Itron Announces Record Second Quarter Results

Business Wire, August 1, 2007

Financial Results Include Actaris

Consolidated Quarterly Revenue Exceeds $400 Million, Setting New Record

LIBERTY LAKE, Wash. -- Itron, Inc. (Nasdaq:ITRI), today reported financial results for its second quarter ended June 30, 2007. Highlights include:

* Quarterly and year-to-date revenues of $402 million and $549 million;

* Quarterly and year-to-date non-GAAP diluted EPS of 89 cents and $1.34 per share; and

* Quarterly and year-to-date Adjusted EBITDA of $69 and $92 million.

"We are obviously pleased with our financial results for the quarter," said LeRoy Nosbaum, chairman and CEO. "As expected, the acquisition of Actaris dramatically improved the operating profile of our company and provides a platform for future growth opportunities in the global energy and water markets."

We completed the acquisition of Actaris on April 18, 2007. Actaris products include electricity meters sold outside of the U.S. and Canada and gas and water meters sold around the world. We have changed our segment reporting starting this quarter to now reflect our two operating businesses: Itron North America ("INA"), which includes the operating results for Itron prior to the acquisition, and Actaris. Comparisons for the current periods to 2006 will focus on INA since there were no consolidated results related to Actaris in the 2006 periods.

Quarter Statement of Operations Highlights:

Revenue - Total revenues for the second quarter 2007 of $402 million were $238 million, or 145%, higher than 2006 second quarter revenues of $164 million. INA revenues for the second quarter of $152 million were approximately $12 million, or 7%, lower than the second quarter of 2006. 2006 second quarter revenues included over $30 million from our contract with Progress Energy. This contract also contributed to the higher number of meters shipped during the second quarter of 2006. Actaris revenues of $250 million were comprised of shipments to electric, gas and water utilities of approximately 40%, 31% and 29%, respectively.

Gross Margin - Gross margin for the second quarter of 2007 was 31%. Business combination accounting rules require that we revalue inventory at the sales price, less costs to complete and a reasonable profit allowance for selling effort. This is a specific expense during the quarter and is not expected to impact the remainder of the year. The value of the inventory acquired was increased by $16 million for this purchase accounting requirement, which resulted in a 4% decrease in total gross margin in the quarter ended June 30, 2007. Second quarter 2007 INA gross margin of 42% was similar to the second quarter of 2006. Actaris gross margin of 25% included the effect of the inventory purchase accounting adjustment. Actaris gross margin would have been 31% without the purchase accounting adjustment.

Operating Expenses - Total operating expenses for the second quarter of 2007 were $148 million and included $36 million for in-process research and development ("IPR&D") expenses related to the Actaris acquisition, which is a one-time expense. Operating expenses without the acquisition-related IPR&D expense were $112 million, or 28% of revenue. INA operating expenses were $47 million, reflecting a more than $2 million increase over the second quarter of 2006. The increase was primarily due to higher product marketing and product development expenses in support of our OpenWay platform. Actaris operating expenses of $93 million included $36 million of IPR&D expense related to the acquisition. Without this expense, Actaris operating expenses were $57 million, or 23% of revenue. Corporate unallocated expenses were nearly $8 million for the quarter, or about $1.6 million higher than the second quarter of 2006. The increase was attributable to higher depreciation expenses for our new corporate facilities and ERP system as well as an impairment charge for our previous corporate headquarters, which is held for sale.

Interest and Other Income - Net interest expense of nearly $21 million in the second quarter of 2007 was $18 million higher than the comparable period in 2006. The increased net interest expense in 2007 was primarily due to the placement of $1.2 billion in debt for the Actaris acquisition. Other income included net realized gains of $2.2 million of acquisition-related foreign exchange transactions and $3.3 million of unrealized foreign currency exchange gains.

Income Taxes - We had a $14.8 million GAAP income tax benefit for the second quarter of 2007. This compares with a GAAP income tax provision of $5 million in the second quarter of 2006. The benefit is due to the pre-tax GAAP loss.

GAAP Net Income/Loss and EPS - Our GAAP net loss and fully diluted EPS loss for the second quarter of 2007 was $24 million, or 79 cents per share, compared with net income of $10 million, or 39 cents per share, in the same period in 2006. The loss was primarily due to acquisition-related charges for IPR&D and inventory.

Non-GAAP Operating Income, Net Income and Diluted EPS - Non-GAAP operating income, which excludes amortization expense related to intangible assets, and excludes acquisition related charges for IPR&D and inventory, was $53 million, or 13% of revenues, in the second quarter of 2007, compared with $25 million, or 15% of revenues, in the second quarter of 2006. Non-GAAP net income and diluted EPS, which also excludes amortization of debt fees, was $27.7 million or 89 cents per share in 2007 compared with $15 million or 57 cents per share in the 2006 period. Non-GAAP net income and diluted EPS are higher in the second quarter of 2007 primarily due to the Actaris acquisition. Our non-GAAP tax rates were 31% and 35% for the second quarter of 2007 and 2006, respectively. The lower 2007 rate is due to lower tax rates for Actaris.