Additional Information Regarding Earlier News Release,
Echelon Extends Electric Utility Capabilities by Acquiring Certain Assets
of Metering Technology Corporation
(San Jose, CA– April 2, 2003) - Echelon Corporation
(NASDAQ: ELON)
is supplying the following additional information in the form of a Question & Answer
to supplement information provided previously in a press release titled, "Echelon
Extends Electric Utility Capabilities by Acquiring Certain Assets of
Metering Technology Corporation".
Q1. Why this acquisition?
We believe that the utility industry represents a very large and attractive
opportunity for our end-to-end device networking infrastructure. Given
both its importance as one of the world’s largest electric utilities
and the scope of its project, which we believe to be the largest meter
replacement project ever undertaken, we believe that our project with
Enel has great visibility within the electric utility industry and has
created an opportunity for Echelon at other utilities. Historically utilities
have replaced electric meters at a low rate. In contrast, in our project
with Enel, Enel will, if fully deployed, have replaced almost all of
its over 27 million meters with LonWorks® enabled smart, networked
meters in a span of a few years. We believe that by doing so, Enel will
reap a number of benefits that can only be achieved when a utility has
a homogeneous population of smart, networked meters and that their project
will create a willingness in other utilities to undertake similar wide-scale
meter replacements. Similarly, by acquiring selected assets from MTC,
we believe that we will be able to offer utilities a more compelling
solution and capitalize on opportunities in the utility market more quickly.
Q2. Why MTC?
Echelon is a network infrastructure company that provides standards-based
solutions for the buildings, home, industrial, transportation, and utility
industries — not a metering company — so it was very important
for us to find a partner that could enhance our infrastructure offering
without bringing the baggage of a legacy metering business; MTC is a
perfect fit for our needs. They are a provider of energy measurement
solutions with a core competency in low-cost, communicating electricity
meters. They are young and innovative and bring great people, products,
and technology that strengthen our Networked Energy Services (NES) offering
without changing the complexion of our company.
Q3. How does this acquisition impact your existing business/is this
a change in corporate strategy or direction?
Our investment in the utility market is an extension of our core business,
not a change in our business. Echelon provides a horizontal technology
platform that can be applied across multiple vertical industries such as
the buildings, home, industrial, transportation, and utility industries.
Our work in the utilities market does not stand apart from our work in
other markets — it is all part of the same common infrastructure.
Q4. Doesn’t this change Echelon into a metering company/AMR
company?
No. Echelon is, and continues to be, a network infrastructure company.
We provide standards-based hardware and software for networking everyday
devices to each other and the Internet. What this acquisition will do
is help strengthen that infrastructure for one of the very important
markets that we serve, the utility market. It will not, however, lessen
our commitment to the building, industrial, transportation, and home
markets, which we also serve. Our work in the utilities market does not
stand apart from our work in other markets — it is all part of
the same common infrastructure. Echelon provides a horizontal technology
platform that can be applied across multiple vertical industries such
as the buildings, home, industrial, transportation, and utility industries.
We continue to make significant investments in engineering, marketing,
and sales in our base technology that spans these markets.
Q5. What is Echelon’s NES System?
Our networked energy services system is a new and unique offering to
the utility market and can offer utilities an extremely attractive business
proposition. It brings utilities the promise of a single, open, extensible
infrastructure over which they can run a wide set of functions that can
enable them to cut costs and increase quality in almost all of their
operational areas. Utilities using Echelon’s NES system should
be able to offer advanced customer care services such as multi-tiered
billing, pre-paid electricity, fault & outage detection, remote meter
reading and more accurate billing; reduce operating costs through load
monitoring and optimization, better inventory management; and set the
stage for future in-premise applications such as predictive warranty
services, remote appliance and machine diagnostics, and others for any
devices connected to the electricity grid or inside a home or business
using Echelon’s power line technology.
Physically the system will consist of a family of intelligent, communicating
electricity meters, powerful IP connected data concentrators, and enterprise
software based on the company’s recently announced Panoramix™ enterprise
software platform.
Q6. How is the NES System different from what you’ve done
with Enel?
In the Enel project, Enel — with help from us — acted as the
designer and system provider itself. For our content in the system, we
receive, on average, about $10 per connected home or building. We have
learned a lot from our work with Enel and from other utilities, and one
thing we have learned is that most other utilities do not want to play
as involved a role as Enel played. With our networked energy service offering,
we expect to offer a complete system infrastructure — built on the
same core communications technology and open standards employed in the
Enel system — that builds upon what we have done for Enel and what
we have learned. As a result, we believe that our NES system will provide
utilities an extremely cost-effective system that can be deployed quickly
and that will deliver immediate cost savings and operational improvements.
And, because we will be offering more of the solution ourselves, we expect
to receive, on average, over 5 times the revenue per connected site.
Q7. What role does MTC play in Echelon’s NES System?
In order to realize all of the benefits of the NES system, a utility
must replace their metering infrastructure with a homogeneous population
of intelligent, networked meters. MTC brings a core competency in low-cost,
communicating electricity meters that, we believe, will enable us to
offer a very low cost per connected meter that will provide utilities
with an extremely compelling business case.
Q8. Does a company of Echelon’s size really have the resources
to pursue both the NES business and your core business?
Our work in the utilities market does not stand apart from our work in
other markets — it is all part of the same common infrastructure.
Echelon provides a horizontal technology platform that can be applied across
multiple vertical industries such as the buildings, home, industrial, transportation,
and utility industries. The NES system is another instance of this horizontal
infrastructure. NES meters will use the same Echelon power line smart transceiver
products that are used in buildings, home, industrial, and transportation
applications worldwide. Our data concentrator products leverage our developments
in low cost, high performance IP connectivity to provide wide area connectivity
to NES meters and other devices attached to the power lines. At the enterprise
level, the NES system builds on our recently introduced Panoramix enterprise
software to provide an easy-to-use, standards-based interface to a utility’s
existing IT infrastructure and applications.
Q9. Is Echelon now competing with its OEM customers?
Yes and no. We are an infrastructure provider and, as with our other
products, the NES infrastructure will be made available to selected OEM
partners for them to add value to and resell as part of their end-to-end
solutions. On the other hand, we will be competing with OEM customers
that use Echelon technology to create an alternative of their own to
our NES system. This is the nature of open technology.
Q10. How many employees will join Echelon as a result of this acquisition?
As part of the transaction, approximately 16 MTC employees will join
Echelon.
Q11. What was the purchase price paid?
Echelon will pay $11 million in cash for certain assets, liabilities,
technology and products of MTC. This amount is subject to adjustment
based upon contractual conditions including MTC's compliance with covenants
and the accuracy of its representations and warranties.
Q12. What is the accounting impact of this transaction?
At this time, the company intends to account for this transaction as
an asset purchase, thus no goodwill will be recorded. In accordance with
current accounting standards, a portion of the purchase price will be
allocated to the tangible assets acquired and liabilities assumed based
on the fair values of those assets and liabilities. The company expects
this allocation to comprise only a modest portion of the purchase price.
In addition, the company expects that a significant portion of the purchase
price will be allocated to in-process research and development ("IPR&D")
which will be written off in the quarter in which the transaction closes,
currently expected to be in Q2 2003. The company cannot currently estimate
the size of this IPR&D charge. The balance of the purchase price
will be allocated to other intangible assets such as existing and purchased
technology, which will be amortized over a period to be determined. The
company does not presently expect that period to be more than one year.
Q13. What is the revenue impact of this transaction/When will we see
tangible results from this move?
We are not announcing any specific new agreements with utilities at this
time. We continue to believe that the utility market represents a large
market opportunity for Echelon and that the market is very receptive to
our NES offering. Because we will be offering more of the solution ourselves
in the NES system than we did in the Enel system, we expect to receive,
on average, over 5 times the revenue per connected site than we did from
our work with Enel.
Q14. Will Echelon hold a conference call to discuss this transaction?
The Company’s management intends to discuss this transaction during
the conference call associated with the Company's earnings release. As
is our practice, we will issue a media alert when we have a firm date
for this conference call.
About Echelon Corporation
Echelon Corporation (NASDAQ: ELON)
is the creator of the LonWorks platform, the world's most widely used
standard for connecting everyday devices such as appliances, thermostats,
air conditioners, electric meters, and lighting systems to each other
and to the Internet. Echelon's hardware and software products enable
manufacturers and integrators to create smart devices and systems that
lower cost, increase convenience, improve service, and enhance productivity,
quality, and safety. Thousands of companies have developed and installed
LonWorks products and more than 29 million LonWorks enabled processors
have been shipped for use in homes, buildings, factories, trains, and
other systems worldwide.
The protocol underlying LonWorks networks and the signaling technology
used by Echelon's power line and free topology transceivers have been
adopted as standards by the American National Standards Institute (ANSI).
Echelon is also a founding member of the LonMark Interoperability Association,
an open industry forum of hundreds of leading manufacturers, integrators,
and users dedicated to promoting the use of interoperable LonWorks devices.
More information is available at http://www.lonmark.org.
Further information regarding Echelon can be found at http://www.echelon.com.
###
Echelon, i.LON, LonWorks, LonMark, the LonMark logo and the Echelon
logo are trademarks of Echelon Corporation registered in the United States
and other countries. Panoramix is a trademark of Echelon Corporation
in the United States and other countries.
This press release may contain statements relating to future plans,
events or performance. Such statements may involve risks and uncertainties,
including risks associated with uncertainties pertaining to obtaining
approvals for and satisfying conditions to the consummation of Echelon’s
acquisition of MTC’s assets, the actual impact of the acquisition
on operating results, including the purchase price allocations for assets
and liabilities, the amount of IPR&D and other intangible assets,
and the time period in which intangible assets will be amortized, the
successful integration of MTC’s technology and employees into Echelon,
Echelon’s ability to incorporate an MTC-based meter into the NES
system in a timely and cost-effective manner, market acceptance of the
NES system, the ability of the NES system to function as designed, the
timing and level of customer orders, demand for products and services,
development of markets for Echelon's products and services, and other
risks identified in Echelon's SEC filings. Actual results, effect on
earnings, events and performance may differ materially. Readers are cautioned
not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Echelon undertakes no obligation to
release publicly the result of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
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