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TMCNet:  HILL INTERNATIONAL, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

[May 12, 2014]

HILL INTERNATIONAL, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Edgar Glimpses Via Acquire Media NewsEdge) We make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We use forward-looking works such as "may," "except," "anticipate," "contemplate," "believe," "estimate," "intend," and "continue" or similar words. You should read statements that contain these words carefully because they discuss future expectations, contain projections of future results of operations or financial condition or state other "forward-looking" information. However, there may be events in the future that we are not able to predict accurately or over which we have no control. Examples or risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in such forward-looking statements include those described in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission on March 14, 2014 (the "2013 Annual Report").


You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. All forward-looking statements included herein attributable to use are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

Except to the extent required by applicable laws and regulations, we undertake no obligations to update these forward-looking statements.

References to "the Company," "we," "us," and "our" refer to Hill International, Inc. and its subsidiaries.

Overview Our revenue consists of two components: consulting fee revenue ("CFR") and reimbursable expenses. Reimbursable expenses are reflected in equal amounts in both total revenue and total direct expenses. Because these pass-through revenue/costs are subject to significant fluctuation from year to year, we measure the performance of many of our key operating metrics as a percentage of CFR, as we believe that this is a better and more consistent measure of operating performance than total revenue.

CFR increased $14,693,000, or 12.0%, to $137,249,000 in the first quarter of 2014 from $122,556,000 in the first quarter of 2013. CFR for the Project Management segment increased $6,790,000, principally due to increased work in the Middle East, primarily Oman, Qatar and Iraq. CFR for the Construction Claims segment increased by $7,903,000, due primarily to increases in the United Kingdom, Asia/Pacific and South Africa.

Cost of services increased $5,892,000, or 8.1%, to $78,590,000 in the first quarter of 2014 from $72,698,000 in the first quarter of 2013 as a result of an increase in employees and other direct expenses related to the additional work in the Middle East.

Gross profit increased $8,801,000, or 17.7%, to $58,659,000 in the first quarter of 2014 from $49,858,000 in the first quarter of 2013 due to the increases in CFR. Gross profit as a percent of CFR increased to 42.7% in 2014 compared to 40.7% in 2013 due to higher margins on new work in the Middle East and the United Kingdom.

Selling, general and administrative expenses increased $10,200,000, or 24.0%, to $52,659,000 in the first quarter of 2014 from $42,459,000 in the first quarter of 2013. As a percentage of CFR, selling, general and administrative expenses increased to 38.4% in 2014 compared to 34.6% in 2013 primarily due to a drop in utilization of billable staff in the first two months of 2014 causing an increase in unapplied labor expense which represents the labor cost of operating staff for non-billable tasks.

Operating profit was $6,000,000 in the first quarter of 2014 compared to an operating profit of $7,399,000 in the first quarter of 2013. The decrease in operating profit was primarily due to an increase in selling, general and administrative expenses partially offset by the increase in gross profit.

Income tax expense was $631,000 in the first quarter of 2014 compared to an income tax expense of $1,874,000 in the first quarter of 2013. The change is primarily the result of a change in projected income and the mix of income among the various foreign tax jurisdictions.

19 -------------------------------------------------------------------------------- Table of Contents Net earnings attributable to Hill were $53,000 in the first quarter of 2014 compared to a net loss of ($380,000) in the first quarter of 2013. Diluted earnings per common share was $0.00 in the first quarter of 2014 based upon 40,602,000 diluted common shares outstanding compared to a diluted loss per common share of ($0.01) in the first quarter of 2013 based upon 38,664,000 diluted common shares outstanding.

We have open but inactive contracts in Libya. During 2013 and the first quarter of 2014, we received payments of approximately $9,900,000 from our client, the Libyan Organization for the Development of Administrative Centres ("ODAC"), for work performed prior to March 2011. The remaining accounts receivable balance with ODAC is now approximately $50,000,000. Since the end of the Libyan civil unrest in October 2011, the Company has sought to recover its receivable from ODAC through ongoing negotiations rather than pursue its legal rights for payment under the contracts. The Company continues to believe that this course of action provides the best likelihood for recovery as it could result in completion of and payment on the existing contracts as well as the potential for the award of new contracts. There is at present no formal agreement, understanding or timetable for further payments of Hill's accounts receivable from ODAC or a return to work on Hill's existing contracts. Management believes that these payments, along with letters of credit of approximately $14,000,000 posted in our favor by ODAC, were made in good faith and are a positive indication that ODAC intends to satisfy its obligations to Hill. However, the Company cannot predict with certainty when, or if, the remaining accounts receivable will be paid by the Libyan authorities or when work will resume there.

Despite continuing global economic uncertainty and current limits to financial credit, we remain optimistic about maintaining our current growth strategy to pursue new business development opportunities, continue to take advantage of organic growth opportunities, continue to pursue acquisitions and strengthen our professional resources. Among other things, our optimism stems from the high level of our backlog which amounted to $978,000,000 at March 31, 2014. Our 12-month backlog on that date was a record $400,000,000.

Non-GAAP Financial Measures Regulation G, conditions for use of Non-Generally Accepted Accounting Principles ("Non-GAAP") financial measures, and other SEC regulations define and prescribe the conditions for use of certain Non-GAAP financial information. Generally, a Non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. We believe earnings before interest, taxes, depreciation and amortization ("EBITDA"), in addition to operating profit, net earnings and other GAAP measures, is a useful indicator of our financial and operating performance and our ability to generate cash flows from operations that are available for taxes, capital expenditures and debt service. This measure, however, should be considered in addition to, and not as a substitute or superior to, operating profit, cash flows, or other measures of financial performance prepared in accordance with GAAP. The following table is a reconciliation of EBITDA to the most directly comparable GAAP measure in accordance with SEC Regulation S-K for the three-month periods ended March 31, 2014 and 2013 (in thousands): Three Months Ended March 31, 2014 2013 Net income (loss) attributable to Hill International, Inc. $ 53 $ (380 ) Interest and related financing fees, net 5,076 5,487 Income tax expense 631 1,874 Depreciation and amortization 2,427 2,539 EBITDA $ 8,187 $ 9,520 20 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies We operate through two segments: the Project Management Group and the Construction Claims Group. Reimbursable expenses are reflected in equal amounts in both total revenue and total direct expenses. Because these revenues/costs are subject to significant fluctuation from year to year, we measure the performance of many of our key operating metrics as a percentage of consulting fee revenue ("CFR"), as we believe that this is a better and more consistent measure of operating performance than total revenue.

The Company's interim financial statements were prepared in accordance with United States generally accepted accounting principles, which require management to make subjective decisions, assessments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the judgment increases, such judgments become even more subjective. While management believes its assumptions are reasonable and appropriate, actual results may be materially different than estimated. The critical accounting estimates and assumptions have not materially changed from those identified in the Company's 2013 Annual Report.

21 -------------------------------------------------------------------------------- Table of Contents Results of Operations Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013 Consulting Fee Revenue ("CFR") 2014 2013 Change (dollars in thousands) Project Management $ 101,788 74.2 % $ 94,998 77.5 % $ 6,790 7.1 % Construction Claims 35,461 25.8 27,558 22.5 7,903 28.7 Total $ 137,249 100.0 % $ 122,556 100.0 % $ 14,693 12.0 % The increase in CFR included an organic increase of 9.9% primarily in the Middle East and an increase of 2.1% due to the acquisitions of Binnington Copeland & Associates ("BCA") in May 2013 and Collaborative Partners, Inc. ("CPI") in December 2013.

The increase in Project Management CFR included an organic increase of 5.7% and an increase of 1.4% from the acquisition of CPI. The increase in CFR consisted of a $7,552,000 increase in foreign projects and a decrease of $762,000 in domestic projects. The increase in foreign Project Management CFR included an increase of $5,703,000 in Oman, $3,040,000 in Qatar and $2,487,000 in Iraq.

These increases were partially offset by a decrease of $4,260,000 in Brazil.

The decrease in domestic Project Management CFR was due primarily to decreases in our Southern and Western regions, partially offset by an increase in New England due to the acquisition of CPI.

The increase in Construction Claims CFR was comprised of an organic increase of 24.4% and a 4.3% increase from the acquisition of BCA. The organic increase was primarily due to increases in the United Kingdom and Asia/Pacific.

Reimbursable Expenses 2014 2013 Change (dollars in thousands) Project Management $ 11,381 89.2 % $ 12,581 93.1 % $ (1,200 ) (9.5 )% Construction Claims 1,383 10.8 936 6.9 447 47.8 Total $ 12,764 100.0 % $ 13,517 100.0 % $ (753 ) (5.6 )% Reimbursable expenses consist of amounts paid to subcontractors and other third parties, and travel and other job-related expenses that are contractually reimbursable from clients. These items are reflected as separate line items in both our revenue and cost of services captions in our consolidated statements of operations. The decrease in Project Management reimbursable expense is primarily due to lower use of subcontractors in our Northeast region, partially offset by increased subcontractors in Oman. The increase in Construction Claims reimbursable expenses was due primarily to increases in the United Kingdom due to subcontractors and other reimbursable expenses associated with the increased work volume.

22 -------------------------------------------------------------------------------- Table of Contents Cost of Services 2014 2013 Change (dollars in thousands) % of % of CFR CFR Project Management $ 62,752 79.8 % 61.6 % $ 60,273 82.9 % 63.4 % $ 2,479 4.1 % Construction Claims 15,838 20.2 44.7 12,425 17.1 45.1 3,413 27.5 Total $ 78,590 100.0 % 57.3 % $ 72,698 100.0 % 59.3 % $ 5,892 8.1 % Cost of services consists of labor expenses for time charged directly to contracts and non-reimbursable job-related travel and out-of-pocket expenses.

The increase in Project Management cost of services is primarily due to increases in the Middle East in support of increased work in Oman, Qatar and Iraq and to a lesser degree to the CPI acquisition, partially offset by decreases in Brazil.

The increase in the cost of services for Construction Claims was due primarily to increases in direct cost in the United Kingdom, Asia/Pacific and South Africa (due to the BCA acquisition).

Gross Profit 2014 2013 Change (dollars in thousands) % of % of CFR CFR Project Management $ 39,036 66.5 % 38.4 % $ 34,725 69.6 % 36.6 % $ 4,311 12.4 % Construction Claims 19,623 33.5 55.3 15,133 30.4 54.9 4,490 29.7 Total $ 58,659 100.0 % 42.7 % $ 49,858 100.0 % 40.7 % $ 8,801 17.7 % The increase in Project Management gross profit included an increase of $4,399,000 from international operations, primarily due to increases from the Middle East, principally Oman, Qatar and Iraq, partially offset by a decrease in Brazil.

The increase in Construction Claims gross profit was driven by increases in the United Kingdom, Asia/Pacific and South Africa.

The overall gross profit percentage increased due higher margins achieved on new work in the Middle East, primarily Oman and Qatar for Project Management and in the United Kingdom and South Africa for Construction Claims.

23 -------------------------------------------------------------------------------- Table of Contents Selling, General and Administrative ("SG&A") Expenses 2014 2013 Change (dollars in thousands) % of % of CFR CFR SG&A Expenses $ 52,659 38.4 % $ 42,459 34.6 % $ 10,200 24.0 % The increase in SG&A expense included $957,000 due to the acquisitions of BCA and CPI.

The other significant components of the change in SG&A are as follows: † An increase of $4,673,000 in unapplied labor primarily due to the impact of salary increases and a decrease in utilization. In addition, there was an increase of approximately $2,000,000 for new staff required on increased work volume in the Middle East for Project Management and in the United Kingdom for Construction Claims and an increase of approximately $1,200,000 for new staff hired in the Middle East for Construction Claims in anticipation of expanded work which started later in the quarter than anticipated. Unapplied labor also increased by approximately $500,000 due to the acquisitions of BCA and CPI; † An increase of $2,682,000 in indirect labor including $2,200,000 in both the international Project Management and Construction Claims operations due to salary increases and increased staff in support of the growth in CFR; † An increase of $650,000 in administrative travel in support of expanded international operations.

Operating Profit: 2014 2013 Change (dollars in thousands) % of % of CFR CFR Project Management $ 10,943 10.8 % $ 12,356 13.0 % $ (1,413 ) (11.4 )% Construction Claims 2,618 7.4 2,439 8.9 179 7.3 Corporate (7,561 ) - (7,396 ) - (165 ) 2.2 Total $ 6,000 4.4 % $ 7,399 6.0 % $ (1,399 ) (18.9 )% The decrease in Project Management operating profit included a decrease in Brazil, partially offset by increases in the Middle East primarily Oman, Qatar and Iraq.

The increase in Construction Claims operating profit was primarily due to increases in the United Kingdom, Europe, Asia/Pacific and South Africa, partially offset by a decrease in the Middle East.

Corporate expenses were held to an increase of $165,000 which was primarily due to salary increases and information technology costs in support of growing operations overseas.

Interest and Related Financing Fees, net Net interest and related financing fees decreased $411,000 to $5,076,000 in the first quarter of 2014 as compared with $5,487,000 in the first quarter of 2013, primarily due to lower rates under the Credit Agreement as a result of an improved 24 -------------------------------------------------------------------------------- Table of Contents leverage ratio. Also, interest expense for the first quarter of 2014 included a non-cash charge of $2,086,000 compared to $1,889,000 for the first quarter of 2013 attributable to the accretion on the Term Loan.

Income Taxes For the three-month periods ended March 31, 2014 and 2013, the Company recognized income tax expense of $631,000 and $1,874,000, respectively. The income tax expense in both periods was related to the pre-tax income generated from foreign operations without recognizing an income tax benefit related to the U.S. net operating loss which management believes the Company will not be able to utilize.

The effective income tax rates for the three-month periods ended March 31, 2014 and 2013 were 68.3% and 98.0%, respectively. The decrease in the Company's effective tax rate in 2014 was primarily a result of an increase in projected income and the mix of income among various foreign tax jurisdictions.

Net Earnings Attributable to Hill The net earnings attributable to Hill International, Inc. for the quarter ended March 31, 2014 were $53,000, or $0.00 per diluted common share based on 40,602,000 diluted common shares outstanding, as compared to a net loss in the first quarter of 2013 of ($380,000), or ($0.01) per diluted common share based upon 38,664,000 diluted common shares outstanding. The primary reasons for the change are due to increases in SG&A expenses offset by increases in gross profit.

Liquidity and Capital Resources As a result of the worldwide financial situation in recent years as well as the political unrest in Libya, we have had to rely more heavily on borrowings under our various credit facilities to provide funding for our operations. On May 23, 2013, the Company entered into a Fourth Amendment to our Credit Agreement which permitted the Company to enter into an agreement with Qatar National Bank for the issuance of letters of credit ("LCs") not to exceed $17,000,000, increased the limit on LCs available to the Company's foreign subsidiaries who are not loan parties from $4,000,000 to $11,800,000 and permits the Company to provide up to $20,000,000 as cash collateral for letters of credit and performance bonds. On the same day in May 2013, the Company entered into a First Amendment to the Term Loan Agreement. The First Amendment contains identical provisions as those in the Fourth Amendment to our Credit Agreement. See Note 7 to our consolidated financial statements for a description of our credit facilities and Term Loan. At March 31, 2014, our primary sources of liquidity consisted of $29,780,000 of cash and cash equivalents, of which $1,382,000 was on deposit in the U.S. and $28,398,000 was on deposit in foreign locations, and $8,612,000 of available borrowing capacity under our various credit facilities. Approximately $14,000,000 of the cash on deposit in foreign locations is required for working capital needs in those countries and the currency limitations related to Libyan dinars. We believe that we have sufficient liquidity to support the reasonably anticipated cash needs of our operations over the next twelve months. However, our ability to borrow additional funds or obtain letters of credit is limited by the terms of our current Credit Agreement. Also, significant unforeseen events, such as termination or cancellation of major contracts, could adversely affect our liquidity and results of operations. We are actively pursuing alternative sources of financing in our efforts to replace our Credit Agreement, which expires on March 31, 2015, as well as our Term Loan.

Uncertainties With Respect to Operations in Libya We have open but inactive contracts in Libya. Due to the political unrest which commenced in February 2011, we suspended our operations in and demobilized substantially all of our personnel from Libya.

During the latter part of 2013, the Company's accounts receivable related to the work performed prior to March 2011 pursuant to contracts with the Libyan government was reduced by approximately $3,100,000 which included a payment of approximately 3,000,000 Libyan dinars ("LYD"). During 2014, the Company received additional payments of approximately $6,800,000 consisting of approximately 200,000 pounds sterling ($300,000), approximately LYD 25 -------------------------------------------------------------------------------- Table of Contents 2,100,000 ($1,700,000) and $4,800,000 in U.S. dollars. At March 31, 2014, the remaining accounts receivable outstanding amounted to approximately $50,000,000.

The LYD cash payments are not freely convertible into other currencies. As a result, this cash remains in Hill's Libyan bank account. Since the end of the Libyan civil unrest in October 2011, the Company has sought to recover its receivable from ODAC through ongoing negotiations rather than pursue its legal rights for payment under the contracts. The Company continues to believe that this course of action provides the best likelihood for recovery as it could result in completion of and payment on the existing contracts as well as the potential for the award of new contracts. There is at present no formal agreement, understanding or timetable for further payments of Hill's accounts receivable from ODAC or a return to work on Hill's existing contracts.

Management believes that the recent payments made in 2013 and 2014, along with letters of credit of approximately $14,000,000 posted in our favor by ODAC, were made in good faith and are a positive indication that ODAC intends to satisfy its obligations to Hill. However, the Company cannot predict with certainty when, or if, the remaining accounts receivable will be paid by the Libyan authorities or when work will resume there. In the event that we do not realize any further payments, there could be a significant adverse impact on our consolidated results of operations and consolidated financial position.

Additional Capital Requirements Our subsidiary, Hill International (Spain), S.A. ("Hill Spain"), acquired an indirect 60% interest in Engineering S.A. ("ESA"), a firm located in Brazil.

ESA's shareholders entered into an agreement whereby the minority shareholders have a right to compel ("ESA Put Option") Hill Spain to purchase any or all of their shares during the period from February 28, 2014 to February 28, 2021.

Hill Spain also has the right to compel ("ESA Call Option") the minority shareholders to sell any or all of their shares during the same time period.

The purchase price for such shares shall be seven times the earnings before interest and taxes for ESA's most recently ended fiscal year, net of any financial debt plus excess cash multiplied by a percentage which the shares to be purchased bear to the total number of shares outstanding at the time of purchase, but in the event the ESA Call Option is exercised by Hill Spain, the purchase price shall be increased by five percent. The ESA Put Option and the ESA Call Option must be made within three months after the audited financial statements of ESA have been completed. In April 2014, two of the minority shareholders exercised their ESA Put Option whereby Hill Spain will pay approximately 7,838,000 Brazilian Reais (approximately $3,509,000). After the transaction is completed, Hill Spain will own approximately 72% of ESA.

Sources of Additional Capital We have an effective registration statement on Form S-3 on file with the U.S.

Securities and Exchange Commission (the "SEC") to register 20,000,000 shares of our common stock for issuance and sale by us at various times in the future. The proceeds, if any, will be used for working capital and general corporate purposes, subject to the restrictions of our amended Credit Agreement and our amended Term Loan. We cannot predict the amount of proceeds from those future sales, if any, or whether there will be a market for our common stock at the time of any such offering or offerings to the public.

In addition, we have an effective registration statement on Form S-4 on file with the SEC to register 8,000,000 shares of our common stock for use in future acquisitions. To date, we issued 1,561,077 shares in connection with our acquisitions of BCA and CPI. We will issue additional shares of our common stock in connection with certain additional consideration and contingent consideration for those two acquisitions. However, we cannot predict whether, in the future, we will offer these shares to potential sellers of businesses or assets we might consider acquiring or whether these shares will be acceptable as consideration by any potential sellers.

We cannot provide any assurance that any other sources of financing will be available, or if available, that the financing will be on terms acceptable to us.

26 -------------------------------------------------------------------------------- Table of Contents Cash Flow Activity During the Three Months Ended March 31, 2014 For the three months ended March 31, 2014, our cash and cash equivalents decreased by $601,000 to $29,780,000. Cash used in operations was $4,499,000, cash used in investing activities was $1,352,000 and cash provided by financing activities was $4,106,000. We also experienced an increase in cash of $1,144,000 from the effect of foreign currency exchange rate fluctuations.

Operating Activities Our operations used cash of $4,499,000 for the three months ended March 31, 2014. This compares to cash used in operating activities of $7,867,000 for the three months ended March 31, 2013. We had consolidated net earnings in the three months ended March 31, 2014 amounting to $293,000 compared to a net earnings of $38,000 in the three months ended March 31, 2013. Depreciation and amortization was $2,427,000 in 2014 compared to $2,539,000 in the first three months ended March 31, 2013; the decrease in this category is due to the full amortization of the shorter-lived intangible assets of companies which we acquired over the last several years.

Cash held in restricted accounts as collateral for the issuance of performance and advance payment bonds and letters of credit at March 31, 2014 and December 31, 2013 were $18,132,000 and $18,506,000, respectively.

Average days sales outstanding ("DSO") at March 31, 2014 was 119 days compared to 131 days at March 31, 2013. DSO is a measure of our ability to collect our accounts receivable and is calculated by dividing the total of the period-end gross accounts receivable balance by average daily revenue (i.e., in this case, revenue for the quarter divided by 90 days). The decrease in DSO in the first quarter of 2014 was caused by the increases in our revenue outpacing the growth in our accounts receivable. The overall level of DSO continues to be affected by the receivable due from the Libyan Organization for the Development of Administrative Centers ("ODAC") which is approximately $50,000,000 at March 31, 2014. This situation has had a detrimental effect on our operating cash flows over the last two years, and we have had to rely on borrowings under our Credit Agreement and Term Loan to support our operations. Excluding the ODAC receivable, the DSO would have been 89 days at March 31, 2014 and 95 days at March 31, 2013. Also, the age of our receivables is adversely affected by the timing of payments from our clients in Europe, Africa (other than Libya) and the Middle East, which have historically been slower than payments from clients in other geographic regions of the Company's operations.

Although we continually monitor our accounts receivable, we manage our operating cash flows by managing the working capital accounts in total, rather than by individual elements. The primary elements of our working capital are accounts receivable, prepaid and other current assets, accounts payable and deferred revenue. Accounts receivable consist of billing to our clients for our consulting fees and other job-related costs. Prepaid expenses and other current assets consist of prepayments for various selling, general and administrative costs, such as insurance, rent, maintenance, etc. Accounts payable consist of obligations to third parties relating primarily to costs incurred for specific engagements, including pass-through costs such as subcontractor costs. Deferred revenue consists of payments received from clients in advance of work performed.

From year to year, the components of our working capital accounts may reflect significant changes. The changes are due primarily to the timing of cash receipts and payments within our working capital accounts combined with increases in our receivables and payables relative to the increase in our overall business, as well as our acquisition activity.

Investing Activities Net cash used in investing activities was $1,352,000 which was used to purchase computers, office equipment, furniture and fixtures.

27 -------------------------------------------------------------------------------- Table of Contents Financing Activities Net cash provided by financing activities was $4,106,000. We received $4,800,000 from borrowings under our various credit facilities. We also received $172,000 from purchases under our Employee Stock Purchase Plan and the exercise of stock options. Due to banks decreased $2,000 as amounts paid were finally funded by the banks. Payments on notes payable amounted to $864,000.

Recent Accounting Pronouncements In February 2013, the FASB issued ASU No. 2013-04 which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and requires retrospective application. Early adoption is permitted. Currently, the Company has no such arrangements. Effective January 1, 2014, the Company adopted the ASU which had no effect on the Company's results of operations, financial condition or liquidity.

In March 2013, the FASB issued ASU No. 2013-05 which resolves the diversity in practice about whether Subtopic 810-10, Consolidation-Overall, or Subtopic 830-30, Foreign Currency Matters-Translation of Financial Statements, applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. In addition, this ASU resolves the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 and is to be applied prospectively. Effective January 1, 2014, the Company adopted the ASU which had no effect on the Company's results of operations, financial condition or liquidity.

28 -------------------------------------------------------------------------------- Table of Contents Quarterly Fluctuations Our operating results vary from period to period as a result of the timing of projects and assignments. We do not believe that our business is seasonal.

Inflation Although we are subject to fluctuations in the local currencies of the countries in which we operate, we do not believe that inflation will have a significant effect on our results of operations or our financial position.

Backlog We believe a strong indicator of our future performance is our backlog of uncompleted projects under contract or awarded. Our backlog represents management's estimate of the amount of contracts and awards in hand that we expect to result in future consulting fee revenue. Project Management backlog is evaluated by management, on a project-by-project basis, and is reported for each period shown based upon the binding nature of the underlying contract, commitment or letter of intent, and other factors, including the economic, financial and regulatory viability of the project and the likelihood of the contract being extended, renewed or cancelled. Construction Claims backlog is based largely on management's estimates of future revenue based on known construction claims assignments and historical results for new work. Because a significant number of construction claims may be awarded and completed within the same period, our actual construction claims revenue has historically exceeded backlog by a significant amount.

Our backlog is important to us in anticipating and planning for our operational needs. Backlog is not a measure defined in U.S. generally accepted accounting principles, and our methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog.

At March 31, 2014, our backlog was approximately $978,000,000 compared to approximately $1,027,000,000 at December 31, 2013. At March 31, 2014, backlog attributable to future work in Libya amounted to approximately $44,000,000. We estimate that approximately $400,000,000, or 40.9% of the backlog at March 31, 2014, will be recognized during the twelve months subsequent to March 31, 2014.

Although backlog reflects business that we consider to be firm, cancellations or scope adjustments may occur. Further, substantially all of our contracts with our clients may be terminated at will, in which case the client would only be obligated to us for services provided through the termination date.

Historically, the impact of terminations and modifications on our realization of revenue from our backlog has not been significant, however, there can be no assurance that such changes will not be significant in the future. Furthermore, reductions of our backlog as a result of contract terminations and modifications may be offset by additions to the backlog.

We adjust backlog to reflect project cancellations, deferrals and revisions in scope and cost (both upward and downward) known at the reporting date. Future contract modifications or cancellations, however, may increase or reduce backlog and future revenue.

29 -------------------------------------------------------------------------------- Table of Contents Total Backlog 12-Month Backlog (dollars in thousands) As of March 31, 2014: Project Management $ 934,000 95.5 % $ 356,000 89.0 % Construction Claims 44,000 4.5 44,000 11.0 Total $ 978,000 100.0 % $ 400,000 100.0 % As of December 31, 2013: Project Management $ 984,000 95.8 % $ 351,000 89.1 % Construction Claims 43,000 4.2 43,000 10.9 Total $ 1,027,000 100.0 % $ 394,000 100.0 %

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