Itron Inc. appears to have regained its confidence, but not its profitabilityyet.


The Spokane-based maker of meter-reading equipment for the utility industry has suffered financial losses, layoffs, and unmet expectations over the last couple of years, but now is saying it could return to profitability this year.


The company, which reported an after-tax loss of $68.6 million in 1999, has spent the last nine months refocusing, reorganizing, and re-strategizing.


We began to refocus on what would make money, and we pared away things that were distracting us, says LeRoy Nosbaum, Itrons new president and CEO. Formerly Itrons chief operating officer, Nosbaum succeeded Michael Chesser last month, after Chesser moved to New Jersey to become president and CEO of GPU Energy. Chesser took over for longtime CEO Johnny Humphreys just nine months ago.


What Mike (Chesser) did for us was come in here and tell us, You are better than you think you are. You just have to believe in yourself again, Nosbaum says. As I sit here today, I believe that Itron now believes in itself again.


While at the reins, Chesser also took serious restructuring steps. He laid off about 15 percent of Itrons work force, consolidated the companys Silicon Valley, Boise, Idaho, and Lakeville, Minn., operations into its Spokane headquarters and a plant in Waseca, Minn., and moved much of Itrons manufacturing operations from Spokane to Waseca.


Itron, which currently employs 950 people, including 420 in Spokane, also has replaced most of its management team. All but one of the companys 10 executive officers have been named to their positions since the start of the year. After the companywide shake-up, only David G. Remington, Itrons chief financial officer and a vice president of the company, has retained his position.


We didnt just dump the puzzle pieces out on the table and rearrange them, Nosbaum says. We re-cut them and re-connected them. Were sort of a new company today.


New business units


Itron, which previously was organized into operational departments, now has been reorganized into five market-focused business unitseach with its own business plan and goals. The units include electric, natural gas, water and public power, international communities, and energy information systems.


These smaller business units are very focused and very driven to be successful, Nosbaum says. Theres now an enthusiasm where it hasnt been for some time.


Itrons main products are electronic meter-reading devices and automatic meter-reading (AMR) devices that use radio and telephone technology to collect data from meters, Nosbaum says.


Nosbaum predicts that Itrons business unit that serves the water and public power industry, which includes customers such as small utilities, public power districts, and municipalities, will double its sales in 2000.


Weve been terribly successful in this market. So, our goal for 2000 is just to keep doing what were doing, he says.


Last week, Itron announced that it was teaming up with DQE Enterprises Inc. to provide AMR technology to AquaSource Inc., a Pittsburgh-based water utility company. The first phase of the project will involve installing 35,000 new water meterseach with Itron meter modulesin the state of Texas. Once the installation is completed, Itrons mobile AMR technology will collect and deliver meter data to an Itron host computer system, Itron says.


Natural gas is another market that Itron believes can produce solid financial results for the company this year, and it plans to hit that market hard.


He contends theres a huge market within the natural gas industry for AMR devices. At this point, he says, less than 10 percent of that market is being tapped.


The electric market is a different story. That industry, Nosbaum says, is the most confused market that Itron serves because many of the companies are wading through deregulation. He says that the electric business unit will be spending much of this year studying its market and deciding how Itron can serve it.


The company, however, isnt going to shy away from that market. Nosbaum says that as the confusion associated with deregulation begins to settle out, new business opportunities will arise for Itron.


The deregulated environment is going to be the absolute driver of business for us, Nosbaum says.


Meanwhile, the energy information systems unit is focusing on gathering and processing data for large utilities, regulatory agencies, and transmission-grid operators, to help them operate in a deregulated environment. In such an environment, with buyers constantly obtaining power from different suppliers to take advantage of the lowest available rates, the ability to measure the supply and use of energy regularly will become critical.


As part of its international business unit, Itron hopes to seek out alliances with international companies to help it grow in particular geographical areas.


Nosbaum says that Itron already has a sizable sales presence in Europe, as well as some market share in Japan, Korea, Australia, and South America. He declines, however, to disclose which countries Itron will target this year.


Itron hasnt made money abroad because its international efforts were too broadly focused, Nosbaum says. He says that the international business unit will work to reduce the number of countries in which it will do business and to trim the number of products it will export.


Also as part of its reorganization efforts, Itron formalized a way to test its new business-development ideas.


To test such ideas, a small group of entrepreneurial-style Itron employees are selected for a project and Itron funds it, Nosbaum says. If the idea proves to be a money-making venture for the company, it will be turned into a new business unit. If the project doesnt show a potential to increase earnings, it will be dropped.


One such project was undertaken last year, and so far is showing great potential, Nosbaum says. The project, which is called water submetering, involves providing water meters to each resident of an apartment complex so that each resident pays only for the water he or she uses rather than for a portion of the water used by the entire complex.


Some hits and hurdles


The restructuring steps Itron has taken, while in the long run are expected to boost efficiency and profits, contributed to the companys big loss for 1999.


The year-end results included charges related to the restructuring activities and to recognize the impact of unprofitable contracts and asset write-downs. Itron also took a $12.6 million charge related to the recent sale of the AMR system it had developed for Duquesne Light Co., of Pittsburgh. Duquesne is an affiliate of DQE Enterprises Inc., with which Itron is doing the Texas project.


Nosbaum asserts that the companys stock, which has been trading at around $6 a share, is too low. He adds, though, that the stock price is reflective of the companys failure to make money and that the utility industrys struggles with deregulation.


We arent going to be attractive until we begin making money, Nosbaum says. We should see a nice turnaround where thats concerned in 2000.


Still, Itron faces the constant battle of trying to guarantee that its customers will be able to secure licenses from the Federal Communications Commission for the radio-frequency bandwidth they need to operate some of the companys AMR products. Itrons radio-based products operate in both licensed and unlicensed broadcast frequency spectrums.


During the latter half of 1999, some of Itrons customers werent able to secure FCC licenses for products that contained radios that operate in a certain frequency range. The FCC put a freeze on those licenses because the agency was considering auctioning them off to the highest bidder rather than granting them on a first-come-first-served basis.


In January, however, the FCC lifted the freeze.


Now, the FCC has issued a notice stating that it intends to auction off or reallocate bandwidth in the 1427 to 1432 megahertz frequency range, in which Itron owns a nationwide license. Itron has responded to the FCCs notice.


Were in the middle of that right now, but I believe we have it well in hand, Nosbaum says.