Welcome to the Itron Inc. fourth quarter and year end 2007 Earnings Call. Today's call is being recorded. For opening remarks I'd like to turn the call over to Deloris Duquette. Please go ahead.

Good afternoon, everyone, and thank you for joining us today. On the call today we have LeRoy Nosbaum, our Chairman and CEO, Steve Helmbrecht, our Chief Financial Officer, Malcolm Unsworth, Chief Operating Officer for Actaris and Philip Mezey, Chief Operating Officer for Itron North America. The earnings release that we issued today includes an outlook for revenue, earnings and adjusted EBITDA for 2008. We will also talk about other issues on today's call that could be forward-looking in nature. The outlook and other forward-looking information we are providing is based on what we know today and is subject to a number of risks and uncertainties. I encourage you to read the forward-looking disclosures in our press release, which alerts you to a number of factors that can cause a difference between our expectations and our actual results. You should also refer to our 2006 Form 10-K and other related SEC filings for more complete disclosures of specific risks and uncertainties related to our business. We do not assume any obligation to update or revise forward-looking statements, although we may choose to do so from time to time. Our earnings release includes non-GAAP financial information that we believe enhances your overall understanding of our current and future performance. Schedules reconciling GAAP to non-GAAP financial information are included with our press release and are also available on Itron's external web site. Today we are going to follow a format that is similar to last quarter, where Steve will start the call with a discussion of financial highlights and Malcolm and Philip will each give operational updates for their respective businesses, after which LeRoy will wrap up our prepared remarks with some of his thoughts about 2008. We will finish with a question-and-answer period. I would also like to make you aware that in conjunction with this call we posted a presentation on our website under the Investors Section that includes some of the pertinent points that each officer will discuss today. Now I'd like to turn the call over to Steve Helmbrecht, Itron's CFO.

Thank you, Deloris. We have provided a lot of detailed financial information in the release, and Malcolm and Philip will each review performance for your operating segments. So I will provide a finance review of the quarter and the year, as compared to the guidance we issued in our third quarter. Then I will focus on corporate expenses and some items below the operating income line, and of course spend some time on our debt, cash flow and EBITDA results. So let's start with the results for the fourth quarter. We had record revenue of $481 million, which was $47 million, or 11%, higher than the third quarter. The $47 million increase in revenue from the third quarter came from both business units. Itron North America's revenue was higher by $24 million and Actaris core revenue increased by $7 million. Also, Actaris benefited from a $15 million increase in revenue over the third quarter because of a stronger Euro. Our revenue was about $30 million higher than the guidance we issued in our third quarter earnings release. Why were our revenues so much above guidance? Certainly, the $15 million impact of the stronger Euro contributed to the increase. I would like to point out that, although the strong Euro contributed about $15 million in additional revenue, it also affects cost of sales and operating expenses. Therefore, the stronger Euro contributed less than $1 million to operating income. The non-GAAP operating margin was 12% for the quarter, which is about where we expected it to be. And in total the $30 million in higher revenue positively impacted the quarter by about $0.10 per share. Although the effect of foreign currency changes was minimal to operating income, we saw a negative impact of the stronger Euro in our other income and expense…

Thank you, Steve and good afternoon everyone. I am going to talk about a number of topics including Actaris results for both the quarter and the year and the effect that the stronger Euro was having, then move on to discuss some of the activity and momentum we see in Actaris operating segment and our customer base, and finally close with some thoughts and our expectations for 2008 and beyond. So let's start with the quarterly results. Revenue was $303 million. That reflects the $22 million increase over the third quarter. The higher revenue consisted of about $7 million more in increased sales, and about $15 million positive effect from a stronger Euro. All segments were strong with electric sales at about 40%, gas 32% and water sales about 28%, which is similar to Q3. With the strong Q4 sales, Actaris contributed about $834 million in revenue to Itron's results for the year. Higher than we originally expected, some of course due to the strengthening of the Euro, but also due to increased sales. Pro forma Actaris revenue for 2007 was about $1.2 billion, which reflects an 18% increase over full year 2006 Actaris revenue of $981 million. Keep in mind that the pro forma amounts are in US dollars. Core Actaris revenue growth in 2007 was about 8% and the remainder of the growth was due to the stronger Euro. An 8% growth in a traditionally 5% to 6% growth business is phenomenal. In general, we are very pleased with both the Actaris performance and the dedicated employees throughout the company. Margins were 1.4% lower than the previous quarter. The decrease was due to product mix, lower factory absorption and additional reserves for profit sharing. Operating expenses of $70 million for the quarter are $5.6 million higher than the…

Thank you, Malcolm, and good afternoon, everyone. I will now give an overview similar to Malcolm's for Itron North America. To begin with, we had a great quarter. Revenue exceeded $177 million, the highest quarterly revenue Itron North America or Legacy Itron has had in our thirty year history, which was a nice comeback from the performance and concerns in the third quarter. You may recall that we talked quite a bit about the slowdown in the North American market on our last call, which was primarily driven by delayed AMR shipments and decisions related to AMI adoption. We subsequently talked about the fact that for the first time in our recollection the decline in new housing starts has had some effect on shipments, not only Itron shipments but total shipments in the industry. Because there has been some confusion about this lately, I would like to emphasize that we are acknowledging the drop in housing and the subsequent minor effect on regular meter shipments. But the majority of our revenue in North America is driven by AMR and AMI projects, not regular electric meter shipments. Looking at the fourth quarter, you can see that we reversed the downward trend we were experiencing in the first three quarters. In fact, meter shipments for the quarter were 39% higher than they were in the third quarter. Additionally, the number of meter shipped with AMR was more than double the shipments in Q3. Part of this increase was driven by our ability to deliver more meters and modules in support of our ongoing AMR deployment projects such as Mid-American and in Trinidad and Tobago. And while Q4 is traditionally a higher quarter, we experienced a very strong surge of year end buying for both meters and modules including a very strong quarter…

Thank you, Philip and Malcom. Great quarter. Good afternoon, everyone and thank you for joining in and for your interest in Itron. Let me start today with a few comments about year-end results and then I will move to guidance for 2008. First of all it was a very nice quarter. Actaris and INA both had very good fourth quarter sales, moved products through factories and turned in great results, much of it during holidays which is always a challenge. Our cash flow was great which means Itron people were not only watching cash but working hard to collect it. We had revenue of $1.464 billion for the year, almost $30 million more that I had guided to you on the last call. Frankly, North American utility fourth quarter spending surprised us. I did not expect the level of use-it or lose-it money that showed up in December, and Philip has already talked about housing starts. Earnings for the quarter were also above our own expectation, which produced a year-end result of $2.81, again above the guidance I gave you at the end of Q3. While not all of the goodness created by $30 million in additional revenue dropped to the bottom, for the reasons Steve, Malcom and Philip have explained, we did do better than we expected. So the question comes, have we lost visibility? I would answer that question, no we have not lost visibility. However there are some things that are very difficult to predict and at the end of Q3 there was a lot going on, with housing, with AMI projects, year-end spending or not, that made prediction very difficult. In addition, forecasting of our Actaris business is still being tuned and they are adjusting to quarterly focus. One more point on '07 results, our strong…

Operator?

(Operator Instructions) We will hear first from John Quealy with Canaccord Adams.

Hi, good afternoon, folks. Congrats on the quarter and the year.

Hi, John.

And thanks for all the detail on the slides here. LeRoy, can we come back to the question of visibility and a bit of a surprise this quarter at least in Itron North America, can you dig down a little bit deeper if you could on -- you did give us a little forward look on electric being a little bit weaker vis-à-vis gas and water, but can you comment on what was more surprising as you went through Q4 as the North American market seem to have that last gas spending, do you call that user or loser. It seems…?

John I just have to be honest about it. I never thought we'd see the level of fourth quarter buying what we saw from utilities and frankly a testament to Philip's folks, it all came in December. We had a huge December. And you know as we ended Q3, I was somewhat concerned that we were going to continue to have a slow fourth quarter, a little bit too cautious perhaps, and so I was pleasantly surprised as we started moving through Q4. It held up nice in the first two months and then December was just gangbusters, as well we got the good fortune in Canada to receive a very nice order for commercial industrial meters that was a material order that we were able to get out and ship. And so that helped the quarter as well.

Now, when you are looking into '08, can you give us any sensitivity around AMI in guidance, I know Philip talked about Q4 being some modest uptick in volumes for deployment in '09. But can you frame the sensitivity? We've seen a couple of utilities and most notably CenterPoint, we’re waiting for regulatory filings there. How does that impact your outlook on timing, in terms of any sensitivity you can give us on guidance?

John, we've been very cautious about forecasting volumes in 2008 and in fact in public filings you see even a large contract like Southern California Edison has very modest deployment targets in 2008 on the order of 10,000 units. And so, we are anticipating only as we have said a modest revenue contribution in '08 from AMI. So it's in the -- I will just say at really low levels.

And my final two questions, first for LeRoy. How has the utility market responded since the Southern California win, whether it's a change in RFP structure, whether it's a change in vigor in terms of RFP proposals. What has changed in your mind at least in Itron's competitive view with winning that SoCal business this past quarter?

Sure a couple of thing, for one I think that, from a public utility commission perspective a lot of commissions sort of look favorably on the fact that a lot of regulatory reviews occurring in California, Southern California Edison by going out for that large contract with us, sort of substantiates the value of what's going there. So the other thing that is going on is Southern California Edison has been very public about the vigor with which they investigated Itron and our potential competitors. And so a lot of utilities are talking to Edison about why they made the decisions they made, I think for some that will give comfort, others will choose different directions, we are not going to get all the business. But I do think Edison is providing a substantial base of information to their fellow utilities and they are sharing it quite openly because their fundamental perspective is, we are moving in a new direction, we want other utilities to move with us, so that we build a market here and we have a very strong market going forward. So I think it's just been great, we are noticing that all over John.

And I am sorry, just one follow up to that, in terms of capacity, LeRoy, how many simultaneous AMI jobs of the sort of So Cal called Centre Point Detroit type scope, could you folks handle with your current footprint right now?

At capacity, John we are in great shape. As we said on previous calls, we have added capacity, just raw capacity, machine capacity in Oconee, we would continue to add capacity during 2008 and we have floor space that continue to add capacity should we need it in 2009 and beyond. So from a factory perspective, we will take all the simultaneous projects that somebody can muster. I think we have a different issue frankly with installing and commissioning our new AMI systems. In that regard we can handle four, five, six of those in a simultaneous start up mode, the good part about this is coming to fruition all at the exact same time and the real issue there is these are highly complex systems. Sure we can add more people that can do all of that kind of complex work, but ultimately you should have a lot of very talented people standing there with little to do. So, I think projects are phased out nicely quite frankly in the United States, and now Malcolm is looking to fill up to add some expertise quite frankly to what Malcolm is beginning to face in Europe in term of deploying large-scale systems and exactly how to go about it. So I'm feeling real good right now John. Now we have spent a lot of time in Q4 and a little bit in Q3, adding some very talented systems folks that can take that project stuff forward for us.

And Steven, for my last one on the cash flow. Are we looking for a similar type number especially when we are talking about, any debt prepayments and schedule payments this year in '08?

Yes. John. We have provided some information in terms of our forecasted cash flow and also CapEx. Next year we are looking at about $60 million to $65 million in CapEx, which is higher than the 40 million this year, but it is planned and some of it actually relates to some AMI related activity that we pushed out from 2007 to 2008 overall. And in terms of overall cash flow from operations, we're looking at about $180 million to $200 million this year, which would net out free cash flow between $120 to $140 million.

Great, thank you folks.

And we'll move next to Stuart Bush with RBC Capital Markets.

Hey good afternoon, guys.

Hi, Stuart.

I know you've talked about what you see in the limited impact from currencies, since your COGS are locally currencies as well, but can you talk about any hedging strategy you may employ to minimize further variability to your solid results?

Sure, Stewart. Let me start this, Steve, I will start by saying that we have hedged a large percentage on the balance sheet running through the P&L FX risk in that. Both our euro debt and sterling debt have been effectively hedged out completely. That leaves the potential for some moving in that FX related to intercompany balances and transactions. In the fourth quarter there was a pretty significant move relative to trend between sterling and the euro and we had some intercompany balances related to our overall strategy of lowering our cost of capital and also effective tax rate -- by having inter-company balances. And that produced some unexpected loss in the fourth quarter. As I mentioned we have worked to mitigate that risk going forward so that there will always be some amount of FX risk related some of this trade payables intercompany. But this related more to an interest payable, and I said again that's more isolated in one-time and we wanted to highlight that. So if you step back and look at that and we really have hedged out a high percentage of that. And I just would close by saying that our original strategy of borrowing in three tranches in euros, sterling and in US dollars was done quite intentionally to effectively match a ratio of what we're seeing EBITDA coming from in those currencies and that has had a some mitigating affect in terms of overall moment in the euro or in sterling related to the dollar. So we overall quite pleased with the hedging that we put in place. We did have some unexpected movement in the fourth quarter and we’re working to address that.

And the hedging is in the financial market?

Yes, for example, we engage in a swap in place that effectively -- interest rates swap that affectively translated the UK debt to US dollar debt and I will highlight that our US dollar debt is floating rate on LIBOR as well as the sterling debt. So, we have seen some good news recently in the form of the reduced Fed funds rates and reduced LIBOR. So, again we put together a pretty full plan in terms of what we wanted to do and execute it on that. Its primarily using financial markets or declaration of that as hedge as well.

Okay. Great, and if you guys talk…

He just cut out. Did he cut out or did you?

Operator?

(Operator Instructions) I will open your line up again, I do apologize. Mr. Bush.

Yes.

You are open. Again I apologize.

Stuart, we are sorry. You cut out, we couldn’t hear your question.

Yes, okay. My second question was, if you could a little bit about the second generation of OpenWay and about the charge that you took there and if the second generation is more around future enhancement or just cost reduction in the design? And how this flat through the higher margins than we would expected to see in the first large win in Southern Cal, Edison?

Sure Stuart, its Philip. We fully expect to release a number of generation of this product, as you pointed out, both to enhance features and to drive down our manufacturing cost. And the fact is that, the product is evolving very quickly and this R&D investment again is coming along very, very well. So in fact we are a bit ahead of schedule in terms of driving down some of these costs and had pre-purchased some inventory around the specific technology that is already been outdated as a result of really the innovation that's going on. So in this generation that's coming out, we are in fact reducing our manufacturing cost, but I would also say adding features at the same time. I would point out that feature capability of OpenWay is both in the hardware platform itself, but one of the great innovative things about the platform is that it has downloadable firmware and a very strong firmware platform. So we are adding features as well at the software level and we'll continue to do that.

Is there anyway you can quantify the cost reductions in a percentage basis that you made between the first and second generations and what would you see going forward as well?

Stuart, it's LeRoy. Yeah. We can obviously quantify, we're not going to do that publicly, we seem to have our competitors listening to this call more often than I would care to have, so I'll take a bye on that one.

Okay, thanks a lot.

You bet.

Next we'll hear from Michael Horwitz with Pacific Growth Equities.

Hi, everyone. Nice quarter, and thank you for the transparency.

Sure.

I just want to clear up one point, that I'm sure I'll be asked tomorrow. So, with the strong fourth quarter, it still appears with your Q1 guidance, that momentum is quite strong, just the same, so even though there was a bit of a budget flush, when I look at the midpoint of your Q1 guidance, it's not that far off from what you just reported especially when you factor in the currency exchange benefit?

Yeah, Michael. I'll say that both groups the Actaris group and Itron North America are looking at our first quarter that we're very pleased with and we scrubbed those quite well and quite recently. And so I am very comfortable today with the quarter guidance we're giving and it's going to be a good start to the year.

Good, fair enough. So moving on to AMI, so all of us are waiting on San Diego and Detroit but you mentioned quite a few other discussions you are having. How should we see this play out, are we going to hear from more utilities besides those two we're all waiting on through the end of the year as they make there AMI decisions?

Well I made the comments, so I'll answer the question, although, Philip feel free to add if you want to. We are talking, as I said, over 20 different utilities right now about AMI. Some of those discussions are going to end up with RFIs and RFEs and ultimately orders. And I think as the year progresses you're going to hear more about several of those. Some of those discussions quite frankly, because the discussion in the work around an AMI project is quite protracted as we've all seen both in California and else here now. And some of those won't come to fruitful orders or even RFEs until some time in 2009. Now, well that sounds a little stretched out, its perfect. Because we're going generate in this industry not just Itron, a huge amount of interest through '08 and it's going to continue through '09. And so we sort of ladder both interest and revenue starting in '09 or into the future, which I'm frankly excited for Itron about. And I think it bodes well for the industry as well. You are going to hear a few more major announcements, I believe as we go through 2008 here and you are going to keep hearing as we go into 2009.

And when you don’t win or when we do hear about other people winning, is it a technology decision and something about your offering doesn’t fit into that particular region or under that particular utilities set up and so therefore your offering isn’t a good fit and could you ever see yourself continuing in a joint venture and bringing on additional partners so that you can open up some of those opportunities?

Yes, first of all, there are a number of projects out there that we would classify as AMR, plus that really don’t need the full-functional footprint of what we initially designed Open Way to address, and there are other projects that have a very strong tilt towards a smart grid focus, where we may in fact work with partners in order to address other concerns. So yes, we are absolutely considering broadening the channel by working with partners that is fundamental to the design and the name of the product OpenWay that it is a modular product that allows us to work with others.

Right and so maybe there are some instances where some of us may not have contemplated your ability to operate at certain utilities. That could change as you decide to increase your partnerships or your channels as you say.

Yes, it would.

Absolutely, Michael.

Last question. Could you just give me some qualitative statements on how something like Southern California Edison beyond just the points -- end points will affect revenues even beyond those deployment schedules. So additional revenue opportunities within that kind of region and additional functionality services and what have you? And may be what the tail looks like after these deployments occur?

Well, the component behind end points. Of course, there's infrastructure, there is significant implementation services associated with the project itself, and then in a number of these instances there are opportunities for ongoing operations. However, that is not currently the case with the Southern California Edison contract.

When you deploy a project like that though, Michael, I am sure that you know this, there will generally be follow on orders for growth or replacements within those business. So generally there are orders that follow on that are outside the project, it is that kind of nature.

Right, good, thank you.

Yeah.

And we'll move next to Steve Sanders with Stephen, Inc.

Good afternoon.

Hi, Steve.

Hi, Steve.

LeRoy, I want to see if you could expand a little bit on your synergies comment between Itron and Actaris, and maybe distinguish between opportunities you're seeing on the sales side versus the cost side?

Well, let me say that on the cost side, we knew going into this that we were going to do some very nice things, just because of volumes of raw material, whether it’s copper, which continues to go everyday, and I'm pleased to say we're actually spending far less on copper today than the open-market purchases are having to spend, or circuit boards or plastic resins, where, again, we've been able to fix some serious decrease in before Actaris acquisition price. So good stuff there and we expected that. We didn't expect, and we still haven't looked for or found or even tried to synergies from -- saying, swell, we have overlap here, overlap there, we're going to get rid of people, of factories, it isn't there, and I don't think through time we will find it there. But we have been pleased to the point you made at some sales opportunities, and so we have begun to look not only at the things we thought about but quite frankly, I am quite pleased with some interest we're getting in prepayment metering in the United States by AMI customers and the work that the Actaris people have done on that particular system is really quite advanced and quite exciting. And I think some of that kind of technology moving to the United States is going to pay dividends for us, maybe not in 2008 but as we look at some of the things we're doing and Philip's group is doing with AMI, I think we're going to see some real benefits and some real opportunities from the prepaid technology that's going on at Actaris. I also think we see some things in some particular meter areas, and I am going to be a little careful about specifics here, but there is some meter products in water- and gas-based that are tied to AMR. It could get really interesting in the US, and we have been looking at that on a combined basis and thinking about how we might extend that capability because we think that could really not only increase our meter business in the U.S., but our AMR business in the US as well, so we're doing some of that work there. And then one of things that Malcolm is sort of challenging Philip to do is to help him with some system aspect of what we do everyday in the United States and help the folks of Actaris in Europe and elsewhere get better at that so that we can be more effective in selling systems, and we can be more effective in delivering systems, not only in Europe but around the world. So those are the places I sort of think of to that question.

Okay. That’s helpful. And then on the Actaris side, you've given us some good detail on the seasonality in the Itron business. But for Actaris, is there much in the way of quarter-to-quarter seasonality either in overall revenues or in mix?

Yes, it is Malcolm. The seasonality is interesting. In the third quarter, you have a lot of countries that actually go on vacation. So, that’s sort of goes down in revenue. Fourth quarter is reasonably seasonal, but at the same time, you do have vacations in the last two weeks of the year. On the heat side of business, in the first quarter there is a phenomena in Germany where we have requirements that meters last a particular period of time. And the clock starts on those meters January 1. So, we see significant orders on the heat business, which is a good part of our business in Q1. So, yes there is some seasonality with our business as well. So, I hope that answered your question.

And there is a little bit of seasonality, Steve, but it doesn’t vary dramatically, quarter-over-quarter, and they don’t have distinct quarterly revenue pattern like Itron North American outside, I guess I would say.

Correct.

Okay. And then Malcolm, could you just revisit your comment about the contract with the EDF in the UK, I just didn’t get exactly what that was?

It’s actually EDF UK Energy. It is a -- we have a prepayment business that we take care of in the UK, significant prepayment business. So, we manage the service for that for the utility, and we have a back office that we do all of the work for them. And we don’t actually talk to the end customer. But we -- the utility refers to us when there is a question on prepayment. So, it’s a significant piece of the business going forward, which is different than what we've done before on just regular products. It is actually a service business with recurring revenues going forward.

Okay. And then Philip, could you just bring us up to-date on what you are seeing on the fixed network side in the water business. I think you guys have a few trials that are coming up on their 6-month to 12-month anniversary. Just generally wanted to hear your commentary on the water side?

Sure. We do see continued interested in fixed networks, on the water side we have two pilots that we had spoken about in Dallas and Detroit. That are coming along and are entering a period of – we hope -- expansion and as well as using those pilots as references for other business that we see developing in 2008, and we've already spoken to the continued growth in the water business, and that is one of the sources.

Okay. Thanks very much.

Thanks, Steve

Thank you, Steve.

Our next question will come from Carter Shoop with Deutsche Bank.

Good afternoon. I want to start off with a question for Malcolm. Could you help us better understand how Actaris is going to market with AMI offering. In North America, obviously, Itron has a one meter, OpenWay meter. In Europe we have a fragmented market, where you need specific types of meters for different locales. Can you talk about how Actaris is looking to penetrate the European market? Do you expect to have several different types of AMI meters, or is it going to be more like the North American market, where you have an off-the-shelf product for the entire European market?

Well, just look in if you just talk about electric only for second. Electric only, if you look at the various countries, specific countries requires specific technologies. If you look at Sweden for example, there are very as strong with GPRS. If you look at Demark, they are the same, and they have started to make deployments there in which we are active in those areas, where we have a GPRS offering. And if you look at France and you look at some of the other locations, they want a PLC offering, and we have a PLC solution. So we offer PLC technology, we offer GPRS, we offer solutions that's sound a bit technical, but it’s called the daisy-chain offer of a master meter. And then at the same time, if you have dual fuel, you have areas like the Netherlands, they would like to do PLC measurement, they haven't made the decisions yet but they have dual fuel with gas as well. So you have to have electric measurement and then gas measurement and in certain locations in the Netherlands they want to go with water. So they do have water, gas and electric, which is a full offering that we have. So there is PLC, there is GPRS. And so we have a full suite of the solution including some of our software packages that we tie together including an MDM solution that we have, which is our IEE meter data-management services that we got. So we have a fully offering of AMI. Each one of these locations or these countries is quite large, and they are quite slow to take off. But as the European counsel starts to make significant changes, I think they will start to see some changes going forward in the new few years. So, I mean, I could talk all day. There are 27 countries in the European Union, and each of one of them is going to do something slightly different. Italy did theirs, so as I said, I could talk all day; it is different.

Okay. That's helpful. It seems like there are couple of countries which will be announcing a new AMI contract within the next year. Do you feel Actaris is well positioned for wins in that geography now, or is it going to be few years out until we're able to integrate some Itron technology into their products until Actaris becomes a little bit more cost-competitive and technologically-competitive in that market?

Well, I you are not specific, I am not certain which country that you are talking about, but we are highlighting some of our projects today with a couple of utilities, and there is a number of consortiums that I talked about when we are participating in each one of those. So it is not going to happen overnight. They take their time. Till the later end of 2010 is a good time when you will start seeing some significant changes going forward. But we are participating in many of those consortiums.

Great, that's helpful. Thank you. Is there a chance where you can get a break out for the book-to-bill by division for the quarter?

They talked about that in each of the scripts, their bookings number. Malcolm booked 298 million against the 303 million, and Philip booked 150 million against his 177 million.

That's helpful. Thank you. And then as a last question, when you look at the 20 utilities in the North America market, who you are having discussions within AMI markets. Is there any way to maybe hedge, how many of those 20 utilities you think will be coming out with an RFP in the next year. Would you be willing to go that far?

No, it is too speculative at this point. We are chasing a handful of RFPs right now, how many more will come out during the next year of that 20 is just impossible to say.

Okay, great. Thanks a lot, and congratulations on a good quarter.

Thank you.

Thanks, Carter.

And next we will hear from Sanjay Shrestha with Lazard.

Terrific, first of all, again, congratulations on a good quarter guys, and thanks for a lot of visibility. Most of my questions have been answered, but just a couple of quick ones. Again not complaining about it, R&D is very important. You guys have done a great job with that, but I mean, it seems like the OpenWay is technologically gotten a lot of acceptance traction, so there are other areas you guys are spending as well, but at what point do we start to see that sort of structure to become earnings leverage, and do we start to see a gradually declining trend on our your R&D line and the leverage with the two companies being put together?

Yeah, Sanjay, two answers. In North America, someplace in 2009 unless we see an opportunities that I don't foresee today, we should be able to start trimming sales in North America. Now having said, that I think at exactly the same time we will start letting more sale out in Malcolm's group in Actaris. And you know the fact of the matter is, if you just are a bread and butter, electric, gas, or water-meter manufacturer, your R&D levels are pretty low, but that is not a very exciting business. The exciting part about Actaris is it's going to move to a technology business, and that technology shows up both in what we put on top of meters for automatically them or AMI as well. You begin to do some in meters that you haven't ever done before, so I'm perfectly comfortable with beginning in let's say -- we've expanded R&D level at Actaris for '08, we're going to expand it more in '09.

Got it.

And I'm sure all my R&D engineers are listening to this and drooling at this point, but it's the way to keep competitive, I mean if you look at us in the world, the thing we can do that many of our competitors cannot, is we can spend R&D money, and if we do it productively, which I think we're very good at, we will stay ahead, and we will stay with the market shares we've got.

That's a very fair point, so now going back to the market-share point, and one thing I just want to clarify LeRoy, obviously you guys have been very clear about is that '08 is going to be the year of contract announcement and bookings, but not the year where you see a lot of revenue opportunity with the large AMI project in North America. But when you talked about the '08 guidance, you said it's not aggressive, it's not conservative, it's sort of like the middle of the line. Now are you baking in potential revenue recognition associated with some of the AMIs vis-à-vis your Southern Cal Edison or some of these things actually contributing to the revenue in '08, or you are actually not taken that into consideration?

Sanjay, there is a very small amount of AMI revenue in the backend of '08.

Got it.

But it's small.

Got it.

And we have been very careful about how much of that we put in but feel pretty middle of the road.

Got it, fair enough, one last question, then, guys. Obviously this is a long-term opportunity, but nevertheless a huge one. I think you guys touched on $35 million opportunity in France and some testing phase and potential roll-out over next year or two, you know 300,000. So in that particular opportunity who would be some of the biggest competitor that you guys would come up against, and how should we think about that as the, sort of like, are you going to I go to a bunch of different players, or you guys have a phenomenal position now with Actaris and Itron together, how should we think about that?

One of the things that EDF likes to do is to have interoperability.

Got it.

Interoperability is something where they can leverage one meter manufacturer against another. So it's important that we participate in many of these trials, which we are doing. Eventually, they would like to have a number of meter manufacturers and if you take $35 million and divide it when they start and when they finish, it's probably going to be over five or seven-year period. And if you take $35 million, it's $5 million to $7 million a year. Take the number of competitors that are there, which are traditional competitors, some in Europe that don't participate in North America, and you can divide by that and come up with a number per year. So, that's primarily it.

Got it. That's great. Once again, congratulations, and thanks a lot, guys.

Thanks, Sanjay.

Thanks.

Our next question will come from Patrick Forkin with Tejas Securities.

Good afternoon. Congratulations on the quarter and the year.

Thank you, Pat.

LeRoy, in recent calls, you've talked about your best guess on timing of announcement at CenterPoint, San Diego and Detroit, most of those maybe occurring in the first half of '08 here. Has there been any change in your assessment on that timing?

Pat, none at all.

Okay. And then from a competitive standpoint, it looks like that you are picking up traction, especially in California, and that you may get two out of the three contests out there. Are you seeing anything in North America on the AMI front? Are you seeing any changes in some of the competitive offerings or sort of the line-up of who your number-one and number-two competitors?

Pat, I'd say that the competitive landscape for the last couple of quarters has been pretty stable. Same players out there, all competing in the same way. So, we're not seeing any new participants. We're not seeing any surprises from anybody. Various guys are getting traction in various places. There is a lot of competition. On some days it's fun, and on some days it's a little more worrisome. But I don't discount the competition out there. They are all bright guys, they are all aggressive, and at every one of these you got to work real hard, right up till you got the order, and then you got to work real hard to keep it.

Okay. And then, Philip, you have talked about the $470 million from SoCalEdison that's not in backlog yet, and I know they're only deploying 10,000 endpoints in '08. How should we be looking at '09? Would that be maybe 15% to 20% of that $470 million number?

Yeah, I mean the deployment is pretty ratable over this declared five-year period. I mean it will ramp up in the beginning, so we won't quite see the full speed. Hit its stride in the middle, and then tail-off at the end. But it is a spread deployment over those years, and I'd also remind you that Southern California Edison has been quite upfront with the fact that they have a second meter supplier, and so, please do not count on all of those endpoints going to Itron. But we certainly do intent to win the lion’s share of them.

Although the amount of revenue that we talked about when we talk about that contract and the amount that's left only taking to consideration about 80% of that meter business.

Yes.

Okay. And then the last question really for Philip and Malcolm. Malcolm, you've talked about some of the European countries having the GPRS requirement. How come we don't see more GPRS deployments or utilities looking at GPRS deployments in North America? Is it strictly just the operating cost?

Well, if you take the GPRS communication link, we tend to use GPRS what we call a concentrated level. If you want to use GPRS at a meter level, it's quite expensive. If you put that modem into the meter and communicate from a meter in the house using GPRS to a collection engine, it's quite expensive. So we do a specific kind of design where just a collector is GPRS. In Europe that's the solution that they chose initially in Sweden, and probably GPRS in Sweden is a lot more solid than it is here in North America and its been around a lot longer. So it's a lot truer.

Pat, I would say that given the way that the telecommunications, and particularly the wireless carriers consolidated in the United States, there is really a patchwork of technology underlying the GPRS implementations, a patchwork of companies that built out infrastructure in North America. And so some of the technical underpinnings are little bit less even, I would say, than they are in parts of Europe. And as you pointed out, also the pricing plans available in the United States tend to be flat-rate and not as packet-oriented. And so the economics of GPRS in North America are somewhat less favorable than they are in Europe.

Okay. Very good. Thank you.

And your next question will come from the Ajit Pai with Thomas Weisel.

Yeah, good afternoon.

HI, Ajit.

Couple of quick questions. I think the first is much more on the integration. On the cost side, are there any more -- I think you had very modest set of acquisition-related integration expenses on internal controls and financial reporting, et cetera, do we see those continuing a little bit more, and are there any savings that you have identified that will fall-off even greater than that once those are over?

This is Steve. We will see in 2008 and that factored in guidance we provided. Some additional costs in '08 related to compliance with internal controls and Sarbanes-Oxley, and then we would expect that to tail-off after 2009. And that's fully expected as part of the integration of Actaris and rolling through Sarbanes-Oxley and the controls worldwide. We have also seen quite a bit of goodness below the line in form of tax and how we structure this transaction, pushing debt down as well and we incurred some additional costs that needed to be expensed immediately that did show up in G&A in '07. And we would expect to see that start to trend down a bit as well.

Yeah, that's fully right. The one I to add that Steve didn't mention is, we have completed the front-end of a worldwide IT strategy. I think probably not '08, but maybe into '09, we are going to see some nice costs benefit on the IT front as we sort of rework some of the contracts, we have with a variety of suppliers into a smaller numbers of suppliers and squeeze some dough out there.

Got it. And for modeling purposes, the way we should think about some of those expenses, is that they would probably continue through '08?

Yeah, we keep them up as the same basic relative percentage of revenue as they were in '07. We are doing a lot of modification in '08. I think we talked fairly publicly about the fact that we don't see a lot of operating leverage in '08.

Yeah, and is there any switch that has to be flipped to integrate systems, or is most of the systems integration from a broader perspective already over?

Most of that is already over. We were quite fortunate that the software system, accounting system and manufacturing system that Actaris was using was also one that we were using. We were both running off MFG/PRO so they plug in there well, not with out work, went pretty smoothly.

Got it. And then, just looking at the prepayments that you talked about on the debt side: which particular tranche of debt you are paying the British pounds and euros, or some of the US debt.

It's been some across the board. We made payments on our Euro tranche GDP tranche, and some on the U.S. dollar tranche as well. And as we look ahead, we'll be continuing to make prepayments really across all three tranches. I'd add that where we do have excess cash flow, we tend to focus on paying down the U.S. dollar debt as well because we had set some hedges in those other two currencies. So, where we and in fact we're in process of making another prepayment next this month actually as well on the U.S. dollar tranche as well. So, we've scheduled that together, and as I mentioned before, our U.S. debt and Sterling debt effectively are floating on U.S. LIBOR, which has significantly gone down here in the last month because of the recent Fed action. So, we did see some goodness there as well.

Got it. But you are not focused on buying back any of your convertible debt?

No. We right now are focused no applying the free cash flow to pay down bank debt.

Okay.

Across all three tranches.

Okay, got it. And then just looking at emerging markets, could you give us some color as to what you're seeing there and whether it's an attractive market for you to be focused on and whether there has been in your traditional business, which is Metering on the AMR side as well, where there been any sort of more intense competition from any Chinese player you think that competition from the emerging markets is actually fired out?

Let me just talk a little bit about AMR activity. About two years ago, we saw activities from three or four countries with request for information. Two years later, we are now seeing 30 countries that have shown interest in automatic meter reading. So, we're responding to request for information on each of those. If you take a look at many of the other countries or many of the countries outside of Europe, they are starting to takeoff. If you look at the Chinese suppliers, it's not just Chinese, it's Chinese, it's Indian suppliers, there is a lot of local companies that supply products locally both water, gas, and electric products. And are the Chinese doing shipping products worldwide only in certain countries not everywhere. So, there are some countries where we're seeing competition from the Chinese but it's not everywhere.

Got it. But there will be no changes in your pricing environment in the developed world and either North America or Western Europe?

Not material.

Not material. It's following basically long-term trends in price declines in these two markets even today?

Well I'd say that the long-term trends have been we see price pressure from big deals, whether it's a big AMI deal like an Edison or Progress Energy or others. Malcolm sees the same kind of stuff worldwide. In general, the price of bread and butter meters outside the United States is lower than it is here because they're a different meter. They don't have to carry as much current, often times not quite as benefit-rich or feature-rich. So, there's sort of a different level of product that one sees outside the United States.

But with the shift towards AMI and high interest in AMI, you're not watching either an acceleration or deceleration in the ASP declines in the traditional business in any particular geography or like in North America within North America itself? You haven't seen any trend that is noticeable?

No, no, it isn't. And Deloris alluded to a core piece, Ajit, that will help you a little bit. I mean, if you think about the meters that are shipped to North America most of in these days have AMR or AMI on them. And so, the other piece that is, which is just core meters, bread-and-butter kind of stuff. The volumes are getting lower, where we don't get that price pressure we use to see.

Got it, okay. Thank you so much.

Sure.

Thank you. Operator, I just was going to do a time check, do we have any others holding for questions?

We've two more questions in the queue.

Okay. We'll start those go and then we'll cut it off there.

Okay, great. The next question will come from Chris Sommers with Greenlight Capital. Just a minute Chris, there you go.

Hello.

Hi, Chris.

Hello.

Hey, how are you?

Good.

Good.

I wanted to know what tax rate are you guys using for your '08 guidance of 320 to 340?

28%.

28%, Chris.

Okay, got it. Secondly, I noticed on the balance sheet that a couple of your liabilities decreased, the warranties dropped by 3.3 million and pension plans dropped by 4.9 million. Did that flow through the income statement, and what kind of drove those decreases in the liabilities?

We didn't have material change in pensions overall, and that didn't really drive that. Could you say again, which line item you are looking out in the balance sheet? I'll answer that for you.

Sure. The pension plan benefits dropped from 65.5 to 60.6. And then also, if you add your short-term and long-term warrantees those dropped by about 3.5 million also. I was just wondering if you had reversals or if there is still…

Chris, really it's nothing out of that. As LeRoy reported its normal course, as warrantee gets utilized, it will drop off the balance sheet same with the pension. There are insubstantial changes to our balance sheet in all fairness.

Yeah. That's really in the case of pensions its -- future assumption is related to investment grades as well as FX. But there have been no fundamental change in our pension plans nor any material change in warranty as well.

Got it. And then one last one. I heard you guys earlier talking about hedging on your debt, did I hear you correctly that you have now hedged out all of your Euro and Sterling exposure?

What we've done with the Euro debt is, it's there really as a hedge of the net investment at Actaris in itself so...

Right.

Any change in the value of the debt does not impact the income statement. It does flow through other comprehensive income. So, what I meant there was that there is no P&L exposure from that. We did cap the rate as well ended into, so that we've a cap on the Euro debt as well, which is a separate transaction. And we're pleased with that given the bias more on Europe is towards rate increases than decreases.

Got it. So, from an economic perspective that debt is still in a currency that's tied to those operations, you didn't make a currency gamble --

That's exactly right.

No longer --

We did not in fact it hedges about a third of Actaris's EBITDA Euro-denominated EBITDA in total, and that's about where we wanted to be. So, that's why we picked that level of borrowing in the first place, when we broke up our overall borrowing to three tranches, and we're pleased with that level.

Got it. Thanks a lot, guys.

And our final question will come from David Smith with Longbow Capital.

Good afternoon, guys.

Hey, David.

Hey, David.

Just some questions first on Centerpoint, how many incremental units should we look at for the remainder of 2008 with Centrepoint?

We don't give quantities per customer, David.

So, should we assume incremental though or is it basically, is this on hold right now until I guess the filing goes-- hasn't gone in yet, is that right?

Filing hasn't gone in yet, so it would be probably be imperfect to comment on timing at this point and time.

Okay. So beyond that I guess the 10,000 or X number of units had gone out for the pilot, right now there wouldn't be anything else I guess in the backlog would there?

There is nothing in the backlog now.

Nothing in the backlog, that's correct.

Okay. And then, as far as CenterPoint timing goes, is there any update you can give us on that?

Not really, David. We are waiting for them to sort of settle between their Public Utility Commission and their Board of Directors is to how they want to capitalize this. When they figure that out, my guess is I'll make some kind of public announcement in the form of submittal to there PUC, which you'll see it when we see it.

Okay. So, as far as them evaluating it's really no more evaluation going on really?

No, there is no technical evaluation or any of that. I mean between the two principal parties there, ourselves and IBM all of that has been rung out really, really well. And so we are now on the sort of the get the paperwork done period of time.

Now is there any indication that we might see a hurdle with the PUC commission at all?

The point I had making -- be a little bit of careful here because I don't want to get between my customer and their commission. Texas Public Utility Commission has been extraordinarily supportive of AMI in general and CenterPoint projects specifically. So, there is always hurdles, we're going to argue over how much the ratepayers going to take on and how much the shareholder is going to take on, but I mean that's a standard process with the utility world.

So as far as the delay goes from what you're telling me, it sounds more like an internal thing before they presented?

That's a characterize, I think.

Yeah. I guess I thought this was supposed to go in December's timeframe, but it sounds more like a procedural thing before they submit it, right?

Well, none of these are simple. There is a lot of -- go back to a term you used. There are a lot of hurdles. The hurdles are, how do we want to put the project together, how do we want to capitalize it, what do we have to give up at the PUC in terms of what the ratepayers are going to fund, and so there is a lot of work to do. It just plain isn't simple. And California is a good example of that, where three utilities we have been working on that now for the better part of three years.

Okay. But no, I guess jumping over to California, is there any approval that has to be met right now in California before this goes through?

San Diego is approved; PG&E I think is approved and Southern California Edison goes for approval here in another couple of months.

Q3 was their high-level timing for approval.

Okay. And then just jumping over to your guidance, is there any currency benefit in the '08 sales guidance as a stance now?

Well, we assumed a rate of 1.4 for the year. What we have done is started off at a higher rate and have that decreased throughout the year. So, certainly there is currency assumption in there, yes.

Okay. And then just a last point, you had talked specifically a little bit on the residential side, some weakness in I believe you said October, November and then December picked up. But will we attribute that jump in December really to kind of a dry-inventory chain and then what are you seeing in kind of in January, February as far as the cadence goes. Has that maintained itself?

Now I've got about four people looking at me asking me not to get my foot in my mouth again.

I mean we can't talk about January, February.

Yeah, I won't talk about January or February. But let me say that as we got into Q4, we went back in the first couple of months, so I'd call them more normal levels, and then frankly December was a gangbuster level in North America. And I don't think it’s wrong deposit that from the beginning of '07 the precipitous fall and housing starts probably cause some inventories to build up. I think we might have seen some effect of that in Q3 with more downward trend in shipments and then by the beginning of Q4. I suspect that we had worked off a bit of a bubble. Do I -- can I quantify that with exact numbers; No, but I've talked to enough people and I think we saw some of that.

Yeah, that's great. Thanks LeRoy.

You bet.

Thanks, Dave.

Operator, there will be.

That is over. I apologize.

Is that the end of the questions?

That is all the questions we have. Yes.

Okay. Thank you everybody for joining us today. If you've any follow-on questions feel free to give me a call.

That does conclude today's conference. We thank you for your participation. Have a great day.