2021 | ANNUAL REPORT
TO OUR SHAREHOLDERS
2021 IN SUMMARY
As providers of essential energy, water
As an industrial IoT leader, demand for
and city services, Itron’s customers form
our solutions has never been higher. By
the foundation of modern society. With our
supporting our customers’ technology needs,
customers around the globe, we improve the
Itron’s Networked Solutions and Outcomes
quality of life, ensure the safety and promote
helped drive record demand in 2021. Itron
the well-being of millions of people. It has
had a record year with over $2.8 billion in
never been more apparent that the work we
bookings and a record total backlog of over
do at Itron profoundly matters.
$4.0 billion, thanks to the strength of our
portfolio and domain expertise that supports
At Itron, we are committed to helping our
utilities and cities around the globe.
customers address the dynamic challenges
facing our industry, open new possibilities
Illustrating Itron’s expertise as an IoT platform
for better service, improve responsiveness
solution provider for software and managed
and support more sustainable growth. From
services, we were named a Visionary in the
reducing risk of climate disruption and natural
Gartner Magic Quadrant for Managed IoT
disasters; to preparing for opportunities such
Connectivity Services, Worldwide. Our IIoT
as the proliferation of electric vehicles (EVs)
leadership extends beyond awards, with
and the transition to more renewable energy;
an industry leading 3.8 million Distributed
to ensuring consistent, reliable service that
Intelligence-capable endpoints deployed,
keeps homes safe and warm, cities bright
82 million customer endpoints under
and clean water flowing, Itron’s technology
Itron’s management and over 200 million
supports our customers’ needs today and
communicating endpoints around the globe.
future-proofs them for tomorrow.
We strengthened our solution portfolio in
2021 with the acquisition of SELC, which
enables Itron to expand the capabilities of
our smart city platform. We also launched
several new products from our research and
development team, including our Optimizer
platform, which will allow utilities and cities
to more effectively manage EVs, energy
storage, distributed generation and other
distribution assets at the edge of their low
voltage distribution grid.
As we continue to drive our business
toward a higher value asset light model,
Itron announced the sale of our non-
communicating mechanical C&I gas business
to Dresser Utility Solutions, which allows
Itron to increase our focus on innovative
distributed intelligent, communication-
MORE INTELLIGENCE.
MORE POSSIBILITIES.
With demand for our intelligent solutions at
an all-time high, we remain laser focused on
partnering with our customers to make the
world more efficient, sustainable and better
prepared for whatever tomorrow brings.
We continue to organically invest in solutions
that enable our customers to overcome the
dynamic challenges facing our industry.
The work we do at Itron shapes the world by
helping our customers and their customers
gain insights and control over the use of their
essential resources. Our work is critical not
only for today but for future generations to
come. We take pride in serving utilities and
cities around the globe and look forward
to advancing our vision of creating a more
capable endpoints and data-driven outcomes
resourceful world.
for gas, water and electric utilities.
Sincerely,
While interest in Itron solutions is at record
levels, supply chain constraints were
a challenge in 2021. Strong customer
demand was more than offset by the global
semiconductor component constraints, and
we will continue to partner with our suppliers
and customers to manage through these
macro constraints.
Thomas L. Deitrich
President and Chief Executive Officer
[THIS PAGE INTENTIONALLY LEFT BLANK]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2021
OR
☐ 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
(State of Incorporation)
91-1011792
(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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, no par value
Trading Symbol(s)
ITRI
Name of each exchange on which registered
NASDAQ Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company"
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2021 (the last business day of the registrant's most recently completed second fiscal quarter), the aggregate market value of the shares of
common stock held by non-affiliates of the registrant (based on the closing price for the common stock on the NASDAQ Global Select Market) was
$4,476,900,241.
As of February 23, 2022, there were outstanding 45,008,799 shares of the registrant's common stock, no par value, which is the only class of common stock of
the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the definitive Proxy Statement for the Annual Meeting of Shareholders of the Company to
be held on May 12, 2022.
Itron, Inc.
Table of Contents
PART I
Item 1:
Business
Item 1A: Risk Factors
Item 1B: Unresolved Staff Comments
Item 2:
Item 3:
Item 4:
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5:
Item 6:
Item 7:
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
Item 8:
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Item 9:
Notes to Consolidated Financial Statements
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A: Controls and Procedures
Item 9B: Other Information
Item 9C: Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10: Directors, Executive Officers and Corporate Governance
Item 11:
Item 12:
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13:
Certain Relationships and Related Transactions, and Director Independence
Item 14:
Principal Accountant Fees and Services
PART IV
Item 15:
Exhibit and Financial Statement Schedules
SIGNATURES
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In this Annual Report on Form 10-K, the terms "we", "us", "our", "Itron", and the "Company" refer to Itron, Inc.
Certain Forward-Looking Statements
This report contains, and our officers and representatives may from time to time make, "forward-looking statements" within the
meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements
are neither historical factors nor assurances of future performance. These statements are based on our expectations about,
among others, revenues, operations, financial performance, earnings, liquidity, earnings per share, cash flows and
restructuring activities including headcount reductions and other cost savings initiatives. This document reflects our current
strategy, plans and expectations and is based on information currently available as of the date of this Annual Report on Form
10-K. When we use words such as "expect", "intend", "anticipate", "believe", "plan", "goal", "seek", "project", "estimate",
"future", "strategy", "objective", "may", "likely", "should", "will", "will continue", and similar expressions, including related to
future periods, they are intended to identify forward-looking statements. Forward-looking statements rely on a number of
assumptions and estimates. Although we believe the estimates and assumptions upon which these forward-looking statements
are based are reasonable, any of these estimates or assumptions could prove to be inaccurate and the forward-looking
statements based on these estimates and assumptions could be incorrect. Our operations involve risks and uncertainties, many
of which are outside our control, and any one of which, or a combination of which, could materially affect our results of
operations and whether the forward-looking statements ultimately prove to be correct. Actual results and trends in the future
may differ materially from those suggested or implied by the forward-looking statements depending on a variety of factors.
Therefore, you should not rely on any of these forward-looking statements. Some of the factors that we believe could affect our
results include our ability to execute on our restructuring plans, our ability to achieve estimated cost savings, the rate and
timing of customer demand for our products, rescheduling of current customer orders, changes in estimated liabilities for
product warranties, adverse impacts of litigation, changes in laws and regulations, our dependence on new product
development and intellectual property, future acquisitions, changes in estimates for stock-based and bonus compensation,
increasing volatility in foreign exchange rates, international business risks, uncertainties caused by adverse economic
conditions, including, without limitation those resulting from extraordinary events or circumstances such as the COVID-19
pandemic and other factors that are more fully described in Part I, Item 1A: Risk Factors included in this Annual Report and
other reports on file with the Securities and Exchange Commission. We undertake no obligation to update or revise any
forward-looking statement, whether written or oral.
PART I
Item 1: Business
Available Information
Documents we provide to the Securities and Exchange Commission (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). The information posted on or accessible through our
website is not part of or incorporated by reference into this Annual Report.
General
Itron is a leader in the Industrial Internet of Things (IIoT), enabling utilities and cities to safely, securely and reliably deliver
critical infrastructure solutions to communities around the world. Our proven platform enables smart networks, software,
services, devices and sensors to help our customers better manage their operations in the energy, water, and smart city spaces.
We are among the leading technology and services companies offering end-to-end device solutions, networked solutions, and
outcomes-based products and services to the utility and municipal sectors. Our comprehensive offerings measure, monitor, and
provide data analytics and services that enable utilities and municipalities to manage their critical resources responsibly and
efficiently.
We have over 40 years of experience supporting utilities and municipalities in the management of their data and critical
infrastructure needs and we have delivered continuous innovation to help drive the industry forward. Incorporated in 1977 with
a focus on meter reading services and technology, we entered the electricity meter manufacturing business with the acquisition
of Schlumberger Electricity Metering in 2004. In 2007, we expanded our presence in global meter manufacturing and systems
with the acquisition of Actaris Metering Systems SA. In 2017, we completed our acquisition of Comverge, which enabled us to
offer integrated cloud-based demand response, energy efficiency, and customer engagement solutions. In 2018, we strengthened
1
our ability to deliver a broader set of solutions and to increase the pace of growth and innovation in the utility, smart city, and
broader IIoT markets with the acquisition of Silver Spring Networks, Inc. (SSNI).
Looking forward, we will continue to innovate and support open standards and maintain a device and transport agnostic
platform that enables our customers to meet their needs either directly or via our ecosystem of partners. We support a
worldwide network of connected devices, and we will continue to develop more applications, new opportunities, and enhanced
outcomes for our customers in the future.
The following is a discussion of our solutions, markets, and operating segments. Refer to Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 8: Financial Statements and Supplementary Data for
specific segment results.
Our Business
The way the world manages energy and water will be one of the defining actions of this century. At Itron, we are committed to
creating a more resourceful world—one where energy, water, and city resources are managed safely, securely, and reliably, to
help improve day-to-day life and promote the well-being of people around the world. We invent new ways for cities and
utilities to work together so they can cost-effectively leverage their infrastructure to deliver multiple services and applications
on a reliable, intelligent platform capable of serving all their customers.
Itron helps our customers adapt to a rapidly changing world and to address a number of macro trends, including:
•
•
•
Infrastructure – such as aging utility infrastructure, grid security, renewable energy and storage, and incorporating
electric vehicles into the grid
Environmental – such as extreme weather, resource scarcity and sustainability, safety, monitoring, and management
Social – such as increased customer expectations, urbanization, population increase, and the management of "big data"
and incorporating IIoT technology into their existing operations.
Our solutions include smart networks, software, services, devices, sensors, and data analytics upon a platform that allows our
customers to not only address the changing macro trends listed above but also to address pressing industry challenges to better
manage assets, secure revenue, lower operational costs, improve customer service, develop new business models and revenue
streams, improve safety, and enable efficient management of valuable resources. Our comprehensive solutions and data
analytics also help our customers address operational issues including increasing demand on resources, non-technical loss, leak
detection, environmental and regulatory compliance, integrating renewable and distributed energy sources, and improving
operational reliability.
Itron solutions include technology, software, and services delivered as part of a standalone, one-time purchase or end-to-end
solution over multiple years. The portfolio includes hardware products used for measurement, control, or sensing, with and
without communications capability; a combination of endpoints and network infrastructure with embedded intelligence that is
designed and sold as a complete solution to acquire and transport application-specific data; and value-added services, software,
and products that organize, analyze, and interpret data to gain insights, make decisions, and inform actions. We also offer
managed services, Software-as-a-Service (SaaS), Network-as-a-Service (NaaS), technical support services, licensed hardware
technology, and consulting services.
Industry Drivers
Utility and municipalities are undergoing an evolution in how they operate critical infrastructure, manage scarce resources,
address impacts of climate disruption, and interact with their customers. Efficiently managing resources within energy, water,
and cities is a top priority globally, as increasing populations and resource consumption along with extreme weather events
continue to stress an aging infrastructure. The growing demand for energy, water, and municipal services coupled with the
proliferation of renewable energy sources, smart communicating devices, sensors, and multiple data-producing technologies is
forcing providers to rethink how they operate and service their communities. This evolution comes at a time when utilities and
municipalities are challenged by cost constraints, regulatory requirements, environmental concerns, safety, and resource
scarcity. Itron provides its customers with solution-based offerings to safely, securely, and reliably optimize their critical
infrastructure to improve the efficiency of their services and to better understand their customers with near real-time knowledge
of their resource usage. An added benefit of our solutions is that a utility or municipality can empower its customers to
understand and have control over their resource usage, allowing for better management and conservation of valuable resources.
2
To address these challenges, utilities and cities are looking to leverage innovations across a networked platform, such as edge
(or distributed) intelligence to build and maintain critical infrastructure that can:
•
•
•
•
•
•
efficiently and effectively operate energy and water systems that are safe, reliable, and resilient
reduce the risk and impact of natural disasters
think for itself, repair itself, and anticipate problems before they occur
deliver enhanced, more personalized services at lower cost
accommodate next-generation services through shared infrastructure between utilities and cities/municipalities
provide actionable insights for asset management.
Our Operating Segments
We operate under the Itron brand worldwide and manage and report under three operating segments: Device Solutions,
Networked Solutions, and Outcomes. The following is a description of each of the three segments:
Device Solutions – This segment primarily includes hardware products used for measurement, control, or sensing that do
not have communications capability embedded for use with our broader Itron systems, i.e., hardware-based products not
part of a complete end-to-end solution. Examples from the Device Solutions portfolio include: standard endpoints that are
shipped without Itron communications, such as our standard gas, electricity, and water meters for a variety of global
markets and adhering to regulations and standards within those markets, as well as our heat and allocation products;
communicating meters that are not a part of an Itron end-to-end solution, such as Smart Spec meters; and the
implementation and installation of non-communicating devices, such as gas regulators.
Networked Solutions – This segment primarily includes a combination of communicating devices (e.g., smart meters,
modules, endpoints, and sensors), network infrastructure, and associated application software designed and sold as a
complete solution for acquiring and transporting robust application-specific data. Networked Solutions includes products
and software for the implementation, installation, and management of communicating devices and data networks.
Examples from the Networked Solutions portfolio include: communicating measurement, control, or sensing endpoints,
such as our Itron OpenWay® Centron and Riva meters, Itron traditional ERT® technology, Intelis smart gas meters, 500G
gas communication modules, 500W water communication modules, GenX networking infrastructure products and network
interface cards (NICs); Smart City control and management software; Distribution Automation bridge devices; and specific
network control and management software applications. The IIoT solutions supported by this segment include automated
meter reading (AMR), advanced metering infrastructure (AMI), smart grid and distribution automation, smart street
lighting, and an ever-growing set of smart city applications such as traffic management, smart parking, air quality
monitoring, electric vehicle charging, customer engagement, digital signage, acoustic (e.g., gunshot) detection, and leak
detection and mitigation for both gas and water systems. Our IIoT platform allows all these industry and smart city
applications to be run and managed on a single, multi-purpose network.
Outcomes – This segment primarily includes our value-added, enhanced software and services in which we manage,
organize, analyze, and interpret data to improve decision making, maximize operational profitability, drive resource
efficiency, and deliver results for consumers, utilities, and smart cities. Outcomes places an emphasis on delivering to Itron
customers high-value, turn-key, digital experiences by leveraging the footprint of our Device Solutions and Networked
Solutions segments. The revenues from these offerings are primarily recurring in nature and would include any direct
management of Device Solutions, Networked Solutions, and other products on behalf of our end customers. Examples from
the Outcomes portfolio include: our meter data management and analytics offerings; our managed service solutions
including NaaS and Platform-as-a-Service (PaaS); forecasting software and services; our Distributed Energy Management
suite of products and services; our Distributed Intelligence suite of applications and services; and any consulting-based
engagement. Within the Outcomes segment, we also identify new business models, including performance-based
contracting, to drive broader portfolio offerings across utilities and cities.
3
Bookings and Backlog of Orders
Bookings for a reported period represent customer contracts and purchase orders received during the period for hardware,
software, and services 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 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, as well as frame contracts.
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. Total bookings and backlog include certain contracts with termination for convenience
clause, which will not agree to the total transaction price allocated to the remaining performance obligations disclosed in
Item 8: Financial Statements and Supplementary Data, Note 17: Revenues.
Year Ended
In millions
December 31, 2021
December 31, 2020
December 31, 2019
Total Bookings
Total Backlog
12-Month Backlog
$
2,755 $
2,213
2,551
4,017 $
3,259
3,207
1,539
1,204
1,499
Our total backlog, as of December 31, 2021, included $64.7 million of backlog related to the sale of certain business lines to
Dresser Utility Solutions (Dresser). We expect approximately $50 million of this backlog will transfer to Dresser at transaction
close on February 28, 2022. For more information on the transaction see Item 8: Financial Statements and Supplementary Data,
Note 18: Sale of Businesses.
Sales and Distribution
We use a combination of direct and indirect sales channels in our operating segments. A direct sales force is utilized for large
electric, natural gas, and water utilities, with which we have long-established relationships. This direct sales force is focused on
solution selling, solving problems and business challenges, and delivering valuable outcomes to our utility and smart city
customers. For smaller utilities and municipalities, we typically use an indirect sales channel that extends the reach of Itron's
solutions by empowering trusted partners with the right tools, training, and technology to grow their business, deliver results,
and help these customers better manage energy and water. These channels consist of distributors, sales representatives, partners,
and meter manufacturer representatives.
No single customer represented more than 10% of total revenues for the years ended December 31, 2021, 2020, and 2019. Our
10 largest customers in each of the years ended December 31, 2021, 2020, and 2019, accounted for approximately 25%, 33%,
and 31% of total revenues.
Manufacturing
Our products require a wide variety of components and materials, which are subject to price and supply fluctuations. We enter
into standard purchase orders in the ordinary course of business, which can include purchase orders for specific quantities based
on market prices, as well as open-ended agreements that provide for estimated quantities over an extended shipment period,
typically up to one year at an established unit cost. Although we have multiple sources of supply for many of our material
requirements, certain components and raw materials are supplied by limited or sole-source vendors, and our ability to perform
certain contracts depends on the availability of these materials. Refer to Item 1A: Risk Factors for further discussion related to
manufacturing and supply risks.
Our manufacturing facilities are located throughout the world, an overview of which is presented in Item 2: Properties. While
we manufacture and assemble a portion of our products, we outsource the manufacturing of many products to various
manufacturing partners and strive to create an efficient and cost-effective structure. This approach allows us to reduce the costs
related to our manufacturing overhead and inventory and also allows us to adjust more quickly to changing customer demand.
These manufacturing partners assemble our sub-assemblies and products using design specifications, quality assurance
programs, and standards that we establish and procure components and assemble our products based on demand forecasts.
These forecasts represent our estimates of future demand for our products based upon historical trends and analysis from our
sales and product management functions, as adjusted for overall market conditions.
4
Partners
In connection with delivering solutions and systems to our customers, we frequently partner with third-party vendors to provide
hardware, software, or services, e.g., meter installation and communication network equipment and infrastructure. Due to the
interoperable, open-standards based nature of our platform, we have also cultivated a highly diverse and growing ecosystem of
partners and third-party developers who can create complementary solutions for our customers that run on the same network
and within the same platform framework.
Our ability to perform on our contractual obligations with our customers is dependent on these partners meeting their
obligations to us. Refer to Item 1A: Risk Factors for further discussion related to third-party vendors and strategic partners.
Research and Development
Our research and development is focused on both improving existing technology and developing innovative new technology for
electricity, natural gas, water, and heat endpoints, sensing and control devices, data collection software, communication
technologies, data warehousing, software applications, and the IIoT. We invested approximately $197 million, $194 million,
and $202 million in research and development in 2021, 2020 and 2019, which represented 10%, 9% and 8% of total revenues
for 2021, 2020 and 2019. Refer to Item 1A: Risk Factors for further discussion related to costs of developing competitive
products and services.
Human Capital
As of December 31, 2021, we had 6,065 people in our workforce, including 5,635 permanent employees. We have not
experienced significant employee work stoppages and consider our employee relations to be good.
We are an equal opportunity employer, and we promote a culture of inclusion and diversity. We monitor our progress through
various programs and policies. We offer wages and a range of company-paid benefits we believe are competitive with other
companies in our industry. Benefits offered vary depending on the countries where we operate.
The table below provides the breakdown of our employees by region and self-identified gender:
Region
Americas
Europe, Middle East and Africa
Asia Pacific & Other
Total (1)
(1)
As of December 31, 2021
Male
Female
Total Number of
Employees
1,805
1,339
811
3,955
771
701
208
1,680
2,576
2,040
1,019
5,635
Percentage of
Total Employees
46 %
36 %
18 %
These numbers do not include contingent workers (430 as of December 31, 2021)
Competition
We enable utilities and cities to safely, securely, and reliably deliver critical infrastructure services to communities around the
world. Our portfolio of smart networks, software, services, meters, and sensors help our customers better manage electricity,
gas, water, and city infrastructure resources for the people they serve. Consequently, we operate within a large and complex
competitive landscape, and our competitors range from small companies to large, established corporations. Some of our
competitors have diversified product portfolios and participate in multiple geographic markets, while others focus on specific
regional markets and/or certain types of products, including some low-cost suppliers of devices based in China and India. Our
primary competitors include Landis+Gyr; Hubbell (formerly Aclara Inc.); Xylem, Inc. (formerly Sensus); Badger Meter, Inc.;
and Mueller Water Products.
We believe that our competitive advantage is based on our in-depth knowledge of the industries we serve, our capacity to
innovate, and our ability to provide complete end-to-end integrated solutions. We also differentiate ourselves with an intelligent
IIoT platform that is solution, device, and transport agnostic—a platform that is backwards compatible, able to run a multitude
of applications and solutions, is highly secure, fully integrated into our portfolio, highly interoperable, captures relays, and
leverages high-resolution data for near real-time decision making. The platform involves an ever-growing, diverse ecosystem of
partners and third-party developers who can create and deploy specific point solutions creating greater value for our customers.
We are a global leader in the IIoT category; an industry leader in communication modules deployed; a leading industry
innovator; a leader in electricity, gas, and water end-to-end solutions; and a global leader in meters under managed services. We
continue to serve our established customer relationships and expand upon our track record of delivering reliable, accurate, and
long-lived products and services.
5
Refer to Item 1A: Risk Factors for a discussion of the competitive pressures we face.
Strategic Alliances
We pursue strategic alliances with other companies in areas where collaboration can produce product advancement and
acceleration of entry into new markets. The objectives and goals of a strategic alliance can include one or more of the
following: technology exchange, research and development, joint sales and marketing, or access to new geographic markets.
Refer to Item 1A: Risk Factors for a discussion of risks associated with strategic alliances.
Intellectual Property
Our patents and patent applications cover a range of technologies that relate to standard metering, smart metering solutions and
technology, meter data management software, knowledge application solutions, and IIoT. We also rely on a combination of
copyrights, patents, and trade secrets to protect our products and technologies. Disputes over the ownership, registration, and
enforcement of intellectual property rights arise in the ordinary course of our business. While we believe patents and trademarks
are important to our operations and, in aggregate, constitute valuable assets, no single patent or trademark, or group of patents
or trademarks, is critical to the success of our business. We license some of our technology to other companies, some of which
are our competitors.
Governmental Regulations
In the ordinary course of our business we are impacted by many governmental regulations, including environmental regulations.
We believe that we are materially in compliance with all federal, state, and local governmental laws, rules, and regulations
applicable to the operation of our business. There are no known regulations pending that will have a substantial adverse impact
on our business, revenue, earnings, or cash flows. However, if new or amended laws or regulations impose significant
operational restrictions and compliance requirements upon the Company or its products, the Company's business, capital
expenditures, results of operations, financial condition and competitive position could be negatively impacted.
6
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Set forth below are the names, ages, and titles of our executive officers as of February 28, 2022.
Name
Thomas L. Deitrich
Joan S. Hooper
Michel C. Cadieux
Sarah E. Hlavinka
Justin K. Patrick
John F. Marcolini
Donald L. Reeves
Age
55
64
64
57
49
49
54
Position
President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
Senior Vice President, Human Resources
Senior Vice President, General Counsel and Corporate Secretary
Senior Vice President, Device Solutions
Senior Vice President, Networked Solutions
Senior Vice President, Outcomes
Thomas L. Deitrich is President and Chief Executive Officer and a member of our Board of Directors. Mr. Deitrich was
appointed to his current position and to the Board of Directors in August 2019. Mr. Deitrich joined Itron in October 2015,
serving as Itron's Executive Vice President and Chief Operating Officer until his promotion to CEO. From 2012 to September
2015, Mr. Deitrich was Senior Vice President and General Manager for Digital Networking at Freescale Semiconductor, Inc.
(Freescale), and he served as the Senior Vice President and General Manager of Freescale's RF, Analog, Sensor, and Cellular
Products Group from 2009 to 2012. Mr. Deitrich had other roles of increasing responsibility at Freescale from 2006 to 2009.
Prior to Freescale, Mr. Deitrich worked for Flextronics, Sony-Ericsson/Ericsson, and GE. Mr. Deitrich is a director of ON
Semiconductor Corporation, a NASDAQ listed company.
Joan S. Hooper is Senior Vice President and Chief Financial Officer. Ms. Hooper was appointed to this role in June 2017.
Prior to joining Itron, Ms. Hooper was Chief Financial Officer of CHC Helicopter from 2011 to July 2015. Following Ms.
Hooper's departure from CHC, CHC filed a voluntary petition of relief under Chapter 11 of the U.S. Bankruptcy Code in May
2016, and CHC emerged from bankruptcy in March 2017. Prior to CHC, she held several executive finance positions at Dell,
Inc. from 2003 to 2010, including Vice President and Chief Financial Officer for its Global Public and Americas business units,
Vice President of Corporate Finance and Chief Accounting Officer.
Michel C. Cadieux is Senior Vice President, Human Resources and has been so since joining Itron in February 2014. From
2008 to 2012, Mr. Cadieux was Senior Vice President of Human Resources and Security at Freescale Semiconductor, Inc.
(Freescale). Mr. Cadieux has more than 30 years leading HR organizations in global technology and manufacturing companies
including Betz Laboratories, the Hudson Bay Company, ING Bank of Canada, Advanced Micro Devices/ATI, and Freescale.
Sarah E. Hlavinka is Senior Vice President, General Counsel and Corporate Secretary. Ms. Hlavinka was appointed to this
role in August 2018. Prior to joining Itron, Ms. Hlavinka served as Executive Vice President, General Counsel and Secretary at
Xerox Corporation from 2017 to 2018. Prior to Xerox Corporation, Ms. Hlavinka was Executive Vice President, General
Counsel and Secretary at ABM Industries Incorporated, a leading provider of integrated facility services from 2007 to 2017.
Ms. Hlavinka is a director of Quanterix Corporation, a NASDAQ listed company.
Justin K. Patrick is Senior Vice President, Device Solutions, where he is responsible for Itron's strategy to become a leading
global provider of measurement, safety, and operational devices for utilities and cities. Mr. Patrick joined Itron in January 2020.
From 2018 to 2020, Mr. Patrick was Vice President & General Manager, Residential Products at Johnson Controls International
(JCI). Before that role, he was Vice President & General Manager, Variable Refrigerant Flow Systems and Ductless from 2014
to 2017, and Director, Channel Strategy and Marketing from 2010 to 2014 at JCI. Prior to his time at JCI, Mr. Patrick held a
sales leadership role at the Auer Steel and Heating Supply Company, and at Carrier Corporation he had roles of increasing
responsibility culminating in general management. Prior to his civilian career, Mr. Patrick served as a Surface Warfare Officer
in the United States Navy.
John F. Marcolini is Senior Vice President, Networked Solutions, where he is responsible for product development,
marketing, and overall strategy for Itron's global networking platforms and smart cities strategy and solutions. Mr. Marcolini
was appointed to this role in July 2020. Mr. Marcolini joined Itron in January 2018 as part of Itron's acquisition of SSNI as the
Vice President of product management, responsible for product strategy and lifecycle management across Itron's smart energy,
smart city and IIoT portfolios. He has more than 20 years of product management, business development, and customer
delivery experience with deep technical knowledge of networking, radio frequency technologies, and IIoT. Mr. Marcolini has
also spent many years working with utility customers to deliver and implement complex product deployments.
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Donald L. Reeves is Senior Vice President, Outcomes, where he is responsible for Itron's software and services offerings,
delivery teams, managed services operations, and customer support. Mr. Reeves was appointed to this role in September 2019.
Mr. Reeves joined Itron in January 2018 as part of Itron's acquisition of SSNI, and, from 2016 to 2018, he was SSNI's Chief
Technology Officer. From 2005 to 2016, Mr. Reeves held several managed services and engineering positions at SSNI. Prior to
joining SSNI, Mr. Reeves served as Vice President of Engineering at Black Pearl from 2003 to 2004 and was Vice President of
Engineering at Commerce One from 2001 to 2003, and prior to that held leadership positions at several startup technology
companies.
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Item 1A: Risk Factors
Business and Industry Risks
We are dependent on the utility industry, which has lengthy and unpredictable sales cycles and has experienced volatility in
capital spending, each of which has and could cause our operating results to fluctuate significantly.
We derive the majority of our revenues from sales of products and services to utilities. Purchases of our products may be
deferred as a result of many factors, including economic downturns, slowdowns in new residential and commercial
construction, customers' access to capital upon acceptable terms, the timing and availability of government subsidies or other
incentives, utility specific financial circumstances, mergers and acquisitions, regulatory decisions, weather conditions and
climate disruption, and fluctuating interest rates. We have experienced, and may in the future experience, variability in
operating results on an annual and a quarterly basis as a result of these factors.
The industries in which we sell our products and services, in particular the utility industry, are subject to substantial government
regulation. For example, regulations have often influenced the frequency of customer meter replacements. Sales cycles for our
standalone meter products have typically been based on annual or biennial bid-based agreements. Utilities place purchase orders
against these agreements as their inventories decline, which can create fluctuations in our sales volumes.
Sales cycles for smart metering solutions are generally long and unpredictable due to several factors, including budgeting,
purchasing, and regulatory approval processes that can take several years to complete. Our utility customers typically issue
requests for quotes and proposals, establish evaluation processes, review different technical options with vendors, analyze
performance and cost/benefit justifications, and perform a regulatory review, in addition to applying the normal budget
approval process. Today, governments around the world are implementing new laws and regulations to promote increased
energy efficiency, slow or reverse growth in the consumption of scarce resources, reduce carbon dioxide emissions, and protect
the environment. Many of the legislative and regulatory initiatives encourage utilities to develop a smart grid infrastructure, and
some of these initiatives provide for government subsidies, grants, or other incentives to utilities and other participants in their
industry to promote transition to smart grid technologies. If government regulations regarding the smart grid and smart metering
are delayed, revised to permit lower or different investment levels in metering infrastructure, or terminated altogether, this
could have a material adverse effect on our results of operation, cash flow, and financial condition.
We must continually shift and adapt our products and services mix, which requires substantial judgment and investment.
Our market is characterized by increasing complexity driven by evolving technology, increased industry regulatory pressures,
and the emergence of new competitive products, all of which impact the way our products and services are designed,
developed, marketed, and delivered. The shift in, and increasing complexity of, our products and services mix involves
judgment and entails risks. In order to successfully design and develop more complex offerings, we must anticipate the right
products, solutions, and technologies to meet estimated market demands. These estimates may prove wrong. Additionally, our
complex offerings may contain defects when they are first introduced; their release may be delayed due to unforeseen
difficulties during product and service design and development; or they may have reliability, quality, or compatibility problems.
We may not be able to successfully design workarounds. Any shift in, or increased complexity of, our products and services
mix may not be easily understood or adopted by our current or future customers, who may be reluctant to buy, or may delay
purchases of, our products and services.
Additionally, our evolving product mix could cause us to incur substantial additional costs if we need to materially improve our
manufacturing infrastructure, develop new systems to deliver our services, or fundamentally change the way in which we
deliver services. Also, if one of our new offerings were competitive to our prior offerings and represented an adequate or
superior alternative, customers could decide to abandon prior offerings that produce higher revenue or better margins than the
new offering. Therefore, the adaptation to new technologies or standards or the development and launch of new products or
services could result in lower revenue, lower margins, and/or higher costs, which could unfavorably impact our financial
performance.
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Our operations may be adversely impacted if key vendors, strategic partners, and other third parties fail to perform.
Certain of our products, subassemblies, and system components, including most of our circuit boards, are procured from limited
or sole sources. We cannot be certain that we will not experience operational difficulties with these sources, including
reductions in the availability of production capacity, errors in complying with product specifications, insufficient quality
control, failures to meet production deadlines, increases in manufacturing costs, vendors' access to capital, and increased lead
times. Additionally, our manufacturers may experience disruptions in their manufacturing operations due to equipment
breakdowns, labor strikes or shortages, natural disasters and pandemics, component or material shortages, cost increases, or
other similar problems. Further, to minimize their inventory risk, our manufacturers might not order components from third-
party suppliers with adequate lead time, thereby impacting our ability to meet our demand forecast. If we fail to manage our
relationship with our manufacturers effectively, or if they experience operational difficulties, our ability to ship products to our
customers and distributors could be impaired, and our competitive position and reputation could be harmed. If we receive
shipments of products that fail to comply with our technical specifications or that fail to conform to our quality control
standards, and we are not able to obtain replacement products in a timely manner, we risk revenue losses from the inability to
sell those products, increased administrative and shipping costs, and lower profitability. Additionally, if defects are not
discovered until after consumers take delivery of our products, they could lose confidence in the technical attributes of our
products, and our business could be harmed. Although arrangements with these partners may contain provisions for warranty
expense reimbursement, we may remain responsible to the consumer for warranty service in the event of product defects and
could experience an unanticipated product defect or warranty liability. While we rely on partners to adhere to our supplier code
of conduct, material violations of the supplier code of conduct could occur.
Delays in the availability of or shortages in raw materials and component parts used in the manufacture of our products, as
well as freight, labor, and other ancillary cost increases, could unfavorably impact our revenues and results of operations.
We are impacted by the availability and prices of raw materials and component parts used in the manufacturing process of our
products. Raw materials include purchased castings made of metal or alloys (such as brass, which uses copper as its main
component, aluminum, stainless steel and cast iron), plastic resins, glass, and other electronic components, such as
microprocessors and semiconductors. There are multiple sources for these raw materials and components, but we sometimes
rely on single suppliers for certain of these materials. Our inability to obtain adequate supplies of raw materials and component
parts at favorable prices could have a material adverse effect on our business, financial condition, or results of operations,
including reduced revenue, lower profit margins, and delays in deliveries to customers, which could result in damages or
penalties to be paid under the terms of certain of our customer contracts. Since we do not control the production of these raw
materials and component parts, there may be delays caused by an interruption in the production or transportation of these
materials for reasons that are beyond our control. World commodity markets, inflation, tariffs or embargoes may also affect the
availability or prices of raw materials or component parts. Recently, inflation in our raw materials and component costs, freight
charges, and labor costs have increased above historical levels, due to, among other things, the continuing impacts of the
pandemic and uncertain economic environment. Certain customer arrangements comprising our backlog may include
previously committed pricing, and we may or may not be able to fully recover increased costs through pricing actions with
these customers.
We have been and will continue to be affected by the ongoing COVID-19 pandemic, and such effects will continue to have an
adverse effect on our business operations, results of operations, cash flows, and financial condition.
We have experienced disruptions to our business from the ongoing COVID-19 pandemic, and the full impact of the COVID-19
pandemic on all aspects of our business and geographic markets is highly uncertain and cannot be predicted with confidence.
This includes how it may impact our customers, employees, vendors, strategic partners, managed services, and manufacturing
operations. The COVID-19 pandemic has created significant volatility, uncertainty, and economic disruption, which may
materially and adversely affect our business operations, cash flows, and financial condition.
The impact of the virus on third parties on which we rely, such as our suppliers, contract manufacturers, distributors, and
strategic partners, cannot be fully known or controlled by us. As a result, we have and will likely continue to experience
difficulties sourcing components, sub-assemblies, outsourced finished goods, and other products and services. In particular, our
ability to obtain adequate supply of semiconductor components has impacted our ability to service recovering customer
demand. While we believe the current imbalance in supply and demand is temporal, the timeline to recovery is uncertain.
Efforts are ongoing with suppliers to increase supply, including the approval of alternate sources. The impact of the COVID-19
pandemic on our customers and demand for our products is also uncertain. Due to resulting financial constraints, illness within
their organizations, quarantine and travel restrictions placed upon our customers' employees, as well as individual actions our
customers may take in response to the spread of COVID-19, our customers may have difficulty in making timely payments to
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us or may have an inability or unwillingness to purchase our products and services. Also, certain of our projects require
regulatory approvals, and our customers may experience delays in regulatory approvals. Any of these effects may materially
and adversely affect us.
We continue to take measures, both voluntary and as a result of government directives and guidance, to mitigate the effects of
the COVID-19 pandemic on us and others. These measures include, among others, restrictions on our employees' access to our
physical work locations and the purchase of personal protective equipment. Additionally, we may implement the temporary
closure or reduction in operations of certain of our facilities, either voluntarily or through imposed lockdowns, which is
disruptive to our operations. We have also implemented measures to allow certain employees to work remotely, which may
place a burden on our IT systems and may expose us to increased vulnerability to cyber-attack and other cyber-disruption.
Many of these measures may result in incremental costs to us, and such costs may not be recoverable or adequately covered by
our insurance. Further, any focus by our management on mitigating COVID-19 effects has required, and will continue to
require, a large investment of time and resources, which may delay other value-add initiatives.
As a company with global operations, we are subject to numerous government jurisdictions at all levels that are addressing
COVID-19 differently. The guidance and directives provided by these governmental authorities is difficult to predict, may be
unclear in their application, and are unknown in duration. This includes uncertainty in governmental authorities' assessments of
our business as "essential". If governmental authorities were to reverse their designation of our business as "essential", it could
have a material effect on our results of operations and cash flows.
The full extent to which the COVID-19 pandemic impacts us depends on numerous evolving factors and future developments
that we are not able to predict at this time, including: medical advancements to treat or stop the virus including the
effectiveness, widespread availability and application of any vaccine; governmental, business, and other actions (which could
include limitations on our operations to provide products or services); the duration and severity of the outbreak, including
resurgence, reinfections, or mutation of the virus, and the related limitations on our ability to conduct business; or the length of
time and velocity at which we will return to more normalized operations. The impact of COVID-19 may also include possible
impairment or other charges and may exacerbate other risks discussed herein, any of which could have a material effect on us.
This situation is changing rapidly and additional impacts may arise that we are not aware of currently.
We face competition which may result in a loss of market share or price erosion of our products and services.
We face competitive pressures from a variety of companies in each of the markets we serve. Some of our present and potential
future competitors have, or may have, substantially greater financial, marketing, technical, or manufacturing resources and, in
some cases, have greater name recognition, customer relationships, and experience. These competitors may sell products and
services at lower prices in order to gain or grow market share, be able to respond more quickly to new or emerging technologies
and changes in customer requirements and may have made or make strategic acquisitions or establish cooperative relationships
among themselves or with third parties that enhance their ability to address the needs of our prospective customers. Other
companies may also drive technological innovation and develop products and services that are equal in quality and performance
or superior to our products and services, which could reduce our market position, reduce our overall sales, and require us to
invest additional funds in new technology development. In addition, our products and services may experience price erosion if
low-cost providers expand their presence in our markets, improve their quality, or form alliances or cooperative relationships
with our competitors or if our products and services become commoditized. For example, some utilities may purchase meters
separately from the communication devices. The specifications for such meters may require interchangeability, which could
lead to further commoditization of the meter, driving prices lower and reducing margins. Pricing pressure is also driven by
other events outside our control, to include movement away from manually read meters, government programs, and new
construction. Should we fail to compete successfully with current or future competitors, or to adequately manage pricing
pressure, we could experience material adverse effects on our business, financial condition, results of operations, and cash
flows.
If we cannot continue to invest in developing competitive products and services, we will not be able to compete effectively.
Our future success will depend, in part, on our ability to continue to develop, design and manufacture competitive products and
services, enhance and sustain our existing products and services, keep pace with technological advances and changing customer
requirements, gain international market acceptance, and manage other factors in the markets in which we sell our products and
services. Product and service development will require continued investment to maintain our competitive position, and the
periods in which we incur significant research and development costs may drive variability in our quarterly results. We may not
have the necessary capital, or access to capital at acceptable terms, to make these investments. We have made, and expect to
continue to make, substantial investments in technology development. However, we may experience unforeseen problems in the
development or performance of our technologies or products, which can prevent us from meeting our research and development
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schedules. New products often require certifications or regulatory approvals before the products can be used, and we cannot be
certain that our new products will be approved in a timely manner, or at all. Finally, we may not achieve market acceptance of
our new products and services.
If we are unable to maintain a high level of customer satisfaction, demand for our products and services could suffer.
We believe that our success depends on our ability to understand and address our customers' requirements and concerns. This
includes our ability to effectively articulate and demonstrate to customers how our products and services meet their needs and to
deliver our products timely as committed, with a sufficient level of quality. In addition, we continue to work toward easing
general concerns about the safety and perceived health risks of using radio frequency communications, as well as privacy
concerns of monitoring home appliance energy usage, which have had some adverse publicity in the past. If we are unable to
overcome these real and perceived risks, we could face customer dissatisfaction, dilution of our brand, decreased overall
demand for our services, and loss of revenue. In addition, our inability to meet customer performance, safety, and service
expectations may damage our reputation and could consequently limit our ability to retain existing customers and attract new
customers, which would adversely affect our ability to generate revenue and unfavorably impact our operating results.
Product defects could disrupt our operations and result in harm to our reputation and financial position.
Our products are complex and may contain defects or experience failures due to any number of issues in design, materials,
deployment, and/or use. If any of our products contain a defect, a compatibility or interoperability issue, or other types of
errors, we may have to devote significant time and resources to identify and correct the issue. We provide product warranties
for varying lengths of time and establish allowances in anticipation of warranty expenses. In addition, we recognize contingent
liabilities for additional product-failure related costs. These warranty and related product-failure allowances may be inadequate
due to product defects and unanticipated component failures, as well as higher than anticipated material, labor, and other costs
we may incur to replace projected product failures. A product recall or a significant number of product returns could be
expensive; damage our reputation and relationships with utilities, meter and communication vendors, other third-party vendors,
or regulatory entities; result in the loss of business to competitors; or result in litigation. We may incur additional warranty
expenses in the future with respect to new or established products, which could materially and adversely affect our operations
and financial position.
Business interruptions could adversely affect our business.
Our worldwide operations could be subject to hurricanes, tornadoes, earthquakes, floods, fires, extreme weather conditions,
medical epidemics or pandemics, geopolitical instability, or other natural or man-made disasters or business interruptions. The
occurrence of any of these business disruptions could seriously harm our business, financial condition, and results of operations.
Our key manufacturing facilities are concentrated, and in the event of a significant interruption in production at any of our
manufacturing facilities, considerable expense, time, and effort could be required to establish alternative production lines to
meet contractual obligations, which would have a material adverse effect on our business, financial condition, and results of
operations.
Asset impairment could result in significant changes that would adversely impact our future operating results.
We have significant inventory, intangible assets, long-lived assets, and goodwill that are susceptible to valuation adjustments as
a result of changes in various factors or conditions, which could impact our results of operations and financial condition.
Factors that could trigger an impairment of such assets include the following:
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reduction in the net realizable value of inventory, which becomes obsolete or exceeds anticipated demand
changes in our organization or management reporting structure, which could result in additional reporting units,
requiring greater aggregation or disaggregation in our analysis by reporting unit and potentially alternative methods/
assumptions of estimating fair values
underperformance relative to projected future operating results
changes in the manner or use of the acquired assets or the strategy for our overall business
unfavorable industry or economic trends
decline in our stock price for a sustained period or decline in our market capitalization below net book value.
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Failure to attract and retain key personnel who are critical to the success of our business could negatively impact our ability to
operate or grow our business.
Our success depends in large part on the efforts of our highly qualified technical and management personnel and highly skilled
individuals in all disciplines. The loss of one or more of these employees and the inability to attract and retain qualified
replacements could have a material adverse effect on our business. In addition, as our products and services become more
technologically complex, it could become especially difficult to recruit or retain personnel with unique in-demand skills and
knowledge, whom we would expect to become recruiting targets for our competitors and for other companies relying on similar
talent. There is no assurance that we will be able to recruit or retain qualified personnel, and this failure could diminish our
ability to develop and deliver new products and services, which could cause our operations and financial results to be
unfavorably impacted.
Changes in accounting principles and guidance could result in unfavorable accounting charges or effects.
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP).
These principles are subject to interpretation by the Securities and Exchange Commission (SEC) and various bodies formed to
create and interpret appropriate accounting principles and guidance. A change in these principles or guidance, or in their
interpretations, may have a material effect on our reported results, as well as our processes and related controls, and may
retroactively affect previously reported results.
Risks Related to Our Corporate Structure and Organization
Our indebtedness could restrict our operational flexibility and prevent us from raising additional capital or meeting our
obligations under our debt instruments.
As of December 31, 2021, our total outstanding indebtedness was $460.0 million as described under Liquidity and Capital
Resources. This indebtedness could have important consequences to us, including:
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increasing our vulnerability to general economic and industry conditions
requiring a substantial portion of our cash flow used in operations to be dedicated to the payment of principal and
interest on our indebtedness, therefore reducing our liquidity and our ability to use our cash flow to fund our
operations, capital expenditures and future business opportunities
requiring us to meet specified financial ratios, a failure of which may result in restrictions on us and our subsidiaries to
take certain actions or result in the declaration of an event of default, which if not cured or waived, may permit
acceleration of required payments against such indebtedness and result in cross defaults under our other indebtedness
exposing us to the risk of increased market interest rates, and corresponding increased interest expense, as unhedged
borrowings under the 2018 credit facility as amended (2018 credit facility) would be at variable rates of interest
limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements,
acquisitions, and general corporate or other purposes.
Our 2018 credit facility places restrictions on our ability, and the ability of many of our subsidiaries, dependent on meeting
specified financial ratios, to, among other things:
• incur more debt
• make certain investments
• pay dividends, make distributions, and repurchase capital stock
• create liens
• execute transactions with affiliates
• execute sale lease-back transactions
• merge or consolidate
• transfer or sell assets
Our ability to make scheduled payments on and/or to refinance our indebtedness depends on, and is subject to, our financial and
operating performance, which is influenced in part by general economic, financial, competitive, legislative, regulatory,
counterparty business, and other risks that are beyond our control, including the availability of financing in the U.S. banking
system and capital markets. We cannot assure you that our business will generate sufficient cash flow from operations or that
future borrowings will be available to us in an amount sufficient to enable us to service our debt, to refinance our debt, or to
fund our other liquidity needs on commercially reasonable terms or at all.
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If we are unable to meet our debt service obligations or to fund our other liquidity needs, we will need to restructure or
refinance all or a portion of our debt, which could cause us to default on our debt obligations and impair our liquidity. Our
ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at
such time. Even if refinancing indebtedness is available, any refinancing of our indebtedness could be at higher interest rates
and may require us to comply with more onerous covenants that could further restrict our business operations.
Moreover, in the event of a default under any of our indebtedness, the holders of the defaulted debt could elect to declare all the
funds borrowed to be due and payable, together with accrued and unpaid interest, which in turn could result in cross defaults
under our other indebtedness. The lenders under the 2018 credit facility could also elect to terminate their commitments
thereunder and cease making further loans, and such lenders could institute foreclosure proceedings against their collateral, and
we could be forced into bankruptcy or liquidation. If we breach our covenants under the 2018 credit facility, we would be in
default thereunder. Such lenders could exercise their rights, as described above, and we could be forced into bankruptcy or
liquidation.
Although our debt instruments contain certain restrictions, these restrictions are subject to a number of qualifications and
exceptions, including that certain trade payables do not constitute indebtedness. Additional indebtedness incurred in compliance
with these restrictions could be substantial. To the extent we incur additional indebtedness or other obligations, the risks
described above and others described herein may increase.
The convertible note hedge and warrant transactions may affect the value our common stock.
In connection with the issuance of the Convertible Notes, we entered into convertible note hedge transactions with certain
financial institutions, which we refer to as the "hedge counterparties". We also entered into warrant transactions with the hedge
counterparties pursuant to which we sold warrants for the purchase of our common stock. The convertible note hedge
transactions are generally to reduce the potential dilution upon any conversion of Convertible Notes and/or offset any cash
payments we are required to make in excess of the principal amount of converted notes, as the case may be. The warrant
transactions would separately have a dilutive effect to the extent that the market price per share of our common stock exceeds
the strike price of any warrants unless, subject to the terms of the warrant transactions, we elect to cash settle the warrants.
The hedge counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various
derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in
secondary market transactions prior to the maturity of the Convertible Notes (and are likely to do so during any observation
period related to a conversion of Convertible Notes or following any repurchase of Convertible Notes by us in connection with
any fundamental change repurchase date or otherwise). This activity could also cause or avoid an increase or a decrease in the
market price of our common stock.
The potential effect, if any, of these transactions and activities on the market price of our common stock or the Convertible
Notes will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely
affect the value of our common stock.
Future sales of our stock in the public market, or the issuance of stock upon conversion of the Convertible Notes, could cause
our stock price to decline.
We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares for sale will
have on the prevailing trading price of our common stock from time to time. Sales of a substantial number of shares of our
common stock could cause the price of our common stock to decline. In addition, a substantial number of shares of our
common stock will be reserved for issuance upon conversion of the Convertible Notes. We may in the future also issue shares
of common stock for financings, acquisitions or equity incentives. If we issue additional shares of common stock in the future,
such issuances would have a dilutive effect on the economic interest of our common stock.
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Our strategy includes acquisitions, divestitures, and investments, which we may not be able to execute or integrate successfully.
In pursuing our business strategy, we may conduct discussions, evaluate companies, and enter into agreements regarding
possible acquisitions, divestitures, or equity investments. We have completed acquisitions and may make investments in the
future, both within and outside of the United States. We may also, if appropriate opportunities present themselves, make
divestitures. Acquisitions, investments, and divestitures involve numerous risks such as the diversion of senior management's
attention; unsuccessful integration of the acquired or disintegration of the divested entity's personnel, operations, technologies,
and products; unidentified or identified but un-indemnified pre-closing liabilities that we may be responsible for; incurrence of
significant expenses to meet an acquiree's customer contractual commitments; lack of market acceptance of new services and
technologies; difficulties in operating businesses in international legal jurisdictions; or transaction-related or other litigation,
and other liabilities. Failure to adequately address these issues could result in the diversion of resources and adversely impact
our ability to manage our business. In addition, acquisitions and investments in third parties may involve the assumption of
obligations, significant write-offs, or other charges associated with the acquisition or investment. Impairment of an investment,
goodwill, or an intangible asset may result if these risks were to materialize. For investments in entities that are not wholly
owned by Itron, such as joint ventures, a loss of control as defined by GAAP could result in a significant change in accounting
treatment and a change in the carrying value of the entity. There can be no assurances that an acquired business will perform as
expected, accomplish our strategic objectives, or generate significant revenues, profits, or cash flows. Any divestiture could
result in disruption to other parts of our business, potential loss of employees or customers, exposure to unanticipated liabilities,
or result in ongoing obligations and liabilities following any such divestiture. For example, in connection with a divestiture, we
may enter into transition services agreements or other strategic relationships, including long-term commercial arrangements,
sales arrangements, or agree to provide certain indemnities to the purchaser in any such transaction, which may result in
additional expense and may adversely affect our financial condition and results of operations.
Our customer contracts are complex and contain provisions that could cause us to incur penalties, be liable for damages, and/
or incur unanticipated expenses with respect to the functionality, deployment, operation, and availability of our products and
services.
In addition to the risk of unanticipated warranty or recall expenses, our customer contracts may contain provisions that could
cause us to incur penalties, be liable for damages including liquidated damages, or incur other expenses if we experience
difficulties with respect to the functionality, deployment, operation, and availability of our products and services. Some of these
contracts contain long-term commitments to a set schedule of delivery or performance and require us to deliver standby letters
of credit or bonds as a guarantee to the customer for our future performance. If we failed in our estimated schedule or we fail in
our management of the project, this may cause delays in completion. In the event of late deliveries, late or improper
installations or operations, failure to meet product or performance specifications or other product defects, or interruptions or
delays in our managed service offerings, our customer contracts may expose us to penalties, liquidated damages, and other
liabilities. In the event we were to incur contractual penalties, such as liquidated damages or other related costs that exceed our
expectations, our business, financial condition, and operating results could be materially and adversely affected. Additionally, if
we were to determine that products and/or services to be delivered under a specific component of a customer contract would
result in a loss due to expected revenues estimated to be less than expected costs, we could be required to recognize a reduction
of revenue in the period we made such determination, and such reduction could be material to our results of operations.
We are subject to international business uncertainties, obstacles to the repatriation of earnings, and foreign currency
fluctuations.
A substantial portion of our revenues is derived from operations conducted outside the United States. International sales and
operations may be subjected to risks such as the imposition of government controls, government expropriation of facilities, lack
of a well-established system of laws and enforcement of those laws, access to a legal system free of undue influence or
corruption, political instability, terrorist activities, restrictions on the import or export of critical technology, currency exchange
rate fluctuations, or adverse tax burdens.
Our business is also subject to foreign currency exchange rates fluctuations, particularly with respect to the euro, Canadian
dollar, Indonesian rupiah, Pound sterling, and various other currencies. Change in the value of currencies of the countries in
which we do business relative to the value of the U.S. dollar, or euro, could affect our ability to sell products competitively and
control our cost structure, which could have an adverse effect on our business, financial condition, and results of operations.
Additionally, we are subject to foreign exchange translation risk due to changes in the value of foreign currencies in relation to
our reporting currency, the U.S. dollar. The translation risk is primarily concentrated in the exchange rate between the U.S.
dollar and the euro. As the U.S. dollar fluctuates against other currencies in which we transact business, revenue and income
can be impacted, include revenue decreases due to unfavorable foreign currency impacts. Strengthening of the U.S. dollar
15
relative to the euro and the currencies of the other countries in which we do business, could materially and adversely affect our
ability to compete in international markets and our sales growth in future periods.
Other risks related to our international operations include lack of availability of qualified third-party financing, generally longer
receivable collection periods than those commonly practiced in the United States, trade restrictions, changes in tariffs, labor
disruptions, difficulties in staffing and managing international operations, difficulties in imposing and enforcing operational and
financial controls at international locations, potential insolvency of international distributors, preference for local vendors,
burdens of complying with different permitting standards and a wide variety of foreign laws, and obstacles to the repatriation of
earnings and cash all present additional risk to our international operations.
International expansion and market acceptance depend on our ability to modify our technology to take into account such factors
as the applicable regulatory and business environment, labor costs, and other economic conditions. In addition, the laws of
certain countries do not protect our products or technologies in the same manner as the laws of the United States. Further,
foreign regulations or restrictions, e.g., opposition from unions or works councils, could delay, limit, or disallow significant
operating decisions made by our management, including decisions to exit certain businesses, close certain manufacturing
locations, or other restructuring actions. There can be no assurance that these factors will not have a material adverse effect on
our future international sales and, consequently, on our business, financial condition, and results of operations.
We may not achieve the anticipated savings and benefits from current or any future restructuring projects and such activities
could cause us to incur additional charges in our efforts to improve profitability.
We have implemented multiple restructuring projects to adjust our cost structure, and we may engage in similar restructuring
activities in the future. These restructuring activities reduce our available employee talent, assets, and other resources, which
could slow research and development, impact ability to respond to customers, increase quality issues, temporarily reduce
manufacturing efficiencies, and limit our ability to increase production quickly. In addition, delays in implementing
restructuring projects, unexpected costs, unfavorable negotiations with works councils or matters involving third-party service
providers, our failure to retain key employees, changes in governmental policies or regulatory matters, adverse market
conditions, or failure to meet targeted improvements could change the timing or reduce the overall savings realized from the
restructuring project.
The successful implementation and execution of our restructuring projects are critical to achieving our expected cost savings as
well as effectively competing in the marketplace and positioning us for future growth. If our restructuring projects are not
executed successfully, it could have a material adverse effect on our competitive position, business, financial condition, cash
flow, and results of operations.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results,
prevent fraud, or maintain investor confidence.
Effective internal controls are necessary for us to provide reliable and accurate financial reports and effectively prevent fraud.
We have devoted significant resources and time to comply with the internal control over financial reporting requirements of the
Sarbanes-Oxley Act. In addition, Section 404 under the Sarbanes-Oxley Act requires that our auditors attest to the operating
effectiveness of our controls over financial reporting. Our compliance with the annual internal control report requirement for
each fiscal year will depend on the effectiveness of our financial reporting, data systems, and controls across our operating
subsidiaries. Furthermore, an important part of our growth strategy has been, and will likely continue to be, the acquisition of
complementary businesses, and we expect these systems and controls to become increasingly complex to the extent that we
integrate acquisitions and our business grows. Likewise, the complexity of our transactions, systems, and controls may become
more difficult to manage. In addition, new accounting standards may have a significant impact on our financial statements in
future periods, requiring new or enhanced controls. We cannot be certain that we won't experience deficiencies in the design,
implementation, and maintenance of adequate controls over our financial processes and reporting in the future, especially for
acquisition targets that may not have been required to comply with Section 404 of the Sarbanes-Oxley Act prior to the date of
acquisition.
Failure to implement new controls or enhancements to controls, difficulties encountered in control implementation or operation,
or difficulties in the assimilation of acquired businesses into our control system could result in additional errors, material
misstatements, or delays in our financial reporting obligations. Inadequate internal controls could also cause investors to lose
confidence in our reported financial information, which could have an unfavorable effect on the trading price of our stock and
our access to capital.
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We may encounter strikes or other labor disruptions that could adversely affect our financial condition and results of
operations.
We have significant operations throughout the world. In a number of countries outside the U.S., our employees are covered by
collective bargaining agreements. As the result of various corporate or operational actions, which our management has
undertaken or may be made in the future, we could encounter labor disruptions. These disruptions may be subject to local media
coverage, which could damage our reputation. Additionally, the disruptions could delay our ability to meet customer orders and
could adversely affect our results of operations. Any labor disruptions could also have an impact on our other employees.
Employee morale and productivity could suffer, and we may lose valued employees whom we wish to retain.
We may not realize the expected benefits from strategic alliances, which could adversely affect our operations.
We have several strategic alliances with large, complex organizations and other companies with which we work to offer
complementary products and services. There can be no assurance we will realize the expected benefits from these strategic
alliances. If successful, these relationships may be mutually beneficial and result in shared growth. However, alliances carry an
element of risk because, in most cases, we must both compete and collaborate with the same company from one market to the
next. Should our strategic partnerships fail to perform, we could experience delays in research and development or experience
other operational difficulties.
We are exposed to counterparty default risks with our financial institutions and insurance providers.
If one or more of the depository institutions in which we maintain significant cash balances were to fail, our ability to access
these funds might be temporarily or permanently limited, and we could face material liquidity problems and financial losses.
The lenders of our 2018 credit facility consist of several participating financial institutions. Our revolving line of credit allows
us to provide letters of credit in support of our obligations for customer contracts and provides additional liquidity. If our
lenders were unable to honor their line of credit commitments due to the loss of a participating financial institution or other
circumstance, we would need to seek alternative financing, which may not be under acceptable terms, and therefore could
adversely impact our ability to successfully bid on future sales contracts and adversely impact our liquidity and ability to fund
some of our internal initiatives or future acquisitions.
Risks Related to Our Technology and Intellectual Property
If we are unable to adequately protect our intellectual property, we may need to expend significant resources to enforce our
rights or suffer competitive injury.
While we believe our patents and other intellectual property have significant value, it is uncertain that this intellectual property
or any intellectual property acquired or developed by us in the future will provide meaningful competitive advantages. There
can be no assurance our patents or pending applications will not be challenged, invalidated, or circumvented by competitors or
that rights granted thereunder will provide meaningful proprietary protection. Moreover, competitors may infringe on our
patents or successfully avoid them through design innovation. To combat infringement or unauthorized use of our intellectual
property, we may initiate litigation, which can be expensive and time-consuming. In addition, in an infringement proceeding a
court may decide that a patent or other intellectual property right of ours is not valid or is unenforceable or may refuse to stop
the other party from using the technology or other intellectual property right at issue on the grounds that it is non-infringing or
the legal requirements for an injunction have not been met. Policing unauthorized use of our intellectual property is difficult and
expensive, and we cannot provide assurance that we will be able to prevent misappropriation of our proprietary rights,
particularly in countries that do not protect such rights in the same manner as in the United States.
We may face losses associated with alleged unauthorized use of third-party intellectual property.
We may be subject to claims or inquiries regarding alleged unauthorized use of a third-party's intellectual property. An adverse
outcome in any intellectual property litigation or negotiation could subject us to significant liabilities to third parties, require us
to license technology or other intellectual property rights from others, require us to comply with injunctions to cease marketing
or the use of certain products or brands, or require us to redesign, re-engineer, or rebrand certain products or packaging, any of
which could affect our business, financial condition, and results of operations. If we are required to seek licenses under patents
or other intellectual property rights of others, we may not be able to acquire these licenses at acceptable terms, if at all. In
addition, the cost of responding to an intellectual property infringement claim, in terms of legal fees, expenses, and the
17
diversion of management resources, whether or not the claim is valid, could have a material adverse effect on our business,
financial condition, and results of operations.
If our products infringe the intellectual property rights of others, we may be required to indemnify our customers for any
damages they suffer. We generally indemnify our customers with respect to infringement by our products of the proprietary
rights of third parties. Third parties may assert infringement claims against our customers. These claims may require us to
initiate or defend protracted and costly litigation on behalf of our customers, regardless of the merits of these claims. If any of
these claims succeed, we may be forced to pay damages on behalf of our customers or may be required to obtain licenses for the
products they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to
stop using our products.
If we are unable to protect our information technology infrastructure and network against data corruption, cyber-based attacks
or network security incidents caused by unauthorized access, we could be exposed to an increase risk of customer liability and
reputational damage.
We rely on various information technology systems to capture, process, store, and report data and interact with customers,
vendors, and employees. Despite taking steps to secure all information and transactions, our information technology systems,
and those of our third-party providers, may be subject to corruption from cyber-attacks, or other network security incidents.
Any unauthorized access to data could result in misappropriation of the data or disruption of operations. In addition, hardware,
operating system software, software libraries, and applications that we procure from third parties may contain defects in design
or manufacturing that could interfere with the operation of the systems. Misuse of internal applications; theft of intellectual
property, trade secrets, or other corporate assets; and inappropriate disclosure of confidential or personal information could
stem from such incidents.
In addition, an increasing number of our products and services connect to and are part of the IIoT, the Internet,
telecommunications networks, and public cloud services. As such, the products and services we offer may involve the
transmission of large amounts of sensitive and proprietary information over public and private communications networks, as
well as the processing and storage of confidential and personal customer data. While we attempt to provide adequate security
measures to safeguard our products and services, techniques used to gain unauthorized access to or to sabotage systems are
constantly evolving and therefore may not be recognized before they take effect. Unauthorized access, remnant data exposure,
computer viruses, denial of service attacks, accidents, employee error or malfeasance, intentional misconduct by computer
"hackers", and other disruptions can occur. This can lead to gaps in infrastructure, hardware and software vulnerabilities, and
security controls. The exposed or unprotected data can (i) interfere with the delivery of services to our customers, (ii) impede
our customers' ability to do business, or (iii) compromise the security of systems and data, which exposes information to
unauthorized third parties. Like many companies, we are the target of cyber-attacks of varying degrees of severity. Although
such cyber-attacks have not had a material adverse effect on our operating results, there can be no assurance of a similar result
in future security incidents.
Security incidents that occur could expose us to an increased risk of lawsuits, loss of existing or potential customers, harm to
our reputation and increases in our security costs. Depending on the jurisdiction, security incidents could trigger notice
requirements to impacted individuals and regulatory investigations leading to penalties and increased reputational harm.
Any such operational disruption and/or misappropriation of information could result in lost sales, unfavorable publicity, product
recalls or business delays and could have a material adverse effect on our business.
We rely on information technology systems that may fail to operate effectively, require upgrades and replacements or
experience breaches.
Our industry requires the continued operation of sophisticated information technology systems and network infrastructures,
which may be subject to disruptions arising from events that are beyond our control. We are dependent on information
technology systems, including, but not limited to, networks, applications, and outsourced services. We continually enhance and
implement new systems and processes throughout our global operations.
We offer managed services and software utilizing several data center facilities located worldwide. Any damage to, or failure of,
these systems could result in interruptions in the services we provide to our utility customers. As we continue to add capacity to
our existing and future data centers, we may move or transfer data. Despite precautions taken during this process, any delayed
or unsuccessful data transfers may impair the delivery of our services to our utility customers. We also sell vending and pre-
payment systems with security features that, if compromised, may lead to claims against us.
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We have a primary enterprise resource planning (ERP) system that maintains sales and transactional information to facilitate
processes. This system may require updates and upgrades periodically that could be expensive and time consuming
undertakings. Successful upgrades and updates provide many benefits, while unsuccessful upgrades and updates may cost us
significant time and resources.
The failure of these systems to operate effectively, problems with transitioning to upgraded or replacement systems, or a breach
in security of these systems due to computer viruses, hacking, acts of terrorism, and other causes could materially and adversely
affect our business, financial condition, and results of operations by harming our ability to accurately forecast sales demand,
manage our supply chain and production facilities, achieve accuracy in the conversion of electronic data and records, and report
financial and management information on a timely and accurate basis. In addition, due to the systemic internal control features
within ERP systems, we may experience difficulties that could affect our internal control over financial reporting.
Financial and Market Risks
Our variable rate indebtedness could subject us to interest rate risk, which could cause our debt service obligations to increase
significantly.
The 2018 credit facility bears, and other indebtedness we may incur in the future may bear, interest at a variable rate. As a
result, at any given time interest rates on the 2018 credit facility and any other variable rate debt could be higher or lower than
current levels. If interest rates increase, our debt service obligations on our variable rate indebtedness may increase even though
the amount borrowed remains the same, and therefore net income and associated cash flows, including cash available for
servicing our indebtedness, may correspondingly decrease. While we continually monitor and assess our interest rate risk
relative to the value of related debt and have previously entered into derivative instruments to manage such risk, these
instruments could be ineffective at mitigating all or a part of our risk, including changes to the applicable margin under our
2018 credit facility.
The alteration or discontinuation of LIBOR may adversely affect our borrowing costs.
Certain of our interest rate derivatives and a portion of our indebtedness bear interest at variable interest rates, primarily based
on LIBOR, which is subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt
agreements to perform differently than in the past or cause other unanticipated consequences. In July 2017, the Chief Executive
of the U.K. Financial Conduct Authority (FCA), which regulates LIBOR, announced that the FCA will no longer persuade or
compel banks to submit rates for the calculation of LIBOR after 2021. However, on November 30, 2020, the ICE Benchmark
Administration Limited announced its plan to extend the date that most U.S. LIBOR values would cease being computed from
December 31, 2021 to June 30, 2023. Such announcement indicates that the continuation of LIBOR on the current basis cannot
and will not be guaranteed, and the timing of such discontinuation, modifications or other reforms to LIBOR is uncertain. At
this time, it is not possible to reliably predict the effect any discontinuance, modification or other reforms to LIBOR or any
other reference rate, or the establishment of alternative reference rates will have on the Company. However, the discontinuation
of LIBOR as a reference rate may require the 2018 credit facility, and any other debt referencing LIBOR to be amended or
modified to utilize an alternative reference rate, require an adjustment to the applicable margin and/or require adjustments to
other terms or covenants, any of which may negatively impact borrowing costs.
Disruption and turmoil in global credit and financial markets, which may be exacerbated by the inability of certain countries to
continue to service their sovereign debt obligations, and the possible unfavorable implications of such events for the global
economy, may unfavorably impact our business, liquidity, operating results, and financial condition.
The current economic conditions, including volatility in the availability of credit and foreign exchange rates and extended
economic slowdowns, have contributed to the instability in some global credit and financial markets. Additionally, at-risk
financial institutions in certain countries may, without forewarning, seize a portion of depositors' account balances. The seized
funds would be used to recapitalize the at-risk financial institution and would no longer be available for the depositors' use. If
such seizure were to occur at financial institutions where we have funds on deposit, it could have a significant impact on our
overall liquidity. While the ultimate outcome of these events cannot be predicted, it is possible that such events may have an
unfavorable impact on the global economy and our business, liquidity, operating results, and financial condition.
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We have pension benefit obligations, which could have a material impact on our earnings, liabilities, and shareholders' equity
and could have significant adverse impacts in future periods.
We sponsor both funded and unfunded defined benefit pension plans for our international employees, primarily in Germany,
France, Indonesia, India, and Italy. 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.
The determination of pension plan expense, benefit obligation, and future contributions depends heavily on market factors such
as the discount rate and the actual return on plan assets. We estimate pension plan expense, benefit obligation, and future
contributions to these plans using assumptions with respect to these and other items. Changes to those assumptions could have a
significant effect on future contributions as well as on our annual pension costs and/or result in a significant change to
shareholders' equity.
Legal and Regulatory Risks
Changes in tax laws, valuation allowances, and unanticipated tax liabilities could adversely affect our effective income tax rate
and profitability.
We are subject to income tax in the United States and numerous foreign jurisdictions. Significant judgment is required in
evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are
many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related
uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves may be
established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully
supportable. We adjust these reserves in light of changing facts and circumstances. The provision for income taxes includes the
impact of reserve positions and changes to reserves that are considered appropriate, as well as valuation allowances when we
determine it is more likely than not that a deferred tax asset cannot be realized. In addition, future changes in tax laws in the
jurisdictions in which we operate could have a material impact on our effective income tax rate and profitability. We regularly
assess these matters to determine the adequacy of our tax provision, which is subject to significant judgment.
The Organization for Economic Cooperation and Development (OECD) guidance under the Base Erosion and Profit Shifting
(BEPS) initiatives aim to minimize perceived tax abuses and modernize global tax policy. The Anti-Tax Avoidance Directives
(ATAD), issued by the Council of the European Union, provide further recommendations for legislative changes under these
tax policies. These BEPS recommendations and ATAD measures are being implemented through legislative changes in
countries throughout the world. The OECD has also proceeded with the advancement under Action 1 ("Addressing the Tax
Challenges of the Digital Economy") of the 'BEPS 2.0 initiative', which proposes further fundamental changes to the
international tax system. This project includes a framework for providing taxing rights to jurisdictions based on the location of
the consumer regardless of current physical presence of a company. A second component would implement a global minimum
tax of 15%. On October 8, 2021, the G20/OECD Inclusive Framework on BEPS published a statement on the components of
global tax reform agreed to by most member countries. The key components would allocate a portion of profits of the largest
businesses amongst their markets, curtail new digital services taxes, and introduce a new global minimum tax of 15%. On
December 20, 2021, the OECD released model rules to guide countries on implementing and calculating the 15% global
minimum tax, and on December 22, 2021, the EU issued a directive proposing that EU countries enact the minimum tax by
January 2023. These components do not result in any financial impact until enacted. The Company is monitoring developments
and additional details as they are released to determine the impacts these new components will have on our business.
A significant number of our products are affected by the availability and regulation of radio spectrum and could be affected by
interference with the radio spectrum that we use.
A significant number of our products use radio spectrum, which are subject to regulation by the U.S. Federal Communications
Commission (FCC). The FCC may adopt changes to the rules for our licensed and unlicensed frequency bands that are
incompatible with our business. In the past, the FCC has adopted changes to the requirements for equipment using radio
spectrum, and it is possible that the FCC or the U.S. Congress will adopt additional changes.
Although radio licenses are generally required for radio stations, Part 15 of the FCC's rules permits certain low-power radio
devices (Part 15 devices) to operate on an unlicensed basis. Part 15 devices are designed for use on frequencies used by others.
These other users may include licensed users, which have priority over Part 15 users. Part 15 devices may not cause harmful
interference to licensed users and must be designed to accept interference from licensed radio devices. In the United States, our
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smart metering solutions are typically Part 15 devices that transmit information to (and receive information from, if applicable)
handheld, mobile, or fixed network systems pursuant to these rules.
We depend upon sufficient radio spectrum to be allocated by the FCC for our intended uses. As to the licensed frequencies,
there is some risk that there may be insufficient available frequencies in some markets to sustain our planned operations. The
unlicensed frequencies are available for a wide variety of uses and may not be entitled to protection from interference by other
users who operate in accordance with FCC rules. The unlicensed frequencies are also often the subject of proposals to the FCC
requesting a change in the rules under which such frequencies may be used. If the unlicensed frequencies become crowded to
unacceptable levels, restrictive, or subject to changed rules governing their use, our business could be materially adversely
affected.
We have committed, and will continue to commit, significant resources to the development of products that use particular radio
frequencies. Action by the FCC could require modifications to our products. The inability to modify our products to meet such
requirements, the possible delays in completing such modifications, and the cost of such modifications all could have a material
adverse effect on our future business, financial condition, and results of operations.
Outside of the United States, certain of our products require the use of RF and are subject to regulations in those jurisdictions
where we have deployed such equipment. In some jurisdictions, radio station licensees are generally required to operate a radio
transmitter, and such licenses may be granted for a fixed term and must be periodically renewed. In other jurisdictions, the rules
permit certain low power devices to operate on an unlicensed basis. Our smart metering solutions typically transmit to (and
receive information from, if applicable) handheld, mobile, or fixed network reading devices in license-exempt bands pursuant
to rules regulating such use. In Europe, we generally use the 169 megahertz (MHz), 433/4 MHz, and 868 MHz bands. In the
rest of the world, we primarily use the 433/4 MHz, 920 MHz and 2.4000-2.4835 gigahertz (GHz) bands, as well as other local
license-exempt bands. To the extent we introduce new products designed for use in the United States or another country into a
new market, such products may require significant modification or redesign to meet frequency requirements and other
regulatory specifications. In some countries, limitations on frequency availability or the cost of making necessary modifications
may preclude us from selling our products in those jurisdictions. In addition, new consumer products may create interference
with the performance of our products, which could lead to claims against us.
Changes in environmental regulations, violations of such regulations, or future environmental liabilities could cause us to incur
significant costs and could adversely affect our operations.
Our business and our facilities are subject to numerous laws, regulations, and ordinances governing, among other things, the
storage, discharge, handling, emission, generation, manufacture, disposal, remediation of and exposure to toxic or other
hazardous substances, and certain waste products. Many of these environmental laws and regulations subject current or
previous owners or operators of land to liability for the costs of investigation, removal, or remediation of hazardous materials.
In addition, these laws and regulations typically impose liability regardless of whether the owner or operator knew of, or was
responsible for, the presence of any hazardous materials and regardless of whether the actions that led to the presence were
conducted in compliance with the law. In the ordinary course of our business, we use metals, solvents, and similar materials,
which are stored on-site. The waste created by the use of these materials is transported off-site on a regular basis by unaffiliated
waste haulers. Many environmental laws and regulations require generators of waste to take remedial actions at, or in relation
to, the off-site disposal location even if the disposal was conducted in compliance with the law. The requirements of these laws
and regulations are complex, change frequently, and could become more stringent in the future. Failure to comply with current
or future environmental regulations could result in the imposition of substantial fines, suspension of production, alteration of
our production processes, cessation of operations, or other actions, which could materially and adversely affect our business,
financial condition, and results of operations. There can be no assurance that a claim, investigation, or liability would not arise
with respect to these activities or that the cost of complying with governmental regulations in the future, either for an individual
claim or in aggregate of multiple claims, would not have a material adverse effect on us.
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Our international sales and operations are subject to complex laws relating to foreign corrupt practices and anti-bribery laws,
among many others, and a violation of, or change in, these laws could adversely affect our operations.
The U.S. Foreign Corrupt Practices Act requires U.S. companies to comply with an extensive legal framework to prevent
bribery of foreign officials. The laws are complex and require that we closely monitor local practices of our overseas offices.
The U.S. Department of Justice continues to heighten enforcement of these laws. In addition, other countries continue to
implement similar laws that may have extra-territorial effect. In the United Kingdom, where we have operations, the U.K.
Bribery Act imposes significant oversight obligations on us and could impact our operations outside the United Kingdom. The
costs for complying with these and similar laws may be significant and could require significant management time and focus.
Any violation of these or similar laws, intentional or unintentional, could result in fines and/or criminal penalties and have a
material adverse effect on our business, financial condition, or results of operations. Further, we operate in some parts of the
world that have experienced governmental corruption, and, in certain circumstances, local customs and practice might not be
consistent with the requirements of anti-corruption laws. We remain subject to the risk that our employees, third party partners,
or agents will engage in business practices that are prohibited by our policies and violate such laws and regulations.
Regulations related to "conflict minerals" may force us to incur additional expenses, may result in damage to our business
reputation, and may adversely impact our ability to conduct our business.
The SEC has adopted rules regarding disclosure for companies that use certain minerals and derivative metals (referred to as
"conflict minerals", regardless of their actual country of origin) in their products. Some of these metals are commonly used in
electronic equipment and devices, including our products. These requirements require companies to investigate, disclose and
report whether such metals originated from the Democratic Republic of Congo or adjoining countries and required due
diligence efforts. We may not be able to sufficiently verify the origins for all minerals used in our products, and our reputation
may suffer if we determine that our products contain conflict minerals that are not determined to be conflict free or if we are
unable to sufficiently verify the origins for all conflict minerals used in our products. At times, our customers also request or
require that we confirm whether our products contain conflict-free minerals, and this may result in challenges in timely
satisfying such customers' requests, if at all. There are costs associated with complying with these disclosure requirements,
including for diligence to determine the sources of conflict minerals used in our products and related components and other
potential changes to products, processes or sources of supply as a consequence of such verification activities. Further
interpretation and implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used in our
products.
Item 1B:Unresolved Staff Comments
None.
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Item 2: Properties
We own our headquarters facility, which is located in Liberty Lake, Washington.
The following table lists our major manufacturing facilities by region and location:
Region
Location
Square Footage
North America
Oconee, SC (O)
Waseca, MN (L)
Europe, Middle East, and Africa
Chasseneuil, France (O)
Macon, France (O)
Massy, France (L)
Karlsruhe, Germany(1) (O)
Oldenburg, Germany (L)
Asti, Italy (O)
Asia/Pacific
Bekasi, Indonesia (O)
325,840
110,000
160,027
203,513
64,357
163,209
90,212
55,834
113,222
(1) The Karlsruhe, Germany facility is included in the sale of certain business lines to Dresser, which closed on February 28, 2022. See Note
18: Sale of Businesses for more details.
(O) - Manufacturing facility is owned
(L) - Manufacturing facility is leased
Our principal properties are in good condition, and we believe our current facilities are sufficient to support our operations. Our
major manufacturing facilities are owned, while smaller factories are typically leased.
In addition to our manufacturing facilities, we have numerous sales offices, research and development facilities, and distribution
centers, which are located throughout the world.
Item 3: Legal Proceedings
Securities and Exchange Commission (SEC) regulations require us to disclose certain information about proceedings arising
under federal, state or local environmental provisions if we reasonably believe that such proceedings may result in monetary
sanctions above a stated threshold. Pursuant to the SEC regulations, Itron uses a threshold of $1 million or more for purposes of
determining whether disclosure of any such environmental proceedings is required.
In 2007-2008, Itron acquired an industrial site located at 1310 Emerald Road, Greenwood, South Carolina. Previous site owners
used various chlorinated solvents and potential contaminants at the site. In 2013, Itron entered into a voluntary cleanup contract
with the South Carolina Department of Health and Environmental Control (DHEC). Itron completed that process in 2019. In
October 2021, DHEC sent Itron and three other potentially responsible parties (PRPs) a proposed site remediation plan with an
estimated cost of $3.7 million. Itron objected to the proposed plan at a public hearing on November 4, 2021, and again in a
letter to DHEC dated January 13, 2022. Given that the contamination arose from activities prior to Itron's ownership of the
property and past remediation efforts, Itron has disputed its responsibility for any alleged contamination and suggested
alternative proposals. Itron will continue to seek a reasonable resolution with DHEC and the other PRPs.
Item 4: Mine Safety Disclosures
Not applicable.
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PART II
Item 5: Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information for Common Stock
Our common stock is traded on the NASDAQ Global Select Market under the symbol ITRI.
Performance Graph
The following graph compares the five-year cumulative total return to shareholders on our common stock with the five-year
cumulative total return of our peer group of companies used for the year ended December 31, 2021 and the NASDAQ
Composite Index.
* $100 invested on December 31, 2016, in stock or index, including reinvestment of dividends.
Fiscal years ending December 31.
The performance graph above is being furnished solely to accompany this Report pursuant to Item 201(e) of Regulation S-K
and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be
incorporated by reference into any of our filings, whether made before or after the date hereof, regardless of any general
incorporation language in such filing.
The above presentation assumes $100 invested on December 31, 2016 in the common stock of Itron, Inc., the peer group, and
the NASDAQ Composite Index, with all dividends reinvested. With respect to companies in the peer group, the returns of each
such corporation have been weighted to reflect relative stock market capitalization at the beginning of each annual period
plotted. The historical stock prices shown above for our common stock are not necessarily indicative of future price
performance.
24
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among Itron, Inc., the NASDAQ Composite Index, and Peer GroupItron, Inc.NASDAQ Composite2021 Peer Group12/201612/201712/201812/201912/202012/2021$0$50$100$150$200$250$300$350 Each year, we reassess our peer group to identify global companies that are either direct competitors or have similar industry
and business operating characteristics. Our 2021 peer group includes the following publicly traded companies: Badger
Meter, Inc., Landis+Gyr, Mueller Water Products, and Xylem, Inc. (formerly Sensus).
Issuer Repurchase of Equity Securities
Period
Total Number of
Shares Purchased (1)
Average Price
Paid per Share (2)
October 1, 2021 through October 31, 2021
— $
November 1, 2021 through November 30, 2021
December 1, 2021 through December 31, 2021
Total
20,100
105,214
125,314
—
66.19
63.64
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
—
98,670
91,974
— $
20,100
105,214
125,314
(1) Effective November 1, 2021, Itron's Board of Directors authorized a new share repurchase program of up to $100 million of Itron's
common stock over an 18-month period. Repurchases are made in the open market or in privately negotiated transactions and in
accordance with applicable securities laws.
(2) Excludes commissions.
Subsequent to December 31, 2021, we repurchased 279,968 shares of our common stock under the stock repurchase program
effective November 1, 2021. The average price paid per share was $60.60 (excluding commissions) for a total cost of $17.0
million.
Holders
At February 23, 2022, there were 154 holders of record of our common stock.
Dividends
Since the inception of the Company, we have not declared or paid cash dividends. We intend to retain future earnings for the
development of our business and do not anticipate paying cash dividends in the foreseeable future.
Item 6: [Reserved]
25
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis compares the change in the consolidated financial statements for fiscal years 2021 and
2020 and should be read in conjunction with Item 8: Financial Statements and Supplementary Data. For comparisons of fiscal
years 2020 and 2019, see our Management's Discussion and Analysis of Financial Condition and Results of Operations in Part
II, Item 7 of our 2020 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (SEC) on
February 24, 2021, and incorporated herein by reference.
The objective of Management's Discussion and Analysis is to provide our assessment of the financial condition and results of
operations, including an evaluation of our liquidity and capital resources along with material events occurring during the year.
The discussion and analysis focuses on material events and uncertainties known to management that are reasonably likely to
cause reported financial information not to be necessarily indicative of future operating results or of future financial condition.
In addition, we address matters that are reasonably likely, based on management's assessment, to have a material impact on
future operations. We expect the analysis will enhance a reader's understanding of our financial condition, cash flows, and other
changes in financial condition and results of operations.
Overview
We are a technology and service company, and we are a leader in the Industrial Internet of Things (IIoT). We offer solutions
that enable utilities and municipalities to safely, securely and reliably operate their critical infrastructure. Our solutions include
the deployment of smart networks, software, services, devices, sensors, and data analytics that allow our customers to manage
assets, secure revenue, lower operational costs, improve customer service, improve safety, and enable efficient management of
valuable resources. Our comprehensive solutions and data analytics address the unique challenges facing the energy, water, and
municipality sectors, including increasing demand on resources, non-technical loss, leak detection, environmental and
regulatory compliance, and improved operational reliability.
We operate under the Itron brand worldwide and manage and report under three operating segments: Device Solutions,
Networked Solutions, and Outcomes. The product and operating definitions of the three segments are as follows:
Device Solutions – This segment primarily includes hardware products used for measurement, control, or sensing that do not
have communications capability embedded for use with our broader Itron systems, i.e., hardware-based products not part of a
complete end-to-end solution. Examples from the Device Solutions portfolio include: standard endpoints that are shipped
without Itron communications, such as our standard gas, electricity, and water meters for a variety of global markets and
adhering to regulations and standards within those markets, as well as our heat and allocation products; communicating meters
that are not a part of an Itron end-to-end solution, such as Smart Spec meters; and the implementation and installation of non-
communicating devices, such as gas regulators.
Networked Solutions – This segment primarily includes a combination of communicating devices (e.g., smart meters, modules,
endpoints, and sensors), network infrastructure, and associated application software designed and sold as a complete solution
for acquiring and transporting robust application-specific data. Networked Solutions includes products and software for the
implementation, installation, and management of communicating devices and data networks. Examples from the Networked
Solutions portfolio include: communicating measurement, control, or sensing endpoints, such as our Itron OpenWay® Centron
and Riva meters, Itron traditional ERT® technology, Intelis smart gas meters, 500G gas communication modules, 500W water
communication modules, GenX networking infrastructure products and network interface cards (NICs); Smart City control and
management software; Distribution Automation bridge devices; and specific network control and management software
applications. The IIoT solutions supported by this segment include automated meter reading (AMR), advanced metering
infrastructure (AMI), smart grid and distribution automation, smart street lighting, and an ever-growing set of smart city
applications such as traffic management, smart parking, air quality monitoring, electric vehicle charging, customer engagement,
digital signage, acoustic (e.g., gunshot) detection, and leak detection and mitigation for both gas and water systems. Our IIoT
platform allows all these industry and smart city applications to be run and managed on a single, multi-purpose network.
Outcomes – This segment primarily includes our value-added, enhanced software and services in which we manage, organize,
analyze, and interpret data to improve decision making, maximize operational profitability, drive resource efficiency, and
deliver results for consumers, utilities, and smart cities. Outcomes places an emphasis on delivering to Itron customers high-
value, turn-key, digital experiences by leveraging the footprint of our Device Solutions and Networked Solutions segments. The
revenues from these offerings are primarily recurring in nature and would include any direct management of Device Solutions,
Networked Solutions, and other products on behalf of our end customers. Examples from the Outcomes portfolio include: our
meter data management and analytics offerings; our managed service solutions including network-as-a-service (NaaS) and
Platform-as-a-Service (PaaS); forecasting software and services; our Distributed Energy Management suite of products and
26
services; our Distributed Intelligence suite of applications and services; and any consulting-based engagement. Within the
Outcomes segment, we also identify new business models, including performance-based contracting, to drive broader portfolio
offerings across utilities and cities.
We have three 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. Interest income, interest expense, other income (expense), the income tax provision (benefit), and
certain corporate operating expenses are neither allocated to the segments nor included in the measures of segment
performance.
Non-GAAP Measures
To supplement our consolidated financial statements, which are prepared in accordance with accounting principles generally
accepted in the United States (GAAP), we use certain adjusted or non-GAAP financial measures, including non-GAAP
operating expense, non-GAAP operating income, non-GAAP net income, non-GAAP diluted earnings per share (EPS), adjusted
EBITDA, adjusted EBITDA margin, constant currency, and free cash flow. We provide these non-GAAP financial measures
because we believe they provide greater transparency and represent supplemental information used by management in its
financial and operational decision making. We exclude certain costs in our non-GAAP financial measures as we believe the net
result is a measure of our core business. We believe these measures facilitate operating performance comparisons from period
to period by eliminating potential differences caused by the existence and timing of certain expense items that would not
otherwise be apparent on a GAAP basis. Non-GAAP performance measures should be considered in addition to, and not as a
substitute for, results prepared in accordance with GAAP. We strongly encourage investors and shareholders to review our
financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Our non-GAAP
financial measures may be different from those reported by other companies.
In our discussions of the operating results below, we sometimes refer to the impact of foreign currency exchange rate
fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert operating
results from local currencies into U.S. dollars for reporting purposes. We also use the term "constant currency", which
represents results adjusted to exclude foreign currency exchange rate impacts. We calculate the constant currency change as the
difference between the current period results translated using the current period currency exchange rates and the comparable
prior period's results restated using current period currency exchange rates. We believe the reconciliations of changes in
constant currency provide useful supplementary information to investors in light of fluctuations in foreign currency exchange
rates.
Refer to the Non-GAAP Measures section below on pages 43-46 for information about these non-GAAP measures and the
detailed reconciliation of items that impacted free cash flow, non-GAAP operating expense, non-GAAP operating income, non-
GAAP net income, adjusted EBITDA, and non-GAAP diluted EPS in the presented periods.
Total Company Highlights
Highlights and significant developments for the year ended December 31, 2021 compared with the year ended December 31,
2020
• Revenues were $2.0 billion compared with $2.2 billion last year, a decrease of $191.8 million, or 9%
• Gross margin was 28.9% compared with 27.7% last year
• Operating expenses increased $39.9 million, or 7%, compared with 2020, and includes the impact of 2021 restructuring
projects and variable compensation
• Net loss attributable to Itron, Inc. was $81.3 million compared with net loss attributable to Itron, Inc. of $58.0 million in
2020
• GAAP loss per share was $1.83 compared with loss per share of $1.44 in 2020
• Non-GAAP net income attributable to Itron, Inc. was $78.1 million compared with $75.3 million in 2020
• Non-GAAP diluted EPS was $1.75 compared with $1.85 in 2020
• Adjusted EBITDA decreased $63.2 million, or 35%, to $115.2 million compared with adjusted EBITDA of $178.4 million
in 2020
• Total backlog was $4.0 billion, and twelve-month backlog was $1.5 billion at December 31, 2021, compared with $3.3
billion and $1.2 billion at December 31, 2020.
27
Financing Activity
On March 12, 2021, we closed the sale of 4,472,222 shares of our common stock in a public offering, resulting in net proceeds
to us of $389.4 million, after deducting underwriters' discounts, and we closed the sale of the Convertible Notes (the
Convertible Notes) in a private placement to qualified institutional buyers, resulting in net proceeds to us of $448.5 million after
deducting initial purchasers' discounts of the offering. Concurrently with the issuance of the Convertible Notes, we entered into
the Convertible Note Hedge Transactions (the Convertible Note Hedge Transactions), and Warrant Transactions (Warrant
Transactions). For further description of these transactions, refer to Item 8: Financial Statements and Supplementary Data, Note
6: Debt and Note 7: Derivative Financial Instruments.
Credit Facility Amendment and Repayment
On March 8, 2021, we entered into a third amendment to our credit facility that was initially entered on January 5, 2018
(together with the amendment, the 2018 credit facility). The third amendment modified provisions to permit cash settlement
upon the conversion of the Convertible Notes, the Convertible Note Hedge Transactions, and Warrant Transactions and also to
adjust certain settlement provisions for convertible indebtedness. On August 12, 2021, we repaid the remaining balance of
$31.1 million on the U.S. dollar term loan (the term loan). At December 31, 2021, there were no outstanding loan balances
under the 2018 Credit Facility. See Item 8: Financial Statements and Supplementary Data, Note 7: Derivative Financial
Instruments, for further details of the Convertible Note Hedge Transactions and Warrant Transactions.
Senior Notes Redemption
In December 2017 and January 2018, we issued $300 million and $100 million, of aggregate principal amount of 5.00% senior
notes maturing January 15, 2026 (Senior Notes). On March 9, 2021, we submitted a Notice of Redemption to the trustee to
redeem all outstanding Senior Notes at a redemption price of 102.50%, in accordance with the indenture governing the Senior
Notes, totaling $410.0 million. As of April 8, 2021 the Senior Notes were fully discharged, and no principal or unpaid interest
remains outstanding. The 2.5%, or $10.0 million, early redemption premium and write off of $11.1 million prepaid debt fees
were recognized upon redemption in the second quarter of 2021. See Item 8: Financial Statements and Supplementary Data,
Note 6: Debt, for further details of the redemption.
Reserve on Receivables from Sale of Business
On June 25, 2020, we closed on the sale of five subsidiaries comprising our manufacturing and sales operations in Latin
America to buyers led by Instalación Profesional y Tecnologías del Centro S.A. de C.V., a Mexican company doing business as
Accell in Brazil (Accell), through the execution of various definitive stock purchase agreements. The total sales price of
$35.0 million included deferred payments of $21.1 million for working capital, which was to be paid in full by December 31,
2020, as evidenced by a promissory note, and the remainder in cash ($4.5 million) and other deferred consideration. In January
2021, we agreed to extend the payment terms on the remaining outstanding working capital balance of $18.4 million. Accell
had agreed to make monthly payments, including interest, through September 2022, under which we received full payments for
January through March and partial payments in April and May (totaling $3.8 million including $0.7 million in interest). Based
on Accell's failure to make timely payments, continued requests to defer payments significantly beyond the original maturity of
the working capital note, and the negative impact of the COVID-19 pandemic on the Latin American markets, we determined to
fully reserve the working capital and other deferred receivables, recognizing a loss on sale of business of $26.8 million for the
year ended December 31, 2021. See Item 8: Financial Statements and Supplementary Data, Note 18: Sale of Businesses, for
more details.
Business Acquisition
On October 12, 2021, Itron, through its subsidiary Itron Management Services Ireland, Limited, completed the acquisition of
100% of the shares of SELC Group Limited (SELC), a private limited company incorporated in Ireland since 2014, from
Sensus Metering Systems (LUXCO3) S.ár.l. SELC was previously a technology supplier to Itron. The acquisition provides
value to Itron through the leverage of SELC's streetlight controls technology coupled with Itron's Smart Cities network and
software platform. The acquisition will increase the pace of Smart City growth and innovation within Itron's Networked
Solutions business for the benefit of our customers. The purchase was funded through cash on hand and included $2.1 million
in intangible assets and $5.4 million in goodwill. See Item 8: Financial Statements and Supplementary Data, Note 4: Intangible
Assets and Liabilities and Note 5: Goodwill, for further details.
Restructuring Plan
On October 29, 2021, our Board of Directors approved a restructuring plan (the 2021 Projects), which in conjunction with the
announcement of the sale of certain of our Gas device manufacturing operations (refer to Item 8: Financial Statements and
Supplementary Data, Note 18: Sale of Businesses), includes activities to drive reductions in certain locations and functional
support areas. These projects are to be substantially complete by the end of 2024. Itron recognized pre-tax restructuring charges
of $60.7 million. Of the total charge, approximately $55 million will result in cash expenditures, and the remainder to non-cash
impairment charges. Once the 2021 Projects are substantially completed, Itron estimates $15 million to $20 million in
28
annualized savings. Certain of Itron's employees are represented by unions or works councils, which requires consultation, and
potential restructuring projects may be subject to regulatory approval, both of which could impact the timing of planned savings
in certain jurisdictions.
Approval of Share Repurchase Program
Effective November 1, 2021, Itron's Board of Directors authorized a share repurchase program of up to $100 million of our
common stock over an 18-month period (the 2021 Stock Repurchase Program). Repurchases are made in the open market or in
privately negotiated transactions, and in accordance with applicable securities laws. Following the announcement of the
program and through December 31, 2021, we repurchased 125,314 shares at an average share price of $64.05 (excluding
commissions) for a total of $8.0 million. Subsequent to December 31, 2021, we repurchased 279,968 shares of our common
stock under the 2021 Stock Repurchase Program. The average price paid per share was $60.60 (excluding commissions) for
total of $17.0 million.
Sale of Business
On November 2, 2021, Itron entered into a definitive securities and asset purchase agreement to sell certain of its Gas device
manufacturing and business operations in Europe and North America to Dresser Utility Solutions (Dresser). The sale includes
one German subsidiary – Itron GmbH along with its business operations, personnel, and the owned manufacturing facility in
Karlsruhe; the business operations, personnel, and assets associated with the leased manufacturing facility in Argenteuil,
France; and the business and manufacturing assets maintained at one of our contract manufacturers in North America. The sale
of these assets and operations is part of Itron's continued strategy to improve profitability and focus on growing its higher value
businesses throughout the world.
As of the fourth quarter of 2021, we reclassified the assets and liabilities of this asset group as held for sale. Based on the sales
price and the carrying value of the assets including the foreign currency translation losses accumulated since the acquisition of
the German subsidiary in 2007, we recognized a pre-tax loss of $34.4 million (classified within Loss on sale of business within
the Consolidated Statements of Operations) as of December 31, 2021. The base sale price of this divestiture was $75 million,
with adjustments for (1) pension liabilities assumed by Dresser for the active employees and (2) the final working capital
balance, which will be determined as of the close date, and, if the balance is outside the targeted amount, the difference will be
settled shortly thereafter. Cash proceeds from the sale were estimated at a net $53.9 million ($63.7 million less $9.8 million in
cash held for sale) at December 31, 2021. The transaction closed on February 28, 2022, and the final sales price and loss on sale
will be determined and recognized during the second quarter of 2022, based on the 90-day working capital validation process.
Impact of COVID-19 and Supply Chain Challenges
The COVID-19 pandemic has had global economic impacts including disrupting customer demand and global supply chains,
resulting in market volatility. The extent of the recent pandemic and its ongoing impact on our operations is volatile, but is
being monitored closely by our management. During portions of the first half of 2020 certain of our European factories were
closed due to government actions and local conditions, and any further closures that may be imposed on us could impact our
future results. New variants of the virus may cause previously lifted restrictions to be reinstated, which could result in more
disruptions. Incremental costs we have incurred related to COVID-19, such as personal protective equipment, increased
cleaning and sanitizing of our facilities, and other such items, have not been material to date. As economies have reopened,
global supply chains have struggled to keep pace with rapidly changing demand. The resulting supply constraints have
manifested across a variety of areas including mechanical, electrical and logistics portions of the supply chain, which has
impacted our ability to ship products in a timely manner. In particular, our ability to obtain adequate supply of semiconductor
components has impacted our ability to service recovering customer demand. While we believe the current imbalance in supply
and demand is temporal, the timeline to recovery is uncertain. Efforts are ongoing with suppliers to increase supply, including
the approval of alternate sources. Recently, inflation in our raw materials and component costs, freight charges, and labor costs
have increased above historical levels, due to, among other things, the continuing impacts of the pandemic and uncertain
economic environment. We may or may not be able to fully recover these increased costs through pricing actions with our
customers. At this time, we have not identified any significant decrease in long-term customer demand for our products and
services. However, certain of our customer projects have experienced delay in deliveries, with originally forecasted 2021
revenue pushed to future periods. For more information on risks associated with the COVID-19 pandemic, please see our risk in
Part I, Item 1A, Risk Factors.
The COVID-19 pandemic remains a rapidly evolving situation with varying impacts on the locations in which we do business.
Changes in the mix of earnings or losses from our different geographical operations, as well as any future enactment of tax
legislation and other factors, may result in more volatile quarterly and annual effective tax rates. The detrimental impacts to
financial results may be partially offset by financial assistance from the U.S. or the municipalities in which we operate,
including employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic.
29
Other benefits, including options to defer payroll tax payments and additional deductions, resulted in reduced cash payments in
2020 but increased cash outlays during 2021.
Total Company GAAP and Non-GAAP Highlights and Endpoints Under Management
In thousands, except margin and per share data
Year Ended December 31,
2021
% Change
2020
GAAP
Revenues
Product revenues
Service revenues
Total revenues
Gross profit
Operating expenses
Operating income (loss)
Other income (expense)
Income tax benefit (provision)
Net loss attributable to Itron, Inc.
Non-GAAP(1)
Non-GAAP operating expenses
Non-GAAP operating income
Non-GAAP net income attributable to Itron, Inc.
Adjusted EBITDA
GAAP Margins and EPS
Gross margin
Product gross margin
Service gross margin
Total gross margin
Operating margin
Net loss per common share - Basic
Net loss per common share - Diluted
Non-GAAP EPS (1)
Non-GAAP diluted EPS
(11)%
7%
(9)%
(5)%
7%
NM
(4)%
NM
NM
6%
(43)%
4%
(35)%
$
1,678,195
303,377
1,981,572
573,169
652,468
(79,299)
(44,511)
45,512
(81,255)
$
497,604
75,565
78,103
115,211
26.6 %
41.6 %
28.9 %
(4.0) %
(1.83)
(1.83)
1.75
$
$
$
$
1,889,173
284,177
2,173,350
602,167
612,562
(10,395)
(46,244)
(238)
(57,955)
470,028
132,139
75,253
178,399
25.4 %
42.8 %
27.7 %
(0.5) %
(1.44)
(1.44)
1.85
$
$
$
$
(1)
These measures exclude certain expenses that we do not believe are indicative of our core operating results. See pages 43-46 for
information about these non-GAAP measures and reconciliations to the most comparable GAAP measures.
Definition of an Endpoint Under Management
An "endpoint under management" is a unique endpoint, or data from that endpoint, which Itron manages via our networked
platform or a third party's platform that is connected to one or multiple types of endpoints. Itron's management of an endpoint
occurs when on behalf of our client, we manage one or more of the physical endpoints, operating system, data, application, data
analytics, and/or outcome deriving from this unique endpoint. Itron has the ability to monitor and/or manage endpoints or the
data from the endpoints via NaaS, Software-as-a-Service (SaaS), and/or a licensed offering at a remote location designated by
our client. Our offerings typically, but not exclusively, provide an Itron product or Itron certified partner product to our clients
that has the capability of one-way communication or two-way communication of data that may include remote product
configuration and upgradability. Examples of these offerings include our Temetra, OpenWay®, OpenWay® Riva and Gen X.
30
This metric primarily includes Itron or third-party endpoints deployed within the electricity, water, and gas utility industries, as
well as within cities and municipalities around the globe. Endpoints under management also include smart communication
modules and network interface cards (NICs) within Itron's platforms. At times, these NICs are communicating modules that
were sold separately from an Itron product directly to our customers or to third party manufacturers for use in endpoints such as
electric, water, and gas meters; streetlights and other types of IIoT sensors and actuators; sensors and other capabilities that the
end customer would like Itron to connect and manage on their behalf.
The "endpoint under management" metric only accounts for the specific, unique endpoint itself, though that endpoint may have
multiple applications, services, outcomes, and higher margin recurring offerings associated with it. This metric does not reflect
the multi-application value that can be derived from the individual endpoint itself. Additionally, this metric excludes those
endpoints that are non-communicating, non-Itron system hardware component sales or licensed applications that Itron does not
manage the unit or the data from that unit directly.
While the one-time sale of the platform and endpoints are primarily delivered via our Networked Solutions segment, our
enhanced solutions, on-going monitoring, maintenance, software, analytics, and distributed intelligent applications are
predominantly recognized in our Outcomes segment. We would anticipate the opportunity to increase our penetration of
Outcomes applications, software, and managed applications will increase as our endpoints under management increases.
Management believes using the endpoints under management metric enhances insight to the strategic and operational direction
of our Networked Solutions and Outcomes segments to serve clients for years after their one-time installation of an endpoint.
A summary of our endpoints under management is as follows:
Units in thousands
Endpoints under management
Results of Operations
Revenues and Gross Margin
Year Ended December 31,
2021
2020
2019
82,354
74,184
64,719
The actual results of and effects of changes in foreign currency exchange rates on revenues and gross profit were as follows:
Year Ended December 31,
2021
2020
Effect of Changes
in Foreign
Currency
Exchange Rates
Constant
Currency Change
Total Change
$
1,981,572 $
2,173,350 $
32,020 $
(223,798) $
573,169
602,167
4,227
(33,225)
(191,778)
(28,998)
In thousands
Total Company
Revenues
Gross profit
Revenues
Revenues decreased $191.8 million in 2021 compared with 2020. We have been unfavorably impacted by COVID-19 related
global component constraints, which limited our ability to fulfill customer demand. Product revenues decreased $211.0 million
in 2021 and service revenues increased $19.2 million in 2021 as compared with 2020. Device Solutions decreased by
$48.9 million; Networked Solutions decreased by $156.8 million; and Outcomes increased by $13.9 million when compared
with the same period last year. Changes in currency exchange rates favorably impacted revenues by $32.0 million in 2021,
primarily in Device Solutions.
No single customer represented more than 10% of total revenues for the years ended December 31, 2021 and 2020. Our 10
largest customers accounted for 25% of total revenues in 2021 and 33% of total revenues in 2020.
Gross Margin
Gross margin was 28.9% for 2021, compared with 27.7% in 2020. We were favorably impacted by product and solution mix
and improved operating efficiencies in 2021 compared with 2020. Product sales gross margin increased to 26.6% in 2021 from
25.4% in 2020. Gross margin on service revenues decreased to 41.6% from 42.8% in 2020.
Refer to Operating Segment Results section below for further detail on total company revenues and gross margin.
31
Operating Expenses
The actual results of and effects of changes in foreign currency exchange rates on operating expenses were as follows:
In thousands
Total Company
Year Ended December 31,
2021
2020
Effect of
Changes in
Foreign
Currency
Exchange Rates
Constant
Currency
Change
Total Change
Sales, general and administrative
$
300,520 $
276,920 $
5,400 $
18,200 $
Research and development
Amortization of intangible assets
Restructuring
Loss on sale of business
197,235
35,801
54,623
64,289
194,101
44,711
37,013
59,817
2,259
339
510
3,330
875
(9,249)
17,100
1,142
Total operating expenses
$
652,468 $
612,562 $
11,838 $
28,068 $
23,600
3,134
(8,910)
17,610
4,472
39,906
Operating expenses increased $39.9 million for the year ended December 31, 2021 as compared with the same period in 2020.
This was primarily due to higher variable compensation of $23.1 million in 2021 (classified within sales, general and
administrative expenses and research and development expenses), as well as $17.6 million in restructuring related to the 2021
Projects. The loss on the sale of business of $64.3 million in 2021 includes the impairment resulting from the sale of certain of
our Gas device manufacturing and business operations in Europe and North America to Dresser and an increase to the loss
related to the 2020 Latin America divestiture. The loss on the sale of our Latin America business in 2020 was $59.8 million.
The increases were partially offset by a decrease of $8.9 million in amortization of intangible assets. See Item 8: Financial
Statements and Supplementary Data, Note 18: Sale of Businesses and Note 13: Restructuring for more details.
Other Income (Expense)
The following table shows the components of other income (expense):
In thousands
Interest income
Amortization of prepaid debt fees
Other interest expense
Interest expense
Other income (expense), net
Total other income (expense)
Year Ended December 31,
2021
% Change
2020
$
1,557
(48)%
$
(18,253)
(10,385)
(28,638)
(17,430)
(44,511)
NM
(74)%
(35)%
NM
(4)%
$
$
2,998
(4,130)
(39,871)
(44,001)
(5,241)
(46,244)
Total other income (expense) for the year ended December 31, 2021 was a net expense of $44.5 million compared
with $46.2 million in 2020.
The change in other income (expense), net, for the year ended December 31, 2021 as compared with the same period in 2020
was primarily the result of lower interest costs of $14.6 million for the senior notes, $9.7 million for the term loan, and
$4.7 million for the revolving credit. The decrease was offset by a $14.1 million increase related to a write-off of prepaid debt
fees in 2021 associated with the repayment of senior notes and the term loan as well as increased amortization of prepaid debt
fees, and a $11.7 million increase related to the 2021 extinguishment of debt that is included in other income (expense).
Income Tax Provision
Our income tax (benefit) provision was $(45.5) million and $0.2 million for the years ended December 31, 2021 and 2020. Our
tax rate for the year ended December 31, 2021 differed from the U.S. federal statutory tax rate of 21% due primarily to a tax
benefit of $34.4 million related largely to the release of a valuation allowance on U.S. foreign tax credit deferred tax assets that
were utilized in the current year. The 2021 tax benefit reflects the impact of certain transfers of business activities and assets
that result in a prospective shift of income from international operations to the U.S. Other rate drivers include losses in
jurisdictions for which no benefit is recognized because of valuation allowances on deferred tax assets, the level of profit or
losses in domestic and international jurisdictions, a benefit related to excess stock-based compensation, and uncertain tax
positions.
32
For additional discussion related to income taxes, see Item 8: Financial Statements and Supplementary Data, Note 11: Income
Taxes.
Operating Segment Results
For a description of our operating segments, refer to Part I, Item 1: Business, Our Operating Segments included in this Annual
Report on Form 10-K. The following tables and discussion highlight significant changes in trends or components of each
operating segment:
In thousands
Segment revenues
Device Solutions
Networked Solutions
Outcomes
Total revenues
In thousands
Segment gross profit and margin
Device Solutions
Networked Solutions
Outcomes
Total gross profit and margin
In thousands
Segment operating expenses
Device Solutions
Networked Solutions
Outcomes
Corporate unallocated
Total operating expenses
In thousands
Segment operating income (loss) and operating margin
Device Solutions
Networked Solutions
Outcomes
Corporate unallocated
Year Ended December 31,
2021
% Change
2020
$
645,104
1,092,631
243,837
$ 1,981,572
(7)%
(13)%
6%
(9)%
$
693,995
1,249,402
229,953
$ 2,173,350
Year Ended December 31,
2021
2020
Gross
Profit
Gross
Margin
Gross
Profit
Gross
Margin
$
99,355
378,633
95,181
$
573,169
15.4%
34.7%
39.0%
28.9%
$
86,859
432,906
82,402
$
602,167
12.5%
34.6%
35.8%
27.7%
Year Ended December 31,
2021
% Change
2020
$
42,138
124,199
44,550
441,581
$
652,468
(9)%
—%
28%
9%
7%
$
46,090
124,807
34,783
406,882
$
612,562
Year Ended December 31,
2021
2020
Operating
Income
(Loss)
Operating
Margin
Operating
Income
(Loss)
Operating
Margin
$
57,217
254,434
50,631
(441,581)
8.9%
23.3%
20.8%
NM
$
40,769
308,099
47,619
(406,882)
5.9%
24.7%
20.7%
NM
Total operating income (loss) and operating margin
$
(79,299)
(4.0)%
$
(10,395)
(0.5)%
33
Device Solutions:
The effects of changes in foreign currency exchange rates and the constant currency changes in certain Device Solutions
segment financial results were as follows:
Year Ended December 31,
2021
2020
Effect of Changes
in Foreign
Currency
Exchange Rates
Constant
Currency Change
Total Change
$
645,104 $
693,995 $
21,085 $
(69,976) $
99,355
42,138
86,859
46,090
2,407
616
10,089
(4,568)
(48,891)
12,496
(3,952)
In thousands
Device Solutions Segment
Revenues
Gross profit
Operating expenses
Revenues
Revenues decreased by $48.9 million in 2021, or 7%, compared with 2020. The decrease was mainly due to component
shortages resulting in unfulfilled customer demand. The decrease was partially offset by $21.1 million due to the effect of
changes in foreign currency.
Gross Margin
Gross margin was 15.4% in 2021 compared with 12.5% in 2020. The 290 basis point increase was primarily due to favorable
product mix and lower manufacturing inefficiencies.
Operating Expenses
Operating expenses decreased $4.0 million, or 9%. The decrease was primarily a result of a $5.0 million decrease in research
and development costs, offset by a $1.0 million increase in marketing costs.
Networked Solutions:
The effects of changes in foreign currency exchange rates and the constant currency changes in certain Networked Solutions
segment financial results were as follows:
Year Ended December 31,
2021
2020
Effect of Changes
in Foreign
Currency
Exchange Rates
Constant
Currency Change
Total Change
$
1,092,631 $
1,249,402 $
7,166 $
(163,937) $
378,633
124,199
432,906
124,807
387
222
(54,660)
(830)
(156,771)
(54,273)
(608)
In thousands
Networked Solutions Segment
Revenues
Gross profit
Operating expenses
Revenues
Revenues decreased by $156.8 million, or 13%, in 2021 compared with 2020. The change was primarily due to global
component shortages, which limited our ability to ship all our customer demand. Lower product revenue of $174.2 million was
partially offset by higher maintenance service revenue of $17.4 million.
Gross Margin
Gross margin was 34.7% in 2021 compared with 34.6% in 2020. The increase of 10 basis points was primarily due to favorable
product mix, partially offset by inefficiencies related to component shortages.
Operating Expenses
Operating expenses decreased by $0.6 million in 2021 compared with 2020. The decrease was primarily driven by reduced
investment in research and development.
34
Outcomes:
The effects of changes in foreign currency exchange rates and the constant currency changes in certain Outcomes segment
financial results were as follows:
Year Ended December 31,
2021
2020
Effect of Changes
in Foreign
Currency
Exchange Rates
Constant
Currency Change
Total Change
$
243,837 $
229,953 $
3,769 $
10,115 $
95,181
44,550
82,402
34,783
1,433
60
11,346
9,707
13,884
12,779
9,767
In thousands
Outcomes Segment
Revenues
Gross profit
Operating expenses
Revenues
Revenues increased $13.9 million, or 6%, in 2021 compared with 2020. This increase was driven by increased software license
sales and managed and professional services.
Gross Margin
Gross margin increased to 39.0% in 2021 compared with 35.8% for last year. The 320 basis point increase was driven by
favorable solutions mix and increased cost efficiencies.
Operating Expenses
Operating expenses increased $9.8 million, or 28%, in 2021. This increase was primarily related to increased research and
development investment of $7.6 million and higher product marketing expenses of $2.2 million.
Corporate unallocated:
Operating expenses not directly associated with an operating segment are classified as Corporate unallocated. These expenses
increased $34.7 million in 2021 as compared with 2020. This was primarily the result of increases in sales, general and
administrative expenses and research and development expenses of $21.5 million driven by higher variable compensation in
2021, and an increase of $17.6 million in restructuring expense due to the 2021 Projects. A loss on sale of business in 2021 of
$64.3 million includes the impairment resulting from the sale of certain of our Gas device manufacturing and business
operations in Europe and North America to Dresser and an increase to the loss related to the 2020 Latin America divestiture.
The Latin America divestiture was a $59.8 million loss on sale of business in 2020. Amortization of intangible assets decreased
$8.9 million as compared with 2020. See Item 8: Financial Statements and Supplementary Data, Note 18: Sale of Businesses
and Note 13: Restructuring for more details.
Financial Condition
Cash Flow Information:
In thousands
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Less: Cash classified within assets held for sale
Effect of exchange rates on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Year Ended December 31,
2021
2020
2019
$
154,794 $
109,514 $
(34,884)
(152,887)
(9,750)
(1,627)
(41,036)
(11,576)
—
127
172,840
(48,180)
(97,519)
—
435
$
(44,354) $
57,029 $
27,576
Cash, cash equivalents, and restricted cash at December 31, 2021 was $162.6 million compared with $206.9 million at
December 31, 2020. The $44.4 million decrease in cash and cash equivalents in the 2021 period was primarily the result of net
repayment of debt and acquisitions of property, plant, and equipment, partially offset by cash flows from operating activities.
35
Operating activities
Cash provided by operating activities in 2021 was $45.3 million higher than in 2020. This increase was primarily due to lower
variable compensation payouts and lower interest payments, which was partially offset by a greater net loss.
Investing activities
Cash used in investing activities during 2021 was $6.2 million lower than in 2020. This decrease in use of cash was primarily
related to $11.5 million less purchase of property, plant, and equipment, offset by net cash used for business acquisition.
Financing activities
Net cash used in financing activities during 2021 was $152.9 million, compared with net cash used in 2020 of $11.6 million. In
March 2021, we received $389.4 million from issuance of common stock related to the equity offering, after deducting
underwriters' discounts of the offering, purchased $84.1 million of the convertible note hedge contracts, and proceeds of
$45.3 million from the sale of warrants. Also in March 2021, we closed the sale of the Convertible Notes with gross proceeds of
$460 million, which was used to pay off the outstanding term loan balance. In April 2021, we repaid the senior notes totaling
$410 million (including $10 million early repayment premium) with proceeds from the equity offering and cash on hand. In
2021, we had net repayments of debt of $486.1 million, cash payments for prepaid debt fees were $12.0 million, and
repurchased $8.0 million of our stock. In 2020, we paid down our debt of $14.1 million.
Cash classified within assets held for sale
Cash classified within assets held for sale was $9.8 million as of December 31, 2021, which is related to the sale of assets to
Dresser, which closed on February 28, 2022.
Effect of exchange rates on cash and cash equivalents
The effect of exchange rates on the cash balances of currencies held in foreign denominations resulted in a decrease of
$1.6 million in 2021 and an increase of $0.1 million in 2020. Our foreign currency exposure relates to non-U.S. dollar
denominated balances in our international subsidiary operations.
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:
In thousands
Cash provided by operating activities
Acquisitions of property, plant, and equipment
Free cash flow
Year Ended December 31,
2021
2020
$
$
154,794 $
(34,682)
120,112 $
109,514
(46,208)
63,306
Free cash flow increased due to higher operating cash flow and lower spending for property, plant, and equipment. See the cash
flow discussion of operating activities above.
Liquidity and Capital Resources:
Our principal sources of liquidity are cash flows from operations, borrowings, and the sale of our 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 of debt. Working capital, which represents current assets less current liabilities, continues to be in a
net favorable position. We expect existing cash, cash flows from operations, and access to capital markets to continue to be
sufficient to fund our operating activities and cash commitments, such as debt maturities, and material capital expenditures, for
at least the next 12 months and thereafter for the foreseeable future.
Stock Offering
On March 12, 2021, we closed the sale of 4,472,222 shares of our common stock in a public offering, resulting in net proceeds
to us of $389.4 million, after deducting underwriters' discounts of the offering, and we closed the sale of the Convertible Notes
in a private placement to qualified institutional buyers, resulting in net proceeds to us of $448.5 million after deducting initial
purchasers' discounts of the offering. Concurrently with the issuance of the Convertible Notes, we entered into the Convertible
36
Note Hedge Transactions and Warrant Transactions. For further description of these transactions, refer to Item 8: Financial
Statements and Supplementary Data, Note 6: Debt and Note 7: Derivative Financial Instruments.
Borrowings
On October 18, 2019, we amended our credit facility that was initially entered on January 5, 2018 (together with the
amendment, the 2018 credit facility). The 2018 credit facility provides for committed credit facilities in the amount of
$1.2 billion U.S. dollars. The 2018 credit facility consists of a $650 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. The October 18, 2019 amendment
extended the maturity date to October 18, 2024. At December 31, 2021, no amount was outstanding under the 2018 credit
facility revolver, and $64.4 million was utilized by outstanding standby letters of credit, resulting in $435.6 million available for
additional borrowings or standby letters of credit under the revolver. At December 31, 2021, $235.6 million was available for
additional standby letters of credit under the letter of credit sub-facility and no amounts were outstanding under the swingline
sub-facility. Amounts borrowed under the revolver may be repaid and reborrowed until the revolver's maturity on October 18,
2024, at which time all outstanding loans together with all accrued and unpaid interest must be repaid.
On March 12, 2021, we closed the sale of $460 million in Convertible Notes in a private placement to qualified institutional
buyers. The Convertible Notes do not bear regular interest, and the principal amount does not accrete. The Convertible Notes
will mature on March 15, 2026, unless earlier repurchased, redeemed, or converted in accordance with their terms.
For further description of our borrowings, refer to Item 8: Financial Statements and Supplementary Data, Note 6: Debt. See
Item 8: Financial Statements and Supplementary Data, Note 7: Derivative Financial Instruments. for further details of the
Convertible Note Hedge Transactions and Warrant Transactions.
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 8: Financial Statements
and Supplementary Data, Note 12: Commitments and Contingencies.
Restructuring
On September 17, 2020, our Board of Directors approved a restructuring plan (the 2020 Projects). The 2020 Projects include
activities that continue our efforts to optimize its global supply chain and manufacturing operations, sales and marketing
organizations, and other overhead. These projects are scheduled to be substantially complete by the end of 2022, with an
estimated $17 million in cash payments remaining as of December 31, 2021.
On October 29, 2021, our Board of Directors approved a restructuring plan (the 2021 Projects), which in conjunction with the
announcement of the sale of certain of our Gas device manufacturing operations, (refer to Item 8: Financial Statements and
Supplementary Data, Note 18: Sale of Businesses), includes activities to drive reductions in certain locations and functional
support areas. These projects are to be substantially complete by the end of 2024. Itron recognized pre-tax restructuring charges
of $60.7 million. Of the total charge, approximately $55 million will result in cash expenditures, and the remainder to non-cash
impairment charges. Once the 2021 Projects are substantially completed, Itron estimates $15 million to $20 million in
annualized savings. Certain of Itron's employees are represented by unions or works councils, which requires consultation, and
potential restructuring projects may be subject to regulatory approval, both of which could impact the timing of planned savings
in certain jurisdictions.
For the year ended December 31, 2021, we paid out a net $29.7 million related to all our restructuring projects. As of
December 31, 2021, $85.0 million was accrued for these restructuring projects, of which $29.7 million is expected to be paid
within the next 12 months.
For further details regarding our restructuring activities, refer to Item 8: Financial Statements and Supplementary Data, Note 13:
Restructuring.
Reserve of Receivables from Sale of Business
On June 25, 2020, we closed on the sale of five subsidiaries comprising our manufacturing and sales operations in Latin
America to buyers led by Instalación Profesional y Tecnologías del Centro S.A. de C.V., a Mexican company doing business as
Accell in Brazil (Accell), through the execution of various definitive stock purchase agreements. The total sales price of
$35.0 million included deferred payments of $21.1 million for working capital, which was to be paid in full by December 31,
2020, as evidenced by a promissory note, and the remainder in cash ($4.5 million) and other deferred consideration. In January
2021, we agreed to extend the payment terms on the remaining outstanding working capital balance of $18.4 million. Accell
had agreed to make monthly payments, including interest, through September 2022, under which we received full payments for
37
January through March and partial payments in April and May (totaling $3.8 million including $0.7 million in interest). Based
on Accell's failure to make timely payments, continued requests to defer payments significantly beyond the original maturity of
the working capital note, and the unfavorable impact of the COVID-19 pandemic on the Latin American markets, we
determined to fully reserve the working capital and other deferred consideration in the second quarter of 2021.
Stock Repurchase Authorization
Effective November 1, 2021, Itron's Board of Directors authorized a share repurchase program of up to $100 million of our
common stock over an 18-month period (the 2021 Stock Repurchase Program). Repurchases are made in the open market or in
privately negotiated transactions, and in accordance with applicable securities laws. Following the announcement of the
program and through December 31, 2021, we repurchased 125,314 shares at an average share price of $64.05 (excluding
commissions) for a total of $8.0 million. Subsequent to December 31, 2021, we repurchased 279,968 shares of our common
stock under the 2021 Stock Repurchase Program. The average price paid per share was $60.60 (excluding commissions) for
total of $17.0 million.
Other contractual obligations and commitments
Operating lease obligations are disclosed in Item 8: Financial Statements and Supplementary Data, Note 19: Leases and do not
include common area maintenance charges, real estate taxes, and insurance charges for which we are obligated. Amounts due
under operating lease liabilities for the next twelve months are $19.2 million and beyond the next twelve months are
$62.5 million.
We regularly enter into standard purchase orders in the ordinary course of business that may obligate us to purchase materials
and other items but which may not yet qualify for recognition in our Consolidated Balance Sheets. Purchase orders and other
purchase obligations can include open-ended agreements that provide for estimated quantities over an extended delivery period.
At December 31, 2021, purchase orders and other purchase obligations were $607.7 million, which includes capital
expenditures of $18.2 million. The purchase orders may include durations longer than one year, but these long-term agreements
generally contain termination clauses that could require payment if the commitments were canceled, and as such the total above
is considered short-term as of December 31, 2021.
Other long-term liabilities consist of warranty obligations, estimated pension benefit payments, and other obligations. Estimated
pension benefit payments include amounts to be paid from our assets for unfunded plans and reflect expected future service.
The following table summarizes our known obligations to make future payments pursuant to certain contracts as of
December 31, 2021.
In thousands
Warranty obligations
Estimated pension benefit payments
Next 12 months
$
18,406 $
4,294
Beyond the next
12 months
13,616
87,863
The period of cash settlement for long-term unrecognized tax benefits, which include accrued interest and penalties, cannot be
reasonably estimated with the respective taxing authorities. For further information on defined benefit pension plans, income
taxes, warranty obligations, and unearned revenue for extended warranties, see Item 8: Financial Statements and Supplementary
Data, Note 8: Defined Benefit Pension Plans, Note 11: Income Taxes, Note 12: Commitments and Contingencies, and Note 17:
Revenues.
Income Tax
Our tax provision as a percentage of income before tax typically differs from the U.S. federal statutory rate of 21%. Changes in
our actual tax rate are subject to several factors, including fluctuations in operating results, new or revised tax legislation and
accounting pronouncements, changes in the level of business in domestic and foreign jurisdictions, research and development
tax credits, state income taxes, adjustments to valuation allowances, settlement of tax audits, and uncertain tax positions, among
other items. Changes in tax laws, valuation allowances, and unanticipated tax liabilities could significantly impact our tax rate.
38
Our cash income tax payments were as follows:
In thousands
U.S. federal taxes paid (refunded)
State income taxes paid
Foreign and local income taxes paid
Total income taxes paid
Year Ended December 31,
2021
2020
$
$
— $
(6,816)
817
6,256
7,073 $
914
8,590
2,688
Based on current projections, we expect to pay, net of refunds, approximately $11 million in U.S. federal and state taxes and
$6 million in foreign and local income taxes in 2022.
As of December 31, 2021, there was $56.0 million of cash and short-term investments held by certain foreign subsidiaries in
which we are permanently reinvested for tax purposes. As a result of recent changes in U.S. tax legislation, any repatriation in
the future would not result in U.S. federal income tax. Accordingly, there is no provision for U.S. deferred taxes on this cash. If
this cash were repatriated to fund U.S. operations, additional withholding tax costs may be incurred. Tax is only one of many
factors that we consider in the management of global cash. Accordingly, the amount of taxes that we would need to accrue and
pay to repatriate foreign cash could vary significantly.
Other Liquidity Considerations
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 and/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. At December 31, 2021, $26.7 million of our consolidated cash balance was held in our joint venture
entities. As a result, the minority shareholders of these entities have rights to 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.
As of December 31, 2021, we expect to pay approximately $35 million for variable compensation in cash during the first
quarter of 2022.
General Liquidity Overview
Notwithstanding the expected short to mid-term impacts of the COVID-19 pandemic, we expect to grow through a combination
of internal new research and 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, or the sale of our common stock or other securities. We believe existing 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 utility industries,
competitive pressures, our dependence on certain key vendors and components, changes in estimated liabilities for product
warranties and/or litigation, duration of the COVID-19 pandemic, future business combinations, capital market fluctuations,
international risks, and other factors described under Item 1A: Risk Factors, as well as Item 7A: Quantitative and Qualitative
Disclosures About Market Risk.
Contingencies
Refer to Item 8: Financial Statements and Supplementary Data, Note 12: Commitments and Contingencies.
Critical Accounting Estimates and Policies
Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses. These estimates and assumptions are affected by management's application of accounting
policies. Our critical accounting policies include revenue recognition, warranty, restructuring, income taxes, business
combinations, goodwill and intangible assets, defined benefit pension plans, contingencies, and stock-based compensation.
Refer to Item 8: Financial Statements and Supplementary Data, Note 1: Summary of Significant Accounting Policies for further
disclosures regarding accounting policies and new accounting pronouncements.
39
Revenue Recognition
Many of our revenue arrangements involve multiple performance obligations, consisting of hardware, software, and
professional services such as implementation, project management, installation, and consulting services. These arrangements
require us to determine the standalone selling price of the promised goods or services underlying each performance obligation
and then allocate the total arrangement consideration among the separate performance obligations based on their relative
standalone selling price. Revenues for each performance obligation are then recognized upon transfer of control to the customer
at a point in time as products are shipped or received by a customer, or over time as services are delivered. The majority of our
revenue is recognized at a point in time when products are shipped to or received by a customer. Certain contracts that contain
multiple performance obligations may contain customer-specific terms and conditions that govern service level commitments,
transfer of control, and variable consideration that may involve complex accounting considerations.
Professional services revenues are recognized over time. We measure progress towards satisfying these performance obligations
using input methods, most commonly based on the costs incurred in relation to the total expected costs to provide the service.
The estimate of expected costs to provide services requires judgment. Cost estimates take into consideration past history and the
specific scope requested by the customer and are updated quarterly. Other variables impacting our estimate of costs to complete
include length of time to complete, changes in wages, subcontractor performance, supplier information, and business volume
assumptions. Changes in underlying assumptions and estimates may adversely or favorably affect financial performance.
If we estimate that the completion of a performance obligation will result in a loss, then the loss is recognized in the period in
which the loss becomes evident. We reevaluate the estimated loss through the completion of the performance obligation and
adjust the estimated loss for changes in facts and circumstances.
Many of our contracts with customers include variable consideration, which can include liquidated damage provisions, rebates
and volume and early payment discounts, or software licenses sold where the amount of consideration is dependent on the
number of endpoints deployed. We estimate variable consideration using the expected value method, taking into consideration
contract terms, historical customer behavior, and historical sales. Some of our contracts with customers contain clauses for
liquidated damages related to the timing of delivery or milestone accomplishments, which 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 the
probability of having to pay liquidated damages and the magnitude of such damages. In the case of liquidated damages, we also
take into consideration progress towards meeting contractual milestones, including whether milestones have not been achieved,
specified rates, if applicable, stated in the contract, and history of paying liquidated damages to the customer or similar
customers.
Certain of our revenue arrangements include an extended or customer-specific warranty provision that covers all or a portion of
a customer's replacement or repair costs beyond the standard 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 customer-
specific warranties do not represent a significant portion of our revenue.
We allocate consideration to each performance obligation in an arrangement based on its relative standalone selling price. For
goods or services where we have observable standalone sales, the observable standalone sales are used to determine the
standalone selling price. For the majority of our goods and services, we do not have observable standalone sales. As a result, we
estimate the standalone selling price using either the adjusted market assessment approach or the expected cost plus a margin
approach. Approaches used to estimate the standalone selling price for a given good or service maximize the use of observable
inputs and consider several factors, including our pricing practices, costs to provide a good or service, the type of good or
service, and availability of other transactional data, among others.
We determine the estimated standalone selling prices of goods or services used in our allocation of arrangement consideration
on an annual basis or more frequently if there is a significant change in our business or if we experience significant variances in
our transaction prices.
Our contracts may be modified to add, remove, or change existing performance obligations or change contract price. The
accounting for modifications to our contracts involves assessing whether the products or services added to an existing contract
are distinct and whether the pricing is at the standalone selling price. Products or services added that are not distinct are
accounted for as if it were part of the existing contract. The effect of the modification on the transaction price and on the
measure of progress is recognized as an adjustment to revenue as of the date of the modification (i.e., on a cumulative catch-up
basis). Those products or services that are distinct are accounted for prospectively, either as a separate contract if the additional
services are priced at the standalone selling price, or as a termination of the existing contract and creation of a new contract if
not priced at the standalone selling price.
40
Warranty
We offer standard warranties on our hardware products and large application software products. We accrue the estimated cost
of 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 our products, we may experience an increase in warranty claims. We track warranty claims to identify
potential warranty trends. If an unusual trend is identified, an additional warranty accrual would be recognized 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.
Restructuring
We recognize 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. One-time termination benefits are recognized at the date the employee is notified. If the employee must provide
future service greater than 60 days, such benefits are recognized ratably over the future service period. For contract termination
costs, we recognize 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
recognized 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
recognized 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 estimates 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 recognized.
Income Taxes
We estimate income tax expense in each of the taxing jurisdictions in which we operate. Changes in our actual tax rate are
subject to several factors, including fluctuations in operating results, new or revised tax legislation and accounting
pronouncements, changes in the level of business in domestic and foreign jurisdictions, research and development tax credits,
state income taxes, adjustments to valuation allowances, settlement of tax audits, and uncertain tax positions, among other
items. Changes in tax laws, valuation allowances, and unanticipated tax liabilities could significantly impact our tax rate.
We recognize 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 all available favorable and unfavorable
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 our control. Our most sensitive and critical factors are the projection, source, and character of future taxable
income. Although realization is not assured, management believes it is more likely than not that deferred tax assets, net of
valuation allowance, 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.
41
We are subject to audits 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 recognized 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 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 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. Each reporting unit corresponds with its respective operating segment.
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 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, we first evaluate the long-lived assets within the reporting unit for impairment and then recognize a
goodwill impairment loss in an amount equal to any 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, business 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.
Changes in market demand, fluctuations in the markets in which we operate, the volatility and decline in the worldwide equity
markets, and a decline in our market capitalization could unfavorably impact the remaining carrying value of our goodwill,
which could have a significant effect on our current and future results of operations and financial position.
Defined Benefit Pension Plans
We sponsor both funded and unfunded defined benefit pension plans for our international employees, primarily in Germany,
France, Indonesia, India, and Italy. 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 other comprehensive income (loss) (OCI),
net of tax, the actuarial gains or losses and prior service costs or credits, if any, which 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 increases. 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 euro denominated defined benefit pension plans, which represent 91% of our projected
42
benefit obligation, we use discount rates with consideration of the duration of each of the plans, using a hypothetical yield curve
developed from euro-denominated AA-rated corporate bond issues. These bonds are assigned different weights to adjust their
relative influence on the yield curve, and the highest and lowest yielding 10% of bonds are excluded within each maturity
group. The discount rates used, depending on the duration of the plans, were between 0.50% and 1.25%. The weighted average
discount rate used to measure the projected benefit obligation for all of the plans at December 31, 2021 was 1.66%. A change of
25 basis points in the discount rate would change our projected benefit obligation by approximately $5.0 million. The financial
and actuarial assumptions used at December 31, 2021 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
recognized in future periods.
Contingencies
A loss contingency is recognized 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 recognized. 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
recognized as incurred.
Stock-Based Compensation
We grant various stock-based compensation awards to our officers, employees, and Board of Directors with service,
performance, and market vesting conditions, including restricted stock units, phantom stock units, and unrestricted stock units
(awards). Prior to December 31, 2020, stock options were also granted as part of the stock-based compensation awards. We
measure and recognize compensation expense for all awards based on estimated fair values. For awards with only a service
condition, we expense stock-based compensation using the straight-line method over the requisite service period for the entire
award. For awards with service and performance conditions, if vesting is probable, we expense the stock-based compensation
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.
We measure and recognize compensation expense for all stock-based compensation based on estimated fair values. The fair
value of unrestricted stock awards with no market conditions 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. For phantom stock units, fair value is the market close price of our common stock at the end of each reporting period.
For stock options, the fair value was estimated at the date of grant using the Black-Scholes option-pricing model, which
included assumptions for the expected volatility, risk-free interest rate, expected term and dividend yield.
In valuing our restricted stock units with a market condition and stock options, 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. 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 volatility for stock
options was based on the historical and implied volatility of our own common stock. The expected life of stock option grants
was 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, 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 and ultimately the expense we recognize. Actual results and future estimates may differ substantially
from our current estimates.
Non-GAAP Measures
To supplement our consolidated financial statements, which are prepared in accordance with GAAP, we use certain non-GAAP
financial measures, including non-GAAP operating expense, non-GAAP operating income, non-GAAP net income, non-GAAP
diluted EPS, adjusted EBITDA, free cash flow, and constant currency. The presentation of this financial information is not
intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in
accordance with GAAP, and other companies may define such measures differently. For a reconciliation of each non-GAAP
measure to the most comparable financial measure prepared and presented in accordance with GAAP, please see the table
captioned Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures.
43
We use these non-GAAP financial measures for financial and operational decision making and/or as a means for determining
executive compensation. Management believes that these non-GAAP financial measures provide meaningful supplemental
information regarding our performance and ability to service debt by excluding certain expenses that may not be indicative of
our recurring core operating results. These non-GAAP financial measures facilitate management's internal comparisons to our
historical performance, as well as comparisons to our competitors' operating results. Our executive compensation plans exclude
non-cash charges related to amortization of intangibles and certain discrete cash and non-cash charges, such as acquisition and
integration related expenses, loss on sale of business, or restructuring charges. We believe that both management and investors
benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and
analyzing future periods. We believe these non-GAAP financial measures are useful to investors because they provide greater
transparency with respect to key metrics used by management in its financial and operational decision making and because they
are used by our institutional investors and the analyst community to analyze the health of our business.
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, restructuring, loss on sale of business,
corporate transition cost, and acquisition and integration. We define non-GAAP operating income as operating income (loss)
excluding the expenses related to the amortization of intangible assets, restructuring, loss on sale of business, corporate
transition cost, and acquisition and integration. Acquisition and integration related expenses include costs, which are incurred to
affect and integrate business combinations, such as professional fees, certain employee retention and salaries related to
integration, severances, contract terminations, travel costs related to knowledge transfer, system conversion costs, and asset
impairment charges. 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 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 expenses and non-GAAP operating income versus operating expenses and operating income calculated in
accordance with GAAP. We compensate for these limitations by providing specific information about the GAAP amounts
excluded from non-GAAP operating expense and non-GAAP operating income and evaluating non-GAAP operating expense
and non-GAAP operating income together with GAAP operating expense and operating income.
Non-GAAP net income and non-GAAP diluted EPS – We define non-GAAP net income as net income (loss) attributable to
Itron, Inc. excluding the expenses associated with amortization of intangible assets, amortization of debt placement fees, debt
extinguishment, restructuring, loss on sale of business, corporate transition cost, acquisition and integration, and the tax effect
of excluding these expenses. We define non-GAAP diluted EPS as non-GAAP net income divided by diluted weighted-average
shares outstanding during the period calculated on a GAAP basis and then reduced to reflect the anti-dilutive impact of the
convertible note hedge transaction entered into in connection with the 0% Convertible Notes due 2026 issued in March 2021.
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 attributable to Itron, Inc. and GAAP diluted EPS.
Adjusted EBITDA – We define adjusted EBITDA as net income (loss) (a) minus interest income, (b) plus interest expense,
depreciation and amortization, debt extinguishment, restructuring, loss on sale of business, corporate transition cost, acquisition
and integration, and (c) excluding income tax provision or benefit. Management uses adjusted EBITDA as a performance
measure for executive compensation. A limitation to using adjusted EBITDA is that it does not represent the total increase or
decrease in the cash balance for the period and the measure includes some non-cash items and excludes other non-cash items.
Additionally, the items that we exclude in our calculation of adjusted EBITDA may differ from the items that our peer
companies exclude when they report their results. We compensate for these limitations by providing a reconciliation of this
measure to GAAP net income (loss).
Free cash flow – We define free cash flow as net cash provided by operating activities less cash used for acquisitions of
property, plant and equipment. We believe free cash flow provides investors with a relevant measure of liquidity and a useful
basis for assessing our ability to fund our operations and repay our debt. The same limitations described above regarding our
use of adjusted EBITDA apply to our use of free cash flow. We compensate for these limitations by providing specific
information regarding the GAAP amounts and reconciling to free cash flow.
44
Constant currency – We refer to the impact of foreign currency exchange rate fluctuations in our discussions of financial
results, which references the differences between the foreign currency exchange rates used to translate operating results from
the entity's functional currency into U.S. dollars for financial reporting purposes. We also use the term "constant currency",
which represents financial results adjusted to exclude changes in foreign currency exchange rates as compared with the rates in
the comparable prior year period. We calculate the constant currency change as the difference between the current period results
and the comparable prior period's results restated using current period foreign currency exchange rates.
Reconciliations of Non-GAAP Financial Measures to the most Directly Comparable GAAP Financial Measures
The tables below reconcile the non-GAAP financial measures of operating expenses, operating income, net income, diluted
EPS, adjusted EBITDA, and free cash flow with the most directly comparable GAAP financial measures.
45
TOTAL COMPANY RECONCILIATIONS
In thousands, except per share data
NON-GAAP OPERATING EXPENSES
Year Ended December 31,
2020
2021
GAAP operating expenses
Amortization of intangible assets
Restructuring
Loss on sale of business
Corporate transition cost
Acquisition and integration
Non-GAAP operating expenses
NON-GAAP OPERATING INCOME
GAAP operating loss
Amortization of intangible assets
Restructuring
Loss on sale of business
Corporate transition cost
Acquisition and integration
Non-GAAP operating income
NON-GAAP NET INCOME & DILUTED EPS
GAAP net loss attributable to Itron, Inc.
Amortization of intangible assets
Amortization of debt placement fees
Debt extinguishment
Restructuring
Loss on sale of business
Corporate transition cost
Acquisition and integration
Income tax effect of non-GAAP adjustments (1)
Non-GAAP net income attributable to Itron, Inc.
Non-GAAP diluted EPS
Non-GAAP weighted average common shares outstanding - Diluted
ADJUSTED EBITDA
GAAP net loss attributable to Itron, Inc.
Interest income
Interest expense
Income tax (benefit) provision
Debt extinguishment
Depreciation and amortization
Restructuring
Loss on sale of business
Corporate transition cost
Acquisition and integration
Adjusted EBITDA
FREE CASH FLOW
Net cash provided by operating activities
Acquisitions of property, plant, and equipment
Free Cash Flow
$
$
$
$
$
$
$
$
$
$
$
652,468 $
(35,801)
(54,623)
(64,289)
—
(151)
497,604 $
(79,299) $
35,801
54,623
64,289
—
151
75,565 $
(81,255) $
35,801
18,078
11,681
54,623
64,289
—
151
(25,265)
78,103 $
612,562
(44,711)
(37,013)
(59,817)
33
(1,026)
470,028
(10,395)
44,711
37,013
59,817
(33)
1,026
132,139
(57,955)
44,711
3,954
—
37,013
59,817
(33)
1,026
(13,280)
75,253
1.75 $
1.85
44,617
40,571
(81,255) $
(1,557)
28,638
(45,512)
11,681
84,153
54,623
64,289
—
151
115,211 $
154,794 $
(34,682)
120,112 $
(57,955)
(2,998)
44,001
238
—
97,290
37,013
59,817
(33)
1,026
178,399
109,514
(46,208)
63,306
(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.
46
Item 7A: 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 may be exposed to interest rate risk through our variable rate debt instruments. On March 17, 2021, we paid a fee of
$1.7 million to terminate the interest rate swap since the likelihood of LIBOR-based interest payments were no longer probable
of occurring. On August 12, 2021, the U.S. dollar term loan under the credit facility was fully paid. At December 31, 2021, we
had no outstanding variable rate debt.
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 if we were to have variable rate debt outstanding.
Foreign Currency Exchange Rate Risk
We conduct business in a number of countries. Revenues denominated in functional currencies other than the U.S. dollar were
38% of total revenues for the year ended December 31, 2021, compared with 37% for both the years ended December 31, 2020
and 2019. These transactions 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.
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 recognized
within other income (expense) in our Consolidated Statements of Operations. We enter into monthly foreign exchange forward
contracts, which are not designated for hedge accounting, with the intent to reduce earnings volatility associated with currency
exposures. As of December 31, 2021, a total of 39 contracts were offsetting our exposures from the euro, pound sterling,
Indonesian rupiah, Canadian dollar, Australian dollar, and various other currencies, with notional amounts ranging from
$102,000 to $76.3 million. Based on a sensitivity analysis as of December 31, 2021, we estimate that, if foreign currency
exchange rates average ten percentage points higher in 2022 for these financial instruments, our financial results in 2022 would
not be materially impacted.
In future periods, we may use additional derivative contracts to protect against foreign currency exchange rate risks.
47
Item 8: Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Itron, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Itron, Inc. and subsidiaries (the "Company") as of
December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), equity, and cash
flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the
"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 28, 2022, expressed an unqualified opinion on the Company's internal control over
financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
Revenue Recognition — Revenue arrangements involving multiple performance obligations consisting of hardware,
software, and professional services such as implementation, project management, installation, and consulting services —
Refer to Notes 1 and 17 to the financial statements
Critical Audit Matter Description
Many of the Company's revenue arrangements involve multiple performance obligations consisting of hardware, software, and
professional services such as implementation, project management, installation, and consulting services. These contracts may
contain customer-specific business terms and conditions, including service level commitments, variable consideration, and
terms that govern when the customer has taken control. Additionally, these contracts may be modified from time to time as the
Company delivers under the contract. These customer-specific business terms and conditions and modifications may involve
complex accounting considerations, including determining whether the Company has enforceable rights and obligations,
48
whether contract modifications represent new contracts or modification of existing contracts, whether certain performance
obligations are distinct, and other considerations that may impact the timing of revenue recognition.
The evaluation of these factors is executed in accordance with the ASC 606 revenue recognition framework and requires
significant management judgment that could affect the amount and timing of revenue recognition over the contractual period.
The computations to recognize revenue under the ASC 606 revenue recognition framework can be complex and require a
significant volume of data input. Additionally, there can be complexity in the computations and entries made to record the
related contract assets and liabilities at the balance sheet date. Given the challenge in auditing the judgments and computations
made in determining revenue recognition for these multiple performance obligation arrangements with customer-specific
business terms and conditions and modifications, we identified revenue recognition as a critical audit matter.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to (1) determining whether the Company has enforceable rights and obligations, whether contract
modifications represent new contracts or modifications, whether certain performance obligations are distinct and other
considerations that may impact the timing of revenue recognition and (2) the completeness and accuracy of the revenue
recognition computations and entries used to recognize revenue included the following, among others:
• We tested the effectiveness of controls over contract reviews, including management's use of checklists and other
review procedures to determine whether customer-specific business terms are evident in the contract and whether
accounting conclusions regarding enforceable rights and obligations, contract modifications, distinct products and
services, and other considerations that may impact the timing of revenue recognition are appropriately applied.
• We tested the effectiveness of controls over revenue recognition computations and entries to determine whether the
computations and entries appropriately reflect the accounting conclusions for these contracts. Such controls included
(1) the review of the completeness and accuracy of data input into the computations and entries and (2) the review of
the mathematical accuracy of the computations and entries.
•
For a sample of contracts with customers that included existing contracts, new contracts and contract modifications,
we:
◦
◦
◦
◦
Tested management's identification of customer-specific terms, whether the Company had enforceable rights
and obligations, whether contract modifications represented new contracts or modifications to existing
contracts, whether customer-specific terms introduced new or implied performance obligations, or other
factors influencing the timing, nature and amount of revenue recognized, and assessed management's
conclusions regarding accounting treatment. Our procedures included reading the selected contracts and
inquiring of the Company's operational personnel to understand the nature of the contract and its business
purpose, as well as evaluating management's conclusions.
Evaluated whether the identified accounting conclusions were appropriately reflected in the revenue
recognition computations and entries.
Tested the accuracy and completeness of the data used in the computations and entries to record revenue.
Tested mathematical accuracy of revenue recognition computations and entries.
Goodwill — Device Solutions Reporting Unit — Refer to Notes 1 and 5 to the financial statements
Critical Audit Matter Description
The Company's evaluation of goodwill for impairment involves the comparison of the fair value of its reporting units to their
carrying amounts. The Company evaluates goodwill for impairment at least annually, during the fourth quarter. The Company
develops its estimate of fair value of the reporting unit using forecast discounted cash flows at the reporting unit level, which
requires the Company to make significant estimates and assumptions related to forecasts of future revenues and operating costs.
Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment
charge, or both. The estimated fair value of Device Solutions ("Devices") reporting unit exceeded its carrying value as of the
measurement date and, therefore, no impairment was recognized.
We identified goodwill for Devices as a critical audit matter because of the significant estimates and assumptions the Company
makes to estimate the fair value of Devices and the sensitivity of Devices' operations to changes in the Company's financial
performance. This required a high degree of auditor judgment and an increased extent of effort, including the involvement of
our fair value specialists, when performing audit procedures to evaluate the reasonableness of management's estimates and
assumptions related to forecasts of future revenues and operating costs.
49
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of revenue and operating costs ("forecasts") for the Devices reporting unit included
the following, among others:
• We tested the effectiveness of controls over management's goodwill impairment evaluation, including those over the
determination of the fair value of Devices, such as controls related to the Company's forecasts.
• We inquired of members of the Company's management responsible for the Devices reporting unit to understand and
corroborate management's plan to achieve planned forecast revenue growth.
• We evaluated the reasonableness of management's forecasts by comparing the forecasts to (1) historical results, (2)
internal communications to management and the Board of Directors, and (3) forecasted information included in analyst
and industry reports as well as press releases of the Company and companies in its peer group.
• With the assistance of our fair value specialists, we evaluated the valuation methodology and long-term forecast
growth rates, including testing the underlying source information and the mathematical accuracy of the calculations,
and developed a range of independent estimates and compared those to selections made by management.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
February 28, 2022
We have served as the Company's auditor since 2016.
50
In thousands, except per share data
Revenues
Product revenues
Service revenues
Total revenues
Cost of revenues
Product cost of revenues
Service cost of revenues
Total cost of revenues
Gross profit
Operating expenses
Sales, general and administrative
Research and development
Amortization of intangible assets
Restructuring
Loss on sale of business
Total operating expenses
Operating income (loss)
Other income (expense)
Interest income
Interest expense
Other income (expense), net
Total other income (expense)
Income (loss) before income taxes
Income tax benefit (provision)
Net income (loss)
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
2020
2021
2019
$
1,678,195 $
303,377
1,981,572
1,889,173 $
284,177
2,173,350
1,231,230
177,173
1,408,403
573,169
1,408,615
162,568
1,571,183
602,167
300,520
197,235
35,801
54,623
64,289
652,468
276,920
194,101
44,711
37,013
59,817
612,562
2,220,395
282,075
2,502,470
1,587,710
162,441
1,750,151
752,319
346,872
202,200
64,286
6,278
—
619,636
(79,299)
(10,395)
132,683
1,557
(28,638)
(17,430)
(44,511)
(123,810)
45,512
(78,298)
2,957
(81,255) $
2,998
(44,001)
(5,241)
(46,244)
(56,639)
(238)
(56,877)
1,078
(57,955) $
(1.83) $
(1.83) $
(1.44) $
(1.44) $
1,849
(52,453)
(9,047)
(59,651)
73,032
(20,617)
52,415
3,409
49,006
1.24
1.23
39,556
39,980
Net income attributable to noncontrolling interests
Net income (loss) attributable to Itron, Inc.
Net income (loss) per common share - Basic
Net income (loss) per common share - Diluted
$
$
$
Weighted average common shares outstanding - Basic
Weighted average common shares outstanding - Diluted
44,301
44,301
40,253
40,253
The accompanying notes are an integral part of these consolidated financial statements.
51
ITRON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
In thousands
Net income (loss)
Year Ended December 31,
2020
2021
2019
$
(78,298) $
(56,877) $
52,415
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Foreign currency translation adjustment reclassified to net income
(loss) on sale of business
Net unrealized gain (loss) on derivative instruments, designated
as cash flow hedges
Pension benefit obligation adjustment
Total other comprehensive income (loss), net of tax
(26,923)
21,082
—
52,074
1,411
15,940
(9,572)
(898)
(6,112)
66,146
(2,953)
2,443
(1,924)
(5,933)
(8,367)
Total comprehensive income (loss), net of tax
(87,870)
9,269
44,048
Comprehensive income attributable to noncontrolling interests,
net of tax
2,957
1,078
3,409
Comprehensive income (loss) attributable to Itron, Inc.
$
(90,827) $
8,191 $
40,639
The accompanying notes are an integral part of these consolidated financial statements.
52
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
In thousands
Current assets
ASSETS
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets
Total current assets
Property, plant, and equipment, net
Deferred tax assets, net
Other long-term assets
Operating lease right-of-use assets, net
Intangible assets, net
Goodwill
Total assets
LIABILITIES AND EQUITY
Current liabilities
Accounts payable
Other current liabilities
Wages and benefits payable
Taxes payable
Current portion of debt
Current portion of warranty
Unearned revenue
Total current liabilities
Long-term debt, net
Long-term warranty
Pension benefit obligation
Deferred tax liabilities, net
Operating lease liabilities
Other long-term obligations
Total liabilities
Equity
Preferred stock, no par value, 10,000 shares authorized, no shares
issued or outstanding
Common stock, no par value, 75,000 shares authorized, 45,152 and
40,444 shares issued and outstanding
Accumulated other comprehensive loss, net
Accumulated deficit
Total Itron, Inc. shareholders' equity
Noncontrolling interests
Total equity
Total liabilities and equity
December 31, 2021
December 31, 2020
$
$
$
$
162,579 $
298,459
165,799
123,092
749,929
163,184
181,472
42,178
65,523
92,529
1,098,975
2,393,790 $
193,129 $
81,253
113,532
12,208
—
18,406
82,816
501,344
450,228
13,616
87,863
2,000
57,314
138,666
1,251,031
206,933
369,828
182,377
171,124
930,262
207,816
76,142
51,656
76,276
132,955
1,131,916
2,607,023
215,639
72,591
86,249
15,804
18,359
28,329
112,928
549,899
902,577
13,061
119,457
1,921
66,823
113,012
1,766,750
—
—
1,779,775
(148,098)
(515,600)
1,116,077
26,682
1,142,759
2,393,790 $
1,389,419
(138,526)
(434,345)
816,548
23,725
840,273
2,607,023
The accompanying notes are an integral part of these consolidated financial statements.
53
ITRON, INC.
CONSOLIDATED STATEMENTS OF EQUITY
Common Stock
Shares
Amount
Accumulated
Other
Comprehensive
Income ( Loss)
Accumulated
Deficit
Total Itron,
Inc.
Shareholders'
Equity
Noncontrolling
Interests
Total
Equity
39,498 $ 1,334,364 $
(196,305) $
(425,396) $
712,663 $
21,385 $ 734,048
49,006
49,006
3,409
52,415
(8,367)
489
415
9
59
21,289
(3,113)
630
3,100
26,330
(529)
(25,000)
(8,367)
21,289
(3,113)
630
3,100
26,330
(25,000)
—
(517)
(8,367)
(517)
21,289
(3,113)
630
3,100
26,330
(25,000)
39,941
1,357,600
(204,672)
(376,390)
776,538
24,277
800,815
(57,955)
(57,955)
1,078
(56,877)
66,146
66,146
—
66,146
(1,630)
(1,630)
103
334
12
54
5,551
(2,120)
824
3,335
24,229
40,444
1,389,419
(138,526)
(434,345)
5,551
(2,120)
824
3,335
24,229
816,548
5,551
(2,120)
824
3,335
24,229
23,725
840,273
(81,255)
(81,255)
2,957
(78,298)
In thousands
Balances at January 1, 2019
Net income
Other comprehensive income (loss), net
of tax
Distributions to noncontrolling interests
Stock options exercised
Restricted stock awards released net of
repurchased shares for taxes
Issuance of stock-based compensation
awards
Employee stock purchase plan
Stock-based compensation expense
Stock repurchase program
Balances at December 31, 2019
Net income (loss)
Other comprehensive income (loss), net
of tax
Distributions to noncontrolling interests
Stock options exercised
Restricted stock awards released net of
repurchased shares for taxes
Issuance of stock-based compensation
awards
Employee stock purchase plan
Stock-based compensation expense
Balances at December 31, 2020
Net income (loss)
Other comprehensive income (loss), net
of tax
Stock options exercised
Restricted stock awards released net of
repurchased shares for taxes
Issuance of stock-based compensation
awards
Employee stock purchase plan
Stock-based compensation expense
(9,572)
30
285
9
37
1,924
(804)
856
3,156
22,762
Stock issued related to equity offering
4,472
389,419
Proceeds from sale of warrants
Purchases of convertible note hedge
contracts, net of tax
Registration fee
Stock repurchase program
Other
45,349
(63,576)
(359)
(125)
(8,028)
(343)
(9,572)
1,924
(804)
856
3,156
22,762
389,419
45,349
(63,576)
(359)
(8,028)
(343)
—
(9,572)
1,924
(804)
856
3,156
22,762
389,419
45,349
(63,576)
(359)
(8,028)
(343)
Balances at December 31, 2021
45,152 $ 1,779,775 $
(148,098) $
(515,600) $
1,116,077 $
26,682 $ 1,142,759
The accompanying notes are an integral part of these consolidated financial statements.
54
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2021
2020
2019
$
(78,298) $
(56,877) $
52,415
In thousands
Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization of intangible assets
Non-cash operating lease expense
Stock-based compensation
Amortization of prepaid debt fees
Deferred taxes, net
Loss on sale of business
Loss on extinguishment of debt, net
Restructuring, non-cash
Other adjustments, net
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
Inventories
Other current assets
Other long-term assets
Accounts payable, other current liabilities, and taxes payable
Wages and benefits payable
Unearned revenue
Warranty
Other operating, net
Net cash provided by operating activities
Investing activities
Net proceeds related to the sale of business
Acquisitions of property, plant, and equipment
Business acquisitions, net of cash and cash equivalents acquired
Other investing, net
Net cash used in investing activities
Financing activities
Proceeds from borrowings
Payments on debt
Issuance of common stock
Proceeds from common stock offering
Proceeds from sale of warrants
Purchases of convertible note hedge contracts
Repurchase of common stock
Prepaid debt fees
Other financing, net
Net cash used in financing activities
Less: Cash classified within assets held for sale
Effect of foreign exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net
Interest
Non-cash operating, investing and financing activities:
84,153
17,107
23,618
18,253
(85,574)
64,289
10,000
8,744
2,930
60,242
(3,721)
41,461
4,515
(23,391)
30,915
(29,366)
(8,169)
17,086
154,794
3,142
(34,682)
(8,670)
5,326
(34,884)
460,000
(946,094)
5,080
389,419
45,349
(84,139)
(8,028)
(12,031)
(2,443)
(152,887)
(9,750)
(1,627)
(44,354)
206,933
97,290
18,178
25,053
4,130
(12,939)
59,817
—
5,888
10,392
108,256
35,403
(11,832)
(11,391)
(111,724)
(34,664)
8,212
(13,538)
(10,140)
109,514
1,133
(46,208)
—
4,039
(41,036)
400,000
(414,063)
8,886
—
—
—
—
(1,571)
(4,828)
(11,576)
—
127
57,029
149,904
$
$
162,579 $
206,933 $
7,073 $
8,983
2,688 $
47,241
Deferred tax on purchase of convertible note hedge contracts
20,563
—
The accompanying notes are an integral part of these consolidated financial statements.
55
114,400
18,958
26,960
5,631
(192)
—
—
(1,785)
(4,295)
(39,467)
(9,389)
(31,128)
7,053
9,177
30,835
8,905
(6,637)
(8,601)
172,840
—
(60,749)
—
12,569
(48,180)
50,000
(137,657)
24,390
—
—
—
(25,000)
(1,560)
(7,692)
(97,519)
—
435
27,576
122,328
149,904
12,041
44,788
—
ITRON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021
In this Annual Report, 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 and are a technology company, offering end-to-end solutions to
enhance productivity and efficiency, primarily focused on utilities and municipalities around the globe. We operate under the
Itron brand worldwide and manage and report under three operating segments: Device Solutions, Networked Solutions, and
Outcomes.
Financial Statement Preparation
The consolidated financial statements presented in this Annual Report include the Consolidated Statements of Operations,
Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Equity, and Consolidated Statements of
Cash Flows for the years ended December 31, 2021, 2020, and 2019 and the Consolidated Balance Sheets as of December 31,
2021 and 2020 of Itron, Inc. and its subsidiaries, prepared in accordance with U.S. generally accepted accounting principles
(GAAP).
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. Examples of significant estimates include revenue
recognition, warranty, restructuring, income taxes, business combinations, goodwill and intangible assets, defined benefit
pension plans, contingencies, and stock-based compensation. Due to various factors affecting future costs and operations, actual
results could differ materially from these estimates.
Risks and Uncertainties
The COVID-19 pandemic has had global economic impacts including disrupting customer demand and global supply chains,
resulting in market volatility. The extent of the recent pandemic and its ongoing impact on our operations is volatile, but is
being monitored closely by our management. During portions of the first half of 2020 certain of our European factories were
closed due to government actions and local conditions, and any further closures that may be imposed on us could impact our
future results. New variants of the virus may cause previously lifted restrictions to be reinstated, which could result in more
disruptions. Incremental costs we have incurred related to COVID-19, such as personal protective equipment, increased
cleaning and sanitizing of our facilities, and other such items, have not been material to date. As economies have reopened,
global supply chains have struggled to keep pace with rapidly changing demand. The resulting supply constraints have
manifested across a variety of areas including mechanical, electrical and logistics portions of the supply chain, which has
impacted our ability to ship products in a timely manner. In particular, our ability to obtain adequate supply of semiconductor
components has impacted our ability to service recovering customer demand. While we believe the current imbalance in supply
and demand is temporal, the timeline to recovery is uncertain. Efforts are ongoing with suppliers to increase supply, including
the approval of alternate sources. Recently, inflation in our raw materials and component costs, freight charges, and labor costs
have increased above historical levels, due to, among other things, the continuing impacts of the pandemic and uncertain
economic environment. We may or may not be able to fully recover these increased costs through pricing actions with our
customers. At this time, we have not identified any significant decrease in long-term customer demand for our products and
services. However, certain of our customer projects have experienced delay in deliveries, with originally forecasted 2021
revenue pushed to future periods.
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 20% to 50% investment and exercise
significant influence. Entities in which we have less than a 20% investment and where we do not exercise significant influence
are accounted for under the fair value 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
56
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.
Restricted Cash and Cash Equivalents
Cash and cash equivalents that are contractually restricted from operating use are classified as restricted cash and cash
equivalents. We have no restricted cash in all periods presented.
Accounts Receivable, net
Accounts receivable are recognized for invoices issued to customers in accordance with our contractual arrangements. Interest
and late payment fees are minimal. Unbilled receivables are recognized when revenues are recognized upon product shipment
or service delivery and invoicing occurs at a later date. We recognize an allowance for credit losses representing our estimate of
the expected losses in accounts receivable at the date of the balance sheet based on our historical experience of bad debts, our
specific review of outstanding receivables, and our review of current and expected economic conditions. 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 net realizable value using the first-in, first-out method. Cost includes raw materials
and labor, plus applied direct and indirect overhead costs. Net realizable value is the estimated selling price in the normal
course of business, minus the cost of completion, disposal and transportation.
Derivative Instruments
All derivative instruments, whether designated in hedging relationships or not, are recognized on the Consolidated Balance
Sheets at fair value as either assets or liabilities. The 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 fair value of our derivative
instruments may switch between an asset and a 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 is in a net asset position and the effect of our own nonperformance risk when the net fair value of our
derivative instruments is 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, changes in the
fair value of the derivative are recognized as a component of other comprehensive income (loss) (OCI) and are recognized in
earnings when the hedged item affects earnings. For a hedge of a net investment, 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 other comprehensive
income (loss) (AOCI) until such time when earnings are impacted by a sale or liquidation of the associated 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 derivatives are with credit-worthy multinational commercial
banks, with which we have master netting agreements; however, our derivative positions are not recognized 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: Derivative Financial Instruments and Note 14: Shareholders' Equity for further disclosures of our derivative instruments
and their impact on OCI.
57
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 years to 10
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 certain, 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 recognized 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, or impairment losses recognized in conjunction with an announced or completed sale of a business,
which are classified within Loss on sale of business.
Prepaid Debt Fees
Prepaid debt fees for term debt represent the capitalized direct costs incurred related to the issuance of debt and are recognized
as a deduction from the carrying amount of the corresponding debt liability. We have elected to present prepaid debt fees for
revolving debt within other long-term assets in the Consolidated Balance Sheets. These costs are amortized to interest expense
over the terms of the respective borrowings, including any contingent maturity or call features, using the effective interest
method or the 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
recognized 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, are measured
and recognized at fair value, and amortized over the estimated useful life. If practicable, assets acquired and liabilities assumed
arising from contingencies are measured and recognized at fair value. If not practicable, such assets and liabilities are measured
and recognized 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. Acquisition-
related costs are recognized as incurred. Integration costs associated with an acquisition are generally recognized 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 requires 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.
We estimate the preliminary fair value of acquired assets and liabilities as of the date of acquisition based on information
available at that time utilizing either a cost or income approach. The determination of the fair value is judgmental in nature and
involves the use of significant estimates and assumptions. Contingent consideration is recognized at fair value as of the date of
the acquisition with adjustments occurring after the purchase price allocation period, which could be up to one year, recognized
in earnings. Changes to valuation allowances on acquired deferred tax assets that occur after the acquisition date are recognized
in the provision for, or benefit from, income taxes. The valuation of these tangible and identifiable intangible assets and
liabilities is subject to further management review and may change materially between the preliminary allocation and end of the
purchase price allocation period. Any changes in these estimates may have a material effect on our consolidated operating
results or financial position.
Leases
We determine if an arrangement is a lease at inception. A lease exists when a contract conveys to the customer the right to
control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a
lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property,
plant, and equipment), and (2) the customer has the right to control the use of the identified asset.
58
Operating leases are included in operating lease right-of-use (ROU) assets, other current liabilities, and operating lease
liabilities on our Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, other long-term
assets, other current liabilities, and other long-term obligations on our Consolidated Balance Sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make
lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based
on the present value of lease payments over the lease term. We use the rate implicit in the lease agreement when readily
determinable. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, which is the
estimated rate of interest we expect to pay on a collateralized basis over a similar term, based on the information available at the
lease commencement date. The Operating lease ROU asset also includes any lease payments made and is reduced by lease
incentives received and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when
it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-
line basis over the lease term.
We have lease agreements that include lease and nonlease components. When nonlease components are fixed, we have elected
the practical expedient to account for lease and nonlease components as a single lease component, except for leases embedded
in service contracts.
All leases with a lease term that is greater than one month are subject to recognition and measurement on the balance sheet,
except where we have leases in service contracts with contract manufacturers. For leases with contract manufacturers, we have
elected to utilize the short-term lease exemption.
Lease expense for variable lease payments, where the timing or amount of the payment is not fixed, are recognized when the
obligation is incurred. Variable lease payments generally arise in our net lease arrangements where executory and other lease-
related costs are billed to Itron when incurred by the lessor.
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, generally three years to ten years for core-developed
technology and customer contracts and relationships. 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 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. 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 quantitative 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, we first
evaluate the long-lived assets within the reporting unit for impairment and then recognize goodwill impairment loss in an
amount equal to any 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 recognized 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
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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 recognized. Legal costs to defend against contingent liabilities are
recognized as incurred.
Bonus and Profit Sharing
We have various employee bonus and profit sharing plans, which provide award amounts for the achievement of financial and
nonfinancial targets. If management determines it is probable that the discretionary targets will be achieved, and the amounts
can be reasonably estimated, a compensation accrual is recognized based on the proportional achievement of the financial and
nonfinancial targets.
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 recognized 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 is 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 long-term warranty
balance includes estimated warranty claims beyond one year. Warranty expense is classified within cost of revenues.
Restructuring
We recognize a liability for costs associated with an exit or disposal activity under a restructuring project 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 recognized at the date the employee is notified. If the employee must provide future service
greater than 60 days, such benefits are recognized ratably over the future service period. For contract termination costs, we
recognize 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
recognized 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
recognized 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. We recognize an asset when plan assets exceed 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, which arise during the period but that are not recognized as components of net periodic benefit cost. If actuarial gains
and losses exceed ten percent of the greater of plan assets or plan liabilities, we amortize them over the employees' average
future service period.
Share Repurchase Plans
From time to time, we may repurchase shares of Itron 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 displayed separately as treasury
stock on the financial statements; the value of the repurchased shares is deducted from common stock.
Product Revenues and Service Revenues
Product revenues include sales from standard and smart meters, systems or software, and any associated implementation and
installation revenue. Service revenues include sales from post-sale maintenance support, consulting, outsourcing, and managed
services.
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Revenue Recognition
The majority of our revenues consist primarily of hardware sales, but may also include the license of software, software
implementation services, cloud services and Software-as-a-Service (SaaS), project management services, installation services,
consulting services, post-sale maintenance support, and extended or customer-specific warranties. We account for a contract
when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified,
the contract has commercial substance, and collectability of consideration is probable. In determining whether the definition of
a contract has been met, we consider whether the arrangement creates enforceable rights and obligations, which involves
evaluation of contractual terms that would allow for the customer to terminate the agreement. If the customer has the unilateral
right to terminate the agreement without providing further consideration to us, the agreement would not be considered to meet
the definition of a contract.
Many of our revenue arrangements involve multiple performance obligations as our hardware and services are often sold
together. Separate contracts entered into with the same customer (or related parties of the customer) at or near the same time are
accounted for as a single contract when one or more of the following criteria are met:
•
•
•
The contracts are negotiated as a package with a single commercial objective;
The amount of consideration to be paid in one contract depends on the price or performance of the other contract; or
The goods or services promised in the contracts (or some goods or services promised in each of the contracts) are a
single performance obligation.
Once the contract has been defined, we evaluate whether the promises in the contract should be accounted for as more than one
performance obligation. This evaluation requires significant judgment, and the decision to separate the combined or single
contract into multiple performance obligations could change the amount of revenue and profit recognized in a given period.
Some of our contracts contain a significant service of integrating, customizing or modifying goods or services in the contract, in
which case the goods or services would be combined into a single performance obligation. It is common that we may promise
to provide multiple distinct goods or services, in which case we separate the contract into more than one performance
obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each
performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or
services. For goods or services where we have observable standalone sales, the observable standalone sales are used to
determine the standalone selling price. For the majority of our goods and services, we do not have observable standalone sales.
As a result, we estimate the standalone selling price using either the adjusted market assessment approach or the expected cost
plus a margin approach. Approaches used to estimate the standalone selling price for a given good or service will maximize the
use of observable inputs and considers several factors, including our pricing practices, costs to provide a good or service, the
type of good or service, and availability of other transactional data, among others.
We determine the estimated standalone selling prices of goods or services used in our allocation of arrangement consideration
on an annual basis or more frequently if there is a significant change in our business or if we experience significant variances in
our transaction prices.
Many of our contracts with customers include variable consideration, which can include liquidated damage provisions, rebates
and volume and early payment discounts. Some of our contracts with customers contain clauses for liquidated damages related
to the timing of delivery or milestone accomplishments, which 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 the probability and magnitude
of having to pay liquidated damages. We estimate variable consideration using the expected value method, taking into
consideration contract terms, historical customer behavior, and historical sales. In the case of liquidated damages, we also take
into consideration progress towards meeting contractual milestones, including whether milestones have not been achieved,
specified rates, if applicable, stated in the contract, and history of paying liquidated damages to the customer or similar
customers. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future
reversal of cumulative revenue under the contract will not occur.
In the normal course of business, we do not accept product returns unless the item is defective as manufactured. We establish
provisions for estimated returns and warranties. In addition, we do not typically provide customers with the right to a refund.
Hardware revenue is recognized at a point in time. Transfer of control is typically at the time of shipment, receipt by the
customer, or, if applicable, upon receipt of customer acceptance provisions. We will recognize revenue prior to receipt of
customer acceptance for hardware in cases where the customer acceptance provision is determined to be a formality. Transfer of
control would not occur until receipt of customer acceptance in hardware arrangements where such provisions are subjective or
where we do not have history of meeting the acceptance criteria.
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Perpetual software licenses are considered to be a right to use intellectual property and are recognized at a point in time.
Transfer of control is considered to be at the point at which it is available to the customer to download and use or upon receipt
of customer acceptance. In certain contracts, software licenses may be sold with implementation services that include a
significant service of integrating, customizing or modifying the software. In these instances, the software license is combined
into single performance obligation with the implementation services and recognized over time as the implementation services
are performed.
Hardware and software licenses (when not combined with professional services) are typically billed when shipped and revenue
recognized at a point-in-time. As a result, the timing of revenue recognition and invoicing does not have a significant impact on
contract assets and liabilities.
Professional services, which include implementation, project management, installation, and consulting services are recognized
over time. We measure progress towards satisfying these performance obligations using input methods, most commonly based
on the costs incurred in relation to the total expected costs to provide the service. We expect this method to best depict our
performance in transferring control of services promised to the customer or represents a reasonable proxy for measuring
progress. The estimate of expected costs to provide services requires judgment. Cost estimates take into consideration our
historical experience and the specific scope requested by the customer and are updated quarterly. We may also offer
professional services on a stand-ready basis over a specified period of time, in which case revenue would be recognized ratably
over the term. Invoicing of these services is commensurate with performance and occurs on a monthly basis. As such, these
services do not have a significant impact on contract assets and contract liabilities.
Cloud services and SaaS arrangements where customers have access to certain of our software within a cloud-based IT
environment that we manage, host, and support are offered to customers on a subscription basis. Revenue for the cloud services
and SaaS offerings are generally recognized over time, ratably over the contact term commencing with the date the services are
made available to the customer.
Services, including professional services, cloud services, and SaaS arrangements, are commonly billed on a monthly basis in
arrears and typically result in an unbilled receivable, which is not considered a contract asset as our right to consideration is
unconditional.
Certain of our revenue arrangements include an extended or customer-specific warranty provision that covers all or a portion of
a customer's replacement or repair costs beyond the standard warranty period. Whether or not the extended warranty is
separately priced in the arrangement, such warranties are considered to be a separate good or service, and a portion of the
transaction price is allocated to this extended warranty performance obligation. This revenue is recognized ratably over the
extended warranty coverage period.
Hardware and software post-sale maintenance support fees are recognized over time, ratably over the life of the related service
contract. Support fees are typically billed on an annual basis, resulting in a contract liability. Shipping and handling costs and
incidental expenses billed to customers are recognized as revenue, with the associated cost charged to cost of revenues. We
recognize sales, use, and value added taxes billed to our customers on a net basis.
Payment terms with customers can vary by customer; however, amounts billed are typically payable within 30 to 90 days,
depending on the destination country. We do not typically offer financing as part of our contracts with customers.
We incur certain incremental costs to obtain contracts with customers, primarily in the form of sales commissions. Where the
amortization period is one year or less, we have elected to apply the practical expedient and recognize the related commissions
expense as incurred. Otherwise, such incremental costs are capitalized and amortized over the contract period. Capitalized
incremental costs are not material.
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 development expenses for computer software to be
sold, leased, or otherwise marketed as the costs incurred are immaterial for the relatively short period of time between
technological feasibility and the completion of software development.
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Stock-Based Compensation
We grant various stock-based compensation awards to our officers, employees, and Board of Directors with service,
performance, and market vesting conditions, including restricted stock units, phantom stock units, and unrestricted stock units
(awards). Prior to December 31, 2020, stock options were also granted as part of the stock-based compensation awards. We
measure and recognize compensation expense for all awards based on estimated fair values. For awards with only a service
condition, we expense stock-based compensation using the straight-line method over the requisite service period for the entire
award. For awards with service and performance conditions where vesting is probable, we expense the stock-based
compensation 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. We have elected to account for
forfeitures of any awards in stock-based compensation expense prospectively as they occur.
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 vest over a maximum period of three years. After vesting, the restricted stock units are converted into shares of our
common stock on a one-for-one basis and issued to employees. Certain restricted stock units are issued under the Long-Term
Performance Restricted Stock Unit Award Agreement and include performance and market conditions. The final number of
shares issued will be based on the achievement of financial targets and our total shareholder return relative to the Russell 3000
Index during the performance periods. Due to the presence of a market condition, we utilize a Monte Carlo valuation model to
determine the fair value of the awards at the grant date. 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 grant date on zero-coupon
U.S. government issues with a term equal to the expected term of the award. The expected term is the remaining term of an
award based on the period of time between the grant date and the date the award is expected to vest.
Phantom stock units are a form of share-based award that are indexed to our stock price and are settled in cash upon vesting and
accounted for as liability-based awards. Fair value is remeasured at the end of each reporting period based on the market close
price of our common stock. Phantom stock units vest over a maximum period of three years. Since phantom stock units are
settled in cash, compensation expense recognized over the vesting period will vary based on changes in the fair value of the
awards.
The fair value of unrestricted stock awards is the market close price of our common stock on the date of grant, and the awards
are deemed fully vested. We expense stock-based compensation at the date of grant for unrestricted stock awards.
The fair value of stock options was estimated at the date of grant using the Black-Scholes option-pricing model. Options to
purchase our common stock were granted with an exercise price equal to the market close price of the stock on the date the
Board of Directors approved the grant. Options generally became exercisable in three equal annual installments beginning one
year from the date of grant and expiring 10 years from the date of grant. Expected volatility was 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 was reflective of current and historical market conditions and was an appropriate indicator of
expected volatility. The risk-free interest rate was 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 was the weighted average expected term of an
award based on the period of time between the date the award was granted and the estimated date the award will be fully
exercised. Factors considered in estimating the expected term included historical experience of similar awards, contractual
terms, vesting schedules, and expectations of future employee behavior.
Excess tax benefits and deficiencies resulting from employee share-based payment are recognized as income tax provision or
benefit in the Consolidated Statements of Operations, and as an operating activity on the Consolidated Statements of Cash
Flows.
We also maintain an Employee Stock Purchase Plan (ESPP) for our employees. Under the terms of the ESPP, employees can
deduct up to 10% of eligible 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.
Income Taxes
We account for income taxes using the asset and liability method of accounting. Deferred tax assets and liabilities are
recognized based upon anticipated future tax consequences, in each of the jurisdictions that 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) net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured annually using
63
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 tax jurisdictions
to our tax positions. The effect on deferred tax assets and liabilities of a change in tax legislation and/or rates is recognized in
the period that includes the enactment date. A valuation allowance is recognized to reduce the carrying amounts of deferred tax
assets if it is not more likely than not that such assets will be realized. We do not recognize tax liabilities on undistributed
earnings of international subsidiaries that are permanently reinvested.
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 an
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. Foreign currency losses, net of hedging, of
$3.2 million, $2.8 million, and $5.5 million were included in other expenses, net, for the years ended December 31, 2021, 2020,
and 2019.
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.
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which modifies certain provisions of Accounting
Standards Codification (ASC) 740, to reduce the complexity of accounting for income taxes. ASU 2019-12 was effective for us
beginning with our interim financial reports in 2021. The adoption of this standard did not have a material impact on full year
2021 financial results.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts,
hedging relationships, and other transactions affected by reference rate reform. ASU 2020-04 applies to contracts that reference
LIBOR or another reference rate expected to be terminated because of reference rate reform. An entity may elect certain
optional expedients for hedging relationships that exist as of December 31, 2022 and maintain those optional expedients
through the end of the hedging relationship. ASU 2020-04 can be adopted as of March 12, 2020 or thereafter. In January 2021,
the FASB issued ASU 2021-01, which further updates the scope of Topic 848. In December 2021, we adopted this standard and
amended one agreement to replace the LIBOR reference with the Chicago Mercantile Exchange (CME) Term Secured
Overnight Financing Rate (SOFR). We did not execute any transactions in December 2021 nor do we have any balances
outstanding under this agreement as of year end. We have not yet modified any of our debt or derivative instrument agreements.
During 2022, we will continue to evaluate our contracts and any agreements will be recognized accordingly in our consolidated
financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and
Contracts in an Entity's Own Equity (ASU 2020-06). This amendment simplifies the accounting for certain financial
instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own
equity. We chose to early adopt ASU 2020-06 beginning January 1, 2021, in relation to our convertible debt issued on March 9,
2021. This amendment had no retrospective changes but impacts how our newly issued convertible debt is both recognized and
disclosed. ASU 2020-06 also amends the diluted earnings per share calculation for convertible instruments by requiring the use
of the if-converted method. The treasury stock method is no longer available.
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Recent Accounting Standards Not Yet Adopted
In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842): Lessors-Certain Leases with Variable Lease Payments. The
amendments in this update modify the lease classification requirements for lessors to align them with practice under Topic 840,
particularly in the area of day-one loss accounting. Lessors should classify and account for a lease with variable lease payments
that do not depend on a reference index or a rate as an operating lease if certain criteria are met. The effective date for this
amendment is January 1, 2022 and all interim periods thereafter. We have determined under existing leases where we are the
lessor, this amendment will not have a material impact on our financial statements.
In October 2021, the FASB issued ASU 2021-08 amending Topic 805: Business Combination which was necessary due to
2014-09, Revenue from Contracts with Customers (Topic 606). The FASB is issuing this Update to improve the accounting for
acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency
related to (1) recognition of an acquired contract liability and (2) payment terms and their effect on subsequent revenue
recognized by the acquirer. The effective date for this amendment is January 1, 2023 and all interim periods thereafter. These
amendments are to be applied prospectively to business combinations occurring on or after the effective date of the
amendments. We currently plan to apply the practical expedient as permitted by this ASU for any future acquisitions.
In November 2021, the FASB issued ASU 2021-10 amending Topic 832: Government Assistance. The FASB issued this
Update to increase the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an
entity's accounting for the assistance, and (3) the effect of the assistance on an entity's financial statements. The effective date
for this amendment is January 1, 2022. We have determined this amendment will not have a material impact on our financial
statements.
Note 2: Earnings Per Share
The following table sets forth the computation of basic and diluted earnings (loss) per share (EPS):
In thousands, except per share data
2021
2020
2019
Net income (loss) available to common shareholders
$
(81,255) $
(57,955) $
49,006
Year Ended December 31,
Weighted average common shares outstanding - Basic
44,301
40,253
Dilutive effect of stock-based awards
Dilutive effect of convertible notes
—
—
—
—
Weighted average common shares outstanding - Diluted
44,301
40,253
Net income (loss) per common share - Basic
Net income (loss) per common share - Diluted
$
$
(1.83) $
(1.83) $
(1.44) $
(1.44) $
39,556
424
—
39,980
1.24
1.23
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 our common stock at the average market price during the period. Related proceeds
include the amount the employee must pay upon exercise and the future compensation cost associated with the stock award.
Approximately 0.5 million, 0.7 million, and 0.4 million stock-based awards were excluded from the calculation of diluted EPS
for the years ended December 31, 2021, 2020, and 2019, because they were anti-dilutive. These stock-based awards could be
dilutive in future periods.
Convertible Notes and Warrants
For our Convertible Notes issued in March 2021, the dilutive effect is calculated using the if-converted method. We are
required, pursuant to the indenture governing our Convertible Notes, to settle the principal amount of the Convertible Notes in
cash and may elect to settle the remaining conversion obligation (stock price in excess of conversion price) in cash, shares, or a
combination thereof. Under the if-converted method, we include the number of shares required to satisfy the remaining
conversion obligation, assuming all the Convertible Notes were converted. The average quarterly closing prices of our common
stock for the year ended December 31, 2021 were used as the basis for determining the dilutive effect on EPS. The quarterly
average closing prices for our common stock did not exceed the conversion price of $126.00, and therefore all associated shares
were anti-dilutive.
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In conjunction with the issuance of the Convertible Notes, we sold warrants to purchase 3.7 million shares of Itron common
stock. The warrants have a strike price of $180.00 per share. For calculating the dilutive effect of the warrants, we use the
treasury stock method. With this method, we assume exercise of the warrants at the beginning of the period, or at time of
issuance if later, and the issuance of common stock upon exercise. Proceeds from the exercise of the warrants are assumed to be
used to repurchase shares of our stock at the average market price during the period. The incremental shares, representing the
number of shares assumed to be exercised with the warrants less the number of shares repurchased, are included in diluted
weighted average common shares outstanding. For periods where the warrants strike price of $180.00 per share is greater than
the average share price of Itron stock for the period, the warrants would be anti-dilutive. For the year ended December 31,
2021, the quarterly average closing prices of our common stock did not exceed the warrant strike price, and therefore
3.7 million shares were considered anti-dilutive.
Convertible Note Hedge Transactions
In connection with the issuance of the Convertible Notes, we entered into privately negotiated call option contracts on our
common stock (the Convertible Note Hedge Transactions) with certain commercial banks (the Counterparties). The Convertible
Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those in the Convertible Notes,
approximately 3.7 million shares of our common stock, the same number of shares initially underlying the Convertible Notes, at
a strike price of approximately $126.00, subject to customary adjustments. The Convertible Note Hedge Transactions will
expire upon the maturity of the Convertible Notes, subject to earlier exercise or termination. Exercise of the Convertible Note
Hedge Transactions would reduce the number of shares of our common stock outstanding and therefore would be anti-dilutive.
Note 3: Certain Balance Sheet Components
A summary of accounts receivable from contracts with customers is as follows:
Accounts receivable, net
In thousands
Trade receivables (net of allowance of $5,730 and $1,312)
Unbilled receivables
Total accounts receivable, net
Allowance for credit losses account activity
In thousands
Beginning balance
Provision for (release of) doubtful accounts, net
Accounts written-off
Effect of change in exchange rates
Ending balance
Inventories
In thousands
Raw materials
Work in process
Finished goods
Total inventories
December 31, 2021
December 31, 2020
$
$
261,124 $
37,335
298,459 $
318,269
51,559
369,828
Year Ended December 31,
2021
2020
2019
1,312 $
3,064 $
4,636
(107)
(111)
(299)
(1,463)
10
5,730 $
1,312 $
6,331
(1,511)
(1,749)
(7)
3,064
$
$
December 31, 2021
December 31, 2020
$
$
122,434 $
7,856
35,509
165,799 $
114,058
8,094
60,225
182,377
66
Property, plant, and equipment, net
In thousands
Machinery and equipment
Computers and software
Buildings, furniture, and improvements
Land
Construction in progress, including purchased equipment
Total cost
Accumulated depreciation
December 31, 2021
December 31, 2020
$
314,502 $
111,540
131,764
8,952
39,527
606,285
(443,101)
334,050
115,776
155,676
14,303
31,425
651,230
(443,414)
207,816
Property, plant, and equipment, net
$
163,184 $
Depreciation expense
In thousands
Depreciation expense
Year Ended December 31,
2021
2020
2019
$
48,352 $
52,579 $
50,114
On November 2, 2021, Itron entered into an agreement to sell certain of its Gas device businesses and operations to Dresser
Utility Solutions (Dresser). The asset disposal group, which includes $0.8 million of accounts receivable, $15.4 million of
inventories, and $12.0 million of property, plant, and equipment, was classified as held for sale during the fourth quarter of
2021. Refer to Note 18: Sale of Businesses for additional information on the transaction.
Note 4: Intangible Assets and Liabilities
The gross carrying amount and accumulated amortization (accretion) of our intangible assets and liabilities, other than
goodwill, were as follows:
In thousands
Intangible Assets
December 31, 2021
Accumulated
(Amortization)
Accretion
Gross
December 31, 2020
Accumulated
(Amortization)
Accretion
Net
Net
Gross
Core-developed technology
$
505,429 $
(491,047) $
14,382 $
525,051 $
(498,113) $
26,938
Customer contracts and relationships
336,421
(261,043)
75,378
383,245
(280,497)
102,748
Trademarks and trade names
Other
74,551
12,021
(72,133)
(11,670)
2,418
351
79,716
12,025
(76,912)
(11,560)
2,804
465
Total intangible assets
$
928,422 $
(835,893) $
92,529 $ 1,000,037 $
(867,082) $
132,955
Intangible Liabilities
Customer contracts and relationships
$
(23,900) $
23,441 $
(459) $
(23,900) $
21,479 $
(2,421)
A summary of intangible assets and liabilities activity is as follows:
In thousands
Intangible assets, gross beginning balance
Intangible assets acquired
Intangible assets reclassified to held for sale
Intangible assets disposed in sale of business
Effect of change in exchange rates
Intangible assets, gross ending balance
Intangible liabilities, gross beginning balance
Effect of change in exchange rates
Intangible liabilities, gross ending balance
67
Year Ended December 31,
2021
2020
$
1,000,037 $
979,814
2,059
(39,089)
—
(34,585)
—
—
(18,140)
38,363
$
$
$
928,422 $
1,000,037
(23,900) $
(23,900)
—
—
(23,900) $
(23,900)
Assumed intangible liabilities reflect the present value of the projected cash outflows for an existing contract where remaining
costs are expected to exceed projected revenues.
On October 12, 2021, we completed the acquisition of 100% of the shares of SELC Group Limited (SELC), a private limited
company incorporated in Ireland. SELC was previously a technology supplier to Itron. The acquisition provides value to Itron
through the leverage of SELC's streetlight controls technology coupled with Itron's Smart Cities network and software platform.
The acquisition will increase the pace of Smart City growth and innovation within Itron's Networked Solutions business for the
benefit of our customers. The purchase was funded through cash on hand and resulted in the additions of intangible assets of
$2.1 million and goodwill. Refer to Note 5: Goodwill for additional information on goodwill.
On November 2, 2021, Itron entered into an agreement to sell certain of its Gas device businesses and operations to Dresser.
The asset disposal group, which includes $3.4 million of net intangible assets, was classified as held for sale during the fourth
quarter of 2021. Refer to Note 18: Sale of Businesses for additional information on the transaction.
The disposal of intangible assets in 2020 was related to the sale of our Latin America business. The net book value of these
assets was $0.8 million at the disposal date. Refer to Note 18: Sale of Businesses for additional information on the transaction.
Estimated future annual amortization (accretion) is as follows:
Year Ending December 31,
In thousands
2022
2023
2024
2025
2026
Thereafter
Amortization
Accretion
Estimated Annual
Amortization, net
$
26,688 $
(459) $
19,285
15,289
14,499
10,432
6,336
—
—
—
—
—
26,229
19,285
15,289
14,499
10,432
6,336
92,070
Total intangible assets subject to amortization (accretion)
$
92,529 $
(459) $
Amortization Expense
In thousands
Amortization expense
Year Ended December 31,
2021
2020
2019
$
35,801 $
44,711 $
64,286
We have recognized amortization expense within operating expenses in the Consolidated Statements of Operations. These
expenses relate to intangible assets acquired and liabilities assumed as part of business combinations.
68
Note 5: Goodwill
The following table reflects changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2020:
In thousands
Device Solutions
Networked
Solutions
Outcomes
Total Company
Goodwill balance at January 1, 2020
Goodwill allocated to business sold
Effect of change in exchange rates
Goodwill balance at December 31, 2020
Goodwill reclassified to held for sale
Goodwill acquired
Effect of change in exchange rates
$
54,930 $
908,088 $
140,889 $
1,103,907
(3,000)
1,284
53,214
(12,800)
—
(1,037)
—
25,726
933,814
—
5,440
—
3,999
(3,000)
31,009
144,888
1,131,916
(21,249)
(3,295)
—
—
(12,800)
5,440
(25,581)
Goodwill balance at December 31, 2021
$
39,377 $
918,005 $
141,593 $
1,098,975
The accumulated goodwill impairment losses at December 31, 2021 and 2020 were $676.5 million. The goodwill impairment
losses were originally recognized in 2011 and 2013.
On October 12, 2021, we acquired SELC Group Limited (SELC), from Sensus Metering Systems (LUXCO3) S.ár.l. The
purchase resulted in the recognition of $5.4 million in goodwill allocated to our Networked Solutions segment. Refer to Note 4:
Intangible Assets and Liabilities for additional information on the transaction.
On November 2, 2021, Itron entered into an agreement to sell certain of its Gas device businesses and operations to Dresser.
The asset disposal group, which includes $12.8 million of goodwill, was classified as held for sale during the fourth quarter of
2021. Refer to Note 18: Sale of Businesses for additional information on the transaction.
We recognized a $3.0 million reduction in Device Solutions goodwill as part of our loss on sale of business in 2020. Refer to
Note 18: Sale of Businesses for additional information on the transaction.
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 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, we first evaluate the long-lived assets within the reporting unit for impairment and then recognize a
goodwill impairment loss in an amount equal to any 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, business 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.
Changes in market demand, fluctuations in the markets in which we operate, the volatility and decline in the worldwide equity
markets, and a decline in our market capitalization could unfavorably impact the remaining carrying value of our goodwill,
which could have a significant effect on our current and future results of operations and financial position. Based on the results
of the annual impairment testing for our reporting units performed as of October 1, 2021, no adjustments to the carrying value
of goodwill were required.
69
Note 6: Debt
The components of our borrowings were as follows:
In thousands
Credit facility
USD denominated term loan
Multicurrency revolving line of credit
Senior notes
Convertible notes
Total debt
Less: current portion of debt
Less: unamortized prepaid debt fees - term loan
Less: unamortized prepaid debt fees - senior notes
Less: unamortized prepaid debt fees - convertible notes
Long-term debt, net
Credit Facility
December 31, 2021
December 31, 2020
$
$
— $
—
—
460,000
460,000
—
—
—
9,772
450,228 $
536,094
—
400,000
—
936,094
18,359
3,469
11,689
—
902,577
On October 18, 2019, we amended our credit facility that was initially entered on January 5, 2018 (as amended the 2018 credit
facility). The 2018 credit facility provides for committed credit facilities in the amount of $1.2 billion U.S. dollars. The 2018
credit facility consists of a $650 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. The October 18, 2019, amendment extended the maturity date to October 18,
2024 and re-amortized the term loan based on the new balance as of the amendment date. The amendment also modified the
required interest payments and made it based on total net leverage instead of total leverage. Through the third quarter of 2020,
amounts not borrowed under the revolver were subject to a commitment fee, which was paid in arrears on the last day of each
fiscal quarter, ranging from 0.15% to 0.25% and drawn amounts were subject to a margin ranging from 1.00% to 1.75%.
On October 19, 2020, we completed a second amendment to our 2018 credit facility. This amendment adjusts the maximum
total net leverage ratio thresholds for the period beginning with the fourth quarter of 2020 through the fourth quarter of 2021 to
allow for increased operational flexibility. The maximum leverage ratio is increased to 4.75:1 for the fourth quarter of 2020 and
the first quarter of 2021 and 4.50:1 for the second quarter through the fourth quarter of 2021. An additional level of pricing was
added to the existing pricing grid and is effective throughout the remaining term of the 2018 credit facility. Beginning with the
fourth quarter of 2020, the commitment fee ranges from 0.15% to 0.30% and drawn amounts are subject to a margin ranging
from 1.00% to 2.00%. Debt fees of approximately $1.4 million were incurred for the amendment, as well as other legal and
advisory fees. Both the term loan and the revolver can be repaid without penalty. Amounts repaid on the term loan may not be
reborrowed, and amounts borrowed under the revolver may be repaid and reborrowed until the revolver's maturity, at which
time all outstanding loans together with all accrued and unpaid interest must be repaid.
On March 8, 2021, we entered into a third amendment to our 2018 credit facility, which modified provisions to permit cash
settlement upon the conversion of the Convertible Notes, the Convertible Note Hedge Transactions and Warrant Transactions
and also to adjust certain settlement provisions for convertible indebtedness. See Note 7: Derivative Financial Instruments for
further details of the Convertible Note Hedge Transactions and Warrant Transactions.
On February 25, 2022, we entered into a fourth amendment to our 2018 credit facility, which modifies to allow for the addback
of non-cash expenses related to restructuring charges incurred during the quarter ended December 31, 2021 and also adjusts the
maximum total net leverage ratio thresholds for the period beginning with the first quarter of 2022 through the fourth quarter of
2022 to allow for increased operational flexibility. The maximum leverage ratio is increased to 4.75:1 for the first through third
quarters of 2022 and 4.50:1 for the fourth quarter of 2022.
The 2018 credit facility permits us and certain of our foreign subsidiaries to borrow in U.S. dollars, euros, or, with lender
approval, other currencies readily convertible into U.S. dollars. All obligations under the 2018 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. This includes 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 first-tier foreign subsidiaries. In addition, the obligations
of any foreign subsidiary who is a foreign borrower, as defined by the 2018 credit facility, are guaranteed by the foreign
subsidiary and by its direct and indirect foreign parents. The 2018 credit facility includes debt covenants, which contain certain
70
financial 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 2018 credit facility at December 31, 2021.
Under the 2018 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 net 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 (subject to a 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 0.50%, or (iii) one month LIBOR plus
1.00%. On August 12, 2021, the term loan was fully repaid.
At December 31, 2021 there was no amount outstanding under the revolver, and $64.4 million was utilized by outstanding
standby letters of credit, resulting in $435.6 million available for additional borrowings or standby letters of credit. At
December 31, 2021, $235.6 million was available for additional standby letters of credit under the letter of credit sub-facility,
and no amounts were outstanding under the swingline sub-facility.
Senior Notes
In December 2017 and January 2018, we issued $300 million and $100 million, of aggregate principal amount of 5.00% senior
notes maturing January 15, 2026 (Senior Notes). The proceeds were used to refinance existing indebtedness related to the
acquisition of Silver Spring Networks, Inc., pay related fees and expenses, and for general corporate purposes. Interest on the
Senior Notes was payable semi-annually in arrears on January 15 and July 15. The Senior Notes were fully and unconditionally
guaranteed, jointly and severally, on a senior unsecured basis by each of our subsidiaries that guarantee the senior credit
facilities.
On March 9, 2021, we submitted a Notice of Redemption to the trustee to redeem all outstanding Senior Notes at a redemption
price of 102.50%, in accordance with the indenture governing the Senior Notes, totaling $410.0 million. As of April 8, 2021 the
Senior Notes were fully discharged, and no principal or unpaid interest remains outstanding. The 2.5%, or $10.0 million, early
redemption premium and write off of $11.1 million prepaid debt fees were recognized upon redemption in the second quarter of
2021.
Convertible Notes
On March 12, 2021, we closed the sale of the Convertible Notes in a private placement to qualified institutional buyers,
resulting in net proceeds to us of $448.5 million after deducting initial purchasers' discounts of the offering. The Convertible
Notes do not bear regular interest, and the principal amount does not accrete. The Convertible Notes will mature on March 15,
2026, unless earlier repurchased, redeemed, or converted in accordance with their terms. No sinking fund is provided for the
Convertible Notes.
The initial conversion rate of the Convertible Notes is 7.9365 shares of our common stock per $1,000 principal amount of
notes, which is equivalent to an initial conversion price of approximately $126.00 per share. The conversion rate of the
Convertible Notes is subject to adjustment upon the occurrence of certain specified events. In addition, upon the occurrence of a
make-whole fundamental change (as defined in the indenture governing the Convertible Notes) or upon a notice of redemption,
we will, in certain circumstances, increase the conversion rate for a holder that elects to convert its Convertible Notes in
connection with such make-whole fundamental change or notice of redemption, as the case may be.
Prior to the close of business on the business day immediately preceding December 15, 2025, the Convertible Notes are
convertible at the option of the holders only under the following circumstances: (1) during any calendar quarter commencing
after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the
common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending
on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on
each applicable trading day; (2) during the five business-day period after any five consecutive trading-day period (the
measurement period) in which the trading price per $1,000 principal amount of Convertible Notes for each trading day of the
measurement period was less than 98% of the product of the last reported sale price of the common stock and the conversion
rate on each such trading day; (3) upon the occurrence of specified corporate events; or (4) upon redemption by us. On or after
December 15, 2025, until the close of business on the second scheduled trading day immediately preceding March 15, 2026,
holders of the Convertible Notes may convert all or a portion of their notes at any time. Upon conversion, we will pay cash up
to the aggregate principal amount of Convertible Notes to be converted and pay and/or deliver, as the case may be, cash, shares
of common stock or a combination of cash and shares of common stock, at our election, in respect of the remainder, if any, of
our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted.
71
On or after March 20, 2024 and prior to December 15, 2025, we may redeem for cash all or part of the Convertible Notes, at
our option, if the last reported sales price of common stock has been at least 130% of the conversion price then in effect for at
least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we
provide notice of redemption, during any 30 consecutive trading days ending on, and including, the trading day immediately
before the date we send the related notice of the redemption. The redemption price of each Convertible Notes to be redeemed
will be the principal amount of such note, plus accrued and unpaid special interest, if any. Upon the occurrence of a
fundamental change (as defined in the indenture governing the Convertible Notes), subject to a limited exception described in
the indenture governing the Convertible Notes, holders may require us to repurchase all or a portion of their notes for cash at a
price equal to plus accrued and unpaid special interest to, but not including, the fundamental change repurchase date (as defined
in the indenture governing the Convertible Notes).
The Convertible Notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future
unsubordinated debt and senior in right of payment to any future debt that is expressly subordinated in right of payment to the
Convertible Notes. The Convertible Notes will be effectively subordinated to any of our existing and future secured debt to the
extent of the assets securing such indebtedness. The Convertible Notes will be structurally subordinated to all existing debt and
any future debt and any other liabilities of our subsidiaries.
Debt Maturities
The amount of required minimum principal payments on our long-term debt in aggregate over the next five years, is as follows:
Year Ending December 31,
In thousands
2022
2023
2024
2025
2026
Thereafter
Total minimum payments on debt
Note 7: Derivative Financial Instruments
Minimum Payments
$
$
—
—
—
—
460,000
—
460,000
As part of our risk management strategy, we use derivative instruments to hedge certain foreign currency and interest rate
exposures. Refer to Note 1: Summary of Significant Accounting Policies, Note 14: Shareholders' Equity and Note 15: Fair
Value of Financial Instruments 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
(and are classified as "Level 2" in the fair value hierarchy). 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.
72
The fair values of our derivative instruments were as follows:
Derivatives Assets
Derivatives not designated as hedging instruments under ASC 815-20
Balance Sheet Location
Foreign exchange forward contracts
Other current assets
Total asset derivatives
Derivatives Liabilities
Derivatives designated as hedging instruments under ASC 815-20
Interest rate swap contracts
Interest rate swap contracts
Cross currency swap contracts
Other current liabilities
Other long-term obligations
Other current liabilities
Derivatives not designated as hedging instruments under ASC 815-20
Foreign exchange forward contracts
Other current liabilities
Total liability derivatives
Fair Value
December 31,
2021
December 31,
2020
$
$
$
$
In thousands
37 $
37 $
— $
—
—
135
135 $
52
52
1,025
957
526
128
2,636
The changes in AOCI, net of tax, for our derivative and nonderivative hedging instruments designated as hedging instruments,
net of tax, were as follows:
In thousands
Net unrealized loss on hedging instruments at January 1,
Unrealized gain (loss) on derivative instruments
Realized (gains) losses reclassified into net income (loss)
Net unrealized loss on hedging instruments at December 31,
2021
2020
2019
$
$
(16,001) $
(15,103) $
1,121
290
(7,002)
6,104
(14,590) $
(16,001) $
(13,179)
4,061
(5,985)
(15,103)
Reclassification of amounts related to hedging instruments are included in interest expense in the Consolidated Statements of
Operations. Included in the net unrealized gain (loss) on hedging instruments at December 31, 2021 and 2020 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 AOCI until earnings are impacted by a sale or liquidation of the associated foreign operation.
A summary of the 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
In thousands
December 31, 2021
December 31, 2020
Gross Amounts of
Recognized Assets
Presented in the
Consolidated
Balance Sheets
Gross Amounts Not Offset in the
Consolidated Balance Sheets
Derivative Financial
Instruments
Cash Collateral
Received
Net Amount
$
37 $
52
(37) $
(52)
— $
—
—
—
Offsetting of Derivative Liabilities Gross Amounts of
Recognized
Liabilities Presented
in the Consolidated
Balance Sheets
In thousands
Gross Amounts Not Offset in the
Consolidated Balance Sheets
Derivative Financial
Instruments
Cash Collateral
Pledged
Net Amount
December 31, 2021
December 31, 2020
$
135 $
2,636
(37) $
(52)
— $
—
98
2,584
Our derivative assets and liabilities subject to netting arrangements include foreign exchange forward and interest rate contracts
with three counterparties at December 31, 2021 and four counterparties at December 31, 2020. No derivative asset or liability
balance with any of our counterparties was individually significant at December 31, 2021 or 2020. 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, and we have not
received pledges of cash collateral from our counterparties under the associated derivative contracts.
73
Cash Flow Hedges
As a result of our floating rate debt under our current credit facility, we are exposed to variability in our cash flows from
changes in the applicable interest rate index. We enter into interest rate caps and swaps to reduce the variability of cash flows
from increases in the LIBOR based borrowing rates on our floating rate credit facility. These instruments do not protect us from
changes to the applicable margin under our credit facility. On August 12, 2021, the term loan under the credit facility was fully
repaid. At December 31, 2021, we have no LIBOR-based debt.
In October 2015, we entered into one interest rate swap, which was effective from August 31, 2016 and expired on June 23,
2020, to convert $214 million of our LIBOR-based debt from a floating LIBOR interest rate to a fixed interest rate of 1.42%
(excluding the applicable margin on the debt). The notional balance amortized to maturity at the same rate as required minimum
payments on the outstanding term loan. This cash flow hedge was expected 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 swap were recognized as a component of OCI and recognized in earnings when the hedged item affected earnings.
The amounts paid or received on the hedge were recognized as adjustment to interest expense.
In April 2018, we entered into one cross-currency swap, which converted $56.0 million of floating LIBOR-based U.S. dollar-
denominated debt into 1.38% fixed rate euro-denominated debt. This cross-currency swap matured on April 30, 2021, and
mitigated the risk associated with fluctuations in currency rates impacting cash flows related to U.S. dollar-denominated debt in
a euro functional currency entity. Changes in the fair value of the cross-currency swap were recognized as a component of OCI
and were recognized in earnings when the hedged item affected earnings. The amounts paid or received on the hedge were
recognized as an adjustment to interest expense along with the earnings effect of the hedged item.
In March 2020, we entered into one interest rate swap, which was effective from June 30, 2020 to June 30, 2023, and converted
$240 million of our LIBOR-based debt from a floating LIBOR interest rate to a fixed interest rate of 0.617% (excluding the
applicable margin). The notional balance amortized to maturity at the same rate of originally required amortizations on our
outstanding term loan. Changes in the fair value of the interest rate swap were recognized as a component of OCI and
recognized in earnings when the hedged item affected earnings. The amounts paid or received on the hedge were recognized as
an adjustments to interest expense along with the earnings effect of the hedged item. On March 17, 2021 following the
paydown of the term loan within the 2018 credit facility, we terminated the interest rate swap, and paid a fee of $1.7 million to
settle it, since the likelihood of LIBOR-based interest payments was no longer probable of occurring.
As a result of our forecasted inventory purchases in a non-functional currency, we are exposed to foreign exchange risk. We
hedge portions of these purchases. During February 2021, we entered into foreign exchange option contracts for a total notional
amount of $77 million at a cost of $1.1 million. The contracts matured ratably through the year with final maturity in October
2021. Changes in the fair values of the option contracts are recognized as a component of OCI and are recognized in product
cost of revenues when the hedged item affects earnings. As of December 31, 2021, there were no outstanding foreign exchange
option contracts.
The before-tax effects of our accounting for derivative instruments designated as hedges on AOCI for the year ended
December 31, were as follows:
Derivatives in ASC 815-20
Cash Flow Hedging
Relationships
Amount of Gain (Loss) Recognized
in OCI on Derivative
Location
Gain (Loss) Reclassified from AOCI into Income
In thousands
2021
2020
2019
In thousands
2021
Amount
2020
2019
Interest rate swap contract
$
73 $
(2,900) $
(987) Interest expense
$
(229) $
(745) $
1,451
Interest rate swap contract
Interest rate cap contracts
Foreign exchange options
Cross currency swap
contract
Cross currency swap
contract
—
—
403
669
—
—
782
—
995
(1,228)
1,141
(4,164)
3,022
—
—
Other income
(expense), net
Interest expense
Product cost of
revenues
Interest expense
Other income
(expense), net
(1,680)
—
403
94
656
—
392
—
1,046
(1,228)
1,141
619
1,632
(5,228)
1,335
74
Derivatives Not Designated as Hedging Relationships
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 recognized
within other income (expense) in our Consolidated Statements of Operations. We enter into monthly foreign exchange forward
contracts, which are not designated for hedge accounting, with the intent to reduce earnings volatility associated with currency
exposures. As of December 31, 2021, a total of 39 contracts were offsetting our exposures from the euro, pound sterling,
Indonesian rupiah, Canadian dollar, Australian dollar, and various other currencies, with notional amounts ranging from
$102,000 to $76.3 million.
The effect of our derivative instruments not designated as hedges on the Consolidated Statements of Operations for the year
ended December 31, was as follows:
Derivatives Not Designated as Hedging
Instrument under ASC 815-20
Location
In thousands
Foreign exchange forward contracts
Gain (Loss) Recognized on Derivatives in
Other Income (Expense)
2021
2020
2019
Other income (expense), net
$
1,536 $
(4,538) $
(2,425)
We will continue to monitor and assess our interest rate and foreign exchange risk and may institute additional derivative
instruments to manage such risk in the future.
Convertible Note Hedge Transactions
We paid an aggregate amount of $84.1 million for the Convertible Note Hedge Transactions. The Convertible Note Hedge
Transactions cover, subject to anti-dilution adjustments substantially similar to those in the Convertible Notes, approximately
3.7 million shares of our common stock, the same number of shares initially underlying the Convertible Notes, at a strike price
of approximately $126.00, subject to customary adjustments. The Convertible Note Hedge Transactions will expire upon the
maturity of the Convertible Notes, subject to earlier exercise or termination. The Convertible Note Hedge Transactions are
expected generally to reduce the potential dilutive effect of the conversion of the Convertible Notes and/or offset any cash
payments we are required to make in excess of the principal amount of the converted notes, as the case may be, in the event that
the market price per share of our common stock, as measured under the terms of the Convertible Note Hedge Transactions, is
greater than the strike price of those Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions meet the
criteria in ASC 815-40 to be classified within Stockholders' Equity, and therefore the transactions are not revalued after their
issuance.
We made a tax election to integrate the Convertible Notes and the call options. We are retaining the identification statements in
our books and records, together with a schedule providing the accruals on the synthetic debt instruments. The accounting
impact of this tax election makes the call options deductible as original issue discount for tax purposes over the term of the
Convertible Note, and results in a $20.6 million deferred tax asset recognized through equity.
Warrant Transactions
In addition, concurrently with entering into the Convertible Note Hedge Transactions, we separately entered into privately-
negotiated Warrant Transactions (the Warrant Transactions), whereby we sold to the Counterparties warrants to acquire,
collectively, subject to anti-dilution adjustments, 3.7 million shares of our common stock at an initial strike price of $180.00 per
share, which represents a premium of 100% over the public offering price in the common stock issuance. We received
aggregate proceeds of $45.3 million from the Warrant Transactions with the Counterparties, with such proceeds partially
offsetting the costs of entering into the Convertible Note Hedge Transactions. The warrants expire in June 2026. If the market
value per share of our common stock, as measured under the Warrants Transactions, exceeds the strike price of the warrants, the
warrants will have a dilutive effect on our earnings per share, unless we elect, subject to certain conditions, to settle the
warrants in cash. The warrants meet the criteria in ASC 815-40 to be classified within Stockholders' Equity, therefore the
warrants are not revalued after issuance.
Note 8: Defined Benefit Pension Plans
We sponsor both funded and unfunded defined benefit pension plans offering death and disability, retirement, and special
termination benefits for certain of our international employees, primarily in Germany, France, Indonesia, India, and Italy. The
defined benefit obligation is calculated annually by using the projected unit credit method. The measurement date for the
pension plans was December 31, 2021.
75
The following tables set forth the components of the changes in benefit obligations and fair value of plan assets:
In thousands
Change in benefit obligation:
Benefit obligation at January 1,
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Foreign currency exchange rate changes
Curtailment
Settlement
Other
Benefit obligation at December 31,
Change in plan assets:
Fair value of plan assets at January 1,
Actual return on plan assets
Company contributions
Benefits paid
Foreign currency exchange rate changes
Release for divestiture
Fair value of plan assets at December 31,
Net pension benefit obligation at fair value
Amounts recognized on the Consolidated Balance Sheets consist of:
In thousands
Liabilities
Current portion of pension benefit obligation in wages and benefits payable
Pension benefit obligation held for sale within other current liabilities
Long-term portion of pension benefit obligation
Pension benefit obligation, net
Year Ended December 31,
2021
2020
$
132,732 $
114,218
4,479
1,383
(13,986)
(3,381)
(8,505)
(579)
(171)
101
112,073 $
4,027
1,817
9,323
(2,820)
9,594
(589)
(78)
(2,760)
132,732
10,206 $
12,665
308
102
(329)
(678)
—
9,609
389
349
(298)
(177)
(2,722)
10,206
$
$
$
102,464 $
122,526
December 31,
2021
2020
$
$
3,088 $
11,513
87,863
102,464 $
3,069
—
119,457
122,526
On November 2, 2021, Itron entered into an agreement to sell certain of its Gas device businesses and operations to Dresser.
The related disposal group was classified as held for sale during the fourth quarter of 2021. Refer to Note 18: Sale of
Businesses for additional information on the transaction.
76
Amounts recognized in OCI (pre-tax) are as follows:
In thousands
Net actuarial (gain) loss
Settlement (gain) loss
Curtailment loss
Plan asset (gain) loss
Amortization of net actuarial loss
Amortization of prior service cost
Other
Year Ended December 31,
2021
2020
2019
$
(14,565) $
2
557
38
(2,183)
(71)
101
8,734 $
(286)
—
64
(2,255)
(68)
—
Other comprehensive (income) loss
$
(16,121) $
6,189 $
8,762
(250)
—
(526)
(1,648)
(68)
(160)
6,110
If actuarial gains and losses exceed ten percent of the greater of plan assets or plan liabilities, we amortize them over the
employees' average future service period. The estimated net actuarial loss and prior service cost that will be amortized from
AOCI into net periodic benefit cost during 2022 is $1.1 million.
Net periodic pension benefit cost for our plans include the following components:
In thousands
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service costs
Amortization of actuarial net loss
Settlement
Curtailment
Year Ended December 31,
2021
2020
2019
$
4,479 $
4,027 $
1,383
(346)
71
2,183
(2)
(557)
1,817
(453)
68
2,255
286
—
Net periodic benefit cost
$
7,211 $
8,000 $
3,711
2,278
(608)
68
1,648
250
—
7,347
The components of net periodic benefit cost, other than the service cost component, are included in total other income (expense)
on the Consolidated Statements of Operations.
The significant actuarial weighted average assumptions used in determining the benefit obligations and net periodic benefit cost
for our benefit plans are as follows:
Actuarial assumptions used to determine benefit obligations at end of
period:
Discount rate
Expected annual rate of compensation increase
Actuarial assumptions used to determine net periodic benefit cost for the
period:
Discount rate
Expected rate of return on plan assets
Expected annual rate of compensation increase
Year Ended December 31,
2021
2020
2019
1.66 %
3.88 %
1.10 %
3.45 %
3.68 %
1.10 %
3.68 %
1.76 %
4.89 %
3.76 %
1.76 %
3.76 %
2.24 %
5.19 %
3.60 %
We determine a discount rate for our plans based on the estimated duration of each plan's liabilities. For euro denominated
defined benefit pension plans, which represent 91% of our projected benefit obligation, we use discount rates with
consideration of the duration of each of the plans, using a hypothetical yield curve developed from euro-denominated AA-rated
corporate bond issues. These bonds are assigned different weights to adjust their relative influence on the yield curve, and the
highest and lowest yielding 10% of bonds are excluded within each maturity group. The discount rates used, depending on the
duration of the plans, were between 0.50% and 1.25%.
77
Our expected rate of return on plan assets is derived from a study of actual historic returns achieved and anticipated future long-
term performance of plan assets, specific to plan investment asset category. While the study primarily gives consideration to
recent insurers' performance and historical returns, the assumption represents a long-term prospective return.
The total accumulated benefit obligation for our defined benefit pension plans was $103.4 million and $121.7 million at
December 31, 2021 and 2020.
The total obligations and fair value of plan assets for plans with projected benefit obligations and accumulated benefit
obligations exceeding the fair value of plan assets are as follows:
In thousands
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
December 31,
2021
2020
$
112,073 $
103,437
9,609
132,732
121,747
10,206
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.
The fair values of our plan investments by asset category are as follows:
In thousands
Cash
Insurance funds
Total fair value of plan assets
In thousands
Cash
Insurance funds
Total fair value of plan assets
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
December 31, 2021
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
$
$
1,075 $
8,534
9,609 $
1,075 $
—
1,075 $
December 31, 2020
1,050 $
9,156
10,206 $
1,050 $
—
1,050 $
—
8,534
8,534
—
9,156
9,156
The following tables present a reconciliation of Level 3 assets held during the years ended December 31, 2021 and 2020:
In thousands
Balance at
January 1, 2021
Net Realized
and Unrealized
Gains
Net Purchases,
Issuances,
Settlements, and
Other
Release for
Divestiture
Effect of
Foreign
Currency
Balance at
December 31, 2021
Insurance funds
$
9,156 $
289 $
(242) $
— $
(669) $
8,534
In thousands
Balance at
January 1, 2020
Net Realized
and Unrealized
Gains
Net Purchases,
Issuances,
Settlements, and
Other
Release for
Divestiture
Effect of
Foreign
Currency
Balance at
December 31, 2020
Insurance funds
$
Other securities
8,133 $
3,606
Total
$
11,739 $
237 $
117
354 $
15 $
(61)
(46) $
— $
(2,722)
(2,722) $
771 $
(940)
(169) $
9,156
—
9,156
As the plan assets and contributions are not significant to our total company assets, no further disclosures are considered
material.
78
Annual benefit payments for the next 10 years, including amounts to be paid from our assets for unfunded plans and reflecting
expected future service, as appropriate, are expected to be paid as follows:
Year Ending December 31,
In thousands
2022
2023
2024
2025
2026
2027-2031
Estimated
Annual Benefit
Payments
$
4,294
3,456
4,392
4,686
4,755
26,825
Note 9: Stock-Based Compensation
We grant stock-based compensation awards, including restricted stock units, phantom stock, and unrestricted stock units, under
the Second Amended and Restated 2010 Stock Incentive Plan (Stock Incentive Plan). Prior to December 31, 2020, stock
options were also granted as part of the stock-based compensation awards. In the Stock Incentive Plan, we have 12,623,538
shares of common stock reserved and authorized for issuance subject to stock splits, dividends, and other similar events, and at
December 31, 2021, 5,344,978 shares were available for grant. We issue new shares of common stock upon the exercise of
stock options or when vesting conditions on restricted stock units are fully satisfied. These shares are subject to a fungible share
provision such that the authorized share available for grant 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.
We also award phantom stock units, which are settled in cash upon vesting and accounted for as liability-based awards, with no
impact to the shares available for grant.
In addition, we maintain the ESPP, for which 141,075 shares of common stock were available for future issuance at
December 31, 2021.
ESPP activity and stock-based grants other than stock options and restricted stock units were not significant for the years ended
December 31, 2021, 2020, and 2019.
Stock-Based Compensation Expense
Total stock-based compensation expense and the related tax benefit were as follows:
In thousands
Stock options
Restricted stock units
Unrestricted stock awards
Phantom stock units
Total stock-based compensation
Related tax benefit
Year Ended December 31,
2021
2020
2019
1,371 $
1,944 $
21,391
856
3,242
22,285
824
3,720
26,860 $
28,773 $
1,770
24,560
630
3,301
30,261
4,991 $
5,086 $
5,390
$
$
$
79
Stock Options
A summary of our stock option activity is as follows:
Shares
In thousands
Weighted
Average Exercise
Price per Share
Weighted Average
Remaining
Contractual Life
Years
Aggregate
Intrinsic Value
In thousands
Weighted
Average Grant
Date Fair Value
Outstanding, January 1, 2019
895 $
47.93
6.2
$
4,806
Granted
Exercised (1)
Forfeited
Expired
76
(489)
(13)
(11)
Outstanding, December 31, 2019
458 $
Granted
Exercised (1)
Forfeited
83
(103)
(5)
Outstanding, December 31, 2020
433 $
Granted
Exercised (1)
Forfeited
—
(34)
(6)
Outstanding, December 31, 2021
393 $
76.55
43.55
67.34
66.24
56.38
84.39
53.99
83.94
61.95
—
67.21
83.33
61.18
$
26.20
15,759
7.0
$
12,641
$
26.37
2,061
6.9
$
14,697
$
—
1,215
5.9
$
4,737
Exercisable, December 31, 2021
320 $
56.56
5.4
$
4,681
(1) Shares released is presented as gross shares and does not reflect shares withheld by us for employee payroll tax obligations or shares
swapped to cover the exercise cost.
At December 31, 2021, total unrecognized stock-based compensation expense related to nonvested stock options was
$1.1 million, which is expected to be recognized over a weighted average period of approximately 1.0 year.
The weighted average assumptions used to estimate the fair value of stock options granted and the resulting weighted average
fair value are as follows:
Expected volatility
Risk-free interest rate
Expected term (years)
Year Ended December 31,
2021
2020
2019
— %
— %
N/A
32.3 %
1.3 %
5.3
31.7 %
1.7 %
6.1
Employee stock options are no longer a part of our stock compensation plan as of December 31, 2020.
80
Restricted Stock Units
The following table summarizes restricted stock unit activity:
Outstanding, January 1, 2019
Granted
Released (1)
Forfeited
Number of
Restricted Stock
Units
Weighted
Average Grant
Date Fair Value
In thousands
Aggregate
Intrinsic Value
In thousands
817 $
59.70
404
(471)
(66)
62.97
$
29,304
Outstanding, December 31, 2019
684 $
64.38
Granted
Released (1)
Forfeited
262
(363)
(39)
83.42
$
23,702
Outstanding, December 31, 2020
544 $
71.79
Granted
Released (1)
Forfeited
Outstanding, December 31, 2021
230
(293)
(51)
430 $
97.66
70.34 $
78.45
85.77
20,639
Vested but not released, December 31, 2021
10 $
68.52 $
667
(1) Shares released is presented as gross shares and does not reflect shares withheld by us for employee payroll tax obligations.
At December 31, 2021, total unrecognized compensation expense on restricted stock units was $22.6 million, which is expected
to be recognized over a weighted average period of approximately 1.6 years.
The weighted average assumptions used to estimate the fair value of performance-based restricted stock units granted with a
service and market condition and the resulting weighted average fair value are as follows:
Expected volatility
Risk-free interest rate
Expected term (years)
Year Ended December 31,
2021
2020
2019
54.2 %
0.4 %
1.9
44.9 %
1.0 %
1.8
31.4 %
2.5 %
1.6
Weighted average fair value
$
77.65
$
93.97
$
61.25
81
Phantom Stock Units
The following table summarizes phantom stock unit activity:
Outstanding, January 1, 2019
Granted
Released
Forfeited
Number of
Phantom Stock
Units
Weighted
Average Grant
Date Fair Value
In thousands
Aggregate
Intrinsic Value
In thousands
83 $
55
(42)
(7)
61.80
60.49
$
2,625
Outstanding, December 31, 2019
89 $
62.85
Granted
Released
Forfeited
Outstanding, December 31, 2020
Granted
Released
Forfeited
Outstanding, December 31, 2021
38
(40)
(5)
87.27
$
2,971
82 $
73.13
35
(41)
(7)
69 $
96.49
70.00 $
86.63
85.47
4,100
At December 31, 2021, total unrecognized compensation expense on phantom stock units was $2.9 million, which is expected
to be recognized over a weighted average period of approximately 1.6 years. As of December 31, 2021 and 2020, we have
recognized a phantom stock liability of $1.9 million and $2.7 million within wages and benefits payable in the Consolidated
Balance Sheets.
Note 10: Defined Contribution, Bonus, and Profit Sharing Plans
Defined Contribution Plans
In the United States, United Kingdom, and certain other countries, we make contributions to defined contribution plans. For our
U.S. employee savings plan, which represents a majority of our contribution expense, we provide a 75% match on the first 6%
of the employee salary deferral, subject to statutory limitations. For our international defined contribution plans, we provide
various levels of contributions, based on salary, subject to stipulated or statutory limitations. The expense for our defined
contribution plans was as follows:
In thousands
Defined contribution plans expense
Year Ended December 31,
2021
2020
2019
$
18,287 $
18,424 $
17,882
Bonus and Profit Sharing Plans and Awards
We have employee bonus and profit sharing plans in which many of our employees participate, as well as an award program,
which allows for recognition of individual employees' achievements. The bonus and profit sharing plans provide award
amounts for the achievement of performance and financial targets. As the bonuses are being earned during the year, we estimate
a compensation accrual each quarter based on the progress towards achieving the goals, the estimated financial forecast for the
year, and the probability of achieving results. Bonus and profit sharing plans and award expense was as follows:
In thousands
Bonus and profit sharing plans expense
Year Ended December 31,
2021
2020
2019
$
48,045 $
11,455 $
48,435
82
Note 11: Income Taxes
On March 27, 2020, the U.S. Federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to
provide economic relief from COVID-19. The CARES Act provides employer payroll tax credits for wages paid to employees
who are unable to work during the COVID-19 outbreak and options to defer payroll tax payments. The Company has elected to
defer remittances of payroll and other taxes into the future as provided for under the Act.
The following table summarizes the provision (benefit) for U.S. federal, state, and foreign taxes on income from continuing
operations:
In thousands
Current:
Federal
State and local
Foreign
Total current
Deferred:
Federal
State and local
Foreign
Total deferred
Year Ended December 31,
2021
2020
2019
$
20,197 $
(963) $
7,271
12,594
40,062
(36,196)
(12,186)
(12,657)
(61,039)
1,731
12,409
13,177
(2,852)
(3,340)
(60,444)
(66,636)
Change in valuation allowance
(24,535)
53,697
Total provision (benefit) for income taxes
$
(45,512) $
238 $
4,859
2,179
13,771
20,809
2,334
(1,846)
(1,518)
(1,030)
838
20,617
Subsequent to the issuance of our 2019 financial statements, we determined that a deferred tax liability related to the difference
between the book and tax bases of a European subsidiary, initially recorded in 2018, should not have been recognized. Instead,
we should have established a valuation allowance against the net operating loss deferred tax asset recognized for that
subsidiary. As a result, the valuation allowance, the deferred tax liability, and the related disclosures of movements in those
amounts, including foreign currency impacts, have been restated from the amounts previously reported in the 2019 tax
disclosures. There is no impact on income tax benefit (provision), net income or the balance sheet presentation of this
immaterial misstatement.
The change in the valuation allowance does not include the impacts of currency translation adjustments, acquisitions, or
significant intercompany transactions.
83
Our tax provision (benefit) as a percentage of income before tax was 37%, less than 1%, and 28% for 2021, 2020, and 2019.
The 2021 tax benefit reflects the impact of certain transfers of business activities and assets that result in a prospective shift of
income from international operations to the U.S. A reconciliation of income taxes at the U.S. federal statutory rate of 21% to the
consolidated actual tax rate is as follows:
In thousands
Income (loss) before income taxes
Domestic
Foreign
Total income (loss) before income taxes
Expected federal income tax provision (benefit)
Latin America Divestiture
Change in valuation allowance
Onshoring of international operations
Stock-based compensation
Foreign earnings
Tax credits
Uncertain tax positions, including interest and penalties
Change in tax rates
State income tax provision (benefit), net of federal effect
U.S. tax provision on foreign earnings
Local foreign taxes
Other, net
Year Ended December 31,
2021
2020
2019
$
$
$
(91,579) $
24,010 $
(32,231)
(80,649)
(123,810) $
(56,639) $
57,261
15,771
73,032
(26,000) $
(11,894) $
15,337
—
(24,535)
(10,933)
(2,465)
25,738
(8,988)
6,693
(1,919)
(5,722)
58
667
1,894
10,936
53,697
—
(163)
(58,649)
(9,101)
11,144
557
(1,997)
142
1,298
4,268
—
838
—
(2,130)
(15,610)
(8,794)
13,060
9,514
2,805
129
1,471
3,997
Total provision (benefit) from income taxes
$
(45,512) $
238 $
20,617
84
Deferred tax assets and liabilities consist of the following:
In thousands
Deferred tax assets
Loss carryforwards(1)
Tax credits(2)
Accrued expenses
Pension plan benefits expense
Warranty reserves
Depreciation and amortization
Equity compensation
Inventory valuation
Deferred revenue
Interest
Leases
Other deferred tax assets, net
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities
Depreciation and amortization
Leases
Other deferred tax liabilities, net
Total deferred tax liabilities
Net deferred tax assets
December 31,
2021
2020
$
412,023 $
39,767
68,757
17,140
9,302
94,917
6,126
2,593
11,534
17,971
9,460
9,062
698,652
(443,593)
255,059
(56,897)
(8,489)
(10,201)
(75,587)
$
179,472 $
423,013
88,433
47,569
21,735
11,083
6,363
4,701
1,799
9,705
—
10,872
10,817
636,090
(503,859)
132,231
(39,995)
(10,046)
(7,969)
(58,010)
74,221
(1)
(2)
For tax return purposes at December 31, 2021, we had U.S. federal loss carryforwards of $4.8 million, which begin to expire in the year
2022. At December 31, 2021, we have net operating loss carryforwards in Luxembourg of $1.3 billion, the majority of which can be
carried forward indefinitely, offset by a full valuation allowance. The remaining portion of the loss carryforwards are composed
primarily of losses in various other state and foreign jurisdictions. The majority of these losses can be carried forward indefinitely. At
December 31, 2021, there was a valuation allowance of $443.6 million primarily associated with foreign loss carryforwards.
For tax return purposes at December 31, 2021, we had: (1) U.S. general business credits of $53.3 million, which begin to expire in 2028;
(2) U.S. foreign tax credits of $1.6 million, which begin to expire in 2025; and (3) state tax credits of $39.3 million, which begin to
expire in 2022.
Changes in the valuation allowance for deferred tax assets are summarized as follows:
In thousands
Balance at beginning of period
Other adjustments
Additions charged to costs and expenses
Balance at end of period, noncurrent
Year Ended December 31,
2021
2020
2019
$
$
503,859 $
427,030 $
(35,731)
(24,535)
23,132
53,697
437,149
(10,957)
838
443,593 $
503,859 $
427,030
We recognize 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 all available favorable and unfavorable
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. Our most sensitive and critical factors are the projection, source, and character of future
taxable income. Although realization is not assured, management believes it is more likely than not that deferred tax assets, net
of valuation allowance, will be realized. The amount of deferred tax assets considered realizable, however, could be reduced in
85
the near term if estimates of future taxable income during the carryforward periods are reduced or current tax planning
strategies are not implemented.
We do not provide U.S. deferred taxes on temporary differences related to our foreign investments that are considered
permanent in duration. These temporary differences include undistributed foreign earnings of $25.7 million and $18.1 million at
December 31, 2021 and 2020. Foreign taxes have been provided on these undistributed foreign earnings. As a result of recent
changes in U.S. tax legislation, any repatriation of these earnings would not result in additional U.S. federal income tax.
We are subject to income tax in the United States and numerous foreign jurisdictions. Significant judgment is required in
evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are
many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related
uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established
when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable.
We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for
income taxes includes the impact of reserve positions and changes to reserves that are considered appropriate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits were as follows:
In thousands
Unrecognized tax benefits at January 1, 2019
Gross increase to positions in prior years
Gross decrease to positions in prior years
Gross increases to current period tax positions
Audit settlements
Decrease related to lapsing of statute of limitations
Effect of change in exchange rates
Unrecognized tax benefits at December 31, 2019
Gross increase to positions in prior years
Gross decrease to positions in prior years
Gross increases to current period tax positions
Audit settlements
Decrease related to lapsing of statute of limitations
Effect of change in exchange rates
Unrecognized tax benefits at December 31, 2020
Gross increase to positions in prior years
Gross decrease to positions in prior years
Gross increases to current period tax positions
Audit settlements
Decrease related to lapsing of statute of limitations
Effect of change in exchange rates
Unrecognized tax benefits at December 31, 2021
Total
$
112,558
1,067
(3,296)
13,762
—
(1,574)
(802)
$
121,715
633
(2,140)
14,821
(795)
(2,381)
4,057
$
135,910
570
(19,709)
31,456
—
(4,535)
(4,163)
$
139,529
In thousands
The amount of unrecognized tax benefits that, if recognized, would affect
our effective tax rate
At December 31,
2021
2020
2019
$
139,503 $
134,473 $
120,410
If certain unrecognized tax benefits are recognized they would create additional deferred tax assets. These assets would require
a full valuation allowance in certain locations based upon present circumstances.
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We classify interest expense and penalties related to unrecognized tax benefits and interest income on tax overpayments as
components of income tax expense. The net interest and penalties expense recognized were as follows:
In thousands
Year Ended December 31,
2021
2020
2019
Net interest and penalties expense (benefit)
$
(1,097) $
400 $
708
In thousands
Accrued interest
Accrued penalties
At December 31,
2021
2020
$
2,964 $
747
3,432
1,645
At December 31, 2021, we are under examination by certain tax authorities. During 2021, we settled a French tax audit on years
2013-2018 with minimal impact to the financial statements or cash taxes. 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 cash flows.
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 recognized 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.
We file income tax returns in various jurisdictions. We are subject to income tax examination by tax authorities in our major tax
jurisdictions as follows:
Tax Jurisdiction
U.S. federal
France
Germany
United Kingdom
Indonesia
Italy
Years Subject to Audit
Subsequent to 2002
Subsequent to 2018
Subsequent to 2013
Subsequent to 2016
Subsequent to 2015
Subsequent to 2016
Note 12: 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 our future performance, which usually covers
the installation phase of a contract and may, on occasion, cover the operations and maintenance phase of outsourcing contracts.
87
Our available lines of credit, outstanding standby LOCs, and bonds were as follows:
In thousands
Credit facility
Multicurrency revolving line of credit
Standby LOCs issued and outstanding
At December 31,
2021
2020
$
500,000 $
(64,374)
500,000
(64,948)
435,052
Net available for additional borrowings under the multicurrency revolving line of credit $
435,626 $
Net available for additional standby LOCs under sub-facility
Unsecured multicurrency revolving lines of credit with various financial institutions
Multicurrency revolving lines of credit
Standby LOCs issued and outstanding
Short-term borrowings
Net available for additional borrowings and LOCs
Unsecured surety bonds in force
$
$
$
$
235,626 $
235,052
94,845 $
(19,957)
—
74,888 $
99,201
(24,966)
—
74,235
281,270 $
162,912
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, as of February 28, 2022, we do not believe any outstanding standby LOCs or bonds will be called.
We generally provide an indemnification related to the infringement of any patent, copyright, trademark, or other intellectual
property right on software or equipment within our sales contracts, which indemnifies the customer from, and pays the resulting
costs, damages, and attorney's fees awarded against a customer with respect to, such a claim provided that (a) the customer
promptly notifies us in writing of the claim and (b) we have the sole control of the defense and all related settlement
negotiations. We may also provide an indemnification to our customers for third-party claims resulting from damages caused by
the negligence or willful misconduct of our employees/agents in connection with the performance of certain contracts. The
terms of our indemnifications generally do not limit the maximum potential payments. It is not possible to predict the maximum
potential amount of future payments under these or similar agreements.
Legal Matters
We are subject to various legal proceedings and claims of which the outcomes are subject to significant uncertainty. Our policy
is to assess the likelihood of any adverse judgments or outcomes related to legal matters, as well as ranges of probable losses. A
determination of the amount of the liability required, if any, for these contingencies is made after an analysis of each known
issue. A liability would be recognized 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.
Warranty
A summary of the warranty accrual account activity is as follows:
In thousands
Beginning balance
New product warranties
Other adjustments and expirations, net
Claims activity
Warranties reclassified to held for sale
Effect of change in exchange rates
Ending balance
Less: current portion of warranty
Long-term warranty
Year Ended December 31,
2021
2020
2019
$
41,390 $
53,241 $
4,848
551
(13,593)
(90)
(1,084)
32,022
18,406
3,616
7,736
(25,582)
—
2,379
41,390
28,329
$
13,616 $
13,061 $
60,443
5,202
15,695
(27,916)
—
(183)
53,241
38,509
14,732
88
Total warranty expense is classified within cost of revenues and consists of new product warranties issued, costs related to
insurance and supplier recoveries, other changes and adjustments to warranties, and customer claims.
On November 2, 2021, Itron entered into an agreement to sell certain of its Gas device businesses and operations to Dresser.
The related disposal group was classified as held for sale during the fourth quarter of 2021. Refer to Note 18: Sale of
Businesses for additional information on the transaction.
Warranty expense was as follows:
In thousands
Total warranty expense
Year Ended December 31,
2021
2020
2019
$
5,399 $
11,539 $
17,975
Warranty expense decreased during the year ended December 31, 2021 compared with the same period in 2020. The lower
costs in 2021 are primarily the result of incremental specific reserves recognized in 2020 including $3.0 million for water
products in Europe, Middle East, and Africa Device Solutions and $2.0 million for electric and water products in North
America Networked Solutions.
Warranty expense decreased during the year ended December 31, 2020 compared with the same period in 2019. This decrease
was primarily the result of incremental specific reserves recognized in 2019 including $3.9 million for gas interface modules in
North America Networked Solutions.
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:
In thousands
Plan costs
Year Ended December 31,
2021
2020
2019
$
39,187 $
36,672 $
33,611
IBNR accrual, which is included in wages and benefits payable, was as follows:
In thousands
IBNR accrual
At December 31,
2021
2020
$
3,478 $
3,507
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 13: Restructuring
2021 Projects
On October 29, 2021, our Board of Directors approved a restructuring plan (the 2021 Projects), which in conjunction with the
announcement of the sale of certain of our Gas device manufacturing operations (refer to Note 18: Sale of Businesses), includes
activities to drive reductions in certain locations and functional support areas. These projects are to be substantially complete by
the end of 2024. Itron recognized pre-tax restructuring charges of $60.7 million. Of the total charge, approximately $55 million
will result in cash expenditures, and the remainder to non-cash impairment charges. Once the 2021 Projects are substantially
completed, Itron estimates $15 million to $20 million in annualized savings. Certain of Itron's employees are represented by
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unions or works councils, which requires consultation, and potential restructuring projects may be subject to regulatory
approval, both of which could impact the timing of planned savings in certain jurisdictions.
The total expected restructuring costs, the restructuring costs recognized, and the remaining expected restructuring costs related
to the 2021 Projects were as follows:
Total Expected Costs
at December 31, 2021
Costs Recognized in
Prior Periods
Costs Recognized
During the Year Ended
December 31, 2021
Expected Remaining
Costs to be Recognized
at December 31, 2021
$
$
49,013 $
9,246
5,452
63,711 $
— $
—
—
— $
49,013 $
9,246
2,452
60,711 $
—
—
3,000
3,000
In thousands
Employee severance costs
Asset impairments & net loss
on sale or disposal
Other restructuring costs
Total
2020 Projects
In September 2020, our Board of Directors approved a restructuring plan (the 2020 Projects), which includes activities that
continue our efforts to optimize our global supply chain and manufacturing operations, sales and marketing organizations, and
other overhead. These projects are scheduled to be substantially complete by the end of 2022. Certain of Itron's employees are
represented by unions or works councils, which requires consultation, and potential restructuring projects may be subject to
regulatory approval, both of which could impact the timing of planned savings in certain jurisdictions.
During 2021, expected remaining costs to be recognized were reduced by $13.0 million due to the removal of a previously
planned non-cash cumulative translation adjustment charge, resulting from our recent reassessment of the legal entity and its
related operations.
The total expected restructuring costs, the restructuring costs recognized, and the remaining expected restructuring costs related
to the 2020 Projects were as follows:
In thousands
Employee severance costs
Asset impairments & net loss
on sale or disposal
Other restructuring costs
Total
Total Expected Costs
at December 31, 2021
Costs Recognized in
Prior Periods
Costs Recognized
During the Year Ended
December 31, 2021
Expected Remaining
Costs to be
Recognized at
December 31, 2021
$
$
24,532 $
36,225 $
(11,693) $
6,442
9,033
6,944
63
(502)
6,107
40,007 $
43,232 $
(6,088) $
—
—
2,863
2,863
All prior restructuring plans are substantially complete and are not presented below.
The following table summarizes the activity within the restructuring related balance sheet accounts for the 2021 Projects and
the 2020 Projects during the year ended December 31, 2021:
In thousands
Accrued Employee
Severance
Asset Impairments &
Net Loss (Gain) on
Sale or Disposal
Other Accrued Costs
Total
Beginning balance, January 1, 2021
$
70,005 $
— $
2,621 $
Costs charged to expense
Cash payments
Cash receipts
Net assets disposed and impaired
Effect of change in exchange rates
Ending balance, December 31, 2021
$
37,320
(23,687)
—
—
(3,762)
79,876 $
8,744
—
4,495
(13,239)
—
— $
8,559
(5,971)
—
—
(79)
5,130 $
72,626
54,623
(29,658)
4,495
(13,239)
(3,841)
85,006
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 projects are not material to our operating segments or consolidated results.
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Other restructuring costs include expenses for employee relocation, professional fees associated with employee severance, costs
to exit the facilities once the operations in those facilities have ceased, and other costs associated with the liquidation of any
affected legal entities. 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. Restructuring expense is
part of the Corporate unallocated segment and does not impact the results of our operating segments.
The current portions of restructuring liabilities were $29.7 million and $31.7 million as of December 31, 2021 and 2020 and are
classified within other current liabilities on the Consolidated Balance Sheets. The long-term portions of restructuring liabilities
were $55.3 million and $40.9 million as of December 31, 2021 and 2020. The long-term portions of restructuring liabilities are
classified within other long-term obligations on the Consolidated Balance Sheet and include severance accruals and facility exit
costs.
Note 14: Shareholders' 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 December 31, 2021 or 2020.
Stock Repurchase Authorization
Effective November 1, 2021, Itron's Board of Directors authorized a share repurchase up to $100 million of our common stock
over an 18-month period (the 2021 Stock Repurchase Program). Repurchases are made in the open market or in privately
negotiated transactions, and in accordance with applicable securities laws. Following the announcement of the program and
through December 31, 2021, we repurchased 125,314 shares at an average share price of $64.05 (excluding commissions) for a
total of $8.0 million. Subsequent to December 31, 2021, we repurchased 279,968 shares of our common stock under the 2021
Stock Repurchase Program. The average price paid per share was $60.60 (excluding commissions) for total of $17.0 million.
On March 14, 2019, Itron's Board of Directors authorized the Company to repurchase up to $50 million of our common stock
over a 12-month period. Following the announcement of the program and through December 31, 2019, we repurchased 529,396
shares at an average share price of $47.22 for a total of $25 million. The program expired on March 13, 2020, and no additional
shares were repurchased during 2020.
Issuance of Common Stock
On March 12, 2021, we closed the sale of 4,472,222 shares of our common stock in a public offering, resulting in net proceeds
to us of approximately $389.4 million, after deducting underwriters' discounts of the offering.
Convertible Note Hedge Transactions
We paid an aggregate amount of $84.1 million for the Convertible Note Hedge Transactions. The Convertible Note Hedge
Transactions cover, subject to anti-dilution adjustments substantially similar to those in the Convertible Notes, approximately
3.7 million shares of our common stock, the same number of shares initially underlying the Convertible Notes, at a strike price
of approximately $126.00, subject to customary adjustments. The Convertible Note Hedge Transactions will expire upon the
maturity of the Convertible Notes, subject to earlier exercise or termination. The Convertible Note Hedge Transactions are
expected generally to reduce the potential dilutive effect of the conversion of our Convertible Notes and/or offset any cash
payments we are required to make in excess of the principal amount of the converted notes, as the case may be, in the event the
price per share of our common stock, as measured under the terms of the Convertible Note Hedge Transactions, is greater than
the strike price of the Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions meet the criteria in ASC
815-40 to be classified within Stockholders' Equity, therefore the Convertible Note Hedge Transactions are not revalued after
their issuance.
We made a tax election to integrate the Convertible Notes and the call options. We are retaining the identification statements in
our books and records, together with a schedule providing the accruals on the synthetic debt instruments. The accounting
impact of this tax election makes the call options deductible as original issue discount for tax purposes over the term of the
Convertible Note, and results in a $20.6 million deferred tax asset recognized through equity.
Warrant Transactions
In addition, concurrently with entering into the Convertible Note Hedge Transactions, we separately entered into privately-
negotiated Warrant Transactions, whereby we sold to the Counterparties warrants to acquire, collectively, subject to anti-
91
dilution adjustments, 3.7 million shares of our common stock at an initial strike price of $180.00 per share, which represents a
premium of 100% over the public offering price in the common stock issuance. We received aggregate proceeds of
$45.3 million from the Warrant Transactions with the Counterparties, with such proceeds partially offsetting the costs of
entering into the Convertible Note Hedge Transactions. The warrants expire in June 2026. If the market value per share of our
common stock, as measured under the Warrant Transactions, exceeds the strike price of the warrants, the warrants will have a
dilutive effect on our earnings per share, unless we elect, subject to certain conditions, to settle the warrants in cash. The
warrants meet the criteria in ASC 815-40 to be classified within Stockholders' Equity, and therefore the warrants are not
revalued after issuance.
Accumulated Other Comprehensive Income (Loss)
The changes in the components of AOCI, net of tax, were as follows:
In thousands
Foreign Currency
Translation
Adjustments
Net Unrealized
Gain (Loss) on
Derivative
Instruments
Net Unrealized
Gain (Loss) on
Nonderivative
Instruments
Pension Benefit
Obligation
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
Balances at January 1, 2019
$
(157,489) $
1,201 $
(14,380) $
(25,637) $
(196,305)
OCI before reclassifications
Amounts reclassified from
AOCI
Total other comprehensive
income (loss)
Balances at December 31, 2019
OCI before reclassifications
Amounts reclassified from
AOCI
Total other comprehensive
income (loss)
Balances at December 31, 2020
OCI before reclassifications
Amounts reclassified from
AOCI
Total other comprehensive
income (loss)
(2,953)
2,443
(510)
(157,999)
21,082
52,074
73,156
(84,843)
(26,923)
—
(26,923)
4,061
(5,985)
(1,924)
(723)
(7,002)
6,104
(898)
(1,621)
1,121
290
1,411
—
—
—
(14,380)
—
—
—
(14,380)
—
—
—
1,909
3,017
(7,842)
(11,384)
(5,933)
(31,570)
(8,689)
(8,367)
(204,672)
5,391
2,577
60,755
(6,112)
(37,682)
14,264
1,676
15,940
66,146
(138,526)
(11,538)
1,966
(9,572)
Balances at December 31, 2021 $
(111,766) $
(210) $
(14,380) $
(21,742) $
(148,098)
On November 2, 2021, Itron entered into an agreement to sell certain of its Gas device businesses and operations to Dresser.
Upon closure of the sale, an estimated $59.7 million of accumulated foreign currency translation losses and $0.9 million in
unrealized defined benefit plan losses will be recognized. Refer to Note 18: Sale of Businesses for additional information on the
transaction.
92
The before-tax, income tax (provision) benefit, and net-of-tax amounts related to each component of OCI were as follows:
Year Ended December 31,
2021
2020
2019
$
(26,757) $
20,947 $
(2,581)
In thousands
Before-tax amount
Foreign currency translation adjustment
Foreign currency translation adjustment reclassified to net income on
sale of business
Net unrealized gain (loss) on derivative instruments, designated as cash
flow hedges
Net hedging (gain) loss reclassified to net income
Net unrealized gain (loss) on defined benefit plans
Net defined benefit plan (gain) loss reclassified to net income
Total other comprehensive income (loss), before tax
Tax (provision) benefit
Foreign currency translation adjustment
Foreign currency translation adjustment reclassified to net income on
sale of business
Net unrealized gain (loss) on derivative instruments, designated as cash
flow hedges
Net hedging (gain) loss reclassified to net income
Net unrealized gain (loss) on defined benefit plans
Net defined benefit plan (gain) loss reclassified to net income
Total other comprehensive income (loss) tax (provision) benefit
Net-of-tax amount
Foreign currency translation adjustment
Foreign currency translation adjustment reclassified to net income on
sale of business
Net unrealized gain (loss) on derivative instruments, designated as cash
flow hedges
Net hedging (gain) loss reclassified to net income
Net unrealized gain (loss) on defined benefit plans
Net defined benefit plan (gain) loss reclassified to net income
—
1,139
756
14,426
1,695
(8,741)
(166)
—
(18)
(466)
(162)
(19)
(831)
(26,923)
—
1,121
290
14,264
1,676
52,074
(7,519)
6,190
(8,798)
2,609
65,503
135
—
517
(86)
109
(32)
643
21,082
52,074
(7,002)
6,104
(8,689)
2,577
2,443
4,063
(6,605)
1,966
(8,076)
(8,790)
(372)
—
(2)
620
(57)
234
423
(2,953)
2,443
4,061
(5,985)
1,909
(7,842)
(8,367)
Total other comprehensive income (loss), net of tax
$
(9,572) $
66,146 $
Note 15: Fair Value of Financial Instruments
The fair values at December 31, 2021 and 2020 do not reflect subsequent changes in the economy, interest rates, tax rates, and
other variables that may affect the determination of fair value.
In thousands
Credit facility
December 31, 2021
December 31, 2020
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
USD denominated term loan
$
Multicurrency revolving line of credit
Senior notes
Convertible notes
— $
—
—
— $
—
—
450,228
422,749
532,625 $
—
388,311
—
520,347
—
410,000
—
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).
93
Credit Facility - term loan and multicurrency revolving line of credit: The term loan and the revolver are not traded publicly.
The fair values, which are determined 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. Refer to Note 6: Debt for a further discussion of our debt.
Senior Notes: The Senior Notes, prior to their repayment, were not registered securities nor listed on any securities exchange
but were able to be actively traded by qualified institutional buyers. The fair values for the Senior Notes were estimated using
Level 1 inputs, as they were based on quoted prices for these instruments in active markets. In 2021, the Senior Notes were
fully discharged, and no principal or unpaid interest remains outstanding. See Note 6: Debt for further information.
Convertible Notes: The Convertible Notes are not registered securities nor listed on any securities exchange but may be actively
traded by qualified institutional buyers. The fair values for the Convertible Notes are estimated using Level 1 inputs, as they are
based on quoted prices for these instruments in active markets.
Derivatives: See Note 7: Derivative Financial Instruments for a description of our methods and assumptions in determining the
fair value of our derivatives, which were determined using Level 2 inputs. Each derivative asset and liability has a carrying
value equal to fair value.
Note 16: Segment Information
We operate under the Itron brand worldwide and manage and report under three operating segments: Device Solutions,
Networked Solutions, and Outcomes.
We have three GAAP measures of segment performance: revenues, gross profit (gross margin), and operating income
(operating 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 the income tax provision (benefit) are neither allocated to the segments, nor are they included in
the measure of segment performance. 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
Device Solutions – This segment primarily includes hardware products used for measurement, control, or sensing that do not
have communications capability embedded for use with our broader Itron systems, i.e., hardware-based products not part of a
complete end-to-end solution. Examples from the Device Solutions portfolio include: standard endpoints that are shipped
without Itron communications, such as our standard gas, electricity, and water meters for a variety of global markets and
adhering to regulations and standards within those markets, as well as our heat and allocation products; communicating meters
that are not a part of an Itron end-to-end solution, such as Smart Spec meters; and the implementation and installation of non-
communicating devices, such as gas regulators.
Networked Solutions – This segment primarily includes a combination of communicating devices (e.g., smart meters, modules,
endpoints, and sensors), network infrastructure, and associated application software designed and sold as a complete solution
for acquiring and transporting robust application-specific data. Networked Solutions includes products and software for the
implementation, installation, and management of communicating devices and data networks. Examples from the Networked
Solutions portfolio include: communicating measurement, control, or sensing endpoints, such as our Itron OpenWay® Centron
and Riva meters, Itron traditional ERT® technology, Intelis smart gas meters, 500G gas communication modules, 500W water
communication modules, GenX networking infrastructure products and network interface cards (NICs); Smart City control and
management software; Distribution Automation bridge devices; and specific network control and management software
applications. The IIoT solutions supported by this segment include automated meter reading (AMR), advanced metering
infrastructure (AMI), smart grid and distribution automation, smart street lighting, and an ever-growing set of smart city
applications such as traffic management, smart parking, air quality monitoring, electric vehicle charging, customer engagement,
digital signage, acoustic (e.g., gunshot) detection, and leak detection and mitigation for both gas and water systems. Our IIoT
platform allows all these industry and smart city applications to be run and managed on a single, multi-purpose network.
Outcomes – This segment primarily includes our value-added, enhanced software and services in which we manage, organize,
analyze, and interpret data to improve decision making, maximize operational profitability, drive resource efficiency, and
deliver results for consumers, utilities, and smart cities. Outcomes places an emphasis on delivering to Itron customers high-
value, turn-key, digital experiences by leveraging the footprint of our Device Solutions and Networked Solutions segments. The
revenues from these offerings are primarily recurring in nature and would include any direct management of Device Solutions,
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Networked Solutions, and other products on behalf of our end customers. Examples from the Outcomes portfolio include: our
meter data management and analytics offerings; our managed service solutions including network-as-a-service and Platform-as-
a-Service (PaaS); forecasting software and services; our Distributed Energy Management suite of products and services; our
Distributed Intelligence suite of applications and services; and any consulting-based engagement. Within the Outcomes
segment, we also identify new business models, including performance-based contracting, to drive broader portfolio offerings
across utilities and cities.
Revenues, gross profit, and operating income associated with our operating segments were as follows:
In thousands
Product revenues
Device Solutions
Networked Solutions
Outcomes
Total Company
Service revenues
Device Solutions
Networked Solutions
Outcomes
Total Company
Total revenues
Device Solutions
Networked Solutions
Outcomes
Total Company
Gross profit
Device Solutions
Networked Solutions
Outcomes
Total Company
Operating income (loss)
Device Solutions
Networked Solutions
Outcomes
Corporate unallocated
Total Company
Total other income (expense)
Income (loss) before income taxes
$
$
$
$
$
$
$
$
$
Year Ended December 31,
2021
2020
2019
635,103 $
684,517 $
974,531
68,561
1,148,698
55,958
847,580
1,322,382
50,433
1,678,195 $
1,889,173 $
2,220,395
10,001 $
9,478 $
118,100
175,276
100,704
173,995
303,377 $
284,177 $
11,301
94,872
175,902
282,075
645,104 $
693,995 $
1,092,631
243,837
1,249,402
229,953
858,881
1,417,254
226,335
1,981,572 $
2,173,350 $
2,502,470
99,355 $
86,859 $
378,633
95,181
432,906
82,402
573,169 $
602,167 $
57,217 $
40,769 $
254,434
50,631
(441,581)
(79,299)
(44,511)
308,099
47,619
(406,882)
(10,395)
(46,244)
$
(123,810) $
(56,639) $
152,562
518,749
81,008
752,319
97,753
397,325
43,803
(406,198)
132,683
(59,651)
73,032
Our Corporate unallocated operating loss for the years ended December 31, 2021 and 2020 include losses from the sale of
businesses of $64.3 million and $59.8 million. Refer to Note 18: Sale of Businesses for additional information on the
transactions.
For all periods presented, no single customer represents more than 10% of total company revenue.
95
Revenues by region were as follows:
In thousands
United States and Canada
Europe, Middle East, and Africa
Asia Pacific and Latin America (1)
Total Company
Year Ended December 31,
2021
2020
2019
$
$
1,273,868 $
1,434,577 $
1,629,742
568,008
139,696
594,264
144,509
663,851
208,877
1,981,572 $
2,173,350 $
2,502,470
(1) On June 25, 2020, we sold our Latin American operations. We continue to sell into the region through a distributor.
Property, plant, and equipment, net, by geographic area were as follows:
In thousands
United States
Outside United States
Total Company
At December 31,
2021
2020
$
$
94,899 $
68,285
163,184 $
100,381
107,435
207,816
Depreciation expense is allocated to the operating segments and Corporate unallocated based upon each segment's use of the
assets. All amortization expense is recognized within Corporate unallocated. Depreciation and amortization of intangible assets
expense associated with our operating segments was as follows:
In thousands
Device Solutions
Networked Solutions
Outcomes
Corporate unallocated
Total Company
Note 17: Revenues
Year Ended December 31,
2021
2020
2019
22,884 $
25,058 $
16,607
4,454
40,208
16,965
5,348
49,919
25,542
13,004
5,363
70,491
84,153 $
97,290 $
114,400
$
$
A summary of significant net changes in the contract assets and the contract liabilities balances during the period is as follows:
In thousands
Beginning balance, January 1, 2021
Revenues recognized from beginning contract liability
Cumulative catch-up adjustments
Increases due to amounts collected or due
Revenues recognized from current period increases
Other
Ending balance, December 31, 2021
Contract
liabilities, less
contract assets
$
$
98,388
(93,709)
19,867
289,300
(229,336)
(1,330)
83,180
On January 1, 2021, total contract assets were $49.8 million and total contract liabilities were $148.2 million. On December 31,
2021, total contract assets were $33.7 million and total contract liabilities were $116.9 million. The contract assets primarily
relate to contracts that include a retention clause and allocations related to contracts with multiple performance obligations. The
contract liabilities primarily relate to deferred revenue, such as extended warranty and maintenance cost. The cumulative catch-
up adjustments relate to contract modifications, measure-of-progress changes, and changes in the estimate of the transaction
price.
96
Transaction price allocated to the remaining performance obligations
Total transaction price allocated to remaining performance obligations represents committed but undelivered products and
services for contracts and purchase orders at period end. Twelve-month remaining performance obligations represent the
portion of total transaction price allocated to remaining performance obligations that we estimate will be recognized as revenue
over the next 12 months. Total transaction price allocated to remaining performance obligations is not a complete measure of
our future revenues as we also receive orders where the customer may have legal termination rights but are not likely to
terminate.
Total transaction price allocated to remaining performance obligations related to contracts is approximately $1.3 billion for the
next twelve months and approximately $1.5 billion for periods longer than 12 months. The total remaining performance
obligations consist of product and service components. The service component relates primarily to maintenance agreements for
which customers pay a full year's maintenance in advance, and service revenues are generally recognized over the service
period. Total transaction price allocated to remaining performance obligations also includes our extended warranty contracts,
for which revenue is recognized over the warranty period, and hardware, which is recognized as units are delivered. The
estimate of when remaining performance obligations will be recognized requires significant judgment.
Cost to obtain a contract and cost to fulfill a contract with a customer
Cost to obtain a contract and costs to fulfill a contract were capitalized and amortized using a systematic rational approach to
align with the transfer of control of underlying contracts with customers. While amounts were capitalized, they are not material.
Disaggregation of revenue
Refer to Note 16: Segment Information and the Consolidated Statements of Operations for disclosure regarding the
disaggregation of revenue into categories, which depict how revenue and cash flows are affected by economic factors.
Specifically, our operating segments and geographical regions as disclosed, and categories for products, which include
hardware and software and services, are presented.
Note 18: Sale of Businesses
Latin America Divestiture
On June 25, 2020, we closed on the sale of five subsidiaries comprising our manufacturing and sales operations in Latin
America to buyers led by Instalación Profesional y Tecnologías del Centro S.A. de C.V., a Mexican company doing business as
Accell in Brazil (Accell), through the execution of various definitive stock purchase agreements. The sale of these Latin
America-based operations is part of our continued strategy to improve profitability and focus on growing our Networked
Solutions and Outcomes businesses in Latin America and throughout the world. We retained the intellectual property rights to
our products sold in Latin America. As part of the transaction, we entered into an intellectual property license agreement
whereby Accell pays a royalty on certain products manufactured by Accell using licensed Company intellectual property. In
addition, Accell serves as the exclusive distributor for our Device Solutions, Networked Solutions, and Outcomes product and
service offerings in Latin America.
The total sales price of $35.0 million included deferred payments of $21.1 million for working capital, which was to be paid in
full by December 31, 2020, as evidenced by a promissory note, and the remainder in cash ($4.5 million) and other deferred
consideration. We recognized a total loss of $59.8 million during the year ended 2020, as the result of the total of the net assets
sold (including the cumulative translation adjustment in AOCI) exceeding the sales price.
In January 2021, we agreed to extend the payment terms on the remaining outstanding working capital balance of $18.4 million.
Accell had agreed to make monthly payments including interest through September 2022, under which we received full
payments for January through March and partial payments in April and May (totaling $3.8 million including $0.7 million in
interest). Based on Accell's failure to make timely payments, continued requests to defer payments significantly beyond the
original maturity of the working capital note and the unfavorable impact of the COVID-19 pandemic on the Latin American
markets, we determined to fully reserve the working capital and other deferred receivables, recognizing a loss on sale of
business of $26.8 million for the year ended December 31, 2021.
Sale to Dresser
On November 2, 2021, Itron entered into a definitive securities and asset purchase agreement to sell certain of its Gas device
manufacturing and business operations in Europe and North America to Dresser. The sale includes one German subsidiary –
Itron GmbH along with its business operations, personnel, and the owned manufacturing facility in Karlsruhe; the business
operations, personnel, and assets associated with the leased manufacturing facility in Argenteuil, France; and the business and
manufacturing assets maintained at one of our contract manufacturers in North America. The sale of these assets and operations
97
is part of Itron's continued strategy to improve profitability and focus on growing its higher value businesses throughout the
world.
As of the fourth quarter of 2021, we reclassified the assets and liabilities of this asset group as held for sale. Based on the sales
price and the carrying value of the assets including the foreign currency translation losses accumulated since the acquisition of
the German subsidiary in 2007, we recognized a pre-tax impairment loss of $34.4 million and $3.1 million for professional
services in conjunction with the sale to Dresser (classified within Loss on sale of business within the Consolidated Statements
of Operations) as of December 31, 2021. The base sale price of this divestiture was $75 million, with adjustments for (1)
pension liabilities assumed by Dresser for the active employees and (2) the final working capital balance, which will be
determined as of the close date, and, if the balance is outside the targeted amount, the difference will be settled shortly
thereafter. Cash proceeds from the sale were estimated at a net $53.9 million ($63.7 million less $9.8 million in cash held for
sale) at December 31, 2021. The transaction closed on February 28, 2022, and the final sales price and loss on sale will be
determined and recognized during the second quarter of 2022, based on the 90-day working capital validation process.
Current and non-current assets and liabilities included with the sale have been classified as held for sale as of November 2,
2021 and moved to other current assets and liabilities as of December 31, 2021. All balances below are as of December 31,
2021. Final balances will be determined upon transaction closing, including the 90-day working capital review period.
The table below presents the components of the balance sheet accounts reclassified to current assets and liabilities held for sale
related to the sale to Dresser.
In thousands
Current assets
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets
Non-current assets
Property, plant, and equipment, net
Operating lease right-of-use assets, net
Intangible assets, net
Goodwill
Transaction impairment
Total held for sale asset balance
Current liabilities
Accounts payable
Other current liabilities
Wages and benefits payable
Taxes payable
Current portion of warranty
Unearned revenue
Non-current liabilities
Long-term warranty
Pension benefit obligation
Operating lease liabilities
Other long-term obligations
Total held for sale liability balance
98
$
$
$
Year Ended
December 31,
2021
9,750
751
15,410
401
12,012
1,212
3,436
12,800
(34,425)
21,347
(4,635)
(126)
(1,271)
(18)
(50)
(12)
(40)
(11,513)
(480)
(448)
$
(18,593)
Note 19: Leases
We lease certain factories, service and distribution locations, offices, and equipment under operating leases. Our operating
leases have initial lease terms ranging from 1 to 9 years, some of which include options to extend or renew the leases for up to
10 years. Certain lease agreements contain provisions for future rent increases. Our leases do not contain material residual value
guarantees, and finance leases are not material.
The components of operating lease expense are as follows:
In thousands
Operating lease cost
Variable lease cost
Total operating lease cost
Year Ended December 31,
2021
2020
$
$
20,577 $
2,662
23,239 $
22,081
2,582
24,663
Supplemental cash flow information related to operating leases is as follows:
In thousands
Cash paid for amounts included in the measurement of operating lease liabilities
$
Right-of-use assets obtained in exchange for operating lease liabilities
Supplemental balance sheet information related to operating leases is as follows:
Year Ended December 31,
2021
2020
20,958 $
8,342
20,678
13,051
In thousands
Operating lease right-of-use assets, net
Other current liabilities
Operating lease liabilities
Total operating lease liability
Weighted average remaining lease term - Operating leases
Weighted average discount rate - Operating leases
December 31, 2021
December 31, 2020
$
$
65,523
$
76,276
16,602
57,314
73,916
$
4.7 years
4.4 %
16,243
66,823
83,066
5.6 years
4.5 %
Amounts due under operating lease liabilities as of December 31, 2021 are as follows:
In thousands
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: imputed interest
Total operating lease liability
December 31, 2021
$
$
19,234
17,251
14,812
13,708
11,853
4,867
81,725
(7,809)
73,916
99
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There were no disagreements with our independent accountants on accounting and financial disclosure matters within the three
year period ended December 31, 2021, or in any period subsequent to such date, through the date of this report.
Item 9A: Controls and Procedures
Evaluation of disclosure controls and procedures
An evaluation was performed under the supervision and with the participation of our Company's management, including the
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's
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, the Company's management, including the Chief Executive Officer and
Chief Financial Officer, concluded that as of December 31, 2021, the Company's 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.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control— Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation under the 2013
Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2021.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by
Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report that is included in this
Annual Report.
Changes in internal controls over financial reporting
There have been no changes in our internal control over financial reporting during the three months ended December 31, 2021
that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
100
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Itron, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Itron, Inc. and subsidiaries (the "Company") as of
December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal
Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our
report dated February 28, 2022, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's
Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
February 28, 2022
101
Item 9B: Other Information
None.
Item 9C: Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
102
PART III
Item 10: Directors, Executive Officers and Corporate Governance
The section entitled "Proposal 1 – Election of Directors" appearing in our Proxy Statement for the Annual Meeting of
Shareholders to be held on May 12, 2022 (the 2022 Proxy Statement) sets forth certain information with regard to our directors
as required by Item 401 of Regulation S-K and is incorporated herein by reference.
Certain information with respect to persons who are or may be deemed to be executive officers of Itron, Inc. as required by
Item 401 of Regulation S-K is set forth under the caption "Information about our Executive Officers" in Part I of this Annual
Report.
The section entitled "Delinquent Section 16(a) Reports" appearing in the 2022 Proxy Statement sets forth certain information as
required by Item 405 of Regulation S-K and is incorporated herein by reference.
The section entitled "Corporate Governance" appearing in the 2022 Proxy Statement sets forth certain information with respect
to the Registrant's code of conduct and ethics as required by Item 406 of Regulation S-K and is incorporated herein by
reference. Our code of conduct and ethics can be accessed on our website, at www.itron.com under the Investors section.
There were no material changes to the procedures by which security holders may recommend nominees to Itron's board of
directors during 2022, as set forth by Item 407(c)(3) of Regulation S-K.
The section entitled "Corporate Governance" appearing in the 2022 Proxy Statement sets forth certain information regarding the
Audit/Finance Committee, including the members of the Committee and the Audit/Finance Committee financial experts, as set
forth by Item 407(d)(4) and (d)(5) of Regulation S-K and is incorporated herein by reference.
Item 11: Executive Compensation
The sections entitled "Compensation of Directors" and "Executive Compensation" appearing in the 2022 Proxy Statement set
forth certain information with respect to the compensation of directors and management of Itron as required by Item 402 of
Regulation S-K and are incorporated herein by reference.
The section entitled "Corporate Governance" appearing in the 2022 Proxy Statement sets forth certain information regarding
members of the Compensation Committee required by Item 407(e)(4) of Regulation S-K and is incorporated herein by
reference.
The section entitled "Compensation Committee Report" appearing in the 2022 Proxy Statement sets forth certain information
required by Item 407(e)(5) of Regulation S-K and is incorporated herein by reference.
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The section entitled "Equity Compensation Plan Information" appearing in the 2022 Proxy Statement sets forth certain
information required by Item 201(d) of Regulation S-K and is incorporated herein by reference.
The section entitled "Security Ownership of Certain Beneficial Owners and Management" appearing in the 2022 Proxy
Statement sets forth certain information with respect to the ownership of our common stock as required by Item 403 of
Regulation S-K and is incorporated herein by reference.
Item 13: Certain Relationships and Related Transactions, and Director Independence
The section entitled "Corporate Governance" appearing in the 2022 Proxy Statement sets forth certain information required by
Item 404 of Regulation S-K and is incorporated herein by reference.
The section entitled "Corporate Governance" appearing in the 2022 Proxy Statement sets forth certain information with respect
to director independence as required by Item 407(a) of Regulation S-K and is incorporated herein by reference.
103
Item 14: Principal Accountant Fees and Services
The section entitled "Independent Registered Public Accounting Firm's Audit Fees and Services" appearing in the 2022 Proxy
Statement sets forth certain information with respect to the principal accounting fees and services and the Audit/Finance
Committee's policy on pre-approval of audit and permissible non-audit services performed by our independent auditors as
required by Item 9(e) of Schedule 14A and is incorporated herein by reference.
104
PART IV
Item 15: Exhibit and Financial Statement Schedules
(a) (1) Financial Statements:
The financial statements required by this item are submitted in Item 8 of this Annual Report on Form 10-K.
(a) (2) Financial Statement Schedule:
All schedules have been omitted because of the absence of conditions under which they are required or because the required
information is included in the consolidated financial statements or the notes thereto.
(a) (3) Exhibits:
Exhibit
Number
2.1
Agreement and Plan of Merger, dated September 17, 2017, by and among Itron, Inc., Ivory Merger Sub, Inc.,
and Silver Spring, Inc. (Filed as Exhibit 2.1 to Itron Inc.'s Current Report on Form 8-K, filed on September 18,
2017)
Description of Exhibits
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Amended and Restated Articles of Incorporation of Itron, Inc. (Filed as Exhibit 3.1 to Itron, Inc.'s Annual
Report on Form 10-K, filed on March 27, 2003)
Amended and Restated Bylaws of Itron, Inc. (Filed as Exhibit 3.2 to Itron, Inc.'s Current Report on Form 8-K,
filed on February 28, 2022)
Security Agreement dated August 5, 2011 among Itron, Inc. and Wells Fargo Bank, National Association (Filed
as Exhibit 4.2 to Form 8-K filed on August 8, 2011)
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)
Indenture, dated as of December 22, 2017 among Itron, Inc., the guarantors from time to time party thereto and
U.S. Bank National Association, as trustee. (Filed as Exhibit 4.1 to Itron, Inc.'s Current Report on Form 8-K,
filed on December 22, 2017)
Second Amended and Restated Credit Agreement dated January 5, 2018 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, J.P. Morgan Securities PLC, BNP Paribas, and Silicon Valley Bank (Filed as Exhibit 4.1 to Itron,
Inc.'s Current Report on Form 8-K, filed on January 11, 2018)
Amendment No. 1 dated October 18, 2019, to the Second Amended and Restated Credit Agreement dated
January 5, 2018 among Itron, Inc., certain foreign borrowers, guarantors, lenders and issuing parties thereto,
and Wells Fargo Bank, National Association, as administrative agent. (Filed as Exhibit 4.1 to Itron, Inc.'s
Current Report on Form 8-K, filed on October 24, 2019)
Amendment No. 2 dated October 19, 2020, to the Second Amended and Restated Credit Agreement dated
January 5, 2018 among Itron, Inc., certain foreign borrowers, guarantors, lenders and issuing parties thereto,
and Wells Fargo Bank, National Association, as administrative agent. (Filed as Exhibit 4.1 to Itron, Inc's
Quarterly Report on Form 10-Q filed on November 2, 2020)
Amendment No. 3, dated March 8, 2021, to the Credit Agreement, dated January 5, 2018 among Itron, Inc. and
certain foreign borrowers, guarantors, lenders and issuing parties thereto, and Wells Fargo Bank, National
Association, as administrative agent. (Filed as Exhibit 10.3 to Itron, Inc.'s Current Report on Form 8-K, filed on
March 12, 2021)
Indenture, dated as of March 12, 2021, by and between Itron, Inc. and U.S. Bank National Association, as
trustee (Filed as Exhibit 4.1 to Itron, Inc.'s Current Report on Form-8K, filed on March 12, 2021)
105
Exhibit
Number
4.9
Description of Exhibits
Form of 0.00% Convertible Senior Note due 2026 (Filed as Exhibit 4.2 to Itron, Inc.'s Current Report on
Form-8K, filed on March 12, 2021)
4.10
4.11
4.12
4.13
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
Form of Convertible Note Hedge (Filed as Exhibit 10.1 to Itron, Inc.'s Current Report on Form-8K, filed on
March 12, 2021)
Form of Warrant Confirmation (Filed as Exhibit 10.2 to Itron, Inc.'s Current Report on Form-8K, filed on
March 12, 2021)
Description of Registrant's Securities (Filed as Exhibit 4.7 to Itron, Inc's Annual Report on Form 10-K, filed on
February 24, 2021)
Amendment No. 4, dated February 25, 2022, to the Credit Agreement, dated January 5, 2018 among Itron, Inc.
and certain foreign borrowers, guarantors, lenders and issuing parties thereto, and Wells Fargo Bank, National
Association, as administrative agent. (filed with this report)
Form of Amended and Restated Change in Control Severance Agreement for Executive Officers. (Filed as
Exhibit 10.1 to Itron, Inc.'s Annual Report on Form 10-K, filed on February 22, 2013)
Form of Indemnification Agreements between Itron, Inc. and certain directors and officers. (Filed as Exhibit
10.9 to Itron, Inc.'s Annual Report on Form 10-K, filed on March 30, 2000)
Amended and Restated 2010 Stock Incentive Plan. (Filed as Appendix A to Itron, Inc.'s Proxy Statement for the
2014 Annual Meeting of Shareholders, filed on March 13, 2014)
Second Amended and Restated 2010 Stock Incentive Plan. (Filed as Appendix A to Itron, Inc.'s Proxy
Statement for the 2017 Annual Meeting of Shareholders, filed on March 24, 2017)
Rules of Itron Inc.'s Amended and Restated 2010 Stock Incentive Plan for the Grant of Restricted Stock Unit
(RSU's) to Participants in France. (Filed as Exhibit 10.6 to Itron, Inc.'s Quarterly Report on Form 10-Q, filed on
August 6, 2014)
Terms of the Amended and Restated Equity Grant Program for Nonemployee Directors under the Itron, Inc.
Amended and Restated 2000 Stock Incentive Plan. (Filed as Exhibit 10.4 to Itron, Inc.'s Annual Report on
Form 10-K, filed on February 26, 2008)
Form of Stock Option Grant Notice and Agreement for use in connection with both incentive and non-qualified
stock options granted under Itron, Inc.'s Amended and Restated 2000 Stock Incentive Plan. (Filed as Exhibit
10.6 to Itron, Inc.'s Current Report on Form 8-K, filed on February 18, 2010)
Form of RSU Award Notice and Agreement for U.S. Participants for use in connection with the Company's
Long-Term Performance Plan (LTPP) and issued under Itron, Inc.'s Amended and Restated 2000 Stock
Incentive Plan. (Filed as Exhibit 10.1 to Itron, Inc.'s Current Report on Form 8-K, filed on February 18, 2010)
Form of RSU Award Notice and Agreement for International Participants (excluding France) for use in
connection with the Company's LTPP and issued under Itron, Inc.'s Amended and Restated 2000 Stock
Incentive Plan. (Filed as Exhibit 10.2 to Itron, Inc.'s Current Report on Form 8-K, filed on February 18, 2010)
Form of RSU Award Notice and Agreement for Participants in France for use in connection with Itron, Inc.'s
LTPP and issued under Itron, Inc.'s Amended and Restated 2000 Stock Incentive Plan. (Filed as Exhibit 10.3 to
Itron, Inc.'s Current Report on Form 8-K, filed on February 18, 2010)
Form of RSU Award Notice and Agreement for all Participants (excluding France) for use in connection with
Itron, Inc.'s Amended and Restated 2000 Stock Incentive Plan. (Filed as Exhibit 10.4 to Itron, Inc.'s Current
Report on Form 8-K, filed on February 18, 2010)
106
Exhibit
Number
10.12*
Description of Exhibits
Form of RSU Award Notice and Agreement for Participants in France for use in connection with Itron, Inc.'s
Amended and Restated 2000 Stock Incentive Plan. (Filed as Exhibit 10.5 to Itron, Inc.'s Current Report on
Form 8-K, filed on February 18, 2010)
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22
10.23
10.24
10.25*
10.26*
Form of Long Term Performance RSU Award Notice and Agreement for U.S. Participants for use in
connection with Itron, Inc.'s Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit 10.4 to Itron,
Inc.'s Quarterly Report on Form 10-Q, filed on August 6, 2014)
Form of Long Term Performance RSU Award Notice and Agreement for International Participants (excluding
France) for use in connection with Itron, Inc.'s Amended and Restated 2010 Stock Incentive Plan. (Filed as
Exhibit 10.19 to Itron, Inc.'s Annual Report on Form 10-K, filed on February 25, 2011)
Form of Long Term Performance RSU Award Notice and Agreement for Participants in France for use in
connection with Itron, Inc.'s Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit 10.5 to Itron,
Inc.'s Quarterly Report on Form 10-Q, filed on August 6, 2014)
Form of RSU Award Notice and Agreement for all Participants (excluding France) for use in connection with
Itron, Inc.'s Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit 10.2 to Itron, Inc.'s Quarterly
Report on Form 10-Q, filed on August 6, 2014)
Form of RSU Award Notice and Agreement for Participants in France for use in connection with Itron, Inc.'s
Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit 10.3 to Itron, Inc.'s Quarterly Report on
Form 10-Q, filed on August 6, 2014)
Form of RSU Award Notice and Agreement for Non-employee Directors for use in connection with Itron, Inc.'s
Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit 10.3 to Itron, Inc.'s Quarterly Report on
Form 10-Q, filed on May 3, 2013)
Form of Stock Option Grant Notice and Agreement for use in connection with both incentive and non-qualified
stock options granted under Itron, Inc.'s Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit
10.1 to Itron, Inc.'s Quarterly Report on Form 10-Q, filed on August 6, 2014)
Amendment to the Executive Deferred Compensation Plan. (Filed as Exhibit 10.1 to Itron, Inc.'s Quarterly
Report on Form 10-Q, filed on November 3, 2016)
Amended and Restated 2012 Employee Stock Purchase Plan. (Filed as Exhibit 10.21 to Itron, Inc.'s Annual
Report on Form 10-K, filed on February 24, 2021)
Cooperation Agreement by and among Itron, Inc., Coppersmith Capital Management LLC, Scopia
Management, Inc. and certain of their specified affiliates, Jerome J. Lande and Peter Mainz, dated as of
December 9, 2015. (Filed as Exhibit 10.1 to Itron, Inc.'s Current Report on Form 8-K, filed on December 11,
2015)
Amendment to Cooperation Agreement by and among Itron, Inc., Coppersmith Capital Management LLC,
Scopia Management, Inc. and certain of their specified affiliates, Jerome J. Lande and Peter Mainz. (Filed as
Exhibit 10.2 to Itron, Inc.'s Quarterly Report on Form 10-Q, filed on November 3, 2016)
First Amendment to Cooperation Agreement, dated November 1, 2017, by and among Itron, Inc., Scopia
Management, Inc. and certain of their specified affiliates, Jerome J. Lande and certain other individuals. (Filed
as Exhibit 10.1 to Itron, Inc.'s Current Report on Form 8-K, filed on November 2, 2017)
Form of Stock Option Grant Notice and Agreement for use in connection with both incentive and non-qualified
stock options granted under Itron, Inc.'s Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit
10.1 to Itron, Inc.'s Quarterly Report on Form 10-Q, filed on May 4, 2017)
Form of Long-Term Performance RSU Award Notice and Agreement for U.S. Participants for use in
connection with Itron, Inc.'s Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit 10.2 to Itron,
Inc.'s Quarterly Report on Form 10-Q, filed on May 4, 2017)
107
Exhibit
Number
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
10.34*
10.35*
Description of Exhibits
Form of RSU Award Notice and Agreement for all Participants for use in connection with Itron, Inc.'s
Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit 10.3 to Itron, Inc.'s Quarterly Report on
Form 10-Q, filed on May 4, 2017)
Form of Stock Option Grant Notice and Agreement for use in connection with both incentive and non-qualified
stock options granted under Itron, Inc.'s Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit
10.32 to Itron, Inc.'s Annual Report on Form 10-K, filed on February 28, 2019)
Form of Long-Term Performance RSU Award Notice and Agreement for U.S. Participants for use in
connection with Itron, Inc.'s Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit 10.33 to Itron,
Inc.'s Annual Report on Form 10-K, filed on February 28, 2019)
Form of RSU Award Notice for awards with 1 year vesting and Agreement for all Participants for use in
connection with Itron, Inc.'s Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit 10.34 to Itron,
Inc.'s Annual Report on Form 10-K, filed on February 28, 2019)
Form of RSU Award Notice for awards with 2 year vesting and Agreement for all Participants for use in
connection with Itron, Inc.'s Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit 10.35 to Itron,
Inc.'s Annual Report on Form 10-K, filed on February 28, 2019)
Form of RSU Award Notice for awards with 3 year vesting and Agreement for all Participants for use in
connection with Itron, Inc.'s Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit 10.36 to Itron,
Inc.'s Annual Report on Form 10-K, filed on February 28, 2019)
Employment agreement between Itron, Inc. and Thomas L. Deitrich, dated July 16, 2019. (Filed as Exhibit 10.1
to Itron, Inc.'s Current Report on Form 8-K, filed on July 22, 2019)
Form of Long-Term Performance RSU Award Notice and Agreement for U.S Participants for use in connection
with Itron, Inc.'s Second Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit 10.39 to Itron,
Inc's Annual report on Form 10-K, filed on February 26, 2020)
Form of RSU Award Notice and Agreement for all Participants for use in connection with Itron, Inc.'s Second
Amended and Restated 2010 Stock Incentive Plan. (Filed as Exhibit 10.36 to Itron. Inc.'s Annual Report on
Form 10-K, filed on February 24, 2021)
10.36*
2022 Itron Incentive Plan (filed with this report)
21.1
23.1
31.1
31.2
32.1
101
Subsidiaries of Itron, Inc. (filed with this report)
Consent of Deloitte & Touche LLP Independent Registered Public Accounting Firm. (filed with this report)
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed with this report)
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed with this report)
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished with this report)
The following financial information from Itron, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2021 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the
Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii)
the Consolidated Balance Sheets, (iv) the Consolidated Statements of Equity, (v) the Consolidated Statements
of Cash Flows, and (vi) Notes to the Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Management contract or compensatory plan or arrangement.
108
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 28th day of February, 2022.
ITRON, INC.
By:
/s/ JOAN S. HOOPER
Joan S. Hooper
Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on the 28th day of February, 2022.
Signatures
/s/ THOMAS L. DEITRICH
Title
Thomas L. Deitrich
President and Chief Executive Officer (Principal Executive Officer), Director
/s/ JOAN S. HOOPER
Joan S. Hooper
Senior Vice President and Chief Financial Officer
/s/ THOMAS S. GLANVILLE
Thomas S. Glanville
Director
/s/ FRANK M. JAEHNERT
Frank M. Jaehnert
Director
/s/ JEROME J. LANDE
Jerome J. Lande
Director
/s/ TIMOTHY M. LEYDEN
Timothy M. Leyden
Director
/s/ SANTIAGO PEREZ
Santiago Perez
/s/ GARY E. PRUITT
Gary E. Pruitt
/s/ DIANA D. TREMBLAY
Director
Director
Diana D. Tremblay
Vice Chair of the Board
/s/ LYNDA L. ZIEGLER
Lynda L. Ziegler
Chair of the Board
109
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CORPORATE &
SHAREHOLDER
INFORMATION
Corporate Headquarters
Itron, Inc.
2111 North Molter Road
Liberty Lake, WA 99019
www.itron.com
Shareholder Inquiries
Please contact Investor Relations
at (800) 635-5461 or
investors@itron.com
Common Stock
Itron’s Common Stock is traded on
the NASDAQ Global Select Market
under the symbol ITRI
Independent Auditors
Deloitte & Touche LLP
Seattle, Washington
Transfer Agent
Computershare
PO Box 30170
College Station, TX 77842-3170
(877)-277-9949
www.computershare.com/investor
DIRECTORS
Lynda L. Ziegler
Chair of the Board
Diana D. Tremblay
Vice Chair of the Board
Thomas L. Deitrich
President and Chief Executive Officer
Thomas S. Glanville
Frank M. Jaehnert
Jerome J. Lande
Timothy M. Leyden
Santiago Perez
Gary E. Pruitt
EXECUTIVE OFFICERS
Thomas L. Deitrich
President and Chief Executive Officer
Joan S. Hooper
Senior Vice President
and Chief Financial Officer
Michel C. Cadieux
Senior Vice President,
Human Resources
Sarah Hlavinka
Senior Vice President, General Counsel
and Corporate Secretary
Publication # 101885CP-01
Publication # 101886CP-01 PROXY
BR465741-0322-AR