Commitments and Contingencies (Text Block)

12 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies [Text Block]

Commitments and Contingencies

Commitments

Operating lease rental expense for factories, service and distribution locations, offices, and equipment was as follows:

	Year Ended December 31,
	2014		2013		2012
	(in thousands)
Rental expense	$	19,178	$	18,662	$	17,877

Future minimum lease payments at December 31, 2014, under noncancelable operating leases with initial or remaining terms in excess of one year are as follows:

	Minimum Payments
	(in thousands)
2015	$	12,142
2016	8,564
2017	7,099
2018	6,630
2019	4,580
Beyond 2019	1,721
Future minimum lease payments	$	40,736

Rent expense is recognized straight-line over the lease term, including renewal periods if reasonably assured. We lease most of our sales and distribution locations and administrative offices. Our leases typically contain renewal options similar to the original terms with lease payments that increase based on the consumer price index.

Guarantees and Indemnifications

We are often required to obtain standby letters of credit (LOCs) or bonds in support of our obligations for customer contracts. These standby LOCs or bonds typically provide a guarantee to the customer for future performance, which usually covers the installation phase of a contract and may, on occasion, cover the operations and maintenance phase of outsourcing contracts.

Our available lines of credit, outstanding standby LOCs, and bonds are as follows:

	December 31, 2014			December 31, 2013
	(in thousands)
Credit facilities(1)
Multicurrency revolving line of credit	$	660,000		$	660,000
Long-term borrowings	(91,469		)	(120,000		)
Standby LOCs issued and outstanding	(50,399		)	(49,491		)
Net available for additional borrowings and LOCs	$	518,132		$	490,509
Unsecured multicurrency revolving lines of credit with various financial institutions
Multicurrency revolving line of credit	$	106,855		$	115,269
Standby LOCs issued and outstanding	(28,636		)	(31,714		)
Short-term borrowings(2)	(4,282		)	(4,252		)
Net available for additional borrowings and LOCs	$	73,937		$	79,303
Unsecured surety bonds in force	$	116,306		$	186,446

⁽¹⁾ Refer to Note 6 for details regarding our secured credit facilities.

⁽²⁾ Short-term borrowings are included in “Other current liabilities” on the Consolidated Balance Sheets.

In the event any such standby LOC or bond is called, we would be obligated to reimburse the issuer of the standby LOC or bond; however, we do not believe that any outstanding LOC or bond will be called.

We generally provide an indemnification related to the infringement of any patent, copyright, trademark, or other intellectual property right on software or equipment within our sales contracts, which indemnifies the customer from and pays the resulting costs, damages, and attorney’s fees awarded against a customer with respect to such a claim provided that (a) the customer promptly notifies us in writing of the claim and (b) we have the sole control of the defense and all related settlement negotiations. We may also provide an indemnification to our customers for third party claims resulting from damages caused by the negligence or willful misconduct of our employees/agents in connection with the performance of certain contracts. The terms of our indemnifications generally do not limit the maximum potential payments. It is not possible to predict the maximum potential amount of future payments under these or similar agreements.

Legal Matters

We are subject to various legal proceedings and claims of which the outcomes are subject to significant uncertainty. Our policy is to assess the likelihood of any adverse judgments or outcomes related to legal matters, as well as ranges of probable losses. A determination of the amount of the liability required, if any, for these contingencies is made after an analysis of each known issue. A liability is recorded and charged to operating expense when we determine that a loss is probable and the amount can be reasonably estimated. Additionally, we disclose contingencies for which a material loss is reasonably possible, but not probable.

In 2010 and 2011, Transdata Incorporated (Transdata) filed lawsuits against four of our customers, CenterPoint Energy (CenterPoint), TriCounty Electric Cooperative, Inc. (Tri-County), San Diego Gas & Electric Company (San Diego), and Texas-New Mexico Power Company (TNMP), as well as several other utilities, alleging infringement of three patents owned by Transdata related to the use of an antenna in a meter. Pursuant to our contractual obligations with our customers, we agreed, subject to certain exceptions, to indemnify and defend them in these lawsuits. The complaints seek unspecified damages as well as injunctive relief. CenterPoint, Tri-County, San Diego, and TNMP have denied all of the substantive allegations and filed counterclaims seeking a declaratory judgment that the patents are invalid and not infringed. In December 2011, the Judicial Panel on Multi-District Litigation consolidated all of these cases in the Western District of Oklahoma for pretrial proceedings. On April 17, 2011, the Oklahoma court stayed the litigation pending the resolution of re-examination proceedings in the United States Patent and Trademark Office (U.S. PTO). The U.S. PTO has issued re-examination certificates confirming the patentability of the original claims and allowing certain new claims added by Transdata. The parties conducted a claim construction hearing on February 5, 2013 on one claim term -- "electric meter circuitry." After initially adopting the defendants' proposed construction of the term, the Court granted Transdata's motion for reconsideration by order of June 25, 2013 and has adopted Transdata's proposed construction. On October 1, 2013, the Court issued an order construing other claim terms. Fact discovery closed on June 29, 2014. Opening and rebuttal expert reports have been served, and expert depositions have been taken. Both sides have also filed summary judgment motions. In addition, new requests for re-examination have been filed, and all Transdata claims contained in all three patents currently stand as rejected by the U.S. PTO in the re-examinations. Petitions for inter partes review have also been filed, but there has not yet been a decision on those petitions. No trials are scheduled. We do not believe this matter will have a material adverse effect on our business or financial condition, although an unfavorable outcome could have a material adverse effect on our results of operations for the period in which such a loss is recognized.

Itron and its subsidiaries are parties to various employment-related proceedings in jurisdictions where it does business. None of the proceedings are individually material to Itron, and we believe that we have made adequate provision such that the ultimate disposition of the proceedings will not materially affect Itron's business or financial condition.

In a series of cases, approximately 300 former employees of Itron Sistemas e Technologia Ltda. (Itron Brazil), the majority of whose employment contracts were terminated in 2011, have sued Itron Brazil seeking payment of overtime and salary differential and alleging that the assumption of the employment relationship by Itron Brazil constituted illegal outsourcing under Brazilian law. In 2008, Itron Brazil entered into an agreement to provide installation and maintenance services to one of its customers and, to perform such services, hired over 800 employees of the previous provider of such services. In 2011, Itron Brazil determined to terminate the contract with its customer, which led to the termination of approximately 870 employees. Under applicable statutes of limitation, most additional employee claims must have been brought prior to October 31, 2013. Itron Brazil intends to vigorously defend these cases, but the ultimate outcome of the cases cannot be determined at this time.

On October 31, 2013, we received a claim from one of our customers relating to alleged defects in meters sold to this customer since the year 2000. The customer asserts that it should be compensated for product and other related costs. Itron has engaged the customer in discussions to determine the factual basis for the claim. Since the discussions and related analysis are at an early stage, Itron is not yet able to estimate a potential range of loss. Currently, we do not believe that the outcome of this matter will have a material adverse effect on our business or financial condition, although an unfavorable outcome could have a material adverse effect on our results of operations for the period in which such a loss is recognized.

On February 2, 2015, we reached a settlement agreement with the counterparty related to the product development contract litigation from the SmartSynch, Inc. acquisition. As a result of the settlement, we recognized litigation cost, net of recovery from an indemnification escrow from SmartSynch shareholders, of $14.7 million, inclusive of attorney’s fees incurred, reflected in our results of operations for the year ended December 31, 2014 within general and administrative expense.

Warranty

A summary of the warranty accrual account activity is as follows:

	Year Ended December 31,
	2014			2013
	(in thousands)
Beginning balance	$	45,146		$	53,605
New product warranties	6,441			5,561
Other changes/adjustments to warranties	3,729			10,343
Claims activity	(16,568		)	(23,593		)
Effect of change in exchange rates	(2,282		)	(770		)
Ending balance	36,466			45,146
Less: current portion of warranty	21,063			21,048
Long-term warranty	$	15,403		$	24,098

Total warranty expense is classified within cost of revenues and consists of new product warranties issued, costs related to extended warranty contracts, and other changes and adjustments to warranties. Warranty expense for the years ended December 31 is as follows:

	Year Ended December 31,
	2014		2013		2012
	(in thousands)
Total warranty expense	$	10,170	$	15,904	$	13,186

Warranty expense decreased $5.7 million during the year ended December 31, 2014 compared with the prior year primarily due to a $4.0 million reduction in special warranty due to a change in estimate as a result of the resolution of a claim with a customer. Warranty expense increased $2.7 million during the year ended December 31, 2013 compared with the prior year primarily as a result of an increased provision due to the identification of battery and firmware issues for a customer.

Extended Warranty

A summary of changes to unearned revenue for extended warranty contracts is as follows:

	Year Ended December 31,
	2014			2013
	(in thousands)
Beginning balance	$	33,528		$	31,960
Unearned revenue for new extended warranties	3,529			4,039
Unearned revenue recognized	(2,655		)	(2,210		)
Effect of change in exchange rates	(264		)	(261		)
Ending balance	34,138			33,528
Less: current portion of unearned revenue for extended warranty	2,759			2,385
Long-term unearned revenue for extended warranty within Other long-term obligations	$	31,379		$	31,143

Health Benefits

We are self insured for a substantial portion of the cost of our U.S. employee group health insurance. We purchase insurance from a third party, which provides individual and aggregate stop loss protection for these costs. Each reporting period, we expense the costs of our health insurance plan including paid claims, the change in the estimate of incurred but not reported (IBNR) claims, taxes, and administrative fees (collectively, the plan costs).

Plan costs are as follows:

	Year Ended December 31,
	2014		2013		2012
	(in thousands)
Plan costs	$	23,206	$	22,324	$	26,755

IBNR accrual, which is included in wages and benefits payable, is as follows:

	December 31, 2014		December 31, 2013
	(in thousands)
IBNR accrual	$	1,924	$	2,206

Our IBNR accrual and expenses may fluctuate due to the number of plan participants, claims activity, and deductible limits. For our employees located outside of the United States, health benefits are provided primarily through governmental social plans, which are funded through employee and employer tax withholdings.