HUB INTERNATIONAL LTD - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended: June 30, 2004

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 August 2, 2004 30,527,779

HUB INTERNATIONAL LIMITED

INDEX


	Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)		3

Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003		3

Consolidated Statements of Earnings for the three months and six months ended June 30, 2004 and 2003		4

Consolidated Statements of Retained Earnings for the six months ended June 30, 2004 and 2003		5

Consolidated Statements of Cash Flows for the three months and six months ended June 30, 2004 and 2003		6

Notes to Interim Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22

Item 3. Quantitative and Qualitative Disclosures about Market Risk		37

Item 4. Controls and Procedures		37

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		38

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		38

Item 4. Submission of Matters to a Vote of Security Holders		38

Item 5. Other Information		40

Item 6. Exhibits and Reports on Form 8-K		41

SIGNATURE		42
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2


2 HUB INTERNATIONAL LIMITED	INTERIM REPORT JUNE 30, 2004

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Hub International Limited

Consolidated Balance Sheets

As of June 30, 2004 and December 31, 2003

(in thousands of U.S. dollars)


	2004		2003

	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	144,527	$	82,052
Trust cash		57,207		54,534
Accounts and other receivables		174,119		163,728
Income taxes receivable		5,634		6,768
Future income taxes		3,452		2,865
Prepaid expenses		7,911		4,449

Total current assets		392,850		314,396
Goodwill		311,935		305,862
Other intangible assets		46,538		42,903
Property and equipment		23,354		24,181
Future income taxes		6,997		6,458
Other assets		6,784		6,803

Total assets	$	788,458	$	700,603

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	226,556	$	226,168
Income taxes payable		2,520		3,804
Future income taxes		490		114
Current portion long-term debt and capital leases		2,428		3,362

Total current liabilities		231,994		233,448
Long-term debt and capital leases		140,467		75,437
Subordinated convertible debentures		35,000		35,000
Future income taxes		14,883		13,928

Total liabilities		422,344		357,813

Commitments and Contingencies
Shareholders’ equity
Share capital		258,638		254,845
Issuable shares		940		721
Contributed surplus		9,589		4,806
Cumulative translation account		16,420		20,062
Retained earnings		80,527		62,356

Total shareholders’ equity		366,114		342,790

Total liabilities and shareholders’ equity	$	788,458	$	700,603

(the accompanying notes form an integral part of the interim financial statements)


INTERIM REPORT JUNE 30, 2004	HUB INTERNATIONAL LIMITED 3

Hub International Limited

Consolidated Statements of Earnings

For the three months and six months ended June 30, 2004 and 2003

(in thousands of U.S. dollars, except per share amounts)

(Unaudited)



		Second quarter						First six months

		2004			2003			2004			2003

Revenue
	Commission income	$	76,960		$	69,442		$	138,589		$	123,983
	Contingent commissions and volume overrides		3,038			2,889			18,075			15,266
	Other		2,233			1,824			4,916			3,783

			82,231			74,155			161,580			143,032

Expenses
	Compensation		42,114			39,877			82,751			76,889
	Selling, occupancy and administration		16,086			13,808			31,639			26,914
	Depreciation		1,730			1,517			3,317			2,911
	Interest expense		1,702			1,516			3,362			2,883
	Intangible asset amortization		936			756			1,717			1,557
	(Gain)/loss on disposal of subsidiaries, property, equipment and other assets		(597	)		65			(559	)		9
	Loss on write-off of trademarks		—			—			2,587			—
	(Gain) on put option liability		—			(267	)		—			(240	)
	Non-cash stock based compensation		1,701			1,258			3,315			2,220

			63,672			58,530			128,129			113,143

Net earnings before income taxes			18,559			15,625			33,451			29,889

Provision for income tax expense
	Current		4,992			3,604			11,730			9,265
	Future		1,976			1,912			507			1,611

			6,968			5,516			12,237			10,876

Net earnings		$	11,591		$	10,109		$	21,214		$	19,013

Earnings per share
	Basic	$	0.38		$	0.34		$	0.70		$	0.65
	Diluted	$	0.35		$	0.31		$	0.64		$	0.59
Weighted average shares outstanding — Basic (000’s)			30,189			29,326			30,102			29,326
Weighted average shares outstanding — Diluted (000’s)			34,905			33,930			34,711			33,632

(the accompanying notes form an integral part of the interim financial statements)


4 HUB INTERNATIONAL LIMITED	INTERIM REPORT JUNE 30, 2004

Hub International Limited

Consolidated Statements of Retained Earnings

For the six months ended June 30, 2004 and 2003

(in thousands of U.S. dollars)

(Unaudited)


	2004			2003

Retained earnings — Beginning of period	$	62,356		$	31,915
Net earnings		21,214			19,013
Dividends		(3,043	)		(3,038	)

Retained earnings — End of period	$	80,527		$	47,890

(the accompanying notes form an integral part of the interim financial statements)


INTERIM REPORT JUNE 30, 2004	HUB INTERNATIONAL LIMITED 5

Hub International Limited

Consolidated Statements of Cash Flows

For the three months and six months ended June 30, 2004 and 2003

(in thousands of U.S. dollars)

(Unaudited)



		Second quarter						First six months

		2004			2003			2004			2003

OPERATING ACTIVITIES
Net earnings		$	11,591		$	10,109		$	21,214		$	19,013
Items not affecting working capital
	Amortization and depreciation		2,666			2,273			5,034			4,468
	(Gain)/loss on disposal of subsidiaries, property, equipment and other assets		(597	)		65			(559	)		9
	Loss on write-off of trademarks		—			—			2,587			—
	(Gain) on put option liability		—			(267	)		—			(240	)
	Non-cash stock based compensation		1,701			1,258			3,315			2,220
	Future income taxes		1,976			1,912			507			1,611
Non-cash working capital items
	Trust cash		(10,373	)		(6,154	)		30			9,567
	Accounts and other receivables		(60,051	)		(44,801	)		(8,773	)		(6,834	)
	Prepaid expenses		(3,520	)		(2,435	)		(3,366	)		(3,724	)
	Accounts payable and accrued liabilities		67,209			55,105			(2,925	)		4,277
	Other assets		128			(2,420	)		256			(2,320	)
	Income taxes		(1,566	)		(4,662	)		(176	)		(2,844	)

Net cash flows from operating activities			9,164			9,983			17,144			25,203

INVESTING ACTIVITIES
Property and equipment — purchases			(1,465	)		(1,458	)		(2,850	)		(3,036	)
Property and equipment — proceeds on sale			14			20			81			27
Purchase of subsidiaries, net of cash received			(11,621	)		(1,161	)		(11,878	)		(12,385	)
Sale of subsidiaries			3,929			160			3,929			451
Other assets			(302	)		(705	)		255			(721	)

Net cash flows used for investing activities			(9,445	)		(3,144	)		(10,463	)		(15,664	)

FINANCING ACTIVITIES
Long-term debt — advances			65,000			65,000			65,000			65,000
Long-term debt and capital leases — repayments			(3,680	)		(50,597	)		(4,690	)		(51,313	)
Share capital — issued for cash, net of issue costs			412			—			480			(32	)
Dividends paid			(3,043	)		(3,038	)		(3,043	)		(3,038	)

Net cash flows from financing activities			58,689			11,365			57,747			10,617

Effect of exchange rate changes on cash and cash equivalents			(1,185	)		1,651			(1,953	)		2,280

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