Itron, Inc.
Q1 2008 Earnings Call Transcript

Published: 25 May 2008

[Operator:]

Welcome to the Itron, Inc. first quarter 2008 earnings conference call. (Operator Instructions) At this time for opening remarks and introductions, I would like to turn the call over to Deloris Duquette.

[Deloris Duquette:]

On the call today, we have LeRoy Nosbaum, our Chairman and CEO; Malcolm Unsworth, our President and COO; Steve Helmbrecht, our Chief Financial Officer 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 to date, and is subject to a number of risks and uncertainties. I encourage you to read the forward-looking disclosure 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 2007 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 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 website. Today, we are going to follow a format that is similar to last quarter where Steve will start the call with the financial highlights discussion, and then Philip and Malcolm will each give operational updates for their respective businesses, after which LeRoy will wrap up with prepared remarks with some of his thoughts. We will finish with a question-and-answer period. I would also like to make you aware that as we did with our last 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 would like to turn the call over to Steve Helmbrecht, Itron’s CFO.

[Steven M. Helmbrecht:]

As in the past couple of calls we are going to have Philip and Malcolm each review performance for their operating segments. So, I will provide a financial review of the quarter compared to the guidance we issued and focus on corporate expenses and some items below the operating income line. So, let’s start with the results for the first quarter. We had record first quarter revenue of $478 million which was above our guidance range of $450 to $465 million. Both Itron North America and Actaris revenue were better than expected and as well Actaris benefited from about a $9 million increase in revenue because of the stronger than expected Euro. As we talked about last quarter although the stronger Euro contributed to part of the revenue increase, it also increases cost of sales and operating expenses. The stronger Euro contributed less than $0.5 million to operating income despite the $9 million revenue contribution. Corporate and allocated expenses in the quarter were about $2.3 million higher than the first quarter of 2007, primarily due to increased compensation expenses and Actaris related acquisition expenses for tax consulting and Sarbanes-Oxley implementation. Non-GAAP operating margin was 12% for the quarter which is about where we expected it to be. Our non-GAAP tax rate for the quarter of 27% was in line with expectations. However, I would like to remind everyone that our rate can and will fluctuate. The rate can change depending on the proportion of revenue coming from any given country. Some countries have higher rates while other countries are lower. We anticipate a non-GAAP tax rate of about 28% for 2008. Non-GAAP net income was somewhat higher than we expected due to the increased revenue during the quarter combined with lower than expected operating expenses. Our diluted share count included 1.4 million shares related to our convertible notes as our average stock price during the quarter was approximately $88 per share. You will notice that we have reclassified our convertible notes to short-term at the end of March rather than long-term. This is due to the fact that our stock price exceeded 120% of the strike price for 20 days before the end of the quarter, making the notes eligible for conversion. You may remember that this was a situation at September 30 of last year as well. We do not expect that the notes would be converted as they are trading at a premium in the market. Weighted average shares outstanding are expected to be about 33 million although if the stock price remains at the current levels it could increase shares by about 0.5 million. We had adjusted EBITDA of $72 million which equates to an EBITDA margin of 15%, good performance for the quarter. We had a very good quarter from a cash flow perspective. Cash flow from operations of $56 million was at one of the highest levels ever, which resulted in very nice free cash flow for the quarter of $43 million and we used that free cash flow to pay down debt. In addition to $3 million of scheduled payments on our debt we made a total of $44 million of optional prepayments consisting of $20 million in prepayments on our US dollar tranche and €15 million in prepayments on our Euro tranche. Our strong cash flow in the first quarter allowed us to repay debt above our original expectations. You will notice that our total debt balance only decreased by about $14 million despite the higher level of prepayments. That is because of the strong Euro at March 31. Our debt is valued at the end of each quarter using the spot foreign exchange rate on the last day of the quarter. At March 31 the Euro to US dollar rate was a $1.58. So, in dollars, the balance on our Euro debt actually increased $7 million rather than decrease $20 to $25 million as we expected. We ended the quarter with a ratio of 5.3x debt to EBITDA and an interest coverage ratio of 2.7x. Keep in mind that these ratios are calculated based on trailing 12 month EBITDA which is calculated using trailing average foreign exchange rates for Actaris, and also includes the add back of approximately $12 million in stock-based compensation expense. As discussed previously, we are focused on generating cash flow to pay down bank debt and will continue to monitor our capital structure. While we are on the subject of currency rates, I think it would be worthwhile to go into some level of detail about our Actaris operations and the currencies in which we do business, so that there is more clarification about our reported operations and our expectations. When the Euro is appreciating versus the US dollar, as has been the case recently we benefit in the form of higher Actaris revenue. However, not as much as you may expect because of the impact that the other non-Euro currencies that contribute to revenue. Although Actaris is predominantly a European operation, nearly 50% of Actaris’ revenues are generated in currencies other than the Euro. The top three non-Euro currencies, the UK pound, Brazilian real, and the US dollar make up about 25% of Actaris’ revenues. Obviously, the higher Euro-dollar exchange rate affects Actaris’ cost of sales and operating expenses as well which has an offsetting impact on operating income in EBITDA. So, our percentage operating margins have been negatively impacted by the appreciating Euro because the relative increase in operating income is smaller than the relative increase in revenue. Our revised guidance for 2008 may seem somewhat cautious to you based on our strong first quarter results. We feel that being somewhat conservative at this point is a prudent approach. We had a very nice first quarter both in terms of revenue and EPS. But, at this point some of the goodness was timing of revenue because orders were received earlier than expected and as well operating expenses were lower due to a slower than expected ramp up of research and development expenses. In summary, we are pleased with our results for the first quarter which is a good start to 2008, and I look forward to future calls to update you on our progress. With that, I would like to turn the call over to Philip Mezey, COO for Itron, North America.

[Philip Mezey:]

There are just a couple of points that I would like to touch on today regarding our North American business. First off, we had a good quarter. Revenue grew 6% over the first quarter last year which is inline with our expectations. Margins of 39% were lower than expected due to a couple of things. We did have a change in mix during the quarter in that we shipped fewer AMR modules than in the first quarter of last year. We have also ramped up our hiring and training of AMI resources which has temporarily decreased our services margin. We expect that this was a short-term issue and that margin should return to the low 40% level for the year as planned. From a revenue perspective we are still being affected by the AMR slowdown caused by customers considering AMI. However, our current forecast and guidance have accounted for this slowdown. We shipped 1.3 million electric meters during the quarter, 13% more than we shipped in the first quarter of last year, and approximately 60% of those meters had Itron AMR embedded in them compared to 43% in the first quarter last year. Operating expenses were similar to the first quarter of last year although there was a shift to increased R&D and marketing expenses that was offset by a lower G&A and amortization of intangibles expense. Operating margins on a non-GAAP basis were 15.3% for the quarter compared to 17.7% in 2007. The decrease is due to the lower gross margin. Bookings for the quarter were $127 million, or about 0.9 to 1 book-to-bill ratio. We did not book any additional revenue for our contract with SCE as we expect the $11 million booked at the end of 2007 should carry us through the first half of this year. We continue to make good progress internally on developing and focusing resources on the viable AMI opportunities we see. We have been working on the next version of OpenWay with new features and reduced manufacturing costs. We have enhanced our project management team so that we will have the internal resources available for projects as they arise. We also continue to work with other vendors to expand our offerings for AMI. You probably noticed an announcement that we made with Silver Spring earlier this month regarding a project to integrate Silver Spring’s communication modules which is an IP-based solution into our industry standard C12.19 OpenWay meter. While we believe that most customers will be interested in AMI solutions that OpenWay addresses which is standards-based, flexible and extendable, we think that in keeping with the OpenWay vision of open architecture, it is important to offer customers a choice if they would like to pursue an IP to the meter strategy. We continue to work with a number of partners in this market and believe that it is important to offer our customers a variety of choices, so that we can help them customize a solution that addresses their individual needs. So, now let’s talk about what’s going on in the North American market, in general. Demand remained strong for our existing core products with shipments consistent with our 2008 forecast. We feel that we have accurately accounted for any effect of economic uncertainty and the challenge that rise in commodity prices will have on our margins. AMI activity both on accounts that have been publicly announced in the market and those just coming to our RFP remain strong. That said I must repeat that the timing of this business is complicated by the large capital commitments that are required. AMI projects generally require Board level approval, regulatory approval and some level of support from consumer groups and other stakeholders. The process of alignment required to deploy large scale AMI projects is time consuming and involves uncertainty for both the utility and its suppliers. While this process is underway, we are bound by confidentiality clauses to severely limit our comments on the likelihood and timing of awards. This confidentiality is required to allow our customers to complete their internal and external negotiations and approvals. The high profile AMI projects that we have previously discussed should be close to making a decision. Itron has recently signed a master agreement with CenterPoint Energy, the details of which will come from CenterPoint Energy in a filing with the Texas PUC in the next few weeks. And as David McClanahan stated on CenterPoint’s earnings call this morning, they expect to begin their deployment with 250,000 units driven by the demand from retail electric providers. This is great news getting this project off to a solid start that we think will transition smoothly to a broad based deployment. We are still engaged at the accounts that we have discussed in the past, however the other customers have not made a final decision at this point and we cannot talk about them in more detail other than the fact that we are still being considered for their projects. As we have stated before, we expect that there will be minimal AMI shipments in 2008 and that 2009 will be the year for real deployments. We would also expect that as the year continues other utilities will become more public about their intended deployment plans for AMI projects. So the industry continues to be exciting. And as always, I would like to remind everyone that while AMI continues to be one of the most important and exciting things to happen in this industry in quite some time, Itron North America sold over $150 million worth of AMR handhelds, software, meters and other products to electric, gas and water utilities all over North America in the first quarter of this year. Our proven systems continue to be adopted by customers and we continue to invest in all of our technology not just in AMI systems. And with that I will turn it over to Malcolm.

[Malcolm Unsworth:]

As I did last quarter, I am going to focus on a couple of items relating to Actaris results for the quarter including the effects of the Euro and then talk about some of the activity in Actaris’ market that has changed since we talked a couple of months ago. First of all revenue was $328 million for the quarter which is one of the highest revenue quarters that Actaris as ever had. However, it does include some revenue from Brazil and Europe that was reported as part of Itron North America’s operations through December 2007. Actaris revenue was about $9 million higher than expected due to the stronger Euro in the quarter, just as a reminder that Actaris sells products and services in multiple currencies and about half of the revenue in Euros, while the rest is local currencies. Each business unit has strong sales with about 38% of the revenue coming from electricity, 30% from gas and 32% from sales of the water and heat products. The percentage of revenue from water products was higher in the first quarter versus previous quarters because of a mandatory replacement program in Germany for heat and water meters. Therefore Actaris’ first quarter results are positively impacted by these sales most of which tend to be replaced at the beginning of each year rather than throughout the year as other meters usually are. Gross margins of 32% were very strong during the quarter and were positively affected by product mix including a higher proportion of AMR meters shipped, 12% of all meters shipped during the quarter had AMR in them and 28% of the electric meters included AMR which positively affects margins. The stronger Euro increased gross profits about $3 million more than originally expected. Operating expenses of $84 million for the quarter were more than $11 million higher than the fourth quarter. About $2.5 million reflects higher expenses due to the stronger Euro in the first quarter, about half is due to increased amortization of intangible expenses, and the remaining $3 million is due to increased sales and product development expenses in each of the segments. The stronger Euro increased our operating income about $500,000 more than we expected. Total meter shipments for the first quarter were 4.6 million versus 4.4 million in the fourth quarter reflecting a 4% increase. Increased shipments were primarily driven by sales of heat meters. Actaris non-GAAP operating margins were 13.8% for the quarter compared to non-GAAP operating margins of 13.5% in all of 2007. Bookings for the first quarter were a very healthy $357 million or about 1.1 to 1 book-to-bill ratio. This is similar to prior years where Q1 book-to-bill ratios are higher than one-to-one due to some customers placing orders for the full year in the first quarter. So, let’s talk about what’s happening in some of the Actaris business units and in the world outside of North America. As we discussed on the last call, one of the largest AMI projects in Europe is with EDF, which has announced plans to replace their installed base of 35 million meters with advanced smart meters by 2017. EDF carried out initial trials with four system integrated consortiums to determine which consortium they will choose for their 300,000 point smart metering pilot commencing January 2010. EDF have narrowed it down to two consortiums and we are participating with both of them. Elsewhere, the U.K. government has been asked to introduce a mandate for the rollout of smart meters, in an effort to cut carbon emissions and energy bills, which would be in support the white paper issued in May of last year. Currently, there are a number of smart meters trials not only in the U.K. The Energy Retail Association has been looking at the best ways of replacing all 45 million meters and is waiting for the government to give the green light to the mandatory installation over the next 10 years. We will continue to monitor the progress and update you when possible. ESP Ireland announced its plans to spend €22 billion over the next 12 years on electricity infrastructure and renewable energy. The first round of smart metering bids for the project are due early next month. These are just a few examples of increased focus on smart metering in Europe. We also have seen some significant growth opportunities in the Middle East, India and Asia compared to previous quarters in all metering segments, prepayment systems and AMR technologies. So I would like to wrap up some of my thoughts regarding my new position, but before doing so I’m pleased to state that Marcel Regnier who joined Itron as part of the Actaris acquisition in April 2007 and who has been the Managing Director of the Water Division for the past seven years with 20 years experience in R&D, marketing and operations will be my successor. I’m excited to work with both Philip and Marcel in the future to evaluate increasing revenue opportunities, maximize operating synergies and drive profitable growth between the North American business and Actaris. I already started this process by having a number of management meetings with Actaris and Itron North America personnel, reviewing organizational integration with HR managers, product system and marketing integration, research and development and technical discussions with R&D managers, manufacturing and purchasing and large scale project management topics. I have found that there is a strong desire to work together and learn from each other and believe that we have only just begun to see the possibilities of this combined company and group of extremely talented people. I look forward to updating you in the future on my progress in this new role. And with that I would like to turn it over to LeRoy.

[LeRoy Nosbaum:]

Another good quarter, we are certainly pleased with the results that Steve, Philip and Malcolm have described. From my perspective, the year is playing out about as expected. AMR in gas and water are doing fine. AMR in electric has been challenged by a decision to look at or move to AMI. Yet, we do continue to ship against those projects that we booked last year including MidAmerican and Trinidad & Tobago. We are not seeing any noticeable effect from the slowdown in the economy or housing in North America or Europe, kind of a steady as you go quarter. On the AMI front, Itron continues to pursue a number of opportunities with OpenWay in North America. I like the momentum in the market. I like our competitive positioning. We would all like the announced opportunities to move along on a more precise schedule, but in fact they are moving on what I might call, utility schedules, which Itron is very familiar with. Utilities, regulators, boards, all are wrestling with very complex matters in these very large projects. We were quite pleased with the CenterPoint earnings release call this morning although the market seemed a little bit disturbed. They are going to file, we’ve all been waiting for that. The initial phase is 250,000 meters with full expansion if successful. None of these projects are going to go forward if not successful. They appear to have an approach; they think will satisfy both the Public Utility Commission of Texas and their Board, good news. And they are already thinking about how to accelerate, all of this is great news from their call this morning. There are a lot of AMI projects moving forward, the exact timing is unknown, but there continues to be momentum. The utilities are not stagnant. The AMI and AMR market in Europe continues to develop and our Actaris team is focused on a growing number of opportunities, some of which require development effort, some of which they already have the requisite product and expertise. This is a long process, with Malcolm and now with Marcel focused on where to place resource and effort including expertise and technology from the United States. Speaking of Malcolm and Marcel, toward the end of the quarter we announced the promotion of Malcolm to the position of Chief Operating Officer and President for the whole of Itron. Given his Actaris experience and his prior Itron experience, we now put Malcolm in a position to begin to coordinate the operational efforts of both Itron groups, Itron North America and Actaris. His charter is simple

[Operator:]

(Operator Instructions) Your first question comes from John Quealy - Canaccord Adams.

[John Quealy:]

First on Actaris, I know you gave us some good details in the slides and in the commentary, but even if you stripped out FX it looks like year-on-year if I read your pro forma chart right in the slide, you are up double-digits in revenue again assuming some currency issues there. Is it just the mix in the heat pump business that seems to be tracking above, I think you have talked in the past maybe 8% plus organic growth in that business?

[Deloris Duquette:]

Yes, John just a little bit of clarification, the $9 million that both Malcolm and Steve talked about on the call about being up that was in relation to what our original forecast was and we were using a Euro rate of about 145. Just a reminder that when you are looking back to Q1 of ‘07 that rate was closer to 1.3. So although Actaris business has grown over the first quarter of last year from a Euro perspective, it’s not as substantial as it looks from a US dollar perspective.

[John Quealy:]

Correct, but it still seems to be above 8% if I factor that in. Is that a fair comment or not?

[Deloris Duquette:]

I don’t think that it is that much of an increase over their first quarter of last year when you are looking Euro-on-Euro. And the other thing John we did do a reclassification of our [inaudible] and Europe business that accounted for about $10 million during this quarter that is not in that graph that I am showing last quarter with.

[John Quealy:]

So, let me just close the Actaris piece with this. In terms of revenues in a local currency basis, how much does the German heat business and water business in that seasonal period help you in Q1?

[Malcolm Unsworth:]

We have most of the revenue from heat significantly if you want as far as the actual numbers.

[Deloris Duquette:]

I don’t know that we quantified it to tell you the truth. If you would look on a trended basis, water tends to be about 28% of the revenue, this quarter it was 32%. I think you could basically take that delta and get close.

[Malcolm Unsworth:]

Yes, it’s typically higher in the first quarter because of the replacement business in Germany.

[John Quealy:]

Back to the States here, LeRoy, I think last quarter you talked about 20 utilities that you had AMI smart meter discussions with. You gave us some great color and commentary with regard to CenterPoint and some other things that are on people’s minds. Could you give us a little bit more detail with regards in the different approaches that states and utilities are taking whereas some states are having the PUC lead the process, in other states some utilities are leading and how that colors your expectations for the timing, if that’s an appropriate way to look at this?

[LeRoy Nosbaum:]

Well, John you allude to an important factor in the market right now. Clearly, depending on what push public utility commissions are giving to these projects there is either forced timelines or a more leisurely process. But I think you also have to bifurcate between a different market structure in Texas for instance than you’ve got in almost any other state in the union. I would say that as we look across the 20 or so utilities we are talking to, we run the gamut from the California guys who have edicted, to the Texas guys who strongly encouraged, to others that have just said, “Hey we think you ought to be looking at this because other people are looking at it.” I think as we begin to come through 2008 toward the end of the year, we are going to see a number of utilities because more contracts are going to be announced, the number of utility commissions that are going to say. “Hey guys, why aren’t you doing something, all these other people are.” There is a level of activity out there that you aren’t seeing because it’s still under the covers where utility commissions have asked utilities to run various kinds of scenarios surrounding AMI and taking a look at whether or not they can cost justify it. I also think that as we come through this year and we continue to see prices of electricity go up and other economic factors affecting consumers we are going to see more and more pressure from utility commissions in general. We certainly at Itron are being asked more and more by both utility commissions and the national utility commission body to show up and talk about AMI and what it can do and I’m on a couple of programs later this year.

[John Quealy:]

We’ve also seen recently the rise of consortiums not necessarily the EDF stuff, but rather where actually an extrapolation of the EDF sort of IBM system integrator leading the way and we’ve seen that most recently in Australia. Can you comment on that LeRoy in the international space and do you think it bleeds into the US where you get these super consortiums start going around with one stop shopping for a smart grid?

[LeRoy Nosbaum:]

There is no question about it; we’re seeing it. We see it worldwide and we are beginning to see some of that activity in Canada as well. And I think you are going to see a continuing amount of it because these projects are so large that a utility either doesn’t have the manpower or does not want to take responsibility for not only the integration, but if you will even the project planning. It’s just beyond the utility’s capability and so IBM, Accenture, Cap Gemini came and all those kinds of guys show up and say, “Well, this is what we do for a living. We are well-qualified to do that.” The good news there is that Itron has relationships with all of those people and to be honest the less than good news, I won’t go all the way to bad news, but the less than good news is it puts somebody between us and our customer which we frankly never like. However we have certainly come to, to be able to operate in that realm over the course of the last two or three years as these guys have shown up. John, I think we are going to see more and more of that I think it’s a fait accompli to be honest.

[Philip Mezey:]

John, there has been some consortium activity in North America. The wide range of RFPs we’ve seen have broken apart the piece, the system integration separated out from communications even the meter or possibly even the software. So we see a range of disaggregated bids all the way up to fully aggregated through integration. So there are a variety of different models with more emphasis so far on disaggregated models I would say.

[John Quealy:]

The June ‘07 quarter has a tough EPS comp on a pro-forma basis, $0.89. I know it’s the first quarter of Actaris last year. I thought there was something in the neighborhood of $0.10 to $0.12 of tax related benefits related to Actaris. Can you just remind us how to look at that apples-to-apples moving into the June quarter in ‘08?

[Steven M. Helmbrecht:]

John, that’s right. We went through the close of the transaction. There was also tax but we as part of the close process, we had some foreign exchange gains as you might recall where we had hedged the purchase price of the acquisition. And so it’s a combination of those that would be, we’d consider one-time items, favorable items in Q2 of last year.

[Deloris Duquette:]

Yes. And, John we can’t remember the exact cents per share, but $0.06 to $0.07 sticks in my brain as additive last year for the closing of those transactions.

[Operator:]

Your next question comes from Steve Sanders - Stephens Inc.

[Steve Sanders:]

Just coming back to the consortium question and maybe EDF would be a good example, Malcolm first, did you say that EDF had narrowed it from four consortiums to two and you were in both of them?

[Malcolm Unsworth:]

Yes. There were four originally and we participated in three of them and now it’s been narrowed down to two and we are in two of them.

[Steve Sanders:]

Maybe using that particular opportunity as an example, where do you sit in terms of the relationship with EDF? How much interplay do you have with them throughout the process versus, a broader integrator like some of the big IT companies that would be involved as well?

[Malcolm Unsworth:]

Well, you got to remember, Actaris has been a meter provider to EDF for many, many, many years and so the relationship goes back a long way. So if EDF would like some information on metering, they usually come to us and a couple of our major competitors. When they are doing this kind of rollout, it is absolutely huge. So and when you think how often they bill their customers with real time billing, they need some serious help with system integrators. So they come to us for metering expertise and then when it comes to all of the other things that need to be done they go to the systems integrators.

[Steve Sanders:]

Malcolm on the mix of your meters with AMR, I think you said 12% overall and that’s increasing and 28% on the electric side. Can you talk a little bit more about what you expect there in terms of a trend over the next year or two?

[Malcolm Unsworth:]

Many of the meters that we are providing today are prepayment meters and they are one-way and two-way prepayment. We see that business continuing to grow and at the same time, the AMR business on electricity is starting to take-off and on the water side, it’s starting to be significant. So it’s a growth that we will continue to focus on, but as we look in the short-term, it’s growing in the long-term. It will definitely grow.

[Deloris Duquette:]

Yes, if you had to look at it for the year Steve, and again we haven’t necessarily modeled out every AMR meter versus the other. It’s probably going to trend right around there, although from quarter-to-quarter you could see a little bit of change. And that might affect your margins a point or two which is why Malcolm is talking about. He still thinks for the full year that Actaris should be around 30% margin.

[Steve Sanders:]

LeRoy specific to CenterPoint, I think there was certainly, a view out there in the investment community that CenterPoint’s detail on their AMI initial rollout was maybe a bit more cautious than we were expecting. It doesn’t sound like it was relative to your expectations. Could you just talk a little bit more about that and maybe more broadly your view on as utilities move from the early evaluation of AMI to the middle innings and ultimately the implementation, do you think they are accurately capturing the complexity of the rollout and avoiding getting tripped up by some of the issues that make them up as you get a little deeper into the project?

[LeRoy Nosbaum:]

I think one of the things that clearly I point to at CenterPoint is that we are certainly in closer contact with them than the industry. We are talking to those guys every day if not every week and have a pretty good feel for the issues that they are trying to resolve. And you’ll recall on the last few calls we certainly talked directly to the fact that they were in between their Board and the public utility commission about a project that had grown in expense and the commission was some fighting because the underwriting of that by the ratepayer was getting called to question. I think in one sense what they talked about today David McClanahan was an artful compromise to say okay everybody is nervous and McClanahan said it about spending $1 billion on this project. Let’s see if we can get into it, prove its worth, judge it quickly as we move along and then we’ll go ahead and rollout the full project. The reality of that is there’s not a utility out there that’s going to enter into an AMI project, get halfway through it with miserable results and keep right on going. McClanahan at least had the nerve to say that and so I don’t look at that any more than the reality of what any utility will actually do. I do frankly look at it as an artful compromise as I said to get moving on this thing and certainly I was very pleased when he said we’re even looking at some ways to accelerate so that we don’t have to wait for the full 150 days before we deploy. I would say as well that it does point, as you sort of point to the fact that these are very complex projects and whether it’s a Southern California Edison or PG&E or CenterPoint or others that are contemplating or already moving forward, as you get into these things it’s a bit like trying to pick up a porcupine. From 100 yards away you just say well let’s go pick it up, but when you get real close to it, there’s lots of things that reach out and get you. And this is no different and so they struggle as they get close to these projects with bits and pieces that don’t come together quite as fast as they thought they would. Some of those are just people issues, whether its boards or commissions, or commission staffs. Some of them are actual technical issues. And I wouldn’t be surprised at all if we saw in the coming months whether it’s an Itron project or somebody else’s that you are going to see a delay here or a delay there, because it’s a technical issue or people issue doesn’t come together quite as quickly as the utility thought. And to the previous question on why do we see as many consortiums with these big system integrators. In theory, that’s the work those guys do is to think through these very, very large projects. And so, I think in some cases utilities are trying to guard against that, but we’ll see it. It’s just going to happen and its well to note this is new territory literally for everybody. Utilities have not done these AMI projects before, none of the vendors have. We probably come as close as anybody, maybe even more so. But these are huge undertakings across a broad range of departments and technologies.

[Steve Sanders:]

Specific to OpenWay, your current thoughts on how the system is performing in the field, how you are doing on lowering cost, preparing to ramp the manufacturing, integrating to the extent that you need to with the various systems that are out there, any color there would be helpful?

[Philip Mezey:]

We are very pleased with the progress. We have, I think had a terrific relationship with our early customers and prospects in having a very open relationship with them about the state of our technology, it’s maturing very rapidly. We are just in this terrific position of being able to make the investments we need to in order to move the technology along quickly and to drive down that manufacturing cost. So, I made comments that we’d staff the project appropriately. LeRoy has given tremendous support on the investment side that we are really able to move the project forward and are very, very pleased with our progress.

[Operator:]

Your next question comes from Sanjay Shrestha - Lazard Capital Markets.

[Sanjay Shrestha:]

LeRoy, follow up on that prior comment that you made on the AMI side of the business, you mentioned that there is a lot going on behind the scene than what we are going to see from outside, there is a lot of discussion between you and the utilities. So what has been the feedback from them? Is it more the delay if you would or the longer timeline? Is this the typical utility dynamics or is it more like, is it the cost consideration, is it the benefit consideration, is it the technology consideration, can you go into a little bit more detail as to what are some of the factors that these guys want to see before all of some 20 odd projects that are on the drawing board gradually start to move forward?

[LeRoy Nosbaum:]

I think it’s a bit of all that Sanjay. Clearly, I would say generally as utilities are making decisions to move forward, that it’s not so much technology, because they do a huge amount of technology due diligence, but they’ve got a whole cast of people that they’ve got to get comfortable and it’s staffs and commissions and it’s intervening bodies. We are certainly seeing more intervening bodies than we have early on, let’s say, last year. So, people that are concerned about low income folks or elderly who are retired and on fixed incomes those people out of the woodwork and so utilities are retrenching a little bit and spending some time there. After projects are awarded and now we are proceeding to put the thing together and actually bring it into place. I think there, we are seeing and we will see whether it’s a technology issues or somebody couldn’t get enough people hired, we will see those kinds of delays. And I think you get into here on both sides of the line, a bit of hassle, which is the cost of the thing. Clearly we saw CenterPoint have a little issue over cost, before they actually awarded and before they began to move forward forcefully. I would imagine a utility or two is going to have a cost issue after they get into something and they are going to have to go back to a commission and say, “Hey, this piece of it’s costing more than we thought it would, can we have relief?” And the commission is going to instantaneously say, “No.” And then they are going to argue about it for a while. That’s typical utility kind of process. We are really used to that. You shouldn’t be, because you haven’t seen it routinely. But, I would guess by the end of ‘09 you will have gotten quite used to it.

[Sanjay Shrestha:]

So, CenterPoint chose to do, the 10,000 and 250,000 as you mentioned that, they are looking to see how they can accelerate even the 150-day process. So before they decide to move forward on the full-scale what are some of the key things that’s from and for us outsiders that we have to see so that we expect that this is going to now start to move forward. And the second part to that question, could we also see some of the other larger utilities that have been talked about a lot as to being ready to lease the project instead of going into several million end points, could it also end of becoming a couple of hundred thousand and the dynamics says that ‘09 is a good growth year in the AMI but it’s really ‘10 where Itron ends up seeing most of the benefit?

[LeRoy Nosbaum:]

Let me start with the CenterPoint question. I won’t go any further than David McClanahan said this morning which is we are going to look at consumer reaction and I think that’s a key at virtually every utility doing this stuff. Does the consumer respond to price signals, rate offerings all the rest of it. And that’s a key issue for every utility. Next point, I don’t think there is a real big difference from what CenterPoint said, which is, we are going to do 250 look at it, decide to do the rest, than anybody who says, “We are going to go the whole route.” Because they are going to look at it as they go along as well. To your last point on 2009, there is a huge amount of potential business in the AMI world for 2009. We’ve got the three big utilities in California, absolutely mandated to move forward, they will play hell to delay. We’ve got, what is a good kick-off at CenterPoint. We’ve got some other people that we’ve talked about that are going to kick-off projects. If the dip in the market today was because people thought ‘09 was fading, that was bad thinking. ‘09 is strong as it ever was.

[Operator:]

Your next question comes from Carter Shoop - Deutsche Bank.

[Carter Shoop:]

I want to follow-up on CenterPoint a little bit. LeRoy, you mentioned that you didn’t have a lot of AMI revenue earnings built into ‘08, is there any way to quantify how much of that was for CenterPoint in ‘08 that is no longer going to be there?

[Deloris Duquette:]

Carter, there is no way to quantify. We certainly don’t give that information out by customer, but we stated publicly that our ‘08 assumptions included less than 5% of Philip’s revenue that was AMI-related. So we’ve always talked about the fact that 2008 just didn’t have a lot of AMI shipments in it because it was primarily trials.

[Carter Shoop:]

Not a whole lot of ramping up.

[LeRoy Nosbaum:]

Carter, let me add something to that, as we look at ‘08 and think about AMI, or think about any order, we never put any whole order into a forecast. Things come, things go, things pull in, and things pull out. We get bluebirds. We get things that were rock solid disappear on us, same with AMI. And so, as we looked at ‘08, we might have thought to ourselves, we are going to get x-amount from CenterPoint, x-amount from Southern California, maybe x-amount from somebody else. We would never have put all of that into our forecast. We’ve learned over the years that things happen, so you just don’t do that.

[Carter Shoop:]

In regards to CenterPoint, it might be helpful to maybe discuss a little bit about how they ran into cost overruns and maybe also discuss why Texas is unique both on the regulatory front and also maybe in regards to the BPL technology that they are looking at?

[LeRoy Nosbaum:]

Yes, I’ll touch one of those and I won’t the other two. On the, what cost issues they ran into, if you can get that out of David McClanahan, good luck. But you won’t get it out of us, reasonable to ask, we are just not going to answer it. On the BPL issue same thing. I am just not going to comment on what he said this morning, although I will say briefly that BPL infrastructure is expensive to deploy system wide. They can do some radio stuff surgically, which is what they are going to with GPRS. That’s a reasonable approach. I don’t think it’s any more than that, but for further clarification, I’d go to those guys. The difference in Texas is, that’s deregulation to the max. If you are a homeowner in Texas, you can buy electricity from about 15 or 16 different energy suppliers. All CenterPoint does is pump it through their lines. And so, the different cost benefit analysis that a CenterPoint can do versus a Southern California Edison, where they are actually selling electricity, they have the exposure of spot price markets when demand is high, is way, way different and so the consideration for CenterPoint or TXU in Texas is very, very different.

[Carter Shoop:]

In regards to the integration of Actaris and Itron, when the deal originally closed about a year ago, it didn’t sound like you were overly optimistic about realizing a lot of a synergies from the deal. It sounds like moving Malcolm into the COO position, you might have become a little bit more optimistic about realizing some synergies between the two, am I reading that correctly, and if so, can you maybe try to quantify that?

[LeRoy Nosbaum:]

Yes. what I would say there is, synergies is a word that we toss around internally and frankly, a couple of us get real nervous about using, because it has a different and a stronger and specific meaning to some of you. I would say that the opportunity for cooperation, so that we don’t reinvent the wheel on two sides of the ocean, the opportunity for joint purchases, the opportunity to not try to do too many things differently so that we can coordinate research and development, all of those are strong. I know Malcolm has got some thoughts on that. Synergy is probably a word that we should have used a little more cautiously. Although, I would say in the main, I completely agree we never did this acquisition because we thought we could essentially produce synergies by closing factories or any that kind of stuff and we are still in that space.

[Malcolm Unsworth:]

One of the things that we have found having spent the last year there is that, when we first started to look at Actaris, we really thought it was a metering company. We really did, and most of the revenue there is no question is derived from metering. But, having spent the last year there and you start looking at what kind of AMR and AMI technologies. They have developed a significant amount of technologies and GPRS, PLC, RF handhelds prepayment and software. And so, there is a lot of technology that we can utilize and not have to completely do over again and transfer it from North America. We talked about prepayment opportunities in some form or fashion in North America that is obviously will start once you introduce AMI and there is a possibility we could do something like that with the utilities in North America. And so, there are significant technology opportunities on both sides. And so, rather than just say, it’s going to be purchasing, which we have done and which we are working on. It’s also some technologies and we’ve had some significant meetings between both groups. So, just I wanted to add little bit of color on the technology that Actaris has.

[Operator:]

Your next question comes from Stuart Bush - RBC Capital Markets.

[Stuart Bush:]

I know we’ve talked a lot about timing on all these AMI projects, I would like to get back to the issue of cost. I think it could be helpful to us and investors, if you could help us understand what the breakout or give us a range of the CapEx per endpoint for a large AMI project for all the different pieces. So, how much is it for the communications, the meter, the software and the systems integrator. If we are talking about a multimillion dollar, having multimillion endpoint size territories, how does that opportunity break out amongst all the different providers that have to come together?

[Deloris Duquette:]

Stuart that is just going to be really hard to do to put any definitive numbers toward that obviously. I would encourage you to look at someone like a [inaudible] filing because what they do is they break it down in categories as to what the hardware portion of their total $2 billion or so spend is versus the communication versus the installation versus the software versus internal costs. And so, it will give you a relative percentage of it. We generally say, if you look at one of those large projects, the hardware business is going to be about half then you’ve got software, systems integrator installation and all of that.

[Stuart Bush:]

And so, if there was any concerns at some of these utilities about cost issues, which part of the consortium or a consortium would the cost be pushed back on the most do you think?

[LeRoy Nosbaum:]

Well, one of the decisions they can make Stuart is how much custom software they are going to require depending on what they are going to use and who is going to build that software. There are some utilities out there that have enough internal capability to do some of that. They also have internal capability to do some of the integration and they can manage the installation process themselves, so there is some places they can push back and work some of those issues. The other thing you can see is a utility who is not only doing, what I will call smart metering or AMI but pushing the envelope on smart grid or intelligent grid, they can scale back some of that intelligent grid stuff and reduce some of those costs as well.

[Stuart Bush:]

There has also been some talk about Progress Energy looking for a demand response solution. Can you talk a little bit about how that would tie in to their already implemented AMR solution?

[Philip Mezey:]

Demand response in order to determine whether or not a load reduction has actually occurred there are two different methods that can be used. There is a statistical method in which you are looking at the system level for a load reduction and then there is a more quantitative method in which when a command is issued to do something like adjust a thermostat in home that you actually are making direct measurements as to whether or not there has been a change in load at the premise. And the current deployed endpoints could be used in order to verify load reduction in a demand response scenario.

[Stuart Bush:]

Yes, but guess what I am getting at is it’s not likely that a utility that just put in a large AMR solution would upgrade all the way to a full blown AMI system, is that right?

[Philip Mezey:]

It is very possible. We are talking to a large number of very happy AMR customers who have derived their business cases and have been very successful deployments who are looking at AMI very, very seriously.

[Deloris Duquette:]

Yes, Stuart, I would just add, I think that Progress Energy was quite public about the fact that with their mobile AMR system, they had about a three year payback on that system.

[Operator:]

Your next question comes from Paul Coster – JP Morgan.

[Paul Coster:]

Clearly some of these contracts are going to be very complex and best of breed and when the communications subset of it goes against you does it really matter to you from the perspective of the overall economics and is it different in Europe versus North America?

[LeRoy Nosbaum:]

Well, the first one Paul, Yes I’m sure it matters to us. We, it matters both from an economic perspective because we would have made more margin on the communication piece. However, that said, if we are providing the meter and we are integrating communication, it’s not an unattractive piece of business, it is very attractive and we will make sure we make money on it, just like we do on everything else. Europe’s a bit different. The fundamental difference is that we see a number of the larger utilities in Europe who actually come to you with their own intellectual property as EDF does and we will see it in a couple of the other big guys, [inaudible] has been talking quite publicly about a technology lately. And so, there they turn you into more of a commodity supplier because they dictate what you are going to do and the way you are going to do it. And as well depending on where you are trying to sell something in Europe, you might be narrowed into power line carrier, you might be narrowed into GPRS. They have a far better GPRS system and they run it quite more efficiently than we do in the United States in most places in Europe. And so the choice of a communication kind tends to be something that utilities dictate more than they do in the United States.

[Paul Coster:]

So, just going back to the North American subset of that answer. Am I correct in interpreting your comments to mean that the communications segment has higher margins, but generally speaking lower gross revenue or gross dollars associated with it?

[LeRoy Nosbaum:]

No, if I said that I didn’t mean that. What I meant to say is as you put communications on top of a meter because you are giving more functionality more value to the end customer, that the gross margin of that whole meter communication together tends to rise. You get some benefit from the whole thing. Consider for instance an OpenWay meter with somebody else’s communication. We have a switch embedded; we have electronics. It does quite sophisticated things in the meter register. We may well have a ZigBee communication component to that thing. All of that might accrue to the meter vendor and not to the communication vendor and there is great margins in all of that compared to just a plain old bread and butter meter.

[Paul Coster:]

But, Malcolm with respect to your commentary, the way I interpreted it is that the European business is not a turns business anymore or at least not as much as we thought. Is that correct? Can you quantify that which is visible in each quarter?

[Malcolm Unsworth:]

You are saying it’s not a book and ship business?

[Paul Coster:]

Well less so than we had originally assumed?

[Malcolm Unsworth:]

Well, now today most of the revenue is associated with metering, with some starting to deploy some smart metering. We don’t book the whole order. We book it based on what we call frame contracts. Frame contracts are where a customer will say we think we are going to buy this many meters from you in the next two years. But until they give you a purchase order that’s not booked. So the book and ship business that we have, it’s quiet predominant. If we do get a large rollout for a large contract with defined delivery dates, that’s definitive-able we do book that. So most of the revenue that we have today is associated with book and ship and there are few that we have got like the areas we have in Sweden where we’ve got some large contracts in there, which we do have some AMR contracts in Sweden. So it’s changing, but the way we book these orders is when we get the delivery dates of the meter and the communication modules.

[Paul Coster:]

LeRoy can you comment on the likelihood of a secondary, what’s your latest your thinking on that?

[LeRoy Nosbaum:]

Well Paul no, I am not going to comment on that specifically. We have a very active process. We are continuously looking at debt capital structure and so we review that all the time. Its part of the routine but we are not going to comment on our current thinking along those lines.

[Operator:]

Your next question comes from [Andy Yeung] - Thomas Weisel Partners.

[[Andy Yeung]:]

First you mentioned that AMI is having some impact on your AMR sales. Can you give us a little bit more insight on the dynamics in United States and outside of United States?

[LeRoy Nosbaum:]

Well outside of the Unites States probably virtually none. But if you look at our growth rate inside the United States it had been in the double-digit area in electric AMR and that has certainly not only reduced but it’s reduced because of consideration of AMI. So whereas a couple years ago AMR electrically was growing 14% or 15%, we are certainly not seeing that number now. Because utilities are looking at should I do AMR or should I do AMI. They have been mandated to look at AMI by the federal government and their pubic utility commission. So, we have seen, what I would say and this one is very, very difficult to quantify a number of utilities that would have gone AMR by now, going AMI or thinking about going AMI. If you just think about the three large utilities in California

[[Andy Yeung]:]

On a different topic from a quality standpoint, can you give us an update on AMI, AMR product at Actaris and also gas and water meters in Itron North America?

[Deloris Duquette:]

You are talking about sales of gas and water meters in Itron North America?

[[Andy Yeung]:]

Yes, like the synergy between cost developments moving some of the product from Actaris in water and gas meters to North America?

[Deloris Duquette:]

Well, obviously there are a part of the Actaris results has gas and water meter sales but they are classified as Actaris right now. It’s certainly one of the things that we continue to evaluate going forward but right now it’s classified as Actaris operations as they always have been.

[LeRoy Nosbaum:]

Yes, to make sure we’re all on the same question here, Actaris makes gas meters in Owenton, Kentucky in North America. They are maybe the third market share supplier of gas meters and maybe the leading market supplier of gas regulators for residences in North America. So that business is alive and well sold under the Actaris banner and the hard-core engineering for that occurs in Europe, but products are certainly alive and well in the States. Water is a different situation. Actaris only several years ago started to try and sell water meters in the United States, and they have done a good job so far but they haven’t been able to penetrate the markets to where they are a material player yet in North America. And that is a strategy that we are honing as we move through 2008, how to make them a material player in North America and to grow that business to where we are comfortable with it. They actually make meters in Greenwood, South Carolina in a fairly integrated facility except for the casting of water meters. And so, we are thinking about how to grow that business as we go through time.

[[Andy Yeung]:]

And for the water meter is that what is the reason why they weren’t able to penetrate the North American market as well?

[LeRoy Nosbaum:]

Well, if you think about selling meters in North America, there are two issues you have to generally deal with. One, you have to sell to 55,000 water utilities and so that leads you to have to have a well established distribution channel. If you are the new kid on the block, convincing any established water distributor, who is selling water meters, pipes, lots of other stuff, to take your brand new product and give up on some established vendor that’s tough, and they found it to be so. The other issue is just approval of your meter at water utilities. Approval of a meter whether it’s water, gas, or electric is not a couple of weeks, months kind of a project. It is a couple of years project for most utilities and so its timing and its distribution channel.

[Deloris Duquette:]

And Andy, maybe just a little bit of background on that as well. If you look at Actaris, they were spun off from Schlumberger. They were in business outside of North America. So, they had all the meter business outside of North America. They did not have a water meter presence inside North America. That ended up with another company. Now Itron turned around and bought the electric side of that and ended up with Schlumberger Electricity Metering. They were trying to introduce a water meter in the U.S. It wasn’t that they had one when they were Actaris and were spun off from Schlumberger.

[[Andy Yeung]:]

Is there any intention or like interest in acquiring a water meter company in North America?

[LeRoy Nosbaum:]

Well, if I could find a water meter company at a price that I thought was reasonable, we would be interested in it if our level of debt wasn’t what it is today. I have said that fairly publicly. So, it’s one of the strategic considerations although if you look at the currently successful water meter companies in the United States, they are all doing really well and they are all quite pricey.

[Operator:]

Your next question comes from Cregg Watner - Elm Ridge Capital.

[Cregg Watner:]

On the balance sheet, what was the movement on intangible assets and goodwill?

[Deloris Duquette:]

Because we’ve got a year to do purchase accounting adjustments after we acquire Actaris that means that we reevaluate those balance sheet accounts on a periodic basis. We looked at our trademarks for Actaris and did a reevaluation and there was about a $70 million reclassification out of intangible assets and into goodwill related to that. The rest of its foreign exchange impact.

[Cregg Watner:]

Was it a similar FX impact on the warranty and pension and actually on the deferred revenues as well?

[Steven M. Helmbrecht:]

There was some increase on the pension related as well to FX. The pension plans relate to Actaris in Europe and some amount as well warranty, so any of the Actaris or the Euro denominated balance sheet items increased relatively speaking because of the strengthening of the Euro. And the unearned revenue, some of that is just timing of when we have annual billings for annual contracts and maintenance and that tends to be on a calendar basis, you tend to see that increasing in Q1.

[Cregg Watner:]

The reason I asked on the warranty and pension is it seems that it dipped down last quarter and it just re-bounced back.

[Deloris Duquette:]

If you looked at deferred revenue at any rate you bill all those customers in January and they pay for it before the end of the quarter but you haven’t recognized that.

[Cregg Watner:]

No I understand that. I’m just on the warranty and pension what was the movement last quarter and then the rebound this quarter?

[Steven M. Helmbrecht:]

I don’t have in front of me the rebound in the prior quarter. But primarily it was driven by an FX change. There is no fundamental change in the pension plan or warranty at all.

[Operator:]

Your next question comes from Patrick Forkin - Tejas Securities.

[Patrick Forkin:]

We are seeing some of the larger utilities start to get a little more engaged on how they are going to satisfy the various state renewable portfolio standards and there has been a little chatter of folks wondering if that will compete with AMI projects. I don’t believe it will but I would like to get your take on it?

[LeRoy Nosbaum:]

I’ll let Philip be expansive on this but I certainly don’t think it will because utilities attack different issues with those two things. Renewable portfolio they are looking to add to their electricity supply with all things renewable. If anything you might see some competition and spending but the forcefulness with which public utility commissions are talking about AMI, I don’t think it lets utilities turn from AMI because of the renewable focus.

[Philip Mezey:]

No, Pat. I really think that Jim Rogers has said this so well that energy efficiency is the available fifth fuel with very desirable economics compared to these other renewables and there is even some talk about including energy efficiency and demand response as counted against a renewable quota. And therefore investments in advance metering which enable demand response are very complementary to RPS investments and I think are in many cases much more available and have more attractive economics in a shorter timeframe.

[Patrick Forkin:]

Every study we’ve seen on reducing the carbon footprint, its coming back consistently that efficiency is the low hanging fruit and I don’t know how you can get efficient without the customers becoming more numerical and I would think that would lend itself to your AMI projects.

[Operator:]

Your next question comes from Chris Sommers - Greenlight Capital.

[Chris Sommers:]

Of your $484 million of bookings, how much of that was from So Cal Edison?

[Deloris Duquette:]

None.

[Chris Sommers:]

Secondly, versus what you were thinking at the end of the fourth quarter, is there any hope that So Cal Edison can have any greater amount of shipments in 2008 now?

[LeRoy Nosbaum:]

We have no difference of opinion about So Cal shipments in ‘08 between what we said in the fourth quarter and what we’ve just said.

[Operator:]

Your final question comes from Ben Calo - Stanford Group.

[Ben Calo:]

You mentioned a couple of partnerships you made, specifically Silver Spring and then there was an announcement about SAP. Are the partnerships specifically for certain projects or is it more of a broad based enhancing technology there, could you talk about that?

[LeRoy Nosbaum:]

Yes, they are a broad based.

[Ben Calo:]

On the regulatory front when we look at So Cal Edison are there specific dates that we should be looking towards to see when that gets approved by the CPUC?

[LeRoy Nosbaum:]

Southern California Edison I believe has stated that their intention is to file with the commission in the mid year timeframe.

[Ben Calo:]

So, nothing further then that though?

[LeRoy Nosbaum:]

No.

[Deloris Duquette:]

Not that we’ve seen.

[Ben Calo:]

On the international front, is the regulatory process longer or shorter, or could you just give us some more color on that?

[Malcolm Unsworth:]

It depends on which country you are in.

[Ben Calo:]

So, if we are to looking at EDF specifically.

[Malcolm Unsworth:]

They have been talking about this for quite some time, so they’ve published. It’s still got to go through regulatory approval. And so, it’s exactly the same as in North America, it’s very slow and very long.

[Ben Calo:]

CenterPoint you mentioned that you had a very small number in your estimates for 2008 in your guidance. Can we say that’s less then $25 million?

[Deloris Duquette:]

Well, what we’ve said publicly and again we are not going to say what we had for any particular customer. What we said publicly is that all AMI revenue expectation in ‘08 was less than 5% of Philip’s revenue, so that gets you a good feel for what you were thinking.

[Operator:]

Ms. Duquette, I will turn it back to you for any closing comments.

[Deloris Duquette:]

Thank you again everyone for joining us today. And, as always if you have any follow-up questions, please feel free to give me a call. Thank you.