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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number 000-22418
ITRON, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1011792
(State of Incorporation) (I.R.S. Employer Identification No.)
2111 N Molter Road, Liberty Lake, Washington 99019
(509) 924-9900
(Address and telephone number of registrant's principal executive offices) 

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, no par valueITRINASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of April 30, 2021, there were outstanding 45,132,612 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.
Table of Contents
 
 Page
Item 1A: Risk Factors
Item 6: Exhibits



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PART I: FINANCIAL INFORMATION
Item 1:    Financial Statements (Unaudited)
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
In thousands, except per share data20212020
Revenues
Product revenues$442,804 $528,137 
Service revenues76,770 70,278 
Total revenues519,574 598,415 
Cost of revenues
Product cost of revenues307,691 384,681 
Service cost of revenues44,839 42,168 
Total cost of revenues352,530 426,849 
Gross profit167,044 171,566 
Operating expenses
Sales, general and administrative75,992 80,498 
Research and development51,727 53,781 
Amortization of intangible assets8,973 11,165 
Restructuring(1,980)(248)
Loss on sale of business1,392  
Total operating expenses136,104 145,196 
Operating income30,940 26,370 
Other income (expense)
Interest income542 553 
Interest expense(10,475)(11,277)
Other income (expense), net(2,766)1,066 
Total other income (expense)(12,699)(9,658)
Income before income taxes18,241 16,712 
Income tax provision(4,661)(7,550)
Net income13,580 9,162 
Net income attributable to noncontrolling interests977 478 
Net income attributable to Itron, Inc.$12,603 $8,684 
Net income per common share - Basic$0.30 $0.22 
Net income per common share - Diluted$0.30 $0.21 
Weighted average common shares outstanding - Basic41,526 40,043 
Weighted average common shares outstanding - Diluted41,964 40,474 
The accompanying notes are an integral part of these consolidated financial statements.
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ITRON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

Three Months Ended March 31,
In thousands20212020
Net income$13,580 $9,162 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
(15,012)(25,445)
Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges
2,528 (767)
Pension benefit obligation adjustment
701 1,001 
Total other comprehensive income (loss), net of tax(11,783)(25,211)
Total comprehensive income (loss), net of tax1,797 (16,049)
Comprehensive income attributable to noncontrolling interests, net of tax
977 478 
Comprehensive income (loss) attributable to Itron, Inc.$820 $(16,527)
The accompanying notes are an integral part of these consolidated financial statements.
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ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In thousandsMarch 31, 2021December 31, 2020
ASSETS
Current assets
Cash and cash equivalents$574,592 $206,933 
Accounts receivable, net365,826 369,828 
Inventories169,412 182,377 
Other current assets150,271 171,124 
Total current assets1,260,101 930,262 
Property, plant, and equipment, net199,650 207,816 
Deferred tax assets, net94,620 76,142 
Other long-term assets57,599 51,656 
Operating lease right-of-use assets, net74,815 76,276 
Intangible assets, net122,861 132,955 
Goodwill1,118,322 1,131,916 
Total assets$2,927,968 $2,607,023 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable$181,606 $215,639 
Other current liabilities70,890 72,591 
Wages and benefits payable90,383 86,249 
Taxes payable14,256 15,804 
Current portion of debt400,000 18,359 
Current portion of warranty22,024 28,329 
Unearned revenue130,403 112,928 
Total current liabilities909,562 549,899 
Long-term debt, net496,531 902,577 
Long-term warranty17,310 13,061 
Pension benefit obligation115,257 119,457 
Deferred tax liabilities, net1,806 1,921 
Operating lease liabilities65,822 66,823 
Other long-term obligations100,512 113,012 
Total liabilities1,706,800 1,766,750 
Equity
Preferred stock, no par value, 10,000 shares authorized, no shares issued or outstanding
  
Common stock, no par value, 75,000 shares authorized, 45,122 and 40,444 shares issued and outstanding
1,768,517 1,389,419 
Accumulated other comprehensive loss, net(150,309)(138,526)
Accumulated deficit(421,742)(434,345)
Total Itron, Inc. shareholders' equity1,196,466 816,548 
Noncontrolling interests24,702 23,725 
Total equity1,221,168 840,273 
Total liabilities and equity$2,927,968 $2,607,023 
The accompanying notes are an integral part of these consolidated financial statements.
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ITRON, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
Common StockAccumulated Other Comprehensive LossAccumulated DeficitTotal Itron, Inc. Shareholders' EquityNoncontrolling InterestsTotal Equity
In thousandsSharesAmount
Balances at January 1, 202140,444 $1,389,419 $(138,526)$(434,345)$816,548 $23,725 $840,273 
Net income12,603 12,603 977 13,580 
Other comprehensive income (loss), net of tax(11,783)(11,783)(11,783)
Net stock issued and repurchased206 2,009 2,009 2,009 
Stock-based compensation expense6,270 6,270 6,270 
Stock issued related to equity offering4,472 389,419 389,419 389,419 
Proceeds from sale of warrants45,349 45,349 45,349 
Purchases of convertible note hedge contracts, net of tax(63,576)(63,576)(63,576)
Registration fee(373)(373)(373)
Balances at March 31, 202145,122 $1,768,517 $(150,309)$(421,742)$1,196,466 $24,702 $1,221,168 

Common StockAccumulated Other Comprehensive LossAccumulated DeficitTotal Itron, Inc. Shareholders' EquityNoncontrolling InterestsTotal Equity
In thousandsSharesAmount
Balances at January 1, 202039,941 $1,357,600 $(204,672)$(376,390)$776,538 $24,277 $800,815 
Net income8,684 8,684 478 9,162 
Other comprehensive income (loss), net of tax(25,211)(25,211)(25,211)
Net stock issued and repurchased235 2,247 2,247 2,247 
Stock-based compensation expense8,482 8,482 8,482 
Balances at March 31, 202040,176 $1,368,329 $(229,883)$(367,706)$770,740 $24,755 $795,495 
The accompanying notes are an integral part of these consolidated financial statements.
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ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
In thousands20212020
Operating activities
Net income$13,580 $9,162 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization21,810 24,031 
Non-cash operating lease expense4,330 5,496 
Stock-based compensation6,498 8,482 
Amortization of prepaid debt fees2,695 1,007 
Deferred taxes, net2,109 4,062 
Loss on sale of business1,392  
Restructuring, non-cash(45)(955)
Other adjustments, net391 (874)
Changes in operating assets and liabilities, net of sale of business:
Accounts receivable(2,078)1,185 
Inventories9,008 (543)
Other current assets15,692 (4,526)
Other long-term assets(7,627)(6,501)
Accounts payable, other current liabilities, and taxes payable(26,978)135 
Wages and benefits payable5,458 (19,977)
Unearned revenue18,050 17,395 
Warranty(1,382)(4,250)
Other operating, net(12,948)(14,435)
Net cash provided by operating activities49,955 18,894 
Investing activities
Net proceeds related to the sale of business2,842  
Acquisitions of property, plant, and equipment(11,412)(12,602)
Other investing, net2,764 3,345 
Net cash used in investing activities(5,806)(9,257)
Financing activities
Proceeds from borrowings460,000 400,000 
Payments on debt(475,000) 
Issuance of common stock2,238 2,911 
Proceeds from common stock offering389,419  
Proceeds from sale of warrants45,349  
Purchases of convertible note hedge contracts(84,139) 
Repurchase of common stock (664)
Prepaid debt fees(11,722)(175)
Other financing, net(1,564)(335)
Net cash provided by financing activities324,581 401,737 
Effect of foreign exchange rate changes on cash and cash equivalents(1,071)(6,758)
Increase in cash and cash equivalents367,659 404,616 
Cash and cash equivalents at beginning of period206,933 149,904 
Cash and cash equivalents at end of period$574,592 $554,520 
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Income taxes, net$2,147 $(5,370)
Interest3,193 14,804 
The accompanying notes are an integral part of these consolidated financial statements.
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ITRON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
(UNAUDITED)
In this Quarterly Report on Form 10-Q, the terms "we", "us", "our", "Itron", and the "Company" refer to Itron, Inc. and its subsidiaries.

Note 1:    Summary of Significant Accounting Policies

Financial Statement Preparation
The 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 months ended March 31, 2021 and 2020, Consolidated Statements of Equity for the three months ended March 31, 2021 and 2020, the Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020, and the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, 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. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the full year or for any other period.

Certain information and notes normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been partially or completely omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) regarding interim results. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2020 filed with the SEC in our Annual Report on Form 10-K on February 24, 2021 (2020 Annual Report). There have been no significant changes in financial statement preparation or significant accounting policies since December 31, 2020.

Risks and Uncertainties
The COVID-19 pandemic has had global economic impacts including disrupting global supply chains and creating market volatility. The extent of the recent pandemic and its ongoing impact on our operations is volatile, but is being monitored closely by our management. During portions of the first half of 2020 certain of our European factories were closed due to government actions and local conditions, and any further closures that may be imposed on us could impact our results for 2021. Incremental costs we have incurred related to COVID-19, such as personal protective equipment, increased cleaning and sanitizing of our facilities, and other such items, have not been material to date. At this time, we have not identified any significant decrease in long-term customer demand for our products and services. Certain of our customers' projects and deployments have continued to shift later into 2021 and beyond.

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which modifies certain provisions of Accounting Standards Codification (ASC) 740, to reduce the complexity of accounting for income taxes. ASU 2019-12 is effective for us beginning with our interim financial reports for the first quarter of 2021. The adoption of this standard had no impact to our Q1 consolidated financial position, results of operations, or cash flows and is not expected to have a material impact on full year 2021 financial results.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (ASU 2020-06). This amendment simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. We have chosen to early adopt ASU 2020-06 beginning January 1, 2021, due to the issuance of our convertible debt on March 9, 2021. This amendment will have no retrospective changes but will impact how our newly issued convertible debt is both recognized and disclosed. ASU 2020-06 also amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The treasury stock method is no longer available.

Recent Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts,
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hedging relationships, and other transactions affected by reference rate reform. ASU 2020-04 applies to contracts that reference LIBOR or another reference rate expected to be terminated because of reference rate reform. An entity may elect certain optional expedients for hedging relationships that exist as of December 31, 2022 and maintain those optional expedients through the end of the hedging relationship. ASU 2020-04 can be adopted as of March 12, 2020 or thereafter. In January 2021, the FASB issued ASU 2021-01, which further updates the scope of Topic 848. We do not currently have any contracts that have been changed to a new reference rate, but we will continue to evaluate our contracts and the effects of this standard on our consolidated financial position, results of operations, and cash flows prior to adoption.

Note 2:    Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (EPS):
Three Months Ended March 31,
In thousands, except per share data20212020
Net income available to common shareholders$12,603 $8,684 
Weighted average common shares outstanding - Basic41,526 40,043 
Dilutive effect of stock-based awards438 431 
Dilutive effect of convertible notes  
Weighted average common shares outstanding - Diluted41,964 40,474 
Net income per common share - Basic$0.30 $0.22 
Net income per common share - Diluted$0.30 $0.21 

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 our common stock at the average market price during the period. Related proceeds include the amount the employee must pay upon exercise and the future compensation cost associated with the stock award. Approximately 0.1 million and 0.3 million stock-based awards were excluded from the calculation of diluted EPS for the three months ended March 31, 2021 and 2020 because they were anti-dilutive. These stock-based awards could be dilutive in future periods.

Convertible Notes and Warrants
For our Convertible Notes issued in March 2021, the dilutive effect is calculated using the if-converted method in accordance with ASU 2020-06. We are required, pursuant to the indenture governing our Convertible Notes, to settle the principal amount of the Convertible Notes in cash and may elect to settle the remaining conversion obligation (stock price in excess of conversion price) in cash, shares or a combination thereof. Under the if-converted method, we include the number of shares required to satisfy the conversion obligation, assuming all the Convertible Notes are converted. The average closing price of our common stock for the quarter ended March 31, 2021 is used as the basis for determining the dilutive effect on EPS. The average price of our common stock for the quarter ended March 31, 2021 was less than the conversion price of $126.00, and all associated shares were anti-dilutive.

In conjunction with the issuance of the Convertible Notes, we sold warrants to purchase 3.7 million shares of Itron stock. The warrants have a strike price of $180.00 per share. For calculating the dilutive effect of the warrants, we use the treasury stock method. With this method, we assume exercise of the warrants at the beginning of the period, or at time of issuance if later, and issuance of common shares upon exercise. Proceeds from the exercise of the warrants are assumed to be used to repurchase shares of our stock at the average market price during the period. The incremental shares, representing the number of shares assumed to be exercised with the warrants less the number of shares repurchased, are included in diluted shares. For periods where the warrants strike price of $180.00 per share is greater than the average share price of Itron stock for the period, the warrants would be anti-dilutive. For the quarter ended March 31, 2021, the average share price was below the warrant strike price, and therefore 3.7 million shares were considered anti-dilutive.

Convertible Note Hedge Transactions
In connection with the issuance of the Convertible Notes, we entered into privately negotiated call option contracts on our common stock (the Convertible Note Hedge Transactions) with certain commercial banks (the Counterparties). We paid an aggregate amount of $84.1 million for the Convertible Note Hedge Transactions. The Convertible Note Hedge Transactions cover, subject to anti-dilution adjustments substantially similar to those in the Convertible Notes, approximately 3.7 million
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shares of our common stock, the same number of shares initially underlying the Convertible Notes, at a strike price of approximately $126.00, subject to customary adjustments. The Convertible Note Hedge Transactions will expire upon the maturity of the Convertible Notes, subject to earlier exercise or termination. Exercise of the Convertible Note Hedge Transactions would reduce the number of shares of our common stock outstanding, and therefore would be anti-dilutive.

Note 3:    Certain Balance Sheet Components

A summary of accounts receivable from contracts with customers is as follows:
Accounts receivable, net
In thousandsMarch 31, 2021December 31, 2020
Trade receivables (net of allowance of $1,136 and $1,312)
$319,052 $318,269 
Unbilled receivables46,774 51,559 
Total accounts receivable, net$365,826 $369,828 

Allowance for credit losses account activityThree Months Ended March 31,
In thousands20212020
Beginning balance$1,312 $3,064 
Provision for (release of) doubtful accounts, net(67)510 
Accounts written-off(79)(415)
Effect of change in exchange rates(30)(113)
Ending balance$1,136 $3,046 

Inventories
In thousandsMarch 31, 2021December 31, 2020
Raw materials$109,314 $114,058 
Work in process9,287 8,094 
Finished goods50,811 60,225 
Total inventories$169,412 $182,377 

Property, plant, and equipment, net
In thousandsMarch 31, 2021December 31, 2020
Machinery and equipment$333,973 $334,050 
Computers and software116,121 115,776 
Buildings, furniture, and improvements153,246 155,676 
Land13,900 14,303 
Construction in progress, including purchased equipment30,207 31,425 
Total cost647,447 651,230 
Accumulated depreciation(447,797)(443,414)
Property, plant, and equipment, net$199,650 $207,816 

Depreciation expenseThree Months Ended March 31,
In thousands20212020
Depreciation expense$12,837 $12,866 

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Note 4:    Intangible Assets and Liabilities

The gross carrying amount and accumulated amortization (accretion) of our intangible assets and liabilities, other than goodwill, were as follows:
March 31, 2021December 31, 2020
In thousandsGrossAccumulated
(Amortization) Accretion
NetGrossAccumulated
(Amortization) Accretion
Net
Intangible Assets
Core-developed technology$514,416 $(491,146)$23,270 $525,051 $(498,113)$26,938 
Customer contracts and relationships378,430 (281,965)96,465 383,245 (280,497)102,748 
Trademarks and trade names78,763 (76,055)2,708 79,716 (76,912)2,804 
Other12,024 (11,606)418 12,025 (11,560)465 
Total intangible assets
$983,633 $(860,772)$122,861 $1,000,037 $(867,082)$132,955 
Intangible Liabilities
Customer contracts and relationships$(23,900)$21,969 $(1,931)$(23,900)$21,479 $(2,421)

A summary of intangible assets and liabilities activity is as follows:
Three Months Ended March 31,
In thousands20212020
Intangible assets, gross beginning balance$1,000,037 $979,814 
Effect of change in exchange rates(16,404)(16,075)
Intangible assets, gross ending balance$983,633 $963,739 
Intangible liabilities, gross beginning balance$(23,900)$(23,900)
Effect of change in exchange rates  
Intangible liabilities, gross ending balance$(23,900)$(23,900)

Assumed intangible liabilities reflect the present value of the projected cash outflows for an existing contract where remaining costs are expected to exceed projected revenues.

Estimated future annual amortization (accretion) is as follows:
Year Ending December 31,AmortizationAccretionEstimated Annual Amortization, net
In thousands
2021 (amount remaining at March 31, 2021)$28,447 $(1,472)$26,975 
202227,516 (459)27,057 
202319,898  19,898 
202415,700  15,700 
202514,706  14,706 
Thereafter16,594  16,594 
Total intangible assets subject to amortization (accretion)$122,861 $(1,931)$120,930 


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Note 5:    Goodwill

The following table reflects changes in the carrying amount of goodwill for the three months ended March 31, 2021:
In thousandsDevice SolutionsNetworked SolutionsOutcomesTotal Company
Goodwill balance at January 1, 2021$53,214 $933,814 $144,888 $1,131,916 
Effect of change in exchange rates(551)(11,288)(1,755)(13,594)
Goodwill balance at March 31, 2021$52,663 $922,526 $143,133 $1,118,322 

Note 6:    Debt

The components of our borrowings were as follows:
In thousandsMarch 31, 2021December 31, 2020
Credit facility
USD denominated term loan$61,094 $536,094 
Multicurrency revolving line of credit  
Senior notes400,000 400,000 
Convertible notes460,000  
Total debt921,094 936,094 
Less: current portion of debt
400,000 18,359 
Less: unamortized prepaid debt fees - term loan1,798 3,469 
Less: unamortized prepaid debt fees - senior notes11,118 11,689 
Less: unamortized prepaid debt fees - convertible notes11,647  
Long-term debt, net $496,531 $902,577 

Credit Facility
On October 18, 2019, we amended our credit facility that was initially entered on January 5, 2018 (together with the amendment, the 2018 credit facility). The 2018 credit facility provides for committed credit facilities in the amount of $1.2 billion U.S. dollars. The 2018 credit facility consists of a $650 million U.S. dollar term loan (the term loan) and a multicurrency revolving line of credit (the revolver) with a principal amount of up to $500 million. The revolver also contains a $300 million standby letter of credit sub-facility and a $50 million swingline sub-facility. The October 18, 2019 amendment extended the maturity date to October 18, 2024 and re-amortized the term loan based on the new balance as of the amendment date. The amendment also modified the required interest payments and made it based on total net leverage instead of total leverage. Through the third quarter of 2020, amounts not borrowed under the revolver were subject to a commitment fee, which was paid in arrears on the last day of each fiscal quarter, ranging from 0.15% to 0.25% and drawn amounts were subject to a margin ranging from 1.00% to 1.75%.

On October 19, 2020, we completed a second amendment to our 2018 credit facility. This amendment adjusts the maximum total net leverage ratio thresholds for the period beginning with the fourth quarter of 2020 through the fourth quarter of 2021 to allow for increased operational flexibility. The maximum leverage ratio is increased to 4.75:1 for the fourth quarter of 2020 and the first quarter of 2021 and 4.50:1 for the second quarter through the fourth quarter of 2021. An additional level of pricing was added to the existing pricing grid and is effective throughout the remaining term of the 2018 credit facility. Beginning with the fourth quarter of 2020, the commitment fee ranges from 0.15% to 0.30% and drawn amounts are subject to a margin ranging from 1.00% to 2.00%. Debt fees of approximately $1.4 million were incurred for the amendment, as well as other legal and advisory fees. Both the term loan and the revolver can be repaid without penalty. Amounts repaid on the term loan may not be reborrowed, and amounts borrowed under the revolver may be repaid and reborrowed until the revolver's maturity, at which time all outstanding loans together with all accrued and unpaid interest must be repaid.

On March 8, 2021, we entered into a third amendment to our 2018 credit facility, which modified provisions to permit cash settlement upon the conversion of the Convertible Notes, the Convertible Senior Note Hedge Transactions and Warrant Transactions and also to adjust certain settlement provisions for convertible indebtedness. See Note 7: Derivative Financial Instruments for further details of the Convertible Note Hedge Transactions and Warrant Transactions.

The 2018 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 2018 credit facility are
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guaranteed by Itron, Inc. and material U.S. domestic subsidiaries and are secured by a pledge of substantially all of the assets of Itron, Inc. and material U.S. domestic subsidiaries. This includes a pledge of 100% of the capital stock of material U.S. domestic subsidiaries and up to 66% of the voting stock (100% of the non-voting stock) of first-tier foreign subsidiaries. In addition, the obligations of any foreign subsidiary who is a foreign borrower, as defined by the 2018 credit facility, are guaranteed by the foreign subsidiary and by its direct and indirect foreign parents. The 2018 credit facility includes debt covenants, which contain certain financial thresholds and place certain restrictions on the incurrence of debt, investments, and the issuance of dividends. We were in compliance with the debt covenants under the 2018 credit facility at March 31, 2021.

Under the 2018 credit facility, we elect applicable market interest rates for both the term loan and any outstanding revolving loans. We also pay an applicable margin, which is based on our total net leverage ratio as defined in the credit agreement. The applicable rates per annum may be based on either: (1) the LIBOR rate or EURIBOR rate (subject to a floor of 0%), plus an applicable margin, or (2) the Alternate Base Rate, plus an applicable margin. The Alternate Base Rate election is equal to the greatest of three rates: (i) the prime rate, (ii) the Federal Reserve effective rate plus 0.50%, or (iii) one-month LIBOR plus 1.00%. At March 31, 2021, the interest rate for both the term loan and revolver was 1.86%, which includes the LIBOR rate plus a margin of 1.75%.

In March 2020, we drew $400 million in U.S. dollars under the revolving line of credit within the 2018 credit facility to increase our cash position and preserve future financial flexibility, which was fully repaid as of December 31, 2020. At March 31, 2021, there was no amount outstanding under the revolver, and $64.3 million was utilized by outstanding standby letters of credit, resulting in $435.7 million available for additional borrowings or standby letters of credit. At March 31, 2021, $235.7 million was available for additional standby letters of credit under the letter of credit sub-facility, and no amounts were outstanding under the swingline sub-facility.

Senior Notes
In December 2017 and January 2018, we issued $300 million and $100 million of aggregate principal amount of 5.00% senior notes maturing January 15, 2026 (Senior Notes). The proceeds were used to refinance existing indebtedness related to the acquisition of Silver Spring Networks, Inc., pay related fees and expenses, and for general corporate purposes. Interest on the Senior Notes was payable semi-annually in arrears on January 15 and July 15. The Senior Notes were fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of our subsidiaries that guarantee the senior credit facilities.

On March 9, 2021, we submitted a Notice of Redemption to the trustee to redeem all outstanding Senior Notes at a redemption price of 102.50%, in accordance with the indenture governing the Senior Notes, totaling $410 million. As of April 8, 2021 the Senior Notes have been fully discharged, and no principal or unpaid interest remains outstanding. The 2.5%, or $10 million, early redemption premium and write off of $11.1 million prepaid debt fees will be recognized in the second quarter of 2021.

Convertible Notes
On March 12, 2021, we closed the sale of the Convertible Notes in a private placement to qualified institutional buyers, resulting in net proceeds to us of approximately $448.5 million after deducting initial purchasers’ discounts of the offering (the Convertible Notes). The Convertible Notes do not bear regular interest, and the principal amount does not accrete. The Convertible Notes will mature on March 15, 2026, unless earlier repurchased, redeemed, or converted in accordance with their terms. No sinking fund is provided for the Convertible Notes.

The initial conversion rate of the Convertible Notes is 7.9365 shares of our common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $126.00 per share. The conversion rate of the Convertible Notes is subject to adjustment upon the occurrence of certain specified events. In addition, upon the occurrence of a make-whole fundamental change (as defined in the indenture governing the Convertible Notes) or upon a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change or notice of redemption, as the case may be.

Prior to the close of business on the business day immediately preceding December 15, 2025, the Convertible Notes are convertible at the option of the holders only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business-day period after any five consecutive trading-day period (the measurement period) in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; (3) upon the occurrence of specified corporate events; or (4) upon redemption by us. On or after
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December 15, 2025, until the close of business on the second scheduled trading day immediately preceding March 15, 2026, holders of the Convertible Notes may convert all or a portion of their notes at any time. Upon conversion, we will pay cash up to the aggregate principal amount of Convertible Notes to be converted and pay and/or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted.

On or after March 20, 2024 and prior to December 15, 2025, we may redeem for cash all or part of the Convertible Notes, at our option, if the last reported sales price of common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related notice of the redemption. The redemption price of each Convertible Notes to be redeemed will be the principal amount of such note, plus accrued and unpaid special interest, if any. Upon the occurrence of a fundamental change (as defined in the indenture governing the Convertible Notes), subject to a limited exception described in the indenture governing the Convertible Notes, holders may require us to repurchase all or a portion of their notes for cash at a price equal to plus accrued and unpaid special interest to, but not including, the fundamental change repurchase date (as defined in the indenture governing the Convertible Notes).

The Convertible Notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future unsubordinated debt and senior in right of payment to any future debt that is expressly subordinated in right of payment to the Convertible Notes. The Convertible Notes will be effectively subordinated to any of our existing and future secured debt to the extent of the assets securing such indebtedness. The Convertible Notes will be structurally subordinated to all existing debt and any future debt and any other liabilities of our subsidiaries.

Debt Maturities
The amount of required minimum principal payments on our debt in aggregate over the next five years is as follows:
Year Ending December 31,Minimum Payments
In thousands
2021 (amount remaining at March 31, 2021)$400,000 
2022 
2023 
202461,094 
2025 
Thereafter460,000 
Total minimum payments on debt$921,094 

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 13: Shareholders' Equity and Note 14: Fair Value of Financial Instruments for additional disclosures on our derivative instruments.

The fair values of our derivative instruments are determined using the income approach and significant other observable inputs (and are classified as "Level 2" in the fair value hierarchy). We have used observable market inputs based on the type of derivative and the nature of the underlying instrument. The key inputs include interest rate yield curves (swap rates and futures) and foreign exchange spot and forward rates, all of which are available in an active market. We have utilized the mid-market pricing convention for these inputs. We include, as a discount to the derivative asset, the effect of our counterparty credit risk based on current published credit default swap rates when the net fair value of our derivative instruments is in a net asset position. We consider our own nonperformance risk when the net fair value of our derivative instruments is in a net liability position by discounting our derivative liabilities to reflect the potential credit risk to our counterparty through applying a current market indicative credit spread to all cash flows.
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The fair values of our derivative instruments were as follows:
Fair Value
Derivatives AssetsBalance Sheet LocationMarch 31, 2021December 31, 2020
Derivatives designated as hedging instruments under ASC 815-20In thousands
Foreign exchange optionsOther current assets$1,851 $ 
Cross currency swap contractOther current assets1,768  
Derivatives not designated as hedging instruments under ASC 815-20
Foreign exchange forward contractsOther current assets39 52 
Total asset derivatives$3,658 $52 
Derivatives Liabilities
Derivatives designated as hedging instruments under ASC 815-20
Interest rate swap contractsOther current liabilities$ $1,025 
Interest rate swap contractsOther long-term obligations 957 
Cross currency swap contractOther current liabilities 526 
Derivatives not designated as hedging instruments under ASC 815-20
Foreign exchange forward contractsOther current liabilities84 128 
Total liability derivatives$84 $2,636 
The changes in accumulated other comprehensive income (loss) (AOCI), net of tax, for our derivative and nonderivative hedging instruments designated as hedging instruments, net of tax, were as follows:
In thousands20212020
Net unrealized loss on hedging instruments at January 1,$(16,001)$(15,103)
Unrealized gain (loss) on derivative instruments3,409 282 
Realized (gains) losses reclassified into net income (loss)(881)(1,049)
Net unrealized loss on hedging instruments at March 31,$(13,473)$(15,870)

Reclassification of amounts related to hedging instruments are included in interest expense in the Consolidated Statements of Operations. Included in the net unrealized gain (loss) on hedging instruments at March 31, 2021 and 2020 is a loss of $14.4 million, net of tax, related to our nonderivative net investment hedge, which terminated in 2011. This loss on our net investment hedge will remain in AOCI until earnings are impacted by a sale or liquidation of the associated foreign operation.

A summary of the effect of netting arrangements on our financial position related to the offsetting of our recognized derivative assets and liabilities under master netting arrangements or similar agreements is as follows:
Offsetting of Derivative AssetsGross Amounts of Recognized Assets Presented in the Consolidated Balance SheetsGross Amounts Not Offset in the Consolidated Balance Sheets
In thousandsDerivative Financial InstrumentsCash Collateral ReceivedNet Amount
March 31, 2021$3,658 $(82)$ $3,576 
December 31, 202052 (52)  

Offsetting of Derivative LiabilitiesGross Amounts of Recognized Liabilities Presented in the Consolidated Balance SheetsGross Amounts Not Offset in the Consolidated Balance Sheets
In thousandsDerivative Financial InstrumentsCash Collateral PledgedNet Amount
March 31, 2021$84 $(82)$ $2 
December 31, 20202,636 (52) 2,584 

Our derivative assets and liabilities subject to netting arrangements consist of foreign exchange forward and interest rate contracts with six counterparties at March 31, 2021 and six counterparties at December 31, 2020. No derivative asset or liability
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balance with any of our counterparties was individually significant at March 31, 2021 or December 31, 2020. Our derivative contracts with each of these counterparties exist under agreements that provide for the net settlement of all contracts through a single payment in a single currency in the event of default. We have no pledges of cash collateral against our obligations, and we have not received pledges of cash collateral from our counterparties under the associated derivative contracts.

Cash Flow Hedges
As a result of our floating rate debt under our Credit Facility, we are exposed to variability in our cash flows from changes in the applicable interest rate index. We enter into interest rate caps and swaps to reduce the variability of cash flows from increases in the LIBOR based borrowing rates on our floating rate credit facility. These instruments do not protect us from changes to the applicable margin under our credit facility. At March 31, 2021, our LIBOR-based debt balance was $61.1 million.

In October 2015, we entered into one interest rate swap, which was effective from August 31, 2016 and expired on June 23, 2020, to convert $214 million of our LIBOR-based debt from a floating LIBOR interest rate to a fixed interest rate of 1.42% (excluding the applicable margin on the debt). The notional balance amortized to maturity at the same rate as required minimum payments on the term loan. This cash flow hedge was expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk through the term of the hedge. Consequently, effective changes in the fair value of the interest rate swap were recognized as a component of other comprehensive income (loss) (OCI) and recognized in earnings when the hedged item affected earnings. The amounts paid or received on the hedge were recognized as adjustment to interest expense.

In March 2020, we entered into one interest rate swap, which was effective from June 30, 2020 to June 30, 2023, and converted $240 million of our LIBOR-based debt from a floating LIBOR interest rate to a fixed interest rate of 0.617% (excluding the applicable margin). The notional balance amortized to maturity at the same rate of originally required amortizations on our term loan. Changes in the fair value of the interest rate swap were recognized as a component of OCI and recognized in earnings when the hedged item affected earnings. The amounts paid or received on the hedge was recognized as an adjustment to interest expense along with the earnings effect of the hedged item. On March 17, 2021 following the paydown of the term loan within the 2018 credit facility, we terminated the interest rate swap, and paid a fee of $1.7 million to settle it, since the likelihood of LIBOR-based interest payments was no longer probable of occurring.

In April 2018, we entered into one cross-currency swap, which converts $56.0 million of floating LIBOR-based U.S. dollar denominated debt into 1.38% fixed rate euro denominated debt. This cross-currency swap matures on April 30, 2021 and mitigates the risk associated with fluctuations in currency rates impacting cash flows related to U.S. dollar denominated debt in a euro functional currency entity. Changes in the fair value of the cross-currency swap are recognized as a component of OCI and are recognized in earnings when the hedged item affects earnings. The amounts paid or received on the hedge are recognized as an adjustment to interest expense along with the earnings effect of the hedged item. The amount of net gains expected to be reclassified into earnings in the next 12 months is $1.8 million.

As a result of our forecasted inventory purchases in a non-functional currency, we are exposed to foreign exchange risk. We hedge portions of these purchases. During February 2021, we entered into foreign exchange option contracts for a total notional amount of $77 million at a cost of $1.1 million. The contracts will mature ratably through the year with final maturity in October 2021. Changes in the fair value of the option contracts are recognized as a component of OCI and will be recognized in product cost of revenues when the hedged item affects earnings.

The before-tax effects of our accounting for derivative instruments designated as hedges on AOCI were as follows:
Derivatives in ASC 815-20
Cash Flow
Hedging Relationships
Amount of Gain (Loss)
Recognized in OCI on
Derivative
Gain (Loss) Reclassified from 
AOCI into Income
LocationAmount
In thousands2021202020212020
Three Months Ended March 31,
Interest rate swap contracts$73 $(1,579)Interest expense$(229)$104 
Interest rate swap contracts  Other income/(expense), net(1,681) 
Interest rate cap contracts 393 Interest expense 197 
Foreign exchange options947 (89)Product cost of revenues