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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 1, 1998
ITRON, INC.
(Exact name of registrant as specified in charter)
Washington 0-22418 91-1011792
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2818 North Sullivan Road
Spokane, Washington 99216-1897
(Address of principal executive offices) (Zip Code)
(509) 924-9900
(Registrant's telephone number, including area code)
Item 5. Other Information
The Company has a contract ("Contract") with Duquesne Light Company ("Duquesne")
under which the Company is to construct, own, operate and maintain a Fixed
Network automatic meter reading (AMR) system that will provide advanced meter
reading services to Duquesne over a 15 year period. The Contract is currently in
"Phase II," the network construction phase. Of a total of approximately 615,000
AMR meter modules to be installed, approximately 550,000 were installed as of
May 31, 1998. The Company is currently providing daily reads to Duquesne for
approximately 425,000 meters utilizing the Company's Fixed Network AMR system,
and the balance, or approximately 125,000 meters are being read with the
Company's Mobile AMR system. Meter readings from the Company's Mobile AMR system
are being provided as an interim step until the last portions of the Fixed
Network AMR system are made fully operational. Duquesne is currently using the
daily and monthly meter reads provided by the Company to bill its customers.
The Contract contains both "Critical" and "Significant" milestones. The
financial and other penalties for a failure to meet a Critical milestone are
more than the penalties for a failure to meet a Significant milestone.
Under the Company's outsourcing contract with Duquesne, the Company had
Significant milestone obligations due May 1, 1998 and May 15, 1998. The May 1,
1998 milestone required the Company to deliver a functional specification for
SNMP based network monitoring to Duquesne. The Company has been notified by
Duquesne that it has met the requirements for this milestone. The May 15, 1998
milestone required the Company to provide certain software interfaces and
functionality using the Fixed Network as well as to provide Fixed Network
coverage for 85% of the current installation of approximately 550,000 AMR meter
modules. According to the Contract, failure to meet this milestone would have
resulted in a penalty payment of $2 million, with a majority of the penalty
amount recoverable if milestone conditions were met at a later date.
The Company has been notified by Duquesne that it has substantially met the May
15 milestone's conditions and no penalty is due. Of the milestone's three
requirements, the Company has: provided all of the software interfaces possible
given the status of Duquesne's portion of project installation, provided all of
the Fixed Network AMR system functionality required by the milestone, and while
consistently providing daily reads to Duquesne for 425,000 meters, has recently
provided reads to Duquesne with its Fixed Network AMR system for approximately
470,000 meters.
Separately, the Company and Duquesne have reached a verbal agreement regarding
certain changes to the Contract. The key changes are as follows:
* The date of the Contract's remaining Critical milestone has been changed
from July 31, 1998 to September 30, 1998. As of the later date, the Company
must have the Fixed Network AMR system fully operational, including all
billing and other interfaces defined in the Contract. As already defined in
the Contract, should the Company fail to meet the remaining Critical
milestone, Duquesne would be entitled to monetary penalties of up to $10
million. The Company believes it will fully satisfy the remaining Critical
milestone.
* Duquesne has asked the Company to accelerate its focus on the ability to
read commercial customer meters through the Company's MV90 product from UTS
which is part of the overall system contract with Duquesne. This
accelerated focus will allow the establishment of communication links to
commercial accounts for the purpose of daily reading of meters, real time
pricing on selective accounts, power quality management on selective
accounts, and a general improvement of services to this important customer
group. As part of this effort, the Company has partially underwritten
Duquesne's purchase of cellular communication equipment used to provide
communication from the Company's Network host processor to electronic
meters for commercial accounts. This equipment will allow more economical
connection to electronic meters by allowing multiple meters to use the same
communication equipment, thus providing the Company with a net savings on
capital equipment costs, installation costs, and ongoing cellular phone
charges.
Of a total of 32 Significant, Critical and other milestones associated with
Phases I and II of the project (concerning most of the project's major
installation and construction items), the Company has now met 27, with only five
milestones remaining until Phase II is complete. The next and last phase of the
project, comprising nine additional milestones (none of which are Critical
milestones) will involve operations, further enhancements, and a possible
expansion of the project's deployment.
When used in this discussion, the words "expects," "believes," and
similar expressions are intended to identify forward-looking statements
that involve risks and uncertainties. Potential risks and uncertainties
include the ability to achieve Fixed Network performance sufficient to
meet the remaining critical milestone for the Company's contract with
Duquesne. Further information on factors which could affect the
Company's financial results are described in the Company's latest Form
10-K and 10-Q filed with the Securities and Exchange Commission.