Segment Information

We operate under the Itron brand worldwide and manage and report under three operating segments: Electricity, Gas, and Water. Our Water operating segment includes our global water, and heat and allocation solutions. This structure allows each segment to develop its own go-to-market strategy, prioritize its marketing and product development requirements, and focus on its strategic investments. Our sales and marketing functions are managed under each segment. Our product development and manufacturing operations are managed on a worldwide basis to promote a global perspective in our operations and processes while serving the needs of our segments.

We have three GAAP measures of segment performance: revenue, gross profit (margin), and operating income (margin). Intersegment revenues are minimal. Certain operating expenses are allocated to the operating segments based upon internally established allocation methodologies. Corporate operating expenses, interest income, interest expense, other income (expense), and income tax provision are not allocated to the segments, and are not included in the measure of segment profit or loss. In addition, we allocate only certain production assets and intangible assets to our operating segments. We do not manage the performance of the segments on a balance sheet basis.

Segment Products



Electricity	Standard electricity (electromechanical and electronic) meters; smart metering solutions that include one or several of the following: smart electricity meters; smart electricity communication modules; prepayment systems, including smart key, keypad, and smart card communication technologies; smart systems including handheld, mobile, and fixed network collection technologies; smart network technologies; meter data management software; knowledge application solutions; installation; implementation; and professional services including consulting and analysis.

Gas	Standard gas meters; smart metering solutions that include one or several of the following: smart gas meters; smart gas communication modules; prepayment systems, including smart key, keypad, and smart card communication technologies; smart systems, including handheld, mobile, and fixed network collection technologies; smart network technologies; meter data management software; knowledge application solutions installation; implementation; and professional services including consulting and analysis.

Water	Standard water and heat meters; smart metering solutions that include one or several of the following: smart water meters and communication modules; smart heat meters; smart systems including handheld, mobile, and fixed network collection technologies; meter data management software; knowledge application solutions; installation; implementation; and professional services including consulting and analysis.

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(in thousands)
Revenues
Electricity	$	240,142		$	242,667		$	729,225		$	692,785
Gas	131,780			144,185			394,691			433,707
Water	114,825			120,007			343,505			390,981
Total Company	$	486,747		$	506,859		$	1,467,421		$	1,517,473

Gross profit
Electricity	$	76,440		$	75,362		$	222,227		$	210,840
Gas	46,260			56,096			147,036			158,156
Water	42,618			39,291			131,140			134,661
Total Company	$	165,318		$	170,749		$	500,403		$	503,657

Operating income (loss)
Electricity	$	17,114		$	20,452		$	51,629		$	51,092
Gas	20,030			7,136			57,849			48,811
Water	14,837			(3,546		)	40,258			28,707
Corporate unallocated	(14,617		)	(17,632		)	(45,508		)	(63,153		)
Total Company	37,364			6,410			104,228			65,457
Total other income (expense)	(3,870		)	(1,882		)	(14,106		)	(8,824		)
Income before income taxes	$	33,494		$	4,528		$	90,122		$	56,633

For the three and nine months ended September 30, 2017, one customer represented 20% for both periods and another customer represented 14% and 10%, respectively, of total Electricity segment revenues. For the three months ended September 30, 2017, one customer represented 10% of total company revenues. For the nine months ended September 30, 2017, no single customer represented more than 10% of total company revenues. For the three and nine months ended September 30, 2017, no single customer represented more than 10% of the Gas or Water segment revenues.

For the three and nine months ended September 30, 2016, one customer represented 14% and another customer represented 12%, respectively, of total Electricity segment revenues. For the three and nine months ended September 30, 2016, no single customer represented more than 10% of the Gas or Water segment or total company revenues.

We currently buy a majority of our integrated circuit boards, an important component in our products, from two suppliers. Management believes that other suppliers could provide similar circuit boards, but a change in suppliers, disputes with our suppliers, or unexpected constraints on the suppliers’ production capacity could adversely affect operating results.

During the nine months ended September 30, 2017, we recognized an insurance recovery in our Water segment associated with warranty costs recognized as a result of our 2015 product replacement notification to customers who had purchased certain communication modules. As a result, gross profit increased $8.0 million for the nine months ended September 30, 2017. After adjusting for the tax impact, the recovery resulted in an increase of $0.13 and $0.12 for basic and diluted EPS, respectively, for the nine months ended September 30, 2017.

Revenues by region were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(in thousands)
United States and Canada	$	259,796	$	297,116	$	824,630	$	837,468
Europe, Middle East, and Africa	171,924		161,959		493,505		545,517
Other⁽¹⁾	55,027		47,784		149,286		134,488
Total revenues	$	486,747	$	506,859	$	1,467,421	$	1,517,473


⁽¹⁾	The Other region includes our operations in Latin America and Asia Pacific.

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



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
	(in thousands)
Electricity	$	6,687	$	6,682		$	17,772	$	21,715
Gas	5,084		5,595			13,831		15,484
Water	3,860		5,022			11,706		14,040
Corporate unallocated	901		(1,217		)	2,691		324
Total Company	$	16,532	$	16,082		$	46,000	$	51,563