UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2015
or
o |
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 |
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20-0953973 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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One Commerce Square |
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19103 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number, including area code: (215) 309-7700
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 o
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 o
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 |
o |
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Accelerated Filer |
x |
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Non-Accelerated Filer |
o |
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Smaller Reporting Company |
o |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o No x
There were 50,602,975 shares of the Registrants Common Stock outstanding at August 1, 2015.
EXPLANATORY NOTE
Hill International, Inc. (Hill or the Company) is filing this Amendment No. 1 (this Amendment) to its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 (the Original Form 10-Q) filed with the Securities and Exchange Commission (the SEC) on August 5, 2015 (the Original Filing Date) to restate and amend the Companys previously issued consolidated financial statements and related financial information for the six months ended June 30, 2015 and 2014 included in its Original Form 10-Q to reflect a change related to its accounting treatment for accounts receivable from the Libyan Organization for Development of Administrative Centres (ODAC) (the Libya Receivable) and certain related liabilities. The Company has included significant disclosures regarding the status of the Libya Receivable in its prior periodic reports filed with the SEC. In addition, concurrently with the filing of this Amendment, the Company is filing an amendment to its Annual Report on Form 10-K for the year ended December 31, 2014 to restate is previously issued consolidated financial statements as of and for the years ended December 31, 2014, 2013 and 2012 and its Quarterly Report on Form 10-Q for the three months ended March 31, 2015 to restate its previously issued consolidated financial statements for the three months ended March 31, 2015 and 2014.
Except as described in this Explanatory Note, the financial statements, financial statement footnote disclosures and related financial information in the Original Form 10-Q are unchanged. In particular, except for the events described under Background below, this Amendment has not been updated to reflect any events that have occurred after the Original Form 10-Q was filed or to modify or update disclosures affected by other subsequent events. Accordingly, forward-looking statements included in this Amendment represent managements views as of the Original Filing Date and should not be assumed to be accurate as of any date thereafter.
Background
The Company began work in Libya in 2007. From that time through early 2010, the Company had received payments totaling approximately $104,000,000 related to its services there. In April 2010, the Libyan government halted all payments to firms pending a review of the government procurement process. The Company continued to work during the review period and during that time its Libya Receivable balance grew to approximately $76,000,000. At the completion of its review in November 2010, the Libyan agency responsible for auditing contracts, RQABA, acknowledged that our receivables were proper and were owed in full. In December 2010 and January 2011, we received payments totaling $15,900,000 and were advised that an additional $31,600,000 had been scheduled for payment. In February 2011, due to civil and political unrest in Libya, we suspended our operations in and demobilized substantially all of our personnel from Libya. During the second half of 2011, the Company received various communications from ODAC requesting that the Company re-submit all open invoices for processing since much of the original documentation had been lost during the turmoil. The Company complied with ODACs request and accordingly re-submitted copies of all open invoices. This pro-active request from ODAC, in the Companys assessment, provided evidence of ODACs intention to fulfill its obligations that existed prior to the political unrest. During late 2012 and early 2013, the Company was advised by ODAC that, due to the political division in the country, payments had been temporarily restricted to local payroll. During late 2013 and early 2014, the Company received payments of approximately $9,500,000 from ODAC who also posted a letter of credit of approximately $14,000,000 in the Companys favor which expired on June 30, 2014. Management believed that this was a positive indication that ODAC intended to fulfill its obligations to the Company.
In connection with a review by the staff (the Staff) of the SEC of the Companys Annual Report on Form 10-K for the year ended December 31, 2014, Form 10-Q for the quarter ended March 31, 2015 and Definitive Proxy Statement filed April 30, 2015 (the Staff Review), the Staff made inquiries with respect to the accounting treatment of the Libya Receivable. After subsequent communications between the Staff and the Company relating to the Staff Review, the Company, under the direction of its Audit Committee, re-evaluated its historical and then current practices with respect to analyzing the collectability of accounts receivable in accordance with accounting principles generally accepted in the United States. In connection with this re-evaluation, the Company determined that its previous accounting treatment for the Libya Receivable was no longer appropriate as of and for the year ended December 31, 2012. Therefore, the Company reserved the entire Libya Receivable of $59,937,000 and eliminated $11,388,000 of certain assets and liabilities related to that receivable resulting in a net adjustment of $48,549,000 which was charged to selling, general and administrative expenses for the year ended December 31, 2012. Additionally, the Company has reflected subsequent receipts against the Libya Receivable, net of payments for the related agency fees and certain taxes, as reductions of selling, general and administrative expenses. Accordingly, the Company reflected 2013 receipts of approximately
$2,880,000 and payments of approximately $640,000 as a net reduction of selling, general and administrative expenses amounting to approximately $2,880,000 plus a related income tax expense adjustment of $307,000 for the year ended December 31, 2013, and 2014 receipts of approximately $6,631,000 and payments of approximately $1,683,000 as a net reduction of selling, general and administrative expenses amounting to approximately $4,948,000 plus a related income tax benefit of $307,000 for the year ended December 31, 2014. In addition, the Company recorded certain unrelated adjustments to consulting fee revenues, cost of services, selling, general and administrative expenses and taxes for the year ended December 31, 2014. These unrelated adjustments decreased net earnings by approximately $393,000 for the six months ended June 30, 2015. These unrelated adjustments were the direct result of the restatement because previous immaterial variances in certain accounts that were not recorded during the December 31, 2014 year end closing process became material when aggregated and assessed against the restated 2014 financial statements.
The adjustments to reflect the change in estimate as to the collectability of the Libya Receivable and related adjustments resulted in a decrease in basic and diluted earnings per share of $0.01 for the six months ended June 30, 2015 and an increase in basic and diluted earnings per share of $0.13 and $0.12, respectively, for the six months ended June 30, 2014. Net earnings attributable to Hill decreased approximately $393,000 for the six months ended June 30, 2015 and earnings attributable to Hill increased approximately $5,255,000 for the six months ended June 30, 2014.
Effects of Restatement
This Amendment amends and restates the Original Form 10-Q to change the Companys estimate of loss on its Libya Receivable as of December 31, 2012, subsequent recoveries of the Libya Receivable in 2013 and 2014 and certain unrelated adjustments as more fully described in Note 1 to the Consolidated Financial Statements and to reflect certain adjustments to accruals related to the Libya Receivable. Revisions to the Original Form 10-Q have been made to the Companys Consolidated Financial Statements and related disclosures in Part I - Item 1 - Financial Statements for the six months ended June 30, 2015 and 2014, and, where necessary, to the following other items to reflect the restatements:
· Part I, Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
· Part I, Item 4 Controls and Procedures
Part II - Item 6 of this Amendment has been amended to include as exhibits currently dated certifications from the Companys principal executive officer and principal financial officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.
HILL INTERNATIONAL, INC. AND SUBDISIARIES
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5 | ||
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5 | |
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6 | |
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7 | |
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8 | |
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Notes to Consolidated Financial Statements (as amended and restated) |
9 |
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32 | ||
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44 | ||
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45 | ||
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47 | ||
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47 | ||
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47 | ||
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47 | ||
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47 | ||
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47 | ||
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47 | ||
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48 |
PART I FINANCIAL INFORMATION
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
(In thousands, except per share data)
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June 30, 2015 |
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December 31, 2014 |
| ||
|
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(Restated) |
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|
| ||
|
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(unaudited) |
|
|
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Assets |
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|
|
|
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Cash and cash equivalents |
|
$ |
31,571 |
|
$ |
30,124 |
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Cash - restricted |
|
14,276 |
|
8,851 |
| ||
Accounts receivable, less allowance for doubtful accounts of $60,285 and $60,801 |
|
237,501 |
|
195,098 |
| ||
Accounts receivable - affiliate |
|
8,935 |
|
3,993 |
| ||
Prepaid expenses and other current assets |
|
13,922 |
|
14,277 |
| ||
Income taxes receivable |
|
5,253 |
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4,246 |
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Deferred income tax assets |
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6,442 |
|
6,575 |
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Total current assets |
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317,900 |
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263,164 |
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Property and equipment, net |
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21,440 |
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11,643 |
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Cash - restricted, net of current portion |
|
306 |
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7,156 |
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Retainage receivable |
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2,932 |
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3,300 |
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Acquired intangibles, net |
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19,075 |
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19,282 |
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Goodwill |
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79,990 |
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80,437 |
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Investments |
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3,927 |
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5,083 |
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Deferred income tax assets |
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14,015 |
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13,645 |
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Other assets |
|
16,812 |
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15,899 |
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Total assets |
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$ |
476,397 |
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$ |
419,609 |
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Liabilities and Stockholders Equity |
|
|
|
|
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|
|
|
|
|
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Current maturities of notes payable |
|
$ |
4,806 |
|
$ |
6,361 |
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Accounts payable and accrued expenses |
|
117,163 |
|
93,637 |
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Income taxes payable |
|
10,082 |
|
9,306 |
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Deferred revenue |
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19,416 |
|
19,896 |
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Deferred income taxes |
|
2,380 |
|
2,456 |
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Other current liabilities |
|
14,141 |
|
10,044 |
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Total current liabilities |
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167,988 |
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141,700 |
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Notes payable, net of current maturities |
|
148,280 |
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121,875 |
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Retainage payable |
|
2,901 |
|
2,448 |
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Deferred income taxes |
|
14,932 |
|
15,661 |
| ||
Deferred revenue |
|
15,267 |
|
12,193 |
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Other liabilities |
|
9,171 |
|
3,732 |
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Total liabilities |
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358,539 |
|
297,609 |
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Commitments and contingencies |
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Stockholders equity: |
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Preferred stock, $.0001 par value; 1,000 shares authorized, none issued |
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Common stock, $.0001 par value; 100,000 shares authorized, 57,217 shares and 56,920 shares issued at June 30, 2015 and December 31, 2014, respectively |
|
6 |
|
6 |
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Additional paid-in capital |
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178,163 |
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179,912 |
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Accumulated deficit |
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(629 |
) |
(5,726 |
) | ||
Accumulated other comprehensive loss |
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(35,993 |
) |
(32,600 |
) | ||
|
|
141,547 |
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141,592 |
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Less treasury stock of 6,614 shares and 6,546 shares at June 30, 2015 and December 31, 2014, respectively, at cost |
|
(28,665 |
) |
(28,304 |
) | ||
Hill International, Inc. share of equity |
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112,882 |
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113,288 |
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Noncontrolling interests |
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4,976 |
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8,712 |
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Total equity |
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117,858 |
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122,000 |
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Total liabilities and stockholders equity |
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$ |
476,397 |
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$ |
419,609 |
|
See accompanying notes to consolidated financial statements.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
|
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2015 |
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2014 |
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2015 |
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2014 |
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(Restated) |
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(Restated) |
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Consulting fee revenue |
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$ |
159,738 |
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$ |
144,515 |
|
$ |
310,879 |
|
$ |
281,764 |
|
Reimbursable expenses |
|
21,910 |
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15,124 |
|
41,037 |
|
27,888 |
| ||||
Total revenue |
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181,648 |
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159,639 |
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351,916 |
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309,652 |
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Cost of services |
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92,400 |
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83,246 |
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178,829 |
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161,836 |
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Reimbursable expenses |
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21,910 |
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15,124 |
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41,037 |
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27,888 |
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Total direct expenses |
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114,310 |
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98,370 |
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219,866 |
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189,724 |
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Gross profit |
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67,338 |
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61,269 |
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132,050 |
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119,928 |
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Selling, general and administrative expenses |
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56,652 |
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52,614 |
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115,575 |
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100,325 |
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Equity in losses of affiliate |
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34 |
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217 |
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|
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Operating profit |
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10,652 |
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8,655 |
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16,258 |
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19,603 |
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Interest expense and related financing fees, net |
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3,531 |
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5,646 |
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7,105 |
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10,722 |
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Earnings before income taxes |
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7,121 |
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3,009 |
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9,153 |
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8,881 |
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Income tax expense |
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2,586 |
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993 |
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3,770 |
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1,317 |
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Net earnings |
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4,535 |
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2,016 |
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5,383 |
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7,564 |
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Less: net earnings - noncontrolling interests |
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140 |
|
498 |
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286 |
|
738 |
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Net earnings attributable to Hill International, Inc. |
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$ |
4,395 |
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$ |
1,518 |
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$ |
5,097 |
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$ |
6,826 |
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Basic earnings per common share - Hill International, Inc. |
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$ |
0.09 |
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$ |
0.04 |
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$ |
0.10 |
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$ |
0.17 |
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Basic weighted average common shares outstanding |
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50,483 |
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40,568 |
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50,429 |
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40,184 |
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Diluted earnings per common share - Hill International, Inc. |
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$ |
0.09 |
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$ |
0.04 |
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$ |
0.10 |
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$ |
0.16 |
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Diluted weighted average common shares outstanding |
|
51,495 |
|
42,591 |
|
51,010 |
|
41,570 |
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See accompanying notes to consolidated financial statements.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
(Unaudited)
|
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Three Months Ended June |
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Six Months Ended June 30, |
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2015 |
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2014 |
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2015 |
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2014 |
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(Restated) |
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(Restated) |
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(Restated) |
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Consolidated net earnings |
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$ |
4,535 |
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$ |
2,016 |
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$ |
5,383 |
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$ |
7,564 |
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Foreign currency translation adjustment, net of tax |
|
2,150 |
|
2,202 |
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(7,280 |
) |
3,661 |
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Other, net |
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(76 |
) |
383 |
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(135 |
) |
422 |
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Comprehensive earnings (loss) |
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6,609 |
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4,601 |
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(2,032 |
) |
11,647 |
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Comprehensive (loss) earnings attributable to noncontrolling interests |
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(2,572 |
) |
407 |
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(3,736 |
) |
925 |
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Comprehensive earnings attributable to Hill International, Inc. |
|
$ |
9,181 |
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$ |
4,194 |
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$ |
1,704 |
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$ |
10,722 |
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See accompanying notes to consolidated financial statements.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
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Six Months Ended June 30, |
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2015 |
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2014 |
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(Restated) |
|
(Restated) |
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Cash flows from operating activities: |
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|
|
|
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Net earnings |
|
$ |
5,383 |
|
$ |
7,564 |
|
Adjustments to reconcile net earnings to net cash used in operating activities: |
|
|
|
|
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Depreciation and amortization |
|
5,423 |
|
4,864 |
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Provision for bad debts |
|
2,441 |
|
442 |
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Interest accretion on term loan |
|
|
|
4,247 |
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Deferred tax expense |
|
(1,033 |
) |
|
| ||
Share based compensation |
|
1,461 |
|
1,927 |
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Changes in operating assets and liabilities, net: |
|
|
|
|
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Restricted cash |
|
229 |
|
1,726 |
| ||
Accounts receivable |
|
(52,404 |
) |
(26,034 |
) | ||
Accounts receivable - affiliate |
|
(3,564 |
) |
(566 |
) | ||
Prepaid expenses and other current assets |
|
(437 |
) |
(655 |
) | ||
Income taxes receivable |
|
(1,347 |
) |
49 |
| ||
Retainage receivable |
|
368 |
|
(134 |
) | ||
Other assets |
|
(937 |
) |
(2,232 |
) | ||
Accounts payable and accrued expenses |
|
30,562 |
|
11,014 |
| ||
Income taxes payable |
|
548 |
|
(4,610 |
) | ||
Deferred revenue |
|
5,067 |
|
(2,614 |
) | ||
Other current liabilities |
|
(811 |
) |
(790 |
) | ||
Retainage payable |
|
458 |
|
14 |
| ||
Other liabilities |
|
1,124 |
|
(1,842 |
) | ||
Net cash used in operating activities |
|
(7,469 |
) |
(7,630 |
) | ||
Cash flows from investing activities: |
|
|
|
|
| ||
Purchase of business, net of cash acquired |
|
(4,384 |
) |
|
| ||
Payments for purchase of property and equipment |
|
(9,059 |
) |
(2,372 |
) | ||
Net cash used in investing activities |
|
(13,443 |
) |
(2,372 |
) | ||
Cash flows from financing activities: |
|
|
|
|
| ||
Net borrowings on revolving loans |
|
24,245 |
|
4,626 |
| ||
Proceeds from Philadelphia Industrial Development Corporation loan |
|
750 |
|
|
| ||
Payments on Philadelphia Industrial Development Corporation loan |
|
(13 |
) |
|
| ||
Payments on notes payable |
|
|
|
(1,160 |
) | ||
Due to bank |
|
|
|
(2 |
) | ||
Dividends paid to noncontrolling interest |
|
(130 |
) |
|
| ||
Proceeds from stock issued under employee stock purchase plan |
|
32 |
|
54 |
| ||
Proceeds from exercise of stock options |
|
137 |
|
879 |
| ||
Net cash provided by financing activities |
|
25,021 |
|
4,397 |
| ||
Effect of exchange rate changes on cash |
|
(2,662 |
) |
2,071 |
| ||
Net increase (decrease) in cash and cash equivalents |
|
1,447 |
|
(3,534 |
) | ||
Cash and cash equivalents beginning of period |
|
30,124 |
|
30,381 |
| ||
Cash and cash equivalents end of period |
|
$ |
31,571 |
|
$ |
26,847 |
|
See accompanying notes to consolidated financial statements.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 Restatement and Revision to Previously Reported Consolidated Financial Statements
The Company has restated its consolidated financial statements for the years ended December 31, 2014, 2013 and 2012 and for the quarterly periods ended June 30, 2015 and 2014 due to a change in the Companys estimation of the collectability of its Libya Receivable. Due to the civil and political unrest which commenced in Libya in February 2011, the Company suspended its operations in and demobilized substantially all of its personnel from Libya. At December 31, 2012, the Libya Receivable was approximately $59,937,000, however, because of the political instability and economic uncertainty within Libya and because a promised payment of $31,600,000 in 2011 never materialized, the Company determined that its previous accounting treatment for the Libya Receivable was no longer appropriate as of and for the year ended December 31, 2012. The Company has established a reserve against the entire Libya Receivable amounting to $59,937,000 and eliminated $11,388,000 of certain assets and net liabilities related to that receivable, consisting of sub-consultants and other contingent expenses in 2012, which are contractually owed only upon receipt of payment. These adjustments resulted in a net charge to selling, general and administrative expenses of $48,549,000 for the year ended December 31, 2012. We received approximately $2,880,000 and $6,631,000 in 2013 and 2014, respectively and have paid agency fees and certain taxes amounting to $640,000 and $1,638,000 in 2013 and 2014, respectively. We have accounted for these transactions as a net reduction of selling, general and administrative expenses of $2,240,000 and $4,948,000 in 2013 and 2014, respectively. In addition the Company recorded certain unrelated adjustments to consulting fee revenue, cost of services, selling, general and administrative expenses and income taxes for the year ended December 31, 2014 which also affected those items in the six-month period ended June 30, 2015. In the aggregate, these unrelated adjustments decreased the net earnings by approximately $393,000 for the six months ended June 30, 2015. These unrelated adjustments were the direct result of the restatement because previous immaterial variances in certain accounts that were not recorded during the December 31, 2014 year end closing process became material when aggregated and assessed against the restated 2014 financial statements. The impact of correcting the misstatement on the Companys consolidated balance sheets and consolidated statements of income, comprehensive income (loss) and cash flows is as follows:
|
|
June 30, 2015 |
| |||||||
|
|
As Previously |
|
Adjustment |
|
As Restated |
| |||
Selected Balance Sheet Information |
|
|
|
|
|
|
| |||
Prepaid expenses and other current assets |
|
$ |
14,486 |
|
$ |
(564 |
) |
$ |
13,922 |
|
Income taxes receivable |
|
$ |
3,840 |
|
$ |
1,413 |
|
$ |
5,253 |
|
Deferred income tax assets |
|
$ |
1,055 |
|
$ |
5,387 |
|
$ |
6,442 |
|
Total current assets |
|
$ |
311,664 |
|
$ |
6,236 |
|
$ |
317,900 |
|
Accounts receivable - Libya |
|
$ |
49,759 |
|
$ |
(49,759 |
) |
$ |
|
|
Deferred income tax assets |
|
$ |
16,260 |
|
$ |
(2,245 |
) |
$ |
14,015 |
|
Total assets |
|
$ |
522,165 |
|
$ |
(45,768 |
) |
$ |
476,397 |
|
Accounts payable and accrued expenses |
|
$ |
116,463 |
|
700 |
|
117,163 |
| ||
Income taxes payable |
|
$ |
9,865 |
|
$ |
217 |
|
$ |
10,082 |
|
Deferred revenue |
|
$ |
18,649 |
|
$ |
767 |
|
$ |
19,416 |
|
Deferred income taxes |
|
$ |
203 |
|
$ |
2,177 |
|
$ |
2,380 |
|
Total current liabilities |
|
$ |
164,127 |
|
$ |
3,861 |
|
$ |
167,988 |
|
Deferred income taxes |
|
$ |
13,967 |
|
$ |
965 |
|
$ |
14,932 |
|
Other liabilities |
|
$ |
18,454 |
|
$ |
(9,283 |
) |
$ |
9,171 |
|
Total liabilities |
|
$ |
362,996 |
|
$ |
(4,457 |
) |
$ |
358,539 |
|
Retained earnings |
|
$ |
41,649 |
|
$ |
(42,278 |
) |
$ |
(629 |
) |
Accumulated other comprehensive loss |
|
$ |
(36,960 |
) |
$ |
967 |
|
$ |
(35,993 |
) |
Hill International, Inc. share of equity |
|
$ |
154,193 |
|
$ |
(41,311 |
) |
$ |
112,882 |
|
Total equity |
|
$ |
159,169 |
|
$ |
(41,311 |
) |
$ |
117,858 |
|
Total liabilities and stockholders equity |
|
$ |
522,165 |
|
$ |
(45,768 |
) |
$ |
476,397 |
|
|
|
Six months ended June 30, 2015 |
| |||||||
|
|
As Previously |
|
Adjustment |
|
As Restated |
| |||
Consolidated Income Statement |
|
|
|
|
|
|
| |||
Consulting fee revenue |
|
$ |
312,191 |
|
$ |
(1,312 |
) |
$ |
310,879 |
|
Reimbursable expenses |
|
41,037 |
|
|
|
41,037 |
| |||
Total revenue |
|
353,228 |
|
(1,312 |
) |
351,916 |
| |||
|
|
|
|
|
|
|
| |||
Cost of services |
|
179,089 |
|
(260 |
) |
178,829 |
| |||
Reimbursable expenses |
|
41,037 |
|
|
|
41,037 |
| |||
Total direct costs |
|
220,126 |
|
(260 |
) |
219,866 |
| |||
|
|
|
|
|
|
|
| |||
Gross profit |
|
133,102 |
|
(1,052 |
) |
132,050 |
| |||
Selling, general and administrative expenses |
|
116,217 |
|
(642 |
) |
115,575 |
| |||
Equity in losses of affiliates |
|
217 |
|
|
|
217 |
| |||
Ooperating profit |
|
16,668 |
|
(410 |
) |
16,258 |
| |||
|
|
|
|
|
|
|
| |||
Interest and related financing fees, net |
|
7,105 |
|
|
|
7,105 |
| |||
|
|
|
|
|
|
|
| |||
Earnings before income taxes |
|
9,563 |
|
(410 |
) |
9,153 |
| |||
Income tax expense |
|
3,749 |
|
21 |
|
3,770 |
| |||
|
|
|
|
|
|
|
| |||
Net earnings |
|
5,814 |
|
(431 |
) |
5,383 |
| |||
|
|
|
|
|
|
|
| |||
Less: net earnings - noncontrolling interests |
|
324 |
|
(38 |
) |
286 |
| |||
|
|
|
|
|
|
|
| |||
Net earnings attributable to Hill International, Inc. |
|
$ |
5,490 |
|
$ |
(393 |
) |
$ |
5,097 |
|
|
|
|
|
|
|
|
| |||
Basic earnings per common share - Hill International, Inc. |
|
$ |
0.11 |
|
$ |
(0.01 |
) |
$ |
0.10 |
|
|
|
|
|
|
|
|
| |||
Diluted earnings per common share - Hill International, Inc. |
|
$ |
0.11 |
|
$ |
(0.01 |
) |
$ |
0.10 |
|
|
|
Six months ended June 30, 2014 |
| |||||||
|
|
As Previously |
|
Adjustment |
|
As Restated |
| |||
Consolidated Income Statement |
|
|
|
|
|
|
| |||
Consulting fee revenue |
|
$ |
281,764 |
|
$ |
|
|
$ |
281,764 |
|
Reimbursable expenses |
|
27,888 |
|
|
|
27,888 |
| |||
Total revenue |
|
309,652 |
|
|
|
309,652 |
| |||
|
|
|
|
|
|
|
| |||
Cost of services |
|
161,836 |
|
|
|
161,836 |
| |||
Reimbursable expenses |
|
27,888 |
|
|
|
27,888 |
| |||
Total direct costs |
|
189,724 |
|
|
|
189,724 |
| |||
|
|
|
|
|
|
|
| |||
Gross profit |
|
119,928 |
|
|
|
119,928 |
| |||
Selling, general and administrative expenses |
|
105,273 |
|
(4,948 |
) |
100,325 |
| |||
Ooperating profit |
|
14,655 |
|
4,948 |
|
19,603 |
| |||
|
|
|
|
|
|
|
| |||
Interest and related financing fees, net |
|
10,722 |
|
|
|
10,722 |
| |||
|
|
|
|
|
|
|
| |||
Earnings before income taxes |
|
3,933 |
|
4,948 |
|
8,881 |
| |||
Income tax expense |
|
1,624 |
|
(307 |
) |
1,317 |
| |||
|
|
|
|
|
|
|
| |||
Net earnings |
|
2,309 |
|
5,255 |
|
7,564 |
| |||
|
|
|
|
|
|
|
| |||
Less: net earnings - noncontrolling interests |
|
738 |
|
|
|
738 |
| |||
|
|
|
|
|
|
|
| |||
Net earnings attributable to Hill International, Inc. |
|
$ |
1,571 |
|
$ |
5,255 |
|
$ |
6,826 |
|
|
|
|
|
|
|
|
| |||
Basic earnings per common share - Hill International, Inc. |
|
$ |
0.04 |
|
$ |
0.13 |
|
$ |
0.17 |
|
|
|
|
|
|
|
|
| |||
Diluted earnings per common share - Hill International, Inc. |
|
$ |
0.04 |
|
$ |
0.12 |
|
$ |
0.16 |
|
|
|
Six Months Ended June 30, 2015 |
| |||||||
|
|
As Previously |
|
Adjustment |
|
As Restated |
| |||
Consolidated Statement of Comprehensive Earnings |
|
|
|
|
|
|
| |||
Consolidated net earnings |
|
$ |
5,814 |
|
$ |
(431 |
) |
$ |
5,383 |
|
Foreign currency translation, net of tax |
|
(7,186 |
) |
(94 |
) |
(7,280 |
) | |||
Other, net |
|
(135 |
) |
|
|
(135 |
) | |||
Comprehensive earnings (loss) |
|
(1,507 |
) |
(525 |
) |
(2,032 |
) | |||
Comprehensive loss attributable to noncontrolling interests |
|
(3,698 |
) |
(38 |
) |
(3,736 |
) | |||
Comprehensive earnings attributable to Hill International, Inc. |
|
$ |
2,191 |
|
$ |
(487 |
) |
$ |
1,704 |
|
|
|
Six Months Ended June 30, 2014 |
| |||||||
|
|
As Previously |
|
Adjustment |
|
As Restated |
| |||
Consolidated Statement of Comprehensive Earnings |
|
|
|
|
|
|
| |||
Consolidated net earnings |
|
$ |
2,309 |
|
$ |
5,255 |
|
$ |
7,564 |
|
Foreign currency translation, net of tax |
|
2,549 |
|
1,112 |
|
3,661 |
| |||
Other, net |
|
422 |
|
|
|
422 |
| |||
Comprehensive earnings (loss) |
|
5,280 |
|
6,367 |
|
11,647 |
| |||
Comprehensive loss attributable to noncontrolling interests |
|
925 |
|
|
|
925 |
| |||
Comprehensive earnings attributable to Hill International, Inc. |
|
$ |
4,355 |
|
$ |
6,367 |
|
$ |
10,722 |
|
|
|
Six Months Ended June 30, 2015 |
| |||||||
|
|
As Previously |
|
Adjustment |
|
As Restated |
| |||
Consolidated Statement of Cash Flows |
|
|
|
|
|
|
| |||
Operating activities |
|
|
|
|
|
|
| |||
Net earnings |
|
$ |
5,814 |
|
$ |
(431 |
) |
$ |
5,383 |
|
Depreciation and amortization |
|
5,423 |
|
|
|
5,423 |
| |||
Provision for bad debts |
|
2,441 |
|
|
|
2,441 |
| |||
Deferred tax expense |
|
(1,455 |
) |
422 |
|
(1,033 |
) | |||
Share based compensation |
|
1,461 |
|
|
|
1,461 |
| |||
Restricted cash |
|
229 |
|
|
|
229 |
| |||
Accounts receivable |
|
(53,246 |
) |
842 |
|
(52,404 |
) | |||
Accounts receivable - affiliate |
|
(3,564 |
) |
|
|
(3,564 |
) | |||
Prepaid expenses and other current assets |
|
576 |
|
(1,013 |
) |
(437 |
) | |||
Income taxes receivable |
|
(1,347 |
) |
|
|
(1,347 |
) | |||
Retainage reveivable |
|
368 |
|
|
|
368 |
| |||
Other assets |
|
(937 |
) |
|
|
(937 |
) | |||
Accounts payable and accrued expenses |
|
31,431 |
|
(869 |
) |
30,562 |
| |||
Income taxes payable |
|
948 |
|
(400 |
) |
548 |
| |||
Deferred revenue |
|
3,654 |
|
1,413 |
|
5,067 |
| |||
Other current liabilities |
|
(763 |
) |
(48 |
) |
(811 |
) | |||
Retainage payable |
|
458 |
|
|
|
458 |
| |||
Other liabilities |
|
1,040 |
|
84 |
|
1,124 |
| |||
Net cash used in operating activities |
|
(7,469 |
) |
|
|
(7,469 |
) | |||
|
|
|
|
|
|
|
| |||
Investing activities |
|
|
|
|
|
|
| |||
Net cash used in investing activities |
|
(13,443 |
) |
|
|
(13,443 |
) | |||
|
|
|
|
|
|
|
| |||
Financing activities |
|
|
|
|
|
|
| |||
Net cash provided by financing activities |
|
25,021 |
|
|
|
25,021 |
| |||
|
|
|
|
|
|
|
| |||
Effect of exchange rate changes on cash |
|
(2,662 |
) |
|
|
(2,662 |
) | |||
|
|
|
|
|
|
|
| |||
Net increase in cash and cash equivalents |
|
1,447 |
|
|
|
1,447 |
| |||
Cash and cash equivalents - beginning of period |
|
30,124 |
|
|
|
30,124 |
| |||
Cash and cash equivalents - end of period |
|
$ |
31,571 |
|
$ |
|
|
$ |
31,571 |
|
|
|
Six Months Ended June 30, 2014 |
| |||||||
|
|
As Previously |
|
Adjustment |
|
As Restated |
| |||
Consolidated Statement of Cash Flows |
|
|
|
|
|
|
| |||
Operating activities |
|
|
|
|
|
|
| |||
Net earnings |
|
$ |
2,309 |
|
$ |
5,255 |
|
$ |
7,564 |
|
Depreciation and amortization |
|
4,864 |
|
|
|
4,864 |
| |||
Provision for bad debts |
|
442 |
|
|
|
442 |
| |||
Interest accretion on term loan |
|
4,247 |
|
|
|
4,247 |
| |||
Deferred tax expense |
|
307 |
|
(307 |
) |
|
| |||
Share based compensation |
|
1,927 |
|
|
|
1,927 |
| |||
Restricted cash |
|
1,726 |
|
|
|
1,726 |
| |||
Accounts receivable |
|
(19,403 |
) |
(6,631 |
) |
(26,034 |
) | |||
Accounts receivable - affiliate |
|
(566 |
) |
|
|
(566 |
) | |||
Prepaid expenses and other current assets |
|
(655 |
) |
|
|
(655 |
) | |||
Income taxes receivable |
|
49 |
|
|
|
49 |
| |||
Retainage reveivable |
|
(134 |
) |
|
|
(134 |
) | |||
Other assets |
|
(2,232 |
) |
|
|
(2,232 |
) | |||
Accounts payable and accrued expenses |
|
9,331 |
|
1,683 |
|
11,014 |
| |||
Income taxes payable |
|
(4,610 |
) |
|
|
(4,610 |
) | |||
Deferred revenue |
|
(2,614 |
) |
|
|
(2,614 |
) | |||
Other current liabilities |
|
(790 |
) |
|
|
(790 |
) | |||
Retainage payable |
|
14 |
|
|
|
14 |
| |||
Other liabilities |
|
(1,842 |
) |
|
|
(1,842 |
) | |||
Net cash used in operating activities |
|
(7,630 |
) |
|
|
(7,630 |
) | |||
|
|
|
|
|
|
|
| |||
Investing activities |
|
|
|
|
|
|
| |||
Net cash used in investing activities |
|
(2,372 |
) |
|
|
(2,372 |
) | |||
|
|
|
|
|
|
|
| |||
Financing activities |
|
|
|
|
|
|
| |||
Net cash provided by financing activities |
|
4,397 |
|
|
|
4,397 |
| |||
|
|
|
|
|
|
|
| |||
Effect of exchange rate changes on cash |
|
2,071 |
|
|
|
2,071 |
| |||
|
|
|
|
|
|
|
| |||
Net increase in cash and cash equivalents |
|
(3,534 |
) |
|
|
(3,534 |
) | |||
Cash and cash equivalents - beginning of period |
|
30,381 |
|
|
|
30,381 |
| |||
Cash and cash equivalents - end of period |
|
$ |
26,847 |
|
$ |
|
|
$ |
26,847 |
|
Note 2 - The Company
Hill International, Inc. (Hill or the Company) is a professional services firm that provides program management, project management, construction management, construction claims and other consulting services primarily to the buildings, transportation, environmental, energy and industrial markets worldwide. Hills 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.
Note 3 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 Companys Annual Report on Form 10-K/A for the year ended December 31, 2014. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (GAAP) for complete financial statements. In the opinion of management, these statements include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the consolidated financial statements. The consolidated financial statements include the accounts of Hill and its wholly- and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The interim operating results are not necessarily indicative of the results for a full year.
Note 4 Acquisitions
Our recent acquisition activity is detailed below. The Companys consolidated financial statements include the operating results of these businesses from their respective dates of acquisition. Pro forma results of operations have not been presented because they are not material to the Companys consolidated results of operations, either individually or in the aggregate.
IMS Proje Yonetimi ve Danismanlik A.S.
On April 15, 2015, the Company acquired all of the equity interests of IMS Proje Yonetimi ve Danismanlik A.S. (IMS), a firm that provides project management services for international developers, institutional investors and major retailers. IMS has approximately 80 professionals and is headquartered in Istanbul, Turkey. Consideration consisted of an Initial Purchase Price of 12,411,000 Turkish Lira (TRY) (approximately $4,640,000 as of the closing date) comprised of TRY 4,139,000 (approximately $1,547,000) paid in cash on the closing date plus a second payment of TRY 8,272,000 (approximately $3,145,000) which was paid on May 12, 2015; a Holdback Purchase Price of TRY 4,400,000 (approximately $1,626,000) payable in cash on April 15, 2016, less any set off related to certain indemnification obligations; and a potential Additional Purchase Price of (i) TRY 1,700,000 (approximately $628,000) if earnings before interest, income taxes, depreciation and amortization for the twelve month period subsequent to the closing date (EBITDA) exceeds TRY 3,500,000 (approximately $1,294,000) or (ii) TRY 1,500,000 ($554,000) if EBITDA is less than TRY 3,500,000 but not less than TRY 3,200,000 ($1,183000). The Company accrued the Holdback Purchase Price and the potential Additional Purchase Price of TRY 6,100,000 ($2,255,000), of which TRY 4,400,000 ($1,627,000) is included in other current liabilities and TRY 1,700,000 ($628,000) is included in other liabilities in the consolidated balance sheet at June 30, 2015. The Company acquired intangible assets and goodwill amounting to TRY 10,575,000 (approximately $3,953,000 on the date of acquisition) and TRY 9,421,000 (approximately $3,522,000), respectively. The acquired intangible assets have a weighted average life of seven years. The acquired intangible assets consist of a client relationship intangible of TRY 6,235,000 ($2,331,000) with a ten-year life, a trade name intangible of TRY 434,000 ($162,000) with a two-year life and a contract intangible of TRY 3,906,000 ($1,460,000) with a 2.6 year life. Goodwill, which is not deductible for income tax purposes, has been allocated to the Project Management operating segment.
Angus Octan Scotland Ltd.
On October 31, 2014, our subsidiary Hill International (UK) Ltd. acquired all of the outstanding common stock of Angus Octan Scotland Ltd., which included its subsidiary companies Cadogan Consultants Ltd., Cadogan Consult Ltd. and Cadogan International Ltd. (collectively, Cadogans). Cadogans, with 27 professionals, has offices in Glasgow and Dundee. The acquisition expanded Hills construction claims business and provided additional resources in the energy and industrial sectors. Total consideration for the acquisition was £2,719,000 (approximately $4,350,000 at the date of acquisition). The consideration consists of cash payments of £1,000,000 ($1,600,000) at closing, £600,000 ($960,000) on
November 25, 2014, £400,000 ($640,000) on December 23, 2014, £519,000 ($830,000) to be paid on October 31, 2015 and an earn-out based upon the average earnings before interest, taxes, depreciation and amortization (EBITDA) for the two-year period ending on October 31, 2016 (which amount shall not be less than £0 nor more than £200,000). The Company accrued the potential additional consideration of £719,000 ($1,150,000), of which £519,000 (approximately $816,000 at June 30, 2015) is included in other current liabilities and £200,000 (approximately $315,000 at June 30, 2015) is included in other liabilities in the consolidated balance sheet at June 30, 2015. Two of the selling shareholders may receive an earn-out in five annual installments of up to £100,000 ($157,000 at June 30, 2015), which will be charged to earnings, provided that Cadogans EBITDA for each of the years ending October 31, 2015, 2016, 2017, 2018 and 2019 is equal to or greater than £396,000 ($623,000).
Collaborative Partners, Inc.
In May 2015, the Company paid the final installment to the sellers by issuing 148,460 shares of its common stock valued at $530,000.
Note 5 Accounts Receivable
The components of accounts receivable are as follows (in thousands):
|
|
June 30, 2015 |
|
December 31, 2014 |
| ||
|
|
(Restated) |
|
|
| ||
Billed |
|
$ |
243,976 |
|
$ |
210,460 |
|
Retainage, current portion |
|
11,991 |
|
12,700 |
| ||
Unbilled |
|
41,819 |
|
32,739 |
| ||
|
|
297,786 |
|
255,899 |
| ||
Allowance for doubtful accounts |
|
(60,285 |
) |
(60,801 |
) | ||
|
|
$ |
237,501 |
|
$ |
195,098 |
|
Libya Receivable
The Company has open but inactive contracts with the Libyan Organization for the Development of Administrative Centres (ODAC). Due to the civil unrest which commenced in Libya in February 2011, the Company suspended its operations in and demobilized substantially all of its personnel from Libya. At December 31, 2012, the balance of the Libya Receivable was approximately $59,937,000. Because of the continuing political instability in Libya, the Company established a reserve for the full amount of the receivable as of December 31, 2012. During 2013, the Company received approximately $2,880,000 against the receivable. In the first quarter of 2014, the Company received additional payments of approximately $6,631,000 against the receivable which has been reflected as a reduction of selling, general and administrative (SG&A) expenses for the six-months ended June 30, 2014. At June 30, 2015, after a decrease of approximately $667,000 due to the effect of foreign exchange translation losses, the Libya Receivable was approximately $49,759,000 which continues to be fully reserved. It is managements intention to continue to pursue collection of monies owed to the Company by ODAC and, if subsequent payments are received, the Company will reflect such receipts, net of any third party obligations related to the collections, as reductions of SG&A expenses.
Note 6 Intangible Assets
The following table summarizes the Companys acquired intangible assets (in thousands):
|
|
June 30, 2015 |
|
December 31, 2014 |
| ||||||||
|
|
Gross |
|
|
|
Gross |
|
|
| ||||
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
Accumulated |
| ||||
|
|
Amount |
|
Amortization |
|
Amount |
|
Amortization |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Client relationships |
|
$ |
37,034 |
|
$ |
21,891 |
|
$ |
36,412 |
|
$ |
20,758 |
|
Acquired contract rights |
|
12,553 |
|
10,398 |
|
11,387 |
|
9,717 |
| ||||
Trade names |
|
2,922 |
|
1,145 |
|
3,023 |
|
1,065 |
| ||||
Total |
|
$ |
52,509 |
|
$ |
33,434 |
|
$ |
50,822 |
|
$ |
31,540 |
|
Intangible assets, net |
|
$ |
19,075 |
|
|
|
$ |
19,282 |
|
|
|
Amortization expense related to intangible assets was as follows (in thousands):
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
2015 |
|
2014 |
|
2015 |
|
2014 |
| ||||
$ |
1,611 |
|
$ |
1,546 |
|
$ |
3,031 |
|
$ |
3,132 |
|
The following table presents the estimated amortization expense based on our present intangible assets for the next five years (in thousands):
|
|
Estimated |
| |
|
|
Amortization |
| |
Year Ending December 31, |
|
Expense |
| |
|
|
|
| |
2015 (remaining 6 months) |
|
$ |
3,110 |
|
2016 |
|
4,646 |
| |
2017 |
|
3,273 |
| |
2018 |
|
2,145 |
| |
2019 |
|
1,872 |
| |
Note 7 Goodwill
The following table summarizes the changes in the Companys carrying value of goodwill during 2015 (in thousands):
|
|
Project |
|
Construction |
|
|
| |||
|
|
Management |
|
Claims |
|
Total |
| |||
Balance, December 31, 2014 |
|
$ |
53,669 |
|
$ |
26,768 |
|
$ |
80,437 |
|
Additions |
|
3,522 |
|
|
|
3,522 |
| |||
Translation adjustments |
|
(3,752 |
) |
(217 |
) |
(3,969 |
) | |||
Balance, June 30, 2015 |
|
$ |
53,439 |
|
$ |
26,551 |
|
$ |
79,990 |
|
Note 8 Accounts Payable and Accrued Expenses
Below are the components of accounts payable and accrued expenses (in thousands):
|
|
June 30, 2015 |
|
December 31, 2014 |
| ||
|
|
(Restated) |
|
|
| ||
Accounts payable |
|
$ |
46,408 |
|
$ |
32,701 |
|
Accrued payroll |
|
48,096 |
|
41,205 |
| ||
Accrued subcontractor fees |
|
6,933 |
|
3,930 |
| ||
Accrued agency fees |
|
6,589 |
|
6,920 |
| ||
Accrued legal and professional fees |
|
3,149 |
|
1,099 |
| ||
Other accrued expenses |
|
5,988 |
|
7,782 |
| ||
|
|
$ |
117,163 |
|
$ |
93,637 |
|
Note 9 Notes Payable and Long-Term Debt
Outstanding debt obligations are as follows (in thousands):
|
|
June 30, 2015 |
|
December 31, 2014 |
| ||
|
|
|
|
|
| ||
Term Loan Facility |
|
$ |
119,100 |
|
$ |
119,700 |
|
Domestic Revolving Credit Facility |
|
16,000 |
|
200 |
| ||
International Revolving Credit Facility |
|
10,434 |
|
2,554 |
| ||
Borrowings under revolving credit facilities with a consortium of banks in Spain |
|
4,624 |
|
5,037 |
| ||
Borrowing under unsecured credit facility with Ibercaja Bank in Spain |
|
392 |
|
745 |
| ||
Borrowing under revolving credit facility with the National Bank of Abu Dhabi |
|
1,574 |
|
|
| ||
Borrowing from Philadelphia Industrial Development Corporation |
|
737 |
|
|
| ||
Other notes payable |
|
225 |
|
|
| ||
|
|
153,086 |
|
128,236 |
| ||
Less current maturities |
|
4,806 |
|
6,361 |
| ||
Notes payable and long-term debt, net of current maturities |
|
$ |
148,280 |
|
$ |
121,875 |
|
Refinancing
Effective as of September 26, 2014 (the Closing Date), the Company, entered into a credit agreement with Société Générale, as administrative agent (the Agent) and collateral agent, TD Bank, N.A., as syndication agent and HSBC Bank USA, N.A., as documentation agent, (collectively, the U.S. Lenders) consisting of a term loan facility of $120,000,000 (the Term Loan Facility) and a $30,000,000 U.S. dollar-denominated facility available to the Company (the U.S. Revolver, together with the Term Loan Facility, the U.S. Credit Facilities) and a credit agreement with the Agent, as administrative agent and collateral agent, (the International Lender) providing a facility of approximately 11,765,000 ($15,000,000 at the closing date and $13,199,000 at June 30, 2015) which is available to the Subsidiary (the International Revolver and together with the U.S. Revolver, the Revolving Credit Facilities and, together with the U.S. Credit Facilities, the Secured Credit Facilities). The U.S. Revolver and the International Revolver include sub-limits for letters of credit amounting to $25,000,000 and 8,000,000, respectively.
The Secured Credit Facilities contain customary default provisions, representations and warranties, and affirmative and negative covenants, and require the Company to comply with certain financial and reporting covenants (see Note 19). The financial covenants consist of a Maximum Consolidated Net Leverage Ratio and an Excess Account Concentration requirement. The Consolidated Net Leverage Ratio is the ratio of (a) consolidated total debt (minus cash of up to
$10,000,000 held in the aggregate) to consolidated earnings before interest, taxes, depreciation, amortization and share-based compensation for the trailing twelve months. The Excess Account Concentration covenant permits the U.S. Lenders and the International Lender to increase the interest rates by 2.0% if, as of the last day of any fiscal quarter, either (a) the total of accounts receivable from all clients within any country not listed as a Permitted Country as defined in the Secured Credit Facilities (other than the United Arab Emirates) that are more than 120 days old (relative to the invoice date) constitute more than 10% of the total outstanding accounts receivable or (b) accounts receivable from any individual client located in the United Arab Emirates that are more than 120 days old (relative to the invoice date) constitute more than 14% of the total outstanding accounts receivable; provided that, in each case, the accounts receivable due from clients located in Libya that exist as of the Closing Date shall be excluded for all purposes of this covenant. The interest rate will be reset as soon as the accounts receivable over 120 days decline below the 10% or 14% levels. At June 30, 2015, non-permitted accounts receivable did not exceed the limits set forth above.
The following compares the Maximum Consolidated Net Leverage Ratio to the actual consolidated net leverage ratio at June 30, 2015:
Not to exceed |
|
Actual |
|
|
|
(Restated) |
|
3.50 to 1.00 |
|
3.41 to 1.00 |
|
The U.S. Credit Facilities are guaranteed by certain U.S. subsidiaries of the Company, and the International Revolver is guaranteed by the Company and certain of the Companys U.S. and non-U.S. subsidiaries.
Term Loan Facility
The interest rate on the Term Loan Facility will be, at the Companys option, either:
· the London Inter-Bank Offered Rate (LIBOR) for the relevant interest period plus 6.75% per annum, provided that such LIBOR shall not be lower than 1.00% per annum; or
· the Base Rate (as described below) plus 5.75% per annum.
The Base Rate is a per annum rate equal to the highest of (A) the prime rate, (B) the federal funds effective rate plus 0.50%, or (C) the LIBOR for an interest period of one month plus 1.0% per annum. Upon a default, the applicable rate of interest under the Secured Credit Facilities may increase by 2.0%. The LIBOR on the Term Loan Facilities (including when determining the Base Rate) shall in no event be less than 1.0% per annum.
The Company has the right to prepay the Term Loan Facility in full or in part at any time without premium or penalty; provided, however that upon the occurrence of prepayments relating to certain repricing transactions within the first year following closing, a 1.0% prepayment premium will be payable. The Company is required to make mandatory prepayments of the Term Loan Facility, without premium or penalty, (i) with net proceeds of any issuance or incurrence of indebtedness (other than that permitted under the Term Loan Facility) by the Company after the closing, (ii) with net proceeds from certain asset sales outside the ordinary course of business, and (iii) with 50% of the excess cash flow (as defined in the agreement) for each fiscal year of the Borrowers commencing with the first full fiscal year ending after closing (which percentage would be reduced to 25% if the Consolidated Net Leverage Ratio is equal to or less than 2.25 to 1.00 or reduced to 0% if the Consolidated Net Leverage Ratio is equal to or less than 1.50 to 1.00).
The Term Loan Facility is generally secured by a first-priority security interest in substantially all assets of the Company and certain of the Companys U.S. subsidiaries other than accounts receivable, cash proceeds thereof and certain bank accounts, as to which the Term Loan Facility is secured by a second-priority security interest.
The Term Loan Facility has a term of six years, requires repayment of 0.25% of the original principal amount on a quarterly basis through September 30, 2020, the maturity date. Any amounts repaid on the Term Loan Facility will not be available to be re-borrowed.
The Company incurred fees and expenses related to the Term Loan Facility aggregating $7,066,000 which were deferred. The deferred fees are being amortized on a straight-line basis, which approximates the effective interest method, to
interest and related financing fees, net over a six-year period which ends on September 30, 2020. Unamortized balances of $6,183,000 and $6,772,000 are included in other assets in the consolidated balance sheets at June 30, 2015 and December 31, 2014, respectively.
Revolving Credit Facilities
The interest rate on borrowings under the U.S. Revolver will be, at the Companys option from time to time, either the LIBOR for the relevant interest period plus 3.75% per annum or the Base Rate plus 2.75% per annum.
The interest rate on borrowings under the International Revolver will be the European Inter-Bank Offered Rate, or EURIBOR, for the relevant interest period (or at a substitute rate to be determined to the extent EURIBOR is not available) plus 4.00% per annum.
The Company will pay a commitment fee calculated at 0.50% annually on the average daily unused portion of the U.S. Revolver, and the Subsidiary will pay a commitment fee calculated at 0.75% annually on the average daily unused portion of the International Revolver.
The ability to borrow under each of the U.S. Revolver and the International Revolver is subject to a borrowing base, calculated using a formula based upon approximately 85% of receivables that meet or satisfy certain criteria (Eligible Receivables) and that are subject to a perfected security interest held by either the U.S. Lenders or the International Lender, plus, in the case of the International Revolver only, 10% of Eligible Receivables that are not subject to a perfected security interest held by the International Lender, subject to certain exceptions and restrictions.
The Company or the Subsidiary, as applicable, will be required to make mandatory prepayments under their respective Revolving Credit Facilities to the extent that the aggregate outstanding amount thereunder exceeds the then-applicable borrowing base, which payments will be made without penalty or premium. At June 30, 2015, the domestic borrowing base was $30,000,000 and the international borrowing base was 11,765,000 (approximately $13,199,000 at June 30, 2015).
Generally, the obligations of the Company under the U.S. Revolver are secured by a first-priority security interest in the above-referenced accounts receivable, cash proceeds and bank accounts of the Company and certain of the Companys U.S. subsidiaries, and a second-priority security interest in substantially all other assets of the Company and such subsidiaries. The obligations of the Subsidiary under the International Revolver would generally be secured by a first-priority security interest in substantially all accounts receivable, cash proceeds thereof and certain bank accounts of the Subsidiary and certain of the Companys non-U.S. subsidiaries, and a second-priority security interest in substantially all other assets of the Company and certain of the Companys U.S. and non-U.S. subsidiaries.
The Revolving Credit Facilities have a term of five years and require payment of interest only during the term. Under the Revolving Credit Facilities, outstanding loans may be repaid in whole or in part at any time, without premium or penalty, subject to certain customary limitations, and will be available to be re-borrowed from time to time through expiration on September 30, 2019.
The Company incurred fees and expenses related to the Revolving Credit Facilities aggregating $3,000,000 which was deferred. The deferred fees are being amortized on a straight-line basis, which approximates the effective interest method, to interest expense and related financing fees, net over a five-year period which ends on September 30, 2019. Unamortized balances of $2,550,000 and $2,850,000 are included in other assets in the consolidated balance sheet at June 30, 2015 and December 31, 2014, respectively.
At June 30, 2015, the Company had $11,670,000 of outstanding letters of credit and $2,330,000 of available borrowing capacity under the U.S. Revolver.
At June 30, 2015, the Company had $2,655,000 of outstanding letters of credit and $2,410,000 of available borrowing capacity under the International Revolver and its other foreign credit agreements (See Other Debt Arrangements below for more information).
Other Debt Arrangements
In connection with the move of its corporate headquarters to Philadelphia, Pennsylvania, the Company received a loan from the Philadelphia Industrial Development Corporation in the amount of $750,000 which bears interest at 2.75%, is repayable in 144 equal monthly installments of $6,121 and matures on May 1, 2027.
The Companys subsidiary, Hill International (Spain) S.A. (Hill Spain), maintains a revolving credit facility with six banks (the Financing Entities) in Spain which initially provided for total borrowings of up to 5,340,000 with interest at 6.50% on outstanding borrowings. Total availability under this facility was reduced to 75.0% of the initial limit at December 31, 2014 and will be reduced to 50.0% at December 31, 2015. At June 30, 2015, the total facility was approximately 4,005,000 (approximately $4,494,000) and borrowings outstanding were 3,987,000 (approximately $4,473,000). The amount being financed (Credit Contracts) by each Financing Entity is between 284,000 (approximately $319,000) and 1,154,000 (approximately $1,295,000). To guarantee Hill Spains obligations resulting from the Credit Contracts, Hill Spain 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 Participacoes 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 facility expires on December 17, 2016.
Hill Spain maintains an unsecured credit facility with the Ibercaja Bank in Spain for 350,000 (approximately $392,000) at June 30, 2015. The availability is being reduced by 175,000 at the end of each calendar quarter. At June 30, 2015, total borrowings outstanding were 350,000. The interest rate at June 30, 2015 was 6.75%. The facility expires on December 31, 2015.
Hill Spain also maintains an ICO (Official Credit Institute) loan with Bankia Bank in Spain for 135,000 (approximately $151,000) at June 30, 2015. The availability is reduced by 15,000 on a quarterly basis. At June 30, 2015, total borrowings outstanding were 135,000. The interest rate at June 30, 2015 was 5.91%. The ICO loan expires on August 10, 2017.
The Company maintains a credit facility with the National Bank of Abu Dhabi which provides for total borrowings of up to AED 11,500,000 (approximately $3,131,000 at June 30, 2015) collateralized by certain overseas receivables. At June 30, 2015, total borrowings outstanding were AED 5,782,000 (approximately $1,574,000). The interest rate is the one-month Emirates InterBank Offer Rate plus 3.50% (or 4.84% at June 30, 2015) but no less than 5.50%. This facility was modified in June 2015 to increase availability under Letters of Guarantee to allow for up to AED 200,000,000 (approximately $54,457,000 at June 30, 2015) of which AED 106,802,000 (approximately $29,078,000) was outstanding at June 30, 2015. The credit facility will expire on May 7, 2016.
Engineering S.A. maintains four unsecured revolving credit facilities with two banks in Brazil aggregating 2,250,000 Brazilian Reais (BRL) (approximately $722,000 at June 30, 2015), with a weighted average interest rate of 3.11% per month at June 30, 2015. There were no borrowings outstanding on any of these facilities which are renewed automatically every three months.
The Company also maintains relationships with other foreign banks for the issuance of letters of credit, letters of guarantee and performance bonds in a variety of foreign currencies. At June 30, 2015, the maximum U.S. dollar equivalent of the commitments was $70,229,000 of which $29,055,000 is outstanding.
Note 10 Supplemental Cash Flow Information
The following table provides additional cash flow information (in thousands):
|
|
Six Months Ended June 30, |
| ||||
|
|
2015 |
|
2014 |
| ||
Interest and related financing fees paid |
|
$ |
6,174 |
|
$ |
7,097 |
|
|
|
|
|
|
| ||
Income taxes paid |
|
$ |
1,258 |
|
$ |
6,616 |
|
|
|
|
|
|
| ||
Increase in property and equipment from a tenant improvement allowance related to the relocation of the corporate headquarters |
|
$ |
3,894 |
|
$ |
|
|
|
|
|
|
|
| ||
Reduction of noncontrolling interest in connection with acquisition of an additional interest in Engineering S.A. |
|
|
|
$ |
(2,649 |
) | |
|
|
|
|
|
| ||
Increase in additional paid in capital from issuance of shares of common stock related to purchase of CPI |
|
$ |
530 |
|
$ |
618 |
|
|
|
|
|
|
| ||
Increase in additional paid in capital from issuance of shares of common stock from cashless exercise of stock options |
|
$ |
361 |
|
$ |
538 |
|
Note 11 Earnings per Share
Basic earnings 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. Dilutive stock options increased the average common shares outstanding by approximately 1,012,000 shares for the three months ended June 30, 2015 and by approximately 581,000 shares for the six months ended June 30, 2015. Options to purchase 3,198,000 shares and 3,871,000 shares were excluded from the calculation of diluted earnings per common share for the three and six months ended June 30, 2015 because they were antidilutive. Dilutive stock options increased the average common shares outstanding by approximately 2,023,000 shares for the three months ended June 30, 2014 and by approximately 1,386,000 shares for the six months ended June 30, 2014. Options to purchase 1,355,000 shares and 2,034,000 shares were excluded from the calculation of diluted earnings per common share for the three and six months ended June 30, 2014 because they were antidilutive.
Note 12 Share-Based Compensation
At June 30, 2015, the Company had approximately 7,841,000 options outstanding with a weighted average exercise price of $4.39. During the six months ended June 30, 2015, the Company granted 1,025,000 options which vest over a five-year period. The options have a weighted-average exercise price of $3.97 and a weighted average contractual life of 7.0 years. The aggregate fair value of the options was $2,097,000 calculated using the Black-Scholes valuation model. The weighted average assumptions used to calculate fair value were: expected life 5.0 years; volatility 59.9% and risk-free interest rate 1.48%. During the first six months of 2015, options for approximately 139,000 shares with a weighted average exercise price of $3.59 were exercised, options for approximately 377,000 shares with a weighted average exercise price of $6.94 lapsed and options for 28,000 shares with a weighted average exercise price of $4.40 were forfeited.
During the six months ended June 30, 2015, employees purchased approximately 10,000 common shares, for an aggregate purchase price of $32,000, pursuant to the Companys 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 $700,000 and $1,129,000 for the three months ended June 30, 2015 and 2014, respectively, and $1,461,000 and $1,927,000 for the six months ended June 30, 2015 and 2014, respectively.
Note 13 Stockholders Equity
The following table summarizes the changes in stockholders equity during the six months ended June 30, 2015 (in thousands):
|
|
|
|
Hill International, |
|
Noncontrolling |
| |||
|
|
Total |
|
Inc. Stockholders |
|
Interests |
| |||
|
|
(Restated) |
|
(Restated) |
|
(Restated) |
| |||
Stockholders equity, December 31, 2014 |
|
$ |
122,000 |
|
$ |
113,288 |
|
$ |
8,712 |
|
Net earnings |
|
5,383 |
|
5,097 |
|
286 |
| |||
Other comprehensive (loss) |
|
(7,415 |
) |
(3,393 |
) |
(4,022 |
) | |||
Comprehensive earnings (loss) |
|
(2,032 |
) |
1,704 |
|
(3,736 |
) | |||
Additional paid in capital |
|
1,991 |
|
1,991 |
|
|
| |||
Acquisition of treasury stock |
|
(361 |
) |
(361 |
) |
|
| |||
Adjustment related to ESA put options |
|
(4,270 |
) |
(4,270 |
) |
|
| |||
Stock issued for acquisition of CPI |
|
530 |
|
530 |
|
|
| |||
Stockholders equity, June 30, 2015 |
|
$ |
117,858 |
|
$ |
112,882 |
|
$ |
4,976 |
|
During May 2015, four of the Companys directors exercised an aggregate of 84,868 options with an exercise price of $4.25 through the Company on a cashless basis. The Company withheld 67,400 shares as payment for the options and placed those shares in treasury. The directors received a total of 17,468 shares from this transaction.
During the six months ended June 30, 2015, the Company received cash proceeds of $137,000 from the exercise of stock options.
In April 2015, two shareholders who own approximately 19% of ESA exercised their ESA Put Options. The Company intends to pay the liability in shares of its common stock. See Note 17 for further information.
On May 4, 2015, the Companys Board of Directors approved the adoption of a stockholder rights plan and, on June 9, 2015, they rescinded that plan.
Note 14 Income Taxes
The effective tax rates for the three months ended June 30, 2015 and 2014 were 36.3% and 33.0%, respectively, and 41.2% and 14.8% for the six months ended June 30, 2015 and 2014, respectively. The Companys effective tax rate represents the Companys effective tax rate for the year based on projected income and mix of income among the various foreign tax jurisdictions, adjusted for discrete transactions occurring during the period. The Company recognized an income tax expense (benefit) related to an increase (decrease) in the reserve for uncertain tax positions totaling $245,000 and ($2,514,000) for the three- and six-month periods ended June 30, 2015 and 2014, respectively. In addition, the Company recognized an income tax expense (benefit) resulting from adjustments to agree the prior years book amounts to the actual amounts per the tax returns totaling ($85,000) and $44,000 for the three months ended June 30, 2015 and 2014, respectively, and $0 and $44,000 for the six months ended June 30, 2015 and 2014, respectively. For both years, the Companys effective tax rate is significantly higher than it otherwise would be primarily as a result of not being able to record an income tax benefit related to the U.S. net operating loss and various foreign withholding taxes.
The components of earnings (loss) before income taxes and the related income tax expense by United States and foreign jurisdictions were as follows (in thousands):
|
|
Three Months Ended June 30, 2015 |
|
Three Months Ended June 30, 2014 |
| ||||||||||||||
(in thousands) |
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings (loss) before income taxes |
|
$ |
(6,191 |
) |
$ |
13,312 |
|
$ |
7,121 |
|
$ |
(10,791 |
) |
$ |
13,800 |
|
$ |
3,009 |
|
Income tax expense, net |
|
$ |
|
|
$ |
2,586 |
|
$ |
2,586 |
|
$ |
|
|
$ |
993 |
|
$ |
993 |
|
|
|
Six Months Ended June 30, 2015 |
|
Six Months Ended June 30, 2014 |
| ||||||||||||||
|
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
| ||||||
|
|
(Restated) |
|
(Restated) |
|
(Restated) |
|
|
|
(Restated) |
|
(Restated) |
| ||||||
Earnings (loss) before income taxes |
|
$ |
(16,631 |
) |
$ |
25,784 |
|
$ |
9,153 |
|
$ |
(21,672 |
) |
$ |
30,553 |
|
$ |
8,881 |
|
Income tax expense, net |
|
$ |
|
|
$ |
3,770 |
|
$ |
3,770 |
|
$ |
|
|
$ |
1,317 |
|
$ |
1,317 |
|
The reserve for uncertain tax positions amounted to $1,220,000 and $975,000 at June 30, 2015 and December 31, 2014, respectively, and is included in Other liabilities in the consolidated balance sheet at those dates. During the three- and six-month periods ended June 30, 2015, the reserve for uncertain tax positions was increased by $245,000 and was due to certain tax positions taken in foreign jurisdictions. During the three months ended June 30, 2014, the reserve for uncertain tax positions was reduced by $2,514,000 based on managements assessment that these items were effectively settled with the appropriate foreign tax authorities. During the six months ended June 30, 2014, the Company also reclassified $420,000 from Income taxes payable to the reserve for uncertain tax positions primarily taken in foreign jurisdictions.
The Companys policy is to record income tax related interest and penalties in income tax expense. At both June 30, 2015 and December 31, 2014, potential interest and penalties related to uncertain tax positions amounting to $520,000 was included in the balance above.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or 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. Management evaluates the need for valuation allowances on the deferred tax assets according to the provisions of ASC740, Income Taxes. They consider both positive and negative evidence. In making this determination, management assesses all of the evidence available at the time including recent earnings, internally-prepared income projections, and historical financial performance.
Note 15 Business Segment Information
The Companys 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, Africa and Asia/Pacific).
The Project Management business segment provides extensive construction and project management services to construction owners worldwide. Such services include program management, project management, construction management, project management oversight, troubled project turnaround, staff augmentation, project labor agreement consulting, commissioning, estimating and cost management, labor compliance and facilities management services.
The Construction Claims business segment provides such services as claims consulting, management consulting, litigation support, expert witness testimony, cost/damages assessment, delay/disruption analysis, adjudication, lender advisory, risk management, forensic accounting, fraud investigation, Project Neutral and international arbitration services.
The Company evaluates the performance of its segments primarily on operating profit before corporate overhead allocations and income taxes.
The following tables reflect the required disclosures for the Companys reportable segments (in thousands):
Consulting Fee Revenue (CFR)
|
|
Three Months Ended June 30, |
| ||||||||
|
|
2015 |
|
2014 |
| ||||||
|
|
|
|
|
|
|
|
|
| ||
Project Management |
|
$ |
116,464 |
|
72.9 |
% |
$ |
108,521 |
|
75.1 |
% |
Construction Claims |
|
43,274 |
|
27.1 |
|
35,994 |
|
24.9 |
| ||
Total |
|
$ |
159,738 |
|
100.0 |
% |
$ |
144,515 |
|
100.0 |
% |
Total Revenue
|
|
Three Months Ended June 30, |
| ||||||||
|
|
2015 |
|
2014 |
| ||||||
|
|
|
|
|
|
|
|
|
| ||
Project Management |
|
$ |
137,052 |
|
75.4 |
% |
$ |
122,044 |
|
76.4 |
% |
Construction Claims |
|
44,596 |
|
24.6 |
|
37,595 |
|
23.6 |
| ||
Total |
|
$ |
181,648 |
|
100.0 |
% |
$ |
159,639 |
|
100.0 |
% |
Operating Profit
|
|
Three Months Ended June 30, |
| ||||
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Project Management before equity in loss of affiliate |
|
$ |
15,041 |
|
$ |
13,218 |
|
Equity in loss of affiliate |
|
(34 |
) |
|
| ||
Total Project Management |
|
15,007 |
|
13,218 |
| ||
Construction Claims |
|
4,772 |
|
3,054 |
| ||
Corporate |
|
(9,127 |
) |
(7,617 |
) | ||
Total |
|
$ |
10,652 |
|
$ |
8,655 |
|
Depreciation and Amortization Expense
|
|
Three Months Ended June 30, |
| ||||
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Project Management |
|
$ |
2,077 |
|
$ |
1,720 |
|
Construction Claims |
|
802 |
|
663 |
| ||
Subtotal segments |
|
2,879 |
|
2,383 |
| ||
Corporate |
|
104 |
|
54 |
| ||
Total |
|
$ |
2,983 |
|
$ |
2,437 |
|
Consulting Fee Revenue by Geographic Region
|
|
Three Months Ended June 30, |
| ||||||||
|
|
2015 |
|
2014 |
| ||||||
|
|
|
|
|
|
|
|
|
| ||
U.S./Canada |
|
$ |
39,909 |
|
25.0 |
% |
$ |
31,708 |
|
21.9 |
% |
Latin America |
|
6,855 |
|
4.3 |
|
11,064 |
|
7.7 |
| ||
Europe |
|
21,317 |
|
13.3 |
|
18,948 |
|
13.1 |
| ||
Middle East |
|
75,857 |
|
47.5 |
|
68,867 |
|
47.7 |
| ||
Africa |
|
7,041 |
|
4.4 |
|
6,020 |
|
4.2 |
| ||
Asia/Pacific |
|
8,759 |
|
5.5 |
|
7,908 |
|
5.4 |
| ||
Total |
|
$ |
159,738 |
|
100.0 |
% |
$ |
144,515 |
|
100.0 |