xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| Delaware | 20-0953973 | |||
| (State or other jurisdiction of | (I.R.S. Employer | |||
incorporation or organization) | Identification No.) | |||
One Commerce Square | ||
| 2005 Market Street, 17th Floor |
| |
Philadelphia | PA | 19103 |
| (Address of principal executive offices) | (Zip Code) | |
Non-Accelerated Filer personnel. PART I — FINANCIAL INFORMATION September 30, 2016 December 31, 2015 (unaudited) Assets Cash and cash equivalents $ 21,219 $ 24,089 Cash - restricted 3,710 4,435 Accounts receivable, less allowance for doubtful accounts of $72,262 and $63,748 229,892 243,417 Accounts receivable - affiliate 10,870 5,205 Prepaid expenses and other current assets 11,507 10,299 Income taxes receivable 5,035 4,146 Total current assets 282,233 291,591 Property and equipment, net 22,307 23,751 Cash - restricted, net of current portion 1,175 259 Retainage receivable 17,221 2,638 Acquired intangibles, net 11,560 14,659 Goodwill 75,899 74,893 Investments 4,738 8,386 Deferred income tax assets 19,274 19,724 Other assets 5,136 6,662 Total assets $ 439,543 $ 442,563 Liabilities and Stockholders’ Equity Current maturities of notes payable $ 7,316 $ 4,357 Accounts payable and accrued expenses 105,825 112,457 Income taxes payable 5,287 9,064 Deferred revenue 8,697 11,310 Other current liabilities 9,665 5,860 Total current liabilities 136,790 143,048 Notes payable, net of current maturities 146,639 140,626 Retainage payable 870 1,929 Deferred income taxes 16,472 16,341 Deferred revenue 15,254 11,919 Other liabilities 11,084 10,661 Total liabilities 327,109 324,524 Commitments and contingencies Stockholders’ equity: Preferred stock, $.0001 par value; 1,000 shares authorized, none issued — — Common stock, $.0001 par value; 100,000 shares authorized, 58,726 shares and 58,335 shares issued at September 30, 2016 and December 31, 2015, respectively 6 6 Additional paid-in capital 189,049 188,869 Retained earnings (deficit) (2,721 ) 1,205 Accumulated other comprehensive loss (46,662 ) (46,866 ) 139,672 143,214 Less treasury stock of 6,959 shares and 6,743 shares at September 30, 2016 and December 31, 2015, at cost (29,974 ) (29,245 ) Hill International, Inc. share of equity 109,698 113,969 Noncontrolling interests 2,736 4,070 Total equity 112,434 118,039 Total liabilities and stockholders’ equity $ 439,543 $ 442,563 thousands) Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Consulting fee revenue $ 147,993 $ 158,579 $ 457,912 $ 469,458 Reimbursable expenses 19,960 20,356 61,851 61,393 Total revenue 167,953 178,935 519,763 530,851 Cost of services 81,241 89,345 265,052 268,174 Reimbursable expenses 19,960 20,356 61,851 61,393 Total direct expenses 101,201 109,701 326,903 329,567 Gross profit 66,752 69,234 192,860 201,284 Selling, general and administrative expenses 67,247 57,527 179,614 173,101 Share of loss of equity method affiliates 12 14 28 231 Operating profit (507 ) 11,693 13,218 27,952 Interest expense and related financing fees, net 3,368 4,147 10,103 11,252 (Loss) earnings before income tax expense (3,875 ) 7,546 3,115 16,700 Income tax expense 2,880 4,210 6,939 7,980 Net (loss) earnings (6,755 ) 3,336 (3,824 ) 8,720 Less: net earnings — noncontrolling interests 111 388 102 675 Net (loss) earnings attributable to Hill International $ (6,866 ) $ 2,948 $ (3,926 ) $ 8,045 Basic (loss) earnings per common share - Hill International, Inc. $ (0.13 ) $ 0.06 $ (0.08 ) $ 0.16 Basic weighted average common shares outstanding 51,753 51,119 51,704 50,661 Diluted (loss) earnings per common share - Hill International, Inc. $ (0.13 ) $ 0.06 $ (0.08 ) $ 0.16 Diluted weighted average common shares outstanding 51,753 51,803 51,704 51,274 Three Months Ended Nine Months Ended 2016 2015 2016 2015 Net (loss) earnings $ (6,755 ) $ 3,336 $ (3,824 ) $ 8,720 Foreign currency translation adjustment, net of tax (1,638 ) (8,630 ) (1,257 ) (15,910 ) Other, net 79 (78 ) 135 (213 ) Comprehensive loss (8,314 ) (5,372 ) (4,946 ) (7,403 ) Comprehensive earnings (loss) attributable to noncontrolling interests 132 (2,992 ) (1,223 ) (6,728 ) Comprehensive loss attributable to Hill International, Inc. $ (8,446 ) $ (2,380 ) $ (3,723 ) $ (675 ) Nine Months Ended September 30, 2016 2015 Cash flows from operating activities: Net (loss) earnings $ (3,824 ) $ 8,720 Adjustments to reconcile net earnings to net cash used in operating activities: Depreciation and amortization 7,705 8,286 Provision for bad debts 11,879 2,540 Amortization of deferred loan fees 1,334 1,333 Deferred tax expense (benefit) 663 (1,585 ) Share based compensation 1,838 2,360 Changes in operating assets and liabilities, net: Restricted cash (69 ) 10,658 Accounts receivable 2,652 (57,690 ) Accounts receivable - affiliate (5,665 ) (2,830 ) Prepaid expenses and other current assets (1,001 ) (4,556 ) Income taxes receivable (756 ) 25 Retainage receivable (14,583 ) 150 Other assets 5,191 1,009 Accounts payable and accrued expenses (8,582 ) 15,194 Income taxes payable (3,951 ) 1,455 Deferred revenue 124 589 Other current liabilities 2,639 7,398 Retainage payable (1,308 ) 474 Other liabilities 385 2,878 Net cash used in operating activities (5,329 ) (3,592 ) Cash flows from investing activities: Purchase of business, net of cash acquired — (4,384 ) Payments for purchase of property and equipment (2,584 ) (11,447 ) Net cash used in investing activities (2,584 ) (15,831 ) Cash flows from financing activities: Payments on term loans (900 ) (900 ) Net borrowings on revolving loans 8,950 15,152 Proceeds from Philadelphia Industrial Development Corporation loan — 750 Payments on Philadelphia Industrial Development Corporation loan (41 ) (27 ) Deferred acquisition price payments (1,531 ) — Dividends paid to noncontrolling interest (111 ) (130 ) Proceeds from stock issued under employee stock purchase plan 65 57 Proceeds from exercise of stock options 220 137 Net cash provided by financing activities 6,652 15,039 Effect of exchange rate changes on cash (1,609 ) (1,839 ) Net decrease in cash and cash equivalents (2,870 ) (6,223 ) Cash and cash equivalents — beginning of period 24,089 30,124 Cash and cash equivalents — end of period $ 21,219 $ 23,901 a performance bond that was called. We do not expect these costs to reoccur. 2017, the “Agreement”) with Liberty Mergeco, Inc. (the “US Purchaser”) and Liberty Bidco UK Limited (the “UK Purchaser” and, collectively with the US Purchaser, the “Purchasers”) pursuant to which the Purchasers were to acquire the Construction Claims Group by the US Purchaser’s acquisition of all of the stock of Hill International Consulting, Inc. from the Company and the UK Purchaser’s acquisition of all of the stock of Hill International Consulting B.V. from Hill N.V. The Construction Claims Group sale closed on May 5, 2017. For a detailed description of the transaction, see "Note 5 Discontinued Operations" in the Company's 2018 Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on April 1, 2019. the Company’s operating segment is provided in Note September 30, 2016 December 31, 2015 Billed $ 256,840 $ 267,592 Retainage, current portion 9,763 13,660 Unbilled 35,551 25,913 302,154 307,165 Allowance for doubtful accounts (72,262 ) (63,748 ) $ 229,892 $ 243,417 September 30, 2016 December 31, 2015 Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Amount Amortization Client relationships $ 34,116 $ 24,147 $ 34,891 22,668 Acquired contract rights 2,278 2,011 12,256 11,287 Trade names 2,774 1,450 2,704 1,237 Total $ 39,168 $ 27,608 $ 49,851 $ 35,192 Intangible assets, net $ 11,560 $ 14,659 assets: Three Months Ended Nine Months Ended 2016 2015 2016 2015 $ 1,013 $ 1,578 $ 3,450 $ 4,609 follows: Estimated Amortization Year Ending December 31, Expense 2016 (remaining 3 months) $ 903 2017 3,144 2018 2,051 2019 1,782 2020 1,286 years: Project Construction Total Management Claims Goodwill Balance, December 31, 2015 $ 49,739 $ 25,154 $ 74,893 Additions — — — Translation adjustments 2,578 (1,572 ) 1,006 Balance, September 30, 2016 $ 52,317 $ 23,582 $ 75,899 2019: September 30, 2016 December 31, 2015 Accounts payable $ 36,884 $ 44,200 Accrued payroll 48,379 50,724 Accrued subcontractor fees 7,831 5,905 Accrued agency fees 2,285 6,564 Accrued legal and professional fees 5,336 1,186 Other accrued expenses 5,110 3,878 $ 105,825 $ 112,457 September 30, 2016 December 31, 2015 Term Loan Facility $ 112,890 $ 112,906 U.S. Revolving Credit Facility 22,500 17,500 International Revolving Credit Facility 11,836 10,715 Borrowings under revolving credit facilities with a consortium of banks in Spain 3,062 3,013 Borrowing under revolving credit facility with the National Bank of Abu Dhabi 2,998 — Borrowing from Philadelphia Industrial Development Corporation 669 710 Other notes payable — 139 153,955 144,983 Less current maturities 7,316 4,357 Notes payable and long-term debt, net of current maturities $ 146,639 $ 140,626 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 September 30, 2019 and December 31, 2018. The Company 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 Facility. maximum borrowing capacity of $25,000. At September 30, Nine Months Ended September 30, 2016 2015 Interest and related financing fees paid $ 8,915 $ 9,067 Income taxes paid $ 9,435 $ 4,242 Increase in other current liabilities and decrease in additional paid-in capital related to ESA Put Options $ 2,670 — Reduction of noncontrolling interest in connection with acquisition of an additional interest in Engineering S.A. $ — $ (4,374 ) Increase in property and equipment from a tenant improvement allowance related to the relocation of the corporate headquarters $ — $ 3,894 Increase in additional paid in capital from issuance of shares of common stock related to purchase of CPI $ — $ 530 Increase in additional paid in capital from issuance of shares of common stock through cashless exercise of stock options $ 729 $ 361 Of the total issued, 9 and 225 of the total DSU's issued during the three and nine months ended September 30, 2019, respectively, were issued to the Company's board of directors (the "Board") as a portion of their annual retainer. An additional 20 DSU's were issued as part of an employee's compensation and are scheduled to vest ratably over a three-year period, subject to time-based conditions. These DSU's remain unvested as of September 30, 2019. The Hill International, Noncontrolling Total Inc. Stockholders Interests Stockholders’ equity, December 31, 2015 $ 118,039 $ 113,969 $ 4,070 Net (loss) earnings (3,824 ) (3,926 ) 102 Other comprehensive (loss) (1,122 ) 203 (1,325 ) Comprehensive earnings (loss) (4,946 ) (3,723 ) (1,223 ) Additional paid in capital 2,851 2,851 — Cashless exercise of stock options (729 ) (729 ) — Adjustment related to ESA Put Options (2,670 ) (2,670 ) Dividends paid to noncontrolling interest (111 ) — (111 ) Stockholders’ equity, September 30, 2016 $ 112,434 $ 109,698 $ 2,736 1.87%. Three Months Ended September 30, 2016 Three Months Ended September 30, 2015 U.S. Foreign Total U.S. Foreign Total Earnings (loss) before income taxes $ (7,316 ) $ 3,441 $ (3,875 ) $ (2,541 ) $ 10,087 $ 7,546 Income tax expense, net $ — $ 2,880 $ 2,880 $ — $ 4,210 $ 4,210 Nine Months Ended September 30, 2016 Nine Months Ended September 30, 2015 U.S. Foreign Total U.S. Foreign Total Earnings (loss) before income taxes $ (20,805 ) $ 23,920 $ 3,115 $ (22,529 ) $ 39,229 $ 16,700 Income tax expense, net $ — $ 6,939 $ 6,939 $ — $ 7,980 $ 7,980 Global Intangible Low-Taxed Income ("GILTI") beginning in 2018. nine months ended September 30, 2019. operations: Three Months Ended September 30, 2016 2015 Project Management $ 106,868 72.2 % $ 116,541 73.5 % Construction Claims 41,125 27.8 42,038 26.5 Total $ 147,993 100.0 % $ 158,579 100.0 % Three Months Ended September 30, 2016 2015 Project Management $ 125,872 74.9 % $ 135,539 75.7 % Construction Claims 42,081 25.1 43,396 24.3 Total $ 167,953 100.0 % $ 178,935 100.0 % by Geographic Region: Three Months Ended September 30, 2016 2015 U.S./Canada $ 6,546 $ 5,939 Latin America (238 ) 531 Europe 13 2,105 Middle East 4,165 11,935 Africa 1,023 (398 ) Asia/Pacific (1,466 ) (105 ) Corporate (10,550 ) (8,314 ) Total $ (507 ) $ 11,693 U.S $ 6,297 $ 5,686 Non - U.S. 3,746 14,321 Corporate (10,550 ) (8,314 ) Total $ (507 ) $ 11,693 Three Months Ended September 30, 2016 2015 Project Management $ 1,646 $ 1,924 Construction Claims 705 787 Subtotal segments 2,351 2,711 Corporate 154 152 Total $ 2,505 $ 2,863 Three Months Ended September 30, 2016 2015 U.S./Canada $ 42,756 28.9 % $ 38,569 24.3 % Latin America 5,832 3.9 8,347 5.3 Europe 20,953 14.2 23,476 14.8 Middle East 62,609 42.3 72,441 45.7 Africa 7,201 4.9 7,225 4.5 Asia/Pacific 8,642 5.8 8,521 5.4 Total $ 147,993 100.0 % $ 158,579 100.0 % U.S. $ 42,000 28.4 % $ 37,854 23.9 % Non-U.S. 105,993 71.6 120,725 76.1 Total $ 147,993 100.0 % $ 158,579 100.0 % Three Months Ended September 30, 2016 2015 U.S./Canada $ 57,687 34.3 % $ 53,554 29.9 % Latin America 5,867 3.5 8,398 4.7 Europe 21,978 13.1 24,814 13.9 Middle East 65,617 39.1 75,320 42.1 Africa 8,076 4.8 8,205 4.6 Asia/Pacific 8,728 5.2 8,644 4.8 Total $ 167,953 100.0 % $ 178,935 100.0 % U.S. $ 56,920 33.9 % $ 52,774 29.5 % Non-U.S. 111,033 66.1 126,161 70.5 Total $ 167,953 100.0 % $ 178,935 100.0 % Three Months Ended September 30, 2016 2015 U.S. federal government $ 2,382 1.6 % $ 2,295 1.4 % U.S. state, regional and local governments 26,540 17.9 21,630 13.6 Foreign governments 41,971 28.4 51,136 32.3 Private sector 77,100 52.1 83,518 52.7 Total $ 147,993 100.0 % $ 158,579 100.0 % Three Months Ended September 30, 2016 2015 U.S. federal government $ 3,088 1.8 % $ 2,802 1.6 % U.S. state, regional and local governments 41,553 24.7 34,793 19.4 Foreign governments 45,450 27.1 54,578 30.5 Private sector 77,862 46.4 86,762 48.5 Total $ 167,953 100.0 % $ 178,935 100.0 % September 30, 2016 December 31, 2015 U.S./Canada $ 13,388 $ 13,581 Latin America 991 1,031 Europe 2,943 3,084 Middle East 3,394 3,980 Africa 848 1,120 Asia/Pacific 743 955 Total $ 22,307 $ 23,751 U.S. $ 13,388 $ 13,581 Non-U.S. 8,919 10,170 Total $ 22,307 $ 23,751 Nine Months Ended September 30, 2016 2015 Project Management $ 333,573 72.8 % $ 345,122 73.5 % Construction Claims 124,339 27.2 124,336 26.5 Total $ 457,912 100.0 % $ 469,458 100.0 % Nine Months Ended September 30, 2016 2015 Project Management $ 392,087 75.4 % $ 402,586 75.8 % Construction Claims 127,676 24.6 128,265 24.2 Total $ 519,763 100.0 % $ 530,851 100.0 % Nine Months Ended September 30, 2016 2015 U.S. / Canada $ 16,266 $ 13,158 Latin America (769 ) 262 Europe 1,987 1,028 Middle East 23,201 41,130 Africa 1,910 (158 ) Asia/Pacific (1,515 ) (830 ) Corporate (27,862 ) (26,638 ) Total $ 13,218 $ 27,952 U.S. $ 15,603 $ 12,336 Non - U.S. 25,477 42,254 Corporate (27,862 ) (26,638 ) Total $ 13,218 $ 27,952 Nine Months Ended September 30, 2016 2015 Project Management $ 5,038 $ 5,637 Construction Claims 2,204 2,349 Subtotal segments 7,242 7,986 Corporate 463 300 Total $ 7,705 $ 8,286 Nine Months Ended September 30, 2016 2015 U.S./Canada $ 123,416 27.0 % $ 113,735 24.2 % Latin America 17,728 3.9 23,011 4.9 Europe 64,555 14.1 64,905 13.8 Middle East 205,385 44.9 222,572 47.5 Africa 20,950 4.6 21,329 4.5 Asia/Pacific 25,878 5.5 23,906 5.1 Total $ 457,912 100.0 % $ 469,458 100.0 % U.S. $ 121,287 26.5 % $ 111,436 23.7 % Non-U.S. 336,625 73.5 358,022 76.3 Total $ 457,912 100.0 % $ 469,458 100.0 % Nine Months Ended September 30, 2016 2015 U.S./Canada $ 170,027 32.7 % $ 159,169 30.0 % Latin America 17,831 3.4 23,092 4.3 Europe 67,347 13.0 68,534 12.9 Middle East 214,750 41.3 231,314 43.6 Africa 23,706 4.6 24,444 4.6 Asia/Pacific 26,102 5.0 24,298 4.6 Total $ 519,763 100.0 % $ 530,851 100.0 % U.S. $ 167,819 32.3 % $ 156,715 29.5 % Non-U.S. 351,944 67.7 374,136 70.5 Total $ 519,763 100.0 % $ 530,851 100.0 % Nine Months Ended September 30, 2016 2015 U.S. federal government $ 7,252 1.6 % $ 7,061 1.5 % U.S. state, regional and local governments 74,663 16.3 63,921 13.6 Foreign governments 139,499 30.5 160,694 34.2 Private sector 236,498 51.6 237,782 50.7 Total $ 457,912 100.0 % $ 469,458 100.0 % Nine Months Ended September 30, 2016 2015 U.S. federal government $ 8,809 1.7 % $ 8,651 1.6 % U.S. state, regional and local governments 117,369 22.6 101,402 19.1 Foreign governments 150,010 28.9 171,615 32.4 Private sector 243,575 46.8 249,183 46.9 Total $ 519,763 100.0 % $ 530,851 100.0 % 2019, $427 and $1,490 was associated with leases with an initial term of 12 months or less and variable costs, respectively. Three Months Ended September 30, 2016 2015 Change Project Management $ 106,868 72.2 % $ 116,541 73.5 % $ (9,673 ) (8.3 )% Construction Claims 41,125 27.8 42,038 26.5 (913 ) (2.2 ) Total $ 147,993 100.0 % $ 158,579 100.0 % $ (10,586 ) (6.7 )% Three Months Ended September 30, 2016 2015 Change Project Management $ 19,004 95.2 % $ 18,998 93.3 % $ 6 — % Construction Claims 956 4.8 1,358 6.7 (402 ) (29.6 ) Total $ 19,960 100.0 % $ 20,356 100.0 % $ (396 ) (1.9 )% Three Months Ended September 30, 2016 2015 Change % of % of Project Management $ 63,325 77.9 % 59.3 % $ 70,459 78.9 % 60.5 % $ (7,134 ) (10.1 )% Construction Claims 17,916 22.1 43.6 18,886 21.1 44.9 (970 ) (5.1 ) Total $ 81,241 100.0 % 54.9 % $ 89,345 100.0 % 56.3 % $ (8,104 ) (9.1 )% Three Months Ended September 30, 2016 2015 Change % of % of Project Management $ 43,543 65.2 % 40.7 % $ 46,082 66.6 % 39.5 % $ (2,539 ) (5.5 )% Construction Claims 23,209 34.8 56.4 23,152 33.4 55.1 57 0.2 Total $ 66,752 100.0 % 45.1 % $ 69,234 100.0 % 43.7 % $ (2,482 ) (3.6 )% Three Months Ended September 30, 2016 2015 Change % of % of CFR CFR SG&A Expenses $ 67,247 45.4 % $ 57,527 36.3 % $ 9,720 16.9 % Three Months Ended September 30, 2016 2015 Change % of % of Project Management $ 6,500 6.1 % $ 15,438 13.2 % $ (8,938 ) (57.9 )% Share of loss of equity method affiliate (12 ) (0.0 ) (14 ) (0.0 ) 2 14.3 Total Project Management 6,488 6.1 15,424 13.2 (8,936 ) (57.9 ) Construction Claims 3,554 8.6 4,582 10.9 (1,028 ) (22.4 ) Corporate (10,549 ) (8,313 ) (2,236 ) 26.9 Total $ (507 ) (0.3 )% $ 11,693 7.4 % $ (12,200 ) (104.3 )% rates. Nine Months Ended September 30, 2016 2015 Change Project Management $ 333,573 72.8 % $ 345,122 73.5 % $ (11,549 ) (3.3 )% Construction Claims 124,339 27.2 124,336 26.5 3 — Total $ 457,912 100.0 % $ 469,458 100.0 % $ (11,546 ) (2.5 )% Nine Months Ended September 30, 2016 2015 Change Project Management $ 58,514 94.6 % $ 57,464 93.6 % $ 1,050 1.8 % Construction Claims 3,337 5.4 3,929 6.4 (592 ) (15.1 ) Total $ 61,851 100.0 % $ 61,393 100.0 % $ 458 0.7 % Nine Months Ended September 30, 2016 2015 Change % of % of Project Management $ 209,470 79.0 % 62.8 % $ 212,565 79.3 % 61.6 % $ (3,095 ) (1.5 )% Construction Claims 55,582 21.0 44.7 55,609 20.7 44.7 (27 ) (0.0 ) Total $ 265,052 100.0 % 57.9 % $ 268,174 100.0 % 57.1 % $ (3,122 ) (1.2 )% Nine Months Ended September 30, 2016 2015 Change % of % of Project Management $ 124,103 64.3 % 37.2 % $ 132,557 65.9 % 38.4 % $ (8,454 ) (6.4 )% Construction Claims 68,757 35.7 55.3 68,727 34.1 55.3 30 — Total $ 192,860 100.0 % 42.1 % $ 201,284 100.0 % 42.9 % $ (8,424 ) (4.2 )% Nine Months Ended September 30, 2016 2015 Change % of % of CFR CFR SG&A Expenses $ 179,614 39.2 % $ 173,101 36.9 % $ 6,513 3.8 % Nine Months Ended September 30, 2016 2015 Change % of % of Project Management $ 30,123 9.0 % $ 43,268 12.5 % $ (13,145 ) (30.4 )% Share of loss of equity method affiliate (28 ) (0.0 ) (231 ) (0.1 ) 203 (87.9 ) Total Project Management 30,095 9.0 43,037 12.4 (12,942 ) (30.1 ) Construction Claims 10,983 8.8 11,687 9.4 (704 ) (6.0 ) Corporate (27,860 ) (26,772 ) (1,088 ) 4.1 Total $ 13,218 2.9 % $ 27,952 6.0 % $ (14,734 ) (52.7 ) Three Months Ended Nine Months Ended 2016 2015 2016 2015 Net (loss) earnings $ (6,866 ) $ 2,948 $ (3,926 ) $ 8,045 Interest expense, net 3,368 4,147 10,103 11,252 Income tax expense 2,880 4,210 6,939 7,980 Depreciation and amortization 2,505 2,863 7,705 8,286 EBITDA $ 1,887 $ 14,168 $ 20,821 $ 35,563 nine months ended September 30, 2018. facilities. We also have relationships with other foreign banks for the issuance of letters of credit, letters of guarantee and performance bonds in a variety of foreign currencies. At September 30, 2019, cash provided by operating activities was primarily the result of the timing of payments to vendors and subcontractors and increased collection activity in the Middle East and Africa. For the nine months ended September 30, reoccur. payable. business. one hundred percent. Total Backlog 12-Month Backlog $ % $ % (dollars in thousands) As of September 30, 2016: Project Management $ 888,000 94.1 % $ 358,000 86.7 % Construction Claims 56,000 5.9 % 55,000 13.3 % Total $ 944,000 100.0 % $ 413,000 100.0 % U.S./Canada $ 433,000 45.9 % $ 154,000 37.3 % Latin America 14,000 1.5 11,000 2.7 Europe 51,000 5.4 32,000 7.7 Middle East 369,000 39.1 164,000 39.7 Africa 50,000 5.3 27,000 6.5 Asia/Pacific 27,000 2.8 25,000 6.1 Total $ 944,000 100.0 % $ 413,000 100.0 % As of June 30, 2016: Project Management $ 892,000 94.0 % $ 357,000 86.2 % Construction Claims 57,000 6.0 57,000 13.8 Total $ 949,000 100.0 % $ 414,000 100.0 % U.S./Canada $ 399,000 42.0 % $ 137,000 33.1 % Latin America 15,000 1.6 13,000 3.1 Europe 53,000 5.6 36,000 8.7 Middle East 400,000 42.1 178,000 43.0 Africa 53,000 5.6 26,000 6.3 Asia/Pacific 29,000 3.1 24,000 5.8 Total $ 949,000 100.0 % $ 414,000 100.0 % As of September 30, 2015: Project Management $ 830,000 94.4 % $ 353,000 88.9 % Construction Claims 49,000 5.6 % 44,000 11.1 % Total $ 879,000 100.0 % $ 397,000 100.0 U.S./Canada $ 362,000 41.2 % $ 120,000 30.2 % Latin America 28,000 3.2 17,000 4.3 Europe 54,000 6.1 37,000 9.3 Middle East 350,000 39.8 180,000 45.3 Africa 41,000 4.7 19,000 4.8 Asia/Pacific 44,000 5.0 24,000 6.1 Total $ 879,000 100.0 % $ 397,000 100.0 % timely basis. Report on Form 10-K. XBRL Instance Document. XBRL Taxonomy Extension Schema Document. XBRL Taxonomy Presentation Linkbase Document. XBRL Taxonomy Calculation Linkbase Document. XBRL Taxonomy Label XBRL Taxonomy Extension Definition Linkbase Document. Chief Executive Officer (Principal Executive Officer) By: /s/ Senior Vice President and (215) (215) 309-7700Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.0001 HIL New York Stock Exchange (NYSE) xý No o a check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405(Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). xý No oor a smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer”, “accelerated filer”filer," "accelerated filer," "smaller reporting company," and “smaller reporting company”"emerging growth company" in Rule 12b-2 of the Exchange Act.ActLarge Accelerated Filer o☐ Accelerated Filer xý o☐ Smaller Reporting Company o☐ Emerging Growth Company ☐ o☐ No xý51,767,11456,161,783 shares of the Registrant’s Common Stock outstanding at November 1, 2016.October 30, 2019.1995. These1995, and it is Hill International, Inc.'s (the "Company") intent that any such statements can be identifiedprotected by the fact that they dosafe harbor created thereby. Except for historical information, the matters set forth herein including, but not relate strictlylimited to, historicalany projections of revenues, earnings, margin, profit improvement, cost savings or current facts. Forward-lookingother financial items; any statements often include words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes”of belief, any statements concerning the Company's plans, strategies and wordsobjectives for future operations; and terms of similar substance in connection with discussions ofany statements regarding future operatingeconomic conditions or financial performance.The Company’sperformance, are forward-looking statements.management’sthe Company's current expectations, estimates and assumptions regardingand are subject to certain risks and uncertainties. Although the Company’s businessCompany believes that the expectations, estimates and performance, the economy and other future conditions and forecasts of future events, circumstances and results. As with any projection or forecast,assumptions reflected in our forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. The Company’sreasonable, actual results may varycould differ materially from those expressedprojected or impliedassumed in itsany of our forward-looking statements.ourthe Company's actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include:·of ourin the Company's most recent Annual Report on Form 10-K;··we conductthe Company conducts pursuant to joint ventures with other parties;· Difficulties we may incur in implementing our acquisition strategy;· andneedability to retain and recruit key technical and management personnel; and· Unexpected adjustments and cancellations related to our backlog.our businesses,the Company's business, financial position or results of operations include:· further delays in collections from clients located inclients;Middle East;· Special risks of ourCompany's ability to obtain debt financing or otherwise raise capital to meet required working capital needs and to support potential future acquisition activities;· Special risks· Special risks ofgovernmentgovernments and reimbursement obligations to the government for funds previously received.We assumeor revise any forward-looking statements.Tablestatement. In accordance with the Reform Act, Part II, Item 1A of ContentsHILL INTERNATIONAL, INC. AND SUBDISIARIESIndexthis Report entitled “Risk Factors” contains cautionary statements that accompany those forward-looking statements. You should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. Those cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this Form 10-Q,
in our other filings with the Securities and Exchange Commission ("SEC") or in materials incorporated therein by reference.4Consolidated Balance Sheets at September 30, 2016 (unaudited) and December 31, 201545678Management’s Discussion and Analysis of Financial Condition and Results of Operations2437373939393939393940thousands, except per share data) September 30, 2019 December 31, 2018 Assets (Unaudited) Cash and cash equivalents $ 17,350 $ 18,711 Cash - restricted 5,033 2,945 Accounts receivable, less allowance for doubtful accounts of $66,263 and $70,617 110,575 117,469 Current portion of retainage receivable 14,041 18,397 Accounts receivable - affiliates 25,567 19,261 Prepaid expenses and other current assets 7,651 5,554 Income tax receivable 1,458 758 Total current assets 181,675 183,095 Property and equipment, net 11,597 10,787 Cash - restricted, net of current portion 2,777 1,451 Operating lease right-of-use assets 15,439 — Retainage receivable 8,449 5,895 Acquired intangibles, net 929 1,316 Goodwill 47,041 48,869 Investments 2,665 3,015 Deferred income tax assets 3,665 4,521 Other assets 4,728 5,820 Total assets $ 278,965 $ 264,769 Liabilities and Stockholders’ Equity Current maturities of notes payable and long-term debt $ 3,266 $ 3,364 Accounts payable and accrued expenses 74,160 80,036 Income taxes payable 7,555 8,826 Current portion of deferred revenue 10,660 11,169 Current portion of operating lease liabilities 5,166 — Other current liabilities 5,376 5,644 Total current liabilities 106,183 109,039 Notes payable and long-term debt, net of current maturities 48,680 44,587 Retainage payable 1,551 927 Deferred income taxes 308 418 Deferred revenue 3,419 5,105 Non-current operating lease liabilities 16,271 — Other liabilities 4,671 10,248 Total liabilities 181,083 170,324 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.0001 par value; 1,000 shares authorized, none issued — — Common stock, $0.0001 par value; 100,000 shares authorized, 62,705 shares and 62,181 shares issued at September 30, 2019 and December 31, 2018, respectively 6 6 Additional paid-in capital 212,493 210,084 Accumulated deficit (83,481 ) (85,444 ) Accumulated other comprehensive loss (3,756 ) (2,575 ) Less treasury stock of 6,546 and 6,546 at September 30, 2019 and December 31, 2018, respectively (28,231 ) (28,231 ) Hill International, Inc. share of equity 97,031 93,840 Noncontrolling interests 851 605 Total equity 97,882 94,445 Total liabilities and stockholders’ equity $ 278,965 $ 264,769 Three Months Ended
September 30, Nine Months Ended
September 30, 2019 2018 2019 2018 Consulting fee revenue $ 75,747 $ 81,231 $ 231,782 $ 261,794 Reimbursable expenses 19,923 20,704 60,828 66,186 Total revenue $ 95,670 $ 101,935 $ 292,610 $ 327,980 Direct expenses 64,086 65,600 198,288 222,181 Gross profit $ 31,584 $ 36,335 $ 94,322 $ 105,799 Selling, general and administrative expenses 29,261 44,689 87,987 116,911 Plus: Share of profit of equity method affiliates 780 685 1,911 2,616 Less: Loss on performance bond — — — 7,938 Operating profit (loss) $ 3,103 $ (7,669 ) $ 8,246 $ (16,434 ) Interest and related financing fees, net 1,485 1,275 4,408 3,855 Other income, net 549 — 549 — Income (loss) before income taxes $ 2,167 $ (8,944 ) $ 4,387 $ (20,289 ) Income tax (benefit) expense (340 ) (460 ) 2,248 2,928 Income (loss) from continuing operations $ 2,507 $ (8,484 ) $ 2,139 $ (23,217 ) Discontinued operations: Loss from discontinued operations, net of tax — — — (863 ) Total loss from discontinued operations $ — $ — $ — $ (863 ) Net income (loss) $ 2,507 $ (8,484 ) $ 2,139 $ (24,080 ) Less: net earnings - non-controlling interests 26 60 176 96 Net income (loss) attributable to Hill International, Inc. $ 2,481 $ (8,544 ) $ 1,963 $ (24,176 ) Basic Income (loss) per common share from continuing operations $ 0.04 $ (0.15 ) $ 0.03 $ (0.42 ) Basic loss per common share from discontinued operations — — — (0.02 ) Basic income (loss) per common share - Hill International, Inc. $ 0.04 $ (0.15 ) $ 0.03 $ (0.44 ) Basic weighted average common shares outstanding 56,549 55,476 56,178 54,466 Diluted income (loss) per common share from continuing operations $ 0.04 $ (0.15 ) $ 0.03 $ (0.42 ) Diluted loss per common share from discontinued operations — — — (0.02 ) Diluted income (loss) per common share - Hill International, Inc. $ 0.04 $ (0.15 ) $ 0.03 $ (0.44 ) Diluted weighted average common shares outstanding 56,549 55,476 56,178 54,466
September 30,
September 30, Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 Net income (loss) $ 2,507 $ (8,484 ) $ 2,139 $ (24,080 ) Foreign currency translation adjustment, net of tax (237 ) 673 (1,111 ) 1,280 Comprehensive income (loss) 2,270 (7,811 ) 1,028 (22,800 ) Less: Comprehensive income (loss) attributable to non-controlling interests 32 52 246 (357 ) Comprehensive income (loss) attributable to Hill International, Inc. $ 2,238 $ (7,863 ) $ 782 $ (22,443 ) (Unaudited) Common Stock Treasury Stock Hill Share of Stockholders’ Non-controlling Shares Amount Capital (Deficit) (Loss) Shares Amount Equity Interests Equity Balance - December 31, 2018 62,181 $ 6 $ 210,084 $ (85,444 ) $ (2,575 ) 6,546 $ (28,231 ) $ 93,840 $ 605 $ 94,445 Net income (loss) — — — (518 ) — — — (518 ) 150 (368 ) Other comprehensive income (loss) — — — — (938 ) — — (938 ) 64 (874 ) Stock issued to Board of Directors 24 — — — — — — — — — Stock-based compensation expense — — 1,042 — — — — 1,042 — 1,042 Stock issued under employee stock purchase plan 57 — 113 — — — — 113 — 113 Balance - June 30, 2019 62,262 $ 6 $ 211,239 $ (85,962 ) $ (3,513 ) 6,546 $ (28,231 ) $ 93,539 $ 819 $ 94,358 Net income (loss) — — — 2,481 — — — 2,481 26 2,507 Other comprehensive income (loss) — — — — (243 ) — — (243 ) 6 (237 ) Stock issued to Board of Directors 104 — — — — — — — — — Stock-based compensation expense 322 — 1,212 — — — — 1,212 — 1,212 Stock issued under employee stock purchase plan (3) 17 — 42 — — — — 42 — 42 Balance - September 30, 2019 62,705 $ 6 $ 212,493 $ (83,481 ) $ (3,756 ) 6,546 $ (28,231 ) $ 97,031 $ 851 $ 97,882 Balance - December 31, 2017 59,389 $ 6 $ 197,104 $ (53,983 ) $ (4,011 ) 6,977 $ (30,041 ) $ 109,075 $ 1,595 $ 110,670 Net income (loss) — — — (15,632 ) — — — (15,632 ) 36 (15,596 ) Other comprehensive income (loss) — — — — 1,052 — — 1,052 (445 ) 607 Stock-based compensation expense (2) — — 223 — — — — 223 — 223 Stock issued under employee stock purchase plan 6 — 29 — — — — 29 — 29 Exercise of stock options 2,216 — 8,979 — — (467 ) 2,012 10,991 — 10,991 Cashless exercise of stock options 70 — 202 — — 36 (202 ) — — — Reversal of accrual for portion of ESA put option (1) — — 745 — — — — 745 — 745 Acquisition of additional interest in subsidiary — — (122 ) — — — — (122 ) (623 ) (745 ) Balance - June 30, 2018 61,681 $ 6 $ 207,160 $ (69,615 ) $ (2,959 ) 6,546 $ (28,231 ) $ 106,361 $ 563 $ 106,924 Net income (loss) — — — (8,544 ) — — — (8,544 ) 60 (8,484 ) Other comprehensive income (loss) — — — — 681 — — 681 (8 ) 673 Stock-based compensation expense (2) — — 144 — — — — 144 — 144 Exercise of stock options 159 — 699 — — — — 699 — 699 Cashless exercise of stock options — — 4 — — — — 4 — 4 Balance - September 30, 2018 61,840 $ 6 $ 208,007 $ (78,159 ) $ (2,278 ) 6,546 $ (28,231 ) $ 99,345 $ 615 $ 99,960 Notes Nine Months Ended September 30, 2019 2018 Cash flows from operating activities: Net income (loss) $ 2,139 $ (24,080 ) Loss from discontinued operations — 863 Income (loss) from continuing operations 2,139 (23,217 ) Adjustments to reconcile net income (loss) to net cash provided by (used in): Depreciation and amortization 2,435 3,433 Provision for bad debts (2,946 ) (3,304 ) Amortization of deferred loan fees 539 77 Deferred tax benefit 659 (181 ) Share-based compensation 2,254 741 Operating lease right-of-use assets 3,936 — Unrealized foreign exchange gains (losses) on intercompany balances 104 8,496 Changes in operating assets and liabilities: Accounts receivable 13,988 12,717 Accounts receivable - affiliate (6,306 ) (771 ) Prepaid expenses and other current assets (2,136 ) 1,025 Income taxes receivable (748 ) 550 Retainage receivable (2,559 ) (2,351 ) Other assets 920 600 Accounts payable and accrued expenses (5,463 ) 188 Income taxes payable (1,286 ) (8,146 ) Deferred revenue (2,235 ) 2,518 Operating lease liabilities (4,361 ) — Other current liabilities (264 ) 876 Retainage payable 624 116 Other liabilities 1,422 (6,630 ) Net cash provided by (used in) continuing operations 716 (13,263 ) Net cash used in discontinued operations — (863 ) Net cash provided by (used in) operating activities 716 (14,126 ) Cash flows from investing activities: Purchases of business — (745 ) Purchase of property and equipment (2,958 ) (2,328 ) Net cash used in investing activities (2,958 ) (3,073 ) Cash flows from financing activities: Repayment of term loans (795 ) (724 ) Proceeds from revolving loans 10,070 40,075 Repayment of revolving loans (4,977 ) (29,849 ) Proceeds from stock issued under employee stock purchase plan 167 29 Proceeds from exercise of stock options — 11,689 Net cash provided by financing activities 4,465 21,220 Effect of exchange rate changes on cash (170 ) (546 ) Net increase in cash, cash equivalents and restricted cash 2,053 3,475 Cash, cash equivalents and restricted cash — beginning of period 23,107 26,920 Cash, cash equivalents and restricted cash — end of period $ 25,160 $ 30,395 Nine Months Ended September 30, Supplemental disclosures of cash flow information: 2019 2018 Interest and related financing fees paid $ 4,113 $ 3,652 Income taxes paid 2,484 11,435 Increase in additional paid-in capital from issuance of shares of common stock from cashless exercise of stock options — 202 Cash paid for amounts included in the measurement of lease liabilities 6,062 — Right-of-use assets obtained in exchange for operating lease liabilities 19,340 — Consolidated Financial Statementsconsolidated financial statements.-— The Company construction claims 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.is organized into two key operating divisions:believes that it has sufficient liquidity to support the Project Management Groupreasonably anticipated cash needs of its operations over the next twelve months from November 6, 2019, the date of this filing. The Company provided cash from operations of $716 during the nine months ended September 30, 2019. The Company's net cash used in operations during 2018 was primarily due to a number of costs related to the financial statement restatement, restructuring and the Construction Claims Group.23 — Basis of Presentation2015.2018. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles generally accepted in the United States (“GAAP”("U.S. GAAP") for complete financial statements. In the opinion of management, these statements include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the consolidated financial statements. The consolidated financial statements include the accounts of Hill and its wholly-wholly and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.Note— Liquidityconsulting feeSignificant Accounting Policies(“CFR”) attributablefor the three and nine months ended September 30, 2019 or 2018.Middle Eastperiod 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 Africaothers 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.grown from approximately 32%been completed, which typically is greater than one year.2011 to approximately 49%the statements of total consolidated CFRcash flows: September 30, 2019 December 31, 2018 Cash and cash equivalents $ 17,350 $ 18,711 Cash - restricted 5,033 2,945 Cash - restricted, net of current portion 2,777 1,451 Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows $ 25,160 $ 23,107 firstperiod. Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 Income (loss) from continuing operations $ 2,507 $ (8,484 ) $ 2,139 $ (23,217 ) Less: net earnings - noncontrolling interest 26 60 176 96 Net income (loss) from continuing operations attributable to Hill $ 2,481 $ (8,544 ) $ 1,963 $ (23,313 ) 2016.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.has beenare 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 political upheaval and civil unrestreversal in these regions during this period. Thethe 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.slowdownproject by project basis, the appropriate final revenue recognition.its collectionsexcess 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.Middle East primarily dueU.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 recent drop in oil prices. This has put a considerable strain onFAR. 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.liquidity. As a result,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 had to rely heavily on debtaccounted for such costs in a manner inconsistent with the requirements of the FAR or Cost Accounting Standards and equity transactions to fundrecommend that its operations. See Note 4U.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. The Company provides for a further discussionrefund liability to the extent that it expects to refund some of issuesthe consideration received from a client.our liquidity.412 - 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. Three Months Ended September 30, 2019 Three Months Ended September 30, 2018 Fixed Price T&M Total Percent of Total Revenue Fixed Price T&M Total Percent of Total Revenue United States $ 4,043 $ 45,893 $ 49,936 52.3 % $ 2,575 $ 46,559 $ 49,134 48.2 % Latin America 1,662 7 1,669 1.7 % 2,751 — 2,751 2.7 % Europe 5,741 4,815 10,556 11.0 % 4,950 5,529 10,479 10.3 % Middle East 7,567 17,880 25,447 26.6 % 11,904 18,784 30,688 30.1 % Africa 388 6,617 7,005 7.3 % 621 6,091 6,712 6.6 % Asia/Pacific 435 622 1,057 1.1 % 782 1,389 2,171 2.1 % Total $ 19,836 $ 75,834 $ 95,670 100.0 % $ 23,583 $ 78,352 $ 101,935 100.0 % Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018 Fixed Price T&M Total Percent of Total Revenue Fixed Price T&M Total Percent of Total Revenue United States $ 11,156 $ 138,218 $ 149,374 51.1 % $ 8,436 $ 144,035 $ 152,471 46.5 % Latin America 5,651 363 6,014 2.1 % 7,314 1,207 8,521 2.6 % Europe 17,094 15,418 32,512 11.1 % 15,271 15,904 31,175 9.5 % Middle East 27,797 51,933 79,730 27.2 % 45,377 61,033 106,410 32.4 % Africa 1,559 19,325 20,884 7.1 % 1,264 19,015 20,279 6.2 % Asia/Pacific 1,164 2,932 4,096 1.4 % 4,772 4,352 9,124 2.8 % Total $ 64,421 $ 228,189 $ 292,610 100.0 % $ 82,434 $ 245,546 $ 327,980 100.0 % follows (in thousands):Included in billedfollows: September 30, 2019 December 31, 2018 $ 145,602 $ 155,540 31,236 32,546 176,838 188,086 (66,263 ) (70,617 ) Accounts receivable, less allowance for doubtful accounts $ 110,575 $ 117,469 unbilled accounts receivable are $14,926,000 and $4,827,000, respectively,$42,092 related to change orders, claims and disputes atamounts due from a client in Africa as of September 30, 2016.2019 and December 31, 2018, respectively.In 2012, the Company commenced operations on the Muscat International Airport (the “Oman Airport”) project with the Ministry of Transportation and Communications (the “MOTC”) in Oman. The original contract term expired in November 2014. In October 2014, the Company applied for a twelve-month extension of time amendment (the “first extension”) which was subsequently approved in March 2016 and the Company continued to work on the Oman Airport project. The Company began to experience some delays in payment during the second quarter of 2015 when MOTC commenced its formal review and certification of the Company’s invoices. In December 2015, the Company began discussions with the MOTC on a second extension of time amendment (the “second extension”) and has since commenced additional work, which management expects to last approximately 18 months. When the MOTC resumed payments in 2016, the Company received approximately $15,000,000 in March, approximately $1,800,000 in April, approximately $14,100,000 in June, approximately $3,200,000 in October and approximately $7,900,000 in November. At September 30, 2016, accounts receivable from Oman totaled approximately $29,500,000. After receipt of the October and November payments, approximately $7,900,000 was past due based on contractual terms.In addition, there is approximately $16,100,000 included in non-current Retainage Receivable in the consolidated balance sheet at September 30, 2016. Of that amount, approximately $8,000,000 relates to retention and approximately $8,100,000 relates to a Defect and Liability Period (“DLP”). Retention represents five percent of each monthly invoice which is retained by MOTC. Fifty percent of the retention will be released one year from the commencement of the DLP and the balance will be release upon the issuance of final Completion Certificates. DLP represents the period by which the contractor must address any defect issues. This period commences upon the issuance of a “Taking Over Certificate” (by MOTC) to contractors for up to a period of 24 months and then final certificate closing the project.The delays in payments from MOTC and other foreign governments have had a negative impact on the Company’s liquidity, financial covenants, financial position and results of operations.56 — Intangible Assetsassets (in thousands): September 30, 2019 December 31, 2018 Gross
Carrying
Amount Accumulated
Amortization Gross
Carrying
Amount Accumulated
Amortization Client relationships $ 4,516 $ 3,587 $ 4,591 $ 3,275 Total $ 4,516 $ 3,587 $ 4,591 $ 3,275 Intangible assets, net $ 929 $ 1,316 follows (in thousands):
September 30,
September 30,Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 $ 113 $ 209 $ 347 $ 784 based on our present intangible assets for the next five years (in thousands): Year ending December 31, 2019 (remaining 3 months) $ 113 2020 190 2021 162 2022 162 2023 162 67 — GoodwillThe Company performs its annual goodwill impairment testing, by reporting unit, in the third quarter, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Application of the goodwill impairment test requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the businesses, the useful life over which cash flows will occur, and determination of the Company’s weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. The Company performed its annual impairment test effective July 1, 2016. Based on a preliminary valuation, the fair value of the Project Management unit and the Construction Claims unit significantly exceeded their carrying values.2016 (in thousands): Balance, December 31, 2018 $ 48,869 (1,828 ) Balance, September 30, 2019 $ 47,041 78 — Accounts Payable and Accrued Expensesexpenses (in thousands): September 30, 2019 December 31, 2018 Accounts payable $ 26,487 $ 30,005 Accrued payroll and related expenses 29,735 28,915 Accrued subcontractor fees 13,051 13,447 Accrued agency fees 323 237 Accrued legal and professional fees 1,847 2,277 2,717 5,155 $ 74,160 $ 80,036 89 — Notes Payable and Long-Term DebtOutstandingobligationswhich includes credit facilities: Balance Outstanding as of Loan Maturity Interest Rate Type September 30,
2019December 31,
2018 September 30,
2019December 31,
2018Secured Credit Facilities Hill International, Inc. - Société Générale 2017 Term Loan Facility 06/20/2023 Variable 7.95% 7.62% $ 29,325 $ 29,550 Hill International, Inc. - Société Générale Domestic Revolving Credit Facility 05/04/2022 Variable 6.36% 6.31% 17,650 14,400 Hill International N.V.. - Société Générale International Revolving Credit Facility 05/04/2022 Variable 4.17% N/A 1,418 — Unsecured Credit Facilities Hill International, Inc. - First Abu Dhabi Bank ("FAB") PJSC Overdraft Credit Facility (2) 04/18/2020 Variable 5.58% 5.58% 2,177 2,461 Hill International Brasil S.A. - Revolving Credit Facility (3) 12/12/2019 Fixed 3.35% 3.35% 359 — Unsecured Notes Payable and Long-Term Debt Hill International Spain SA-Bankia S.A. & Bankinter S.A.(4) 12/31/2021 Fixed 2.21% 2.17% 1,147 1,594 Hill International Spain SA - IberCaja Banco. S.A. (4) 12/31/2019 Variable 3.45% 3.41% 48 198 Philadelphia Industrial Development Corporation Loan 03/31/2027 Fixed 2.79% 2.75% 497 542 Total notes payable and long-term debt, gross $ 52,621 $ 48,745 Less: unamortized discount and deferred financing costs related to Société Générale 2017 Term Loan Facility (675 ) (794 ) Notes payable and long-term debt $ 51,946 $ 47,951 Current portion of notes payable $ 3,447 $ 3,538 Current portion of unamortized debt discount and deferred financing costs $ (181 ) $ (174 ) Current maturities of notes payable and long-term debt $ 3,266 $ 3,364 Notes payable and long-term debt, net of current maturities $ 48,680 $ 44,587 follows (in thousands):and its subsidiaryhad $954 of availability under the credit facility as of September 30, 2019.N.V. (the “Subsidiary”)Brasil S.A. revolving credit facilities were previously held with two banks in Brazil under four separate arrangements and were subject to automatic renewal on a monthly basis. In October 2018, three of the credit facilities were not renewed. The Company had $122 of availability under the credit facility as of September 30, 2019. The amounts outstanding and available are parties to abased on conversion rates from Brazilian Real as of September 30, 2019 and December 31, 2018.agreementfacilities with Société Générale (the “Agent”), TD Bank, N.A.under the 2017 Term Loan and HSBC Bank USA, N.A.the Domestic Revolving Credit Facility (collectively, the “U.S. Lenders”) consisting of a term loan facility of $120,000,000 (the “Term Loan Facility”"U.S. Credit Facilities") and a $30,000,000 U.S. dollar-denominated facility available to the Company (the “U.S. Revolver,” together with the Term Loan Facility, the “U.S. Credit Facilities”) and a credit agreement with the Agent (the “International Lender”) providing a €11,765,000 ($15,000,000 at closing and $13,199,000 at September 30, 2016) credit facility which is available to the Subsidiary (the “International Revolver” and together with the U.S. Revolver, the “Revolving Credit Facilities” and, together with the U.S. Credit Facilities, the “Secured Credit Facilities”). The U.S. Revolver andunder the International Revolver include sub-limits for letters of credit amounting to $25,000,000 and $10,000,000, respectively.The SecuredRevolving Credit FacilitiesFacility 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 covenants consistcovenant is comprised of a maximum Consolidated Net Leverage Ratio and an Excess Account Concentration requirement.of up to $10,000,000 held in the aggregate)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. LendersLender and the International Lender may increase the interest rates by 2.0%. AtThe Company was in compliance with this financial covenant at September 30, 2016,2019.Company’s Consolidated Net Leverage Ratio was 3.19 to 1.00 which exceeded the 2.75 to 1.00 limit imposed by the SecuredDomestic and International Revolving Credit Facilities were $1,458 and constituted a default.The Excess Account Concentration covenant permits the U. S. Lenders and the International Lender to increase the interest rates by 2.0% if, as of the last day of any fiscal quarter, either (a) the total of accounts receivable from all clients within any country not listed as a Permitted Country as defined in the Secured Credit Facilities (other than the United Arab Emirates) that are more than 120 days old (relative to the invoice date) constitute more than 10% of the total outstanding accounts receivable or (b) the total of accounts receivable from all clients located in the United Arab Emirates that are more than 120 days old (relative to the invoice date) constitute more than 14% of the total outstanding accounts receivable. The interest rate would be reset as soon as the accounts receivable over 120 days decline below the 10% or 14% levels. At$1,879 at September 30, 2016, the accounts receivable from Oman exceeded the limit described above, however, due to a payment received on October 6, 2016, the accounts receivable declined below the established limit.In anticipation of the event of default upon delivery of the quarterly compliance certificate, the Company requested a waiver from the Agent. On November 1, 2016, the Company obtained the waiver of the Excess Account Concentration covenant violation, the Consolidated Net Leverage Ratio default2019 and the contractual 2% increaseDecember 31, 2018, respectively, and were included in the interest rate. In connection with the waiver, the Company incurred a consent fee amounting to approximately $168,000 which will be charged to interest expense in the fourth quarter of 2016.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.Term Loan FacilityThe interest rate on the Term Loan Facility will be, at the Company’s option, either:· the London Inter-Bank Offered Rate (“LIBOR”) for the relevant interest period plus 6.75% per annum, provided that such LIBOR shall not be lower than 1.00% per annum; or· the Base Rate (as described below) plus 5.75% per annum.The “Base Rate” is a per annum rate equal to the highest of (A) the prime rate, (B) the federal funds effective rate plus 0.50%, or (C) the LIBOR for an interest period of one month plus 1.0% per annum. Upon a default, the applicable rate of interest under the Secured Credit Facilities may increase by 2.0%. The LIBOR on the Term Loan Facilities (including when determining the Base Rate) shall in no event be less than 1.0% per annum.At September 30, 2016, the interest rate on the Term Loan was 7.75%.The Company has the right to prepay the Term Loan Facility in full or in part at any time without premium or penalty. The Company is required to make mandatory prepayments of the Term Loan Facility, without premium or penalty, (i) with net proceeds of any issuance or incurrence of indebtedness (other than that permitted under the Term Loan Facility) by the Company, (ii) with net proceeds from certain asset sales outside the ordinary course of business, and (iii) with 50% of the excess cash flow (as defined in the agreement) for each fiscal year of the Borrowers (which percentage would be reduced to 25% if the Consolidated Net Leverage Ratio is equal to or less than 2.25 to 1.00 or reduced to 0% if the Consolidated Net Leverage Ratio is equal to or less than 1.50 to 1.00).The Term Loan Facility is generally secured by a first-priority security interest in substantially allother assets of the Company and certain of the Company’s U.S. subsidiaries other than accounts receivable, cash proceeds thereof and certain bank accounts, as to which the Term Loan Facility is secured by a second-priority security interest.The Term Loan Facility has a term of six years, requires repayment of 0.25% of the original principal amount on a quarterly basis through September 30, 2020, the maturity date. Any amounts repaid on the Term Loan Facility will not be available to be re-borrowed.The Company incurred fees and expenses related to the Term Loan Facility aggregating $7,066,000 which have been deferred. The deferred fees are being amortized on a straight-line basis, which approximates the effective interest method, to interest and related financing fees, net over a six-year period which ends on September 30, 2020. Unamortized balances of $4,710,000 and $5,594,000 are included as an offset against the Term Loan balances in the consolidated balance sheets at September 30, 2016 and December 31, 2015, respectively.Revolving Credit FacilitiesThe interest rate on borrowings under the U.S. Revolver will be, at the Company’s option from time to time, either the LIBOR for the relevant interest period plus 3.75% per annum or the Base Rate plus 2.75% per annum. At September 30, 2016, the interest rate was 6.25%.The interest rate on borrowings under the International Revolver will be the European Inter-Bank Offered Rate (“EURIBOR”) for the relevant interest period (or at a substitute rate to be determined to the extent EURIBOR is not available) plus 4.00% per annum. At September 30, 2016, the interest rate was 3.63%.The Company will pay a commitment feesheet.U.S. Revolver,Domestic Revolving Credit Facility, and the Subsidiary will pay a commitment feeare calculated at 0.75% annually on the average daily unused portion of the International Revolver.The ability to borrow under each of the U.S. Revolver and the International Revolver is subject to a “borrowing base,” calculated using a formula based upon approximately 85% of receivables that meet or satisfy certain criteria (“Eligible Receivables”) and that are subject to a perfected security interest held by either the U.S. Lenders or the International Lender, plus, in the case of the International Revolver only, 10% of Eligible Receivables that are not subject to a perfected security interest held by the International Lender, subject to certain exceptions and restrictions.The Company or the Subsidiary, as applicable, will be required to make mandatory prepayments under their respective Revolving Credit Facilities to the extent that the aggregate outstanding amount thereunder exceeds the then-applicable borrowing base, which payments will be made without penalty or premium. At September 30, 2016, the domestic borrowing base was $30,000,000 and the international borrowing base was €11,765,000 (approximately $13,199,000 at September 30, 2016).U.S. RevolverDomestic Revolving Credit Facility are secured by a first-priority security interest in the above-referenced accounts receivable,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 Revolver wouldRevolving Credit Facility are generally be secured by a first-priority security interest in substantially all accounts receivable and cash proceeds thereof, and 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 Revolving Credit Facilities have a term of five years and require payment of interest only during the term. Under the Revolving Credit Facilities, outstanding loans may be repaid in whole or in part at any time, without premium or penalty, subject to certain customary limitations, and will be available to be re-borrowed from time to time through expiration on September 30, 2019.The Company incurred fees and expenses related to the Revolving Credit Facilities aggregating $3,000,000 which has been deferred. The deferred fees are being amortized on a straight-line basis, which approximates the effective interest method, to interest expense and related financing fees, net over a five-year period which ends on September 30, 2019. Unamortized balances of $1,800,000 and $2,250,000 are included in other assets in the consolidated balance sheet at September 30, 2016 and December 31, 2015, respectively.20162019, the Company had $5,006,000$7,141 of outstanding letters of credit under the U.S. Revolver. Due to the default, the Company was precluded from utilizing any of the $2,494,000and $209 of available borrowing capacity under the U.S. Revolver untilDomestic Revolving Credit Facility, based on the waiver was received on November 1, 2016, at which time the entire amount was available to be borrowed without violating the Consolidated Net Leverage Ratio.2016,2019, the Company had $1,008,000$2,458 of outstanding letters of credit and $1,218,000$1,054 of available borrowing capacity under the International Revolver and its other foreign credit agreements (See “Other Debt Arrangements” belowRevolving Credit Facility. The availability under the International Revolving Credit Facility as of September 30, 2019 was reduced from the maximum borrowing capacity of €9,156 ($9,986 as of September 30, 2019) to €4,520 ($4,930 as of more information).Other Debt ArrangementsIn connection with the moverenewal of its corporate headquartersinsurance policies with AFCO for $3,032. The terms of the arrangement include a $258 down payment, followed by monthly payments to Philadelphia, Pennsylvania, the Company receivedbe made over an eleven-month period at a loan from the Philadelphia Industrial Development Corporation in the amount4.57% interest rate through March 31, 2020.$750,000 which bears interest at 2.75%, is repayable in 144 equal monthly installments of $6,121September 30, 2019 and matures on May 1, 2027.The Company’s subsidiary, Hill International (Spain) S.A. (“Hill Spain”), maintains a revolving credit facility with six banks (the “Financing Entities”) in Spain which initially provided for total borrowings of up to €5,640,000 with interest at 6.50% on outstanding borrowings. At December 31, 2015, total availability under this facility2018, the balances payable to AFCO for these arrangements was reduced to 50.0% of$1,527 and $474, respectively, and is reflected in other current liabilities on the initial limit. At September 30, 2016, the total facility was approximately €2,670,000 (approximately $2,996,000) and borrowings outstanding were €2,669,000 (approximately $2,995,000). The amount being financed (“Credit Contracts”) by each Financing Entity is between €189,000 (approximately $213,000) and €769,000 (approximately $863,000). To guarantee Hill Spain’s obligations resulting from the Credit Contracts, Hill Spain provided a guarantee in favor of eachone of the Financing Entities, which, additionally, and solely in the case of unremedied failure to make payment, and at the request of each of the Financing Entities, shall grant a first ranking pledge over a given percentage of corporate shares of Hill International Brasil Participacoes Ltda. for the principal, interest, fees, expenses or any other amount owed by virtue of the Credit Contracts, coinciding with the percentage of credit of each Financing Entity with respect to the total outstanding borrowings under this facility. The facility expires on December 17, 2016 at which time the Company expects to pay off and terminate the facility.Hill Spain also maintains an Instituto de Credito Oficial (“ICO”) loan with Bankia Bank in Spain for €60,000 (approximately $67,000) at September 30, 2016. The availability is reduced by €15,000 on a quarterly basis. At September 30, 2016, total borrowings outstanding were €60,000 (approximately $67,000). The interest rate at September 30, 2016 was 6.50%. The ICO loan expires on August 10, 2017.The Company maintains a credit facility with the National Bank of Abu Dhabi which provides for total borrowings of up to AED 11,500,000 (approximately $3,131,000 at September 30, 2016) collateralized by certain overseas receivables. Borrowings outstanding were AED 11,012,000 (approximately $2,998,000 at September 30, 2016). The interest rate is the one-month Emirate Interbank Offered Rate plus 3.00% (which would be 4.41% at September 30, 2016) but, in any event, no less than 5.50%. This facility also allows for Letters of Guarantee of up to AED 200,000,000 (approximately $54,452,000 at September 30, 2016) of which AED 135,080,000 (approximately $36,777,000) was outstanding at September 30, 2016. The credit facility is subject to periodic review by the bank.Engineering S.A. maintains four unsecured revolving credit facilities with two banks in Brazil aggregating 2,380,000 Brazilian Reais (BRL) (approximately $730,000 at September 30, 2016), with a weighted average interest rate of 5.09% per month at September 30, 2016. There were no borrowings outstanding on any of these facilities which are renewed automatically every three months.The Company also maintains relationships with other foreign banks for the issuance of letters of credit, letters of guarantee and performance bonds in a variety of foreign currencies. At September 30, 2016, the maximum U.S. dollar equivalent of the commitments was $89,237,000 of which $40,362,000 is outstanding.Note 9 — Supplemental Cash Flow InformationThe following table provides additional cash flow information (in thousands):Earnings per ShareBasic earnings per common share has been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share incorporates the incremental shares issuable upon the assumed exercise of stock options using the treasury stock method, if dilutive. Options to purchase 6,480,000 shares and 6,478,000 shares were excluded from the calculation of diluted earnings per common share for the three and nine months ended September 30, 2016, respectively, because they were antidilutive. Dilutive stock options increased the average common shares outstanding by approximately 684,000 shares for the three months ended September 30, 2015 and by approximately 613,000 shares for the nine months ended September 30, 2015. Options to purchase 3,208,000 shares and 3,773,000 shares were excluded from the calculation of diluted earnings per common share for the three and nine months ended September 30, 2015 because they were antidilutive.Note 11 — Share-Based CompensationAt September 30, 2016, the Company had approximately 6,932,000 options outstanding with a weighted average exercise price of $4.10. During the nine months ended September 30, 2016, the Company granted 765,000 options which vest over a five-year period and 10,101 options which vested immediately. The options have a weighted-average exercise price of $4.30 and a weighted average contractual life of 6.97 years. The aggregate fair value of the options was $1,075,000 calculated using the Black-Scholes valuation model. The weighted average assumptions used to calculate fair value were: expected life — 4.97 years; volatility — 57.4% and risk-free interest rate — 1.24%. During the first nine months of 2016, options for approximately 369,000 shares with a weighted average exercise price of $2.62 were exercised, options for approximately 1,104,000 shares with a weighted average exercise price of $6.86 lapsed and options for 82,000 shares with a weighted average exercise price of $4.24 were forfeited.During the nine months ended September 30, 2016, employees purchased approximately 19,000 common shares, for an aggregate purchase price of $65,000, pursuant to the Company’s 2008 Employee Stock Purchase Plan.$581,000approximately $1,212 and $899,000an expense reduction of $47 for the three months ended September 30, 20162019 and 2015,2018, respectively, and $1,838,000$2,254 and $2,360,000$741 for the nine months ended September 30, 20162019 and 2015,2018. The Company's related share-based compensation is comprised of the following:Note 12 — Stockholders’ Equityfollowing table summarizesrelated compensation expense is recorded based on a weighted average price per share of $2.74. NaN DSU's were issued during the changes in stockholders’ equitythree and nine months ended September 30, 2018.2016 (in thousands):During March 2016, certain officers exercised an aggregate of 297,489 options2019, which vest over a three-year period, with a 5-year contractual life, and had an exercise price of $2.45 through the Company on a cashless basis.$3.13. The Company withheld 215,158 shares as payment foraggregate fair value of the options was approximately $440 using the Black-Scholes valuation model. The weighted average assumptions used to calculate fair value were based on an expected life of 3.5 years, a volatility of 49.4% and placed those shares in treasury. The officers received a totalrisk-free interest rate of 112,331 shares from this transaction.2016,2019, options for approximately 564 shares with a weighted average exercise price of $4.53 lapsed.received $220,000 in cashstock valued at $80 per month to ICEO during his term of service from May 2017 through September 2018. At the exerciseend of each month during such period, the ICEO was entitled to $80 worth of Company stock options.Note 13 — Income TaxesThe effective tax rates forbased on the closing price of the Company's common stock on the last trading day of the month. During the three months ended September 30, 2016 and 2015 were (74.3)% and 55.8%, respectively, and 222.8% and 47.8% for the nine months ended September 30, 20162018, the ICEO accumulated 53 and 2015,138 shares, respectively. The Company’sCompany reduced share-based compensation expense by $166 and increased share-based compensation expense by $399 for the three and nine months ended September 30, 2018, respectively, related to these monthly grants. Since the total number and value of the shares were not determined until the end of his service in September 2018, the share-based compensation expense related to these shares was reflected in accrued expenses and was reclassed to equity when the shares were delivered to the ICEO during the fourth quarter of 2018.projected income and mixfull year projection of incometax expense, divided by the projection of full year pretax book income/(loss) among the various foreign tax jurisdictions, adjusted for discrete transactions occurring during the period. There was no change in the reserve for uncertainThe effective tax positionsrates for the three months ended September 30, 20162019 and 2015. For2018 were (15.7)% and 5.1% , respectively, and 51.2% and (14.4)% for the nine months ended September 30, 20162019 and 2015, the Company recognized an income2018, respectively.(benefit) expense related to an increase in the reserve for uncertain tax positions amounting to $(14,000) and $245,000, respectively. In addition, the Company recognized an income tax expense (benefit) resulting from adjustments to agree the prior year’s book amounts to the actual amounts per the tax returns totaling $0 and ($37,000)rate for the three months ended September 30, 2016 and 2015, respectively, and $535,000 and ($37,000) for2019 changed from the nine months ended September 30, 2016 and 2015, respectively. comparable period of 2018, primarily due to the mix of pretax earnings in jurisdictions with different jurisdictional tax rates, as well as not having the ability to benefit from losses in jurisdictions that have a history of negative earnings.Company’s effective2017 Tax Act reduced the U.S. statutory tax rate from 35% to 21% beginning in both years is higher than it otherwise would be primarily2018. The 2017 Tax Act requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and introduces a new U.S. tax on certain off-shore earnings referred to as a result of not recording an income tax benefit related to the U.S. net operating loss and various foreign withholding taxes.The components of earnings (loss) before income taxes and the related income tax expense by United States and foreign jurisdictions were as follows (in thousands):$ 939,000$3,378 and $1,220,000$2,988 at September 30, 20162019 and December 31, 2015,2018, respectively, and is included in “Other liabilities” in the consolidated balance sheetssheet at those dates.At both September 30, 2016 and December 31, 2015, potentialThe Company recorded tax related interest and penalties relatedof $158 and $140 for the three and nine months ended September 30, 2019, respectively. There was 0 such expense recorded for the three months and nine months ended September 30, 2018.uncertainreconcile the prior year provision amounts to the tax positions amounted to $500,000returns filed during the three and was included in the balance above. or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Management evaluates the need for valuation allowances on the deferred tax assets according to the provisions of ASC740, ASC 740, Income Taxes. They consider both positive and negative evidence.Taxes. In making this determination, management assesses all of theavailable evidence, availableboth positive and negative, at the time includingbalance sheet date. This includes, but is not limited to, recent earnings, internally-prepared income projections, and historical financial performance.14 — Business Segment12 —Segment and Related InformationThe Company’s business segments reflect how executive management makes resource decisions and assesses its performance. bases these decisions onoperates as 1 reporting segment which reflects how the type of services provided (Project Management and Construction Claims) and secondarily by their geography (U.S./Canada, Latin America, Europe, the Middle East, Africa and Asia/Pacific).The Project Management business segmentCompany is managed, which provides extensive construction and project management services to construction owners worldwide. Such services include program management, project management, construction management, project management oversight, troubled project turnaround, staff augmentation, project labor agreement consulting, commissioning, estimating and cost management, labor compliance services (collectively, "integrated project management") and facilities management services.The Construction Claims business segment provides such services as claims consulting, management consulting, litigation support, expert witness testimony, cost/damages assessment, delay/disruption analysis, adjudication, lender advisory, risk management, forensic accounting, fraud investigation, Project Neutral and international arbitration services to clients worldwide.The Company evaluates the performance of its segments primarily on operating profit before corporate overhead allocations and income taxes.reflect the required disclosurespresent certain information for the Company’s reportable segments (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 United States $ 49,936 52.3 % $ 49,134 48.2 % $ 149,374 51.1 % $ 152,471 46.5 % Latin America 1,669 1.7 % 2,751 2.7 % 6,014 2.1 % 8,521 2.6 % Europe 10,556 11.0 % 10,479 10.3 % 32,512 11.1 % 31,175 9.5 % Middle East 25,447 26.6 % 30,688 30.1 % 79,730 27.2 % 106,410 32.4 % Africa 7,005 7.3 % 6,712 6.6 % 20,884 7.1 % 20,279 6.2 % Asia/Pacific 1,057 1.1 % 2,171 2.1 % 4,096 1.4 % 9,124 2.8 % Total $ 95,670 100.0 % $ 101,935 100.0 % $ 292,610 100.0 % $ 327,980 100.0 % (“CFR”)Total Revenue Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 United States $ 33,442 44.1 % $ 34,173 42.1 % $ 100,236 43.2 % $ 105,239 40.2 % Latin America 1,668 2.2 % 2,744 3.4 % 6,011 2.6 % 8,504 3.2 % Europe 9,989 13.2 % 9,258 11.4 % 31,073 13.4 % 28,673 11.0 % Middle East 23,328 30.8 % 26,909 33.1 % 71,663 30.9 % 95,142 36.3 % Africa 6,421 8.5 % 6,089 7.5 % 19,198 8.3 % 18,543 7.1 % Asia/Pacific 899 1.2 % 2,058 2.5 % 3,601 1.6 % 5,693 2.2 % Total $ 75,747 100.0 % $ 81,231 100.0 % $ 231,782 100.0 % $ 261,794 100.0 % Three Months Ended
September 30, Nine Months Ended
September 30, 2019 2018 2019 2018 United States $ 8,306 $ 8,451 $ 22,459 $ 26,559 Latin America (563 ) 279 (813 ) 935 1,303 1,629 4,359 5,465 4,982 6,007 14,579 11,900 Africa 1,241 1,870 4,262 7,772 216 1,010 (84 ) 1,297 (12,382 ) (26,915 ) (36,516 ) (70,362 ) Total $ 3,103 $ (7,669 ) $ 8,246 $ (16,434 ) Consulting Fee Revenue by Geographic Region:During the third quarter ended September 30, 2016, consulting fee revenue for the United Arab Emirates amounted to $25,016,000 representing 16.9% of the total. No other country other than the United States accounted for 10% or more of consolidated consulting fee revenue.During the third quarter ended September 30, 2015, consulting fee revenue for the United Arab Emirates amounted to $29,642,000 representing 18.7% of the total. No other country other than the United States accounted for 10% or more of consolidated consulting fee revenue.Total Revenue by Geographic Region:During the third quarter ended September 30, 2016, total revenue for the United Arab Emirates amounted to $26,359,000 representing 15.7% of the total. No other country except for the United States accounted for 10% or more of consolidated total revenue.During the third quarter ended September 30, 2015, total revenue for the United Arab Emirates amounted to $30,910,000 representing 17.3% of the total. No other country except for the United States accounted for 10% or more of consolidated total revenue.Consulting Fee Revenue By Client Type: Three Months Ended
September 30, Nine Months Ended
September 30, 2019 2018 2019 2018 Project Management $ 836 $ 762 $ 2,400 $ 2,793 Corporate 14 164 35 640 Total $ 850 $ 926 $ 2,435 $ 3,433 Three Months Ended September 30, Nine Months Ended September 30, 2019 2018 2019 2018 U.S. federal government $ 4,311 4.5 % $ 4,329 4.2 % $ 13,398 4.6 % $ 12,124 3.7 % U.S. state, regional and local governments 31,222 32.6 % 34,047 33.4 % 94,193 32.2 % 103,759 31.6 % Foreign governments 24,962 26.1 % 27,039 26.5 % 74,845 25.6 % 94,476 28.8 % Private sector 35,175 36.8 % 36,520 35.9 % 110,174 37.6 % 117,621 35.9 % Total $ 95,670 100.0 % $ 101,935 100.0 % $ 292,610 100.0 % $ 327,980 100.0 % September 30, 2019 December 31, 2018 United States $ 9,365 $ 8,416 Latin America 717 692 Europe 487 503 Middle East 828 962 Africa 111 105 Asia/Pacific 89 109 Total $ 11,597 $ 10,787 Consulting Fee Revenue (“CFR”)Total RevenueOperating Profit (Loss) by Geographic Region:Depreciation and Amortization Expense:Consulting Fee Revenue by Geographic Region:During the nine months ended September 30, 2016, consulting fee revenue for the United Arab Emirates amounted to $86,596,000 representing 18.9% of the total. No other country except the United States accounted for 10% or more of consolidated consulting fee revenue.During the nine months ended September 30, 2015, consulting fee revenue for the United Arab Emirates amounted to $83,613,000 representing 17.8% of the total. No other country except the United States accounted for 10% or more of consolidated consulting fee revenue.Total Revenue by Geographic Region:During the nine months ended September 30, 2016, total revenue for the United Arab Emirates amounted to $91,082,000 representing 17.5% of the total. No other country except for the United States accounted for 10% or more of consolidated total revenue.During the nine months ended September 30, 2015, total revenue for the United Arab Emirates amounted to $85,898,000 representing 16.2% of the total. No other country except for the United States accounted for 10% or more of consolidated total revenue.Consulting Fee Revenue By Client Type:Total Revenue By Client Type:1513 — Commitments and ContingenciesGeneral Litigationactionsproceedings which arise in the normal course of business. As such the Company is required to assess the likelihood of any adverse outcomes to these mattersproceedings as well as potential ranges of probable losses. A determination of the amount of the provision required for these commitments and contingencies, if any, which would be charged to earnings, is made after careful analysis of each matter.proceeding. The provision may change in the future due to new developments or changes in circumstances. Changes in the provision could increase or decrease the Company’s earnings in the period the changes are made. It is the opinion of management, after consultation with legal counsel, that the ultimate resolution of these mattersproceedings will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.Acquisition-Related ContingenciesAs of September 30, 2016, our subsidiary, Hill International (Spain), S.A.Hill Spain”), owned an indirect 91% interest in Engineering S.A. (“ESA”Knowles”), a firmsubsidiary of the Company, is a party to an arbitration proceeding instituted on July 8, 2014 in which Knowles claimed that it was entitled to payment for services rendered to Celtic Bioenergy Limited (“Celtic”). The arbitrator decided in favor of Knowles. The arbitrator’s award was appealed by Celtic to the U.K. High Court of Justice, Queen’s Bench Division, Technology and Construction Court (“Court”). On March 16, 2017, the Court (1) determined that certain relevant facts had been deliberately withheld from the arbitrator by an employee of Knowles and (2) remitted the challenged parts of the arbitrator’s award back to the arbitrator to consider the award in possession of the full facts. In May 2019, Celtic claimed breach of contract and/or negligence within the arbitration. The Company is evaluating the impact of the judgement of the Court.Brazil. ESA’s shareholders entered intoKuwait. FAB subsequently issued, on behalf of the Company, a payment on February 15, 2018. The Company is taking legal action to recover the full Performance Guarantee amount. On September 20, 2018 the Kuwait First Instance Court dismissed the Company's case. As a result, the Company fully reserved the performance guarantee payment above in the first quarter of 2018 and it is presented as "Loss on Performance Bond" on the consolidated statements of operations. The Company filed an agreement wherebyappeal before the minority shareholders haveKuwait Court of Appeals seeking referral of the matter to a rightpanel of experts for determination. On April 21, 2019, the Court of Appeals ruled to compel (“ESA Put Option”) Hill Spainrefer the matter to purchase any or allthe Kuwait Experts Department. Hearings with the Kuwait Experts Department were held during July and September 2019. A final report from the panel of experts is currently expected to be issued prior to the next court hearing in the matter scheduled for January 7, 2020.shares duringhome country, in which their employees provided services. The Company has estimated 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 sharespotential liability 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. On June 17, 2016, the three remaining minority shareholders exercised their ESA Put Option claiming a value of BRL 8,656,000 (approximately $2,655,000 at September 30, 2016). The Company accrued the liabilityapproximately $1,086, which is included in other current liabilities and as an adjustment to additional paid-in capital in the consolidated balance sheet at September 30, 2016. The amount is subject to negotiation and any difference will be recorded upon completion of the transaction.On October 31, 2014, our subsidiary Hill International (UK) Ltd. acquired all of the outstanding common stock of Angus Octan Scotland Ltd., which included its subsidiary companies Cadogan Consultants Ltd., Cadogan Consult Ltd. and Cadogan International Ltd. (collectively, “Cadogans”). The sellers of Cadogans are entitled to an earn-out based upon theaverage earnings before interest, taxes, depreciation and amortization for the two-year period ending on October 31, 2016 (which amount shall not be less than £0 or more than £200,000). The Company accrued the potential additional consideration of £200,000 ($259,000) which is included in other current liabilities in the consolidated balance sheet at September 30, 2016.Two2019.selling shareholdersCompany's operating leases include one or more options to renew at the Company's sole discretion. The lease renewal option terms generally range from 1 month to 5 years for office leases. The determination of Cadogans may receivewhether to include any renewal options is made by the Company at lease inception when establishing the term of the lease. Leases with an earn-outinitial term of 12 months or less are not recorded in annual installmentsthe consolidated balance sheet as of up to £100,000 ($130,000) at September 30, 2016), which will be charged to earnings, provided that Cadogans’ EBITDA2019.eachoperating leases is recognized on a straight-line basis over the lease term from the lease commencement date through the scheduled expiration date. Rent expense of approximately $2,277 and $2,253 for the years ending October 31, 2016, 2017,three months ended September 30, 2019 and 2018, respectively, and $6,636 and $6,743 for the nine months ended September 30, 2019 and 2018, respectively, is greater than £396,000 ($513,000). Based upon preliminary results, it appears thatincluded in selling, general and administrative and direct expenses in the two shareholders will receive an earnout amounting to £100,000 ($130,000)consolidated statements of which £92,000 ($120,000) has been accrued and charged to earningsoperations. Of the $2,277 in operating lease expense for the three and nine months ended September 30, 2016.connection with the acquisition of IMS Proje Yonetimi ve Danismanlik A.S. (“IMS”) on April 15, 2015,addition, these leases may require the Company had accrued approximately TRY 1,700,000 for a potential earn out which would be payable if earnings before interest,to pay property taxes, utilities and other costs related to several of its leased office facilities.taxes, depreciation and amortizationrecognized for the twelve month period subsequent to the closing date (“EBITDA”) exceeded TRY 3,500,000. A lesser amount would have been payable if EBITDA was between TRY 3,200,000three and TRY 3,500,000. IMS’s EBITDA through the one-year anniversary of the acquisition date was not sufficient to earn any of the Additional Purchase Price and the liability was eliminated by a credit of approximately $673,000 to selling, general and administrative expenses for the nine month periodmonths ended September 30, 2016.2019 was $141 and $427, respectively. Total Operating Lease Payments 2019 (excluding the nine months ended September 30, 2019) $ 6,943 2020 5,848 2021 4,502 2022 3,882 2023 3,000 Thereafter 5,475 29,650 Less amount representing imputed interest 4,582 Present value of lease obligations $ 25,068 Weighted average remaining lease term (years) 5.28 Weighted average discount rate 6.28 % Operations.Operations (in thousands).(“CFR”("CFR") and reimbursable expenses. ReimbursableThe professionals we deploy are occasionally subcontractors. We generally bill the actual cost of these subcontractors and recognize this cost as both revenue (reimbursable expenses) and direct expense. CFR refers to our revenue excluding amounts paid or due to subcontractors. We believe CFR is an important measure because it represents the revenue on which we earn gross profit, whereas total revenue includes subcontractors on which we generally pass through the cost and earn minimal or no gross profit.reflectednot billable and corporate or regional costs such as sales, business development, proposals, operations, finance, human resources, legal, marketing, management and administration. Three Months Ended September 30, Change Nine Months Ended September 30, Change 2019 2018 $ % 2019 2018 $ % Income Statement Data: Consulting fee revenue $ 75,747 $ 81,231 $ (5,484 ) (6.8 )% $ 231,782 $ 261,794 $ (30,012 ) (11.5 )% Reimbursable expenses 19,923 20,704 (781 ) (3.8 )% 60,828 66,186 (5,358 ) (8.1 )% Total revenue $ 95,670 $ 101,935 $ (6,265 ) (6.1 )% $ 292,610 327,980 $ (35,370 ) (10.8 )% Direct expenses 64,086 65,600 (1,514 ) (2.3 )% 198,288 222,181 (23,893 ) (10.8 )% Gross profit $ 31,584 $ 36,335 $ (4,751 ) (13.1 )% $ 94,322 $ 105,799 $ (11,477 ) (10.8 )% Selling, general and administrative expenses 29,261 44,689 (15,428 ) (34.5 )% 87,987 116,911 (28,924 ) (24.7 )% Plus: Share of profit of equity method affiliates 780 685 95 13.9 % 1,911 2,616 (705 ) (26.9 )% Less: Loss on performance bond — — — — % — 7,938 (7,938 ) (100.0 )% Operating profit (loss) $ 3,103 $ (7,669 ) $ 10,772 (140.5 )% $ 8,246 $ (16,434 ) $ 24,680 (150.2 )% Interest and related financing fees, net 1,485 1,275 210 16.5 % 4,408 3,855 553 14.3 % Other income, net 549 — 549 100.0 % 549 — 549 100.0 % Income (loss) before income taxes $ 2,167 $ (8,944 ) $ 11,111 (124.2 )% $ 4,387 $ (20,289 ) $ 24,676 (121.6 )% Income tax (benefit) expense (340 ) (460 ) 120 (26.1 )% 2,248 2,928 (680 ) (23.2 )% Income (loss) from continuing operations $ 2,507 $ (8,484 ) $ 10,991 (129.5 )% $ 2,139 $ (23,217 ) $ 25,356 (109.2 )% Discontinued operations: Loss from discontinued operations, net of tax — — — — % — (863 ) 863 (100.0 )% Total loss from discontinued operations $ — $ — $ — — % $ — $ (863 ) $ 863 (100.0 )% Net income (loss) $ 2,507 $ (8,484 ) $ 10,991 (129.5 )% $ 2,139 $ (24,080 ) $ 26,219 (108.9 )% Less: net earnings - non-controlling interests 26 60 (34 ) (56.7 )% 176 96 80 83.3 % Net income (loss) attributable to Hill International, Inc. $ 2,481 $ (8,544 ) $ 11,025 (129.0 )% $ 1,963 $ (24,176 ) $ 26,139 (108.1 )% Three Months Ended September 30, Change 2019 2018 $ % United States $ 49,936 52.3 % $ 49,134 48.2 % $ 802 1.6 % Latin America 1,669 1.7 % 2,751 2.7 % (1,082 ) (39.3 )% Europe 10,556 11.0 % 10,479 10.3 % 77 0.7 % Middle East 25,447 26.6 % 30,688 30.1 % (5,241 ) (17.1 )% Africa 7,005 7.3 % 6,712 6.6 % 293 4.4 % Asia/Pacific 1,057 1.1 % 2,171 2.1 % (1,114 ) (51.3 )% Total $ 95,670 100.0 % $ 101,935 100.0 % $ (6,265 ) (6.1 )% Three Months Ended September 30, Change 2019 2018 $ % United States $ 33,442 44.1 % $ 34,173 42.1 % $ (731 ) (2.1 )% Latin America 1,668 2.2 % 2,744 3.4 % (1,076 ) (39.2 )% Europe 9,989 13.2 % 9,258 11.4 % 731 7.9 % Middle East 23,328 30.8 % 26,909 33.1 % (3,581 ) (13.3 )% Africa 6,421 8.5 % 6,089 7.5 % 332 5.5 % Asia/Pacific 899 1.2 % 2,058 2.5 % (1,159 ) (56.3 )% Total $ 75,747 100.0 % $ 81,231 100.0 % $ (5,484 ) (6.8 )% equal amounts in both total revenue and total direct expenses. Becausethe corresponding decrease in CFR for the three months ended September 30, 2019 compared to the same period in 2018 was primarily due to a decrease in backlog (see definition below) during 2018 primarily in the Middle East, Asia/Pacific and Latin America. Backlog is generally a leading indicator for future revenue and CFR. The decrease in backlog was due primarily to the wind-down and completion of several major projects in these pass-through revenue/costs are subjectregions without a sufficient amount of new bookings to significant fluctuation from year to year, we measure the performance of many of our key operating metricsreplace them. Three Months Ended September 30, Change 2019 2018 $ % United States $ 14,861 47.1 % 29.8 % $ 15,329 42.2 % 31.2 % $ (468 ) (3.1 )% Latin America 659 2.1 % 39.5 % 1,127 3.1 % 41.0 % (468 ) (41.5 )% Europe 3,719 11.8 % 35.2 % 3,672 10.1 % 35.0 % 47 1.3 % Middle East 9,259 29.2 % 36.4 % 12,016 33.1 % 39.2 % (2,757 ) (22.9 )% Africa 2,734 8.7 % 39.0 % 2,869 7.9 % 42.7 % (135 ) (4.7 )% Asia/Pacific 352 1.1 % 33.3 % 1,322 3.6 % 60.9 % (970 ) (73.4 )% Total $ 31,584 100.0 % 33.0 % $ 36,335 100.0 % 35.6 % $ (4,751 ) (13.1 )% CFR,total revenue in total decreased between periods. The change in gross margin as we believe that this is a better and more consistent measurepercentage of operating performance than total revenue.The recent drop in global oil prices has had a negative impact on the construction industry, particularlyrevenue in the selected individual regions below for the three months ended September 30, 2019 compared to the same period in 2018 was primarily due to the following:East, where existingEast:have been suspended or have had scope reductions. Also, political upheavalin Qatar and civil unrest have negatively affected businessSaudi Arabia.region. This trend could continuecurrent year period primarily due to the final closeout of a project in the prior year period which resulted in all of the deferred revenue for the next few years.CFRproject being recognized.$10,586,000, or 6.7%, to $147,993,000approximately $2,200 and foreign exchange losses were approximately $2,000 lower during the third quarter of 2016 from $158,579,000 during2019 compared to the third quarter of 2015. CFR2018. The remainder of the changes from 2018 to 2019 are primarily due to the Profit Improvement Plan being fully implemented in 2019.Project Management segment decreased $9,673,000 principallythree months ended September 30, 2019 as compared with $1,275, which is composed of $1,322 of interest expense offset by $47 of interest income, for the three months ended September 30, 2018. The three months ended September 30, 2019 included higher interest expense primarily related to our U.S. dollar-denominated revolving credit facility with Société Générale (the “Agent”) and other U.S. Loan Parties (the “U.S. Lenders”) due to decreaseshigher loan balances throughout the three months ended September 30, 2019, when compared to the three months ended September 30, 2018. Nine Months Ended September 30, Change 2019 2018 $ % United States $ 149,374 51.1 % $ 152,471 46.5 % $ (3,097 ) (2.0 )% Latin America 6,014 2.1 % 8,521 2.6 % (2,507 ) (29.4 )% Europe 32,512 11.1 % 31,175 9.5 % 1,337 4.3 % Middle East 79,730 27.2 % 106,410 32.4 % (26,680 ) (25.1 )% Africa 20,884 7.1 % 20,279 6.2 % 605 3.0 % Asia/Pacific 4,096 1.4 % 9,124 2.8 % (5,028 ) (55.1 )% Total $ 292,610 100.0 % $ 327,980 100.0 % $ (35,370 ) (10.8 )% Nine Months Ended September 30, Change 2019 2018 $ % United States $ 100,236 43.2 % $ 105,239 40.2 % $ (5,003 ) (4.8 )% Latin America 6,011 2.6 % 8,504 3.2 % (2,493 ) (29.3 )% Europe 31,073 13.4 % 28,673 11.0 % 2,400 8.4 % Middle East 71,663 30.9 % 95,142 36.3 % (23,479 ) (24.7 )% Africa 19,198 8.3 % 18,543 7.1 % 655 3.5 % Asia/Pacific 3,601 1.6 % 5,693 2.2 % (2,092 ) (36.7 )% Total $ 231,782 100.0 % $ 261,794 100.0 % $ (30,012 ) (11.5 )% where three largeand $3,097 in the United States due to the winding down of projects were completed and several existing projects have been suspended or have had scope reductions, and Latin America,$5,028 in Asia/Pacific due to the winding down of a project largely performed by subcontractors. These decreases were partially offset by increasesan increase in Africa of approximately $605 and Europe of approximately $1,337 due to the addition of new work. Nine Months Ended September 30, Change 2019 2018 $ % United States $ 42,904 45.5 % 28.7 % $ 45,912 43.5 % 30.1 % $ (3,008 ) (6.6 )% Latin America 2,171 2.3 % 36.1 % 3,639 3.4 % 42.7 % (1,468 ) (40.3 )% Europe 11,806 12.5 % 36.3 % 10,949 10.3 % 35.1 % 857 7.8 % Middle East 27,340 28.9 % 34.3 % 34,140 32.3 % 32.1 % (6,800 ) (19.9 )% Africa 8,539 9.1 % 40.9 % 8,168 7.7 % 40.3 % 371 4.5 % Asia/Pacific 1,562 1.7 % 38.1 % 2,991 2.8 % 32.8 % (1,429 ) (47.8 )% Total $ 94,322 100.0 % 32.2 % $ 105,799 100.0 % 32.3 % $ (11,477 ) (10.8 )% States. CFR forStatesConstruction Claims segment decreased by $913,000, or 2.2%, due primarily to decreases in Europe and Asia/Pacific,winding down of projects which was partially offset by increasesa reduction of direct expenses.East.CFR decreased $11,546,000, or 2.5%, to $457,912,000East as a result of lower fringe expense in direct expense during the nine months ended September 30, 20162019.$469,458,000the same period in the prior year as a result of less revenue being generated from subcontractors which generally provide a low margin return on projects.2015. CFR for the Project Management segment decreased $11,549,000 principally due to decreases in the Middle East, as noted above, and Latin America, partially offset by increases in the United States. CFR for the Construction Claims segment was essentially flat due primarily to increases in the United Kingdom and the Middle East, offset by decreases in the United States.Net loss attributable to Hill was ($6,866,000) during the third quarter of 2016 compared to net earnings of $2,948,000 during the third quarter of 2015. The decrease was due to a lower volume of work and declining margins in the Middle East as well as increased operating expenses.Diluted loss per common share was ($0.13) during the third quarter of 2016 based upon 51,753,000 diluted common shares outstanding compared to diluted earnings per common share of $0.06 during the third quarter of 2015 based upon 51,803,000 diluted common shares outstanding.Net loss attributable to Hill was ($3,926,000) during2018.2016 compared2019 and 2018, we recognized an income tax expense of $2,248 and $2,928, respectively.net earnings of $8,045,000reconcile the prior year provision amounts to our tax returns filed during the period ended September 30, 2019.2015. The decrease2019 was due to a lower volume of work and declining margins in the Middle East as well as increased operating expenses.Diluted loss per common share was ($0.08) during the nine months ended September 30, 2016 based upon 51,704,000 diluted common shares outstanding compared to diluted earnings per common share of $0.16 during the nine months ended September 30, 2015 based upon 51,274,000 diluted common shares outstanding.Critical Accounting PoliciesThe 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 2015 Annual Report.Results of OperationsThree Months Ended September 30, 2016 Compared toThree Months Ended September 30, 2015Consulting Fee Revenue (“CFR”) (dollars in thousands)The decrease in CFR was primarily due to decreased work in the Middle East where the recent drop in oil prices has had a negative effect on funding for construction projects, some of which have been suspended or have had scope reductions. Also, political upheaval and civil unrest has generally had a negative effect on business in the region. This trend could continue for the next few years.The decrease in Project Management CFR included a $13,880,000 decrease in international projects and an increase of $4,207,000 in domestic projects. The decrease in international Project Management CFR was due primarily to decreases throughout the Middle East and Brazil. The increase in domestic Project Management CFR included increases primarily in the Northeast and Southern Regions.The decrease in Construction Claims CFR was primarily due to decreases in the United Kingdom, the United States and Asia/Pacific, partially offset by increases in the Middle East.Reimbursable Expenses (dollars in thousands)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 earnings. The decrease in Construction Claims reimbursable expense is primarily due to lower direct job related expenses in the United Kingdom and the Middle East.Cost of Services (dollars in thousands)
CFR
CFRCost of services consists of labor expenses for time charged directly to contracts and non-reimbursable job-related travel and out-of-pocket expenses. The decrease in Project Management cost of services is primarily due to decreases in the Middle East due to staffing reductions in line with lower CFR, partially offset by increases in the United States in support of increased work. The decrease in the Construction Claims cost of services is primarily due to decreased direct labor in the United Kingdom and the United States in line with lower CFR.Gross Profit (dollars in thousands)
CFR
CFRThe decrease in Project Management gross profit included a decrease of $3,931,000 from international operations, primarily as a result of reduced contractual rates and a lower volumethe mix of work in the Middle East and a volume decrease in Latin America. This was partially offset by an increase of $1,392,000 in domestic operations primarily the Northeast and Southern regions.The Construction Claims gross profit was essentially flat with increases in the Middle East partially offset by decreases in the United Kingdom and Asia/Pacific.Selling, General and Administrative (“SG&A”) Expenses (dollars in thousands)The increase in selling, general and administrative expenses included the following:· An increase of $7,983,000 in bad debt expense primarily for increased reserves for certain accounts receivable in the Middle East and Asia/Pacific;· A increase in legal fees of $2,567,000 due primarily to costs related to the proxy contest; and· A decrease in amortization expense of $566,000 as certain acquired intangible assets have become fully amortized.Operating Profit (dollars in thousands)
CFR
CFRThe decrease in Project Management operating profit was primarily due to the increase of $7,197,000 in bad debt reserves due to delays in payments or short pays against accounts receivable coupled with a decline in CFR in the Middle East, largely in Oman, the United Arab Emirates, Qatar and Iraq.The decrease in Construction Claims operating profit was primarily due to CFR decreases in the United Kingdom and Asia/Pacific, partially offset by increases in the Middle East and higher bad debt expense of $786,000.Corporate expenses increased by $2,236,000 which was primarily due to increases in legal fees associated with the proxy contest. Corporate expenses represented 7.1% of CFR during the third quarter ended September 30, 2016 compared to 5.2% during the third quarter ended September 30, 2015.Interest Expense and Related Financing Fees, netNet interest and related financing fees decreased $779,000 to $3,368,000 in the three months ended September 30, 2016 as compared with $4,147,000 in the three months ended September 30, 2015. The decrease was primarily due to interest of $607,000 paid to a subcontractor in 2015 as a result of a legal settlement.Income TaxesFor the three months ended September 30, 2016 and 2015, the Company recognized income tax expense of $2,880,000 and $4,210,000, respectively. The income tax expense in both periods was related to the pre-tax income generated from foreign operations adjusted for discrete items during the period and 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. For the three months ended September 30, 2016, there was no change in the reserve for uncertain tax positions. The Company recognized an income tax benefit for the three months ended September 30, 2015 of $37,000 resulting from adjustments to agree the prior year book amount to the actual amounts per the tax return.The effective income tax rates for the three months ended September 30, 2016 and 2015 were (74.3%) and 55.8%, respectively. For both years, the Company’s effective tax rate is significantly higher than it otherwise would be primarily as a result ofamong various foreign withholding taxes and not being able to record an incomejurisdictions with different statutory tax benefit related to the U.S. net operating loss. (Loss) Earnings Attributable to Hill International, Inc.Net lossthreenine months ended September 30, 20162019 was ($6,866,000),$1,963, or ($0.13)$0.03 per diluted common share based on 51,753,00056,178 diluted weighted average common shares outstanding, as compared to net earnings for the three months ended September 30, 2015 of $2,948,000, or $0.06 per diluted common share, based upon 51,803,000 diluted common shares outstanding.Nine Months Ended September 30, 2016 Compared toNine Months Ended September 30, 2015Consulting Fee Revenue (“CFR”) (dollars in thousands)The decrease in CFR included an organic decrease of 2.8% primarily in the Middle East and Latin America, partially offset by an increase of 0.3% due to the acquisition of IMS Proje Yonetimi ve Danismanlik A.S. (“IMS”) in April 2015. The recent drop in oil prices, as well as ongoing political upheaval and civil unrest, has had a negative effect on business, particularly the construction industry, in the Middle East where construction projects have been suspended or have had scope reductions. This trend could continue for the next few years.The decrease in Project Management CFR included an organic decrease of 3.8%, partially offset by an increase of 0.5% due to the acquisition of IMS. The decrease included a $21,551,000 decrease in international projects, partially offset by an increase of $10,002,000 in domestic projects. The decrease in international Project Management CFR was due primarily to decreases in the Middle East and Latin America. The increase in domestic CFR occurred throughout the United States.Construction Claims CFR was essentially flat with increases in the Middle East, Europe and Australia offset by decreases in the United States and Latin America.Reimbursable Expenses (dollars in thousands)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 increase in Project Management reimbursable expense is primarily due to higher use of subcontractors in our Mid-Atlantic region, partially offset by a decrease in subcontractors in the Northeast region. The decrease in Construction Claims reimbursable expense is primarily due to decreases in the United Kingdom and the Middle East.Cost of Services (dollars in thousands)
CFR
CFRCost of services consists of labor expenses for time charged directly to contracts and non-reimbursable job-related travel and out-of-pocket expenses. The decrease in Project Management cost of services is primarily due to decreases in the Middle East direct labor due to lower CFR, partially offset by increased direct labor in the United States supporting increased CFR.Gross Profit (dollars in thousands)
CFR
CFRThe decrease in Project Management gross profit included decreases throughout the Middle East and Latin America partially offset by increases in the United States.Construction Claims gross profit, which was essentially flat compared to last year, included increases in the United Kingdom and the Middle East, partially offset by decreases in the United States and Asia/Pacific.The overall gross profit percentage decreased due to lower margins achieved in the Middle East, primarily Oman and Qatar.Selling, General and Administrative (“SG&A”) Expenses (dollars in thousands)The increase in selling general and administrative expenses was primarily due to the following:· An increase of $9,338,000 in bad debt expense primarily for increased reserves for certain accounts receivable in the Middle East and Asia/Pacific;· An increase in legal fees of $1,236,000 due primarily to higher legal costs incurred in 2016 compared to 2015 in connection with the proxy contests in both years partially offset by an employee labor dispute amounting to $1,048,000 in 2015;· A decrease in unapplied and indirect labor of $1,362,000 due to staff reductions in late 2015 and early 2016 due to decreased CFR;· A decrease of $1,159,000 in amortization expense as certain acquired intangible assets have become fully amortized; and· A credit for a previously accrued earn-out liability of $673,000 related to the IMS acquisition which was not earned as of the twelve month measurement date.Operating Profit (dollars in thousands)
CFR
CFRThe decrease in Project Management operating profit was due primarily to the increase of $9,061,000 of bad debts expense primarily in the Middle East coupled with a decline in CFR throughout the Middle East partially offset by an increase in the United States.The decrease in Construction Claims operating profit was primarily due to CFR decreases in the United Kingdom, Asia/Pacific and the United States and to higher bad debt expense of $277,000Corporate expenses increased by $1,088,000 primarily due to legal fees associated with the proxy contest. Corporate expenses represented 6.1% of CFR during the nine months ended September 30, 2016 compared to 5.7% during the nine months ended September 30, 2015.Interest Expense and Related Financing Fees, netInterest and related financing fees decreased $1,149,000 to $10,103,000 during the nine months ended September 30, 2016 compared to $11,252,000 during the nine months ended September 30, 2015 primarily due to interest of $607,000 paid to a subcontractor in 2015 as a result of a legal settlement.Income TaxesFor the nine months ended September 30, 2016 and 2015, the Company recognized an income tax expense of $6,939,000 and $7,980,000, respectively. The income tax expense in both periods was related to the pre-tax income generated from foreign operations adjusted for discrete items during the period and 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. For the nine months ended September 30, 2016 and 2015, the Company recognized an income tax (benefit) expense related to an increase in the reserve for uncertain tax positions totaling $(14,000) and $245,000, respectively, primarily due to tax positions taken in foreign jurisdictions. The Company also recognized an income tax expense (benefit) resulting from adjustments to agree the prior year’s book amounts to the actual amounts per the tax returns totaling $535,000 and $(37,000) in the nine months ended September 30, 2016 and 2015, respectively.The effective income tax rates for the nine months ended September 30, 2016 and 2015 were 222.8% and 47.8%, respectively. For both years, the Company’s effective tax rate is significantly higher than it otherwise would be primarily as a result of various foreign withholding taxes and not being able to record an income tax benefit related to the U.S. net operating loss.Net (Loss) Earnings Attributable to Hill International, Inc.Net loss attributable to Hill International, Inc. for the nine months ended September 30, 2016 was ($3,926,000),2018 of $24,176, or ($0.08)$0.44 per diluted weighted average common share,shares based upon 51,704,00054,466 diluted weighted average common shares outstanding, as compared to net earningsoutstanding. Net income from continuing operations for the nine months ended September 30, 2015 of $8,045,000,2019 was $2,139, or $0.16$0.03 per diluted weighted average common share, based upon 51,274,000compared to a net loss from continuing operations of $23,217, or $0.42 per diluted weighted average common shares, outstanding.Non-GAAP Financial MeasuresEBITDA, a non-GAAP performance measure used by management, is defined as net earnings plus interest expense, income tax expense and depreciation and amortization, as shown in the table below. EBITDA does not purport to be an alternative to net earnings as a measure of financial and operating performance or ability to generate cash flows from operations that are available for taxes and capital expenditures. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to other similarly-titled measures of other companies. We use, and we believe investors benefit from the presentation of, EBITDA in evaluating our operating performance because it provides us and our investors with an additional tool to compare our operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our core operations. We believe that EBITDA is useful to investors and other external users of our financial statements in evaluating our operating performance because EBITDA is widely used by investors to measure a company’s operating performance without regard to items such asinterest expense, taxes, and depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired.Using EBITDA as a performance measure has material limitations as compared to net earnings, or other financial measures as defined under U.S. GAAP as it excludes certain recurring items which may be meaningful to investors. EBITDA excludes interest expense; however, as we have borrowed money in order to finance transactions and operations, interest expense is an element of our cost structure and can affect our ability to generate revenue and returns for our stockholders. Further, EBITDA excludes depreciation and amortization; however, as we use capital and intangible assets to generate revenues, depreciation and amortization are a necessary element of our costs and ability to generate revenue. Finally, EBITDA excludes income taxes; however, as we are organized as a corporation, the payment of taxes is a necessary element of our operations. As a result of these exclusions from EBITDA, any measure that excludes interest expense, depreciation and amortization and income taxes has material limitations as compared to net earnings. When using EBITDA as a performance measure, management compensates for these limitations by comparing EBITDA and net earnings in each period, so as to allow for the comparison of the performance of the underlying core operations with the overall performance of the company on a full-cost, after-tax basis. Using both EBITDA and net earnings to evaluate the business allows management and investors to (a) assess our relative performance against our competitors and (b) monitor our capacity to generate returns for our stockholders.A reconciliation of EBITDA to the most directly comparable GAAP measure follows (in thousands):
September 30,
September 30,At September 30, 2016,sources of liquidity consisted of $21,219,000source of cash is receipts from clients. We generally pay our employees semi-monthly in arrears and invoice our clients monthly in arrears. Our clients generally remit payment approximately three months, on average, after invoice date. This creates a lag between the time we pay our employees and the time we receive payment from our clients. We bill our clients for any subcontractors used and pay those subcontractors after receiving payment from our clients, so no such timing lag exists for the payments we make to subcontractors.equivalents, of which $19,337,000 wasused in 2018 were primarily due to these expenses.deposit in foreign locations, hand and $1,218,000 of available borrowing capacity under our various credit facilities. At September 30, 2016, we were in default of our Consolidated Net Leverage Ratio. On November 1, 2016, we received a waiver of the default from the Agent. Afterwards, we had $2,494,000 of available borrowing capacity under our domestic credit agreement, all of which is available to be borrowed without violating the Consolidated Net Leverage Ratio covenant. See Note 8 to our consolidated financial statements for a description of ourrevolving credit facilities to fund the working capital requirement caused by the lag discussed above and term loan.other operating needs. We believe that we haveour expected cash receipts from clients, together with current cash on hand and revolving credit facilities, are sufficient liquidity to support the reasonably anticipated cash needs of our operations over the next twelve months. However, significant unforeseen events, such as termination or cancellationmonths from November 6, 2019, the date of major contracts or further delays in receivable collections, could adversely affect our liquidity and results of operations. If market opportunities exist, we may choose to undertake financing actions to further enhance our liquidity, which could include borrowing additional funds under our credit agreements, obtaining new bank debt, raising funds through capital market transactions, or other strategic initiatives. See “Sources of Additional Capital” for further information.In 2012, we commenced operations on the Oman Airport project with the Ministry of Transportation and Communications (“MOTC”). The original contract term was to expire in November 2014. In October 2014, we applied for a twelve-month extension of time amendment (“first extension”) (which was subsequently approved in March 2016) and we continued to work on the Oman Airport project. We began to experience some delays in payment during the second quarter of 2015 when MOTC commenced its formal review and certification of our invoices. In December 2015, we began discussions with the MOTC on a second extension of time amendment and have since commenced additional work, which we expect to last approximately 18 months. When the MOTC resumed payments in 2016, we received approximately $15,000,000 in March, approximately $1,800,000 in April, approximately $14,100,000 in June, approximately $3,200,000 in Octoberand approximately $7,900,000 in November. this report.2016, accounts receivable from Oman totaled approximately $29,500,000. After receipt2019, our primary sources of the Octoberliquidity consisted of $17,350 of cash and November payments, approximately $7,900,000 was past due based on contractual terms. Although MOTC has not made payments under the contractual terms of the first extension and second extension amendments, we have received full payment under the first extension and believe that the same will hold true for the second extension as there is no evidence to the contrary. In fact, there are multiple indicators that we will receive payment: Oman is a wealthy, stable and solvent country which recently raised funds in the capital markets to help finance its 2016 budget, the MOTC has certified the past due invoices, MOTC is committed to paying its obligations to us including consideration of a payment plan, and we have received significant payments totaling $11,100,000 during the past two months and a total of approximately $42,000,000 in 2016.The amount of CFR attributable to operations in the Middle East and Africa has grown from approximately 32% in 2011 to approximately 49% of total consolidated CFR in the first nine months of 2016. We have recently experienced a slowdown in collections from our clients in the Middle East primarily due to the recent drop in oil prices. This has put a considerable strain on our liquidity. As a result, we have had to rely heavily on debt and equity transactions to fund our operations and we may continue our reliance on debt and equity transactions for our liquidity needs over the next 18 months.Additional Capital RequirementsOur subsidiary, Hill International (Spain), S.A. (“Hill Spain”), owns an indirect 91% 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. On June 17, 2016, the three remaining minority shareholders exercised their ESA Put Option with a value of BRL 8,656,000 (approximately $2,655,000 at September 30, 2016). This amount is subject to negotiation with the three minority shareholders.Hill Spain also maintains a revolving credit facility with six banks. At September 30, 2016, outstanding borrowings were approximately $2,995,000. The facility expires on December 17, 2016 and will be paid off and terminated.On October 31, 2014, our subsidiary Hill International (UK) Ltd. acquired all of the outstanding common stock of Angus Octan Scotland Ltd., which included its subsidiary companies Cadogan Consultants Ltd., Cadogan Consult Ltd. and Cadogan International Ltd. (collectively, “Cadogans”). The sellers of Cadogans are entitled to an earn out of £200,000 based upon Cadogans’ average earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the two-year period ending on October 31, 2016. Based on preliminary information, it appears that EBITDA is sufficient to earn the £200,000 ($259,000).Two of the selling shareholders of Cadogans may receive an earn-out in annual installments of up to £100,000 ($130,000) at September 30, 2016), which will be charged to earnings, provided that Cadogans’ EBITDA for each of the years ending October 31, 2016, 2017, 2018 and 2019 is greater than £396,000 ($513,000). Based upon preliminary results, it appears that the two shareholders will receive an earnout amounting to £100,000 ($130,000)equivalents, of which £92,000 ($120,000) has been accrued$16,113 was on deposit in foreign locations, and charged to earnings for the three and nine months ended September 30, 2016.Sources of Additional CapitalWe 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. To date, we have issued 9,546,629 shares, leaving a balance of 10,453,371 shares. The proceeds, if any, will be used for working capital and general corporate purposes, subject to the restrictions of our Secured Credit Facility. We cannotpredict 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 20,000,000 shares of our common stock for issuance in connection with business acquisitions. To date, we have issued 1,073,196 shares under this registration statement, leaving a balance of 18,926,804 shares. 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.At September 30, 2016, we had $1,218,000$2,339 of available borrowing capacity under our various foreign credit agreements. On September 30, 2016, we were in default of our Consolidated Net Leverage Ratio covenant. On November 1, 2016, we received a waiver of the default from the Agent. Afterwards, we had $2,494,000 of available borrowing capacity under our domestic credit agreement, all of which is available to be borrowed without violating the Consolidated Net Leverage Ratio covenant.2016,2019, we had approximately $48,875,000$53,558 of availability under these arrangements.WeFlow Activity Flows Nine Months Ended September 30, 2019 Change 2018 Net cash provided by (used in) operating activities $ 716 $ 14,842 $ (14,126 ) Net cash used in investing activities (2,958 ) 115 (3,073 ) Net cash provided by financing activities 4,465 (16,755 ) 21,220 Effect of exchange rate changes on cash (170 ) 376 (546 ) Net increase in cash, cash equivalents and restricted cash $ 2,053 $ 3,475 Nine Months Endednine months ended September 30, 20162016, our cash and cash equivalents decreased by $2,870,000 to $21,219,000. Cash used in operations was $5,329,000, cash used in investing activities was $2,584,000 and cash provided by financing activities was $6,652,000. We also experienced a decrease in cash of $1,609,000 from the effect of foreign currency exchange rate fluctuations.Operating ActivitiesOur operations used cash of $5,329,000 for the nine months ended September 30, 2016. This compares to2018, cash used in operating activities of $3,592,000 forwas primarily the nine months ended September 30, 2015. We had a consolidated net loss in the nine months ended September 30, 2016 amounting to $3,824,000 compared to consolidated net earnings of $8,720,000 in the nine months ended September 30, 2015. Depreciation and amortization was $7,705,000 in the nine months ended September 30, 2016 compared to $8,286,000 in the nine months ended September 30, 2015; the decrease in this category is primarily due to the full amortizationresult of the shorter-lived intangible assets of companies which we acquired over the last several years offset by amortization of intangibles arising from the acquisitions of Cadogansfinancial statement restatement and IMS and the increase in property and equipment primarily relatedrestructuring costs that are not expected to the relocation of our corporate headquarters to Philadelphia.and letters of credit and escrow. Restricted cash increased from $4,396 at December 31, 2018 to $7,810 at September 30, 2016 and December 31, 2015 were $4,886,000 and $4,694,000, respectively.Average days sales outstanding (“DSO”) at September 30, 2016 was 118 days compared to 98 days at September 30, 2015 and 111 days at June 30, 2016. DSO is a measure of our ability to collect our accounts receivable and is calculated by dividing the total of the period-end billed accounts receivable balance by average daily revenue (i.e., revenue for the quarter divided by 90 days). Generally, the age of our receivables is adversely affected by the timing of payments from our clients in Europe and Africa, which have historically been slower than payments from clients in other geographic regions of the Company’s operations. The increase in DSO in 2016 from 2015 was2019, primarily due to a slowingthe issuance of collections from our clientsnew bonds for projects in the Middle East, particularly Oman.Although we continually monitor our accounts receivable, weEast.thekey working capital accounts in total, rather than by individual elements.total. The primary elements of our working capital are accounts receivable, prepaid and other current assets, and accounts payable and deferred revenue. Accounts receivable consist of billingto 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.business, as well as our acquisition activity.ActivitiesWeactivities$2,584,000in investing activities for the purchase of leasehold improvements, computers, office equipment, furniture and fixtures. Of this amount, $1,500,000fixed assets. The largest portion of these purchases were for costs related to consolidating our corporate headquarters into half the previous space such that we were able to sublease half the space beginning in 2020. For the nine months ended September 30, 2018, cash was primarily used in investing activities for the purchase of fixed assets, as well as the purchase of the additional interest in Hill International Brasil S.A., formerly known as Engineering S.A., increasing the Company's ownership to implement a database system for our Human Resource department.ActivitiesNetactivities$6,652,000. We repaid $900,000 against the 2014 Term Loan Facility and $41,000 against the Philadelphia Industrial Development Corporation loan. We paid $1,531,000 for deferred consideration relatedprimarily due to the IMS acquisition. We had net borrowings of $8,950,000 under our revolving credit facility. We received $285,000 from purchases under our Employee Stock Purchase Plan andfacilities. For the nine months ended September 30, 2018, net cash provided by financing activities was primarily due to the exercise of employee stock options. We paid $111,000 as dividends to noncontrolling interests.Recent Accounting PronouncementsOn May 28, 2014,options and net borrowings under our revolving credit facilities.Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 Revenue from Contracts with Customers, which will replace most existing revenue recognition guidance in U.S. GAAP, including industry specific guidance. The core principlenine months ended September 30, 2019 and 2018, the effects of exchange rate changes on cash was primarily caused by a weakening of the ASU is that an entity should recognize revenue forEuro and Turkish Lira against the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The ASU allows for either retrospective or prospective adoption. The ASU was to be effective for interim and annual periods commencing after December 15, 2016, however, in August 2015, the FASB issued ASU 2015-14 which defers the effective date for one year. Early adoption is permitted as of January 1, 2017. We are in the process of determining the method of adoption and assessing the impact of the ASU on our consolidated financial statements.In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Topic 825-10), which requires all equity investments to be measured a fair value with changes in fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this ASU also require an entity to (1) present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments and (2) provide separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements. In addition, the amendments in this ASU eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. This ASU will be effective for us commencing January 1, 2018. We are in the process of assessing the impact of this ASU on our consolidated financial statements.In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will require us to recognize lease assets and lease liabilities (related to leases previously classified as operating under previous GAAP) on our consolidated balance sheet. The ASU will be effective for us commencing January 1, 2019. We are in the process of assessing the impact of this ASU on our consolidated financial statements.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 us commencing January 1, 2020 with early adoption permitted commencing January 1, 2019. We are in the process of assessing the impact of this ASU on our consolidated financial statements.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistent principles on this topic. This ASU’s amendments add or clarify guidance on eight cash flow issues: debt prepayment, settlement of zero-coupon debt instruments, contingent consideration payments, insurance claim proceeds, life insurance proceeds, distributions from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. The ASU is effective commencing January 1, 2018 with earlier adoption permitted. We adopted this ASU which only affected our presentation of payments for deferred consideration related to the IMS acquisition by reclassifying the payments from operating cash flows to financing cash flows.In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Under the new standard, an entity is required to recognize the income tax consequences of an intra-entity transfer of an asset (with the exception of inventory) when the transfer occurs. Under current GAAP, entities are prohibited from recognizing current and deferred income taxes for an intra-entity transfer until the asset is sold to a third party. Examples of assets that would be affected by the new guidance are intellectual property and property, plant, and equipment. The ASU will be effective for us commencing January 1, 2018 with early adoption permitted as of January 1, 2017. We expect that adoption of this ASU will not have a material effect on our consolidated financial statements.Quarterly FluctuationsOur 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.We believe a strong indicator of our future performance is our backlog of uncompleted projects under contract or awarded. in handin-hand that we expect to resultrecognize as CFR in future consulting feeperiods as a component of total revenue. Project ManagementOur 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. canceled.GAAP,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 September 30, 2016, our backlog was $944,000,000 compared to $949,000,000 at June 30, 2016. Our net bookings during the third quarter of 2016 were $143,000,000, which equates to a book-to-bill ratio of approximately 97%. While this is short of our expectations, it is consistent with the stoppage or scaling back of projects in the Middle East due to the economic impact caused by the recent drop in oil prices and the political upheaval and civil unrest in the region. This will continue to be a major area of focus for the balance of 2016 and in 2017. We estimate that approximately $413,000,000,or 43.8%, of the backlog at September 30, 2016 will be recognized during the twelve months subsequent to September 30, 2016. 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.revenue. Total Backlog 12-Month Backlog September 30, 2019 United States $ 387,145 47.1 % $ 107,946 41.1 % Latin America 16,524 2.0 % 5,059 1.9 % Europe 91,845 11.2 % 36,693 13.9 % Middle East 244,830 29.8 % 84,560 32.1 % Africa 62,617 7.6 % 23,920 9.1 % Asia/Pacific 19,263 2.3 % 5,020 1.9 % Total $ 822,224 100.0 % $ 263,198 100.0 % December 31, 2018 United States $ 429,237 58.0 % $ 110,012 42.4 % Latin America 22,495 3.0 % 11,871 4.6 % Europe 83,974 11.3 % 32,489 12.5 % Middle East 116,913 15.9 % 71,267 27.5 % Africa 69,941 9.4 % 26,710 10.3 % Asia/Pacific 17,713 2.4 % 7,134 2.7 % Total $ 740,273 100.0 % $ 259,483 100.0 % the Company’s 2015our 2018 Annual Report on Form 10-K for a complete discussion of the Company’s market risk. There have been no material changes to the market risk information included in the Company’s 2015our 2018 Annual Report.Report on Form 10-K.(asas such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of September 30, 2016.2019. Management concluded that, due to the on-going remediation associated with the material weakness identified in our 20152018 Annual Report on Form 10-K (“20152018 Form 10-K)10-K"), our disclosure controls and procedures were ineffective as of September 30, 20162019 to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.companyCompany have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. However, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.ChangesInternal Control over Financial ReportingOur remediation efforts were ongoing during the three months ended September 30, 2016,reports that it files or submits under the Exchange Act is recorded, processed, summarized and other than those remediation efforts describedreported, within the time periods specified in “Management’s Remediation Initiatives”the SEC’s rules and forms. The definition further states that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by a company in Item 9Athe reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.our 2015 Form 10-K, there were no other material changesdeficiencies, in our internal control over financial reporting, such that occurred duringthere is a reasonable possibility that a material misstatement of the three months ended September 30, 2016 that materially affected,annual or that are reasonably likely to materially affect, our internal control overinterim financial reporting.However, as explained in greater detail under Item 9A of our 2015 Form 10-K for the year ended December 31, 2015, we have,statements will not be prevented or are in the process of, implementingdetected on a broad range of remedial procedures to address the material weaknesses in our internal control over financial reporting identified in our 2015 Form 10-K. Our efforts to improve our internal controls are ongoing and focused on:· Enhancing existing procedures and controls to more thoroughly assess unusual significant items. While we have completed our testing of these new controls and have concluded they are in place and operating as designed, weare monitoring their ongoing effectiveness, and will consider the material weakness remediated after the applicable remedial controls operate effectively for an additional period of time.· Enhancing our close the books processes at the corporate and local levels to ensure effective management reviews and communication with accounting personnel over the accounting for estimates and non-routine transactions.Therefore, while there were no changes, other than the matter discussed above, in our internal control over financial reporting in the three months ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, we continued monitoring the operation of these remedial measures through the date of this Form 10-Q.2015,2018 and the remedial measures undertaken to address these material weaknesses, investors are encouraged to review Item 9A, Disclosure Controls and Procedures, of our 2018 Form 10-K.2015internal control over financial reporting to remediate the material weaknesses described in our 2018 Form 10-K. We continue to make progress on our remediation and our goal is to implement the remaining control improvements related to these material weaknesses throughout the remainder of 2019 and 2020. Management believes that the new personnel, processes and controls that have been designed and implemented provide the foundation for remediation of the remaining material weaknesses. The material weaknesses will be deemed fully remediated when (i) the control processes have been operating effectively for a sufficient period of time and (ii) management testing has reached a successful conclusion. We will continue to review, optimize and enhance our financial reporting controls and procedures as we continue to evaluate and work to improve our internal controls over financial reporting.Other InformationOTHER INFORMATION20152018 Annual Report.FundsProceeds.SecuritiesSecurities.InformationInformation.10.1Employment Agreement between the Company and Raouf S. Ghali, dated August 18, 2016 (Included as Exhibit 10.1 to the Registrant’s Current Report on Form 89-K filed on August 19, 2016 and incorporated herein by reference).10.2Settlement Agreement among the Company, Bulldog Investors LLC, and certain directors of the Company, dated September 16, 2016.31.1 31.131.2 31.232.1 32.132.2 32.2101.INS 101.INS101.SCH 101.SCH101.PRE 101.PRE101.CAL 101.CAL101.LAB 101.LABLinkbase Document.101.DEF 101.DEFregistrantRegistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.Hill International, Inc. By: /s/ Raouf S. Ghali Dated: November 14, 2016By:/s/ David L. RichterDavid L. RichterDated: November 6, 2019 Dated: November 14, 2016John Fanelli IIIJohn Fanelli IIIExecutive Vice President andChief Financial Officer(Principal Financial Officer)Dated: November 14, 2016By:/s/Ronald F. EmmaRonald F. EmmaChief Accounting(Principal Financial Officer( and Principal Accounting Officer)Dated: November 6, 2019