Hill International Inc (HIL) 2010 Q4 法說會逐字稿

Greetings and welcome to the Hill International fourth quarter and full year 2010 financial results conference call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. (Operator Instructions)It is now my pleasure to introduce your host Devin Sullivan of the Equity Group. Thank you, Mr. Sullivan. You may begin.

Thank you, Diego, and thank you, everyone. Good morning. Thank you for joining us today. Our speakers on this morning's call will be David Richter, President and Chief Operating Officer of Hill International and John Fanelli, Senior Vice President and Chief Financial Officer.

Before we begin I would like to remind everyone that certain statements made during this call may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and it is our intent that any such statements be protected by the Safe Harbor created thereby. Except for historical information the matters set forth herein including but not limited to any projections of earnings or other financial items, any statements concerning plans, strategies and objectives for future operations, and any statements regarding future economic conditions or performance are forward-looking statements. These forward-looking statements are based on current expectations, estimates and assumptions and are subject to certain risks and uncertainties. Although we believe that the expectations, estimates and assumptions reflected in forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any forward-looking statements.

Important factors that could cause actual results, performance and achievements or industry results to differ materially from estimates or projections contained in the forward-looking statements include modifications and termination of client contracts, control and operational issues pertaining to business activities that we conduct on our own behalf or pursuant to joint ventures with other parties, difficulties we may incur in implementing our acquisition strategy, the need to retain and recruit key technical and management personnel, and unexpected adjustments and cancellations related to our backlog. Additional factors that could cause actual results to differ materially from forward-looking statements are set forth in the reports filed with the Securities and Exchange Commission. We do not intend and undertake no obligation to update any forward-looking statement. With that said, I'd now like to turn the call over to David Richter, President and Chief Operating Officer of Hill. Please go ahead, David.

Thank you, Devin, and good morning to everyone joining us for our quarterly earnings conference call.

Yesterday we announced our financial results for the fourth quarter and full year of 2010. First we will review the results in detail relative to our year-over-year quarterly performance, meaning fourth quarter 2010 versus fourth quarter 2009. Then we will look a little more closely in our sequential performance, meaning fourth quarter of 2010 versus the third quarter of 2010, which is what we focus on more closely internally, to see how our business has changed over the past 90 days.

For the fourth quarter of 2010, Hill's total revenue grew to a record $128.1 million, a 16% increase from the fourth quarter of 2009. Consulting fee revenue for the fourth quarter was also record at $101.2 million, up 8% from last year's quarter. And the first time in our history we broke $100 million in consulting fees in a quarter. This was due to 2% organic decline, offset by 10% growth from acquisitions. Operating profit for the fourth quarter of 2010 was $5.3 million, a decline of 29% from the fourth quarter of 2009. Our operating margin as a percentage of consulting fee revenue was 5.3%, down from 8.0% in last year's fourth quarter, which was primarily a result of the completion of our work on Iraq Reconstruction Program.

Our overall SG&A as a percentage of CFR was significantly higher in the fourth quarter at 41.6% versus 36.8% for the year earlier quarter. This was primarily driven by the five acquisitions that we made since the fourth quarter of 2009 with Hill having to add both the SG&A of those five companies as well as higher amortization expense and the due diligence and closing costs of those deals as well. We know this percentage is high, and we intend to be aggressive this year in working to lower our SG&A as a percentage of CFR. Our consulting fees for the fourth quarter were 3.8 -- I'm sorry, our net earnings for the fourth quarter were $3.8 million or $0.10 a share or diluted share based on 38.9 million diluted shares outstanding. This is down 17% from a year earlier.

Looking at our financial performance sequentially, meaning versus the third quarter, paints a clear picture of where our business is heading in the short term from the figures I just gave you for year-over-year performance. From the third quarter to the fourth quarter Hill's total revenues were up 15% and our consulting fees were up 4%. Our gross profit was up 8% sequentially and even more importantly, as a percentage of consulting fee revenue, increased 210 basis points from 44.9% in the third quarter to 46.8% in the fourth quarter. SG&A expenses as a percentage of consulting fees, however, were up by 290 basis points sequentially from 38.7% in the third quarter to 41.6% in the fourth quarter. As a result of the above, our operating profit was down 15% sequentially. As a result of that, plus an effective tax rate in the fourth quarter of 17% versus 0% in the third quarter, our net earnings were down by even more, by 26%.

Now, let me take a look at the sequential performance of our two operating segments separately. Total revenues for the Project Management Group in the fourth quarter were $102 million, an increase of 19% compared to the third quarter. Consulting fees for the Projects Group were $76.0 million in the fourth quarter, an increase of 4% sequentially. Higher gross margin by 230 basis points combined with a 200 basis point increase in our SG&A expenses resulted in an increase in operating profit of 4% to $11.2 million for the Projects Group. Operating margin for the group dropped slightly to 14.7% in the fourth quarter from 14.8% in the third. Profit-wise we think this was a solid quarter, but slightly lower than our historical range of 15% to 20% operating margin for the group, so we know we have room for continued improvement.

For our Construction Claims Group in the fourth quarter, total revenue was $26.1 million, a 2% increase from the third quarter. Consulting fee revenue in the fourth quarter for the Claims Group of $25.2 million, a 3% increase sequentially. Gross margin was up 70 basis points, but SG&A expenses were up 330 basis points. As a result, operating profit was down 24% to $1.8 million for the quarter. Operating margin for the Claims Group was down as well to 7.3% of consulting fees from 9.9% of consulting fees in the third quarter. This is well below our historical range of 10% to 15% operating margin for the Claims Group, so improving profitability for the group will be one of our biggest goals in 2011.

With respect to our backlog, Hill had a very strong quarter. Our total backlog at the end of 2010 rose to a record $675 million, up from $599 million at the end of the third quarter. 12 month backlog at the end of the year was $275 million, up from $255 million at the end of the third quarter. Our increase in total backlog was driven in part by the acquisition of TCM Group in November, which added $31 million to our backlog. Aside from that acquisition, Hill had net bookings for the quarter of $146 million, the best sales quarter in the Company's history by far.

Major new contracts that we publicly announced since the last earnings conference call include the following - a $17 million extension of our contract with Southern California Edison, a $17 million contract for the Happy Land Theme Park in Vietnam, a $5 million contract to manage the National Gateway initiative, the CSX railroad, $4 million contract to manage the new National Cancer Institute in Egypt, a $4 million contract for the new Vigo Hospital in Spain, a $4 million contract from the US Federal Transit Administration to oversee stimulus spending on transit projects nationally, a $3 million to $5 million contract for Caltrans, the California State Department of Transportation, to oversee projects in the Bay Area, a $3 million contract to act as developer and project manager for the new Andaz Resort in Hawaii, a $2 million contract to manage the Sand Canyon Avenue project in Orange County, California, a contract to manage construction of a new 32-story operating center in Mexico City from BBVA Bancomer, the largest bank in Mexico, and a contract to manage the $80 million expansion of Tucson Medical Center, as well as a contract just announced this morning, a $2 million contract to manage the construction of Zlota 44, which upon completion will be the tallest skyscraper in Poland.

Our strong and growing backlog positions us very well heading into 2011 as the economy continues to recover and more and more projects are moving forward globally. With reference to our stock repurchase program, we did not purchase any shares in the fourth quarter under that program. However, yesterday our board proved an increase in the program from $40 million to $60 million and extended the program until December 31st, 2012. We expect that we will continue to acquire our shares of our common stock in the future when we see an imbalance in the trading price from what we think our Company is worth.

With respect to the current situation in Libya, we have demobilized, over the past 10 days or so, almost all of our ex-patriot employees and their families from Libya until the current crisis has stabilized. We have no more idea than you do how long that will last, but we expect that once it is resolved that the country will return to normal as Egypt did last month and that we will be able to remobilize our employees and get back to work on existing projects.

In the short term, however, we've lost a big source of revenue and profitability. Our work in Libya has been averaging until it stopped about $6 million a month in consulting fee revenue. At the almost exact same time we were demobilizing 200 employees in Libya we added nearly 400 employees in Brazil. Last week, we closed on our acquisition of Engineering SA, one of the largest Project Management firms in Brazil. In addition to work we've recently won on big projects in Mexico and Panama, this acquisition makes us a much stronger competitor throughout Latin America. We'll expect to see major growth in the years ahead. This acquisition also helps to continue to diversify our operations geographically, which given the recent events in North Africa, we believe is an important strategic goal.

With that, John Fanelli, our CFO, and I are happy to answer any questions you may have.

Thank you, sir. We will now conduct the Q & A session. (Operator Instructions) Our first question comes from Arnie Ursaner from CJS Securities. Please state your question.

Good morning. I want to focus on your accounts receivable. It was $181 million at year-end. Can you disclose or discuss what percentage of that is related to Libya and perhaps give us any sense of if you have received any cash payments subsequent to that.

Yes, let me give you a little background. The receivable, which is about a third of that number, $60 million, is high because, simply we were doing a lot of work in the country. But in April of last year the government went through an anti-corruption program and set up a commission called Arcaba to review all foreign contractors, their contracts, how they were procured, the work they were doing, and how they were invoicing, and the amount of those invoices.

That was for us about a six month process which we completed in late November, early December. Arcaba found no issue with any of our invoices and put us back on track to be paid, but over that time we had accrued a significant amount of receivables, as I just said, $60 million worth. We continue to do work in the country. In December and January we collected between $15 million and $20 million but also continued to add to it with our continued billings. It stands right now at about $60 million, given the work that we've done through about February 22nd I think was when we stopped billing and demobilized. We don't have any knowledge that those invoices won't be paid. We expect that they will. The most likely result from our perspective in Libya is a change of the leadership but not a change of government. The projects that we're working on which are almost entirely college and university programs nationally, we expect will continue to move forward under any new government and they'll want to us get back to work.

Of the $69 million you have, can you give us any sense of the maturity of those, how many of those are greater than, let's say, 180 days outstanding at this point?

It was 60, 6-0. My guess is probably over 90 days probably $40 million to $45 million worth, as they relate back to the first -- to the second quarter of 2010.

Okay. David, my second question relates to you obviously highlighted sequential trends and, very simplistically, sequential revenue changed by $3.8 million, sequential SG&A changed by $4.3 million, and if you X out one-times, actually grew by $5.2 million. You gave us the numbers, but I don't think you really gave us a whole lot of the explanation as to what is causing SG&A to be out of hand, and maybe you could fill in some details about some of the line items you did highlight like amortization ordeal expenses. I think if you can give us a little more color around what's causing SG&A to grow even faster than actual revenues, it would be useful.

Yes. First of all, let me address something you said. SG&A expenses are not out of hand. We closed five acquisitions over the last five quarters. We picked up not only the overhead, the unapplied labor, the amortization from those acquisitions. We picked up due diligence of closing costs, particularly in fourth quarter when we were signing a contract with Engineering SA. We had significant expenses for -- there's some banking fees, accounting fees, legal fees in that country. Typically smaller deals in the US we'll do internally, but that deal obviously was not small or domestic or simple, and we incurred some significant fees, I think close to $0.5 million just for that one deal in the fourth quarter. Probably about 55% or so of the increase in SG&A from the fourth quarter of '09 to the fourth quarter of 2010 was acquisition-related.

When you say acquisition-related, are you talking about deal expenses other than the $500,000 amortization expense? Could you give some more detail around it?

Yes.All of those things. Let me pull some numbers. We had a $7.7 million increase from the fourth quarter of '09 to the fourth quarter of 2010.

Okay.

$2.2 million of that was increases in unapplied labor from the companies we acquired. About $0.5 million was indirect labor from the companies we acquired. We saw a $400,000 increase in acquisition-related expenses, a $400,000 increase in rent from the companies we acquired, and an $800,000 increase in amortization costs quarter-over-quarter.

Okay. I'll jump back in queue. Thank you.

Thanks, Arnie.

Next we have David Gold with Sidoti & Company. Please state your question.

Hey, good morning.

Good morning, David.

Just following up actually on Arnie's question on G&A,because presumably that's where, even though, granted, you've done some acquisitions, where some of us were surprised a little bit. Can you give a little bit of color on where and what adjustments or cutting you might be able to do there? In other words, should we expect headway there throughout the year as you rationalize some of these costs or is this sort of where it is?

No. We expect to be pretty aggressive this year in managing our SG&A costs. Obviously some of these things like amortization, when you're talking about consulting firms that have typically a very low net worth, you're putting into intangibles almost the entire purchase price. You know, those eventually go away over time. We're also faced with a situation where the accounting rules changed on us in the last couple years, where a lot of these costs that used to be capitalized now have to be expensed currently. And we had been and will expect to continue to be very aggressive in growing the Company by acquisition, but certainly areas where we can cut overhead of acquired businesses, we're going to. Typically there aren't too many opportunities. As you and I have talked about before, the big value-add in doing acquisitions for us is driving top-line growth, not because we can buy somebody and slash their overhead by 10% or 20%. That typically isn't a big cost savings, but there is some rationalization that we can do over time.

Can you give, and it may be hard, some insight either by way of dollar or by way of percentage of revenue, how we should think about that. I mean, presumably with this, either by dollar value or by percentage of revenue be a high point for the next 12 months? Or, you know, is it possible? Can you give us just some color around it?

Yes.I'd be -- it's difficult to do that given the situation in Libya right now, which is going to certainly have a major negative impact on us in the first quarter, but 41.6% SG&A is way too high and we know that needs to come down. I don't want to give -- and I know John doesn't want to give a target for this year the way we did in the last two years, a range of SG&A expenses. But the prior range that we gave is where we'd like to see the number, not in the 40s.

Got you. Okay. And then can you also just give us a little bit of an update, obviously Libya is still a wild card, but a little bit of an update on where you are with Egypt?

Yes. I'd be happy to. Egypt is relatively a straightforward situation. We had demobilized about 20 of our staff out of about 80 total in the country. The 20 that were ex-pats. We had a much higher local employee percentage in Egypt than we do in Libya, where almost probably 80% of our employees, maybe 90% are ex-pats. We demobilized them for about 10 days. When the situation stabilized, our clients were clamoring for them to get back to work and for to us get back on the projects we were managing. We remobilized them, and we had a relatively negligible impact in the first quarter, so far from the situation in Egypt. At this point we have no reason to think that Libya is going to be any different. It's certainly a lot more violent, but, you know, what we've been hearing is that there's going to be a resolution likely within the next couple weeks.

Got you. Perfect. Oh, and then one just tiny quick one - tax rate, any thoughts on for modeling purposes? Well, I'll let John answer.

Anywhere between 15% and 20% at this point. And again, we have to reevaluate based on the Libya situation and any other economic conditions around the world.

Okay. Thank you both.

Thank you, David.

Our next question comes from Bill Sutherland of Boenning & Scattergood. Please state your question.

Thanks. Thanks for taking the question, guys. David, a little color on the Claims Management business, if you would, such things as pricing or demand?

Yes, Bill. We don't see too much change in pricing. If anything, we've been trying to drive pricing higher in the Claims Group. I think that a lot of our competition we see are having some challenging times. We fortunately haven't. That business continues to grow. We've got some more difficult spots around the world, certainly right now for us in the UK because of the construction market over there. Fewer projects means fewer claims. Elsewhere we see the Claims business being pretty strong.

On the reimbursement expenses that jumped up, can you give us color on that and whether that's continuing likely to happen?

Go ahead, John.

A lot of that has to do with our work in New York where we have a lot of subcontractors, and also in Spain. So again, as that work grows, so will those costs.

So, that's going to be just a higher level for the foreseeable future is what you're saying, John?

Yes.

Okay. And then on the excellent gross margin performance, particularly in Project Management, David, in the quarter. Could you give us a little color as to how it happened, and again sustainability?

We think it's sustainable. We were glad to see it increase. We certainly had, with Iraq winding down, a contract that was highly profitable for us, but fortunately it was replaced with acquisitions that typically I think in almost every case had higher gross margins than Hill typically does. So, that was very positive, it had an upward impact on our gross margin across the Projects Group.

Okay. And then last, any update on I forget the name of the venture, but the prefab housing venture that you're participating in?

Yes. We have a nation development arm, four separate companies there involved in providing development services. Hillstone is one of those companies, and Hillstone, just to give a little background to everybody else. Hillstone's business is basically to be a reseller of a patented housing structural system in bulk to large developers and governments primarily in third-world countries looking to put a lot of low income but yet highly durable housing in place for their people very quickly. We think we -- Hillstone has a great system for that. They have a lot of irons in the fire. We're probably more optimistic about Hillstone's future now than we have been at any point over the past nine months since the Company was founded. And we think we should have some positive news possibly as early as the second quarter.

Okay. Thanks, guys.

Thank you. Our next question comes from Tim McHugh with William Blair & Company. Please state your question.

Yes. First, can you give us any more details on the acquisition in Brazil in term of purchase price and size?

Let me give you a little bit of background on that. First of all, we bought Engineering SA through our Spanish Company, of which we currently own about 70% of, Gerens Hill. Gerens bought 60% of Engineering SA. So, we'll be consolidating all of their numbers into our income statement and balance sheet. We haven't disclosed the price in the 10-K. We done that?

Yes.

Okay. Then I can give you some detail on it. Total consideration for the acquisition was BRL22.2 million, which is essentially $13.4 million, as of the day of acquisition. That's the price that we paid for 60% of the Company. I'm sorry, that was the 60% up-front payment. We paid 60% at closing. We'll pay 20% after one year and 20% after two years. Of the 60%. You follow?

Yes.

Okay. So, essentially 36% of the Company was paid for at closing. What's that? 12% will be paid for after one year, 12% will be paid after two years. And therefore, we'll own 60% of the entire Company. Those payments or about BRL7.4 million or about $4.5 million each of the next two years.

So, will it be consolidated right away or after you make those additional payments?

No. It will be consolidated as of the date of closing, which was February 28th. We picked up almost 400 people, and my guess is about 10%, possibly more, maybe 12% of our revenue going forward will come out of Brazil.

Okay. And then do you know, how did cash flow end up for the year?

Yes, I can give you that information, Tim. For the year, cash flow from operations were down $16 million, primarily from the build up of accounts receivable, primarily from Libya. Our cash flow from investing activities were down it around $18 million, and that was primarily due to the three acquisitions we made in 2010 and capital spending. And our cash flow from financing activities was up $38 million, primarily from our borrowing from our credit facility around $37 million. That's due from the acquisitions and our buyback program, of which we bought back around $9.3 million worth of shares.

Okay. And then with the Libya situation, how do we think about the profits in the near term here? You mentioned it was as a nicely profitable set of contracts. So, I guess you're saying $6 million per month in revenue? And do the costs goes away or do the costs continue in the near term. And if so - I'm running some quick math here - it seems like it will push you up probably to being unprofitable in the near term until -- unless the costs go away.

Yes. Certainly it's going to have a big impact on both our revenue and our profitability in the first quarter. Some of the costs stay as we demobilize people and continue them on our payroll for a short period of time as we get a better sense of how long this is going to last. We will probably be demobilizing permanent -- not permanently but taking off of our staff the people that aren't in the process of going back. We are continuing to pay our Libyan employees who make significantly less than the ex-pats for the time being. One, for their benefit. And two, to make sure that once we get back into Libya, that transition back to generating revenue and working on those projects is as smooth as possible. But certainly the first quarter it's going to have a very negative impact and frankly, we don't know if we're going to make money or lose money in the first quarter.

Okay. Thanks.

Our next question comes from Chase Jacobson with Sterne Agee. Please state your question.

Chase, if you're talking, you're on mute.

Hello?

Go ahead.

Okay. So, on the Brazil question, I'm sorry, on the Brazil acquisition, you said that you purchased it through your Spanish Company which you own 70% of, is that correct?

That's correct, Chase.

Okay. So, just based on what your ownership is going to be of Engineering SA, should we be seeing a pretty meaningful jump in net earnings to non-controlling interest in 2011?

Yes, probably. Given the fact that we have to, even though we'll only, I guess, effectively own 42% of the Company, 70% Company owning 60% of them.

Right.

We have to basically consolidate their entire balance sheet and their entire earnings statement into ours. So, we have to, based on the accounting rules as we've been told, write up the goodwill and other intangibles as if we bought 100% of the Company. So, amortization will be high. Our guess is in the short term that will mostly offset the earnings that we see from the business, net of minority earnings. And so, we don't expect any effect on our earnings from the acquisition in the short term. It should not be accretive. It should be essentially zero impact.

For 2011?

Yes.

Okay. And then when you look at this deal, is the purchase more about gaining exposure there or are there capabilities that you're going to be able to leverage that Hill already has into South America or vice versa?

We see a tremendous number of synergies. First of all, we get access to what we viewed was the best acquisition in the entire country, a country we think over the next decade is going to have a tremendous amount of growth. It's a country of 200 million people. Libya is a country of 6 million people, and over the last two weeks everyone wants to talk about Libya but not Brazil. We see a tremendous upside there. Engineering SA is a very strong and well regarded provider of PM services. Their focus is primarily -- almost exclusively on the private sector. They're doing work for Petrobras, the national oil company. They're doing work for Valley, the biggest mining company in Brazil, one of the biggest mining companies in the world. Yes, we see one of the biggest upsides in Brazil in the short term being infrastructure - transportation, airports, rail, highways, things like that. They don't have a lot of experience, but we do and bringing that experience to bear to help them win more work and drive top line growth.

Okay. And then when you were talking about gross margin, in the fourth quarter you said part of the increase was due to the acquisitions. Is this consistent with that? There would be better margin than the average Hill Project Management margin?

You talking about the gross margin line or the operating margin?

The gross margin line.

I think it's pretty consistent with our business.

Okay. Then just one more question. We haven't really talked much about the US markets. I was just wondering if you could update us on what you're seeing in the US markets. And, you know, one of the things that we've been starting to hear is that there's a potential for somewhat of a pull forward in commercial construction activity given the increased focus on energy efficiency. So, just wondering if you're seeing anything there.

No. We do actually very little commercial work in the United States. We see the US doing very well last year and going forward. Most of the upside that we've seen has been in the transportation market which grew. I think in '09 it was 8% of our business overall. Last year it was 13%, and most of that increase was in the United States. That's been a very good market for us. The president of our Project Management group has a background in transportation, and he's been in large part driving that, but also the acquisitions that we did. TRS, TCM and DCK, to play a little bit of alphabet soup with you, all of their strengths were in the transportation market primarily highway and bridge, which is a market that should continue to do well in the US. We also continue to win work in mass transit and rail, as a strong market for us. Very little of that is related to stimulus spending. It's just ongoing work that needs to be done, and we think that market's going to do well. About 80% of our work in the US is public sector. And the rest that's private sector is typically, you know, mostly Fortune 500 type of clients, Southern California Edison which I mentioned before, Merck, companies like that. And well, certainly the recovering commercial market is good, and hopefully we'll pick up some work in there. It's not a major impact on us in the US.

All right. Thanks a lot.

Thank you. Next we have with Karthik Sankaran with BlackRock. Please state your question.

Hi, good morning, David. I just had a couple of questions. One is, just understand where utilization rates are across different geographies and what the demand environment looks like, just get a bit more detail on that.

Utilization was relatively flat in the fourth quarter versus the third quarter. It didn't have a material impact on our SG&A, or profitability. It typically will bounce around a lot within the Claims Group because of the short term and the nature of that type of work, which is you don't know when it's going to start, you don't know when it's going to finish. And you can have cases settle relatively quickly without any warning. You may have people sitting around with nothing to do for a while. Then all of a sudden you get work and they're right back to being very, very busy. I mentioned the UK before as an area that we see being slow on the claims side and we do almost no Project Management work in the UK. Elsewhere we see utilization holding up pretty well and demand holding up pretty well.

Great. Thank you. And just to follow up as well on Libya, I know you've been asked several questions on Libya, but I'm trying to envision more of a worse case scenario. Assuming you have a prolonged civil war in Libya, and you do have a significant portion of receivables even compared to your equity base. What's the likely situation in that scenario? What do you sort of envision as the financial impact, if you do see a prolonged civil war in Libya and a government that perhaps does not continue with existing projects?

We think it's highly unlikely that we won't get paid for the work that we've done whether it's the Gadhafi government, which hired us, or a new government, which certainly is going to want to continue on the projects that we're managing. You know, we see the government of Libya paying us no matter who is in charge, once things pretty much return to normal. In the event that doesn't happen, we also see the US as well as other governments freezing a lot of overseas assets of Gadhafi government. And we view that as a potential source of recompense in the worst case scenario the government doesn't pay us. While there may be a long list of companies going after that money, I think we would certainly be one of them, and we would recover a significant amount. Of the $60 million that we're owed, the bottom line impact to us would be a lot less than that, probably about half. Because we have subcontractors and other expenses in Libya that get paid from that money, which we wouldn't pay in the event we weren't paid, and then the net effect would be tax affected. So, you're talking about probably about a $30 million impact to our bottom line and our balance sheet, in the absolute worse case scenario, which we don't foresee.

Thank you. That's very clear. And just a final follow-up question, I believe at the time at which Libya conducted these corruption investigations, there were a large number of international contractors that were enrolled. To your knowledge, how have other firms responded to the situation in Libya and are they sort of -- how have they been sort of pursuing that side of the claims?

I'm not really directly aware. I know I've seen a lot of press releases from AECOM, who do a large amount of work in Libya, as did we, and they demobilized all of their ex-pat staff. And I believe they're in the same accounts receivable situation as we are, at least as far as I know. And I think everyone is waiting for the situation to resolve itself. And I'm sure they, like every other firm that has work in Libya, as do we, want a quick resolution and get back to work and get paid.

Great. Thank you. Very clear.

Thank you.

Thank you. Our next question comes from Joseph Foresi with Janney Montgomery Scott. Please state your question.

Hi. Thanks for taking my question. This is Jeff Rossetti in for Joe. Just real quick, I think, David, I think you addressed this, but the 2% organic year-over-year decrease, that's pretty much due to weakness in construction claims in the UK. Would that be correct?

No. I'd say it's more likely a much bigger impact from the work in Iraq winding down, which it did at the end of the third quarter.

I see. And as far as just any way to quantify in term of your backlog what the portion from Libya might be?

Yes. The total number that was in our year-end backlog that was related to Libya is $60 million.

Okay. I see. Okay. Thank you. That's all I had. Thanks.

Thank you, Jeff.

Thank you. (Operator Instructions) Our next question come from Mark Braha. Please go ahead with your question.

Good morning. How are you, David?

Good morning, Mark.

I know the Libya issue has been kind of beat to death, but other than Egypt and Libya, are there any other significant open contracts in the Middle East hot spots that might be of concern to the Company?

No. There really aren't. There was some protests in Bahrain, where we have some work. The bulk of our work over in the Middle East is principally in three places, Saudi Arabia, Abu Dhabi, and Qatar, and we haven't seen any issues in those countries. Saudi in fact has been a big source of work for us over the last year. We expect it to continue to be. We've got some big opportunities in Saudi Arabia that we're pursuing, and we don't see, at least at the current moment, the unrest spreading beyond North Africa.

A follow-up, is it possible or do you feel that the human resources can be repositioned to other regions, i.e, with South America where there is some potential growth, to be productive and offset your expenses during any potential down time?

Yes. That's certainly a possibility. It really depends on the people. Our experience has been, it's tough to move somebody from the Middle East to Brazil. Certainly a lot of the ex-pats that were working there weren't necessarily Americans or even Europeans. They were from all over the world and, you know, if they're willing to go to Libya, they're probably willing to go just about anywhere. So, when we demobilize from any project, whether it's because of this situation or because just a project ends, our first course of action is always to look for openings elsewhere in the Company where we can put those people rather than lay them off and hire somebody new.

Well, I was thinking more along the lines of trying to offset some fixed labor expense.

I would say, in that part of the world, the area where we're most looking to add people is probably Saudi Arabia first and Qatar second.

All right. Other than the Middle East conflict, if that was not in the picture, would you be in a much more optimistic position than we are today?

Yes, absolutely. I get asked a lot by investors or by anybody asking what keeps me up at night, and frankly it's the positive things. We have so many things working here. Hillstone is one we talked about before, as well as the other development ventures. We're looking at a new opportunity that we haven't announced yet but we will soon regarding I think a very positive development for us in the Middle East. We're at record backlog, record revenues, record consulting fees in the fourth quarter. We see certainly having survived the last two and a half years of a pretty bad economy having grown through that, we've had some issues regarding our profitability and our expenses, but we continue to, basically every part of the business, continue to try to drive growth. You know, we view this Company as a growth engine. And I think in times like this even more so. It's important for us to invest in acquisitions, in salespeople, in new ventures to continue to drive their revenue of this Company higher. This is an industry where the clients want the largest consultants, they have lots of resources, lots of experience. They don't ever want to be second guessed by anybody because they picked the small boutique firm. And we've seen as we've gotten bigger it's opened up more and more opportunities to us. And we have and will continue to focus on driving the top line while at the same time keeping a cautious eye on our expenses and our SG&A. And frankly, I would tell you right now that the management team here is as optimistic with or without Libya as we have been in the entire history of the Company.

Great, great. Thank you so much.

Thank you. Next we have Arnie Ursaner with CJS Securities. Please state your question.

Hi. Couple of follow-up questions. You gave us the Q4 -- you gave us the Libyan backlog in your current backlog. What was the Q4 revenue out of Libya?

It was in line with what I said before, about $6 million a month. It was a little more than $18 million of consulting fees in the fourth quarter.

Okay. David, I think you gave me a heads up you'd spent about $2 million on SG&A developing Hillstone during the year. What was the Q4 level of expense for Hillstone and the other real estate-related ventures perhaps?

John, you have those numbers off the top of your head?

On Hillstone it's running around $150,000 a month.

So, about $0.5 million a quarter, and I'd say the other three combined are probably about the same.

Okay. So, focusing on corporate expense, you mentioned a lot of items that impacted your SG&A, but the one you didn't mention was perhaps any catch-up or bonus compensation. So, how should we think about a sequential change in either overhead, you know, corporate dollars of expense or corporate expense in general. If you could give us a better feel, sequentially how that trended?

Yes. We've done a better job I think lately than we did in the first couple years we were public in accruing for bonus payments for our employees. As we've gotten bigger, those amounts have increased. In the fourth quarter, however, we still took on about $0.5 million of additional accrual for bonuses we hadn't otherwise accrued for in the first three quarters.

Okay. I was a little surprised by the negative leverage you had in Claims Consulting. That's been one of the most positive contributors to leverage on the upside on the way up. You had almost an 8% revenue improvement but an operating profit decline of 24%. What caused that mismatch to that magnitude?

They certainly had high amortization. We acquired McLachlan Lister in Australia in the second quarter. I think that drove a lot of the revenue growth. I think we're starting to see the UK struggle on the Claims side. Southeast Asia continues to struggle, and we're continuing to try to grow that operation to profitability. The US, I believe had a solid fourth quarter and, you know, I think that's why. It was really the acquisition driving the revenue growth, while we still have a couple soft spots in the Claims Group that we need to work on.

Okay. Thank you.

Our next question comes from Bill Sutherland with Boenning & Scattergood. Please state your question.

Yes. Just a quick follow-up on a couple of numbers. On the -- for the organic growth in PM if you could give us that and also CM.

Bill, we'll give you a call separately with those numbers.

Okay. That's fine and then amortization -- I'm sorry?

I just said we don't have that at our fingertips right now.

Okay. And then could you break out, John, could you break out amortization? I think it's combined in the release with D&A.

Yes. The total D&A for the year was around $10 million split between depreciation of $4.5 million and amortization of $5.5 million.

Is that a similar split for the fourth quarter?

Yes. Maybe a little more on the amortization side.

And I guess at this point it runs out flat, amortization for the coming year?

Well, in the coming year we're going to have to add in the amortization related to the Brazilian acquisition and GNSA, and then beginning in 2012 you should see some decline in the amortization expense. All this will be in the 10-K, in the footnote.

Okay. And then I was also kind of curious about the makeup of the backlog, but I guess I can wait for the K on that, too.

Okay.

Okay. Thanks, guys.

Thank you, Bill.

Ladies and gentlemen, there are no further questions at this time. I'll turn the conference back to management for closing remarks.

Thank you, everybody. We appreciate your time and attention this morning. We are going to get back to work and try to make as much money for our shareholders as we can. Thank you very much. Take care.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.