UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number 000-22418

ITRON, INC.

(Exact name of registrant as specified in its charter)

Washington	91-1011792
(State of Incorporation)	(I.R.S. Employer Identification Number)

2111 N Molter Road, Liberty Lake, Washington 99019

(509) 924-9900

(Address and telephone number of registrant’s principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	o  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of July 31, 2015 there were outstanding 38,138,896 shares of the registrant’s common stock, no par value, which is the only class of common stock of the registrant.

Itron, Inc.

Table of Contents

	Page
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited)
Consolidated Statements of Operations	1
Consolidated Statements of Comprehensive Income (Loss)	2
Consolidated Balance Sheets	3
Consolidated Statements of Cash Flows	4
Notes to Condensed Consolidated Financial Statements	5
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3: Quantitative and Qualitative Disclosures About Market Risk	56
Item 4: Controls and Procedures	57
PART II: OTHER INFORMATION
Item 1: Legal Proceedings	58
Item 1A: Risk Factors	58
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 5: Other Information	58
Item 6: Exhibits	59
SIGNATURE	60

PART I: FINANCIAL INFORMATION

Item 1:     Financial Statements (Unaudited)

ITRON, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(in thousands, except per share data)
Revenues	$	470,103		$	489,353		$	918,350		$	964,148
Cost of revenues	351,532			326,312			661,580			646,572
Gross profit	118,571			163,041			256,770			317,576
Operating expenses
Sales and marketing	43,058			46,119			84,085			93,728
Product development	43,318			43,999			84,840			88,408
General and administrative	32,492			37,680			72,077			78,087
Amortization of intangible assets	7,888			11,109			15,861			22,179
Restructuring expense	(4,234		)	(7,793		)	(9,681		)	(2,269		)
Goodwill impairment	—			—			—			977
Total operating expenses	122,522			131,114			247,182			281,110
Operating income (loss)	(3,951		)	31,927			9,588			36,466
Other income (expense)
Interest income	213			53			260			150
Interest expense	(3,855		)	(2,913		)	(6,537		)	(5,822		)
Other income (expense), net	(1,907		)	(1,375		)	(1,883		)	(3,873		)
Total other income (expense)	(5,549		)	(4,235		)	(8,160		)	(9,545		)
Income (loss) before income taxes	(9,500		)	27,692			1,428			26,921
Income tax provision	(3,966		)	(7,848		)	(9,529		)	(7,195		)
Net income (loss)	(13,466		)	19,844			(8,101		)	19,726
Net income attributable to noncontrolling interests	732			585			1,187			721
Net income (loss) attributable to Itron, Inc.	$	(14,198	)	$	19,259		$	(9,288	)	$	19,005
Earnings (loss) per common share - Basic	$	(0.37	)	$	0.49		$	(0.24	)	$	0.48
Earnings (loss) per common share - Diluted	$	(0.37	)	$	0.49		$	(0.24	)	$	0.48
Weighted average common shares outstanding - Basic	38,434			39,356			38,438			39,296
Weighted average common shares outstanding - Diluted	38,434			39,544			38,438			39,528

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

ITRON, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(in thousands)
Net income (loss)	$	(13,466	)	$	19,844		$	(8,101	)	$	19,726
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	13,856			(7,995		)	(47,234		)	(11,369		)
Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	(130		)	(383		)	(499		)	(478		)
Net hedging loss (gain) reclassified into net income	253			264			508			522
Pension plan benefit liability adjustment	493			118			997			215
Total other comprehensive income (loss), net of tax	14,472			(7,996		)	(46,228		)	(11,110		)
Total comprehensive income (loss), net of tax	1,006			11,848			(54,329		)	8,616
Comprehensive income (loss) attributable to noncontrolling interests, net of tax	732			585			1,187			721
Comprehensive income (loss) attributable to Itron, Inc.	$	274		$	11,263		$	(55,516	)	$	7,895

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

ITRON, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

	June 30, 2015			December 31, 2014
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	128,814		$	112,371
Accounts receivable, net	338,196			348,389
Inventories	195,394			154,504
Deferred tax assets current, net	38,121			39,115
Other current assets	111,248			104,307
Total current assets	811,773			758,686
Property, plant, and equipment, net	195,510			207,789
Deferred tax assets noncurrent, net	73,861			74,598
Other long-term assets	28,741			28,503
Intangible assets, net	117,136			139,909
Goodwill	471,648			500,820
Total assets	$	1,698,669		$	1,710,305
LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	226,512		$	184,132
Other current liabilities	60,634			100,945
Wages and benefits payable	84,944			95,248
Taxes payable	16,435			21,951
Current portion of debt	11,250			30,000
Current portion of warranty	35,589			21,063
Unearned revenue	50,255			43,436
Total current liabilities	485,619			496,775
Long-term debt	361,708			293,969
Long-term warranty	22,550			15,403
Pension plan benefit liability	93,918			101,432
Deferred tax liabilities noncurrent, net	3,247			3,808
Other long-term obligations	86,366			84,437
Total liabilities	1,053,408			995,824
Commitments and contingencies
Equity
Preferred stock	—			—
Common stock	1,255,154			1,270,045
Accumulated other comprehensive loss, net	(182,742		)	(136,514		)
Accumulated deficit	(445,879		)	(436,591		)
Total Itron, Inc. shareholders' equity	626,533			696,940
Noncontrolling interests	18,728			17,541
Total equity	645,261			714,481
Total liabilities and equity	$	1,698,669		$	1,710,305

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

ITRON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
	2015			2014
	(in thousands)
Operating activities
Net income (loss)	$	(8,101	)	$	19,726
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	38,760			50,606
Stock-based compensation	7,997			9,454
Amortization of prepaid debt fees	1,579			808
Deferred taxes, net	1,901			(8,046		)
Goodwill impairment	—			977
Restructuring expense, non-cash	267			—
Other adjustments, net	919			85
Changes in operating assets and liabilities:
Accounts receivable	(6,849		)	(14,712		)
Inventories	(49,677		)	(16,801		)
Other current assets	(9,043		)	(9,103		)
Other long-term assets	406			312
Accounts payable, other current liabilities, and taxes payable	23,990			12,360
Wages and benefits payable	(6,276		)	4,473
Unearned revenue	7,807			16,560
Warranty	23,119			(2,864		)
Other operating, net	(9,232		)	3,356
Net cash provided by operating activities	17,567			67,191
Investing activities
Acquisitions of property, plant, and equipment	(20,992		)	(19,403		)
Other investing, net	693			56
Net cash used in investing activities	(20,299		)	(19,347		)
Financing activities
Proceeds from borrowings	74,183			—
Payments on debt	(22,373		)	(51,250		)
Issuance of common stock	1,864			1,530
Repurchase of common stock	(23,185		)	(7,164		)
Other financing, net	(3,942		)	1,204
Net cash provided by (used in) financing activities	26,547			(55,680		)
Effect of foreign exchange rate changes on cash and cash equivalents	(7,372		)	(2,189		)
Increase (decrease) in cash and cash equivalents	16,443			(10,025		)
Cash and cash equivalents at beginning of period	112,371			124,805
Cash and cash equivalents at end of period	$	128,814		$	114,780
Non-cash transactions:
Property, plant, and equipment purchased but not yet paid	$	1,447		$	2,445
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net	$	21,233		$	3,502
Interest, net of amounts capitalized	4,998			4,911

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

ITRON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(UNAUDITED)

In this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “Itron,” and the “Company” refer to Itron, Inc.

Note 1:    Summary of Significant Accounting Policies

We were incorporated in the state of Washington in 1977. We are a technology company, offering end-to-end smart metering solutions to electric, natural gas, and water utilities around the world.

Financial Statement Preparation

The condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q are unaudited and reflect entries necessary for the fair presentation of the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2015 and 2014, the Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014, and the Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 of Itron, Inc. and its subsidiaries. All entries required for the fair presentation of the financial statements are of a normal recurring nature, except as disclosed.

Certain information and notes normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim results. These condensed consolidated financial statements should be read in conjunction with the 2014 audited financial statements and notes included in our Annual Report on Form 10-K filed with the SEC on February 20, 2015. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.

Basis of Consolidation

We consolidate all entities in which we have a greater than 50% ownership interest or in which we exercise control over the operations. We use the equity method of accounting for entities in which we have a 50% or less ownership interest and exercise significant influence. Entities in which we have less than a 20% ownership interest and where we do not exercise significant influence are accounted for under the cost method. Intercompany transactions and balances are eliminated upon consolidation.

Noncontrolling Interests

In several of our consolidated international subsidiaries, we have joint venture partners, who are minority shareholders. Although these entities are not wholly-owned by Itron, we consolidate them because we have a greater than 50% ownership interest or because we exercise control over the operations. The noncontrolling interest balance is adjusted each period to reflect the allocation of net income (loss) and other comprehensive income (loss) attributable to the noncontrolling interests, as shown in our Consolidated Statements of Operations and our Consolidated Statements of Comprehensive Income (Loss) as well as contributions from and distributions to the owners. The noncontrolling interest balance in our Consolidated Balance Sheets represents the proportional share of the equity of the joint venture entities, which is attributable to the minority shareholders.

Cash and Cash Equivalents

We consider all highly liquid instruments with remaining maturities of three months or less at the date of acquisition to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded for invoices issued to customers in accordance with our contractual arrangements. Interest and late payment fees are minimal. Unbilled receivables are recorded when revenues are recognized upon product shipment or service delivery and invoicing occurs at a later date. We record an allowance for doubtful accounts representing our estimate of the probable losses in accounts receivable at the date of the balance sheet based on our historical experience of bad debts and our specific review of outstanding receivables. Accounts receivable are written-off against the allowance when we believe an account, or a portion thereof, is no longer collectible.

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out method. Cost includes raw materials and labor, plus applied direct and indirect costs.

5

Derivative Instruments

All derivative instruments, whether designated in hedging relationships or not, are recorded on the Consolidated Balance Sheets at fair value as either assets or liabilities. The components and fair values of our derivative instruments are determined using the fair value measurements of significant other observable inputs (Level 2), as defined by GAAP. The net fair value of our derivative instruments may switch between a net asset and a net liability depending on market circumstances at the end of the period. We include the effect of our counterparty credit risk based on current published credit default swap rates when the net fair value of our derivative instruments are in a net asset position and the effect of our own nonperformance risk when the net fair value of our derivative instruments are in a net liability position.

For any derivative designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. For any derivative designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded as a component of other comprehensive income (loss) (OCI) and are recognized in earnings when the hedged item affects earnings. Ineffective portions of cash flow hedges are recognized in other income (expense), net in the Consolidated Statements of Operations. For a hedge of a net investment, the effective portion of any unrealized gain or loss from the foreign currency revaluation of the hedging instrument is reported in OCI as a net unrealized gain or loss on derivative instruments. Upon termination of a net investment hedge, the net derivative gain/loss will remain in accumulated OCI until such time when earnings are impacted by a sale or liquidation of the associated operations. Ineffective portions of fair value changes or the changes in fair value of derivative instruments that do not qualify for hedging activities are recognized in other income (expense), net in the Consolidated Statements of Operations. We classify cash flows from our derivative programs as cash flows from operating activities in the Consolidated Statements of Cash Flows.

Derivatives are not used for trading or speculative purposes. Our derivative contract counterparties are credit-worthy multinational commercial banks, with whom we have master netting agreements; however, our derivative positions are not recorded on a net basis in the Consolidated Balance Sheets. There are no credit-risk-related contingent features within our derivative instruments. Refer to Note 7 and Note 13 for further disclosures of our derivative instruments and their impact on OCI.

Property, Plant, and Equipment

Property, plant, and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 30 years for buildings and improvements and three to ten years for machinery and equipment, computers and software, and furniture. Leasehold improvements are capitalized and depreciated over the term of the applicable lease, including renewable periods if reasonably assured, or over the useful lives, whichever is shorter. Construction in process represents capital expenditures incurred for assets not yet placed in service. Costs related to internally developed software and software purchased for internal uses are capitalized and are amortized over the estimated useful lives of the assets. Repair and maintenance costs are expensed as incurred. We have no major planned maintenance activities.

We review long-lived assets for impairment whenever events or circumstances indicate the carrying amount of an asset group may not be recoverable. Assets held for sale are classified within other current assets in the Consolidated Balance Sheets, are reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. Gains and losses from asset disposals and impairment losses are classified within the Consolidated Statements of Operations according to the use of the asset, except those gains and losses recognized in conjunction with our restructuring activities, which are classified within restructuring expense.

Prepaid Debt Fees

Prepaid debt fees represent the capitalized direct costs incurred related to the issuance of debt and are recorded as noncurrent assets. These costs are amortized to interest expense over the terms of the respective borrowings, including contingent maturity or call features, using the effective interest method, or straight-line method when associated with a revolving credit facility. When debt is repaid early, the related portion of unamortized prepaid debt fees is written off and included in interest expense.

Business Combinations

On the date of acquisition, the assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree are recorded at their fair values. The acquiree's results of operations are also included as of the date of acquisition in our consolidated results. Intangible assets that arise from contractual/legal rights, or are capable of being separated, as well as in-process research and development (IPR&D), are measured and recorded at fair value, and amortized over the estimated useful life. IPR&D is not amortized until such time as the associated development projects are completed or terminated. If a development project is completed, the IPR&D is reclassified as a core technology intangible asset and amortized over its estimated useful life. If the development project is terminated, the recorded value of the associated IPR&D is immediately expensed. If practicable, assets acquired and liabilities assumed arising from contingencies are measured and recorded at fair value. If not practicable, such assets and liabilities are measured and recorded when it is probable that a gain or loss has occurred and the amount can be reasonably estimated. The residual balance of the purchase price, after fair value allocations to all identified assets and liabilities, represents goodwill.

6

Acquisition-related costs are expensed as incurred. Restructuring costs associated with an acquisition are generally expensed in periods subsequent to the acquisition date, and changes in deferred tax asset valuation allowances and acquired income tax uncertainties, including penalties and interest, after the measurement period are recognized as a component of the provision for income taxes. Our acquisitions may include contingent consideration, which require us to recognize the fair value of the estimated liability at the time of the acquisition. Subsequent changes in the estimate of the amount to be paid under the contingent consideration arrangement are recognized in the Consolidated Statements of Operations. Cash payments for contingent or deferred consideration are classified within cash flows from investing activities within the Consolidated Statements of Cash Flows.

Goodwill and Intangible Assets

Goodwill and intangible assets may result from our business acquisitions. Intangible assets may also result from the purchase of assets and intellectual property in a transaction that does not qualify as a business combination. We use estimates, including estimates of useful lives of intangible assets, the amount and timing of related future cash flows, and fair values of the related operations, in determining the value assigned to goodwill and intangible assets. Our finite-lived intangible assets are amortized over their estimated useful lives based on estimated discounted cash flows. IPR&D is considered an indefinite-lived intangible asset and is not subject to amortization until the associated projects are completed or terminated. Finite-lived intangible assets are tested for impairment at the asset group level when events or changes in circumstances indicate the carrying value may not be recoverable. Indefinite-lived intangible assets are tested for impairment annually, when events or changes in circumstances indicate the asset may be impaired, or at the time when their useful lives are determined to be no longer indefinite.

Goodwill is assigned to our reporting units based on the expected benefit from the synergies arising from each business combination, determined by using certain financial metrics, including the forecasted discounted cash flows associated with each reporting unit. Each reporting unit corresponds with its respective operating segment, effective in the fourth quarter of 2013.

We test goodwill for impairment each year as of October 1, or more frequently should a significant impairment indicator occur. As part of the impairment test, we may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit, including goodwill, is less than its carrying amount, or if we elect to bypass the qualitative assessment, we would then proceed with the two-step impairment test. The impairment test involves comparing the fair values of the reporting units to their carrying amounts. If the carrying amount of a reporting unit exceeds its fair value, a second step is required to measure the goodwill impairment loss amount. This second step determines the current fair values of all assets and liabilities of the reporting unit and then compares the implied fair value of the reporting unit's goodwill to the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. We forecast discounted future cash flows at the reporting unit level using risk-adjusted discount rates and estimated future revenues and operating costs, which take into consideration factors such as existing backlog, expected future orders, supplier contracts, and expectations of competitive and economic environments. We also identify similar publicly traded companies and develop a correlation, referred to as a multiple, to apply to the operating results of the reporting units. These combined fair values are then reconciled to the aggregate market value of our common stock on the date of valuation, while considering a reasonable control premium.

Contingencies

A loss contingency is recorded if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. We evaluate, among other factors, the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of the ultimate loss. Loss contingencies that we determine to be reasonably possible, but not probable, are disclosed but not recorded. Changes in these factors and related estimates could materially affect our financial position and results of operations. Legal costs to defend against contingent liabilities are expensed as incurred.

Bonus and Profit Sharing

We have various employee bonus and profit sharing plans, which provide award amounts for the achievement of annual financial and nonfinancial targets. If management determines it is probable that the targets will be achieved, and the amounts can be reasonably estimated, a compensation accrual is recorded based on the proportional achievement of the financial and nonfinancial targets. Although we monitor and accrue expenses quarterly based on our progress toward the achievement of the annual targets, the actual results at the end of the year may result in awards that are significantly greater or less than the estimates made in earlier quarters.

Warranty

We offer standard warranties on our hardware products and large application software products. We accrue the estimated cost of new product warranties based on historical and projected product performance trends and costs during the warranty period. Testing

7

of new products in the development stage helps identify and correct potential warranty issues prior to manufacturing. Quality control efforts during manufacturing reduce our exposure to warranty claims. When testing or quality control efforts fail to detect a fault in one of our products, we may experience an increase in warranty claims. We track warranty claims to identify potential warranty trends. If an unusual trend is noted, an additional warranty accrual would be recorded if a failure event is probable and the cost can be reasonably estimated. When new products are introduced, our process relies on historical averages of similar products until sufficient data are available. As actual experience on new products becomes available, it is used to modify the historical averages to ensure the expected warranty costs are within a range of likely outcomes. Management regularly evaluates the sufficiency of the warranty provisions and makes adjustments when necessary. The warranty allowances may fluctuate due to changes in estimates for material, labor, and other costs we may incur to repair or replace projected product failures, and we may incur additional warranty and related expenses in the future with respect to new or established products, which could adversely affect our financial position and results of operations. The long-term warranty balance includes estimated warranty claims beyond one year. Warranty expense is classified within cost of revenues.

Restructuring

We record a liability for costs associated with an exit or disposal activity under a restructuring project at its fair value in the period in which the liability is incurred. Employee termination benefits considered postemployment benefits are accrued when the obligation is probable and estimable, such as benefits stipulated by human resource policies and practices or statutory requirements. One-time termination benefits are expensed at the date the employee is notified. If the employee must provide future service greater than 60 days, such benefits are expensed ratably over the future service period. For contract termination costs, we record a liability upon the termination of a contract in accordance with the contract terms or the cessation of the use of the rights conveyed by the contract, whichever occurs later.

Asset impairments associated with a restructuring project are determined at the asset group level. An impairment may be recorded for assets that are to be abandoned, are to be sold for less than net book value, or are held for sale in which the estimated proceeds less costs to sell are less than the net book value. We may also recognize impairment on an asset group, which is held and used, when the carrying value is not recoverable and exceeds the asset group's fair value. If an asset group is considered a business, a portion of our goodwill balance is allocated to it based on relative fair value. If the sale of an asset group under a restructuring project results in proceeds that exceed the net book value of the asset group, the resulting gain is recorded within restructuring expense in the Consolidated Statements of Operations.

Defined Benefit Pension Plans

We sponsor both funded and unfunded defined benefit pension plans for certain international employees. We recognize a liability for the projected benefit obligation in excess of plan assets or an asset for plan assets in excess of the projected benefit obligation. We also recognize the funded status of our defined benefit pension plans on our Consolidated Balance Sheets and recognize as a component of OCI, net of tax, the actuarial gains or losses and prior service costs or credits, if any, that arise during the period but that are not recognized as components of net periodic benefit cost.

Share Repurchase Plan

From time to time, we may repurchase shares of common stock under programs authorized by our Board of Directors. Share repurchases are made in the open market or in privately negotiated transactions and in accordance with applicable securities laws. Under applicable Washington State law, shares repurchased are retired and not reported separately as treasury stock on the financial statements; the value of the repurchased shares is deducted from common stock.

Revenue Recognition

Revenues consist primarily of hardware sales, software license fees, software implementation, project management services, installation, consulting, and post-sale maintenance support. Revenues are recognized when (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the sales price is fixed or determinable, and (4) collectability is reasonably assured.

The majority of our revenue arrangements involve multiple deliverables, which combine two or more of the following: hardware, meter reading system software, installation, and/or project management services. Revenue arrangements with multiple deliverables are divided into separate units of accounting if the delivered item(s) has value to the customer on a standalone basis and delivery/performance of the undelivered item(s) is probable. The total arrangement consideration is allocated among the separate units of accounting based on their relative selling prices and the applicable revenue recognition criteria considered for each unit of accounting. The amount allocable to a delivered item is limited to the amount that we are entitled to collect and that is not contingent upon the delivery/performance of additional items. Revenues for each deliverable are then recognized based on the type of deliverable, such as: 1) when the products are shipped, 2) services are delivered, 3) percentage-of-completion when implementation services are essential to other deliverables in the arrangement, 4) upon receipt of customer acceptance, or 5) transfer of title and

8

risk of loss. The majority of our revenue is recognized when products are shipped to or received by a customer or when services are provided.

Hardware revenues are recognized at the time of shipment, receipt by the customer, or, if applicable, upon completion of customer acceptance provisions.

Generally, network software revenue is recognized when shipped if all other revenue recognition criteria are met and services are not essential to the functionality of the software. If implementation services are essential to the functionality of the network software, software and implementation revenues are recognized using the percentage-of-completion methodology of contract accounting when project costs are reliably estimated.

If the data collection system does not use standard Internet protocols and network design services are deemed complex and extensive, revenue from network software and services is recognized using the units-of-delivery method of contract accounting, as network design services and network software are essential to the functionality of the related hardware (network). This methodology results in the deferral of costs and revenues as professional services and software implementation commence prior to deployment of hardware.

In the unusual instances when we are unable to reliably estimate the cost to complete a contract at its inception, we use the completed contract method of contract accounting. Revenues and costs are recognized upon substantial completion when remaining costs are insignificant and potential risks are minimal.

Under contract accounting, if we estimate that the completion of a contract component (unit of accounting) will result in a loss, the loss is recognized in the period in which the loss becomes evident. We reevaluate the estimated loss through the completion of the contract component and adjust the estimated loss for changes in facts and circumstances.

Many of our customer arrangements contain clauses for liquidated damages, related to the timing of delivery or milestone accomplishments, that could become material in an event of failure to meet the contractual deadlines. At the inception of the arrangement and on an ongoing basis, we evaluate if the liquidating damages represent contingent revenue and, if so, we reduce the amount of consideration allocated to the delivered products and services and record it as a reduction in revenue in the period of default. If the arrangement is subject to contract accounting, liquidated damages resulting from anticipated events of default are estimated and are accounted for as job costs in the period in which the potential default is identified and the damages can be reasonably estimated.

We also enter into multiple deliverable software arrangements that do not include hardware. For this type of arrangement, revenue recognition is dependent upon the availability of vendor specific objective evidence (VSOE) of fair value for each of the deliverables. The lack of VSOE, or the existence of extended payment terms or other inherent risks, may affect the timing of revenue recognition for multiple deliverable software arrangements.

Certain of our revenue arrangements include an extended or noncustomary warranty provision that covers all or a portion of a customer's replacement or repair costs beyond the standard or customary warranty period. Whether or not the extended warranty is separately priced in the arrangement, a portion of the arrangement's total consideration is allocated to this extended warranty deliverable. This revenue is deferred and recognized over the extended warranty coverage period. Extended or noncustomary warranties do not represent a significant portion of our revenue.

We allocate consideration to each deliverable in an arrangement based on its relative selling price. We determine selling price using VSOE, if it exists, otherwise we use third party evidence (TPE). We define VSOE as a median price of recent standalone transactions that are priced within a narrow range. TPE is determined based on the prices charged by our competitors for a similar deliverable when sold separately. If neither VSOE nor TPE of selling price exists for a unit of accounting, we use estimated selling price (ESP) to determine the price at which we would transact if the product or service were regularly sold by us on a standalone basis. Our determination of ESP involves a weighting of several factors based on the specific facts and circumstances of the arrangement. The factors considered include the cost to produce the deliverable, the anticipated margin on that deliverable, our ongoing pricing strategy and policies, and the characteristics of the varying markets in which the deliverable is sold.

We analyze the selling prices used in our allocation of arrangement consideration on an annual basis. Selling prices are analyzed on a more frequent basis if a significant change in our business necessitates a more timely analysis or if we experience significant variances in our selling prices.

Unearned revenue is recorded when a customer pays for products or services, but the criteria for revenue recognition have not been met as of the balance sheet date. Unearned revenues of $82.8 million and $76.6 million at June 30, 2015 and December 31,

9

2014 related primarily to professional services and software associated with our smart metering contracts, extended or noncustomary warranty, and prepaid post-contract support. Deferred costs are recorded for products or services for which ownership (typically defined as title and risk of loss) has transferred to the customer, but the criteria for revenue recognition have not been met as of the balance sheet date. Deferred costs were $15.0 million and $24.9 million at June 30, 2015 and December 31, 2014 and are recorded within other assets in the Consolidated Balance Sheets.

Hardware and software post-sale maintenance support fees are recognized ratably over the life of the related service contract. Shipping and handling costs and incidental expenses billed to customers are recorded as revenue, with the associated cost charged to cost of revenues. We record sales, use, and value added taxes billed to our customers on a net basis.

Product and Software Development Costs

Product and software development costs primarily include employee compensation and third party contracting fees. We do not capitalize product development costs, and we do not generally capitalize software development expenses as the costs incurred are immaterial for the relatively short period of time between technological feasibility and the completion of software development.

Stock-Based Compensation

We measure and recognize compensation expense for all stock-based awards made to employees and directors, including stock options and the issuance of restricted stock units and unrestricted stock awards, based on estimated fair values. The fair value of stock options is estimated at the date of grant using the Black-Scholes option-pricing model, which includes assumptions for the dividend yield, expected volatility, risk-free interest rate, and expected term. For performance-based restricted stock units and unrestricted stock awards with no market conditions, the fair value is the market close price of our common stock on the date of grant. For restricted stock units with market conditions, the fair value is estimated at the date of award using a Monte Carlo simulation model, which includes assumptions for dividend yield and expected volatility for our common stock and the common stock for companies within the Russell 3000 index, as well as the risk-free interest rate and expected term of the awards. We expense stock-based compensation at the date of grant for unrestricted stock awards. For awards with only a service condition, we expense stock-based compensation, adjusted for estimated forfeitures, using the straight-line method over the requisite service period for the entire award. For awards with performance and service conditions, if vesting is probable, we expense the stock-based compensation, adjusted for estimated forfeitures, on a straight-line basis over the requisite service period for each separately vesting portion of the award. For awards with a market condition, we expense the fair value over the requisite service period. Excess tax benefits are credited to common stock when the deduction reduces cash taxes payable. When we have tax deductions in excess of the compensation cost, they are classified as financing cash inflows in the Consolidated Statements of Cash Flows.

Certain of our employees are eligible to participate in our Employee Stock Purchase Plan (ESPP). The discount provided for ESPP purchases is 5% from the fair market value of the stock at the end of each fiscal quarter and is not considered compensatory.

Income Taxes

We compute our interim income tax provision through the use of an estimated annual effective tax rate (ETR) applied to year-to-date operating results and specific events that are discretely recognized as they occur. In calculating the estimated annual ETR, we analyze various factors, including the forecast mix of earnings in domestic and international jurisdictions, new or revised tax legislation and accounting pronouncements, tax credits, state income taxes, adjustments to valuation allowances, and uncertain tax positions, among other items. Discrete items, including the effect of changes in tax laws, tax rates, and certain circumstances with respect to valuation allowances or other unusual or non-recurring tax adjustments, are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than included in the estimated annual ETR.

Deferred tax assets and liabilities are recognized based upon anticipated future tax consequences, in each of the jurisdictions in which we operate, attributable to: (1) the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases; and (2) operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The calculation of our tax liabilities involves applying complex tax regulations in different jurisdictions to our tax positions. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is more likely than not that such assets will not be realized. We do not record tax liabilities on undistributed earnings of international subsidiaries that are permanently reinvested.

We utilize a two step approach to account for uncertain tax positions. A tax position is first evaluated for recognition based on its technical merits. Tax positions that have a greater than 50% likelihood of being realized upon ultimate settlement are then measured to determine amounts to be recognized in the financial statements. This measurement incorporates information about potential settlements with taxing authorities. A previously recognized tax position is derecognized in the first period in which the position

10

no longer meets the recognition threshold or upon expiration of the statute of limitations. We classify interest expense and penalties related to uncertain tax positions and interest income on tax overpayments as part of income tax expense.

Foreign Exchange

Our consolidated financial statements are reported in U.S. dollars. Assets and liabilities of international subsidiaries with non-U.S. dollar functional currencies are translated to U.S. dollars at the exchange rates in effect on the balance sheet date, or the last business day of the period, if applicable. Revenues and expenses for each subsidiary are translated to U.S. dollars using a weighted average rate for the relevant reporting period. Translation adjustments resulting from this process are included, net of tax, in OCI. Gains and losses that arise from exchange rate fluctuations for monetary asset and liability balances that are not denominated in an entity’s functional currency are included within other income (expense), net in the Consolidated Statements of Operations. Currency gains and losses of intercompany balances deemed to be long-term in nature or designated as a hedge of the net investment in international subsidiaries are included, net of tax, in OCI.

Fair Value Measurements

For assets and liabilities measured at fair value, the GAAP fair value hierarchy prioritizes the inputs used in different valuation methodologies, assigning the highest priority to unadjusted quoted prices for identical assets and liabilities in actively traded markets (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 inputs consist of quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in non-active markets; and model-derived valuations in which significant inputs are corroborated by observable market data either directly or indirectly through correlation or other means. Inputs may include yield curves, volatility, credit risks, and default rates.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Due to various factors affecting future costs and operations, actual results could differ materially from these estimates.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 is effective for us on January 1, 2018 using either the retrospective or modified-retrospective transition method. We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements.

On April 7, 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03), which will require debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. ASU 2015-03 is effective for us on January 1, 2016 using the retrospective or transition method, and we plan to adopt on that date. We do not anticipate that ASU 2015-03 will have a material impact to our balance sheet.

In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (ASU 2015-05),which provides guidance about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for us on January 1, 2016. We are currently evaluating the impact of adopting this guidance.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330) - Simplifying the Measurement of Inventory (ASU 2015-11). The amendments in ASU 2015-11 apply to inventory measured using first-in, first-out (FIFO) or average cost and will require entities to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the normal coarse of business, minus the cost of completion, disposal and transportation. Replacement cost and net realizable value less a normal profit margin will no longer be considered. ASU 2015-11 is effective for us on January 1, 2017. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

11

Note 2:    Earnings Per Share and Capital Structure

The following table sets forth the computation of basic and diluted earnings per share (EPS):

	Three Months Ended June 30,					Six Months Ended June 30,
	2015			2014		2015			2014
	(in thousands, except per share data)
Net income (loss) available to common shareholders	$	(14,198	)	$	19,259	$	(9,288	)	$	19,005
Weighted average common shares outstanding - Basic	38,434			39,356		38,438			39,296
Dilutive effect of stock-based awards	—			188		—			232
Weighted average common shares outstanding - Diluted	38,434			39,544		38,438			39,528
Earnings (loss) per common share - Basic	$	(0.37	)	$	0.49	$	(0.24	)	$	0.48
Earnings (loss) per common share - Diluted	$	(0.37	)	$	0.49	$	(0.24	)	$	0.48

Stock-based Awards

For stock-based awards, the dilutive effect is calculated using the treasury stock method. Under this method, the dilutive effect is computed as if the awards were exercised at the beginning of the period (or at time of issuance, if later) and assumes the related proceeds were used to repurchase common stock at the average market price during the period. Related proceeds include the amount the employee must pay upon exercise, future compensation cost associated with the stock award, and the amount of excess tax benefits, if any. Approximately 1.2 million stock-based awards were excluded from the calculation of diluted EPS for the three and six months ended June 30, 2015, and approximately 1.2 million and 1.3 million stock-based awards were excluded from the calculation of diluted EPS for the three and six months ended June 30, 2014, respectively, because they were anti-dilutive. These stock-based awards could be dilutive in future periods.

Note 3:    Certain Balance Sheet Components

Accounts receivable, net	June 30, 2015		December 31, 2014
	(in thousands)
Trade receivables (net of allowance of $5,422 and $6,195)	$	286,093	$	312,302
Unbilled receivables	52,103		36,087
Total accounts receivable, net	$	338,196	$	348,389

At June 30, 2015 and December 31, 2014, $3.4 million and $4.7 million, respectively, were recorded within trade receivables as billed but not yet paid by customers, in accordance with contract retainage provisions. At June 30, 2015 and December 31, 2014, contract retainage amounts that were unbilled and classified as unbilled receivables were $3.5 million and $4.0 million, respectively. These contract retainage amounts within trade receivables and unbilled receivables are expected to be collected within the following 12 months.

At June 30, 2015 and December 31, 2014, long-term unbilled receivables totaled $4.0 million and $4.3 million, respectively. These long-term unbilled receivables are classified within other long-term assets, as collection is not anticipated within the following 12 months. We had no long-term billed contract retainage receivables at June 30, 2015 and December 31, 2014.

Allowance for doubtful accounts activity	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(in thousands)
Beginning balance	$	5,939		$	8,758		$	6,195		$	8,368
Provision (release) for doubtful accounts, net	(239		)	(795		)	30			(189		)
Accounts written-off	(325		)	(558		)	(341		)	(790		)
Effect of change in exchange rates	47			(50		)	(462		)	(34		)
Ending balance	$	5,422		$	7,355		$	5,422		$	7,355

12

Inventories	June 30, 2015		December 31, 2014
	(in thousands)
Materials	$	113,521	$	90,557
Work in process	7,551		8,991
Finished goods	74,322		54,956
Total inventories	$	195,394	$	154,504

Our inventory levels may vary from period to period as a result of our factory scheduling and the timing of contract fulfillments, which may include the buildup of materials in preparation for customer orders or finished goods for shipment.

Consigned inventory is held at third party locations; however, we retain title to the inventory until it is purchased by the third party. Consigned inventory, consisting of raw materials and finished goods, was $4.7 million and $2.5 million at June 30, 2015 and December 31, 2014, respectively.

Property, plant, and equipment, net	June 30, 2015			December 31, 2014
	(in thousands)
Machinery and equipment	$	281,496		$	287,448
Computers and software	106,399			100,212
Buildings, furniture, and improvements	131,057			134,461
Land	21,238			21,186
Construction in progress, including purchased equipment	23,332			21,007
Total cost	563,522			564,314
Accumulated depreciation	(368,012		)	(356,525		)
Property, plant, and equipment, net	$	195,510		$	207,789

Assets of our international subsidiaries are recorded in their respective functional currency; therefore, the carrying amounts of these assets increase or decrease, with a corresponding change in accumulated OCI, due to changes in foreign currency exchange rates. In addition, depreciation expense is impacted by the fluctuations in foreign exchange rates.

Depreciation expense	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in thousands)
Depreciation expense	$	11,533	$	13,905	$	22,899	$	28,427

Note 4:    Intangible Assets

The gross carrying amount and accumulated amortization of our intangible assets, other than goodwill, were as follows:

	June 30, 2015							December 31, 2014
	Gross Assets		Accumulated Amortization			Net		Gross Assets		Accumulated Amortization			Net
	(in thousands)
Core-developed technology	$	392,427	$	(356,567	)	$	35,860	$	405,434	$	(359,500	)	$	45,934
Customer contracts and relationships	249,188		(170,270		)	78,918		262,930		(172,755		)	90,175
Trademarks and trade names	65,709		(63,406		)	2,303		68,205		(64,905		)	3,300
Other	11,080		(11,025		)	55		11,579		(11,079		)	500
Total intangible assets	$	718,404	$	(601,268	)	$	117,136	$	748,148	$	(608,239	)	$	139,909

13

A summary of intangible asset activity is as follows:

	Six Months Ended June 30,
	2015			2014
	(in thousands)
Beginning balance, intangible assets, gross	$	748,148		$	804,281
Intangible assets acquired	—			497
Intangible assets impaired	(497		)	—
Effect of change in exchange rates	(29,247		)	(4,075		)
Ending balance, intangible assets, gross	$	718,404		$	800,703

Intangible assets impaired includes purchased software licenses to be sold to others. This amount was expensed as part of cost of revenues in the Consolidated Statement of Operations.

Intangible assets of our international subsidiaries are recorded in their respective functional currency; therefore, the carrying amounts and accumulated amortization of intangible assets increase or decrease, with a corresponding change in accumulated OCI, due to changes in foreign currency exchange rates. Amortization expense is scheduled to decrease in future periods.

Estimated future annual amortization expense is as follows:

Years ending December 31,	Estimated Annual Amortization
	(in thousands)
2015 (amount remaining at June 30, 2015)	$	16,263
2016	25,256
2017	18,607
2018	12,844
2019	9,996
Beyond 2019	34,170
Total intangible assets subject to amortization	$	117,136

Note 5:    Goodwill

The following table reflects goodwill allocated to each reporting segment as of June 30, 2015:

	Electricity			Gas			Water			Total Company
	(in thousands)
Balance at January 1, 2015
Goodwill before impairment	$	449,668		$	359,485		$	382,655		$	1,191,808
Accumulated impairment losses	(393,981		)	—			(297,007		)	(690,988		)
Goodwill, net	55,687			359,485			85,648			500,820
Effect of change in exchange rates	(2,241		)	(22,057		)	(4,874		)	(29,172		)
Balance at June 30, 2015
Goodwill before impairment	422,269			337,428			353,301			1,112,998
Accumulated impairment losses	(368,823		)	—			(272,527		)	(641,350		)
Goodwill, net	$	53,446		$	337,428		$	80,774		$	471,648

Refer to Note 1 for a description of our reporting units and the methods used to determine the fair values of our reporting units and to determine the amount of any goodwill impairment.

Goodwill and accumulated impairment losses associated with our international subsidiaries are recorded in their respective functional currencies; 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.

14

Note 6:    Debt

The components of our borrowings were as follows:

	June 30, 2015		December 31, 2014
	(in thousands)
Credit facility:
USD denominated term loan	$	225,000	$	232,500
Multicurrency revolving line of credit	147,958		91,469
Total debt	372,958		323,969
Less: current portion of debt	11,250		30,000
Long-term debt	$	361,708	$	293,969

Credit Facility

On June 23, 2015, we entered into a $725 million senior secured credit facility (the 2015 credit facility), which amended and restated the senior secured credit facility we entered into in 2011 (the 2011 credit facility). The 2015 credit facility consists of a $225 million U.S. dollar term loan (the term loan) and a multicurrency revolving line of credit (the revolver) with a principal amount of up to $500 million. The revolver also contains a $300 million standby letter of credit sub-facility and a $50 million swingline sub-facility (available for immediate cash needs at a higher interest rate). Both the term loan and the revolver mature on June 23, 2020, and amounts borrowed under the revolver are classified as long-term and, during the credit facility term, may be repaid and reborrowed until the revolver's maturity, at which time the revolver will terminate, and all outstanding loans, together with all accrued and unpaid interest, must be repaid. Amounts not borrowed under the revolver are subject to a commitment fee, which is paid in arrears on the last day of each fiscal quarter, ranging from 0.175% to 0.30% per annum depending on our total leverage ratio as of the most recently ended fiscal quarter. Amounts repaid on the term loan may not be reborrowed. The 2015 credit facility permits us and certain of our foreign subsidiaries to borrow in U.S. dollars, euros, British pounds, or, with lender approval, other currencies readily convertible into U.S. dollars. All obligations under the 2015 credit facility are guaranteed by Itron, Inc. and material U.S. domestic subsidiaries and are secured by a pledge of substantially all of the assets of Itron, Inc. and material U.S. domestic subsidiaries, including a pledge of 100% of the capital stock of material U.S. domestic subsidiaries and up to 66% of the voting stock (100% of the non-voting stock) of their first-tier foreign subsidiaries. In addition, the obligations of any foreign subsidiary who is a foreign borrower, as defined by the 2015 credit facility, are guaranteed by the foreign subsidiary and by its direct and indirect foreign parents. The 2015 credit facility includes debt covenants, which contain certain financial ratio thresholds and place certain restrictions on the incurrence of debt, investments, and the issuance of dividends. We were in compliance with the debt covenants under the 2015 credit facility at June 30, 2015.

Scheduled principal repayments for the term loan are due quarterly in the amount of $2.8 million from September 2015 through June 2017, $4.2 million from September 2017 through June 2018, $5.6 million from September 2018 through March 2020, and the remainder due at maturity on June 23, 2020. The term loan may be repaid early in whole or in part, subject to certain minimum thresholds, without penalty.

Under the 2015 credit facility, we elect applicable market interest rates for both the term loan and any outstanding revolving loans. We also pay an applicable margin, which is based on our total leverage ratio (as defined in the credit agreement). The applicable rates per annum may be based on either: (1) the LIBOR rate or EURIBOR rate (floor of 0%), plus an applicable margin, or (2) the Alternate Base Rate, plus an applicable margin. The Alternate Base Rate election is equal to the greatest of three rates: (i) the prime rate, (ii) the Federal Reserve effective rate plus 1/2 of 1%, or (iii) one month LIBOR plus 1%. At June 30, 2015, the interest rate for both the term loan and the USD revolver was 1.69% (the LIBOR rate plus a margin of 1.50%), and the interest rate for the EUR revolver was 1.50% (the EURIBOR floor rate plus a margin of 1.50%).

Total credit facility repayments were as follows:

	Six Months Ended June 30,
	2015		2014
	(in thousands)
Term loan	$	7,500	$	11,250
Multicurrency revolving line of credit	14,873		40,000
Total credit facility repayments	$	22,373	$	51,250

15

At June 30, 2015, $148.0 million was outstanding under the credit facility revolver, and $244.5 million was available for additional borrowings due to the most recent total leverage ratio. At June 30, 2015, $49.8 million was utilized by outstanding standby letters of credit, resulting in $250.2 million available for additional borrowings. No amounts were outstanding under the swingline sub-facility.

Upon entering into the 2015 credit facility, a portion of our unamortized prepaid debt fees, totaling $821,000, were written-off to interest expense. Prepaid debt fees of approximately $3.8 million were capitalized associated with the 2015 credit facility. Unamortized prepaid debt fees were as follows:

	June 30, 2015		December 31, 2014
	(in thousands)
Unamortized prepaid debt fees	$	4,581	$	2,298

Note 7:    Derivative Financial Instruments

As part of our risk management strategy, we use derivative instruments to hedge certain foreign currency and interest rate exposures. Refer to Note 1, Note 13, and Note 14 for additional disclosures on our derivative instruments.

The fair values of our derivative instruments are determined using the income approach and significant other observable inputs (also known as Level 2). We have used observable market inputs based on the type of derivative and the nature of the underlying instrument. The key inputs include interest rate yield curves (swap rates and futures) and foreign exchange spot and forward rates, all of which are available in an active market. We have utilized the mid-market pricing convention for these inputs. We include, as a discount to the derivative asset, the effect of our counterparty credit risk based on current published credit default swap rates when the net fair value of our derivative instruments is in a net asset position. We consider our own nonperformance risk when the net fair value of our derivative instruments is in a net liability position by discounting our derivative liabilities to reflect the potential credit risk to our counterparty through applying a current market indicative credit spread to all cash flows.

The fair values of our derivative instruments were as follows:

		Fair Value
	Balance Sheet Location	June 30, 2015		December 31, 2014
		(in thousands)
Asset Derivatives
Derivatives designated as hedging instruments under ASC 815-20
Interest rate swap contracts	Other long-term assets	$	—	$	75
Derivatives not designated as hedging instruments under ASC 815-20
Foreign exchange forward contracts	Other current assets	103		107
Total asset derivatives		$	103	$	182
Liability Derivatives
Derivatives designated as hedging instruments under ASC 815-20
Interest rate swap contracts	Other current liabilities	$	1,161	$	1,317
Interest rate swap contracts	Other long-term obligations	66		—
Derivatives not designated as hedging instruments under ASC 815-20
Foreign exchange forward contracts	Other current liabilities	138		236
Total liability derivatives		$	1,365	$	1,553

16

OCI during the reporting periods for our derivative and nonderivative hedging instruments, net of tax, was as follows:

	2015			2014
	(in thousands)
Net unrealized loss on hedging instruments at January 1,	$	(15,148	)	$	(15,636	)
Unrealized gain (loss) on hedging instruments	(499		)	(478		)
Realized losses reclassified into net income (loss)	508			522
Net unrealized loss on hedging instruments at June 30,	$	(15,139	)	$	(15,592	)

Included in the net unrealized loss on hedging instruments at June 30, 2015 and 2014 is a loss of $14.4 million, net of tax, related to our nonderivative net investment hedge, which terminated in 2011. This loss on our net investment hedge will remain in accumulated OCI until such time when earnings are impacted by a sale or liquidation of the associated foreign operation.

A summary of the potential effect of netting arrangements on our financial position related to the offsetting of our recognized derivative assets and liabilities under master netting arrangements or similar agreements is as follows:

Offsetting of Derivative Assets
			Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Assets Presented in the Consolidated Balance Sheets		Derivative Financial Instruments			Cash Collateral Received		Net Amount
	(in thousands)
June 30, 2015	$	103	$	(97	)	$	—	$	6
December 31, 2014	$	182	$	(182	)	$	—	$	—

Offsetting of Derivative Liabilities
			Gross Amounts Not Offset in the Consolidated Balance Sheets
	Gross Amounts of Recognized Liabilities Presented in the Consolidated Balance Sheets		Derivative Financial Instruments			Cash Collateral Pledged		Net Amount
	(in thousands)
June 30, 2015	$	1,365	$	(97	)	$	—	$	1,268
December 31, 2014	$	1,553	$	(182	)	$	—	$	1,371

Our derivative assets and liabilities consist of foreign exchange forward and interest rate swap contracts with eight counterparties at June 30, 2015 and December 31, 2014. No derivative asset or liability balance with any of our counterparties was individually significant at June 30, 2015 or December 31, 2014. Our derivative contracts with each of these counterparties exist under agreements that provide for the net settlement of all contracts through a single payment in a single currency in the event of default. We have no pledges of cash collateral against our obligations nor have we received pledges of cash collateral from our counterparties under the associated derivative contracts.

Cash Flow Hedges

As a result of our floating rate debt, we are exposed to variability in our cash flows from changes in the applicable interest rate index. We enter into swaps to achieve a fixed rate of interest on the hedged portion of debt in order to increase our ability to forecast interest expense. The objective of these swaps is to reduce the variability of cash flows from increases in the LIBOR-based borrowing rates on our floating rate credit facility. The swaps do not protect us from changes to the applicable margin under our credit facility.

In May 2012, we entered into six forward starting pay-fixed, receive one-month LIBOR interest rate swaps. The interest rate swaps convert $200 million of our LIBOR-based debt from a floating LIBOR interest rate to a fixed interest rate of 1.00% (excluding the applicable margin on the debt) and are effective from July 31, 2013 to August 8, 2016. These cash flow hedges are expected

17

to be highly effective in achieving offsetting cash flows attributable to the hedged risk through the term of the hedge. Consequently, effective changes in the fair value of the interest rate swaps are recorded as a component of OCI and are recognized in earnings when the hedged item affects earnings. The amounts paid or received on the hedges are recognized as adjustments to interest expense. The amount of net losses expected to be reclassified into earnings in the next 12 months is $1.2 million. At June 30, 2015, our LIBOR-based debt balance was $345.0 million.

We will continue to monitor and assess our interest rate risk and may institute additional interest rate swaps or other derivative instruments to manage such risk in the future.

The before-tax effect of our cash flow derivative instruments on the Consolidated Balance Sheets and the Consolidated Statements of Operations for the three and six months ended June 30 were as follows:

Derivatives in ASC 815-20 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)						Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)							Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
							Location	Amount						Location	Amount
	2015			2014				2015			2014				2015		2014
	(in thousands)							(in thousands)							(in thousands)
Three Months Ended June 30,
Interest rate swap contracts	$	(211	)	$	(616	)	Interest expense	$	(411	)	$	(426	)	Interest expense	$	—	$	—
Six Months Ended June 30,
Interest rate swap contracts	$	(808	)	$	(771	)	Interest expense	$	(823	)	$	(845	)	Interest expense	$	—	$	—

Derivatives Not Designated as Hedging Relationships

We are exposed to foreign exchange risk when we enter into non-functional currency transactions, both intercompany and third party. At each period-end, non-functional currency monetary assets and liabilities are revalued with the change recorded to other income (expense), net. We enter into monthly foreign exchange forward contracts (a total of 276 contracts were entered into during the six months ended June 30, 2015), which are not designated for hedge accounting, but rather with the intent to reduce earnings volatility associated with certain of these non-functional currency assets and liabilities. The notional amounts of the contracts ranged from $150,000 to $22.0 million, offsetting our exposures to the euro, British pound, Canadian dollar, Australian dollar, Mexican peso, and various other currencies.

The effect of our foreign exchange forward derivative instruments on the Consolidated Statements of Operations for the three and six months ended June 30 was as follows:

Derivatives Not Designated as Hedging Instrument under ASC 815-20	Gain (Loss) Recognized on Derivatives in Other Income (Expense)
	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015			2014
	(in thousands)
Foreign exchange forward contracts	$	1,070	$	(1,083	)	$	(1,726	)	$	(1,931	)

Note 8:    Defined Benefit Pension Plans

We sponsor both funded and unfunded defined benefit pension plans for our international employees, primarily in Germany, France, Italy, Indonesia, Brazil, and Spain, offering death and disability, retirement, and special termination benefits. The defined benefit obligation is calculated annually by using the projected unit credit method. The measurement date for the pension plans was December 31, 2014.

18

Our defined benefit pension plans are denominated in the functional currencies of the respective countries in which the plans are sponsored; therefore, the balances increase or decrease, with a corresponding change in OCI, due to changes in foreign currency exchange rates. Amounts recognized on the Consolidated Balance Sheets consist of:

	June 30, 2015		December 31, 2014
	(in thousands)
Assets
Plan assets in other long-term assets	$	505	$	567
Liabilities
Current portion of pension plan liability in wages and benefits payable	3,649		4,552
Long-term portion of pension plan liability	93,918		101,432
Net pension plan benefit liability	$	97,062	$	105,417

Our net pension plan benefit liability decreased primarily due to the strengthening of the U.S. dollar compared with most foreign currencies at June 30, 2015 as compared with December 31, 2014.

Our asset investment strategy focuses on maintaining a portfolio using primarily insurance funds, which are accounted for as investments and measured at fair value, in order to achieve our long-term investment objectives on a risk adjusted basis. Our general funding policy for these qualified pension plans is to contribute amounts sufficient to satisfy regulatory funding standards of the respective countries for each plan. We contributed $57,000 and $361,000 to the defined benefit pension plans for the six months ended June 30, 2015 and 2014, respectively. The timing of contributions can vary by plan and from year to year. For 2015, assuming that actual plan asset returns are consistent with our expected rate of return, and that interest rates remain constant, we expect to contribute approximately $393,000 to our defined benefit pension plans. We contributed $375,000 to the defined benefit pension plans for the year ended December 31, 2014.

Net periodic pension benefit costs for our plans include the following components:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(in thousands)
Service cost	$	1,169		$	1,079		$	2,258		$	2,027
Interest cost	605			897			1,225			1,790
Expected return on plan assets	(129		)	(163		)	(265		)	(320		)
Settlements and other	—			29			(1		)	27
Amortization of actuarial net loss	485			122			982			245
Amortization of unrecognized prior service costs	14			18			29			36
Net periodic benefit cost	$	2,144		$	1,982		$	4,228		$	3,805

Note 9:    Stock-Based Compensation

We record stock-based compensation expense for awards of stock options and the issuance of restricted stock units and unrestricted stock awards. We expense stock-based compensation primarily using the straight-line method over the requisite service period. For the three and six months ended June 30, stock-based compensation expense and the related tax benefit were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in thousands)
Stock options	$	643	$	546	$	1,292	$	1,100
Restricted stock units	3,079		4,094		6,405		7,894
Unrestricted stock awards	167		230		300		460
Total stock-based compensation	$	3,889	$	4,870	$	7,997	$	9,454
Related tax benefit	$	1,225	$	1,388	$	2,374	$	2,676

19

We issue new shares of common stock upon the exercise of stock options or when vesting conditions on restricted stock units are fully satisfied.

Subject to stock splits, dividends, and other similar events, 7,473,956 shares of common stock are reserved and authorized for issuance under our Amended and Restated 2010 Stock Incentive Plan (Stock Incentive Plan). Awards consist of stock options, restricted stock units, and unrestricted stock awards. At June 30, 2015, 2,810,194 shares were available for grant under the Stock Incentive Plan. The Stock Incentive Plan shares are subject to a fungible share provision such that the authorized share reserve is reduced by (i) one share for every one share subject to a stock option or share appreciation right granted under the Plan and (ii) 1.7 shares for every one share of common stock that was subject to an award other than an option or share appreciation right.

Stock Options

Options to purchase our common stock are granted to certain employees, senior management, and members of the Board of Directors with an exercise price equal to the market close price of the stock on the date the Board of Directors approves the grant. Options generally become exercisable in three equal annual installments beginning one year from the date of grant and generally expire 10 years from the date of grant. Compensation expense is recognized only for those options expected to vest, with forfeitures estimated based on our historical experience and future expectations.

The fair values of stock options granted were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Dividend yield	—	%	—	%	—	%	—	%
Expected volatility	33.9	%	—	%	34.5	%	39.8	%
Risk-free interest rate	1.6	%	—	%	1.7	%	1.7	%
Expected term (years)	5.5		—		5.5		5.5

Expected volatility is based on a combination of the historical volatility of our common stock and the implied volatility of our traded options for the related expected term. We believe this combined approach is reflective of current and historical market conditions and is an appropriate indicator of expected volatility. The risk-free interest rate is the rate available as of the award date on zero-coupon U.S. government issues with a term equal to the expected life of the award. The expected life is the weighted average expected life of an award based on the period of time between the date the award is granted and the estimated date the award will be fully exercised. Factors considered in estimating the expected life include historical experience of similar awards, contractual terms, vesting schedules, and expectations of future employee behavior. We have not paid dividends in the past and do not plan to pay dividends in the foreseeable future.

20

A summary of our stock option activity for the six months ended June 30 is as follows:

	Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value(1)		Weighted Average Grant Date Fair Value
	(in thousands)				(years)	(in thousands)
Outstanding, January 1, 2014	1,180		$	54.79	4.6	$	1,300
Granted	147		35.19					$	13.64
Exercised	(33	)	23.70			510
Expired	(10	)	43.82
Outstanding, June 30, 2014	1,284		$	53.43	4.7	$	1,364
Outstanding, January 1, 2015	1,123		$	51.90	4.4	$	1,676
Granted	207		35.30					$	12.15
Exercised	(23	)	36.05			26
Forfeited	(17	)	37.47
Expired	(158	)	54.25
Outstanding, June 30, 2015	1,132		$	49.12	5.7	$	—
Exercisable June 30, 2015	743		$	55.53	3.9	$	—
Expected to vest, June 30, 2015	376		$	36.90	9.0	$	—

⁽¹⁾  The aggregate intrinsic value of outstanding stock options represents amounts that would have been received by the optionees had all in- the-money options been exercised on that date. Specifically, it is the amount by which the market value of our stock exceeded the exercise price of the outstanding in-the-money options before applicable income taxes, based on our closing stock price on the last business day of the period. The aggregate intrinsic value of stock options exercised during the period is calculated based on our stock price at the date of exercise.

As of June 30, 2015, total unrecognized stock-based compensation expense related to nonvested stock options was approximately $3.8 million, which is expected to be recognized over a weighted average period of approximately 2.0 years.

Restricted Stock Units

Certain employees, senior management, and members of the Board of Directors receive restricted stock units as a component of their total compensation. The fair value of a restricted stock unit is the market close price of our common stock on the date of grant. Restricted stock units generally vest over a three year period. Compensation expense, net of forfeitures, is recognized over the vesting period.

Subsequent to vesting, the restricted stock units are converted into shares of our common stock on a one-for-one basis and issued to employees. We are entitled to an income tax deduction in an amount equal to the taxable income reported by the employees upon vesting of the restricted stock units.

Beginning in 2013, the performance-based restricted stock units to be issued under the Long-Term Performance Restricted Stock Unit Award Agreement (Performance Award Agreement) were determined based on (1) our achievement of specified non-GAAP EPS targets, as established by the Board at the beginning of each year for each of the calendar years contained in the performance periods (2-year and 3-year awards in 2013 and 3-year awards in subsequent years) (the performance condition) and (2) our total shareholder return (TSR) relative to the TSR attained by companies that are included in the Russell 3000 Index during the performance periods (the market condition). Compensation expense, net of forfeitures, is recognized on a straight-line basis, and the restricted stock units vest upon achievement of the performance condition, provided participants are employed by Itron at the end of the respective performance periods. For U.S. participants who retire during the performance period, a pro-rated number of restricted stock units (based on the number of days of employment during the performance period) immediately vest based on the attainment of the performance goals as assessed after the end of the performance period.

Depending on the level of achievement of the performance condition, the actual number of shares to be earned ranges between 0% and 160% of the awards originally granted. At the end of the performance periods, if the performance conditions are achieved at or above threshold, the number of shares earned is further adjusted by a TSR multiplier payout percentage, which ranges between 75% and 125%, based on the market condition. Therefore, based on the attainment of the performance and market conditions, the actual number of shares that vest may range from 0% to 200% of the awards originally granted. Due to the presence of the TSR multiplier market condition, we utilize a Monte Carlo valuation model to determine the fair value of the awards at the grant date.

21

This pricing model uses multiple simulations to evaluate the probability of our achievement of various stock price levels to determine our expected TSR performance ranking. The weighted-average assumptions used to estimate the fair value of performance-based restricted stock units granted and the resulting weighted average fair-value are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Dividend yield	—		%	—		%	—		%	—		%
Expected volatility	28.4		%	34.0		%	30.1		%	32.4		%
Risk-free interest rate	0.9		%	0.6		%	0.7		%	0.4		%
Expected term (years)	2.7			2.6			2.1			2.0
Weighted-average fair value	$	36.65		$	41.47		$	33.48		$	34.87

Expected volatility is based on the historical volatility of our common stock for the related expected term. We believe this approach is reflective of current and historical market conditions and is an appropriate indicator of expected volatility. The risk-free interest rate is the rate available as of the award date on zero-coupon U.S. government issues with a term equal to the expected term of the award. The expected term is the term of an award based on the period of time between the date of the award and the date the award is expected to vest. The expected term assumption is based upon the plan's performance period as of the date of the award. We have not paid dividends in the past and do not plan to pay dividends in the foreseeable future.

The following table summarizes restricted stock unit activity for the six months ended June 30:

	Number of Restricted Stock Units		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value(1)
	(in thousands)				(in thousands)
Outstanding, January 1, 2014	658
Granted (2)	320		$	35.49
Released	(261	)			$	12,818
Forfeited	(21	)
Outstanding, June 30, 2014	696
Outstanding, January 1, 2015	682
Granted (2)	319		$	35.30
Released	(282	)			$	11,593
Forfeited	(36	)
Outstanding, June 30, 2015	683
Vested but not released, June 30, 2015	5				$	171
Expected to vest, June 30, 2015	551				$	18,965

⁽¹⁾  The aggregate intrinsic value is the market value of the stock, before applicable income taxes, based on the closing price on the stock release dates or at the end of the period for restricted stock units expected to vest.

⁽²⁾  Restricted stock units granted in 2014 and 2015 do not include awards under the Performance Award Agreement for the respective years, as these awards are not granted until attainment of annual performance goals has been determined at the conclusion of the performance period, which had not occurred as of June 30, 2014 and 2015, respectively.

At June 30, 2015, unrecognized compensation expense on restricted stock units was $26.3 million, which is expected to be recognized over a weighted average period of approximately 2.0 years.

Unrestricted Stock Awards

We grant unrestricted stock awards to members of our Board of Directors as part of their compensation. Awards are fully vested and expensed when granted. The fair value of unrestricted stock awards is the market close price of our common stock on the date of grant.

22

The following table summarizes unrestricted stock award activity for the three and six months ended June 30:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in thousands, except per share data)
Shares of unrestricted stock granted	5		6		8		13
Weighted average grant date fair value per share	$	36.31	$	35.82	$	38.47	$	38.23

Employee Stock Purchase Plan

Under the terms of the ESPP, employees can deduct up to 10% of their regular cash compensation to purchase our common stock at a 5% discount from the fair market value of the stock at the end of each fiscal quarter, subject to other limitations under the plan. The sale of the stock to the employees occurs at the beginning of the subsequent quarter. The ESPP is not considered compensatory, and no compensation expense is recognized for sales of our common stock to employees.

The following table summarizes ESPP activity for the three and six months ended June 30:

	Three Months Ended June 30,		Six Months Ended June 30,
	2015	2014	2015	2014
	(in thousands)
Shares of stock sold to employees(1)	18	20	28	34

⁽¹⁾  Stock sold to employees during each fiscal quarter under the ESPP is associated with the offering period ending on the last day of the previous fiscal quarter.

There were approximately 417,000 shares of common stock available for future issuance under the ESPP at June 30, 2015.

Note 10: Income Taxes

Our tax provision (benefit) as a percentage of income (loss) before tax typically differs from the federal statutory rate of 35%, and may vary from period to period, due to fluctuations in the forecast mix of earnings in domestic and international jurisdictions, new or revised tax legislation and accounting pronouncements, tax credits, state income taxes, adjustments to valuation allowances, and uncertain tax positions, among other items.

Our tax expense for the three and six months ended June 30, 2015 differed from the federal statutory rate of 35% due to the forecasted mix of earnings in domestic and international jurisdictions and losses experienced in jurisdictions with valuation allowances on deferred tax assets.

Our tax expense for the three and six months ended June 30, 2014 differed from the federal statutory rate of 35% due to the forecasted mix of earnings in domestic and international jurisdictions, estimated benefits of foreign tax credits, the benefit of certain interest expense deductions, and an election under U.S. Internal Revenue Code Section 338 with respect to a foreign acquisition in 2007.

We classify interest expense and penalties related to unrecognized tax liabilities and interest income on tax overpayments as components of income tax expense. The net interest and penalties expense recognized were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in thousands)
Net interest and penalties expense	$	174	$	1,782	$	475	$	1,239

23

Accrued interest and penalties recorded were as follows:

	June 30, 2015		December 31, 2014
	(in thousands)
Accrued interest	$	1,860	$	1,755
Accrued penalties	2,682		2,671

Unrecognized tax benefits related to uncertain tax positions and the amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate were as follows:

	June 30, 2015		December 31, 2014
	(in thousands)
Unrecognized tax benefits related to uncertain tax positions	$	28,097	$	28,146
The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate	26,864		26,980

At June 30, 2015, we are under examination by certain tax authorities for the 2000 to 2013 tax years. The material jurisdictions where we are subject to examination include, among others, the United States, France, Germany, Italy, Brazil, and the United Kingdom. No material changes have occurred to previously disclosed assessments. We believe we have appropriately accrued for the expected outcome of all tax matters and do not currently anticipate that the ultimate resolution of these examinations will have a material adverse effect on our financial condition, future results of operations, or liquidity.

Based upon the timing and outcome of examinations, litigation, the impact of legislative, regulatory, and judicial developments, and the impact of these items on the statute of limitations, it is reasonably possible that the related unrecognized tax benefits could change from those recorded within the next twelve months. However, at this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

24

Note 11:    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

25

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.

26

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.

Note 12:    Restructuring

2014 Projects

In November 2014, our management approved restructuring projects (2014 Projects) to restructure our Electricity business and related general and administrative activities, along with certain Gas and Water activities, to improve operational efficiencies and reduce expenses. The 2014 Projects include consolidation of certain facilities and reduction of our global workforce. The improved structure will position us to meet our long-term profitability goals by better aligning global operations with markets where we can serve our customers profitably.

We began implementing these projects in the fourth quarter of 2014, and we expect to substantially complete these projects by the end of 2016. During the six months ended June 30, 2015, the total expected restructuring costs decreased by approximately $11.3 million. This includes $9.7 million in restructuring expense release, recognized in the six months ended June 30, 2015, resulting from employees, originally identified to be terminated, voluntarily resigning or filling vacant positions in different departments or locations, as well as the results of employee negotiations and the need to keep additional employees to meet revised forecasted demand on certain projects. The remainder of the change in expected costs results from the translation impact of foreign exchange rates. Certain aspects of the projects are subject to a variety of labor and employment laws, rules, and regulations, which could result in a delay in completing the projects at some locations.

27

The total expected restructuring costs, the restructuring costs recognized during the six months ended June 30, 2015, and the remaining expected restructuring costs as of June 30, 2015 were as follows:

	Total Expected Costs at June 30, 2015		Costs Recognized in Prior Periods		Costs Recognized During the Six Months Ended June 30, 2015			Remaining Costs to be Recognized at June 30, 2015
	(in thousands)
Employee severance costs	$	35,788	$	47,447	$	(11,659	)	$	—
Asset impairments	8,219		7,952		267			—
Other restructuring costs	11,343		401		1,711			9,231
Total	$	55,350	$	55,800	$	(9,681	)	$	9,231
Segments:
Electricity	$	32,440	$	29,660	$	(5,830	)	$	8,610
Gas	11,727		12,185		(684		)	226
Water	1,405		1,106		273			26
Corporate unallocated	9,778		12,849		(3,440		)	369
Total	$	55,350	$	55,800	$	(9,681	)	$	9,231

The following table summarizes the activity within the restructuring related balance sheet accounts during the six months ended June 30, 2015:

	Accrued Employee Severance			Asset Impairments & Net Loss on Sale or Disposal			Other Accrued Costs			Total
	(in thousands)
Beginning balance, January 1, 2015	$	59,333		$	—		$	3,526		$	62,859
Costs charged to (released from) expense	(11,659		)	267			1,711			(9,681		)
Cash payments	(6,188		)	—			(1,617		)	(7,805		)
Non-cash items	—			(267		)	—			(267		)
Effect of change in exchange rates	(4,448		)	—			(227		)	(4,675		)
Ending balance, June 30, 2015	$	37,038		$	—		$	3,393		$	40,431

Other restructuring costs include expenses for employee relocation, professional fees associated with employee severance, and costs to exit the facilities once the operations in those facilities have ceased. Costs associated with restructuring activities are generally presented in the Consolidated Statements of Operations as restructuring, except for certain costs associated with inventory write-downs, which are classified within cost of revenues, and accelerated depreciation expense, which is recognized according to the use of the asset. In addition, our restructuring activities related to the closure of certain facilities resulted in approximately $1.1 million of inventory impairment in 2015. This inventory impairment was recorded in cost of revenues in the Consolidated Statement of Operations.

The current portions of the restructuring related liability balances were $20.6 million and $49.1 million as of June 30, 2015 and December 31, 2014. The current portion of the liability is classified within "Other current liabilities" on the Consolidated Balance Sheets. The long-term portions of the restructuring related liability balances were $19.8 million and $13.8 million as of June 30, 2015 and December 31, 2014. The long-term portion of the restructuring liability is classified within "Other long-term obligations" on the Consolidated Balance Sheets, and includes facility exit costs and severance accruals. The increase in the long-term portions of the restructuring liability is a result of the timing of headcount reductions resulting from negotiations with various works councils. The majority of the long-term liability is expected to be paid in the third quarter of 2016.

Asset impairments are determined at the asset group level. Revenues and net operating income from the activities we have exited or will exit under the restructuring plan are not material to our operating segments or consolidated results.

2013 Projects

In September 2013, our management approved projects (the 2013 Projects) to restructure our operations to improve profitability and increase efficiencies. We began implementing these projects in the third quarter of 2013, and we expect to substantially

28

complete project activities by the third quarter of 2016 and begin recognizing full savings in 2017. While project activities are expected to continue through September 2016, no further costs are expected to be recognized.

The 2013 Projects resulted in approximately $26.2 million of restructuring expense, which was recognized from the third quarter of 2013 through the fourth quarter of 2014.

Note 13:    Shareholder's Equity

Preferred Stock

We have authorized the issuance of 10 million shares of preferred stock with no par value. In the event of a liquidation, dissolution, or winding up of the affairs of the corporation, whether voluntary or involuntary, the holders of any outstanding preferred stock would be entitled to be paid a preferential amount per share to be determined by the Board of Directors prior to any payment to holders of common stock. There was no preferred stock issued or outstanding at June 30, 2015 and December 31, 2014.

Stock Repurchase Plan

On February 7, 2014, Itron's Board of Directors (the Board) authorized a 12-month repurchase program of up to $50 million in shares of our common stock, to begin on March 8, 2014, upon the expiration of the previous stock repurchase program. From March 8, 2014 through December 31, 2014, we repurchased 910,990 shares of our common stock, totaling $36.7 million. From January 1, 2015 through February 2015, we repurchased 335,251 shares of our common stock which fully utilized the remaining $13.3 million authorized under the program.

On February 19, 2015, the Board authorized a new repurchase program of up to $50 million of our common stock over a 12-month period, beginning February 19, 2015. From February 19, 2015 through June 30, 2015, we repurchased 272,775 shares of our common stock, totaling $9.9 million, and $40.1 million remained under the current program for future purchases.

29

Other Comprehensive Income (Loss)

OCI is reflected as a net increase (decrease) to Itron, Inc. shareholders’ equity and is not reflected in our results of operations. The before-tax amount, income tax (provision) benefit, and net-of-tax amount related to each component of other comprehensive income (loss) during the reporting periods are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(in thousands)
Before-tax amount
Foreign currency translation adjustment	$	13,939		$	(7,865	)	$	(47,605	)	$	(11,388	)
Net unrealized gain (loss) on derivative instruments designated as cash flow hedges	(211		)	(618		)	(808		)	(773		)
Net hedging loss (gain) reclassified into net income	411			427			823			845
Pension plan benefits liability adjustment	499			169			1,010			308
Total other comprehensive income (loss), before tax	14,638			(7,887		)	(46,580		)	(11,008		)
Tax (provision) benefit
Foreign currency translation adjustment	(83		)	(130		)	371			19
Net unrealized gain (loss) on derivative instruments designated as cash flow hedges	81			235			309			295
Net hedging loss (gain) reclassified into net income	(158		)	(163		)	(315		)	(323		)
Pension plan benefits liability adjustment	(6		)	(51		)	(13		)	(93		)
Total other comprehensive income (loss) tax (provision) benefit	(166		)	(109		)	352			(102		)
Net-of-tax amount
Foreign currency translation adjustment	13,856			(7,995		)	(47,234		)	(11,369		)
Net unrealized gain (loss) on derivative instruments designated as cash flow hedges	(130		)	(383		)	(499		)	(478		)
Net hedging loss (gain) reclassified into net income	253			264			508			522
Pension plan benefits liability adjustment	493			118			997			215
Total other comprehensive income (loss), net of tax	$	14,472		$	(7,996	)	$	(46,228	)	$	(11,110	)

The changes in the components of accumulated other comprehensive income (loss) (AOCI), net of tax, were as follows:

	Foreign Currency Translation Adjustments			Net Unrealized Gain (Loss) on Derivative Instruments			Net Unrealized Gain (Loss) on Nonderivative Instruments			Pension Plan Benefit Liability Adjustments			Total
	(in thousands)
Balances at January 1, 2014	$	3,799		$	(1,256	)	$	(14,380	)	$	(9,885	)	$	(21,722	)
OCI before reclassifications	(11,369		)	(478		)	—			432			(11,415		)
Amounts reclassified from AOCI	—			522			—			(217		)	305
Total other comprehensive income (loss)	(11,369		)	44			—			215			(11,110		)
Balances at June 30, 2014	$	(7,570	)	$	(1,212	)	$	(14,380	)	$	(9,670	)	$	(32,832	)
Balances at January 1, 2015	$	(86,534	)	$	(768	)	$	(14,380	)	$	(34,832	)	$	(136,514	)
OCI before reclassifications	(47,234		)	(499		)	—			(1		)	(47,734		)
Amounts reclassified from AOCI	—			508			—			998			1,506
Total other comprehensive income (loss)	(47,234		)	9			—			997			(46,228		)
Balances at June 30, 2015	$	(133,768	)	$	(759	)	$	(14,380	)	$	(33,835	)	$	(182,742	)

30

Details about the AOCI components reclassified to the Consolidated Statements of Operations during the reporting periods are as follows:

	Amount Reclassified from AOCI(1)
	Three Months Ended June 30,						Six Months Ended June 30,						Affected Line Item in the Consolidated Statements of Operations
	2015			2014			2015			2014
	(in thousands)
Amortization of defined benefit pension items
Prior-service costs	$	(14	)	$	(18	)	$	(29	)	$	(36	)	(2)
Actuarial losses	(485		)	(122		)	(982		)	(245		)	(2)
Other	—			(29		)	—			(29		)	(2)
Total, before tax	(499		)	(169		)	(1,011		)	(310		)	Income (loss) before income taxes
Tax benefit (provision)	6			51			13			93			Income tax provision
Total, net of tax	(493		)	(118		)	(998		)	(217		)	Net income (loss)
Total reclassifications for the period, net of tax	$	(493	)	$	(118	)	$	(998	)	$	(217	)	Net income (loss)

⁽¹⁾  Amounts in parenthesis indicate debits to the Consolidated Statements of Operations.

⁽²⁾  These AOCI components are included in the computation of net periodic pension cost. Refer to Note 8 for additional details.

Refer to Note 7 for additional details related to derivative activities that resulted in reclassification of AOCI to the Consolidated Statements of Operations.

Note 14:    Fair Values of Financial Instruments

The fair values at June 30, 2015 and December 31, 2014 do not reflect subsequent changes in the economy, interest rates, and other variables that may affect the determination of fair value. The following table presents the fair values of our financial instruments as of the balance sheet dates:

	June 30, 2015				December 31, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
			(in thousands)
Assets
Cash and cash equivalents	$	128,814	$	128,814	$	112,371	$	112,371
Foreign exchange forwards	103		103		107		107
Interest rate swaps	—		—		75		75
Liabilities
Credit facility
USD denominated term loan	$	225,000	$	225,000	$	232,500	$	231,645
Multicurrency revolving line of credit	147,958		147,958		91,469		91,124
Interest rate swaps	1,227		1,227		1,317		1,317
Foreign exchange forwards	138		138		236		236

The following methods and assumptions were used in estimating fair values:

Cash and cash equivalents: Due to the liquid nature of these instruments, the carrying amount approximates fair value (Level 1).

Credit facility - term loan and multicurrency revolving line of credit: The term loan and revolver are not traded publicly. The fair values, which are valued based upon a hypothetical market participant, are calculated using a discounted cash flow model with Level 2 inputs, including estimates of incremental borrowing rates for debt with similar terms, maturities, and credit profiles. Due to the proximity between entering into the 2015 credit facility and the balance sheet date, the carrying amounts approximate fair value for the term loan and multicurrency revolving line of credit. Refer to Note 6 for a further discussion of our debt.

31

Derivatives: See Note 7 for a description of our methods and assumptions in determining the fair value of our derivatives, which were determined using Level 2 inputs.

Note 15:    Segment Information

We operate under the Itron brand worldwide and manage and report under three operating segments, Electricity, Gas, and Water. Our Water operating segment includes both our global water and heat solutions. This structure allows each segment to develop its own go-to-market strategy, prioritize its marketing and product development requirements, and focus on its strategic investments. Our sales, marketing, and delivery functions are managed under each segment. Our product development and manufacturing operations are managed on a worldwide basis to promote a global perspective in our operations and processes and yet still maintain alignment with the segments.

We have three GAAP measures of segment performance: revenue, gross profit (margin), and operating income (margin). Our operating segments have distinct products, and, therefore, intersegment revenues are minimal. Certain operating expenses are allocated to the operating segments based upon internally established allocation methodologies. Corporate operating expenses, interest income, interest expense, other income (expense), and income tax provision (benefit) are not allocated to the segments, nor included in the measure of segment profit or loss. In addition, we allocate only certain production assets and intangible assets to our operating segments. We do not manage the performance of the segments on a balance sheet basis.

Segment Products

Electricity	Standard electricity (electromechanical and electronic) meters; advanced electricity meters and communication modules; smart electricity meters; smart electricity communication modules; prepayment systems, including smart key, keypad, and smart card communication technologies; advanced systems including handheld, mobile, and fixed network collection technologies; smart network technologies; meter data management software; knowledge application solutions; installation; implementation; and professional services including consulting and analysis.
Gas	Standard gas meters; advanced gas meters and communication modules; smart gas meters; smart gas communication modules; prepayment systems, including smart key, keypad, and smart card communication technologies; advanced systems, including handheld, mobile, and fixed network collection technologies; smart network technologies; meter data management software; knowledge application solutions; installation; implementation; and professional services including consulting and analysis.
Water	Standard water and heat meters; advanced and smart water meters and communication modules; smart heat meters; advanced systems including handheld, mobile, and fixed network collection technologies; meter data management software; knowledge application solutions; installation; implementation; and professional services including consulting and analysis.

32

Revenues, gross profit, and operating income associated with our segments were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(in thousands)
Revenues
Electricity	$	203,410		$	183,755		$	397,262		$	363,973
Gas	139,386			154,322			264,475			300,431
Water	127,307			151,276			256,613			299,744
Total Company	$	470,103		$	489,353		$	918,350		$	964,148
Gross profit
Electricity	$	52,622		$	52,976		$	107,742		$	95,716
Gas	44,109			56,711			87,625			115,117
Water	21,840			53,354			61,403			106,743
Total Company	$	118,571		$	163,041		$	256,770		$	317,576
Operating income (loss)
Electricity	$	3,904		$	(1,247	)	$	6,300		$	(24,216	)
Gas	14,742			24,329			28,334			50,053
Water	(11,511		)	20,519			(3,414		)	41,162
Corporate unallocated	(11,086		)	(11,674		)	(21,632		)	(30,533		)
Total Company	(3,951		)	31,927			9,588			36,466
Total other income (expense)	(5,549		)	(4,235		)	(8,160		)	(9,545		)
Income (loss) before income taxes	$	(9,500	)	$	27,692		$	1,428		$	26,921

During the three months ended June 30, 2015, we concluded it was necessary to issue a product replacement notification to customers of our Water segment who had purchased certain communication modules manufactured between July 2013 and December 2014. We determined that a component of the modules was 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. This resulted in a decrease to gross profit of $23.6 million and $26.7 million for the three and six months ended June 30, 2015. After adjusting for the tax impact, this charge resulted in a decrease to basic and diluted earnings per share of $0.38 and $0.43 for the three and six months ended June 30, 2015.

During the second quarter of 2015, our Electricity segment recognized a reimbursement of $4.6 million (classified as an acquisition-related cost recovery within general and administrative expense) from certain former SmartSynch, Inc. (SmartSynch) shareholders related to the settlement of litigation arising from the SmartSynch acquisition, which we paid in February 2015.

For the three and six months ended June 30, 2015 and June 30, 2014, no single customer represented more than 10% of total Company or the Electricity, Gas, or Water operating segment revenues.

Revenues by region were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in thousands)
United States and Canada	$	253,890	$	214,336	$	485,026	$	414,706
Europe, Middle East, and Africa	168,437		216,257		343,091		439,761
Other (1)	47,776		58,760		90,233		109,681
Total revenues	$	470,103	$	489,353	$	918,350	$	964,148

⁽¹⁾ The Other region includes our operations in Latin America and Asia Pacific.

33

Depreciation and amortization expense associated with our segments was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in thousands)
Electricity	$	9,397	$	12,391	$	18,544	$	25,158
Gas	5,217		6,455		10,543		13,104
Water	4,735		6,119		9,528		12,213
Corporate Unallocated	72		49		145		131
Total Company	$	19,421	$	25,014	$	38,760	$	50,606

Note 16: Subsequent Event

Stock Repurchases

Subsequent to June 30, 2015, we repurchased 230,000 shares of our common stock under the stock repurchase program authorized by the Board of Directors on February 19, 2015. The average price paid per share was $32.00.

34

Item 2:    Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes included in this report and with our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission (SEC) on February 20, 2015.

Documents we provide to the SEC are available free of charge under the Investors section of our website at www.itron.com as soon as practicable after they are filed with or furnished to the SEC. In addition, these documents are available at the SEC’s website (http://www.sec.gov), at the SEC’s Headquarters at 100 F Street, NE, Washington, DC 20549, or by calling 1-800-SEC-0330.

Certain Forward-Looking Statements

This document contains forward-looking statements concerning our operations, financial performance, revenues, earnings growth, liquidity, and other items. This document reflects our current plans and expectations and is based on information currently available as of the date of this Quarterly Report on Form 10-Q. When we use the words “expect,” “intend,” “anticipate,” “believe,” “plan,” “project,” “estimate,” “future,” “objective,” “may,” “will,” “will continue,” and similar expressions, they are intended to identify forward-looking statements. Forward-looking statements rely on a number of assumptions and estimates. These assumptions and estimates could be inaccurate and cause our actual results to vary materially from expected results. Risks and uncertainties include 1) the rate and timing of customer demand for our products, 2) failure to meet performance or delivery milestones in customer contracts, 3) changes in estimated liabilities for product warranties and/or litigation, 4) changes in foreign currency exchange rates and interest rates, 5) rescheduling or cancellations of current customer orders and commitments, 6) our dependence on customers' acceptance of new products and their performance, 7) competition, 8) changes in domestic and international laws and regulations, 9) international business risks, 10) our own and our customers' or suppliers' access to and cost of capital, 11) future business combinations, and 12) other factors. You should not solely rely on these forward-looking statements as they are only valid as of the date of this Quarterly Report on Form 10-Q. We do not have any obligation to publicly update or revise any forward-looking statement in this document. For a more complete description of these and other risks, refer to Item 1A: “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which was filed with the SEC on February 20, 2015.

Results of Operations

We are a technology company, offering end-to-end smart metering solutions to electric, natural gas, and water utilities around the world. Our smart metering solutions, meter data management software, and knowledge application solutions bring additional value to a utility’s metering and grid systems. Our professional services help our customers project-manage, operate, and maintain their systems. We operate under the Itron brand worldwide and manage and report under three operating segments, Electricity, Gas, and Water. Our Water operating segment includes both our global water and heat solutions. This structure allows each segment to develop its own go-to-market strategy, prioritize its marketing and product development requirements, and focus on its strategic investments. Our sales, marketing, and delivery functions are managed under each segment. Our product development and manufacturing operations are managed on a worldwide basis to promote a global perspective in our operations and processes and yet still maintain alignment with the segments.

We have three measures of segment performance under U.S. generally accepted accounting principles (GAAP): revenue, gross profit (margin), and operating income (margin). In addition, we measure segment performance using non-GAAP operating income. Intersegment revenues are minimal. Certain operating expenses are allocated to the operating segments based upon internally established allocation methodologies. Interest income, interest expense, other income (expense), income tax provision (benefit), and certain corporate operating expenses are neither allocated to the segments nor included in the measures of segment performance. See pages 53-55 for information about our non-GAAP measures and reconciliations to the most comparable GAAP measures.

Overview

For the three and six months ended June 30, 2015, our revenues were unfavorably impacted by changes in foreign currency rates, while our operating expenses were favorably impacted. A more detailed analysis of revenue and operating expense fluctuations is provided in Operating Segment Results. Period-over-period changes referred to below on a constant currency basis represent differences between 2015 results and 2014 results, exclusive of changes in foreign currency rates.

Revenues for the three and six months ended June 30, 2015 were $470 million and $918 million compared with $489 million and $964 million in the same periods last year. Total revenues were unfavorably impacted for the quarter and year-to-date periods by $50.2 million and $93.9 million primarily due to changes in foreign exchange rates. On a constant currency basis, revenues increased $31.0 million for the three month period and $48.1 million for the six month period.

35

Gross margin for the three and six months ended June 30, 2015 was 25.2% and 28.0%, compared with 33.3% and 32.9% for the same periods in 2014. During the second quarter and first half of 2015, gross margin was negatively impacted by increased warranty charges of $26.9 million and $30.0 million, respectively. These charges relate primarily to a product replacement notification sent to customers of our Water business who purchased certain communication modules manufactured between July 2013 and December 2014 that were failing prematurely.

Operating expenses for the three and six months ended June 30, 2015 were lower by $8.6 million and $33.9 million compared with the same periods in 2014. For the second quarter and first half of 2015, total operating expenses were favorably impacted by $12.8 million and $27.5 million due to changes in foreign exchange rates. Apart from the foreign exchange impact, operating expense categories were higher by $4.2 million for the three months ended June 30, 2015 as compared with 2014, primarily driven by sales and marketing and product development expenses, as well as a lower restructuring expense release. Apart from the foreign exchange impact, operating expense categories were lower by $6.4 million for the six months ended June 30, 2015 as compared with the same period in 2014,with the largest decreases in restructuring expense release along with lower sales and marketing and amortization expenses.

Total backlog was $1.4 billion and twelve-month backlog was $791 million at June 30, 2015.

In November 2014, our management approved restructuring projects (2014 Projects) for our Electricity business and related general and administrative activities, along with certain Gas and Water activities, to improve operational efficiencies and reduce expenses. The 2014 Projects include consolidation of certain facilities and reduction of our global workforce. We began implementing these projects in the fourth quarter of 2014, and we expect to substantially complete these projects by the end of 2016. During the six months ended June 30, 2015, the total expected restructuring costs decreased by approximately $11.3 million. This includes $9.7 million in restructuring expense release, recognized in the six months ended June 30, 2015, resulting from employees, originally identified to be terminated, voluntarily resigning or filling vacant positions in different departments or locations, as well as the results of employee negotiations and the need to keep additional employees to meet revised forecasted demand on certain projects. The remainder of the change in expected costs results from the translation impact of foreign exchange rates. Certain aspects of the projects are subject to a variety of labor and employment laws, rules, and regulations, which could result in a delay in completing the projects at some locations.

On June 23, 2015, we entered into an amended and restated credit agreement providing for committed credit facilities in the amount of $725 million U.S. dollars. The credit agreement consists of a U.S. dollar term loan facility (the term loan) with a principal amount of $225 million and a multicurrency revolving credit facility (the revolver) with a principal amount of up to $500 million. Interest on the term loan and the revolver is based on the index rate and the applicable margin, which is determined by our total leverage ratio, as outlined in the pricing grid of the credit agreement attached hereto as Exhibit 4.1 and incorporated by reference herein. At inception, the interest rate for the term loan and the revolver is LIBOR plus 1.50% for U.S. dollar borrowings and EURIBOR plus 1.50% for euro borrowings.

36

Total Company GAAP and Non-GAAP Highlights and Unit Shipments

	Three Months Ended June 30,							Six Months Ended June 30,
	2015			2014			% Change	2015			2014			% Change
	(in thousands, except margin and per share data)
GAAP
Revenues	$	470,103		$	489,353		(4)%	$	918,350		$	964,148		(5)%
Gross profit	118,571			163,041			(27)%	256,770			317,576			(19)%
Operating expenses	122,522			131,114			(7)%	247,182			281,110			(12)%
Operating income (loss)	(3,951		)	31,927			N/A	9,588			36,466			(74)%
Other income (expense)	(5,549		)	(4,235		)	31%	(8,160		)	(9,545		)	(15)%
Income tax benefit (provision)	(3,966		)	(7,848		)	(49)%	(9,529		)	(7,195		)	32%
Net income (loss) attributable to Itron, Inc.	(14,198		)	19,259			N/A	(9,288		)	19,005			N/A
Non-GAAP(1)
Operating expenses	$	123,475		$	127,709		(3)%	$	243,285		$	259,645		(6)%
Operating income (loss)	(4,904		)	35,332			N/A	13,485			57,931			(77)%
Net income (loss)	(14,661		)	21,407			N/A	(6,850		)	33,650			N/A
GAAP Margins and Earnings Per Share
Gross margin	25.2		%	33.3		%		28.0		%	32.9		%
Operating margin	(0.8		)%	6.5		%		1.0		%	3.8		%
Basic EPS	$	(0.37	)	$	0.49			$	(0.24	)	$	0.48
Diluted EPS	$	(0.37	)	$	0.49			$	(0.24	)	$	0.48
Non-GAAP Earnings Per Share(1)
Diluted EPS	$	(0.38	)	$	0.54			$	(0.18	)	$	0.85

⁽¹⁾  These measures exclude certain expenses that we do not believe are indicative of our core operating results. See pages 53-55 for information about these non-GAAP measures and reconciliations to the most comparable GAAP measures.

Revenues by region were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
	(in thousands)
Revenues by Region
United States and Canada (North America)	$	253,890	$	214,336	$	485,026	$	414,706
Europe, Middle East, and Africa (EMEA)	168,437		216,257		343,091		439,761
Other (2)	47,776		58,760		90,233		109,681
Total revenues	$	470,103	$	489,353	$	918,350	$	964,148

⁽²⁾ The Other region includes our operations in Latin America and Asia Pacific.

For the three months ended June 30, 2015, revenues in the EMEA region and our Other region were adversely impacted by $38.5 million and $10.0 million, respectively, due to changes in foreign exchange rates. For the six months ended June 30, 2015, revenues in the EMEA region and the Other region were adversely impacted by $74.1 million and $16.8 million, respectively, due to changes in foreign exchange rates.

Meter and Module Summary

We classify meters into three categories:

• Standard metering – no built-in remote reading communication technology

• Advanced metering – one-way communication of meter data

• Smart metering – two-way communication including remote meter configuration and upgrade (consisting primarily of our OpenWay® technology)

In addition, advanced and smart meter communication modules can be sold separately from the meter.

37

Our revenue is driven significantly by sales of meters and communication modules. A summary of our meter and communication module shipments is as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2015	2014	2015	2014
	(units in thousands)
Meters
Standard	4,700	4,480	9,440	9,330
Advanced and smart	1,860	1,360	3,400	2,880
Total meters	6,560	5,840	12,840	12,210
Stand-alone communication modules
Advanced and smart	1,410	1,580	2,720	2,930

Revenues

Revenues decreased$19.3 million and $45.8 million, or 4% and 5%, for the three and six months ended June 30, 2015, compared with the same period in 2014. Total revenue for the three and six months ended June 30, 2015 was unfavorably impacted by $50.2 million and $93.9 million due to changes in foreign exchange rates. On a constant currency basis, for the three month periods, revenues increased in the Electricity segment by $34.5 million and decreased by $3.2 million in the Water segment. Gas segment revenues were effectively flat. For the six month periods, on a constant currency basis, Electricity segment revenues increased by $60.1 million, and Gas and Water segment revenues decreased by $8.9 million and $3.2 million, respectively. A more detailed analysis of revenue fluctuations is provided in Operating Segment Results.

No single customer accounted for more than 10% of total Company revenues during the three and six months ended June 30, 2015 and June 30, 2014. Our 10 largest customers accounted for 23% of total revenues during the three and six months ended June 30, 2015 and 18% and 19% of total revenues during the three and six months endedJune 30, 2014.

Gross Margins

Gross margin for the second quarter of 2015 was 25.2%, compared with 33.3% for the same period in 2014. For the six months ended June 30, 2015, gross margin was 28.0%, compared with 32.9% in the same period in 2014. The reduction in 2015 gross margin was driven by declines in the Gas and Water segments, offset partially by improvement in the Electricity segment. A more detailed analysis of these fluctuations is provided in Operating Segment Results.

Operating Expenses

	Three Months Ended June 30,							Six Months Ended June 30,
	2015			2014			% Change	2015			2014			% Change
	(in thousands)							(in thousands)
Sales and marketing	$	43,058		$	46,119		(7)%	$	84,085		$	93,728		(10)%
Product development	43,318			43,999			(2)%	84,840			88,408			(4)%
General and administrative	32,492			37,680			(14)%	72,077			78,087			(8)%
Amortization of intangible assets	7,888			11,109			(29)%	15,861			22,179			(28)%
Restructuring	(4,234		)	(7,793		)	(46)%	(9,681		)	(2,269		)	327%
Goodwill impairment	—			—			N/A	—			977			N/A
Total operating expenses	$	122,522		$	131,114		(7)%	$	247,182		$	281,110		(12)%

Operating expenses decreased $8.6 million and $33.9 million for the three and six months ended June 30, 2015 as compared with the same periods in 2014. These decreases were primarily the result of favorable foreign exchange impacts of $12.8 million and $27.5 million for the periods in 2015, as well as a $4.6 million reimbursement of litigation settlement costs, received in June 2015. During the second quarter of 2015, apart from the favorable foreign exchange impact, sales and marketing, product development and general and administrative expenses increased $8.8 million, as the result of higher employee costs and professional services. For the first half of 2015, apart from the foreign exchange impact, operating expenses decreased due to a $7.4 million higher

38

release of restructuring expense, as well as $4.0 million in lower intangible asset amortization expense. A more detailed analysis of operating expenses fluctuations is provided in Operating Segment Results.

Non-GAAP Operating Expenses

For non-GAAP purposes, total company and segment operating expenses exclude intangible asset amortization, restructuring, and goodwill impairment expenses, as well as acquisition-related costs (classified within general and administrative). Total non-GAAP operating expenses, as a percentage of revenues, were 26% for the three and six months ended June 30, 2015 and 26% and 27% for the same periods in 2014. The improvement in non-GAAP operating expenses in 2015 was driven by benefits from changes in foreign exchange rates.

Other Income (Expense)

The following table shows the components of other income (expense):

	Three Months Ended June 30,							Six Months Ended June 30,
	2015			2014			% Change	2015			2014			% Change
	(in thousands)							(in thousands)
Interest income	$	213		$	53		302%	$	260		$	150		73%
Interest expense	(2,667		)	(2,509		)	6%	(4,959		)	(5,014		)	(1)%
Amortization of prepaid debt fees	(1,188		)	(404		)	194%	(1,578		)	(808		)	95%
Other income (expense), net	(1,907		)	(1,375		)	39%	(1,883		)	(3,873		)	(51)%
Total other income (expense)	$	(5,549	)	$	(4,235	)	31%	$	(8,160	)	$	(9,545	)	(15)%

Interest income: Interest income is generated from our cash and cash equivalents balances and certain deposits on hand with third parties. Interest income is higher as the result of higher interest rates in Brazil and Indonesia for the three and six months ended June 30, 2015 as compared with the same period in 2014.

Interest expense: Interest expense for the three months ended June 30, 2015 increased primarily due to a higher average debt balance as compared with the second quarter of 2014. Interest expense for the six months ended June 30, 2015 remained consistent with the six months ended June 30, 2014. Average total debt outstanding was $361.5 million and $343.0 million for the quarters ended June 30, 2015 and 2014 and $352.2 million and $358.9 million for the six month periods ended June 30, 2015 and 2014.

Amortization of prepaid debt fees: Amortization of prepaid debt fees for the three and six months ended June 30, 2015 increased as compared with the same periods in 2014 due to the 2015 credit facility entered into on June 23, 2015. Upon entering into the 2015 credit facility, a portion of our unamortized prepaid debt fees, totaling $821,000, related to the 2011 credit facility were written-off. Refer to Item 1: “Financial Statements Note 6: Debt” for additional details related to our long-term borrowings.

Other income (expense), net: Other expenses, net, consist primarily of unrealized and realized foreign currency gains and losses from balances denominated in currencies other than the reporting entity's functional currency and other non-operating income (expenses). As a result of currency movements in certain markets in which we do business, foreign currency losses, net of hedging, were $1.3 million and $1.1 million for the three and six months ended June 30, 2015, compared with foreign currency losses, net of hedging, of $775,000 and $2.9 million in the same periods in 2014.

Income Tax Benefit (Provision)

For the three and six months ended June 30, 2015, the income tax provisions were $4.0 million and $9.5 million compared with income tax provisions of $7.8 million and $7.2 million in the same periods in 2014. Our tax expense for the three and six months ended June 30, 2015 differed from the federal statutory rate of 35% due to the forecasted mix of earnings in domestic and international jurisdictions and losses experienced in jurisdictions with valuation allowances on deferred tax assets. Our tax expense for the three and six months ended June 30, 2014 was higher than the federal statutory rate of 35% due to the forecasted mix of earnings in domestic and international jurisdictions, estimated benefits of foreign tax credits, the benefit of certain interest expense deductions, and an election under U.S. Internal Revenue Code Section 338 with respect to a foreign acquisition in 2007.

39

Operating Segment Results

For a description of our operating segments, refer to Item 1: “Financial Statements Note 15: Segment Information”.

	Three Months Ended June 30,									Six Months Ended June 30,
	2015			2014		% Change				2015			2014		% Change
Segment Revenues	(in thousands)									(in thousands)
Electricity	$	203,410		$	183,755	11%				$	397,262		$	363,973	9%
Gas	139,386			154,322		(10)%				264,475			300,431		(12)%
Water	127,307			151,276		(16)%				256,613			299,744		(14)%
Total revenues	$	470,103		$	489,353	(4)%				$	918,350		$	964,148	(5)%
	Three Months Ended June 30,									Six Months Ended June 30,
	2015					2014				2015					2014
	Gross Profit			Gross Margin		Gross Profit			Gross Margin	Gross Profit			Gross Margin		Gross Profit			Gross Margin
Segment Gross Profit and Margin	(in thousands)					(in thousands)				(in thousands)					(in thousands)
Electricity	$	52,622		25.9%		$	52,976		28.8%	$	107,742		27.1%		$	95,716		26.3%
Gas	44,109			31.6%		56,711			36.7%	87,625			33.1%		115,117			38.3%
Water	21,840			17.2%		53,354			35.3%	61,403			23.9%		106,743			35.6%
Total gross profit and margin	$	118,571		25.2%		$	163,041		33.3%	$	256,770		28.0%		$	317,576		32.9%
	Three Months Ended June 30,									Six Months Ended June 30,
	2015			2014		% Change				2015			2014		% Change
Segment Operating Expenses	(in thousands)									(in thousands)
Electricity	$	48,718		$	54,223	(10)%				$	101,442		$	119,932	(15)%
Gas	29,367			32,382		(9)%				59,291			65,064		(9)%
Water	33,351			32,835		2%				64,817			65,581		(1)%
Corporate unallocated	11,086			11,674		(5)%				21,632			30,533		(29)%
Total operating expenses	$	122,522		$	131,114	(7)%				$	247,182		$	281,110	(12)%
	Three Months Ended June 30,									Six Months Ended June 30,
	2015					2014				2015					2014
	Operating Income (Loss)			Operating Margin		Operating Income (Loss)			Operating Margin	Operating Income (Loss)			Operating Margin		Operating Income (Loss)			Operating Margin
Segment Operating Income (Loss) and Operating Margin	(in thousands)					(in thousands)				(in thousands)					(in thousands)
Electricity	$	3,904		2%		$	(1,247	)	(1)%	$	6,300		2%		$	(24,216	)	(7)%
Gas	14,742			11%		24,329			16%	28,334			11%		50,053			17%
Water	(11,511		)	(9)%		20,519			14%	(3,414		)	(1)%		41,162			14%
Corporate unallocated	(11,086		)			(11,674		)		(21,632		)			(30,533		)
Total Company	$	(3,951	)	(1)%		$	31,927		7%	$	9,588		1%		$	36,466		4%
	Three Months Ended June 30,									Six Months Ended June 30,
	2015					2014				2015					2014
	Non-GAAP Operating Income (Loss)			Non-GAAP Operating Margin		Non-GAAP Operating Income (Loss)			Non-GAAP Operating Margin	Non-GAAP Operating Income (Loss)			Non-GAAP Operating Margin		Non-GAAP Operating Income (Loss)			Non-GAAP Operating Margin
Non-GAAP Segment Operating Income (Loss) (1)	(in thousands)					(in thousands)				(in thousands)					(in thousands)
Electricity	$	1,022		1%		$	(2,894	)	(2)%	$	7,070		2%		$	(18,819	)	(5)%
Gas	15,501			11%		27,527			18%	31,565			12%		55,637			19%
Water	(9,840		)	(8)%		23,211			15%	(78		)	—%		46,637			16%
Corporate unallocated	(11,587		)			(12,512		)		(25,072		)			(25,524		)
Total Company	$	(4,904	)	(1)%		$	35,332		7%	$	13,485		1%		$	57,931		6%

⁽¹⁾  These measures exclude certain expenses that we do not believe are indicative of our core operating results. See pages 53-55 for information about these non-GAAP measures and reconciliations to the most comparable GAAP measures.

40

Electricity:

The effects of changes in foreign currency exchange rates and the constant currency changes in certain Electricity segment financial results for the three and six months ended June 30, 2015, compared with the same periods in 2014, were as follows:

		Three Months Ended June 30,
		2015		2014		Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change
		(in thousands)
Electricity Segment
	Revenues	$	203,410	$	183,755	$	(14,871	)	$	34,526		$	19,655
	Gross Profit	52,622		52,976		(5,159		)	4,805			(354		)
	Operating Expenses	48,718		54,223		(4,194		)	(1,311		)	(5,505		)
		Six Months Ended June 30,
		2015		2014		Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change
		(in thousands)
Electricity Segment
	Revenues	$	397,262	$	363,973	$	(26,842	)	$	60,131		$	33,289
	Gross Profit	107,742		95,716		(7,938		)	19,964			12,026
	Operating Expenses	101,442		119,932		(9,588		)	(8,902		)	(18,490		)

Revenues - Three months ended June 30, 2015 vs. Three months ended June 30, 2014

In constant currency, revenues increased $34.5 million, or 19%, for the three months ended June 30, 2015, compared with the same period in 2014. This increase was primarily driven by increased product revenues and professional services in North America totaling $36.6 million and $4.8 million, respectively, partially offset by lower product revenue in EMEA of $10.3 million.

Revenues - Six months ended June 30, 2015 vs. Six months ended June 30, 2014

For the first half of 2015, revenues in constant currency increased $60.1 million, or 17%. Revenues were higher in 2015 primarily due to increased product revenues and professional services in North America of $64.5 million and $8.3 million. Lower product revenues of $20.9 million in EMEA partially offset the North America improvement.

No single customer accounted for more than 10% of the Electricity operating segment revenues during the three and six months ended June 30, 2015 and 2014.

Gross Margin - Three months ended June 30, 2015 vs. Three months ended June 30, 2014

Gross margin was 25.9% for the three months ended June 30, 2015, compared with 28.8% for the three months ended 2014. In 2015, gross margin decreased 290 basis points over the prior year, primarily as the result of a warranty expense recovery of $3.6 million in 2014 compared with a recovery of $100,000 in 2015, as well as higher inventory impairment associated with our progress in discontinuing less profitable operations under our 2014 restructuring projects. Partially offsetting these items, we experienced more favorable product mix in North America.

Gross Margin - Six months ended June 30, 2015 vs. Six months ended June 30, 2014

For the six months ended June 30, 2015, gross margin was 27.1%, compared with 26.3% for the first six months in 2014. During 2015, the 80 basis point improvement over the prior year, was primarily the result of more favorable product mix in North America, partially offset by higher inventory impairment and a warranty expense recovery of $3.6 million in 2014 compared with a recovery of $100,000 in 2015.

Operating Expenses - Three months ended June 30, 2015 vs. Three months ended June 30, 2014

In constant currency, operating expenses decreased $1.3 million, or 2%, for the three months ended June 30, 2015, compared with the same period in 2014. We received a reimbursement of $4.6 million (classified as an acquisition-related cost recovery within general and administrative expense) in June 2015 related to the settlement of litigation arising from the SmartSynch acquisition,

41

which we paid in February 2015. This was partially offset by $4.0 million in lower restructuring expense release in 2015 as compared with the second quarter of 2014.

Operating Expenses - Six months ended June 30, 2015 vs. Six months ended June 30, 2014

In constant currency, operating expenses decreased $8.9 million, or 7%, for the six months ended June 30, 2015, compared with the same period in 2014. The decrease resulted primarily from the reimbursement of $4.6 million (classified as an acquisition-related cost recovery within general and administrative expense) in June 2015 related to the settlement of litigation arising from the SmartSynch acquisition, which we paid in February 2015. In addition, intangible asset amortization expense decreased $2.7 million.

Non-GAAP Operating Expenses - Three months ended June 30, 2015 vs. Three months ended June 30, 2014

Total non-GAAP operating expenses, as a percentage of revenues, was 25% for the three months ended June 30, 2015 and was 30% for the same period in 2014. The overall improvement in non-GAAP operating expenses, represented by the lower ratio as a percentage of revenue, in 2015 was driven by increased revenues and cost reductions resulting from our restructuring projects.

Non-GAAP Operating Expenses - Six months ended June 30, 2015 vs. Six months ended June 30, 2014

Total non-GAAP operating expenses, as a percentage of revenues, was 25% for the six months ended June 30, 2015 and was 31% for the same period in 2014. The overall improvement in non-GAAP operating expenses, represented by the lower ratio as a percentage of revenue, in 2015 was driven by increased revenues and cost reductions resulting from our restructuring projects.

Gas:

The effects of changes in foreign currency exchange rates and the constant currency changes in certain Gas segment financial results for the three and six months ended June 30, 2015, compared with the same periods in 2014, were as follows:

		Three Months Ended June 30,
		2015		2014		Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change
		(in thousands)
Gas Segment
	Revenues	$	139,386	$	154,322	$	(14,604	)	$	(332	)	$	(14,936	)
	Gross Profit	44,109		56,711		(3,918		)	(8,684		)	(12,602		)
	Operating Expenses	29,367		32,382		(3,845		)	830			(3,015		)
		Six Months Ended June 30,
		2015		2014		Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change
		(in thousands)
Gas Segment
	Revenues	$	264,475	$	300,431	$	(27,076	)	$	(8,880	)	$	(35,956	)
	Gross Profit	87,625		115,117		(7,821		)	(19,671		)	(27,492		)
	Operating Expenses	59,291		65,064		(7,485		)	1,712			(5,773		)

Revenues - Three months ended June 30, 2015 vs. Three months ended June 30, 2014

In constancy currency, revenues decreased $0.3 million for the three months ended June 30, 2015, compared with the second quarter of 2014. This decrease was primarily driven by decreased revenue of $3.6 million in EMEA mostly offset by small increases in revenue in North America, Latin America, and Asia Pacific.

Revenues - Six months ended June 30, 2015 vs. Six months ended June 30, 2014

For the first half of 2015, constant currency revenues decreased $8.9 million, or 3%, compared with the first half of 2014. The overall decline was due to $11.4 million in lower product revenue in EMEA, partially offset by $2.3 million in higher product revenues in North America.

42

No single customer accounted for more than 10% of the Gas operating segment revenues during the three and six months ended June 30, 2015 and 2014.

Gross Margin - Three months ended June 30, 2015 vs. Three months ended June 30, 2014

Gross margin was 31.6% for the three months ended June 30, 2015, compared with 36.7% for the same period in 2014. This decrease of 510 basis points was driven almost exclusively by lower volumes and unfavorable product mix in EMEA.

Gross Margin - Six months ended June 30, 2015 vs. Six months ended June 30, 2014

In the first half of 2015, gross margin was 33.1%, compared with 38.3% for the same period last year. Unfavorable product mix and lower volumes in EMEA negatively impacted gross margin by 520 basis points in 2015.

Operating Expenses - Three months ended June 30, 2015 vs. Three months ended June 30, 2014

In constant currency, operating expenses increased $0.8 million, or 3%, for the three months ended June 30, 2015, compared with the same period in 2014. Higher general and administrative expenses of $1.9 million, resulting from increased allocations of corporate expenses, were partially offset by lower restructuring expense.

Operating Expenses - Six months ended June 30, 2015 vs. Six months ended June 30, 2014

In constant currency, operating expenses increased $1.7 million, or 3%, for the six months ended June 30, 2015, compared with the same period in 2014. Higher general and administrative expenses of $3.4 million, resulting from increased allocations of corporate expenses, were partially offset by lower sales and marketing, amortization, and restructuring expenses.

Non-GAAP Operating Expenses - Three months ended June 30, 2015 vs. Three months ended June 30, 2014

Total non-GAAP operating expenses, as a percentage of revenues, was 21% for the three months ended June 30, 2015 and was 19% for the same period in 2014. The total as a percentage of revenue increased in 2015 as the result of lower revenues during the period.

Non-GAAP Operating Expenses - Six months ended June 30, 2015 vs. Six months ended June 30, 2014

Total non-GAAP operating expenses, as a percentage of revenues, was 21% for the six months ended June 30, 2015 and was 20% for the same period in 2014. The total as a percentage of revenue increased in 2015 as the result of lower revenues during the period.

43

Water:

The effects of changes in foreign currency exchange rates and the constant currency changes in certain Water segment financial results for the three and six months ended June 30, 2015, compared with the same periods in 2014, were as follows:

		Three Months Ended June 30,
		2015		2014		Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change
		(in thousands)
Water Segment
	Revenues	$	127,307	$	151,276	$	(20,759	)	$	(3,210	)	$	(23,969	)
	Gross Profit	21,840		53,354		(7,224		)	(24,290		)	(31,514		)
	Operating Expenses	33,351		32,835		(4,735		)	5,251			516
		Six Months Ended June 30,
		2015		2014		Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change
		(in thousands)
Water Segment
	Revenues	$	256,613	$	299,744	$	(39,956	)	$	(3,175	)	$	(43,131	)
	Gross Profit	61,403		106,743		(14,220		)	(31,120		)	(45,340		)
	Operating Expenses	64,817		65,581		(9,015		)	8,251			(764		)

Revenues - Three months ended June 30, 2015 vs. Three months ended June 30, 2014

In constant currency, revenues decreased $3.2 million, or 2%, for the three months ended June 30, 2015, compared with the second quarter of 2014. This was primarily due to the minor declines in North America, EMEA, and Latin America totaling $3.6 million.

Revenues - Six months ended June 30, 2015 vs. Six months ended June 30, 2014

In constant currency, revenues decreased $3.2 million, or 1%, for the first half of 2015, compared with the same period last year. This decrease was primarily due to lower product revenue of $4.2 million in Latin America due to reduced expenditures by our utility customers in that region and $1.9 million of lower product revenue in North America.

No single customer represented more than 10% of the Water operating segment revenues during the three and six months ended June 30, 2015 and 2014.

Gross Margin - Three months ended June 30, 2015 vs. Three months ended June 30, 2014

During the second quarter of 2015, gross margin decreased to 17.2%, compared with 35.3% in 2014, primarily as the result of $23.5 million in increased warranty charges, driven almost exclusively by our decision to issue a product replacement notification to customers who had purchased certain communication modules manufactured between July 2013 and December 2014. We determined that a component of the modules was failing prematurely. This additional warranty expense reduced gross margin by 18.5 percentage points during the quarter.

Gross Margin - Six months ended June 30, 2015 vs. Six months ended June 30, 2014

Gross margin decreased to 23.9% for the six months ended June 30, 2015, compared with 35.6% for the same period last year, primarily as the result of higher warranty costs of $27.9 million. The total warranty expense increase during the first half of 2015 negatively impacted gross margin by 10.9 percentage points.

Operating Expenses - Three months ended June 30, 2015 vs. Three months ended June 30, 2014

Operating expenses for the three months ended June 30, 2015 increased by $5.3 million in constant currency, or 16%, compared with the second quarter of 2014. This increase was primarily the result of $5.8 million in increased sales and marketing, product development, and general and administrative expenses.

44

Operating Expenses - Six months ended June 30, 2015 vs. Six months ended June 30, 2014

In constant currency, operating expenses for the six months ended June 30, 2015 increased by $8.3 million, or 13%, compared with the same period last year, primarily as the result of increased sales and marketing, product development, and general and administrative costs.

Non-GAAP Operating Expenses - Three months ended June 30, 2015 vs. Three months ended June 30, 2014

Total non-GAAP operating expenses, as a percentage of revenues, was 25% for the three months ended June 30, 2015 and 20% for the same period in 2014. The increase in operating expenses in 2015 as a percentage of revenue was primarily driven by a decline in revenues during the period.

Non-GAAP Operating Expenses - Six months ended June 30, 2015 vs. Six months ended June 30, 2014

Total non-GAAP operating expenses, as a percentage of revenues, was 24% for the six months ended June 30, 2015 and 20% for the same period in 2014. The increase in operating expenses in 2015 as a percentage of revenue was driven by a decline in revenues during the period.

Corporate unallocated:

Operating expenses not directly associated with an operating segment are classified as “Corporate unallocated.” These expenses decreased by $0.6 million for the three months ended June 30, 2015 due to $0.7 million in lower general and administrative expense, which includes a favorable foreign exchange rate impact of $0.3 million. Corporate unallocated expenses decreased by $8.9 million for the six months ended June 30, 2015 due to a $3.4 million restructuring expense release in 2015 compared with restructuring expense of $5.0 million for the six months ended June 30, 2014. The release in 2015 was primarily the result of employees, originally identified to be terminated, voluntarily resigning or filling vacant positions in different departments or locations, as well as the results of employee negotiations and the need to keep additional employees to meet revised forecasted demand on certain projects.

Bookings and Backlog of Orders

Bookings for a reported period represent customer contracts and purchase orders received during the period that have met certain conditions, such as regulatory and/or contractual approval. Total backlog represents committed but undelivered products and services for contracts and purchase orders at period end. Twelve-month backlog represents the portion of total backlog that we estimate will be recognized as revenue over the next 12 months. Backlog is not a complete measure of our future revenues as we also receive significant book-and-ship orders. Bookings and backlog may fluctuate significantly due to the timing of large project awards. In addition, annual or multi-year contracts are subject to rescheduling and cancellation by customers due to the long-term nature of the contracts. Beginning total backlog, plus bookings, minus revenues, will not equal ending total backlog due to miscellaneous contract adjustments, foreign currency fluctuations, and other factors.

Quarter Ended	Quarterly Bookings		Ending Total Backlog		Ending 12-Month Backlog
	(in millions)
June 30, 2015	$	398	$	1,372	$	791
March 31, 2015	424		1,438		779
December 31, 2014	648		1,486		747
September 30, 2014	514		1,345		700
June 30, 2014	478		1,330		675

Information on bookings by our operating segments is as follows:

Quarter Ended	Total Bookings		Electricity		Gas		Water
	(in millions)
June 30, 2015	$	398	$	175	$	116	$	107
March 31, 2015	424		191		109		124
December 31, 2014	648		167		348		133
September 30, 2014	514		247		128		139
June 30, 2014	478		197		142		139

45

Financial Condition

Cash Flow Information:

	Six Months Ended June 30,
	2015			2014
	(in thousands)
Operating activities	$	17,567		$	67,191
Investing activities	(20,299		)	(19,347		)
Financing activities	26,547			(55,680		)
Effect of exchange rates on cash and cash equivalents	(7,372		)	(2,189		)
Increase in cash and cash equivalents	$	16,443		$	(10,025	)

Cash and cash equivalents was $128.8 million at June 30, 2015, compared with $112.4 million at December 31, 2014.

Operating activities

Cash provided by operating activities during the six months ended June 30, 2015 was $17.6 million compared with $67.2 million during the same period in 2014. The decrease in cash provided was due to lower net income of $27.8 million as well as $32.9 million in increased inventory build-up to meet forecasted demand in North America and EMEA during the second half of 2015. In addition, payments of other current liabilities, including litigation payments and restructuring accrual release during the first six months of 2015 were $18.0 million higher in 2015 than in 2014. Wages and benefits paid also contributed to the lower cash provided with $10.7 million of increased payments due primarily to 2014 variable compensation payouts paid in 2015. These higher uses of cash were partially offset by $38.2 million of lower payments of accounts payable during the period due to payment timing and a $26.0 million increase in warranty expense related to the product replacement notification provided to our Water customers who had purchased certain communication modules.

Investing activities

Cash used in investing activities during the six months ended June 30, 2015 was $1.0 millionhigher compared with the same period in 2014, primarily due to an increase in the acquisition of property, plant, and equipment of $1.6 million.

Financing activities

Net cash provided by financing activities during the six months ended June 30, 2015 was $26.5 million, compared with a cash use of $55.7 million for the same period in 2014. The increased cash provided by financing activities is primarily a result of draws on our revolving line of credit of $74.2 million in the first six months of 2015, while no draws occurred during the same period in 2014. In addition, debt repayments decreased by $28.9 million in 2015. This was partially offset by $16.0 million in increased share repurchases. Refer to Part II, Item 2: "Unregistered Sale of Equity Securities and Use of Proceeds" for additional details related to our share repurchase program.

Effect of exchange rates on cash and cash equivalents

The effect of exchange rates on the cash balances of currencies held in foreign denominations for the six months ended June 30, 2015 was a decrease of $7.4 million, compared with a decrease of $2.2 million for the same period in 2014. The increased impact of exchange rates is the result of a strengthening of the dollar compared with most foreign currencies during the six months ended June 30, 2015.

46

Free cash flow (Non-GAAP)

To supplement our consolidated statements of cash flows presented on a GAAP basis, we use the non-GAAP measure of free cash flow to analyze cash flows generated from our operations. The presentation of non-GAAP free cash flow is not meant to be considered in isolation or as an alternative to net income as an indicator of our performance, or as an alternative to cash flows from operating activities as a measure of liquidity. We calculate free cash flows, using amounts from our Consolidated Statements of Cash Flows, as follows:

	Six Months Ended June 30,
	2015			2014			% Change
	(in thousands)
Net cash provided by operating activities	$	17,567		$	67,191		(74)%
Acquisitions of property, plant, and equipment	(20,992		)	(19,403		)	8%
Free cash flow	$	(3,425	)	$	47,788		N/A

Free cash flow (non-GAAP) decreased almost exclusively as a result of lower cash provided by operating activities. See the cash flow discussion of operating activities above.

Off-balance sheet arrangements:

We have no off-balance sheet financing agreements or guarantees as defined by Item 303 of Regulation S-K at June 30, 2015 and December 31, 2014 that we believe are reasonably likely to have a current or future effect on our financial condition, results of operations, or cash flows.

Liquidity and Capital Resources:

Our principal sources of liquidity are cash flows from operations, borrowings, and sales of common stock. Cash flows may fluctuate and are sensitive to many factors including changes in working capital and the timing and magnitude of capital expenditures and payments on debt. Working capital, which represents current assets less current liabilities, was $326.2 million at June 30, 2015, compared with $261.9 million at December 31, 2014.

Borrowings

On June 23, 2015, we entered into an amended and restated credit agreement providing for committed credit facilities in the amount of $725 million U.S. dollars (the 2015 credit facility). The 2015 credit facility consists of a U.S. dollar term loan facility (the term loan) with a principal amount of $225 million and a multicurrency revolving credit facility (the revolver) with a principal amount of up to $500 million. The revolver also contains a $300 million letter of credit sub-facility and a $50 million swingline sub-facility (available for immediate cash needs at a higher interest rate). The 2015 credit replaced our prior credit facility. At June 30, 2015, $148.0 million was outstanding under the revolver, and $244.5 million was available for additional borrowings due to the covenant constraints on our total leverage. At June 30, 2015, $49.8 million was utilized by outstanding standby letters of credit, resulting in $250.2 million available for additional letters of credit.

For further description of the term loan and the revolver under our 2015 credit facility, refer to Item 1: “Financial Statements, Note 6: Debt.”

For a description of our letters of credit and performance bonds, and the amounts available for additional borrowings or letters of credit under our lines of credit, including the revolver that is part of our credit facility, refer to Item 1: “Financial Statements, Note 11: Commitments and Contingencies.”

Share Repurchase

On February 19, 2015, the Board authorized a new repurchase program of up to $50 million of our common stock over a 12-month period, beginning February 19, 2015. From February 19, 2015 through June 30, 2015, we repurchased 272,775 shares of our common stock, totaling $9.9 million, and $40.1 million remained under the current program for future purchases.

Repurchases are made in the open market or in privately negotiated transactions and in accordance with applicable securities laws. Refer to Part II, Item 2: "Unregistered Sales of Equity Securities and Use of Proceeds" for additional information related to our share repurchase program.

47

Restructuring

In November 2014, our management approved restructuring projects (2014 Projects) to restructure our Electricity business and related general and administrative activities, along with certain Gas and Water activities, to improve operational efficiencies and reduce expenses. The 2014 Projects include consolidation of certain facilities and reduction of our global workforce. The improved structure will position us to meet our long-term profitability goals by better aligning global operations with markets where we can serve our customers profitably.

We began implementing these projects in the fourth quarter of 2014, and we expect to substantially complete these projects by the end of 2016. During the six months ended June 30, 2015, the total expected restructuring costs decreased by approximately $11.3 million. This includes $9.7 million in restructuring expense release, recognized in the six months ended June 30, 2015, resulting from employees, originally identified to be terminated, voluntarily resigning or filling vacant positions in different departments or locations, as well as the results of employee negotiations and the need to keep additional employees to meet revised forecasted demand on certain projects. The remainder of the change in expected costs results from the translation impact of foreign exchange rates. Certain aspects of the projects are subject to a variety of labor and employment laws, rules, and regulations, which could result in a delay in completing the projects at some locations.

At June 30, 2015, the current and long-term portions of the restructuring related liability balances were $20.6 million and $19.8 million, respectively. For further details regarding our restructuring activities, refer to Item 1: “Financial Statements, Note 12: Restructuring.”

Other Liquidity Considerations

We have tax credits and net operating loss carryforwards in various jurisdictions that are available to reduce cash taxes. However, utilization of tax credits and net operating losses are limited in certain jurisdictions. Based on current projections, we expect to pay, net of refunds, approximately $1.3 million in state taxes, $18.8 million in U.S federal taxes, and $11.4 million in local and foreign taxes in 2015. For a discussion of our tax provision and unrecognized tax benefits, see Item 1: “Financial Statements, Note 10: Income Taxes.”

At June 30, 2015, we are under examination by certain tax authorities for the 2000 to 2013 tax years. The material jurisdictions where we are subject to examination include, among others, the United States, France, Germany, Italy, Brazil, and the United Kingdom. No material changes have occurred to previously disclosed assessments. We believe we have appropriately accrued for the expected outcome of all tax matters and do not currently anticipate that the ultimate resolution of these examinations will have a material adverse effect on our financial condition, future results of operations, or liquidity.

We have not provided U.S. deferred taxes related to the cash in certain foreign subsidiaries because our investment is considered permanent in duration. As of June 30, 2015, there was $47.9 million of cash and short-term investments held by certain foreign subsidiaries in which we are permanently reinvested for tax purposes. If this cash were repatriated to fund U.S. operations, additional tax costs may be required. Tax is one of the many factors that we consider in the management of global cash. Included in the determination of the tax costs in repatriating foreign cash into the United States are the amount of earnings and profits in a particular jurisdiction, withholding taxes that would be imposed, and available foreign tax credits. Accordingly, the amount of taxes that we would need to accrue and pay to repatriate foreign cash could vary significantly.

In several of our consolidated international subsidiaries, we have joint venture partners, who are minority shareholders. Although these entities are not wholly-owned by Itron, Inc, we consolidate them because we have a greater than 50% ownership interest or because we exercise control over the operations. The noncontrolling interest balance in our Consolidated Balance Sheets represents the proportional share of the equity of the joint venture entities, which is attributable to the minority shareholders. Approximately $28.7 million of our consolidated cash balance at June 30, 2015 is held in our joint venture entities. As a result, the minority shareholders of these entities control their proportional share of this cash balance, and there may be limitations on our ability to repatriate cash to the United States from these entities.

For a description of our funded and unfunded non-U.S. defined benefit pension plans and our expected 2015 contributions, refer to Item 1: “Financial Statements, Note 8: Defined Benefit Pension Plans.”

For a description of our bonus and profit sharing plans, including the amounts accrued at June 30, 2015 and the expected timing of payment, refer to Bonus and Profit Sharing within Critical Accounting Estimates below.

General Liquidity Overview

We expect to grow through a combination of internal new product development, licensing technology from and to others, distribution agreements, partnering arrangements, and acquisitions of technology or other companies. We expect these activities to be funded with existing cash, cash flow from operations, borrowings, and the sale of common stock or other securities. We believe existing

48

sources of liquidity will be sufficient to fund our existing operations and obligations for the next 12 months and into the foreseeable future, but offer no assurances. Our liquidity could be affected by the stability of the electricity, gas, and water industries, competitive pressures, changes in estimated liabilities for product warranties and/or litigation, future business combinations, capital market fluctuations, international risks, and other factors described under “Risk Factors” within Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which was filed with the SEC on February 20, 2015, as well as “Quantitative and Qualitative Disclosures About Market Risk” within Item 3 of Part I included in this Quarterly Report on Form 10-Q.

Contingencies

Refer to Item 1: “Financial Statements, Note 11: Commitments and Contingencies”.

Critical Accounting Estimates

Revenue Recognition

The majority of our revenue arrangements involve multiple deliverables, which require us to determine the fair value of each deliverable and then allocate the total arrangement consideration among the separate deliverables based on the relative fair value percentages. Revenues for each deliverable are then recognized based on the type of deliverable, such as 1) when the products are shipped, 2) services are delivered, 3) percentage-of-completion when implementation services are essential to other deliverables in the arrangement, 4) upon receipt of customer acceptance, or 5) transfer of title and risk of loss. A majority of our revenue is recognized when products are shipped to or received by a customer or when services are provided.

Fair value represents the estimated price charged if an element were sold separately. If the fair value of any undelivered element included in a multiple deliverable arrangement cannot be objectively determined, revenue is deferred until all elements are delivered and services have been performed, or until the fair value can be objectively determined for any remaining undelivered elements. We review our fair values on an annual basis or more frequently if a significant trend is noted.

If implementation services are essential to a software arrangement, revenue is recognized using either the percentage-of-completion methodology of contract accounting if project costs can be reliably estimated or the completed contract methodology if project costs cannot be reliably estimated. The estimation of costs through completion of a project is subject to many variables such as the length of time to complete, changes in wages, subcontractor performance, supplier information, and business volume assumptions. Changes in underlying assumptions/estimates may adversely or positively affect financial performance.

Under contract accounting, if we estimate that the completion of a contract component (unit of accounting) will result in a loss, the loss is recognized in the period in which the loss becomes evident. We reevaluate the estimated loss through the completion of the contract component, and adjust the estimated loss for changes in facts and circumstances.

Many of our customer arrangements contain clauses for liquidated damages, related to the timing of delivery or milestone accomplishments, that could become material in an event of failure to meet the contractual deadlines. At the inception of the arrangement and on an ongoing basis, we evaluate if the liquidating damages represent contingent revenue and, if so, we reduce the amount of consideration allocated to the delivered products and services and record it as a reduction in revenue in the period of default. If the arrangement is subject to contract accounting, liquidated damages resulting from anticipated events of default are estimated and are accounted for as job costs in the period in which the potential default is identified and the damages can be reasonably estimated.

Certain of our revenue arrangements include an extended or noncustomary warranty provision that covers all or a portion of a customer's replacement or repair costs beyond the standard or customary warranty period. Whether or not the extended warranty is separately priced in the arrangement, a portion of the arrangement's total consideration is allocated to this extended warranty deliverable. This revenue is deferred and recognized over the extended warranty coverage period. Extended or noncustomary warranties do not represent a significant portion of our revenue.

We allocate consideration to each deliverable in an arrangement based on its relative selling price. We determine selling price using vendor specific objective evidence (VSOE), if it exists, otherwise we use third party evidence (TPE). We define VSOE as a median price of recent standalone transactions that are priced within a narrow range. TPE is determined based on the prices charged by our competitors for a similar deliverable when sold separately. If neither VSOE nor TPE of selling price exists for a unit of accounting, we use estimated selling price (ESP). The objective of ESP is to determine the price at which we would transact if the product or service were regularly sold by us on a standalone basis. Our determination of ESP involves a weighting of several factors based on the specific facts and circumstances of the arrangement. The factors considered include the cost to produce the

49

deliverable, the anticipated margin on that deliverable, our ongoing pricing strategy and policies, and the characteristics of the varying markets in which the deliverable is sold.

We analyze the selling prices used in our allocation of arrangement consideration on an annual basis. Selling prices are analyzed on a more frequent basis if a significant change in our business necessitates a more timely analysis or if we experience significant variances in our selling prices.

Warranty

We offer standard warranties on our hardware products and large application software products. We accrue the estimated cost of new product warranties based on historical and projected product performance trends and costs during the warranty period. Testing of new products in the development stage helps identify and correct potential warranty issues prior to manufacturing. Quality control efforts during manufacturing reduce our exposure to warranty claims. When testing or quality control efforts fail to detect a fault in one of our products, we may experience an increase in warranty claims. We track warranty claims to identify potential warranty trends. If an unusual trend is noted, an additional warranty accrual would be recorded if a failure event is probable and the cost can be reasonably estimated. When new products are introduced, our process relies on historical averages of similar products until sufficient data are available. As actual experience on new products becomes available, it is used to modify the historical averages to ensure the expected warranty costs are within a range of likely outcomes. Management regularly evaluates the sufficiency of the warranty provisions and makes adjustments when necessary. The warranty allowances may fluctuate due to changes in estimates for material, labor, and other costs we may incur to repair or replace projected product failures, and we may incur additional warranty and related expenses in the future with respect to new or established products, which could adversely affect our financial position and results of operations. The long-term warranty balance includes estimated warranty claims beyond one year.

Restructuring

We record a liability for costs associated with an exit or disposal activity under a restructuring project at its fair value in the period in which the liability is incurred. Employee termination benefits considered post-employment benefits are accrued when the obligation is probable and estimable, such as benefits stipulated by human resource policies and practices or statutory requirements and negotiations with works councils. One-time termination benefits are expensed at the date the employee is notified. If the employee must provide future service greater than 60 days, such benefits are expensed ratably over the future service period. For contract termination costs, we record a liability upon the later of when we terminate a contract in accordance with the contract terms or when we cease using the rights conveyed by the contract.

Asset impairments associated with a restructuring project are determined at the asset group level. An impairment may be recorded for assets that are to be abandoned, are to be sold for less than net book value, or are held for sale in which the estimated proceeds are less than the net book value less costs to sell. We may also recognize impairment on an asset group, which is held and used, when the carrying value is not recoverable and exceeds the asset group's fair value. If an asset group is considered a business, a portion of our goodwill balance is allocated to it based on relative fair value. If the sale of an asset group under a restructuring project results in proceeds that exceed the net book value of the asset group, the resulting gain is recorded within restructuring expense in the Consolidated Statements of Operations.

In determining restructuring charges, we analyze our future operating requirements, including the required headcount by business functions and facility space requirements. Our restructuring costs and any resulting accruals involve significant estimates using the best information available at the time the estimate are made. Our estimates involve a number of risks and uncertainties, some of which are beyond our control, including real estate market conditions and local labor and employment laws, rules, and regulations. If the amounts and timing of cash flows from restructuring activities are significantly different from what we have estimated, the actual amount of restructuring and asset impairment charges could be materially different, either higher or lower, than those we have recorded.

Income Taxes

The calculation of our annual estimated effective tax rate requires significant judgment and is subject to several factors, including fluctuations in the forecast mix of earnings in domestic and international jurisdictions, new or revised tax legislation and accounting pronouncements, tax credits, state income taxes, adjustments to valuation allowances, and uncertain tax positions, among other items.

We record valuation allowances to reduce deferred tax assets to the extent we believe it is more likely than not that a portion of such assets will not be realized. In making such determinations, we consider available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and our ability to carry back losses to prior years. We are required to make assumptions and judgments about potential outcomes that lie outside management’s control. The most sensitive and critical factors are the projection, source, and character of future taxable income.

50

Although realization is not assured, management believes it is more likely than not that deferred tax assets will be realized. The amount of deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced or current tax planning strategies are not implemented.

We are subject to audit in multiple taxing jurisdictions in which we operate. These audits may involve complex issues, which may require an extended period of time to resolve. We believe we have recorded adequate income tax provisions and reserves for uncertain tax positions.

In evaluating uncertain tax positions, we consider the relative risks and merits of positions taken in tax returns filed and to be filed, considering statutory, judicial, and regulatory guidance applicable to those positions. We make assumptions and judgments about potential outcomes that lie outside management’s control. To the extent the tax authorities disagree with our conclusions and depending on the final resolution of those disagreements, our actual tax rate may be materially affected in the period of final settlement with the tax authorities.

Goodwill and Intangible Assets

Goodwill and intangible assets may result from our business acquisitions. Intangible assets may also result from the purchase of assets and intellectual property where we do not acquire a business. We use estimates, including estimates of useful lives of intangible assets, the amount and timing of related future cash flows, and fair values of the related operations, in determining the value assigned to goodwill and intangible assets. Our finite-lived intangible assets are amortized over their estimated useful lives based on estimated discounted cash flows. In-process research and development (IPR&D) is considered an indefinite-lived intangible asset and is not subject to amortization until the associated projects are completed or terminated. Finite-lived intangible assets are tested for impairment at the asset group level when events or changes in circumstances indicate the carrying value may not be recoverable. Indefinite-lived intangible assets are tested for impairment annually, when events or changes in circumstances indicate the asset may be impaired, or at the time when their useful lives are determined to be no longer indefinite.

Goodwill is assigned to our reporting units based on the expected benefit from the synergies arising from each business combination, determined by using certain financial metrics, including the forecast discounted cash flows associated with each reporting unit. The reporting units are aligned with our reporting segments, effective in the fourth quarter of 2013.

We test goodwill for impairment each year as of October 1, or more frequently should a significant impairment indicator occur. As part of the impairment test, we may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit, including goodwill, is less than its carrying amount, or if we elect to bypass the qualitative assessment, we would then proceed with the two-step impairment test. The impairment test involves comparing the fair values of the reporting units to their carrying amounts. If the carrying amount of a reporting unit exceeds its fair value, a second step is required to measure the goodwill impairment loss amount. This second step determines the current fair values of all assets and liabilities of the reporting unit and then compares the implied fair value of the reporting unit's goodwill to the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. We forecast discounted future cash flows at the reporting unit level using risk-adjusted discount rates and estimated future revenues and operating costs, which take into consideration factors such as existing backlog, expected future orders, supplier contracts, and expectations of competitive and economic environments. We also identify similar publicly traded companies and develop a correlation, referred to as a multiple, to apply to the operating results of the reporting units. These combined fair values are then reconciled to the aggregate market value of our common stock on the date of valuation, while considering a reasonable control premium.

Based on our qualitative analysis as of October 1, 2014, we determined that it was more likely than not that the fair value of the Electricity, Gas and Water reporting units exceeded their respective carrying values. As a result, it was not necessary to complete the two-step impairment test for those reporting units.

Changes in market demand, fluctuations in the economies in which we operate, the volatility and decline in the worldwide equity markets, and a further decline in our market capitalization could negatively impact the remaining carrying value of our goodwill, which could have a significant effect on our current and future results of operations and financial condition.

Defined Benefit Pension Plans

We sponsor both funded and unfunded defined benefit pension plans for our international employees, primarily in Germany, France, Italy, Indonesia, Brazil, and Spain. We recognize a liability for the projected benefit obligation in excess of plan assets or an asset for plan assets in excess of the projected benefit obligation. We also recognize the funded status of our defined benefit

51

pension plans on our Consolidated Balance Sheets and recognize as a component of other comprehensive income (loss) (OCI), net of tax, the actuarial gains or losses and prior service costs or credits, if any, that arise during the period but are not recognized as components of net periodic benefit cost.

Several economic assumptions and actuarial data are used in calculating the expense and obligations related to these plans. The assumptions are updated annually at December 31 and include the discount rate, the expected remaining service life, the expected rate of return on plan assets, and the rate of future compensation increase. The discount rate is a significant assumption used to value our pension benefit obligation. We determine a discount rate for our plans based on the estimated duration of each plan’s liabilities. For our euro denominated defined benefit pension plans, which represent 94% of our benefit obligation, we use two discount rates, with consideration of the duration of the plans, using a hypothetical yield curve developed from euro-denominated AA-rated corporate bond issues, partially weighted for market value, with minimum amounts outstanding of €500 million for bonds with less than 10 years to maturity and €50 million for bonds with 10 or more years to maturity, and excluding the highest and lowest yielding 10% of bonds within each maturity group. The discount rates used, depending on the duration of the plans, were 1.50% and 2.00%, respectively. The weighted average discount rate used to measure the projected benefit obligation for all of the plans at December 31, 2014 was 2.36%. A change of 25 basis points in the discount rate would change our pension benefit obligation by approximately $5.2 million. The financial and actuarial assumptions used at December 31, 2014 may differ materially from actual results due to changing market and economic conditions and other factors. These differences could result in a significant change in the amount of pension expense recorded in future periods. Gains and losses resulting from changes in actuarial assumptions, including the discount rate, are recognized in OCI in the period in which they occur.

Our general funding policy for these qualified pension plans is to contribute amounts at least sufficient to satisfy funding standards of the respective countries for each plan. Refer to Item 1: “Financial Statements, Note 8: Defined Benefit Pension Plans” for our expected contributions for 2015.

Contingencies

A loss contingency is recorded if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. We evaluate, among other factors, the degree of probability of an unfavorable outcome and our ability to make a reasonable estimate of the amount of the ultimate loss. Loss contingencies that we determine to be reasonably possible, but not probable, are disclosed but not recorded. Changes in these factors and related estimates could materially affect our financial position and results of operations. Legal costs to defend against contingent liabilities are expensed as incurred.

Bonus and Profit Sharing

We have various employee bonus and profit sharing plans, which provide award amounts for the achievement of annual financial and nonfinancial targets. If management determines it probable that the targets will be achieved and the amounts can be reasonably estimated, a compensation accrual is recorded based on the proportional achievement of the financial and nonfinancial targets. Although we monitor and accrue expenses quarterly based on our estimated progress toward the achievement of the annual targets, the actual results at the end of the year may require awards that are significantly greater or less than the estimates made in earlier quarters. For the three and six months ended June 30, 2015, we accrued $7.9 million and $16.4 million, compared with $5.2 million and $14.2 million for the same periods in 2014. Awards are typically distributed in the first quarter of the following year.

Stock-Based Compensation

We measure and recognize compensation expense for all stock-based awards made to employees and directors, including awards of stock options, stock sold pursuant to our Employee Stock Purchase Plan (ESPP), and the issuance of restricted stock units and unrestricted stock awards, based on estimated fair values. The fair value of stock options is estimated at the date of grant using the Black-Scholes option-pricing model, which includes assumptions for the dividend yield, expected volatility, risk-free interest rate, and expected term. The fair value of restricted stock units with a market condition is estimated at the date of award using a Monte Carlo simulation model, which includes assumptions for the dividend yield, expected volatility, risk-free interest rate and the expected term. In valuing our stock options and restricted stock units with a market condition, significant judgment is required in determining the expected volatility of our common stock and the expected life that individuals will hold their stock options prior to exercising. Expected volatility for stock options is based on the historical and implied volatility of our own common stock while the volatility for our restricted stock units with a market condition is based on the historical volatility of our own stock and the stock for companies comprising the market index within the market condition. The expected life of stock option grants is derived from the historical actual term of option grants and an estimate of future exercises during the remaining contractual period of the option. While volatility and estimated life are assumptions that do not bear the risk of change subsequent to the grant date of stock options, these assumptions may be difficult to measure as they represent future expectations based on historical experience. Further, our expected volatility and expected life may change in the future, which could substantially change the grant-date fair value of future awards of stock options and ultimately the expense we record. For ESPP awards, the fair value is the difference between the market close price of our common stock on the date of purchase and the discounted purchase price. For restricted stock units without a market condition and unrestricted stock awards, the fair value is the market close price of our common stock

52

on the date of grant. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results and future estimates may differ substantially from our current estimates. We expense stock-based compensation at the date of grant for unrestricted stock awards. For awards with only a service condition, we expense stock-based compensation, adjusted for estimated forfeitures, using the straight-line method over the requisite service period for the entire award. For awards with both performance and service conditions, we expense the stock-based compensation, adjusted for estimated forfeitures, on a straight-line basis over the requisite service period for each separately vesting portion of the award. Excess tax benefits are credited to common stock when the deduction reduces cash taxes payable. When we have tax deductions in excess of the compensation cost, they are classified as financing cash inflows in the Consolidated Statements of Cash Flows.

Non-GAAP Measures

Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP), which we supplement with certain non-GAAP financial information. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. These non-GAAP measures exclude the impact of certain expenses that we do not believe are indicative of our core operating results. We use these non-GAAP financial measures for financial and operational decision making and/or as a means for determining executive compensation. These non-GAAP financial measures facilitate management's internal comparisons to our historical performance.

Non-GAAP operating expenses and non-GAAP operating income – We define non-GAAP operating expenses as operating expenses excluding certain expenses related to the amortization of intangible assets acquired through a business acquisition, restructuring, acquisitions and goodwill impairment. We define non-GAAP operating income as operating income excluding the expenses related to the amortization of intangible assets acquired through a business acquisition, restructuring, acquisitions and goodwill impairment. We consider these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of expenses that are related to previous acquisitions and restructuring projects. By excluding these expenses, we believe that it is easier for management and investors to compare our financial results over multiple periods and analyze trends in our operations. For example, in certain periods expenses related to amortization of intangible assets may decrease, which would improve GAAP operating margins, yet the improvement in GAAP operating margins due to this lower expense is not necessarily reflective of an improvement in our core business. There are some limitations related to the use of non-GAAP operating expense and non-GAAP operating income versus operating expense and operating income calculated in accordance with GAAP. Non-GAAP operating expense and non-GAAP operating income exclude some costs that are recurring.

Non-GAAP net income and non-GAAP diluted EPS – We define non-GAAP net income as net income excluding the expenses associated with amortization of intangible assets acquired through a business acquisition, restructuring, acquisitions, goodwill impairment and amortization of debt placement fees. We define non-GAAP diluted EPS as non-GAAP net income divided by the weighted average shares, on a diluted basis, outstanding during each period. We consider these financial measures to be useful metrics for management and investors for the same reasons that we use non-GAAP operating income. The same limitations described above regarding our use of non-GAAP operating income apply to our use of non-GAAP net income and non-GAAP diluted EPS. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP measures and evaluating non-GAAP net income and non-GAAP diluted EPS together with GAAP net income and GAAP diluted EPS.

53

Reconciliation of GAAP Measures to Non-GAAP Measures

The table below reconciles the non-GAAP financial measures of operating expenses, operating income, net income and diluted EPS, free cash flow, and operating income by segment with the most directly comparable GAAP financial measures.

(Unaudited; in thousands, except per share data)
TOTAL COMPANY RECONCILIATIONS				Three Months Ended June 30,						Six Months Ended June 30,
				2015			2014			2015			2014
	NON-GAAP OPERATING EXPENSES
		GAAP operating expenses		$	122,522		$	131,114		$	247,182		$	281,110
			Amortization of intangible assets	(7,888		)	(11,109		)	(15,861		)	(22,179		)
			Restructuring expense	4,234			7,793			9,681			2,269
			Acquisition-related expenses	4,607			(89		)	2,283			(578		)
			Goodwill impairment	—			—			—			(977		)
		Non-GAAP operating expenses		$	123,475		$	127,709		$	243,285		$	259,645
	NON-GAAP OPERATING INCOME
		GAAP operating income (loss)		$	(3,951	)	$	31,927		$	9,588		$	36,466
			Amortization of intangible assets	7,888			11,109			15,861			22,179
			Restructuring expense	(4,234		)	(7,793		)	(9,681		)	(2,269		)
			Acquisition-related expenses	(4,607		)	89			(2,283		)	578
			Goodwill impairment	—			—			—			977
		Non-GAAP operating income (loss)		$	(4,904	)	$	35,332		$	13,485		$	57,931
	NON-GAAP NET INCOME & DILUTED EPS
		GAAP net income (loss) attributable to Itron, Inc.		$	(14,198	)	$	19,259		$	(9,288	)	$	19,005
			Amortization of intangible assets	7,888			11,109			15,861			22,179
			Amortization of debt placement fees	1,164			379			1,529			758
			Restructuring expense	(4,234		)	(7,793		)	(9,681		)	(2,269		)
			Acquisition-related expenses	(4,607		)	89			(2,283		)	578
			Goodwill impairment	—			—			—			977
			Income tax effect of non-GAAP adjustments(1)	(674		)	(1,636		)	(2,988		)	(7,578		)
		Non-GAAP net income (loss)		$	(14,661	)	$	21,407		$	(6,850	)	$	33,650
		Non-GAAP diluted EPS		$	(0.38	)	$	0.54		$	(0.18	)	$	0.85
		Weighted average common shares outstanding - Diluted		38,434			39,544			38,438			39,528
	FREE CASH FLOW
			Net cash provided by operating activities	$	21,522		$	430		$	17,567		$	67,191
			Acquisitions of property, plant, and equipment	(11,520		)	(10,839		)	(20,992		)	(19,403		)
		Free Cash Flow		$	10,002		$	(10,409	)	$	(3,425	)	$	47,788
(1) The income tax effect of non-GAAP adjustments is calculated using the statutory tax rates for the relevant jurisdictions if no valuation allowance exists. If a valuation allowance exists, there is no tax impact to the non-GAAP adjustment

54

(Unaudited; in thousands)
SEGMENT RECONCILIATIONS				Three Months Ended June 30,						Six Months Ended June 30,
				2015			2014			2015			2014
	NON-GAAP OPERATING INCOME - ELECTRICITY
		Electricity - GAAP operating income (loss)		$	3,904		$	(1,247	)	$	6,300		$	(24,216	)
			Amortization of intangible assets	4,428			6,189			8,883			12,344
			Restructuring expense	(2,703		)	(7,925		)	(5,830		)	(8,455		)
			Acquisition-related expenses	(4,607		)	89			(2,283		)	531
			Goodwill impairment	—			—			—			977
		Electricity - Non-GAAP operating income (loss)		$	1,022		$	(2,894	)	$	7,070		$	(18,819	)
	NON-GAAP OPERATING INCOME - GAS
		Gas - GAAP operating income		$	14,742		$	24,329		$	28,334		$	50,053
			Amortization of intangible assets	1,945			2,681			3,915			5,370
			Restructuring expense	(1,186		)	517			(684		)	214
		Gas - Non-GAAP operating income		$	15,501		$	27,527		$	31,565		$	55,637
	NON-GAAP OPERATING INCOME - WATER
		Water - GAAP operating income (loss)		$	(11,511	)	$	20,519		$	(3,414	)	$	41,162
			Amortization of intangible assets	1,515			2,239			3,063			4,465
			Restructuring expense	156			453			273			1,010
		Water - Non-GAAP operating income (loss)		$	(9,840	)	$	23,211		$	(78	)	$	46,637
	NON-GAAP OPERATING INCOME - CORPORATE UNALLOCATED
		Corporate unallocated - GAAP operating loss		$	(11,086	)	$	(11,674	)	$	(21,632	)	$	(30,533	)
			Restructuring expense	(501		)	(838		)	(3,440		)	4,962
			Acquisition-related expenses	—			—			—			47
		Corporate unallocated - Non-GAAP operating loss		$	(11,587	)	$	(12,512	)	$	(25,072	)	$	(25,524	)

55

Item 3:    Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business, we are exposed to interest rate and foreign currency exchange rate risks that could impact our financial position and results of operations. As part of our risk management strategy, we may use derivative financial instruments to hedge certain foreign currency and interest rate exposures. Our objective is to offset gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them, therefore reducing the impact of volatility on earnings or protecting the fair values of assets and liabilities. We use derivative contracts only to manage existing underlying exposures. Accordingly, we do not use derivative contracts for trading or speculative purposes.

Interest Rate Risk

We are exposed to interest rate risk through our variable rate debt instruments. In May 2012, we entered into six forward starting pay-fixed, receive one-month LIBOR interest rate swaps. The interest rate swaps convert $200 million of our LIBOR-based debt from a floating LIBOR interest rate to a fixed interest rate of 1.00% (excluding the applicable margin on the debt) and are effective from July 31, 2013 to August 8, 2016.

The table below provides information about our financial instruments that are sensitive to changes in interest rates and the scheduled minimum repayment of principal and the weighted average interest rates at June 30, 2015. Weighted average variable rates in the table are based on implied forward rates in the Reuters U.S. dollar yield curve as of June 30, 2015 and our estimated leverage ratio, which determines our additional interest rate margin at June 30, 2015.

	2015			2016			2017			2018			2019			Beyond 2019			Total		Fair Value
	(in thousands)
Variable Rate Debt
Principal: U.S. dollar term loan	$	5,625		$	11,250		$	14,063		$	19,688		$	22,500		$	151,874		$	225,000	$	225,000
Average interest rate	1.85		%	2.39		%	3.13		%	3.66		%	4.10		%	4.51		%
Principal: Multicurrency revolving line of credit	$	—		$	—		$	—		$	—		$	—		$	147,958		$	147,958	$	147,958
Average interest rate	1.79		%	2.22		%	2.82		%	3.25		%	3.61		%	3.94		%
Interest rate swap on LIBOR-based debt
Average interest rate (Pay)	1.00		%	1.00		%	—		%	—		%	—		%	—		%
Average interest rate (Receive)	0.35		%	0.75		%	—		%	—		%	—		%	—		%
Net/Spread	(0.65		)%	(0.25		)%	—		%	—		%	—		%	—		%

Based on a sensitivity analysis as of June 30, 2015, we estimate that, if market interest rates average one percentage point higher in 2015 than in the table above, our financial results in 2015 would not be materially impacted.

We continually monitor and assess our interest rate risk and may institute additional interest rate swaps or other derivative instruments to manage such risk in the future.

Foreign Currency Exchange Rate Risk

We conduct business in a number of countries. As a result, over half of our revenues and operating expenses are denominated in foreign currencies, which expose our account balances to movements in foreign currency exchange rates that could have a material effect on our financial results. Our primary foreign currency exposure relates to non-U.S. dollar denominated transactions in our international subsidiary operations, the most significant of which is the euro. Revenues denominated in functional currencies other than the U.S. dollar were 50% and 52% of total revenues for the three and six months ended June 30, 2015 compared with 59% for the same respective periods in 2014.

We are also exposed to foreign exchange risk when we enter into non-functional currency transactions, both intercompany and third party. At each period-end, non-functional currency monetary assets and liabilities are revalued, with the change recorded to other income (expense), net. We enter into monthly foreign exchange forward contracts (a total of 276 contracts were entered into during the six months ended June 30, 2015) not designated for hedge accounting, with the intent to reduce earnings volatility associated with certain of these balances. The notional amounts of the contracts ranged from $150,000 to $22.0 million, offsetting our exposures from the euro, British pound, Canadian dollar, Australian dollar, Mexican peso, and various other currencies.

In future periods, we may use additional derivative contracts to protect against foreign currency exchange rate risks.

56

Item 4:    Controls and Procedures

(a) Evaluation of disclosure controls and procedures. At June 30, 2015, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that as of June 30, 2015, our disclosure controls and procedures were effective to ensure the information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

(b) Changes in internal controls over financial reporting. In the ordinary course of business, we review our system of internal control over financial reporting and make changes to our applications and processes to improve such controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient applications and automating manual processes. We are currently upgrading our global enterprise resource software applications at our locations outside of the United States. We will continue to upgrade our financial applications in stages, and we believe the related changes to processes and internal controls will allow us to be more efficient and further enhance our internal control over financial reporting.

Additionally, we have established a shared services center in Europe, and we are currently transitioning certain finance and accounting activities within our EMEA locations to the shared services center in a staged approach. The implementation of our shared services is ongoing, and we believe the related changes to processes and internal controls will allow us to be more efficient and further enhance our internal control over financial reporting.

There have been no other changes in our internal control over financial reporting during the three months ended June 30, 2015 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

57

PART II: OTHER INFORMATION

Item 1: Legal Proceedings

Refer to Item 1: “Financial Statements, Note 11: Commitments and Contingencies”.

Item 1A: Risk Factors

There were no material changes to risk factors during the second quarter of 2015 from those previously disclosed in Item 1A: "Risk Factors" of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which was filed with the SEC on February 20, 2015.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) Not applicable.

(c) Issuer Repurchase of Equity Securities

The table below summarizes information about our repurchases of our equity securities, based on settlement date, during the quarterly period ended June 30, 2015.

Period	Total Number of Shares Purchased(1)	Average Price Paid per Share(2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
					(in thousands)
April 1 through April 30	52,775	$	36.79	52,775	$	45,000
May 1 through May 31	—	—		—	45,000
June 1 through June 30	136,000	36.04		136,000	40,098
Total	188,775	$	36.25	188,775

⁽¹⁾  On February 19, 2015, Itron's Board authorized a new repurchase program of up to $50 million of our common stock over a 12-month period beginning February 19, 2015. Repurchases are made in the open market or in privately negotiated transactions, and in accordance with applicable securities laws. No shares were purchased outside of this plan.

⁽²⁾  Includes commissions.

Subsequent to June 30, 2015, we repurchased 230,000 shares of our common stock under the stock repurchase program authorized by the Board of Directors on February 19, 2015. The average price paid per share was $32.00.

Item 5: Other Information

(a) No information was required to be disclosed in a report on Form 8-K during the second quarter of 2015 that was not reported.

(b) Not applicable.

58

Item 6: Exhibits

Exhibit Number	Description of Exhibits
4.1	Amended and Restated Credit Agreement dated June 23, 2015 among Itron, Inc. and a syndicate of banks led by Wells Fargo Bank, National Association, JPMorgan Chase Bank, N.A., J.P. Morgan Europe Limited and BNP Paribas (Filed as Exhibit 4.1 to Itron, Inc.'s Current Report on Form 8-K, filed on June 23, 2015)
4.2	First Amendment to Security Agreement dated June 23, 2015 among Itron, Inc. and Wells Fargo Bank, National Association (Filed as Exhibit 4.2 to Itron, Inc.'s Current Report on Form 8-K, filed on June 23, 2015)
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase.
101.DEF	XBRL Taxonomy Extension Definition Linkbase.
101.LAB	XBRL Taxonomy Extension Label Linkbase.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase.

59

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ITRON, INC.
August 6, 2015	By:	/s/ W. MARK SCHMITZ
Date		W. Mark Schmitz
		Executive Vice President and Chief Financial Officer

60