Hub International Diluted Earnings Per Share Increase 193% For Second Quarter 2002

 

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 Add Title:  Hub International Diluted Earnings Per Share Increase 193% For Second Quarter 2002
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 Location:  Chicago
 Date:    2002-08-09  
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Hub (NYSE:HBG) (TSX:HBG):

Acquisitions continue to fuel growth

Strong rate environment persists

EBITDA margin of 28%, up from 21%

Successful U.S. IPO and sale of insurance subsidiary provides financial flexibility for acquisition strategy

Debt reduced by $123.0 million

Debt to capitalization ratio improves to 23%

Hub International Limited today announced total revenue increased 95%, or $28.0 million, for the second quarter of 2002 to $57.3 million from $29.3 million in 2001. Of this increase, $25.7 million was attributable to acquisitions. Commission income increased by $24.8 million, or 91%, to $52.1 million from $27.3 million for the same period last year. Excluding the effect of acquisitions, organic growth of commission income was $2.7 million, or 10%, as a result of both new business and the current strong rate environment.

Net earnings were $10.7 million for the second quarter compared with $2.6 million in 2001, an increase of 319%, or $8.1 million. Diluted earnings per share increased 193% to $0.41 for 2002 from $0.14 in 2001. Excluding the $2.6 million gain on the previously announced sale of Old Lyme, an insurance carrier owned through an acquisition, net earnings and diluted earnings per share would have been $8.1 million and $0.32, respectively. Under U.S. GAAP, the gain on the sale of Old Lyme is recorded as an adjustment to goodwill as opposed to a gain on sale as it is under Canadian GAAP. Therefore, net earnings and diluted earnings per share under U.S. GAAP were $7.9 million and $0.31, respectively. EBITDA* for the second quarter of 2002 increased 161% to $16.1 million compared with $6.2 million for the same period last year. EBITDA margin improved 700 basis points to 28% from 21%.

Effective January 1, 2002, as a result of Hub International adopting CICA Section 3062 and SFAS 142, "Goodwill and Other Intangible Assets," amortization of goodwill ceased. For last year's second quarter ended June 30, 2001, the company incurred goodwill amortization expense of $0.9 million before tax and approximately $0.8 million after tax, or $0.04 per diluted share. Net earnings for the quarter ended June 30, 2001, adjusted for goodwill amortization, were $3.3 million, or $0.18 per diluted share.

Hub International adjusted its compensation structure in the second quarter of 2002 by replacing 50% of management profitability bonuses with stock option awards, retroactive to January 1, 2002. Stock options were granted under this new compensation structure on June 17, 2002. The company currently has chosen to use the intrinsic method of valuing stock options. If the fair value method of valuing stock options was applied, the company would have recorded additional compensation expense of $70.0 thousand before tax in the quarter, or $40.0 thousand after tax. The impact of the change to the compensation structure for the first half of 2002 was $2.1 million and was recorded in the second quarter.

Martin P. Hughes, Chairman and Chief Executive Officer said, "Our results clearly demonstrate the success of our strategy to acquire quality brokerages with strong management teams that can expand their market share through leveraging the operating scale, market channels and product breadth Hub International offers. In addition, our wholesale and financial institutions divisions, in particular, realized strong results for the quarter."

As previously reported, Hub International completed its U.S. public offering, issuing 6.9 million shares, including over-allotments, at a price of $14 per share in June of 2002. The net cash proceeds of the offering were approximately $88.1 million. This amount, combined with the proceeds of $43.5 million from the sale of Old Lyme, enabled the company to pay out $123.0 million in bank debt, long-term debt and a convertible subordinated debenture.

Mr. Hughes went on to say, "We now have the financial flexibility to continue to selectively pursue the acquisition of quality brokerages, particularly in the Southeastern, Southwestern and Western United States. As we expand, we will continue to focus on improving profitability. For example, the recent change in our compensation structure is a win for all parties. Our strategy for growth is designed to achieve value over the long term. Granting options in lieu of a portion of cash bonuses provides an incentive for on-going performance and growth that is aligned with the interests of our shareholders."

Six-Month Period Review

For the first six months of 2002, total revenue increased by $49.4 million, or 86%, to $106.8 million from $57.4 million for the six months ended June 30, 2001. Of this increase, $44.5 million was attributable to acquisitions. Commission income increased by $43.1 million, or 85%, to $93.6 million from $50.5 million for the same period last year. Excluding the effect of acquisitions, commission income increased by $5.4 million, representing an organic growth rate of 11%.

EBITDA(1) for the six-month period increased 124% to $27.0 million compared with $12.1 million for the same period last year.

EBITDA margin for the six-month period increased to 25.3%, up from

21.0% for the same period last year. Net earnings for the six-month period were $15.7 million compared with $5.0 million in 2001, an increase of 212%, or $10.7 million. Diluted earnings per share increased 133% to $0.63 for 2002 from $0.27 in 2001 for the same period. Excluding the gain on the sale of Old Lyme, net earnings and diluted earnings per share would have been $13.0 million and $0.53, respectively. As noted previously, U.S. GAAP treats the gain on the sale of Old Lyme as an adjustment to goodwill. Therefore, under U.S. GAAP net earnings were $12.7 million, or $0.52 per diluted share.

Due to the adoption of CICA Section 3062 and SFAS 1142, for the first six months of 2002, goodwill amortization expense was not incurred. For the six months ended June 30, 2001, the company incurred goodwill amortization expense of $1.7 million before tax and approximately $1.4 million after tax, or $0.08 per share. Net earnings and diluted earnings per share for the six months ended June 30, 2001, adjusted for goodwill amortization, were $6.5 million and $0.35 per share, respectively.

Earnings Conference Call and Webcast

Hub International Chairman and CEO, Martin P. Hughes, and Chief Financial Officer, Dennis J. Pauls, will host a conference call and live web cast to review the company's results, general developments and industry dynamics at 10:00 a.m. EDT on Friday, August 9, 2002.

To listen to the Hub International conference call:

The live web cast can be found at http://www.hubinternational.com. Participants should go to the website 10 - 15 minutes prior to the scheduled conference in order to register and download any necessary audio software.

The teleconference can be accessed at 888-881-4892 in North America, or 416-640-4127 for participants outside North America. To listen to the archived call:

The web cast will be available at http://www.hubinternational.comfor approximately 90 days.

A replay can also be heard by calling 877-289-8525, or for outside North America, 416-640-1917 and entering passcode 200776#. The telephonic replay will be available through August 16, 2002.

Headquartered in Chicago, IL, Hub International Limited is a leading North American insurance brokerage that has grown rapidly since its formation in 1998 through mergers, acquisitions and organic growth. It provides a broad array of property and casualty, life and health, employee benefits, and investment and risk management products and services through offices located in the United States and Canada. Hub International's strategy is to expand its market share in the highly fragmented U.S. insurance broker industry by acquiring quality brokerages in key geographic regions serving middle-market commercial businesses, leverage its decentralized approach in order to differentiate its services and capitalize on its scale to provide broad product offerings to its clients through multiple distribution channels. Additional information on Hub International can be found at its website: www.hubinternational.com.

(1) EBITDA is defined as earnings before interest, taxes,

        depreciation and goodwill and other intangible asset
        amortization, gains and losses from the sale of property,
        equipment and other investments and other income - put option
        liability.


This press release contains forward-looking statements which reflect our current views with respect to future events and financial performance. These forward-looking statements relate, among other things, to our plans and objectives for future operations. These forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other factors include, but are not limited to, risks associated with implementing our business strategies, identifying and consummating acquisitions, integrating acquired brokerages, developing and implementing effective information technology systems, recruiting and retaining qualified employees, fluctuations in the premiums charged by insurance companies with a corresponding fluctuation in our premium-based revenue, any loss of services of key executives, industry consolidation, increased competition in the industry, fluctuation in the demand for insurance products and the passage of new legislation subjecting our business to regulation in jurisdictions where we operate.

The words "believe," "anticipate," "project," "expect," "intend," "will likely result," "will continue" and similar expressions identify forward-looking statements. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Additional information regarding these risks and other factors that could cause the company's actual results to differ materially from its expectations is contained in the company's filings with the Securities and Exchange Commission, including the company's prospectus dated June 17, 2002. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. TABLES TO FOLLOW.

HUB International Limited
Consolidated Statements of Earnings

For three months and six months ended
June 30, 2002 and 2001
(in thousand of U.S. dollars, except per share amounts)
(Prepared in accordance with Canadian GAAP)
(Unaudited)

                                Second Quarter   First six months
                                Ended June 30    Ended June 30
                                2002      2001(a)   2002     2001(a)
--------------------------------------------------------------------
Revenue
 Commission income           $52,140    $27,306    $93,550   $50,532
 Contingent commissions
  and volume overrides         3,273      1,118      9,431     5,104
 Other                         1,883        918      3,799     1,803
--------------------------------------------------------------------
                              57,296     29,342    106,780    57,439
--------------------------------------------------------------------

Expenses
 Remuneration                 29,824     17,091     57,514    33,174
 Selling                       2,728      1,472      5,649     3,191
 Occupancy                     2,901      1,586      5,626     3,155
 Depreciation                  1,354        572      2,634     1,144
 Administration                5,765      3,028     10,979     5,860
--------------------------------------------------------------------
                              42,572     23,749     82,402    46,524
--------------------------------------------------------------------

Net earnings before the
 following                    14,724      5,593     24,378    10,915
  Interest expense             2,404        645      5,098     1,234
  Goodwill and other
   intangible asset
   amortization                  379        906        758     1,677
  Gain on disposal of
   property and equipment
   and Investments           (2,530)      (319)    (2,572)     (294)
  Other income - put option
   liability                   (305)          -      (678)         -
--------------------------------------------------------------------
  Net earnings before
   income taxes               14,776      4,361     21,772     8,298
--------------------------------------------------------------------

Provision for income tax
 expense
  Current                      3,233      1,748      6,014     3,043
  Future                         831         55        107       231
--------------------------------------------------------------------
                               4,064      1,803      6,121     3,274
--------------------------------------------------------------------
Net Earnings                 $10,712     $2,558    $15,651    $5,024
--------------------------------------------------------------------
--------------------------------------------------------------------

Earnings per share
 Basic                         $0.53      $0.14      $0.79     $0.27
 Diluted                       $0.41      $0.14      $0.63     $0.27
Weighted average shares
 outstanding
- Basic (000's)               20,195     18,577     19,846    18,574
Weighted average shares
 Outstanding
- Diluted (000's)             27,919     18,677     27,598    18,624

    (a) The consolidated financial statements of the company
        historically have been expressed in Canadian dollars.
        Effective September 30, 2001, the company adopted the United
        States of America (U.S.) dollar as its reporting currency.
        Comparative financial information has been restated in U.S.
        dollars using the translation of convenience method. As at
        September 30, 2001, all historical financial statements
        including financial results for the quarter and six months
        ended June 30, 2001 were converted from Canadian to U.S.
        dollars at the exchange rate in effect at September 30, 2001
        of one Canadian dollar to 0.6338 U.S. dollar. Revenue and
        expenses for the quarter and six months ended June 30, 2002
        were translated to U.S. dollars at the average exchange rates
        for the respective periods.


HUB International Limited
Organic Growth For the Second Quarter Ended June 30
(in thousands of U.S. dollars, except where noted)
(Prepared in accordance with Canadian GAAP)
(Unaudited)

                                                Adjustment
                                                for
                                Total    Total  Acquisitions Net
                   2002  2001   Net      Net    and          Organic
                                Change   Growth Dispositions Growth(b)

Total
---------------------------------------------------------------------
Commission
 Income        $ 52,140 $ 27,306 $ 24,834   91%  $ (22,125)     10%
Contingent
 Commissions
 and volume
 overrides     $  3,273 $  1,118 $  2,155  193%  $  (2,325)    (15%)

USA
---------------------------------------------------------------------
Commission
 Income        $ 29,892 $ 7,404  $ 22,488   304% $ (22,228)      4%
Contingent
 Commissions
 and volume
 overrides     $  2,340 $   189  $  2,151  1138% $  (2,345)   (103%)

Canada
---------------------------------------------------------------------
Commission
 Income        $ 22,248 $19,902  $  2,346    12% $      103     12%
Contingent
 Commissions
 and volume
 overrides     $    933 $   929   $     4   0.5% $       20      3%

    (b) Net Organic Growth = New Business + Renewals - Lost Business
        +/- Rates +/- economic factors.


HUB International Limited
Consolidated Balance Sheets
As of June 30, 2002 and December 31, 2001
(in thousands of U.S. dollars)
(Prepared in accordance with Canadian GAAP)
(Unaudited)
                                           2002                 2001
----------------------------------------------------------------------
ASSETS

Current assets:
Cash and cash equivalents               $30,218              $26,979
Trust cash                               44,762               50,426
Accounts and other receivables          123,842              101,313
Investment held for sale                      -               40,772
Income taxes receivable                   2,166                1,460
Future income taxes                       2,174                1,999
Prepaid expenses                          2,570                2,471
----------------------------------------------------------------------
Total current assets                    205,732              225,420
Property and equipment                   20,127               20,935
Other intangible assets                  24,395               25,331
Goodwill                                223,606              220,848
Future income taxes                       6,225                2,671
Other assets                              6,882                7,091
----------------------------------------------------------------------
Total assets                           $486,967             $502,296
----------------------------------------------------------------------
----------------------------------------------------------------------

LIABILITIES

Current liabilities:
Bank debt                                   $ -              $55,000
Accounts payable and accrued
 liabilities                            163,501              164,094
Future income taxes                       1,531                1,387
Current portion long-term debt
 and capital leases                       3,388                4,169
----------------------------------------------------------------------
Total current liabilities               168,420              224,650
Long-term debt and capital
 leases                                  35,345               76,159
Subordinated convertible
 debentures                              35,000               61,624
Future income taxes                       5,436                4,592
----------------------------------------------------------------------
Total liabilities                       244,201              367,025
----------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES

Shareholders' equity
Share capital                           216,090              125,506
Cumulative translation account            5,980                2,770
Retained earnings                        20,696                6,995
----------------------------------------------------------------------
Total shareholders' equity              242,766              135,271
----------------------------------------------------------------------
Total liabilities and
 shareholders' equity                  $486,967             $502,296
----------------------------------------------------------------------
----------------------------------------------------------------------

HUB International Limited
Consolidated Statements of Cash Flows

    For the three months and six months ended June 30, 2002 and 2001
(in thousands of U.S. dollars) (Prepared in accordance with Canadian
GAAP) (Unaudited)
                                    Second Quarter  First Six Months
                                     Ended June 30     Ended June 30
                                 2002        2001(a)  2002     2001(a)
----------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings                  $10,712      $2,558  $15,651    $5,024
Items not affecting working
 capital
 Amortization and depreciation  1,733       1,478    3,392     2,821
 Gain on disposal of property
  and equipment and
  investments                 (2,530)       (319)  (2,572)     (294)
 Other income - put option
  liability                     (305)           -    (678)         -
 Future income taxes              831          55      107       231
----------------------------------------------------------------------
                               10,441       3,772   15,900     7,782
Non-cash working capital items
 Accounts and other
  receivables                (44,045)    (14,843) (20,219)   (7,982)
 Prepaid expenses                 777        (15)      313       135
 Accounts payable and accrued
  liabilities                  43,855      16,677  (1,235)     5,733
 Income taxes                 (1,013)         895    (771)       376
----------------------------------------------------------------------
                               10,015       6,486  (6,012)     6,044
----------------------------------------------------------------------
FINANCING ACTIVITIES
Bank debt                    (55,000)      38,393 (55,000)    38,393
Long-term debt - advances           -      79,276        -    79,276
Long-term debt and capital
 leases - repayments         (68,168)       (490) (70,100)   (2,230)
Share capital - issued for
 cash net of issue costs       88,091           -   88,091         -
Share capital - repurchases         -       (215)        -     (299)
Dividends paid                (1,950)     (1,651)  (1,950)   (1,651)
----------------------------------------------------------------------
                             (37,027)     115,313 (38,959)   113,489
----------------------------------------------------------------------
INVESTING ACTIVITIES
Property and equipment -
 purchases                      (910)       (337)  (1,691)     (868)
Proceeds from investment held
 for sale                      43,521           -   43,521         -
Sale of subsidiaries              719           -    1,687         -
Purchase of subsidiaries, net
 of cash received               (993)   (104,418)    (993) (105,975)
Other assets                     185        (771)       22     (707)
----------------------------------------------------------------------
                              42,522    (105,526)   42,546 (107,550)
----------------------------------------------------------------------
Change in cash and cash
 equivalents and trust cash   15,510       16,273  (2,425)    11,983
Cash and cash equivalents and
 trust cash - Beginning of
 period                       59,470       27,985   77,405    32,275
----------------------------------------------------------------------
Cash and cash equivalents and
 trust cash - End of period  $74,980      $44,258  $74,980   $44,258
----------------------------------------------------------------------
----------------------------------------------------------------------

Supplemental disclosure of
 cash flow information
Amount of interest paid in the
 period                        $7,890        $559  $10,391    $1,222
Amount of income taxes paid in
 the period                    $4,338        $905   $6,904    $2,888

    (a) The consolidated financial statements of the corporation
        historically have been expressed in Canadian dollars.
        Effective September 30, 2001, the corporation adopted the
        United States of America (U.S.) dollar as its reporting
        currency. Comparative financial information has been restated
        in U.S. dollars using the translation of convenience method.
        As at September 30, 2001, all historical financial statements
        including financial results for the quarter and six months
        ended June 30, 2001 were converted from Canadian to U.S.
        dollars at the exchange rate in effect at September 30, 2001
        of one Canadian dollar to 0.6338 U.S. dollar. Revenue and
        expenses for the quarter and six months ended June 30, 2002
        were translated to U.S. dollars at the average exchange rates
        for the respective periods.

 In the following box below, please add a contact information.
CONTACT:
Hub International Limited
W. Kirk James, 312/279-4881
kjames@hubinternational.com
 Please, enter the source in the following box.   
 SOURCE :   Hub International Limited