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Executives

Sarah Stashak – Director, IR

Drew Evans – EVP and CFO

John Somerhalder – Chairman, President and CEO

Mike Braswell – President, SouthStar Energy Services

Peter Tumminello – President, Sequent Energy Management

Analysts

Carl Kirst – BMO Capital

Craig Shere – Tuohy

Ted Durbin – Goldman Sachs

Mark Barnett – Morning Star

Gordon Howald – East Shore Advisors

AGL Resources Inc. (AGL) Q1 2011 Earnings Call May 3, 2011 4:00 PM ET

Operator

Good day ladies and gentlemen, and welcome to First quarter 2011 AGL Resources earnings conference call. My name is Jeremy and I’ll be your coordinator for today’s call. (Operator Instructions). I would now like to turn the presentation over to Ms. Sarah Stashak, Director of Investor Relations. Please proceed.

Sarah Stashak

Thank you, Jeremy. Thanks to everyone for joining us this afternoon to review our first quarter 2011 results. With me on the call today are John Somerhalder, our Chairman, President and CEO, and Drew Evans, our Executive Vice President and CFO. We also have several members of our management team here to answer your questions following our prepared remarks.

Our earnings release, earnings presentation and Form 10-K filing are now available on our Web site. To access these materials, please visit aglresources.com. Let me remind you today that we will be making some forward-looking statements and projections and our actual results could differ materially from those forward-looking statements. The factors that could cause such material differences are included in our earnings release and our 10-Q and 10-K.

We also describe our business using some non-GAAP measures such as operating margin, EBIT, adjusted net income and adjusted EPS. A reconciliation of those measures to the GAAP financials is available in the appendix of our company presentation as well as on our Web site. We’ll begin the call with some prepared remarks today before taking your questions. Drew, I’ll turn it over to you to begin.

Drew Evans

Thanks Sarah, and good afternoon everyone. Starting on slide three of our accompanying presentation, you can see that we reported Q1 2011 of $1.59 per diluted share, or $1.63 per share, excluding costs incurred during the quarter related to the Nicor merger we announced in December. On an adjusted basis, these results are down 6% from Q1 2010. The lower year over year earnings are largely reflective of hedge gains realized by Sequent in last year’s Q1, which had the effect of accelerating earnings into that period, and this year we did not have a similar level of accelerated gains. I’ll describe those in more detail in a moment.

The decline in Q1 results, relative to the prior year, also reflects more moderate weathers compared to the prior year. The greatest impact of the moderate weather is in our retail segment, which has the most exposure to temperature fluctuation. We benefitted from strong earnings in the distribution business, which helped to offset these factors, and as a result we are on track to meet our earnings guidance range for the year of $3.10 to $3.20 per share.

You can see the guidance range and our long term EPS and dividend record on slide four of the presentation. Moving on to slide five, you’ll find a snapshot of EBIT by segment. On the top left, you can see our stable, consistent results across the business, looking back through to 2006, and underneath that chart is a quarterly look at EBIT which gives you a good sense of the seasonality of our business, with Q1 and Q4 typically being our strongest, due to the heating season.

On the right, note that our distribution business continues to be the largest contributor to EBIT, representing 69% of the total EBIT in Q1 2011. Retail accounted for 20%, wholesale for 10%, and energy investments for the remainder. I’ll cover some of the major segment variances starting with our distribution business, on slide six. Primarily as a result of the rate decision and new infrastructure programs at Atlanta Gas Light in Elizabethtown, EBIT was up $5 million or 4% compared to last year.

You may recall that the new rates for Atlanta Gas Light were effective in Q4 2010, and we have infrastructure improvement riders in place for both Georgia and New Jersey. OpEx in the distribution segment increased 4%, and that was mainly driven by higher payroll and benefit cost, associated with hiring new customer service employees, as agreed to in the Atlanta Gas Light rate case.

You can see that our customer count at the end of Q1 was up slightly from this time last year, and across all of our utilities we have focused on minimizing customer attrition over the past few years, and we believe those efforts position us well to take advantage of opportunities to grow our customer base as the economy strengthens over time. Turning to the retail segment, SouthStar, on slide seven, we recorded EBIT of $68 million for Q1 2011, down $6 million from last year.

The decline was mainly the result of warmer weather and lower customer usage and to a much lesser extent, reflected changes in customer mix with more customers moving to fixed price plans. SouthStar’s market share in Georgia is 32% and our customer count for the quarter in the Georgia market was down approximately 2% relative to Q1 2010. This is generally reflective of the more aggressive competition for customers in the Georgia retail market, although if you look at it, our market share and profitability in this business over a longer time horizon, you can clearly see the underlying stability of the business.

You’ll find Q1 2011 results for our wholesale services segment on slide eight. Like other natural gas wholesale marketers, Sequent continues to face the challenges of lower market volatility; our diversified approach and ability to capitalize on periods of colder weather in certain regions of the country served us well during the quarter. Commercial activity has been solid of $8 million or over 15% versus Q1 last year. We also have a stronger storage rollout scheduled at the end of the quarter, with $11 million in economic value locked in, compared to $6 million at this point last year.

While Sequent’s EBIT was down $10 million year over year, the decline was due primarily to market to market hedge gains of $22 million in Q1 2010, versus just $1 million of hedge gains through Q1 2011. Hedge gains and losses are largely reflective of changes in IMAC’s natural gas prices, and the impact of these price changes on our hedge positions. Less volatility generally in this case, meant fewer changes in IMAC’s natural gas prices.

You can see the wholesale operating margin component and detail on the chart at the bottom left of your page. The dark blue bar and the green bar represent transportation and storage hedge gains and losses, while the lighter blue bar represents commercial activity and the orange bar shows lower cost at market, or low com adjustments, which have been de minimus over the last several quarters.

Moving to our energy investment segment, which is detailed on slide nine, you can see that Q1 2011 EBIT was $1 million, down from $3 million recorded Q1 2010. This is largely due to the sale of AGL networks in July 2010, and by way of reference, AGL networks contributed roughly $3 million of EBIT Q1 2010. Some balance sheet highlights are noted on slide ten.

In March, we issued $500 million of three year senior notes at an interest rate of five and seven-eighths. The transaction marked the largest fund offering ever completed by AGL and carries the lowest coupon for a 30 year transaction in our history. The interest rate on these notes lowered the weighted average cost of our fixed rate debt to 5.8% from 6%, and the 30 year tenor improved the duration of our fixed rate debt maturities schedule, taking the average tenor from just over nine years to nearly 13 years.

The primary intent of the senior note issue was to refinance the $300 million maturity from January 2011. We did upsize the transaction to $500 million in order to prefund $200 million, or about 20% of the Nicor acquisition financing, and thereby removing the market risk associated with the long dated portion of our financing requirements. We continue to evaluate strategies for other portions of the transaction financing.

Interest expense for Q1 was up $1 million versus last year, driven primarily by higher average long term debt outstanding related to that senior note issuance. In summary, we had a solid quarter to start the year and we remain on track with our $3.10 to $3.20 EPS estimate for the full year, excluding Nicor merger related costs. We continue to look for new opportunities across each of our businesses while ensuring that our culture of rigorous expense management remains in place. Thanks for your time today, and I’ll turn the call over to John.

John Somerhalder

Thank you, Drew, and good afternoon. Since Drew did a thorough job in providing you with the details behind our Q1, I’ll keep it brief today and update you on a few of the major activities we’ve been focused on this year, as well as fundamentals of the natural gas markets.

Turning to slide 11, I’ll start with the Nicor merger process. The most recent development, as most of you know, is that the ICC staff and several interveners filed testimony in the case late last week. The ICC staff recommended denial of the application was filed, which is not without precedent in other merger cases in Illinois.

Staff set forth a number of conditions that could remedy these issues with our application, that we will be reviewing in detail. In accordance with the procedural schedule, we will file our response on or before May 26. Our focus is on ICC approval, but we already managed several important milestones in the transaction approval process. On April 18, we received early termination of the Hart-Scott-Rodino AntiTrust Improvement Act waiting period from the Department of Justice, and the Federal Trade Commission.

As you know, we filed our S-4 registration statement earlier this year, and have filed amendments to the document in the past few weeks. We were notified late last week that the SEC has no further comments, and that our registration statement and joint proxy statement and prospectus have been declared effective. The special shareholders meetings in both companies to approve the merger and share issuance have been set for June 14, 2011. We remain on track to close the transaction in the second half of 2011 as planned.

Our transition committee and integration teams have worked diligently over the past few months to determine how we will operate the combined company going forward, and look forward to sharing more details with you as we get closer to the transaction closing. Turning to slide 12, one of our key objectives in 2011 is working through our rate case with the Virginia State Corporation Commission. We filed a rate case in February, requesting a $25 million increase.

About $15 million of that is for recovery of a significant portion of our investment in the Hampton Roads Crossing Pipeline. We previously had recorded some level of earnings on the project to AFDUC, so the impact of earnings should be negligible to slightly positive. We have not had a rate increase in Virginia since 1996.

Turning briefly to the natural gas market, the fundamentals of the market have not changed materially since our last earnings call. While oil prices globally are sky-rocketing, steady and low natural gas prices are attracting renewed attention from a wide variety of customers. A shift toward increased reliance on natural gas will undoubtedly occur across many sectors of our economy over the coming years.

Specifically today, natural gas prices continue to trade within a narrow range in most areas of the country. The latest storage figures from the U.S. Energy Information Administration show that gas storage for the week ending April 22 was 11% less than the same time last year, while just slightly lower than the five year average. This relative balance shows that while we’ve added significantly more supply in to the system from shale gas producers; demand, largely as a result of the cold winter and continuing very cold spring in the Midwest to Northeast is soaking up this added supply.

Price volatility has the most significant impact on our wholesale storage businesses, wholesale and our storage businesses. As Drew noted, Sequent did quite well during the quarter, finding opportunities where locational spreads widened due to the weather. That business is increasingly flexible and diverse, particularly with a focus on attracting more fee based business opportunities that are not as dependent on market volatility.

This diversity allows us to produce solid results, even in this challenging environment. On the storage front, we continue to make good progress on the second cavern at Golden Triangle Storage. The leaching process is now at 50% complete, and we remain on track to have it in service by March 2012. We are continuing to evaluate possible opportunities for the more BCF of GTS cavern one capacity, that is currently not under contract.

While the market for storage continues to be challenged and reservation rates are at historically low levels, I believe the overall value of natural gas storage remains high and we are firmly committed to our long term storage strategy. Wrapping up our prepared remarks today, slide 13 just serves as a reminder of our priorities for the year. We reviewed these last quarter, so I will not go into great detail, but you recall that based on what we discussed, we’re already making significant progress with the Nicor merger, the B&G rate case, our financing program, and our continuing focus on cost discipline.

With our collection of distribution, retail, wholesale and storage assets, we are well positioned to take advantage of trends that are benefitting the natural gas market; abundant supply, low prices, and clean energy policies signify a long stretch of opportunities ahead. Our management team, comprised of seasoned industry veterans and innovative leaders, is constantly looking for ways to improve and grow our existing businesses at every level, and to create sustainable long term value for our shareholders.

I’d like to point out that our total shareholder return year to date through April 29 is 16%, significantly outpacing the average for the broader natural gas peer group, up 10% on the average on LDC peer group of 80%. On behalf of the employees of AGL Resources, we would like to thank each of you for your continued interest in and support of our company. Operator, I’ll turn the call back over to you to begin the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions.) Our first question comes from Carl Kirst with BMO Capital, please proceed.

Carl Kirst – BMO Capital

Thanks, good afternoon everybody, and nice results. I just wanted to maybe see if I could get a little bit more color on the commercial activity at Sequent. It looks like you guys had a very nice buildup of activity, not only for Q1 over Q4, but over Q1 2010. Where I kind of saw Q1 2010 as being a little bit more volatile period, so I was hoping that one, you could give me a little bit more color on what was behind that. Was there some intense weather period where we’re having basis dislocations or was it just more better activity consistently through the quarter? And then secondarily on that, have we seen any of that commercial activity continue on here into Q2?

Peter Tumminello

Hi Carl, this is Pete Tumminello, and to your first question; really it was January, February in the quarter was colder than normal on the East Coast, and that’s probably where the majority of our assets reside. We had diversified the portfolio into the Midwest and the West, but it was East Coast cold weather, colder than normal in January February that provided the transportation opportunities primarily for us.

And secondly, we’re just getting into Q2, April is kind of cool this month, and it’s a month of primarily injections, but I can say this; we started out the year with a better storage injection plant, and last year as well, we have three BCF less in the ground at the end of March, but we have a $5 million greater storage rollout schedule. So that can give you an idea how the storage opportunities have looked so far through the end of March.

Carl Kirst – BMO Capital

Great, thank you.

Peter Tumminello

Thanks Carl.

Operator

Our next question comes from Craig Shere with Tuohy, please proceed.

Craig Shere – Tuohy

Good quarter, a couple of questions. With the delays in contracting out the first cavern there that you just built out, and with perhaps the ongoing weakness in the storage market, would you say that prospects for any potential MLP/IPO sponsorship are at best delayed, at this point?

John Somerhalder

Yes, Craig, I think that is correct. We always look at the right time to consider MLP opportunities should we decide to go down that path, and one of the things that we think would be important is to have the right subscription levels on those caverns, and the right terms on those caverns, and clearly with two BCF contracted on GTS cavern one, we would look at contracting more of cavern one and having clear line of sight to contracting cavern two, which will come online early next year, as the best time to consider an MLP. So clearly, we’ve looked at return to fundamentals we’ve seen in the past, and contracting at higher levels, those two caverns as the right time to consider an MLP.

Craig Shere – Tuohy

Okay, it sounded like in prior quarters that there was an outside chance that we might see a second half 2011 development, but now market permitting, it sounds more like 2012.

John Somerhalder

That’s correct. Clearly what you started out with, Craig, was the fact that the market has remained in balance. We’ve had a lot of gasses gorge, even though we’re down to the more normal levels of storage right now, that’s after extremely cold winter and continuing cold weather, so the market’s very well supplied. So we have seen less volatility in the market, lower storage values, so it has shifted out our time line on the ability of the contract remaining cavern one capacity and cavern two capacity. Just as you’ve indicated.

Craig Shere – Tuohy

Right, and Pete, kind of picking up on Carl’s question there, you were pretty positive I think in the Q1call, and now I believe John was speaking in his prepared remarks about the improving market for fee based opportunities for Sequent. Can you talk to us about what you think the face and long term growth prospects are in terms of the EBIT expansion for that unit?

Peter Tumminello

Craig, you know what we’re trying to do in that business, as we’ve talked about, is continue to spend more and more effort on the service and fee based businesses like more and more the producer services and asset management for producers. More and more full requirement fuel supply to gas fire power generators, and expansion of our compass business, our commercial industrial business. And we are seeing very nice growth in those activities, which are doing a good job of making a business more and more fee and service related.

Now, we still are majority requiring volatility for the bulk of our assets before we go to drive earnings, but we are moving it more toward a fee and service based business, and we’re feeling pretty good about that. The way our team is trying to design this business for the future is to try and put Sequent on a 6% to 8% growth plan, year over year, to continue to attract those types of business and selectively acquire wholesale assets at lower prices, in this new lower volatility environment.

Craig Shere – Tuohy

And that’s 6% to 8% long term growth rate on the EBIT, what is a good base period to look at?

John Somerhalder

It’s hard to go back to any one year, but if you go back to 2007, I think we earned about $35 million, and we’ve shown some growth off that, even though we’ve had some peaks. Last year we earned $47 million, those two points hit fairly close to that growth trajectory, so kind of continuing on that line at the levels that Pete talked about.

Peter Tumminello

That’s right, that’s realistic. We’re at $47 million at Sequent, an extra couple of million from Compass for $49 million, I believe, for the wholesale services. You continue in that growth pattern off of those numbers is what we’re designing the business for.

Craig Shere – Tuohy

Okay, and on the competitive retail business, SouthStar, any sign of let up on the competitive position there, or do you think margins will continue to be challenging in coming quarters?

Mike Braswell

I think in Georgia the competitive environment has stabilized, if you want to use that word. I believe the competitive environment will stay about where it is currently. We are always looking at new products to offer to allow us to maintain share and margin. So at this point our goal for the future is to maintain our market share and current level of market.

John Somerhalder

I’ll tell you the biggest impact quarter over quarter was weather, not a large impact, but there still was some slight negative impact on customer mix and customer count, and as Mike just indicated, we’re seeing stability in that, but it’s still something we’re very much focused on to make sure we do the right things to continue to stabilize it.

Craig Shere – Tuohy

Right, thank you.

Operator

Our next question comes from Ted Durbin with Goldman Sachs, please proceed.

Ted Durbin – Goldman Sachs

Thanks, talking about natural gas storage prices being down, obviously is bad for Golden Triangle, but it’s probably good for Sequent. I’m just wondering, Pete, if you’re signing more longer term contract because you feel like there’s a lot of opportunity for you to get some more volatility, maybe you’re willing to go out a little bit further on some contracts, or are you still staying more short term with the tenor of what you’re signing now, and what’s rolling off maybe was above where the market is right now, and what kind of positive impacts do you see there?

Peter Tumminello

Ted, we definitely are engaging the market pretty actively now, for one, three, and five year type of terms in our new storage agreements, and we certainly are transacting those new contracts under significantly lower prices, and as our portfolio is rolling off this higher cost, assets are rolling off, we are replacing them with the lower cost. I don’t have that at my fingertips, what that number would be, but we can have some more details for that, actually the analyst meeting later in the week.

Drew Evans

It’s probably also fair to say Ted; this is Drew, that we would give you almost the same answer for the transportation question as well. Volatility has had the same effect on both asset types.

John Somerhalder

It even goes one step further, when we manage assets for other parties, in this lower volatility environment, that helps with that when we recontract those asset management positions, it’s helped to some extent, so when Pete talks about the growth trajectory moving forward, we factor in exactly this, that we’re able to acquire transportation storage and some additional arrangements at rates that better match the environment we’re in today than we’ve had in the past.

Ted Durbin – Goldman Sachs

Great, okay. And then if I can just ask on the Nicor deal, you know you had obviously Excelon [ph] came out and said they were going to give $100 per customer credit toward the constellation acquisition, is there anything that would go through your mind where you might say that might be something that wouldn’t work to get a deal done with the ICC?

John Somerhalder

The way we put this very important merger together is really based on long term best practices and scale and scope that can keep costs, over the long term, low for our customers. It’s not geared toward immediate near term synergies or savings. There will be some of that in our unregulated businesses and there will be some benefits as we move forward, but that is a different model than we’re looking at, what we’ve talked about. What we provide in addition to those long term benefits for the customers are commitments around distribution ops, headquarters, service levels, employment, those type things. So that’s the approach we’re taking, and that’s the approach we’ll continue to take.

Ted Durbin – Goldman Sachs

Okay, thanks for the questions, thanks.

Operator

Our next question comes from Mark Barnett with Morning Star, please proceed.

Mark Barnett – Morning Star

Hey, good afternoon guys. A couple of quick questions around the merger there. With the costs for the quarter, are we going to see kind of a similar trend throughout the year, or do you think maybe that’s going to tick down a little bit as you get a little further along in the process?

Drew Evans

This is Drew; I think it’s probably a pretty reasonable level. It will be lumpy as we move through things like the ICC approval or close where we have effectively bank fee milestones, but what you’re seeing has a fair amount of content of run rate, but also legal expense and application fees for things like HSR, and ICC filing. I just think that probably other items will come to fill that gap and we should view this as a pretty reasonable run rate per quarter.

Mark Barnett – Morning Star

Okay, and you guys said $500 million long term financing out of the way, is the remaining on the debt side, remaining slug, is that going to just come as you have a lot more certainty about when the deal might happen? Or how are you looking at the timing there, and maybe the size? Are you going to do it again in a big chunk or are you thinking about that?

John Somerhalder

The balance of our financing plan is centered around tenure issue and a shorter dated five to seven year issuance. We’re evaluating a couple of different forms of that, but we don’t want to leave the company over taxed in terms of long term debt is the merger doesn’t close; so as you described, we just have to gauge it closely as we hit basic milestones with the ICC. But we have a general bias to do some of that stuff sooner rather than later as we get comfort around a couple of the items.

Mark Barnett – Morning Star

Okay, thanks a lot for that. Just two more quick questions. I guess outside of Georgia, I know that’s your biggest market, but how is the retail business looking in Florida and Ohio? How are things progressing there?

John Somerhalder

If you look at Florida, I would say we have two stable markets there. We’re behind TICO and Central Florida Gas. TICO, we grow that CNI business pretty predictably every year. I would say we’re looking at about $2 million in margin behind that market. CFG is a good stable market there, it’s an annual program with that entity, or I’ll call it a customer equivalent type program, so we view those two markets as positive. There are some, I’ll say initiatives, underway to improve those two markets; but again, I view those as stable markets that will grow slightly over time. Ohio, we continue to work in that market to improve that model.

We will leave the options there to provide a comfortable margin, but we believe the retail choice customers there, over time, are going to be the predominant contributor. We continue to grow there, 35,000 choice customers there in Ohio. We just entered New York, and we’re looking to go behind two LDCs in New York, and we’ve also got opportunities there to grow as well, we’re also looking at Maryland and some other markets. So the markets outside Georgia, in general, I view as good growth opportunities and we’re pursuing those aggressively.

Mark Barnett – Morning Star

Okay, and one last question, on the producer services, a number of companies, a number of gas utilities have talked about the opportunity they see there, and I’m just wondering how the competitive landscape looks as you’re starting to expand the business in that direction.

Peter Tumminello

This is Pete. We found a nice group of mid-sized to smaller producers who tend to rely on our services, and as they expand and go into different shale plates, we’re able to extend our relationship with them into those markets. There’s certainly a competitive nature to that, as you mentioned, but the relationships we’ve had have been long term and continue to allow us to grow that business, quite well year after year.

We’ve even entered into several asset management transactions with producers who have taken on capacity of transportation to move that gas to market. It was on that capacity to Sequent to manage on their behalf, and not only are we growing our volumes, but growing types of services into asset management with some of those producers as well.

Mark Barnett – Morning Star

Okay, thanks a lot for the detail guys.

Operator

Our next question comes from Gordon Howald with East Shore Advisors. Please proceed.

Gordon Howald – East Shore Advisors

Good afternoon guys. From a big picture standpoint at SouthStar, kind of a follow up to Craig’s question, do you believe retail customers are becoming increasingly comfortable switching suppliers, and could the weak economy be causing customers to seek a cost savings option? Something that may not have happened in the gas retail business in the past?

Mike Braswell

This is Mike Braswell, and I’ve answered some of the harder questions around SouthStar, and in terms of – if you’re talking about the different markets, if you look at Georgia, I would say we saw that shift in 2008. And yes, if you’re saying because of the economy and the shift there as customers become more value seeking around natural gas prices, then the answer is yes.

And linking to the question earlier, I think it was “is the market becoming increasingly more competitive” and we have not seen that. I think we saw a shift in 2008 in the competitive arena in Georgia, and I think we’ve seen a pretty stable, if you want to say competitive arena, from 2008 to 2011, and I think we’ve even seen some of that subside a little bit. So the real shift was in 2008 and here in Georgia and again, I think that’s stabilized. If you look outside of Georgia, those are some of the new markets for us, so we have not seen the same shift in those other markets we have in Georgia. But again, those are new markets for us. We wouldn’t have had the long history there.

John Somerhalder

But Gordon, you are very correct. We did see that trend starting in ‘08 when the economy turned down, and when people were paying more for, as an example, gasoline prices, there just seemed to be that combination of events caused people to shop more, and they were more interested in fixed prices, given some of the volatility they’ve seen in the past. What we’ve seen lately, with the programs that Mike and his team have put in place is more stable commodity prices, we’ve seen far less of that. It’s still something we’re focused on, it’s still something we pay attention to, but we have clearly seen far less of that since that more major shift that occurred in late 2008/ early 2009 time frame.

Drew Evans

High gas price was as big a driver of that shifting between marketers as the economy probably was, as people focuses on a bill that was very heavy.

Gordon Howald – East Shore Advisors

Sure, I guess I was kind of getting at if customers are now comfortable switching, because they’ve done it and they realize it’s not that difficult, which might not have been the case several years ago. You know, does that just increase the risk that it’s more of a credit card or something along those lines, where you just go and do these kinds of switching on a more regular basis? I guess that’s what I was looking at, the risk associated with that, as it relates to retail.

John Somerhalder

We really haven’t seen a large increase in the churn, if that’s what you’re referring to. I guess you have to go back to Drew’s point again, that it was the economy and the gas price shift in 2008, and what we saw was a significant increase in consumer desire, in Georgia specifically, for fixed prices. And then what you saw was a shift in that percentage of customers on fixed prices has flattened out in the last year.

So I would say again, you saw an increase in the attractiveness of that product, but at this point, we’re seeing those percentages flatten out. But the churn issue, we did go from a more stable level of churn to a higher level in this time period when people where shifting, and now we’ve seen, just like others, we’ve seen that stabilize back to more normal levels.

Gordon Howald – East Shore Advisors

Got you, right. Okay, I appreciate that. I wonder if I could, just one other quick question. While the market, from an arbitrary standpoint doesn’t seem to be anticipating this, but taking Drew’s prudent comment about being cautious into account, under a scenario that the ICC demands too much in terms of concessions, something that might not be palatable to you guys, who would be responsible, if anyone, for any kind of breakup fees related to the merger?

John Somerhalder

We have a best efforts requirement to come to agreement with the ICC and we’re going to work like crazy to focus on a compromise that works for both parties. I don’t want to give you too soft an answer, but I have to go backward, and offhand I can’t remember what the exact provisions are, but they’re filed.

Gordon Howald – East Shore Advisors

And certainly the market isn’t anticipating that, but I was just kind of curious about that. Maybe we can follow up a little bit on that, but I appreciate it.

Operator

At this time there are no more questions. I would like to hand the call back over to Sarah Stashak.

Sarah Stashak

Thanks everyone for joining us this afternoon. We’ll be available over the next couple of days if you have follow up questions, and we look forward to engaging with you again on Friday on our Analyst Day.

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