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Itron Announces Third Quarter 2012 Financial Results

Adjusted EBITDA – We define adjusted EBITDA as net income (a) minus interest income, (b) plus interest expense, depreciation and amortization of intangible asset expenses, restructuring expense, acquisition related expenses and goodwill impairment and (c) exclude the tax expense or benefit. We believe that providing this financial measure is important for management and investors to understand our ability to service our debt as it is a measure of the cash generated by our core business. Management uses adjusted EBITDA as a performance measure for executive compensation. A limitation to using adjusted EBITDA is that it does not represent the total increase or decrease in the cash balance for the period and the measure includes some non-cash items and excludes other non-cash items. Additionally, the items that we exclude in our calculation of adjusted EBITDA may differ from the items that our peer companies exclude when they report their results. Management compensates for this limitation by providing a reconciliation of this measure to GAAP net income.

Free cash flow – We define free cash flow as net cash provided by operating activities less cash used for acquisitions of property, plant, and equipment. We believe free cash flow provides investors with a relevant measure of liquidity and a useful basis for assessing our ability to fund our operations and repay our debt. The same limitations described above regarding our use of non-GAAP operating income apply to our use of free cash flow. We compensate for these limitations by providing specific information regarding the GAAP amounts and reconciling to free cash flow.

The accompanying tables have more detail on the GAAP financial measures that are most directly comparable to the non-GAAP financial measures and the related reconciliations between these financial measures.

ITRON, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO THE MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES
                     
(Unaudited, in thousands, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011
NON-GAAP OPERATING INCOME - ENERGY
Energy - GAAP operating income (loss) $ 30,978 $ (166,197 ) $ 116,211 $ (77,566 )
Amortization of intangible assets 8,735 11,600 26,077 34,647
Restructuring expense (218 ) 1,017 3,536 1,934
Acquisition related expenses 1,348 - 1,828 -
Goodwill impairment   -     216,085     -     216,085  
Energy - Non-GAAP operating income $ 40,843   $ 62,505   $ 147,652   $ 175,100  
 
NON-GAAP OPERATING INCOME - WATER
Water - GAAP operating income (loss) $ 22,293 $ (321,191 ) $ 49,896 $ (290,582 )
Amortization of intangible assets 3,194 4,413 9,790 13,160
Restructuring expense (4,991 ) 67 (871 ) 556
Goodwill impairment   -     324,315     -     324,315  
Water - Non-GAAP operating income $ 20,496   $ 7,604   $ 58,815   $ 47,449  
 
NON-GAAP OPERATING LOSS - CORPORATE UNALLOCATED
Corporate unallocated - GAAP operating loss $ (7,304 ) $ (9,864 ) $ (34,456 ) $ (30,930 )
Restructuring expense 155 12 790 513
Acquisition related expenses   44     -     2,962     -  
Corporate unallocated - Non-GAAP operating loss $ (7,105 ) $ (9,852 ) $ (30,704 ) $ (30,417 )
 
NON-GAAP OPERATING INCOME
GAAP operating income (loss) $ 45,967 $ (497,252 ) $ 131,651 $ (399,078 )
Amortization of intangible assets 11,929 16,013 35,867 47,807
Restructuring expense (5,054 ) 1,096 3,455 3,003
Acquisition related expenses 1,392 - 4,790 -
Goodwill impairment   -     540,400     -     540,400  
Non-GAAP operating income $ 54,234   $ 60,257   $ 175,763   $ 192,132  
 
NON-GAAP OPERATING EXPENSE
Total Company - GAAP operating expense $ 125,830 $ 674,248 $ 419,996 $ 953,003
Amortization of intangible assets (11,929 ) (16,013 ) (35,867 ) (47,807 )
Restructuring expense 5,054 (1,096 ) (3,455 ) (3,003 )
Acquisition related expenses (1,392 ) - (4,790 ) -
Goodwill impairment   -     (540,400 )   -     (540,400 )
Total Company - Non-GAAP operating expense $ 117,563   $ 116,739   $ 375,884   $ 361,793  
 
NON-GAAP NET INCOME & DILUTED EPS
GAAP net income (loss) $ 35,347 $ (517,082 ) $ 92,315 $ (455,526 )
Amortization of intangible assets 11,929 16,013 35,867 47,807
Amortization of debt placement fees 398 2,924 1,161 5,086
Amortization of convertible debt discount - - - 5,336
Restructuring expense (5,054 ) 1,096 3,455 3,003
Acquisition related expenses 1,392 - 4,790 -
Goodwill impairment - 540,400 - 540,400
Income tax effect of non-GAAP adjustments   (5,298 )   (5,576 )   (15,947 )   (18,667 )
Non-GAAP net income $ 38,714   $ 37,775   $ 121,641   $ 127,439  
       
Non-GAAP diluted EPS $ 0.97   $ 0.92   $ 3.04   $ 3.10  
 
Weighted average common shares outstanding - Diluted   39,791     41,033     40,042     41,049  
 
ADJUSTED EBITDA
GAAP net income (loss) $ 35,347 $ (517,082 ) $ 92,315 $ (455,526 )
Interest income (297 ) (155 ) (667 ) (631 )
Interest expense 2,551 10,796 7,594 34,330
Income tax provision 6,547 6,042 26,740 15,529
Depreciation and amortization 27,585 32,620 81,856 96,919
Restructuring expense (5,054 ) 1,096 3,455 3,003
Acquisition related expenses 1,392 - 4,790 -
Goodwill impairment   -     540,400     -     540,400  
Adjusted EBITDA $ 68,071   $ 73,717   $ 216,083   $ 234,024  
 
FREE CASH FLOW
Net cash provided by operating activities $ 44,613 $ 66,109 $ 137,003 $ 153,801
Acquisitions of property, plant, and equipment   (10,731 )   (17,087 )   (34,278 )   (45,799 )
Free Cash Flow $ 33,882   $ 49,022   $ 102,725   $ 108,002  




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