ITRI

ITRON, INC. 2008 Annual Report (10-K) Summary

Business Context and Reporting Period

This report covers the fiscal year ended December 31, 2008. Itron, Inc. is a global provider of metering, data collection, and software solutions for electric, gas, and water utilities. The company operates through two primary segments: Itron North America (U.S. and Canada) and Actaris (Europe, Africa, South America, and Asia/Pacific), the latter acquired in April 2007. The company focuses on Advanced Metering Infrastructure (AMI) and Automated Meter Reading (AMR) technologies.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 30% year-over-year, driven primarily by the inclusion of a full year of Actaris operations and increased shipments of AMR-enabled meters.
• Profitability: The company returned to profitability with $28.1 million in net income, compared to a $16.1 million loss in 2007. Operating income more than doubled to $109.8 million.
• Debt Reduction: Total debt decreased by approximately $400 million. The company repaid $388.4 million of borrowings using cash flows from operations and proceeds from a $311 million common stock offering in May 2008.
• Segment Performance:
  • Itron North America: Revenues grew 6% to $628.2 million; operating margin decreased slightly to 12% due to lower overhead absorption.
  • Actaris: Revenues grew 47% to $1,281.4 million (reflecting a full year of results); operating margin improved to 5% from 0% in 2007.
• Bookings: Annual bookings surged to $2.543 billion in 2008 from $1.419 billion in 2007, with a total backlog of $1.309 billion.

Guidance, Outlook, and Risks

Management Commentary: Management highlighted strong cash flow generation and successful debt reduction. The company expects to continue expanding operations through internal development and acquisitions. No specific numerical guidance for 2009 was provided in this text, though management noted expectations to pay minimal U.S. federal taxes and approximately $25.5 million in local/foreign taxes in 2009.

Risks and Contingencies:

• Utility Capital Spending: Results are dependent on the utility industry, which faces volatility in capital spending due to economic downturns and regulatory changes.
• Customer Concentration: While no single customer exceeded 10% of revenue in 2008, the top 10 customers accounted for 15% of total revenue.
• Legal Proceedings: A lawsuit in Indonesia regarding a joint venture (PT Mecoindo) resulted in a court award of approximately $11.7 million against the company, which is currently under appeal. Management does not believe an adverse outcome will be material.
• Convertible Notes: The company has $345 million in convertible senior subordinated notes. In January 2009 (subsequent event), the company exchanged approximately $121 million of these notes for common stock.

Key Facts for Investor Verification

• Debt Covenants: Verify continued compliance with financial ratios in the $1.2 billion credit facility and indentures for senior subordinated notes.
• Convertible Note Conversion: Monitor the conversion threshold ($78.19 stock price) for the $345 million convertible notes, which can trigger conversion and dilution.
• Indonesia Litigation: Track the status of the PT Mecoindo appeal at the Indonesian Supreme Court regarding the $11.7 million damages award.
• AMI Contract Execution: Verify the recognition of revenue from large AMI contracts (e.g., Southern California Edison and CenterPoint Energy) included in the $1.3 billion backlog.
• Foreign Currency Exposure: Assess the impact of exchange rate fluctuations, as 66% of 2008 revenues were international, primarily in Euros.