Brown & Brown, Inc. (BRO) Q1 2008 Earnings Report, Transcript and Summary

Good morning and welcome to the Brown & Brown Incorporated Earnings Conference Call. Today's call is being recorded. Please note that certain information discussed during this call, including the answers given in response to your questions, may relate to future results and events or otherwise be forward looking in nature and reflect our current views with respect to future events, including financial performance, and that such statements are intended to fall within the Safe Harbor provisions of the securities laws. Actual results or events in the future are subject to a number of risks and uncertainties that may differ materially from those currently anticipated or desired or referenced or any forward-looking statements made as a result of a number of factors, including those risks and uncertainties that have been or will be identified from time to time in the company's reports filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company's business and prospects are contained in the company's filings with the Securities and Exchange Commission. Listeners are cautioned that any such forward-looking statements are not guarantees of future performance, and those actual results and events may differ from those intended… indicated in this call. Such differences may be material. With that said, Mr. Hyatt Brown, I’d like to turn the conference over to you. J. Hyatt Brown – Chairman & Chief Executive Officer: Thank you, Bill, and we have Cory Walker and myself, Powell Brown and Jim Henderson here with us in the room and we are going to start off with Cory who will talk about the financials. Cory? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: Great. Thanks, Hyatt. We had a good quarter considering the continuation of a very soft market environment. Our net income for the first quarter of 2008 was $51.8 million, which was down 13.3% from last year. Correspondingly, our net income per share for the quarter was $0.37 and that was down 11.9% from the $0.42 we earned in the first quarter of '07. However, as you will recall, in the first quarter last year we had an $8.8 million gain on the sale of half of our investment in the Rock-Tenn Company, which translated into $0.04 of the $0.42 earnings per share. Therefore on a continuing earnings basis, our $0.37 we earned in the first quarter of '08 was only down 2.6% from $0.38 last year. From a revenue standpoint, our commissions and fees for the quarter increased 3.2% to $253.5 million, up from the $245.6 million earned in the first quarter last year. As always in our press release, we have our internal growth table that shows the total growth rate, as well as the internal growth rates from our core commissions and fees and as you know, our core commissions and fees exclude contingency income and any business that was divested since last year. From a standpoint of our contingent commissions, in the first quarter of 2008 we only received $36.3 million of the profit-sharing contingent commissions, which represents a decrease of about $7.8 million from the $44.1 million that we received in last year's first quarter. Of this $7.8 million decrease, $7.9 million related to a reduction in our Retail Division, we had a reduction of about $1.9 million in our Wholesale Brokerage Division, but we actually had a $2 million increase in contingent income in our National Programs Division. Remember that 2007 and now 2008 are transition years for some carriers that have moved from their traditional pure contingency commission approach to a guaranteed supplemental commission, which we refer to as the GSC accruals. During 2007, we accrued approximately $6.6 million as of the end of December throughout the year for these GSC accruals. So, for the current year comparison purposes, we must subtract the $6.6 million from the $44.1 million that we received in the prior year to really arrive at a comparable contingency commission amount, which would be $37.5 million and of course that compared to $36.3 million that we received this year, the contingent commissions are only down about $1.2 million. Now looking at the contingent commissions for the rest of the year, our best guess and that's what it is, kind of a educated guess we think, may be between $7.5 million to $8.5 million of additional contingency commissions we’ll receive in the second half of... in the last nine months of 2008. We think the way that would fall would be probably about $2.5 million in the second quarter, somewhere between $4 million to $5 million in the third quarter, and probably again less than $1 million, right around $1 million in the fourth quarter. So, in summary, I think that we think we’ll have less contingency commissions for the final nine months of '08 compared to what we did receive in the final nine months of '07. Now if you look at the internal growth schedules we have there, our… the continuing soft market trends that occurred in '07 continue and we were... we had a negative internal growth rate of negative 4.1%. Our total core commissions and fees for the quarter did increase 9% and totaled $18 million. However, within that net number was $26.1 million of acquired revenue, so that means that we had $8.1 million less commissions and fees on a same-store sales basis. Hyatt and Powell will talk about the activity in each of those business segments in a minute. So, moving on our… if you look at your investment income, it decreased $9.6 million, which is due to the $8.8 million sale of the Rock-Tenn Company in the first quarter of '07. Additionally, we had approximately $1 million in less interest income as a result of lower investment yields, as well as less investable funds due to the increased acquisition opportunities. Our other income had a total of $1.2 million this year first quarter and that really came primarily... $900,000 came from a court order settlement from a producer that violated the non-piracy agreement. Now, moving down to our expenses and our pre-tax margins. Our pre-tax margins for the first quarter of '08 was 32.9% compared to our pre-tax margin of 35.8% in the first quarter of '07 when you exclude the gain on the sale of the Rock-Tenn stock. The majority of the percentage differential is due to the employee compensation and benefit line. So, when you exclude the Rock-Tenn gain in 2007, employee compensation and benefits in 2008 increased about 280 basis points to 47.2% of total revenues from the 44.4% of total revenue in '07. That 280 basis points represents approximately $10.4 million of net additional cost, of which $12 million came directly from stand-alone acquisitions that we made since April 1st of 2007. So, therefore when you exclude the impact of just the acquisitions that we added, the actual same offices that were there in the same-store sale basis, we actually had approximately $1.6 million less commission... less compensation and benefits overall. Our non-cash stock-based compensation cost was up about $400,000 and that was due to the additional PSP grants that we issued in February of 2008. We expect the 2008 annual cost to be in the $8 million to $8.5 million range as compared to the 2007 total annual cost of $5.7 million. Looking at the other operating expenses as a percentage of total revenues, again excluding the Rock-Tenn gain, it actually improved 60 basis points to 12.2% of total revenues. That 60 basis point improvement represents approximately $700,000 of net cost savings. However, again if you exclude the stand-alone acquisitions that we added, they made up approximately $3.4 million of new cost for the quarter. Therefore, our existing same-store offices really reduced their total expenses by an aggregate of $4.1 million. Now, $2 million of that reduction came from a reduced E&O claims activity and reserve balances, while the rest of it came from various expense line items that were just naturally managed by our outstanding leaders in each of our profit centers. Amortization and depreciation increased $1.8 million over last year's first quarter and that was primarily due to the increased number of acquisitions. Our interest expense decreased about $200,000 and that's reflecting a… the payoff of our old SunTrust note back from the original Riedman acquisition, but then that was increased... offset slightly by the new increased interest cost on additional $25 million that we borrowed in early 2008 from our private bond facility with Prudential. Our effective tax rate for 2008 is currently expected to run about 38.8%. And so in all, we ended up with a net income of $51.8 million, which reflects a 4.8% decrease, excluding the Rock-Tenn gain from last year. Just quickly looking to the balance sheet, we had a total cash of roughly $256 million, of which $17 million of that was just pure Brown & Brown cash. We currently have approximately $260 million of total debt and we have additional $150 million still available on our private bond facility with Prudential. In addition to that, we have been talking to our banks and with the bank debt cost coming down and tied more directly to the... to the LIBOR, we probably will end up increasing our line of credit with SunTrust by at least $50 million and potentially having a [inaudible] feature to where we expand that to $100 million over the next three to five years, so that would give us additional borrowing power should we need it. There is a couple other line items on the balance sheet that probably people ask questions about. The first is, you'll see that on the deferred... current deferred taxes that $17 million was there last year, that was eliminated as of 03/31 as we had previously mentioned because of the fact that contingent commissions were added into the... into our first quarter earnings and therefore, there is no differential as of 03/31 between book and tax handling on that. The other is, other current assets actually increased by about $25 million because we ended up having an acquisition deposit, basically a payment on a 04/01 acquisition. We made that at the end of March and so that was hung up as just basically a deposit on the acquisition and of course that will as of 04/01 will move into the intangible asset category. One other point I want to bring out is that on our… in our 10-K every year we have a… our cash commitment table that under the SEC rules we are required to report the potential maximum acquisition payments that are potential out there and of course, for the… for the end of 12/31/07, we had roughly about $120 million that potentially could be paid out on prior acquisitions. And I think it's important to note that given the soft market and the fact that some acquisitions did not hit their… the maximum target, we probably… out of that $121 million, we’ll probably only… my best guess would be maybe $30 million of that $121 million, so just keep that in perspective in terms of cash commitments coming up for '08. So with that Hyatt, I'll just turn it back over to you. J. Hyatt Brown – Chairman & Chief Executive Officer: Thanks Cory, good report. I am going to talk about Retail and then Powell is going to talk about Brokerage, Services and Programs. Looking at Florida Retail first of all, Q4 of '07 it was a negative 11.2, it has now moved to a negative 7.2. There is continual price decline across all geographical areas. In the tri-county area, Broward, Dade, Palm Beach, dirty accounts that is renewals that have bad loss ratios are being renewed flat to down 10% to 15%. Everything else is, for whatever, up to as much as 40%. Wind deductibles are being reduced, that’s not new from January. Citizens’ condo and apartments with land is still pretty much the bottom of the market, except for AAA structures. I would also comment that Citizens’ rates have stabilized, there has been a little upward movement on certain Citizens’ prices relative to condos that are AAA and more than $10 million in values... ensured values and those are A-rated, and those rates have moved up a little. To get a new account and this is true in the tri-county and it's true across the entire United States… to get a new account unless there is a huge amount of pain, then we are going to have to be 30% below expiring to be able to have a good chance of getting the account. So, that's just part of the way it is today. Further in South Florida, large yachts more than $1 million in value were flat to down 5%, but a new player is now in the marketplace as of really about two weeks ago, new risk bearer and they are quoting 10% to 15% to 20% down on those kind of yachts. Personal lines are flat to down 10% and really the ones that are down 10% are ones that have hardened up, some like shutters or mitigation credits as a result of garage doors and etcetera. If you look at the rest of the state, there is a very substantial shift from Citizen's land to... and this in on condos and apartments to non-admitted carriers that are anyplace to 5% to 10% below the Citizen's rates and better coverage. That started happening really in January and it's becoming widespread. It is not yet happening in Southeast Florida. We are also experiencing and this is true across United States, but it's a little more virulent in a couple of areas of Florida. We are experiencing reduced exposure units, that means lower payrolls, which means less economic activity and less trucks and less inventory and blah, blah, blah and those are the... those are renewals, that's part of downdraft and renewals. The biggest dip in Florida, however, is really Sarasota, Naples… Sarasota, Fort Myers, Naples and that has to do with the home building business really kind of drying up, almost like down 80% maybe. Large admitted carriers are now starting to write some property, a little bit here and there other than… as I have mentioned in the last report that they were writing some in the spine of Florida, along the spine. We still believe that it's… Q4 until we have somewhat normalized soft market and I guess if you want to say, what’s a real… what is a soft market normalized? Well, it may be 10% to 15% down as opposed to these other much more aggressive pricing. We think that there are some companies that are starting to actually trying to do something underwriting and using some exposure criteria and etcetera, but that's... I am not so sure about that. Personal Lines is the real capacity problem in Florida for the foreseeable future. However, new building quotes are helping plus individual home hardening, so that probably will take care of itself. Looking into… when I say taking care of itself, that's over a long period of time. National Retail was down a negative… last quarter down a negative 3% as now and down negative 1.7% and sort of giving you a broad brush across the number of states, looking into Georgia still very soft particularly in the Atlanta area, 25% to 40% down on prime package business. Bad loss ratios are starting to be flattish, umbrella is sort of flat to down 10% unless their large dollars and South Carolina is more of the same… except workers’ comp is not quite as aggressive, there is a little... little difference in the workers’ comp there. Moving into North Carolina, work comp is crazy, reductions are up to 40% and underwriters are simply ignoring the long tale of this business. Some construction, some property that is west of US 17, U.S 17 is kind of a coastal highway, is being written by middle markets. In Virginia, the marine markets, fish boats $400,000 in value to $1.4 million [ph] in hull value, are down 30% to 40% and that's the change from January. Packages in coastal areas are down 10% versus rest of states down more, and workers’ comp is down 10% to 15%. Pennsylvania, work comp has softened since January, companies are now writing monline and they weren't before January. Regionals are again leading the way, social services is still eroding about 10%. Condos maybe, maybe, maybe, maybe, maybe sort of starting to level off, but they may be down 10%. In the New York City area, not much changed since January 1. Fire resisting buildings are... were [inaudible]. So, a little difference there. Marine cargo is very competitive and in that area, two big companies are going head to head and so that's... that creates lower prices. And there are some capacity wind problems on homes along the coastal areas on Long Island. In upstate New York, some of the work comp trust funds have been shut down and so there is some business there moving into the regular marketplace. Lots of competition on frame apartments, regular packages down 30%, etcetera. So, it continues to be very, very aggressive. Looking at Indiana, Illinois, Wisconsin, Ohio, and Michigan, across the Midwest non-admitted paper is moving into admitted. As a matter of fact, that needs to be... again, regionals are leading the way. And so, again there are... we hear some of these awful things and so that's 40% to 50% down on packages, but in some cases those are packages that haven't necessarily been shopped in the last 12 months. Payrolls are down in most places and large tough contractors, particularly in the contract in the Chicago area, are down maybe 10%. Looking into Connecticut, it’s really not much different from other regions and 30% minimum down to [inaudible] to look at a new account unless there is pain. Louisiana and Texas, rate decline in the Houston rate is more virulent now than January 1. Rural areas, the tax is more moderate. There, it's something about taxes and first tax is a little different in lots of ways. But they allow the rate modifications to be negotiated. And these rate modifications are supposed to be promulgated based on the actual losses, including IBNR. So, you can negotiate them there, that's a little different, any of the state I'm aware of. Coastal is still tight on wind, the economy is good. Looking into Louisiana, the New Orleans area, it’s not quite so competitive and the economy there is not quite so good either. And if you get north of I-10 in Louisiana, there is still lots and lots of competition. Looking at western retail, Q4 of last year they were down a negative 8.2%, they are down a negative 4.4%. Colorado and New Mexico, not much change. Payrolls are down, aviation very competitive, down 30% to 40%. I think that's going to last until the end of this year. So, by the end we will be getting renewals that have been down that much. In contractors, there is a little less competition on workers' comp. In California [inaudible], California is California, there is one thing that's different. The work comp rating bureau out there, for the first time I believe in five years, is not recommending a rate decrease. So what does that mean? Also one large national carrier has said, we're really not looking to write any more workers' comp in California. Keep what we have, but not going to write any more. Are they going to be able to hold that line, we'll see? So, maybe next year as the saying goes on sanity for workers' comp, the only other area would be the GL on small contractors and these would be artisan types, and there is a yard of those in California. They are not down quite like others. It's maybe 5% to 10%. In Washington, fish boats from the Northwest to Alaska are flat to down 5%, packages 15% to 30%, travel is off 5% to 10%. If you look at employee benefits across the country, employee benefits, the asking renewal price would be plus 8% to plus 15% and of course there are some areas where... some accounts that have bad loss ratios, so it's more... but on the average 8% to 15%, which is the asking price, the negotiation gets it down to maybe 3% to 4%, maybe a little more and that means that you've got different deductibles. We also have a fewer employees in some of our accounts. So, that's kind of a brief potpourri of Retail. So, now I’ll turn it to over to Powell for Brokerage, Services, and Program. J. Powell Brown – President: Thank you, Hyatt. Brokerage, starting with transactional brokerage, coastal property continues to be down 20% to 50%. Non-coastal properties are down 20% to 30%, with significant standard market pressure particularly in the non-coastal areas, but peaking into areas in certain coastal areas. Casualty pricing, non-construction typically down 30% to 40%, significant standard pressure on primaries and umbrellas. West Coast residential contractors under $100,000 in premium, rates are typically down 10% to 20%. Premiums over $100,000, the rates are down 20% to 40%. And as we’ve said before, exposure units are tending down... trending down 40% to 70%. In the commercial construction space, we continue to see significant standard in market impact there as well. And our binding authority business in Florida, specifically standard market, continues to have an impact, rates are down 20% to 25% with more property capacity in the binding authorities as a limit. Personal Lines continues to see in Florida Citizens and non-rated takeout companies, and the national binding authority business rates are down typically 10% to 20%. In the Services area, we continue to be very impressed and pleased with USIS and NewQuest being on budget or above budget depending on the operation last fall. As you’d remember, we lost a part of a large account, which roughly translates to about $400,000 a month, which really equates to that negative internal growth, everything else were going along as planned. In Special Programs, FIU core revenue in Q1 was down 12%, Citizens continues to play a role there to a lesser extent, but they continue to interpret their rules a little differently on any given day. The ex-wind business and the casualty business there, continues to be under pressure. Public entity business, with casualty specifically is down 20% to 30% in Q1. In Professional National Programs, lawyers are trending down 15% to 30% depending on the size and dentists are down 0% to 10%. In CalSurance on the West Coast, their professional liability programs are trending down about 5% to 10% in rate, and exposure units depending on the program are down 10% to 30%. The winner in the clubhouse in Q1 is Proctor Financial, which continues to do a great job for the team and we continue to see more force placed coverage on regional banks. So, with that I’ll turn it back over to you Hyatt. J. Hyatt Brown – Chairman & Chief Executive Officer: Okay, thanks. And now I’ll turn it over to Jim who is going to talk about M&A [inaudible]. Jim Henderson – Vice Chairman & Chief Operating Officer: Thank you, Hyatt, and good morning everyone. M&A continues to produce favorable results for the company and we have a very positive outlook on acquisitions. The activity for the first quarter 2008 continues at a brisk pace. The $43.8 million with some 13 transactions this year announced continue... compares very favorably with the $108 million we completed for all of 2007, in 2007 we did some 27 transactions. There’s concerns about the increase in the capital gains tax rate and further soft market conditions are current factors that's influencing agencies to consider selling. We continue to exercise our dogged discipline on pricing and terms, our model is to pay a fair value for forward actual delivered earnings. Our ability to pay 100% cash for agencies is an attractive option when liquidity is very, very important as it is today. Next, I’d like to turn to some of the activities in Tallahassee with respect to the State of Florida, Citizens Insurance Company, and the Florida Cat Fund. The Florida Senate has passed Senate Bill 2860 that addresses certain regulatory rules and sets a possible rate increase in '09 and limitation on subsequent years. There is no companion bill in the House at this time and significant provisions of the proposed bill will have to be resolved between the Senate and the House. The Senate’s bill includes certain provisions to one that’s perhaps repealed the antitrust immunity currently for the insurance companies in Florida to eliminate the use of the used and file rates statute for Florida, a provision to freeze Citizens’ rates for 2008 with a possible 5% rate increase in 2009, and limit future increases after ‘09 to 10% per year. The bill requires more rapidly payment of claims within a certain number of days. A repeal of the arbitration provision exercise between insurance companies and the office insurance regulation on rate changes, requirements for approval for the hurricane cat modeling, and also the establishment of $250 million fund, a matching fund for new takeout companies. This money would come from the surplus as defined from Citizens. The State’s Chief Financial Officer has introduced a provision to reduce the Florida hurricane cat fund by some $3 billion for next year, not for this year but for next year, and considers certain private market reinsurance to assist the cat fund. This change is prompted by a concern on liquidity for Florida Citizens and for the cat fund obligations. The current bond market may not permit Citizens or the cat fund to issue the projected or timely issue the projected $25 billion to $30 billion in bonds required for a category, four to five storms. So, there’s certainly… there is a buzz in Tallahassee, a sense, perhaps a reality that Citizens Insurance Company has… over the last few years has written some... close to some half trillion in values, it's obligation given a significant storm is such a magnitude that in fact it may outreach the bond capacity for Citizens and for the cat fund. We view these changes as positive in a sense that the solution is the greater participation by the private insurance market. We think this would take some time, but definitely a sense of change from the growth that we’ve seen in Citizens for the state. With those comments, Hyatt, I’ll turn it back over to you for closing comments and questions. J. Hyatt Brown – Chairman & Chief Executive Officer: Okay. Thanks, Jim. To pay back just a little bit on what Jim is saying relative to what's happening in Tallahassee, the legislature of course is trying to come up with solutions. Quite frankly, the best solution is to let the private marketplace work and of course I am a Florida cracker and born and reared here. And I kind of think that hurricanes do have a tendency to come in bunches like bananas. And then you don't have any for a while and so assuming that to be the case, there will be several years with not much wind blowing. And as you can tell from my remarks relative to what's happening outside of the bottom three counties, that the private marketplace is coming in at prices and coverages that are depopulating the commercial area of Citizens. So… but certainly I’m not in a position to [inaudible] of hurricanes this year, but kind of think there won't be. So, let's look at a general outlook. First of all there, a press release is put out yesterday by the Council of Insurance Agents & Brokers in Washington saying and I'm just quoting, the headline says, “The Council's survey shows soft market even softer in first quarter of 2008.” And I think that's correct in many respects. And so, some of the comments that they are finding from their members and of course, we are members also are and I’ll just quote you a couple of three, carriers will quote with less information and quickly. There is more flexibility in carriers in terms of expansion of classes they want to write, therefore it's coming out of the non-embedded market. And then the last thing is all about price. So, we see that some P&C carriers are starting to have a bit of a game phase in terms of not being quite so wild and crazy. But I think the broad profit marketability… profitability is overwhelming. According to [inaudible], the combined and of course, you can talk about accident year and you can talk about calendar year and blah, blah, blah. But Personal Lines moved from '06 92.7 to '07 96.1, and commercial lines moved from 91.3 to 93.7. So, the companies are still making a yard of money and as long as that continues, you can see this market is going to continue to be very, very competitive, which is good for the consumer. We think that Florida maybe would be a little better in the last quarter, but really not too sanguine about that. We are very pleased with the way our employee benefits are going along. We think they are going to be a run rate of about $150 million by year-end. We do recognize that the most significant organic challenge will be in Wholesale Brokerage and that bottom is going to lag Retail. We also feel that National Programs other than lawyers will tend to be slightly more stable. So, all in all, it's more of the same. But this is just... this is a repeat of ’98-’99 except Florida is a whole different world and I think that the profitability, the gross profitability meaning total profitability of the risk bearers is this greater during this time in the marketplace than it was in the ‘97, ‘98, ‘99 years. So, we continue to feel good about what we're doing, although we recognize that the suggestion that we had in the first quarter was that quarter one, two, and three are going to be very challenging and quarter four may be a little less [inaudible]. So, with that Bill, I’ll turn it back to you and we’ll open it up for questions. Question and Answer

Thank you, Mr. Brown. [Operator Instructions]. And we’ll take our first question from Keith Walsh, Citigroup. Keith Walsh – Citigroup: Good morning, gentlemen. First question for Hyatt on specifically Retail... Florida Retail. I know you talked about this extensively, but it just seems that we are really starting the deceleration, I guess, and the decline prices we are seeing. Are we heading towards the bottom here do you think? And then I have a follow-up. J. Hyatt Brown – Chairman & Chief Executive Officer: And the answer is no, we are not at a bottom. I think that you're looking at next year although in some areas you see one of the things that’s making this a little hazy is that not only you have a price or a rate decrease, but you have an exposure decrease. So, that's a little hard to kind of put together, but we don't see at the moment, if we have an account and we are about to lose the account, we can almost name the price, and so as long as that is the circumstance, I don't think we are at the bottom. Keith Walsh – Citigroup: Okay. That's very helpful. But then, just following up and thinking about cash and your stock right now, you guys are at the lowest multiple you’ve been at in over a decade, why wouldn't you be buying back stock right now? J. Hyatt Brown – Chairman & Chief Executive Officer: Well, most people like to buy back stock, because they don't have anything else to do with it. We feel that the M&A opportunities just based on what we're seeing are greater than they've ever been and we don't... we feel that our best investment is our M&As, because that's the future of the company. So, as long as that is a great opportunity for us, the buying of stock is in second position. Keith Walsh – Citigroup: Okay. Thank you.

And our next question comes from Keith Alexander, JP Morgan. Keith Alexander – JP Morgan Securities: Hi, good morning. I was just wondering, given the magnitude of rate decreases, are some companies buying more coverage? J. Hyatt Brown – Chairman & Chief Executive Officer: Yes. And of course that's... Keith, that's... what we're trying to do... we are trying Keith Alexander – JP Morgan Securities: [inaudible]. J. Hyatt Brown – Chairman & Chief Executive Officer: Yes. We are trying to sell everything we can do to offset some of these rate declines. So, if you have someone who hasn’t taken… it’s a $5 million umbrella and we think they all have a $10 million. We are trying to sell $10 million and if they haven’t had employee practices liability, we are trying to sell that or etcetera, etcetera. So, yes, there is more coverage being given for the same price, but there is also additional coverages or expanded coverages being written for additional dollars. Keith Alexander – JP Morgan Securities: Okay. And is the... is the current economic environment impacting your customer base, like is it changing buying behavior? J. Hyatt Brown – Chairman & Chief Executive Officer: Not changing buying behavior, if you mean towards… Keith, do you mean some alternative risk bearer or something like that? Keith Alexander – JP Morgan Securities: Yes. J. Hyatt Brown – Chairman & Chief Executive Officer: No, no we are not seeing that, but what we are seeing is, businesses that are no longer in business, that's fairly bad and then we are seeing people who are cutting back because of the economic times. Keith Alexander – JP Morgan Securities: Okay. Great, thank you.

And our next question comes from Mark Hughes, SunTrust. Mark Hughes – SunTrust Robinson Humphrey: Thank you very much. Any movement in your average commission rates from 4Q to 1Q? And what's the outlook there, the last couple of quarters? J. Hyatt Brown – Chairman & Chief Executive Officer: Yes, there is and what's happening is we're seeing higher commissions being offered by companies. And we are also asking and so what's really happening is that as these prices are going down, we are getting some additional commissions in some cases and the companies are pushing this to try to maintain their market share, so that's a positive. Now, could I quantify that? No. I was in a meeting in the West on Thursday night and Friday where we had all of our profit centers, it seems to be that in the West there is a greater propensity for extra commissions than elsewhere, it might have something to do with the way the market is out there. Mark Hughes – SunTrust Robinson Humphrey: Got you. And then in terms of the cost structure, you did very well in other expenses, any one-time benefits there? Should we look for similar performance, excluding acquisitions? J. Hyatt Brown – Chairman & Chief Executive Officer: Cory, will you answer that? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: No, not in general. Probably the only thing that may not have a reoccurence is the fact that E&O reserves, as claims are settled that comes down and that was probably a little more than normal, but the rest of those calls really just kind of came all across all line items and there was nothing one specific and that's why we’ve seen it's really the function of our decentralized system that really naturally modifies their cost as the market gets tougher. J. Hyatt Brown – Chairman & Chief Executive Officer: I think also Mark, one of the things that a lot of people don’t recognize is that this virulence in the marketplace actually is really good for us because it hones our skills and it's a little bit like Lipitor for arteries and veins. It cleans out any plaque. And so what's happening is that we will come out of this even more efficient than we were in the past. So, we are not looking at this just being a negative. This is just sort of get it down and get it done time. Mark Hughes – SunTrust Robinson Humphrey: Got you. Thank you.

And we'll take our next question from Dan Johnson, Citadel Investment. Dan Johnson – Citadel Investment Group: Thank you very much. A couple of numbers, follow-ups, please. The $2 million E&O, the service line broke up during that. Was that a $2 million reduction in E&O accruals in the quarter? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: Well, it's a combination of less E&O claims activity, as well as… as claims were settled, we may have had a reserve line and it just comes down. And basically attorneys kind of come up with a list of each of the account. But this is what we think we reserves and this is what's been settled up that. And so the comparison between the end of the last year of '07 and the first quarter, there’s a little bit of claims activity coming off the list. Dan Johnson – Citadel Investment Group: I guess what I wanted to be clear was that this was an income statement impact, not a balance sheet; they are not only a balance sheet impact item. Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: Right. They are both linked together. Dan Johnson – Citadel Investment Group: Okay. So, there is that $2 million flow through the earnings. Got it. The Proctor, can you tell us a little bit more about… remind us roughly how big that is and what sort of growth you saw in the quarter? J. Hyatt Brown – Chairman & Chief Executive Officer: Powell, will you answer that? J. Powell Brown – President: Yes, the... I’ll just see something here. Dan Johnson – Citadel Investment Group: Proctor for the… J. Powell Brown – President: For the quarter, it's about six, seven for the quarter and once again as I've said in light of some of the things we are seeing on a macro level, we are just seeing more force placed coverage in existing clients meaning existing banks and we are seeing... we are writing new business. J. Hyatt Brown – Chairman & Chief Executive Officer: I think to piggyback on what Powell is saying, the increase in foreclosures is a positive, if you are having forced placed business for banks. Dan Johnson – Citadel Investment Group: And the... that six, seven was, what sort of growth rate did you see in the quarter? J. Hyatt Brown – Chairman & Chief Executive Officer: Say again, I didn't hear that. Dan Johnson – Citadel Investment Group: What sort of growth rate did we see out of Proctor in the quarter? J. Hyatt Brown – Chairman & Chief Executive Officer: Let me comment on some. Dan, I misspoke, it’s nine, three instead of six, seven. Dan Johnson – Citadel Investment Group: Okay. J. Hyatt Brown – Chairman & Chief Executive Officer: It’s the revenue. And they are up... they are basically up almost 100% in the quarter. Dan Johnson – Citadel Investment Group: Great, great. And then the last one, Hyatt, just overall sort of 50,000-foot views here, we’ve been told sort of last two years from a lot of different people that this should be a... this should be a different pricing cycle, the industry had better data, you know the story... to give you a list of five to ten reasons, why this would be different. J. Hyatt Brown – Chairman & Chief Executive Officer: Yes. Dan Johnson – Citadel Investment Group: And the best you can tell from what kind of… what's actually going on at least at 50,000 foot doesn't look that different. I’d be interested in your views as if you see why this cycle doesn't appear to be meaningfully different than before or if you disagree with that comment? J. Hyatt Brown – Chairman & Chief Executive Officer: Well, it’s meaningfully different only that the profit level across the entire P&C industry was substantially more than it’s ever been. Now, how much of that is due to Sarbanes-Oxley and not showing… or not having over-redundant reserves, I really don't know. But, here’s what you must recognize. The people that, you and all analysts listen are the national companies. The national companies are centralized and the national companies have a structure that is a bit ponderous. They are competing against regional companies that are very profitable and are in the agents and brokers’ offices with people, friendly people, every week. And so when you have, let’s say 500 to 600 risk bearers competing, that's a pretty darn broad base of competition. So, I don't care who you are. You can say, “Well, I've got all of this great data and my data shows that this is the price it should be.” Well, if someone else is willing to quote 30% less than that and it's an A+ rated company and the agent is a good agent, then you are going to lose the account unless you match it. And so, that's what this is all about. Now, when you get into the very largest accounts, the multinationals and etcetera, it's a little different, it’s crazy they are two, but you're talking about risk transfer at a much higher level. And the business that Brown & Brown has been, generally speaking, is risk transfer from almost the first dollar, that's not exactly right, but close. Does that help? Dan Johnson – Citadel Investment Group: That's very helpful. Thanks very much. J. Hyatt Brown – Chairman & Chief Executive Officer: Okay.

And our next question comes from Dan Farrell, FPK. Dan Farrell – Fox-Pitt Kelton: Hi, good morning. Just in terms of your comments on the fourth quarter, you mentioned that maybe you get back to a more… we get back to a more normalized soft market of 10% to 15% price declines. And I think you are referring to just Florida. But within that context, is that the type of environment where you can generate flattish to modestly positive organic growth? Or is the fact that we also have a slowing economy, reduced exposure uses, is that an additional headwind that makes it difficult to get back to a flattish organic growth environment? J. Hyatt Brown – Chairman & Chief Executive Officer: There’s about three different factors. The economy is one of them. And so home building is up very substantially. The second thing and looking at Florida, Florida has had these ups and downs. And so when is the real estate market going to come back in Florida? Well, who knows, couple of years, three years, maybe. But there... but we still have a lot of economic activity down here and there are people that are making investments here and in Arizona and in Southern California, and in… maybe not so much in Las Vegas at the moment, that are going to be stimulative to the economy. There is one thing, if you look back at ‘98-‘99, which is when the depths of the last soft market, we had an internal growth rate of about 1% at the bottom, about 1.8%. Now, there is one name that’s different about us today that was not then. And that is that we have a greater amount of revenue in Wholesale Brokerage, both transactional and the actual binding authority kind of stuff. And so that will lag some. But the offset to that is that we have substantially more revenues and employee benefits. As a matter of fact, if you sort of think about this for a moment, we think that we’ll have about $150 million on a run rate of revenues in employee benefits. And probably, Powell would you say $180 million on Wholesale Brokerage, $180 million? J. Powell Brown – President: That's fair. J. Hyatt Brown – Chairman & Chief Executive Officer: So, how do you balance all these things? That I don’t know, Dan, but whatever it is, that's what it is and we just keep on… are keeping on. Dan Farrell – Fox-Pitt Kelton: Okay. That was helpful. And then also can you just comment on the TPA services business and just some of the trends we are seeing there? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: Sure. Actually, Dan, if you remember last year in Q… the end of the Q3 call, we talked about we lost a portion of one account where we service… do claims management services and some loss control and other things, bill repricings for a carrier. And in doing that, we lost roughly 400... slightly more than $400,000 of revenue a month. And so what you are seeing is that flows through the entire year and that will normalize next, I should say this coming September if I am right off the top of my head. So, that's what we are seeing there and once again their business just to elaborate slightly depending on how it’s set… is set up, the contracts are written on premium serviced for the insurance carrier or some other metric and it depends because as you know in Florida, rates have come down roughly 18.7% this year for the fourth year in a row... fifth year in a row since meaningful reform was enacted in Florida in 2003 and work comp. And so, that in turn has pressure also on the business and yet they continue to write more business, except this one piece where we have this $400,000 that is... we lost on a monthly basis. Dan Farrell – Fox-Pitt Kelton: Okay, great. Thank you.

And we’ll take our next question from Joseph DeMarino at Piper Jaffray. Joseph DeMarino – Piper Jaffray: Good morning. J. Hyatt Brown – Chairman & Chief Executive Officer: Hi, Joe. How are you? Joseph DeMarino – Piper Jaffray: Good. You might have answered this, but what… it looks like there is a little bit of an increase in the compensation expenses, what was the cause of that? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: Well, of that… Joseph DeMarino – Piper Jaffray: Excluding the first quarter of last year capital gain? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: Right. When you exclude that, it basically went up about 2.6 percentage points. And I think the total was about $10 million, but that's where I say if you take the acquisitions that we made since the end of last, first quarter last year, first quarter of April 1st, $12 million [ph] of compensation came from those new acquisitions. So, then if you just strip that out and you are really just looking at the same offices that were there in the first quarter last year versus the first quarter this year, we actually had a net decrease in compensation expense of $1.6 million. And so, part of that was producer commissions, which are based on... that are paid on a commission basis, that was probably down a little over $1 million. The total management salaries and staff salaries were essentially flat and then believe it or not, our salaried producers who are generally newer producers who have now become validated, that actually went up by about $1.4 million. So, the point I would make there that even though this is a tough market, we continue to develop our producer forces and are not trying to cut any of the meat that we have there. And so, the difference to get down to $1.6 million has been just all the related taxes and benefits relating to those decreases and compensation. Does that answer your question? Joseph DeMarino – Piper Jaffray: Yes, it does. Thank you. And then, from your comments around the wholesale area would… seem to indicate a longer or a greater struggle within that business model, are you seeing more M&A opportunities there? J. Hyatt Brown – Chairman & Chief Executive Officer: Yes. As a matter of fact, we are. Jim Henderson – Vice Chairman & Chief Operating Officer: There’s quite a few on the market. This is Jim and I think the questionnaire becomes... the sustainability of their revenue base and their earnings going forward and in fact we have looked at several, some that we've could not move forward with, because of concerns about pricing or expectations, some we have. And I think one of the more positive aspects of wholesale is that it is the... becomes a market of choice when in fact the market does change. So, right now we have the headwind of rate changes. We also have a change dealing with, in fact, accounts leaving the ENS market over to the standard market. When the change does happen, the trend happens. They are more benefited by that change than the Retail side. Joseph DeMarino – Piper Jaffray: Okay, thanks. And also could you expand on the wind capacity problems you talked about in New York? J. Hyatt Brown – Chairman & Chief Executive Officer: In New York… J. Powell Brown – President: In New York or Florida? Jim Henderson – Vice Chairman & Chief Operating Officer: I think he's talking about my comment about the fact that some homes along the Long Island coast, some companies have... there are... companies are drilling lines and setting limits of exposure that they want in each geographic area along with those there and some companies reach their capacity and they won't write any more homes. So, there is some... there is something there, but not a great deal, not like Florida. Joseph DeMarino – Piper Jaffray: Okay. Thanks for that clarification. And my last question is, could you give a little more color on the reduction in payrolls that you're seeing? J. Hyatt Brown – Chairman & Chief Executive Officer: Well, I wish we could. I mean it depends on who you are talking to. If you are talking to anyone in the home building business, now first of all there’s home-builders. Their payrolls will be down 40% to 75% or 80% if they are still in business. Then secondly, you have the contractors, the subs, etcetera that are around those home-builders. And of course what they are doing is, they are out now scraping around for other business. So, their payrolls are not going to be down quite as much, but it’s had a decided impact. Now, in the commercial area and contractors, there’s still a substantial amount of business around because of the fact that there is a lot of governmental jobs and then there is still constructions going on as a result of financial commitments made by banks and other lending institutions where the contract or where the development isn't yet completed. Then, if you get into other general kinds of businesses, in the Midwest there are some manufacturing operations that are doing very well because of the weak dollar and because they are exporting their product. So, we don't have a way of putting all this data in some kind of a software system and coming out with an average, except to say that if you look at the construction area, it's down pretty sharply in most areas of the country. Joseph DeMarino – Piper Jaffray: All right. Thanks guys. J. Hyatt Brown – Chairman & Chief Executive Officer: Okay.

And we’ll take our next question from Nick Fisken at Stephens. Nikolai Fisken – Stephens Inc. Hi, good morning, everybody. J. Hyatt Brown – Chairman & Chief Executive Officer: Hi, Nick. How are you? Nikolai Fisken – Stephens Inc. Good. Cory, on the other operating expenses, last year they were down, Q1 to Q2, $300,000 and just to be crystal on this one, it sounds like it should go up by at least $2 million on the E&O release, correct? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: I’m not so sure I’ve made that assumption. It’s just… I think it's more of a function of what happens here in this next quarter relative to E&O. Nikolai Fisken – Stephens Inc. So, worst case it goes up too, sequentially? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: I'm not sure, I didn't say that either. Basically, any claims that come up, our attorneys look at it and make evaluation as to what is a likely outcome? And then based on that you establish a reserve, if you believe that there is going to be an indemnity payment there. And so it's just a matter of what get settled and the drop this quarter just happened that, in the first quarter of this year there was a lot of clients who just got resolved or got drawn out of the court. One case we had that we were sued, we actually got a defendant payment out of it, like $200,000 with... so, it’s all… generally I think the number of claims have actually dropped too and some of the Spitzer related stuff is kind of winding out. And so, I don't... I don't think it’s something you can really predict. Nikolai Fisken – Stephens Inc. Okay. Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: But it had... there hadn't been wide fluctuations from quarter to quarter. Nikolai Fisken – Stephens Inc. The Q had showed too, a wide fluctuation? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: That's probably been... I would say, yes, that's probably been the widest over the last 18 months probably. Nikolai Fisken – Stephens Inc. Okay. And Jim on the M&A front, it sounds like a little bit change of tune, say when you guys have $150 million on your line left and looking at doing another $50 million to $100 million floating rate deal. That tells me that the acquisition opportunities, like Hyatt said, are very robust and I'm wondering, could you... can you quantify the dollar amount in your pipeline? And then secondly, are you guys looking at some greater than $30 million revenue deals? Jim Henderson – Vice Chairman & Chief Operating Officer: Well, there is a few out there that can... of course, large they are that seem to draw more attention and sometimes more aggressive pricing. We've tried particularly this year and we've had some degree of success of staying with our purchase multiple and counting the market to come back to us, which I think we've had... we've seen some positive development there. And whether that's the banks or whether it's the venture capital money out there that’s been looking at deals, certainly they have... they pressed the pricing of wholesale operations in certain MGUs very high. And then some banks would, in fact, create some really very delta change on pricing for retail agencies. The banks have... there's a lot of change there. There's been at least, Bank of America, Commerce Bank, Webster that have announced exit from this business. There is about two to three others that we are aware of that... [inaudible] reviewing whether or not they stay in the business. So… and then the baby boomers, the time now later and certain the capital gains, I think it's a combination of all of those. We pressed a great recorder and say, “Well, gee, the pipeline is robust and I'm sure you are real tired of hearing that.” But we're pleased about the activity. We have in fact stepped up our resources to look at more numbers of deals. They average around $4 million or $5 million if we're going to do more, which I think we can and we should. They are very accretive that we are adding to our resources to review and complete on a somewhat quality basis more transactions. And so, I think that component is very positive. J. Hyatt Brown – Chairman & Chief Executive Officer: I think one thing I'll just sort to add to that and piggybacking on what Jim is saying, we are seeing a change in the attitude of banks. And of course I know you know that too. And of course there’s two reasons. The first thing is that the culture is different and they are not getting what they thought they were going to get out of it in some respects in terms of the agency operations. Second thing is, is that banks have credit problems and they are now having to retreat back to core competencies. But the third shoe and the big shoe and this is when you'll see the final mail in the bank coughing on insurance agencies, is when one bank gets nailed with the time suit, class action suit, and they will lose more money on that than they would ever make in a thousand years on an insurance agency operation. So, this is two things. Number one, opportunity for acquisitions and two, a competitor out of the marketplace, so that’s a good thing. Nikolai Fisken – Stephens Inc. Have you sensed a… or is there a suit filed with the... against a bank for their time, credit, and insurance? J. Hyatt Brown – Chairman & Chief Executive Officer: Not that I know of, but over a long period of time, it seems like that's a substantial exposure for a bank and of course, they recognize that and are trying to be very sensitive to it. But when you get... it's a little bit like the banks and the subprime lending. Banks always before were lending 75% to 80% of the values of homes and getting lots of credit information. In this last euphoria, which now has turned into a disaster, banks in fact ignored all of the old rules and as a result of that billions of dollars are going down the tube. So, when you have an insurance operation sitting over here at the side and someone is under a lot of pressure to produce additional earnings, it's just... it's a huge exposure. Nikolai Fisken – Stephens Inc. And lastly... I'm sorry. J. Hyatt Brown – Chairman & Chief Executive Officer: And I say it's a huge exposure even though they may have [inaudible] you can tie it together, but the very fact that the bank is lending money to someone that they are soliciting insurance from is sort of imposing. Nikolai Fisken – Stephens Inc. And last thing, do you guys sense you are winning more deals because you’ve got the cash in $2.5 billion market cap and you are not offering equity in a private company? J. Hyatt Brown – Chairman & Chief Executive Officer: Well, Jim? Jim Henderson – Vice Chairman & Chief Operating Officer: Well, I think it's a very good question, Nick. I think the cash just came right now and I think for it to be out there with someone saying, here is 25% to 30% of it is going to be forward equity or some undefined time period, that that’s being looked at a lot more skeptical because now the results of some of these operations involving equity rollups have not been great and if the track record is not wonderful then how would they win. So, we are very confident with our cash only, no equity, with that and we feel like it is now an attraction as opposed to may be being a neutral or negative before. J. Hyatt Brown – Chairman & Chief Executive Officer: I think to piggyback on that also, Nick, is as you know we’ve had some very large opportunities in the last couple of years for which we have not chosen to foresee. As a result, we have a lot of dry powder and so this is the kind of marketplace in the next two to three years when dry powder is a real plus. Nikolai Fisken – Stephens Inc. Okay. Thanks so much.

And we’ll go next to Meyer Shields of Stifel Nicolaus. Meyer Shields – Stifel Nicolaus & Company, Inc.: Hi, good morning everybody, J. Hyatt Brown – Chairman & Chief Executive Officer: Good morning, Meyer. Meyer Shields – Stifel Nicolaus & Company, Inc.: In your opinion, other than concerns about the weather, is the attitude of Florida's insurance regulators deterring any carriers from setting up their participation in the market? J. Hyatt Brown – Chairman & Chief Executive Officer: Well, that’s a really difficult answer, a question and answer. You have the legislature who is trying to respond to the cries of their constituency and so there is some chest-pounding going along. The regulators are trying to be evenhanded, but they have been pushed over some by the elected people. So, is it just awful, awful? It’s not awful, awful, but it is not considered to be a very positive climate by insurance companies at the moment, particularly if you're in the personal life business. That's where the real rub is and that’s where the big capacity problem is. So, we’ll work our way through this. This has happened before, Meyer. I remember in the 1970s when companies were going to walk out of Florida because they were being put to the test on personalized auto liability. Well, there was a lot of yanking and jerking in Yanks and now it all went away and file in use were actually working. So, if we just let a little time go along, the marketplace will solve the problem. Meyer Shields – Stifel Nicolaus & Company, Inc.: Jim, can you just talk a little bit about the... I guess M&A strategy and opportunity in London? Jim Henderson – Vice Chairman & Chief Operating Officer: Well, the opportunity there was, this project that Powell has helped laid and established that, it's been a project… we have looked out for over a long period of time and we looked at several operations there and they simply had either culturally or issues that we felt that had some strengths to them that we did not want to bring into our financials or obligations. So, we started from scratch and with our own people, with our own culture, we are very pleased with what's going on there with it. I think maybe Powell could take on to that with respect to individuals and attorneys, any comments? J. Powell Brown – President: No, thanks, Jim. I would tell you to piggyback on Jim’s comment. We definitely... we do a lot of business in London and it’s growing and over the last three years in particular, we’ve spent time looking at several opportunities and as Jim alluded to, none of those really fit for a number of reasons and we decided to look for… we always look for, which are good people and we’ve identified a team of people, which have started. There we have four people on the ground there and Tony Strianese who is a Regional Executive Vice President who started Peachtree Special Risk de novo here in the States in 2000 is in charge of that and is growing that and it’s a traditional one in broker, which serves intermediaries here in the United States, independent retail operations and can work with Brown & Brown. So, we are very excited about the opportunities. Meyer Shields – Stifel Nicolaus & Company, Inc.: Okay, that's great. And one last question if I can. Is it reasonable to expect as long as there is competition between the carriers, that push rates down, you will see a continued sort of compounded offset into the commission rates? J. Hyatt Brown – Chairman & Chief Executive Officer: Compounded, what was that, Meyer? Meyer Shields – Stifel Nicolaus & Company, Inc.: The same way you're seeing company takes rate decrease year after year after year. Reasonable to expect commission rates to sort of just up year after year or is it just one time? J. Hyatt Brown – Chairman & Chief Executive Officer: Well, they will drift up as long as the companies are aggressively seeking business. The moment the worm turns and the prices start to go up, they immediately will go down. And so the worm isn't close to turning. Meyer Shields – Stifel Nicolaus & Company, Inc.: Got it, thanks so much.

And we will go next to Steven Labbe, Langen McAlenney. Steven Labbe – Langen McAlenney: Hi, good morning. Just a quick question, I was wondering if you could give us what organic growth would have been, excluding the supplemental or the GSCs that were included in this quarter, but not last year? J. Hyatt Brown – Chairman & Chief Executive Officer: Cory? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: [inaudible] about $2.4 million. Because remember last year, in the first quarter there were no GSCs accrued because we really didn't even know what Traveler's or Chubb's game plan was until the end of April. And so, in the second quarter of last year, of '07, we accrued $3.2 million, which was roughly $1.6 million to $1.650 million per quarter. So, it was two quarters that we plan into the June second quarter year-end. So, there wasn't anything in the first quarter. So, this year there is another two point... the Hartford is now part of the GSC in addition to Chubb and Traveler's. And so that amounts about $2.4 million this quarter. Steven Labbe – Langen McAlenney: So to be apples-to-apples, I would have to just use that 2.4 million? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: That's correct. Steven Labbe – Langen McAlenney: Okay. Thanks guys.

And we’ll go to Ken Billingsley, Signal Hill. Kenneth Billingsley – Signal Hill Group LLC: Good morning, just a couple of questions here. Seeing that the stock is trading at early 2004 levels, yet your income is at least in your 2000 level… 2006 levels and stabilizing. Based on your bonus structure, how is employee morale and retention of office leaders right now? J. Hyatt Brown – Chairman & Chief Executive Officer: Actually, it’ a good question. The individual offices… bonuses for the Head of Office and the department managers is based on the growth or lack thereof in their own offices. So, individual offices, some offices, bonuses went down last year and some went up, that's the same for this year. And so, the only people with bonuses who are probably going to be down is probably the senior leadership, which is the top 10 people in the company. And that's because those bonuses are tied to a minimum growth and the earnings for the whole company. So, we are not experiencing a loss of PCLs, we continue to make some changes, as they are deemed necessary. But from the standpoint of people leaving us who we want to keep, we just don't seem to have that problem. Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: Ken, we also this first quarter, we reloaded our performance stock awards at this lower stock value and I think that is viewed as a very positive element meaning our ability to grow the stock and create equity wealth for them. And so that was well received and given the headwind there to grow the value. And Ken as you remember, there are performance stock plans, those are grants of stock and unlike options they are never underwater. You may have had grant of option at $35 mark and now the price is that at $17 or still worth $17 and of course the new grant we just gave, it was issued in February because the last major grant we gave was actually five years ago in the period of time that, that period ended on 12/31/07. So, if this new grant was just a re-upping of the normal grants. J. Hyatt Brown – Chairman & Chief Executive Officer: And piggybacking on to what Cory said when he used the $35 example, that would be for a PSP grant that it actually been awarded. As you know in order to get awarded these grants, the stock has to go up 20%. So, let's say that I am just pulling this off the top of my head, if the stock was at… the PSP current awards were at $18 a share, 20%, I think at something like may be $21 or $22. So, once the stock goes to $21 or $22 and stays for 20 days at an average, then one-fifth of those shares are awarded. Those then are sitting there in the award category until the person is either with the company 15 years or 64 or death or disability. And so, that's a general description of the way that the plan works. Kenneth Billingsley – Signal Hill Group LLC: Very good. And the last question is, I just want... comments that you made last quarter and then you restated at the end of your prepared comments. But that you expected the first three quarters to be tough in 2008. Were there any surprising benefits given this quarter as that may have offset that opinion for the first quarter? J. Hyatt Brown – Chairman & Chief Executive Officer: No. Kenneth Billingsley – Signal Hill Group LLC: Did you think you guys performed maybe better than you initially expected based on the comments that you made last quarter? J. Hyatt Brown – Chairman & Chief Executive Officer: No. We kind of did exactly pretty much what we kind of figured we do. Kenneth Billingsley – Signal Hill Group LLC: Okay. J. Hyatt Brown – Chairman & Chief Executive Officer: But there wasn't anything... we didn't get any real good, we didn't get any breaks and we didn't get… hit in the back of the head. So, it's kind of slogging through a tough time. Kenneth Billingsley – Signal Hill Group LLC: Very good. Thank you.

We’ll take a follow-up question from Mark Hughes, SunTrust. Mark Hughes – SunTrust Robinson Humphrey: Thank you. What was the cash flow from operations? J. Hyatt Brown – Chairman & Chief Executive Officer: Cory? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: The cash flow from operations this year or this first quarter is going to be roughly $45 million. Mark Hughes – SunTrust Robinson Humphrey: Okay. And then the Proctor division in the fourth quarter was up 100% in Q1, how did they do in the fourth quarter? J. Hyatt Brown – Chairman & Chief Executive Officer: I don't have that with me, Cory. Do you have that? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: Well, fourth quarter of last year they had… J. Hyatt Brown – Chairman & Chief Executive Officer: We're looking. Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: Proctor last year, I mean in the fourth quarter of last year, they basically were down, margin like 3%. Mark Hughes – SunTrust Robinson Humphrey: Down year-over-year to 3%? Cory Walker – Senior Vice President, Treasurer and Chief Financial Officer: No, that was just for the fourth quarter. Mark Hughes – SunTrust Robinson Humphrey: Right. Okay. Thank you.

And Mr. Brown, we have no other questions standing by at this time. I'll turn the conference back over to you for any additional or closing remarks. J. Hyatt Brown – Chairman & Chief Executive Officer: Okay. Thanks, Bill, and thank you all and we’ll look to see you in July. Bye. Operator: Thank you. That does conclude today's conference call. We do thank you for your participation. You may disconnect at this time.