Business Combinations (Text Block)

6 Months Ended

Jun. 30, 2017

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Business Combinations

On June 1, 2017, we completed the acquisition of Comverge, which was financed through borrowings on our multicurrency revolving line of credit and cash on hand. Comverge is a leading provider of integrated demand response, and customer engagement solutions that enable electric utilities to ensure grid reliability, lower energy costs for consumers, meet regulatory demands, and enhance the customer experience. Comverge's technologies are complementary to our Electricity segment's growing software and services offerings, and will help optimize grid performance and reliability.

The preliminary purchase price of Comverge is $99.5 million in cash, net of $18.2 million of cash and cash equivalents acquired. We have made a preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on estimated fair value assessments. We are continuing to collect information to determine the fair values of intangible assets, working capital, and deferred income taxes, all of which would affect goodwill. The fair values of these assets and liabilities are provisional until we are able to complete our assessment. The following reflects our preliminary allocation of purchase price as of June 1, 2017:

	Fair Value			Weighted Average Useful Life
	(in thousands)			(in years)
Current assets	$	15,118
Property, plant, and equipment	2,275
Other long-term assets	832
Identified intangible assets
Core-developed technology	19,250			8
Customer contracts and relationships	12,230			10
Trademarks and trade names	4,310			15
Total identified intangible assets subject to amortization	35,790			10
In-process research and development (IPR&D)	710
Total identified intangible assets	36,500
Goodwill	60,286
Current liabilities	(10,787		)
Long-term liabilities	(4,747		)
Total net assets acquired	$	99,477

The fair values for the identified core-developed technology, trademarks, and IPR&D intangible assets were estimated using the income approach. Under the income approach, the fair value reflects the present value of the projected cash flows that are expected to be generated. Core-developed technology represents the fair values of Comverge products that have reached technological feasibility and were part of Comverge's product offerings at the date of the acquisition. Customer contracts and relationships represent the fair value of the relationships developed with its customers, including the backlog, and these were valued utilizing the replacement cost method, which measures the value of an asset based on the cost to replace the existing asset. The core-developed technology, trademarks, and IPR&D intangible assets valued using the income approach will be amortized using the estimated discounted cash flows assumed in the valuation models. Customer contracts and relationships will be amortized using the straight-line method.

IPR&D assets acquired represent the fair value of Comverge research and development projects that have not yet reached technological feasibility. These projects are expected to be completed in the next six months. Incremental costs to be incurred for these projects, currently estimated at $0.8 million, will be recognized as incurred in the product development line item of the Statement of Operations.

Goodwill of $60.3 million arising from the acquisition consists largely of the synergies expected from combining the operations of Itron and Comverge, as well as certain intangible assets that do not qualify for separate recognition. All of the goodwill balance was assigned to the Electricity reporting unit and segment. We will not be able to deduct any of the goodwill balance for income tax purposes.

The following table presents the revenues and net income from Comverge's operations that are included in our Consolidated Statements of Operations:

	June 1, 2017 - June 30, 2017
	(in thousands)
Revenues	$	4,796
Net income (loss)	(1,786		)

The following supplemental pro forma results are based on the individual historical results of Itron and Comverge, with adjustments to give effect to the combined operations as if the acquisition had been consummated on January 1, 2016.

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	( in thousands)
Revenues	$	511,024	$	527,754	$	1,002,786	$	1,038,934
Net income	18,954		19,639		34,061		24,755

The significant nonrecurring adjustments reflected in the proforma schedule above are not considered material and include the following:

• Elimination of transaction costs incurred by Comverge and Itron prior to the acquisition completion

• Reclassification of acquisition and integration related expenses incurred after the acquisition to the appropriate periods assuming the acquisition closed on January 1, 2016

The supplemental pro forma results are intended for information purposes only and do not purport to represent what the combined companies' results of operations would actually have been had the transaction in fact occurred at an earlier date or project the results for any future date or period.