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ITRI 10Q 9.30.12

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2012



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

For the transition period from to

Commission file number 000-22418

ITRON, INC.

(Exact name of registrant as specified in its charter)



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

2111 N Molter Road, Liberty Lake, Washington 99019

(509) 924-9900

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

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

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

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



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

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

As of October 31, 2012 there were outstanding 39,206,165 shares of the registrant’s common stock, no par value, which is the only class of common stock of the registrant.

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Itron, Inc.

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	Page
PART I: FINANCIAL INFORMATION

Item 1: Financial Statements (Unaudited)

Consolidated Statements of Operations	1

Consolidated Statements of Comprehensive Income (Loss)	2

Consolidated Balance Sheets	3

Consolidated Statements of Cash Flows	4

Notes to Condensed Consolidated Financial Statements	5

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3: Quantitative and Qualitative Disclosures About Market Risk	51

Item 4: Controls and Procedures	52


PART II: OTHER INFORMATION

Item 1: Legal Proceedings	53

Item 1A: Risk Factors	53

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 5: Other Information	53

Item 6: Exhibits	54


SIGNATURE	55

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PART I: FINANCIAL INFORMATION

Item 1: Financial Statements (Unaudited)

ITRON, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in thousands, except per share data)
Revenues	$	504,063		$	615,555		$	1,654,843		$	1,791,647
Cost of revenues	332,266			438,559			1,103,196			1,237,722
Gross profit	171,797			176,996			551,647			553,925

Operating expenses
Sales and marketing	44,913			44,870			145,616			138,019
Product development	43,299			38,377			134,295			119,147
General and administrative	30,743			33,492			100,763			104,627
Amortization of intangible assets	11,929			16,013			35,867			47,807
Restructuring expense	(5,054		)	1,096			3,455			3,003
Goodwill impairment	—			540,400			—			540,400
Total operating expenses	125,830			674,248			419,996			953,003

Operating income (loss)	45,967			(497,252		)	131,651			(399,078		)
Other income (expense)
Interest income	297			155			667			631
Interest expense	(2,551		)	(10,796		)	(7,594		)	(34,330		)
Other income (expense), net	(1,269		)	(1,402		)	(4,224		)	(4,342		)
Total other income (expense)	(3,523		)	(12,043		)	(11,151		)	(38,041		)

Income (loss) before income taxes	42,444			(509,295		)	120,500			(437,119		)
Income tax provision	(6,547		)	(6,042		)	(26,740		)	(15,529		)
Net income (loss)	35,897			(515,337		)	93,760			(452,648		)
Net income attributable to noncontrolling interests	550			1,745			1,445			2,878
Net income (loss) attributable to Itron, Inc.	$	35,347		$	(517,082	)	$	92,315		$	(455,526	)

Earnings per common share - Basic	$	0.90		$	(12.70	)	$	2.32		$	(11.21	)
Earnings per common share - Diluted	$	0.89		$	(12.70	)	$	2.31		$	(11.21	)

Weighted average common shares outstanding - Basic	39,472			40,725			39,756			40,648
Weighted average common shares outstanding - Diluted	39,791			40,725			40,042			40,648

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

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ITRON, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in thousands)
Net income (loss)	$	35,897		$	(515,337	)	$	93,760		$	(452,648	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	24,596			(80,625		)	806			43,432
Unrealized gains (losses) on hedging instruments:
Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	(828		)	2,086			(1,677		)	1,922
Net unrealized gain (loss) on nonderivative hedging instruments	—			408			—			(8,854		)
Net hedging loss (gain) reclassified into net income	—			(176		)	—			2,598
Pension plan benefit liability adjustment	(5		)	22			40			(506		)
Total other comprehensive income (loss), net of tax	23,763			(78,285		)	(831		)	38,592
Total comprehensive income (loss), net of tax	59,660			(593,622		)	92,929			(414,056		)
Comprehensive income (loss) attributable to noncontrolling interest, net of tax:
Net income attributable to noncontrolling interest	550			1,745			1,445			2,878
Foreign currency translation adjustments	69			(442		)	109			71
Amounts attributable to noncontrolling interest	619			1,303			1,554			2,949
Comprehensive income (loss) attributable to Itron, Inc.	$	59,041		$	(594,925	)	$	91,375		$	(417,005	)

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

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ITRON, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)



	September 30, 2012			December 31, 2011
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	91,474		$	133,086
Accounts receivable, net	363,111			371,641
Inventories	201,775			195,837
Deferred tax assets current, net	58,866			58,172
Other current assets	102,195			81,618
Total current assets	817,421			840,354

Property, plant, and equipment, net	251,703			262,670
Deferred tax assets noncurrent, net	13,268			22,144
Other long-term assets	29,875			62,704
Intangible assets, net	247,636			239,500
Goodwill	687,432			636,910
Total assets	$	2,047,335		$	2,064,282

LIABILITIES AND EQUITY
Current liabilities
Accounts payable	$	219,945		$	246,775
Other current liabilities	62,250			53,734
Wages and benefits payable	82,405			93,730
Taxes payable	8,754			11,526
Current portion of debt	16,875			15,000
Current portion of warranty	32,834			52,588
Unearned revenue	41,255			37,369
Total current liabilities	464,318			510,722

Long-term debt	404,375			437,502
Long-term warranty	22,853			26,948
Pension plan benefit liability	63,041			62,449
Deferred tax liabilities noncurrent, net	21,307			31,699
Other long-term obligations	81,199			73,417
Total liabilities	1,057,093			1,142,737

Commitments and contingencies

Equity
Preferred stock	—			—
Common stock	1,294,990			1,319,222
Accumulated other comprehensive loss, net	(38,100		)	(37,160		)
Accumulated deficit	(282,822		)	(375,137		)
Total Itron, Inc. shareholders' equity	974,068			906,925
Noncontrolling interests	16,174			14,620
Total equity	990,242			921,545
Total liabilities and equity	$	2,047,335		$	2,064,282

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

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ITRON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



	Nine Months Ended September 30,
	2012			2011
	(in thousands)
Operating activities
Net income (loss)	$	93,760		$	(452,648	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	81,856			96,919
Stock-based compensation	14,319			12,401
Amortization of prepaid debt fees	1,176			5,365
Amortization of convertible debt discount	—			5,336
Deferred taxes, net	1,505			(1,410		)
Goodwill impairment	—			540,400
Restructuring expense, non-cash	(4,841		)	—
Other adjustments, net	(119		)	(917		)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable	46,493			(21,940		)
Inventories	(4,619		)	(32,750		)
Other current assets	(21,525		)	(8,672		)
Other long-term assets	1,624			(17,499		)
Accounts payables, other current liabilities, and taxes payable	(39,368		)	12,347
Wages and benefits payable	(16,869		)	(28,018		)
Unearned revenue	9,201			22,862
Warranty	(23,610		)	28,028
Other operating, net	(1,980		)	(6,003		)
Net cash provided by operating activities	137,003			153,801

Investing activities
Acquisitions of property, plant, and equipment	(34,278		)	(45,799		)
Business acquisitions, net of cash and cash equivalents acquired	(79,874		)	(14,635		)
Other investing, net	4,005			634
Net cash used in investing activities	(110,147		)	(59,800		)

Financing activities
Proceeds from borrowings	70,000			670,000
Payments on debt	(101,252		)	(804,304		)
Issuance of common stock	3,778			3,512
Repurchase of common stock	(40,700		)	—
Other financing, net	(342		)	(5,319		)
Net cash used in financing activities	(68,516		)	(136,111		)

Effect of foreign exchange rate changes on cash and cash equivalents	48			2,147
Decrease in cash and cash equivalents	(41,612		)	(39,963		)
Cash and cash equivalents at beginning of period	133,086			169,477
Cash and cash equivalents at end of period	$	91,474		$	129,514

Non-cash transactions:
Property, plant, and equipment purchased but not yet paid, net	$	(1,533	)	$	(3,130	)
Fair value of contingent and deferred consideration payable for business acquisition	—			5,108

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net	$	33,368		$	12,904
Interest, net of amounts capitalized	6,386			25,964

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

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ITRON, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(UNAUDITED)

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

Note 1: Summary of Significant Accounting Policies

We were incorporated in the state of Washington in 1977. We provide a portfolio of products and services to utilities for the energy and water markets throughout the world.

Financial Statement Preparation

The condensed consolidated financial statements presented in this Quarterly Report on Form 10-Q are unaudited and reflect entries necessary for the fair presentation of the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2012 and 2011, the Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011, and the Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 of Itron, Inc. and its subsidiaries. All entries required for the fair presentation of the financial statements are of a normal recurring nature, except as disclosed.

Certain information and notes normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim results. These condensed consolidated financial statements should be read in conjunction with the 2011 audited financial statements and notes included in our Current Report on Form 8-K filed with the SEC on May 24, 2012. The results of operations for the three and nine months ended September 30, 2012 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period.

Basis of Consolidation

We consolidate all entities in which we have a greater than 50% ownership interest or in which we exercise control over the operations. We use the equity method of accounting for entities in which we have a 50% or less 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 cost method. Intercompany transactions and balances have been eliminated upon consolidation.

Noncontrolling Interests

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

Reclassifications

Certain 2011 amounts have been reclassified to conform to the current classifications in the Consolidated Statements of Operations. These reclassifications relate to certain administrative expenses in the former Itron North America segment that were in prior periods allocated to cost of revenues and sales and marketing and product development operating expenses but have been reclassified to general and administrative operating expenses to conform to our worldwide presentation across our new segment structure. These reclassifications did not have a material impact to gross profit and had no impact on income before income taxes, net income attributable to Itron, Inc., earnings per share, or total equity.

Business Acquisitions

On May 1, 2012, we completed the acquisition of SmartSynch, Inc. (SmartSynch). The acquisition was financed through borrowings on our multicurrency revolving line of credit and cash on hand. SmartSynch was a provider of smart grid solutions that utilize cellular networks for communications. We have included supplemental pro forma financial information related to the acquisition in Note 16 Business Combinations.

In January 2011, we completed the acquisition of Asais S.A.S. and Asais Conseil S.A.S. (collectively Asais), an energy information management software and consulting services provider, located in France. The acquisition consisted of cash and contingent consideration. Additional acquisitions were completed in 2011, which were immaterial to our financial position, results of

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operations, and cash flows. (See Business Combinations policy below.)

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. The cash and cash equivalents balance in our Consolidated Balance Sheets includes amounts that reside in our joint venture entities. As a result, the minority shareholders of these entities control their proportional share of the cash and cash equivalents balance, and there may be limitations on Itron's ability to repatriate cash to the U.S. from these entities.

Accounts Receivable and Allowance for Doubtful Accounts

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

Inventories

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

Derivative Instruments

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

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

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

Property, Plant, and Equipment

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

We review long-lived assets for impairment whenever events or circumstances indicate the carrying amount of an asset or 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 Statement of Operations according to the use

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of the asset, except those gains and losses recognized in conjunction with our restructuring activities, which are classified as restructuring expense.

Prepaid Debt Fees

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

Business Combinations

On the date of acquisition, the assets acquired, liabilities assumed, and any noncontrolling interests in the acquiree are recorded at their fair values. The acquiree's results of operations are also included as of the date of acquisition in our consolidated results. Intangible assets that arise from contractual/legal rights, or are capable of being separated, as well as in-process research and development (IPR&D), are measured and recorded at fair value, and amortized over the estimated useful life. IPR&D is not amortized until such time as the associated development projects are completed or terminated. If a development project is completed, the IPR&D is reclassified as a core technology intangible asset and amortized over its estimated useful life. If the development project is terminated, the recorded value of the associated IPR&D is immediately expensed. If practicable, assets acquired and liabilities assumed arising from contingencies are measured and recorded at fair value. If not practicable, such assets and liabilities are measured and recorded when it is probable that a gain or loss has occurred and the amount can be reasonably estimated. The residual balance of the purchase price, after fair value allocations to all identified assets and liabilities, represents goodwill. Acquisition-related costs are expensed as incurred. Restructuring costs associated with an acquisition are generally expensed in periods subsequent to the acquisition date, and changes in deferred tax asset valuation allowances and acquired income tax uncertainties, including penalties and interest, after the measurement period are recognized as a component of the provision for income taxes. Our acquisitions may include contingent consideration, which require us to recognize the fair value of the estimated liability at the time of the acquisition. Subsequent changes in the estimate of the amount to be paid under the contingent consideration arrangement are recognized in the consolidated statements of operations. Cash payments for contingent or deferred consideration are classified within cash flows from investing activities within the consolidated statements of cash flows.

Goodwill and Intangible Assets

Goodwill and intangible assets may result from our acquisitions. 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 intangible assets have finite lives and are amortized over their estimated useful lives based on estimated discounted cash flows. 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.

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. Prior to 2012, we had four reporting units: Itron North America (INA), Itron International (INL) Electricity, INL Gas, and INL Water. Effective January 1, 2012, our three new reporting units are Electricity, Gas, and Water. Our new Energy operating segment consists of the Electricity and Gas reporting units, while our new Water operating segment consists of the Water reporting unit. In the first quarter of 2012, we reallocated the goodwill from our former INA reporting unit to the three new reporting units based on the relative fair values of the electricity, gas, and water product lines within INA on January 1, 2012. We also reassigned the goodwill from our former INL Electricity, INL Gas, and INL Water reporting units to the new reporting units, Electricity, Gas, and Water, respectively.

We test goodwill for impairment each year as of October 1, or more frequently should a significant impairment indicator occur. The impairment test involves comparing the fair value of the reporting units to their carrying amounts. If the carrying amount of a reporting unit exceeds its fair value, a second step is required to measure for a goodwill impairment loss. This second step revalues all assets and liabilities of the reporting unit to their current fair values and then compares the implied fair value of the reporting unit's goodwill to the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess.

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

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Contingencies

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

Bonus and Profit Sharing

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

Warranty

We offer standard warranties on our hardware products and large application software products. We accrue the estimated cost of new product warranties based on historical and projected product performance trends and costs during the warranty period. Testing of new products in the development stage helps identify and correct potential warranty issues prior to manufacturing. Continuing quality control efforts during manufacturing reduce our exposure to warranty claims. When our quality control efforts fail to detect a fault in one of our products, we 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 may be assessed and recorded when 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 becomes available, it is used to modify the original estimate to ensure the expected warranty costs are within a range of likely outcomes. Management continually evaluates the sufficiency of the warranty provisions and makes adjustments when necessary. The warranty allowances may fluctuate due to higher than anticipated material, labor, and other costs we may incur to repair or replace projected product failures, and we may incur additional warranty and related expenses in the future with respect to new or established products, which could adversely affect our financial position and results of operations. The long-term warranty balance includes estimated warranty claims beyond one year. Warranty expense is classified within cost of revenues.

Restructuring and Asset Impairments

We record a liability for costs associated with an exit or disposal activity at its fair value in the period in which the liability is incurred. Employee termination benefits considered postemployement benefits are accrued when the obligation is probable and estimable, such as benefits stipulated by human resource policies and practices or statutory requirements. One-time termination benefits are expensed at the date the employee is notified. If the employee must provide future service greater than 60 days, such benefits are expensed ratably over the future service period. For contract termination costs, we record a liability upon the 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, net, are determined at the asset group level. An impairment may be recorded for assets that are to be abandoned, are to be sold for less than net book value, or are held for sale in which the estimated proceeds are less than the net book value less costs to sell. We may also recognize impairment on an asset group, which is held and used, when the carrying value is not recoverable and exceeds the asset group's fair value. If an asset group is considered a business, the asset group may consist of property, plant, equipment, intangible assets, and goodwill.

Defined Benefit Pension Plans

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

Share Repurchase Plan

We may repurchase shares of Itron common stock under a twelve-month program, which was authorized by our Board of Directors on October 24, 2011. 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. Instead, the value of the repurchased shares is deducted from common stock. On September 13, 2012, the Board approved the extension of the expiration date of the stock repurchase program until February 15,

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2013, or until the aggregate limit of $100 million of outstanding common stock has been repurchased, whichever occurs first.

Revenue Recognition

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

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

We primarily enter into two types of multiple deliverable arrangements, which include a combination of hardware and associated software and services:


•	Arrangements that do not include the deployment of our smart metering systems and technology are recognized as follows:


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


◦	If implementation services are essential to the functionality of the associated software, software and implementation revenues are recognized using either the percentage-of-completion methodology of contract accounting if project costs can be reliably estimated or the completed contract methodology if project costs cannot be reliably estimated.


•	Arrangements to deploy our smart metering systems and technology are recognized as follows:


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

◦

Revenue from associated software and services is recognized using the units-of-delivery method of contract accounting, as the software is essential to the functionality of the related hardware and the implementation services are essential to the functionality of the associated software. This methodology results in the deferral of costs and revenues as professional services and software implementation commence prior to deployment of hardware.

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

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

We allocate consideration to each deliverable in an arrangement based on its relative selling price. We determine selling price using VSOE, if it exists, otherwise we use third-party evidence (TPE). If neither VSOE nor TPE of selling price exists for a unit of accounting, we use estimated selling price (ESP).

VSOE is generally limited to the price charged when the same or similar product is sold separately or, if applicable, the stated renewal rate in the agreement. If a product or service is seldom sold separately, it is unlikely that we can determine VSOE for the product or service. We define VSOE as a median price of recent standalone transactions that are priced within a narrow range. TPE is determined based on the prices charged by our competitors for a similar deliverable when sold separately.

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If we are unable to establish selling price using VSOE or TPE, we use ESP in the allocation of arrangement consideration. The objective of ESP is to determine the price at which we would transact if the product or service were regularly sold by us on a standalone basis. Our determination of ESP involves a weighting of several factors based on the specific facts and circumstances of the arrangement. Specifically, we consider the cost to produce the deliverable, the anticipated margin on that deliverable, the selling price and profit margin for similar parts, our ongoing pricing strategy and policies (as evident in the price list established and updated by management on a regular basis), the value of any enhancements that have been built into the deliverable, and the characteristics of the varying markets in which the deliverable is sold. We analyze the selling prices used in our allocation of arrangement consideration on an annual basis. Selling prices are analyzed on a more frequent basis if a significant change in our business necessitates a more timely analysis or if we experience significant variances in our selling prices.

Unearned revenue is recorded when a customer pays for products or services, but the criteria for revenue recognition have not been met as of the balance sheet date. Unearned revenues of $71.9 million and $61.0 million at September 30, 2012 and December 31, 2011 related primarily to professional services and software associated with our smart metering contracts, extended or noncustomary warranty, and prepaid post-contract support. Deferred costs are recorded for products or services for which ownership (typically defined as title and risk of loss) has transferred to the customer, but the criteria for revenue recognition have not been met as of the balance sheet date. Deferred costs were $15.4 million and $11.7 million at September 30, 2012 and December 31, 2011 and are recorded within other assets in the Consolidated Balance Sheets.

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

Product and Software Development Costs

Product and software development costs primarily include employee compensation and third party contracting fees. We do not capitalize product development costs, and we do not generally capitalize software development expenses due to the immaterial nature of these costs as a result of the relatively short period of time between technological feasibility and the completion of software development.

Stock-Based Compensation

We measure and recognize compensation expense for all stock-based awards made to employees and directors, including stock options, stock sold pursuant to our Employee Stock Purchase Plan (ESPP), and the issuance of restricted stock units and unrestricted stock awards, based on estimated fair values. The fair value of stock options is estimated at the date of grant using the Black-Scholes option-pricing model, which includes assumptions for the dividend yield, expected volatility, risk-free interest rate, and expected life. For ESPP awards, the fair value is the difference between the market close price of our common stock on the date of purchase and the discounted purchase price. For restricted stock units and unrestricted stock awards, the fair value is the market close price of our common stock on the date of grant. We expense stock-based compensation at the date of grant for unrestricted stock awards. For awards with only a service condition, we expense stock-based compensation, adjusted for estimated forfeitures, using the straight-line method over the requisite service period for the entire award. For awards with both performance and service conditions, if probable we expense the stock-based compensation, adjusted for estimated forfeitures, on a straight-line basis over the requisite service period for each separately vesting portion of the award. Excess tax benefits are credited to common stock when the deduction reduces cash taxes payable. When we have tax deductions in excess of the compensation cost, they are classified as financing cash inflows in the Consolidated Statements of Cash Flows.

Income Taxes

We compute our interim income tax provision through the use of an estimated annual effective tax rate (ETR) applied to year-to-date operating results and specific events that are discretely recognized as they occur. In determining the estimated annual ETR, we analyze various factors, including projections of our annual earnings, taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, our ability to use tax credits and net operating loss carryforwards, and available tax planning alternatives. Discrete items, including the effect of changes in tax laws, tax rates, and certain circumstances with respect to valuation allowances or other unusual or non-recurring tax adjustments, are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than included in the estimated annual ETR.

Deferred tax assets and liabilities are recognized based upon anticipated future tax consequences, in each of the jurisdictions in which we operate, attributable to: (1) the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases; and (2) operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The calculation of our tax liabilities involves applying complex tax regulations in different jurisdictions to our tax positions. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period

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that includes the enactment date. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is not more likely than not that such assets will be realized. We do not record tax liabilities on undistributed earnings of international subsidiaries that are permanently reinvested.

We utilize a two step approach to account for uncertain tax positions. A tax position is first evaluated for recognition based on its technical merits. Tax positions that have a greater than fifty percent likelihood of being realized upon ultimate settlement are then measured to determine amounts to be recognized in the financial statements. This measurement incorporates information about potential settlements with taxing authorities. A previously recognized tax position is derecognized in the first period in which the position no longer meets the more-likely-than-not recognition threshold or upon expiration of the statute of limitations. We classify interest expense and penalties related to uncertain tax positions and interest income on tax overpayments as part of income tax expense.

Foreign Exchange

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

Fair Value Measurements

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

Use of Estimates

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

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Note 2: Earnings Per Share and Capital Structure

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



	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011			2012		2011
	(in thousands, except per share data)
Net income (loss) available to common shareholders	$	35,347	$	(517,082	)	$	92,315	$	(455,526	)

Weighted average common shares outstanding - Basic	39,472		40,725			39,756		40,648
Dilutive effect of stock-based awards	319		—			286		—
Weighted average common shares outstanding - Diluted	39,791		40,725			40,042		40,648
Earnings per common share - Basic	$	0.90	$	(12.70	)	$	2.32	$	(11.21	)
Earnings per common share - Diluted	$	0.89	$	(12.70	)	$	2.31	$	(11.21	)

Stock-based Awards

For stock-based awards, the dilutive effect is calculated using the treasury stock method. Under this method, the dilutive effect is computed as if the awards were exercised at the beginning of the period (or at time of issuance, if later) and assumes the related proceeds were used to repurchase common stock at the average market price during the period. Related proceeds include the amount the employee must pay upon exercise, future compensation cost associated with the stock award, and the amount of excess tax benefits, if any. Approximately 881,000 and 1.2 million stock-based awards were excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2012, and approximately 1.4 million and 1.2 million stock-based awards were excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2011, respectively, because they were anti-dilutive. These stock-based awards could be dilutive in future periods.

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 will 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. Shares of preferred stock may be converted into common stock based on terms, conditions, and rates as defined in the Rights Agreement, which may be adjusted by the Board of Directors. There was no preferred stock sold or outstanding at September 30, 2012 and December 31, 2011.

Stock Repurchase Plan

On October 24, 2011, our Board of Directors authorized a twelve-month repurchase program of up to $100 million of our common stock with an expiration date of October 23, 2012. On September 13, 2012, the Board approved the extension of the expiration date of the stock repurchase program until February 15, 2013, or until the aggregate limit of $100 million of outstanding common stock has been repurchased, whichever occurs first. Repurchases are made in the open market or in privately negotiated transactions, and in accordance with applicable securities laws. As of September 30, 2012, we have repurchased $70.1 million of our common stock, with $29.9 million remaining under the repurchase program.

Note 3: Certain Balance Sheet Components



Accounts receivable, net	September 30, 2012		December 31, 2011
	(in thousands)
Trade receivables (net of allowance of $5,355 and $6,049)	$	307,062	$	328,845
Unbilled receivables	56,049		42,796
Total accounts receivable, net	$	363,111	$	371,641

At September 30, 2012 and December 31, 2011, $19.2 million and $2.5 million were recorded within trade receivables as billed but not yet paid by customers in accordance with contract retainage provisions. At September 30, 2012 and December 31, 2011, contract retainage amounts that were unbilled and classified as unbilled receivables were $10.6 million and $7.4 million. These contract retainage amounts within trade receivables and unbilled receivables are expected to be collected within the following 12 months.

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We had no long-term unbilled receivables or long-term retainage contracts at September 30, 2012 as we expect to bill and collect all contract retainage receivables within the following 12 months. At December 31, 2011, long-term unbilled receivables and long-term retainage contracts totaled $31.5 million.



Allowance for doubtful account activity	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in thousands)
Beginning balance	$	5,381		$	8,980		$	6,049		$	9,045
Provision (release) of doubtful accounts, net	(124		)	175			(414		)	128
Accounts written-off	(53		)	(1,127		)	(314		)	(1,680		)
Effects of change in exchange rates	151			(576		)	34			(41		)
Ending balance	$	5,355		$	7,452		$	5,355		$	7,452



Inventories	September 30, 2012		December 31, 2011
	(in thousands)
Materials	$	104,404	$	112,470
Work in process	14,720		16,306
Finished goods	82,651		67,061
Total inventories	$	201,775	$	195,837

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

Consigned inventory is held at third-party locations; however, we retain title to the inventory until purchased by the third-party. Consigned inventory, consisting of raw materials and finished goods, was $6.8 million and $7.4 million at September 30, 2012 and December 31, 2011, respectively.



Property, plant, and equipment, net	September 30, 2012			December 31, 2011
	(in thousands)
Machinery and equipment	$	278,615		$	269,611
Computers and purchased software	82,760			74,885
Buildings, furniture, and improvements	143,486			140,064
Land	27,460			26,126
Construction in progress, including purchased equipment	23,391			20,687
Total cost	555,712			531,373
Accumulated depreciation	(304,009		)	(268,703		)
Property, plant, and equipment, net	$	251,703		$	262,670



Depreciation expense	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)
Depreciation expense	$	15,656	$	16,607	$	45,989	$	49,112

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Note 4: Intangible Assets

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



	September 30, 2012							December 31, 2011
	Gross Assets		Accumulated Amortization			Net		Gross Assets		Accumulated Amortization			Net
	(in thousands)
Core-developed technology	$	402,897	$	(323,629	)	$	79,268	$	387,606	$	(305,285	)	$	82,321
Customer contracts and relationships	288,429		(147,614		)	140,815		278,581		(131,418		)	147,163
Trademarks and trade names	71,992		(63,922		)	8,070		71,854		(62,206		)	9,648
Other	11,096		(11,013		)	83		11,153		(10,785		)	368
Total intangible assets subject to amortization	774,414		(546,178		)	228,236		749,194		(509,694		)	239,500
In-process research and development	19,400					19,400		—					—
Total intangible assets	$	793,814	$	(546,178	)	$	247,636	$	749,194	$	(509,694	)	$	239,500

A summary of the intangible asset account activity is as follows:



	Nine Months Ended September 30,
	2012		2011
	(in thousands)
Beginning balance, intangible assets, gross	$	749,194	$	759,152
Intangible assets acquired	43,400		10,297
Assets no longer in use written-off	—		(8,450		)
Effect of change in exchange rates	1,220		12,263
Ending balance, intangible assets, gross	$	793,814	$	773,262

Intangible assets acquired in 2012 are based on the preliminary purchase price allocation relating to our acquisition of SmartSynch on May 1, 2012. SmartSynch's intangible assets include IPR&D, which is not amortized until such time as the associated development projects are completed. These projects are expected to be completed in the next 12 months. Refer to Note 16 for additional information regarding this acquisition. Intangible assets of our international subsidiaries are recorded in their respective functional currency; therefore, the carrying amounts of intangible assets increase or decrease, with a corresponding change in accumulated OCI, due to changes in foreign currency exchange rates.

Estimated future annual amortization expense is as follows:



Years ending December 31,	Estimated Annual Amortization
	(in thousands)
2012 (amount remaining at September 30, 2012)	$	12,015
2013	41,917
2014	37,595
2015	30,700
2016	24,275
Beyond 2016	81,734
Total intangible assets subject to amortization, net	$	228,236

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Note 5: Goodwill

Effective January 1, 2012, our reporting segments were changed from two geographic operating segments, Itron North America and Itron International, to two product operating segments, Energy and Water. As a result, we reallocated the goodwill balance as of January 1, 2012 to the Electricity, Gas, and Water reporting units within these two operating segments.

The following table reflects the goodwill balance as of September 30, 2012:



	Total Company			Energy			Water
	(in thousands)
Balance at January 1, 2012
Goodwill before impairment	$	1,221,757		$	808,601		$	413,156
Accumulated impairment losses	(584,847		)	(254,735		)	(330,112		)
Goodwill, net	636,910			553,866			83,044

Goodwill acquired	46,881			46,881			—
Other	4,767			3,994			773
Effect of change in exchange rates	(1,126		)	(6,348		)	5,222

Balance at September 30, 2012
Goodwill before impairment	1,242,159			840,009			402,150
Accumulated impairment losses	(554,727		)	(241,616		)	(313,111		)
Goodwill, net	$	687,432		$	598,393		$	89,039

Goodwill acquired in 2012 is based on the preliminary purchase price allocation relating to the SmartSynch acquisition on May 1, 2012. Refer to Note 16 for additional information regarding this acquisition.

In the preceding table, "Other" includes activity associated with our restructuring announced in the fourth quarter of 2011. During the third quarter of 2012, we identified an error in our consolidated financial statements for the year ended December 31, 2011, which resulted in an overstatement of restructuring expense related to the expected sale of a non-core business. The identified assets to be disposed originally included $6.7 million of goodwill, which was impaired and charged to restructuring expense as a result of the expected sale proceeds being less than the carrying value of the identified assets. During the third quarter of 2012, we determined the amount of goodwill that should have been allocated to the asset disposal group was $1.3 million. In accordance with the relevant guidance, management evaluated the materiality of the error from a qualitative and quantitative perspective. Based on such evaluation, we concluded that correcting the goodwill allocated to this business asset group is not material, quantitatively or qualitatively, to our results of operations for the three months ended September 30, 2012 or our expected full year results of operations for 2012 and would not have had a material impact on our results for the year ended December 31, 2011. Accordingly, we recorded a non-cash adjustment during the third quarter of 2012 to reduce restructuring expense and increase goodwill by $5.4 million. Refer to Note 12 for additional disclosure on Itron's restructuring costs. Additionally, during the three months ended September 30, 2012, we sold a non-core business in Europe to which we allocated $675,000 of goodwill and recognized as restructuring expense.

As a result of a significant decline in the price of our shares of common stock at the end of September 2011, our aggregate market value was significantly lower than the aggregate carrying value of our net assets. As a result, we performed an impairment test of our goodwill as of September 30, 2011, and recorded total goodwill impairment charges of $584.8 million in the year ended December 31, 2011, of which $540.4 million was recorded during the three months ended September 30, 2011. These goodwill impairment charges were associated with our previous reporting units of Itron International Electricity and Itron International Water. The accumulated impairment losses were reallocated to our new operating segments, Energy and Water, effective January 1, 2012.

Goodwill and accumulated impairment losses associated with our international subsidiaries are recorded in their respective functional currency; therefore, the carrying amounts of these balances increase or decrease, with a corresponding change in accumulated OCI, due to changes in foreign currency exchange rates.

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Note 6: Debt

The components of our borrowings are as follows:



	September 30, 2012		December 31, 2011
	(in thousands)
2011 credit facility:
USD denominated term loan	$	281,250	$	292,502
Multicurrency revolving line of credit	140,000		160,000
Total debt	421,250		452,502
Less: Current portion of debt	16,875		15,000
Long-term debt	$	404,375	$	437,502

Credit Facilities

In August 2011, we entered into a senior secured credit facility (2011 credit facility), which replaced the senior secured credit facility we entered into in 2007 (2007 credit facility). The 2011 credit facility consists of a $300 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 $660 million, which was increased from $500 million in April 2012. Both the term loan and the revolver mature on August 8, 2016, and amounts borrowed under the revolver are classified as long-term. Amounts borrowed under the revolver during the credit facility term may be repaid and reborrowed until the revolver's maturity, at which time the revolver will terminate, and all outstanding loans, together with all accrued and unpaid interest, must be repaid. Amounts not borrowed under the revolver are subject to a commitment fee, which is paid in arrears on the last day of each fiscal quarter, ranging from 0.20% to 0.40% per annum depending on our total leverage ratio as of the most recently ended fiscal quarter. Amounts repaid on the term loan may not be reborrowed. The 2011 credit facility permits us and certain of our foreign subsidiaries to borrow in U.S. dollars, euros, British pounds, or, with lender approval, other currencies readily convertible into U.S. dollars. All obligations under the 2011 credit facility are guaranteed by Itron, Inc. and material U.S. domestic subsidiaries and are secured by a pledge of substantially all of the assets of Itron, Inc. and material U.S. domestic subsidiaries, including a pledge of 100% of the capital stock of material U.S. domestic subsidiaries and up to 66% of the voting stock (100% of the non-voting stock) of their first-tier foreign subsidiaries. In addition, the obligations of any foreign subsidiary who is a foreign borrower, as defined by the 2011 credit facility, are guaranteed by the foreign subsidiary and by its direct and indirect foreign parents. The 2011 credit facility includes debt covenants, which contain certain financial ratios 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 2011 credit facility at September 30, 2012.

Scheduled principal repayments for the term loan are due quarterly in the amounts of $3.8 million through June 2013, $5.6 million from September 2013 through June 2014, $7.5 million from September 2014 through June 2016, and the remainder due at maturity on August 8, 2016. The term loan may be repaid early in whole or in part, subject to certain minimum thresholds, without penalty.

Under the 2011 credit facility, we elect applicable market interest rates for both the term loan and any outstanding revolving loans. We also pay an applicable margin, which is based on our total leverage ratio (as defined in the credit agreement). The applicable rates per annum may be based on either: (1) the LIBOR rate, plus an applicable margin, or (2) the Alternate Base Rate, plus an applicable margin. The Alternate Base Rate election is equal to the greatest of three rates: (i) the prime rate, (ii) the Federal Reserve effective rate plus 1/2 of 1%, or (iii) one month LIBOR plus 1%. At September 30, 2012, the interest rate for both the term loan and the revolver was 1.47% (the LIBOR rate plus a margin of 1.25%).

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Total credit facility repayments were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)
2011 credit facility term loan	$	3,750	$	3,750	$	11,252	$	3,750
2011 credit facility multicurrency revolving line of credit	30,000		—		90,000		—
2007 credit facility term loans	—		351,320		—		406,950
2007 credit facility multicurrency revolving line of credit	—		170,000		—		170,000
Total credit facility repayments	$	33,750	$	525,070	$	101,252	$	580,700

At September 30, 2012, $140.0 million was outstanding under the 2011 credit facility revolver, and $49.4 million was utilized by outstanding standby letters of credit, resulting in $470.6 million available for additional borrowings.

Upon repayment of the 2007 credit facility in August 2011, unamortized prepaid debt fees of $2.4 million were written-off to interest expense. Prepaid debt fees of approximately $6.6 million were capitalized in the third quarter of 2011 associated with the 2011 credit facility, and $897,000 were capitalized in the second quarter of 2012 associated with the increase in the revolver in April 2012. Unamortized prepaid debt fees were as follows:



	September 30, 2012		December 31, 2011
	(in thousands)
Unamortized prepaid debt fees	$	5,763	$	6,027

Convertible Senior Subordinated Notes

On August 1, 2011, in accordance with the terms of the convertible senior subordinated notes (convertible notes), we repurchased $184.8 million of the convertible notes at their principal amount plus accrued and unpaid interest. On September 30, 2011, we redeemed the remaining $38.8 million of the convertible notes, plus accrued and unpaid interest.

The convertible notes were separated between the liability and equity components using our estimated non-convertible debt borrowing rate at the time the convertible notes were issued, which was determined to be 7.38%. This rate also reflected the effective interest rate on the liability component for all periods during which the convertible notes were outstanding. The carrying amount of the equity component of $31.8 million is retained as a permanent component of our shareholders' equity, and no gain or loss was recognized upon derecognition of the convertible notes as the fair value of the consideration transferred to the holders equaled the fair value of the liability component.

The discount on the liability component was fully amortized by the end of the second quarter of 2011. The interest expense relating to both the contractual interest coupon and amortization of the discount on the liability component was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)
Contractual interest coupon	$	—	$	625	$	—	$	3,420
Amortization of the discount on the liability component	—		—		—		5,336
Total interest expense on convertible notes	$	—	$	625	$	—	$	8,756

Note 7: Derivative Financial Instruments

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

The fair values of our derivative instruments are determined using the income approach and significant other observable inputs (also known as “Level 2”). We have used observable market inputs based on the type of derivative and the nature of the underlying instrument. The key inputs used at September 30, 2012 included 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

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for these inputs at September 30, 2012. 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. We consider our own nonperformance risk when the net fair value of our derivative instruments is in a net liability position by discounting our derivative liabilities to reflect the potential credit risk to our counterparty through applying a current market indicative credit spread to all cash flows.

The fair values of our derivative instruments at September 30, 2012 and December 31, 2011 were as follows:



		Fair Value
	Balance Sheet Location	September 30, 2012		December 31, 2011
		(in thousands)
Asset Derivatives
Derivatives not designated as hedging instruments under ASC 815-20
Foreign exchange forward contracts	Other current assets	$	57	$	241

Liability Derivatives
Derivatives designated as hedging instruments under ASC 815-20
Interest rate swap contracts	Other current liabilities	$	256	$	—
Interest rate swap contracts	Other long-term obligations	2,441		—
Derivatives not designated as hedging instruments under ASC 815-20
Foreign exchange forward contracts	Other current liabilities	103		222
Total liability derivatives		$	2,800	$	222

OCI during the reporting period for our derivative and nonderivative instruments designated as hedging instruments (collectively, hedging instruments), net of tax, was as follows:



	2012			2011
	(in thousands)
Net unrealized loss on hedging instruments at January 1,	$	(14,380	)	$	(10,034	)
Unrealized gain (loss) on derivative instruments	(1,677		)	1,922
Unrealized gain (loss) on a nonderivative net investment hedging instrument	—			(8,854		)
Realized (gains) losses reclassified into net income (loss)	—			2,598
Net unrealized loss on hedging instruments at September 30,	$	(16,057	)	$	(14,368	)

Following the termination of our net investment hedge in August 2011, the net derivative loss of $14.4 million will remain in accumulated OCI until such time when earnings are impacted by a sale or liquidation of the associated foreign operation.

Cash Flow Hedges

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

In May 2012, we entered into six forward starting pay-fixed receive one-month LIBOR interest rate swaps. The interest rate swaps convert $200 million of our LIBOR based debt from a floating LIBOR interest rate to a fixed interest rate of 1.00% (excluding the applicable margin on the debt) and are effective July 31, 2013 to August 8, 2016. The cash flow hedges are 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 swaps are recorded as a component of OCI and will be recognized in earnings when the hedged item affects earnings. The amounts paid or received on the hedges will be recognized as adjustments to interest expense. The amount of net losses expected to be reclassified into earnings in the next 12 months is $256,000. At September 30, 2012, our LIBOR based debt balance was $421.3 million.

In 2007, we entered into a pay fixed 6.59% receive three-month Euro Interbank Offered Rate (EURIBOR), plus 2%, amortizing interest rate swap to convert a significant portion of our euro denominated variable-rate term loan to fixed-rate debt, plus or minus

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the variance in the applicable margin from 2%, through December 31, 2012. The objective of this swap was to protect us from increases in the EURIBOR base borrowing rates. The swaps did not protect us from changes to the applicable margin under our credit agreement. Throughout the duration of the hedging relationship, this cash flow hedge was expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk. Consequently, effective changes in the fair value of the interest rate swap were recorded 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 adjustments to interest expense. In August 2011, we repaid our 2007 credit facility, which included the euro-denominated term loan. In conjunction with the debt repayment, we paid $2.9 million to terminate the related interest rate swap, and the accumulated loss in OCI was reclassified to interest expense.

In 2010, we entered into two interest rate swaps with one-year terms, which each converted $100 million of our U.S. dollar term loan from a floating LIBOR interest rate to fixed interest rates of 2.11% and 2.15%, respectively. These swaps expired on June 30, 2011 and did not include the additional interest rate margin applicable to our term debt.

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

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



Derivatives in ASC 815-20 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)						Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
Derivatives in ASC 815-20 Cash Flow Hedging Relationships							Location	Amount					Location	Amount
	2012			2011				2012		2011				2012		2011
	(in thousands)							(in thousands)						(in thousands)
Three Months Ended September 30,
Interest rate swap contracts	$	(1,332	)	$	277		Interest expense	$	—	$	(3,083	)	Interest expense	$	—	$	(121	)

Nine Months Ended September 30,
Interest rate swap contracts	$	(2,697	)	$	(4,200	)	Interest expense	$	—	$	(7,254	)	Interest expense	$	—	$	(201	)

Net Investment Hedge

We are exposed to foreign exchange risk through our international subsidiaries. As a result of our acquisition of an international company in 2007, we entered into a euro denominated term loan, which exposed us to fluctuations in the euro foreign exchange rate. Therefore, we designated this foreign currency denominated term loan as a hedge of our net investment in international operations. The non-functional currency term loan was revalued into U.S. dollars at each balance sheet date, and the changes in value associated with currency fluctuations were recorded as adjustments to long-term debt with offsetting gains and losses recorded in OCI. The loan was repaid in full in August 2011 as part of our repayment of the 2007 credit facility. The net derivative loss will remain in accumulated OCI until such time when earnings are impacted by a sale or liquidation of the associated foreign operation.

The before tax and net of tax effects of our net investment hedge nonderivative financial instrument on OCI for the three and nine months ended September 30 are as follows:



Nonderivative Financial Instruments in ASC 815-20 Net Investment Hedging Relationships	Euro Denominated Term Loan Designated as a Hedge of Our Net Investment in International Operations
	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)
Gain (loss) recognized in OCI on derivative (Effective Portion)
Before tax	$	—	$	645	$	—	$	(14,278	)
Net of tax	$	—	$	408	$	—	$	(8,854	)

Derivatives Not Designated as Hedging Relationships

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earnings volatility associated with certain of these balances. The notional amounts of the contracts ranged from $120,000 to $51 million, offsetting our exposures from the euro, British pound, Canadian dollar, Australian dollar, Brazilian real, and various other currencies.

The effect of our foreign exchange forward derivative instruments on the Consolidated Statements of Operations for the three and nine months ended September 30 is as follows:



Derivatives Not Designated as Hedging Instrument under ASC 815-20	Gain (Loss) Recognized on Derivatives in Other Income (Expense)
	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012			2011
	(in thousands)
Foreign exchange forward contracts	$	(245	)	$	2,464	$	(666	)	$	(877	)

Note 8: Defined Benefit Pension Plans

We sponsor both funded and unfunded defined benefit pension plans for our international employees, primarily in Germany, France, Italy, Indonesia, and Spain, offering death and disability, retirement, and special termination benefits. The defined benefit obligation is calculated annually by using the projected unit credit method. The measurement date for the pension plans was December 31, 2011.

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



	September 30, 2012			December 31, 2011
	(in thousands)
Plan assets in other long-term assets	$	(473	)	$	(449	)
Current portion of pension plan liability in wages and benefits payable	2,763			2,621
Long-term portion of pension plan liability	63,041			62,449
Net pension plan benefit liability	$	65,331		$	64,621

Our asset investment strategy focuses on maintaining a portfolio using primarily insurance funds, which are accounted for as investments and measured at fair value, in order to achieve our long-term investment objectives on a risk adjusted basis. Our general funding policy for these qualified pension plans is to contribute amounts sufficient to satisfy regulatory funding standards of the respective countries for each plan. We contributed $33,000 and $388,000 to the defined benefit pension plans for the three and nine months ended September 30, 2012, and $40,000 and $431,000 for the three and nine months ended September 30, 2011, respectively. The timing of when contributions are made can vary by plan and from year to year. For 2012, assuming that actual plan asset returns are consistent with our expected rate of return, and that interest rates remain constant, we expect to contribute approximately $474,000 to our defined benefit pension plans. We contributed $520,000 to the defined benefit pension plans for the year ended December 31, 2011.

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in thousands)
Service cost	$	655		$	637		$	2,069		$	1,855
Interest cost	887			947			2,722			2,833
Expected return on plan assets	(80		)	(80		)	(247		)	(243		)
Settlements and termination benefits	97			—			97			—
Amortization of actuarial net loss (gain)	1			14			5			42
Amortization of unrecognized prior service costs	16			18			50			55
Net periodic benefit cost	$	1,576		$	1,536		$	4,696		$	4,542

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Note 9: Stock-Based Compensation

We record stock-based compensation expense for awards of stock options, stock sold pursuant to our ESPP, and the issuance of restricted stock units and unrestricted stock awards. We expense stock-based compensation primarily using the straight-line method over the vesting requirement period. For the three and nine months ended September 30, stock-based compensation expense and the related tax benefit were as follows:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011			2012		2011
	(in thousands)
Stock options	$	333	$	(320	)	$	942	$	1,224
Restricted stock units	4,390		2,916			12,281		10,320
Unrestricted stock awards	179		140			589		330
ESPP	161		147			507		527
Total stock-based compensation	$	5,063	$	2,883		$	14,319	$	12,401

Related tax benefit	$	1,358	$	700		$	3,922	$	3,359

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

Subject to stock splits, dividends, and other similar events, 3,500,000 shares of common stock are reserved and authorized for issuance under our 2010 Stock Incentive Plan (Stock Incentive Plan). Awards consist of stock options, restricted stock units, and unrestricted stock awards. At September 30, 2012, 1,338,142 shares were available for grant under the Stock Incentive Plan.

Stock Options

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

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012⁽¹⁾		2011		2012		2011
Dividend yield	—		—		—		—
Expected volatility	—	%	45.8	%	42.7	%	46.4	%
Risk-free interest rate	—	%	0.9	%	0.9	%	1.7	%
Expected life (years)	—		4.91		5.14		4.86

⁽¹⁾There were no employee stock options granted for the three months ended September 30, 2012.

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

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



	Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value ⁽¹⁾		Weighted Average Grant Date Fair Value
	(in thousands)				(years)	(in thousands)
Outstanding, January 1, 2011	1,102		$	55.21	5.58	$	10,883
Granted	103		52.13					$	21.81
Exercised	(29	)	19.53			$	1,050
Forfeited	(63	)	58.50
Expired	(1	)	7.00
Outstanding, September 30, 2011	1,112		$	55.72	4.68	$	1,518

Exercisable, September 30, 2011	1,027		$	55.94	4.30	$	1,518

Expected to vest, September 30, 2011	80		$	53.19	9.28	$	—

Outstanding, January 1, 2012	1,109		$	55.97	4.51	$	2,323
Granted	54		48.23					$	18.64
Exercised	(50	)	22.12			$	972
Expired	(83	)	60.06
Outstanding, September 30, 2012	1,030		$	56.87	4.35	$	3,127

Exercisable, September 30, 2012	904		$	58.04	3.72	$	2,969

Expected to vest, September 30, 2012	119		$	48.50	8.89	$	149

⁽¹⁾

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

As of September 30, 2012, total unrecognized stock-based compensation expense related to nonvested stock options was approximately $1.5 million, which is expected to be recognized over a weighted average period of approximately 1.7 years.

Restricted Stock Units

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

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

The restricted stock units issued under the Long Term Performance Restricted Stock Unit Award Agreement (Performance Award Agreement) are determined based on the attainment of annual performance goals after the end of the calendar year performance period. During the year, if management determines that it is probable that the targets will be achieved, compensation expense, net of forfeitures, is recognized on a straight-line basis over the annual performance and subsequent vesting period for each separately vesting portion of the award. Performance awards typically vest and are released in three equal installments at the end of each year following attainment of the performance goals. For U.S. participants who retire during the performance period, a pro-rated number of restricted stock units (based on the number of days of employment during the performance period) immediately vest based on the attainment of the performance goals as assessed after the end of the performance period. During the vesting period, unvested restricted stock units immediately vest at the date of retirement for U.S. participants who retire during that period. For U.S. participants who are or will become retirement eligible during either the annual performance or vesting period, compensation expense is accelerated and recognized over the greater of the performance period (one year) or through the participant’s retirement eligible date. For performance awards granted in 2012, the maximum restricted stock units that may become eligible for vesting is 208,000 with a grant date fair value of $44.07.

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The following table summarizes restricted stock unit activity for the nine months ended September 30:



	Number of Restricted Stock Units		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value⁽¹⁾
	(in thousands)				(in thousands)
Outstanding, January 1, 2011	588
Granted⁽²⁾	286		$	54.82
Released	(201	)			$	15,739
Forfeited	(37	)
Outstanding, September 30, 2011	636

Outstanding, January 1, 2012	625
Granted⁽²⁾	452		$	47.29
Released	(207	)			$	12,835
Forfeited	(34	)
Outstanding, September 30, 2012	836

Vested, September 30, 2012	48				$	2,049

Expected to vest, September 30, 2012	763				$	32,904


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


⁽²⁾	These restricted stock units do not include the respective 2011 and 2012 awards under the Performance Award Agreement, which are not eligible for vesting as of September 30 of each respective year.

At September 30, 2012, unrecognized compensation expense on restricted stock units was $25.8 million, which is expected to be recognized over a weighted average period of approximately 2.0 years.

Unrestricted Stock Awards

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

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Shares of unrestricted stock granted	4,342		2,864		14,321		6,317

Weighted average grant date fair value per share	$	41.41	$	48.84	$	41.16	$	52.19

Employee Stock Purchase Plan

Under the terms of the ESPP, employees can deduct up to 10% of their regular cash compensation to purchase our common stock at a 15% 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 following table summarizes ESPP activity for the three and nine months ended September 30:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Shares of stock sold to employees⁽¹⁾	22,739		22,518		76,415		65,143

Weighted average fair value per ESPP award⁽²⁾	$	6.47	$	4.43	$	6.52	$	5.56

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


⁽²⁾	Relating to awards associated with the offering period during the three and nine months ended September 30.

At September 30, 2012, all compensation cost associated with the ESPP had been recognized. There were 625,000 shares of common stock available for future issuance under the ESPP at September 30, 2012.

Note 10: Income Taxes

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

For the three and nine months ended September 30, 2012, we had tax provisions of 15.4% and 22.2%, based on a percentage of income (loss) before tax, as compared with tax provisions of 1.2% and 3.6% for the same periods in 2011.

Our tax provision in 2012 differs from the federal statutory rate due to projected earnings in tax jurisdictions with rates lower than 35%, the benefit of certain interest expense deductions, and an election under U.S. Internal Revenue Code Section 338 with respect to a foreign acquisition in 2007.

Our tax provision in 2011 differs from the federal statutory rate due to the impact of the goodwill impairment, which is not deductible, projected earnings in tax jurisdictions with rates lower than 35%, the benefit of certain interest expense deductions, a benefit related to the settlement of a foreign tax litigation, and an election under U.S. Internal Revenue Code Sections 338 with respect to a foreign acquisition in 2007.

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)
Net interest and penalties expense	$	378	$	476	$	643	$	584

Accrued interest and penalties recorded are as follows:



	September 30, 2012		December 31, 2011
	(in thousands)
Accrued interest	$	4,225	$	3,781
Accrued penalties	2,847		2,766

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



	September 30, 2012		December 31, 2011
	(in thousands)
Unrecognized tax benefits related to uncertain tax positions	$	26,163	$	24,737
The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate	25,667		24,451

We believe it is reasonably possible that our unrecognized tax benefits may decrease by approximately $5.0 million within the

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next twelve months due to the expiration of the statute of limitations and the completion of examinations by taxing authorities. At September 30, 2012, we are not able to reasonably estimate the timing of future cash flows relating to our uncertain tax positions.

Note 11: Commitments and Contingencies

Guarantees and Indemnifications

We are often required to obtain standby letters of credit (LOC’s) or bonds in support of our obligations for customer contracts. These standby LOC’s or bonds typically provide a guarantee to the customer for future performance, which usually covers the installation phase of a contract and may on occasion cover the operations and maintenance phase of outsourcing contracts.

Our available lines of credit, outstanding standby LOC’s, and bonds are as follows:



	September 30, 2012			December 31, 2011
	(in thousands)
Credit facilities⁽¹⁾
Multicurrency revolving line of credit	$	660,000		$	500,000
Long-term borrowings	(140,000		)	(160,000		)
Standby LOC’s issued and outstanding	(49,410		)	(44,549		)
Net available for additional borrowings and LOC’s	$	470,590		$	295,451

Unsecured multicurrency revolving lines of credit with various financial institutions
Multicurrency revolving lines of credit	$	63,500		$	67,968
Standby LOC’s issued and outstanding	(29,571		)	(28,733		)
Short-term borrowings⁽²⁾	(834		)	—
Net available for additional borrowings and LOC’s	$	33,095		$	39,235

Unsecured surety bonds in force	$	154,047		$	139,954


⁽¹⁾	See Note 6 for details regarding our secured credit facilities.


⁽²⁾	Short-term borrowings are included in "Other current liabilities" on the Consolidated Balance Sheets.

In the event any such standby LOC or bond is called, we would be obligated to reimburse the issuer of the standby LOC or bond; however, we do not believe that any outstanding LOC or bond will be called.

We generally provide an indemnification related to the infringement of any patent, copyright, trademark, or other intellectual property right on software or equipment within our sales contracts, which indemnifies the customer from and pays the resulting costs, damages, and attorney’s fees awarded against a customer with respect to such a claim provided that (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 is recorded and charged to operating expense when we determine that a loss is probable and the amount can be reasonably estimated. Additionally, we disclose contingencies for which a material loss is reasonably possible, but not probable. Liabilities recorded for legal contingencies at September 30, 2012 were not material to our financial condition or results of operations.

In 2010 and 2011, Transdata Incorporated (Transdata) filed lawsuits against three of our customers, CenterPoint Energy (CenterPoint), TriCounty Electric Cooperative, Inc. (Tri-County), and San Diego Gas & Electric Company (San Diego), a customer of recently acquired SmartSynch, and several other utilities, alleging infringement of three patents owned by Transdata related to the use of an antenna in a meter. Pursuant to our contractual obligations with our customers, we agreed to indemnify and defend them in these lawsuits. The complaints seek unspecified damages as well as injunctive relief. CenterPoint, Tri-County, and San Diego have denied all of the substantive allegations and filed counterclaims seeking a declaratory judgment that the patents are

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invalid and not infringed. In December 2011, the Judicial Panel on Multi-District Litigation consolidated all of these cases in the Western District of Oklahoma for pretrial proceedings. On April 17, 2011, the Oklahoma court stayed the litigation pending the resolution of re-examination proceedings in the United States Patent and Trademark Office (U.S. PTO). The U.S. PTO has issued re-examination certificates confirming the patentability of the original claims and allowing certain new claims added by TransData. The stay of the litigation has been lifted by the district court. We do not believe this matter will have a material adverse effect on our business or financial condition, although an unfavorable outcome could have a material adverse effect on our results of operations for the period in which such a loss is recognized.

On February 23, 2011, a purported class action lawsuit was filed in U.S. District Court for the Eastern District of Washington alleging violations of federal securities laws relating to a restatement of our financial results for the quarters ended March 31, June 30, and September 30, 2010. These revisions were made primarily to defer revenue that had been incorrectly recognized on one contract due to a misinterpretation of an extended warranty obligation. The effect of the restatement was to reduce revenue and earnings in each of the first three quarters of 2010. As a result of the restatement, total revenue for the first nine months of 2010 was reduced by $6.1 million and diluted EPS was reduced by $0.11. On August 22, 2011, the lead plaintiff in the federal securities lawsuit filed a consolidated complaint, which defendants moved to dismiss. On September 11, 2012, the U.S. District Court for the Eastern District of Washington granted defendants' motion to dismiss in its entirety and dismissed all claims against all defendants asserted in the consolidated complaint. On October 30, 2012, the lead plaintiff dismissed its complaint with prejudice, and the Court subsequently approved Plaintiffs' voluntary dismissal with prejudice.

In March 2011, a lawsuit was filed in the Superior Court of the State of Washington in and for Spokane County against certain current or former officers and directors seeking unspecified damages on behalf of Itron, Inc. The complaint alleges that the defendants breached their fiduciary obligations to Itron with respect to the restatement of Itron's financial results for the quarters ended March 31, June 30, and September 30, 2010. This lawsuit is a shareholder derivative action that purports to assert claims on behalf of Itron, Inc. This purported derivative action had been stayed pending the outcome of the motion to dismiss in the federal securities lawsuit referred to above, but, as a result of the September 11, 2012 dismissal order, the stay has been lifted. Defendants intend to seek dismissal of this purported derivative action, and the Superior Court has set a schedule for briefing and hearing the motion to dismiss. Briefing on the motion to dismiss will be completed in April 2013, and the Superior Court has scheduled a hearing on the motion to dismiss for May 2013. Defendants believe they have valid defenses to this derivative action and intend to defend themselves vigorously.

In June 2011, a lawsuit was filed in the United States District Court for the Eastern District of Texas alleging infringement of three patents owned by EON Corp. IP Holdings, LLC (EON), related to two-way communication networks, network components, and related software platforms. The complaint seeks unspecified damages as well as injunctive relief. On July 16, 2012, Itron filed a Motion to Sever and Transfer Venue to the Eastern District of Washington. The decision on this motion is pending. We believe these claims are without merit and we intend to vigorously defend our interests. We do not believe this matter will have a material adverse effect on our business or financial condition, although an unfavorable outcome could have a material adverse effect on our results of operations for the period in which the claim is resolved.

Warranty

A summary of the warranty accrual account activity is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in thousands)
Beginning balance	$	66,368		$	62,838		$	79,536		$	51,283
New product warranties	1,996			1,512			7,632			5,591
Other changes/adjustments to warranties	(1,552		)	26,263			509			40,906
Claims activity	(12,050		)	(9,207		)	(31,625		)	(18,422		)
Effect of change in exchange rates	925			(2,374		)	(365		)	(326		)
Ending balance, September 30	55,687			79,032			55,687			79,032
Less: current portion of warranty	32,834			50,798			32,834			50,798
Long-term warranty	$	22,853		$	28,234		$	22,853		$	28,234

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Total warranty expense is classified within cost of revenues and consists of new product warranties issued and other changes and adjustments to warranties. Warranty expense for the three and nine months ended September 30 is as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)
Total warranty expense	$	444	$	27,775	$	8,141	$	37,939

Warranty expense for the nine months ended September 30, 2012 reflects a $5.0 million adjustment, which reduced a warranty accrual, originally recorded in 2011, as a result of lower than estimated replacements. Warranty expense for the three and nine month ended September 30, 2011 reflects a warranty charge of $12.6 million associated with a vendor supplied component in North America. Warranty expense for the nine months ended September 30, 2011 also reflects the benefit of an $8.6 million insurance recovery associated with the settlement of product claims in Sweden in 2010, and a warranty charge of $7.7 million related to certain products in Brazil.

Extended Warranty

A summary of changes to unearned revenue for extended warranty contracts is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in thousands)
Beginning balance	$	29,011		$	19,109		$	24,448		$	14,637
Unearned revenue for new extended warranties	2,080			3,138			7,269			8,286
Unearned revenue recognized	(351		)	(283		)	(982		)	(959		)
Effect of change in exchange rates	95			—			100			—
Ending balance, September 30	30,835			21,964			30,835			21,964
Less: current portion of unearned revenue for extended warranty	1,800			1,162			1,800			1,162
Long-term unearned revenue for extended warranty within Other long-term obligations	$	29,035		$	20,802		$	29,035		$	20,802

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 are as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)
Plan costs	$	7,441	$	5,653	$	20,319	$	18,324

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



	September 30, 2012		December 31, 2011
	(in thousands)
IBNR accrual	$	3,050	$	2,460

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.

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Note 12: Restructuring

During the fourth quarter of 2011, we announced the approval of projects to restructure our manufacturing operations to increase efficiency and lower our cost of manufacturing. We began implementing these projects in the fourth quarter of 2011, and we expect to substantially complete these projects by the end of 2013.

Certain projects are subject to a variety of labor and employment laws, rules, and regulations, which could result in a delay in implementing projects at some locations. Real estate market conditions may impact the timing of our ability to sell some of the manufacturing facilities we have designated for closure and disposal. This may delay the completion of the restructuring projects beyond 2013.

The total expected restructuring costs as of September 30, 2012 were $81.1 million, which is a decrease of approximately $7.9 million from the total expected costs at June 30, 2012. This decrease was primarily the result of gains on the dispositions of fixed assets and a correction to the amount of goodwill allocated to one of our non-core businesses sold as part of the restructuring process. In addition, expected severance costs were reduced as the result of certain employees in positions that were eliminated under the restructuring plan filling vacant positions within the Company.

The total expected restructuring costs, the costs recognized in prior periods, the restructuring costs recognized during the nine months ended September 30, 2012, and the remaining expected restructuring costs as of September 30, 2012 are as follows:



	Total Expected Costs at September 30, 2012		Costs Recognized in Prior Periods		Costs Recognized During the Nine Months Ended September 30, 2012			Remaining Costs to be Recognized at September 30, 2012
	(in thousands)
Employee severance costs	$	51,395	$	42,530	$	3,668		$	5,197
Asset impairments	21,356		25,144		(4,841		)	1,053
Other restructuring costs	8,368		408		4,628			3,332
Total	$	81,119	$	68,082	$	3,455		$	9,582

Segments:
Energy	$	59,312	$	51,873	$	3,536		$	3,903
Water	16,210		15,321		(871		)	1,760
Corporate unallocated	5,597		888		790			3,919
Total	$	81,119	$	68,082	$	3,455		$	9,582

Other restructuring costs includes expenses to exit the facilities once the operations in those facilities have ceased. Costs associated with restructuring activities are generally presented as restructuring expense in the Consolidated Statements of Operations, 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.

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The following table summarizes the activity within the restructuring related balance sheet accounts during the nine months ended September 30, 2012:



	Accrued Employee Severance			Asset Impairments & Net Loss (Gain) on Sale or Disposal			Other Accrued Costs			Total
	(in thousands)
Beginning balance, January 1, 2012	$	28,168		$	—		$	399		$	28,567
Costs incurred and charged to expense	3,668			(4,841		)	4,628			3,455
Cash payments	(13,518		)	—			(1,737		)	(15,255		)
Non-cash items	—			4,841			—			4,841
Effect of change in exchange rates	197			—			(44		)	153
Ending balance, September 30, 2012	$	18,515		$	—		$	3,246		$	21,761

Asset impairments are determined at the asset group level. During the nine months ended September 30, 2012, we adjusted the estimated impairment of certain assets and recognized gains on the sale of various asset groups. As part of the sale of a non-core business in Europe, $675,000 of goodwill was allocated to the business and charged to asset impairment restructuring expense during the three months ended September 30, 2012. In addition, during the third quarter of 2012, we corrected an overstatement of $5.4 million in restructuring expense, originally recognized during the year ended December 31, 2011, for the goodwill allocated to a non-core business in North America that was sold in May 2012. See Note 5 for additional information related to the goodwill impairment correction.

The current and long-term portions of the restructuring related liability balance as of September 30, 2012 were $19.2 million and $2.6 million, which are classified within other current liabilities and other long-term liabilities, respectively, on the Consolidated Balance Sheets.

There were no significant long-lived assets that were recorded at fair value at September 30, 2012 and 2011, respectively.

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Note 13: Other Comprehensive Income (Loss)

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in thousands)
Before-tax amount
Foreign currency translation adjustment	$	25,085		$	(80,794	)	$	940		$	43,162
Net unrealized gain (loss) on derivative instruments designated as cash flow hedges	(1,332		)	3,360			(2,697		)	3,054
Net unrealized gain (loss) on a nonderivative net investment hedging instrument	—			645			—			(14,278		)
Net hedging (gain) loss reclassified into net income	—			(277		)	—			4,200
Pension plan benefits liability adjustment	(4		)	32			34			(713		)
Total other comprehensive income (loss), before tax	23,749			(77,034		)	(1,723		)	35,425

Tax (provision) benefit
Foreign currency translation adjustment	(558		)	611			(243		)	199
Net unrealized gain (loss) on derivative instruments designated as cash flow hedges	504			(1,274		)	1,020			(1,132		)
Net unrealized gain (loss) on a nonderivative net investment hedging instrument	—			(237		)	—			5,424
Net hedging (gain) loss reclassified into net income	—			101			—			(1,602		)
Pension plan benefits liability adjustment	(1		)	(10		)	6			207
Total other comprehensive income (loss) tax (provision) benefit	(55		)	(809		)	783			3,096

Net-of-tax amount
Foreign currency translation adjustment	24,527			(80,183		)	697			43,361
Net unrealized gain (loss) on derivative instruments designated as cash flow hedges	(828		)	2,086			(1,677		)	1,922
Net unrealized gain (loss) on a nonderivative net investment hedging instrument	—			408			—			(8,854		)
Net hedging (gain) loss reclassified into net income	—			(176		)	—			2,598
Pension plan benefits liability adjustment	(5		)	22			40			(506		)
Total other comprehensive income (loss), net of tax	$	23,694		$	(77,843	)	$	(940	)	$	38,521

Accumulated other comprehensive loss, net of tax, was $38.1 million at September 30, 2012 and $37.2 million at December 31, 2011. These amounts include adjustments for foreign currency translation, the unrealized gain (loss) on our hedging instruments, the hedging gain (loss), and the pension liability adjustment as indicated above.

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Note 14: Fair Values of Financial Instruments

The fair values at September 30, 2012 and December 31, 2011 do not reflect subsequent changes in the economy, interest rates, and other variables that may affect the determination of fair value.



	September 30, 2012				December 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
			(in thousands)
Assets
Cash and cash equivalents	$	91,474	$	91,474	$	133,086	$	133,086
Foreign exchange forwards	57		57		241		241

Liabilities
2011 credit facility
USD denominated term loan	$	281,250	$	278,963	$	292,502	$	296,856
Multicurrency revolving line of credit	140,000		138,676		160,000		163,269
Foreign exchange forwards	103		103		222		222
Interest rate swaps	2,697		2,697		—		—

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 value approximates fair value (Level 1).

2011 Credit Facility - term loan and multicurrency revolving line of credit: The term loan and revolver are not traded publicly.The fair values, which are valued based upon a hypothetical market participant, are calculated using a discounted cash flow model with Level 2 inputs, including estimates of incremental borrowing rates for debt with similar terms, maturities, and credit profiles. Refer to Note 6 for a further discussion of our debt.

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

Note 15: Segment Information

As part of the global reorganization we announced in the first quarter of 2011, Itron is now managed and reports under two operating segments, Energy and Water. A transition to the new organizational structure, including changes to operations and financial and operational management systems, was completed in the first quarter of 2012. Therefore, financial reporting as of and for the three and nine months ended September 30, 2012 is based on the new operating segments, Energy and Water. Prior period segment information has been recast to reflect our new operating segments.

The Energy operating segment includes our global electricity and gas businesses, while the Water operating segment includes our global water and heat businesses.

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

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Segment Products



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

Water	Standard water and heat meters; advanced and smart water meters and communication modules; advanced systems including handheld, mobile, and fixed network collection technologies; meter data management software; knowledge application solutions; and professional services including implementation, installation, consulting, analysis, and system management.

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in thousands)
Revenues
Energy	$	377,489		$	483,748		$	1,259,834		$	1,389,979
Water	126,574			131,807			395,009			401,668
Total Company	$	504,063		$	615,555		$	1,654,843		$	1,791,647

Gross profit
Energy	$	125,503		$	144,120		$	409,057		$	426,457
Water	46,294			32,876			142,590			127,468
Total Company	$	171,797		$	176,996		$	551,647		$	553,925

Operating income (loss)
Energy	$	30,978		$	(166,197	)	$	116,211		$	(77,566	)
Water	22,293			(321,191		)	49,896			(290,582		)
Corporate unallocated	(7,304		)	(9,864		)	(34,456		)	(30,930		)
Total Company	45,967			(497,252		)	131,651			(399,078		)
Total other income (expense)	(3,523		)	(12,043		)	(11,151		)	(38,041		)
Income (loss) before income taxes	$	42,444		$	(509,295	)	$	120,500		$	(437,119	)

One customer represented 10% of total Company revenues for the nine months ended September 30, 2012, while no customer represented more than 10% of total Company revenues during the three months ended September 30, 2012 and during the three and nine months ended September 30, 2011. One customer represented 11% and 13% of the Energy operating segment revenues in the three and nine months ended September 30, 2012, respectively, and one customer represented 10% and 11% of the Energy operating segment revenues in the three and nine months ended September 30, 2011, respectively. No single customer represented more than 10% of the Water operating segment revenues for the three and nine months ended September 30, 2012 and 2011.

Revenues by region were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)
United States and Canada	$	224,956	$	292,322	$	802,542	$	852,715
Europe, Middle East, and Africa	211,195		227,884		648,050		702,296
Other	67,912		95,349		204,251		236,636
Total revenues	$	504,063	$	615,555	$	1,654,843	$	1,791,647

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)
Energy	$	20,452	$	24,246	$	61,596	$	72,169
Water	7,116		8,368		20,211		24,742
Corporate Unallocated	17		6		49		8
Total Company	$	27,585	$	32,620	$	81,856	$	96,919

Note 16: Business Combinations

SmartSynch

On May 1, 2012, we completed our acquisition of 100% of SmartSynch. The acquisition was financed through borrowings on our multicurrency revolving line of credit and cash on hand. SmartSynch is a provider of smart grid solutions that utilize cellular networks for communications. The acquisition strengthens our cellular communications offerings, and we believe the acquisition brings greater choice to utility customers across the spectrum of smart metering deployments.

The preliminary purchase price for SmartSynch was $77.7 million in cash (net of $6.8 million of cash and cash equivalents acquired). The purchase price is subject to a working capital adjustment, which is expected to be finalized in the fourth quarter of 2012. The announced purchase price of $100 million included employee retention payments and change in control fees. Although these payments were settled at closing, in accordance with GAAP they are considered assumed liabilities.

We have made a preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on estimated fair value assessments. We are continuing to collect information to determine the fair values of certain accrued liabilities associated with specific contracts and income taxes, which would affect goodwill. As a result, the fair values of these assets and liabilities are provisional until we are able to complete our assessment. The following reflects our preliminary allocation of purchase price as of the acquisition date, May 1, 2012:



	Fair Value
	(in thousands)
Current assets⁽¹⁾	$	12,412
Property, plant, and equipment	1,653
Intangible assets	43,400
Goodwill	46,881
Total assets acquired	104,346

Current liabilities	26,143
Long-term liabilities	465
Total liabilities assumed	26,608

Total net assets acquired	$	77,738


⁽¹⁾	Current assets include the fair value of accounts receivable of $6.1 million, which equals its contractual balance as it is considered fully collectible.

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Intangible assets acquired were as follows:



	Fair Value		Weighted Average Useful Life
	(in thousands)		(in years)
Core-developed technology	$	15,100	7
Customer contracts and relationships	8,900		11
Total identified intangible assets subject to amortization	24,000		8
In-process research and development	19,400
Total identified intangible assets	$	43,400

The fair values for the identified intangible assets were estimated using the income approach. Under the income approach, the fair value reflects the present value of the projected cash flows that are expected to be generated. The intangible assets will be amortized using the estimated discounted cash flows assumed in the valuation models. Existing technology represents the fair values of SmartSynch products that have reached technological feasibility and were part of SmartSynch's product offerings at the date of the acquisition. Customer contracts and relationships represent the fair value SmartSynch developed with its customers, including backlog.

IPR&D assets acquired represent the fair value of SmartSynch research and development projects that had not yet reached technological feasibility and consist primarily of projects to upgrade the hardware components of cellular communication modules to be compatible with 3G cellular network standards. These projects are expected to be completed in the next 12 months. Incremental costs to be incurred for these projects, currently estimated at $2.3 million, will be expensed as incurred in product development operating expenses. Once the projects are completed, they will be amortized over the expected life of the technology, which is expected to be seven years.

Goodwill of $46.9 million arising from the acquisition consists largely of the synergies expected from combining the operations of Itron and SmartSynch, as well as certain intangible assets that do not qualify for separate recognition. Based on synergies expected to be realized by the Electricity and Gas reporting units within the Energy operating segment, $37.3 million was assigned to the Electricity reporting unit and $9.6 million was assigned to the Gas reporting unit. The entire goodwill balance is expected to be deductible for income tax purposes.

Itron's acquisition related expenses of $44,000 and $3.0 million were recognized during the three and nine months ended September 30, 2012 and are included in general and administrative expenses.

The following table presents the revenues and net income (loss) from SmartSynch's operations that are included in our consolidated statements of operations:



	July 1, 2012 - September 30, 2012			May 1, 2012 - September 30, 2012
	(in thousands)
Revenues	$	7,910		$	11,885
Net income (loss)	(3,808		)	(6,579		)

The following supplemental pro forma results are based on the individual historical results of Itron and SmartSynch, with adjustments to give effect to the combined operations as if the acquisition had been consummated on January 1, 2011.



	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011			2012		2011
	(in thousands)
Revenues	$	504,063	$	627,237		$	1,665,897	$	1,811,413
Net income (loss)	35,273		(519,943		)	87,220		(463,944		)

The significant nonrecurring adjustments, net of the estimated tax impact, include the following:


•	Elimination from the supplemental pro forma net income of acquisition-related expenses incurred by SmartSynch prior to the acquisition and by Itron pre- and post-acquisition totaling $5.1 million for the nine months ended September 30, 2012.

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

Note 17: Subsequent Events

Stock Repurchases

Subsequent to September 30, 2012, we repurchased 157,772 shares of our common stock, including 23,671 shares executed during September 2012 but settled in October 2012, under the stock repurchase program authorized by the Board of Directors on October 24, 2011. The average price paid per share was $42.73.

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ITEM 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes included in this report and with our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission (SEC) on February 17, 2012, and as disclosed in our Current Report on Form 8-K, filed with the SEC on May 24, 2012.

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

Certain Forward-Looking Statements

This document contains forward-looking statements concerning our operations, financial performance, revenues, earnings growth, liquidity, and other items. This document reflects our current plans and expectations and is based on information currently available as of the date of this Quarterly Report on Form 10-Q. When we use the words “expect,” “intend,” “anticipate,” “believe,” “plan,” “project,” “estimate,” “future,” “objective,” “may,” “will,” “will continue,” and similar expressions, they are intended to identify forward-looking statements. Forward-looking statements rely on a number of assumptions and estimates. These assumptions and estimates could be inaccurate and cause our actual results to vary materially from expected results. Risks and uncertainties include 1) the rate and timing of customer demand for our products, 2) rescheduling or cancellations of current customer orders and commitments, 3) changes in estimated liabilities for product warranties and/or litigation, 4) our dependence on customers' acceptance of new products and their performance, 5) competition, 6) changes in domestic and international laws and regulations, 7) changes in foreign currency exchange rates and interest rates, 8) international business risks, 9) our own and our customers' or suppliers' access to and cost of capital, 10) future business combinations, and 11) other factors. You should not solely rely on these forward-looking statements as they are only valid as of the date of this Quarterly Report on Form 10-Q. We do not have any obligation to publicly update or revise any forward-looking statement in this document. For a more complete description of these and other risks, refer to Item 1A: “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which was filed with the SEC on February 17, 2012.

Results of Operations

We derive the majority of our revenues from sales of products and services to utilities. Our products and services include hardware, software, managed services, and consulting. Cost of revenues includes materials, labor, overhead, warranty expense, and distribution and documentation costs for software.

As part of our global reorganization that was announced in the first quarter of 2011, we now manage and report under two operating segments, Energy and Water. A transition to the new organizational structure, including changes to operations and financial and operational management systems, was completed in the first quarter of 2012. Therefore, financial reporting as of and for the three and nine months ended September 30, 2012 is based on the new operating segments, Energy and Water. Prior period segment information has been recast to reflect our new operating segments.

The Energy operating segment includes our global electricity and gas businesses, and the Water operating segment includes our global water and heat businesses.

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Overview

Revenues for the three and nine months ended September 30, 2012 were $504 million and $1.7 billion, compared with $616 million and $1.8 billion for the same periods last year. Fluctuations in foreign currency exchange rates unfavorably impacted revenues by $35 million and $83 million for the three and nine months ended September 30, 2012. Excluding the foreign currency translation impact, revenues decreased during these same periods in 2012 due to our five largest OpenWay projects in North America nearing completion, lower gas module shipments in North America, and lower Energy product shipments in Asia/Pacific, the combination of which was partially offset by an increase in Water revenue. Gross margin for the third quarter of 2012 was 34.1%, compared with a gross margin of 28.8% for the same period last year. Gross margin for the nine months ended September 30, 2012 was 33.3% compared with a gross margin of 30.9% for the corresponding period in 2011. Reduced warranty costs accounted for gross margin improvement of 5.4 percentage points for the quarter and 1.9 percentage points for the nine month period in 2012.

For the three and nine months ended September 30, 2012, we had tax provisions of 15.4% and 22.2%, based on a percentage of income before tax, as compared with tax provisions of 1.2% and 3.6%, based on a percentage of loss before income tax, for the same periods in 2011. The three and nine months ended September 30, 2012 included minimal discrete tax benefits, while the same periods in 2011 included the impact of the goodwill impairment of $540 million, which was not deductible for income tax purposes.

Total backlog was $1.1 billion and twelve-month backlog was $592 million at September 30, 2012.

On October 24, 2011, our Board of Directors authorized a twelve-month repurchase program of up to $100 million of our common stock. On September 13, 2012, the Board approved the extension of the expiration date of the stock repurchase program until February 15, 2013, or until the aggregate limit of $100 million of outstanding common stock has been repurchased, whichever occurs first. During the nine months ended September 30, 2012, we repurchased 1,044,105 shares of our common stock for $40.7 million. Since the inception of the repurchase program and through September 30, 2012, we have repurchased 1,867,454 shares for $70.1 million.

Total Company Revenues, Gross Profit and Margin, and Unit Shipments



	Three Months Ended September 30,							Nine Months Ended September 30,
	2012			2011			% Change	2012			2011			% Change
	(in thousands)							(in thousands)
Revenues	$	504,063		$	615,555		(18)%	$	1,654,843		$	1,791,647		(8)%
Gross Profit	$	171,797		$	176,996		(3)%	$	551,647		$	553,925		—%
Gross Margin	34.1		%	28.8		%		33.3		%	30.9		%



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(in thousands)
Revenues by Region
United States and Canada (North America)	$	224,956	$	292,322	$	802,542	$	852,715
Europe, Middle East, and Africa (EMEA)	211,195		227,884		648,050		702,296
Other	67,912		95,349		204,251		236,636
Total revenues	$	504,063	$	615,555	$	1,654,843	$	1,791,647

Revenues

Revenues decreased $111.5 million and $136.8 million, or 18% and 8%, for the three and nine months ended September 30, 2012, compared with the same periods last year. The net translation effect of our operations denominated in foreign currencies resulted in an unfavorable impact to revenues of $35.5 million and $83.1 million for the three and nine months ended September 30, 2012, compared with the same periods in 2011. A more detailed analysis of these fluctuations is provided in Operating Segment Results.

One customer, BC Hydro and Power Authority, accounted for 10% of total Company revenues during the nine months ended September 30, 2012, while no single customer accounted for more than 10% of total revenues for the three months ended September 30, 2012 and during the three and nine months ended September 30, 2011. Our 10 largest customers accounted for 25% and 29% of total revenues for the three and nine months ended September 30, 2012, and 35% and 31% for the three and nine months ended

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September 30, 2011, respectively.

Gross Margins

Gross margin for the third quarter of 2012 was 34.1%, compared with a gross margin of 28.8% for the same period last year. For the first nine months of 2012, gross margin was 33.3% compared with 30.9% in the same period in 2011. Gross margin improved over the prior year for the quarter and nine months primarily due to lower warranty costs, which positively impacted gross margin by 5.4 percentage points in the quarter and 1.9 percentage points in the nine month period. In addition, gross margin for the nine months ended September 30, 2012 improved as a result of favorable product mix and lower manufacturing costs in both the Energy and Water segments. A more detailed analysis of these fluctuations is provided in Operating Segment Results.

Meter and Module Summary

We classify meters into three categories:


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


•	Advanced metering – one-way communication of meter data


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

Advanced and smart meter communication modules can be sold separately from the meter. A summary of our total electricity, gas, water & heat meter and communication module shipments is as follows:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
	(units in thousands)
Meters
Standard	4,110	4,910	13,610	14,850
Advanced and smart	1,700	2,380	6,110	6,310
Total meters	5,810	7,290	19,720	21,160

Stand-alone communication modules
Advanced and smart	1,500	1,560	5,050	4,840

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Operating Segment Results

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



	Three Months Ended September 30,									Nine Months Ended September 30,
	2012			2011		% Change				2012			2011		% Change
Segment Revenues	(in thousands)									(in thousands)
Energy
Electricity	$	226,552		$	313,728	(28)%				$	794,496		$	880,529	(10)%
Gas	150,937			170,020		(11)%				465,338			509,450		(9)%
Total Energy	377,489			483,748		(22)%				1,259,834			1,389,979		(9)%
Water	126,574			131,807		(4)%				395,009			401,668		(2)%
Total revenues	$	504,063		$	615,555	(18)%				$	1,654,843		$	1,791,647	(8)%

	Three Months Ended September 30,									Nine Months Ended September 30,
	2012					2011				2012					2011
	Gross Profit			Gross Margin		Gross Profit			Gross Margin	Gross Profit			Gross Margin		Gross Profit			Gross Margin
Segment Gross Profit and Margin	(in thousands)					(in thousands)				(in thousands)					(in thousands)
Energy	$	125,503		33.2%		$	144,120		29.8%	$	409,057		32.5%		$	426,457		30.7%
Water	46,294			36.6%		32,876			24.9%	142,590			36.1%		127,468			31.7%
Total gross profit and margin	$	171,797		34.1%		$	176,996		28.8%	$	551,647		33.3%		$	553,925		30.9%

	Three Months Ended September 30,									Nine Months Ended September 30,
	2012					2011				2012					2011
	Operating Income (Loss)			Operating Margin		Operating Income (Loss)			Operating Margin	Operating Income (Loss)			Operating Margin		Operating Income (Loss)			Operating Margin
Segment Operating Income (Loss) and Operating Margin	(in thousands)					(in thousands)				(in thousands)					(in thousands)
Energy	$	30,978		8%		$	(166,197	)	(34)%	$	116,211		9%		$	(77,566	)	(6)%
Water	22,293			18%		(321,191		)	(244)%	49,896			13%		(290,582		)	(72)%
Corporate unallocated	(7,304		)			(9,864		)		(34,456		)			(30,930		)
Total Company	$	45,967		9%		$	(497,252	)	(81)%	$	131,651		8%		$	(399,078	)	(22)%

Energy:

Revenues - Three months ended September 30, 2012 vs. Three months ended September 30, 2011

Electricity revenues decreased $87.2 million, or 28%, for the three months ended September 30, 2012, compared with the same period last year. Revenues in 2012 were lower primarily driven by $75.8 million in scheduled decreases in our five largest OpenWay projects in North America, by decreased product shipments in Asia-Pacific of $15 million, and by $13.3 million for the currency translation effect of our operations denominated in foreign currencies. These decreases were partially offset by $8 million in increased product shipments in EMEA.

Gas revenues decreased $19.1 million, or 11%, for the three months ended September 30, 2012, compared with the same period last year, primarily as the result of $8.4 million in lower shipments of smart gas communication modules in North America, due to normal period-to-period fluctuations in the timing of customer projects, and $10.5 million for the translation effect of our operations denominated in foreign currencies.

One customer represented 11% and 10% of the Energy operating segment revenues in the three months ended September 30, 2012 and 2011.

Revenues - Nine months ended September 30, 2012 vs. Nine months ended September 30, 2011

Electricity revenues for the first nine months of 2012 were lower by $86.0 million, or 10%, when compared with the same period in 2011. In 2012, OpenWay project revenues shipments in North America decreased by $60.2 million from the same period in 2011. Our 2012 revenues were unfavorably impacted by lower revenues in Latin America and Asia-Pacific and also by $30.9 million related to the translation effect of our operations denominated in foreign currencies. These decreases were partially offset

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by an increase in Electricity professional services in EMEA.

Gas revenues decreased $44.1 million, or 9%, for the nine months ended September 30, 2012, compared with the same period last year, primarily due to $7.5 million in lower OpenWay project revenues in North America resulting from the completion of a large OpenWay project during 2011, lower product shipments in EMEA, and $25.3 million for the currency translation effect of our operations denominated in foreign currencies.

One customer represented 13% and 11% of the Energy operating segment revenues in the nine months ended September 30, 2012 and 2011.

Gross Margin - Three months ended September 30, 2012 vs. Three months ended September 30, 2011

Gross margin was 33.2% for the three months ended September 30, 2012, compared with a gross margin of 29.8% for the same period last year. During the third quarter of 2012, gross margin was positively impacted by $14.5 million of lower warranty expense when compared with the same period in 2011, and reduced product costs as a result of our restructuring and global procurement projects, which were initiated in the fourth quarter of 2011. Warranty expense in the third quarter of 2012 was favorably impacted by $2.7 million for reductions in warranty reserves based on updated cost estimates.

Gross Margin - Nine months ended September 30, 2012 vs. Nine months ended September 30, 2011

Gross margin was 32.5% for the nine months ended September 30, 2012, compared with a gross margin of 30.7% for the corresponding period in 2011. Gross margin was positively impacted by $18.3 million of lower warranty expense when compared with the nine months ended September 30, 2011, product mix, and reduced costs as a result of our restructuring and global procurement projects, which were initiated in the fourth quarter of 2011. Warranty expense in the first nine months of 2012 was favorably impacted by a $5.0 million adjustment, which reduced a warranty reserve originally recorded in 2011, as a result of lower than estimated replacements. Warranty expense in 2011 was negatively impacted by a $7.7 million charge related to certain products in Brazil and $8.3 million due to corrective actions for specific customers in North America, which were partially offset by an $8.6 million insurance recovery associated with product claims in Sweden in 2010.

Operating Expenses - Three months ended September 30, 2012 vs. Three months ended September 30, 2011

Energy operating expenses decreased $215.8 million, or 69.5%, for the three months ended September 30, 2012, compared with the same period last year, primarily due to the goodwill impairment of $216.1 million recognized in 2011, favorable foreign currency translation impact of $5.9 million, and scheduled decreases in amortization of intangible assets. These decreases were offset by increased sales and marketing costs and product development costs for the development of new and enhanced products. Apart from the goodwill impairment and restructuring, operating expenses as a percentage of revenues were 25% for the three months ended September 30, 2012, compared with 19% for the same period last year. Itron Cellular Solutions, formerly SmartSynch, contributed $5.5 million of operating expenses during the third quarter of 2012.

Operating Expenses - Nine months ended September 30, 2012 vs. Nine months ended September 30, 2011

For the first nine months of 2012, Energy operating expenses decreased $211.2 million, or 42%, compared with 2011, primarily due to the goodwill impairment of $216.1 million recognized in 2011, favorable foreign currency translation impact of $13.6 million during the nine months ended September 30, 2012, and scheduled decreases in amortization of intangible assets. These decreases were offset by increased sales and marketing and product development costs for development of new and enhanced products and $1.7 million in increased restructuring expenses. Operating expenses, excluding the goodwill impairment and restructuring, as a percentage of revenues were 23% for the nine months ended September 30, 2012, compared with 21% for the same period last year. Itron Cellular Solutions contributed $10.2 million of operating expenses since the acquisition on May 1, 2012.

Water:

Revenues - Three months ended September 30, 2012 vs. Three months ended September 30, 2011

Revenues decreased $5.2 million, or 4%, for the three months ended September 30, 2012, compared with the same period last year. Excluding the translation effect of a stronger U.S. dollar against most foreign currencies in the third quarter of 2012, as compared with the third quarter of 2011, revenues increased 5%. The increase was driven primarily by higher communication module shipments in North America, as well as increased product shipments in EMEA and Asia-Pacific.

No single customer represented more than 10% of the Water operating segment revenues in the three months ended September 30, 2012 and 2011.

Revenues - Nine months ended September 30, 2012 vs. Nine months ended September 30, 2011

Water revenues decreased $6.7 million, or 2%, for the nine months ended September 30, 2012, compared with the same period

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last year. The translation effect of foreign currencies to the U.S. dollar had an unfavorable impact of $26.9 million in the first nine months of 2012. Excluding the translation effect of a stronger U.S. dollar against most foreign currencies in the nine months ended September 30, 2012, revenue increased 5%. Sales increased in all regions with higher shipments of communication modules in North America and meters and systems in all other regions.

No single customer represented more than 10% of the Water operating segment revenues in the nine months ended September 30, 2012 and 2011.

Gross Margin - Three months ended September 30, 2012 vs. Three months ended September 30, 2011

Water gross margin increased to 36.6% for the three months ended September 30, 2012, compared with a gross margin of 24.9% for the same period last year, primarily as a result of $12.6 million in increased warranty costs in 2011 associated with a vendor-supplied component and a more favorable product mix in 2012.

Gross Margin - Nine months ended September 30, 2012 vs. Nine months ended September 30, 2011

For the first nine months of 2012, gross margin increased to 36.1% from 31.7% in the same period in 2011, primarily as a result of $12.6 million in increased warranty costs in 2011 associated with a vendor-supplied component. Gross margin for the first three quarters of 2012 was also favorably impacted by product mix and manufacturing efficiencies.

Operating Expenses - Three months ended September 30, 2012 vs. Three months ended September 30, 2011

Operating expenses for the three months ended September 30, 2012 decreased by $330.1 million over the third quarter of 2011. This decrease was the result of a goodwill impairment of $324.3 million recognized in 2011 and a recovery of $5.4 million in restructuring expense related to the goodwill allocated to a non-core business which was sold during the second quarter of 2012. Increases in sales and marketing and product development costs for smart and advanced meter products were partially offset by scheduled decreases in amortization of intangible assets and $2.8 million for the favorable foreign currency translation impact of the stronger U.S. dollar. Operating expenses, excluding goodwill impairment and restructuring expense, as a percentage of revenue, were 23% for the three months ended September 30, 2012 and 2011.

Operating Expenses - Nine months ended September 30, 2012 vs. Nine months ended September 30, 2011

Operating expenses decreased $325.4 million for the nine months ended September 30, 2012 compared with the same period in 2011. The significant decrease was the result of a goodwill impairment of $324.3 million in 2011. In 2012, increases in sales and marketing and product development costs for smart and advanced meter products were largely offset by scheduled decreases in amortization of intangible assets and $6.6 million for the favorable foreign currency translation impact of the stronger U.S. dollar. Excluding goodwill impairment and restructuring, operating expenses, as a percentage of revenue, were 24% and 23% for the nine months ended September 30, 2012 and 2011, respectively.

Corporate unallocated:

Operating expenses not directly associated with an operating segment are classified as “Corporate unallocated.” These expenses decreased $2.6 million in the three months ended September 30, 2012, compared with the same period last year, due to lower corporate marketing and IT related spending. Corporate unallocated expenses increased by $3.5 million for the nine months ended September 30, 2012, compared with 2011. The increases were primarily due to acquisition related expenses for the SmartSynch acquisition of $3.0 million for the nine months ended September 30, 2012. In addition, we incurred approximately $3.4 million during the first nine months of 2012 for management training and development costs in connection with the implementation of our new organization and for preliminary planning costs, prior to application development, for our global enterprise resource planning (ERP) software initiative, which commenced in the third quarter of 2012. These increases in operating expenses were partially offset by lower corporate marketing and IT related spending.

Bookings and Backlog of Orders

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

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Quarter Ended	Quarterly Bookings		Ending Total Backlog		Ending 12-Month Backlog
	(in millions)
September 30, 2012	$	459	$	1,079	$	592
June 30, 2012	447		1,122		637
March 31, 2012	488		1,221		760
December 31, 2011	515		1,296		766
September 30, 2011	441		1,439		901

Information on bookings by our operating segments is as follows:



Quarter Ended	Total Bookings		Energy		Water
	(in millions)
September 30, 2012	$	459	$	341	$	118
June 30, 2012	447		330		117
March 31, 2012	488		341		147
December 31, 2011	515		400		115
September 30, 2011	441		317		124

Upon the closing of the SmartSynch acquisition on May 1, 2012, $60 million was added to total backlog during the second quarter of 2012. However, it was not included in total bookings for that period.

Operating Expenses

The following table details our total operating expenses in dollars and as a percentage of revenues:



	Three Months Ended September 30,							Nine Months Ended September 30,
	2012			% of Revenues	2011		% of Revenues	2012		% of Revenues	2011		% of Revenues
	(in thousands)				(in thousands)			(in thousands)			(in thousands)
Sales and marketing	$	44,913		9%	$	44,870	7%	$	145,616	9%	$	138,019	8%
Product development	43,299			9%	38,377		6%	134,295		8%	119,147		7%
General and administrative	30,743			6%	33,492		5%	100,763		6%	104,627		6%
Amortization of intangible assets	11,929			2%	16,013		3%	35,867		2%	47,807		3%
Restructuring	(5,054		)	(1)%	1,096		—%	3,455		—%	3,003		—%
Goodwill impairment	—			—%	540,400		88%	—		—%	540,400		30%
Total operating expenses	$	125,830		25%	$	674,248	110%	$	419,996	25%	$	953,003	53%

Operating expenses decreased $548.4 million and $533.0 million for the three and nine months ended September 30, 2012, compared with the same periods last year, primarily due to the absence of goodwill impairment in 2012 compared with $540.4 million of goodwill impairment recognized during the three and nine months ended September 30, 2011. In addition, there was a scheduled decrease in amortization of intangible assets of $4.1 and $11.9 million and a favorable impact from foreign currency translation of $47.6 million and $59.1 million for the three and nine months ended September 30, 2012. These decreases were partially offset by increased sales and marketing and product development costs for development of new and enhanced products, acquisition related expenses for the SmartSynch acquisition of $44,000 and $3.0 million for the three and nine months ended September 30, 2012. In addition, we incurred approximately $616,000 and $3.4 million during the three and nine months ended September 30, 2012 for management training and development costs in connection with the implementation of our new organization and for preliminary planning costs, prior to application development, for our global ERP software initiative which commenced in the third quarter of 2012.

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Other Income (Expense)

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(in thousands)
Interest income	$	297		$	155		$	667		$	631
Interest expense	(2,138		)	(7,696		)	(6,418		)	(28,965		)
Amortization of prepaid debt fees	(413		)	(3,100		)	(1,176		)	(5,365		)
Other income (expense), net	(1,269		)	(1,402		)	(4,224		)	(4,342		)
Total other income (expense)	$	(3,523	)	$	(12,043	)	$	(11,151	)	$	(38,041	)

Interest income: Interest income is generated from our cash and cash equivalents. Interest rates have continued to remain low.

Interest expense: Interest expense continues to decline each period as a result of our declining principal balance of outstanding debt and lower interest rates on our 2011 credit facility, when compared with the interest rates on the 2007 credit facility, which was outstanding during the first seven months of 2011. Total debt was $421.3 million and $496.3 million at September 30, 2012 and September 30, 2011, respectively.

Amortization of prepaid debt fees: Amortization of prepaid debt fees for the three and nine months ended September 30, 2012 decreased from the same periods last year due to a lower balance of capitalized prepaid debt fees, combined with a $2.4 million write-off of unamortized prepaid debt fees associated with the payoff of the 2007 credit facility in August 2011. Refer to Item 1: “Financial Statements Note 6: Debt” for additional details related to our long-term borrowings.

Other income (expense), net: Other expenses, net, consist primarily of unrealized and realized foreign currency gains and losses from balances denominated in a currency other than the reporting entity's functional currency and other non-operating income (expenses). Foreign currency losses, net of hedging, were $1.2 million and $2.7 million for the three and nine months ended September 30, 2012, compared with net foreign currency losses of $1.1 million and $3.0 million in the same periods in 2011.

Financial Condition

Cash Flow Information:



	Nine Months Ended September 30,
	2012			2011
	(in thousands)
Operating activities	$	137,003		$	153,801
Investing activities	(110,147		)	(59,800		)
Financing activities	(68,516		)	(136,111		)
Effect of exchange rates on cash and cash equivalents	48			2,147
Decrease in cash and cash equivalents	$	(41,612	)	$	(39,963	)

Cash and cash equivalents was $91.5 million at September 30, 2012, compared with $133.1 million at December 31, 2011.

Operating activities

Cash provided by operating activities during the nine months ended September 30, 2012 was $16.8 million lower, compared with the same period in 2011, primarily due to a smaller increase in working capital and a reduction of the warranty reserves through higher claims activity during the nine months ended September 30, 2012.

Investing activities

Cash used in investing activities during the nine months ended September 30, 2012 was $50.3 million higher, compared with the same period in 2011. The increase in cash used in investing activities in 2012 is primarily due to the SmartSynch acquisition, offset by a decrease in acquisitions of property, plant, and equipment, compared with the same period in 2011. Refer to Item 1: "Financial Statements, Note 16: Business Combinations" for additional information regarding the acquisition of SmartSynch.

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Financing activities

Net cash used in financing activities during the nine months ended September 30, 2012 was $67.6 million lower, compared with the same period in 2011. During the nine months ended September 30, 2012, we drew $70 million from our multicurrency revolving line of credit for the SmartSynch acquisition. Repayments on borrowings net of draws for the first nine months of 2012 were $31.2 million, compared with $134.3 million during the same period in 2011. The reduction in net repayments was partially offset by the repurchase of $40.7 million of our common stock during the first nine months of 2012 under the share repurchase program authorized by the Board of Directors on October 24, 2011. Refer to Part II Item 2: "Unregistered Sale of Equity Securities and Use of Proceeds" for additional details related to our share repurchase program.

Effect of exchange rates on cash and cash equivalents

The effect of exchange rates on the cash balances of currencies held in foreign denominations for the nine months ended September 30, 2012 was an increase of $48,000, compared with an increase of $2.1 million for the same period in 2011.

Off-balance sheet arrangements:

We have no off-balance sheet financing agreements or guarantees as defined by Item 303 of Regulation S-K at September 30, 2012 and December 31, 2011 that we believe are reasonably likely to have a current or future effect on our financial condition, results of operations, or cash flows.

Liquidity and Capital Resources:

Our principal sources of liquidity are cash flows from operations, borrowings, and sales of common stock. Cash flows may fluctuate and are sensitive to many factors including changes in working capital and the timing and magnitude of capital expenditures and payments on debt. Working capital, which represents current assets less current liabilities, was $353.1 million at September 30, 2012, compared with $329.6 million at December 31, 2011.

Borrowings

In August 2011, we entered into a senior secured credit facility (the 2011 credit facility). The 2011 credit facility consists of a $300 million U.S. dollar term loan and a multicurrency revolving line of credit (the revolver) with a principal amount of up to $660 million.

At September 30, 2012, $140.0 million was outstanding under the revolver, and $49.4 million was utilized by outstanding standby letters of credit, resulting in $470.6 million available for additional borrowings.

For further description of the term loan and the revolver under our 2011 credit facility, refer to Item 1: “Financial Statements, Note 6: Debt”.

For a description of our letters of credit and performance bonds, and the amounts available for additional borrowings or letters of credit under our lines of credit, including the revolver that is part of our 2011 credit facility, refer to Item 1: “Financial Statements, Note 11: Commitments and Contingencies”.

Share Repurchase

On October 24, 2011, our Board of Directors authorized a repurchase program of up to $100 million of our common stock through October 23, 2012. On September 13, 2012, the Board approved the extension of the expiration date of the stock repurchase program until February 15, 2013, or until the aggregate limit of $100 million of outstanding common stock has been repurchased, whichever occurs first. Repurchases are made in the open market or in privately negotiated transactions and in accordance with applicable securities laws. Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice. During the nine months ended September 30, 2012, we repurchased $40.7 million of our common stock, which represents 1,044,105 shares. As of September 30, 2012, we have repurchased $70.1 million in shares of our common stock, with $29.9 million remaining under the repurchase program. Refer to Part II, Item 2: "Unregistered Sales of Equity Securities and Use of Proceeds" for additional information related to our share repurchase program.

Restructuring

Total expected costs decreased by approximately $7.9 million to $81.1 million during the third quarter, primarily the result of gains on the dispositions of fixed assets and a correction to the amount of goodwill allocated to one of our non-core businesses

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sold as part of the restructuring process. In addition, expected severance costs were reduced as the result of certain employees in positions that were eliminated under the restructuring plan filling vacant positions within the Company. For further details regarding the correction of the goodwill impairment, refer to Item 1: “Financial Statements, Note 5: Goodwill”. A substantial portion of the total expected charges was recognized in the fourth quarter of 2011, and $21.8 million was accrued at September 30, 2012, of which $19.2 million is expected to be paid over the next 12 months. As a result of our restructuring activities, we anticipate annualized savings in 2012 of approximately $15 million. We expect to achieve annualized cost savings of approximately $30 million by the end of 2013. Certain projects are subject to a variety of labor and employment laws, rules, and regulations which could result in a delay in implementing projects at some locations. Real estate market conditions may impact the timing of our ability to sell some of the manufacturing facilities we have designated for closure and disposal. This may delay the completion of the restructuring projects beyond 2013. For further details regarding our restructuring activities, refer to Item 1: “Financial Statements, Note 12: Restructuring”.

Other Liquidity Considerations

We have tax credits and net operating loss carryforwards in various jurisdictions that are available to reduce cash taxes. However, utilization of tax credits and net operating losses are limited in certain jurisdictions. Based on current projections we expect to pay approximately $18.9 million in U.S. federal and state taxes and $23.4 million in local and foreign taxes in 2012. For a discussion of our tax provision and unrecognized tax benefits, see Item 1: “Financial Statements, Note 10: Income Taxes”.

As of September 30, 2012, there was $35.1 million of cash and cash equivalents held by foreign subsidiaries that could be repatriated, if necessary to fund U.S. operations. Tax is one of the many factors that we consider in the management of global cash. Included in the determination of the tax costs in repatriating foreign cash into the United States are the amount of earnings and profits in a particular jurisdiction, withholding taxes that would be imposed, and available foreign tax credits. Accordingly, the amount of taxes that we would need to accrue and pay to repatriate foreign cash could vary significantly.

In several of our consolidated international subsidiaries, we have joint venture partners, who are minority shareholders. Although these entities are not wholly-owned by Itron, Inc, we consolidate them because we have a greater than 50% ownership interest or because we exercise control over the operations. The noncontrolling interest balance in our Consolidated Balance Sheets represents the proportional share of the equity of the joint venture entities, which is attributable to the minority shareholders. Approximately $16.2 million of our consolidated cash balance at September 30, 2012 resides in our joint venture entities. As a result, the minority shareholders of these entities control their proportional share of this cash balance, and there may be limitations on Itron to repatriate cash to the U.S. from these entities.

For a description of our funded and unfunded non-U.S. defined benefit pension plans and our expected 2012 contributions, refer to Item 1: “Financial Statements, Note 8: Defined Benefit Pension Plans”.

For a description of our bonus and profit sharing plans, including the amounts accrued at September 30, 2012 and the expected timing of payment, refer to Bonus and Profit Sharing within Critical Accounting Estimates below.

General Liquidity Overview

We expect to grow through a combination of internal new product development, licensing technology from and to others, distribution agreements, partnership arrangements, and acquisitions of technology or other companies. We expect these activities to be funded with existing cash, cash flow from operations, borrowings, and the sale of common stock or other securities. We believe existing 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 unforeseen changes in the energy and water industries, competitive pressures, changes in estimated liabilities for product warranties and/or litigation, future business combinations, capital market fluctuations, international risks, and other factors described under “Risk Factors” within Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which was filed with the SEC on February 17, 2012, as well as “Quantitative and Qualitative Disclosures About Market Risk” within Item 3 of Part I included in this Quarterly Report on Form 10-Q.

Contingencies

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

Critical Accounting Estimates

Revenue Recognition

The majority of our revenue arrangements involve multiple deliverables, which require us to determine the fair value of each deliverable and then allocate the total arrangement consideration among the separate deliverables based on the relative fair value

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percentages. Revenues for each deliverable are then recognized based on the type of deliverable, such as 1) when the products are shipped, 2) services are delivered, 3) percentage-of-completion when implementation services are essential to other deliverables in the arrangements, 4) upon receipt of customer acceptance, or 5) transfer of title and risk of loss. A majority of our revenue is recognized when products are shipped to or received by a customer or when services are provided.

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

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

We allocate consideration to each deliverable in an arrangement based on its relative selling price. We determine selling price using vendor specific objective evidence (VSOE), if it exists, otherwise third-party evidence (TPE). If neither VSOE nor TPE of selling price exists for a unit of accounting, we use estimated selling price (ESP).

If we are unable to establish selling price using VSOE or TPE, we use ESP in the allocation of arrangement consideration. The objective of ESP is to determine the price at which we would transact if the product or service were sold by us on a standalone basis. Our determination of ESP involves a weighting of several factors based on the specific facts and circumstances of the arrangement. Specifically, we consider the cost to produce the deliverable, the anticipated margin on that deliverable, the selling price and profit margin for similar parts, our ongoing pricing strategy and policies (as evident in the price list established and updated by management on a regular basis), the value of any enhancements that have been built into the deliverable, and the characteristics of the varying markets in which the deliverable is sold. We analyze the selling prices used in our allocation of arrangement consideration on an annual basis. Selling prices are analyzed on a more frequent basis if a significant change in our business necessitates a more timely analysis or if we experience significant variances in our selling prices.

Warranty

We offer standard warranties on our hardware products and large application software products. We accrue the estimated cost of new product warranties based on historical and projected product performance trends and costs during the warranty period. Testing of new products in the development stage helps identify and correct potential warranty issues prior to manufacturing. Continuing quality control efforts during manufacturing reduce our exposure to warranty claims. When our quality control efforts fail to detect a fault in one of our products, we 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 may be assessed and recorded when 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 becomes available, it is used to modify the original estimate to ensure the expected warranty costs are within a range of likely outcomes. Management continually 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 gross margin. The long-term warranty balance includes estimated warranty claims beyond one year.

Restructuring and Asset Impairments

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estimable, such as benefits stipulated by human resource policies and practices or statutory requirements. One-time termination benefits are expensed at the date the employee is notified. If the employee must provide future service greater than 60 days, such benefits are expensed ratably over the future service period. For contract termination costs, we record a liability upon the later of when we terminate a contract in accordance with the contract terms or when we cease using the rights conveyed by the contract.

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

Income Taxes

The calculation of our annual estimated effective tax rate requires significant judgment and is subject to several factors, including fluctuations in the forecasted mix of earnings in domestic and international jurisdictions, new or revised tax legislation and accounting pronouncements, tax credits, state income taxes, adjustments to valuation allowances, and interest expense and penalties related to uncertain tax positions, among other items. Changes in tax laws and unanticipated tax liabilities could significantly impact our tax rate.

We record valuation allowances to reduce deferred tax assets to the extent we believe it is more likely than not that a portion of such assets will not be realized. In making such determinations, we consider available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and our ability to carry back losses to prior years. We are required to make assumptions and judgments about potential outcomes that lie outside management’s control. The most sensitive and critical factors are the projection, source, and character of future taxable income. Although realization is not assured, management believes it is more likely than not that deferred tax assets will be realized. The amount of deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced or current tax planning strategies are not implemented.

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

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

Inventories

Items are removed from inventory using the first-in, first-out method. Inventories include raw materials, sub-assemblies, and finished goods. Inventory amounts include the cost to manufacture the item, such as the cost of raw materials, labor, and other applied direct and indirect costs. We also review idle facility expense, freight, handling costs, and wasted materials to determine if abnormal amounts should be recognized as current-period charges. We review our inventory for obsolescence and marketability. If the estimated market value, which is based upon assumptions about future demand and market conditions, falls below the original cost, the inventory value is reduced to the market value. If technology rapidly changes or actual market conditions are less favorable than those projected by management, inventory write-downs may be required. Our inventory levels may vary period to period as a result of our factory scheduling and timing of contract fulfillments.

Goodwill and Intangible Assets

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lives based on estimated discounted cash flows. 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.

As a result of the considerable decline in the price of our shares of common stock in 2011, our aggregate market value was significantly lower than the aggregate carrying value of our net assets. Therefore, we performed an interim impairment test of our goodwill as of September 30, 2011, which resulted in a goodwill write-down of $584.8 million in 2011. The goodwill impairment did not affect the debt covenants under the Company's existing credit facility.

The goodwill impairment before the reorganization into the new reporting units was associated with two reporting units from the Itron International operating segment. The goodwill balance associated with these reporting units before and after the goodwill impairment was as follows:



	September 30, 2011
Reporting Unit	Before Impairment		Impairment		After Impairment
	(in thousands)
Itron International - Electricity	$	363,626	$	254,735	$	108,891
Itron International - Water	389,308		330,112		59,196
			$	584,847

Following the allocation of goodwill from the previous reporting units to the new reporting units (Electricity, Gas, and Water) on January 1, 2012, the fair value of each reporting unit exceeded the carrying value by a minimum of 35%.

As a result of the SmartSynch acquisition and based on the preliminary purchase price allocation, we recognized $46.9 million in goodwill. Based on synergies expected to be realized by the Electricity and Gas reporting units within the Energy operating segment, $37.3 million was assigned to the Electricity reporting unit and $9.6 million was assigned to the Gas reporting unit.

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

Derivative Instruments

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accounting principles. 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. 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). Derivatives are not used for trading or speculative purposes. Our derivatives are with major international financial institutions, with whom we have master netting agreements; however, our derivative positions are not disclosed on a net basis. There are no credit-risk-related contingent features within our derivative instruments.

Defined Benefit Pension Plans

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

Several economic assumptions and actuarial data are used in calculating the expense and obligations related to these plans. The assumptions are updated annually at December 31 and include the discount rate, the expected remaining service life, the expected rate of return on plan assets, and rate of future compensation increase. The discount rate is a significant assumption used to value our pension benefit obligation. We determine a discount rate for our plans based on the estimated duration of each plan’s liabilities. For our euro denominated defined benefit pension plans, which represent 92% of our benefit obligation, we use two discount rates, (separated between shorter and longer duration plans), using a hypothetical yield curve developed from euro-denominated AA-rated corporate bond issues, partially weighted for market value, with minimum amounts outstanding of €250 million for bonds with less than 10 years to maturity and €50 million for bonds with 10 or more years to maturity, and excluding 10% of the highest and lowest yielding bonds within each maturity group. The discount rates derived for our shorter duration euro denominated plans (less than 10 years) and longer duration plans (greater than 10 years) were 4.50% and 5.25%, respectively. The weighted average discount rate used to measure the projected benefit obligation for all of the plans at December 31, 2011 was 5.51%. A change of 25 basis points in the discount rate would change our pension benefit obligation by approximately $2.3 million. The financial and actuarial assumptions used at December 31, 2011 may differ materially from actual results due to changing market and economic conditions and other factors. These differences could result in a significant change in the amount of pension expense recorded in future periods. Gains and losses resulting from changes in actuarial assumptions, including the discount rate, are recognized in OCI in the period in which they occur.

Our general funding policy for these qualified pension plans is to contribute amounts at least sufficient to satisfy funding standards of the respective countries for each plan. Refer to Item 1: “Financial Statements, Note 8: Defined Benefit Pension Plans” for our expected contributions for 2012.

Bonus and Profit Sharing

We have various employee bonus and profit sharing plans, which provide award amounts for the achievement of annual financial and nonfinancial targets. If management determines it probable that the targets will be achieved and the amounts can be reasonably estimated, a compensation accrual is recorded based on the proportional achievement of the financial and nonfinancial targets. Although we monitor and accrue expenses quarterly based on our estimated progress toward the achievement of the annual targets, the actual results at the end of the year may require awards that are significantly greater or less than the estimates made in earlier quarters. For the three and nine months ended September 30, 2012, we accrued $3.7 million and $15.6 million for such awards, compared with $3.7 million and $19.3 million in the same periods in 2011. Awards are typically distributed in the first quarter of the following year.

Stock-Based Compensation

We measure and recognize compensation expense for all stock-based awards made to employees and directors, including awards of stock options, stock sold pursuant to our Employee Stock Purchase Plan (ESPP), and the issuance of restricted stock units and unrestricted stock awards, based on estimated fair values. The fair value of stock options is estimated at the date of grant using the Black-Scholes option-pricing model, which includes assumptions for the dividend yield, expected volatility, risk-free interest rate, and expected life. In valuing our 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. Expected volatility is based on the historical and implied volatility of our own common stock. The expected life of stock option grants is derived from the historical actual term of option grants and an estimate of future exercises during the remaining contractual period of the option. While volatility and estimated life are assumptions that do not bear the risk of change subsequent to the grant date of stock options,

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these assumptions may be difficult to measure as they represent future expectations based on historical experience. Further, our expected volatility and expected life may change in the future, which could substantially change the grant-date fair value of future awards of stock options and ultimately the expense we record. For ESPP awards, the fair value is the difference between the market close price of our common stock on the date of purchase and the discounted purchase price. For restricted stock units and unrestricted stock awards, the fair value is the market close price of our common stock on the date of grant. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. Actual results and future estimates may differ substantially from our current estimates. We expense stock-based compensation at the date of grant for unrestricted stock awards. For awards with only a service condition, we expense stock-based compensation, adjusted for estimated forfeitures, using the straight-line method over the requisite service period for the entire award. For awards with both performance and service conditions, we expense the stock-based compensation, adjusted for estimated forfeitures, on a straight-line basis over the requisite service period for each separately vesting portion of the award. Excess tax benefits are credited to common stock when the deduction reduces cash taxes payable. When we have tax deductions in excess of the compensation cost, they are classified as financing cash inflows in the Consolidated Statements of Cash Flows.

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Item 3:	Quantitative and Qualitative Disclosures about Market Risk

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

Interest Rate Risk

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

The table below provides information about our financial instruments that are sensitive to changes in interest rates and the scheduled minimum repayment of principal and the weighted average interest rates at September 30, 2012. Weighted average variable rates in the table are based on implied forward rates in the Reuters U.S. dollar yield curve as of September 30, 2012 and our estimated leverage ratio, which determines our additional interest rate margin at September 30, 2012.



	2012			2013			2014			2015			2016			Total
	(in thousands)
Variable Rate Debt
Principal: U.S. dollar term loan	$	3,750		$	18,750		$	26,250		$	30,000		$	202,500		$	281,250
Average interest rate	1.49		%	1.48		%	1.60		%	1.84		%	2.17		%

Principal: Multicurrency revolving line of credit	$	—		$	—		$	—		$	—		$	140,000		$	140,000
Average interest rate	1.49		%	1.48		%	1.60		%	1.84		%	2.17		%

Interest rate swap on LIBOR based debt
Average interest rate (Pay)				1.00		%	1.00		%	1.00		%	1.00		%
Average interest rate (Receive)				0.26		%	0.35		%	0.59		%	0.92		%
Net/Spread				(0.74		)%	(0.65		)%	(0.41		)%	(0.08		)%

Based on a sensitivity analysis as of September 30, 2012, we estimate that, if market interest rates average one percentage point higher in 2012 than in the table above, our financial results in 2012 would not be materially impacted.

We continually monitor and assess our interest rate risk and may institute additional interest rate swaps or other derivative instruments to manage such risk in the future (refer to Item 1: "Financial Statements, Note 7: Derivative Financial Instruments").

Foreign Currency Exchange Rate Risk

We conduct business in a number of countries. As a result, over half of our revenues and operating expenses are denominated in foreign currencies, which expose our account balances to movements in foreign currency exchange rates that could have a material effect on our financial results. Our primary foreign currency exposure relates to non-U.S. dollar denominated transactions in our international subsidiary operations, the most significant of which is the euro. Revenues denominated in functional currencies other than the U.S. dollar were 62% and 58% of total revenues for the three and nine months ended September 30, 2012, respectively, compared with 56% for the same periods in 2011.

We are also exposed to foreign exchange risk when we enter into non-functional currency transactions, both intercompany and third-party. At each period-end, non-functional currency monetary assets and liabilities are revalued with the change recorded to other income and expense. We enter into monthly foreign exchange forward contracts (a total of 429 contracts were entered into during the nine months ended September 30, 2012), which are not designated for hedge accounting, with the intent to reduce earnings volatility associated with certain of these balances. The notional amounts of the contracts ranged from $120,000 to $51 million, offsetting our exposures from the euro, British pound, Canadian dollar, Australian dollar, Brazilian real, and various other currencies.

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



Item 4:	Controls and Procedures

(a)

Evaluation of disclosure controls and procedures. At September 30, 2012, 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 September 30, 2012, 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.

(b)

Changes in internal controls over financial reporting. We are in the process of upgrading our global enterprise resource planning software systems. During the three months ended September 30, 2012, Management continued to update the design and documentation of internal control processes to supplement and complement existing internal controls and procedures relating to the implementation of an Oracle suite of financial applications for financial consolidations and management reporting during the first quarter of 2012. The implementation of these new applications resulted in changes to our internal controls over financial reporting. Management will continue to monitor, evaluate, and update the related processes and internal controls as necessary during the post-implementation period to ensure adequate internal control over financial reporting.

Other than as described above, there have been no changes in our internal control over financial reporting during the three months ended September 30, 2012 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

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PART II: OTHER INFORMATION



Item 1:	Legal Proceedings

There were no material changes, as defined by Item 103 of Regulation S-K, during the third quarter of 2012.



Item 1A:	Risk Factors

There were no material changes to risk factors during the third quarter of 2012 from those previously disclosed in Item 1A: "Risk Factors" of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which was filed with the SEC on February 17, 2012.



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

(a) Not applicable.

(b) Not applicable.

The table below summarizes information about the Company's purchases of its shares of common stock, based on settlement date, during the quarterly period ended September 30, 2012.



Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share⁽²⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
					(in thousands)
July 1 through July 31	112,061	$	41.31	112,061	$	39,967
August 1 through August 31	125,010	43.89		125,010	34,480
September 1 through September 30	105,344	43.74		105,344	29,873
Total	342,415	$	43.00	342,415

⁽¹⁾

On October 24, 2011, our Board of Directors authorized a twelve-month repurchase program of up to $100 million of our common stock. On September 13, 2012, the Board approved the extension of the expiration date of the stock repurchase program until February 15, 2013, or until the aggregate limit of $100 million of outstanding common stock has been repurchased, whichever occurs first. Repurchases are made in the open market or in privately negotiated transactions, and in accordance with applicable securities laws. No shares were purchased outside of this plan.


⁽²⁾	Includes commissions.



Item 5:	Other Information

(a) No information was required to be disclosed in a report on Form 8-K during the third quarter of 2012 that was not reported.

(b) Not applicable.

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Item 6:	Exhibits




Exhibit Number		Description of Exhibits

10.1		Form of Restricted Stock Unit (RSU) Award Notice and Agreement for All Participants (excluding France) for use in connection with the Company's 2010 Stock Incentive Plan

10.2		Form of RSU Award Notice and Agreement for Participants in France for use in connection with the Company's 2010 Stock Incentive Plan

31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

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SIGNATURE

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



	ITRON, INC.

November 5, 2012	By:	/s/ STEVEN M. HELMBRECHT
Date		Steven M. Helmbrecht
		Sr. Vice President and Chief Financial Officer

ITRI EX-10.1 9.30.12

Exhibit 10.1

ITRON, INC.

2010 STOCK INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD NOTICE

ALL PARTICIPANTS (EXCLUDING FRANCE)

Itron, Inc. (the “Company”) hereby grants to Participant a restricted stock unit award (the “Award”). The Award is subject to all the terms and conditions set forth in this Restricted Stock Unit Award Notice (the “Award Notice”), the Restricted Stock Unit Award Agreement, including Appendix A (the “Agreement”) and the Itron, Inc. 2010 Stock Incentive Plan (the “Plan”), all of which are incorporated into the Award Notice in their entirety.



Participant:	«First_Name» «Last_Name»
Grant Date:	«Grant Date»
Number of Restricted Stock Units:	«# of Units»
Vesting Schedule:	The Award will vest with respect to one-third of the Restricted Stock Units on each of the first, second and third anniversaries of the Grant Date (each, a “Vest Date”).

Additional Terms/Acknowledgement: This Award is subject to all the terms and conditions set forth in this Award Notice, the Agreement, and the Plan which are attached to and incorporated into this Award Notice in their entirety.



«First_Name» «Last_Name» I accept this award subject to the terms and conditions stated herein. «Electronically Signed»
Attachments:
1. Restricted Stock Unit Award Agreement, including Appendix A 2. 2010 Stock Incentive Plan 3. Plan Prospectus

ITRON, INC.

2010 STOCK INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

ALL PARTICIPANTS (EXCLUDING FRANCE)

Pursuant to your Restricted Stock Unit Award Notice (the “Award Notice”) and this Restricted Stock Unit Award Agreement, including Appendix A (this “Agreement”), Itron, Inc. (the “Company”) has granted you a restricted stock unit award (the “Award”) under its 2010 Stock Incentive Plan (the “Plan”) for the number of restricted stock units indicated in your Award Notice. Capitalized terms not expressly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan.

The details of the Award are as follows:


1.	Vesting

The Award will vest according to the vesting schedule set forth in the Award Notice (the “Vesting Schedule”). One share of Common Stock will be issuable for each restricted stock unit that vests. Restricted stock units that have vested and are no longer subject to forfeiture according to the Vesting Schedule are referred to herein as “Vested Units.” Restricted stock units that have not vested and remain subject to forfeiture under the Vesting Schedule are referred to herein as “Unvested Units.” Except as provided in Sections 2 and 3 below, the Unvested Units will vest (and to the extent so vested cease to be Unvested Units remaining subject to forfeiture) in accordance with the Vesting Schedule (the Unvested and Vested Units are collectively referred to herein as the “Units”). Except as provided in Section 2 below, the Award will terminate and the Unvested Units will be forfeited upon termination of your employment for any reason.


2.	Death or Disability

In the event that your employment terminates during the Units’ vesting period by reason of death or Disability, any Unvested Units will accelerate in vesting and become Vested Units upon such termination of employment.


3.	Change in Control Transaction

In the event of a Change in Control Transaction, any Unvested Units will accelerate in vesting and become Vested Units immediately prior to such transaction.


4.	Settlement of Vested Units.

Vested Units shall be settled within 30 days following (a) the applicable Vest Date, or (b) if earlier, the date the Units become vested in connection with (i) the termination of your employment due to death or Disability pursuant to Section 2 above, or (ii) a Change in Control Transaction pursuant to Section 3 above.


5.	Securities Law Compliance

5.1 You represent and warrant that you (a) have been furnished with a copy of the prospectus for the Plan and all information which you deem necessary to evaluate the merits and risks of receipt of the Award, (b) have had the opportunity to ask questions and receive answers concerning the information received about the Award and the Company, and (c) have been given the opportunity to obtain any additional information you deem necessary to verify the accuracy of any information obtained concerning the Award and the Company.

5.2 You hereby agree that you will in no event sell or distribute all or any part of the shares of Common Stock that you receive pursuant to settlement of this Award (the “Shares”) unless (a) there is an effective registration statement under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and any applicable state and foreign securities laws covering any such transaction involving the Shares or (b) the Company receives an opinion of your legal counsel (concurred in by legal counsel for the Company) stating that such transaction is exempt from registration or the Company otherwise satisfies itself that such transaction is exempt from registration. You understand that the Company has no obligation to you to register the Shares with the U.S. Securities and Exchange Commission or any foreign securities regulator and has not represented to you that it will so register the Shares.

5.3 You confirm that you have been advised, prior to your receipt of the Shares, that neither the offering of the Shares nor any offering materials have been reviewed by any regulator under the Securities Act or any other applicable securities act (the “Acts”) and that the Shares cannot be resold unless they are registered under the Acts or unless an exemption from such registration is available.

5.4 You hereby agree to indemnify the Company and hold it harmless from and against any loss, claim or liability, including attorneys’ fees or legal expenses, incurred by the Company as a result of any breach by you of, or any inaccuracy in, any representation, warranty or statement made by you in this Agreement or the breach by you of any terms or conditions of this Agreement.


6.	Transfer Restrictions

Units shall not be sold, transferred, assigned, encumbered, pledged or otherwise disposed of, whether voluntarily or by operation of law.


7.	No Rights as Shareholder

You shall not have voting or other rights as a shareholder of the Company with respect to the Units.


8.	Book Entry Registration of Shares

The Company will issue the Shares by registering the Shares in book entry form with the Company’s transfer agent in your name and the applicable restrictions will be noted in the records of the Company’s transfer agent and in the book entry system.


9.	Responsibility for Taxes

9.1 Regardless of any action the Company or your employer (the “Employer”) take with respect to any and all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to your participation in the Plan and legally applicable to you (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items is and remains your responsibility and may exceed the amount actually withheld by the Company and/or the Employer. You further acknowledge that the Company and the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including, but not limited to, the granting or vesting of the Award, the settlement of Vested Units, the issuance of Shares upon settlement of the Vested Units, the subsequent sale of Shares acquired upon settlement of the Vested Units and the receipt of any dividends; and (b) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Award to reduce or eliminate your liability for Tax-Related Items or achieve any particular tax result. Further, if you have become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, you acknowledge that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

9.2 Prior to any relevant taxable or tax withholding event, as applicable, you will pay or make adequate arrangements satisfactory to the Company and or the Employer to satisfy all Tax-Related Items.

(a) In this regard, you hereby irrevocably appoint Fidelity or any stock plan service provider or brokerage firm designated by the Company for such purpose (the "Agent") as your Agent, and authorize the Agent, to:


(i)	Sell on the open market at the then prevailing market price(s), on your behalf, as soon as practicable on or after the settlement date for any Vested Unit, the minimum number of Shares (rounded up to the next whole number) sufficient to generate proceeds to cover the Tax-Related Items and all applicable fees and commissions due to, or required to be collected by, the Agent;


(ii)	Remit directly to the Company the cash amount necessary to cover the Tax-Related Items;


(iii)	Retain the amount required to cover all applicable fees and commissions due to, or required to be collected by, the Agent, relating directly to the sale of Shares referred to in clause (i) above; and


(iv)	Remit any remaining funds to you.

(b) Alternatively, or in addition to or in combination with the withholding mechanism described in Section 9.2(a), you authorize the Company and/or the Employer, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by:


(i)	requiring you to pay to the Company or the Employer any amount of the Tax-Related Items; and/or


(ii)	withholding any amount of the Tax-Related Items from your wages or other cash compensation paid to you by the Company and/or the Employer; and/or

(iii)

withholding in Shares to be issued upon settlement of the Vested Units, provided, however, that if you are a Section 16 officer of the Company under the Exchange Act, then the Plan Administrator (as constituted to satisfy Rule 16b-3 of the Exchange Act) shall establish the method of withholding from the alternatives (i) – (iii) herein and, if the Plan Administrator does not exercise its discretion prior to the Tax-Related Items withholding event, then you shall be entitled to elect the method of withholding from the alternatives (i) – (iii) herein.

(c) Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case you will receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent amount in Shares. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, you will be deemed to have been issued the full number of Shares subject to the Vested Units notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of your participation in the Plan. The Company may refuse to issue or deliver Shares to you if you fail to comply with your obligations in connection with the Tax-Related Items.

9.3 You acknowledge that the authorization and instruction to the Agent set forth in Section 9.2(a)(i) above to sell Shares to cover the Tax-Related Items is intended to comply with the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act and to be interpreted to comply with the requirements of Rule 10b5-1(c) under the Exchange Act (regarding trading of the Company’s securities on the basis of material nonpublic information) (a “10b5-1 Plan”). This 10b5-1 Plan is being adopted to permit you to sell a number of Shares issued upon settlement of Vested Units sufficient to pay the Tax-Related Items.

You acknowledge that the broker is under no obligation to arrange for the sale of Shares at any particular price. You further acknowledge that you will be responsible for all brokerage fees and other costs of sale, and you agree to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale. You acknowledge that it may not be possible to sell Shares during the term of this 10b5-1 Plan due to (a) a legal or contractual restriction applicable to you or to the broker, (b) a market disruption, (c) rules governing order execution priority on the NASDAQ or other exchange where the Shares may be traded, (d) a sale effected pursuant to this 10b5-1 Plan that fails to comply (or in the reasonable opinion of the Agent’s counsel is likely not to comply) with the Securities Act, or (e) if the Company determines that sales may not be effected under this 10b5-1 Plan. In the event of the Agent’s inability to sell Shares, you will continue to be responsible for the Tax-Related Items.

You hereby agree to execute and deliver to the Agent any other agreements or documents as the Agent reasonably deems necessary or appropriate to carry out the purposes and intent of the 10b5-1 Plan. You acknowledge that this 10b5-1 Plan is subject to the terms of any policy adopted now or hereafter by the Company governing the adoption of 10b5-1 plans. The Agent is a third party beneficiary of Section 9.2(a)(i) and this 10b5-1 Plan.


10.	Nature of Grant

In accepting the grant, you acknowledge, understand and agree that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of the Award is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock units, or benefits in lieu of restricted stock units, even if restricted stock units have been granted repeatedly in the past;

(c) all decisions with respect to future grants of restricted stock units, if any, will be at the sole discretion of the Company;

(d) the grant of the Award and your participation in the Plan shall not create a right to employment or be interpreted as forming an employment or service contract with the Employer, the Company or any Related Corporation and shall not interfere with the ability of the Employer, the Company or any Related Corporation to terminate your employment or service relationship (if any);

(e) you are voluntarily participating in the Plan;

(f) the Award and the Shares subject to the Award are not intended to replace any pension rights or compensation;

(g) the Award and the Shares subject to the Award, and the income and value of same, are not part of normal or expected compensation for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

(h) the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;

bring any such claim and release the Company, any Related Corporation and the Employer from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, you will be deemed irrevocably to have agreed not to pursue such claim and agree to execute any and all documents necessary to request dismissal or withdrawal of such claims;

(j) for purposes of the Award, your employment will be considered terminated as of the date you cease to actively provide services to the Company or a Related Corporation; further, in the event of termination of your employment or other services (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where you are employed or the terms of your employment agreement, if any), unless otherwise provided in this Agreement or determined by the Company, your right to vest in the Award, if any, will terminate effective as of the date that you are no longer actively providing services and will not be extended by any notice period (e.g., active service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where you are employed or the terms of your employment agreement, if any); the Company’s Chief Executive Officer shall have the exclusive discretion to determine when you are no longer actively providing services for purposes of the Award (including whether or not you may still be considered to be providing services while on an approved leave of absence);

(k) unless otherwise provided in the Plan or by the Company in its discretion, the Award and the benefits evidenced by this Agreement do not create any entitlement to have the Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the shares of the Company; and

(l) the following provisions apply only if you are providing services outside the United States:

(i) the Award and the Shares subject to the Award are not part of normal or expected compensation or salary for any purpose;

(ii) you acknowledge and agree that neither the Company, the Employer nor any Related Corporation shall be liable for any foreign exchange rate fluctuation between your local currency and the United States dollar that may affect the value of the Award or of any amounts due to you pursuant to the settlement of the Award or the subsequent sale of any Shares acquired upon settlement.


11.	No Advice Regarding Grant

The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding your participation in the Plan or your acquisition or sale of the underlying Shares. You are hereby advised to consult with your own personal tax, legal and financial advisors regarding your participation in the Plan before taking any action related to the Plan. You acknowledge that you have either consulted with competent advisors independent of the Company to obtain advice concerning the receipt of the Award and the acquisition or disposition of any Shares to be issued pursuant to the Award in light of

your specific situation or had the opportunity to consult with such advisors but chose not to do so.


12.	Data Privacy

You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this Agreement and any other Award materials by and among, as applicable, the Employer, the Company and its Related Corporations for the exclusive purpose of implementing, administering and managing your participation in the Plan.

You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Awards or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”).

You understand that Data will be transferred to Fidelity or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. You understand that the recipients of Data may be located in the United States or elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of Data by contacting your local human resources representative. You authorize the Company, Fidelity and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer Data, in electronic or other form, for the sole purpose of implementing, administering and managing your participation in the Plan. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative. Further, you understand that you are providing the consents herein on a purely voluntary basis. If you do not consent, your employment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing your consent is that the Company would not be able to grant you the Award or other equity awards or administer or maintain such awards. Therefore, you understand that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.


13.	Electronic Delivery and Participation

The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. You hereby consent to

receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.


14.	Language

If you have received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different from the English version, the English version will control.


15.	General Provisions

15.1 Successors and Assigns. The provisions of this Agreement will inure to the benefit of the successors and assigns of the Company and be binding upon you and your heirs, executors, administrators, successors and assigns.

15.2 Section 409A. For purposes of U.S. taxpayers, the settlement of the Units is intended to either be exempt from Section 409A of the Code under the “short-term deferral” exception, and in any event in compliance with Section 409A of the Code, and this Agreement will be interpreted, operated and administered in a manner that is consistent with this intent. In furtherance of this intent, the Plan Administrator may, at any time and without your consent, modify the terms of the Award as it determines appropriate to comply with the requirements of Section 409A of the Code and the related U.S. Department of Treasury guidance. The Company makes no representation or covenant to ensure that the Units, settlement of the Units or other payment hereunder are exempt from or compliant with Section 409A of the Code and will have no liability to you or any other party if the settlement of the Units or other payment hereunder that is intended to be exempt from, or compliant with, Section 409A of the Code, is not so exempt or compliant or for any action taken by the Plan Administrator with respect thereto.

15.3 Governing Law and Choice of Venue. The Award and the provisions of this Agreement will be construed and administered in accordance with and governed by the laws of the State of Washington without giving effect to such state’s principles of conflict of laws. For the purposes of litigating any dispute that arises under this grant of this Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of Washington and agree that such litigation shall be conducted in the courts of Spokane County, Washington, or the federal courts for the United States for the Eastern District of Washington, where this grant is made and/or to be performed.

15.4 Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

15.5 Notice. Any notice required or permitted hereunder shall be made in writing and sent to the following address:

Itron, Inc.

Attn. General Counsel

2111 N. Molter Road

Liberty Lake, WA USA 99019


16.	Appendix A

Notwithstanding any provisions in this Agreement, the Award shall be subject to any special terms and conditions set forth in Appendix A to this Agreement for your country (“Appendix A”). Moreover, if you relocate to one of the countries included in Appendix A, the special terms and conditions for such country will apply to you, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. Appendix A constitutes part of this Agreement.


17.	Imposition of Other Requirements

The Company reserves the right to impose other requirements on your participation in the Plan, on the Award and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.


18.	Waiver

You acknowledge that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by you or any other Participant.

APPENDIX A

ITRON, INC.

2010 STOCK INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

ALL PARTICIPANTS (EXCLUDING FRANCE)

Terms and Conditions

This Appendix A includes additional terms and conditions that govern the grant of the restricted stock unit award (the “Award”) under the Itron, Inc. 2010 Stock Incentive Plan (the “Plan”) in the countries listed below. Capitalized terms not expressly defined in this Appendix A but defined in the Plan or the Restricted Stock Unit Award Agreement (the “Agreement”) shall have the same definitions as in the Plan and/or the Agreement, as applicable.

Notifications

This Appendix A also includes information regarding exchange control and other issues of which you should be aware with respect to your participation in the Plan. The information is based on the exchange control, securities and other laws in effect in the respective countries as of February 2012. Such laws are often complex and change frequently. As a result, the Company strongly recommends that you not rely on the information herein as the only source of information relating to the consequences of participation in the Plan because the information may be out of date at the time that the Award vests or the Shares acquired under the Plan are sold.

In addition, the information contained herein is general in nature and may not apply to your particular situation and the Company is not in a position to assure you of a particular result. Accordingly, you are advised to seek appropriate professional advice as to how the relevant laws in your country may apply to your situation.

Finally, if you are a citizen or resident of a country other than the one in which you are currently working, or if you transfer employment or residency to another country after the Award is granted, the information contained herein may not be applicable to you.

ARGENTINA

Notifications

Securities Law Notification. Neither the Award nor the underlying Shares are publicly offered or listed on any stock exchange in Argentina. The offer is private and not subject to the supervision of any Argentine governmental authority.

Exchange Control Notification. In the event that you transfer proceeds in excess of US$2,000,000 from the sale of Shares into Argentina in a single month, you will be required to place 30% of any proceeds in excess of US$2,000,000 in a non-interest-bearing dollar-denominated mandatory deposit account for a holding period of 365 days.

AUSTRALIA

Terms and Conditions

Australian Addendum. The Award is granted pursuant to the Australian Addendum which is an addendum to the Plan. Participation in the Plan and the Award granted under the Plan are subject to the terms and conditions as stated in the Australian Addendum and the Offer Document, in addition to the Plan, the Award Notice, and the Agreement. The Australian Addendum is attached here as Annex 1 and the Offer Document is attached here as Annex 2.

Notifications

Securities Law Notification. If you acquire Shares under the Plan and subsequently offer the Shares for sale to a person or entity resident in Australia, such an offer may be subject to disclosure requirements under Australian law and you should obtain legal advice regarding any applicable disclosure requirements prior to making any such offer.

Annex 1 to Australia Section of Appendix A

AUSTRALIAN ADDENDUM

ITRON, INC.

2010 STOCK INCENTIVE PLAN


1.	PURPOSE

This addendum (the “Australian Addendum”) to the Itron, Inc. 2010 Stock Incentive Plan, as amended from time to time (the “U.S. Plan”) is adopted to set forth certain rules which, together with those provisions of the U.S. Plan which are supplemented by this Australian Addendum, will:


(a)	govern the operation of the Plan (as defined below) with respect to Australian Offerees (as defined below), and


(b)	ensure compliance of the Plan with the ASIC Class Order 03/184 (the “Class Order”), relevant provisions of the Corporations Act 2001 and ASIC Regulatory Guide 49.

In the event of any conflict between these provisions and the U.S. Plan, these provisions shall prevail.


2.	DEFINITIONS

Any capitalized term used in this Australian Addendum without definition shall have the meaning ascribed to such term in the U.S. Plan.

For the purposes of this Australian Addendum:

“ASIC” means the Australian Securities and Investments Commission;

“Associated Body Corporate” means (as determined in accordance with the Corporations Act 2001):

a body corporate that is a related body corporate of the Company; or

a body corporate that has voting power in the Company of not less than 20%; or

a body corporate in which the Company has voting power of not less than 20%.

“Australian Offeree” means any person to whom an offer or invitation of Shares (as defined below) and/or Restricted Stock Units is made in Australia under the Plan;

“Offer” means an offer made in Australia to Australian Offerees to acquire Shares under the terms of the Plan;

“Plan” means the U.S. Plan, as supplemented for implementation in Australia by the Australian Addendum; and

“Restricted Stock Units” means an unfunded promise by the Company to deliver Shares, following the fulfilment of specified conditions, as determined by the Company;

“Shares” means shares of common stock of the Company; and

“Subsidiary” means any Associated Body Corporate employing Australian Offerees.

3. FORM OF AWARDS GOVERNED BY THIS ADDENDUM

This Australian Addendum governs the grant of Restricted Stock Units under the Plan. All Restricted Stock Units will be granted to Australian Offerees at no cost to them.


4.	AUSTRALIAN OFFEREES

In Australia, an Offer under the Plan may be extended only to Australian Offerees who at the time of the Offer are full or part-time employees or directors of the Company or a Subsidiary and who meet the eligibility requirements of the Plan.


5.	NO CONTRIBUTION PLAN OR TRUST

An Offer under the Plan must not involve a contribution plan or any offer, issue or sale being made through a trust.


6.	AUSTRALIAN OFFER DOCUMENT


6.1	COPY OF PLAN

Any Offer made in Australia to participate in the Plan must be in writing (“Offer Document”) and must include or be accompanied by a copy of the rules of the Plan (or a summary). If a summary of the Plan is provided with the Offer, the Offer Document must include an undertaking that, during the period (“Offer Period”) in which Restricted Stock Units may be granted or Shares may be acquired under the Plan, the Company or its Subsidiary will, within a reasonable time of an Australian Offeree so requesting, provide the Australian Offeree with a copy of the rules of the Plan, without charge. The Company must take reasonable steps to ensure that any Australian Offeree to whom an Offer is made is given a copy of the Offer Document.

Further, the Offer Document must include a statement to the effect that any advice given by the person in connection with the Offer is general advice only, and that employees should consider obtaining their own financial product advice from an independent person who is licensed by ASIC to give such advice.


6.2	AUSTRALIAN DOLLAR EQUIVALENT OF RESTRICTED STOCK UNIT ISSUE PRICE

For the Offer of Restricted Stock Units, the Offer Document must specify the Australian dollar equivalent of the issue price of the underlying Shares, the subject of the Offer Document (“Issue Price”), if any, as at the date of the Offer.

6.3 UPDATED PRICING INFORMATION

The Offer Document must include an undertaking by the Company that, and an explanation of the way in which, the Company or its Subsidiary will (during the Offer Period and within a reasonable period of an Australian Offeree so requesting) make available to the Australian Offeree the following information:

(a) the Australian dollar equivalent of the current Fair Market Value of Share as at the date of the Australian Offeree’s request; and

(b) the Australian dollar equivalent of the Issue Price, if any, as at the date of the Australian Offeree’s request.

For the purposes of this clause 6.3 and as defined in Section 2 of the U.S. Plan, the current Fair Market Value of a Share shall be determined as follows:

(i) in good faith by the Plan Administrator; or

(ii) if the Common Stock is listed on the NASDAQ Global Select Market, the closing sales price for the Common Stock as reported by the NASDAQ Global Select Market for a single trading day; or

(iii) if the Common Stock is listed on the New York Stock Exchange or the American Stock Exchange, the closing sales price for the Common Stock as such price is officially quoted in the composite tape of transactions on such exchange for a single trading day.

For methods (ii) and (iii), if there is no such reported price for the Common Stock for the date in question, then such price on the last preceding date for which such price exists shall be determinative of Fair Market Value.

Please note that for Australian tax purposes, market value is defined differently, as described in the applicable Offer Document or tax summary.


6.4	EXCHANGE RATE FOR AUSTRALIA DOLLAR EQUIVALENT OF ISSUE PRICE

For the purposes of clauses 6.2 and 6.3, the Australian dollar equivalent of the Issue Price and current Fair Market Value of a Share shall be calculated by reference to the Australian/U.S. dollar exchange rate published by an Australian bank no earlier than on the previous business day.


7.	LOAN OR FINANCIAL ASSISTANCE

If the Company or Subsidiary offers an Australian Offeree any loan or other financial assistance for the purpose of acquiring the Shares to which the Offer relates, the Offer Document must disclose the conditions, obligations and risks associated with such loan or financial assistance.


8.	RESTRICTION ON CAPITAL RAISING: 5% LIMIT

In the case of any Offer that will involve the issue of Shares or a right to acquire Shares, including Restricted Stock Units, the number of Shares that are the subject of the Offer under the Plan when aggregated with:


(a)	the number of Shares in the same class which would be issued to Australian Offerees were each outstanding Offer of Shares or Restricted Stock Units under the Plan or any other employee share scheme of the Company, to be accepted; and


(b)	the number of Shares in the same class issued during the previous five years pursuant to the Plan or any other employee share scheme extended only to employees or directors of the Company and of its Associated Bodies Corporate;

but not including any Offer made or Shares issued by way of or as a result of:


(i)	an offer or invitation to a person situated at the time of receipt of the offer or invitation outside Australia; or


(ii)	an offer that was an excluded offer or invitation within the meaning of the Corporations Act 2001 as it existed prior to 13 March 2000; or


(iii)	an offer that did not need disclosure to investors because of section 708 of the Corporations Act 2001; or


(iv)	an offer that did not require a Product Disclosure Statement because of section 1012D of the Corporations Act 2001; or


(v)	an offer made under a disclosure document or a Product Disclosure Statement,

must not exceed 5% of the total number of issued Shares in the same class as at the time of the Offer.


9.	LODGING OFFER DOCUMENTS WITH ASIC

A copy of the Offer Document (which need not contain details of the Offer particular to the Australian Offeree such as the identity or entitlement of the Australian Offeree) and each accompanying document must be filed with ASIC not later than seven days after the first distribution of such documents to an Australian Offeree.


10.	COMPLIANCE WITH UNDERTAKINGS

The Company or Subsidiary must comply with any undertaking required to be made in the Offer Document by reason of the Class Order, including the undertaking to provide updated pricing information on request.

* * * * * *

Annex 2 to Australia Section of Appendix A

OFFER DOCUMENT

ITRON, INC.

2010 STOCK INCENTIVE PLAN

OFFER OF RESTRICTED STOCK UNITS

TO AUSTRALIAN RESIDENT EMPLOYEES

Investment in shares involves a degree of risk. Employees who elect to participate in the Itron, Inc. 2010 Stock Incentive Plan should monitor their participation and consider all risk factors relevant to the purchase of shares of Itron, Inc. common stock under the Itron, Inc. 2010 Stock Incentive Plan as set out in this Offer Document and the attached documents.

The information contained in this Offer Document and the additional documents is general information only. It is not advice or information specific to your particular circumstances.

Employees should consider obtaining their own financial product advice from an independent person who is licensed by the Australian Securities and Investments Commission to give advice about participation in the Plan.

OFFER OF RESTRICTED STOCK UNITS TO

AUSTRALIAN RESIDENT EMPLOYEES

ITRON, INC.

2010 STOCK INCENTIVE PLAN

We are pleased to provide you with this offer to participate in the Itron, Inc. 2010 Stock Incentive Plan, as amended from time to time (the “U.S. Plan”), as supplemented for implementation in Australia by the Australian Addendum. This Offer Document sets out information regarding the grant of Restricted Stock Units over shares of Common Stock of Itron, Inc. (the “Company”) to Australian resident employees of the Company and its Subsidiaries.

Any capitalized terms not otherwise defined in this Offer Document shall have the definitions set forth in the U.S. Plan and Australian Addendum (collectively, the “Plan”).

The Company has adopted the U.S. Plan to enhance the long-term shareholder value of the Company by offering opportunities to selected persons to participate in the Company’s growth and success and to encourage such persons to remain in the service of the Company and its Related Corporations and to acquire and maintain stock ownership in the Company.


1.	OFFER

This is an Offer of Restricted Stock Units, as may be granted from time to time by the Company, to certain eligible employees of the Company and its Subsidiaries in accordance with the Plan.


2.	TERMS OF GRANT

The terms of the grant of the Restricted Stock Units are contained in the Plan, this Offer Document and the Restricted Stock Unit Award Notice and Agreement, including the country-specific Appendix thereto (the “Agreement”). By accepting the Restricted Stock Units, you will be bound by the rules of the Plan, this Offer Document and the Agreement.

The U.S. Plan is supplemented by the terms of the Australian Addendum to ensure that the Plan will comply with ASIC Class Order 03/184. If there is any inconsistency between the Offer Document or the Australian Addendum and any Additional Documents (as defined below), the terms of the Offer Document and the Australian Addendum will prevail to the extent of the inconsistency.


3.	ADDITIONAL DOCUMENTS

In addition to the information set out in this Offer Document, you are being provided with copies of the following documents:


(a)	U.S. Plan;


(b)	U.S. Plan Prospectus;


(c)	Australian Addendum;


(d)	Agreement; and


(e)	Restricted Stock Units - Employee Information Supplement for Australia (“Tax Summary”)

(collectively, the “Additional Documents”).

The Plan and the Agreement set out, among other details, the nature of your grant of Restricted Stock Units and the consequences of a change in the nature or status of your employment.

The Additional Documents provide further information to help you make an informed investment decision in relation to your participation in the Plan. Neither the U.S. Plan nor the U.S. Plan Prospectus is a prospectus for purposes of the Australian Corporations Act 2001 and neither has been modified to reflect the Australian Addendum.


4.	RELIANCE ON STATEMENTS

You should not rely upon any oral statements made to you in relation to this Offer. You should only rely upon the statements contained in this Offer Document and the Additional Documents when considering your participation in the Plan.


5.	ACCEPTING AN AWARD

The Agreement sets out the key details of your Restricted Stock Units and what, if anything, you must do to accept the grant of the Restricted Stock Units.


6.	WHAT ARE THE MATERIAL TERMS OF THE RESTRICTED STOCK UNITS?

(a) What are Restricted Stock Units?

The Restricted Stock Units represent the right to receive Shares upon fulfilment of the vesting conditions set out in your Agreement. The Restricted Stock Units are considered “restricted” because they will be subject to forfeiture and restrictions on transfer until they vest.

When your Restricted Stock Units vest, you will be issued Shares. No Australian Offeree is granted a right to have Restricted Stock Units paid in cash.


(b)	Do I have to pay any money to receive the Restricted Stock Units?

You pay no monetary consideration to receive the Restricted Stock Units, nor do you pay any price to receive the Shares upon vesting (however, you will be required to pay applicable taxes in connection with the Restricted Stock Units, as discussed in the Tax Summary).


(c)	How many Shares will I receive upon vesting of my Restricted Stock Units?

The details of your Restricted Stock Units and number of Shares subject to the Restricted Stock Units are set out in the Agreement.

(d) When do I become a stockholder?

You are not a stockholder merely as a result of holding Restricted Stock Units and the Restricted Stock Units will not entitle you to vote or receive dividends, notices of stockholder meetings, proxy statements and other materials provided to stockholders until the restrictions lapse, at which time the Restricted Stock Units vest and will be paid out in Shares. You are not recorded as the owner of the Shares prior to vesting.

(e) Can I transfer the Restricted Stock Units to someone else?

The Restricted Stock Units are non-transferable until they vest; however, once Shares are issued upon vesting, the Shares will be freely tradeable (subject to Company policies and applicable laws regarding insider trading). Also, please note the possible disclosure obligations described below in Section 9.


7.	WHAT IS A SHARE OF COMMON STOCK IN THE COMPANY?

Common stock of a U.S. corporation is analogous to ordinary shares of an Australian corporation. Each holder of Common Stock is entitled to one vote for every share of Common Stock held in the Company.

Dividends may be paid on the shares of Common Stock out of any funds of the Company legally available for dividends at the discretion of the board of directors of the Company.

The Shares are traded on the NASDAQ Global Select Market in the United States of America and are traded under the symbol “ITRI.”

The Shares are not liable to any further calls for payment of capital or for other assessment by the Company and have no sinking fund provisions, pre-emptive rights, conversion rights or redemption provisions.


8.	HOW CAN I OBTAIN UPDATED INDICATIVE EXAMPLES OF THE CURRENT MARKET PRICE IN AUSTRALIAN DOLLARS?

Within a reasonable period following your request, the Company undertakes to provide you with the Australian dollar equivalent of the current market price of a Share (calculated as at the date of your request). For this purpose, the current market price of a Share shall be taken as the closing sales price for the Common Stock as reported by the NASDAQ Global Select Market on the trading day immediately prior to the date of your request. The Australian dollar equivalent will be calculated using the Australian/U.S. dollar exchange rate published by an Australian bank on the business day immediately prior to the date of your request. This will not be a prediction of actual market value of a Share or the applicable exchange rate on the date the Shares are issued to you.

You should direct your request to the Itron HR-Helpdesk by emailing HR-Helpdesk@itron.com.


9.	WHAT ADDITIONAL RISK FACTORS APPLY TO AUSTRALIAN RESIDENTS' PARTICIPATION IN THE PLAN?

Australian Offerees should have regard to risk factors relevant to investment in securities generally and, in particular, to the holding of Shares. You should be aware that in addition to fluctuations in the Company’s stock price, the value of any Shares issued upon vesting of the Award will be affected by the U.S./Australian dollar exchange rate. Participation in the Plan involves certain risks related to fluctuations in this rate of exchange.

Please note that if you offer your Shares for sale to a person or entity resident in Australia, your offer may be subject to disclosure requirements under Australian law. Please obtain legal advice on your disclosure obligations prior to making any such offer.


10.	PLAN MODIFICATION, TERMINATION ETC.

The Board may amend, alter, suspend, discontinue or terminate the Plan, in accordance with the terms of the Plan.


11.	WHAT ARE THE AUSTRALIAN TAXATION CONSEQUENCES OF PARTICIPATION IN THE PLAN?

Please refer to the Tax Summary, i.e., item (e) of the Additional Documents.


12.	WHAT ARE THE U.S. TAXATION CONSEQUENCES OF PARTICIPATION IN THE PLAN?

Australian Offerees who are not U.S. citizens or U.S. tax residents should not be subject to U.S. tax by reason only of the grant and vesting of the Restricted Stock Units or the sale of Shares. However, liability for U.S. tax may accrue if an Australian Offeree is otherwise subject to U.S. tax.

The above is only an indication of the likely U.S. tax consequences for Australian Offerees who are granted Restricted Stock Units under the Plan. Each Australian Offeree should seek his or her own advice as to the U.S. tax consequences of participation in the Plan.

We urge you to carefully review the information contained in this Offer Document and the Additional Documents.

* * * * * *

AUSTRIA

Notifications

Consumer Protection Notification. You may be entitled to revoke acceptance of the Award on the basis of the Austrian Consumer Protection Act (the “Act”) under the conditions listed below, if the Act is considered to be applicable to the Agreement and the Plan:

(i) If you accept the Award outside the business premises of the Company, you may be entitled to revoke your acceptance of the Award, provided the revocation is made within one (1) week after such acceptance of the Award.

(ii) The revocation must be in written form to be valid. It is sufficient if you return the Agreement to the Company or the Company’s representative with language which can be understood as a refusal to conclude or honor the Agreement, provided the revocation is sent within the period discussed above.

Exchange Control Notification. If you hold Shares acquired under the Plan outside of Austria, you must submit a report to the Austrian National Bank. An exemption applies if the value of the Shares as of any given quarter does not exceed €30,000,000 or if the value of the Shares in any given year as of December 31 does not exceed €5,000,000. If the former threshold is exceeded, quarterly obligations are imposed, whereas if the latter threshold is exceeded, annual reports must be given. The annual reporting date is December 31 and the deadline for filing the annual report is March 31 of the following year.

A separate reporting requirement applies when you sell Shares acquired under the Plan. In that case, there may be exchange control obligations if the cash proceeds are held outside of Austria. If the transaction volume of all accounts abroad exceeds €3,000,000, the movements and balances of all accounts must be reported monthly, as of the last day of the month, on or before the 15th day of the following month, on the prescribed form (Meldungen SI-Forderungen und/odder SI-Verpflichtungen).

BELGIUM

Notifications

Tax Reporting Notification. If you are a Belgian resident, you are required to report any bank or brokerage accounts held outside of Belgium on your annual tax return.

BRAZIL

Terms and Conditions

Compliance with the Law. In accepting the grant of the Award, you acknowledge your agreement to comply with applicable Brazilian laws and to pay any and all applicable tax associated with the Award and the sale of the Shares acquired under the Plan.

Notifications

Exchange Control Notification. If you are a resident or domiciled in Brazil, you will be required to submit an annual declaration of assets and rights held outside of Brazil to the Central Bank of Brazil if the aggregate value of such assets and rights is equal to or greater than US$100,000. Assets and rights that must be reported include Shares acquired under the Plan.

CANADA

Terms and Conditions

Vesting. This provision supplements Section 1 of the Agreement:

The grant of the Award does not provide any right for you to receive a cash payment and the Vested Units will be settled in Shares only.

Nature of Grant. The following provision replaces Section 10(j) of the Agreement:

In the event of termination of your employment or other services (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where you are employed or the terms of your employment agreement, if any), unless otherwise provided in this Agreement or determined by the Company, your right to vest in the Award, if any, will terminate effective as of the earlier of (a) the date on which your employment is terminated, or (b) the date on which you receive a notice of termination; the Company’s Chief Executive Officer shall have the exclusive discretion to determine when you are no longer actively providing services for purposes of the Award (including whether or not you may still be considered to be providing services while on an approved leave of absence).

CHILE

Notifications

Securities Law Notification. Neither the Company nor Shares acquired under the Plan are registered with the Chilean Registry of Securities or under the control of the Chilean Superintendence of Securities.

Exchange Control Notification. Exchange control reporting requirements may apply if the value of any Shares acquired upon settlement of Vested Units exceeds US$10,000 although it is not clear whether this requirement also applies in the case where no funds are remitted from Chile to acquire the Shares; however, if the Central Bank of Chile considers the acquisition of Shares for no consideration to be an “investment operation” the requirement will apply. In any case, additional reporting requirements will apply your aggregate investments abroad exceed US$5,000,000 at any time in a calendar year. If you repatriate funds related to the Plan (e.g., sale proceeds) to Chile and the amount of such funds exceeds $10,000, such repatriation must be effected through a commercial bank or a registered foreign exchange office.

Tax Reporting and Registration Notification. You must file Tax Form 1851 “Annual Sworn Statement Regarding Investments Held Abroad” in relation to any Shares acquired under the Plan that are held abroad. In addition, if you wish to receive credit in Chile for any tax paid abroad on any dividends received pursuant to the Shares, you must register the acquisition of Shares with the Chilean Internal Revenue Service (the “CIRS”) and also file Tax Form 1853 “Annual Sworn Statement Regarding Credits for Taxes Paid Abroad.” These forms must be submitted through the CIRS web page at www.sii.cl.

Registration of the acquisition of Shares with the CIRS will also provide evidence of the acquisition price of the Shares which you will need when the Shares are sold. It may also be possible for you to provide other evidence in the form of the Agreement or a report of the price paid for the Shares and the number of Shares acquired and sold; however, neither the Company nor Fidelity (or any other stock plan service provider designated by the Company) are under any obligation to provide you with such a report. You should consult with your personal legal and tax advisors regarding how to register with the CIRS (if desired).

CHINA

Terms and Conditions

Vesting. This provision supplements Section 1 of the Agreement.

To facilitate compliance with applicable laws or regulations in China, you agree and acknowledge that the Company or the Agent is entitled to (a) immediately sell all Shares issued to you upon settlement of the Vested Units (on your behalf pursuant to this authorization), either at the time the Vested Units are settled or when you cease employment with the Employer, the Company or a Related Corporation, or (b) require that any Shares acquired under the Plan be held with the Agent until the Shares are sold. You also agree to sign any forms and/or consents required by the Agent to effectuate the sale of Shares in case you cease employment and you acknowledge that the Agent is under no obligation to arrange for the sale of the Shares at any particular price. In any event, when the Shares acquired under the Plan are sold, the proceeds of the sale of the Shares, less any applicable Tax-Related Items and broker’s fees or commissions, will be remitted to you in accordance with applicable exchange control law and regulations, as further described below.

Exchange Control Requirements. You understand and agree that, pursuant to local exchange control requirements, you will be required to repatriate the cash proceeds from the sale of the Shares acquired under the Plan to China. You further understand that, under local law, such repatriation of the cash proceeds may need to be effectuated through a special exchange control account established by the Company, a Related Corporation or the Employer, and you hereby consent and agree that any cash proceeds from the sale of Shares acquired under the Plan may be transferred to such special account prior to being delivered to you. You also understand that the Company will deliver the proceeds to you as soon as possible, but there may be delays in distributing the funds to you due to exchange control requirements in China. Proceeds may be paid to you in U.S. dollars or local currency at the Company’s discretion. If the proceeds are paid to you in U.S. dollars, you will be required to set up a U.S. dollar bank account in China so that the proceeds may be deposited into this account. If the proceeds are paid to you in local currency, the Company in under no obligation to secure any particular exchange conversion rate and the Company may face delays in converting the proceeds to local currency due to exchange control restrictions. You further agree to comply with any other requirements that may be imposed by the Company in the future in order to facilitate compliance with exchange control requirements in China.

CZECH REPUBLIC

Notifications

Exchange Control Notification. Upon request of the Czech National Bank (the “CNB”), you may need to report the following to the CNB: foreign direct investments, financial credits from abroad, investment in foreign securities and associated collection and payments (Shares and proceeds from the sale of Shares may be included in this reporting requirement).

GERMANY

Notifications

Exchange Control Notification. You must report any cross-border payments in excess of €12,500 to the German Federal Bank on a monthly basis. You must also report to the German Federal Bank any receivables or payables or debts in foreign currency exceeding €5,000,000 in any month.

HUNGARY

There are no country-specific provisions.

INDIA

Notifications

Exchange Control Notification. You understand that you must repatriate any proceeds from the sale of Shares acquired under the Plan to India within ninety (90) days of receipt. You will receive a foreign inward remittance certificate (“FIRC”) from the bank where you deposit the foreign currency. You should maintain the FIRC as evidence of the repatriation of the proceeds in the event the Reserve Bank of India or the Employer requests proof of repatriation.

INDONESIA

Notifications

Exchange Control Information. If you remit funds (including proceeds from the sale of Shares) into Indonesia, the Indonesian bank through which the transaction is made will submit a report of the transaction to the Bank of Indonesia for statistical reporting purposes. For transactions of US$10,000 or more, a more detailed description of the transaction must be included in the report and you may be required to provide information about the transaction (e.g., the relationship between you and the transferor of the funds, the source of the funds, etc.) to the bank in order for the bank to complete the report.

ITALY

Terms and Conditions

Data Privacy. This provision replaces Section 12 of the Agreement:

You understand that the Employer, the Company and any Related Corporation may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company or any Related Corporation, details of all Awards or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor and will process such data for the exclusive purpose of implementing, managing and administering the Plan (“Data”) and in compliance with applicable laws and regulations.

You also understand that providing the Company with Data is mandatory for compliance with local law and necessary for the performance of the Plan and that your refusal to provide such Data would make it impossible for the Company to perform its contractual obligations and may affect your ability to participate in the Plan. The controller of personal data processing is Itron, Inc. with registered offices at 2111 N. Molter Road, Liberty Lake, Washington 99019, U.S.A., and, pursuant to Legislative Decree no.

196/2003, its representative in Italy is Baerbel Wouters, with registered offices at Via Gorky, 105, 20092 Cinisello Balsamo, Milan, Italy.

You understand that Data will not be publicized, but it may be accessible by the Employer and its internal and external personnel in charge of processing of such Data and by the data processor (the “Processor”), if any. An updated list of Processors and other transferees of Data is available upon request from the Employer. Furthermore, Data may be transferred to banks, other financial institutions, or brokers involved in the management and administration of the Plan. You understand that Data may also be transferred to the independent registered public accounting firm engaged by the Company. You further understand that the Company and/or any Related Corporation will transfer Data among themselves as necessary for the purpose of implementing, administering and managing your participation in the Plan, and that the Company and/or any Related Corporation may each further transfer Data to third parties assisting the Company in the implementation, administration, and management of the Plan, including any requisite transfer of Data to a broker or other third party with whom you may elect to deposit any Shares acquired upon vesting of the Units. Such recipients may receive, possess, use, retain, and transfer Data in electronic or other form, for the sole purpose of implementing, administering, and managing your participation in the Plan. You understand that these recipients may be acting as controllers, Processors or persons in charge of processing, as the case may be, in accordance with local law and may be located in or outside the European Economic Area in countries such as in the United States that might not provide the same level of protection as intended under Italian data privacy laws. Should the Company exercise its discretion in suspending all necessary legal obligations connected with the management and administration of the Plan, it will delete Data as soon as it has completed all the necessary legal obligations connected with the management and administration of the Plan.

You understand that Data processing related to the purposes specified above shall take place under automated or non-automated conditions, anonymously when possible, that comply with the purposes for which Data is collected and with confidentiality and security provisions as set forth by applicable laws and regulations, with specific reference to Legislative Decree no. 196/2003.

The processing activity, including communication, the transfer of Data abroad, including outside of the European Economic Area, as herein specified and pursuant to applicable laws and regulations, does not require your consent thereto as the processing is necessary to the performance of contractual obligations related to implementation, administration and management of the Plan. You understand that, pursuant to Section 7 of the Legislative Decree no. 196/2003, you have the right to, including but not limited to, access, delete, update, correct, or terminate, for legitimate reason, the Data processing. You should contact the Employer in this regard.

Furthermore, you are aware that Data will not be used for direct marketing purposes. In addition, Data provided can be reviewed and questions or complaints can be addressed by contacting your human resources department.

Plan Document Acknowledgment. In accepting the grant of the Award, you acknowledge that you have received a copy of the Plan and the Agreement and have reviewed the Plan and the Agreement, including this Appendix A, in their entirety and fully understand and accept all provisions of the Plan and the Agreement, including this Appendix A.

You further acknowledge that you have read and specifically and expressly approve the following sections of the Agreement and this Appendix A: Section 1: Vesting; Section 3: Change in Control Transaction; Section 9: Responsibility for Taxes; Section 10: Nature of Grant; Section 13: Electronic Delivery and Participation; Section 14: Language; Section 15.3: Governing Law and Choice of Venue; Section 17: Imposition of Other Requirements; and the Data Privacy provision above.

Notifications

Exchange Control Notification. You are required to report in your annual tax return: (a) any transfers of cash or Shares to or from Italy exceeding €10,000; (b) any foreign investments or investments held outside of Italy exceeding €10,000 if such investments (e.g., Shares) may give rise to taxable income in Italy; and (c) the amount of the transfers to and from Italy which have had an impact during the calendar year on your foreign investments or investments held outside of Italy. You may be exempt from the requirement in (a) if the transfer or investment is made through an authorized broker resident in Italy, as the broker will generally comply with the reporting obligation on your behalf.

KOREA

Notifications

Exchange Control Notification. If you realize US$500,000 or more from the sale of Shares in a single transaction, you must repatriate the sale proceeds to Korea within eighteen (18) months of the sale.

LUXEMBOURG

Notifications

Exchange Control Notification. You are required to report any inward or outward remittances of funds to the Banque Central de Luxembourg and/or the Service Central de La Statistique et des Études Économiques within fifteen (15) working days following the month during the transaction occurred. If a Luxembourg financial institution is involved in the transaction, it generally will fulfill the reporting obligation on your behalf; otherwise, you will have to report the transaction yourself.

MALAYSIA

Notifications

Securities Law Notification. You should be aware of the Malaysian insider trading rules summarized below.

Under the Malaysian Capital Markets and Services Act, 2007, you are prohibited from acquiring Shares or rights to Shares (e.g., an Award) or selling Shares when you are in possession of information which is not generally available and which you know or should know will have a material effect on the Company’s stock price once such information is generally available.

Director Notification Obligation. If you are a director of a Malaysian Related Corporation, you are subject to certain notification requirements under the Malaysian Companies Act, 1965. Among these requirements is an obligation to notify the Malaysian Related Corporation in writing when you acquire or dispose of an interest (e.g., an Award or Shares) in the Company or a Related Corporation. Such notifications must be made within fourteen (14) days of acquiring or disposing of any interest in the Company or a Related Corporation.

MEXICO

Terms and Conditions

Acknowledgement of the Agreement. By accepting the Award, you acknowledge that you have received a copy of the Plan, the Award Notice, and the Agreement, including this Appendix A, which you have reviewed. You acknowledge further that you accept all the provisions of the Plan, the Award Notice, and the Agreement, including this Appendix A. You also acknowledge that you have read and specifically and expressly approve the terms and conditions set forth in the “Nature of Grant” section of the Agreement, which clearly provide as follows:


(1)	Your participation in the Plan does not constitute an acquired right;


(2)	The Plan and your participation in it are offered by the Company on a wholly discretionary basis;


(3)	Your participation in the Plan is voluntary; and


(4)	The Company and its Related Corporations are not responsible for any decrease in the value of any Shares acquired upon settlement of the Award.

Labor Law Acknowledgement and Policy Statement. By accepting the Award, you acknowledge that Itron, Inc., with registered offices at 2111 N. Molter Road, Liberty Lake, Washington 99019, United States of America, is solely responsible for the administration of the Plan. You further acknowledge that your participation in the Plan, the grant of the Award

and any acquisition of Shares under the Plan do not constitute an employment relationship between you and Itron, Inc. because you are participating in the Plan on a wholly commercial basis and your sole employer is [Itron Servicios, S.A. de C.V., or Actaris Servicios México S.A. de C.V.] (“Itron-Mexico”). Based on the foregoing, you expressly acknowledge that the Plan and the benefits that you may derive from participation in the Plan do not establish any rights between you and your Employer, Itron-Mexico, and do not form part of the employment conditions and/or benefits provided by Itron-Mexico, and any modification of the Plan or its termination shall not constitute a change or impairment of the terms and conditions of your employment.

You further understand that your participation in the Plan is the result of a unilateral and discretionary decision of the Company; therefore, the Company reserves the absolute right to amend and/or discontinue your participation in the Plan at any time, without any liability to you.

Finally, you hereby declare that you do not reserve to yourself any action or right to bring any claim against Itron, Inc. for any compensation or damages regarding any provision of the Plan or the benefits derived under the Plan, and you therefore grant a full and broad release to the Company, its Related Corporations, branches, representation offices, shareholders, officers, agents or legal representatives, with respect to any claim that may arise.

Spanish Translation

Reconocimiento del Acuerdo. Al aceptar el Premio, usted reconoce que ha recibido una copia del Plan, la notificación del Premio, y el Acuerdo, inclusive este anexo A, el cual ha tenido oportunidad de revisar. Usted reconoce, además, que acepta todas las disposiciones del Plan, la Notificación del Premio y el Acuerdo, incluyendo este anexo A. Usted también reconoce que ha leído y de forma expresa aprueba los términos y condiciones establecidos en la seccion denominada “Naturaleza del Premio” del Acuerdo, que claramente dispone lo siguiente:


(1)	Su participación en el Plan no constituye un derecho adquirido;


(2)	El Plan y su participación en el Plan se ofrecen por la Compañía en forma totalmente discrecional;


(3)	Su participación en el Plan es voluntaria; y


(4)	La Compañía y sus Subsidiarias o Afiliadas no son responsables de ninguna disminución en el valor de las acciones adquiridas en la obtención del Premio.

Reconocimiento de Ausencia de Relación Laboral y Declaración de la Política. Al aceptar el Premio, usted reconoce que Itron, Inc, con domicilio social en 2111 N. Molter Road, Liberty Lake, Washington 99019, Estados Unidos de América, es el único responsable de la administración del Plan. Además, usted acepta que su participación en el Plan, la concesión del Premio y cualquier adquisición de acciones en el marco del Plan no constituyen una relación laboral entre usted y Itron, Inc. porque usted está participando en el Plan en su totalidad sobre una base comercial y su único empleador es [Itron Servicios, S.A. de C.V., or

Actaris Servicios México S.A. de C.V.] (“Itron-Mexico”). Derivado de lo anterior, usted expresamente reconoce que el Plan y los beneficios que pueden derivarse de la participación en el Plan no establece ningún derecho entre usted y su Empleador, Itron-Mexico, y que no forman parte de las condiciones de empleo y / o prestaciones previstas por Itron-Mexico, y cualquier modificación del Plan o la terminación de su contrato no constituirá un cambio o deterioro de los términos y condiciones de su empleo.

Además, usted receonoce que su participación en el Plan es derivada de una decisión discrecional y unilateral de la Compañía, por lo que la Compañía se reserva el derecho absoluto a modificar y / o suspender su participación en el Plan en cualquier momento, sin responsabilidad alguna para con usted.

Finalmente, usted manifiesta que no se reserva ninguna acción o derecho que origine una demanda en contra de Itron, Inc., por cualquier compensación o daño en relación con cualquier disposición del Plan o de los beneficios derivados del mismo, y en consecuencia usted otorga un amplio y total finiquito a la Compañía, sus Subsidiarias o Afiliadas, sucursales, oficinas de representación, sus accionistas, directores, agentes y representantes legales con respecto a cualquier demanda que pudiera surgir.

NETHERLANDS

Notifications

Securities Law Notification. You should be aware of the Dutch insider-trading rules which may impact the sale of Shares acquired under the Plan. In particular, you may be prohibited from effectuating certain transactions if you have inside information about the Company.

Under Article 5:56 of the Dutch Financial Supervision Act, anyone who has "insider information" related to an issuing company is prohibited from effectuating a transaction in securities in or from the Netherlands. “Inside information” is defined as knowledge of specific information concerning the issuing company to which the securities relate or the trade in securities issued by such company, which has not been made public and which, if published, would reasonably be expected to affect the share price, regardless of the development of the price. The insider could be any employee of the Company or a Related Corporation in the Netherlands who has inside information as described herein.

Given the broad scope of the definition of inside information, certain employees working at the Company or a Related Corporation in the Netherlands may have inside information and, thus, would be prohibited from effectuating a transaction in securities in the Netherlands at a time when they have such inside information.

If you are uncertain whether the insider-trading rules apply to you, you should consult your personal legal advisor.

POLAND

Notifications

Exchange Control Notification. If you transfer funds in excess of €15,000 into Poland in connection with the sale of Shares acquired under the Plan, the funds must be transferred via a bank account. You are required to retain the documents connected with a foreign exchange transaction for a period of five (5) years, as measured from the end of the year in which such transaction occurred. Additionally, if you hold Shares acquired under the Plan and/or keep a bank account abroad, you may have reporting duties to the National Bank of Poland depending on the value of your assets held abroad. You should consult with your personal legal advisor to determine what you must do to fulfill any applicable reporting duties.

PORTUGAL

Notifications

Exchange Control Notification. If you acquire Shares upon settlement of the Vested Units, the acquisition of the Shares should be reported to the Banco de Portugal for statistical purposes. If the Shares are deposited with a commercial bank or financial intermediary in Portugal, such bank or financial intermediary will submit the report on your behalf. If the Shares are not deposited with a commercial bank or financial intermediary in Portugal, you are responsible for submitting the report to the Banco de Portugal.

RUSSIA

Notifications

Exchange Control Notification. You must repatriate to Russia the proceeds from the sale of Shares and any cash dividends received in relation to the Shares within a reasonably short time of receipt. Such funds must be initially credited to you through a foreign currency account opened in your name at an authorized bank in Russia. After the funds are initially received in Russia, they may be further remitted to foreign banks subject to the following limitations: (i) the foreign account may be opened only for individuals; (ii) the foreign account may not be used for business activities; and (iii) you must give notice to the Russian tax authorities about the opening or closing of each foreign account within one month of the account opening or closing, as applicable.

Securities Law Notification. The Agreement, the Plan and all other materials you may receive regarding the Award and participation in the Plan do not constitute advertising or an offering of securities in Russia. The issuance of Shares under the Plan has not and will not be registered in Russia and, therefore, the Shares described in any Plan documents may not be offered or placed in public circulation in Russia. In no event will Shares be delivered to you in Russia; all Shares acquired under the Plan will be maintained on your behalf in the United States. You are not permitted to sell Shares directly to a Russian legal entity or

resident.

SINGAPORE

Notifications

Securities Law Notification. The grant of the Award is being made pursuant to the “Qualifying Person” exemption” under section 273(1)(f) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”). The Plan has not been lodged or registered as a prospectus with the Monetary Authority of Singapore. You should note that the Award is subject to section 257 of the SFA and you will not be able to make (i) any subsequent sale of the Shares in Singapore or (ii) any offer of such subsequent sale of the Shares subject to the Award in Singapore, unless such sale or offer in is made pursuant to the exemptions under Part XIII Division 1 Subdivision (4) (other than section 280) of the SFA. The Shares are currently traded on the NASDAQ Global Select Market, which is located outside of Singapore, under the ticker symbol “ITRI” and Shares acquired under the Plan may be sold through this exchange.

Director Notification Requirement. If you are a director, associate director or shadow director¹ of a Singapore Related Corporation, you are subject to certain notification requirements under the Singapore Companies Act, regardless of whether you are a Singapore resident or employed in Singapore. Among these requirements is the obligation to notify the Singapore Related Corporation in writing when you receive or dispose of an interest (e.g., Units, Shares) in the Company or a Related Corporation. These notifications must be made within two (2) business days of acquiring or disposing of any interest in the Company or any Related Corporation or within two (2) business days of becoming a director, associate director or shadow director if such an interest exists at that time.

SOUTH AFRICA

Terms and Conditions

Responsibility for Taxes. The following provision supplements Section 9 of the Agreement:

In accepting the grant of the Award, you agree that, immediately upon vesting of the Award, you will notify the Employer of the amount of any gain realized. If you fail to advise the Employer of the gain realized upon vesting, you may be liable for a fine. You will be solely responsible paying any difference the actual tax liability resulting from the Award and the


¹	A shadow director is an individual who is not on the board of directors of the Singapore Related Corporation but who has sufficient control so that the board of directors of the Singapore Related Corporation acts in accordance with the directions and instructions of the individual.

amount withheld by the Company or the Employer.

Notifications

Exchange Control Notification. You are solely responsible for ensuring compliance with any applicable exchange control laws and regulations in South Africa. Because exchange control regulations change frequently and without notice, you should consult your legal advisor prior to the acquisition or sale of Shares to ensure compliance with current regulations. Neither the Company nor the Employer has any obligation to obtain any applicable exchange control approval or complete any applicable exchange control filings on your behalf. You (not the Company nor the Employer) will be liable for any fines or penalties resulting from your failure to comply with any applicable requirements.

SPAIN

Terms and Conditions

Nature of Grant. The following provision supplements Section 10 of the Agreement:

In accepting the grant of the Award, you consent to participation in the Plan and acknowledge that you have received a copy of the Plan.

You understand that the Company has unilaterally, gratuitously and in its sole discretion decided to grant Awards to individuals who may be employees of the Company or a Related Corporation throughout the world. The decision is limited and entered into based upon the express assumption and condition that any grant will not bind the Company or a Related Corporation, other than as expressly set forth in the Agreement. Consequently, you understand that the Award is granted on the assumption and condition that the Award and any Shares acquired upon settlement of the Vested Units are not part of any employment contract (whether with the Company or a Related Corporation) and shall not be considered a mandatory benefit, salary for any purpose (including severance compensation), or any other right whatsoever.

Additionally, you understand that the vesting of the Award is expressly conditioned on your continued and active rendering of service to the Company or a Related Corporation such that if your employment terminates for any reason (including for the reasons listed below but excluding the reasons specified in Section 2 of the Agreement), the Award will cease vesting immediately effective as of the date of termination of your employment. This will be the case, for example, even if (1) you are considered to be unfairly dismissed without good cause; (2) you are dismissed for disciplinary or objective reasons or due to a collective dismissal; (3) you terminate employment due to a change of work location, duties or any other employment or contractual condition; (4) you terminate employment due to unilateral breach of contract of the Company or any of its Related Corporations; or (5) your employment terminates for any other reason (excluding the reasons specified in Section 2 of the Agreement). Consequently, upon termination of your employment for any of the above reasons, you will automatically lose any rights to the Award granted to you to the extent that

the Units subject to the Award have not yet become Vested Units as of the date of your termination of employment, as described in the Agreement.

You acknowledge that you have read and specifically accept the conditions referred to in Section 1 of the Agreement.

Finally, you understand that this grant would not be made to you but for the assumptions and conditions referred to herein; thus, you acknowledge and freely accept that should any or all of the assumptions be mistaken or should any of the conditions not be met for any reason, then the grant of the Award shall be null and void.

Notifications

Exchange Control Notification. You must declare the acquisition, ownership and disposition of stock in a foreign company (including Shares acquired under the Plan) to the Spanish Dirección General de Comercio e Inversiones (the “DGCI”), the Bureau for Commerce and Investments, which is a department of the Ministry of Industry, Tourism and Commerce, for statistical purposes. Generally, the declaration must be filed in January; however, if the value of the Shares acquired under the Plan or the amount of the sale proceeds exceeds €1,502,530, the declaration must be filed within one month of the acquisition or sale, as applicable.

When receiving foreign currency payments derived from the ownership of Shares (i.e., dividends or sale proceeds) exceeding €50,000, you must inform the financial institution receiving the payment of the basis upon which such payment is made. You will need to provide the following information: (i) your name, address, and tax identification number; (ii) the name and corporate domicile of the Company; (iii) the amount of the payment and the currency used; (iv) the country of origin; (v) the reasons for the payment; and (vi) any further information that may be required.

SWEDEN

There are no country-specific provisions.

SWITZERLAND

Notifications

Securities Law Notification. The grant of the restricted stock units under the Plan is considered a private offering in Switzerland and is, therefore, not subject to registration in Switzerland.

THAILAND

Notifications

Exchange Control Notification. You must repatriate any funds received pursuant to the Plan (e.g., proceeds from the sale of Shares) to Thailand immediately upon receipt, and convert such funds to Thai Baht or deposit the funds in a foreign exchange account with a commercial bank in Thailand within 360 days of repatriation. If the amount of the funds is US$50,000 or more, you must report the inward remittance by submitting a Foreign Exchange Transaction Form to an authorized agent (i.e., a commercial bank authorized by the Bank of Thailand to engage in the purchase, exchange and withdrawal of foreign currency).

UNITED ARAB EMIRATES

There are no country-specific provisions.

UNITED KINGDOM

Terms and Conditions

Vesting. This provision supplements Section 1 of the Agreement:

The grant of the Award does not provide any right for you to receive a cash payment and the Vested Units will be settled in Shares only.

Responsibility for Taxes. The following provision supplements Section 9 of the Agreement:

If payment or withholding of the income tax due is not made within ninety (90) days of the event giving rise to the liability or such other period specified in Section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003 (the “Due Date”), the amount of any uncollected income tax will constitute a loan owed by you to the Employer, effective on the Due Date. You agree that the loan will bear interest at the then-current official rate of Her Majesty’s Revenue and Customs (“HMRC”), it will be immediately due and repayable, and the Company or the Employer may recover it at any time thereafter by any of the means referred to in Section 9.2 of the Agreement. Notwithstanding the foregoing, if you are a director or executive officer of the Company (within the meaning of Section 13(k) of the Exchange Act), you will not be eligible for such a loan to cover the income tax due. In the event that you are a director or executive officer and the income tax due is not collected from or paid by you by the Due Date, the amount of any uncollected income tax will constitute a benefit to you on which additional income tax and national insurance contributions will be payable. You acknowledge that the Company or the Employer may recover such amounts from you by any of the means referred to in Section 9.2 of the Agreement. However, you are

also responsible for reporting and paying any income tax and national insurance contributions due on this additional benefit directly to HMRC under the self-assessment regime.

Joint Election. As a condition of your participation in the Plan, you agree to accept any liability for secondary Class 1 national insurance contributions (the “Employer’s Liability”) which may be payable by the Company and/or the Employer in connection with the Award and any event giving rise to Tax-Related Items. To accomplish the foregoing, you agree to execute the following joint election with the Company (the “Joint Election”), the form of such Joint Election being formally approved by HMRC, and any other consent or elections required to accomplish the transfer of the Employer’s Liability to you. You further agree to execute such other joint elections as may be required between yourself and any successor to the Company and/or the Employer. You further agree that the Company and/or the Employer may collect the Employer’s Liability by any of the means set forth in Section 9.2 of the Agreement.

If you do not enter into a Joint Election prior to vesting of the Award or any other event giving rise to Tax-Related Items, you will forfeit the Units and any benefits in connection with the Award, and any Shares that have been issued will be returned to the Company at no cost to the Company, without any liability to the Company and/or the Employer.

ITRON, INC.
2010 STOCK INCENTIVE PLAN

Important Note on the Joint Election to Transfer
Employer National Insurance Contributions

As a condition of participation in the Itron, Inc. 2010 Stock Incentive Plan (the “Plan”) and the vesting of the restricted stock unit award (the “Award”) that has been granted to you by Itron, Inc. (the “Company”), you are required to enter into a joint election to transfer to you any liability for employer national insurance contributions (the “Employer’s Liability”) that may arise in connection with the Award, or in connection with future restricted stock unit awards, granted to you by the Company under the Plan (the “Joint Election”).

If you do not agree to enter into the Joint Election, the Award will be worthless, as (under the terms of the Restricted Stock Unit Award Agreement) you will not be able to vest in the Award or receive any benefit in connection with the Award.

By entering into the Joint Election:


•	you agree that any Employer’s Liability that may arise in connection with or pursuant to the vesting of the Award (and the acquisition of shares of the Company’s common stock) or other taxable events in connection with the Award will be transferred to you; and


•	you authorise the Company and/or your employer to recover an amount sufficient to cover this liability by any method set forth in the Restricted Stock Unit Award Agreement and/or the Joint Election.

Indicating your acceptance of the Restricted Stock Unit Award Agreement indicates your agreement to be bound by the terms of the Joint Election.

Please read the terms of the Joint Election carefully before

accepting the Restricted Stock Unit Award Agreement

and the Joint Election.

Please print and keep a copy of the Joint Election

for your records.

ITRON, INC.
2010 STOCK INCENTIVE PLAN

Restricted Stock Units

for Employees in the United Kingdom

FORM OF ELECTION TO TRANSFER THE EMPLOYER’S SECONDARY

CLASS 1 NATIONAL INSURANCE LIABILITY TO THE EMPLOYEE


1.	Parties

This Election is between:


(A)	You, the individual who has obtained access to this Election (the “Employee”), who is employed by one of the employing companies listed in the attached schedule (the “Employer”), and who is eligible to receive a restricted stock unit award pursuant to the terms and conditions of the Itron, Inc. 2010 Stock Incentive Plan (the “Plan”), and


(B)	Itron, Inc. of 2111 N. Molter Road, Lake Liberty, Washington 99019, U.S.A. (the “Company”) which may grant restricted stock unit awards under the Plan and is entering this Election on behalf of the Employer.


2.	Purpose of Election


2.1	This Election relates to the Employer’s secondary Class 1 national insurance contributions (the “Employer’s Liability”) which may arise on the occurrence of a "Taxable Event" pursuant to section 4(4)(a) or paragraph 3B(1A) of Schedule 1 of the Social Security Contributions and Benefits Act 1992, including but not limited to:


(i)	the acquisition of securities pursuant to the restricted stock unit award (pursuant to section 477(3)(a) ITEPA); and/or


(ii)	the assignment or release of the restricted stock unit award in return for consideration (pursuant to section 477(3)(b) ITEPA); and/or


(iii)	the receipt of a benefit in connection with the restricted stock unit award other than a benefit within (i) or (ii) above (pursuant to section 477(3)(c) ITEPA).

In this Election, ITEPA means the Income Tax (Earnings and Pensions) Act 2003.


2.2	This Election is made in accordance with paragraph 3B(1) of Schedule 1 to the Social Security Contributions and Benefits Act 1992.


2.3	This Election applies to all restricted stock unit awards granted to the Employee under the Plan, on or after 6 May 2010 up to the termination date of the Plan.


2.4	This Election does not apply in relation to any liability, or any part of any liability, arising as a result of regulations being given retrospective effect by virtue of section 4B(2) of either the Social Security Contributions and Benefits Act 1992, or the Social Security Contributions and Benefits (Northern Ireland) Act 1992.


2.5	This Election will not apply to the extent that it relates to relevant employment income which is employment income of the earner by virtue of Chapter 3A of Part 7 of ITEPA 2003 (employment income: securities with artificially depressed market value).


3.	The Election

The Employee and the Company jointly elect that the entire liability of the Employer to pay the Employer’s Liability on the Taxable Event is hereby transferred to the Employee. The Employee understands that by clicking on the acceptance of the Restricted Stock Unit Award button where indicated, he or she will become personally liable for the Employer’s Liability covered by this Election.


4.	Payment of the Employer’s Liability

4.1

Notwithstanding that pursuant to this Election, the Employer’s Liability is transferred to the Employee, the Employee authorises the Employer and the Employer agrees, to remit the Employer’s Liability to Her Majesty’s Revenue and Customs (“HMRC”) on behalf of the Employee within 14 days following the end of the UK Income Tax month during which the Taxable Event occurs, or within 17 days following the end of the UK Income Tax month during which the Taxable Event occurs, if submitted electronically. The Employee agrees to pay to the Employer the Employer’s Liability on demand at any time on or after the Taxable Event.


4.2	Without limitation to Clause 4.1 above, the Employee hereby authorises the Company and/or the Employer to collect the Employer’s Liability from the Employee at any time on or after the Taxable Event:


(i)	by deduction from salary or any other payment payable to the Employee at any time on or after the date of the Taxable Event; and/or


(ii)	directly from the Employee by payment in cash or cleared funds; and/or


(iii)	by arranging, on behalf of the Employee, for the sale of some of the securities which the Employee is entitled to receive in respect of the restricted stock unit award; and/or


(iv)	through any other method set forth in the Restricted Stock Unit Award Agreement entered into between the Employee and the Company.


4.3	The Company hereby reserves for itself and the Employer the right to withhold the transfer of any securities to the Employee until full payment of the Employer’s Liability is received.

5. Duration of Election


5.1	The Employee and the Company agree to be bound by the terms of this Election regardless of whether the Employee is transferred abroad or is not employed by the UK Employer on the date on which the Employer’s Liability becomes due.

5.2 This Election will continue in effect until the earliest of the following:


(i)	such time as both the Employee and the Company agree in writing that it should cease to have effect;


(ii)	the date the Company serves written notice on the Employee terminating its effect;


(iii)	the date HMRC withdraws approval of this Form of Election; or


(iv)	the date the Election ceases to have effect in accordance with its terms in respect of any outstanding restricted stock unit awards granted under the Plan.

Acceptance by the Employee

The Employee acknowledges that by clicking on the acceptance of the Restricted Stock Unit Award button where indicated, the Employee agrees to be bound by the terms of this Election as stated above.

Acceptance by the Company

The Company acknowledges that by arranging for the scanned signature of an authorised representative to appear on this Election, the Company agrees to be bound by the terms of this Election as stated above.

[INSERT SCANNED SIGNATURE]

[Name]

[Title]

Itron, Inc.

[Date]

Schedule to Form of Election – Employing Companies

The Employing Companies to which this Form of Election relates are:

(1) Itron Metering Solutions UK Limited



Registered Office:	Langer Road, Felixstowe, Suffolk, IP11 2ER United Kingdom
Company Number:	04274515
Corporation Tax District:
Corporation Tax Reference:
PAYE District:
PAYE Reference:

UNITED STATES

There are no country-specific provisions.

ITRI EX-10.2 9.30.12

Exhibit 10.2

ITRON, INC.

2010 STOCK INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD NOTICE

FOR PARTICIPANTS IN FRANCE

Itron, Inc. (the “Company”) hereby grants to Participant a restricted stock unit award (the “Award”). The Award is subject to all the terms and conditions set forth in this Restricted Stock Unit Award Notice (the “Award Notice”), the Restricted Stock Unit Award Agreement (the “Agreement”), the Itron, Inc. 2010 Stock Incentive Plan (the “U.S. Plan”) and the Rules of the Itron, Inc. 2010 Stock Incentive Plan for the Grant of Restricted Stock Units to Participants in France (the “French RSU Plan” and together with the U.S. Plan, the “Plan”), all of which are incorporated into the Award Notice in their entirety.



Participant:	«First_Name» «Last_Name»
Date of Grant:	«Grant Date»
Number of Restricted Stock Units:	«# of Units»
Vesting Schedule:	The Award will vest in full on the second anniversary of the Date of Grant (the “Vesting Date”), except in certain exceptional circumstances.
Restriction on Sale of Shares:	Any Shares acquired pursuant to the Award cannot be sold prior to the second anniversary of the Vesting Date or during Closed Periods (as defined in the French RSU Plan), except in certain exceptional circumstances.

By accepting this Award Notice and Agreement providing for the terms and conditions of my grant, I confirm having read and understood the documents relating to this grant (the Restricted Stock Unit Award Agreement, the U.S. Plan, the French RSU Plan and the U.S. Plan Prospectus) which were provided to me in English language. I accept the terms of those documents accordingly.

En acceptant la présente Notice d’Attribution et le Contrat décrivant les termes et conditions de mon attribution, je confirme ainsi avoir lu et compris les documents relatifs à cette attribution (le Contrat d’Attribution d’Actions Gratuites, le Plan Américain, le Sous-Plan pour la France et le Prospectus Américain) qui m’ont été communiqués en langue anglaise. J’en accepte les termes en connaissance de cause.



«First_Name» «Last_Name» I accept this award subject to the terms and conditions stated herein. «Electronically Signed»
Attachments:
1. Restricted Stock Unit Award Agreement 2. U.S. Plan 3. French RSU Plan 4. U.S. Plan Prospectus

ITRON, INC.

2010 STOCK INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

FOR PARTICIPANTS IN FRANCE

Pursuant to your Restricted Stock Unit Award Notice (the “Award Notice”) and this Restricted Stock Unit Award Agreement (this “Agreement”), Itron, Inc. (the “Company”) has granted you a restricted stock unit award (the “Award”) under its 2010 Stock Incentive Plan (the “U.S. Plan”) and the Rules of the Itron, Inc. 2010 Stock Incentive Plan for the Grant of Restricted Stock Units to Participants in France (the “French RSU Plan” and together with the U.S. Plan, the “Plan”) for the number of restricted stock units indicated in your Award Notice. Capitalized terms not expressly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan.

The Award is intended to qualify for the specific tax and social security treatment in France applicable to shares granted for no consideration under Sections L. 225-197-1 to L. 225-197-6 of the French Commercial Code, as amended. However, certain events may affect the qualified status of the Award and the Company does not make any undertaking or representation to maintain the qualified status of the Award. If the Award does not retain its qualified status, the specific tax and social security treatment will not apply and you will be required to pay your portion of social security contributions resulting from the Award.

Moreover, if you relocate to another country, any special terms and conditions applicable to restricted stock unit awards granted in such country will apply to you, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons.

In addition, the Company reserves the right to impose other requirements on the Award and any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

The details of the Award are as follows:


1.	Vesting and Settlement

The Award will vest according to the vesting schedule set forth in the Award Notice (the “Vesting Schedule”). Restricted stock units that have vested and are no longer subject to forfeiture according to the Vesting Schedule are referred to herein as “Vested Units.” Restricted stock units that have not vested and remain subject to forfeiture under the Vesting Schedule are referred to herein as “Unvested Units.” Except as provided in Section 3 below, the Unvested Units will vest (and to the extent so vested cease to be Unvested Units remaining subject to forfeiture) in accordance with the Vesting Schedule (the Unvested and Vested Units are collectively referred to herein as the “Units”).

Unless otherwise provided in this Agreement, as soon as practicable after the Vesting Date, the Company will settle the Vested Units by issuing to you one Share for each Vested Unit, subject to the provisions of Section 6 below.


2.	Change in Control Transaction

In the event of a Change in Control Transaction, any Unvested Units will accelerate in vesting and become Vested Units immediately prior to such transaction. This may trigger the loss of the specific French tax and social insurance contributions regime.


3.	Termination of Employment

If your employment terminates during the Units' vesting period by reason of death, the Units will become transferable to your heirs. The Company will issue the Shares subject to the Units to your heirs upon their request, provided they contact the Company with such a request within six (6) months following your death. If your heirs do not request the issuance of the Shares within six (6) months of your death, the Units will be forfeited to the Company.

If your employment terminates during the Units' vesting period by reason of Disability (and such Disability meets the definition of Disability in both the French RSU Plan and the U.S. Plan), any Unvested Units will accelerate in vesting and become Vested Units upon such termination of employment.

If your employment terminates during the Units' vesting period for any reason other than death or Disability, any Unvested Units will be forfeited to the Company.


4.	No Rights as Shareholder

You shall not have voting or other rights as a shareholder of the Company with respect to the Units.


5.	Transferability of Units

Units shall not be sold, transferred, assigned, encumbered, pledged or otherwise disposed of, whether voluntarily or by operation of law.


6.	Transferability of Shares


6.1	Holding Period

You are required to hold the Shares issued pursuant to the vesting of the Units for two years as measured from the Vesting Date or such other period as is required to comply with the minimum mandatory holding period applicable to Shares underlying French-qualified Restricted Stock Units (the “Holding Period”) in order to benefit from the specific French tax and social insurance contributions regime, even if you are no longer an employee or corporate officer, as applicable, of a French Entity or otherwise employed by the Company or a Subsidiary, if applicable. As from the end of the Holding Period, the corresponding Shares

shall be freely transferable, subject to applicable legal and regulatory provisions in force and in particular to the provisions of Section 6.2 below.

This Holding Period requirement shall not apply to your heirs should they acquire Shares under the Plan pursuant to Section 3 above nor shall it apply if you terminate employment due to Disability (as defined in the French RSU Plan).


6.2	Closed Period

As long as the Award and the Shares issued upon vesting of the Units maintain their qualified status and to the extent such restriction is applicable under French law, the Shares may not be sold during a Closed Period (as defined in the French RSU Plan).

This Closed Period restriction shall not apply to your heirs should they acquire Shares under the Plan pursuant to Section 3 above nor shall it apply if you terminate employment due to Disability (as defined in the French RSU Plan).


6.3	Shareholding Restrictions

If you qualify as a managing corporate officer (i.e., “mandataires sociaux,” Président du Conseil d’Administration, Directeur Général, Directeur Général Délégué, Membre du Directoire, Gérant de Sociétés par actions) or have a comparable position in any other company within the Company group, and if the Award is granted to you in such capacity, you are subject to shareholding restrictions and you must hold 20% of the Shares issued upon vesting of the Units and not sell such Shares until you cease to serve as a managing corporate officer (or cease to have a comparable position as described herein), if required under French law.


6.4	Compliance with Transfer Restrictions

To ensure compliance with the restrictions on the transfer of Shares described in Sections 6.1, 6.2 and 6.3. above, the Company may require that the Shares be held with Fidelity or any brokerage firm designated by the Company (or according to any procedure implemented by the Company) until such Shares are sold.


7.	Securities Law Compliance

7.1 You represent and warrant that you (a) have been furnished with a copy of the prospectus for the Plan and all information which you deem necessary to evaluate the merits and risks of receipt of the Award, (b) have had the opportunity to ask questions and receive answers concerning the information received about the Award and the Company, and (c) have been given the opportunity to obtain any additional information you deem necessary to verify the accuracy of any information obtained concerning the Award and the Company.

7.2 You hereby agree that you will in no event sell or distribute all or any part of the Shares unless (a) there is an effective registration statement under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and any applicable state and foreign securities laws covering any such transaction involving the Shares or (b) the Company receives an

opinion of your legal counsel (concurred in by legal counsel for the Company) stating that such transaction is exempt from registration or the Company otherwise satisfies itself that such transaction is exempt from registration. You understand that the Company has no obligation to you to register the Shares with the U.S. Securities and Exchange Commission or any foreign securities regulator and has not represented to you that it will so register the Shares.

7.3 You confirm that you have been advised, prior to your receipt of the Shares, that neither the offering of the Shares nor any offering materials have been reviewed by any regulator under the Securities Act or any other applicable securities act (the “Acts”) and that the Shares cannot be resold unless they are registered under the Acts or unless an exemption from such registration is available.

7.4 You hereby agree to indemnify the Company and hold it harmless from and against any loss, claim or liability, including attorneys’ fees or legal expenses, incurred by the Company as a result of any breach by you of, or any inaccuracy in, any representation, warranty or statement made by you in this Agreement or the breach by you of any terms or conditions of this Agreement.


8.	Book Entry Registration of Shares


9.	Responsibility for Taxes

9.1 Regardless of any action the Company or your employer (the “Employer”) take with respect to any and all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to your participation in the Plan and legally applicable to you (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items is and remains your responsibility and may exceed the amount actually withheld by the Company and/or the Employer. You further acknowledge that the Company and the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including, but not limited to, the granting or vesting of the Award, the settlement of Vested Units, the issuance of Shares upon settlement of the Vested Units, the subsequent sale of Shares acquired upon settlement of the Vested Units and the receipt of any dividends; and (b) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Award to reduce or eliminate your liability for Tax-Related Items or achieve any particular tax and/or social insurance contribution result. Further, if you have become subject to tax and/or social insurance contributions in more than one jurisdiction between the Date of Grant and the date of any relevant taxable or tax withholding event, as applicable, you acknowledge that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

9.2 Prior to any relevant taxable or tax and/or social insurance contribution withholding event, as applicable, you will pay or make adequate arrangements satisfactory to the Company and or the Employer to satisfy all Tax-Related Items.


(i)	Sell on the open market at the then prevailing market price(s), on your behalf, as soon as practicable on or after the settlement date for any Vested Unit, the minimum number of Shares (rounded up to the next whole number) sufficient to generate proceeds to cover the Tax-Related Items and all applicable fees and commissions due to, or required to be collected by, the Agent;


(ii)	Remit directly to the Company the cash amount necessary to cover the Tax-Related Items;


(iii)	Retain the amount required to cover all applicable fees and commissions due to, or required to be collected by, the Agent, relating directly to the sale of Shares referred to in clause (i) above; and


(iv)	Remit any remaining funds to you.

(b) Alternatively, or in addition to or in combination with the withholding mechanism described in Section 8.2(a), you authorize the Company and/or the Employer, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by:


(i)	requiring you to pay to the Company or the Employer any amount of the Tax-Related Items; and/or


(ii)	withholding any amount of the Tax-Related Items from your wages or other cash compensation paid to you by the Company and/or the Employer, within legal limits; and/or

(iii)

entitlement to the equivalent amount in Shares. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax and/or social insurance contribution purposes, you will be deemed to have been issued the full number of Shares subject to the Vested Units notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of your participation in the Plan. The Company may refuse to issue or deliver Shares to you if you fail to comply with your obligations in connection with the Tax-Related Items.


10.	Nature of Grant

In accepting the grant, you acknowledge, understand and agree that:

(c) all decisions with respect to future grants of restricted stock units, if any, will be at the sole discretion of the Company;

(e) you are voluntarily participating in the Plan;

(f) the Award and the Shares subject to the Award are not intended to replace any pension rights or compensation;

(g) the Award and the Shares subject to the Award, and the income and value of same, are not part of normal or expected compensation for any purpose, including but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

(h) the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;

(i) no claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting from your ceasing to provide employment or other services to the Company or the Employer (for any reason whatsoever, and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where you are employed or the terms of your employment agreement, if any) and, in consideration of the grant of the Award to which you are otherwise not entitled, you irrevocably agree never to institute any claim against the Company, any Related Corporation or the Employer, waive the ability, if any, to bring any such claim and release the Company, any Related Corporation and the Employer from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, you will be deemed irrevocably to have agreed not to pursue such claim and agree to execute any and all documents necessary to request dismissal or withdrawal of such claims;

(j) for purposes of the Award, your employment will be considered terminated as of the date you cease to actively provide services to the Company or a Related Corporation; further, in the event of termination of your employment or other services (for any reason whatsoever, and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where you are employed or the terms of your employment agreement, if any), unless otherwise provided in this Agreement or determined by the Company, your right to vest in the Award, if any, will terminate effective as of the date that you are no longer actively providing services and will not be extended by any notice period (e.g., active service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where you are employed or the terms of your employment agreement, if any); the Company’s Chief Executive Officer shall

have the exclusive discretion to determine when you are no longer actively providing services for purposes of the Award (including whether or not you may still be considered to be providing services while on an approved leave of absence);

(l) you acknowledge and agree that neither the Company, the Employer nor any Related Corporation shall be liable for any foreign exchange rate fluctuation between your local currency and the United States dollar that may affect the value of the Award or of any amounts due to you pursuant to the settlement of the Award or the subsequent sale of any Shares acquired upon settlement.


11.	No Advice Regarding Grant


12.	Data Privacy

and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than France. You understand that you may request a list with the names and addresses of any potential recipients of Data by contacting your local human resources representative. You authorize the Company, Fidelity and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer Data, in electronic or other form, for the sole purpose of implementing, administering and managing your participation in the Plan. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative. Further, you understand that you are providing the consents herein on a purely voluntary basis. If you do not consent, your employment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing your consent is that the Company would not be able to grant you the Award or other equity awards or administer or maintain such awards. Therefore, you understand that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.


13.	Electronic Delivery and Participation

The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.


14.	Language


15.	General Provisions

your consent, modify the terms of the Award as it determines appropriate to comply with the requirements of Section 409A of the Code and the related U.S. Department of Treasury guidance. The Company makes no representation or covenant to ensure that the Units, settlement of the Units or other payment hereunder are exempt from or compliant with Section 409A of the Code and will have no liability to you or any other party if the settlement of the Units or other payment hereunder that is intended to be exempt from, or compliant with, Section 409A of the Code, is not so exempt or compliant or for any action taken by the Plan Administrator with respect thereto.

15.5 Notice. Any notice required or permitted hereunder shall be made in writing and sent to the following address:

Itron, Inc.

Attn. General Counsel

2111 N. Molter Road

Liberty Lake, WA 99019

USA


16.	Waiver

ITRI EX-31.1 9.30.12

Exhibit 31.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, LeRoy D. Nosbaum, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Itron, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and


b)	Any fraud, whether or not material that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



ITRON, INC.

By:		/s/ LEROY D. NOSBAUM
LeRoy D. Nosbaum President and Chief Executive Officer

Date: November 5, 2012

ITRI EX-31.2 9.30.12

Exhibit 31.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Steven M. Helmbrecht, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of Itron, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and


b)	Any fraud, whether or not material that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



ITRON, INC.

By:		/s/ STEVEN M. HELMBRECHT
Steven M. Helmbrecht Sr. Vice President and Chief Financial Officer

Date: November 5, 2012

ITRI EX-32.1 9.30.12

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Quarterly Report of Itron, Inc. (the Company) on Form 10-Q for the quarterly period ended September 30, 2012 (the Report) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code.

LeRoy D. Nosbaum, the Chief Executive Officer and Steven M. Helmbrecht, the Chief Financial Officer of the Company, each certifies that to the best of his knowledge:


(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ LEROY D. NOSBAUM

LeRoy D. Nosbaum

President and Chief Executive Officer

November 5, 2012

/s/ STEVEN M. HELMBRECHT

Steven M. Helmbrecht

Sr. Vice President and Chief Financial Officer

November 5, 2012