Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
or
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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)
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Delaware | | 20-0953973 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
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One Commerce Square 2005 Market Street, 17th Floor Philadelphia, PA | | 19103 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s 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 o No ý
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 o No ý
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.
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Large Accelerated Filer | o | | Accelerated Filer | ý |
Non-Accelerated Filer | o | | Smaller Reporting Company | o |
| | | Emerging Growth Company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 ý
There were 55,135,158 shares of the Registrant’s Common Stock outstanding at July 6, 2018.
Explanatory Note
On May 8, 2018, the Hill International Inc. (the "Company") filed its Annual Report on Form 10-K/A Amendment No. 2 which amended and restated the Company’s financial statements as of December 31, 2016, and for each of the three years in the period ended December 31, 2016 and the related notes thereto originally filed on Form 10-K with the SEC on March 31, 2017. This Form 10-Q amends the Company’s unaudited consolidated financial statements for the three and nine months ended September 30, 2016 and the related notes thereto, included on Form 10-Q filed on August 14, 2016 and Form 10-Q/A filed on August 15, 2016 (“Prior Filings”).
This restatement in this Form 10-Q ("Restatement") reflects the correction of the following errors identified subsequent to the filing of the Prior Filings:
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A. | The Company determined that it had not previously accounted for certain foreign currency gains/losses on intercompany balances and transactions in accordance with U. S. generally accepted accounting principles ("US GAAP"). The Company improperly accounted for the foreign currency effect of certain transactions as if they were long-term investments by including the foreign currency effect in accumulated other comprehensive income instead of properly recording the effect as operating expenses as required under Accounting Standard Codification (ASC) 830 “Foreign Currency Matters.” |
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B. | The Company identified departures from US GAAP under ASC 605-35 “Construction-Type and Production-Type Contracts” in its historical accounting for revenue recognition on six long-term customer contracts with fee constraints (e.g., fixed fee, lump sum, maximum contract value). The Company enters into agreements for construction management and consulting services with customers, and the guidance of ASC 605-35 states that contracts for construction consulting services, such as under agency contracts or construction management agreements, fall within the scope of the standard and should follow either Percentage of Completion or Completed Contract methods of accounting. Historically, the Company had not consistently applied the percentage of completion method of revenue recognition. |
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C. | The Company discovered that it had not properly performed the required impairment testing of amortizable intangible assets in accordance with US GAAP in that an asset that was no longer in use as of July 2013 was not identified and impaired. In addition, an improper useful life was used for some of the Company’s internally developed software assets resulting in an improper amount of amortization expense being recorded in previous periods. |
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D. | The Company discovered that the amounts of liabilities pertaining to the obligation for end of service benefits in six foreign countries were improperly accounted for under the guidance in ASC 715 “Compensation — Retirement Benefits”. |
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E. | The Company determined the accrual for uncertain tax benefits taken with respect to income tax matters in Libya had been improperly released during 2013 and 2014 prior to the expiration of the statute of limitations on the Libyan tax authority’s right to audit the related tax years. |
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F. | During the restatement process, the Company identified other transactions that had been recorded to incorrect accounts and/or in improper amounts. |
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G. | Some of the corrections noted above impacted earnings (loss) before taxes which, in turn, required a calculation of the tax impact. |
This Form 10-Q does not reflect adjustments for events occurring after the filing of the Prior Filings except to the extent they are otherwise required to be included and discussed herein and did not substantively modify or update the disclosures herein other than as required to reflect the adjustments described above. See Note 1 to the accompanying consolidated financial statements, set forth in Item 1 of this Form 10-Q, for additional information.
See “Item 9A — Controls and Procedures” to the Company’s Amended Form 10-K/A filed on May 8, 2018 that discloses additional material weaknesses in the Company’s internal controls associated with the restatement, as well as management’s restated conclusion that the Company’s internal controls over financial reporting were not effective as of December 31, 2016. As disclosed therein, management is currently developing and implementing the changes needed in the Company’s internal control over financial reporting to remediate these material weaknesses. These changes are still in process.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
Index to Form 10-Q
PART I
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and it the Company's intent that any such statements be protected by the safe harbor created thereby. Except for historical information, the matters set forth herein including, but not limited to, any projections of revenues, earnings, earnings before interest, taxes, depreciation and amortization (“EBITDA”), margin, profit improvement, cost savings or other financial items; any statements of belief, any statements concerning the Company's plans, strategies and objectives for future operations; and any statements regarding future economic conditions or performance, are forward-looking statements.
These forward-looking statements are based on the Company's current expectations, estimates and assumptions and are subject to certain risks and uncertainties. Although the Company believes that the expectations, estimates and assumptions reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements.
Those forward-looking statements may concern, among other things:
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• | The markets for the Company's services; |
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• | Projections of revenues and earnings, anticipated contractual obligations, funding requirements or other financial items; |
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• | Statements concerning the Company's plans, strategies and objectives for future operations; and |
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• | Statements regarding future economic conditions or the Company's performance. |
Important factors that could cause the Company's actual results to differ materially from estimates or projections contained in our forward-looking statements include:
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• | The risks set forth in Item 1A, “Risk Factors,” in the Company's most recent Annual Report on Form 10K/A; |
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• | Unfavorable global economic conditions may adversely impact its business; |
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• | Backlog, which is subject to unexpected adjustments and cancellations, may not be fully realized as revenue; |
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• | The Company may incur difficulties in implementing the Profit Improvement Plan; |
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• | The Company's expenses may be higher than anticipated; |
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• | Modifications and termination of client contracts; |
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• | Control and operational issues pertaining to business activities that the Company conducts pursuant to joint ventures with other parties; |
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• | Difficulties that may incur in implementing the Company's acquisition strategy; and |
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• | The need to retain and recruit key technical and management personnel. |
Other factors that may affect the Company's business, financial position or results of operations include:
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• | Unexpected delays in collections from clients, particularly those located in the Middle East; |
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• | Risks of the Company's ability to obtain debt financing or otherwise raise capital to meet required working capital needs and to support potential future acquisition activities; |
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• | Risks of international operations, including uncertain political and economic environments, acts of terrorism or war, potential incompatibilities with foreign joint venture partners, foreign currency fluctuations, civil disturbances and labor issues; and |
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• | Risks of contracts with governmental entities, including the failure of applicable governing authorities to take necessary actions to secure or maintain funding for particular projects with us, the unilateral termination of contracts by the government and reimbursement obligations to the government for funds previously received. |
The Company does not intend, and undertakes no obligation to, update any forward-looking statement. In accordance with the Reform Act, Item 1A of this Report entitled “Risk Factors” contains cautionary statements that accompany those forward-looking statements. You should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. Those cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this Form 10-Q, in our other filings with the SEC or in materials incorporated therein by reference.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
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| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (unaudited) | | |
Assets | | |
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Assets | | | | |
Cash and cash equivalents | | $ | 14,933 |
| | $ | 25,637 |
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Cash - restricted | | 4,534 |
| | 4,312 |
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Accounts receivable, less allowance for doubtful accounts of $67,952 and $71,082 | | 155,562 |
| | 164,844 |
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Accounts receivable - affiliates | | 6,963 |
| | 5,712 |
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Prepaid expenses and other current assets | | 7,628 |
| | 7,751 |
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Income tax receivable | | 4,515 |
| | 3,554 |
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Current assets held for sale | | — |
| | 54,651 |
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Total current assets | | 194,135 |
| | 266,461 |
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Property and equipment, net | | 13,940 |
| | 16,389 |
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Cash - restricted, net of current portion | | 1,160 |
| | 313 |
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Retainage receivable | | 9,778 |
| | 17,225 |
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Acquired intangibles, net | | 4,556 |
| | 6,006 |
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Goodwill | | 53,041 |
| | 50,665 |
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Investments | | 4,469 |
| | 3,501 |
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Deferred income tax assets | | 3,573 |
| | 3,200 |
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Other assets | | 5,493 |
| | 4,224 |
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Non-current assets held for sale | | — |
| | 32,091 |
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Total assets | | $ | 290,145 |
| | $ | 400,075 |
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Liabilities and Stockholders’ Equity | | | | |
Current maturities of notes payable and long-term debt | | $ | 2,695 |
| | $ | 1,983 |
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Accounts payable and accrued expenses | | 82,717 |
| | 85,680 |
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Income taxes payable | | 12,323 |
| | 4,874 |
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Current portion of deferred revenue | | 3,761 |
| | 12,943 |
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Other current liabilities | | 10,430 |
| | 8,157 |
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Current liabilities held for sale | | — |
| | 25,888 |
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Total current liabilities | | 111,926 |
| | 139,525 |
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Notes payable and long-term debt, net of current maturities | | 31,443 |
| | 142,120 |
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Retainage payable | | 641 |
| | 961 |
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Deferred income taxes | | 2,874 |
| | 560 |
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Deferred revenue | | 9,511 |
| | 22,804 |
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Other liabilities | | 14,710 |
| | 12,666 |
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Non-current liabilities held for sale | | — |
| | 5,087 |
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Total liabilities | | 171,105 |
| | 323,723 |
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Commitments and contingencies | |
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Stockholders’ equity: | | | | |
Preferred stock, $0.0001 par value; 1,000 shares authorized, none issued | | — |
| | — |
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Common stock, $0.0001 par value; 100,000 shares authorized, 59,358 shares and 58,835 shares issued at September 30, 2017 and December 31, 2016, respectively | | 6 |
| | 6 |
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Additional paid-in capital | | 195,890 |
| | 190,353 |
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Accumulated deficit | | (44,097 | ) | | (81,349 | ) |
Accumulated other comprehensive loss | | (5,150 | ) | | (4,611 | ) |
| | 146,649 |
| | 104,399 |
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Less treasury stock of 6,977 shares at September 30, 2017 and December 31, 2016, respectively | | (30,041 | ) | | (30,041 | ) |
Hill International, Inc. share of equity | | 116,608 |
| | 74,358 |
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Noncontrolling interests | | 2,432 |
| | 1,994 |
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Total equity | | 119,040 |
| | 76,352 |
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Total liabilities and stockholders’ equity | | $ | 290,145 |
| | $ | 400,075 |
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See accompanying notes to consolidated financial statements.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | (As restated) | | | | (As restated) |
Revenues | | $ | 123,192 |
| | $ | 121,222 |
| | $ | 364,748 |
| | $ | 390,830 |
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Direct expenses | | 85,875 |
| | 82,329 |
| | 251,191 |
| | 267,984 |
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Gross profit | | 37,317 |
| | 38,893 |
| | 113,557 |
| | 122,846 |
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Selling, general and administrative expenses | | 38,945 |
| | 46,867 |
| | 112,482 |
| | 118,983 |
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Share of loss (profit) of equity method affiliates | | — |
| | 12 |
| | (48 | ) | | 28 |
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Operating profit (loss) | | (1,628 | ) | | (7,986 | ) | | 1,123 |
| | 3,835 |
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Interest and related financing fees, net | | 1,035 |
| | 606 |
| | 2,066 |
| | 1,810 |
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(Loss) Earnings before income taxes | | (2,663 | ) | | (8,592 | ) | | (943 | ) | | 2,025 |
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Income tax (benefit) expense | | (1,068 | ) | | 2,318 |
| | (368 | ) | | 5,523 |
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Loss from continuing operations | | (1,595 | ) | | (10,910 | ) | | (575 | ) | | (3,498 | ) |
Discontinued operations: | | | | | | | | |
Loss from discontinued operations, net of tax | | (752 | ) | | (540 | ) | | (12,304 | ) | | (2,357 | ) |
Gain (Loss) on disposal of discontinued operations, net of tax | | (1,892 | ) | | — |
| | 50,303 |
| | — |
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Total gain (loss) from discontinued operations | | (2,644 | ) | | (540 | ) | | 37,999 |
| | (2,357 | ) |
| | | | | | | | |
Net (loss) earnings | | (4,239 | ) | | (11,450 | ) | | 37,424 |
| | (5,855 | ) |
Less: net earnings - noncontrolling interests | | 55 |
| | 96 |
| | 175 |
| | 57 |
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Net (loss) earnings attributable to Hill International, Inc. | | $ | (4,294 | ) | | $ | (11,546 | ) | | $ | 37,249 |
| | $ | (5,912 | ) |
| | | | | | | | |
Basic loss per common share from continuing operations | | $ | (0.03 | ) | | $ | (0.21 | ) | | $ | (0.01 | ) | | $ | (0.07 | ) |
Basic loss per common share from discontinued operations | | (0.01 | ) | | (0.01 | ) | | (0.24 | ) | | (0.04 | ) |
Basic gain (loss) on disposal of discontinued operations, net of tax | | (0.04 | ) | | — |
| | 0.97 |
| | — |
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Basic (loss) earnings per common share - Hill International, Inc. | | $ | (0.08 | ) | | $ | (0.22 | ) | | $ | 0.72 |
| | $ | (0.11 | ) |
Basic weighted average common shares outstanding | | 52,371 | | 51,753 |
| | 52,065 |
| | 51,704 |
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Diluted loss per common share from continuing operations | | $ | (0.03 | ) | | $ | (0.21 | ) | | $ | (0.01 | ) | | $ | (0.07 | ) |
Diluted loss per common share from discontinued operations | | (0.01 | ) | | (0.01 | ) | | (0.24 | ) | | (0.04 | ) |
Diluted gain (loss) on disposal of discontinued operations, net of tax | | (0.04 | ) | | — |
| | 0.97 |
| | — |
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Diluted (loss) earnings per common share - Hill International, Inc. | | $ | (0.08 | ) | | $ | (0.22 | ) | | $ | 0.72 |
| | $ | (0.11 | ) |
Diluted weighted average common shares outstanding | | 52,371 |
| | 51,753 |
| | 52,065 |
| | 51,704 |
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See accompanying notes to consolidated financial statements.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) EARNINGS
(In thousands)
(Unaudited)
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | | | (As restated) | | | | (As restated) |
Net earnings (loss) | | $ | (4,239 | ) | | $ | (11,450 | ) | | $ | 37,424 |
| | $ | (5,855 | ) |
Foreign currency translation adjustment, net of tax | | 1,929 |
| | (160 | ) | | (273 | ) | | 418 |
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Other, net | | — |
| | 79 |
| | — |
| | 135 |
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Comprehensive earnings (loss) | | (2,310 | ) | | (11,531 | ) | | 37,151 |
| | (5,302 | ) |
Less: Comprehensive loss attributable to non-controlling interests | | 454 |
| | 1,914 |
| | 438 |
| | 394 |
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Comprehensive earnings (loss) attributable to Hill International, Inc. | | $ | (2,764 | ) | | $ | (13,445 | ) | | $ | 36,713 |
| | $ | (5,696 | ) |
See accompanying notes to consolidated financial statements.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) |
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
| | | | (As restated) |
Cash flows from operating activities: | | | | |
Net earnings (loss) | | $ | 37,424 |
| | $ | (5,855 | ) |
Loss from discontinued operations | | 12,304 |
| | 2,357 |
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Gain on sale of discontinued operations, net of taxes (see note 2) | | (50,303 | ) | | — |
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Earnings (loss) from continuing operations | | (575 | ) | | (3,498 | ) |
Adjustments to reconcile net earnings to net cash provided by (used in): | | | | |
Depreciation and amortization | | 5,011 |
| | 5,689 |
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Provision for bad debts | | 2,350 |
| | 10,827 |
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Amortization of deferred loan fees | | 789 |
| | 1,334 |
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Deferred tax provision (benefit) | | 706 |
| | (685 | ) |
Stock based compensation | | 2,671 |
| | 1,680 |
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Loss on sale of assets | | 184 |
| | — |
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Unrealized foreign exchange losses on intercompany balances | | 407 |
| | 7,463 |
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Changes in operating assets and liabilities: | | | | |
Restricted cash | | (1,051 | ) | | (190 | ) |
Accounts receivable | | 10,490 |
| | (3,468 | ) |
Accounts receivable - affiliate | | (1,243 | ) | | (5,778 | ) |
Prepaid expenses and other current assets | | 562 |
| | (671 | ) |
Income taxes receivable | | (566 | ) | | (762 | ) |
Retainage receivable | | 9,298 |
| | (14,498 | ) |
Other assets | | (4,305 | ) | | 6,944 |
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Accounts payable and accrued expenses | | (7,888 | ) | | (8,822 | ) |
Income taxes payable | | 516 |
| | (3,676 | ) |
Deferred revenue | | (25,061 | ) | | 7,030 |
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Other current liabilities | | 2,131 |
| | 1,604 |
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Retainage payable | | (326 | ) | | (1,059 | ) |
Other liabilities | | 843 |
| | 1,435 |
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Net cash (used in) provided by continuing operations | | (5,057 | ) | | 899 |
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Net cash (used in) provided by discontinued operations | | (10,217 | ) | | 72 |
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Net cash (used in) provided by operating activities | | (15,274 | ) | | 971 |
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Cash flows from investing activities: | | | | |
Purchases of business | | (123 | ) | | — |
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Payments for purchase of property and equipment | | (1,927 | ) | | (1,498 | ) |
Proceeds from sale of assets | | 60 |
| | — |
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Net cash used in investing activities of continuing operations | | (1,990 | ) | | (1,498 | ) |
Net cash provided by (used in) investing activities of discontinued operations | | 129,247 |
| | (920 | ) |
Net cash provided by (used in) investing activities | | 127,257 |
| | (2,418 | ) |
Cash flows from financing activities: | | | | |
Payments on term loans | | (75 | ) | | (900 | ) |
Proceeds from term loans | | 30,000 |
| | — |
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Net (payments) borrowings on revolving loans | | (28,885 | ) | | 8,937 |
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Pay-off and termination of term loan | | (117,494 | ) | | — |
|
Payments on Philadelphia Industrial Development Corporation loan | | (42 | ) | | (41 | ) |
Deferred Acquisition price payments | | — |
| | (1,531 | ) |
Dividends paid to noncontrolling interest | | (18 | ) | | (109 | ) |
Payments of financing fees | | (4,038 | ) | | — |
|
Proceeds from stock issued under employee stock purchase plan | | 138 |
| | 74 |
|
Proceeds from exercise of stock options | | 1,838 |
| | 219 |
|
Net cash (used in) provided by financing activities | | (118,576 | ) | | 6,649 |
|
Effect of exchange rate changes on cash | | (4,111 | ) | | (8,072 | ) |
Net decrease in cash and cash equivalents | | (10,704 | ) | | (2,870 | ) |
Cash and cash equivalents — beginning of period | | 25,637 |
| | 24,089 |
|
Cash and cash equivalents — end of period | | $ | 14,933 |
| | $ | 21,219 |
|
See accompanying notes to consolidated financial statements.
HILL INTERNATIONAL, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 1 — The Company
Hill International, Inc. (“Hill” or the “Company”) is a professional services firm that provides program management, project management, construction management and other consulting services primarily to the buildings, transportation, environmental, energy and industrial markets worldwide. Hill’s clients include the U.S. federal government, U.S. state and local governments, foreign governments and the private sector.
Restatement of Previously Issued Unaudited Consolidated Financial Statements
On May 8, 2018, the Company filed its Annual Report on Form 10-K/A for the year ended December 31, 2016, which amended the Company’s audited consolidated financial statements for each of the years ended December 31, 2016, 2015 and 2014 and the related notes thereto. This Form 10-Q amends the Company’s unaudited consolidated financial statements for the three and nine months ended September 30, 2016 and the related notes thereto, included on Form 10-Q filed on August 8, 2016 (“Prior Filing”). The Restatement reflects the correction of the following errors identified for the three and nine months ended September 30, 2016 subsequent to the Prior Filing and the impact of restating the three months ended March 31, 2017 on the nine months ended September 30, 2017:
A. In connection with the accounting for the May 2017 sale of its Construction Claims Group, the Company determined that it had not previously accounted for certain foreign currency gains/losses on intercompany balances and transactions in accordance with accounting principles generally accepted in the United States (“US GAAP”). The Company improperly accounted for the foreign currency effect of certain transactions as if they were long-term investments by including the foreign currency effect in accumulated other comprehensive income instead of properly recording the effect as operating expenses as required under Accounting Standard Codification (ASC) 830 “Foreign Currency Matters.” As a result of these corrections, selling, general and administrative (“SG&A”) expenses increased $710 for the three months ended September 30, 2016; and decreased $1,813 and increased $1,186 for the nine months ended September 30, 2017 and 2016, respectively.
B. The Company identified departures from US GAAP under ASC 605-35 “Construction-Type and Production-Type Contracts” in its historical accounting for revenue recognition on nine long-term customer contracts with fee constraints (e.g., fixed fee, lump sum, maximum contract value). The Company enters into agreements for construction management and consulting services with customers, and the guidance of ASC 605-35-15-3D states that contracts for construction consulting services, such as under agency contracts or construction management agreements, fall within the scope of the standard and should follow either Percentage of Completion or Completed Contract methods of accounting. Historically, the Company had not consistently applied the percentage of completion method of revenue recognition. The corrections to properly apply U.S. GAAP to the identified contracts resulted in a decrease of $4,655 to revenues for the three months ended September 30, 2016; and increase of $3,130 and decrease of $499 to revenues for the nine months ended September 30, 2017 and 2016, respectively.
C. The Company discovered that it had not properly performed the required impairment testing of amortizable intangible assets in accordance with US GAAP in that certain assets no longer in use were not identified and impaired. In addition, an improper useful life was used for some of the Company’s internally developed software assets resulting in an improper amount of amortization expense being recorded in previous periods. The net effect of correcting these errors resulted in a $28 increase in SG&A expense for the three months ended September 30, 2016; and increases of $29 and $83 in SG&A expense for the nine months ended September 30, 2017 and 2016, respectively.
D. The Company identified other transactions that had been recorded to incorrect accounts and/or in improper amounts. The net corrections of these transactions resulted in an increase of $5 and a decrease of $757 in revenues for the three and nine months ended September 30, 2016, respectively, and a $5,421 increase in revenues for the nine months ended September 30, 2017; a $5,305 increase in direct expenses for the nine months ended September 30, 2017; a decrease of $798 and $3,306 in SG&A expenses for the three and nine months ended September 30, 2016, respectively and an increase of $473 in SG&A expenses for the nine month ended September 30, 2017; a $415 and a $1,245, increase in interest expenses for the three and nine months ended September 30, 2016, respectively; a $261 and $1,829 increase in net loss from discontinued operations for the three and nine months ended September 30, 2016, respectively and a $1,057 decrease in net loss from discontinued operations for the nine months ended September 30, 2017; and a $15 and $45 decrease in earnings from noncontrolling interest for the three and nine months ended September 30, 2016, respectively and a $58 increase in earnings from noncontrolling interest for the nine months ended September 30, 2017. In conjunction with the sale of the construction claims group, interest expense of $676 and $3,075 for the three and nine months ended September 30, 2016, respectively, and interest expense of $552 for the nine months ended September 30, 2017 was reclassified from continuing operations to discontinued operations.
E. Some of the corrections noted above impacted earnings (loss) before taxes which, in turn, required a calculation of the tax impact. The net impact was a decrease in income tax expense of $571 and $263 for the three and nine months ended September 30, 2016, respectively and an increase in income tax expense of $695 for the nine months ended September 30, 2017.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended September 30, 2016
(in thousands, except per share data)
|
| | | | | | | | | | | | | | |
| | As Previously | | | | | | |
| | Reported | | Adjustment | | As Restated | | Reference |
| | | | | | | | |
Revenues | | $ | 125,872 |
| | $ | (4,650 | ) | | $ | 121,222 |
| | B, D |
Direct expenses | | 82,329 |
| | — |
| | 82,329 |
| | |
Gross profit | | 43,543 |
| | (4,650 | ) | | 38,893 |
| | |
Selling, general and administrative expenses | | 46,927 |
| | (60 | ) | | 46,867 |
| | A, C, D |
Share of loss of equity method affiliates | | 12 |
| | — |
| | 12 |
| | |
Operating loss | | (3,396 | ) | | (4,590 | ) | | (7,986 | ) | | |
Interest and related financing fees, net | | 191 |
| | 415 |
| | 606 |
| | D |
Loss before income taxes | | (3,587 | ) | | (5,005 | ) | | (8,592 | ) | | |
Income tax expense | | 2,889 |
| | (571 | ) | | 2,318 |
| | E |
Loss from continuing operations | | (6,476 | ) | | (4,434 | ) | | (10,910 | ) | | |
Loss from discontinued operations | | (279 | ) | | (261 | ) | | (540 | ) | | D |
Net loss | | (6,755 | ) | | (4,695 | ) | | (11,450 | ) | | |
Less: net earnings - noncontrolling interests | | 111 |
| | (15 | ) | | 96 |
| | D |
Net loss attributable to Hill International, Inc. | | $ | (6,866 | ) | | $ | (4,680 | ) | | $ | (11,546 | ) | | |
| | | | | | | | |
Basic loss per common share from continuing operations | | $ | (0.13 | ) | | $ | (0.08 | ) | | $ | (0.21 | ) | | |
Basic loss per common share from discontinued operations | | — |
| | (0.01 | ) | | (0.01 | ) | | |
Basic loss per common share - Hill International, Inc. | | $ | (0.13 | ) | | $ | (0.09 | ) | | $ | (0.22 | ) | | |
Basic weighted average common shares outstanding | | 51,753 |
| | — |
| | 51,753 |
| | |
| | | | | | | | |
Diluted loss per common share from continuing operations | | $ | (0.13 | ) | | $ | (0.08 | ) | | $ | (0.21 | ) | | |
Diluted loss per common share from discontinued operations | | — |
| | (0.01 | ) | | (0.01 | ) | | |
Diluted loss per common share - Hill International, Inc. | | $ | (0.13 | ) | | $ | (0.09 | ) | | $ | (0.22 | ) | | |
Diluted weighted average common shares outstanding | | 51,753 |
| | — |
| | 51,753 |
| | |
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2016
(in thousands, except per share data)
|
| | | | | | | | | | | | | | |
| | As Previously | | | | | | |
| | Reported | | Adjustment | | As Restated | | Reference |
| | | | | | | | |
Revenues | | $ | 392,087 |
| | $ | (1,257 | ) | | $ | 390,830 |
| | B, D |
Direct expenses | | 267,984 |
| | — |
| | 267,984 |
| | |
Gross profit | | 124,103 |
| | (1,257 | ) | | 122,846 |
| | |
Selling, general and administrative expenses | | 121,020 |
| | (2,037 | ) | | 118,983 |
| | A, C, D |
Share of loss of equity method affiliates | | 28 |
| | — |
| | 28 |
| | |
Operating profit | | 3,055 |
| | 780 |
| | 3,835 |
| | |
Interest and related financing fees, net | | 565 |
| | 1,245 |
| | 1,810 |
| | D |
Earnings before income taxes | | 2,490 |
| | (465 | ) | | 2,025 |
| | |
Income tax expense | | 5,786 |
| | (263 | ) | | 5,523 |
| | E |
Loss from continuing operations | | (3,296 | ) | | (202 | ) | | (3,498 | ) | | |
Loss from discontinued operations | | (528 | ) | | (1,829 | ) | | (2,357 | ) | | D |
Net loss | | (3,824 | ) | | (2,031 | ) | | (5,855 | ) | | |
Less: net earnings - noncontrolling interests | | 102 |
| | (45 | ) | | 57 |
| | D |
Net loss attributable to Hill International, Inc. | | (3,926 | ) | | (1,986 | ) | | (5,912 | ) | | |
| | | | | | | | |
Basic loss per common share from continuing operations | | $ | (0.07 | ) | | $ | — |
| | $ | (0.07 | ) | | |
Basic loss per common share from discontinued operations | | (0.01 | ) | | (0.03 | ) | | (0.04 | ) | | |
Basic loss per common share - Hill International, Inc. | | $ | (0.08 | ) | | $ | (0.03 | ) | | $ | (0.11 | ) | | |
Basic weighted average common shares outstanding | | 51,704 |
| | — |
| | 51,704 |
| | |
| | | | | | | | |
Diluted loss per common share from continuing operations | | $ | (0.07 | ) | | $ | — |
| | $ | (0.07 | ) | | |
Diluted loss per common share from discontinued operations | | (0.01 | ) | | (0.03 | ) | | (0.04 | ) | | |
Diluted loss per common share - Hill International, Inc. | | $ | (0.08 | ) | | $ | (0.03 | ) | | $ | (0.11 | ) | | |
Diluted weighted average common shares outstanding | | 51,704 |
| | — |
| | 51,704 |
| | |
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three Months Ended September 30, 2016
(in thousands)
|
| | | | | | | | | | | | | | |
| | As Previously | | | | | | |
| | Reported | | Adjustment | | As Restated | | Reference |
| | | | | | | | |
Net loss | | $ | (6,755 | ) | | $ | (4,695 | ) | | $ | (11,450 | ) | | A, B, C, D, E |
Foreign currency translation adjustment, net | | (1,638 | ) | | 1,478 |
| | (160 | ) | | A, B, C, D |
Other, net | | 79 |
| | — |
| | 79 |
| | |
Comprehensive loss | | $ | (8,314 | ) | | $ | (3,217 | ) | | $ | (11,531 | ) | | |
Comprehensive earnings attributable to noncontrolling interest | | 132 |
| | 1,782 |
| | 1,914 |
| | |
Comprehensive loss attributable to Hill International Inc. | | $ | (8,446 | ) | | (4,999 | ) | | $ | (13,445 | ) | | |
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Nine Months Ended September 30, 2016
(in thousands)
|
| | | | | | | | | | | | | | |
| | As Previously | | | | | | |
| | Reported | | Adjustment | | As Restated | | Reference |
| | | | | | | | |
Net earnings | | $ | (3,824 | ) | | $ | (2,031 | ) | | $ | (5,855 | ) | | A, B, C, D, E |
Foreign currency translation adjustment, net | | (1,257 | ) | | 1,675 |
| | 418 |
| | A, B, C, D |
Other, net | | 135 |
| | — |
| | 135 |
| | |
Comprehensive loss | | $ | (4,946 | ) | | $ | (356 | ) | | (5,302 | ) | | |
Comprehensive (loss) earnings attributable to noncontrolling interest | | (1,223 | ) | | 1,617 |
| | 394 |
| | |
Comprehensive loss attributable to Hill International Inc. | | $ | (3,723 | ) | | $ | (1,973 | ) | | $ | (5,696 | ) | | |
In addition to the items noted above as part of the Restatement, the Company identified departures from US GAAP in its historical preparation and presentation of its statement of cash flows. The Company did not report its cash flows in the reporting currency equivalent of foreign currency using the exchange rates in effect at the time of the cash flows, or an appropriate average rate to approximate the rates in effect at the time of the cash flows. The impact of properly preparing a cash flow statement in each functional currency, translating the cash flow statement using the appropriate rate in effect at the time of a transaction, or substantially equivalent average rate for the period, and consolidation of the individual functional currency cash flows, as prescribed by the guidance in ASC 230, is depicted in the table below. The adjustments noted in the cash flow statements that follow are both a result of items “A” through “E” explained above, as well as the foreign currency effect from cash flow statements prepared in functional currency and appropriately translated.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
Nine Months Ended September 30, 2016
(in thousands)
|
| | | | | | | | | | | | |
| | As Previously | | | | |
| | Reported | | Adjustment | | As Restated |
Cash flows from operating activities: | | | | | | |
Net loss | | $ | (3,824 | ) | | $ | (2,031 | ) | | $ | (5,855 | ) |
Loss from discontinued operations | | — |
| | 2,357 |
| | 2,357 |
|
Loss from continuing operations | | (3,824 | ) | | 326 |
| | (3,498 | ) |
Adjustments to reconcile net loss to net cash provided by (used in): | | | | | | |
Depreciation and amortization | | 7,705 |
| | (2,016 | ) | | 5,689 |
|
Provision for bad debts | | 11,879 |
| | (1,052 | ) | | 10,827 |
|
Amortization of deferred loan fees | | 1,334 |
| | — |
| | 1,334 |
|
Deferred tax benefit | | 663 |
| | (1,348 | ) | | (685 | ) |
Stock based compensation | | 1,838 |
| | (158 | ) | | 1,680 |
|
Unrealized foreign exchange losses (gains) on intercompany balances | | — |
| | 7,463 |
| | 7,463 |
|
Changes in operating assets and liabilities: | | | | | | |
Restricted cash | | (69 | ) | | (121 | ) | | (190 | ) |
Accounts receivable | | 2,652 |
| | (6,120 | ) | | (3,468 | ) |
Accounts receivable - affiliate | | (5,665 | ) | | (113 | ) | | (5,778 | ) |
Prepaid expenses and other current assets | | (1,001 | ) | | 330 |
| | (671 | ) |
Income taxes receivable | | (756 | ) | | (6 | ) | | (762 | ) |
Retainage receivable | | (14,583 | ) | | 85 |
| | (14,498 | ) |
Other assets | | 5,191 |
| | 1,753 |
| | 6,944 |
|
Accounts payable and accrued expenses | | (8,582 | ) | | (240 | ) | | (8,822 | ) |
Income taxes payable | | (3,951 | ) | | 275 |
| | (3,676 | ) |
Deferred revenue | | 124 |
| | 6,906 |
| | 7,030 |
|
Other current liabilities | | 2,639 |
| | (1,035 | ) | | 1,604 |
|
Retainage payable | | (1,308 | ) | | 249 |
| | (1,059 | ) |
Other liabilities | | 385 |
| | 1,050 |
| | 1,435 |
|
Net cash (used in) provided by continuing operations | | (5,329 | ) | | 6,228 |
| | 899 |
|
Net cash provided by discontinued operations | | — |
| | 72 |
| | 72 |
|
Net cash (used in) provided by in operating activities | | (5,329 | ) | | 6,300 |
| | 971 |
|
| | | | | | |
Cash flows from investing activities: | | | | | | |
Payments for purchase of property and equipment | | (2,584 | ) | | 1,086 |
| | (1,498 | ) |
Net cash used in investing activities of continuing operations | | (2,584 | ) | | 1,086 |
| | (1,498 | ) |
Net cash used in investing activities of discontinued operations | | — |
| | (920 | ) | | (920 | ) |
Net cash used in investing activities | | (2,584 | ) | | 166 |
| | (2,418 | ) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Payments on term loans | | (900 | ) | | — |
| | (900 | ) |
Net borrowings on revolving loans | | 8,950 |
| | (13 | ) | | 8,937 |
|
Payments on Philadelphia Industrial Development Corporation loan | | (41 | ) | | — |
| | (41 | ) |
Deferred acquisition price payments | | (1,531 | ) | | — |
| | (1,531 | ) |
Dividends paid to noncontrolling interest | | (111 | ) | | 2 |
| | (109 | ) |
Proceeds from stock issued under employee stock purchase plan | | 65 |
| | 9 |
| | 74 |
|
Proceeds from exercise of stock options | | 220 |
| | (1 | ) | | 219 |
|
Net cash provided by financing activities | | 6,652 |
| | (3 | ) | | 6,649 |
|
Effect of exchange rate changes on cash | | (1,609 | ) | | (6,463 | ) | | (8,072 | ) |
Net decrease in cash and cash equivalents | | (2,870 | ) | | — |
| | (2,870 | ) |
Cash and cash equivalents — beginning of period | | 24,089 |
| | — |
| | 24,089 |
|
Cash and cash equivalents — end of period | | $ | 21,219 |
| | $ | — |
| | $ | 21,219 |
|
Note 2 - Discontinued Operations and Sale of Business Unit
On December 20, 2016, the Company and its subsidiary Hill International N.V. (“Hill N.V.” and, collectively with the Company, the “Sellers”) entered into a Stock Purchase Agreement (as amended on May 3, 2017, the “Agreement”) with Liberty Mergeco, Inc. (the “US Purchaser”) and Liberty Bidco UK Limited (the “UK Purchaser” and, collectively with the US Purchaser, the “Purchasers”) pursuant to which the Purchasers were to acquire the Construction Claims Group (the "Claims Group") by the US Purchaser’s acquisition of all of the stock of Hill International Consulting, Inc. from the Company and the UK Purchaser’s acquisition of all of the stock of Hill International Consulting B.V. from Hill N.V. for a total purchase price of $140,000 in cash reduced by assumed indebtedness and certain other items, as set forth in the Agreement.
The Claims Group sale closed on May 5, 2017 with an effective date of April 30, 2017 for a total purchase price of $140,000 in cash less: (1) an estimated working capital adjustment at closing amounting to approximately $8,449; and (2) approximately $2,187 of assumed indebtedness. In addition, the Company was required to provide a $3,750 letter of credit into escrow in order to secure certain of the Company’s indemnification obligations for 12 months following closing. The funds provided by the sale of the Construction Claims Group and the cash received upon the draw down under the 2017 Term Loan Facility and the amended Revolving Credit Facilities (described below) were required to be used as follows: (a) $117,000 to pay off the 2014 Term Loan Facility; (b) approximately $8,793 to pay down the International Revolver; and (c) approximately $1,214 to pay accrued interest and certain bank fees. The remaining proceeds along with a portion of the proceeds from the 2017 Term Loan were used to pay down the $25,000 U.S. Revolver.
The Company and the purchasers of the Construction Claims Group were unable to agree upon a final net working capital amount. After agreeing to a reduction in the proceeds of $3,203 and pursuant to the terms of the agreement, the Company participated in a dispute resolution process by which independent accounting experts determined in June 2018 that the final net working capital should be reduced by an additional $1,876. The total reduction in the proceeds from the buyer of $5,079 was completed and finalized in June 2018 and was included in calculating the gain during the second quarter of 2017.
The Company entered into a transition services agreement (the “TSA”) and certain other agreements with the Purchasers that govern the relationships between the Purchasers and the Company following the Claims Group sale. Pursuant to the TSA, the Company provides the Purchasers with certain specified services on a transitional basis for periods generally up to six months following the Claims Group sale, including support in areas such as facilities, finance, human resources, legal, marketing, technology and treasury. In addition, the Company granted the Purchasers a license to use certain office premises as specified in the TSA. The TSA also outlined the services that the Purchasers provide to the Company for a period of generally up to six months following the Claims Group sale, including support in areas such as finance, legal and treasury. The charges for the transition services and licensed premises generally allows the providing company to recover the incremental costs and expenses it actually incurs in connection with providing the services and premises apart from the provision of certain services that are to be provided at no cost for terms specified in the TSA.
As of April 30, 2017, the assets and liabilities of the Claims Group were reflected as held for sale in the Company’s Consolidated Balance Sheets, and the operating results and cash flows of the Claims Group were reflected as discontinued operations in the Company’s Consolidated Statements of Operations, Consolidated Statements of Comprehensive Earnings, and Consolidated Statements of Cash Flows for all periods presented.
The carrying amounts of assets and liabilities of the discontinued operations of the Claims Group that were classified as held for sale are as follows (in thousands):
|
| | | | | | | | |
| | April 30, 2017 | | December 31, 2016 |
| | | | |
Accounts receivable, net | | 47,611 |
| | 50,892 |
|
Prepaid expenses and other current assets | | 3,153 |
| | 3,064 |
|
Income taxes receivable | | — |
| | 695 |
|
Total current assets classified as held for sale | | $ | 50,764 |
| | $ | 54,651 |
|
| | | | |
Property and equipment, net | | 5,786 |
| | 4,617 |
|
Acquired intangibles, net | | 3,289 |
| | 3,397 |
|
Goodwill | | 23,454 |
| | 23,461 |
|
Investments | | 5 |
| | 6 |
|
Other assets | | 2,860 |
| | 610 |
|
Total non-current assets classified as held for sale | | $ | 35,394 |
| | $ | 32,091 |
|
| | | | |
Accounts payable and accrued expenses | | 15,960 |
| | 21,539 |
|
Income taxes payable | | (17 | ) | | 92 |
|
Deferred revenue | | — |
| | 1,562 |
|
Other current liabilities | | 15,867 |
| | 2,695 |
|
Total current liabilities classified as held for sale | | $ | 31,810 |
| | $ | 25,888 |
|
| | | | |
Deferred income taxes | | — |
| | 385 |
|
Deferred revenue | | 92 |
| | 1,012 |
|
Retained Earnings | | — |
| | 457 |
|
Other liabilities | | 1,257 |
| | 3,233 |
|
Total non-current liabilities classified as held for sale | | $ | 1,349 |
| | $ | 5,087 |
|
| | | | |
Net Assets | | $ | 52,999 |
| | 55,767 |
|
The line items constituting earnings from discontinued operations consist of the following (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 (1) | | 2016 | | 2017 (1) | | 2016 |
| | | | (As restated) | | | | (As restated) |
Revenues | | $ | — |
| | $ | 42,203 |
| | $ | 62,149 |
| | $ | 127,909 |
|
Direct expenses | | — |
| | 18,872 |
| | 31,339 |
| | 58,919 |
|
Gross profit | | — |
| | 23,331 |
| | 30,810 |
| | 68,990 |
|
Selling, general and administrative expenses (2) | | 727 |
| | 21,118 |
| | 33,874 |
| | 61,901 |
|
Operating (loss) profit | | (727 | ) | | 2,213 |
| | (3,064 | ) | | 7,089 |
|
Interest and related financing fees, net (3) | | — |
| | 2,762 |
| | 8,858 |
| | 8,293 |
|
Loss before income taxes | | (727 | ) | | (549 | ) | | (11,922 | ) | | (1,204 | ) |
Pretax gain on the disposal of discontinued operations (4) | | — |
| | — |
| | 61,443 |
| | — |
|
Earnings from discontinued operations before income taxes | | (727 | ) | | (549 | ) | | 49,521 |
| | (1,204 | ) |
Income tax expense (benefit) (5) | | 1,917 |
| | (9 | ) | | 11,522 |
| | 1,153 |
|
Net gain (loss) from discontinued operations | | $ | (2,644 | ) | | $ | (540 | ) | | $ | 37,999 |
| | $ | (2,357 | ) |
| |
(1) | Results of operations for the Claims Group are reflected through April 30, 2017, the effective closing date of the Claims Group sale. |
| |
(2) | No amortization or depreciation expense was recorded by the Company in 2017 as the Claims Group’s assets were held for sale as of December 31, 2016. |
| |
(3) | In connection with the sale of the Claims Group, the Company was required to pay off its existing term loan facility and amend and pay down its existing revolving credit facilities (See Note 9). Interest expense and debt issuance costs attributable to the Claims Group were charged to discontinued operations. |
| |
(4) | The pretax gain on the sale of the Construction Claims Group was calculated as follows (in thousands): |
Adjusted purchase price $129,364
Cash transferred to buyer 4,041
Net proceeds received from Purchaser $125,323
Less net assets held for sale 52,999
Less other adjustments 10,881
Pretax gain on disposal $ 61,443
| |
(5) | The effective tax rates on pretax income from discontinued operations were (263.7)% and 23.3% for the three and nine months ended September 30, 2017, respectively. The 2017 rate differs from the U.S. federal statutory rate of 35% primarily due to the taxability of the gain on the sale in the U.S and foreign jurisdictions. The “gain on disposal of discontinued operations, net of tax” decreased during the 3-months ended September 30, 2017 due to an increase in tax expense. The tax expense of $1,917 is offset by a tax benefit to continuing operations of $1,893 from the use of its additional loss for the 3-months ended September 30, 2017. |
Note 3 - Liquidity
At September 30, 2017 our principal sources of liquidity consisted of $14,933 of cash and cash equivalents, $16,847 of available borrowing capacity under the Domestic Revolving Credit Facility, $9,876 of available borrowing capacity under the International Revolving Credit Facility and $2,100 under other foreign credit agreements. Additional information regarding the Company's credit facilities is set forth in Note 9 - Notes Payable and Long-Term Debt.
From July 1, 2018 to July 12, 2018, the date of this filing, the Company was not in compliance with the requirements of its Revolving Credit Facilities, which required the filing of this Quarterly Report on Form 10-Q by June 30, 2018. Upon the filing of this Quarterly Report on Form 10-Q, the Company is compliant under such requirements. Prior waivers of non-compliance with certain covenants in the Revolving Credit Facilities require the Company to file the Form 10-K for the 2017 fiscal year by July 17, 2018 and the Form 10-Q for the first quarter of 2018 by July 30, 2018. If the Company does not file such reports in accordance with these deadlines, it may again be in noncompliance with the requirements of the Revolving Credit Facilities.
Note 4 — Basis of Presentation
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/A (Amendment No. 2) for the year ended December 31, 2016. Accordingly, they do not include all of the information and footnotes required by US 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 US 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.
New Accounting Pronouncements
For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 5 to the consolidated financial statements in Item 8 of Form 10K/A (Amendment No. 2) for the year ended December 31, 2016 filed with the SEC on May 4, 2018. There have been no new pronouncements impacting our consolidated financial statements since that filing. See update below.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU supersedes the revenue recognition requirements in FASB ASC 605, Revenue Recognition, and most industry-specific topics. The new guidance identifies how and when entities should recognize revenue. The new rules establish a core principle requiring the recognition of revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services. In connection with this new standard, the FASB has issued several amendments to ASU 2014-09 to provide additional clarification and implementation instructions relating to (i) principal versus agent considerations, (ii) identifying performance obligations and licensing, (iii) narrow-scope improvements and practical expedients and (iv) technical corrections and improvements. However, none of the amendments change the core principle of the guidance in ASU 2014-09.
The new guidance in ASU 2014-09, as well as all amendments, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The new guidance permits two methods of adoption, full retrospective or modified retrospective, and the Company anticipates that it will use the modified retrospective method of adoption in which the cumulative effect of applying the ASU will be recognized at January 1, 2018, the date of initial application. Management has implemented a plan of adoption and is continuing to evaluate the impact that adoption of this guidance will have on the Company’s financial statements.
The Company’s implementation plan includes the following:
| |
• | Forming an ASU 2014-09 working group comprised of management representatives. |
| |
• | Analyzing the Company’s revenue streams. |
| |
• | Selecting representative contracts within each revenue stream for evaluation under ASU 2014-09. |
| |
• | Identifying the impact from the standard on current business processes. |
| |
• | Evaluating additional disclosure requirements and monitoring changes to the Company’s internal controls. |
Management has commenced its plan for adoption of ASU 2014-09 by reviewing various types of revenue contracts and disaggregated the revenue into two revenue streams: (i) fixed price and (ii) time and materials. Thus far, from its contract reviews, the Company does not anticipate a material impact to its results of operations as the pattern of revenue recognition and the measurement of variable consideration is expected to be consistent under the new standard. However, the Company’s initial assessment of the impact could change as the adoption plan progresses. The Company expects that there will be an impact to financial reporting due to the enhanced revenue disclosures and internal control over financial reporting due to the new disclosure requirements of ASC 606. The Company will adopt the requirements of the new standard effective January 1, 2018, in the Company's Form 10-Q for the three months ended March 31, 2018.
Note 5 — Accounts Receivable
The components of accounts receivable are as follows (in thousands):
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | | | |
Billed | | $ | 190,881 |
| | $ | 200,134 |
|
Retainage, current portion | | 10,950 |
| | 10,824 |
|
Unbilled | | 21,683 |
| | 24,968 |
|
| | 223,514 |
| | 235,926 |
|
Allowance for doubtful accounts | | (67,952 | ) | | (71,082 | ) |
Total | | $ | 155,562 |
| | $ | 164,844 |
|
Unbilled receivables primarily represent revenue earned on contracts, which the Company is contractually precluded from billing until predetermined future dates.
There is approximately $9,778 included in non-current Retainage Receivable in the consolidated balance sheet at September 30, 2017. Of that amount, approximately $9,497 relates to retention and approximately $281 relates to a Defect and Liability Period (“DLP”), on the MOTC in Oman. Fifty percent of the DLP will be released one year from the commencement and the balance will be released upon the issuance of final Completion Certificates. This period commences upon the issuance of a “Taking Over Certificate” (by MOTC) to contractors, continues for a period of up to 24 months, and ends with the issuance of a final certificate closing the project.
Note 6 — Intangible Assets
The following table summarizes the Company’s acquired intangible assets (in thousands):
|
| | | | | | | | | | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| | | | | | | | |
Client relationships | | $ | 17,534 |
| | $ | 13,420 |
| | $ | 16,699 |
| | $ | 11,298 |
|
Acquired contract rights | | 2,043 |
| | 2,007 |
| | 2,058 |
| | 1,912 |
|
Trade names | | 897 |
| | 491 |
| | 959 |
| | 500 |
|
Total | | $ | 20,474 |
| | $ | 15,918 |
| | $ | 19,716 |
| | $ | 13,710 |
|
| | | | | | | | |
Intangible assets, net | | $ | 4,556 |
| | | | $ | 6,006 |
| | |
Amortization expense related to intangible assets was as follows (in thousands):
|
| | | | | | | | | | | | | | |
Three Months Ended September 30, | | Nine Months Ended September 30, 2017 |
2017 | | 2016 | | 2017 | | 2016 |
| | (As restated) | | | | (As restated) |
$ | 493 |
| | $ | 286 |
| | $ | 1,556 |
| | $ | 2,279 |
|
The following table presents the estimated amortization expense based on our present intangible assets for the next five years (in thousands):
|
| | | | |
| | Estimated Amortization Expense |
| |
Year ending December 31, | |
| | |
2017 (remaining 3 months) | | $ | 485 |
|
2018 | | 1,088 |
|
2019 | | 990 |
|
2020 | | 728 |
|
2021 | | 338 |
|
Note 7 — Goodwill
The following table summarizes the changes in the Company’s carrying value of goodwill during 2017 (in thousands):
|
| | | |
| |
Balance, December 31, 2016 | $ | 50,665 |
|
Translation adjustments | 2,376 |
|
Balance, September 30, 2017 | $ | 53,041 |
|
Note 8 — Accounts Payable and Accrued Expenses
Below are the components of accounts payable and accrued expenses (in thousands):
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | | | |
Accounts payable | | $ | 29,002 |
| | $ | 30,944 |
|
Accrued payroll and related expenses | | 34,006 |
| | 32,618 |
|
Accrued subcontractor fees | | 11,112 |
| | 9,188 |
|
Accrued agency fees | | 2,075 |
| | 5,702 |
|
Accrued legal and professional fees | | 1,549 |
| | 2,223 |
|
Other accrued expenses | | 4,973 |
| | 5,005 |
|
| | $ | 82,717 |
| | $ | 85,680 |
|
Note 9 — Notes Payable and Long-Term Debt
Outstanding debt obligations are as follows (in thousands):
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
2014 Term Loan Facility, net of unamortized discount and deferred financing costs of $4,416 at December 31, 2016 | | $ | — |
| | $ | 112,884 |
|
2017 Term Loan Facility, net of unamortized discount and deferred financing costs of $926 at September 30, 2017 | | 28,999 |
| | — |
|
Domestic Revolving Credit Facility | | — |
| | 16,500 |
|
International Revolving Credit Facility | | — |
| | 11,102 |
|
Borrowings under credit facilities with a consortium of banks in Spain | | 2,747 |
| | 2,962 |
|
Borrowings under overdraft credit facilities with the National Bank of Abu Dhabi | | 1,779 |
| | — |
|
Borrowings from Philadelphia Industrial Development Corporation | | 613 |
| | 655 |
|
| | 34,138 |
| | 144,103 |
|
Less current maturities, net of unamortized discount and deferred financing costs of $157 and $1,778 at September 30, 2017 and December 31, 2016, respectively. | | 2,695 |
| | 1,983 |
|
Notes payable and long-term debt, net of current maturities | | $ | 31,443 |
| | $ | 142,120 |
|
In conjunction with the sale of its Claims Group on May 5, 2017 (See Note 2), the Company terminated and paid off the 2014 Term Loan Facility and amended and paid down its Domestic and International Revolving Credit Facilities with Société Générale (the “Agent”), and other U.S. Loan Parties (the “U.S. Lenders”). There was approximately $117,000 outstanding under the 2014 Term Loan, $25,000 outstanding on the Domestic Revolving Credit Facility and €8,300 ($8,793) outstanding on the International Revolving Credit Facility prior to the debt extinguishment and modification. In the second quarter of 2017, the Company recorded a charge of approximately $4,024 for the write-off of unamortized debt issuance costs related to the extinguishment of the 2014 Term Loan Facility and approximately $325 for the write-off of unamortized debt issuance costs related to the modification and reduction of borrowing capacity of the Domestic Revolving Credit Facility. The write-off of unamortized debt issuance costs is included in the results from discontinued operations.
The Company is party to a credit agreement with Société Générale (the “Agent”), and other U.S. Loan Parties (the “U.S. Lenders”) consisting of the $30,000 (the "2017 Term Loan Facility") and a $25,000 U.S. dollar-denominated revolving credit facility (the “Domestic Revolving Credit Facility”, together with the 2017 Term Loan Facility, the “U.S. Credit Facilities”) available to the Company and a credit agreement with the Agent (the “International Lender”) providing a €9,156 ($10,000 at closing) revolving credit facility (the “International Revolving Credit Facility” and together with the Domestic Revolving Credit Facility, the “Revolving Credit Facilities” and, together with the U.S. Credit Facilities, the “Secured Credit Facilities”) which is available to Hill International N.V. The Domestic Revolving Credit Facility and the International Revolving Credit Facility include sub-limits for letters of credit amounting to $20,000 and €8,000 ($9,130 at closing), 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. The financial covenant is comprised of a maximum Consolidated Net Leverage Ratio of 3.00 to 1.00 for any fiscal quarter ending on or subsequent to March 31, 2017 for the trailing twelve months then-ended. The Consolidated Net Leverage Ratio is the ratio of (a) consolidated total debt (minus unrestricted cash and cash equivalents) to consolidated earnings before interest, taxes, depreciation, amortization, share-based compensation and other non-cash charges, including bad debt expense, certain one-time litigation and transaction related expenses, and restructuring charges for the trailing twelve months. In the event of a default, the U.S. Lender and the International Lender may increase the interest rates by 2.0%.
From July 1, 2018 to July 12, 2018, the date of this filing, the Company was not in compliance with the requirements of our Revolving Credit Facilities which required the filing of this Quarterly Report on Form 10-Q by June 30, 2018. Upon the filing of this Quarterly Report on Form 10-Q, the Company is compliant under such requirements. Prior waivers of non-compliance with certain covenants in the Revolving Credit Facilities require the Company to file the Form 10-K for the 2017 fiscal year by July 17, 2018 and the Form 10-Q for the first quarter of 2018 by July 30, 2018. If the Company does not file such reports in accordance with these deadlines, it may again be in noncompliance with the requirements of the Revolving Credit Facilities.
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 Company’s U.S. and non-U.S. subsidiaries.
2017 Term Loan Facility
The disclosures that follow below describe the debt obligations outstanding as of September 30, 2017 under the 2017 Term Loan Facility.
On June 21, 2017, the Company entered into the 2017 Term Loan Facility with a term of 6 years, requiring repayment of 1.0% of the original principal amount annually for the first five years. Any amounts repaid on the 2017 Term Loan Facility will not be available to be re-borrowed.
The 2017 Term Loan Facility was funded net of a 1.0% discount of $300 of the principal amount, which has been deferred. In addition, the Company incurred fees and expenses related to the 2017 Term Loan Facility of approximately $874, which have been deferred. The original issue discount and debt issuance costs are being amortized on a straight-line basis, which approximates the effective interest method, to interest and related financing fees, net over the six years ending June 21, 2023, the loan maturity date. The unamortized original issue discount and debt issuance cost balance of approximately $926 is included as an offset against the notes payable and long-term debt balance in the Consolidated Balance Sheet at September 30, 2017.
The interest rate on the 2017 Term Loan Facility is, at the Company’s option, either:
| |
• | the London Inter-Bank Offered Rate (“LIBOR”) for the relevant interest period plus 5.75% per annum, provided that such LIBOR shall not be lower than 1.00% per annum; or |
| |
• | the Base Rate (as described below) plus 4.75% 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 1.00% per annum. Upon a default, the applicable rate of interest under the Secured Credit Facilities may increase by 2.00%. The LIBOR (including when determining the Base Rate) shall in no event be less than 1.00% per annum.
At September 30, 2017, the interest rate on the 2017 Term Loan Facility was 6.99%.
The Company has the right to prepay the 2017 Term Loan Facility in full or in part at any time without premium or penalty (except customary breakage costs); provided, however that upon the occurrence of prepayments relating to certain repricing transactions within the first six months following closing, a 1.0% prepayment premium will be payable. The Company is required to make certain mandatory prepayments, without premium or penalty (except customary breakage costs; provided, however, that upon the occurrence of any repricing transaction in respect of certain mandatory prepayments within the first six months following closing, a 1.0% prepayment premium is payable), including (i) with net proceeds of any issuance or incurrence of indebtedness 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 for each fiscal year of the Company 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 2.00 to 1.00).
The 2017 Term Loan Facility (along with interest thereon) is generally secured by a first-priority security interest in substantially all assets of the Company and certain of the Company’s U.S. subsidiaries other than accounts receivable and cash proceeds thereof, as to which the 2017 Term Loan Facility (and the interest thereon) is secured by a second-priority security interest.
Revolving Credit Facilities
Simultaneously with the closing of the sale of the Construction Claims Business, the Company amended its Domestic Revolving Credit Facility to reduce the amount available to the Company to $25,000, amended its International Revolving Credit Facility to reduce the amount available to the Company to $10,000, and drew approximately $25,191 in cash and approximately $9,193 in letters of credit against the amended Revolving Credit Facilities. Deferred fees incurred with establishing the Secured Credit Facilities amounting to approximately $325 were charged to discontinued operations during the quarter of the sale.
The Domestic Revolving Credit Facility and the International Revolving Credit Facility each have a term of five years from the closing and provide for letter of credit sub-limits in amounts of $20,000 and €8,000 (approximately $9,452 at September 30, 2017), respectively. The maximum Consolidated Net Leverage Ratio will be increased from the prior credit facilities to 3.00 for all test dates and will not decline. The definition of Consolidated Net Leverage Ratio was amended to (i) remove the cap on the amount of permitted cash netting and (ii) permit netting of unrestricted cash and cash equivalents. The Company incurred fees totaling $1,739 which are deferred and will be amortized to interest expense over the five-year term of the facilities.
The Revolving Credit Facilities require payment of interest only during the term and were substantially drawn as of the date of modification. 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 May 5, 2022.
The interest rate on borrowings under the Domestic Revolving Credit Facility are, at the Company’s option from time to time, either the LIBOR rate for the relevant interest period plus 3.75% per annum or the Base Rate plus 2.75% per annum. At September 30, 2017, the interest rate was 7.00%.
The interest rate on borrowings under the International Revolving Credit Facility 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 4.50% per annum. Throughout the three months ended September 30, 2017, we had no borrowings and, therefore, did not incur such interest expense.
The Company has paid commitment fees calculated at 0.50% annually on the average daily unused portion of the Domestic Revolving Credit Facility, and the Subsidiary has paid commitment fees calculated at 0.75% annually on the average daily unused portion of the International Revolving Credit Facility.
The ability to borrow under each of the Domestic Revolving Credit Facility and the International Revolving Credit Facility is subject to a “borrowing base.” The Domestic Revolving Credit Facility borrowing base is calculated using a formula based upon approximately 85% of receivables that meet or satisfy certain criteria (“Eligible Domestic Receivables”). The International Revolving Credit Facility borrowing base is calculated using a different formula based upon approximately 10% of international receivables that meet or satisfy certain criteria.
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 September 30, 2017, the domestic borrowing base was $25,000 and the international borrowing base was €9,156 (approximately $10,818 at September 30, 2017).
Generally, the obligations of the Company under the Domestic Revolving Credit Facility are secured by a first-priority security interest in the Eligible Domestic Receivables, cash proceeds and bank accounts of the Company and certain of the Company’s 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 Revolving Credit Facility are generally secured by a first-priority security interest in substantially all accounts receivable and cash proceeds thereof, certain bank accounts of the Subsidiary and certain of the Company’s non-U.S. subsidiaries, and a second-priority security interest in substantially all other assets of the Company and certain of the Company’s U.S. and non-U.S. subsidiaries.
The Company incurred fees and expenses related to the Revolving Credit Facilities in excess of $3,000 which has been 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 May 5, 2022. The unamortized debt issuance cost balances of $2,502 and $1,650 are included in other assets in the consolidated balance sheet at September 30, 2017 and December 31, 2016, respectively.
At September 30, 2017 the Company had $8,153 of outstanding letters of credit and $16,847 of available borrowing capacity under the Domestic Revolving Credit Facility. At September 30, 2017, the Company had $942 of outstanding letters of credit and $9,876 of available borrowing capacity under the International Revolving Credit Facility.
Other Debt Arrangements
The Company’s subsidiary, Hill International (Spain) S.A. (“Hill Spain”), maintained a revolving credit facility with three banks in Spain which initially provided for total borrowing of up to €5,640 with interest at 6.50% on outstanding borrowings. The facility expired on December 17, 2016. Concurrent with the satisfaction of this facility Hill Spain entered into a new agreement with three new banks. The total new facility is for €2,770 (approximately $3,273 at September 30, 2017) which bears interest between 1.85% and 3.50% and is repaid in equal installments over varying expiration dates between 36 and 60 months.
Hill Spain previously maintained an ICO (Official Credit Institute) loan with Bankia Bank in Spain, which expired on August 10, 2017 and was paid in full.
The Company maintains a credit facility with the National Bank of Abu Dhabi which provides for total borrowings of up to AED 11,500 (approximately $3,130 at September 30, 2017) collateralized by certain overseas receivables. At September 30, 2017, AED 6,538 was utilized (approximately $1,779). The credit facility is subject to periodic review by the bank and as such has been classified as current in the consolidated balance sheet. The interest rate is the one-month Emirates InterBank Offer Rate plus 3.50% (or 5.50% at September 30, 2017) but no less than 5.50%. This facility allows for letters of guarantee up to AED 200,000 (approximately $54,431 at September 30, 2017) of which AED 97,182 (approximately $26,448) was outstanding at September 30, 2017.
Engineering S.A. maintains four unsecured revolving credit facilities with two banks in Brazil aggregating 2,380 Brazilian Reais (BRL) (approximately $752) at September 30, 2017, with a weighted average interest rate of 4.76% per month at September 30, 2017. There were no borrowings outstanding on any of these facilities at September 30, 2017 or December 31, 2016, 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 September 30, 2017, the maximum U.S. dollar equivalent of the commitments was $84,087, of which $34,824 is outstanding.
In connection with the 2015 move of its corporate headquarters to Philadelphia, Pennsylvania, the Company received a loan from the Philadelphia Industrial Development Corporation in the amount of $750 which bears interest at 2.75%, is repayable in 144 equal monthly installments of $6 and matures on April 1, 2027.
Note 10 — Supplemental Cash Flow Information
The following table provides additional cash flow information (in thousands):
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
Interest and related financing fees paid | | $ | 5,831 |
| | $ | 8,915 |
|
Income taxes paid | | $ | 7,713 |
| | $ | 9,435 |
|
Increase (decrease) in other current liabilities and decrease (increase) in additional paid-in capital related to ESA Put Options | | $ | (777 | ) | | $ | 2,670 |
|
Increase in additional paid-in capital from the issuance of shares of common stock from cashless exercise of stock options | | $ | — |
| | $ | 729 |
|
Note 11 — Earnings per Share
Basic earnings per common share have been computed using the weighted-average number of shares of common stock outstanding during the period. On May 10, 2017 the Company's Board of Directors approved a monthly grant of Company stock valued at $80 per month to the Interim Chief Executive Officer ("ICEO") during his term of service, to be delivered to him on the last day of his service as ICEO. There is no circumstance in which these shares will not be issued, therefore, the accumulated shares are included in basic shares outstanding and in the computation of weighted averages basic shares. Basic shares outstanding included 50 shares and 81 shares related to this grant in the three and nine months ended September 30, 2017, respectively.
Diluted earnings per common share incorporates the incremental shares issuable upon the assumed exercise of stock options using the treasury stock method, if dilutive. Options to purchase approximately 1,541 shares and 6,480 shares for the three month periods ended September 30, 2017 and 2016, respectively, and 2,079 shares and 6,478 shares for the nine month periods ended September 30, 2017 and 2016, respectively, were excluded from the calculation of diluted earnings per share because they were antidilutive.
Note 12 — Share-Based Compensation
At September 30, 2017, the Company had approximately 5,527 options outstanding with a weighted average exercise price of $4.23. During the nine months ended September 30, 2017, the Company granted approximately 716 options which vest over a five-year period. The options granted had a weighted average exercise price of $4.98 and a contractual life of 7.0 years. The aggregate fair value of the options was approximately $1,400 calculated using the Black-Scholes valuation model. The weighted average assumptions used to calculate fair value were: expected life—5 years; volatility—48.30% and risk-free interest rate—2.08%. During the nine months ended September 30, 2017, options for approximately 1,541 shares with a weighted average exercise price of $5.41 lapsed and options for approximately 222 shares with a weighted average exercise price of $4.41 were forfeited.
During the three and nine months ended September 30, 2017, employees purchased approximately 5 and 36 common shares, respectively, for an aggregate purchase price of approximately $24 and $138, respectively, 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 approximately $1,048 and $581 for the three months ended September 30, 2017 and 2016, respectively, and approximately $2,261 and $1,838 for the nine months ended September 30, 2017 and 2016, respectively.
On May 10, 2017 the Company's Board of Directors approved a monthly grant of Company stock valued at $80 per month to the Interim Chief Executive Officer ("ICEO") during his term of service. At the end of each month during such period, the ICEO is entitled to $80 worth of Company stock based on the closing price of the Company's common stock on the last trading day of the month. The aggregate number of shares earned will be delivered to the ICEO on his the last day of service as ICEO. During the three and nine month periods ended September 30, 2017, the ICEO accumulated 50 shares and 81 shares, respectively. The value of the shares accumulated is remeasured each reporting period. The change in value from the previous reporting period is recorded as an adjustment to compensation expense. The Company recorded compensation expense of $221 and $386 for the three and nine months ended September 30, 2017, respectively related to these monthly grants. The ultimate value of these grants cannot be determined until the shares are delivered, therefore, the accumulated value of these shares is recorded in accrued expenses and will be reclassified to equity when the shares are ultimately delivered on the ICEO's last day of service.
Note 13 — Stockholders’ Equity
The following table summarizes the changes in stockholders’ equity during the nine months ended September 30, 2017 (in thousands):
|
| | | | | | | | | | | | |
| | Total | | Hill International, Inc. Stockholders | | Noncontrolling Interest |
| | | | | | |
Stockholders’ equity, December 31, 2016 | | $ | 76,352 |
| | $ | 74,358 |
| | $ | 1,994 |
|
Net (loss) earnings | | 37,424 |
| | 37,249 |
| | 175 |
|
Other comprehensive earnings | | (273 | ) | | (536 | ) | | 263 |
|
Comprehensive (loss) earnings | | 37,151 |
| | 36,713 |
| | 438 |
|
Additional paid in capital | | 5,537 |
| | 5,537 |
| | — |
|
Stockholders’ equity, September 30, 2017 | | $ | 119,040 |
| | $ | 116,608 |
| | $ | 2,432 |
|
Note 14 — Income Taxes
The effective tax rates for the three months ended September 30, 2017 and 2016 were 40.1% and (27.0)%, respectively, and 39.0% and 272.7% for the nine months ended September 30, 2017 and 2016, respectively. The Company’s effective tax rate represents the Company’s estimated 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’s effective tax rate in both years is higher than it otherwise would be primarily as a result of not recording an income benefit related to the U.S. net operating loss.
The components of (loss) earnings before income taxes and the related income tax expense by the United States and foreign jurisdictions were as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| | | | (As Restated) |
| | U.S. | | Foreign | | Total | | U.S. | | Foreign | | Total |
(Loss) earnings before income taxes | | (4,505 | ) | | $ | 1,842 |
| | $ | (2,663 | ) | | $ | (8,050 | ) | | $ | (542 | ) | | $ | (8,592 | ) |
Income tax (benefit) expense, net | | (1,892 | ) | | $ | 824 |
| | $ | (1,068 | ) | | |