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 our global water, and heat and allocation 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: revenues, gross profit (margin), and operating income (margin). 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 are not allocated to the segments, nor are 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; smart metering solutions that include one or several of the following: smart electricity meters; smart electricity communication modules; prepayment systems, including smart key, keypad, and smart card communication technologies; smart 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; smart metering solutions that include one or several of the following: smart gas meters; smart gas communication modules; prepayment systems, including smart key, keypad, and smart card communication technologies; smart 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; smart metering solutions that include one or several of the following: smart water meters and communication modules; smart heat meters; smart 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.

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



	Year Ended December 31,
	2017			2016			2015
	(in thousands)
Revenues
Electricity	$	1,022,939		$	938,374		$	820,306
Gas	533,624			569,476			543,805
Water	461,634			505,336			519,422
Total Company	$	2,018,197		$	2,013,186		$	1,883,533

Gross profit
Electricity	$	318,953		$	282,677		$	225,446
Gas	191,303			205,063			185,559
Water	164,898			172,580			145,680
Total Company	$	675,154		$	660,320		$	556,685

Operating income
Electricity	$	93,566		$	68,287		$	31,104
Gas	74,206			66,813			67,471
Water	44,494			37,266			19,864
Corporate unallocated	(60,840		)	(76,155		)	(65,593		)
Total Company	151,426			96,211			52,846
Total other income (expense)	(16,851		)	(11,584		)	(15,744		)
Income before income taxes	$	134,575		$	84,627		$	37,102

During the year ended December 31, 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. This resulted in a decrease to gross profit of $29.4 million for the year ended December 31, 2015. After adjusting for the tax impact, this charge resulted in a decrease to basic and diluted EPS of $0.47 for the year ended December 31, 2015.

During the year ended December 31, 2017, we recognized an insurance recovery associated with warranty expenses previously recognized as a result of our 2015 product replacement notification discussed above. As a result, gross profit increased $8.0 million for the year ended December 31, 2017. After adjusting for the tax impact, the recovery resulted in an increase of $0.13 and $0.12 for basic and diluted EPS, respectively, for the year ended December 31, 2017.

For the year ended December 31, 2017, one customer represented 19% and two additional customers each represented 11% of the Electricity operating segment revenues. There was no single customer that represented more than 10% of total Company or the Gas or Water operating segment revenues.

For the years ended December 31, 2016, two customers represented 12% and 10% of total Electricity operating segment revenues, respectively. There was no customer that represented more than 10% of total Company or the Gas or Water operating segment revenues.

For the years ended December 31, 2015, 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:



	Year Ended December 31,
	2017		2016		2015
	(in thousands)
United States and Canada	$	1,137,508	$	1,126,787	$	997,293
Europe, Middle East, and Africa (EMEA)	672,942		698,106		701,301
Other	207,747		188,293		184,939
Total Company	$	2,018,197	$	2,013,186	$	1,883,533

Revenues are allocated to countries and regions based on the location of the selling entity.

Property, plant, and equipment, net, by geographic area were as follows:



	At December 31,
	2017		2016
	(in thousands)
United States	$	67,764	$	70,435
Outside United States	133,004		106,023
Total Company	$	200,768	$	176,458

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



	Year Ended December 31,
	2017		2016		2015
	(in thousands)
Electricity	$	24,703	$	28,468	$	35,896
Gas	18,800		20,714		20,288
Water	16,092		18,675		19,459
Corporate unallocated	3,620		461		350
Total Company	$	63,215	$	68,318	$	75,993