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: September 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 November 4, 2004 30,551,530

HUB INTERNATIONAL LIMITED

INDEX


	Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)		3

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

Consolidated Statements of Earnings for the three months and nine months ended September 30, 2004 and 2003		4

Consolidated Statements of Retained Earnings for the nine months ended September 30, 2004 and 2003		5

Consolidated Statements of Cash Flows for the three months and nine months ended September 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		24

Item 3. Quantitative and Qualitative Disclosures about Market Risk		40

Item 4. Controls and Procedures		40

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		40

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		41

Item 5. Other Information		41

Item 6. Exhibits		43

SIGNATURE		44
EX-31.1
EX-31.2
EX-32.1
EX-32.2


2 HUB INTERNATIONAL LIMITED	INTERIM REPORT SEPTEMBER 30, 2004

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Hub International Limited

Consolidated Balance Sheets

As of September 30, 2004 and December 31, 2003

(in thousands of U.S. dollars)


	2004		2003

	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	78,108	$	82,052
Trust cash		65,671		54,534
Accounts and other receivables		140,585		163,728
Income taxes receivable		6,668		6,768
Future income taxes		5,389		2,865
Prepaid expenses		8,371		4,449

Total current assets		304,792		314,396
Goodwill		368,881		305,862
Other intangible assets		90,635		42,903
Property and equipment		27,442		24,181
Future income taxes		7,578		6,458
Other assets		10,945		6,803

Total assets	$	810,273	$	700,603

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	226,521	$	226,168
Income taxes payable		4,370		3,804
Future income taxes		322		114
Current portion long-term debt and capital leases		6,602		3,362

Total current liabilities		237,815		233,448
Long-term debt and capital leases		148,272		75,437
Subordinated convertible debentures		35,000		35,000
Future income taxes		16,597		13,928

Total liabilities		437,684		357,813

Commitments and contingencies
Shareholders’ equity
Share capital		259,445		254,845
Issuable shares		51		721
Contributed surplus		11,053		4,806
Cumulative translation account		21,894		20,062
Retained earnings		80,146		62,356

Total shareholders’ equity		372,589		342,790

Total liabilities and shareholders’ equity	$	810,273	$	700,603

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


INTERIM REPORT SEPTEMBER 30, 2004	HUB INTERNATIONAL LIMITED 3

Hub International Limited

Consolidated Statements of Earnings

For the three months and nine months ended September 30, 2004 and 2003

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

(Unaudited)



		Third quarter						First nine months

		2004			2003			2004			2003

Revenue
	Commission income	$	90,269		$	60,772		$	228,858		$	184,755
	Contingent commissions and volume overrides		1,865			1,884			19,940			17,150
	Other		2,768			2,015			7,684			5,798

			94,902			64,671			256,482			207,703

Expenses
	Compensation		57,593			36,855			140,344			113,744
	Selling, occupancy and administration		19,647			13,974			51,286			40,888
	Depreciation		1,962			1,551			5,279			4,462
	Interest expense		2,330			1,269			5,692			4,152
	Intangible asset amortization		1,904			840			3,621			2,397
	Gain on disposal of subsidiaries, property, equipment and other assets		(981	)		(290	)		(1,540	)		(281	)
	Non-cash stock based compensation		8,346			1,355			11,661			3,575
	Loss on write-off of trademarks		—			—			2,587			—
	Loss/(gain) on put option liability		—			73			—			(167	)
	Proceeds from life insurance		—			(1,000	)		—			(1,000	)

			90,801			54,627			218,930			167,770

Net earnings before income taxes			4,101			10,044			37,552			39,933

Provision for income tax expense (benefit)
	Current		5,032			6,074			16,762			15,339
	Future		(2,077	)		(2,850	)		(1,570	)		(1,239	)

			2,955			3,224			15,192			14,100

Net earnings		$	1,146		$	6,820		$	22,360		$	25,833

Earnings per share
	Basic	$	0.04		$	0.23		$	0.74		$	0.88
	Diluted	$	0.04		$	0.22		$	0.68		$	0.81
Weighted average shares outstanding — Basic (000’s)			30,292			29,327			30,192			29,326
Weighted average shares outstanding — Diluted (000’s)			32,666			33,830			35,006			33,927

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


4 HUB INTERNATIONAL LIMITED	INTERIM REPORT SEPTEMBER 30, 2004

Hub International Limited

Consolidated Statements of Retained Earnings

For the nine months ended September 30, 2004 and 2003

(in thousands of U.S. dollars)

(Unaudited)


	2004			2003

Retained earnings — Beginning of period	$	62,356		$	31,915
Net earnings		22,360			25,833
Dividends		(4,570	)		(4,552	)

Retained earnings — End of period	$	80,146		$	53,196

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


INTERIM REPORT SEPTEMBER 30, 2004	HUB INTERNATIONAL LIMITED 5

Hub International Limited

Consolidated Statements of Cash Flows

For the three months and nine months ended September 30, 2004 and 2003

(in thousands of U.S. dollars)

(Unaudited)



		Third quarter						First nine months

		2004			2003			2004			2003

OPERATING ACTIVITIES
Net earnings		$	1,146		$	6,820		$	22,360		$	25,833
Items not affecting working capital
	Amortization and depreciation		3,866			2,391			8,900			6,859
	Gain on disposal of subsidiaries, property, equipment and other assets		(981	)		(290	)		(1,540	)		(281	)
	Non-cash stock based compensation		8,346			1,355			11,661			3,575
	Loss on write-off of trademarks		—			—			2,587			—
	Loss/(gain) on put option liability		—			73			—			(167	)
	Future income taxes		(2,077	)		(2,850	)		(1,570	)		(1,239	)
Non-cash working capital items
	Trust cash		1,850			106			1,867			9,673
	Accounts and other receivables		54,259			50,028			40,669			38,626
	Prepaid expenses		(203	)		283			(3,837	)		(185	)
	Accounts payable and accrued liabilities		(50,118	)		(44,340	)		(49,628	)		(38,463	)
	Other assets		128			129			384			(2,191	)
	Income taxes		(837	)		4,165			(981	)		1,318

Net cash flows from operating activities			15,379			17,870			30,872			43,358

INVESTING ACTIVITIES
Property and equipment — purchases			(2,086	)		(1,547	)		(4,993	)		(4,589	)
Property and equipment — proceeds on sale			60			17			142			44
Purchase of subsidiaries, net of cash received			(78,495	)		452			(90,385	)		(11,935	)
Sale of subsidiaries			1,895			613			6,062			1,064
Other assets			34			176			388			(539	)

Net cash flows used for investing activities			(78,592	)		(289	)		(88,786	)		(15,955	)

FINANCING ACTIVITIES
Long-term debt — advances			—			250			65,000			65,250
Long-term debt and capital leases — repayments			(3,449	)		(688	)		(8,169	)		(52,184	)
Share capital — issued for cash, net of issue costs			—			(28	)		480			(59	)
Proceeds from sale of executive plan shares			—			222			—			222
Dividends paid			(1,527	)		(1,514	)		(4,570	)		(4,552	)

Net cash flows from (used for) financing activities			(4,976	)		(1,758	)		52,741			8,677

Effect of exchange rate changes on cash and cash equivalents			1,770			160

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