million
of the net proceeds to pay down amounts  outstanding under the bank line. In the
first quarter of 1996 the Company generated net interest income of $273,000 from
the investment of  approximately  $22 million in cash equivalents and short-term
investments.

Income Taxes
The Company had an income tax benefit of 38% of pre-tax  earnings  for the first
quarter of 1997  compared to an income tax provision of 33% for the same quarter
in 1996. The first quarter 1996 effective tax rate was reduced due to tax exempt
interest  and excluded a tax  provision  for UTS  earnings.  UTS was acquired on
March 25, 1996.  Prior to the merger,  UTS was taxed as an S corporation  and no
federal income tax was paid by the Company.  To the extent pre-tax earnings,  or
the components of those earnings,  differ from  expectations,  the effective tax
rate for the year could change.


<PAGE>


FINANCIAL CONDITION

Operating  activities generated $3.7 million in cash during the first quarter of
1997  compared to consuming  $8.3 million  during the same quarter one year ago.
The  favorable  turn in  operating  activities  was caused to a large  degree by
reductions  in  inventory  and  accounts  receivable  balances  during the first
quarter of 1997 from year-end levels.  Inventory levels have 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 during the current quarter.  Accounts
receivable  balances  grew in the 1996 quarter due to unusually  large  unbilled
receivables  balances for a single customer.  The Company's  long-term contracts
receivable  balance  increased $5.4 million  during the 1997 quarter.  Long-term
contracts  receivable  will  continue to grow for the  remainder  of the year as
revenue for the  Company's  outsourcing  agreements  is recognized in advance of
cash receipts.

Investing  activities  consumed  $11.8 million in the first three months of 1997
compared  to  generating  $8.8  million in the  comparable  period in 1996.  The
Company  generated  cash in the 1996  quarter by  liquidating  $16.5  million in
short-term  investments.  Cash  was used in the  current  quarter  to fund  $2.9
million of property and equipment acquisitions and $8.9 million of product costs
for the Company's  outsourcing  installations.  In the first quarter of 1996 the
Company  invested  $6.8  million,  the  majority  of  which  was for  additional
equipment at both of the Company's manufacturing locations and $827,000 of which
was for product costs related to outsourcing  installations.  Itron  anticipates
spending  approximately  the same amount on outsourcing  equipment in 1997 as it
did in 1996. Property and equipment additions for the Company are expected to be
approximately one-half of the 1996 level.

Financing  activities in the first quarter of 1997 provided $24.8  million.  The
Company  generated  cash  from the $60  million  convertible  subordinated  note
offering in March 1997.  Net proceeds  from the  offering of $57.8  million 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  $741,000 in cash in the comparable  quarter in 1996 from the
exercise  of stock  options.  Dividends  paid to UTS  shareholders  in 1996 were
distributions prior to the acquisition.

Existing  sources of  liquidity at March 31, 1997  include  approximately  $18.9
million of  existing  cash and cash  equivalents  and $75  million of  available
borrowings under the Company's bank line of credit  agreement.  Itron expects to
have substantial cash requirements during the year for 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 April 29, 1997, Itron was served with a complaint for patent  infringement by
CellNet  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.

Item 2(c):  Changes in Securities

On March 18, 1997 and April 15, 1997, Itron sold $63,400,000 aggregate principal
amount of 6-3/4%  Convertible  Subordinated  Notes due 2004 (the  "Notes").  The
Notes  mature on March  31,  2004.  Interest  on the  Notes is  payable  in cash
semiannually on March 31 and September 30 of each year,  commencing on September
30, 1997. The Notes are convertible,  in whole or in part, into shares of Common
Stock of Itron at a  conversion  price of  $23.70  per  share  (equivalent  to a
conversion  rate of 42.194 shares per $1,000  principal  amount of Notes) at any
time at the option of the holder  beginning 60 days following the closing of the
offering (i.e. May 17, 1997), subject to adjustment in certain circumstances.

The Notes are  redeemable,  in whole or in part, at the option of the Company on
or  after  April  4,  2000 at the  following  redemption  prices  (expressed  as
percentages  of  principal  amount)  if  redeemed  during  the  12-month  period
beginning on April 4 of the years set forth below:

Year                             Percentage
2000                             103.375%
2001                             102.250%
2002                             101.125%

Thereafter the Notes are redeemable at 100% of the principal amount thereof,  in
each case together with accrued and unpaid  interest to (but not  including) the
redemption date.


If a "Change in  Control"  (as  defined in the  Indenture  for the Notes) of the
Company  were to occur,  each  holder of Notes  would be entitled to require the
Company to purchase its Notes, in whole or in part, at a purchase price equal to
100% of the principal amount thereof,  together with accrued and unpaid interest
thereon to the date of  purchase.  No sinking  fund is  provided  for the Notes,
which are  general  unsecured  obligations  of the  Company.  The payment of the
principal and premium, if any, and interest on the Notes will, to the extent set
forth in the Indenture, be subordinated in right of payment to the prior payment
in full of all "Senior Indebtedness" (as defined in the Indenture for the Notes)
of the Company  and  effectively  subordinated  in right of payment to the prior
payment  in full of all  indebtedness  and other  liabilities  of the  Company's
subsidiaries.  The Indenture  does not restrict the  Company's  ability to incur
Senior Indebtedness.

The Notes were sold by the Company to Credit Suisse First Boston Corporation and
Hambrecht  &  Quist  LLC,  as  initial   purchasers   (together,   the  "Initial
Purchasers"),  in reliance  on the  exemption  set forth in Section  4(2) of the
Securities  Act of 1933,  as  amended  (the  "Securities  Act"),  pursuant  to a
Purchase  Agreement  between the Company and the Initial  Purchasers dated March
12, 1997.  The  consideration  received by the Initial  Purchasers was 3% of the
aggregate offering price of $63,400,000,  or $1,902,000.  Of the total amount of
Notes  sold,  $3,400,000  aggregate  principal  amount  was sold to the  Initial
Purchasers pursuant to an over-allotment option.

The Company has been advised that the Initial Purchasers subsequently resold the
Notes in the United  States to "qualified  institutional  buyers" in reliance on
Rule 144A under the  Securities Act and outside of the United States in offshore
transactions  to investors in reliance on Regulation S under the Securities Act.
Of the total  amount of Notes  sold,  $59,050,000  were sold under Rule 144A and
$4,350,000 were sold in reliance on the exemption from registration  provided by
Regulation S.

The Company has agreed pursuant to a Registration Rights Agreement to (i) file a
Shelf  Registration  Statement  with  respect to the Notes and the Common  Stock
issuable upon the conversion  thereof within 90 days following the first date of
initial  issuance of the Notes,  (ii) to use its best efforts to cause the Shelf
Registration  Statement to be declared effective within 120 days after the first
date of initial  issuance  of the Notes,  and (iii) keep the Shelf  Registration
Statement  effective  after its effective  date for as long as shall be required
under Rule 144(k) under the  Securities  Act or any successor rule or regulation
thereto.  Upon the  failure  by the  Company to comply  with these  obligations,
interest payable on the Notes will be increased by 50 basis points.

Item 6:  Exhibits and Reports on Form 8-K

a)       Exhibits

         Exhibit 11 - Statement re Computation of Earnings per Share

b)       Reports on Form 8-K

         One report on Form 8-K,  dated  March 18,  1997,  was filed  during the
         quarter  ended March 31, 1997,  pursuant to Items 7 and 9 of that form.
         The report related to the offering of convertible subordinated notes.



<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:       DAVID G. REMINGTON
                                               David G. Remington
                                               Vice President and
                                               Chief Financial Officer
                                               (Authorized Officer and Principal
                                               Financial Officer)


Date:  May 14, 1997



 EXHIBIT 11

                                   ITRON, INC.
                 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
                        (Unaudited, shares in thousands)


<TABLE>
<CAPTION>
                                                                              Three months ended March 31,
Primary EPS Computation                                                           1997 *              1996
                                                                           ---------------      --------------
<S>                                                                       <C>                  <C>

Weighted average number of common shares outstanding                             13,419              13,202

Dilutive effect of outstanding common stock options and warrants based on          -                    908
average price                                                              ---------------      --------------
                                                                           

Primary weighted average shares outstanding based on average market price          13,419              14,110
                                                                           ===============      ==============

Primary EPS based on average market price                                         ($0.24)               $0.21


Fully Diluted EPS Computation
                                                                                   1997 *              1996
                                                                           ---------------      --------------
Weighted average number of common shares outstanding                               13,419              13,202

Dilutive effect of outstanding common stock options and warrants based on         -                       962
ending price                                                                ---------------      --------------     
                                                                           

Fully dilutive weighted average shares outstanding based on ending market          13,419              14,164
price                                                                       ===============      ==============
                                                                          

Fully Diluted EPS based on ending market price                                    ($0.24)               $0.21
</TABLE>

* Dilutive effect of outstatnding  common stock options and warrants is not used
in the 1997 EPS calculation as the shares are  antidilutive  because the Company
reported a net loss.

<TABLE> <S> <C>

<ARTICLE> 5
       
<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-END>                               MAR-31-1997
<CASH>                                          18,922
<SECURITIES>                                         0
<RECEIVABLES>                                   38,080
<ALLOWANCES>                                   (1,218)
<INVENTORY>                                     30,568
<CURRENT-ASSETS>                                97,389
<PP&E>                                         112,663
<DEPRECIATION>                                (32,421)
<TOTAL-ASSETS>                                 207,552
<CURRENT-LIABILITIES>                           29,958
<BONDS>                                              0
                                0
                                          0
<COMMON>                                        98,968
<OTHER-SE>                                      12,262
<TOTAL-LIABILITY-AND-EQUITY>                   111,230
<SALES>                                         40,583
<TOTAL-REVENUES>                                40,583
<CGS>                                           26,964
<TOTAL-COSTS>                                   26,964
<OTHER-EXPENSES>                                17,815
<LOSS-PROVISION>                               (4,196)
<INTEREST-EXPENSE>                             (1,063)
<INCOME-PRETAX>                                (5,259)
<INCOME-TAX>                                     2,000
<INCOME-CONTINUING>                            (3,259)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   (3,259)
<EPS-PRIMARY>                                    (.24)
<EPS-DILUTED>                                    (.24)
        

</TABLE>


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