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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 September 30, 2013

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)

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 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.

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 39,458,609 shares of the Registrant’s Common Stock outstanding at November 1, 2013.

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HILL INTERNATIONAL, INC. AND SUBDISIARIES

Index to Form 10-Q

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PART I — FINANCIAL INFORMATION

Item 1.   Financial Statements.

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

See accompanying notes to consolidated financial statements.

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HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

See accompanying notes to consolidated financial statements.

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HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

(In thousands)

(Unaudited)

See accompanying notes to consolidated financial statements.

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HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

See accompanying notes to consolidated financial statements.

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HILL INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 - The Company

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

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, 2012.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements.  In the opinion of management, these statements include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the consolidated financial statements.

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

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

Note 3 — Acquisitions

Binnington Copeland & Associates

On May 30, 2013 (the “Closing Date”), Hill International N.V., the Company’s wholly-owned subsidiary, acquired all of the outstanding common stock of Binnington Copeland & Associates (Pty.) Ltd. and BCA Training (Pty.) Ltd. (together “BCA”).  BCA, with 34 professionals, has offices in Johannesburg and Cape Town, South Africa.  The acquisition provides the Company’s claims business access to Africa’s large infrastructure and mining projects and allows for expansion into the rest of sub-Saharan Africa.  Consideration consisted of $2,000,000 plus a potential earn out, both payable in shares of the Company’s common stock.  The purchase price is payable as follows: $1,072,400 (the “Closing Date Payment”) on the Closing Date, $927,600 (the “Second Tranche Payment”) on July 31, 2013 and an earn-out (the “Third Tranche Payment”) to be determined in the third quarter of 2014.  The Company issued 379,655 shares of its common stock in satisfaction of the Closing Date Payment; the number of shares was determined by dividing the Closing Date Payment by the average closing price of our common stock for the thirty trading days ending on May 17, 2013.  On July 31, 2013, the Company issued 331,444 shares of its common stock in satisfaction of the Second Tranche Payment.  The number of shares was determined by dividing the Second Tranche Payment by the average closing price of our common stock for the thirty trading days ending on July 19, 2013.  The shares issuable in satisfaction of the Third Tranche Payment will be determined by dividing the Third Tranche Payment by the average closing price of our common stock for the thirty trading days ending on July 21, 2014.  The actual amount of the Third Tranche Payment will be determined by comparing the average net profit before taxes for the two-year periods ending July 31, 2014 to the net profit before taxes for the year ended July 31, 2012, and multiplying the excess, if any, by 2.205.  The Third Tranche Payment is estimated to be approximately $902,000.  The Company reflected the liability for the Third Tranche Payment in other current liabilities in the consolidated balance sheet at September 30, 2013.  The Company acquired intangible assets and goodwill amounting to 13,143,000 South African Rand (ZAR) (approximately $1,312,000 on the acquisition date) and ZAR 12,872,500 ($1,284,000), respectively.  The acquired intangible assets have a weighted average life of 8.2

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years.  The acquired intangible assets consist of a client relationship intangible of ZAR 10,546,000 ($1,053,000) with a ten-year life, a contract intangible of ZAR 1,863,000 ($186,000) with an 8-month life and a trade name intangible of ZAR 734,000 ($73,000) with a two-year life.  Goodwill, which is not deductible for income tax purposes, has been allocated to the Construction Claims operating segment.  The results of operations of BCA are not material to the Company’s consolidated results of operations.

Gerens Hill International, S.A.

In April 2013, minority shareholders, who held the remaining 6.8% of Gerens Hill, exercised their put options.  The Company accrued the liability of approximately €1,915,000 (approximately $2,526,000) which is included in other current liabilities in the consolidated balance sheet at September 30, 2013. In connection with this transaction, the Company reduced noncontrolling interests by €829,000 (approximately $1,094,000), has increased goodwill and deferred tax liabilities by €326,000 each (approximately $430,000) and has increased intangible assets by €1,086,000 (approximately $1,432,000).  The aggregate consideration is expected to be paid in December 2013.

Note 4 — Accounts Receivable

The components of accounts receivable are as follows (in thousands):

During the past several months, accounts receivable related to work performed by Hill prior to March 2011 pursuant to contracts with the Libyan government were reduced by approximately $3,100,000.  The reduction consisted of a cash payment by the Libyan Organization for the Development of Administrative Centres (“ODAC”) of approximately 3,000,000 Libyan dinars (“LYD”) ($2,400,000) that was made directly to Hill and a cash payment of approximately LYD 800,000 ($700,000) that was made by ODAC to Libyan tax authorities on Hill’s behalf.  At September 30, 2013, the remaining accounts receivable outstanding related to Hill’s work in Libya amounted to approximately $57,000,000.

The LYD 3,000,000 cash payment made directly to Hill is not freely convertible into other currencies.  As a result, this cash remains in Hill’s Libyan bank account.  There is at present no agreement, understanding or timetable for further payments of Hill’s accounts receivable from ODAC or a return to work on Hill’s existing contracts.  However, management believes that these payments were made in good faith and are a positive indication that ODAC intends to satisfy its obligations to Hill.  However, the Company cannot predict with certainty when, or if, the remaining accounts receivable will be paid by the Libyan authorities or when work will resume there.  In the event that the Company does not realize any further payments, there could be a significant adverse impact on its consolidated results of operations and consolidated financial position.

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Note 5 — Intangible Assets

The following table summarizes the Company’s acquired intangible assets (in thousands):

Amortization expense related to intangible assets was as follows (in thousands):

The following table presents the estimated amortization expense based on our present intangible assets for the next five years (in thousands):

Note 6 — 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, 2013 and noted no impairment for either of its reporting units. Based on a preliminary valuation, the fair value of the Project Management unit and the Construction Claims unit exceeded their carrying values by $55,966,000 and $7,905,000, respectively.

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The following table summarizes the changes in the Company’s carrying value of goodwill during 2013 (in thousands):

Note 7 — Accounts Payable and Accrued Expenses

Below are the components of accounts payable and accrued expenses (in thousands):

Note 8 — Notes Payable and Long-Term Debt

Outstanding debt obligations are as follows (in thousands):

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Term Loan Agreement

The Company entered into a Term Loan Agreement on October 18, 2012, which was amended on May 23, 2013 (the “First Amendment”). The First Amendment contains identical provisions as those in the Fourth Amendment to Credit Agreement (see below).  Borrowings under the Term Loan Agreement are collateralized by a second lien on substantially 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 our wholly-owned subsidiary, Hill International N.V. and of certain of our other foreign subsidiaries.  The maturity date of the Term Loan is October 18, 2016.

The Company will pay interest on amounts outstanding from time to time under the Term Loan at a rate per annum equal to 7.50%, however, such rate may be increased to 9.50% per annum if fixed price contracts (as defined under the Term Loan Agreement) or certain accounts receivable of the Company and its subsidiaries exceed percentages specified in the Term Loan Agreement.

Also, contemporaneous with its entry into the Term Loan Agreement, the Company entered into a Fee Letter.  The Fee Letter requires the Company to pay to the Lenders an exit fee (the “Exit Fee”), which fee shall be earned in full on the Closing Date and due and payable on the date the Term Loan is paid in full (the “Exit Date”).  “Exit Fee” means the amount, if any, when paid to the Term Loan Lenders on the Exit Date, that will result in the internal annual rate of return to the Term Loan Lenders on the Exit Date being equal to, but no greater than, 20%; provided that in no event shall the Exit Fee Amount be less than $0 or greater than $11,790,000.  The IRR is to be calculated as the rate of return earned by the Term Loan Lenders on their initial investment in the Term Loan (to be calculated as the principal amount of the Term Loan less the Closing Fee of $25,000,000) through the Exit Date taking into account the payment by the Company to the Term Loan Lenders of all principal, interest and other payments to the Term Loan Lenders pursuant to the Term Loan Agreement.

At September 30, 2013, the Company was in compliance with all of the Term Loan covenants.

Revolving Credit Agreement

The Company entered into a Credit Agreement, dated June 30, 2009 (the “Credit Agreement”), with Bank of America, N.A., Capital One, N.A., The PrivateBank and Trust Company, PNC Bank N.A., and Bank of America, N.A., as Administrative Agent.  The Credit Agreement has been amended from time to time, most recently on May 23, 2013 when the Company entered into a Fourth Amendment to Credit Agreement pursuant to which, among other things, the lenders agreed to :  (a) permit the Company to enter into an agreement with Qatar National Bank for the issuance of letters of credit (“LCs”) not to exceed $17,000,000, (b) increase the limit on LCs available to the Company’s foreign subsidiaries who are not loan parties from $4,000,000 to $11,800,000 and (c) permit the Company to provide up to $20,000,000 as cash collateral for letters of credit and performance bonds.  The Company paid an amendment fee of $150,000 to the Agent and reimbursed the Agent for its out-of-pocket costs amounting to approximately $372,000.  These amounts are included in interest expense and related financing fees, net in the consolidated statements of operations for the nine-month period ended September 30, 2013.

The Credit Agreement requires the Company to comply with a consolidated leverage ratio, a consolidated fixed charge ratio and a senior leverage ratio.  The following table sets forth those requirements for the period ended September 30, 2013:

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The following table presents the Company’s actual ratios at September 30, 2013:

At September 30, 2013, the Company had $17,484,000 in outstanding letters of credit pursuant to the Credit Agreement and total remaining availability on such date was $9,616,000.

Other Debt Arrangements

The Company’s subsidiary, Gerens Hill, maintains a revolving credit facility with 12 banks in Spain providing for total borrowings, with interest at 6.50%, of up to €5,640,000 (approximately $7,611,000 and $7,460,000 at September 30, 2013 and December 31, 2012).  At September 30, 2013 and December 31, 2012, total borrowings outstanding were €5,537,000 and €3,796,000 (approximately $7,472,000 and $5,021,000, respectively).

Gerens Hill also maintains an unsecured credit facility with the Caja Badajoz bank in Spain for €1,500,000 (approximately $2,024,000 and $1,984,000) at September 30, 2013 and December 31, 2012, respectively.  The interest rate at September 30, 2013 is the three-month EURIBOR rate of 0.54% plus 3.00% (or 3.54%) but no less than 5.00%.  At September 30, 2013, total borrowings outstanding were €1,500,000 (approximately $2,024,000).  At December 31, 2012, there were no borrowings outstanding.

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 both September 30, 2013 and December 31, 2012) collateralized by certain overseas receivables.  The interest rate is the one-month Emirates InterBank Offer Rate plus 3.00% (or 4.25% and 4.30%, at September 30, 2013 and December 31, 2012, respectively) but no less than 5.50%.  At September 30, 2013, total borrowings outstanding were AED 8,564,000 (approximately $2,332,000).  At December 31, 2012, there were no borrowings outstanding.  This facility is renewed on a month-to-month basis. The credit facility with the National Bank of Abu Dhabi also allows for up to AED 150,000,000 (approximately $40,844,000 at September 30, 2013) in letters of guarantee of which AED 115,987,000 (approximately $31,583,000) was utilized at September 30, 2013.

The Company also maintains a revolving credit facility with Egnatia Bank for up to €1,000,000 (approximately $1,351,000 at September 30, 2013), with interest of 1.23% plus Egnatia Bank’s prime rate of 5.00% (or 6.23%) at September 30, 2013, collateralized by certain assets of the Company.  There were no borrowings outstanding under this facility at September 30, 2013 and December 31, 2012.  The facility also allows for letters of guarantee up to €4,500,000 (approximately $6,080,000 at September 30, 2013), of which €1,745,000 (approximately $2,357,000 had been utilized at September 30, 2013.

Engineering S.A. maintains three unsecured revolving credit facilities with two banks in Brazil aggregating 2,900,000 Brazilian Reais (BRL) (approximately $1,288,000 at September 30, 2013), with a weighted average monthly interest rate of 2.64%.  There were no borrowings outstanding on any of these facilities at September 30, 2013 or December 31, 2012.

A revolving credit facility with Barclays Bank PLC for up to £550,000 (approximately $889,000 at September 30, 2013), with interest of 2.00% plus the Bank of England rate of 0.50% (or 2.50%) at September 30, 2013, collateralized by cross guarantees of several of the United Kingdom companies.  Aggregate of all debt owing to the bank will be, at all times, covered 3 times by the aggregate value of the UK accounts receivable less than 90 days old and excluding any receivables which are due from any associate, subsidiary or overseas client.  At September 30, 2013 and December 31, 2012, there were no borrowings outstanding.

At September 30, 2013, the Company had $4,466,000 of available borrowing capacity under its foreign credit agreements.

In connection with the 2011 acquisition of Engineering S.A., the Company incurred indebtedness to the sellers amounting to 17,200,000 BRL (approximately $10,376,000 at the date of acquisition) and discounted that amount using an interest rate of 4.72%, the Company’s weighted average interest rate at that time.  The Company paid the first installment

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amounting to 6,624,000 BRL (approximately $3,508,000) on April 30, 2012 and paid the second installment amounting to 11,372,000 BRL (approximately $5,095,000) on July 23, 2013.

Note 9 — Supplemental Cash Flow Information

The following table provides additional cash flow information (in thousands):

Note 10 — Earnings (Loss) per Share

Basic earnings (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.  Dilutive stock options increased the average common stock outstanding by 143,528 shares for the three-month period ended September 30, 2013 and by 185,809 shares for the nine-month period ended September 30, 2013. Options to purchase 5,492,975 shares and 5,366,904 shares were excluded from the calculation of diluted earnings (loss) per common share for the three- and nine-month periods ended September 30, 2013 because they were antidilutive.  Dilutive stock options increased the average common stock outstanding by 339,850 shares for the three-month period ended September 30, 2012. Stock options were excluded from the calculation of diluted loss per common share because their effect was antidilutive for the nine-month period ended September 30, 2012.  The total number of such shares excluded from diluted loss per common share was 3,421,201 shares for the nine-month period ended September 30, 2012.

Note 11 — Share-Based Compensation

At September 30, 2013, the Company had 6,650,156 options outstanding with a weighted average exercise price of $4.73.  During the nine-month period ended September 30, 2013, the Company granted 1,000,000 options which vest over a four-year period, have an exercise price of $4.04 and a contractual life of five years; 960,000 options which vest over a five-year period, have a weighted average exercise price of $3.66 and a contractual life of seven years; and 116,280 options which vested immediately, have an exercise price of $2.89 and a contractual life of five years.  The aggregate fair value of the options was $4,039,000 calculated using the Black-Scholes valuation model.  The weighted average assumptions used to calculate fair value were: expected life — 4.29 years; volatility — 71.7% and risk-free interest rate — 0.77%. During the first nine months of 2013, options for 8,000 shares with a weighted average exercise price of $2.45 were exercised, options for 11,000 shares with a weighted average exercise price of $4.97 were forfeited and options for 51,500 shares with a weighted average exercise price of $12.03 lapsed.

During the nine-month period ended September 30, 2013, the Company issued 51,905 shares of its common stock to its Non-Employee Directors.  The Company recognized compensation expense amounting to $150,000.

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During the nine-month period ended September 30, 2013, employees purchased 23,823 common shares, for an aggregate purchase price of $53,000, 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 $674,000 and $493,000 for the three-month periods ended September 30, 2013 and 2012, respectively, and $2,257,000 and $1,931,000 for the nine-month periods ended September 30, 2013 and 2012, respectively.

Note 12 — Stockholders’ Equity

Under the Board-approved Stock Repurchase Program, the Company is authorized to purchase up to $60,000,000 of its common stock.  On August 5, 2013, the Board authorized an extension of the program to December 31, 2014. To date, 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 an average price of $4.19 per share.  Under the terms of its Credit Agreement (see Note 8), the Company may purchase up to an additional $2,000,000 as long as immediately before and after giving effect to the purchase, the Company shall have satisfied the Minimum Liquidity Requirement (that is, unrestricted cash and cash equivalents plus availability under the Credit Agreement aggregating $30,000,000) and no event of default shall have occurred and be continuing at the time.

The following table summarizes the changes in stockholders’ equity during the nine months ended September 30, 2013 (in thousands):

Note 13 — Income Taxes

The reserve for uncertain tax positions amounted to $2,560,000 and $5,033,000 at September 30, 2013 and December 31, 2012, respectively, and is included in “Other Liabilities” in the consolidated balance sheets at those dates. During the three- and nine-month periods ended September 30, 2013, the reserve for uncertain tax positions was reduced by $2,473,000 based on management’s assessment that these items were effectively settled with the appropriate foreign tax authorities during the third quarter of 2013.

The Company’s policy is to record income tax related interest and penalties in income tax expense.  At September 30, 2013, potential interest and penalties related to uncertain tax positions amounting to $100,000 was included in the balance above.

The effective income tax rates for the three-month periods ended September 30, 2013 and 2012 were (6.5%) and (333.0%), respectively, and 48.4% and 36.4% for the nine-month periods ended September 30, 2013 and 2012, respectively.  The differences in the Company’s 2013 effective tax rates over the 2012 effective tax rates were primarily the result of not recording an income tax benefit related to the 2013 U.S. net operating loss which management believes the Company will not be able to utilize offset by the $2,473,000 reversal of the reserve for uncertain tax positions discussed above. The Company also recognized an income tax (benefit) expense resulting from adjustments to agree the prior year’s book amounts to the actual amounts per the tax returns totaling ($105,000) and ($195,000) for the three-

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month periods ended September 30, 2013 and 2012, respectively, and $40,000 and ($195,000) for the nine-month periods ended September 30, 2013 and 2012, respectively.

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 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 projects, and historical financial performance.  Based upon this evaluation, management believes that it is more likely than not that the Company will not be able to utilize its U.S. related deferred tax assets.  As a consequence, the Company recorded an additional valuation allowance reserve on its estimated U.S. deferred tax assets recorded in 2013.

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, 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, and labor compliance 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 and project neutral 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 provide selected financial data for the Company’s reportable segments (dollars in thousands):

Consulting Fee Revenue (“CFR”)

Total Revenue:

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Operating Profit:

Depreciation and Amortization Expense:

Consulting Fee Revenue by Geographic Region: