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 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 payments are intended to fall within the Safe Harbor provisions of the security 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 in any forward-looking statements made as a result of numbers of factors, including those of risks and uncertainties that have been or will identify from time-to-time in the Company's reports filed with the Securities and Exchange Commission. Additional discussions 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 such forward-looking statements are not guarantees of future performance and those actual results and events may differ from those indicated in this call, such events and such differences… I apologize… may material. With that said, Mr. Brown, I will now turn the call over to you.

Thank you very much, Katie and good morning everyone. The batting order this morning is Cory will go first, and he's here in the room with me. Powell… I will second and Powell will go third, and he and Jim who will go fourth, are on the line. They are on the route this morning. And then, I will take it back over after Jim for a little recap and then we will have questions. So, Cory, do you want to start off with the financials?

Thanks. All I can say is thank God the fourth quarter is over. This is the first quarter that we have ever had where we had less net income than the previous year's comparable quarter. Our net income for the quarter was $33 million compared to $37.6 million in the fourth quarter of ’06. Total revenues for the quarter increased only 1.2% to $217.2 million from the $214.7 million in the fourth quarter of ’06. The first line item on the income statement is commissions and fees that for the quarter increased 1.2% or $2.4 million of net commissions and fees. Including our press release is our scheduled internal growth and when you exclude the profit-sharing contingency income to get to the total core commissions and fees, for the fourth quarter of ’07, that increase $3.9 million over the ’06 quarter. However, within that net growth number is $20 million of revenues from acquisitions. So, the good news is that we finished the 2007 year with our third best year in terms of annualized revenues acquired in one year. The bad news is that the continued governmental interference in the Florida insurance marketplace accelerated the soft market environment for us, thereby creating the fourth straight quarter of negative internal growth in core commissions and fees and actually the worst of any of those four quarters. The net loss of the $16.1 million of the core commissions and fees on the same-store sales basis reflects a negative 7.8% overall internal growth rate compare to just a 3% negative growth in… the very last quarter. This specific internal growth rate by business segment will be addressed by Hyatt and talk a little bit of the activities in each of those segments. But moving on to our investment income. We earned $500,000 less…

Okay. Thanks Cory. Moving into the retailer. And first of all, Florida retail, with a negative 11.2 this quarter versus a negative 12.3 last quarter. The downdraft in pricing does continue and I think as I mentioned previously, starting in July casualty prices, which had been somewhat flat, all of a sudden started to precipitously drop and they are continuing. The renewals are 20% to 25% down, almost regardless of loss ratios. Workers’ compensation is down an average of 18% that’s the new credit plus there are some companies that are using additional schedule credits that we are not using those same schedule credits 90 days ago. So, it continuing to… and currently workers’ comp in Florida has been quite profitable. Umbrella is not quite so soft, down maybe 10% to 12% to 15%. Some good news. Some non-embedded markets, these are property including wind markets, are now taking accounts from the citizens win. Now, these generally are larger risks, $10 million or more that have previously A rated by citizens. Of note and kind of an unusual note, we were told by one large national carrier… this is their larger accounts division and they are writing accounts. They are $300,000, $400,000 of premium and up and the office I think is responsible for maybe three or four states. On January 1, they wrote no new accounts and they lost no accounts. Never before happened. And this is reflective across almost every company across the United States is companies are telling their underwriters, don’t lose any renewal. Prices in the spinal of Florida. Now, spinal Florida would be Lake Orlando, Leesburg, Ocala, Gainesville, et cetera. Those are dropping 5% to 10% faster than elsewhere meaning coastal. So, if you had an average of 20% to 25%, you have got to…

Thank you very much, Hyatt. In special programs, FIU revenue was down 28% in Q4. things are not as erratic with the Citizens as has been in the past quarters. GL pricing and ex-wind business continue to be under great pressure. American Specialty or Sports Entertainment broker and AFC also serves this facility. Rates in those two facilities around the country are down on average 10% to 20%, CalSurance the professional liability lines on accounts, under $150,000, or down 10% to 20% in account over 150 to 250 and above or down 35% or more. Proctor Financial continues to perform very well and I would say the general rule on all programs, special and professional programs we have very good support from our risk bearing partners. And we're thus retaining a number of our accounts but they are at slightly reduced or very reduced prices relative to the services area as we noted in the Q3 call. We are very, very pleased with USIS and NewQuest, but at the end of Q3 we lost a portion of one of the clients for, Soft services and they took it in-house, we didn’t lose the entire account. They took a portion of it, the majority of the business in-house and that affects us to the tune of roughly $400,000 a month. That will continue on until September of this year. Relative to brokerage, in transactional properties specifically as you all remember the pricing went down substantially after June of last year, In Q4 in Florida properties down 30% to 60% and Florida’s got the significant downdraft. Lots, of options for buyers, most notably citizens. But they have non-rated options and other rated options. Outside of Florida as the general rule and transactional property, I would say is down 20% to 50% and…

Thank you very much. Okay. Jim would you like to talk about M&A activity.

Thank you, Hyatt and good morning everyone. First, I'd really like to report a bright spot in the most recent quarter and that is our merger and acquisition activity. As an overview of this activity. I would like to review three different topics. The first being our activity level. The second comments on the current M&A environment and lastly additional Brown & Brown resources that we have moved over to transaction capability. First, as to activity. As announced in our press release the fourth quarter 2007 and first forty days of 2008 has been very busy and very successful period for acquisitions. For the period we completed 20 transactions with $61.2 million in annualized revenues. $26.6 million or 44% of the acquisitions in this period was for retail employee benefit businesses. This is a fast growing profitable segment of our business and we have as an overall corporate goal to increase the employee benefits revenues to 25% of our total revenue base. We currently have approximately $132 million in revenues in this product line or approximately 14%, 14.5% of our revenue base. For calendar year 2007 we completed 26 transactions with $107 million in annualized revenues. Secondly, some comments on the current M&A environment. We have recently experienced a moderate improvement in acquisition deal pricing and terms. With regard to the transaction activity for the industry. There was a report by on e of the agency consultants and brokers. There was less agencies purchase by banks or by venture capital firms in 2007 versus 2006. Indeed several banks have sold their agency operations in the past year. Brown & brown made two such acquisitions from banks. We can also report an increase in the number of agencies that have expressed interest in selling their agencies. The soft market cycle, tougher economic conditions, reduced exposure units, perhaps a anticipated change in the tax laws are concerns expressed by agency owners. The lack of an effective economic perpetuation plan remains the leading factor that drives agencies to sell. Given the current soft market conditions, we are exercising great caution in the pricing of agencies. Our longstanding approach to pay for actual forward delivered earnings has been a technique that has served us well. Our preference in the current conditions is to have a minimum of a two preferable three year earned out period to resolve pricing our concerns. Lastly, I'd like to make some comments on our acquisition team. We have really world-class individuals capability in this area. The recent announcement regarding Tom Donegan is… but one structural improvement in our M&A resources. We have realigned other resources from internal audit, quality control and leadership development that will enable Brown & Brown to routinely complete an increasing number of transactions. Organizationally the M&A resource teams will report directly to me and to Hyatt. Hyatt, with those comments, I’ll turn it back over to you for wrap up comments and perhaps the questions.

Okay. Thanks Jim. Good report. The outlook for ’08. the bottom line is, is that property and casualty pricing is going to continue to go South. In the January 7, addition of national underwriters, there’s a very interesting graph. The graph shows the soft market starting and hard markets. Starting from 1970 through 2008 estimated and in each one of the softest cycles of the market. The first was the 1974 at the depth according to this graph in National Underwriter. At the depth, the property and casualty premiums for the industry grew approximately 6%. In 1981 and 1982 the depths of the next soft market, the property and casualty premiums in the market and the entire industry grew 3% to 4.5%. Then in the protracted soft market, there were a couple of down blips. 1992 the entire industry grew about 2% and 1998 grew about 1% and the projection for this coming year is that there would be a negative growth in the entire industry. If that true, again, according to this article and it’s also sourcing AM Best Insurance information as to… if that’s true, it will be the first a negative premium growth since 1943. So, all of that having been said, it just means that we have to go out and write a lot more new business, and of course, we do write more new business in the soft markets. Then we do in hard markets for obvious reasons. We think the first three quarters of ‘08 are going to challenging for organic growth. There will be… we think some modern opportunity or modest opportunity maybe for change in Q4. Our loss ratios for P&C carriers must increase 5% to 10% before rational pricing appears. And as you know, the first three quarters of this year…

Absolutely. Thank you. [Operator Instructions]. We will go to Keith Walsh with Citi.

Hey, good morning everybody.

Hey, Keith.

First, I guess, I was just pretty surprised about the level margin deterioration you guys experienced. I know, Corey, you mentioned M&A is one of the reasons why. You guys have had M&A in past. Just want to know or reconcile why this is so much more of an issue this time around? And then also if you could maybe touch on employee comp cost, fixed versus variable component there. And then I have got a follow-up for Hyatt. Are you guys seeing higher levels of competition from maybe a larger brokers searching for growth domestically? Thank you.

Keith, let me start out by saying that we have always had acquisitions. And they have always… traditionally had a phase and period where they gradually become as efficient as our normal offices. The main difference here I think is the fact that the internal growth and the elimination of $16.1 million in one quarter. If you look at our quarterly total revenues for $217 million of just standalone offices. They accounted for about $16.996 million. So, right $17 million. The compensation percentage… the compensation of that $17 million was roughly $9.670 million. And that’s a percentage of a 56.9 versus our Companywide average of 50.7. And so that knocks it down to 50.2. Now, kind of trying to understand where that differential we have, is kind of what I was trying to allude to is that producer compensation who are on full commission, those compensation in profits center bonuses, those are much more variable costs. In fact, for the whole year, with our revenues down, producer compensation drop by over $4 million which would be expected because it’s tied in more directly. But if you look at the major salaries of non-producers, which would be management, profit center leaders, administrative staff, the professional staff, and CSR's, we accounted for basically this year there was roughly $228 million of that versus $205 million last year. So, there was a net increase in that side of it, of that $22 million. If you take out just the cost of all the acquisitions for the year that are standalone, they account for $19 million of that $22 million. So, there is on net same-store sales, it does have a little bit a fold-in included in that amounts to about $3.2 million of additional cost. And that’s what I was referring to the…

I think also Cory of the 51,00 people we have, about 5,500 are commission producers. Keith, also to answer your question about… is there more competition from national brokers? No. The competition, you must understand that our average commission, this is the annualized commission on the lines of new accounts as they’re bound. The average for the whole Company is between $12,000 and $12,500 in commissions that’s not premium. So, the premiums would roughly be about a 10% commission, so $120,000 premium. The national brokers because of their cost structure really can’t get down below another $40,000 or $50,000 or $75000 in commissions although they may try to set up divisions that have a different cost structure, but our competition, truthfully is in that huge group of middle market insurance agents and brokers who are spread across the United states and don’t forget many of our offices are not located in Chicago and New York city and Los Angeles, most of our offices are located in middle and smaller towns and so the… being part of the fabric of the community is part of the way that we get our business. So, we just aren’t seeing any particular competition from national brokers at this time in that area.

Hey Keith, this is Cory again. Let me finish just a couple of numbers so I can just get all the numbers out probably on that, those standalone acquisitions that I mentioned, that $17 million or their compensation was that $9.670 million number which was $56.9 million. The other operating expenses relating to that revenue was $3.398 million or 20% total cost versus the 16.1% total. Let me give you the year-to-date numbers. Now these are again just the standalone acquisitions, any of fold in or kind of just lumped in with our normal same store numbers but for the year, acquisitions on the stand alone were $62.183 million in terms of total revenues. Their compensation point benefit was $33.491 million which is a 53.9% factor and the other operating expenses were $11.092 million which was 17.8% factor and then of course they did have their proper proportionate share of amortization, depreciation, interest calculation, but those aren’t much of a concern, so just the I want you to have those numbers work them into your model, too if you choose to.

Thank you very much.

And we will go next to Dan Johnson with Citadel Investments.

Great. Thank you. Cory, just a follow-up on what you just said there for a moment. You said the fold ins are inorganic?

No. If you look at the… if you look at the revenue numbers that I just gave you?

Yes.

Those are simply the standalone acquisitions. If you look at our internal gross schedule. That will take all acquisitions including fold-ins and so you can really mathematically just deduct those two and figure out how much revenues all the fold-ins represent

Got it. I was just making--?

I’m just not breaking out the expenses on the fold-ins because it does you a little bit. You have to make a lot more assumptions. But I just like to pull out the raw numbers.

Okay. Great. I was just making sure that fold-ins weren’t in the organic growth number.

No. they’re not.

Dan, and one thing that I might just comment on that is that we don’t know but we understand at least from certain quarters, that in some of the people who are competitors larger and smaller. They’re going out and hiring producers away from other offices and violating non-compete and non-piracy's and counting that revenue as internal growth. And the reason they do count that is because it is not being paid for except through legal expenses and they have to make settlements and all that sort of stuff. We don’t have to do that.

Understood. Okay. My real question then was around on the comp line. I would have thought possibly with the challenges of the fourth quarter we would have seen some sort of incentive comp accrual reversal. That would have helped the fourth quarter numbers. We've seen at other times folks have tough fourth quarters. Was there any such comp reversal in the fourth quarter?

Well on an aggregate basis there was roughly $600,000 of bonuses that went away and part of… there is a normal process at the end of the year that we have certain formulas driven if they typically get 8% of the operating profit and then there are certain bonus penalties that are evoked. That if they don’t grow a certain percentage and during the year you do have certain changes for particular profit centers and so what happens is that we accrue for those during the year and then also in the fourth quarter where we might have had a change in the leadership at one office. They kind of come back to where you… I went from a profitable office to this office and I'm making the changes and these are all problems that may have occurred under another leadership. So, I think, you aught to give it some dispensation on these penalties or I've got to have the bonus. So the pure dollar amount down swoop is more of a variable by 8% operating profit. But at year-end we did have to come in and make some accommodations to certain offices and to give those bonuses because they are kind of under a new leadership and we don’t want to negatively penalize them for something that wasn’t under their control. So, that does happen. So, that’s the reason why its not probably as great as you would have initially thought.

Great. Understood then. Then I guess with the comments about really in the short-term employee counters isn't as variable as maybe we'd like which is good in the good times. The sort of margins that we saw in this quarter aren’t… you don’t heel that they were unrepresentative of what actually sort of happened. In the quarter and what could happen until we get some more list from revenue? Jim Henderson - Vice Chairman & Chief Operating Officer: I think so. I'm not sure if I follow the whole thing.

Well I guess my point is, I just want to make sure there wasn’t anything abnormal outside of some really modest items in the quarter.

There really is not. I mean and just from a magnitude standpoint you look at maybe just help clarify our of the total comp that we… in that total comp line, you have all salaries, you've got benefits included in that, you got training costs, you got a lot of things in there but as a general rule if you take basically all management and staff and professional fees, that amounted to that $200 million number that I was referring to earlier from a basically $228 million. If you look at just pure producer commissions on a same year… we're basically $70 million. So, the $70 million is more variable. On top of that you do have, commit you have salary producers who haven’t hit the 40-20 and that amounted to about $33 million. That’s the one line item that actually did go up, because we continue to hire producers and we've always talked that we reserve 1% of our revenue base to hire people that we don’t need primarily producers. And a corporate for the year we hired. We spent some $1.3 million in addition, additionally over last year for producers that we are bringing in, in training. So, that line item did go up. But hopefully between the $228 million and the $72 million and the $32 million, those Will give you some perception of the variable side of the compensation. Payroll costs.

Yep. That’s Great. Thanks very much for the additional help there.

Okay.

And we’ll go next to Dan Farrell with FPK.

Hi, good morning.

Hi Dan.

Could you just talk a little bit about organic growth again for next year’s expectations? You said that you thought the first three quarters of ‘08 would be challenging but you thought there might be some improvements we had in the fourth quarter. Can you talk about what maybe drives that improvement? Is it just the, the comparisons get easier in either wholesale or Florida retail or is it along those lines?

Well, I think, you have to sort of look at it in pieces. The big down swoop in Florida started in July of this year and it occurred as a result of two things. Number one, in addition to the property prices going down, casualty, which had been kind of flat, it was edging down, all of a sudden it fell off the cliff and so generally speaking when you have that kind of change of pricing the underwriters who have authorized a 30% reduction or 35% reduction on a package or on a casualty line. When it comes up for renewal they’ve got their files sitting in front of them and they are saying well it's been okay account but maybe we’ll see if we can't do 5% less or 10% less and that’s what I call meeting an equilibrium and so what I think what we hope and we've been surprised this year about the Florida marketplace where we're hoping is that we’ll find that pricing equilibrium. Where prices won't be going down quite as much. Now the other piece is, if you look at the states in the United States that have been most impacted by the home building change in Florida, Arizona, Nevada, California. And to a lesser extent some pieces of Texas. So, in addition to prices going down we are seeing exposure units trailing off and particularly in the home building area. But it's not just in the home building area, if you think about the ’04 and ’05 hurricane years it was really into the beginning of ’07 before all the roofs and all the other repair jobs finally got completed. So, you put all that together and by the last quarter of this year, ’08 we think there’s going to be some…

That’s a very helpful detail. Thank you. Just one follow-up on sort of margins and expenses. Can you talk a little bit about how long it might take you to sort of adjust that variable expense side. Is it one, two quarters and then also can you just talk about your willingness. How much you’d be willing to adjust because there’s obviously a trade off and in cutting your expense versus investing in your business. Is there a lower level of margin that you're willing to tolerate not necessarily like but tolerate in a softer environment to sort of keep the franchise strong?

Well, if you look the last time we had a real down swoop and in the topline we actually grew about 1.2% organically back in 1998 and 1989 in that we were 1.2 to 1.7. And margins came along pretty well at that time, there was some flattening, but we're still going along. But again what we have in this case is pretty virulent change in a state where we have about a third of our business. That’s a bit unusual, Florida is a great place to be in business and the 18.5 million people we have today according to all the gurus who know, say that by 2020, that’s going to be about 25 million. So, growth can overcome a lot of other potential problems. So, if you start looking at all of the variable factors the… we are not going to cut core cost of the people if they are producing and we have been pretty darn effective and efficient over a period of time by weighing and measuring people. One of the things that we have spent more money on this year meaning ’07 than in the past is on bringing on new… Cory mentions producers. But we have also brought on… we've increased our staff of internal auditors from 19 to 28 and why is the reason for that? Well, two reasons. That's a spawning ground, that’s a recruiting ground and those people move from that area into a training area for producer or they've moved into another area that might have nothing to do with accounting or it might have something to do with the program. At the same time we have recruited more people out of college and that lead-time is longer. But as we're finding these people with the right kind of training and particularly with Brown & Brown University, they are doing exceptionally well. So, we're not… I know that you are very concerned about the margins and no one is more margin centric than as yours truly and our margins over the next period of time will continue to be very, very high. Now will there be a dip or two? Yes. Maybe so. But our model absolutely works. Now when… if you take any business that has a substantial reduction in the topline and very intense competitive conditions. There are going to be pressures on the margins and so if you look at our margins versus everybody else, I think you’ll find. We aren’t doing too damn bad.

Great. Thanks a lot.

And we will have our next question from Matthew Heimermann with JP Morgan.

Hi. Good morning everyone.

Excuse me. I didn’t get your name please.

It’s Matt Heimermann with JP Morgan.

Hi, Matt. How are you?

I am doing well. Good morning. I had a just a quick question. In the past you haven’t had a formal M&A group. Most of the M&As been sourced and accomplished by a lot of the regional folks. Can you just talk how Jim’s group is going to interact with some of these folks?

Yes I can and it’s really a evolution. We still have all of our regionals and our profit center leaders who are constantly talking to people about the potential for M&A, but what is happening is we are finding more interest and part of the interest that has always been around has been interest that comes about as a result of consultants. And, so they send us information and they have already got a client, so on and so forth. A lot of what we are seeing now is not through consultants. These are people who are part of the fabric of the community of town A or city B and they don’t let anybody know they are interested in maybe and merging with anybody. And so those kind of M&A activities take a lot more personal kinds of touching and understanding and making sure that we understand them and they understand us and that they want to go forward and grow. So, in order to do this and because there are more and more opportunities Jim has been exceptionally good in the past at handling some of those kinds of negotiations. An example of that would be the situation with the Hull acquisition and another had to do with the CalSurance acquisition, this is a matter of four years ago. So, the idea is that what I am doing is I obviously am always involved in M&A and we do bring people to Daytona beach and we do bring them to our home have dinner and have a drink or two and see how the chemistry is. We are going to continue to do that and as I continue to morph over into being a Chairman, but not on the payroll, what my intent is assuming the board will…

No. That’s very helpful. Thank you for that perspective. I guess the one follow up I have is with respect to some these… given the examples you gave with Hull and CalSurance, I mean, is a lot of this… I guess what I am asking is… does this mean that perhaps when you are talking about these people who don’t want it out in the open out there, they are perhaps looking at doing something. Do they tend to be larger agencies or brokerages?

No. But they tend to be all sizes but they tend to be more profitable.

Okay.

And you see what… when someone comes to you and says we want to talk then the first question is why. And there is a lot of different reasons and that’s where the matrix comes in along with not just the reasons but the internal structure of this organization, and who’s in there and are they related and have they been with the agency and they left the agency and they came back to the agency. Do they have certain slices of business that we find are less profitable, on and on and on. It’s a fairly complex process.

That’s helpful. Thank you very much

Okay.

And we will go next to Nik Fisken with Stephens.

How are you buddy?

Hi, Nik. How are you?

Doing great.

Good.

So, as I calculated if I take out some one timer stuff, EBITDA margins fell from 40 to 39, ’06 to ’07 in the fourth quarter following 600 basis points and I guess where I am headed with this, if I listen to the call, there’s really no reason to believe ’08 won’t fall by that same magnitude, so call it 500 bits if you take out what happened in the fourth quarter.

Is that a question or is that an answer?

You think it is going to fall by 500 basis points?

Well you never know it’s possible but we don’t think so.

But if you assume the same level negative internal growth that would be a possibility, but I think each one of our profit centers as they manage their individual offices they will continue to be tying down their expenses and maybe they are going to hire another person, maybe they get delayed. We have a great faith in our process and our leader and that’s what makes our Company so good, it’s our decentralized approach, but there won’t be any wholesale changes in our methodology and we just don’t believe we are going to have to cut people. So, again, you can’t lose $16.1 million basically in one quarter due to rate and not have the margin impacted.

And how much of contingents that are typically paid this year have got booked in the form of overrides in ’07?

About $6.5 million, that’s the guaranteed supplemental commissions, $6.5 million. One thing is a positive thing, does not have any good margins, particularly, as you know, we have a long-term incentive plan called the performance stock which is the 15 year deal. It is a grant of stock and every time the stock goes up 20% then one-fifth of the number of shares that have been granted move into an award category and then there’s five years for the grant to get totally awarded. The last large group of grants was done in January of ’03 and so four fifths of those grants have tranched and or are awarded. Those particular people and there’s I don’t know maybe 300 or 400, I am not sure exactly the number know that we are in the process now of weighing and measuring the results of the last five years because we are getting ready to reload people based on the future. In other words what you do for us in the last five years and then that’s the base on which the grant would be done this year, could be more, could be less or could be the same, so that will occur sometime in the next 30, 60 days and we have been talking to the board about it and what we are trying to do is make doggone sure that the people who are really making the boat move will be given substantial consideration for the new performance stock grant. So, that’s a positive and our people view it as a positive also.

And Cory was the $1.1 million IRS settlement paid in 4Q?

It was paid in 4Q and it is embedded in the tax… in the income tax line item.

And are we seeing… what kind of new data points are we seeing in terms of further government intervention out of Florida?

Well, good question Nik. At the moment we don’t see any kind other than the situation where… and Powell mentioned this on his response. They have been talking about having a $2.5 million layer… front layer for small businesses. This is property and that was supposed to come out in December, January and it hasn’t come out yet and to the extent that that might some impact, I just don’t know because I don’t know what the rates are that they are looking at. The rates that they were looking at least initially were as most residual markets should be we are not highly competitive rate. So, we… so at the moment we don’t know of anything that is going to be a negative.

It sounds like you are in a strong M&A pipeline that there is no change to your repurchase philosophy stuck in $19?

Good question. As long as we have opportunity to buy agencies where we can get the return we can get, it’s pretty hard to take and use money to buy stock back. And one of the things that you got to recognize is even though we do produce a lot of free cash, we also have to put a lot of that free cash out, all of it plus some to make sure we are able to get the M&A people in that we really want, so I wouldn’t expect any change in that.

Okay. Thanks.

And with the next question Kenneth Billingsley with Signal Hill.

Good morning. One of the questions I want to ask is on just general pricing trends. I listened obviously to the comments about rather 15% to 20% down on particular lines and I believe the press release was saying 15% to 30% in general on a generic basis. The CIAB data that had come out, I am sure that large account business was down on average 12%, small accounts down about 8% and then on the individual lines nothing seemed to be down more than 12%. Can you talk about the… what’s some of the differences you are seeing versus, what in general CIAB was reporting?

Well it is very difficult to make a comparison. In the case of CIAB… excuse me… what you have there is a culmination of large and small brokers. I don’t know what piece of that has to do with the largest brokerage or what piece of that has to do with accounts that are less than $50,000 in premium, but I can only tell you what we are seeing and so, what happens is this is that it is a little bit like if you look at the entrenched carriers and their next reports and I am sure starting to report now, they are talking about their rates being down by 7% or 8% or 10%, but what they are not telling you is that had they not lost accounts and they had gone down to the level that they had to stay to get the keeper’s accounts that would be a different percentage, and it is going to be interesting if that particular national company that I mentioned that said as of January 1 had no loss accounts and no new accounts, that means they follow down all of them, so what we are saying is if we are going to go out and get a new account away from somebody else we are going to have to be 20% to 30% to 40% below their expiring. Now in the case of our renewals every renewal is not down that much, because number one some of them have losses, some of them are changing the way they do business et cetera. So, the renewals are not quite as competitively priced as the brand new accounts, so that’s the only thing that I can offer in terms of… I just came back from a meeting of about I guess 40 members of the council insurance agents and brokers and this is the board of directors and some other people and the numbers that I just heard from them in just casual conversation were the same as ours or even some cases more downslide, so I think it just depends on who you are talking to.

Okay. And this other question is Kenneth has been asked a few different times, I would like to ask you from a different direction and it is regarding the expenses in the quarter and essentially if we subtract the acquisition cost that came through in the increase in the less profitable margins from the new hires currently. The margin still has been falling and at their lowest levels since they have been… since 2001. So, excluding the M&A business are you guys losing accounts in general and the reason I asked that is if the revenue is declining $16 million, quarter-over-quarter, looking forward into ’08 and ’09 does the headcount need to be the same or are you writing the same amount of accounts just at such lower prices that you still are going to need the bodies to ride that business and that means we are going to perpetually have lower margins, maybe for longer periods than just three quarters?

Well, number one the bottom line is that we do not believe that there is organically anything wrong with the model. Now, when you have been… to answer the first question where you asked about our losing more business, no. We are losing about the same, this is retail now. We are losing about the same amount of business in retail in terms of dollars as a percent of our revenue that we had in the past. There has not been much change there. Now if you look at some of our brokerage operations and I am talking about now… binding authority and transactional, we probably lost a little more there for the simple reason that business is moving from non-admitted to admitted paper and that’s always been that way up and down. So, in the case of the brokerage area and other areas that are like that, yes we are looking at whatever needs to be done to maintain the margins that are acceptable to us, so over a period of time one of the things that becomes apparent is that some offices are more profitable than others and generally speaking has to do with two things. Number one, leader and number two it’s which is also the leader is the right leaders have the tendency to attract people who are more efficient, and we do have ways of measuring CSRs across our which is a very important part of our machine, customer service representatives. These are the people that are inside the offices handle the details and in many cases handle most of the accounts. The same thing is with brokers and underwriters in our brokerage area and binding authority area. So, there is some change and there has always been change going on because we are always…

And just following up on that, I mean you still have one of the best margins in the industry, especially the publicly traded guys. Well, is it just going to take a little bit longer to get to that B-40 now, that you'll get to the B before you get to the 40?

Well actually if you take out… it’s a good question. If you take out the ken, if you take out the non-cash stock calls and you leave in the Rock-Tenn and stuff, actually our margin was 40.33%. so, we know that there is stuff in there that is not recurring.

That’s 40.03%.

Yes. 40.03 %. So, the bottom line is that some time this year we will cross the B and not exactly sure when that will be on a rolling 12 and the 40 is going to take a little more time to get there. But we’ll get there.

Okay. thank you.

And we’ll go next to Eli Fleminger with Stifel Nicolaus. Eli Fleminger - Stifel Nicolaus & Co.: Hi. My question has been answered. Thank you.

And we’ll go next to Doug Mewhirter with Ferris, Baker, Watts.

Hi there is a question for you there Hyatt or Jim or both. Generally have you kept the terms of your acquisitions the same in terms of the balance of stock in cash or is it fairly random as to when how much cash or stock to offer in a given acquisition?

Yes Doug. I cannot say. I’m not sure. Jim had another… Jim are you there? No, I think he had another meeting that was… he had to leave to go to. First of all we don’t use stock we basically quit using stock back in 2001. So, it's all cash.

That answers my question. Thanks.

Okay.

And we’ll go next to Michael Grasher with Piper Jaffray.

Good morning. Thanks for taking my question.

Hi Mike.

Hi. Just a follow-up with regard to some comments you were making earlier. Certainly the market is soft, a lot of capital out there chasing risk as you touched on but how much does the overall macro environment weigh on your business and I understand your business is small account driven but if you look back historically. How would you weigh the impact of any economic slowdown?

Well, it won't have an impact on us. Talking about a recession?

Sure.

It will have an impact on us. Generally speaking Florida has been kind of recession proof and the reason is that we have a lot of retired people and more and more retired people and there incomes are fixed and substantial. So they spend and we're insure restaurants and we insure hotels and motels and we insure bus companies and we insure all kinds of entertainment facilities. So, that area has not been, the down swing hasn't had a lot to do with what’s happening in Florida. There has been though in Florida Arizona, Nevada and California. There has been more home building in the last three or four years. And I think that we're ever had in the past, so there's a little downslip there. Looking around the rest of the United States, I don’t find… upstate New York will be a place where yes we're having a recession, you’d think there would be a lot of negativism and there’s really not… in upstate New York what they really saying is, we never had the big upswing and we don’t have a big downswing. But having said that, a recession which I'm not sure we're going to have one. But if we had one. It’ll have some impact on us.

Okay. and does that change your approach to M&A activity in terms of the terms and conditions?

Well, obviously, what we're always looking for is that the earn out must go two to three years and in certain cases people do not want that meaning that they want to have cash up front because they want to go to the farm. And if that's true and we do have that. If that's true then it’s less, the cash upfront will be less, but the other thing is we've got to have a game plan that we know that we can get that margin and that profitability and in some cases in the last two or three years we found that, this is kind of interesting, people and this would be, people basically kind of East of the Mississippi, the owner or the agency has been working … has been living in Florida half time and working a quarter of the time and therefore the agency has been doing the numbers it has been doing because the people that are there and so when the owner sells then the impact is really not… there is not much impact, because he or she hasn't been involved particularly aggressively for several years. So… but if it's a situation where someone wants cash and they want to leave and there's not anybody and there is question about sustainability, then we just kind of walk away.

Okay. Well, thank you and best of luck in ’08.

Thanks, Mike.

Thank you. And there was no additional questions in the queue. I would like to turn the conference back over to Hyatt Brown.

Okay. And thank you Katie and thank you all. And we will look to talk to you… my guess, in April. Okay. This is all. Goodbye. Thank you.

Thank you. That does conclude our conference call today. We appreciate your participation.