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FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

For Quarter Ended: June 30, 2003

Commission file number: 1-31310

HUB INTERNATIONAL LIMITED

(Exact name of registrant as specified in its Charter)

(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.

HUB INTERNATIONAL LIMITED

INDEX

PART I. FINANCIAL INFORMATION

Hub International Limited

As of June 30, 2003 and December 31, 2002

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

Hub International Limited

For the three months and the six months ended June 30, 2003 and 2002

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

Hub International Limited

For the six months ended June 30, 2003 and 2002

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

Hub International Limited

For the three months and six months ended June 30, 2003 and 2002

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

Hub International Limited

For the three months and six months ended June 30, 2003 and 2002 (unaudited)

2.  Summary of significant accounting policies

3.  Recent acquisitions

4.  Intangible assets

The changes in the carrying amount of goodwill for the three months and six months ended June 30, 2003 are as follows:

As of June 30, 2003 and December 31, 2002 the gross carrying amount and accumulated amortization of intangible assets other than goodwill were as follows:

Additions for the six months ended 2003 were as follows:

The Company is unable to estimate the useful life of non-competition covenants and trademarks. These indefinite life intangible assets will be reviewed at least annually for impairment. Once a non-competition covenant is triggered, following the employee leaving the Company, the Company’s policy is to amortize the related intangible asset over the period of the remaining contractual obligation.

For the three months and six months ended June 30, 2003 and 2002, amortization was comprised of the following:

We estimate that our amortization charges for 2003 through 2007 for all acquisitions consummated to date will be:

5.  Debt

Future repayments of long-term debt and capital leases are as follows:

(1)	Senior Notes — In June 2003, the Company, completed a private placement of $65 million in principal amount of unsecured senior notes (Senior Notes). The Senior Notes have been issued in two series: Series A represents $10 million of 5.71% Senior Notes with interest due semi-annually, and principal due of $3,333 annually, June 15, 2008 through June 15, 2010 and Series B represents $55 million of 6.16% Senior Notes with interest due semi-annually, and principal due of $11,000 annually June 15, 2009 through June 15, 2013. The Senior Notes have been sold on a private basis in the United States to qualified institutional buyers as defined in Rule 144A under the Securities Act of 1933. Net proceeds of the sale of the Senior Notes were used to pay down $50 million of the Company’s revolving U.S. Dollar Libor Loan with the balance for general corporate purposes, which may include future acquisitions. The Company incurred approximately $0.7 million in fees and expenses related to the Senior Notes, which were capitalized and are being amortized to expense over the term of the Senior Notes. At June 30, 2003, $65 million was outstanding under the Senior Notes. The Company is in compliance with all financial covenants governing these notes.
(2)	Revolving U.S. dollar LIBOR loan — Borrowings under this $50 million facility totaled $NIL and $50.0 million at June 30, 2003 and December 31, 2002, respectively and are accessed at a floating rate of 112.5 basis points above LIBOR, which was 1.12% and 1.42% at June 30, 2003 and December 31, 2002, respectively. This facility which was to expire on June 20, 2003 was extended for thirty days to July 20, 2003. Subsequent to June 30, 2003, the Company has renegotiated this facility. See note 16 “Subsequent events.”

(3)	Put Options — Long-term debt at June 30, 2003 and December 31, 2002, includes the estimated value of the financial liability of $6,668 and $5,940, respectively, relating to put options on 730 common shares, exercisable at a price of C$17.00 per share, issued to former owners of Flanagan who are officers and employees of the Company. The put options are exercisable as follows:

	The Company will not be required to settle the liabilities in cash if the common share price exceeds C$17.00 on each of the above mentioned exercise dates. Any put options not exercised on the exercise date immediately expire.

(4)	This term loan is from an insurance carrier. The terms of the loan provide for an incentive arrangement whereby a credit can be earned that will reduce annual interest payments under the loan (based on target premiums placed with the carrier) and reduce the principal repayment due in February 2007 (based on both target premiums placed with the carrier as well as the loss ratio on premiums placed with the carrier). Under this incentive arrangement both the annual interest payments as well as the principal payment can be reduced to zero. Credits were earned for 2002 which reduced interest payments to zero from $229. It was not yet determinable if a credit had been earned for 2003.
(5)	Certain property and equipment have been pledged as collateral in amounts not less than the outstanding balance of the loan at June 30, 2003 and December 31, 2002, respectively.

Demand U.S. dollar base rate loan

Borrowings under this $8.9 million facility totaled $NIL at June 30, 2003 and December 31, 2002 and are accessed at the bank’s U.S. base rate plus 50 basis points which was 5.00% and 5.25% at June 30, 2003 and December 31, 2002, respectively. Payment is due on demand.

Subordinated convertible debentures

In connection with the acquisition of Kaye Group Inc. (Kaye) on June 28, 2001, the Company issued $35 million aggregate principal amount, 8.5% convertible subordinated debentures (the Fairfax notes) due June 28, 2007 to certain subsidiaries of Fairfax Financial Holdings Limited (Fairfax). The Fairfax notes are convertible by the holders at any time into the Company’s common shares at C$17.00 per share. Beginning June 28, 2006, the Company may require conversion of the Fairfax notes into common shares at C$17.00 per share if, at any time, the weighted average closing price of the Company’s common shares on the TSX for twenty consecutive trading days equals or exceeds C$19.00 per share. If converted, Fairfax would have owned approximately 32% of the Company’s outstanding common shares as of June 30, 2003.

6. Commitments and contingencies

(a)

In connection with the Company’s executive share purchase plan, under certain circumstances the Company may be obligated to purchase loans for officers, directors and employees from a Canadian chartered bank totaling $5,840 and $5,077 as of June 30, 2003 and December 31, 2002, respectively, to assist in purchasing common shares of the Company. As collateral, the employees have pledged 594 and 602 common shares as of June 30, 2003 and December 31, 2002, respectively, which have a market value of $10,074 and $7,677 as of June 30, 2003 and December 31, 2002, respectively. Interest on the loans in the amount of $80 and $148 for the three months and six months ended June 30, 2003 and $66 and $12 for the respective periods in 2002, was paid by the Company and is included in compensation expense.

(b)	The Company anticipates that stock options will be granted in February 2004 in partial consideration of executive management profitability bonuses for 2003. Management has estimated the amount of these bonuses for 2003, and the fair value of stock options likely to be granted. In accordance with the Canadian Institute of Chartered Accountants (CICA) Accounting Standards Board Handbook Section 3870, “Stock-Based Compensation and Other Stock-Based Payments”, the fair value of these options is being recognized as an expense evenly over the period they are earned. The expense for these options for the three months and six months ended June 30, 2003 was $381 and $720, respectively, and $NIL for the respective periods in 2002, and is included in non-cash stock based compensation with an offsetting credit to contributed surplus.
(c)	Contingent consideration may be issued in connection with the 2001 acquisition of J.P. Flanagan Corporation (Flanagan) as follows:

	The 2003 shares include 38 shares in each category that have been carried over from 2002. The former owners of Flanagan will be entitled to receive the 2002 shares if the 2003 contingent consideration targets are met or exceeded.
	In connection with the 2002 acquisition of C.S. Nenner Insurance Agency, Inc. (Nenner) the former owners of Nenner are entitled to contingent consideration based upon the acquired operations achieving profitability targets over a period of three years from the date of acquisition. As of June 30, 2003, we estimate the total contingent payment for Nenner over the next three years to be approximately $4,500 of which 90% is payable in cash and 10% is payable in common shares. As of June 30, 2003, the Company has recorded liabilities and the related adjustment to goodwill as it related to this contingent consideration in the amount of $486 based upon amounts earned to-date by the former owners of Nenner. In addition, diluted shares outstanding has been increased for the common shares that may be issued.
	In connection with the acquisition of Hooper Hayes and Associates, Inc., in 2002 we issued 195,825 shares (the “Retractable Shares”) that are being held in escrow subject to release over a period of three years upon the satisfaction of certain performance targets. As of June 30, 2003 none of the Retractable Shares have been released from escrow.

(d)

In the ordinary course of business, the Company and its subsidiaries are subject to various claims and lawsuits consisting primarily of alleged errors and omissions in connection with the placement of insurance. In the opinion of management, the ultimate resolution of all asserted and potential claims and lawsuits will not have a material adverse effect on the consolidated financial position or results of operations of the Company.

7.  Shareholders’ equity

At June 30, 2003 and December 31, 2002, there were an unlimited number of non-voting, preferred shares authorized, issuable in series on such terms and conditions as set by the Board of Directors, of which no shares were issued. At June 30, 2003 and December 31, 2002, there were an unlimited number of common shares authorized, of which 30,252 and 29,025 were issued and outstanding as at June 30, 2003 and December 31, 2002, respectively.