Hill International, Inc.
Hill International, Inc. (Form: 10-Q, Received: 05/10/2012 12:44:57)
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 March 31, 2012

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 38,578,409 shares of the Registrant’s Common Stock outstanding at May 1, 2012.

 

 

 


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 March 31, 2012 (unaudited) and December 31, 2011

     3   
 

Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 (unaudited)

     4   
 

Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2012 and 2011 (unaudited)

     5   
 

Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (unaudited)

     6   
 

Notes to Consolidated Financial Statements

     7   

Item 2

 

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

     19   

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

     29   

Item 4

 

Controls and Procedures

     29   

Part II

 

OTHER INFORMATION

  

Item 1

 

Legal Proceedings

     31   

Item 1A

 

Risk Factors

     31   

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

     31   

Item 3

 

Defaults Upon Senior Securities

     31   

Item 4

 

Mine Safety Disclosures

     31   

Item 5

 

Other Information

     31   

Item 6

 

Exhibits

     31   

Signatures

     32   


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)

 

     March 31, 2012     December 31, 2011  
     (unaudited)        
Assets     

Cash and cash equivalents

   $ 24,698     $ 17,924  

Cash—restricted

     2,324       1,480  

Accounts receivable, less allowance for doubtful accounts of $8,982 and $9,181

     196,824       197,906  

Accounts receivable—affiliate

     1,794       1,830  

Prepaid expenses and other current assets

     8,573       8,289  

Income taxes receivable

     2,707       1,688  

Deferred income tax assets

     1,763       2,716  
  

 

 

   

 

 

 

Total current assets

     238,683       231,833  

Property and equipment, net

     12,565       13,110  

Cash—restricted, net of current portion

     5,763       6,281  

Retainage receivable

     3,217       4,434  

Acquired intangibles, net

     29,384       30,937  

Goodwill

     84,841       82,941  

Investments

     9,311       12,620  

Deferred income tax assets

     18,824       18,186  

Other assets

     6,399       7,170  
  

 

 

   

 

 

 

Total assets

   $ 408,987     $ 407,512  
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Due to bank

   $ —        $ 1,299  

Current maturities of notes payable

     86,560       6,025  

Accounts payable and accrued expenses

     75,623       76,747  

Income taxes payable

     2,160       4,071  

Deferred revenue

     21,615       15,503  

Deferred income taxes

     340       337  

Other current liabilities

     5,742       4,818  
  

 

 

   

 

 

 

Total current liabilities

     192,040       108,800  

Notes payable, net of current maturities

     11,548       87,435  

Retainage payable

     3,484       5,512  

Deferred income taxes

     15,469       15,224  

Deferred revenue

     5,975       6,604  

Other liabilities

     11,460       11,543  
  

 

 

   

 

 

 

Total liabilities

     239,976       235,118  
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ equity:

    

Preferred stock, $0.0001 par value; 1,000,000 shares authorized, none issued

     —          —     

Common stock, $0.0001 par value; 75,000,000 shares authorized, 45,004,944 shares and 44,937,054 shares issued at March 31, 2012 and December 31, 2011, respectively

     4       4  

Additional paid-in capital

     127,895       127,168  

Retained earnings

     66,890       73,626  

Accumulated other comprehensive loss

     (16,972     (18,896
  

 

 

   

 

 

 
     177,817       181,902  

Less treasury stock of 6,433,651 shares, at cost

     (27,766     (27,766
  

 

 

   

 

 

 

Hill International, Inc. share of equity

     150,051       154,136  

Noncontrolling interests

     18,960       18,258  
  

 

 

   

 

 

 

Total equity

     169,011       172,394  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 408,987     $ 407,512  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

     Three months ended March 31,  
     2012     2011  

Consulting fee revenue

   $ 99,197     $ 94,272  

Reimbursable expenses

     16,616       28,738  
  

 

 

   

 

 

 

Total revenue

     115,813       123,010  
  

 

 

   

 

 

 

Cost of services

     58,462       55,343  

Reimbursable expenses

     16,616       28,738  
  

 

 

   

 

 

 

Total direct expenses

     75,078       84,081  
  

 

 

   

 

 

 

Gross profit

     40,735       38,929  

Selling, general and administrative expenses

     43,472       44,226  

Equity in earnings of affiliates

     —          (4
  

 

 

   

 

 

 

Operating loss

     (2,737     (5,293

Interest expense and related financing fees, net

     4,841       994  
  

 

 

   

 

 

 

Loss before income taxes

     (7,578     (6,287

Income tax benefit

     (1,041     (909
  

 

 

   

 

 

 

Consolidated net loss

     (6,537     (5,378

Less: net earnings—noncontrolling interests

     199       218  
  

 

 

   

 

 

 

Net loss attributable to Hill International, Inc.

   $ (6,736   $ (5,596
  

 

 

   

 

 

 

Basic loss per common share—Hill International, Inc.

   $ (0.17   $ (0.15
  

 

 

   

 

 

 

Basic weighted average common shares outstanding

     38,526       38,276  
  

 

 

   

 

 

 

Diluted loss per common share—Hill International, Inc.

   $ (0.17   $ (0.15
  

 

 

   

 

 

 

Diluted weighted average common shares outstanding

     38,526       38,276  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(Unaudited)

 

     Three months ended March 31,  
     2012     2011  

Consolidated net loss

   $ (6,537   $ (5,378

Foreign currency translation adjustment, net of tax

     2,355       3,891  

Other, net

     72       199  
  

 

 

   

 

 

 

Comprehensive loss

     (4,110     (1,288

Comprehensive earnings attributable to noncontrolling interest

     702       947  
  

 

 

   

 

 

 

Comprehensive loss attributable to Hill International, Inc.

   $ (4,812   $ (2,235
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Three months ended March 31,  
     2012     2011  

Cash flows from operating activities:

    

Consolidated net loss

   $ (6,537   $ (5,378

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     3,305       3,102  

Equity in earnings of affiliates

     —          (4

Provision for bad debts

     215       446  

Deferred tax provision

     397       640  

Stock based compensation

     634       617  

Changes in operating assets and liabilities, net of acquisition:

    

Accounts receivable

     5,727       2,960  

Accounts receivable—affiliate

     36       394  

Prepaid expenses and other current assets

     (87     (2,375

Income taxes receivable

     (941     2  

Retainage receivable

     1,217       (249

Other assets

     736       (296

Accounts payable and accrued expenses

     (2,650     4,837  

Income taxes payable

     (2,179     (3,262

Deferred revenue

     4,962       (556

Other current liabilities

     909       787  

Retainage payable

     (2,031     (29

Other liabilities

     (209     (2,124
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     3,504       (488
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of business, net of cash acquired

     —          (13,881

Distributions from affiliate

     —          273  

Sale of investment

     3,149       —     

Payments for purchase of property and equipment

     (361     (1,805

Purchase of additional interest in subsidiary

     —          (1,609
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     2,788       (17,022
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Due to bank

     (1,299     (1,515

Payments on notes payable

     (605     (4

Net borrowings on revolving loans

     4,036       8,934  

Proceeds from stock issued under employee stock purchase plan

     24       16  

Proceeds from exercise of stock options

     2       10  
  

 

 

   

 

 

 

Net cash provided by financing activities

     2,158       7,441  
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     (1,676     (2,642
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     6,774       (12,711

Cash and cash equivalents—beginning of period

     17,924       39,406  
  

 

 

   

 

 

 

Cash and cash equivalents—end of period

   $ 24,698     $ 26,695  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

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 further adversely affect the Company’s results of operations.

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, 2011. 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.

 

7


Table of Contents

Note 3—Accounts Receivable

The components of accounts receivable are as follows:

 

(in thousands)    March 31, 2012     December 31, 2011  

Billed

   $ 171,842     $ 181,505  

Retainage, current portion

     4,795       3,960  

Unbilled

     29,169       21,622  
  

 

 

   

 

 

 
     205,806       207,087  

Allowance for doubtful accounts

     (8,982     (9,181
  

 

 

   

 

 

 
   $ 196,824     $ 197,906  
  

 

 

   

 

 

 

At March 31, 2012, the accounts receivable related to the work performed prior to March 2011 under contracts in Libya amounted to $59,838,000. Due to the current political and economic uncertainty in Libya, the Company is unable to determine the effect this situation 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.

Note 4—Intangible Assets

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

 

     March 31, 2012      December 31, 2011  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Gross
Carrying
Amount
     Accumulated
Amortization
 
(in thousands)                            

Client relationships

   $ 34,892      $ 11,243      $ 34,040      $ 9,942  

Acquired contract rights

     9,288        5,482        13,096        8,244  

Trade names

     2,792        863        3,378        1,391  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 46,972      $ 17,588      $ 50,514      $ 19,577  
  

 

 

    

 

 

    

 

 

    

 

 

 

Intangible assets, net

   $ 29,384         $ 30,937     
  

 

 

       

 

 

    

Amortization expense related to intangible assets totaled $2,194,000 and $1,961,000 for the three-months ended March 31, 2012 and 2011, respectively. 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)  

2012 (remaining 9 months)

   $ 5,637  

2013

     5,071  

2014

     3,969  

2015

     3,629  

2016

     3,109  

 

8


Table of Contents

Note 5—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. The Company performed its annual impairment test effective July 1, 2011 and noted no impairment for either of its reporting units. In the future, the Company will continue to perform the annual test during its fiscal third quarter unless events or circumstances indicate an impairment may have occurred before that time.

The following table summarizes the changes in the Company’s carrying value of goodwill during 2012 (in thousands):

 

     Project
Management
     Construction
Claims
     Total  

Balance, December 31, 2011

   $ 56,896      $ 26,045      $ 82,941  

Translation adjustments

     1,342        558        1,900  
  

 

 

    

 

 

    

 

 

 

Balance, March 31, 2012

   $ 58,238      $ 26,603      $ 84,841  
  

 

 

    

 

 

    

 

 

 

Note 6—Accounts Payable and Accrued Expenses

Below are the components of accounts payable and accrued expenses:

 

     March 31, 2012      December 31, 2011  
(in thousands)              

Accounts payable

   $ 17,720      $ 25,541  

Accrued payroll

     27,236        24,431  

Accrued subcontractor fees

     7,560        2,647  

Accrued agency fees

     15,438        15,336  

Accrued legal and professional fees

     2,656        2,887  

Other accrued expenses

     5,013        5,905  
  

 

 

    

 

 

 
   $ 75,623      $ 76,747  
  

 

 

    

 

 

 

 

9


Table of Contents

Note 7—Notes Payable

Outstanding debt obligations are as follows:

 

     March 31, 2012      December 31, 2011  
     (in thousands)  

Revolving credit loan payable. The weighted average interest rate of all borrowings was 7.00% and 6.75% at March 31, 2012 and December 31, 2011, respectively. (For more information, see below.)

   $ 80,000      $ 77,000  

Revolving credit loan payable to Barclays Bank PLC up to £500,000 (approximately $801,000 and $776,000 at March 31, 2012 and December 31, 2011, respectively), with interest at 2.00% plus the Bank of England rate of 0.50% (or 2.50%) at both March 31, 2012 and December 31, 2011, 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 a minimum of 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.

     149        —     

Unsecured credit facility with the Caja Badajoz in Spain for €1,500,000 (approximately $2,001,000 and $1,944,000 at March 31, 2012 and December 31, 2011, respectively) of which €385,000 (approximately $514,000) was outstanding at March 31, 2012. The interest rate at March 31, 2012 is the three-month EURIBOR rate of 1.42% plus 3.00% (or 4.42%). The interest rate at December 31, 2011 was the three-month EURIBOR rate of 1.94% plus 3.00% (or 4.94%).

     514        —     

Revolving credit facilities with a consortium of banks in Spain providing for total borrowings of up to €4,870,000 (approximately $6,498,000 and $6,311,000 at March 31, 2012 and December 31, 2011, respectively). The stated interest rate is 6.50%. (For more information, see below.)

     4,653        4,301  

Credit facility with the National Bank of Abu Dhabi providing for total borrowings of up to AED11,500,000 (approximately $3,131,000 at both March 31, 2012 and December 31, 2011, respectively), collateralized by certain overseas receivables. The interest rate is the three-month Emirates InterBank Offer Rate of 1.52% and 1.51% at March 31, 2012 and December 31, 2011, respectively plus 3.00%, (or 4.52% and 4.51% at March 31, 2012 and December 31, 2011, respectively) but no less than 5.50%. The amount outstanding on this facility was AED9,670,000 and AED8,301,000 at March 31, 2012 and December 31, 2011, respectively. This facility is being renewed on a month-to-month basis. (For more information, see below.)

     2,634        2,260  

Payments due for the Engineering S.A. acquisition.

     9,633        9,236  

Other notes payable

     525        663  
  

 

 

    

 

 

 
     98,108        93,460  

Less current maturities

     86,560        6,025  
  

 

 

    

 

 

 

Notes payable, net of current maturities

   $ 11,548      $ 87,435  
  

 

 

    

 

 

 

 

10


Table of Contents

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 and Bank of America, N.A., Capital One, N.A., The PrivateBank and Trust Company and PNC Bank N.A. (the “Lenders”) with Bank of America, N.A. acting as Agent.

During 2011, the Company was in violation of certain of the financial covenants and subsequently entered into a series of waivers, forbearance agreements and amendments to the Credit Agreement, most recently on March 6, 2012. In connection with the amendment dated March 6, 2012, the Company incurred fees amounting to approximately $2,075,000 which were charged to interest expense and related financing fees, net in the quarter ended March 31, 2012.

The Credit Agreement, as amended, provides for borrowings of up to $100,000,000 with a letter of credit sub-facility of up to $35,000,000 (the “Aggregate Commitments”). 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 N.V. Additionally, the Credit Agreement prohibits the Company from making new investments or acquisitions, limits the amount of cash the Company may accumulate, prohibits the payment of dividends and requires the Company to take certain actions, including providing additional monthly reporting to the Lenders. Borrowings outstanding under the Credit Agreement will bear interest at a fluctuating rate per annum equal to the sum of (a) the highest of (i) the Federal Funds Rate (as defined in the Credit Agreement) plus 0.50%, (ii) the Bank of America prime rate or (iii) the Eurodollar Rate plus 1.00%, plus (b) an Applicable Rate which may vary between 0.75% and 4.75% depending on the Company’s consolidated leverage ratio at the time of the borrowing. Also, no Lender may issue a Letter of Credit with an expiration date after March 31, 2014 without the approval by all Lenders, and the total amount available to be drawn under all Letters of Credit expiring after March 31, 2013 is limited to $27,500,000 without approval by all Lenders.

Among other things, the Company is required to comply with the following financial covenants:

(a) the consolidated leverage ratio for (i) each period ending June 30, 2012, September 30, 2012 and December 31, 2012 will not be greater than 7.00 to 1.00; (ii) the period ending March 31, 2013 will not be greater than 4.25 to 1.00; (iii) the period ending June 30, 2013 will not be greater than 4.00 to 1.00; (iv) the period ending September 30, 2013 will not be greater than 3.75 to 1.00; and (v) the periods ending on or after December 31, 2013 will not be greater than 3.50 to 1.00;

(b) the consolidated fixed charge coverage ratio for (i) the two quarters ending March 31, 2012 and the three quarters ending June 30, 2012 will not be less than 1.00 to 1.00 and (ii) for the periods ending on or after September 30, 2012 will not be less than 1.25 to 1.00; and

(c) the consolidated funded indebtedness ratio will not be less than 0.65 to 1.00.

The Credit Agreement, as amended, requires that 100% of the first $25,000,000 of proceeds from the sale of our equity interests plus 50% of all of these proceeds in excess of $50,000,000 plus 50% of the Net Libya Receivable (as defined in the Second Amendment) plus 50% of any payments or distributions to us from HillStone shall be applied to reduce the Aggregate Commitments, but not below $60,000,000. By March 31, 2013, the Aggregate Commitments must be no greater than $75,000,000. The Company paid an amendment fee equal to 0.15% of the Aggregate Commitments on March 6, 2012 and must pay a subsequent amendment fee equal to 1.0% of the Aggregate Commitments on April 15, 2013 and a deferred fee (the “Deferred Fee”) equal to 2.0% of the total amounts outstanding (borrowings plus letters of credit). The Deferred Fee will accrue from March 6, 2012 and is payable on the earlier to occur of (x) the date the Aggregate Commitments are reduced to $75,000,000, (y) the date of the occurrence of an event of default (other than the Designated Defaults) and (z) the maturity date.

As of March 31, 2012, the Company was in violation of financial covenants (b) and (c) above. Accordingly, the Company has classified all borrowings under the Credit Agreement as current in the consolidated balance sheet at March 31, 2012. The Company is in discussions with the Lenders regarding the Credit Facility.

 

11


Table of Contents

As of March 31, 2012, the Company had $16,518,000 in outstanding letters of credit. Due to conditions of the Credit Agreement, as amended, total remaining availability at March 31, 2012 was $3,482,000.

The Company’s subsidiary, Gerens Hill, maintains a revolving credit facility with 12 banks (the “Financing Entities”) in Spain providing for total borrowings with interest at 6.50% of up to €4,870,000 (approximately $6,498,000 and $6,311,000 at March 31, 2012 and December 31, 2011, respectively), of which €3,488,000 (approximately $4,653,000) and €3,319,000 (approximately $4,301,000) were utilized at March 31, 2012 and December 31, 2011, respectively. The total amount being financed (“Credit Contracts”) by each Financing Entity is between €353,000 (approximately $471,000) and €689,000 (approximately $919,000). 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 Hill’s obligations resulting from the Credit Contracts, Gerens Hill 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.

The credit facility with the National Bank of Abu Dhabi also allows for up to AED150,000,000 (approximately $40,838,000 at both March 31, 2012 and December 31, 2011) in Letters of Guarantee of which AED122,110,000 and AED132,133,000 (approximately $33,245,000 and $35,973,000, respectively) were utilized at March 31, 2012 and December 31, 2011, respectively.

The Company also maintains a revolving credit loan payable with a European bank up to €1,000,000 (approximately $1,334,000 and $1,296,000 at March 31, 2012 and December 31, 2011, respectively), with interest rates at 0.99% and 1.48% plus Egnatia Bank’s prime rate of 5.00% (or 5.99%) at March 31, 2012 and 5.00% (or 6.48%) at December 31, 2011, collateralized by certain assets of the Company. The facility also allows for letters of guarantee up to €4,500,000 (approximately $6,004,000 and $5,832,000 at March 31, 2012 and December 31, 2011, respectively), of which €869,000 (approximately $1,159,000) and €1,270,000 (approximately $1,645,000) had been utilized at March 31, 2012 and December 31, 2011, respectively. . The facility expiration date has been extended to May 31, 2012. The Company expects that the facility expiration date will be further extended to April 30, 2013 and is awaiting final approval from the bank.

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 (approximately $930,000, $109,000 and $547,000, respectively, at March 31, 2012), with monthly interest rates of 2.87%, 5.30% and 2.75%, respectively. There were no borrowings outstanding on any of these facilities at March 31, 2012 which are renewed automatically every three months.

In connection with the acquisition of Engineering S.A., the Company incurred indebtedness to the sellers amounting to 17,200,000 Brazilian Reais (approximately $10,376,000 at the date of acquisition) and has discounted that amount using an interest rate of 4.72%, the weighted average interest rate at that time. The discounted amounts at March 31, 2012 and December 31, 2012 were $9,633,000 and $9,236,000, respectively.

Note 8—Supplemental Cash Flow Information

The following table provides additional cash flow information:

 

     Three months ended March 31,  
(in thousands)    2012      2011  

Interest and related financing fees paid

   $ 4,679      $ 712  
  

 

 

    

 

 

 

Income taxes paid

   $ 1,374      $ 1,043  
  

 

 

    

 

 

 

 

12


Table of Contents

Note 9—Equity in Earnings of Affiliates

Equity in earnings of affiliates reflects the Company’s ownership of 50.0% of the members’ equity of Hill TMG.

Hill TMG was 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 March 31, 2012 and December 31, 2011, the Company reported receivables totaling $1,394,000 and $1,679,000, 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 March 31, 2012 and 2011 was $0 and $79,000, respectively.

Note 10—Loss per Share

Basic loss per common share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted loss per common share incorporates the incremental shares issuable upon the assumed exercise of stock options, if dilutive. Stock options were excluded from the calculation of diluted loss per common share because their effect was antidilutive for both of the three-month periods ended March 31, 2012 and 2011. The total number of such shares excluded from diluted loss per common share was 3,943,290 shares and 2,396,944 shares for the three-month periods ended March 31, 2012 and 2011, respectively.

Note 11—Share-Based Compensation

At March 31, 2012, the Company had 4,623,741 options outstanding with a weighted average exercise price of $5.29. During the three-month period ended March 31, 2012, the Company granted 880,200 options which vest over a four-year period, have a weighted average exercise price of $5.47 and a weighted-average contractual life of 5.00 years. The aggregate fair value of the options was $2,350,000 calculated using the Black-Scholes valuation model. The weighted average assumptions used to calculate fair value were: expected life—3.75 years; volatility—78.4% and risk-free interest rate—0.85%. During the three-month period ended March 31, 2012, options for 1,000 shares with a weighted average exercise price of $2.45 were exercised, options for 17,000 shares with a weighted average exercise price of $4.99 were forfeited and options for 60,000 shares with a weighted average exercise price of $8.14 lapsed.

During the three-month period ended March 31, 2012, the Company issued 60,000 shares of restricted common stock to certain of its officers under the Company’s 2007 Restricted Stock Grant Plan.

During the three-month period ended March 31, 2012, employees purchased 6,890 common shares, for an aggregate purchase price of $28,000, 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 $634,000 and $617,000 for the three-month periods ended March 31, 2012 and 2011, respectively.

Note 12—Stockholders’ Equity

On November 10, 2008, the Board of Directors approved a stock repurchase program whereby the Company could 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. 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 March 31, 2012, 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

 

13


Table of Contents

$4.19 per share. Under the terms of its Credit Agreement (see Note 7), the Company is prohibited from making any further repurchases of its common stock without the written consent of the Lenders.

The following table summarizes the changes in stockholders’ equity during the three months ended March 31, 2012:

 

     Total     Hill International,
Inc.  stockholders
    Noncontrolling
interests
 

Stockholders’ equity, December 31, 2011

   $ 172,394     $ 154,136     $ 18,258  

Net (loss) earnings

     (6,537     (6,736     199  

Other comprehensive loss

     2,427       1,924       503  
  

 

 

   

 

 

   

 

 

 

Comprehensive (loss) earnings

     (4,110     (4,812     702  

Additional paid in capital

     727       727       —     
  

 

 

   

 

 

   

 

 

 

Stockholders’ equity, March 31, 2012

   $ 169,011     $ 150,051     $ 18,960  
  

 

 

   

 

 

   

 

 

 

Note 13—Income Taxes

During the three-month periods ended March 31, 2012 and 2011, there was no change in the reserve for uncertain tax positions. The reserves for uncertain tax positions amounted to $5,386,000 and $6,289,000 at March 31, 2012 and 2011, respectively, and are included in “Other Liabilities” in the consolidated balance sheets.

The Company’s policy is to record income tax related interest and penalties in income tax expense. At March 31, 2012, potential interest and penalties related to uncertain tax positions amounting to $100,000 was included in the balance above.

The effective tax rates for the three-month periods ended March 31, 2012 and 2011 were 13.7% and 14.5%, respectively. For both periods, the tax rates are low because a substantial portion of the Company’s profit comes from foreign operations which are taxed at lower rates, if at all, and because of the financial reporting requirements related to noncontrolling interest in pass-through entities that requires the income tax expense on the pass-through entity’s pretax income attributable to the noncontrolling interest be excluded from consolidated income tax expense.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, with the exception of foreign net operating losses. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

Note 14—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

 

14


Table of Contents

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 disclosures for the Company’s reportable segments (in thousands):

Consulting Fee Revenue (“CFR”)

 

     Three months ended March 31,  
     2012     2011  

Project Management

   $ 73,141        73.7   $ 69,848        74.1

Construction Claims

     26,056        26.3       24,424        25.9  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 99,197        100.0   $ 94,272        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Revenue:

 

     Three months ended March 31,  
     2012     2011  

Project Management

   $ 89,038        76.9   $ 97,924        79.6

Construction Claims

     26,775        23.1       25,086        20.4  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 115,813        100.0   $ 123,010        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Operating Profit (Loss):

 

     Three months ended March 31,  
     2012     2011  

Project Management before equity in earnings of affiliates

   $ 3,555     $ 2,753  

Equity in earnings of affiliates

     —          4  
  

 

 

   

 

 

 

Total Project Management

     3,555       2,757  

Construction Claims

     1,180       (735

Corporate Expenses

     (7,472     (7,315
  

 

 

   

 

 

 

Total

   $ (2,737   $ (5,293
  

 

 

   

 

 

 

Depreciation and Amortization Expense:

 

     Three months ended March 31,  
     2012      2011  

Project Management

   $ 2,459       $ 2,220  

Construction Claims

     801        830  
  

 

 

    

 

 

 

Subtotal segments

     3,260        3,050  

Corporate

     45        52  
  

 

 

    

 

 

 

Total

   $ 3,305       $ 3,102  
  

 

 

    

 

 

 

 

15


Table of Contents

Consulting Fee Revenue by Geographic Region:

 

     Three months ended March 31,  
     2012     2011  

U.S./Canada

   $ 28,535        28.8   $ 27,852        29.5

Latin America

     13,532        13.6       4,090        4.4  

Europe

     21,598        21.8       21,812        23.1  

Middle East

     28,999         29.2        25,761        27.3  

North Africa

     2,595        2.6       10,463        11.1  

Asia/Pacific

     3,938         4.0       4,294        4.6  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 99,197        100.0   $ 94,272        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

U.S.

   $ 27,663        27.9   $ 27,203        28.9

Non-U.S.

     71,534        72.1       67,069        71.1  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 99,197        100.0   $ 94,272        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Revenue by Geographic Region:

 

     Three months ended March 31,  
     2012     2011  

U.S./Canada

   $ 42,165        36.4   $ 54,292        44.1

Latin America

     13,639        11.8       4,099        3.3  

Europe

     23,272        20.1       22,935        18.6  

Middle East

     29,834         25.7        26,224        21.3  

North Africa

     2,973        2.6       10,928        8.9  

Asia/Pacific

     3,930         3.4        4,532        3.8  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 115,813        100.0   $ 123,010        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

U.S.

   $ 41,280        35.6   $ 53,643        43.6

Non-U.S.

     74,533        64.4       69,367        56.4  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 115,813        100.0   $ 123,010        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

 

16


Table of Contents

Consulting Fee Revenue By Client Type:

 

     Three months ended March 31,  
     2012     2011  

U.S. federal government

   $ 2,958        3.0   $ 3,334        3.5

U.S. state, local and regional government

     14,952        15.1       14,156        15.0  

Foreign government

     21,194        21.4       25,118        26.6  

Private sector

     60,093        60.5       51,664        54.9  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 99,197        100.0   $ 94,272        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Revenue By Client Type:

 

     Three months ended March 31,  
     2012     2011  

U.S. federal government

   $ 3,560        3.1   $ 3,823        3.1

U.S. state, local and regional government

     19,981        17.3       40,749        33.1  

Foreign government

     22,931        19.8       26,628        21.6  

Private sector

     69,341        59.8       51,810        42.2  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 115,813        100.0   $ 123,010        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Property, Plant and Equipment, Net by Geographic Location:

 

     March 31, 2012      December 31, 2011  

U.S./Canada

   $ 5,411      $ 6,070  

Latin America

     1,748        1,804  

Europe

     2,260        2,088  

Middle East

     2,387        2,371  

North Africa

     261        284  

Asia/Pacific

     498        493  
  

 

 

    

 

 

 

Total

   $ 12,565      $ 13,110  
  

 

 

    

 

 

 

U.S.

   $ 5,403      $ 6,061  

Non-U.S.

     7,162        7,049  
  

 

 

    

 

 

 

Total

   $ 12,565      $ 13,110  
  

 

 

    

 

 

 

Note 15—Concentrations

The Company had no clients that accounted for 10% or more of total revenue for the three-month period ended March 31, 2012 and one client that accounted for 18% of total revenue for the three-month period ended March 31, 2011.

The Company had no clients that accounted for 10% or more of consulting fee revenue in the three-month periods ended March 31, 2012 and 2011.

One client, located in Libya, accounted for 28% of accounts receivable at both March 31, 2012 and December 31, 2011.

The Company has numerous contracts with U.S. federal government agencies that collectively accounted for 3% of total revenue during each of the three-month periods ended March 31, 2012 and 2011.

 

17


Table of Contents

Note 16—Commitments and Contingencies

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.

 

18


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, 2011 filed with the Securities and Exchange Commission on March 12, 2012 (the “2011 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 3,200 employees operating from 110 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 majority-owned subsidiary of the Company, HillStone intends to develop 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 29.

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

 

19


Table of Contents

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 affected 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.

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 2011 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.

 

20


Table of Contents

Three Months Ended March 31, 2012 Compared to

Three Months Ended March 31, 2011

Results of Operations

 

Consulting Fee Revenue (“CFR”)                                   
     Three months ended March 31,               
(in thousands)    2012     2011     Change  

Project Management

   $ 73,141        73.7   $ 69,848        74.1   $ 3,293        4.7

Construction Claims

     26,056        26.3       24,424        25.9       1,632        6.7  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Total

   $ 99,197        100.0   $ 94,272        100.0   $ 4,925        5.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

Hill’s CFR increased $4,925,000 to $99,197,000 in the first quarter of 2012 from $94,272,000 in the first quarter of 2011. This was comprised of an increase of 8.2% from the acquisition of Engineering, S.A. in Brazil partially offset by an organic decrease of 3.0% primarily due to the decrease in Libya.

During the first quarter of 2012, Hill’s project management CFR increase of 4.7% included an increase of 11.0% due to the acquisition of Engineering S.A., partially offset by an organic decrease of 6.3% primarily in Libya and the UAE. The increase in project management CFR consisted of a $2,926,000 increase in foreign projects and an increase of $367,000 in domestic projects. The increase in foreign project management CFR was primarily due to an increase of $8,489,000 in Brazil, where Engineering S.A. was acquired at the end of February 2011 and an increase of $3,953,000 due to new work in Saudi Arabia. These increases were partially offset by a decrease of $7,951,000 in Libya where work stopped in February 2011 due to political unrest. The increase in domestic project management CFR was due to an increase in our Mid-Atlantic region partially offset by a decrease in our Washington D.C. region.

During the first quarter of 2012, Hill’s construction claims CFR increase of 6.7% was all organic and primarily resulted from increases in the United Kingdom and the United States.

 

Reimbursable Expenses                                  
     Three months ended March 31,              
(in thousands)    2012     2011     Change  

Project Management

   $ 15,896        95.7   $ 28,076        97.7   $ (12,180     (43.4 )% 

Construction Claims

     720        4.3       662        2.3       58       8.8  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

Total

   $ 16,616        100.0   $ 28,738        100.0   $ (12,122     (42.2 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

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 earnings. The decrease in project management reimbursable expenses was due primarily to decreased use of subcontractors of $11,199,000 in our Northeast region.

 

21


Table of Contents
Cost of Services                                                    
     Three months ended March 31,               
     2012     2011     Change  
                  % of
CFR
                 % of
CFR
              
(in thousands)                                                    

Project Management

   $ 46,649        79.8     63.8   $ 43,611        78.8     62.4   $ 3,038        7.0

Construction Claims

     11,813        20.2       45.3       11,732        21.2       48.0       81        0.7  
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

Total

   $ 58,462        100.0     58.9   $ 55,343        100.0     58.7   $ 3,119        5.6
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

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 Brazil, Saudi Arabia and our Western region in support of the increased revenue in those areas, partially offset by a decrease in Libya.

The increase in the cost of services for construction claims was due primarily to increases in direct costs in the United States and the United Kingdom partially offset by decreases in the Middle East and Australia.

 

Gross Profit                                                    
     Three months ended March 31,               
     2012     2011     Change  
                  % of
CFR
                 % of
CFR
              
(in thousands)                                                    

Project Management

   $ 26,492        65.0     36.2   $ 26,237        67.4     37.6   $ 255        1.0

Construction Claims

     14,243        35.0       54.7       12,692        32.6       52.0       1,551        12.2  
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

Total

   $ 40,735        100.0     41.1   $ 38,929        100.0     41.3   $ 1,806        4.6
  

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

The increase in project management gross profit included an increase of $251,000 from international operations including increases of $3,870,000 from Brazil and $683,000 from the Middle East, primarily Saudi Arabia, partially offset by decreases of $3,463,000 from Libya and $560,000 from the United Kingdom.

The increase in construction claims gross profit of $1,551,000 was driven by increases of $1,537,000 from the United Kingdom and $428,000 from the Middle East partially offset by a decrease of $400,000 from Asia/Pacific where some large assignments were concluded.

 

Selling, General and Administrative (“SG&A”) Expenses                     
     Three months ended March 31,              
(in thousands)    2012     2011     Change  
            % of
CFR
           % of
CFR
             

SG&A Expenses

   $ 43,472        43.8   $ 44,226        46.9   $ (754     (1.7 )% 
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The decrease in SG&A of $754,000 included net organic decreases of $3,563,000 offset by an increase of $2,809,000 from Engineering S.A. which was acquired in February 2011.

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

 

   

A decrease in unapplied and indirect labor expense of $51,000 including decreases of $795,000 in U.S. project management and $767,000 in Europe project management partially offset by an increase of $1,263,000 in Brazil.

 

22


Table of Contents
   

A decrease of $441,000 in administrative travel costs primarily due to cost cutting efforts in reducing non-essential travel.

 

   

A decrease of $346,000 in rent expense due to the closure of a Northern New Jersey office in early 2011 offset by a temporary overlapping of rental costs in the United Kingdom during an office relocation during the first quarter of 2011.

 

   

A decrease of $231,000 in bad debt expense due primarily to a reduction in reserves accrued in the first quarter of 2011 for Washington D.C. and the United Kingdom construction claims group.

 

   

An increase of $233,000 in amortization expense due to an increase of $589,000 for Engineering S.A. partially offset by a decrease of $243,000 for Euromost (Poland) and $101,000 for TRS Consultants (Northern California).

 

Operating Profit (Loss):                                     
     Three months ended March 31,              
     2012     2011     Change  
           % of
CFR
          % of
CFR
             
(in thousands)                                     

Project Management before equity in earnings of affiliates

   $ 3,555       4.9   $ 2,753       3.9   $ 802       29.1

Equity in earnings of affiliates

     —          —          4       —          (4     (100.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total Project Management

     3,555       4.9       2,757       3.9       798       28.9  

Construction Claims

     1,180       4.5       (735     (3.0     1,915       (260.5

Corporate

     (7,472       (7,315       (157     2.1  
  

 

 

     

 

 

     

 

 

   

Total

   $ (2,737     (2.8 )%    $ (5,293     (5.6 )%    $ 2,556       (48.3 )% 
  

 

 

     

 

 

     

 

 

   

Operating loss improved by $2,556,000 during the first quarter of 2012 compared to the first quarter of 2011. This was due primarily to an increase in the Construction Claims operating profit of $1,915,000 and an increase in Project Management operating profit of $798,000.

The increase in Project Management operating profit included increases of $1,249,000 in Brazil, $1,151,000 in the U.S., $874,000 in the Middle East, primarily Saudi Arabia, and $375,000 in Asia/Pacific. These increases were partially offset by a decrease of $3,171,000 in Libya.

The increase in operating profit for the Construction Claims group was primarily due to an increase of $2,586,000 in the United Kingdom and $220,000 in the Americas partially offset by a decrease of $1,165,000 in Australia.

Corporate costs were held to an increase of $157,000 over the prior year with increases in accounting fees, due primarily to first quarter work on the Brazil audit, and increases in Information Technology related costs including licenses, maintenance and depreciation.

Interest Expense and Related Financing Fees, net

This item increased $3,847,000 to $4,841,000 in the three-month period ended March 31, 2012 as compared with $994,000 in three-month period ended March 31, 2011, primarily due to higher levels of debt outstanding and higher interest rates, including the forbearance agreement fees, amended Credit Agreement fees and related legal and advisory fees amounting to $2,075,000.

Income Taxes

For the three-month periods ended March 31, 2012 and 2011 we recognized net tax benefits of $1,041,000 and $909,000, respectively. The tax benefits were related to the pre-tax loss generated in those quarters.

 

23


Table of Contents

The effective income tax rates for the three-month periods ended March 31, 2012 and 2011 were 13.7% and 14.5%, respectively. The Company’s effective income tax rate continues to remain low since a substantial portion of its profit comes from foreign operations which are taxed at lower rates, if at all, and because of the financial reporting requirements related to noncontrolling interest in pass-through entities that requires the income tax expense on the pass-through entity’s pretax income attributable to the noncontrolling interest holders be excluded from consolidated income tax expense.

Net Loss

The net loss attributable to Hill International, Inc. for the quarter ended March 31, 2012 was ($6,736,000) or ($0.17) per diluted common share based upon 38,526,000 diluted common shares outstanding, as compared to a net loss for the first quarter ended March 31, 2011 of ($5,596,000) or ($0.15) per diluted common share based upon 38,276,000 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

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 and Bank of America, N.A., Capital One, N.A., The PrivateBank and Trust Company and PNC Bank N.A. (the “Lenders”) with Bank of America, N.A. acting as Agent.

During 2011, the Company was in violation of certain of the financial covenants and subsequently entered into a series of waivers, forbearance agreements and amendments to the Credit Agreement, most recently on March 6, 2012. In connection with the amendment dated March 6, 2012, the Company incurred fees amounting to approximately $2,075,000 which were charged to expense in the quarter ended March 31, 2012.

The Credit Agreement, as amended, provides for borrowings of up to $100,000,000 with a letter of credit sub-facility of up to $35,000,000 (the “Aggregate Commitments”). 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 N.V. Additionally, the Credit Agreement prohibits the Company from making new investments or acquisitions, limits the amount of cash the Company may accumulate, prohibits the payment of dividends and requires the Company to take certain actions, including providing additional monthly reporting to the Lenders. Borrowings outstanding under the Credit Agreement will bear interest at a fluctuating rate per annum equal to the sum of (a) the highest of (i) the Federal Funds Rate (as defined in the Credit Agreement) plus 0.50%, (ii) the Bank of America prime rate or (iii) the Eurodollar Rate plus 1.00%, plus (b) an Applicable Rate which may vary between 0.75% and 4.75% depending on the Company’s consolidated leverage ratio at the time of the borrowing. Also, no Lender may issue a Letter of Credit with an expiration date after March 31, 2014 without the approval by all Lenders, and the total amount available to be drawn under all Letters of Credit expiring after March 31, 2013 is limited to $27,500,000 without approval by all Lenders.

Among other things, the Company is required to comply with the following financial covenants:

(a) the consolidated leverage ratio for (i) each period ending June 30, 2012, September 30, 2012 and December 31, 2012 will not be greater than 7.00 to 1.00; (ii) the period ending March 31, 2013 will not be greater than 4.25 to 1.00; (iii) the period ending June 30, 2013 will not be greater than 4.00 to 1.00; (iv) the period ending September 30, 2013 will not be greater than 3.75 to 1.00; and (v) the periods ending on or after December 31, 2013 will not be greater than 3.50 to 1.00;

 

24


Table of Contents

(b) the consolidated fixed charge coverage ratio for (i) the two quarters ending March 31, 2012 and the three quarters ending June 30, 2012 will not be less than 1.00 to 1.00 and (ii) for the periods ending on or after September 30, 2012 will not be less than 1.25 to 1.00; and

(c) the consolidated funded indebtedness ratio will not be less than 0.65 to 1.00.

The Credit Agreement, as amended, requires that 100% of the first $25,000,000 of proceeds from the sale of any equity interests plus 50% of any of these proceeds in excess of $50,000,000 plus 50% of the Net Libya Receivable (as defined in the Second Amendment) plus 50% of any payments or distributions to us from HillStone shall be applied to reduce the Aggregate Commitments, but not below $60,000,000. By March 31, 2013, the Aggregate Commitments must be no greater than $75,000,000. The Company paid an amendment fee equal to 0.15% of the Aggregate Commitments on March 6, 2012 and must pay a subsequent amendment fee equal to 1.0% of the Aggregate Commitments on April 15, 2013 and a deferred fee (the “Deferred Fee”) equal to 2.0% of the total amounts outstanding (borrowings plus letters of credit). The Deferred Fee will accrue from March 6, 2012 and is payable on the earlier to occur of (x) the date the Aggregate Commitments are reduced to $75,000,000, (y) the date of the occurrence of an event of default (other than the Designated Defaults) and (z) the maturity date.

As of March 31, 2012, the Company was in violation of financial covenants (b) and (c) above. Accordingly, we have classified all borrowings under the Credit Agreement as current in the consolidated balance sheet at March 31, 2012. We are in discussions with the Lenders regarding the Credit Facility.

As of March 31, 2012, the Company had $16,518,000 in outstanding letters of credit. Due to conditions of the Credit Agreement, as amended, total remaining availability at March 31, 2012 was $3,482,000.

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 March 31, 2012) collateralized by certain overseas receivables. The interest rate on that facility is the three-month Emirates InterBank Offer Rate (“EIBOR”), which at March 31, 2012 was 1.52%, plus 3.00%, (or 4.52%) but no less than 5.50%. At March 31, 2012, outstanding borrowings under this facility totaled 9,670,000 AED (approximately $2,634,000). The facility also allows for up to 150,000,000 AED (approximately $40,838,000 at March 31, 2012) in Letters of Guarantee of which 122,110,000 AED (approximately $33,245,000) was utilized March 31, 2012. 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 $1,334,000 at March 31, 2012), with interest rates at 0.99% plus Egnatia Bank’s prime rate of 5.00% (or 5.99%) at March 31, 2012, collateralized by certain of our assets. There were no borrowings under this facility at March 31, 2012. The facility also allows for letters of guarantee up to €4,500,000 (approximately $6,004,000) of which €869,000 (approximately $1,159,000) was utilized at March 31, 2012. The facility expiration date has been extended to May 31, 2012. The Company expects that the facility expiration date will be further extended to April 30, 2013 and is awaiting final approval from the bank.

 

   

An unsecured credit facility with a bank in Spain for €1,500,000 (approximately $2,001,000 at March 31, 2012). The interest rate on this facility is the three-month EURIBOR rate (which at March 31, 2012) was 1.42% plus 3.00%, or 4.42% but no less than 5.00%. At March 31, 2012 outstanding borrowings under this facility which expires on December 23, 2013 were €385,000 (approximately $514,000).

 

   

A revolving credit loan payable to Barclays Bank PLC up to £500,000 (approximately $801,000 at March 31, 2012) with interest at 2.00% plus the Bank of England rate of 0.50% (or 2.50%) collateralized by cross guarantees of all United Kingdom companies. Aggregate of all debt owing to the bank will be, at all times, covered by a minimum of 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.

 

25


Table of Contents
   

A revolving credit facility with 12 banks (the “Financing Entities”) in Spain providing for total borrowings of up to €4,870,000 (approximately $6,498,000) with interest at 6.50% of which €3,488,000 (approximately $4,653,000) was utilized at March 31, 2012. The total amount being financed (“Credit Contracts”) by each Financing Entity is between €353,000 (approximately $471,000) and €689,000 (approximately $919,000). 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 $930,000, $109,000 and $547,000, 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 March 31, 2012 which are renewed automatically every three months.

Uncertainties With Respect to Operations in Libya

We currently have open contracts in Libya. Due to the recent political unrest which commenced in February 2011, we suspended our operations in, and demobilized substantially all of our personnel from Libya. We are unable to predict when, or if, the work will resume in Libya where we reopened our office in November 2011. At March 31, 2012, the accounts receivable related to the work performed under contracts in Libya was $59,838,000. We are unable to determine the effect this unrest will have on the collectability 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

Acquisitions

On February 28, 2011, our subsidiary, Gerens Hill International, S.A. (“Gerens Hill”) acquired an indirect 60% interest in Engineering S.A., a firm located in Brazil, for cash amounting to 22,200,000 Brazilian Reais (“BR”) (approximately $11,757,000). A minimum additional payment was made on April 30, 2012 in the amount of BR6,624,000 (approximately $3,508,000). A minimum additional payment is due on April 30, 2013 in the amount of BR7,400,000 (approximately $3,919,000). Under certain circumstances, we may be required to pay BR5,000,000 (approximately $2,064,000) in addition to the minimum payments.

In December 2011 and January 2012, we received three letters expressing written intention to exercise their put option pursuant to the Investment and Shareholders Agreement dated February 15, 2008 among Gerens Hill, us and the other parties thereto. Upon consummation of the transaction, we will acquire an additional interest of 6.13% of Gerens Hill which will require the payment of €1,758,000 (approximately $2,343,000). Following the acquisition of such interests, the Company will indirectly own 75.48% of Gerens Hill.

Operations

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 total amounts outstanding (that is, the sum of borrowings plus outstanding letters of credit) amounting to $100,000,000 with a consortium of banks led by Bank of America. At March 31, 2012, availability under the Credit Agreement was $3,482,000.

Commencing in the first quarter of 2012, we have reexamined our cost structure at every level of the Company and we are in the process of cutting a total of nearly $20 million in annual overhead costs. The areas affected are personnel and related benefits, professional fees, advertising, and travel and entertainment. We believe that effort combined with the positive revenue and sales trends we have seen so far this year should return us to profitability by the third quarter.

 

26


Table of Contents

Sources of Additional Capital

At March 31, 2012, our cash and cash equivalents amounted to approximately $24,698,000 of which $1,024,000 is on deposit in the U.S. and $23,674,000 is on deposit in foreign locations.

On July 27, 2011, we filed a Form S-3 with the U.S. 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, subject to the restrictions of our amended Credit Agreement. 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 any such offering or offerings 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 will be accepted by any potential sellers. Under the current terms of our Credit Agreement, as amended, we are precluded from making any acquisitions without the written consent of the Lenders.

We are pursuing other sources of financing, but 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 Three Months Ended March 31, 2012

For the three months ended March 31, 2012, our cash and cash equivalents increased by $6,774,000 to $24,698,000. Cash provided by operations was $3,504,000, cash provided by investing activities was $2,788,000 and cash provided by financing activities was $2,158,000. We also experienced a decrease in cash of $1,676,000 from the effect of foreign currency exchange rate fluctuations.

Operating Activities

Cash provided by operations is attributable to consolidated net loss of $6,537,000 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 $3,305,000;

 

   

Bad debt expense of $215,000;

 

   

Deferred taxes of $397,000; and

 

   

Stock based compensation expense of $634,000.

 

   

Working capital changes which increased cash included the following:

 

   

A decrease in accounts receivable of $5,727,000 offset by unfavorable foreign currency translation adjustments of approximately $4,324,000;

 

   

A decrease in retainage receivable of $1,217,000 due to retainage payments received from various projects in New York;

 

   

A decrease in other assets amounting to $736,000;

 

   

An increase in deferred revenue of $4,962,000 due to a large advance payment from a project in Afghanistan; and

 

   

An increase in other current liabilities of $909,000.

 

   

Working capital changes which decreased cash included the following:

 

   

A decrease in accounts payable and accrued expenses of $2,650,000 due to the timing of payments for various selling, general and administrative cost, subcontractors offset by a foreign currency translation adjustment of approximately $1,516,000; and

 

   

A decrease in income taxes payable of $2,179,000 due primarily to the tax effect of net loss for the period.

 

27


Table of Contents

Investing Activities

We received $3,149,000 from the sale, at book value, of an investment held by our subsidiary, Gerens Hill. We spent $361,000 to purchase computers, office equipment, furniture and fixtures.

Financing Activities

We received $4,036,000 in net borrowings under our credit facilities. We made payments on notes payable amounting to $605,000. Due to bank decreased $1,299,000 due to the timing of funding of payments made to the banks. We received proceeds amounting to $26,000 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 $2,292,000,000 at March 31, 2012 compared to $2,295,000,000 at December 31, 2011. At March 31, 2012, backlog attributable to work in Libya amounted to approximately $44,000,000. We estimate that $321,000,000 or 14.0% of the backlog at March 31, 2012 will be recognized during the twelve months subsequent to March 31, 2012.

HillStone International, LLC (“HillStone”) is a strategic technologies distribution and construction project development company. As a majority-owned subsidiary of the Company, HillStone attempts to develop 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 consolidated financial statements as is 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 below. Approximately $1,300,000,000 of our backlog is related to a contract entered into by HillStone to supply building structural systems to TRAC Development Group (“TRAC”) in connection with a major housing development in Iraq and $200,000,000 is related to a contract we entered into to provide project management and construction management services to TRAC in connection with the development. The contracts are expected to commence in late 2012, although no assurances can be given that this will be the case.

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

 

28


Table of Contents

(2) contracts awarded to the Company where some or all of the work has not yet been authorized. As of March 31, 2012, approximately $633,000,000, or 27.6%, of our backlog was in category 1 and approximately $1,659,000,000 or 72.4%, 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 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  
(Dollars in thousands)                           

As of March 31, 2012:

          

Project Management

   $ 953,000        41.6   $ 272,000        84.7

Construction Claims

     39,000        1.7     39,000        12.2

HillStone International

     1,300,000        56.7     10,000        3.1
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 2,292,000        100.0   $ 321,000        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

As of December 31, 2011

          

Project Management

   $ 953,000        41.5   $ 280,000        84.3

Construction Claims

     42,000        1.8     42,000        12.7

HillStone International

     1,300,000        56.7     10,000        3.0
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 2,295,000        100.0   $ 332,000        100.0  
  

 

 

    

 

 

   

 

 

    

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Refer to the Company’s 2011 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 2011 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 March 31, 2012. 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

 

29


Table of Contents

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 March 31, 2012, 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.

 

30


Table of Contents

Part II—Other Information

Item 1. Legal Proceedings

None.

 

Item 1A. Risk Factors

There has been no material changes pertaining to risk factors discussed in the Company’s 2011 Annual Report.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

Not applicable.

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.

101.INS    XBRL Instance Document.
101.SCH    XBRL Taxonomy Extension Schema Document.
101.PRE    XBRL Taxonomy Presentation Linkbase Document.
101.CAL    XBRL Taxonomy Calculation Linkbase Document.
101.LAB    XBRL Taxonomy Label Linkbase Document.

 

31


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: May 10, 2012   By:  

/s/ Irvin E. Richter

   

Irvin E. Richter

Chairman and Chief Executive Officer

(Principal Executive Officer)

Dated: May 10, 2012   By:  

/s/ John Fanelli III

   

John Fanelli III

Senior Vice President and

Chief Financial Officer

(Principal Financial Officer)

Dated: May 10, 2012   By:  

/s/ Ronald F. Emma

   

Ronald F. Emma

Senior Vice President and

Chief Accounting Officer

(Principal Accounting Officer)

 

32

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: May 10, 2012      

/s/ Irvin E. Richter

    Irvin E. Richter
    Chief Executive Officer

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: May 10, 2012      

/s/ John Fanelli III

    John Fanelli III
    Chief Financial Officer

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 March 31, 2012 (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: May 10, 2012

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 March 31, 2012 (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: May 10, 2012