Hill International Inc--Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission File Number: 001-33961

 

 

HILL INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   20-0953973

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

303 Lippincott Centre,
Marlton, NJ
  08053
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (856) 810-6200

 

 

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, and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by a check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer   ¨    Accelerated Filer   x
Non-Accelerated Filer   ¨    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.    Yes  ¨    No  x

There were 38,493,703 shares of the Registrant’s Common Stock outstanding at August 1, 2011.

 

 

 


Table of Contents

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

Index to Form 10-Q

 

PART I

   FINANCIAL INFORMATION   

Item 1

   Financial Statements      3   
   Consolidated Balance Sheets at June 30, 2011 (unaudited) and December 31, 2010      3   
   Consolidated Statements of Operations for the three- and six-month periods ended June 30, 2011 and June 30, 2010 (unaudited)      4   
   Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2011 and June 30, 2010 (unaudited)      5   
   Notes to Consolidated Financial Statements      6   

Item 2

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      24   

Item 3

   Quantitative and Qualitative Disclosures About Market Risk      36   

Item 4

   Controls and Procedures      36   

Part II

   OTHER INFORMATION   

Item 1

   Legal Proceedings      37   

Item 1A

   Risk Factors      37   

Item 2

   Unregistered Sales of Equity Securities and Use of Proceeds      37   

Item 3

   Defaults Upon Senior Securities      37   

Item 4

   (Removed and Reserved)      37   

Item 5

   Other Information      37   

Item 6

   Exhibits      37   

Signatures

     38   


Table of Contents

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

     June 30, 2011     December 31, 2010  
     (unaudited)        
Assets     

Cash and cash equivalents

   $ 30,293      $ 39,406   

Cash - restricted

     3,924        2,527   

Accounts receivable, less allowance for doubtful accounts of $9,270 and $9,457

     188,027        180,856   

Accounts receivable - affiliate

     2,836        3,230   

Prepaid expenses and other current assets

     10,300        8,834   

Income taxes receivable

     1,710        1,138   

Deferred income tax assets

     1,756        1,475   
  

 

 

   

 

 

 

Total current assets

     238,846        237,466   

Property and equipment, net

     14,881        11,926   

Cash - restricted, net of current portion

     3,711        4,040   

Retainage receivable

     3,814        3,102   

Acquired intangibles, net

     47,151        26,709   

Goodwill

     84,143        57,310   

Investments

     13,374        10,962   

Deferred income tax assets

     9,326        8,918   

Other assets

     8,274        10,418   
  

 

 

   

 

 

 

Total assets

   $ 423,520      $ 370,851   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Due to bank

   $ 5,212      $ 4,903   

Current maturities of notes payable

     80,388        2,278   

Accounts payable and accrued expenses

     85,135        72,215   

Income taxes payable

     —          2,931   

Deferred revenue

     14,293        15,620   

Deferred income taxes

     415        396   

Other current liabilities

     5,441        6,122   
  

 

 

   

 

 

 

Total current liabilities

     190,884        104,465   

Notes payable, net of current maturities

     10,636        67,778   

Retainage payable

     4,661        3,701   

Deferred income taxes

     16,546        11,275   

Deferred revenue

     3,589        1,747   

Other liabilities

     12,331        13,789   
  

 

 

   

 

 

 

Total liabilities

     238,647        202,755   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ equity:

    

Preferred stock, $.0001 par value; 1,000,000 shares authorized, none issued

     —          —     

Common stock, $.0001 par value; 75,000,000 shares authorized, 44,927,354 shares and 44,686,148 shares issued at June 30, 2011 and December 31, 2010, respectively

     4        4   

Additional paid-in capital

     125,639        123,762   

Retained earnings

     73,550        79,643   

Accumulated other comprehensive loss

     (10,872     (14,552
  

 

 

   

 

 

 
     188,321        188,857   

Less treasury stock of 6,433,651 shares at June 30, 2011 and December 31, 2010, at cost

     (27,766     (27,766
  

 

 

   

 

 

 

Hill International, Inc. share of equity

     160,555        161,091   

Noncontrolling interests

     24,318        7,005   
  

 

 

   

 

 

 

Total equity

     184,873        168,096   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 423,520      $ 370,851   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

     Three months ended June 30,     Six months ended June 30,  
     2011     2010     2011     2010  

Consulting fee revenue

   $ 102,951      $ 91,559      $ 197,223      $ 183,495   

Reimbursable expenses

     23,984        16,633        52,722        29,169   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     126,935        108,192        249,945        212,664   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of services

     59,446        52,728        114,787        105,841   

Reimbursable expenses

     23,984        16,633        52,722        29,169   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total direct expenses

     83,430        69,361        167,509        135,010   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     43,505        38,831        82,436        77,654   

Selling, general and administrative expenses

     42,838        34,820        87,065        71,765   

Equity in earnings of affiliates

     (157     (243     (160     (1,064
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

     824        4,254        (4,469     6,953   

Interest expense, net

     1,464        654        2,458        1,199   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) earnings before income tax benefit

     (640     3,600        (6,927     5,754   

Income tax (benefit) expense

     (444     429        (1,354     (40
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net (loss) earnings

     (196     3,171        (5,573     5,794   

Less: net earnings - noncontrolling interests

     301        287        520        453   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) earnings attributable to Hill International, Inc.

   $ (497   $ 2,884      $ (6,093   $ 5,341   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic (loss) earnings per common share - Hill International, Inc.

   $ (0.01   $ 0.07      $ (0.16   $ 0.13   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic weighted average common shares outstanding

     38,379        39,837        38,328        40,074   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted (loss) earnings per common share - Hill International, Inc.

   $ (0.01   $ 0.07      $ (0.16   $ 0.13   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted average common shares outstanding

     38,379        40,380        38,328        40,656   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

     Six months ended June 30,  
     2011     2010  

Cash flows from operating activities:

    

Consolidated net (loss) earnings

   $ (5,573   $ 5,794   

Adjustments to reconcile net (loss) earnings to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     7,135        4,542   

Equity in earnings of affiliates

     (160     (1,064

Provision for bad debts

     954        632   

Deferred tax provision

     427        (2,136

Stock based compensation

     1,527        1,156   

Changes in operating assets and liabilities, net of acquisitions:

    

Accounts receivable

     7,864        (31,619

Accounts receivable - affiliate

     394        2,401   

Prepaid expenses and other current assets

     187        186   

Income taxes receivable

     (543     (115

Retainage receivable

     (712     (468

Other assets

     2,003        (1,662

Accounts payable and accrued expenses

     3,808        14,681   

Income taxes payable

     (3,673     522   

Deferred revenue

     (3,022     (3,225

Other current liabilities

     (796     (2,356

Retainage payable

     951        181   

Other liabilities

     (2,804     (2,599
  

 

 

   

 

 

 
Net cash provided by (used in) operating activities      7,967        (15,149
  

 

 

   

 

 

 

Cash flows used in investing activities:

    

Purchase of businesses, net of cash acquired

     (13,881     (4,327

Distributions from affiliate

     396        750   

Contribution to affiliate

     (1,668     (148

Payments for purchase of property and equipment

     (4,029     (2,426

Purchase of additional interest in subsidiary

     (1,609     (166
  

 

 

   

 

 

 
Net cash used in investing activities      (20,791     (6,317
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Due to bank

     (711     2,483   

Payments on notes payable

     (3,683     (1,909

Net borrowings on revolving loans

     13,157        25,000   

Proceeds from stock issued under employee stock purchase plan

     531        182   

Purchase of treasury stock under stock repurchase program

     —          (6,252

Proceeds from exercise of stock options

     20        2   
  

 

 

   

 

 

 
Net cash provided by financing activities      9,314        19,506   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     (5,603     7,784   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (9,113     5,824   

Cash and cash equivalents – beginning of period

     39,406        30,923   
  

 

 

   

 

 

 

Cash and cash equivalents – end of period

   $ 30,293      $ 36,747   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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HILL INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 — The Company

Hill International, Inc. (“Hill” or the “Company”) is a professional services firm headquartered in Marlton, New Jersey that provides project management and construction claims services to clients worldwide. Hill’s clients include the U.S. federal government, U.S. state and local governments, foreign governments, and the private sector. The Company is organized into two key operating divisions: the Project Management Group and the Construction Claims Group.

Recent regional civil unrest and global economic conditions, including disruption of financial markets, has adversely affected the Company’s business and results of operations, primarily by limiting its access to credit and disrupting its clients’ businesses. The reduction in financial institutions’ willingness or ability to lend has increased the cost of capital and reduced the availability of credit. In addition, continuation or worsening of general market conditions in the United States or other national economies important to its businesses may adversely affect its clients’ level of spending, ability to obtain financing, and ability to make timely payments to the Company for its services, which could require the Company to increase its allowance for doubtful accounts, negatively impact days sales outstanding and adversely affect the Company’s results of operations. On June 30, 2011, the Company entered into a Forbearance Agreement with the lenders under which borrowings under its Credit Facility (see Note 9) are limited to $80,000,000 and the Company is precluded from certain activities without the lenders’ consent, including making acquisitions, paying dividends, or repurchasing its common stock. In exchange, the Lenders have agreed to forbear from enforcing their remedies against the Company through September 30, 2011. The Company will continue to work with those lenders to restructure its debt. Also, the Company will reduce its cost structure and seek alternative sources of working capital in its effort to return to profitability.

Note 2 — Basis of Presentation

The accompanying unaudited interim consolidated financial statements were prepared in accordance with the rules and regulations of the Securities and Exchange Commission pertaining to reports on Form 10-Q and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. In the opinion of management, these statements include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the consolidated financial statements.

The consolidated financial statements include the accounts of Hill and its wholly- and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The interim operating results are not necessarily indicative of the results for a full year.

Note 3 — Acquisitions

On February 28, 2011, the Company’s subsidiary, Gerens Hill International, S.A., indirectly acquired 60% of the outstanding common stock of Engineering S.A., one of the largest project management firms in Brazil with approximately 400 professionals. It has main offices in Rio de Janeiro and Sao Paulo and an additional office in Parauapebas. Engineering S.A. provides project management, construction management and engineering consulting services throughout Brazil. Total consideration amounted to 37,000,000 Brazilian Reais (approximately $22,320,000 at the date of acquisition) consisting of a cash payment of 22,200,000 Brazilian Reais (approximately $13,392,000) plus minimum additional payments due on each of April 30, 2012 and 2013 in the amount of 7,400,000 Brazilian Reais (approximately $4,464,000) each. Under certain circumstances, the Company may be required to pay 5,000,000 Brazilian Reais ($3,016,000) in addition to the minimum payments. The Company has made a preliminary allocation of the purchase price to the assets acquired and liabilities assumed, but the amounts may change upon finalization of the valuation process. The results of operation of the acquired company are not material to the Company’s consolidated results of operations.

 

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Table of Contents

Note 4 — Comprehensive Earnings (Loss)

The following table summarizes the Company’s comprehensive earnings (loss):

 

     Three months ended June 30,     Six months ended June 30  
(in thousands)    2011     2010     2011     2010  

Consolidated net (loss) earnings

   $ (196   $ 3,171      $ (5,573   $ 5,794   

Foreign currency translation, net of tax

     2,934        (3,645     6,825        (7,179

Other, net

     (539     (174     (340     (262
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive earnings (loss)

     2,199        (648     912        (1,647

Comprehensive income (loss) attributable to noncontrolling interests

     2,378        (78     3,325        19   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to Hill International, Inc.

   $ (179   $ (570   $ (2,413   $ (1,666
  

 

 

   

 

 

   

 

 

   

 

 

 

Note 5 — Accounts Receivable

The components of accounts receivable are as follows:

 

(in thousands)    June 30, 2011     December 31, 2010  

Billed

   $ 166,471      $ 164,938   

Retainage, current portion

     3,899        3,604   

Unbilled

     26,927        21,771   
  

 

 

   

 

 

 
     197,297        190,313   

Allowance for doubtful accounts

     (9,270     (9,457
  

 

 

   

 

 

 
   $ 188,027      $ 180,856   
  

 

 

   

 

 

 

At June 30, 2011, the accounts receivable related to the work performed under contracts in Libya amounted to $59,933,000. Due to the political unrest in Libya, the Company is unable to determine the effect this crisis will have on our ability to collect this receivable. Management believes that the amount due will be collected, however, if future events preclude the Company’s ability to do so, there could be a significant adverse impact on its results of operations and liquidity.

 

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Table of Contents

Note 6 — Intangible Assets

The following table summarizes the Company’s acquired intangible assets:

 

     June 30, 2011      December 31, 2010  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Gross
Carrying
Amount
     Accumulated
Amortization
 
(in thousands)                            

Client relationships

   $ 46,127       $ 9,484       $ 26,859       $ 7,045   

Acquired contract rights

     15,881         8,242         11,255         5,410   

Trade names

     4,087         1,218         2,022         972   

Covenant not to compete

     —           —           18         18   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 66,095       $ 18,944       $ 40,154       $ 13,445   
  

 

 

    

 

 

    

 

 

    

 

 

 

Intangible assets, net

   $ 47,151          $ 26,709      
  

 

 

       

 

 

    

Amortization expense related to intangible assets totaled $2,750,000 and $1,192,000 for the three months ended June 30, 2011 and 2010, respectively, and $4,710,000 and $2,358,000 for the six months ended June 30, 2011 and 2010. The following table presents the estimated amortization expense based on our present intangible assets for the next five years:

 

Year ending December 31,

   Estimated
amortization
expense
 
     (in thousands)  

2011 (remaining 6 months)

   $ 5,486   

2012

     7,715   

2013

     7,118   

2014

     5,229   

2015

     4,706   

Note 7 — Goodwill

The Company performs its annual goodwill impairment testing, by reporting unit, in the third quarter, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Application of the goodwill impairment test requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the businesses, the useful life over which cash flows will occur, and determination of the Company’s weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit.

 

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Table of Contents

The following table summarizes the changes in the Company’s carrying value of goodwill during 2011 (in thousands):

 

     Project
Management
     Construction
Claims
     Total  

Balance, December 31, 2010

   $ 31,350       $ 25,960       $ 57,310   

Additions

     23,178         —           23,178   

Translation adjustments

     2,742         913         3,655   
  

 

 

    

 

 

    

 

 

 

Balance, June 30, 2011

   $ 57,270       $ 26,873       $ 84,143   
  

 

 

    

 

 

    

 

 

 

Note 8 — Accounts Payable and Accrued Expenses

Below are the components of accounts payable and accrued expenses:

 

     June 30, 2011      December 31, 2010  
(in thousands)              

Accounts payable

   $ 24,998       $ 19,484   

Accrued payroll

     24,749         20,927   

Accrued subcontractor fees

     7,677         7,120   

Accrued agency fees

     16,363         15,463   

Accrued legal and professional fees

     2,405         1,734   

Accrued earn out related to MLL acquisition

     3,159         3,046   

Other accrued expenses

     5,784         4,441   
  

 

 

    

 

 

 
   $ 85,135       $ 72,215   
  

 

 

    

 

 

 

 

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Table of Contents

Note 9 — Notes Payable

Outstanding debt obligations are as follows:

 

     June 30, 2011      December 31, 2010  
     (in thousands)  
Revolving credit loan payable. The weighted average interest rate of all borrowings was 5.31% and 4.72% at June 30, 2011 and December 31, 2010, respectively. (For more information, see below.)    $ 72,300       $ 61,300   
Revolving credit loan payable to Barclays Bank PLC up to £500,000 (approximately $803,000 and $772,000 at June 30, 2011 and December 31, 2010, respectively), with interest at 2.00% plus the Bank of England rate of 0.50% (or 2.50%) at both June 30, 2011 and December 31, 2010, respectively, collateralized by cross guarantees of all United Kingdom companies. Aggregate of all debt owing to the bank will be, at all times, covered by three times the aggregate value of the UK accounts receivable less than 90 days old and excluding the amounts receivable from any associate or subsidiary company. The loan has an indeterminate term and is subject to annual review by the bank.      654         231   
Note payable dated June 8, 2010 for the MLL acquisition with a stated interest rate of 4.45% per annum. The note was paid on June 7, 2011.      —           2,030   
Revolving credit facilities with a consortium of banks in Spain providing for total borrowings of up to €4,870,000 (approximately $7,043,000 and $6,477,000 at June 30, 2011 and December 31, 2010, respectively). The stated interest rate is 6.5%. (For more information, see below.)      5,388         6,477   
Credit facility with the National Bank of Abu Dhabi providing for total borrowings of up to 11,500,000 AED (approximately $3,131,000 at both June 30, 2011 and December 31, 2010, respectively), collateralized by certain overseas receivables. The interest rate is one-month Emirates InterBank Offer Rate plus 3.00%, (or 4.32% and 4.64% at June 30, 2011 and December 31, 2010, respectively) but no less than 5.50%. This facility is being renewed on a month-to-month basis. (For more information, see below.)      1,733         —     
Minimum payments due for the Engineering S.A. acquisition. See Note 3.      9,439         —     
Short term bank loan with Itau Unibanco SA in Brazil. The amount outstanding at June 30, 2011 was 1,250,000 Brazilian Reais at an interest rate of 1.69% per month and a maturity date of November 4, 2011.      797         —     
Other notes payable      713         18   
  

 

 

    

 

 

 
     91,024         70,056   

Less current maturities

     80,388         2,278   
  

 

 

    

 

 

 

Notes payable, net of current maturities

   $ 10,636       $ 67,778   
  

 

 

    

 

 

 

The Company maintains a credit facility pursuant to the terms of a credit agreement (the “Credit Agreement”) dated as of June 30, 2009 among the Company, Bank of America, N.A., Capital One, N.A., The PrivateBank and Trust Company and PNC Bank N.A. (the “lenders”). The Credit Agreement provided for borrowings of up to $100,000,000 and a letter of credit sub-facility of up to $30,000,000. Obligations under the Credit Agreement are collateralized by all of the Company’s assets, including, without limitation, accounts receivable, equipment, securities, financial assets and the proceeds of the foregoing, as well as by a pledge of 65% of the outstanding capital stock of its wholly owned subsidiary, Hill International S.A. The Credit Agreement expires on June 30, 2012. The Company incurred costs of approximately $1,741,000 in connection with establishing the credit facility. Such costs have been deferred and were being amortized to interest expense over the life of the loan.

 

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The Credit Agreement provides for Base Rate loans and Eurodollar Rate loans. Base Rate loans bear interest at a fluctuating rate per annum equal to the sum of (a) the highest of (i) the Federal Funds Rate plus 0.5%, (ii) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate” and (iii) the Eurodollar Rate plus 1.00%, plus (b) an Applicable Rate which may vary between 1.75% and 2.50% depending on the Company’s consolidated leverage ratio at the time of the borrowing. Eurodollar Rate loans bear interest at a rate per annum equal to the British Bankers Association LIBOR Rate plus an Applicable Rate which may vary between 2.75% and 3.50% depending on the Company’s consolidated leverage ratio at the time of the borrowing.

The Credit Agreement contains covenants and certain restrictions on the incurrence of debt, on the making of investments, on the payment of dividends, on transactions with affiliates and other affirmative and negative covenants and events of default customary for facilities of its type. It also requires the Company to meet certain financial tests at any time that borrowings are outstanding under the facility including minimum consolidated net worth of $100,000,000 plus 50% of consolidated net earnings attributable to Hill International, Inc. for each quarter after June 30, 2009, consolidated leverage ratio not to exceed 2.50 to 1.00, a minimum consolidated fixed charge coverage ratio of 2.00 to 1.00 and a minimum ratio of consolidated billed and unbilled accounts receivable to consolidated senior indebtedness of 2.00 to 1.00. At June 30, 2011, the Company was in violation of the consolidated leverage ratio and the consolidated fixed charge ratio (the “Specified Defaults”). On that date, the Company entered a Forbearance Agreement with the lenders under which borrowings are limited to $80,000,000 and the Company is precluded from certain activities without the lenders’ consent, including making acquisitions, paying dividends, or repurchasing its common stock. Additionally, the Forbearance Agreement precludes the Company from making any borrowings as Eurodollar Rate Loans. At June 30, 2011, our outstanding Eurodollar Rate Loans amounted to $34,300,000 with a weighted average interest rate of 4.27%. If such loans were refinanced on June 30, 2011, the weighted average interest rate would have been 6.25%. In exchange, the Lenders have agreed to forbear from enforcing their remedies against the Company with respect to the Specified Defaults. Since the waiver of violations is through September 30, 2011, all borrowings under the facility have been classified as current liabilities in the consolidated balance sheet.

As of June 30, 2011, the Company had $11,644,000 in outstanding letters of credit. Due to conditions of the Forbearance Agreement, total remaining availability at June 30, 2011 was $7,700,000.

The Company’s subsidiary, Gerens Hill International, S.A. (“Gerens”), maintains a revolving credit facility with 12 banks (the “Financing Entities”) in Spain providing for total borrowings of up to €4,870,000 (approximately $7,043,000 and $6,477,000 at June 30, 2011 and December 31, 2010, respectively), with interest at 6.50% of which €3,726,000 (approximately $5,388,000) and €4,870,000 (approximately $6,477,000) were utilized at June 30, 2011 and December 31, 2010, respectively. The total amount being financed (“Credit Contracts”) by each Financing Entity is between €379,000 (approximately $548,000) and €639,000 (approximately $924,000). The facility expires on December 17, 2016. The maximum available amount will be reduced to 75.0% at December 31, 2014 and 50.0% at December 31, 2015. To guarantee Gerens’ obligations resulting from the Credit Contracts, Gerens provided a guarantee in favor of each one of the Financing Entities, which, additionally, and solely in the case of unremedied failure to make payment, and at the request of each of the Financing Entities, shall grant a first ranking pledge over a given percentage of corporate shares of Hill International Brasil Participações Ltda. for the principal, interest, fees, expenses or any other amount owed by virtue of the Credit Contracts, coinciding with the percentage of credit of each Financing Entity with respect to the total outstanding borrowings under this facility.

Gerens also maintains an unsecured credit facility with the Caja Badajoz bank in Spain for €750,000 (approximately $1,085,000 and $997,000 at June 30, 2011 and December 31, 2010, respectively). The interest rate is the three-month EURIBOR rate plus 1.75% but no less than 4.00%. The rate was 3.30% at June 30, 2011 and 2.76% at December 31, 2010, respectively. At both June 30, 2011 and December 31, 2010, there were no borrowings under this facility which expires on December 24, 2011.

The credit facility with the National Bank of Abu Dhabi also allows for up to 150,000,000 AED (approximately $40,836,000 at both June 30, 2011 and December 31, 2010) in Letters of Guarantee of which 126,662,000 AED and 93,992,000 (approximately $34,483,000 and $25,588,000, respectively) were utilized at June 30, 2011 and December 31, 2010, respectively.

The Company also maintains a revolving credit loan payable with a European bank up to €1,000,000 (approximately $1,446,000 and $1,330,000 at June 30, 2011 and December 31, 2010, respectively), with interest rates at 2.50% plus Egnatia Bank’s prime rate of 6.00% (or 8.50%) at both June 30, 2011 and December 31, 2010, collateralized by certain assets of the Company. The facility also allows for letters of guarantee up to €4,500,000 (approximately $6,508,000 at June 30, 2011) of which €429,000 (or $621,000) had been utilized at June 30, 2011. The loan has an expiration date of April 30, 2012.

Engineering S.A. maintains three revolving credit lines with two banks in Brazil for 1,700,000, 200,000 and 1,000,000 Brazilian Reais each (approximately $1,084,000, $128,000 and $638,000, respectively), with monthly interest rates of 2.87%, 5.30% and 2.75%, respectively. There were no borrowings outstanding on any of these facilities at June 30, 2011 which are renewed automatically every three months.

 

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Note 10 – Supplemental Cash Flow Information

The following table provides additional cash flow information:

 

     Six months ended June 30,  
(in thousands)    2011      2010  

Interest paid

   $ 2,533       $ 1,007   
  

 

 

    

 

 

 

Income taxes paid

   $ 2,450       $ 1,608   
  

 

 

    

 

 

 

Note 11 — Equity in Earnings of Affiliates

Equity in earnings of affiliates primarily reflects the Company’s ownership of 33.33% of the members’ equity of Stanley Baker Hill, LLC (“SBH”), 50.0% of the members’ equity of Hill Petrol and 50.0% of the members’ equity of Hill TMG.

Stanley Baker Hill

SBH was a joint venture formed in February 2004 between Stanley Consultants, Inc., Michael Baker, Jr. Inc. and Hill. SBH had a contract for an indefinite delivery and indefinite quantity for construction management and general architect-engineer services for facilities in Iraq with the U.S. Army Corps of Engineers. The Iraq Reconstruction Program was completed in late 2010.

At December 31, 2010, the Company reported receivables totaling $270,000 from SBH for work performed by the Company as a subcontractor to SBH. Such amounts were paid in accordance with the subcontract agreement between the Company and SBH.

Revenue from SBH pursuant to such subcontract agreement for the three-month periods ended June 30, 2011 and 2010 was $0 and $3,705,000, respectively, and $0 and $8,513,000 for the six-month periods ended June 30, 2011 and 2010, respectively.

Hill Petrol

Hill International Petrol (Egypt) E.S.C. (“Hill Petrol”) is a joint stock company formed on November 20, 2007 between Hill International, S.A. (Hill), the Egyptian National Gas Holding Company (EGAS) and the Egyptian Natural Gas Company (GASCO). The ownership interests of the company are 50% Hill, 40% EGAS and 10% GASCO. The company was formed to jointly participate in the field of project management for oil and gas projects.

Hill TMG

Equity in earnings of affiliates also reflects ownership by the Company of 50.0% of the members’ equity of Hill TMG, a joint venture formed in May 2008 between Talaat Moustafa Group Holding Co. (“TMG”), and Hill. Hill TMG was managing the construction of several of TMG’s largest developments in Egypt and elsewhere in the Middle East.

At June 30, 2011 and December 31, 2010, the Company reported receivables totaling $1,679,000 and $1,728,000, respectively, for work performed by the Company as a subcontractor to Hill TMG. Such amounts are payable in accordance with the subcontract agreement between the Company and Hill TMG.

Revenue from Hill TMG pursuant to such subcontract agreement for the three-month periods ended June 30, 2011 and 2010 was $0 and $279,000, respectively and for the six-month periods ended June 30, 2011 and 2010 was $79,000 and $811,000, respectively.

 

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The following table summarizes the Company’ equity in earnings (losses) of affiliates:

 

     Three months ended June 30,      Six months ended June 30,  
     2011     2010      2011     2010  
(in thousands)                          

Stanley Baker Hill

   $ —        $ 235       $ —        $ 902   

Hill Petrol

     183        —           183        —     

Hill TMG

     —          3         —          157   

Other

     (26     5         (23     5   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 157      $ 243       $ 160      $ 1,064   
  

 

 

   

 

 

    

 

 

   

 

 

 

Note 12 — (Loss) Earnings per Share

Basic (loss) earnings per common share have been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted (loss) earnings per common share incorporate the incremental shares issuable upon the assumed exercise of stock options, warrants and unit purchase options, if dilutive. Dilutive shares were 543,680 shares and 582,256 shares for the three- and six-month periods ended June 30, 2010, respectively. Certain stock options were excluded from the calculation of diluted (loss) earnings per common share because their effect was antidilutive. The total number of such shares excluded from diluted (loss) earnings per common share was 3,603,262 shares and 724,314 shares for the three-month periods ended June 30, 2011 and 2010, respectively, and 3,533,554 shares and 555,603 shares for the six-month periods ended June 30, 2011 and 2010, respectively.

Note 13 — Share-Based Compensation

At June 30, 2011, the Company had 3,884,541 options outstanding with a weighted average exercise price of $5.28. During the six-month period ended June 30, 2011, the Company granted 285,000 options which vest over a five-year period, 907,336 options which vest over a four-year period and 61,725 options which vested immediately. The options have a weighted average exercise price of $6.97 and a weighted-average contractual life of 5.45 years. The aggregate fair value of the options was $3,214,000 calculated using the Black-Scholes valuation model. The weighted average assumptions used to calculate fair value were: expected life — 4.05 years; volatility — 52.4% and risk-free interest rate — 1.58%. During the first six months of 2011, options for 10,000 shares with a weighted average exercise price of $2.45 were exercised, options for 42,000 shares with a weighted average exercise price of $5.07 were forfeited and options for 26,000 shares with a weighted average exercise price of $7.22 lapsed.

During the six-month period ended June 30, 2011, the Company issued 62,000 shares of restricted common stock to certain of its officers under the Company’s 2007 Restricted Stock Grant Plan.

During the six-month period ended June 30, 2011, employees purchased 145,436 common shares, for an aggregate purchase price of $531,000, pursuant to the Company’s 2008 Employee Stock Purchase Plan.

The Company recognized share-based compensation expense in selling, general and administrative expenses in the consolidated statement of operations totaling $911,000 and $728,000 for the three-month periods ended June 30, 2011 and 2010, respectively, and $1,527,000 and $1,156,000 for the six-month periods ended June 30, 2011 and 2010, respectively.

Note 14 — Stockholders’ Equity

On November 10, 2008, the Board of Directors approved a stock repurchase program whereby the Company may purchase shares of its common stock up to a total purchase price of $20,000,000. On August 4, 2009, the Board of Directors amended the stock repurchase program to increase the authorized amount to $40,000,000 and extend the program to December 31, 2012. On March 7, 2011, the Board of Directors approved an increase in the Stock Repurchase Program to $60,000,000 and extended the program to December 31, 2012. Through June 30, 2011, the Company has purchased 5,834,369 shares of its common stock under this program for an aggregate purchase price of $24,438,000, or $4.19 per share. At June 30, 2011, the Company was in violation of its loan covenants related to the consolidated leverage ratio and the consolidated fixed charge ratio (the “Specified Defaults”). On June 30, 2011, the Company entered into a Forbearance Agreement (see Note 9) with its lenders whereby the lenders will forbear from enforcing their remedies against the Company with respect to its failure to comply with the Specified Defaults. Under the terms of the Forbearance Agreement, the Company is prohibited from making any further repurchases of its common stock.

 

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The following table summarizes the changes in stockholders’ equity during six months ended, June 30, 2011:

 

     Total     Hill International,
Inc. stockholders
    Noncontrolling
interests
 

Stockholders’ equity, December 31, 2010

   $ 168,096      $ 161,091      $ 7,005   

Net (loss) income

     (5,573     (6,093     520   

Other comprehensive income

     6,485        3,680        2,805   
  

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     912        (2,413     3,325   

Additional paid in capital

     1,877        1,877        —     

Acquisition of Engineering S.A.

     15,597        —          15,597   

Acquisition of additional interest in subsidiary

     (1,609     —          (1,609
  

 

 

   

 

 

   

 

 

 

Stockholders’ equity, June 30, 2011

   $ 184,873      $ 160,555      $ 24,318   
  

 

 

   

 

 

   

 

 

 

Note 15 — Income Taxes

During the three-month period ended June 30, 2011, the Company recognized income tax benefits in the reserves for uncertain tax positions of $995,000 due to the expiration of the statute of limitations related to the filing of certain income tax returns. During the six-month periods ended June 30, 2011 and 2010, the Company recognized income tax benefits of $995,000 and $761,000, respectively, due to the expiration of the statute of limitations related to the filing of certain income tax returns resulting in a reduction in the reserves for uncertain tax positions. Also during the six-month periods ended June 30, 2011 and 2010, the Company recognized an increase in the reserve for uncertain tax positions of $520,000 and $21,000, respectively, primarily related to foreign subsidiaries.

The following table indicates the changes to the Company’s uncertain tax positions for the six-month periods ended June 30, 2011 and 2010, including interest and penalties.

 

     Six months ended June 30,  
(in thousands)    2011     2010  

Balance, beginning of period

   $ 6,289      $ 2,575   

Increase as a result of tax positions taken in the current year

     520        21   

Reductions due to expiration of statute of limitations

     (995     (761
  

 

 

   

 

 

 

Balance, end of period

   $ 5,814      $ 1,835   
  

 

 

   

 

 

 

The Company’s policy is to record income tax related interest and penalties in income tax expense. At June 30, 2011, potential interest and penalties related to uncertain tax positions amounting to $100,000 was included in the balance above.

The balance is included in “Other Liabilities” in the consolidated balance sheet at June 30, 2011.

The effective income tax expense rates for the three-month periods ended June 30, 2011 and 2010 were 69.4% and 11.9%, respectively, and the effective income tax expense (benefit) rates for the six-month periods ended June 30, 2011 and 2010 were 19.5% and (0.7%), respectively. Excluding the effect of the reserve adjustments, the effective income tax (benefit) expense rates would have been (4.5%) and 11.9% for the three-month periods ended June 30, 2011 and 2010, respectively, and 12.7% and 12.3%, respectively, for the six-month periods ended June 30, 2011 and 2010.

 

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Note 16 — Business Segment Information

The Company’s business segments reflect how executive management makes resource decisions and assesses its performance. The Company bases these decisions on the type of services provided (Project Management and Construction Claims) and secondarily by their geography (U.S./Canada, Latin America, Europe, the Middle East, North Africa and Asia/Pacific).

The Project Management business segment provides extensive construction and project management services to construction owners worldwide. Such services include program management, project management, construction management, project management oversight, troubled project turnaround, staff augmentation, estimating and cost management, project labor agreement consulting and management consulting services.

The Construction Claims business segment provides such services as claims preparation, analysis and review, litigation support, cost/damages assessment, delay/disruption analysis, contract review and adjudication, risk assessment, lender advisory and expert witness testimony services to clients worldwide.

The Company evaluates the performance of its segments primarily on operating profit before corporate overhead allocations and income taxes.

The following tables reflect the required disclosures for the Company’s reportable segments (in thousands):

Consulting Fee Revenue (“CFR”)

 

     Three months ended June 30,  
     2011     2010  

Project Management

   $ 74,239         72.1   $ 70,235         76.7

Construction Claims

     28,712         27.9        21,324         23.3   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 102,951         100.0   $ 91,559         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Revenue:

 

     Three months ended June 30,  
     2011     2010  

Project Management

   $ 97,567         76.9   $ 86,220         79.7

Construction Claims

     29,368         23.1        21,972         20.3   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 126,935         100.0   $ 108,192         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating (Loss) Profit:

 

     Three months ended June 30,  
     2011     2010  

Project Management before equity in earnings of affiliates

   $ 3,865      $ 8,791   

Equity in earnings of affiliates

     157        243   
  

 

 

   

 

 

 

Total Project Management

     4,022        9,034   

Construction Claims

     3,669        1,523   

Corporate Expenses

     (6,867     (6,303
  

 

 

   

 

 

 

Total

   $ 824      $ 4,254   
  

 

 

   

 

 

 

 

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Table of Contents

Depreciation and Amortization Expense:

 

     Three months ended June 30,  
     2011      2010  

Project Management

   $ 3,082       $ 1,379   

Construction Claims

     861         668   
  

 

 

    

 

 

 

Subtotal segments

     3,943         2,047   

Corporate

     90         299   
  

 

 

    

 

 

 

Total

   $ 4,033       $ 2,346   
  

 

 

    

 

 

 

 

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Table of Contents

Consulting Fee Revenue by Geographic Region:

 

     Three months ended June 30,  
     2011     2010  

U.S./Canada

   $ 29,974         29.1   $ 24,436         26.7

Latin America

     13,371         13.0        347         0.4   

Europe

     23,463         22.8        22,828         24.9   

Middle East

     28,195         27.4        26,012         28.4   

North Africa

     2,695         2.6        15,620         17.1   

Asia/Pacific

     5,253         5.1        2,316         2.5   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 102,951         100.0   $ 91,559         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

U.S.

   $ 29,352         28.5   $ 23,910         26.1

Non -U.S.

     73,599         71.5        67,649         73.9   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 102,951         100.0   $ 91,559         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Revenue by Geographic Region:

 

     Three months ended June 30,  
     2011     2010  

U.S./Canada

   $ 51,589         40.7   $ 39,682         36.6

Latin America

     13,381         10.5        347         0.3   

Europe

     24,665         19.4        24,201         22.4   

Middle East

     28,687         22.6        25,854         23.9   

North Africa

     3,283         2.6        15,757         14.6   

Asia/Pacific

     5,330         4.2        2,351         2.2   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 126,935         100.0   $ 108,192         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

U.S.

   $ 50,967         40.2   $ 39,156         36.2

Non -U.S.

     75,968         59.8        69,036         63.8   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 126,935         100.0   $ 108,192         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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Table of Contents

Consulting Fee Revenue By Client Type:

 

     Three months ended June 30,  
     2011     2010  

U.S. federal government

   $ 3,063         3.0   $ 7,213         7.9

U.S. state, local and regional government

     15,741         15.3        11,593         12.7   

Foreign government

     20,054         19.5        32,767         35.7   

Private sector

     64,093         62.2        39,986         43.7   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 102,951         100.0   $ 91,559         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Revenue By Client Type:

 

     Three months ended June 30,  
     2011     2010  

U.S. federal government

   $ 3,644         2.9   $ 7,667         7.1

U.S. state, local and regional government

     35,741         28.2        25,229         23.3   

Foreign government

     21,185         16.7        34,149         31.6   

Private sector

     66,365         52.2        41,147         38.0   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 126,935         100.0   $ 108,192         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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Table of Contents

Property, Plant and Equipment, Net by Geographic Location:

 

     June 30, 2011      December 31, 2010  

U.S./Canada

   $ 6,882       $ 6,884   

Latin America

     2,111         28   

Europe

     2,560         2,344   

Middle East

     2,454         1,692   

North Africa

     337         346   

Asia/Pacific

     537         632   
  

 

 

    

 

 

 

Total

   $ 14,881       $ 11,926   
  

 

 

    

 

 

 

U.S.

   $ 6,867       $ 6,867   

Non -U.S.

     8,014         5,059   
  

 

 

    

 

 

 

Total

   $ 14,881       $ 11,926   
  

 

 

    

 

 

 

Consulting Fee Revenue (“CFR”)

 

     Six months ended June 30,  
     2011     2010  

Project Management

   $ 144,087         73.1   $ 137,564         75.0

Construction Claims

     53,136         26.9        45,931         25.0   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 197,223         100.0   $ 183,495         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Revenue

 

     Six months ended June 30,  
     2011     2010  

Project Management

   $ 195,491         78.2   $ 165,312         77.7

Construction Claims

     54,454         21.8        47,352         22.3   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 249,945         100.0   $ 212,664         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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Table of Contents

Operating (Loss) Profit:

 

     Six months ended June 30,  
     2011     2010  

Project Management before equity in earnings of affiliates

   $ 6,619      $ 13,043   

Equity in earnings of affiliates

     160        1,064   
  

 

 

   

 

 

 

Total Project Management

     6,779        14,107   

Construction Claims

     2,934        5,744   

Corporate Expenses

     (14,182     (12,898
  

 

 

   

 

 

 

Total

   $ (4,469   $ 6,953   
  

 

 

   

 

 

 

Depreciation and Amortization Expense:

 

     Six months ended June 30,  
     2011      2010  

Project Management

   $ 5,310       $ 2,760   

Construction Claims

     1,690         1,206   
  

 

 

    

 

 

 

Subtotal segments

     7,000         3,966   

Corporate

     135         576   
  

 

 

    

 

 

 

Total

   $ 7,135       $ 4,542   
  

 

 

    

 

 

 

 

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Table of Contents

Consulting Fee Revenue by Geographic Region:

 

     Six months ended June 30,  
     2011     2010  

U.S./Canada

   $ 57,826         29.2   $ 47,709         26.0

Latin America

     17,461         8.9        822         0.4   

Europe

     45,275         23.0        49,557         27.0   

Middle East

     53,956         27.4        52,307         28.5   

North Africa

     13,158         6.7        29,477         16.1   

Asia/Pacific

     9,547         4.8        3,623         2.0   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 197,223         100.0   $ 183,495         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

U.S.

   $ 56,555         28.7   $ 46,647         25.4

Non -U.S.

     140,668         71.3        136,848         74.6   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 197,223         100.0   $ 183,495         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Revenue by Geographic Region:

 

     Six months ended June 30,  
     2011     2010  

U.S./Canada

   $ 105,881         42.4   $ 72,787         34.2

Latin America

     17,480         7.0        822         0.4   

Europe

     47,600         19.0        52,347         24.6   

Middle East

     54,911         22.0        53,349         25.1   

North Africa

     14,211         5.7        29,678         14.0   

Asia/Pacific

     9,862         3.9        3,681         1.7   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 249,945         100.0   $ 212,664         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

U.S.

   $ 104,610         41.9   $ 71,725         33.7

Non -U.S.

     145,335         58.1        140,939         66.3   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 249,945         100.0   $ 212,664         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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Table of Contents

Consulting Fee Revenue By Client Type:

 

     Six months ended June 30,  
     2011     2010  

U.S. federal government

   $ 6,396         3.2   $ 14,508         7.9

U.S. state, local and regional government

     31,185         15.8        22,564         12.3   

Foreign government

     45,172         23.0        44,448         24.2   

Private sector

     114,470         58.0        101,975         55.6   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 197,223         100.0   $ 183,495         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Revenue By Client Type:

 

     Six months ended June 30,  
     2011     2010  

U.S. federal government

   $ 7,467         3.0   $ 15,231         7.2

U.S. state, local and regional government

     76,490         30.6        44,570         21.0   

Foreign government

     47,813         19.1        46,034         21.6   

Private sector

     118,175         47.3        106,829         50.2   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 249,945         100.0   $ 212,664         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Note 17 — Concentrations

The Company had one client that accounted for 14% of total revenue for the three-month period ended June 30, 2011 and two clients that accounted for 23% of total revenue for the three-month period ended June 30, 2010. The Company had one client that accounted for 16% of total revenue for the six-month period ended June 30, 2011 and one client that accounted for 12% of total revenue for the six-month period ended June 30, 2010.

The Company had no clients that accounted for 10% or more of consulting fee revenue for the three-month period ended June 30, 2011 and one client that accounted for 15% of consulting fee revenue for the three-month period ended June 30, 2010. The Company had no clients that accounted for 10% of consulting fee revenue for the six-month period ended June 30, 2011 and one client that accounted for 14% of consulting fee revenue for the six-month period ended June 30, 2010.

One client, located in Libya, accounted for 32% and 33% of accounts receivable as of June 30, 2011 and December 31, 2010 respectively.

The Company has numerous contracts with U.S. federal government agencies that collectively accounted for 3% and 7% of total revenue during the three-month periods ended June 30, 2011 and 2010 respectively, and 3% and 7% of total revenue during the six-month periods ended June 30, 2011 and 2010, respectively.

Note 18 — Commitments and Contingencies

Litigation

On July 16, 2009, Al Areen Desert Resort Holding Company (“Al Areen”) filed a complaint with the Ministry of Justice & Islamic Affairs in the Kingdom of Bahrain against the Company alleging breach of contract and other causes of action in connection with its performance of a construction project known as Al Areen Desert Spa and Resort (the “Project”), seeking the sum of approximately 10,200,000 Bahraini Dinars (approximately $27,052,000 at June 30, 2011) in damages. The Company provided project management services on the Project and Al Areen failed to pay the Company 679,000 Bahraini Dinars (approximately $1,801,000 at June 30, 2011) for services rendered on the Project. The Company served notice of termination on April 28, 2009.

On September 26, 2009, the Company filed a Request for Arbitration with the International Chamber of Commerce, International Court of Arbitration, seeking the sum of 679,000 Bahraini Dinars. On June 29, 2011, the parties executed a settlement agreement under which Al Areen will pay to the Company the sum of approximately 394,000 Bahraini Dinars (approximately $1,043,000) and withdrew its claims against the Company. The Company had previously reserved approximately $531,000 against the receivable from Al Areen. During the period ended June 30, 2011, the Company wrote off the remaining $227,000.

 

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Table of Contents

General Litigation

From time to time, the Company is a defendant or plaintiff in various legal actions which arise in the normal course of business. As such the Company is required to assess the likelihood of any adverse outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of the provision required for these commitments and contingencies, if any, which would be charged to earnings, is made after careful analysis of each matter. The provision may change in the future due to new developments or changes in circumstances. Changes in the provision could increase or decrease the Company’s earnings in the period the changes are made. It is the opinion of management, after consultation with legal counsel, that the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

 

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

We make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We use forward-looking words such as “may,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intend,” and “continue” or similar words. You should read statements that contain these words carefully because they discuss future expectations, contain projections of future results of operations or financial condition or state other “forward-looking” information. However, there may be events in the future that we are not able to predict accurately or over which we have no control. Examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in such forward-looking statements include those described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission on March 11, 2011 (the “2010 Annual Report”). You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. All forward-looking statements included herein attributable to us are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligations to update these forward-looking statements.

References to “the Company,” “we,” “us,” and “our” refer to Hill International, Inc. and its subsidiaries.

We provide project management and construction claims services to clients worldwide, but primarily in the U.S./Canada, Latin America, Europe, the Middle East, North Africa and Asia/Pacific. Our clients include the United States and other national governments and their agencies, state and local governments and their agencies, and the private sector. Hill is organized into two key operating segments: the Project Management Group and the Construction Claims Group.

We are one of the leading firms in the world in both the project management and construction claims consulting businesses. We are a global company with approximately 3,100 employees operating from 100 offices in more than 30 countries.

The Project Management business segment provides extensive construction and project management services to construction owners worldwide. Such services include program management, project management, construction management, project management oversight, troubled project turnaround, staff augmentation, estimating and cost management, project labor agreement consulting and management consulting services.

The Construction Claims business segment provides such services as claims preparation, analysis and review, litigation support, cost/damages assessment, delay/disruption analysis, contract review and adjudication, risk assessment, lender advisory and expert witness testimony services to clients worldwide.

HillStone International, LLC (“HillStone”) is a strategic technologies distribution and construction project development company. As a 51%-owned subsidiary of the Company, HillStone develops private and public ventures for the implementation of affordable, durable and environmentally sound housing technologies in regions of the world where housing solutions are a high priority of various governmental and private interests. HillStone has not been shown separately within our financial statements as it does not have any revenues to date. Its costs, which are not material, have been included within the Corporate segment. However, for purposes of this report, we have shown the backlog attributable to HillStone as a separate line item within the backlog table on page 36.

We derive our revenues from fees for professional services. As a service company we are labor intensive rather than capital intensive. Our revenue is driven by our ability to attract and retain qualified and productive employees, identify business opportunities, secure new and renew existing client contracts, provide outstanding services to our clients and execute projects successfully. Our income from operations is derived from our ability to generate revenue and collect cash under our contracts in excess of direct labor and other direct costs of executing the projects, subcontractors and other reimbursable costs and selling, general and administrative costs.

In addition, we believe there are high barriers to entry for new competitors, especially in the project management market. We compete for business based on reputation and past experience, including client requirements for substantial similar project and claims work. We have developed significant long-standing relationships which bring us repeat business and would be very difficult to replicate. We have an excellent reputation for developing and rewarding employees, which allows us to attract and retain superior professionals.

Recent regional civil unrest and global economic conditions, including disruption of financial markets, has adversely affect our business and results of operations, primarily by limiting our access to credit and disrupting our clients’ businesses. The reduction in financial institutions’ willingness or ability to lend has increased the cost of capital and reduced the availability of credit. In addition, continuation or worsening of general market conditions in the United States or other national economies important to our businesses may adversely affect our clients’ level of spending, ability to obtain financing, and ability to make timely payments to us for our services, which could require us to increase our allowance for doubtful accounts, negatively impact our days sales outstanding and adversely affect our results of operations. On June 30, 2011, the Company entered into a Forbearance Agreement with the lenders under which borrowings under its Credit Facility (see Note 9) are limited to $80,000,000 and the Company is precluded from certain activities without the lenders’ consent, including making acquisitions, paying dividends, or repurchasing its common stock. In exchange, the Lenders have agreed to forbear from enforcing their remedies against the Company through September 30, 2011. The Company will attempt to work with those lenders to restructure its debt, or we may seek alternative sources of working capital.

Critical Accounting Policies

The Company’s interim financial statements were prepared in accordance with United States generally accepted accounting principles, which require management to make subjective decisions, assessments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the judgment increases, such judgments become even more subjective. While management believes its assumptions are reasonable and appropriate, actual results may be materially different than estimated. The critical accounting estimates and assumptions have not materially changed from those identified in the Company’s 2010 Annual Report.

We operate through two segments: the Project Management Group and the Construction Claims Group. Reimbursable expenses are reflected in equal amounts in both total revenue and total direct expenses. Because these revenues/costs are subject to significant fluctuation from year to year, we measure the performance of many of our key operating metrics as a percentage of consulting fee revenue (“CFR”), as we believe that this is a better and more consistent measure of operating performance than total revenue.

 

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Table of Contents

Three months ended June 30, 2011 Compared to

Three months ended June 30, 2010

Results of Operations

Consulting Fee Revenue (“CFR”)

 

     Three months ended June 30,               
(in thousands)    2011     2010     Change  

Project Management

   $ 74,239         72.1   $ 70,235         76.7   $ 4,004         5.7

Construction Claims

     28,712         27.9     21,324         23.3     7,388         34.6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total

   $ 102,951         100.0   $ 91,559         100.0   $ 11,392         12.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Hill’s CFR increased $11,392,000 to $102,951,000 in the second quarter of 2011 from $91,559,000 in the second quarter of 2010. This was comprised of an increase of 21.7 % from acquisitions, partially offset by an organic decrease of 9.3%. The organic decrease in CFR is primarily due to decreases in Libya and Iraq.

During the second quarter of 2011, Hill’s project management CFR increase of 5.7% included an increase of 24.4% due to acquisitions of dck, TCM and Engineering S.A., partially offset by an organic decrease of 18.7% primarily in North Africa and the Middle East. The increase in project management CFR consisted of a $4,042,000 increase in domestic projects and a decrease of $38,000 in foreign projects. The increase in domestic projects consisted primarily of the acquisitions of dck and TCM. The decrease in foreign project management CFR was primarily due to decreases of $13,757,000 in Libya where work stopped in February of 2011 due to the political unrest and $3,705,000 in Iraq, where Hill’s work on the Iraq Reconstruction Program was completed at the end of 2010. These decreases were partially offset by an increase of $12,384,000 from Engineering S.A. which was acquired on February 28, 2011 and $3,042,000 in the Middle East, primarily Saudi Arabia.

During the second quarter of 2011, Hill’s construction claims CFR increase of 34.6% included an organic increase of 22.4% primarily in the Middle East and the United States and an increase of 12.2% due to the acquisition of MLL.

Reimbursable Expenses

 

     Three months ended June 30,               
(in thousands)    2011     2010     Change  

Project Management

   $ 23,327         97.3   $ 15,985         96.1   $ 7,342         45.9

Construction Claims

     657         2.7     648         3.9     9         1.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total

   $ 23,984         100.0   $ 16,633         100.0   $ 7,351         44.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Reimbursable expenses consist of amounts paid to subcontractors and other third parties and travel and other job-related expenses that are contractually reimbursable from clients. These items are reflected as separate line items in both our revenue and cost of services captions in our consolidated statements of operations. The increase in project management reimbursable expenses was due primarily to increased use of subcontractors of $6,247,000 in our Northeast and Mid-Atlantic regions.

 

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Table of Contents

Cost of Services

 

     Three months ended June 30,               
     2011     2010     Change  
                  % of
CFR
                 % of
CFR
              
(in thousands)                                                    

Project Management

   $ 46,409         78.1     62.5   $ 42,914         81.4     61.1   $ 3,495         8.1

Construction Claims

     13,037         21.9     45.4     9,814         18.6     46.0     3,223         32.8
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

Total

   $ 59,446         100.0     57.7   $ 52,728         100.0     57.6   $ 6,718         12.7
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

Cost of services consists of labor expenses for time charged directly to contracts and non-reimbursable job related travel and out-of-pocket expenses. The increase in project management cost of services is primarily due to increases in the Middle East and the acquisitions of dck, TCM and Engineering S.A., partially offset by decreases in Iraq and Libya.

The increase in the cost of services for construction claims was due primarily to increases in direct costs in CFR.

Gross Profit

 

     Three months ended June 30,               
     2011     2010     Change  
                  % of
CFR
                 % of
CFR
              
( in thousands)                                                    

Project Management

   $ 27,830         64.0     37.5   $ 27,321         70.4     38.9   $ 509         1.9

Construction Claims

     15,675         36.0     54.6     11,510         29.6     54.0     4,165         36.2
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

Total

   $ 43,505         100.0     42.3   $ 38,831         100.0     42.4   $ 4,674         12.0
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

The increase in project management gross profit included an increase of $1,580,000 from domestic operations and a decrease of $1,071,000 in foreign operations. The increase in domestic operations includes increases of $2,266,000 from dck and TCM. The decrease in foreign operations included decreases of $7,823,000 in Libya and Iraq, partially offset by increases of $3,973,000 from Engineering S.A. and $2,614,000 in Spain and the Middle East. The increase in gross profit in Spain included a $1,400,000 success fee in connection with the management of real estate projects.

The increase in construction claims gross profit of $4,165,000 was driven by the MLL acquisition and CFR increases of $900,000 from the Middle East, $743,000 from the United Kingdom and $1,052,000 from the United States.

Selling, General and Administrative (“SG&A”) Expenses

 

     Three months ended June 30,               
     2011     2010     Change  
            % of            % of               
(in thousands)           CFR            CFR               

SG&A Expenses

   $ 42,838         41.6   $ 34,820         38.0   $ 8,018         23.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The increase in SG&A of $8,018,000 included increases of $5,872,000 from the MLL, dck, TCM and Engineering S.A. acquisitions.

The significant components of the change in SG&A are as follows:

 

   

An increase in unapplied and indirect labor expense of $3,898,000 including $2,891,000 from MLL, dck, TCM and Engineering S.A. and $780,000 in corporate labor.

 

   

An increase in amortization expense of $1,511,000 due to acquired businesses.

 

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Table of Contents
   

An increase of $504,000 in rent expense including $230,000 related to the acquisitions and $132,000 from the London office where a recent office move caused some overlapping in rental costs.

 

   

An increase of $265,000 in administrative travel costs primarily in overseas business development and for integration efforts in connection with the Engineering S.A. acquisition.

Equity in Earnings of Affiliates

Our share of the earnings of affiliates decreased $86,000 from $243,000 in the second quarter of 2010 to $157,000 in the second quarter of 2011, primarily due to the termination of work in Iraq by SBH where our contract was completed at the end of 2010. This was partially offset by earnings from Hill Petrol.

Our share of the earnings of SBH decreased by $235,000 in the second quarter of 2011, because the assignment was completed in the fourth quarter of 2010. SBH was a joint venture between Stanley Consultants, Inc., Michael Baker, Jr., Inc. and us.

Our share of the earnings of Hill Petrol was $183,000 in the second quarter of 2011. Hill Petrol is a joint stock company formed on November 20, 2007 between us, the Egyptian National Gas Holding Company (EGAS) and the Egyptian Natural Gas Company (GASCO). The ownership interest of the company are 50% Hill, 40% EGAS and 10% GASCO. The company was formed to jointly participate in the field of project management for oil and gas projects.

Our share of the earnings of Hill TMG decreased by $3,000 in the second quarter of 2011. Hill TMG is a joint venture formed in May 2008 between Talaat Moustafa Group Holding Co. (“TMG”) and Hill. Hill TMG managed the construction of several of TMG’s largest developments in Egypt and elsewhere in the Middle East.

Operating Profit:

 

     Three months ended June 30,              
     2011     2010     Change  
           % of
CFR
          % of
CFR
             
(in thousands)                                     

Project Management before equity in earnings of affiliates

   $ 3,865        5.2   $ 8,791        12.5   $ (4,926     (56.0 )% 

Equity in earnings of affiliates

     157        0.2     243        0.3     (86     (35.4 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total Project Management

     4,022        5.4     9,034        12.9     (5,012     (55.5 )% 

Construction Claims

     3,669        12.8     1,523        7.1     2,146        140.9

Corporate

     (6,867       (6,303       (564     8.9
  

 

 

     

 

 

     

 

 

   

Total

   $ 824        0.8   $ 4,254        4.6   $ (3,430     (80.6 )% 
  

 

 

     

 

 

     

 

 

   

Operating profit decreased $3,430,000 compared to the second quarter of 2010. This was due primarily to the completion of the Iraq project at the end of 2010 and the loss in revenue and profit from disrupted operations in Libya, partially offset by increased profits generated by dck, TCM, MLL and Engineering S.A. as well as increases in both domestic and international construction claims operations.

The decrease in Project Management operating profit primarily included a decrease of $1,521,000 in Iraq where work concluded at the end of 2010. In addition, the stoppage of work in Libya in February 2011 due to the political unrest caused a decrease in operating profit of $5,442,000 compared with the same period last year. These decreases were partially offset by an increase in operating profit of $846,000 in the Middle East as a result of several new projects in Saudi Arabia and Abu Dhabi and a success fee of $1,400,000 in connection with the management of real estate projects in Spain as well as profits of $681,000 from Engineering S.A.

The increase in operating profit for the Construction Claims group was primarily due to increases of $879,000 for MLL, $825,000 in the United States, $535,000 in the United Kingdom and $401,000 in the Middle East.

Corporate costs were held to an increase of $564,000 over the prior year.

 

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Table of Contents

Interest Expense, net

Net interest expense increased $810,000 to $1,464,000 during the three-month period ended June 30, 2011 as compared with $654,000 in the three-month period ended June 30, 2010, primarily due to higher interest rates and increased borrowings driven primarily by the acquisitions of MLL, TCM, dck and Engineering S.A. and the purchase of treasury stock.

Income Taxes

For the three-month periods ended June 30, 2011 and 2010, the Company recognized net tax (benefit) expense of ($444,000) and $429,000, respectively. The Company’s income tax expense for the three-month periods ended June 30, 2011 and 2010 included benefits of $995,000 and $0, respectively, related to decreases in the reserves for uncertain tax positions due to the expiration of the statue of limitations related to the filings of certain income tax returns. For the three-month periods ended June 30, 2011 and 2010, income tax expense also included $520,000 and $0, respectively, related to increases in the reserves for uncertain tax positions.

The effective income tax expense rates for the three-month periods ended June 30, 2011 and 2010 were 69.4% and 11.9%, respectively. Excluding the effect of the reserve adjustment, the effective income tax (benefit) expense rate would have been (4.5%) and 11.9% for the three-month periods ended June 30, 2011 and 2010, respectively.

Net (Loss) Earnings

Net loss attributable to Hill International, Inc. for the second quarter of 2011 was ($497,000) or ($0.01) per diluted common share based on 38,379,000 diluted common shares outstanding, as compared to net earnings for the second quarter of 2010 of $2,884,000 or $0.07 per diluted common share based upon 40,380,000 diluted common shares outstanding.

 

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Table of Contents

Six months ended June 30, 2011 Compared to

Six months ended June 30, 2010

Results of Operations

Consulting Fee Revenue (“CFR”)

 

     Six months ended June 30,               
(in thousands)    2011     2010     Change  

Project Management

   $ 144,087         73.1   $ 137,564         75.0   $ 6,523         4.7

Construction Claims

     53,136         26.9     45,931         25.0     7,205         15.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total

   $ 197,223         100.0   $ 183,495         100.0   $ 13,728         7.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Hill’s CFR increased $13,728,000 to $197,223,000 during the six months ended June 30, 2011 from $183,495,000 in the same period of 2010. This was comprised of an increase of 16.1% from acquisitions, partially offset by an organic decrease of 8.6%. The organic decrease in CFR is primarily due to decreases in Libya, Iraq and the United Kingdom.

During the first six months of 2011, Hill’s project management CFR increase of 4.7% included an increase of 17.3% due to the acquisitions of dck, TCM and Engineering S.A., partially offset by an organic decrease of 12.6% primarily in North Africa and the Middle East. The increase in project management CFR consisted of an $8,372,000 increase in domestic projects and a decrease of $1,849,000 in foreign projects. The increase in domestic projects resulted primarily from the acquisitions of dck and TCM. The decrease in foreign project management CFR was primarily due to decreases of $18,531,000 in Libya where work stopped in February 2011 due to the political unrest and $8,513,000 in Iraq, where Hill’s work on the Iraq Reconstruction Program was completed at the end of 2010. These decreases were partially offset by an increase of $15,725,000 from Engineering S.A. which was acquired on February 28, 2011, $6,365,000 in the Middle East, primarily Saudi Arabia, and $2,213,000 in Egypt.

During the first six months of 2011, Hill’s construction claims CFR increase of 15.7% included an increase of 12.2% due to the acquisition of MLL and an organic increase of 3.5% primarily in the Middle East and the United States.

Reimbursable Expenses

 

     Six months ended June 30,              
(in thousands)    2011     2010     Change  

Project Management

   $ 51,404         97.5   $ 27,747         95.1   $ 23,657        85.3

Construction Claims

     1,318         2.5     1,422         4.9     (104     (7.3 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Total

   $ 52,722         100.0   $ 29,169         100.0   $ 23,553        80.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Reimbursable expenses consist of amounts paid to subcontractors and other third parties and travel and other job-related expenses that are contractually reimbursable from clients. These items are reflected as separate line items in both our revenue and cost of services captions in our consolidated statements of earnings. The increase in project management reimbursable expenses was due primarily to increased use of subcontractors of $21,775,000 in our Northeast and Mid-Atlantic regions.

 

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Table of Contents

Cost of Services

 

     Six months ended June 30,               
     2011     2010     Change  
                  % of
CFR
                 % of
CFR
              
(in thousands)                                                    

Project Management

   $ 90,018         78.4     62.5   $ 85,897         81.2     62.4   $ 4,121         4.8

Construction Claims

     24,769         21.6     46.6     19,944         18.8     43.4     4,825         24.2
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

Total

   $ 114,787         100.0     58.2   $ 105,841         100.0     57.7   $ 8,946         8.5
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

Cost of services consists of labor expenses for time charged directly to contracts and non-reimbursable job related travel and out-of-pocket expenses. The increase in project management cost of services is primarily due to an increase in the Middle East and the acquisitions of dck, TCM and Engineering S.A., partially offset by decreases in Iraq and Libya.

The increase in the cost of services for construction claims was due primarily to increases in direct costs in the Middle East and MLL.

Gross Profit

 

     Six months ended June 30,               
     2011     2010     Change  
                  % of
CFR
                 % of
CFR
              
(in thousands)                                                    

Project Management

   $ 54,069         65.6     37.5   $ 51,667         66.5     37.6   $ 2,402         4.6

Construction Claims

     28,367         34.4     53.4     25,987         33.5     56.6     2,380         9.2
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

Total

   $ 82,436         100.0     41.8   $ 77,654         100.0     42.3   $ 4,782         6.2
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

The increase in project management gross profit included an increase of $3,445,000 from domestic operations and a decrease of $1,043,000 in foreign operations. The increase in domestic operations includes increases of $3,831,000 from dck and TCM. The decrease in foreign operations included decreases of $11,093,000 in Iraq and Libya, partially offset by increases of $4,776,000 from Engineering S.A. and $4,518,000 from the Middle East and Spain.

The increase in construction claims gross profit of $2,380,000 included increases of $3,179,000 from MLL and $1,285,000 from the United States, partially offset by a decrease of $2,176,000 in the United Kingdom.

Selling, General and Administrative (“SG&A”) Expenses

 

     Six months ended June 30,               
(in thousands)    2011     2010     Change  
            % of            % of               
            CFR            CFR               

SG&A Expenses

   $ 87,065         44.1   $ 71,765         39.1   $ 15,300         21.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The increase in SG&A of $15,300,000 included increases of $9,731,000 from the MLL, dck, TCM and Engineering S.A. acquisitions.

The significant components of the change in SG&A are as follows:

 

   

An increase in unapplied and indirect labor expense of $7,590,000 including $4,932,000 from MLL, dck, TCM and Engineering S.A., and $623,000 from the United Kingdom where utilization was low during the first quarter of 2011 and $844,000 in corporate primarily in support of development-related projects.

 

   

An increase in amortization expense of $2,306,000 due to acquired businesses.

 

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An increase of $1,438,000 in rent expense including $394,000 for the acquired entities, $326,000 from London where a recent office move caused some overlapping in rental costs and $186,000 for the early termination of our space in Northern New Jersey.

 

   

An increase of $731,000 in administrative travel costs primarily in overseas business development and for costs associated with the acquisition and integration of Engineering S.A.

Equity in Earnings of Affiliates

Our share of the earnings of affiliates decreased $904,000 from $1,064,000 in the first six months of 2010 to $160,000 in the same period of 2011, primarily due to the termination of work in Iraq by SBH where our contract was completed at the end of 2010.

Our share of the earnings of SBH decreased by $902,000 in the first six months of 2011, compared with the first half of 2010, because the assignment was completed in the fourth quarter of 2010. SBH was a joint venture between Stanley Consultants, Inc., Michael Baker Jr., Inc. and us.

Our share of the earnings of Hill Petrol was $183,000 for the first six months of 2011. Hill Petrol is a joint stock company formed on November 20, 2007 between us, the Egyptian Gas Holding Company (EGAS) and the Egyptian Natural Gas Company (GASCO). The ownership interest of the company are 50% Hill, 40% EGAS and 10% GASCO. The company was formed to jointly participate in the field of project management for oil and gas projects. Operations commenced in the second quarter of 2011.

Our share of the earnings of Hill TMG decreased $157,000 during the first six months of 2011 compared with the same period of 2010. Hill TMG is a joint venture formed in May 2008 between Talaat Moustafa Group Holdings Co. (“TMG”) and Hill. Hill TMG managed the construction of several of TMG’s largest developments in Egypt and elsewhere in the Middle East.

Operating Profit:

 

     Six months ended June 30,              
     2011     2010     Change  
           % of
CFR
          % of
CFR
             
(in thousands)                                     

Project Management before equity in earnings of affiliates

   $ 6,619        4.6   $ 13,043        9.5   $ (6,424     (49.3 )% 

Equity in earnings of affiliates

     160        0.1     1,064        0.8     (904     (85.0 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total Project Management

     6,779        4.7     14,107        10.3     (7,328     (51.9 )% 

Construction Claims

     2,934        5.5     5,744        12.5     (2,810     (48.9 )% 

Corporate

     (14,182       (12,898       (1,284     10.0
  

 

 

     

 

 

     

 

 

   

Total

   $ (4,469     (2.3 )%    $ 6,953        3.8   $ (11,422     (164.3 )% 
  

 

 

     

 

 

     

 

 

   

Operating profit decreased $11,422,000 compared to the first six months of 2010. This was due primarily to the completion of the Iraq project at the end of 2010, the loss in revenue and profit from disrupted operations in Libya and a decrease in work in the United Kingdom construction claims business. This was partially offset by increases in profit from the acquired companies and Middle East project management.

The decrease in Project Management operating profit primarily included a decrease of $3,784,000 in Iraq where work concluded at the end of 2010. In addition, the stoppage of work in Libya in February 2011 due to the political unrest caused a decrease in operating profit of $7,037,000 compared with the same period last year. These decreases were partially offset by an increase in operating profit of $1,804,000 in the Middle East as a result of several new projects in Saudi Arabia and Abu Dhabi.

The decrease in operating profit for the Construction Claims group was primarily due to a decrease of $3,281,000 in the United Kingdom where work slowed down during the early part of 2011 partially due to the settlement of a client’s case on a large assignment. In addition, during the first quarter of 2010, a contingency fee of $2,000,000 was recognized due to the successful resolution of one client’s significant claim. This was partially offset by increased profits from MLL.

 

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Corporate costs were held to an increase of $1,284,000 over the prior year with increases labor in support of development projects and foreign exchange losses.

Interest Expense, net

Net interest expense increased $1,259,000 to $2,458,000 in the six-month period ended June 30, 2011 as compared with $1,199,000 in the six-month period ended June 30, 2010, primarily due to increased borrowings driven primarily by the acquisitions of MLL, TCM, dck and Engineering S.A. and the purchase of treasury stock.

Income Taxes

For the six-month periods ended June 30, 2011 and 2010, we recognized net tax benefits of $1,354,000 and $40,000, respectively. Income tax expense for the six-month periods ended June 30, 2011 and 2010 were net of tax benefits of $995,000 and $761,000, respectively, principally arising from the expiration of the statute of limitations upon the filing of certain income tax returns. The Company recognized the tax benefits as reductions in the reserves for uncertain tax positions. For the six-month periods ended June 30, 2011 and 2010, income tax expense also included $520,000 and $21,000, respectively, related to increases in the reserves for uncertain tax positions.

The effective income tax expense (benefit) rates for the six-month periods ended June 30, 2011 and 2010 were 19.5% and (0.7%), respectively. Excluding the effect of the reserve adjustment, the effective income tax expense rate would have been 12.7% and 12.3% for the six-month periods ended June 30, 2010 and 2010, respectively.

Net (Loss) Earnings

Net loss attributable to Hill International, Inc. for the six-month period ended June 30, 2011 was ($6,093,000) or ($0.16) per diluted common share based upon 38,328,000 diluted common shares outstanding, as compared to net earnings for the six-month period ended June 30, 2010 of $5,341,000 or $0.13 per diluted common share based upon 40,656,000 diluted common shares outstanding.

Liquidity and Capital Resources

We have historically funded our business activities with cash flow from operations and borrowings under various credit facilities.

Credit Facilities

We have a credit facility pursuant to the terms of a credit agreement (the “Credit Agreement”) dated as of June 30, 2009 among the Company, Bank of America, N.A., Capital One, N.A., The PrivateBank and Trust Company and PNC Bank N.A. (the “Lenders”). The Credit Agreement provides for borrowings of up to $100,000,000 and for a letter of credit sub-facility of up to $30,000,000. Obligations under the Credit Agreement are collateralized by all of our assets, including, without limitation, accounts receivable, equipment, securities, financial assets and the proceeds of the foregoing, as well as by a pledge of 65% of the outstanding capital stock of our wholly owned subsidiary, Hill International S.A. The Credit Agreement expires on June 30, 2012. We incurred costs of approximately $1,741,000 in connection with establishing the credit facility. Such costs have been deferred and are being amortized to interest expense over the life of the loan.

The Credit Agreement provides for Base Rate loans and Eurodollar Rate loans. Base Rate loans bear interest at a fluctuating rate per annum equal to the sum of (a) the highest of (i) the Federal Funds Rate plus 0.5%, (ii) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate” and (iii) the Eurodollar Rate plus 1.00%, plus (b) an Applicable Rate which may vary between 1.75% and 2.50% depending on the Company’s consolidated leverage ratio at the time of the borrowing. Eurodollar Rate loans bear interest at a rate per annum equal to the British Bankers Association LIBOR Rate plus an Applicable Rate which may vary between 2.75% and 3.50% depending on the Company’s consolidated leverage ratio at the time of the borrowing.

The Credit Agreement contains financial covenants regarding our consolidated net worth, consolidated leverage ratio, consolidated fixed charge coverage ratio and the ratio of consolidated billed and unbilled accounts receivable to consolidated senior indebtedness, as well as other covenants and certain restrictions on the incurrence of debt, on the making of investments, on the payment of dividends, on transactions with affiliates and other affirmative and negative covenants and events of default customary for facilities of its type. At June 30, 2011, the Company was in violation of the consolidated leverage ratio and the consolidated fixed charge ratio (the “Specified Defaults”). On that date, the Company entered a Forbearance Agreement with the lenders under which borrowings are limited to $80,000,000 and will bear interest at a fluctuating rate per annum equal to the sum of (a) the highest of (i) the Federal Funds Rate plus 0.50%, (ii) the Bank of America prime rate or (iii) the Eurodollar Rate plus 1.00%, plus (b) 3.00%. The Forbearance Agreement limits the amount of Letters of Credit to those outstanding at June 28, 2011 and certain Letters of Credit requested after June 28, 2011 (as listed in Schedule 2(a) of the Forbearance Agreement). Other Letters of Credit will be subject to the consent of the Lenders. Also, the Company is precluded from certain activities without the Lenders’ consent, including making acquisitions, paying

 

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dividends, or repurchasing its common stock. Additionally, it precludes the Company from making any borrowings as Eurodollar Rate Loans. At June 30, 2011, our outstanding Eurodollar Rate Loans amounted to $34,300,000 with a weighted average interest rate of 4.27%. If such loans were refinanced on June 30, 2011, the weighted average interest rate would have been 6.25%. In exchange, the Lenders have agreed to forbear from enforcing their remedies against the Company with respect to the Specified Defaults. Since the waiver of violations is through September 30, 2011, all borrowings under the facility have been classified as current liabilities in the consolidated balance sheet. We cannot provide any assurance that the Specified Defaults will be cured by the end of the Forbearance Period, that we will otherwise be in compliance with the covenants and other provisions of the Credit Agreement (or our other credit arrangements) at the end of the Forbearance Period or thereafter or that, if we are not so compliant with the Credit Agreement (or our other credit arrangements), the Lenders would agree to continue to forbear from enforcing their rights against us, which would have material adverse effects on the Company.

At June 30, 2011, total borrowings under the Credit Agreement amounted to $72,300,000 with interest at 5.31%. As of June 30, 2011, we had $11,644,000 in outstanding letters of credit. Due to conditions of the Forbearance Agreement, total remaining availability at June 30, 2011 was $7,700,000.

We currently have eight additional credit facilities with international financial institutions as follows:

 

   

A credit facility with a bank in the Middle East for 11,500,000 AED (approximately $3,131,000 at June 30, 2011) collateralized by certain overseas receivables. The interest rate on that facility is the three-month Emirates InterBank Offer Rate (“EIBOR”), which at June 30, 2011 was 1.32%, plus 3.00%, (or 4.32%) but no less than 5.50%. At June 30, 2011, outstanding borrowings under this facility totaled 6,367,000 AED (approximately $1,733,000). The facility also allows for up to 150,000,000 AED (approximately $40,836,000 at June 30, 2011) in Letters of Guarantee of which 126,662,000 AED (approximately $34,483,000) was utilized June 30, 2011. This facility expired on August 27, 2010 and is being renewed on a month to month basis.

 

   

A revolving credit loan payable with a European bank up to €1,000,000 (approximately $1,446,000 at June 30, 2011), with interest rates at 2.50% plus Egnatia Bank’s prime rate of 6.00% (or 8.50%) at June 30, 2011, collateralized by certain of our assets. There were no borrowings under this facility at June 30, 2011. The facility also allows for letters of guarantee up to €4,500,000 (approximately $6,508,000) of which €429,000 (approximately $621,000) was utilized at June 30, 2011. The loan has an expiration date of April 30, 2012.

 

   

An unsecured credit facility with a bank in Spain for €750,000 (approximately $1,085,000 at June 30, 2011). The interest rate on that facility is the three-month EURIBOR rate (which at June 30, 2011 was 1.55%) plus 1.75, or 3.30% but no less than 4.00%. At June 30, 2011 there were no outstanding borrowings under this facility which expires on December 24, 2011.

 

   

A revolving credit loan payable to Barclays Bank PLC up to £500,000 (approximately $803,000 at June 30, 2011) with interest at 2.00% plus the Bank of England rate of 0.50% (or 2.50%) at June 30, 2011 collateralized by cross guarantees of all United Kingdom companies. Aggregate of all debt owing to the bank will be, at all times, covered 3 times by the aggregate value of the UK accounts receivable less than 90 days old and excluding any receivables which are due from any associate or subsidiary company. Outstanding borrowings under this facility were £404,000 (approximately $654,000) at June 30, 2011. The loan has an indeterminate term and is subject to annual review by the bank.

 

   

A revolving credit facility with 12 banks (the “Financing Entities”) in Spain providing for total borrowings of up to €4,870,000 (approximately $7,043,000) with interest at 6.50% of which €3,726,000 (approximately $5,388,000) was utilized at June 30, 2011. The total amount being financed (“Credit Contracts”) by each Financing Entity is between €379,000 (approximately $548,000) and €639,000 (approximately $924,000). The facility expires on December 17, 2016. The maximum available amount will be reduced to 75.0% at December 31, 2014 and 50.0% at December 31, 2015. The facility expires on December 17, 2016. To guarantee the obligations of Gerens resulting from the Credit Contracts, Gerens took out a guarantee in favor of each one of the Financing Entities, which, additionally, and solely in the case of an unremedied failure to make payment, and at the request of each of the Financing Entities, shall grant a first ranking pledge over a given percentage of corporate shares of Hill International Brasil Participações Ltda. for the principal, interest, fees, expenses or any other amount owed by virtue of the Credit Contracts, coinciding with the percentage of credit of each Financing Entity with respect to the total outstanding borrowings under this facility.

 

   

The Company also maintains three revolving credit lines with two banks in Brazil for 1,700,000, 200,000 and 1,000,000 Brazilian Reais each (approximately $1,084,000, $128,000 and $638,000, respectively) with monthly interest rates of 2.87%, 5.30% and 2.75%, respectively. There were no borrowings outstanding on any of these facilities at June 30, 2011 which are renewed automatically every three months.

 

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Uncertainties With Respect to Operations in Libya

We currently have active contracts in Libya. Due to the recent political unrest, we have suspended our operations in, and removed substantially all of our personnel from Libya. We are unable to predict when, or if, the work in Libya will resume. At June 30, 2011, the accounts receivable related to the work performed under contracts in Libya was $59,933,000. We are unable to determine the effect this unrest will have on the collectibility of the accounts receivable. We believe that the amount due will be collected, however, if we are unable to do so, there could be a significant adverse impact on our results of operations and liquidity.

Additional Capital Requirements

We experience lags between receipt of fees from our clients and payment of our costs. In order to continue our growth, and in light of the cash obligations described above, we have a credit agreement that allows for borrowings up to $80,000,000 with a consortium of banks led by Bank of America. At June 30, 2011, availability under the credit agreement was $7,700,000. However, we may seek additional debt financing beyond this amount.

Sources of Additional Capital

At June 30, 2011, our cash and cash equivalents amounted to approximately $30,293,000 of which $7,228,000 is on deposit in the U.S. and $23,065,000 is on deposit in foreign locations.

On July 27, 2011, we filed a Form S-3 with the Securities and Exchange Commission (the “SEC”) to register 20,000,000 shares of our common stock for sale at various times in the future. The proceeds, if any, will be used for working capital and general corporate purposes. We cannot predict the amount of proceeds from those future sales or whether there will be a market for our common stock at the time of offering to the public.

On July 27, 2011, we filed a Form S-4 with the SEC to register 8,000,000 shares of our common stock for use in future acquisitions. We cannot predict whether such shares would be accepted by potential sellers.

We cannot provide any assurance that any other sources of financing will be available, or if available, that the financing will be on terms acceptable to us.

Cash Flow Activity During the Six months ended June 30, 2011

For the six months ended June 30, 2011, our cash and cash equivalents decreased by $9,113,000 to $30,293,000. Cash provided by operations was $7,967,000, cash used in investing activities was $20,791,000 and cash provided by financing activities was $9,314,000. We also experienced a decrease in cash of $5,603,000 from the effect of foreign currency exchange rate fluctuations.

Operating Activities

Cash provided by operations is attributable to consolidated net loss of $5,573,000 for the period adjusted by non-cash items included in net loss and working capital changes such as:

 

   

Non-Cash Items:

 

   

Depreciation and amortization of $7,135,000;

   

Bad debt expense of $954,000;

   

Deferred taxes of $427,000; and,

   

Stock based compensation expense of $1,527,000

 

   

Working capital changes which increased cash included the following:

 

   

A decrease in accounts receivable of $7,864,000 plus increases due to foreign currency translation adjustments of approximately $11,503,000 and the acquisition of Engineering S.A. accounts receivable amounting to $4,486,000;

   

A decrease in other assets amounting to $2,003,000; and

   

An increase in accounts payable and accrued expenses of $3,808,000 due to the timing of payments for various selling, general and administrative cost, subcontractors and accrued earn out

 

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costs related to the MLL acquisition; the increase in accounts payable was impacted by a foreign currency translation adjustment of approximately $4,551,000 and the acquisition of Engineering S.A. accounts payable amounting to $4,551,000.

 

   

Working capital changes which decreased cash included the following:

 

   

A decrease in income taxes payable of $3,673,000 due primarily to the tax effect of net loss for the period;

   

A decrease in deferred revenue of $3,022,000; and

   

A decrease in other liabilities of $2,804,000.

Investing Activities

We used $13,881,000, net of cash acquired, on the acquisition of Engineering S.A. We spent $4,029,000 to purchase computers, office equipment, furniture and fixtures. We spent $1,609,000 to acquire an additional interest in Gerens. We also contributed $1,668,000 to Hill Petrol and affiliates of Gerens to provide funds for those operations. We received $396,000 in cash distributions from SBH and TMG.

Financing Activities

We received $13,157,000 in net borrowings under our credit facilities. We made payments on notes payable amounting to $3,683,000. Due to bank decreased $711,000 due to the timing of certain payments which were disbursed but not immediately funded by the bank. We received proceeds amounting to $551,000 from the exercise of stock options and purchases under our 2006 Employee Stock Purchase Plan.

Quarterly Fluctuations

Our operating results vary from period to period as a result of the timing of projects and assignments. We do not believe that our business is seasonal.

Backlog

We believe a strong indicator of our future performance is our backlog of uncompleted projects under contract or awarded. Our backlog represents management’s estimate of the amount of contracts and awards in hand that we expect to result in future consulting fees. Project management backlog is evaluated by management, on a project-by-project basis and is reported for each period shown based upon the binding nature of the underlying contract, commitment or letter of intent, and other factors, including the economic, financial and regulatory viability of the project and the likelihood of the contract being extended, renewed or cancelled. Construction claims backlog is based largely on management’s estimates of future revenue based on known construction claims assignments and historical results for new work. Because a significant number of construction claims may be awarded and completed within the same period, our actual construction claims revenue has historically exceeded backlog by a significant amount.

Our backlog is important to us in anticipating and planning for our operational needs. Backlog is not a measure defined in generally accepted accounting principles, and our methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog.

Our backlog was approximately $2,297,000,000 at June 30, 2011 compared to $789,000,000 at March 31, 2011. This increase was primarily the result of two significant contracts for work related to a major housing development in Iraq, increased bookings attributable to the Middle East operations and the acquisition of Engineering S.A. The two contracts in Iraq were a $1,300,000,000 contract for structural systems which was awarded to our 51%-owned subsidiary, HillStone International, LLC, and a $200,000,000 contract for project management and construction management services which was awarded to our Project Management Group. At June 30, 2011, backlog attributable to work in Libya amounted to $55,386,000. We estimate that $445,000,000 or 19.4% of the backlog at June 30, 2011 will be recognized during the twelve months subsequent to June 30, 2011.

The schedule below includes backlog under two categories: (1) contracts for which work authorizations have been or are expected to be received on a time and material basis, fixed-price basis and not-to-exceed projects that are well defined and (2) contracts awarded to the Company where some or all of the work has not yet been authorized. As of June 30, 2011, approximately $621,000,000, or 27.0%, of our backlog was in category 1 and approximately $1,676,000,000, or 73.0%, of our backlog was in category 2. We do not track whether the contracts and awards included in our backlog are fully funded, incrementally funded, or unfunded.

Included in category 2 of our backlog is the maximum amount of all indefinite delivery/indefinite quantity (“ID/IQ”), or task order contracts, or a lesser amount if we do not reasonably expect task orders to be issued for the maximum amount of such contracts. Also

 

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included in category 2 of our backlog is the amount of anticipated revenues in option years beyond the base term of our contracts if we reasonably expect our clients to exercise such option years. Although backlog reflects business that we consider to be firm, cancellations or scope adjustments may occur. Further, substantially all of our contracts with our clients may be terminated at will, in which case the client would only be obligated to us for services provided through the termination date. Historically, the impact of terminations and modifications on our realization of revenues from our backlog has not been significant, however, there can be no assurance that such changes will not be significant in the future. Furthermore, reductions of our backlog as a result of contract terminations and modifications may be offset by additions to the backlog.

We adjust backlog to reflect project cancellations, deferrals and revisions in scope and cost (both upward and downward) known at the reporting date. Future contract modifications or cancellations, however, may increase or reduce backlog and future revenue.

 

     Total Backlog     12-Month Backlog  
(In thousands)    $      %     $      %  

As of June, 30 2011:

          

Project Management

   $ 952,000         41.4   $ 300,000         67.4

Construction Claims

     45,000         2.0     41,000         9.2

HillStone International

     1,300,000         56.6     104,000         23.4
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 2,297,000         100.0   $ 445,000         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

As of March 31, 2011:

          

Project Management

   $ 745,000         94.4   $ 259,000         85.5

Construction Claims

     44,000         5.6     44,000         14.5

HillStone International

     —           —       —           —  
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 789,000         100.0   $ 303,000         100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Refer to the Company’s 2010 Annual Report for a complete discussion of the Company’s market risk. There have been no material changes to the market risk information included in the Company’s 2010 Annual Report.

 

Item 4. Controls and Procedures

The management of the Company, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of June 30, 2011. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of that date, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. During the quarter ended June 30, 2011, there were no changes in our internal control over financial reporting that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. However, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

 

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Part II – Other Information

Item 1. Legal Proceedings

On July 16, 2009, Al Areen Desert Resort Holding Company (“Al Areen”) filed a complaint with the Ministry of Justice & Islamic Affairs in the Kingdom of Bahrain against the Company alleging breach of contract and other causes of action in connection with its performance of a construction project known as Al Areen Desert Spa and Resort (the “Project”), seeking the sum of approximately 10,200,000 Bahraini Dinars (approximately $27,052,000 at June 30, 2011) in damages. The Company provided project management services on the Project and Al Areen failed to pay the Company 679,000 Bahraini Dinars (approximately $1,801,000 at June 30, 2011) for services rendered on the Project. The Company served notice of termination on April 28, 2009.

On September 26, 2009, the Company filed a Request for Arbitration with the International Chamber of Commerce, International Court of Arbitration, seeking the sum of 679,000 Bahraini Dinars. On June 29, 2011, the parties executed a settlement agreement under which Al Areen will pay to the Company the sum of approximately 394,000 Bahraini Dinars (approximately $1,043,000) and withdrew its claims against the Company.

 

Item 1A. Risk Factors

There have been no material changes pertaining to risk factors discussed in the Company’s 2010 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Funds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

 

Item 6. Exhibits

 

31.1    Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2    Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification of Irvin E. Richter, Chief Executive Officer of Hill International, Inc., pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2    Certification of John Fanelli III, Chief Financial Officer of Hill International, Inc., pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

37


Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

      Hill International, Inc.
Dated: August 9, 2011     By:  

/s/ Irvin E. Richter

        Irvin E. Richter
        Chairman and Chief Executive Officer
        (Principal Executive Officer)
Dated: August 9, 2011     By:  

/s/ John Fanelli III

          John Fanelli III
          Senior Vice President and
          Chief Financial Officer
           (Principal Financial Officer)
Dated: August 9, 2011     By:  

/s/ Ronald F. Emma

      Ronald F. Emma
      Senior Vice President and
      Chief Accounting Officer
      (Principal Accounting Officer)

 

38

Section 302 CEO Certification

Exhibit 31.1

Hill International, Inc.

Certification of Chief Executive Officer

I, Irvin E. Richter, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Hill International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: August 9, 2011      

/s/ Irvin E. Richter

     

Irvin E. Richter

     

Chief Executive Officer

Section 302 CFO Certification

Exhibit 31.2

Hill International, Inc.

Certification of Senior Vice President and Chief Financial Officer

I, John Fanelli III, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Hill International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: August 9, 2011      

/s/ John Fanelli III

         John Fanelli III
         Chief Financial Officer
Section 906 CEO Certification

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U. S. C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Hill International, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2011 (the “Report”), I, Irvin E. Richter, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Irvin E. Richter

Irvin E. Richter
Chairman and Chief Executive Officer

Dated: August 9, 2011

Section 906 CFO Certification

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U. S. C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Hill International, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2011 (the “Report”), I, John Fanelli III, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

  1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable of the Securities Exchange Act of 1934; and

 

  2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ John Fanelli III

John Fanelli III
Senior Vice President and
Chief Financial Officer

Dated: August 9, 2011