FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
For Quarter Ended: September 30, 2003
Commission file number: 1-31310
(HUB INTL. LOGO)
HUB INTERNATIONAL LIMITED
(Exact name of registrant as specified in its Charter)
|
Ontario, Canada
(State or other jurisdiction of incorporation or organization) |
36-4412416 (I.R.S. Employer Identification No.) |
|
|
55 East Jackson Boulevard, Chicago,
Illinois (Address of principal executive offices) |
60604 (Zip Code) |
(877) 402-6601
Registrant’s telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)
Yes þ No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|
Class Common Shares |
Outstanding at November 5, 2003 30,314,305 |
HUB INTERNATIONAL LIMITED
INDEX
| Page | ||||
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
(Unaudited)
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3 | |||
| Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 | 3 | |||
| Consolidated Statements of Earnings for the three months and nine months ended September 30, 2003 and 2002 | 4 | |||
| Consolidated Statements of Retained Earnings for the nine months ended September 30, 2003 and 2002 | 5 | |||
| Consolidated Statements of Cash Flows for the three months and the nine months ended September 30, 2003 and 2002 | 6 | |||
| Notes to Interim Consolidated Financial Statements | 7 | |||
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Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations |
21 | |||
| Item 3. Quantitative and Qualitative Disclosures about Market Risk | 33 | |||
| Item 4. Controls and Procedures | 33 | |||
| PART II. OTHER INFORMATION | ||||
| Item 1. Legal Proceedings | 33 | |||
| Item 2. Changes in Securities and Use of Proceeds | 33 | |||
| Item 5. Other Information | 33 | |||
| Item 6. Exhibits and Reports on Form 8-K | 34 | |||
| SIGNATURES | 35 | |||
| 2 HUB INTERNATIONAL LIMITED | INTERIM REPORT SEPTEMBER 30, 2003 |
PART I. FINANCIAL INFORMATION
Hub International Limited
As of September 30, 2003 and December 31, 2002
| 2003 | 2002 | |||||||
| (Unaudited) | ||||||||
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ASSETS
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Current assets:
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||||||||
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Cash and cash equivalents
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$ | 79,061 | $ | 40,642 | ||||
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Trust cash
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43,975 | 53,648 | ||||||
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Accounts and other receivables
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106,334 | 136,573 | ||||||
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Income taxes receivable
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458 | 2,153 | ||||||
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Future income taxes
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4,786 | 3,324 | ||||||
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Prepaid expenses
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1,889 | 1,587 | ||||||
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Total current assets
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236,503 | 237,927 | ||||||
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Goodwill
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298,550 | 281,712 | ||||||
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Other intangible assets
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42,673 | 44,164 | ||||||
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Property and equipment
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23,894 | 21,298 | ||||||
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Future income taxes
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5,600 | 3,715 | ||||||
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Other assets
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6,986 | 8,060 | ||||||
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Total assets
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$ | 614,206 | $ | 596,876 | ||||
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LIABILITIES AND SHAREHOLDERS’
EQUITY
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Current liabilities:
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Accounts payable and accrued liabilities
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$ | 156,175 | $ | 187,034 | ||||
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Contingent consideration payable
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450 | 8,423 | ||||||
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Income taxes payable
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959 | 1,198 | ||||||
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Future income taxes
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762 | 1,164 | ||||||
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Current portion long-term debt and capital leases
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3,582 | 3,029 | ||||||
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Total current liabilities
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161,928 | 200,848 | ||||||
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Long-term debt and capital leases
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84,152 | 69,009 | ||||||
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Subordinated convertible debentures
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35,000 | 35,000 | ||||||
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Future income taxes
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9,658 | 7,745 | ||||||
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Total liabilities
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290,738 | 312,602 | ||||||
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Commitments and Contingencies
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Shareholders’ equity
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Share capital
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247,110 | 235,197 | ||||||
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Issuable shares
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50 | 13,743 | ||||||
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Contributed surplus
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3,979 | 1,234 | ||||||
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Cumulative translation account
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19,133 | 2,185 | ||||||
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Retained earnings
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53,196 | 31,915 | ||||||
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Total shareholders’ equity
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323,468 | 284,274 | ||||||
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Total liabilities and shareholders’
equity
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$ | 614,206 | $ | 596,876 | ||||
(the accompanying notes form an integral part of the interim financial statements)
| INTERIM REPORT SEPTEMBER 30, 2003 | HUB INTERNATIONAL LIMITED 3 |
Hub International Limited
For the three months and the nine months ended September 30, 2003 and 2002
| Third quarter | First nine months | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
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Revenue
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|||||||||||||||||
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Commission income
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$ | 60,772 | $ | 46,872 | $ | 184,755 | $ | 140,498 | |||||||||
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Contingent commissions and volume overrides
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1,884 | 767 | 17,150 | 10,198 | |||||||||||||
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Other
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2,015 | 1,913 | 5,798 | 5,636 | |||||||||||||
| 64,671 | 49,552 | 207,703 | 156,332 | ||||||||||||||
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Expenses
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|||||||||||||||||
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Compensation
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36,855 | 26,612 | 113,744 | 84,126 | |||||||||||||
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Selling, occupancy and administration
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13,974 | 11,103 | 40,888 | 33,357 | |||||||||||||
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Depreciation
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1,551 | 1,444 | 4,462 | 4,078 | |||||||||||||
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Interest expense
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1,269 | 1,110 | 4,152 | 6,208 | |||||||||||||
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Intangible asset amortization
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840 | 389 | 2,397 | 1,147 | |||||||||||||
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(Gain) on disposal of property, equipment and
other assets
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(290 | ) | (6 | ) | (281 | ) | (2,578 | ) | |||||||||
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Loss/(gain) on put option liability
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73 | (270 | ) | (167 | ) | (948 | ) | ||||||||||
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Non-cash stock based compensation
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1,355 | 583 | 3,575 | 583 | |||||||||||||
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Proceeds from life insurance
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(1,000 | ) | — | (1,000 | ) | — | |||||||||||
| 54,627 | 40,965 | 167,770 | 125,973 | ||||||||||||||
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Net earnings before income taxes
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10,044 | 8,587 | 39,933 | 30,359 | |||||||||||||
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Provision for income tax expense
(benefit)
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|||||||||||||||||
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Current
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6,074 | 4,831 | 15,339 | 10,845 | |||||||||||||
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Future
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(2,850 | ) | (1,666 | ) | (1,239 | ) | (1,559 | ) | |||||||||
| 3,224 | 3,165 | 14,100 | 9,286 | ||||||||||||||
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Net earnings
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$ | 6,820 | $ | 5,422 | $ | 25,833 | $ | 21,073 | |||||||||
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Earnings per share
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Basic
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$ | 0.23 | $ | 0.21 | $ | 0.88 | $ | 0.96 | |||||||||
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Diluted
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$ | 0.22 | $ | 0.19 | $ | 0.81 | $ | 0.79 | |||||||||
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Weighted average shares outstanding
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— Basic (000’s)
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29,327 | 26,416 | 29,326 | 22,060 | |||||||||||||
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Weighted average shares outstanding
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— Diluted (000’s)
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33,830 | 31,696 | 33,927 | 29,139 | |||||||||||||
(the accompanying notes form an integral part of the interim financial statements)
| 4 HUB INTERNATIONAL LIMITED | INTERIM REPORT SEPTEMBER 30, 2003 |
Hub International Limited
For the nine months ended September 30, 2003 and 2002
| 2003 | 2002 | |||||||
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Retained earnings — Beginning of
period
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$ | 31,915 | $ | 6,995 | ||||
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Net earnings
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25,833 | 21,073 | ||||||
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Dividends
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(4,552 | ) | (3,213 | ) | ||||
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Retained earnings — End of
period
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$ | 53,196 | $ | 24,855 | ||||
(the accompanying notes form an integral part of the interim financial statements)
| INTERIM REPORT SEPTEMBER 30, 2003 | HUB INTERNATIONAL LIMITED 5 |
Hub International Limited
For the three months and nine months ended September 30, 2003 and 2002
| Third quarter | First nine months | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
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OPERATING ACTIVITIES
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Net earnings
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$ | 6,820 | $ | 5,422 | $ | 25,833 | $ | 21,073 | |||||||||
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Items not affecting working capital
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Amortization and depreciation
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2,391 | 1,833 | 6,859 | 5,225 | |||||||||||||
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(Gain) on disposal of property, equipment and
other assets
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(290 | ) | (6 | ) | (281 | ) | (2,578 | ) | |||||||||
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Loss/(gain) on put option liability
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73 | (270 | ) | (167 | ) | (948 | ) | ||||||||||
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Non-cash stock based compensation
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1,355 | 583 | 3,575 | 583 | |||||||||||||
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Future income taxes
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(2,850 | ) | (1,666 | ) | (1,239 | ) | (1,559 | ) | |||||||||
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Non-cash working capital items
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Trust cash
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106 | (639 | ) | 9,673 | 5,025 | ||||||||||||
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Accounts and other receivables
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50,028 | 37,773 | 38,626 | 17,482 | |||||||||||||
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Prepaid expenses
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283 | (650 | ) | (185 | ) | (348 | ) | ||||||||||
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Accounts payable and accrued liabilities
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(44,340 | ) | (36,760 | ) | (38,463 | ) | (39,171 | ) | |||||||||
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Other assets
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129 | — | (2,191 | ) | — | ||||||||||||
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Income taxes
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4,165 | 2,986 | 1,318 | 2,231 | |||||||||||||
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Net cash flows from operating activities
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17,870 | 8,606 | 43,358 | 7,015 | |||||||||||||
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INVESTING ACTIVITIES
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Property and equipment — purchases
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(1,547 | ) | (1,155 | ) | (4,589 | ) | (2,798 | ) | |||||||||
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Property and equipment — proceeds on
sale
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17 | — | 44 | — | |||||||||||||
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Proceeds from investment held for sale
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— | — | — | 43,521 | |||||||||||||
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Purchase of subsidiaries, net of cash received
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452 | (3,245 | ) | (11,935 | ) | (4,553 | ) | ||||||||||
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Sale of subsidiaries
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613 | 18 | 1,064 | 2,029 | |||||||||||||
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Other assets
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176 | 103 | (539 | ) | 117 | ||||||||||||
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Net cash flows from (used for) investing
activities
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(289 | ) | (4,279 | ) | (15,955 | ) | 38,316 | ||||||||||
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FINANCING ACTIVITIES
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Bank debt
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— | — | — | (55,000 | ) | ||||||||||||
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Long-term debt — advances
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250 | 14,101 | 65,250 | 14,101 | |||||||||||||
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Long-term debt and capital leases —
repayments
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(688 | ) | (4,503 | ) | (52,184 | ) | (46,609 | ) | |||||||||
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Subordinated convertible debenture —
repayment
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— | — | — | (26,800 | ) | ||||||||||||
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Share capital — issued for cash, net of
issue costs
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(28 | ) | 7 | (59 | ) | 88,098 | |||||||||||
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Proceeds from sale of executive purchase plan
shares
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222 | — | 222 | — | |||||||||||||
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Dividends paid
|
(1,514 | ) | (1,263 | ) | (4,552 | ) | (3, | ||||||||||