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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 September 30, 1999
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 October 31, 1999, there were outstanding 14,954,940 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.
Table of Contents
Page
Part 1: FINANCIAL INFORMATION
Item 1: Financial Statement (Unaudited)
Consolidated Statements of Operations 1
Consolidated Balance Sheet 2
Consolidated Statement of Cash Flows 3
Notes to Consolidated Financial Statements
Note 1: Basis of Presentation 4
Note 2: Earnings Per Share and Capital Structure 4
Note 3: Restructuring 5
Note 4: Balance Sheet Components 5
Note 5: Segment Information 6
Note 6: Contingencies 7
Item 2: Management's Discussion and Analysis of Financial
Condition And results of operations 8-14
Part 2: Other Information
Item 1: Legal Proceedings 15
Item 6: Exhibits and Reports on Form 8-K 15
Signature 16
<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 September 30, Nine Months ended September 30,
====================================================================================================================================
<S> <C> <C> <C> <C>
1999 1998 1999 1998
------------------------------ -------------- ---------------
Revenues
AMR systems $24,725 $35,511 $ 84,698 $130,102
Handheld systems 18,690 12,016 51,428 33,226
Outsourcing 5,118 7,312 15,573 15,988
-------------- -------------- -------------- ---------------
Total revenues 48,533 54,839 151,699 179,316
Cost of revenues
AMR systems 15,553 27,094 54,221 92,518
Handheld systems 10,291 6,479 29,431 17,595
Outsourcing 4,396 6,235 13,252 13,409
-------------- -------------- -------------- ---------------
Total costs of revenues 30,240 39,808 96,904 123,522
-------------- -------------- -------------- ---------------
Gross profit 18,293 15,031 54,795 55,794
Operating expenses
Sales and marketing 7,005 6,641 20,500 20,211
Product development 5,961 8,434 19,516 26,354
General and administrative 3,050 3,119 9,437 9,423
Amortization of intangibles 453 597 1,433 1,776
Restructuring charges 8,828 3,247 9,949 3,247
-------------- -------------- -------------- ---------------
Total operating expenses 25,297 22,038 60,835 61,011
-------------- -------------- -------------- ---------------
Operating loss (7,004) (7,007) (6,040) (5,217)
Other expense
Equity in affiliates (102) (874) (413) (1,224)
Interest, net (1,283) (1,678) (4,581) (4,611)
-------------- -------------- -------------- ---------------
Total other expense (1,385) (2,552) (4,994) (5,835)
Loss before extraordinary item and (8,389) (9,559) (11,034) (11,052)
income taxes
Income tax benefit 2,521 3,630 3,351 4,200
-------------- -------------- -------------- ---------------
Net loss before extraordinary item (5,868) (5,929) (7,683) (6,852)
Extraordinary gain on extinguishment of debt,
net of income taxes of $1,970 - - 3,660 -
-------------- -------------- -------------- ---------------
Net loss $(5,868) $ (5,929) $ (4,023) $ (6,852)
-------------- -------------- -------------- ---------------
Basic net loss per share:
Before extraordinary item $ (0.39) $ (0.40) $ (0.52) $(0.47)
Extraordinary item - - 0.25 -
-------------- -------------- -------------- ---------------
Basic net loss per share $ (0.39) $ (0.40) $ (0.27) $(0.47)
Diluted net loss per share:
Before extraordinary item $ (0.39) $ (0.40) $ (0.52) $(0.47)
Extraordinary item - 0.25 -
-------------- -------------- -------------- ---------------
Diluted net loss per share $ (0.39) $ (0.40) $ (0.27) $(0.47)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
=====================================================================================================================
<S> <C> <C>
1999 1998
------------- -------------
Assets
Current assets
Cash and cash equivalents $ 2,835 $ 2,743
Accounts receivable, net 38,569 62,253
Current portion of long-term contracts receivable 13,730 13,498
Inventories 19,133 20,654
Deferred income taxes, net 8,323 6,938
Other 1,354 2,306
----------------- ----------------
Total current assets 83,944 108,392
----------------- ----------------
Property, plant and equipment, net 32,858 42,390
Equipment used in outsourcing, net 54,686 50,746
Intangible assets, net 15,898 18,142
Long-term contracts receivable 29,919 23,712
Other 4,093 4,373
----------------- ----------------
Total assets $ 221,398 $ 247,755
----------------- ----------------
Liabilities and shareholders' equity
Current liabilities
Short-term borrowings $ - $ 14,000
Accounts payable and accrued expenses 24,423 25,263
Wages and benefits payable 9,175 6,246
Deferred revenue 4,142 8,653
----------------- ----------------
Total current liabilities 37,740 54,162
----------------- ----------------
Convertible subordinated debt 57,234 63,400
Mortgage notes payable 6,142 6,242
Project financing 7,346 7,722
Warranty and other obligations 1,063 1,207
----------------- ----------------
Total noncurrent liabilities 71,785 78,571
----------------- ----------------
Shareholders' equity
Common stock 107,246 106,039
Retained earnings 6,067 10,090
Other (1,440) (1,107)
----------------- ----------------
Total shareholders' equity 111,873 115,022
----------------- ----------------
Total liabilities and shareholders' equity $ 231,398 $ 247,755
----------------- ----------------
</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>
Nine months ended September 30,
====================================================================================================================================
<S> <C> <C>
1999 1998
------------ -----------
OPERATING ACTIVITIES
Net loss $ (4,023) $ (6,852)
Noncash charges (credits) to income:
Depreciation and amortization 13,929 15,150
Deferred income tax provision (benefit) (3,360) (4,141)
Equity in affiliates, net 413 1,224
Extraordinary gain on extinguishment of debt (3,660) -
Loss on equipment disposal 4,764 -
Changes in operating accounts:
Accounts receivable 23,660 9,646
Inventories 1,521 8,580
Accounts payable and accrued expenses (1,339) (6,191)
Wages and benefits payable 2,929 (2,134)
Long-term contracts receivable (6,439) (11,500)
Deferred revenue (4,511) (1,823)
Other, net 177 (1,435)
-------------- --------------
Cash provided (used) by operating activities 24,061 524
-------------- --------------
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (4,558) (5,202)
Equipment used in outsourcing (6,363) (9,296)
Other, net 326 (784)
-------------- --------------
Cash used by investing activities (10,595) (15,282)
-------------- --------------
FINANCING ACTIVITIES
Change in short-term borrowings, net (14,000) 10,030
Project financing (376) 5,429
Issuance of common stock 1,207 1,979
Purchase and retirement of common stock - (1,554)
Other, net (205) 236
-------------- --------------
Cash provided (used) by financing activities (13,374) 16,120
-------------- --------------
Increase in cash and equivalents 92 1,362
Cash and cash equivalents at beginning of period 2,743 3,023
-------------- --------------
Cash and cash equivalents at end of period $ 2,835 $ 4,385
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ITRON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
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 and nine
month periods ended September 30, 1999. 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
regarding interim results. These condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and the notes thereto included in our Form 10-K for the year ended December 31,
1998, as filed with the Securities and Exchange Commission on March 30, 1999.
The results of operations for the three and nine month periods ended September
30, 1999, are not necessarily indicative of the results expected for the full
fiscal year or for any other fiscal period.
Note 2: Earnings Per Share and Capital Structure
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
(in thousands) 1999 1998 1999 1998
- ---------------------------------------------------------- -------------------------- ---------------------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding 14,885 14,663 14,817 14,660
Effect of dilutive securities:
Stock options - - - -
Convertible debt - - - -
----------- ----------- ------------ ----------
Weighted average shares outstanding assuming conversion
14,885 14,663 14,817 14,660
----------- ----------- ------------ ----------
</TABLE>
Options to purchase common stock have been granted at fair market value to
directors, employees and other key personnel. These options will dilute the
ownership of our stock if they are exercised. The dilutive effect of these
options is included for purposes of calculating dilutive earnings per share
("EPS") using the "treasury stock" method. We also have subordinated convertible
notes outstanding. These notes are not included in the above calculation as the
shares are anti-dilutive in all periods when using the "if converted" method.
<PAGE>
Note 3: Restructuring
1998
In connection with our desire to reduce costs and improve operating
efficiencies, we recorded restructuring charges of $3.9 million in 1998.
Restructuring measures primarily involved a workforce reduction, the write-off
of certain of our intangible assets and the closure and consolidation of
facilities (for more information see "Restructuring Measures" in the
accompanying Management's Discussion and Analysis). 1998 restructuring charges
as of September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Reserve
Cash/ Restructuring Balance
(in thousands) Non-Cash Charges Activity 9/30/99
================================================= =================== ============= =========== ==============
<S> <C> <C> <C> <C>
Severance and related charges Cash $ 1,920 $ 1,920 $ -
Intangible asset impairment Non-Cash 1,104 1,104 -
Consolidation of facilities Cash 665 133 532
Other Non-Cash 241 241 -
------------- ------------- --------------
Total restructuring charges $ 3,930 $ 3,398 $ 532
------------- ------------- --------------
</TABLE>
1999
In our ongoing efforts to improve efficiencies and reduce costs we recorded
restructuring charges of $9.9 million during the first nine months of 1999. The
majority of the charges are for the disposal of equipment related to the
consolidation of our high volume manufacturing activities. 1999 restructuring
charges as of September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Reserve
Cash/ Restructuring Balance
(in thousands) Non-Cash Charges Activity 9/30/99
================================================= =================== ============= =========== ==============
<S> <C> <C> <C> <C>
Severance and related charges Cash $ 2,314 $ 386 $ 1,928
Asset impairment Non-Cash 4,764 74 4,690
Consolidation of facilities Cash 2,871 97 2,774
------------- ------------- --------------
Total restructuring charges $ 9,949 $ 557 $ 9,392
------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
Note 4: Balance Sheet Components
September 30, December 31,
====================================================================================================================================
(Inventories, in thousands) 1999 1998
- ----------------------------------------------------------------------------------- ------------ --------- ------------
<S> <C> <C>
Material $ 6,338 9,041
Work in process 1,220 1,599
Finished goods 9,474 6,947
Field inventories awaiting installation 104 -
------------ ------------
Total manufacturing inventories 17,136 17,587
Service inventories 1,997 3,067
------------ ------------
Total inventories $19,133 $ 20,654
------------ ------------
</TABLE>
<PAGE>
Note 5: Segment Information
Our chief executive officer and senior management analyze our operations in
various ways. However, they primarily review our manufacturing and sales
operations on a domestic vs. international basis and our revenues and cost of
sales by the major product lines of AMR systems, handheld systems and
outsourcing. We have outsourcing agreements in which we both own and operate AMR
systems. These agreements require a large amount of capital investment, with
related project and other debt, and long-term contract payments that are
predominantly financing payments. Consequently outsourcing accounts are included
in our finance operations. Outsourcing contracts in which we operate and
maintain, but do not own, AMR systems are included as manufacturing and sales
operations under outsourcing. Our chief executive officer and senior management
review financing operations separately from manufacturing and sales operations
because they are essentially different businesses with significantly different
operating and debt leverage characteristics.
Segment debt and interest expense related to our finance and international
operations includes both direct and allocated debt and interest expense. Segment
debt and related interest expense are allocated based on each segment's funding
requirements for capital or operations. Intersegment revenues include shipments
to our various subsidiaries and are eliminated in consolidation. EBITDA includes
earnings for each segment before interest, taxes, depreciation and amortization
and is used to allow a comparison of each segment's operating results. Segment
Debt/EBITDA is a ratio that is used to compare segment leverage ratios to
comparable industry ratios. We do not allocate income taxes to our operating
segments.
<TABLE>
<CAPTION>
Nine months ended September 30, 1999
=========================================================================================================================
Manufacturing and Sales
-------------------------------------
(in thousands, except ratios) Domestic International Total Finance Eliminated Consolidated
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers:
AMR systems $ 83,263 $ 1,435 $84,698 $ - $ - $ 84,698
Handheld systems 39,581 11,847 51,428 - - 51,428
Outsourcing 1,009 - 1,009 14,564 - 15,573
Intersegment revenues 1,033 160 1,193 - (1,193) -
------------ ------------ ----------- ------------ ------------- -------------
Total revenues $ 124,886 $13,442 $138,328 $ 14,564 $(1,193) $151,699
Segment income (loss) (1) 5,335 (4,337) 998 (2,196) 113 (1,085)
Segment income (loss) (2) (4,515) (4,436) (8,951) 3,434 113 (5,404)
Segment assets 169,021 9,762 178,783 98,671 (56,056) 221,398
Segment debt 6,815 20,668 27,483 79,479 (35,391) 71,571
Cash flows:
Operating activities $30,318 $ (847) $29,471 $ (5,410) $ - $ 24,061
Investing activities (3) (4,150) (171) (4,321) (6,274) - (10,595)
------------ ------------ ----------- ------------ ------------- -------------
Net operating and investing $26,168 $ (1,018) $25,150 $ (11,684) $ - $ 13,466
EBITDA (4) $ 5,106 $ (2,105) $3,001 $ 10,105 $ - $ 13,106
Segment debt/annual EBITDA(5) 1.00 * 6.87 5.90 * 4.10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1998
====================================================================================================================================
Manufacturing and Sales
-------------------------------------
(in thousands, except ratios) Domestic International Total Finance Eliminated Consolidated
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers:
AMR systems $123,729 $ 6,373 $130,102 $ - $ - $130,102
Handheld systems 25,595 7,631 33,226 - - 33,226
Outsourcing 307 - 307 15,681 - 15,988
Intersegment revenues 3,131 100 3,231 - (3,231) -
------------ ------------ ------------ ------------ ------------- -------------
Total revenues $152,762 $14,104 $166,866 $15,681 $ (3,231) $179,316
Segment income (loss) (1) (2,046) (3,690) (5,736) (598) (971) (7,305)
Segment income (loss) (2) (5,197) (4,286) (9,483) (598) (971) (11,052)
Segment assets 166,886 11,005 177,891 81,855 (19,194) 240,552
Segment debt 6,281 18,660 24,941 69,462 (4,391) 90,012
Cash flows:
Operating activities $ 13,124 $ (2,682) $10,442 $ (9,918) $ - $ 524
Investing activities (3) (5,269) (615) (5,884) (9,398) - (15,282)
------------ ------------ ------------ ------------ ------------- -------------
Net operating and investing $ 7,855 $ (3,297) $ 4,557 $(19,316) $ - $ (14,758)
EBITDA (4) $ 5,588 $ (1,372) $ 4,216 $ 4,493 $ - $ 8,709
Segment debt/annual EBITDA (5) 0.84 * 4.44 11.60 * 7.75
</TABLE>
(1) Segment income (loss) is equal to income before restructuring charges and
extraordinary item.
(2) Segment income (loss) is equal to income before extraordinary item, plus
extraordinary gain on extinguishement of $5.6 million in 1999. Itron does
not allocate income taxes to its segments.
(3) Investing activities primarily consist of capital expenditures for each
segment.
(4) EBITDA is calculated by adding net interest, depreciation and amortization
expense to pre-tax income or loss after extraordinary item and is presented
because the Company believes that it allows for a more complete analysis of
the Company's results of operations. This information should not be
considered as an indicator of the Company's overall financial performance.
Additionally, EBITDA as reported herein may not be comparable to similarly
titled measures reported by other companies.
(5) Total debt to annualized EBITDA is calculated by dividing total segment debt
by the product of EBITDA divided by 3 and multiplied by 4.
* Not meaningful.
Note 6: Contingencies
We, together with our Chairman Johnny M. Humphreys, are a defendant in a class
action filed by certain former shareholders in federal court, alleging
violations of the federal securities laws arising out of alleged misleading
disclosures or omissions made by us regarding our business and technology. On
June 3, 1999 we announced that we had reached an agreement to settle this
lawsuit by payment of $12 million to the plaintiff class, all of which will be
covered by insurance proceeds. The settlement is subject to certain customary
conditions, including notice to the potential class members and approval by the
court. Neither we nor Mr. Humphreys have admitted any wrongdoings or liability
and no wrongdoing or liability was found by the court.
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OVERVIEW
We are a leading global provider of integrated systems solutions for collecting,
communicating, analyzing, and managing information about energy and water usage.
We design, develop, manufacture, market, install and service hardware, software
and integrated systems that enable customers to obtain, analyze and use meter
data. Our major product lines include Automatic Meter Reading ("AMR") systems
and Electronic Meter Reading ("EMR") or Handheld systems. We sell our products
and provide outsourcing services.
Our AMR solutions primarily utilize radio and telephone technology to collect
meter data and include Off-Site AMR, Mobile AMR and Network AMR technology
reading options. Off-Site AMR utilizes a radio device fitted into an Itron
handheld computer that collects data from meters equipped with our radio meter
modules. Mobile AMR uses a transceiver in a vehicle to collect data from meters
equipped with our radio meter modules as the vehicle passes by. We offer a
number of Network AMR solutions that utilize radio, telephone, cellular or a
combination of these technologies to collect and transmit meter information from
a variety of fixed locations.
Our EMR systems product line includes the sale and service of ruggedized
handheld computers and supporting products that are used to record visually
obtained meter data.
Outsourcing services typically involve the installation, operation and/or
maintenance of meter reading systems to provide meter information for billing
and management purposes. Outsourcing contracts usually cover long timeframes and
typically involve contracts in which either a customer owns the system and we
provide meter information for a specified fee, or we both own and operate the
system.
We currently derive the majority of our revenues from sales of products and
services to utilities, however, our business may increasingly consist of sales
to other utility industry participants such as energy service providers, end
user customers and others. We have experienced variability of operating results
on both an annual and a quarterly basis due primarily to utility purchasing
patterns and delays of purchasing decisions. In recent years these delays have
generally been a result of changes or potential changes to the federal and state
regulatory frameworks within which the electric utility industry operates and
mergers and acquisitions in the utility industry, many of which are also driven
by deregulation.
RESULTS OF OPERATIONS
Revenues
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
---------------------------------------- ---------------------------------------
(in millions) Increase Increase
Revenues 1999 (Decrease) 1998 1999 (Decrease) 1998
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AMR systems $24.7 (30%) $35.5 $ 84.7 (35%) $130.1
Handheld systems 18.7 56% 12.0 51.4 55% 33.2
Outsourcing 5.1 (30%) 7.3 15.6 (3%) 16.0
------------ ----------- ----------- -----------
Total revenues $48.5 (11%) $54.8 $151.7 (15%) $179.3
============ =========== =========== ===========
</TABLE>
AMR systems revenues for both the quarter and year to date periods in 1999 were
much lower than the comparable periods in 1998 primarily due to the completion
of a large contract that we had in 1998 with Virginia Power ("Virginia"). This
large contract accounted for approximately 27% of AMR systems revenues in each
of the 1998 periods. We shipped less radio meter modules in 1999 than the
comparable periods in 1998, yet average selling prices for the modules were
slightly higher in 1999. Decreased installation activities in the current year
also contributed to lower AMR systems revenues. We had several large "turn-key"
contracts in 1998, the majority of which were completed by the end of 1998 or
early 1999. "Turn-key" contracts involve the installation of AMR systems so that
they are ready for use upon acceptance by the customer. We expect that AMR
systems revenues in the fourth quarter will be comparable to the revenue we had
in the current quarter, and believe that our current AMR revenues are being
negatively impacted by the recent Federal Communications Commission ("FCC")
decision to stop accepting new applications for MAS frequencies in the
928/952/956/959 MHz band. We expect that AMR revenues will continue to be
impacted until we have resolution on this issue, which we believe will occur in
the near term. For more information see "Recent FCC Actions" below in this
Management's Discussion and Analysis.
Handheld systems revenues for both the three and nine months ended September 30,
1999 were significantly higher than in the comparable periods in 1998. The large
increases in handheld systems revenues were due to a combination of:
international shipments of a recently released handheld computer; a large number
of customers upgrading and replacing systems for Year 2000 requirements; and
sales of a portable network card for handheld computers, which we introduced in
late 1998.
We have four outsourcing contracts, three for situations in which we own and
operate the AMR systems, and one in which we merely operate the system.
Outsourcing revenues decreased considerably as a percentage in the third quarter
of 1999 compared to the third quarter of 1998 primarily due to the timing of
installation activities for our Duquesne contract. However, on a year to date
basis, outsourcing revenues in the nine months ended September 30, 1999 are
comparable to the same period in 1998. A small amount of third quarter revenues
reflect initial revenue from our new outsourcing contract with Southern
California Edison ("SCE"). Outsourcing revenues continue to consist principally
of revenues from our contract with the Duquesne Light Company ("Duquesne"). We
are currently in the operations phase of our contract with Duquesne, which will
continue through 2013.
Gross Margin
Total gross margin in 1999 was significantly higher than the levels we
experienced in 1998. The following table shows gross margin as a percentage of
corresponding revenue.
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
---------------------------------------- ----------------------------------------
Increase Increase
Gross margin 1999 (Decrease) 1998 1999 (Decrease) 1998
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AMR systems 37% 13% 24% 36% 7% 29%
Handheld systems 45% (1%) 46% 43% (4%) 47%
Outsourcing 14% (1%) 15% 15% (1%) 16%
Total gross margin 38% 11% 27% 36% 5% 31%
</TABLE>
AMR systems gross margins increased substantially in both the quarter and year
to date periods ended September 30, 1999 over the comparable periods in 1998.
AMR systems margins were much lower last year because we had an abnormally low
margin on our contract with Virginia. Additional improvements in the margin for
the three and nine month periods in 1999 result from a shift in mix from
electric to gas and water meter modules, a smaller proportion of installation
activities in 1999 and a higher proportion of commercial and industrial software
revenues.
Handheld systems margins in the third quarter of 1999 were comparable to the
third quarter of 1998. For the nine months ended September 30, 1999 handheld
systems margins were somewhat lower, primarily due to decreased service margins.
The lower service margins were caused by new warranty periods associated with
system upgrade sales (during which we do not receive service revenues) that we
provide for customer upgrades.
Outsourcing margins in the quarter and year to date periods of 1999 were
comparable to the 1998 periods. As mentioned above, the largest of our
outsourcing contracts is with Duquesne, which has an unusually low margin
primarily because it was our first large scale Network AMR system. Although the
three other outsourcing contracts have substantially higher margins than the
Duquesne contract, they are a significantly lower proportion of total
outsourcing revenues and consequently do not have as much of a margin impact.
Operating Expenses
Operating expenses for the quarter and year to date periods in 1998 and 1999
include restructuring charges. However, the restructuring charges in 1999 were
substantially higher than the 1998 charges. Excluding restructuring charges in
all periods, operating expenses in 1999 would have been lower than last year by
$2.3 million and $6.9 million for the quarter and year to date periods,
respectively.
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
---------------------------------------- -----------------------------------------
(in millions) Increase Increase
Operating expenses 1999 (Decrease) 1998 1999 (Decrease) 1998
--------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing $ 7.0 5% $ 6.7 $ 20.5 1% $ 20.2
Product development 6.0 (29%) 8.4 19.5 (26%) 26.4
General and administrative 3.0 (2%) 3.1 9.5 0% 9.4
Amortization of intangibles 0.5 (24%) 0.6 1.4 (19%) 1.8
Restructuring charge 8.8 172% 3.2 9.9 206% 3.2
---------- ---------- ---------- -----------
Total operating expenses $25.3 (15%) $22.0 $ 60.8 (0%) $ 61.0
========== ========== ========== ===========
</TABLE>
Our sales and marketing expenses include employees who perform project
management and installation services for customers. To the extent these
employees are working on specific customer projects, their expenses are
classified as cost of sales. Because less project management and other
installation related activities were chargeable to contracts in 1999, sales and
marketing expenses were higher in the current year than they were in 1998.
Current year product development expenses were significantly lower than in the
previous year because of restructuring measures we began to implement in the
third quarter of 1998 (see "Restructuring Measures" discussed below). General
and administrative expenses in 1999 were comparable to last year. Year to date
amortization of intangibles expenses decreased slightly in 1999 compared to
1998, yet remained at 1% of total revenues.
Restructuring Measures
1998
In the third quarter of 1998 we announced, and began the implementation of,
restructuring measures to reduce costs and improve operating efficiencies
resulting in a $3.7 million charge in the third quarter of 1998, $500,000 of
which was reflected in equity in affiliates. In the fourth quarter of 1998 we
identified additional savings opportunities, which resulted in an additional
restructuring charge of $700,000. The 1998 restructuring measures involved the
elimination and/or consolidation of approximately 150 positions - primarily in
product development, consolidation of our Minnesota product development
activities, the write-off of certain of our intangible assets due to a reduction
in the scope of planned technology development and discontinuation of a
jointly-owned entity. Because of the restructuring measures taken in 1998, we
have significantly reduced our operating expenses in the first nine months of
1999, particularly in product development, which were 26% lower than the same
period in the previous year.
1999
In the first quarter of 1999 we announced the closure of our product development
facility in Saratoga, California and a reduction in force in the United Kingdom,
which resulted in a restructuring charge of $1.1 million. In association with
the hiring of our new CEO in June 1999, we have embarked on an overall strategic
initiative program focused on improving profitability and enhancing growth
opportunities in our core business. During the third quarter of 1999 we
announced that we will be consolidating all of our high volume meter module
manufacturing operations in Spokane and Boise to our facility in Waseca,
Minnesota, and that we will close our Boise location and transition any
remaining activities to our other locations. In conjunction with these and other
facility related moves, we recorded restructuring charges of $8.8 million in the
current quarter. More than half of this charge is for the impairment of excess
manufacturing and other equipment involved in the consolidations. Severance,
rent expense and other charges represent the remainder of the expense. (For more
detail see Note 3 of the accompanying financial statements.) We expect these
restructuring measures will save approximately $5 - $6 million annually
beginning in 2000.
Subsequent Events
We are taking some steps to substantially reposition our activities in Europe.
We will be reducing the scope and spending level of product development
activities to correspond with near term revenues. We will also be shifting away
from directly selling our EMR and OMR products to predominantly selling them
through distributors in continental Europe. This repositioning of our European
operations will be implemented over the next six months with an estimated annual
savings of approximately $3 million beginning in 2000. We will incur a
restructuring charge related to this European repositioning in the fourth
quarter of 1999; however, the amount of the charge has not yet been determined.
We are in the process of finalizing plans for additional restructuring actions
and expect to complete the majority of them by the end of 1999.
Additionally, we are in the process of reevaluating our revenue and cost
assumptions related to our long-term contract with Duquesne, which may result in
a change to our reported margin. As part of this reevaluation we could have an
adjustment in the fourth quarter of 1999 that would negatively impact revenues
and margins. We have not yet determined the amount of the adjustment, if any.
Interest and Other, Net
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
--------------------------------------- ---------------------------------------
(in millions) Increase Increase
Other income (expense) 1999 (Decrease) 1998 1999 (Decrease) 1998
-------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity in affliates loss $(0.1) (88%) $(0.9) $ (0.4) (66%) $ (1.2)
Net interest income (expense) (1.3) (24%) (1.7) (4.6) (1%) (4.6)
---------- ---------- ---------- -----------
Total other income (expense) $(1.4) (46%) $(2.6) $ (5.0) (14%) $ (5.8)
========== =========== ========== ===========
</TABLE>
Gross interest expense was lower in 1999 than 1998 by $400,000 for the quarter
and $300,000 year to date. Interest expense was lower in 1999 because we had
less borrowings under our line of credit and a reduced amount of subordinated
debt. Additionally, we capitalized $260,000 of interest related to outsourcing
installations in the first quarter of 1998. No interest was capitalized in
subsequent quarters of 1998 or in any 1999 period. We had much lower losses from
our investments in affiliates in 1999 than we did in 1998 primarily because we
discontinued a jointly owned entity in the third quarter of 1998. This entity
had accounted for the majority of the equity in affiliates losses.
Income Taxes
We had an income tax benefit of approximately 30% of pre-tax losses from
continuing operations for the nine months ended September 30, 1999 compared to a
benefit of 38% for the full year 1998. The lower comparative tax benefit in 1999
is primarily caused by a proportionally more of state tax obligations and lower
expected R&D tax credits. To the extent pre-tax losses from continuing
operations, or the components of those losses, differ from expectations, the
effective tax rate for the year could change. When we have a lower level of
consolidated earnings, our tax rate can be significantly higher than the
statutory rate, primarily due to impact of state and foreign taxes.
Extraordinary Item - Gain on Extinguishment of Debt
In March 1999 we completed our offer ("Exchange Offer") to exchange up to $15.8
million principal amount of our 6 3/4% Convertible Subordinated Notes due 2004
("Exchange Notes"), for up to $22.0 million principal amount of our 6 3/4%
Convertible Subordinated Notes due 2004 ("Original Notes"). The Exchange Offer
was made on the basis of $720 principal amount of Exchange Notes for $1,000
principal amount of Original Notes. A total of $15.8 million aggregate principal
amount of Exchange Notes were issued related to the transaction. We generated a
pre-tax gain on extinguishment of debt, net of debt issuance expenses, of $5.6
million in the first quarter of 1999 related to the exchange. The after-tax
effect of the gain on extinguishment was $3.7 million.
<PAGE>
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
--------------------------------------- ----------------------------------------
(in millions) Increase Increase
Cash flows information 1999 (Decrease) 1998 1999 (Decrease) 1998
--------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating activities $ 11.1 831% $ 1.2 $ 24.1 4492% $ 0.5
Investing activities (2.7) (34%) (4.0) (10.6) (31%) (15.3)
Financing activities (8.5) (683%) 1.4 (13.4) (183%) 16.1
---------- ---------- ----------- ----------
Net inc. (dec.) in cash $(0.1) (96%) $(1.4) $ 0.1 (93%) $ 1.3
========== ========== =========== ==========
</TABLE>
We generated substantially more cash from operating activities in 1999 than we
did in 1998, having generated $23.6 million more in cash from operations in the
first nine months of 1999 than we did in the same nine months of 1998. This
significant improvement was primarily caused by three factors. First, we
generated approximately $3.9 million more income from operations (excluding
manufacturing asset disposal costs and gain on extinguishment of debt) in 1999
that we did in 1998. Second, we collected $14.0 million more of accounts
receivable in the current year that we did last year. The large increase in
collections was primarily due to the completion of a number of projects and
subsequent collection of the accounts related to those projects. Third, we spent
$5.1 million less in net operating cash on our outsourcing contracts in 1999
than we did in 1998. We expect that we will continue to generate cash from
operations, however, the changes from previous periods are not expected to be as
significant as they have been so far this year.
Investments were 31% lower in the first nine months of 1999 compared to the same
nine months of 1998 primarily because of a slowing of equipment needed for
outsourcing installations. We have substantially completed installing equipment
for our Duquesne contract and are now in the operations phase, which is driving
the lower level of investment. We believe that investments will be lower in the
last quarter of 1999 compared to 1998; however, they may increase somewhat from
the level experienced in the third quarter of 1999 because we are beginning the
installation of new outsourcing contract with SCE.
Financing activities used $8.5 million and $13.4 million in the three and nine
months ended September 30, 1999 compared to generating $1.4 million and $16.1
million during the same periods in 1998. Financing activities in 1999
substantially consisted of paying down our bank line of credit. At September 30,
1999 we did not have any amounts outstanding under our bank line of credit.
During 1998 we generated cash from financing activities by borrowing against the
bank line of credit and obtaining project financing for an outsourcing contract.
During the third quarter of 1999 we extended our current line of credit with two
banks through January 31, 2000. Existing sources of liquidity at September 30,
1999 include approximately $2.8 million of existing cash and cash equivalents as
well as available borrowings under our $35 million revolving credit facility.
Borrowings under the facility are based on accounts receivable and inventory
levels. Although we believe that we will be able to renew or replace our line of
credit on similar terms, we can not assure you that we will be able to do so. We
anticipate that our existing cash, together with available borrowings and cash
generated from operating activities, will be more than sufficient to fund
operations, exclusive of any large outsourcing arrangements, for the remainder
of 1999 and into 2000. We plan to fund the majority of future outsourcing
contracts with project financing.
RECENT FCC ACTIONS
We use licensed multiple address system ("MAS") frequencies in the
928/952/956/959 MHz band to interrogate or "wake-up" some of our meter modules.
(See "Description of Business - FCC Regulation" and "Certain Risk Factors -
Availability and Regulation of Radio Spectrum" in our Annual Report on Form 10-K
for the year ended December 31, 1998.) On July 1, 1999 the ("FCC") issued a
Further Notice of Proposed Rule Making ("FNPRM") that contains a clause stating
that the FCC temporarily will not accept any new applications after July 1, 1999
for MAS frequencies in this band. The FNPRM does not have an effect on existing
license holders. Many utilities have MAS licenses that they use for a multitude
of purposes including meter reading, mobile dispatch and supervisory control and
distribution automation. Other companies in the gas pipeline, railroad and
petroleum industry use these bands as well. We have filed an emergency petition
with the FCC to seek relief from the moratorium on new license applications. In
addition we are bringing the impact of this issue to the attention of our
congressional delegations in both Washington and Minnesota. We have joined with
a broad group including industry organizations such as Utility Telecom Council ,
American Water Works Association, American Gas Association and Edison Electric
Institute to bring this matter to members of Congress and the Senate to seek
immediate termination of the FCC's order. Although we believe that we will be
successful in obtaining resolution of this issue in the reasonably near term,
there can be no assurance that we will be. As long as the FNPRM is in effect we
will be unable to sell radio based AMR systems to some customers, particularly
smaller utilities and municipalities who do not currently hold or have use
rights to these licenses.
YEAR 2000 COMPLIANCE
In general, the "Year 2000 problem" concerns software programs that contain only
a two-digit year value (99 to 00) rather than a four-digit year value (1999 to
2000) to indicate a change from 1999 to 2000. The issue is whether computer
systems and non-information technology systems, such as embedded
micro-controllers, will properly recognize date sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. We instituted a Year
2000 program in 1997 to identify potential risks and to develop solutions to
mitigate those risks. We believe that we will be successful in implementing the
identified solutions in a timely manner in order to mitigate potential Year 2000
problems.
We have potential risks related to the Year 2000 problem in three areas:
1) suppliers; 2) internally developed software and hardware we sell; and
3) internal software and hardware systems. The following discussion addresses
each of these potential risk areas.
Suppliers: We have received confirmation that all of our critical suppliers are
Year 2000 compliant. Additionally, to mitigate the risk of any supply
interruptions, we have ordered a minimal amount of excess inventory for
contingency purposes.
Internally developed software and hardware for sale to customers: We completed
the process of identifying which of our products available for sale to customers
were not Year 2000 compliant. We began the upgrading software and hardware in
late 1997 and completed all major standard applications updates by December
1998. A small number of hardware and software platforms will not be upgraded and
all customers affected were notified. Alternatives, including upgrading systems,
were developed for them. All of the customers with maintenance contracts with us
have had their systems upgraded.
Internal software and hardware systems: We upgraded our financial software
including general ledger, manufacturing and sales order processing to be Year
2000 compliant during the second quarter of 1998 for domestic and Australian
operations. Our United Kingdom operations and subsidiary in France were upgraded
in the fourth quarter of 1998 and the second quarter of 1999, respectively. We
also have a variety of other software and hardware, including personal computer
software and software used in engineering functions, all of which are now Year
2000 compliant.
We believe that the reasonably most likely worst-case scenario we might confront
with respect to Year 2000 issues has to do with the possible failure of third
party systems over which the Company has no control. These systems may include,
but are not limited to, power and telecommunications services. We purchased
several generators for our headquarters in Spokane to temporarily run critical
systems such as computer systems, lights and telephones if needed. Some
problems, however, may remain uncorrected, and could materially adversely affect
our business, financial condition and operating results. We may also experience
reduced sales of our products as potential current customers reduce their
budgets for meter-reading and data management solutions because of increased
expenditures on their own Year 2000 compliance efforts. We do not anticipate
that we will incur further significant operating expenses or be required to
invest heavily in computer systems improvements to be Year 2000 compliant. Total
costs for the Year 2000 issue were estimated to be approximately $1.5 million,
of which approximately $1.4 million has been spent to date. However, as the
compliance process is not yet complete, some uncertainty exists concerning total
costs associated with Year 2000 compliance. Any Year 2000 compliance problem of
that we or our collaborative partners experience could have a material adverse
effect on our business, financial condition and results of operations.
Certain Forward-Looking Statements
When included in this discussion, the words "expects," "intends," "believes,"
"anticipates," "plans," "projects" and "estimates," and similar expressions
are intended to identify forward-looking statements. Such statements, 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 laws or regulations (including FCC licensing actions), the
rate of customer demand for our products, the effectiveness of our cost
reductions programs, our ability to effect additional initiatives for growth
and profitability, delays or difficulties in introducing new products and
acceptance of those products, ability to renew or replace our line of credit,
ability to obtain project financing in amounts necessary to fund future
outsourcing agreements, increased competition and various other matters, many
of which are beyond the Company's control. For a more complete description of
these and other risks, see "Recent FCC Actions" section in this document and
"Certain Risk Factors" and "Description of Business - FCC Regulation" included
in the Company's Annual Report of Form 10-K for the year ended December 31,
1998. 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 May 29, 1997, we and our Chairman, Johnny M. Humphreys, were served with a
complaint alleging securities fraud filed by Mark G. Epstein (Epstein vs Itron,
etal) on his own behalf and alleged to be on behalf of a class of all similarly
situated, in the US District Court of Easter Washington (Civil Action) The
complaint alleged, among other matters, that we 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 our Fixed Network AMR
system and regarding the suitability of our encoder receiver transmitter devices
for use with an advanced Fixed Network AMR system. The complaint sought monetary
damages, costs and attorneys' fees and unspecified equitable or injunctive
relief. On March 10, 1999, the Court certified this action as a class action on
behalf of all purchasers of our Common Stock between September 11, 1995 and
October 22, 1996 except for the Defendants and persons or entities having a
relationship with the Defendants.
On June 3, 1999 we reached an agreement to settle the lawsuit by a payment to
the plaintiff class of $12 million, all of which will be funded by insurance
proceeds. The settlement is subject to certain customary conditions, including
notice to the potential class members and approval by the court. We have not
admitted any wrongdoing or any liability and none has been found by the court.
Item 6: Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 10.18 - First Amendment to Loan Agreement between Itron, Inc.
and Bank of America and US Bank dated September 30, 1999.
Exhibit 10.19 - Second Amendment to Loan Agreement between Itron, Inc.
and Bank of America and US Bank dated September 30, 1999.
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
A report on Form 8-K, dated June 30, 1999 was filed on July 1, 1999,
pursuant to Item 5 of that form. The report related to an amendment to
a contract with Virginia Power that resulted in a $4.2 million
reduction in the price paid by Virginia for an AMR system.
<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: November 14, 1999
AMENDMENT TO LOAN AGREEMENT
This Amendment amends that certain Loan Agreement dated as of September
30, 1998, the parties to which are ITRON, INC. ("Borrower"), BANK OF AMERICA,
N.A., formerly Bank of America National Trust and Savings Association, and U.S.
BANK NATIONAL ASSOCIATION (collectively, including their respective successors
and/or assigns, "Banks"), and BANK OF AMERICA, N.A., formerly Bank of America
National Trust and Savings Association, as "Agent." All terms defined in the
Agreement shall have the same meaning when used in this Amendment, except as may
be otherwise provided in this Amendment or in any prior amendment. For mutual
consideration, the parties agree as follows:
1. Commitment Period. Section 2.1 of the Agreement is amended to
provide that the "Commitment Period" shall be the period beginning on the
Effective Date and ending on January 31, 2000.
2. Applicable Interest Period. The definition of "Applicable Interest
Period" in Section 1.1 of the Agreement is amended to read as follows:
"Applicable Interest Period" means, with respect to any Loan,
the period commencing on the date such Loan was made pursuant to
Section 2.2 or converted or continued pursuant to Section 2.5 and
ending:
(a) At the end of the Commitment Period in the
case of a Base Rate Loan;
(b) one, two, or three months thereafter in the case
of a LIBOR Loan as specified in the Notice of Borrowing or
Notice of Refinancing given by Borrower in respect of such
Loan;
provided, however, that no Applicable Interest Period may end later
than February 29, 2000.
3. Letters of Credit. Section 2.11 of the Agreement is amended to provide that
tenors of Letters of Credit may not extend beyond February 29, 2000, rather than
September 30, 1999.
4. Notices. The notice address of each party shall be as shown on the signature
pages of this Amendment, rather than on the signature pages of the Agreement.
The certificate set forth as Exhibit G to the Agreement shall be addressed to
the Agent at the address shown on this Amendment.
5. Extension Fee. Upon execution of this Amendment, Borrower shall pay
to Agent, for the account of Banks, an extension fee of $15,000.
6. Other Terms. Except as specifically amended by this Amendment or any prior
amendment, all other terms, conditions, and definitions of the Agreement shall
remain in full force and effect.
7. Counterparts. This Amendment may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures to
such counterparts were upon the same instrument. This Amendment shall be deemed
fully executed when the Agent shall have received counterparts of this Amendment
signed by Borrower, Agent, and all Banks.
DATED as of the 30th day of September, 1999.
Borrower: Agent:
ITRON, INC BANK OF AMERICA, N.A.
By By
Title Title
Address: Address:
2818 N. Sullivan Road Agency Management Services
Spokane, WA 99216 WA1-102-16-20
Attn: Treasurer 701 Fifth Avenue, 16th Floor
Seattle, WA 98104
Attention: Dora Brown
Banks:
BANK OF AMERICA, N.A U.S. BANK NATIONAL ASSOCIATION
By By
Title Title
Address: Address:
Commercial Banking 1420 Fifth Avenue, Floor 11
701 Fifth Avenue, 12th Floor Seattle, WA 98101
Seattle, WA 98104 Attention: Cathy Schalkle
Attention: Eric Herbst
SECOND AMENDMENT TO LOAN AGREEMENT
This Second Amendment amends that certain Loan Agreement dated as of
September 30, 1998, the parties to which are ITRON, INC. ("Borrower"), BANK OF
AMERICA, N.A., formerly Bank of America National Trust and Savings Association,
and U.S. BANK NATIONAL ASSOCIATION (collectively, including their respective
successors and/or assigns, "Banks"), and BANK OF AMERICA, N.A., formerly Bank of
America National Trust and Savings Association, as "Agent." All terms defined in
the Agreement shall have the same meaning when used in this Amendment, except as
may be otherwise provided in this Amendment or in any prior amendment. For
mutual consideration, the parties agree as follows:
1. Tangible Capital. Section 5.13(b) of the Agreement is amended to read
as follows:
(b) a Tangible Capital of not less than $150,000,000,
increasing at the end of each fiscal month, beginning month ending
October 31, 1999, by 50% of net income earned during the month then
ending (without reduction for net losses), plus 75% of new equity
contributed during the month then ending.
2. Other Terms. Except as specifically amended by this Amendment or any prior
amendment, all other terms, conditions, and definitions of the Agreement shall
remain in full force and effect.
3. Counterparts. This Amendment may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures to
such counterparts were upon the same instrument. This Amendment shall be deemed
fully executed when the Agent shall have received counterparts of this Amendment
signed by Borrower, Agent, and all Banks.
DATED as of the 30th day of September, 1999.
Borrower: Agent:
ITRON, INC. BANK OF AMERICA, N.A.
By By
Title Title
Address: Address:
2818 N. Sullivan Road Agency Management Services
Spokane, WA 99216 WA1-102-16-20
Attn: Treasurer 701 Fifth Avenue, 16th Floor
Seattle, WA 98104
Attention: Dora Brown
Banks:
BANK OF AMERICA, N.A. U.S. BANK NATIONAL ASSOCIATION
By By
Title Title
Address: Address:
Commercial Banking, WA1-102-12-06 1420 Fifth Avenue, Floor 11
701 Fifth Avenue, 12th Floor Seattle, WA 98101
Seattle, WA 98104 Attention: Cathy Schalkle
Attention: Eric Herbst
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 2,835
<SECURITIES> 0
<RECEIVABLES> 54,007
<ALLOWANCES> 1,708
<INVENTORY> 19,133
<CURRENT-ASSETS> 83,944
<PP&E> 153,058
<DEPRECIATION> (65,514)
<TOTAL-ASSETS> 221,398
<CURRENT-LIABILITIES> 37,740
<BONDS> 0
0
0
<COMMON> 107,246
<OTHER-SE> 4,627
<TOTAL-LIABILITY-AND-EQUITY> 221,398
<SALES> 151,699
<TOTAL-REVENUES> 151,699
<CGS> 96,904
<TOTAL-COSTS> 96,904
<OTHER-EXPENSES> 61,248
<LOSS-PROVISION> (6,453)
<INTEREST-EXPENSE> (4,581)
<INCOME-PRETAX> (11,034)
<INCOME-TAX> 3,351
<INCOME-CONTINUING> (7,683)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,660
<CHANGES> 0
<NET-INCOME> (4,023)
<EPS-BASIC> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
