and U.S. GAAP as it relates to us, see note 18 to our audited consolidated financial statements included elsewhere in this Form 10-K.
We changed our reporting currency from Canadian dollar to U.S. dollar in 2001.
listed our common shares on the NYSE under the symbol “HBG”. Our common shares also are listed on the Toronto Stock Exchange (TSX) under the symbol “HBG”.
Total revenue from Canadian Operations increased by $3.4 million, or 5%, to $78.6 million in 2001 from $75.2 million in 2000. Excluding the effect of acquisitions, total revenue increased $1.1 million or 1%.
As of December 31, 2002, we had client premiums receivable outstanding of $110.7 million, of which 2.2% were over 90 days old. We monitor these receivables on a regular and timely basis and have controls in place to manage aging accounts. In addition, we can mitigate the risk of loss related to client premiums receivable by requesting that the insurance company cancel the contract for insurance where payment is overdue, thereby reducing the related premiums payable to insurance companies and the related amounts to be collected from the client. Therefore, we do not believe that the aging of our accounts receivable presents a material liquidity risk.
The 2002 contingent consideration has not been earned, however the former owners of Flanagan will still be entitled to receive the 2002 shares if the 2003 contingent consideration targets are met or exceeded.
The fair value of put options issued by the Company as consideration for businesses acquired is classified as long-term debt until such time as the option is exercised or expires. Changes in the fair value of these options are recorded in earnings.
In accordance with the purchase agreement, the former owners of Burnham, are entitled to additional consideration based upon certain acquired operations of Burnham achieving 2002 profitability targets. The additional consideration to be issued is a multiple of the final adjusted profitability as of December 31, 2002 for those operations. The total additional consideration is $22,166 of which $8,423 is cash and the remainder of $13,743 will be repaid by issuing 1,228 common shares of the Company. As of December 31, 2002, the Company has accrued the cash portion of the contingent consideration and the share portion of the contingent consideration has been recorded as “contingently issuable shares” and included in shareholders’ equity. As part of the negotiations of the contingent consideration, the former owners of Burnham have agreed to relinquish their rights to put options on all of the 1,423 common shares previously issued as part of the 2001 acquisition, as well as on shares issued as contingent consideration in exchange for release from escrow provisions on those same shares. The total additional consideration of $22,794 is shown as an addition to goodwill and customer relationships in the table below. The Company expects to issue the common shares in March 2003.
Substantially all officers and employees of the Company in the United States are entitled to participate in a qualified retirement savings plan (defined contribution plan). The cost to the Company was $1,425, $648 and $135 for 2002, 2001 and 2000 respectively.
The Company is committed under lease agreements for office premises and computer equipment. At December 31, 2002, aggregate minimum rental commitments (net of expected sub-lease receipts) under operating leases of $55,169 are summarized as follows:
Rent expense for the year ended December 31, 2002, 2001, and 2000 amounted to $9,684, $7,665 and $5,756, respectively, net of sublease rental income of $737, $620 and $240, respectively.
The Company has made a commitment to award 266 restricted shares and 471 restricted share units. The restricted shares will be paid for by the participants with loans either from the Company or from a bank and guaranteed by the Company. The Company will pay the interest on the loans on behalf of the participants. The restricted shares will be held by a trustee in escrow and as security for the outstanding loan of the respective participant. Subject to payment of the loan, a participant’s entitlement to the release of restricted shares from escrow will vest at the rate of 10% per year while the participant continues to be employed by the Company.
Under Canadian GAAP, loans granted by the Company to employees under the executive share purchase plan are treated as receivables and included in the balance sheet caption “Accounts and other receivables.” Under U.S. GAAP, these loans are included as a reduction to shareholders’ equity.
Section 3870 requires that stock-based payments to non-employees and direct awards of stock to employees and non-employees be accounted for using a fair value-based method of accounting and recommends that all other stock-based transactions with employees, including the granting of stock options, be accounted for in the same way. In accordance with this Section, the Company has incurred an expense of $1,078 in 2002 in relation to the stock options issued.
The Company has adopted the disclosure requirements of FIN No. 45 for the year ended December 31, 2002 and the required disclosures are included in Note 10 of these financial statements. The Company will adopt prospectively the recognition and measurement requirements of FIN No. 45 effective January 1, 2003. The Company does not anticipate making material future guarantees and accordingly, does not anticipate that the provisions of Fin No. 45 will have a material impact on its financial position or results of operations reported under U.S. GAAP.
On February 28, 2003 the Company issued $1,230 of stock options to settle the obligation of the 2002 executive management bonuses. The fair value of the options will be recognized as an expense over the three year vesting period.