XML 92 R16.htm IDEA: XBRL DOCUMENT v3.2.0.727
Commitments and Contingencies (Text Block)
 6 Months Ended
Jun. 30, 2015
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies [Text Block]
Commitments and Contingencies

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 were as follows:

 
June 30, 2015
 
December 31, 2014
 
(in thousands)
Credit facilities(1)
 
 
 
Multicurrency revolving line of credit
$
500,000

 
$
660,000

Long-term borrowings
(147,958
)
 
(91,469
)
Standby LOCs issued and outstanding
(49,832
)
 
(50,399
)
 
 
 
 
Net available for additional borrowings under the multi-currency revolving line of credit
$
244,472

 
$
518,132

Net available for additional standby LOCs under sub-facility
250,168

 
449,601

 
 
 
 
Unsecured multicurrency revolving lines of credit with various financial institutions
 
 
 
Multicurrency revolving lines of credit
$
101,023

 
$
106,855

Standby LOCs issued and outstanding
(31,743
)
 
(28,636
)
Short-term borrowings(2)
(3,597
)
 
(4,282
)
Net available for additional borrowings and LOCs
$
65,683

 
$
73,937

 
 
 
 
Unsecured surety bonds in force
$
72,951

 
$
116,306


(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: 1) the customer promptly notifies us in writing of the claim and 2) 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), Tri-County 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 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. The U.S. PTO also instituted additional re-examinations in May 2014 on all three patents but has recently issued Notices of Intent to Issue Re-examination Certificates confirming the patentability of the challenged claims. Petitions for inter partes review (IPR), which is a procedure conducted by the Patent Trial and Appeal Board (the PTAB) of the U.S. PTO in which a party can challenge the validity of a patent, were also filed by General Electric (GE), but the PTAB found the petitions were untimely because, under the PTAB's analysis, GE was in privity with a defendant in the pending litigation (and thus was required to file within one year of the beginning of the litigation). 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 they do 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.
Warranty
A summary of the warranty accrual account activity is as follows:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
Beginning balance
$
37,065

 
$
46,024

 
$
36,466

 
$
45,146

New product warranties
1,207

 
1,483

 
3,007

 
2,714

Other changes/adjustments to warranties
23,716

 
(1,039
)
 
27,725

 
1,054

Claims activity
(4,283
)
 
(3,877
)
 
(7,564
)
 
(6,508
)
Effect of change in exchange rates
434

 
(42
)
 
(1,495
)
 
143

Ending balance
58,139

 
42,549

 
58,139

 
42,549

Less: current portion of warranty
35,589

 
23,689

 
35,589

 
23,689

Long-term warranty
$
22,550

 
$
18,860

 
$
22,550

 
$
18,860



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 three and six months ended June 30 was as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
Total warranty expense (income)
$
24,923

 
$
(644
)
 
$
30,732

 
$
2,680



Warranty expense increased during the three and six months ended June 30, 2015 compared with the same periods in 2014 primarily due to special warranty provisions. On May 22, 2015, we issued a product replacement notification to customers of the Water business line who had purchased certain communication modules manufactured between July 2013 and December 2014 due to a component of the modules failing prematurely. As a result, we recognized a warranty charge of $23.6 million during the second quarter of 2015. A charge of $3.1 million was recorded for the same matter in the first quarter of 2015.
 
Unearned Revenue Related to Extended Warranty
A summary of changes to unearned revenue for extended warranty contracts is as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
Beginning balance
$
33,900

 
$
33,590

 
$
34,138

 
$
33,528

Unearned revenue for new extended warranties
820

 
1,002

 
1,425

 
1,850

Unearned revenue recognized
(664
)
 
(735
)
 
(1,313
)
 
(1,404
)
Effect of change in exchange rates
28

 
101

 
(166
)
 
(16
)
Ending balance
34,084

 
33,958

 
34,084

 
33,958

Less: current portion of unearned revenue for extended warranty
3,216

 
2,475

 
3,216

 
2,475

Long-term unearned revenue for extended warranty within other long-term obligations
$
30,868

 
$
31,483

 
$
30,868

 
$
31,483

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 were as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
Plan costs
$
6,388

 
$
4,713

 
$
12,901

 
$
10,976


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

 
June 30, 2015
 
December 31, 2014
 
(in thousands)
IBNR accrual
$
2,131

 
$
1,924



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.