Goodwill

Effective January 1, 2012, our reporting segments were changed from two geographic operating segments, Itron North America and Itron International, to two product operating segments, Energy and Water. As a result, we reallocated the goodwill balance as of January 1, 2012 to the Electricity, Gas, and Water reporting units within these two operating segments.

The following table reflects the goodwill balance as of September 30, 2012:



	Total Company			Energy			Water
	(in thousands)
Balance at January 1, 2012
Goodwill before impairment	$	1,221,757		$	808,601		$	413,156
Accumulated impairment losses	(584,847		)	(254,735		)	(330,112		)
Goodwill, net	636,910			553,866			83,044

Goodwill acquired	46,881			46,881			—
Other	4,767			3,994			773
Effect of change in exchange rates	(1,126		)	(6,348		)	5,222

Balance at September 30, 2012
Goodwill before impairment	1,242,159			840,009			402,150
Accumulated impairment losses	(554,727		)	(241,616		)	(313,111		)
Goodwill, net	$	687,432		$	598,393		$	89,039

Goodwill acquired in 2012 is based on the preliminary purchase price allocation relating to the SmartSynch acquisition on May 1, 2012. Refer to Note 16 for additional information regarding this acquisition.

In the preceding table, "Other" includes activity associated with our restructuring announced in the fourth quarter of 2011. During the third quarter of 2012, we identified an error in our consolidated financial statements for the year ended December 31, 2011, which resulted in an overstatement of restructuring expense related to the expected sale of a non-core business. The identified assets to be disposed originally included $6.7 million of goodwill, which was impaired and charged to restructuring expense as a result of the expected sale proceeds being less than the carrying value of the identified assets. During the third quarter of 2012, we determined the amount of goodwill that should have been allocated to the asset disposal group was $1.3 million. In accordance with the relevant guidance, management evaluated the materiality of the error from a qualitative and quantitative perspective. Based on such evaluation, we concluded that correcting the goodwill allocated to this business asset group is not material, quantitatively or qualitatively, to our results of operations for the three months ended September 30, 2012 or our expected full year results of operations for 2012 and would not have had a material impact on our results for the year ended December 31, 2011. Accordingly, we recorded a non-cash adjustment during the third quarter of 2012 to reduce restructuring expense and increase goodwill by $5.4 million. Refer to Note 12 for additional disclosure on Itron's restructuring costs. Additionally, during the three months ended September 30, 2012, we sold a non-core business in Europe to which we allocated $675,000 of goodwill and recognized as restructuring expense.

As a result of a significant decline in the price of our shares of common stock at the end of September 2011, our aggregate market value was significantly lower than the aggregate carrying value of our net assets. As a result, we performed an impairment test of our goodwill as of September 30, 2011, and recorded total goodwill impairment charges of $584.8 million in the year ended December 31, 2011, of which $540.4 million was recorded during the three months ended September 30, 2011. These goodwill impairment charges were associated with our previous reporting units of Itron International Electricity and Itron International Water. The accumulated impairment losses were reallocated to our new operating segments, Energy and Water, effective January 1, 2012.

Goodwill and accumulated impairment losses associated with our international subsidiaries are recorded in their respective functional currency; therefore, the carrying amounts of these balances increase or decrease, with a corresponding change in accumulated OCI, due to changes in foreign currency exchange rates.