NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 1 — The Company
Hill International, Inc. (including, as required by its context, its subsidiaries, “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. The Company had approximately 2,700 professionals in approximately 70 offices worldwide as of December 31, 2020.
The Company was incorporated on June 28, 2006 upon merging with Arpeggio Acquisition Corp in the state of Delaware. Prior to the merger, Arpeggio Acquisition Corp. completed its final public offering on June 30, 2004. Hill's common stock is traded on the NYSE under the trading symbol “HIL.”
All amounts included in the following Notes to the Consolidated Financial Statements are in thousands, except per share data.
Note 2 - Liquidity
The Company's principal sources of liquidity consisted of cash and cash equivalents of $34,229 and $15,915 at December 31, 2020 and 2019, respectively; available borrowing capacity of $7,495 and $9,052 under the Company's domestic revolving credit facility with Société Générale at December 31, 2020 and 2019, respectively; available borrowing capacity under the Company's international revolving credit facility with Société Générale of $1,085 and $3,145 at December 31, 2020 and 2019, respectively; and available borrowing capacity under other foreign credit agreements of $3,131 and $2,538 at December 31, 2020 and 2019, respectively. Additional information regarding the Company's credit facilities is set forth in Note 10 - Notes Payable and Long-Term Debt.
In December 2019, COVID-19 was identified in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a global pandemic as a result of the further spread of the virus into all regions of the world, including those regions where the Company's primary operations occur. The effects of this global pandemic on the Company includes anticipated lower gross and operating margins, as well as temporary delays in certain accounts receivable collections. These effects may continue in the foreseeable future. The Company is focused on preserving its principal sources of liquidity and managing its cash flow and will continue to evaluate the potential short-term and long-term implications of COVID-19 on its consolidated statements of operations. The Company has achieved approximately $11,000 in corporate cost reductions in 2020. The Company believes that it has adequate liquidity and business plans to continue to operate the business and mitigate the risks associated with COVID-19 for the next 12 months from March 16, 2021, the date of this filing.
Note 3 — Summary of Significant Accounting Policies
(a) Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of Hill International, Inc. and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Reclassification
Certain back-office expenses and foreign currency translation gains and losses that had previously been included in the individual regions in the operating profit/(loss) table presentation are currently being included within the corporate costs line item on the operating profit/(loss) tables herein. The related 2019 prior period operating profit (loss) by geographic region and corporate costs have been recast to reflect this change. This change only affects the presentation in the operating profit/(loss) tables and has no impact on total operating profit/(loss) reported.
Foreign currency transaction gains and losses that, in previous periods, had been included in selling, general and administrative ("SG&A") expenses line item on the Consolidated Statements of Operations, are presented as a separate line item on the Consolidated Statements of Operations for the twelve months ended December 31, 2020. The related foreign currency transaction gains and losses for the twelve months ended December 31, 2019 have been reclassed to reflect this change. This change has no impact on the total operating profit/(loss) reported.
Certain accrued agency fees that had previously been included in accrued payroll and related expenses in the components of accounts payable and accrued expenses table in Note 9 - Accounts Payable and Accrued Expenses are currently being included within the accrued agency fees line item. The related amounts at December 31, 2019 have been reclassed to reflect this change.
Interest costs and (gains)/losses recognized with the Company's End of Service Benefit plan ("EOSB" plan) had previously been included in SG&A and are now presented in other (loss) income, net in the Company's Consolidated Statements of Operations for the twelve months ended December 31, 2020 and 2019 for $637 and $219, respectively. This change results in an increase on the total operating profit previously reported for the twelve months ended December 31, 2019, but has no impact on the total net income reported.
Certain geographic regions have been combined in tables throughout the document including in Note 4 - Revenue from Contract with Clients, Note 6 - Property and Equipment and Note 17 - Segment and Related Information. In the current year, Americas includes United States and Latin America and Middle East/Asia/Pacific includes Middle East and Asia/Pacific. The related 2019 presentation has been recast to conform to current year presentation.
Other (Loss) Income, net
During the twelve months ended December 31, 2020, a loss of $5,501 was recognized due to the bankruptcy filing and deconsolidation of our subsidiaries in Brazil (see Note 18 - Deconsolidation of Controlling Interest in Subsidiaries). Also, the Company's EOSB plan (see Note 16 Benefit Plans) interest cost and actuarial loss totaling $637 for the twelve months ended December 31, 2020 is included within Other (loss) income, net. An additional $345 of other income was recognized during the twelve months ended December 31, 2020, representing the cancellation of a loan agreement made with the PIDC-Local Development Corporation that was funded to the Company on October 24, 2014 as part of the city of Philadelphia's (the "City") Economic Stimulus Program. In February 2020, the City agreed to cancel this loan due to the Company satisfying all obligations upon which cancellation of such debt was conditioned in the Loan Agreement.
During the twelve months ended December 31, 2019, the Company recognized $394 of income in Other (Loss) Income, net, related to the settlement of a $1,000 grant received from the Pennsylvania Department of Community and Economic Development (the "PADCED") in May 2015 (the "Grant"), net of $606 of expense related to interest costs, net of gains, related to the Company's EOSB plan and other non-operating activity. The Grant was used as part of the relocation of Hill's corporate headquarters to the city of Philadelphia where partial or full repayment of the Grant is required if specific conditions were not met, which included maintaining a minimum number of employees throughout 2018, among other conditions, with the possibility of extension at the PADCED's discretion. In July 2019, the PADCED concluded that the Company is required to repay $351 of the Grant since the Company failed to meet its employment commitment. In July 2020, the PACDED agreed to further reduce the required repayment to $324 payable in four installments of $81, with the last installment due May 1, 2021.
(b) Foreign Currency Translations and Transactions
Assets and liabilities of all foreign operations are translated at year-end rates of exchange while revenues and expenses are translated at the average monthly exchange rates. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity titled accumulated other comprehensive income (loss) until the entity is sold or substantially liquidated. Gains or losses arising from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency), including those resulting from intercompany transactions, are reflected in foreign currency exchange loss in the consolidated statements of operations. The impact of foreign exchange on long-term intercompany loans, for which repayment has not been scheduled or planned and permanent equity has been elected, are recorded in accumulated other comprehensive income (loss) on the Company's consolidated balance sheets. There were no such long-term intercompany loans as of December 31, 2020.
(c) Use of Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and the revenue and expenses reported for the periods covered by the financial statements and certain amounts disclosed in the accompanying notes to the consolidated financial statements. Actual results could differ significantly from those estimates and assumptions. The estimates affecting the consolidated financial statements that are particularly significant include revenue calculations, goodwill impairment determination on recoverability of long-lived assets, income taxes, allowance for doubtful accounts, right-of-use assets, operating lease liabilities and commitments and contingencies.
(d) Fair Value Measurements
The fair value of financial instruments, which primarily consists of cash and cash equivalents, accounts receivable and accounts payable, approximates carrying value due to the short-term nature of the instruments. The carrying value of a significant portion of our credit facilities approximates fair value as the interest rates are variable and approximates current market levels.
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it would transact, and the Company considers assumptions that market participants would use when pricing the asset or liability.
Non-financial assets and liabilities, such as goodwill and long lived assets that are initially recorded at fair value, will be assessed for impairment, if deemed necessary. Additional information related to the Company's impairment assessment of these assets are included in paragraphs (k) Long-Lived Assets and (l) Goodwill below.
See paragraph below (s) Share-Based Compensation, to be read in conjunction with Note 11 Share-Based Compensation, for information related to certain share-based compensation awards that require the Company to estimate the fair value of such award when the value cannot be measured at the time of the grant.
(e) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and investments in money market funds and investment grade securities held with financial institutions. The Company considers all highly liquid instruments purchased with a remaining maturity of three months or less at the time of purchase to be cash equivalents.
(f) Restricted Cash
Restricted cash primarily represents cash collateral required to be maintained in foreign bank accounts to serve as collateral for letters of credit, bonds or guarantees on certain projects. Generally, the cash will remain restricted until the respective project has been completed, which typically is greater than one year.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in the statements of cash flows:
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|
|
|
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|
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2020
|
|
2019
|
Cash and cash equivalents
|
|
$
|
34,229
|
|
|
$
|
15,915
|
|
Cash - restricted
|
|
3,752
|
|
|
4,666
|
|
Cash - restricted, net of current portion
|
|
3,432
|
|
|
4,401
|
|
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows
|
|
$
|
41,413
|
|
|
$
|
24,982
|
|
(g) Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and accounts receivable.
The Company maintains its cash accounts with high quality financial institutions. Although the Company believes that the financial institutions with which it does business will be able to fulfill their commitments, there is no assurance that those institutions will be able to continue to do so.
The Company provides professional services, under contractual arrangements, to domestic and foreign governmental units, institutions and the private sector. To reduce credit risk, the Company performs ongoing credit evaluations of its clients and requires customary retainers where appropriate.
No single client contributed 10% or more to revenue for the years ended December 31, 2020 and 2019.
The following table presents the number of clients comprised of 10% or more of the Company's billed accounts receivable:
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December 31,
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2020
|
|
2019
|
Number of 10% clients
|
|
1
|
|
|
1
|
|
Percentage of billed accounts receivable
|
|
16
|
%
|
|
14
|
%
|
(h) Allowance for Doubtful Accounts
The allowance for doubtful accounts is an estimate prepared by management based on identification of the collectability of specific accounts and the overall condition of the receivable portfolios. When evaluating the adequacy of the allowance for doubtful accounts, the Company specifically analyzes trade receivables, including retainage receivable, historical bad debts, client credits, client concentrations, current economic trends and changes in client payment terms. If the financial condition of clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Likewise, should the Company determine that it would be able to realize more of its receivables in the future than previously estimated, an adjustment to the allowance would increase earnings in the period such determination was made. The allowance for doubtful accounts is reviewed at a minimum on a quarterly basis and adjustments are recorded as deemed necessary.
(i) Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is provided over the estimated useful lives of the assets as follows:
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Method
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Estimated Useful Life
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Furniture and equipment
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Straight-line
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10 years
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Leasehold improvements
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Straight-line
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Shorter of estimated useful life or lease term
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Computer equipment and software
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Straight-line
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3 to 5 years
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Automobiles
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|
Straight-line
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5 years
|
The Company capitalizes costs associated with internally developed and/or purchased software systems that have reached the application development stage and meet recoverability tests. Capitalized costs include external direct costs of materials and services utilized in developing or obtaining internal-use software, payroll and payroll-related expenses for employees who are directly associated with and devote time to internal-use software projects. Capitalization of such costs begins when the preliminary project stage is complete and ceases no later than the point at which the project is substantially complete and ready for its intended purpose. Costs for general and administrative, overhead, maintenance and training, as well as the cost of software that does not add functionality to existing systems, are expensed as incurred.
Upon retirement or other disposition of these assets, the cost and related depreciation are removed from the accounts and the resulting gain or loss, if any, is reflected in results of operations. Expenditures for maintenance, repairs and renewals of minor items are charged to expense as incurred. Major renewals and improvements are capitalized.
(j) Retainage Receivable
Retainage receivable represents balances billed but not paid by clients pursuant to retainage provisions in their contracts and will be due upon completion of specific tasks or the completion of the contract.
(k) Long-Lived Assets
Acquired intangible assets consist of contract rights, client related intangibles and trade names arising from the Company’s acquisitions. Contract rights represent the fair value of contracts in progress and backlog of an acquired entity. For intangible assets purchased in a business combination, the estimated fair values of the assets are used to establish the cost basis. Valuation techniques consistent with the market approach, the income approach and the cost approach are used to measure fair value. These assets are amortized over their estimated lives which range from three to fifteen years.
The Company reviews long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset is less than its carrying amount, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flow discounted at a rate commensurate with the risks associated with the recovery of the asset. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
No such impairment losses were recorded during the year ended December 31, 2020. During the year ended December 31, 2019, the Company recorded an impairment loss of $563, which is in SG&A on the consolidated statements of operations and in depreciation and amortization on the consolidated statements of cash flows. The impairment related to the Company's 2015 acquisition of one of its current subsidiaries, IMS Proje Yonetimi ve Danismanlik A.S. ("IMS"), which is based out of the Company's office in Turkey. The Company's consolidated balance sheet included an intangible asset related to IMS for client relationships prior to the impairment. In addition to the decline in the intangible asset's carrying value as a result of the Company's exposure to foreign exchange losses, the Company assessed that the client relationships that were in-place at the time of the intangible asset's initial fair value measurement no longer had any value at December 31, 2019.
Acquired intangible assets also includes the purchase of an engineering license during the year ended December 31, 2020. The transaction was recorded as an asset acquisition, with an indefinite useful life.
(l) Goodwill
Goodwill represents the excess of the consideration paid over the fair value of identifiable net assets acquired. Goodwill is not amortized, but instead is subject to impairment testing on an annual basis, and between annual tests whenever events or changes in circumstances indicate that the fair value may be below its carrying amount. The Company tests goodwill annually for impairment during the third quarter. To determine the fair value of our reporting unit, we use the discounted cash flow, the public company and the quoted price methods, weighting the results of each method.
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. The Company’s changes in estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment. During the three months ended March 31, 2020 the Company determined that the significant decline in its market capitalization as a result of the COVID-19 pandemic indicated that an impairment loss may have been incurred. The Company bypassed the qualitative assessment and proceeded directly to performing the quantitative goodwill impairment test. The quantitative goodwill impairment test concluded that the fair value of the Company (reporting unit) exceeded its carrying amount at that time, and therefore, goodwill was not considered impaired. The Company also performed its annual impairment test effective July 1, 2020. Based on the valuation as of July 1, 2020, the fair value of the Company exceeded its carrying value. The Company determined that no impairment existed at December 31, 2020 and December 31, 2019. In the future, the Company will continue to perform the annual test during its fiscal third quarter unless events or circumstances indicate an impairment may have occurred before that time.
(m) Investments
The Company will, in the ordinary course of business, form joint ventures for specific projects. These joint ventures have historically required limited or no investment and simply provide a pass-through for the Company’s billings. Any distributions in excess of the Company’s billings are accounted for as income when received and are accounted for under the equity method of accounting. In addition, the Company may make other investments accounted for at-cost. The Company’s total investments at December 31, 2020 and 2019 are as follows:
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December 31,
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2020
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2019
|
RAMPED Metro Joint Venture (1)(3)
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1,493
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527
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|
Concessia, Cartera y Gestion de Infrastructuras S.A. (2)
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1,193
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|
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1,096
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Other (3)
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119
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|
|
88
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|
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$
|
2,805
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|
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$
|
1,711
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|
(1)The Company has a 45.0% interest in this joint venture, which was formed for construction management of the Riyadh Metro system in Saudi Arabia.
(2)The Company has a 5.7% interest in Concessia, Cartera y Gestion de Infrastructuras S.A. ("Concessia"), an entity which invests in the equity of companies that finance, construct and operate various public and private infrastructure projects in Spain. The practicability exception to fair value measurement was elected due to the fact that there is no readily determinable fair value for this investment. Therefore, the investment is measured at-cost, less impairment, plus or minus observable price changes (in orderly transactions) of an identical or similar investment of the same issuer. There have been no impairments of and no observable price changes in the investment.
(3)Includes investments accounted for under the equity method of accounting.
(n) Deferred Financing Costs, Net
Net deferred financing costs include debt discount and debt issuance costs associated with obtaining commitments for financing transactions. Deferred financing costs related to revolving-debt arrangements are reflected in prepaid expenses and other current assets and other assets in the consolidated balance sheets and are amortized on a straight-line basis over the term of the loan. Deferred financing costs related to any term debt that requires scheduled repayments are recorded as a direct deduction from the Company's notes payable and other long-term debt and are amortized over the term of the respective financing agreement using the effective interest method. The amortization of such costs are included in interest and related financing fees, net, on the accompanying consolidated statements of operations.
Unamortized deferred financing costs are expensed if the associated debt is refinanced or repaid before the maturity.
(o) Deferred Revenue
In certain instances, the Company may collect advance payments from clients for future services. These payments are reflected as deferred revenue in the Company’s consolidated balance sheets. As the services are performed, the Company reduces the balance and recognizes revenue.
(p) Deferred Rent
The Company adopted Accounting Standards Update ("ASU") 2016-2, Leases (Topic 842) on January 1, 2019, which required the Company to recognize lease assets and operating lease liabilities on the Company's consolidated balance sheet for all leases with estimated lease terms of more than one year. See further detail in Note 15 - Leases.
Leases with estimated lease terms of less than one year or arrangements where the Company subleases real estate to a third party were not accounted for under ASU 2016-2. Such leases remained accounted for under the previous Accounting Standards Codification ("ASC") 840, Leases. The lease expense is recognized on a straight-line basis over the lease term and any differences between the rent paid under the terms of the lease and the straight-line rent expense is recorded as a deferred rent liability. At December 31, 2020 and 2019, deferred rent was $2, and is included in other current liabilities and other liabilities in the consolidated balance sheets.
(q) Income Taxes
The Company estimates income taxes in each of the jurisdictions in which it operates. This process involves estimating its actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the Company’s consolidated balance sheets. The Company assesses the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent it believes recovery is not likely, the Company establishes a valuation allowance. To the extent the Company establishes a valuation allowance in a period, it must include an expense within the tax provision in the consolidated statements of earnings. The Company has recorded a valuation allowance to reduce the deferred tax asset to an amount that is “more likely than not” (i.e., a likelihood greater than 50 percent) to be realized in future years. If the Company determines in the future that it is more likely than not to be allowed by the tax jurisdiction based solely on the technical merits of the position, that the deferred tax assets subject to the valuation allowance will be realized, then the previously provided valuation allowance will be adjusted.
The Company recognizes a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is more likely than not to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods.
(r) Revenue Recognition
The Company generates revenue primarily from providing professional services to its clients under various types of contracts. In providing these services, the Company may incur reimbursable expenses, which consist principally of amounts paid to subcontractors and other third parties and travel and other job related expenses that are contractually reimbursable from clients. The Company includes reimbursable expenses in computing and reporting its total revenue as long as the Company remains responsible to the client for the fulfillment of the contract and for the overall acceptability of all services provided.
If estimated total costs on any contract project a loss, the Company charges the entire estimated loss to operations in the period the loss becomes known. The cumulative effect of revisions to revenue, estimated costs to complete contracts, including penalties, incentive awards, change orders, claims, anticipated losses, and others are recorded in the accounting period in which the events indicating a loss are known and the loss can be reasonably estimated. These loss projects are re-assessed for each subsequent reporting period until the project is complete. Such revisions could occur at any time and the effects may be material.
See, "Note 4 - Revenue from Contracts with Clients" for more detail regarding how the Company recognizes revenue under each of its contractual arrangements.
(s) Share-Based Compensation
For compensation issued under equity-classified awards, the Company uses the Black-Scholes option-pricing model to measure the estimated fair value of any share-based compensation award when the fair value of the award is not readily determinable, which generally applies to options issued to purchase the Company’s common stock, but may also include restricted stock units, deferred stock units and common stock if the fair value cannot be determined. Option-pricing valuation models require the input of highly subjective assumptions.
Once the fair value of the award is determined, the value is recognized as share-based compensation expense and is recognized over the service period on a straight-line basis or when the conditions of the award have been met. Forfeitures reduce compensation expense in the period they occur. The Company’s policy is to primarily use newly issued shares to satisfy the exercise of stock options.
Any liability-classified awards are recorded at fair value based on the closing stock price of the Company's common stock and are re-measured each period until settlement of the award.
See Note - 11 Share-Based Compensation for more detail.
(t) Advertising Costs
Advertising costs are expensed as incurred and are reflected in SG&A expenses in the Company's consolidated statements of operations. These costs incurred were $253 and $229 for the years ended December 31, 2020 and 2019, respectively.
(u) Income (loss) per Share ("EPS")
Basic income (loss) per common share has been computed using the weighted-average number of shares of common stock outstanding during the year. Diluted income (loss) per common share includes the incremental shares issuable upon the assumed exercise of stock options using the treasury stock method and any other unvested share-based compensation awards, if dilutive.
Stock options, deferred stock and restricted stock units totaling 2,300 and 2,376 shares of the Company’s common stock were not included in the calculation of diluted common shares outstanding for the years ended December 31, 2020 and 2019, respectively, because they were anti-dilutive.
The following table provides a reconciliation to net income (loss) used in the numerator for net (loss) income per common share attributable to Hill:
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|
Years Ended December 31,
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2020
|
|
2019
|
|
|
Net (loss) income
|
|
$
|
(7,570)
|
|
|
$
|
14,254
|
|
|
|
Less: net earnings - noncontrolling interest
|
|
612
|
|
|
170
|
|
|
|
Net (loss) income attributable to Hill International, Inc.
|
|
$
|
(8,182)
|
|
|
$
|
14,084
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
56,603
|
|
56,280
|
|
|
Effect of dilutive securities:
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|
|
|
|
|
|
Stock options
|
|
—
|
|
|
—
|
|
|
|
Unvested share-based compensation units
|
|
—
|
|
|
—
|
|
|
|
Diluted weighted average shares common outstanding
|
|
56,603
|
|
|
56,280
|
|
|
|
|
|
|
|
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|
|
Basic and diluted net income (loss) per common share - Hill International, Inc.
|
|
$
|
(0.14)
|
|
|
$
|
0.25
|
|
|
|
(v) New Accounting Pronouncements
Changes to U.S. GAAP are typically established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs and, based on its assessment, determined that any recently issued or proposed ASUs not listed below are either not applicable to the Company or adoption will have minimal impact on its consolidated financial statements.
Recently Adopted Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-4, Intangibles - Goodwill and Other (Topic 350), which removes step 2 from the goodwill impairment test. As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units’ fair value. The guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017, and the prospective transition method should be applied. The Company adopted this guidance on January 1, 2020 and it did not materially impact its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this update is permitted, including adoption in any interim period, for all entities. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted this guidance on January 1, 2020 on a prospective basis and will begin to capitalize certain implementation costs that may have been previously expensed as incurred. There was no impact on the Company's consolidated financial statements.
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities ("VIE"). The amendments in this ASU for determining whether a decision-making fee is a variable interest require reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required by GAAP). These amendments will create alignment between determining whether a decision-making fee is a variable interest and determining whether a reporting entity within a related party group is the primary beneficiary of a VIE. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019 for public companies. Early adoption is permitted. The Company adopted this guidance in January 1, 2020. There was no impact on the Company's consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This ASU provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under Topic 606, specifically when the collaborative arrangement participant is a customer in the context of a unit-of-account. It provides more comparability in the presentation of revenues for certain transactions between collaborative arrangement participants, including adding unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019 for public companies. Early adoption is permitted. The Company adopted this guidance in January 1, 2020. There was no impact on the Company's consolidated financial statements.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments (Topic 326) - Credit Losses: Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement of credit losses on financial instruments. The new guidance replaces the incurred loss impairment methodology in the current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. This ASU will be effective for the Company commencing January 1, 2023. The Company is in the process of assessing the impact of this ASU on our consolidated financial statements and disclosures.
Note 4 — Revenue from Contracts with Clients
The Company recognizes revenue to depict the transfer of promised goods or services to clients in an amount that reflects the consideration to which the Company expects to be entitled in exchange for such goods or services.
Below is a description of the basic types of contracts from which the Company may earn revenue:
Time and Materials Contracts
Under the time and materials (“T&M”) arrangements, contract fees are based upon time and materials incurred. The contracts may be structured as basic time and materials, cost plus a margin or time and materials subject to a maximum contract value (the "cap value"). Due to the potential limitation of the cap value, the economic factors of the contracts subject to a cap value differ from the economic factors of basic T&M and cost plus contracts. The majority of the Company’s contracts are for consulting projects where it bills the client monthly at hourly billing rates. The hourly billing rates are determined by contractual terms. Under cost plus a margin contracts, the Company charges its clients for its costs, plus a fixed fee or rate. Under time and materials contracts with a cap value, the Company charges the clients for time and materials based upon the work performed however there is a cap or a not to exceed value. There are often instances that a contract is modified to extend the contract value past the cap. As the consideration is variable depending on the outcome of the contract renegotiation, the Company will estimate the total contract price in accordance with the variable consideration guidelines and will only include consideration that it expects to receive from the client. When the Company is reaching the cap value, the contract will be renegotiated, or Hill ceases work when the maximum contract value is reached. The Company will continue to work if it is probable that the contract will be extended. The Company will only include consideration or contract renegotiations to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. If the Company continues to work and is uncertain that a contract change order will be processed, the variable consideration will be constrained to the cap until it is probable that the contract will be renegotiated. The Company is only entitled to consideration for the work it has performed, and the cap value is not a guaranteed contract value.
Fixed Price Contracts
Under fixed price contracts, the Company’s clients pay an agreed amount negotiated in advance for a specified scope of work. The Company is guaranteed to receive the consideration to the extent that the Company delivers under the contract. The Company recognizes revenue over a period of time on fixed price contracts using the input method based upon direct costs incurred to date, which are compared to total projected direct costs. Costs are the most relevant measure to determine the transfer of the service to the client. The Company assesses contracts quarterly and will recognize any expected future loss before actually incurring the loss. When the Company is expecting to reach the total value under the contract, the Company will begin to negotiate a change order.
Change Orders and Claims
Change orders are modifications of an original contract. Either the Company or its client may initiate change orders. They may include changes in specifications or design, manner of performance, facilities, equipment, materials, sites and period of completion of the work. Management evaluates when a change order is probable based upon its experience in negotiating change orders, the client’s written approval of such changes or separate documentation of change order costs that are identifiable. Change orders may take time to be formally documented and terms of such change orders are agreed with the client before the work is performed. Sometimes circumstances require that work progresses before an agreement is reached with the client. If the Company is having difficulties in renegotiating the change order, the Company will stop work if possible, record all costs incurred to date, and determine, on a project by project basis, the appropriate final revenue recognition.
Claims are amounts in excess of the agreed contract price that the Company seeks to collect from its clients or others for client-caused delays, errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to both scope and price, or other causes of unanticipated additional contract costs. Costs related to change orders and claims are recognized when they are incurred. The Company evaluates claims on an individual basis and recognizes revenue it believes is probable to collect.
U.S. Federal Acquisition Regulations
The Company has contracts with the U.S. government that contain provisions requiring compliance with the U.S. Federal Acquisition Regulations (“FAR”). These regulations are generally applicable to all of its federal government contracts and are partially or fully incorporated in many local and state agency contracts. They limit the recovery of certain specified indirect costs on contracts subject to the FAR. Cost-plus contracts covered by the FAR provide for upward or downward adjustments if actual recoverable costs differ from the estimate billed under forward pricing arrangements. Most of the Company's federal government contracts are subject to termination at the convenience of the federal government. Contracts typically provide for reimbursement of costs incurred and payment of fees earned through the date of such termination.
Federal government contracts that are subject to the FAR and that are required by state and local governmental agencies to be audited are performed, for the most part, by the Defense Contract Audit Agency (“DCAA”). The DCAA audits the Company’s overhead rates, cost proposals, incurred government contract costs and internal control systems. During the course of its audits, the DCAA may question incurred costs if it believes the Company has accounted for such costs in a manner inconsistent with the requirements of the FAR or Cost Accounting Standards and recommend that its U.S. government corporate administrative contracting officer disallow such costs. Historically, the Company has not incurred significant disallowed costs because of such audits. However, the Company can provide no assurance that the DCAA audits will not result in material disallowances of incurred costs in the future.
Disaggregation of Revenues
The Company has one operating segment, the Project Management Group, which reflects how the Company is being managed. Additional information related to the Company’s operating segment is provided in Note 17 - Segment and Related Information. The Project Management Group provides extensive construction and project management services to construction owners worldwide. The Company considered the type of client, type of contract and geography for disaggregation of revenue. The Company determined that disaggregating by (1) contract type; and (2) geography would provide the most meaningful information to understand the nature, amount, timing, and uncertainty of its revenues. The type of client does not influence the Company’s revenue generation. Ultimately, the Company is supplying the same services of program management, project management, construction management, project management oversight, troubled project turnaround, staff augmentation, project labor agreement consulting, commissioning, estimating and cost management, labor compliance services and facilities management services. The Company’s contracts are generally long term contracts that are either based upon time and materials incurred or provide for a fixed price. The contract type will determine the level of risk in the contract related to revenue recognition. For purposes of disaggregation of revenue, the contract types have been grouped into: (1) Fixed Price - which include fixed price projects; and, (2) T&M - which include T&M contracts, T&M with a cap and cost plus contracts. The geography of the contracts will depict the level of global economic factors in relation to revenue recognition.
The components of the Company’s revenue by contract type and geographic region for the twelve months ended December 31, 2020 and 2019:
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|
|
|
|
|
|
|
|
|
|
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|
Twelve Months Ended December 31, 2020
|
|
Twelve Months Ended December 31, 2019
|
|
|
Fixed Price
|
|
T&M
|
|
Total
|
|
Percent of Total Revenue
|
|
Fixed Price
|
|
T&M
|
|
Total
|
|
Percent of Total Revenue
|
Americas
|
|
$
|
21,964
|
|
|
$
|
170,813
|
|
|
$
|
192,777
|
|
|
52.4
|
%
|
|
$
|
26,664
|
|
( 1)
|
$
|
173,478
|
|
|
$
|
200,142
|
|
|
53.1
|
%
|
Middle East/Asia/Pacific
|
|
16,242
|
|
|
76,397
|
|
|
92,639
|
|
|
25.1
|
%
|
|
31,923
|
|
|
73,004
|
|
|
104,927
|
|
|
27.9
|
%
|
Europe
|
|
44,003
|
|
|
9,816
|
|
|
53,819
|
|
|
14.6
|
%
|
|
27,645
|
|
( 2)
|
15,843
|
|
|
43,488
|
|
|
11.6
|
%
|
Africa
|
|
4,159
|
|
|
25,130
|
|
|
29,289
|
|
|
7.9
|
%
|
|
1,492
|
|
|
26,388
|
|
|
27,880
|
|
|
7.4
|
%
|
Total
|
|
$
|
86,368
|
|
|
$
|
282,156
|
|
|
$
|
368,524
|
|
|
100.0
|
%
|
|
$
|
87,724
|
|
|
$
|
288,713
|
|
|
$
|
376,437
|
|
|
100.0
|
%
|
(1) Includes $1,122 of revenue, previously classified as T&M contracts.
(2) Includes $4,109 of revenue, previously classified as T&M contracts.
The Company recognizes revenue when it transfers promised goods or services to clients in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company exercises judgment in determining if the contractual criteria are met to determine if a contract with a client exists, specifically in the earlier stages of a project when a formally executed contract may not yet exist. The Company typically has one performance obligation under a contract to provide fully-integrated project management services, and, occasionally, a separate performance obligation to provide facilities management services. Performance obligations are delivered over time as the client receives the service.
The consideration promised within a contract may include fixed amounts, variable amounts, or both. Variable consideration is included in the transaction price only to the extent it is probable, in the Company’s judgment, that a significant future reversal in the amount of cumulative revenue recognized under the contract will not occur. In estimating the transaction price for pending change orders, the Company considers all relevant facts, including documented correspondence with the client regarding acknowledgment and/or agreement with the modification, as well as historical experience with the client or similar contractual circumstances. The Company transfers control of its service over time and, therefore, satisfies a performance obligation and recognizes revenue over time by measuring the progress toward complete satisfaction of that performance obligation. The Company’s fixed price projects and T&M with a cap contracts, expected to exceed the cap value, generally use a cost-based input method to measure its progress towards complete satisfaction of the performance obligation as the Company believes this best depicts the transfer of control to the client. Under the cost-based measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Due to the nature of the work required to be performed under the Company’s performance obligations, estimating total revenue and cost at completion on its long term contracts is complex, subject to many variables and requires significant judgment.
For basic and cost plus T&M contracts and T&M with a cap, not expected to exceed the cap, contracts, the Company recognizes revenue over time using the output method which measures progress toward complete satisfaction of the performance obligation based upon actual costs incurred, using the right to invoice practical expedient.
Accounts Receivable
Accounts receivable includes amounts billed and currently due from clients and amounts for work performed which have not been billed to date. The billed and unbilled amounts are stated at the net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of client creditworthiness, historical payment experience and the age of outstanding receivables.
Contract Assets and Liabilities
Contract assets include unbilled amounts typically resulting from performance under long-term contracts where the revenue recognized exceeds the amount billed to the client. Retainage receivable is included in contract assets. The current portion of retainage receivable is a contract asset, which prior to the adoption of ASC 606, had been classified within accounts receivable.
The Company’s contract liabilities consist of advance payments and billings in excess of revenue recognized and are reported as deferred revenue in the consolidated balance sheets. The Company classifies billings in excess of revenue recognized as deferred revenue as current or non-current based on the timing of when revenue is expected to be recognized.
The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing of the Company’s performance and client payments. The amount of revenue recognized during the twelve months ended December 31, 2020 and 2019 that was included in the deferred revenue balance at the beginning of the period was $9,955 and $14,156, respectively.
Remaining Performance Obligations
The remaining performance obligations represent the aggregate transaction price of executed contracts with clients for which work has partially been performed or not started as of the end of the reporting period. The Company’s remaining performance obligations include projects that have a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and conditions. T&M contracts are excluded from the remaining performance obligation as these contracts are not fixed price contracts and the consideration expected under these contracts is variable as it is based upon hours and costs incurred in accordance with the variable consideration optional exemption. As of December 31, 2020 and 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $101,800 and $113,592, respectively. During the following 12 months, approximately 47% of the remaining performance obligations are expected to be recognized as revenue with the remaining balance recognized over 2 to 5 years.
Note 5 — Accounts Receivable
The components of accounts receivable and accounts receivable - affiliates reflected in the Company's consolidated balance sheets, are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Accounts Receivable
|
|
2020
|
|
2019
|
Billed (1)
|
|
$
|
113,021
|
|
|
$
|
132,339
|
|
|
|
|
|
|
Unbilled (2)
|
|
37,960
|
|
|
30,026
|
|
|
|
$
|
150,981
|
|
|
$
|
162,365
|
|
Allowance for doubtful accounts (1)(3)
|
|
(52,795)
|
|
|
(58,473)
|
|
Accounts Receivable, net
|
|
$
|
98,186
|
|
|
$
|
103,892
|
|
|
|
|
|
|
Accounts Receivable - Affiliates
|
|
|
|
|
Billed
|
|
$
|
15,560
|
|
|
$
|
12,546
|
|
|
|
|
|
|
Unbilled (2)
|
|
8,380
|
|
|
6,888
|
|
|
|
$
|
23,940
|
|
|
$
|
19,434
|
|
Allowance for doubtful accounts (3)
|
|
(655)
|
|
|
(658)
|
|
Accounts Receivable - Affiliates, net
|
|
$
|
23,285
|
|
|
$
|
18,776
|
|
(1) Includes $33,242 and $32,864 related to amounts due from a client in Libya as of December 31, 2020 and 2019, respectively, which were both fully reserved for in the allowance for doubtful accounts.
(2) Amount is net of unbilled reserves.
(3) See Schedule II-Valuation and Qualifying Accounts for breakdown of allowance for doubtful accounts for amounts added/(recovered), net of charge-offs for amounts determined to be uncollectible, for the years ended December 31, 2020 and 2019.
Unbilled receivables primarily represent revenue earned on contracts that the Company is contractually precluded from billing until predetermined future dates.
The Company determines its allowance for doubtful accounts based on the aging of amounts that have been billed to-date, the client's history, credit, concentration and current economic changes. The allowance for doubtful accounts is reviewed, at a minimum, on a quarterly basis and adjustments are recorded as deemed necessary.
During the year ended December 31, 2019 , the Company recovered amounts due from a client in Libya of $9,652. The client's accounts receivable balance had been reserved for in the Company's allowance for doubtful accounts in previous years, which were reversed as a result of the receipt of the payments. No additional amounts were recovered from the Libyan client during the year ended December 31, 2020.
Net bad debt recoveries of $1,936 and $8,426 are included in SG&A expenses in the consolidated statements of operations for the years ended December 31, 2020 and 2019, respectively.
Note 6 — Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets based on the type of property and equipment . Upon retirement or other disposition of these assets, the cost and related depreciation are removed from the accounts and the resulting gain or loss, if any, is reflected in results of operations. Expenditures for maintenance, repairs and renewals of minor items are charged to expense as incurred. Major renewals and improvements are capitalized.
The components of property and equipment are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Furniture and equipment
|
|
$
|
8,416
|
|
|
$
|
10,608
|
|
Leasehold improvements
|
|
10,197
|
|
|
10,977
|
|
Automobiles
|
|
1,309
|
|
|
1,334
|
|
Computer equipment and software
|
|
28,069
|
|
|
29,285
|
|
|
|
47,991
|
|
|
52,204
|
|
Less accumulated depreciation and amortization
|
|
(38,548)
|
|
|
(40,309)
|
|
Property and equipment, net
|
|
$
|
9,443
|
|
|
$
|
11,895
|
|
The Company's depreciation expense for the related balances were recorded as follows to the Company's consolidated statements of operations:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Total depreciation expense
|
|
$
|
3,959
|
|
|
$
|
2,810
|
|
|
|
|
|
|
|
|
|
|
Portion charged to direct expenses
|
|
$
|
397
|
|
|
$
|
856
|
|
|
|
|
|
|
|
|
|
|
Portion charged to selling, general and administrative expense
|
|
$
|
3,562
|
|
|
$
|
1,954
|
|
|
|
Note 7 — Intangible Assets
The following table represents acquired intangible assets as a result of the Company's acquisition history and the client contracts that were attained at the time of the acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
Engineering license
|
|
$
|
2,100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Client relationships
|
|
509
|
|
|
356
|
|
|
1,080
|
|
|
848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,609
|
|
|
$
|
356
|
|
|
$
|
1,080
|
|
|
$
|
848
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
2,253
|
|
|
|
|
$
|
232
|
|
|
|
During the year ended December 31, 2020, the Company acquired a Grandfathered Engineering Corporation license ("engineering license"), which was determined to have an indefinite useful life. As such, no amortization expense was recorded during the year ended December 31, 2020.
The Company's client relationships intangible assets are amortized over the estimated life of ten years.
Amortization expense related to these intangible assets of $79 and $1,014 for years ended December 31, 2020 and 2019, respectively. The twelve months ended December 31, 2019 included an impairment loss of $563 and was reflected in selling, general and administrative expenses on the Company's consolidated statements of operations. This client relationship intangible asset related to the Company's 2015 acquisition of one of its current subsidiaries, IMS Proje Yonetimi ve Danismanlik A.S. ("IMS"), which is based out of the Company's office in Turkey. The Company's consolidated balance sheets included an intangible asset related to IMS for client relationships prior to the impairment. In addition to the decline in the intangible asset's carrying value as a result of the Company's exposure to foreign exchange losses, the Company assessed that the client relationships that were in-place at the time of the intangible asset's initial fair value measurement no longer had any value at December 31, 2019. The Company did not incur any impairment losses during the year ended December 31, 2020.
The following table presents the estimated amortization expense based on our remaining intangible assets for the next five years:
|
|
|
|
|
|
|
Estimated
|
|
Amortization
|
Years Ending December 31,
|
Expense
|
2021
|
$
|
51
|
|
2022
|
51
|
|
2023
|
51
|
|
2024
|
—
|
|
2025
|
—
|
|
Note 8 — Goodwill
The following table summarizes the changes in the carrying value of goodwill:
|
|
|
|
|
|
Balance, December 31, 2018
|
$
|
48,869
|
|
|
|
Translation adjustments (1)
|
(845)
|
|
Balance, December 31, 2019
|
48,024
|
|
Translation adjustments (1)
|
(1,627)
|
|
Balance, December 31, 2020
|
$
|
46,397
|
|
(1) The translation adjustments are calculated based on the foreign currency exchange rates as of December 31, 2020 and 2019.
During the three months ended March 31, 2020 the Company determined that the significant decline in its market capitalization as a result of the COVID-19 pandemic indicated that an impairment loss may have been incurred. The Company bypassed the qualitative assessment and proceeded directly to performing the quantitative goodwill impairment test. The quantitative goodwill impairment test concluded that the fair value of the Company (reporting unit) exceeded its carrying amount at that time, and therefore, goodwill was not considered impaired.
The Company performed its annual impairment test effective July 1, 2020 and noted no impairment. Based on the valuation as of July 1, 2020, the fair value of the Company exceeded its carrying value. The Company also determined that no impairment existed at December 31, 2020 and December 31, 2019. In the future, the Company will continue to perform the annual test during its third quarter unless events or circumstances indicate an impairment may have occurred before that time.
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. The Company’s changes in estimates and assumptions, including decreases in stock price and market capitalization, could materially affect the determination of fair value and/or conclusions on goodwill impairment. As a result of recent events, including market volatility and the impact on the global economy, it is as least reasonably possible that changes in one or more of those assumptions could result in impairment of our goodwill in future periods.
Note 9 — Accounts Payable and Accrued Expenses
The table below reflects the Company's breakdown of the amounts in accounts payable and other accrued expenses by cost category as of the periods presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2020
|
|
2019
|
Accounts payable
|
|
$
|
20,953
|
|
|
$
|
22,102
|
|
Accrued payroll and related expenses
|
|
26,691
|
|
|
24,718
|
|
Accrued subcontractor fees
|
|
8,711
|
|
|
9,405
|
|
Accrued agency fees (1)
|
|
4,239
|
|
|
4,395
|
|
Accrued legal and professional fees
|
|
2,894
|
|
|
2,169
|
|
Other accrued expenses
|
|
4,309
|
|
|
2,383
|
|
|
|
$
|
67,797
|
|
|
$
|
65,172
|
|
(1) $4,156 in accrued agency fees at December 31, 2019 that were previously included in accrued payroll and related expenses are now reflected in accrued agency fees.
Note 10 — Notes Payable and Long-Term Debt
The table below reflects the Company's notes payable and long-term debt, which includes credit facilities:
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Interest Rate (1)
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Balance Outstanding as of
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Loan
|
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Maturity
|
|
Interest Rate Type
|
|
December 31,
2020
|
|
December 31,
2019
|
|
December 31,
2020
|
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December 31,
2019
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Secured Credit Facilities
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Hill International, Inc. - Société Générale 2017 Term Loan Facility
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06/20/2023
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Variable
|
|
7.67%
|
|
7.92%
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|
$
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28,950
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|
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$
|
29,250
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Hill International, Inc. - Société Générale Domestic Revolving Credit Facility (2)
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|
05/04/2022
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Variable
|
|
5.50%
|
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6.27%
|
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14,400
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|
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9,400
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Hill International N.V. - Société Générale International Revolving Credit Facility (3)(6)
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05/04/2022
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Variable
|
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4.11%
|
|
4.16%
|
|
4,035
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|
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2,302
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Unsecured Credit Facilities
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Hill International, Inc. - First Abu Dhabi Bank PJSC Overdraft Credit Facility (4)
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04/18/2021
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Variable
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5.65%
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5.81%
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—
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|
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593
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Hill International Brasil S.A. - Revolving Credit Facility (5)
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06/12/2020
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Fixed
|
|
3.07%
|
|
3.24%
|
|
—
|
|
|
498
|
|
Unsecured Notes Payable and Long-Term Debt
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Hill International Spain SA-Bankia S.A. & Bankinter S.A. (6)
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|
12/31/2021
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Fixed
|
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2.21%
|
|
2.21%
|
|
581
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|
|
1,054
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Philadelphia Industrial Development Corporation Loan
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04/01/2027
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Fixed
|
|
2.79%
|
|
2.79%
|
|
421
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|
|
486
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Hill International Spain S.A.-Bankinter S.A.2020 Term Loan (6)(7)
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|
05/04/2024
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Variable
|
|
2.23%
|
|
N/A
|
|
357
|
|
|
—
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Hill International Spain S.A.-Banco Santander, S.A. Term Loan (6)(7)
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|
05/30/2025
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Fixed
|
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3.91%
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N/A
|
|
367
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|
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—
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Hill International Spain S.A.-BBVA, S.A. P.P. Term Loan (6)(7)
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06/19/2025
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|
Variable
|
|
2.28%
|
|
N/A
|
|
367
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|
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—
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Hill International Spain S.A.-Bankia, S.A. 2020 Term Loan (6)(7)
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|
06/05/2025
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Variable
|
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2.54%
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N/A
|
|
303
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|
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—
|
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Total notes payable and long-term debt, gross
|
|
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49,781
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|
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43,583
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Less: unamortized discount and deferred financing costs related to Société Générale 2017 Term Loan Facility
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|
|
|
|
|
|
|
|
|
(500)
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|
|
(641)
|
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Notes payable and long-term debt
|
|
|
|
|
|
|
|
|
|
$
|
49,281
|
|
|
$
|
42,942
|
|
Current portion of notes payable
|
|
|
|
|
|
|
|
|
|
1,171
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|
|
1,972
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|
Current portion of unamortized debt discount and deferred financing costs
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|
|
|
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(184)
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(180)
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Current maturities of notes payable and long-term debt
|
|
|
|
|
|
|
|
|
|
$
|
987
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|
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$
|
1,792
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Notes payable and long-term debt, net of current maturities
|
|
|
|
|
|
|
|
|
|
48,294
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|
|
41,150
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Footnotes to the Notes Payable and Long-Term Debt Table Above:
(1) Interest rates for variable interest rate debt are reflected on a weighted average basis through December 31, 2020 and 2019 since the loan origination or modification date.
(2) At December 31, 2020 and 2019, the Company had $6,605 and $6,548 of outstanding letters of credit, respectively, in addition to the balances outstanding above, which resulted in $7,495 and $9,052 of available borrowing capacity under the Domestic Revolving Credit Facility, respectively. The amounts available were based on the maximum borrowing capacity of $28,500 and $25,000 as of December 31, 2020 and 2019, respectively. See 'Secured Credit Facilities' section below for further information.
(3) As of December 31, 2020 and 2019, the Company had $2,189 and $2,232 of outstanding letters of credit, respectively, in addition to the balances outstanding above, which resulted in $1,085 and $3,145 of available borrowing capacity under the International Revolving Credit Facility, respectively. The amounts available were based on the Company's borrowing capacity of $7,309 and $7,679 as of December 31, 2020 and 2019, respectively. See ''Secured Credit Facilities' section below for further information.
(4) FAB overdraft credit facility lender was formerly known as National Bank of Abu Dhabi. There is no stated maturity date, however, the loan is subject to annual review in April of each year, or at any other time as determined by FAB. Therefore, the amount outstanding is reflected within the current maturities of notes payable and long-term debt. Balances outstanding are reflected in U.S. dollars based on the conversion rates from AED as of December 31, 2020 and 2019. The Company had $3,131 and $2,538 of availability under the credit facility as of December 31, 2020 and 2019, respectively.
(5) See Note 18 - Deconsolidation of Controlling Interest in Subsidiaries related to the bankruptcy and liquidation of Hill International Brasil S.A. (the "borrower"), which resulted in the deconsolidation of the borrower from the Company's consolidated financial statements. This unsecured revolving credit facility was subject to automatic renewals on a monthly basis. Effective with the November 2019 renewal of the unsecured revolving credit facility, the interest rate was reduced by the credit facility lender from 3.30% to 2.80%. The Company had no availability under the unsecured credit facility as of December 31, 2019. The amounts outstanding are based on conversion rates from Brazilian Real as of December 31, 2019.
(6) Balances outstanding are reflected in U.S. dollars based on the conversion rates from Euros as of December 31, 2020 and 2019, accordingly.
(7) Includes loan agreements entered into between April and June 2020, where the respective loan agreements require interest-only monthly payments during grace periods that last from six months or one year from the date of the agreements. The variable interest loans are subject to either semi-annual or annual review by the respective lenders thereof and the respective interest rates in respect thereof are determined based on 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 a margin, as set by the respective lender.
Secured Credit Facilities
On May 5, 2017 the Company entered into a credit agreement with Société Générale (the “Agent”) and other U.S. Loan Parties (the “U.S. Lenders”) consisting of (1) a $30,000 term loan (the "2017 Term Loan Facility"); (2) 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”); and (3) 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.
On April 1, 2020, the Company amended its Secured Credit Facilities, which increased the credit commitment with one of the U.S. Lenders under the Domestic Revolving Credit Facility by $3,500 from $25,000 to $28,500 and simultaneously decreased the credit commitment with the International Lender under the International Revolving Credit Facility by €3,179 (approximately $3,500 at closing) from €9,156 (approximately $10,000) to €5,977 (approximately $6,536 at closing).
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%. The Company was in compliance with this financial covenant calculation as of December 31, 2020.
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 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). The Company is required to make certain mandatory prepayments, without premium or penalty (except customary breakage costs), including (i) 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 50.00% 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 25.00% if the Consolidated Net Leverage Ratio is equal to or less than 2.0 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
The Revolving Credit Facilities require payment of interest only during the term and 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 the maturity date.
The interest rate on borrowings under the Domestic Revolving Credit Facility are, at the Company’s option, either the LIBOR rate for the relevant interest period, plus 3.75%, per annum or the Base Rate, plus 2.75%, per annum.
The interest rate on borrowings under the International 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.
Commitment fees are paid quarterly and are calculated at 0.50% per annum based on the daily unused portion of the Domestic Revolving Credit Facility and at 0.75% per annum based on the daily unused portion of the International Revolving Credit Facility.
The unamortized debt issuance costs of $755 and $1,317 are included in prepaid expenses and other current assets and other assets in the Company's consolidated balance sheets at December 31, 2020 and December 31, 2019, respectively.
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 amounts available under the Domestic Revolving Credit Facility is subject to a borrowing base that is equal to 85.0% of the difference between (x) the aggregate amount of Eligible Domestic Receivables as of the immediately preceding calendar month and (y) the Dilution Reserve (the "Reserve"), which is equal to 1.0% of (x), not to exceed the $25,000 maximum capacity. The Reserve may be adjusted from time to time based on the most recently delivered collateral audit performed by the Agent and such percentage shall be in effect for the next succeeding twelve months and thereafter under the percentage is reset, however, the Reserve may not be reset more frequently than once a year. The amounts under the International Revolving Credit Facility is also subject to a borrowing base equal to (i) 85.0% of the aggregate amount of the Eligible International Receivables as of the last day of the fiscal quarter, plus 10.0% of the aggregate amount of the Eligible International Receivables as of the last day of the fiscal quarter.
At December 31, 2020, contractually scheduled maturities of current and long-term debt, net of the amortization of the deferred financing costs related to the 2017 Term Loan Facility, were as follows:
|
|
|
|
|
|
Years Ending December 31,
|
Total Scheduled Maturities (1)
|
2021
|
$
|
955
|
|
2022
|
18,958
|
|
2023
|
28,701
|
|
2024
|
380
|
|
2025
|
199
|
|
Thereafter
|
88
|
|
Total
|
$
|
49,281
|
|
(1) Amounts are estimated based on the foreign currency exchange rates as of December 31, 2020, where applicable.
Other Financing Arrangements
On May 1, 2020, subsequent to the maturity of the Company's previous commercial premium financing arrangement in April 30, 2020 with AFCO Premium Credit LLC ("AFCO"), the Company entered into a new financing agreement for the renewal of its corporate insurance policies with AFCO for $3,391. The terms of the arrangement include a $509 down payment, followed by monthly payments to be made over an ten month period at a 3.04% interest rate through March 31, 2021.
As of December 31, 2020 and 2019, the balances payable to AFCO for these arrangements were $872 and $768 and is reflected in other current liabilities on the Company's consolidated balance sheets.