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January
8, 2009
Ms.
Cecilia Blye
Chief,
Office of Global Security Risk
United
States Securities and Exchange Commission
100 F
Street, N.E.
Washington,
D.C. 20549-3628
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Re:
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Itron,
Inc.
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Form
10-K for the Fiscal Year Ended December 31,
2007
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Filed
February 26, 2008
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File
No. 0-22418
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Dear Ms.
Blye:
This
letter is submitted on behalf of Itron, Inc. (“Itron”, “we”, “our”) and responds
to the staff’s comment letter of November 19, 2008 relating to our Form 10-K for
our fiscal year ended December 31, 2007. For your convenience, we
have reproduced the staff’s comments below and have provided our responses
accordingly.
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1.
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You
identify in exhibit 21.1 to your Form 10-K two subsidiaries incorporated
in Iran, which is a country that is identified by the State Department as
a state sponsor of terrorism, and subject to U.S. economic sanctions and
export controls. We note that your Form 10-K does not otherwise
include disclosure regarding your contacts with Iran. Please
describe to us the nature and extent of your past, current, and
anticipated contacts with Iran, whether through direct or indirect
arrangements. Your response should describe any products,
equipment, components, technology, or services you have provided to Iran,
and any agreements, commercial arrangements, or other contacts you have
had with the government of Iran or entities controlled by that
government.
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On April
18, 2007, Itron Inc. (“Itron”) acquired Actaris Metering Systems SA, a
Luxembourg company (“Actaris”). Actaris designs and manufactures
meters and associated meter reading and meter data management systems for the
electric, natural gas, and water and heat markets. Actaris’ customers
are principally electric, natural gas, and water utilities and the principle use
of its products is to measure energy or water usage for residential, commercial
and industrial consumers.
Actaris
was doing business in Iran prior to the acquisition by Itron and it continues to
do business in Iran today. However, Actaris’ sales in Iran represent
an insignificant portion of Itron’s total sales revenues. Because
Actaris’ business activities in Iran vary by market segment, each market segment
(electricity, natural gas, and water and heat) will be addressed
separately. Since Itron did not do any business in Iran prior to
April 18, 2007, this response focuses on the period following its acquisition of
Actaris.
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A.
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Electricity
Meters
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Through
its acquisition of Actaris, Itron acquired Actaris’ minority interest in
Sherkate Kontorsazi Iran SKI (“SKI”). We understand that SKI was
created in 1968 as a joint venture between the government of Iran and
AEG/Telefunken. It is our further understanding that Schlumberger
acquired AEG/Telefunken’s interest in SKI in 1994. Actaris acquired
Schlum-berger’s meter business interest in 2001, including the SKI
interest. Actaris Zähler, an indirect wholly-owned subsidiary of
Actaris, holds an
8 percent equity interest in SKI but the book value of the interest is
$0. Actaris Zahler has no contractual or statutory rights to control
SKI.
SKI
assembles, tests, and calibrates electricity meters and has been doing so since
2005 pursuant to a license from Actaris. Actaris sells meter kits to
SKI and SKI assembles the electric meters locally with local parts and
labor. The finished products are sold to Iranian electric utilities
for use by residential and light commercial (commercial shopping areas and
businesses) customers. Actaris provides technical support to SKI to
enable proper assembly. All of Actaris’ sales of electric meter kits
are to SKI. The meter kits are assembled in France for sale to
SKI. None of the materials sold to SKI are sourced from the United
States.
Actaris’
sales to SKI for the period of April 2007 to year end 2007 were €4.9
million. Actaris’ sales to SKI for the period of January 1, 2008 to
September 30, 2008 were €6.3 million. Actaris’ accounts receivable on
sales of electrical kits to Iran were €1.3 million as of year end 2007 and €1.3
million as of September 30, 2008.
1
As noted
above, SKI was originally founded as a joint venture between the government of
Iran and AEG/Telefunken. Prior to May 2008, the ownership interests
of SKI were as follows:
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38
% Government of Iran (though a subsidiary of the Ministry of
Energy, SATKAB);
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25
% Public shares traded on the Tehran Stock
Exchange;
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21
% Iran Mining & Industry Corporation
(“IMIC”);
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8
% National Iranian Copper Industries;
and
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8
% Actaris
Zähler.
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In May
2008, the government of Iran sold its shares to a private investment
company. Following the sale, the shareholders of SKI were as
follows:
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49.5
% Mohen & Renan (investment company that is part of Bank
Melli);
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21.5
% Public shares traded on the Tehran Stock
Exchange;
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21
% IMIC;
and
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8
% Actaris
Zähler.
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In
September 2008, SKI initiated a refinancing plan and bought back the shares held
by IMIC. As a result, the current shareholders of SKI are as
follows:
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70.5
% Mohen & Renan
group;
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21.5
% Public shares traded on the Tehran Stock Exchange;
and
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8
% Actaris
Zähler.
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B.
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Water
and Heat Meters
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Through
its acquisition of Actaris, Itron also acquired Actaris’ indirect minority
interest in ABFAR Industrial Corporation (“ABFAR”). It is our
understanding that Compaqnie des Compteurs (“Compteurs”) was a partner in ABFAR
in the 1970’s. Schlumberger acquired Compteurs in the 1970’s and
Actaris acquired this interest from Schlumberger in 2001. Actaris
Holding 2 SA (Belgium), an indirect wholly-owned subsidiary, holds a 7.91%
equity interest in ABFAR but the book value of the interest is
€1,000. Actaris Holding 2 SA (Belgium) has no contractual or
statutory right to control ABFAR.
ABFAR
assembles, tests, and calibrates water and heat meters from kits acquired from
Actaris. Actaris sells meter kits to ABFAR and ABFAR assembles the
meters locally with local parts and labor. The finished products are
sold to a Tehran water utility for use by residential customers of the
utility. All of Actaris’ sales of water meter kits are to
ABFAR. The kits are assembled in Italy for sale to
ABFAR. None of the materials sold to ABFAR are sourced from the
United States. There are no current contracts or purchase orders
between Actaris and ABFAR. Actaris has not provided any water and
heat technology or technical services to Iran since April 2007. 1
Actaris’
sales to ABFAR for the period of April 2007 to December 31, 2007 were €0.1
million. Actaris’ sales to ABFAR for the period of January 1, 2008 to
September 30, 2008 were €0.0. Actaris’ accounts receivable on sales
of water meter kits to Iran were €0.0 million as of year end 2007 and €0.0
million as of September 30, 2008.
As of
June 2008 the main shareholders in ABFAR were:
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33.9
% Industry & Mine Investment
Company;
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20.6
% Tehran Water & Sewage
Company;
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20.3
% Iran France Investment Company;
2
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8.0
% Nou` andishan Investment Company;
and
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7.9
% Actaris Holding 2 SA
(Belgium).
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1SKI, the
electricity meter joint venture in Iran, has approached Actaris informally about
the possibility of SKI assembling water meters in Iran. The
discussions are preliminary and there are no agreements to provide water meter
kits to SKI.
2 Itron
understands that Iran France Investment Company may be a subsidiary of Industry
& Mining Investment Company.
2
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C.
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Natural
Gas Meters
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With
respect to the natural gas meter market, Actaris sells gas meter products
directly to customers in Iran (principally public and private gas
utilities). Actaris sells gas meters, gas meter kits, and gas
regulators to its customers for the measurement and control of gas
products. In
2005,
Actaris entered into a license agreement with Gas Souzan (Iran) allowing Gas
Souzan to assemble, test, and calibrate gas meters. Actaris sells the
meter components to Gas Souzan and Gas Souzan assembles the gas meters locally
with local parts and labor. Actaris provides technical support to Gas
Souzan to ensure proper assembly. The gas meter kits are produced in
France and Germany. None of the materials used in the products are
sourced from the United States.
Actaris’
sales of gas meters to Iranian customers for the period of April 2007 to
December 31, 2007 were €2.7 million. Actaris’ sales of gas meters to
Iranian customers for the period of January 1, 2008 to September 30, 2008 were
€2.9 million. Actaris’ accounts receivable on sales of gas
meter products to Iran were €0.5 million as of year end 2007 and €0.9 million as
of September 30, 2008.
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2.
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Please
discuss the materiality of any contacts with Iran described in response to
the foregoing comment, and whether those contacts would constitute a
material investment risk for your security holders. You should
address materiality in quantitative terms, including the approximate
dollar amounts of any associated revenues, assets, and liabilities for the
last three fiscal years and any subsequent period. Also,
address materiality in terms of qualitative factors that a reasonable
investor would deem important in making an investment decision, including
the potential impact of corporate activities upon a company’s reputation
and share value. As you may be aware, various state and
municipal governments, universities and other investors have
proposed or adopted divestment or similar initiatives regarding investment
in companies that do business with U.S. designated states sponsors or
terrorism. Your materiality analysis should address the
potential impact of the investor sentiment evidenced by such actions
directed toward companies that have business contacts with
Iran.
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We do not
believe that our contacts with Iran constitute a material investment risk for
our security holders in qualitative or quantitative terms.
In
quantitative terms, Actaris’ sales to customers in Iran are immaterial to
Itron’s consoli-dated financial condition and operational results:
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April
– December 2007
($000)
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January
– September 2008
($000)
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ITRON
TOTAL SALES
Actaris’
Sales to Iran*
%
of Sales to Iran to Total
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$1,316,000
$10,400
0.79%
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$1,477,000
$12,400
0.84%
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* At
exchange rate of 1.35 USD per €1.00.
The Actaris subsidiaries hold minor
interests in joint ventures in which entities owned or controlled by the
government of Iran have an interest. None of the Actaris subsidiaries
have a legal or statutory right to control the joint
ventures. Actaris’ equity investments in SKI and ABFAR in aggregate
are €1,000. Actaris does not have any other assets or liabilities
with respect to its sales in Iran except for ordinary accounts receivable which,
of course, vary from time to time. Actaris’ outstanding accounts
receivable as of year end 2007 were €1.8 million which is 0.06% of Iton’s
assets. Actaris’ outstanding accounts receivable as of the end of
September 2008 were €2.2 million which is 0.07% of Itron’s assets.
In
qualitative terms, Actaris’ products sold in Iran are designed for use in
residential, retail/commercial, and light industrial settings and are used to
measure energy and water usage. The products are not designed for,
and to the best of our knowledge, understanding and belief, are not used for or
converted for any military applications. Accordingly, we do not
believe that our subsidiaries’ activities in Iran would materially and adversely
impact our reputation or share value.
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* * *
We
acknowledge that:
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We
are responsible for the adequacy and accuracy of the disclosure in the
filings;
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Staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the
filings; and
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We
may not assert staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the
United States.
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The
foregoing information is accurate to the best of our knowledge, understanding
and belief. If you have any questions about this response, please
contact John Holleran, Sr. Vice President, General Counsel, and
Corporate Secretary of Itron.
Very
truly yours,
/s/ John W.
Holleran
John W.
Holleran
Sr. Vice
President, General Counsel, and Corporate Secretary
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