Table of Contents


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberJune 30, 2016

2020

or

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
For the transition period

from                                          to

Commission File Number: 001-33961

HILL INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-0953973

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

Philadelphia

PA19103
(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:(215) 309-7700


Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001HILNew York Stock Exchange(NYSE)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  xý     No  o


Indicate by a check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405(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). 
Yes  xý     No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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.

Act

Large Accelerated Filero

Accelerated Filerx

Non-Accelerated Filero

Smaller Reporting Companyo

Emerging Growth Company




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o  No  x

ý


There were 51,767,11456,062,669 shares of the Registrant’s Common Stock outstanding at November 1, 2016.

July 27, 2020.




Table of Contents



HILL INTERNATIONAL, INC. AND SUBSIDIARIES
Index to Form 10-Q
3


PART I
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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.

These forward-looking statements are based on 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.

Those forward-looking statements may concern, among other things:
The markets for the Company's services;
Projections of revenues and earnings, anticipated contractual obligations, funding requirements or other financial items;
Statements regarding the impact and effect of the COVID-19 pandemic;
Statements regarding the Company's eligibility to participate in the Main Street Lending Program;
Statements concerning the Company's plans, strategies and objectives for future operations; and
Statements regarding future economic conditions or the Company's performance.
Important factors that could cause 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:

·

The risks set forth in Item 1A, “Risk Factors,” of ourin the Company's most recent Annual Report on Form 10-K;

·

Unfavorable global economic conditions may adversely impact its business;
Our backlog, which is subject to unexpected adjustments and cancellations, may not be fully realized as revenue;
Our expenses may be higher than anticipated;
Modifications and termination of client contracts;

·

Control and operational issues pertaining to business activities that we conductthe Company conducts pursuant to joint ventures with other parties;

·                                          Difficulties we may incur in implementing our acquisition strategy;

· and

The needability to retain and recruit key technical and management personnel; and

·                                          Unexpected adjustments and cancellations related to our backlog.

personnel.

Other factors that may affect our businesses,the Company's business, financial position or results of operations include:

·

Unexpected further delays in collections from clients located inclients;
Risks related to the Middle East;

·                                          Special riskseffect of ourthe COVID-19 pandemic on the Company, including its employees and related costs and including any project cancellations, delays and modifications;

Risks of the Company's ability to obtain debt financing or otherwise raise capital to meet required working capital needs and to support potential future acquisition activities;

·                                          Special risks

Risks of international operations, including uncertain political and economic environments, acts of terrorism or war, potential incompatibilities with foreign joint venture partners, foreign currency fluctuations, civil disturbances and labor issues; and

·                                          Special risks of

Risks related to contracts with governmental entities, including the failure of applicable governing authorities to take necessary actions to secure or maintain funding for particular projects with us, the unilateral termination of contracts by the governmentgovernments and reimbursement obligations to the government for funds previously received.

We assume

The Company does not intend, and undertakes no obligation to, update or revise any forward-looking statement. In accordance with the Reform Act, Part II, Item 1A of this Report entitled “Risk Factors” contains cautionary statements that accompany those forward-looking statements.

You should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. Those cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this Form 10-Q, in our other filings with the Securities and Exchange Commission ("SEC") or in materials incorporated therein by reference.


4


Table of Contents

HILL INTERNATIONAL, INC. AND SUBDISIARIES

Index to Form 10-Q

PART I

FINANCIAL INFORMATION

Item 1

Financial Statements

4

Consolidated Balance Sheets at September 30, 2016 (unaudited) and December 31, 2015

4

Consolidated Statements of Earnings for the three and nine months ended September 30, 2016 and 2015 (unaudited)

5

Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2016 and 2015 (unaudited)

6

Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)

7

Notes to Consolidated Financial Statements

8

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4

Controls and Procedures

37

Part II

OTHER INFORMATION

Item 1

Legal Proceedings

39

Item 1A

Risk Factors

39

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3

Defaults Upon Senior Securities

39

Item 4

Mine Safety Disclosures

39

Item 5

Other Information

39

Item 6

Exhibits

39

Signatures

40



Table of Contents

PART I — FINANCIAL INFORMATION

Item 1.Financial Statements.

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

 

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)

 June 30, 2020December 31, 2019
Assets(Unaudited)
Cash and cash equivalents$23,198  $15,915  
Cash - restricted4,423  4,666  
Accounts receivable, net105,435  103,892  
Current portion of retainage receivable17,075  16,459  
Accounts receivable - affiliates23,237  18,776  
Prepaid expenses and other current assets12,658  9,340  
Income tax receivable1,542  2,256  
Total current assets187,568  171,304  
Property and equipment, net9,771  11,895  
Cash - restricted, net of current portion4,040  4,401  
Operating lease right-of-use assets15,279  17,451  
Financing lease right-of-use assets96  —  
Retainage receivable5,430  5,695  
Acquired intangibles, net178  232  
Goodwill44,431  48,024  
Investments2,667  1,711  
Deferred income tax assets2,929  3,800  
Other assets2,493  5,038  
Total assets$274,882  $269,551  
Liabilities and Stockholders’ Equity
Current maturities of notes payable and long-term debt$1,828  $1,792  
Accounts payable and accrued expenses66,914  65,172  
Income taxes payable1,888  3,152  
Current portion of deferred revenue7,628  10,773  
Current portion of operating lease liabilities5,465  5,736  
Current portion of financing lease liabilities27  —  
Other current liabilities8,357  4,876  
Total current liabilities92,107  91,501  
Notes payable and long-term debt, net of current maturities53,570  41,150  
Retainage payable2,017  1,551  
Deferred income taxes418  419  
Deferred revenue1,321  3,041  
Non-current operating lease liabilities14,910  17,030  
Non-current financing lease liabilities69  —  
Other liabilities3,277  4,631  
Total liabilities167,689  159,323  
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value; 1,000 shares authorized, 0ne issued—  —  
Common stock, $0.0001 par value; 100,000 shares authorized, 62,609 shares and 62,708 shares issued at June 30, 2020 and December 31, 2019, respectively  
Additional paid-in capital214,161  212,759  
Accumulated deficit(79,895) (71,360) 
Accumulated other comprehensive income (loss)1,279  (3,817) 
Less treasury stock of 6,807 and 6,546 at June 30, 2020 and December 31, 2019, respectively(29,056) (28,231) 
Hill International, Inc. share of equity106,495  109,357  
Noncontrolling interests698  871  
Total equity107,193  110,228  
Total liabilities and stockholders’ equity$274,882  $269,551  
See accompanying notes to consolidated financial statements.

5

Table of Contents

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

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
June 30,
Six Months Ended
June 30,
2020201920202019
Consulting fee revenue$75,760  $77,035  $152,910  $156,035  
Reimbursable expenses18,689  21,222  34,847  40,905  
Total revenue$94,449  $98,257  $187,757  $196,940  
Direct expenses65,032  66,955  130,080  134,202  
Gross profit$29,417  $31,302  $57,677  $62,738  
Selling, general and administrative expenses26,857  27,407  54,955  58,744  
Foreign currency exchange loss (benefit)265   4,316  (18) 
 Plus: Share of profit of equity method affiliates1,014  717  1,038  1,131  
Operating profit (loss)$3,309  $4,604  $(556) $5,143  
Interest and related financing fees, net1,296  1,411  2,595  2,923  
Other loss, net(3,847) —  (3,502) —  
(Loss) earnings before income taxes$(1,834) $3,193  $(6,653) $2,220  
Income tax expense102  1,493  1,705  2,588  
Net (loss) earnings$(1,936) $1,700  $(8,358) $(368) 
Less: net earnings - noncontrolling interests18  83  177  150  
Net (loss) earnings attributable to Hill International, Inc.$(1,954) $1,617  $(8,535) $(518) 
Basic (loss) earnings per common share - Hill International, Inc.$(0.03) $0.03  $(0.15) $(0.01) 
Basic weighted average common shares outstanding56,409  56,032  56,476  55,989  
Diluted (loss) earnings per common share - Hill International,Inc.$(0.03) $0.03  $(0.15) $(0.01) 
Diluted weighted average common shares outstanding56,409  56,032  56,476  55,989  
See accompanying notes to consolidated financial statements.

6

Table of Contents

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

EARNINGS (LOSS)

(In thousands)

(Unaudited)

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

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

)

 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Net (loss) earnings$(1,936) $1,700  $(8,358) $(368) 
Foreign currency translation adjustment, net of tax5,001  980  4,746  (874) 
Comprehensive earnings (loss)3,065  2,680  (3,612) (1,242) 
Less: Comprehensive (loss) earnings attributable to noncontrolling interests(173) 195  (173) 214  
Comprehensive earnings (loss) attributable to Hill International, Inc.$3,238  $2,485  $(3,439) $(1,456) 
See accompanying notes to consolidated financial statements.

7

Table of Contents

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

 

 

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

 

 Common StockAdditional
Paid-in
Retained
Earnings
Accumulated Other
Comprehensive
Treasury StockHill Share of Stockholders’Non-controllingTotal
Stockholders’
 SharesAmountCapital(Deficit)Income (Loss)SharesAmountEquityInterestsEquity
Balance - December 31, 201962,708  $ $212,759  $(71,360) $(3,817) 6,546  $(28,231) $109,357  $871  $110,228  
Net earnings (loss)—  —  —  (6,581) —  —  —  (6,581) 159  (6,422) 
Other comprehensive income (loss)—  —  —  —  (96) —  —  (96) (159) (255) 
Share-based compensation expense—  —  399  —  —  —  —  399  —  399  
Shares issued under employee stock purchase plan(1)
83  —  105  —  —  —  —  105  —  105  
Transfer of shares pledged as collateral (2)
(261) —  —  —  —  261  (825) (825) —  (825) 
Balance - March 31, 202062,530  $ $213,263  $(77,941) $(3,913) 6,807  $(29,056) $102,359  $871  $103,230  
Net income (loss)—  —  —  (1,954) —  —  —  (1,954) 18  (1,936) 
Other comprehensive income (loss)—  —  —  —  5,192  —  —  5,192  (191) 5,001  
Share-based compensation expense—  —  802  —  —  —  —  802  —  802  
Shares issued under employee stock purchase plan79  —  96  —  —  —  —  96  —  96  
Balance - June 30, 202062,609  $ $214,161  $(79,895) $1,279  6,807  $(29,056) $106,495  $698  $107,193  
Balance - December 31, 201862,181  $ $210,084  $(85,444) $(2,575) 6,546  $(28,231) $93,840  $605  $94,445  
Net income (loss)—  —  —  (2,135) —  —  —  (2,135) 67  (2,068) 
Other comprehensive income (loss)—  —  —  —  (1,806) —  —  (1,806) (48) (1,854) 
Shares issued to Board of Directors24  —  —  —  —  —  —  —  —  —  
Share-based compensation expense (2)
—  —  241  —  —  —  —  241  —  241  
Balance - March 31, 201962,205  $ $210,325  $(87,579) $(4,381) 6,546  $(28,231) $90,140  $624  $90,764  
Net income (loss)—  —  —  1,617  —  —  —  1,617  83  1,700  
Other comprehensive income (loss)—  —  —  —  868  —  —  868  112  980  
Share-based compensation expense—  —  801  —  —  —  —  801  —  801  
Shares issued under employee stock purchase plan57  —  113  —  —  —  —  113  —  113  
Balance - June 30, 201962,262  $ $211,239  $(85,962) $(3,513) 6,546  $(28,231) $93,539  $819  $94,358  

(1) Includes $55 of proceeds related to shares issued under the Employee Stock Purchase Plan ("ESPP") during the three months ended March 31, 2020 and received during the three months ended June 30, 2020. The six months ended June 30, 2019 excluded $34 of proceeds received during the period that are included in Hill International, Inc.'s (the "Company") consolidated statements of cash flow, but related to ESPP shares issued and recognized at December 31, 2018.
(2) Reflects 261 shares of the Company's common stock pledged as collateral under the terms of a secured promissory note payable to the Company. During the three months ended March 31, 2020, the Company exercised its right to retain the shares upon the note holder's agreement to relinquish the shares upon the promissory note maturity date.

See accompanying notes to consolidated financial statements.

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HILL INTERNATIONAL, INC. AND SUBSIDIARIES

Notes

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months Ended June 30,
 20202019
Cash flows from operating activities:
Net loss$(8,358) $(368) 
Adjustments to reconcile net loss to net cash provided by (used in):
Depreciation and amortization2,675  1,585  
(Recovery) provision for bad debts(1,010) (557) 
Amortization of deferred loan fees348  361  
Deferred tax expense (benefit)674  (362) 
Share-based compensation1,201  1,042  
Operating lease right-of-use assets1,956  2,564  
Loss on liquidation of subsidiary4,064  —  
Foreign currency remeasurement losses (gains)3,390  (956) 
Changes in operating assets and liabilities:
Accounts receivable(1,624) 10,343  
Accounts receivable - affiliate(4,462) (5,188) 
Prepaid expenses and other current assets(3,585) (596) 
Income taxes receivable305  (601) 
Retainage receivable255  (1,482) 
Other assets(1,346) 1,081  
Accounts payable and accrued expenses4,801  (2,485) 
Income taxes payable(1,250) 1,322  
Deferred revenue(4,516) (3,971) 
Operating lease liabilities(2,166) (2,817) 
Other current liabilities3,662  2,208  
Retainage payable465  25  
Other liabilities(33) 288  
Net cash (used in) provided by operating activities(4,554) 1,436  
Cash flows from investing activities:
Purchase of property and equipment(972) (1,575) 
Net cash used in investing activities(972) (1,575) 
Cash flows from financing activities:
Proceeds from term loans1,265  —  
Repayment of term loans(434) (531) 
Proceeds from revolving loans28,196  5,311  
Repayment of revolving loans(16,168) (993) 
Proceeds from stock issued under employee stock purchase plan201  147  
Net cash provided by financing activities13,060  3,934  
Effect of exchange rate changes on cash, cash equivalents and restricted cash(846) (934) 
Deconsolidated cash —  
Net (decrease) increase in cash, cash equivalents and restricted cash6,679  2,861  
Cash, cash equivalents and restricted cash — beginning of period24,982  23,107  
Cash, cash equivalents and restricted cash — end of period$31,661  $25,968  
 Six Months Ended June 30,
Supplemental disclosures of cash flow information:20202019
Interest and related financing fees paid$2,141  $2,774  
Income taxes paid1,425  1,980  
Transfer of proceeds from shares pledged as collateral to treasury stock825  —  
Cash paid for amounts included in the measurement of lease liabilities3,831  4,068  
Right-of-use assets obtained in exchange for operating lease liabilities (1)
347  18,689  
Right-of-use assets obtained in exchange for finance lease liabilities96  —  
(1) Amount for the six months ended June 30, 2019 relates to the Company's January 1, 2019 adoption of Accounting Standards Update 2016-2, Leases (Topic 842). See Note 14 - Leases to the Company's Consolidated Financial StatementsStatements.

 See accompanying notes to consolidated financial statements.
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(Unaudited)

HILL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

Note 1 - The Company

Hill International, Inc. (“Hill” or the “Company”) is a professional services firm that provides program management, project management, construction management 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.

All amounts included in the following Notes to the Consolidated Financial Statements are in thousands, except per share data.

Note 2 — Liquidity
At June 30, 2020 and December 31, 2019, the Company's principal sources of liquidity consisted of $23,198 and $15,915 of cash and cash equivalents, respectively, $2,266 and $9,052 of available borrowing capacity under the Domestic Revolving Credit Facility, respectively, $277 and $3,145 of available borrowing capacity under the International Revolving Credit Facility, respectively, and $2,061 and $2,538 under other foreign credit agreements, respectively. Additional information regarding the Company's credit facilities is set forth in Note 9 - Notes Payable and Long-Term Debt.

In December 2019, COVID-19 was identified in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a global pandemic as a result of the further spread of the virus into all regions of the world, including those regions where the Company's primary operations occur. The effects of this global pandemic on the Company includes anticipated lower gross and operating margins, as well as temporary delays in accounts receivable collections. The Company is organized into two key operating divisions:focused on preserving its principal sources of liquidity and managing its cash flow and will continue to evaluate the Project Management Grouppotential short-term and long-term implications of COVID-19 on its consolidated statements of operations. The Company is on track to achieve the Construction Claims Group.

$10,000 in corporate cost reductions in 2020, as previously disclosed on Form 10-Q for the period ended March 31, 2020. The Company believes that it has adequate liquidity and business plans to continue to operate the business and mitigate the risks associated with COVID-19 for the next 12 months from August 5, 2020, the date of this filing. Additional disclosure on the impact of COVID-19 on the Company is included in Item 2 Management's Discussion and Analysis within the Overview section of this Form 10-Q.


Note 23 — Basis of Presentation

Summary
The accompanying unaudited interim consolidated financial statements were prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") pertaining to reports on Form 10-Q and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.2019. 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.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The interim operating results are not necessarily indicative of the results for a full year.


Reclassification

Certain back-office expenses and foreign currency translation gains and losses that had previously been included in the individual regions in the operating profit/(loss) table presentation are currently being included within the corporate costs line item on the operating profit/(loss) tables herein. The related 2019 prior period operating profit (loss) by geographic region and corporate costs have been recast to reflect this change. This change only affects the presentation in the operating profit/(loss) tables and has no impact on total operating profit/(loss) reported.
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Foreign currency transaction gains and losses that in previously periods had been included in selling, general and administrative expenses line item on the Consolidated Statements of Operations are presented as a separate line item on the Consolidated Statements of Operations for the three and six months ended June 30, 2020. The related foreign currency transaction gains and losses for the three and six months ended June 30, 2019 have been recast to reflect this change. This change has no impact on the total operating profit/(loss) reported.

Certain accrued agency fees that had previously been included in accrued payroll and related expenses in the components of accounts payable and accrued expenses table in Note 3 — Liquidity

8 - Accounts Payable and Accrued Expenses are currently being included within the accrued agency fees line item. The related amounts at December 31, 2019 have been recast to reflect this change.


Other Loss, net

During the six months ended June 30, 2020, a loss of $4,064 was recognized due to the bankruptcy filing and deconsolidation of our operating subsidiary in Brazil (see Note 15), net of other non-operating income of $217. An additional $345 of other income was recognized during the three months ended March 31, 2020, representing the cancellation of a loan agreement made with the PIDC-Local Development Corporation that was funded to the Company on October 24, 2014 as part of the city of Philadelphia's (the "City") Economic Stimulus Program. In February 2020, the City agreed to cancel this loan as a result of the Company satisfying all obligations upon which cancellation of such debt was conditioned in the Loan Agreement.

Summary of Significant Accounting Policies

(a)Foreign Currency Translations and Transactions

Assets and liabilities of all foreign operations are translated at period-end rates of exchange while revenues and expenses are translated at the average monthly exchange rates. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity titled accumulated other comprehensive loss until the entity is sold or substantially liquidated. Gains or losses arising from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency), including those resulting from intercompany transactions, are reflected in the Company's consolidated statements of operations. The impact of foreign exchange on long-term intercompany loans, for which repayment has not been scheduled or planned and permanent equity has been elected, are recorded in accumulated other comprehensive loss on the Company's consolidated balance sheets.

(b)Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and accounts receivable.

The Company maintains its cash accounts with high quality financial institutions. Although the Company believes that the financial institutions with which it does business will be able to fulfill their commitments, there is no assurance that those institutions will be able to continue to do so.

No single client accounted for 10% or more of total revenue for the three and six months ended June 30, 2020 or 2019.

There was one client in Africa who contributed 10% or more to gross accounts receivable at June 30, 2020 and December 31, 2019, respectively, which represents 15% and 17% of the gross accounts receivable balance at June 30, 2020 and December 31, 2019, respectively.

(c)Allowance for Doubtful Accounts

The allowance for doubtful accounts is an estimate prepared by management based on identification of the collectability of specific accounts and the overall condition of the receivable portfolios. When evaluating the adequacy of the allowance for doubtful accounts, the Company specifically analyzes trade receivables, including retainage receivable, historical bad debts, client credits, client concentrations, current economic trends and changes in client payment terms. If the financial condition of clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Likewise, should the Company determine that it would be able to realize more of its receivables in the future than previously estimated, an adjustment to the allowance would increase earnings in the period such determination was made. The allowance for doubtful accounts is reviewed on a quarterly basis and adjustments are recorded as deemed necessary.
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(d)Retainage Receivable

Retainage receivable represents balances billed but not paid by clients pursuant to retainage provisions in certain contracts and will be due upon completion of specific tasks or the completion of the contract.

(e)Income Taxes

The Company estimates income taxes in each of the jurisdictions in which it operates. This process involves estimating its actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the Company’s consolidated balance sheets. The Company assesses the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent it believes recovery is not likely, the Company establishes a valuation allowance. To the extent the Company establishes a valuation allowance in a period, it must include an expense within the tax provision in the consolidated statements of operations. The Company has recorded a valuation allowance to reduce the deferred tax asset to an amount that is more likely than not to be realized in future years. If the Company determines in the future that it is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of consulting feethe position, that the deferred tax assets subject to the valuation allowance will be realized, then the previously provided valuation allowance will be adjusted.

The Company recognizes a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is more likely than not that the benefit will be ultimately realized. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods.

(f)Revenue Recognition

The Company generates revenue (“CFR”) attributableprimarily from providing professional services to its clients under various types of contracts. In providing these services, the Company may incur reimbursable expenses, which consist principally of amounts paid to subcontractors and other third parties and travel and other job related expenses that are contractually reimbursable from clients. The Company includes reimbursable expenses in computing and reporting its total revenue as long as the Company remains responsible to the client for the fulfillment of the contract and for the overall acceptability of all services provided.

If estimated total costs on any contract project a loss, the Company charges the entire estimated loss to operations in the 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.

See Note 4 - Revenue from Contracts with Clients for more detail, regarding how the Company recognizes revenue under each type of its contractual arrangements.

(g)Restricted Cash

Restricted cash primarily represents cash collateral required to be maintained in foreign bank accounts to serve as collateral for letters of credit, bonds or guarantees on certain projects. The cash will remain restricted until the respective project has grown from approximately 32%been completed, which typically is greater than one year.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in 2011 to approximately 49%the statements of total consolidated CFRcash flows:
June 30, 2020December 31, 2019
Cash and cash equivalents$23,198  $15,915  
Cash - restricted4,423  4,666  
Cash - restricted, net of current portion4,040  4,401  
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows$31,661  $24,982  
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(h)Earnings (loss) per Share

Basic earnings (loss) per common share have been computed using the weighted-average number of shares of common stock outstanding during the first nineperiod. Diluted earnings (loss) per common share incorporates the incremental shares issuable upon the assumed exercise of stock options, the assumed vesting of stock and deferred and restricted stock unit awards using the treasury stock method, if dilutive.

The Company has outstanding options to purchase approximately 1,616 shares and 1,892 shares at June 30, 2020 and 2019, respectively. In addition, the Company had 780 and 491 restricted and deferred stock units outstanding at June 30, 2020 and 2019, respectively. These awards were excluded from the calculation of diluted loss per share for the three and six months ended June 30, 2020 and 2019 because they were anti-dilutive.

The following table provides a reconciliation to net loss used in the numerator for loss per share attributable to Hill:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Net (loss) earnings$(1,936) $1,700  $(8,358) $(368) 
Less: net earnings - noncontrolling interests18  83  177  150  
Net (loss) earnings attributable to Hill International, Inc.$(1,954) $1,617  $(8,535) $(518) 
Basic weighted average common shares outstanding56,409  56,032  56,476  55,989  
Effect of dilutive securities:
Stock options—  —  —  —  
Unvested share-based compensation units$—  $—  —  —  
Diluted weighted average common shares outstanding56,409  56,032  56,476  55,989  
Basic and diluted net loss per share attributable to Hill$(0.03) $0.03  $(0.15) $(0.01) 

(i)New Accounting Pronouncements

Changes to U.S. GAAP are typically established by the Financial Accounting Standards Board (“FASB”) in the form of 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.

For additional information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 3 to the consolidated financial statements in Item 8 of Form 10-K for the year ended December 31, 2019 filed with the SEC on March 26, 2020. See update below.

Recently Adopted Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-4, Intangibles - Goodwill and Other (Topic 350), which removes step 2 from the goodwill impairment test. As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units’ fair value. The guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017, and the prospective transition method should be applied. The Company adopted this guidance on January 1, 2020 and it did not materially impact its consolidated financial statements.
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In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. Theamendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this update is permitted, including adoption in any interim period, for all entities. The amendments in this update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted this guidance on January 1, 2020 on a prospective basis and will begin to capitalize certain implementation costs that may have been previously expensed as incurred. There has beenwas no impact on the Company's consolidated financial statements on the date of implementation.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities ("VIE"). The amendments in this ASU for determining whether a decision-making fee is a variable interest require reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required by GAAP). These amendments will create alignment between determining whether a decision-making fee is a variable interest and determining whether a reporting entity within a related party group is the primary beneficiary of a VIE. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019 for public companies. Early adoption is permitted. The Company adopted this guidance in January 1, 2020. There was no impact on the Company's consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This ASU provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under Topic 606, specifically when the collaborative arrangement participant is a customer in the context of a unit-of-account. It provides more comparability in the presentation of revenues for certain transactions between collaborative arrangement participants, including adding unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019 for public companies. Early adoption is permitted. The Company adopted this guidance in January 1, 2020. There was no impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments (Topic 326) - Credit Losses: Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement of credit losses on financial instruments.  The new guidance replaces the incurred loss impairment methodology in the current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates.  This ASU will be effective for the Company commencing January 1, 2022.  The Company is in the process of assessing the impact of this ASU on our consolidated financial statements and disclosures.

Note 4 — Revenue from Contracts with Clients

The Company recognizes revenue to depict the transfer of promised goods or services to clients in an amount that reflects the consideration to which the Company expects to be entitled in exchange for such goods or services.

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Below is a description of the basic types of contracts from which the Company may earn revenue:

Time and Materials Contracts

Under the time and materials (“T&M”) arrangements, contract fees are based upon time and materials incurred. The contracts may be structured as basic time and materials, cost plus a margin or time and materials subject to a maximum contract value (the "cap value"). Due to the potential limitation of the cap value, the economic factors of the contracts subject to a cap value differ from the economic factors of basic T&M and cost plus contracts. The majority of the Company’s contracts are for consulting projects where it bills the client monthly at hourly billing rates. The hourly billing rates are determined by contract terms. Under cost plus a margin contracts, the Company charges its clients for its costs, plus a fixed fee or rate. Under time and materials contracts with a cap value, the Company charges the clients for time and materials based upon the work performed however there is a cap or a not to exceed value. There are often instances that a contract is modified to extend the contract value past the cap. As the consideration is variable depending on the outcome of the contract renegotiation, the Company will estimate the total contract price in accordance with the variable consideration guidelines and will only include consideration that it expects to receive from the client. When the Company is reaching the cap value, the contract will be renegotiated, or Hill ceases work when the maximum contract value is reached. The Company will continue to work if it is probable that the contract will be extended. The Company will only include consideration or contract re-negotiations 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.

Fixed Price Contracts

Under fixed price contracts, the Company’s clients pay an agreed amount negotiated in advance for a specified scope of work. The Company is guaranteed to receive the consideration to the extent that the Company delivers under the contract. The Company recognizes revenue over a period of time on fixed price contracts using the input method based upon direct costs incurred to date, which are compared to total projected direct costs. Costs are the most relevant measure to determine the transfer of the service to the client. The Company assesses contracts quarterly and will recognize any expected future loss before actually incurring the loss. When the Company is expecting to reach the total value of the contract, the Company will begin to negotiate a change order.

Change Orders and Claims

Change orders are modifications of an original contract. Either the Company or its client may initiate change orders. They may include changes in specifications or design, manner of performance, facilities, equipment, materials, sites and period of completion of the work. Management evaluates when a change order is probable based upon its experience in negotiating change orders, the client’s written approval of such changes or separate documentation of change order costs that are identifiable. Change orders may take time to be formally documented and terms of such change orders are agreed with the client before the work is performed. Sometimes circumstances require that work progresses before an agreement is reached with the client. If the Company is having difficulties in renegotiating the change order, the Company will stop work, record all costs incurred to date, and determine, on a slowdownproject by project basis, the appropriate final revenue recognition.

Claims are amounts in 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.

U.S. Federal Acquisition Regulations

The Company has contracts with the 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.
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Federal government contracts that are subject to the FAR and that are required by state and local governmental agencies to be audited are performed, for the most part, by the Defense Contract Audit Agency (“DCAA”). The DCAA audits the Company’s 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.

Disaggregation of Revenues
The Company has 1 operating segment, the Project Management Group, which reflects how the Company is being managed. Additional information related to our liquidity.

the Company’s operating segment is provided in Note 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.


The components of the Company’s revenue by contract type and geographic region for the three and six months ended June 30, 2020 and 2019 are as follows:

Three Months Ended June 30, 2020Three Months Ended June 30, 2019
Fixed PriceT&MTotalPercent of Total RevenueFixed PriceT&MTotalPercent of Total Revenue
United States$4,200  $45,585  $49,785  52.7 %$3,680  $47,656  $51,336  52.3 %
Latin America296  363  659  0.7 %1,973  (62) 1,911  1.9 %
Europe11,750  2,682  14,432  15.3 %5,302  5,320  10,622  10.8 %
Middle East3,943  17,586  21,529  22.8 %8,864  17,108  25,972  26.4 %
Africa70  7,188  7,258  7.7 %600  6,330  6,930  7.1 %
Asia/Pacific—  786  786  0.8 %428  1,058  1,486  1.5 %
   Total$20,259  $74,190  $94,449  100.0 %$20,847  $77,410  $98,257  100.0 %

16

Six Months Ended June 30, 2020Six Months Ended June 30, 2019
Fixed PriceT&MTotalPercent of Total RevenueFixed PriceT&MTotalPercent of Total Revenue
United States$9,223  $86,582  $95,805  51.0 %$7,113  $92,325  $99,438  50.6 %
Latin America1,467  363  1,830  1.0 %3,989  356  4,345  2.2 %
Europe18,179  7,790  25,969  13.8 %11,353  10,603  21,956  11.1 %
Middle East8,826  37,275  46,101  24.5 %20,230  34,053  54,283  27.6 %
Africa276  14,279  14,555  7.8 %1,171  12,708  13,879  7.0 %
Asia/Pacific—  3,497  3,497  1.9 %729  2,310  3,039  1.5 %
   Total$37,971  $149,786  $187,757  100.0 %$44,585  $152,355  $196,940  100.0 %

The Company recognizes revenue when it transfers promised goods or services to clients in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company exercises judgment in determining if the contractual criteria are met to determine if a contract with a client exists, specifically in the earlier stages of a project when a formally executed contract may not yet exist. The Company typically has one performance obligation under a contract to provide fully-integrated project management services, and, occasionally, a separate performance obligation to provide facilities management services. Performance obligations are delivered over time as the client receives the service.
The consideration promised within a contract may include fixed amounts, variable amounts, or both. Variable consideration is included in the transaction price only to the extent it is probable, in the Company’s judgment, that a significant future reversal in the amount of cumulative revenue recognized under the contract will not occur. In estimating the transaction price for pending change orders, the Company considers all relevant facts, including documented correspondence with the client regarding acknowledgment and/or agreement with the modification, as well as historical experience with the client or similar contractual circumstances. The Company transfers control of its service over time and, therefore, satisfies a performance obligation and recognizes revenue over time by measuring the progress toward complete satisfaction of that performance obligation. The Company’s fixed price projects and T&M contracts subject to a cap value generally use a cost-based input method to measure its progress towards complete satisfaction of the performance obligation as the Company believes this best depicts the transfer of control to the client. Under the cost-based measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Due to the nature of the work required to be performed under the Company’s performance obligations, estimating total revenue and cost at completion on its long term contracts is complex, subject to many variables and requires significant judgment.

For basic and cost plus T&M contracts, the Company recognizes revenue over time using the output method which measures progress toward complete satisfaction of the performance obligation based upon actual costs incurred, using the right to invoice practical expedient.

Accounts Receivable

Accounts receivable includes amounts billed and currently due from clients and amounts for work performed which have not been billed to date. The billed and unbilled amounts are stated at the net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of client creditworthiness, historical payment experience and the age of outstanding receivables.

Contract Assets and Liabilities

Contract assets include unbilled amounts typically resulting from performance under long-term contracts where the revenue recognized exceeds the amount billed to the client. Retainage receivable is included in contract assets. The current portion of retainage receivable is a contract asset, which prior to the adoption of ASC 606, had been classified within accounts receivable.
The Company’s contract liabilities consist of advance payments and billings in excess of revenue recognized and are reported as deferred revenue in the consolidated balance sheets. The Company classifies billings in excess of revenue recognized as deferred revenue as current or non-current based on the timing of when revenue is expected to be recognized.

17

The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing of the Company’s performance and client payments. The amount of revenue recognized during the three and six months ended June 30, 2020 that was included in the deferred revenue balance at the beginning of the periods was $719 and $8,580, respectively. The amount of revenue recognized during the three and and six months ended June 30, 2019 that was included in the deferred revenue balance at the beginning of the periods was $3,387 and $12,628, respectively.

Remaining Performance Obligations

The remaining performance obligations represent the aggregate transaction price of executed contracts with clients for which work has partially been performed or not started as of the end of the reporting period. The Company’s remaining performance obligations include projects that have a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and conditions. T&M contracts are excluded from the remaining performance obligation as these contracts are not fixed price contracts and the consideration expected under these contracts is variable as it is based upon hours and costs incurred in accordance with the variable consideration optional exemption. As of June 30, 2020 and December 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $113,418 and $113,592, respectively. During the following 12 months, approximately 50.9% of the remaining performance obligations are expected to be recognized as revenue with the remaining balance recognized over 1 to 5 years.

Note 5 — Accounts Receivable


The components of accounts receivable and accounts receivable - affiliates reflected in the Company's consolidated balance sheets are as follows (in thousands):

 

 

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

 

Included in billedfollows:

Accounts ReceivableJune 30, 2020December 31, 2019
Billed (1)
$127,982  $132,339  
Unbilled (2)
32,049  30,026  
 160,031  162,365  
Allowance for doubtful accounts (1)
(54,596) (58,473) 
Accounts receivable, net$105,435  $103,892  
Accounts Receivable - Affiliates
Billed (3)
$14,578  $12,546  
Unbilled (2)
9,307  6,888  
$23,885  $19,434  
Allowance for doubtful accounts(648) (658) 
Accounts receivable - affiliates, net$23,237  $18,776  
(1) Includes $32,109 and unbilled accounts receivable are $14,926,000 and $4,827,000, respectively,$32,864 related to change orders, claimsamounts due from a client in Africa as of June 30, 2020 and disputes at SeptemberDecember 31, 2019, respectively.
(2) Amounts are net of unbilled reserves.
(3) Includes $402 and $397 of retainage receivables due from affiliates as of June 30, 2016.

2020 and December 31, 2019, respectively.

18

In 2012, the Company commenced operations on the Muscat International Airport (the “Oman Airport”) project with the MinistryTable 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.

Contents

Note 56 — Intangible Assets

The following table summarizes the Company’s acquired intangible assets (in thousands):

 

 

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

 

 

 

Amortization expense related toassets:

 June 30, 2020December 31, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
 
Client relationships$509  $331  $1,080  $848  
Total$509  $331  $1,080  $848  
Intangible assets, net$178  $232  

The Company amortizes client relationship intangible assets over the estimated useful life of ten years. Such amortization expense was as follows (in thousands):

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2016

 

2015

 

2016

 

2015

 

$

1,013

 

$

1,578

 

$

3,450

 

$

4,609

 

$27 and $119 for the three months ended June 30, 2020 and 2019, respectively, and $54 and $233 for the six months ended June 30, 2020 and 2019, respectively.

The following table presents the estimated amortization expense based on our present intangible assets for the next five years (in thousands):

 

 

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: 

 Estimated
Amortization
Expense
 
Year ending December 31,
2020 (remaining 6 months)$25  
202151  
202251  
202351  
2024—  

Note 67 — Goodwill

The 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.

The following table summarizes the changes in the Company’s carrying value of goodwill during 2016 (in thousands):

 

 

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

 

the six months ended June 30, 2020:

Balance, December 31, 2019$48,024 
Translation adjustments (1)
(3,593)
Balance, June 30, 2020$44,431 
(1) The translation adjustment was calculated based on the foreign currency exchange rates as of June 30, 2020.

The Company performed its 2019 annual impairment test effective July 1, 2019, and noted 0 impairment. Based on the valuation as of July 1, 2019, the fair value of the Company exceeded its carrying value. The Company performs its annual impairment test during the second half of each year unless events or circumstances indicate an impairment may have occurred before that time.

Despite the excess fair value identified in our 2019 impairment assessment, the Company determined that the significant decline in its market capitalization as a result of the COVID-19 pandemic indicated that an impairment loss may have been incurred. The Company bypassed the qualitative assessment and proceeded directly to performing the quantitative goodwill impairment test. The quantitative goodwill impairment test concluded that the fair value of the Company (reporting unit) exceeded its carrying amount at June 30, 2020, and therefore, goodwill is not considered impaired.

The Company’s changes in estimates and assumptions, including decreases in stock price and market capitalization, could materially affect the determination of fair value and/or conclusions on goodwill impairment. As a result of recent events, including market volatility and the impact on the global economy, it is at least reasonably possible that changes in one or more of those assumptions could result in impairment of our goodwill in future periods.
19


Note 78 — Accounts Payable and Accrued Expenses

Below are the components of accounts payable and accrued expenses:
 June 30, 2020December 31, 2019
 
Accounts payable$21,712  $22,102  
Accrued payroll and related expenses*25,022  24,718  
Accrued subcontractor fees9,051  9,405  
Accrued agency fees*4,650  4,395  
Accrued legal and professional fees2,330  2,169  
Other accrued expenses4,149  2,383  
 $66,914  $65,172  
 * $4,156 in accrued agency fees at December 31, 2019 that were previously included in accrued payroll and related expenses, (in thousands):

 

 

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

 

are now reflected in accrued agency fees.



Note 89 — Notes Payable and Long-Term Debt

Outstanding

The table below reflects the Company's notes payable and long-term debt, obligationswhich includes credit facilities:
Interest Rate (1)
Balance Outstanding as of
LoanMaturityInterest Rate TypeJune 30,
2020
December 31, 2019June 30,
2020
December 31, 2019
Secured Credit Facilities
Hill International, Inc. - Société Générale 2017 Term Loan Facility06/20/2023Variable7.79%7.92%$29,100  $29,250  
Hill International, Inc. - Société Générale Domestic Revolving Credit Facility (2)
05/04/2022Variable5.92%6.27%20,400  9,400  
Hill International N.V.. - Société Générale International Revolving Credit Facility (3)
05/04/2022Variable4.13%4.16%2,865  2,302  
Unsecured Credit Facilities
Hill International, Inc. - First Abu Dhabi Bank ("FAB") PJSC Overdraft Credit Facility (4)
04/18/2021Variable5.76%5.81%1,070  593  
Hill International Brasil S.A. - Revolving Credit Facility (5)
06/12/2020Fixed2.80%3.24%—  498  
Unsecured Notes Payable and Long-Term Debt
Hill International Spain S.A.-Bankia S.A. & Bankinter S.A.(6)12/31/2021Fixed2.21%2.21%795  1,054  
Philadelphia Industrial Development Corporation Loan03/31/2027Fixed2.79%2.79%451  486  
Hill International Spain S.A. - Bankinter S.A. 2020 Term Loan (6)(7)05/04/2024Variable2.23%N/A337  —  
Hill International Spain S.A. - Banco Santander, S.A. Term Loan (6)(7)05/30/2025Fixed3.91%N/A337  —  
Hill International Spain S.A. - BBVA, S.A. P.P. Term Loan (6)(7)06/19/2025Variable2.28%N/A337  —  
Hill International Spain S.A. - Bankia. S.A. 2020 Term Loan (6)(7)06/05/2020Variable2.54%N/A279  —  
Total notes payable and long-term debt, gross$55,971  $43,583  
Less: unamortized discount and deferred financing costs related to Société Générale 2017 Term Loan Facility(573) (641) 
Notes payable and long-term debt$55,398  $42,942  
Current portion of notes payable$2,014  $1,972  
Current portion of unamortized debt discount and deferred financing costs$(186) $(180) 
Current maturities of notes payable and long-term debt$1,828  $1,792  
Notes payable and long-term debt, net of current maturities$53,570  $41,150  




20

Table of Contents
Footnotes to the Notes Payable and Long-Term Debt Table above:

(1) Interest rates for variable interest rate debt are reflected on a weighted average basis through June 30, 2020 since the loan origination or modification date.

(2) As of June 30, 2020 and December 31, 2019, the Company had $5,834 and $6,548 of outstanding letters of credit, respectively, in addition to the balances outstanding above, which resulted in $2,266 and $9,052 of available borrowing capacity under the Domestic Revolving Credit Facility, respectively. The amounts available were based on the maximum borrowing capacity of $28,500 and $25,000 as follows (in thousands):

 

 

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

 

of June 30, 2020 and December 31, 2019, respectively. See 'Secured Credit Facilities' section below for further information.


(3) As of June 30, 2020 and December 31, 2019, the Company had $2,527 and $3,145 of outstanding letters of credit, respectively, in addition to the balances outstanding above, which resulted in $277 and $2,232 of available borrowing capacity under the International Revolving Credit Facility, respectively. The amounts available were based on the Company's borrowing capacity of $5,669 and $7,679 as of June 30, 2020 and December 31, 2019, respectively. See ''Secured Credit Facilities' section below for further information.

(4) FAB credit facility lender was formerly known as National Bank of Abu Dhabi. There is no stated maturity date, however, the loan is subject to annual review in April of each year, or at any other time as determined by FAB. Therefore, the amount outstanding is reflected within the current maturities of notes payable and long-term debt. Balances outstanding are reflected in U.S. dollars based on the conversion rates from AED as of June 30, 2020 and December 31, 2019. The Company had $2,061 and its subsidiary$2,538 of availability under the credit facility as of June 30, 2020 and December 31, 2019, respectively.

(5) See Note 15 - Deconsolidation of Controlling Interest in Subsidiary related to the bankruptcy and liquidation of Hill International N.V.Brasil S.A. (the “Subsidiary”"borrower"), which resulted in the deconsolidation of the borrower from the Company's consolidated financial statements. This unsecured revolving credit facility was subject to automatic renewals on a monthly basis. Effective with the November 2019 renewal of the unsecured revolving credit facility, the interest rate was reduced by the credit facility lender from 3.30% to 2.80%. The Company had 0 availability under the unsecured credit facility as of December 31, 2019. The amounts outstanding are partiesbased on conversion rates from Brazilian Real as of December 31, 2019.

(6) Balances outstanding are reflected in U.S. dollars based on the conversion rates from Euros as of June 30, 2020 and December 31, 2019.

(7) Includes loan agreements, through a subsidiary of the Company, entered into between April and June 2020, where the respective loan agreements require interest-only monthly payments during grace periods that last from six months or one year from the date of the agreements. The variable interest loans are subject to either semi-annual or annual review by the respective lenders thereof and the respective interest rates in respect thereof are determined based on the European Inter-Bank Offered Rate, or “EURIBOR,” for the relevant interest period (or at a substitute rate to be determined to the extent EURIBOR is not available), plus a margin, as set by the repective lender.
21

Table of Contents

Secured Credit Facilities

The Company's secured credit agreementfacilities with Société Générale (the “Agent”), TD Bank, N.A. and HSBC Bank USA, N.A. (collectively, the “U.S. Lenders”) consisting of a term loan facility of $120,000,000 (the “Term Loan Facility”"International Lender") and other U.S. Loan Parties (the "U.S. Lenders") under a $30,000,000 U.S. dollar-denominated2017 Term Loan of $30,000 (the "2017 Term Loan Facility"), a $25,000 U.S.-denominated revolving credit facility available to the Company (the “U.S. Revolver,”"Domestic Revolving Credit Facility"; together with the 2017 Term Loan Facility, the “U.S."U.S. Credit Facilities”Facilities") and a credit agreement with the Agent (the “International Lender”) providing a €11,765,000€9,156 ($15,000,00010,000 at closing and $13,199,000 at September 30, 2016)closing) Euro-denominated revolving credit facility which is available to the Subsidiary (the “International Revolver” and together with the U.S. Revolver, the “Revolving"International Revolving Credit Facilities” and,Facility"; together with the U.S. Credit Facilities, the “Secured"Secured Credit Facilities”Facilities").  The U.S. Revolver and the International Revolver include sub-limits for letters of credit amounting to $25,000,000 and $10,000,000, respectively.

The Secured Credit Facilities contain customary default provisions, representations and warranties, and affirmative and negative covenants, and require the Company to comply with certain financial and reporting covenants. The financial covenants consistcovenant is comprised of a maximum Consolidated Net Leverage Ratio and an Excess Account Concentration requirement.

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 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%. At SeptemberThe Company was in compliance with this financial covenant at June 30, 2016,2020.


On April 1, 2020, the Company’s Consolidated Net Leverage Ratio was 3.19 to 1.00 which exceeded the 2.75 to 1.00 limit imposed by theCompany amended its Secured Credit Facilities, which increased the credit commitment with one of the U.S. Lenders under the Domestic Revolving Credit Facility by $3,500 from $25,000 to $28,500 and constituted a default.

The Excess Account Concentration covenant permitssimultaneously decreased the U. S. Lenders andcredit commitment with 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 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 default and the contractual 2% increase 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, andunder the International Revolver is guaranteedRevolving Credit Facility by the Company and certain of the Company’s U.S. and non-U.S. subsidiaries.

Term Loan Facility

€3,179 (approximately $3,500 at closing) from €9,156 ($6,715) to €5,977 ($3,215).


The 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 interestaggregate unamortized debt issuance costs under the SecuredDomestic Revolving 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 partand International Revolving Credit Facility were $1,034 and $1,317 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 all 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 SeptemberJune 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 December 31, 2019, respectively, and were included in prepaid 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 $4,710,000other current assets and $5,594,000 are included as an offset against the Term Loan balancesother assets in the consolidated balance sheets at September 30, 2016 and December 31, 2015, respectively.

Revolving Credit Facilities

sheets.


The interest rate on borrowings under the U.S. Revolver will be,Domestic Revolving Credit Facility are, at the Company’s option, from time to time, either the LIBOR rate for the relevant interest period plus 3.75% per annum or the Base Rate plus 2.75% per annum.  At September 30, 2016, the interest rate was 6.25%.

The interest rate on borrowings under the International RevolverRevolving Credit Facility will be the European Inter-Bank Offered Rate (“EURIBOR”)EURIBOR for the relevant interest period (or at a substitute rate to be determined to the extent EURIBOR is not available), plus 4.00%4.50% per annum.At September 30, 2016, the interest rate was 3.63%.

The Company will pay a commitment fee


Commitment fees are calculated at 0.50% annually on the average daily unused portion of the 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).

Facility.


Generally, the obligations of the Company under the U.S. RevolverDomestic Revolving Credit Facility are secured by a first-priority security interest in the above-referenced accounts receivable,Eligible Domestic Receivables (as defined in the Demestic Revolving Credit Facility), 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 (as defined in the International Revolving Credit Facility) 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.

Other Financing Arrangements

On May 1, 2020, subsequent to the maturity of the Company's previous commercial premium financing arrangement in April 30, 2020 with AFCO Premium Credit LLC ("AFCO"), the Company entered into a new financing agreement for the renewal of its corporate insurance policies with AFCO for $3,391. The Revolving Credit Facilities haveterms of the arrangement include a term of five years and require$509 down 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 availablefollowed by monthly payments 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, netmade over a five-yearten-month period which ends on Septemberat a 3.04% interest rate through March 31, 2021.


At June 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, 20162020 and December 31, 2015,2019, the balance payable of $2,598 and $768 to AFCO was reflected in other current liabilities on the Company's consolidated balance sheets, respectively.

At September 30, 2016 the Company had $5,006,000

22

Table of outstanding letters of credit under the U.S. Revolver.   Due to the default, the Company was precluded from utilizing any of the $2,494,000 of available borrowing capacity under the U.S. Revolver until 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.

At September 30, 2016, the Company had $1,008,000 of outstanding letters of credit and $1,218,000 of available borrowing capacity under the International Revolver and its other foreign credit agreements (See “Other Debt Arrangements” below for more information).

Other Debt Arrangements

In connection with the move of its corporate headquarters to Philadelphia, Pennsylvania, the Company received a loan from the Philadelphia Industrial Development Corporation in the amount of $750,000 which bears interest at 2.75%, is repayable in 144 equal monthly installments of $6,121 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 facility was reduced to 50.0% of 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 each

Contents

one 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 Information

The following table provides additional cash flow information (in thousands):

 

 

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

 


Note 10 — Earnings per Share

Basic 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 Compensation

At 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.


The Company recognized total share-based compensation expense in selling, general and administrative expenses in the consolidated statement of operations totaling $581,000of $802 and $899,000$801 for the three months ended SeptemberJune 30, 20162020 and 2015,2019, respectively, and $1,838,000$1,201 and $2,360,000$1,042 for the ninesix months ended SeptemberJune 30, 20162020 and 2015,2019, respectively.

Note 12 — Stockholders’ Equity

The following table summarizesCompany's related share-based compensation is comprised of the changes in stockholders’ equity duringfollowing:


Restricted Stock Units

During the ninesix months ended SeptemberJune 30, 2016 (in thousands):

 

 

 

 

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

 

During March 2016, certain officers exercised an aggregate of 297,489 options with an exercise price of $2.45 through2020 and 2019, the Company ongranted certain employees and executive officers equity awards in the form of restricted stock units ("RSU") that are subject to a cashless basis.  The Company withheld 215,158 shares as payment forcombination of time and performance-based conditions under the options2017 Equity Compensation Plan (the "2017 Plan"), totaling 723 and placed those shares in treasury.  The officers received a total of 112,331 shares from this transaction.

During the nine months ended September 30, 2016, the Company received $220,000 in cash from the exercise of stock options.

Note 13 — Income Taxes

The effective tax rates for758 RSUs, respectively. No RSU's were granted during the three months ended SeptemberJune 30, 20162020 and 2015 were (74.3)%2019. Each RSU entitles the grantee to 1 unit of the Company's common stock. The time-based RSUs vest annually over a three-year period on the anniversary date of each grant. Unvested time-based RSUs will be forfeited if the grantee separates from the Company prior to its vesting date. During the six months ended June 30, 2020 and 55.8%, respectively,2019, the related compensation expense was recorded based on a weighted average price per share of $3.28 and 222.8%$3.23, respectively.


The number of common shares to be issued under the performance-based RSUs will be determined based on three levels of performance metrics based on the Company's earnings and 47.8%will be assessed on an annual basis for the nineyears ended December 31, 2020, 2021 and 2022 for the RSUs granted during the six months ended SeptemberJune 30, 20162020 and 2015,for the years ended December 31, 2019, 2020 and 2021 for the RSUs granted during three months ended June 30, 2019. If the Company meets the performance metrics for any one of the measurement periods, such units will vest on the next anniversary date of the grant date. All vested RSUs will be settled on the third anniversary of the grant date. Unvested RSUs are subject to forfeiture if the grantee separates from the Company prior to its vesting date. During the three and six months ended June 30, 2020 and 2019, the Company determined it was not probable that the target performance metric would be met for each of the RSU grants and, therefore, did not record any share-based compensation expense related to such RSUs.

Deferred Stock Units

Deferred Stock Units ("DSU") issued under the 2017 Plan entitle participants to receive 1 share of the Company's common stock for each DSU and they will vest immediately upon separation from the Company. The compensation expense related to these units was determined based on the stock price of the Company's common stock on the grant date of the DSUs.

During the three months ended June 30, 2020 and 2019, 287 and 217 DSU's were granted at a weighted average price of $1.67 and $2.71, respectively. During the six months ended June 30, 2020 and 2019, 295 and 217 DSU's were granted at a weighted average price of $1.71 and $2.71, respectively. These DSU grants were issued to the Company's board of directors (the "Board") as part of their annual service retainer.

Stock Options

At June 30, 2020 and 2019, the Company had approximately 1,616 and 1,892 stock options outstanding, respectively, with a weighted average exercise price of $4.03 and $3.99, respectively. 500 stock options were granted during the three and six months ended June 30, 2019, NaN stock options were granted during the three and six months ended June 30, 2020. During the six months ended June 30, 2020 and 2019, options lapsed for approximately 263 and 551 shares, respectively, with a weighted average exercise price of $3.67 and $4.52, respectively.

Note 11 — Income Taxes
The Company’sCompany calculates the interim tax expense based on an annual effective tax rate ("AETR"). The AETR represents the Company’s estimated effective tax rate for the year based on 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 were (5.6)% and 46.8% for the three months ended SeptemberJune 30, 20162020 and 2015.  For2019, respectively, and (25.6)% and 116.6% for the ninesix months ended SeptemberJune 30, 20162020 and 2015, the Company recognized an income tax (benefit) expense related to an increase2019, respectively.

The change 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) for the three months ended September 30, 2016 and 2015, respectively, and $535,000 and ($37,000) for the nine months ended September 30, 2016 and 2015, respectively. The Company’s effective tax rate in both years is higher than it otherwise would befor the three and six months ended June 30, 2020 from the three and six months ended June 30, 2019 was primarily as a result of not recording an income tax benefit relateddue to the U.S. net operating loss and various foreign withholding taxes.

The componentsmix of pretax earnings (loss) before income taxes andin jurisdictions with different jurisdictional tax rates, as well as not having the related income tax expense by United States and foreignability to benefit from losses in jurisdictions were as follows (in thousands):

 

 

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

 

that have a history of negative earnings.

23

Table of Contents

The reserve for uncertain tax positions amounted to $ 939,000$4,397 and $1,220,000$4,615 at SeptemberJune 30, 20162020 and December 31, 2015, respectively, and is included in “Other liabilities” in the consolidated balance sheets at those dates.

2019, respectively.

The Company’s policy is to record income tax related interest and penalties in income tax expense. At both September 30, 2016 and December 31, 2015, potentialThe Company recorded expense/(recovery) for any tax-related interest and penalties of $(5) and $(29) for the three months ended June 30, 2020 and 2019. Income tax expense/(recovery) related to uncertain tax positions amounted to $500,000these interest and was included inpenalties were $(2) and $(18) for the balance above.

six months ended June 30, 2020, and 2019, respectively.


In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all, or some portion, 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.


Note 14 — Business Segment12 —Segment and Related Information

The Company’s business segments reflect how executive management makes resource decisions and assesses its performance.

The Company 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.


The following tables reflect the required disclosurespresent certain information for the Company’s reportable segments (in thousands):

operations:


Total Revenue by Geographic Region:
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
 
United States$49,785  52.7 %$51,336  52.2 %$95,805  51.0 %$99,438  50.6 %
Latin America659  0.7 %1,911  1.9 %1,830  1.0 %4,345  2.2 %
Europe14,432  15.3 %10,622  10.8 %25,969  13.8 %21,956  11.1 %
Middle East21,529  22.8 %25,972  26.5 %46,101  24.5 %54,283  27.6 %
Africa7,258  7.7 %6,930  7.1 %14,555  7.8 %13,879  7.0 %
Asia/Pacific786  0.8 %1,486  1.5 %3,497  1.9 %3,039  1.5 %
Total$94,449  100.0 %$98,257  100.0 %$187,757  100.0 %$196,940  100.0 %

Consulting Fee Revenue (“CFR”)

 

 

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

%

Total Revenue

 

 

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 June 30,Six Months Ended June 30,
 2020201920202019
 
United States$34,690  45.8 %$34,199  44.3 %$68,734  45.0 %$66,794  42.8 %
Latin America659  0.9 %1,914  2.5 %1,830  1.2 %4,343  2.8 %
Europe11,067  14.6 %10,182  13.2 %21,648  14.2 %21,084  13.5 %
Middle East21,639  28.5 %23,075  30.0 %45,052  29.4 %48,335  31.0 %
Africa6,564  8.7 %6,366  8.3 %13,166  8.6 %12,777  8.2 %
Asia/Pacific1,141  1.5 %1,299  1.7 %2,480  1.6 %2,702  1.7 %
Total$75,760  100.0 %$77,035  100.0 %$152,910  100.0 %$156,035  100.0 %

For the three and six months ended June 30, 2020 and 2019, the United States and the United Arab Emirates were the only countries to account for 10% or more of total revenue.
24


Operating Profit (Loss) 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
June 30,
Six Months Ended
June 30,
 2020
2019(3)
2020
2019(3)
 
United States (1)
$9,879  $8,411  $17,267  $14,149  
Latin America(698) (527) (941) 36  
Europe (1)
1,138  2,174  2,835  2,302  
Middle East (1)
1,160  4,478  2,257  9,552  
Africa415  1,411  1,278  4,425  
Asia/Pacific42  178  225  (293) 
Corporate (2)
(8,627) (11,521) (23,477) (25,028) 
Total$3,309  $4,604  $(556) $5,143  
        (1) includes Hill's share of loss (profit) of equity method affiliates on the Consolidated Statements of Operations.
(2) includes foreign exchange expense (benefit) of $265 and $8 for the three and six months ended June 30, 2020, respectively, and $4,316 and $(18) for the three and six months ended June 30, 2019, respectively.
(3) see Reclassification paragraph in Note 3-Basis of Presentation related to the reclassification of certain back-office
        expenses and foreign currency translation gains and losses.

Depreciation and Amortization Expense:

 

 

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

 

Consulting Fee Revenue by Geographic Region:

 

 

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

%

During

 Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
Project Management$304  $790  $668  $1,564  
Corporate (1)(2)
(53)  2,007  21  
Total$251  $794  $2,675  $1,585  
(1) the third quarterthree months ended SeptemberJune 30, 2016, consulting fee revenue2020 includes a $278 true up of depreciation expense 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 quartersix months ended SeptemberJune 30, 2015, consulting fee revenue2020.

(2) includes $1,582 additional depreciation charge for the United Arab Emirates amountedwrite-off of leasehold improvements related 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:

 

 

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

%

During theCompany subletting office space in Philadelphia to a third quarter ended September 30, 2016, total revenueparty 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 quartersix months ended SeptemberJune 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,

 

 

 

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

%

2020.


Total Revenue By Client Type:

 

 

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

%

 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
 
U.S. federal government$3,922  4.2 %$4,395  4.5 %$8,532  4.6 %$9,087  4.6 %
U.S. state, regional and local governments30,349  32.1 %32,076  32.6 %60,900  32.4 %62,971  32.0 %
Foreign governments25,605  27.1 %24,204  24.6 %50,969  27.1 %49,883  25.3 %
Private sector34,573  36.6 %37,582  38.3 %67,356  35.9 %74,999  38.1 %
Total$94,449  100.0 %$98,257  100.0 %$187,757  100.0 %$196,940  100.0 %

25

Property, Plant and Equipment, Net, by Geographic Location:

 

 

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

 

Consulting Fee Revenue (“CFR”)

 

 

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

%

Total Revenue

 

 

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

%

Operating Profit (Loss) by Geographic Region:

 

 

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

 

Depreciation and Amortization Expense:

 

 

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

 

Consulting Fee Revenue by Geographic Region:

 

 

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

%

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:

 

 

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

%

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:

 

 

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

%

Total Revenue By Client Type:

 

 

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

%

 June 30, 2020December 31, 2019
 
United States$8,115  $9,701  
Latin America194  700  
Europe432  473  
Middle East831  803  
Africa140  139  
Asia/Pacific59  79  
Total$9,771  $11,895  

Note 1513 — Commitments and Contingencies

General Litigation

Legal Proceedings

From time to time, the Company is a defendant or plaintiff in various legal actionsproceedings 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 Contingencies

As of September 30, 2016, our subsidiary, Hill International (Spain), S.A.

Knowles Limited (“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 issued a claim against Knowles for negligent application and a hearing was held in December 2019. The Company is waiting to receive a final determination on all outstanding issues, which is scheduled to occur in October 2020.

Loss on Performance Bond

On February 8, 2018, the Company received notice from the First Abu Dhabi Bank ("FAB", formerly known as the National Bank of Abu Dhabi) that Public Authority of Housing Welfare of Kuwait submitted a claim for payment on a Performance Guarantee issued by the Company for approximately $7,938 for a project located in 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 was issued by the panel of experts in October 2019 for the held hearings on January 7, 2020 and February 4, 2020 and reserved the case for judgment to be issued. In June 2020, the Kuwait Court of Appeal issued judgement confirming the Kuwait First Instance Court's decision. The Company is working to file a pleading before the Kuwait Cassation Court, which is due by August 30, 2020.
Other
The Company has identified a potential tax liability related to certain foreign subsidiaries’ failure to comply with laws and regulations of the jurisdictions, outside of their 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 $1,022, 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 the

average 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 SeptemberJune 30, 2016.

Two2020.

26


Note 14 — Leases

The Company leases office space, equipment and vehicles throughout the world. Many of the 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 receive an earn-out in annual installments of upwhether to £100,000 ($130,000)include any renewal or early termination options is made by the Company at September 30, 2016), which will be charged to earnings, provided that Cadogans’ EBITDA for eachlease inception when establishing the term of the years ending October 31, 2016, 2017, 2018lease. Based on the later of the lease's commencement date or Company's adoption of ASC-842 on January 1, 2019, the Company recognizes right-of use lease assets and lease liabilities on its consolidated balance sheet for all leases in excess of one year in duration. The lease liability represents the present value of the remaining lease payments, which only includes payments that are fixed and determinable at the time of commencement, over the lease term. The lease term may be adjusted for renewal or early termination options provided in the leases only if it is reasonably certain that the Company will exercise such options. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Rent expense for operating leases is recognized on a straight-line basis over the lease term from the lease commencement date through the scheduled expiration date for rent payments that are determined to be fixed, or are determinable at the lease commencement date. Some of the Company's lease arrangements require periodic increases in the Company's base rent that may be subject to certain economic indexes, among other items. In addition, these leases may require the Company to pay property taxes, utilities and other costs related to several of its leased office facilities. Typically, these amounts for such payments cannot be determined at the lease commencement date, and are identified as variable lease payment, which are recognized as incurred.

Total rent expense of $1,856 and $2,373 for the three months ended June 30, 2020 and 2019, respectively, and $4,163 and $4,359 for the six months ended June 30, 2020 and 2019, respectively, is greater than £396,000 ($513,000).  Based upon preliminary results,included in selling, general and administrative and direct expenses in the consolidated statements of operations. Total rent expense for the six months ended June 30, 2020 and 2019 included $907 and $1,063, respectively, that was associated with leases with an initial term of 12 months or less, in addition to variable costs the Company is responsible for paying on all leases.

During the three months ended June 30, 2020, as a result of the COVID-19 pandemic, the Company received rent concessions from certain lessors primarily in the form of rent payment deferrals, where rents that were originally scheduled to be paid to such lessors during the three months ended June 30, 2020, per the terms of the leases, were agreed to not become due and payable until 2021, with the option to pay the amounts deferred in monthly installments, plus interest. In April 2020, the FASB issued a Q&A in order to simplify how ASC-842 should be applied to rent concessions received as a result of the pandemic, and provided an optional practical expedient that permits an entity to make an election to not evaluate whether concessions granted by lessors related to COVID-19 are lease modifications, under certain conditions. Entities that make this election can then apply the lease modification guidance in ASC-842 or account for the concession as if it appears thatwere contemplated as part of the two shareholders will receive an earnout amountingexisting contract. The Company elected to £100,000 ($130,000)apply such practical expedient and not apply the lease modification guidance and has accordingly continued to recognize the rent expense as if no deferral had been provided. The Company recorded a payable for these amounts reflected in accounts payable and accrued expenses in the Company's consolidated balance sheets of which £92,000 ($120,000) has been accrued and charged$586 for such rent deferrals.

The Company subleases certain real estate to earningsthird parties. The sublease income recognized for the three and ninesix months ended SeptemberJune 30, 2016.

In connection2020 was $380 and $556, respectively, and $143 and $286 for the three and six months ended June 30, 2019, respectively.


27

The following is a schedule of maturities of lease liabilities by year as of June 30, 2020:
Total Operating Lease PaymentsTotal Finance Lease Payments
2020 (excluding the six months ended June 30, 2020)$6,312  $16  
20214,852  24  
20224,062  24  
20233,224  24  
20242,219  10  
Thereafter3,952  —  
Total minimum lease payments (1) (2)
24,621  98  
Less amount representing imputed interest3,889  
Present value of lease obligations$20,732  $98  
Weighted average remaining lease term (years)4.823.92
Weighted average discount rate6.91 %2.05 %
(1) Partially includes rent expense amounts payable in various foreign currencies and are based on the foreign currency exchange spot rates as of June 30, 2020, where applicable.
(2) Includes operating lease extensions to lease agreements that have been executed, but has not yet commenced, as of June 30, 2020.

Note 15 - Deconsolidation of Controlling Interest in Subsidiary

On June 12, 2020, Hill International Brasil S.A ("Hill Brazil") filed for bankruptcy and liquidation with the acquisitionBankruptcy Court of IMS Proje Yonetimi ve Danismanlik A.S. (“IMS”Sao Paulo Brazil. Hill Brazil was a consolidated operating subsidiary of Hill International Brasil Participacoes LTDA ("Brazil Consolidated"). A trustee was appointed by the court on AprilJune 15, 2015,2020 to oversee the settlement of liabilities and close the entity. The Company hadlost control of Hill Brazil on the date of the bankruptcy filing and as a result deconsolidated Hill Brazil at that time.

At June 12, 2020, Hill Brazil's assets totaled $1,901, and consisted of Cash $9, Accounts receivable $1,380, Property, Plant & Equipment $295 and other assets $217. At June 12, 2020, Hill Brazil's liabilities totaled $3,538 and consisted of Accounts payable and accrued approximately TRY 1,700,000 forexpenses $1,800, debt $365, deferred revenue $132 and other liabilities $1,242, therefore Hill Brazil's liabilities exceeded assets by $1,638. The write-off of the investment in Hill Brazil by Brazil Consolidated resulted in a potential earn out which would be$1,201 loss. The write-off of the balance sheet and write-off of the investment in Hill Brazil resulted in a $437 gain on the deconsolidation before consideration of foreign currency adjustments and intercompany items.

In conjunction with the liquidation of Hill Brazil, the Company's intercompany receivables from Hill Brazil totaling $116 were fully reserved and an intercompany payable if earnings before interest, income taxes, depreciation and amortization forof $1,180 to Hill Brazil from Brazil Consolidated was written off against the twelve month period subsequentincome/loss of the liquidation. Additionally, $5,565 of accumulated other comprehensive losses related to foreign currency adjustments was taken into expense. This resulted in a net loss of $4,064 related to the closing date (“EBITDA”) exceeded TRY 3,500,000.  A lesser amount would have been payable if EBITDAdeconsolidation which was between TRY 3,200,000 and TRY 3,500,000.  IMS’s EBITDA throughrecorded on the one-year anniversaryconsolidated statements of the acquisition date was not sufficient to earn anyoperations under Other loss, net.

28

Table 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 period ended September 30, 2016.

Contents


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Operations (dollars in thousands).


Introduction

The following discussion should be read in conjunction with the information contained in Hill International, Inc.’s (collectively referred to as “Hill”, “we”, “us”, “our” and “the Company”) unaudited consolidated financial statements, including the notes thereto. Statements regarding future economic performance, management's plans and objectives and any statements concerning assumptions related to the foregoing contained in Management's Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements. See our Annual Report on Form 10-K, for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission (the "SEC") on March 26, 2020, including the factors disclosed therein, as well as "Disclosure Regarding Forward-looking Statements" for certain factors that may cause actual results to vary materially from these forward-looking statements. We assume no obligation to update any of these forward-looking statements.

Overview


We earn revenue by deploying professionals to provide services to our clients, including project management, construction management and related consulting. These services are primarily delivered on a “cost plus” or “time and materials” ("T&M") basis in which we bill negotiated hourly or monthly rates or a negotiated multiple of the direct cost of these professionals, plus actual out-of-pocket expenses. Our direct expenses are the actual cost of these professionals, including payroll and benefits, except for paid time-off, which is recorded in selling, general and administrative expensess ("SG&A") on our consolidated statements of operations. We also provide services under fixed price contracts and T&M contracts with a cap.

Our revenue consists of two components: consulting fee revenue (“CFR”("CFR") and reimbursable expenses. Reimbursable expensesThe 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.

We compete for business based on a variety of factors such as technical capability, global resources, price, reputation and past experience, including client requirements for substantial experience in similar projects. We have developed significant long-standing relationships, which bring us repeat business and may be difficult for others to replicate. We believe we have an excellent reputation for attracting and retaining professionals. In addition, we believe there are high barriers to entry for new competitors especially in the project management market.

SG&A consists primarily of personnel costs that are not billable and corporate or regional costs such as sales, business development, proposals, operations, finance, human resources, legal, marketing, management and administration.

The Company operates as a single reporting segment, known as the Project Management Group which provides fee-based construction management services to our clients, leveraging our construction expertise to identify potential trouble, difficulties and sources of delay on a construction project before they develop into costly problems. Our experienced professionals are capable of managing all phases of the construction process from concept through completion, including cost and budget controls, scheduling, estimating, expediting, inspection, contract administration and management of contractors, subcontractors and suppliers.

Impact of COVID-19 on our Business

In December 2019, COVID-19 was identified in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a global pandemic as a result of the further spread of the virus into all regions of the world, including those regions where our primary operations occur.
We instituted a work-from-home policy for all offices and employees globally in late March, except for field-based employees who normally work on-site at our client’s facilities. These field-based employees are complying with our respective clients’ policies. The majority of our field employees are already located in the regions where they deliver their services, so the travel restrictions that have been enacted by various government authorities are not expected to impair their ability to continue to perform services for our clients. Employees have been returning to their assigned offices, on a modified basis, as their city, state and country reopens, consistent with the applicable requirements of local law.
29

Table of Contents
Most of the projects to which we provide services have been classified as essential services by the relevant governmental authority and as such have continued despite restrictions on the operation of "non-essential" businesses by certain governmental authorities. The majority of our billable employees have continued to provide billable services to our clients, either on-site or remotely at the same or at a slightly reduced volume as in effect prior to the spread of COVID-19.
Nearly all our employees had company laptop computers and the ability to work remotely prior to the institution of our work-at-home policy. The work-at-home policy did not have a significant impact on our employees’ ability to perform their job requirements. Our internal control structure does not generally require physical access to our office locations, and has not to date and is not expected in the future to be adversely impacted by the spread of COVID-19 and the corresponding response by certain governmental authorities. Processes that require physical access to our offices, such as receiving mail (including collections) and processing and mailing manual checks, are being performed by designated individuals at a reduced frequency while certain of our offices remain closed.
The main impacts on our business observed to date other than those discussed above are delays in the procurement processes of a number of our current and potential clients and a temporary slowing of collections. We expect these delays in the procurement process to adversely impact the timing of our new bookings, resulting in lower bookings, Consulting Fee Revenue ("CFR") and backlog for the duration of the economic slowdown caused by the pandemic.
We also experienced a lower than normal amount of collections during the latter part of March. Collections returned to a more normal level during the second quarter. We anticipate we may experience additional deferred collections during the duration of the economic slowdown caused by the COVID-19 pandemic. We had unrestricted cash of $23,198 and available borrowing capacity on our credit facilities totaling $4,604 at June 30, 2020. Additionally, we are evaluating our eligibility for the Main Street Lending Program established in the Coronavirus Aid Relief and Economic Security Act (the "CARES Act") and intend to apply for additional loan proceeds through this program, if we are eligible.
Management has implemented various actions and policies that we expect will result in approximately $10,000 in cost reductions to partially offset the expected reduction in CFR.
The full extent and duration of the impact of COVID-19 on our operations and financial performance is currently unknown, and depends on future developments that are uncertain and unpredictable, including the duration and spread of the pandemic, its impact on capital and financial markets on a macro-scale and any new information that may emerge concerning the severity of the virus, its spread to other regions and the actions to contain the virus or treat its impact, among others.
We will continue to evaluate the potential short-term and long-term implications of COVID-19 on our consolidated financial statements and operations. We believe that the lower backlog reflected in equal amountsthe financial statements at June 30, 2020 was primarily due to the effects of the COVID-19 pandemic. The potential additional future impacts to our consolidated financial statements of operations include, but are not limited to: decreased CFR, lower gross and operating margins, impairment of goodwill and indefinite-lived intangible assets and fair value and collectability of receivables.
Any of these outcomes could have a material adverse impact on our business, financial condition, results of operations and cash flows. Management currently believes that it has adequate liquidity and business plans to continue to operate the business and mitigate the risks associated with COVID-19 for at least the next 12 months from the date of this report.
30

Table of Contents

Results of Operations

Consolidated Results
(In thousands)
 Three Months Ended June 30,ChangeSix Months Ended June 30,Change
 20202019$%20202019$%
Income Statement Data:   
Consulting fee revenue$75,760  $77,035  $(1,275) (1.7)%$152,910  $156,035  $(3,125) (2.0)%
Reimbursable expenses18,689  21,222  (2,533) (11.9)%34,847  40,905  (6,058) (14.8)%
Total revenue$94,449  $98,257  $(3,808) (3.9)%$187,757  196,940  $(9,183) (4.7)%
Direct expenses65,032  66,955  (1,923) (2.9)%130,080  134,202  (4,122) (3.1)%
Gross profit$29,417  $31,302  $(1,885) (6.0)%$57,677  $62,738  $(5,061) (8.1)%
Selling, general and administrative expenses26,857  27,407  (550) (2.0)%54,955  58,744  (3,789) (6.5)%
Foreign currency exchange loss (benefit)265   257  3,212.5 %4,316  (18) 4,334  (24,077.8)%
Plus: Share of profit of equity method affiliates1,014  717  297  41.4 %1,038  1,131  (93) (8.2)%
Operating profit (loss)$3,309  $4,604  $(1,295) (28.1)%$(556) $5,143  $(5,699) (110.8)%
Interest and related financing fees, net1,296  1,411  (115) (8.2)%2,595  2,923  (328) (11.2)%
Other loss, net(3,847) —  (3,847) 100.0 %(3,502) —  (3,502) 100.0 %
(Loss) earnings before income taxes$(1,834) $3,193  $(5,027) (157.4)%$(6,653) $2,220  $(8,873) (399.7)%
Income tax expense102  1,493  (1,391) (93.2)%1,705  2,588  (883) (34.1)%
Net (loss) earnings$(1,936) $1,700  $(3,636) (213.9)%$(8,358) $(368) $(7,990) 2,171.2 %
Less: net earnings - noncontrolling interests18  83  (65) (78.3)%177  150  27  18.0 %
Net (loss) earnings attributable to Hill International, Inc.$(1,954) $1,617  $(3,571) (220.8)%$(8,535) $(518) $(8,017) 1,547.7 %
31

Table of Contents

Three Months Ended June 30, 2020 Compared to the
Three Months Ended June 30, 2019

Total Revenue by Geographic Region:
 Three Months Ended June 30,Change
 20202019$%
   
United States$49,785  52.7 %$51,336  52.2 %$(1,551) (3.0)%
Latin America659  0.7 %1,911  1.9 %(1,252) (65.5)%
Europe14,432  15.3 %10,622  10.8 %3,810  35.9 %
Middle East21,529  22.8 %25,972  26.5 %(4,443) (17.1)%
Africa7,258  7.7 %6,930  7.1 %328  4.7 %
Asia/Pacific786  0.8 %1,486  1.5 %(700) (47.1)%
Total$94,449  100.0 %$98,257  100.0 %$(3,808) (3.9)%

Consulting Fee Revenue by Geographic Region:
 Three Months Ended June 30,Change
 20202019$%
   
United States$34,690  45.8 %$34,199  44.3 %$491  1.4 %
Latin America659  0.9 %1,914  2.5 %(1,255) (65.6)%
Europe11,067  14.6 %10,182  13.2 %885  8.7 %
Middle East21,639  28.5 %23,075  30.0 %(1,436) (6.2)%
Africa6,564  8.7 %6,366  8.3 %198  3.1 %
Asia/Pacific1,141  1.5 %1,299  1.7 %(158) (12.2)%
Total$75,760  100.0 %$77,035  100.0 %$(1,275) (1.7)%
CFR was $75,760 and $77,035 of the total revenue for the three months ended June 30, 2020 and 2019, respectively, which comprised 80.2% and 78.4% of total revenues, respectively.

The decrease in both total revenue and total direct expenses.  Because these pass-through revenue/costs are subjectthe corresponding decrease in CFR for the three months ended June 30, 2020 compared to significant fluctuation from yearthe same period in 2019 was primarily due to year, we measuredelayed project starts and project suspensions due to the performanceCOVID-19 pandemic.

Gross Profit by Geographic Region:
 Three Months Ended June 30,Change
 20202019$%
   
% of
CFR
% of
CFR
United States$15,253  51.9 %44.0 %$14,717  47.1 %43.0 %$536  3.6 %
Latin America211  0.7 %32.0 %638  2.0 %33.3 %(427) (66.9)%
Europe4,268  14.5 %38.6 %3,828  12.2 %37.6 %440  11.5 %
Middle East6,411  21.8 %29.6 %8,584  27.4 %37.2 %(2,173) (25.3)%
Africa2,864  9.7 %43.6 %2,946  9.4 %46.3 %(82) (2.8)%
Asia/Pacific410  1.4 %35.9 %589  1.9 %45.3 %(179) (30.4)%
Total$29,417  100.0 %38.8 %$31,302  100.0 %40.6 %$(1,885) (6.0)%




32

Table of many of our key operating metricsContents
Consolidated gross margin as a percentage of CFR decreased between periods primarily due to the following:

Middle East:

The decrease 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, particularlyCFR in the Middle East, where existing projects have been suspended or have had scope reductions.  Also, political upheavalregion is primarily due to work on a large project in Qatar which started during the second half of 2019 with lower than average margin and civil unrest have negatively affected businessa reduction in the revenue on another project related to updated cost projections.


Africa:

The decrease in gross margin as a percentage of CFR in the region is primarily due to the 2019 closeout of a high margin project in Morocco.

Asia/Pacific:

The decrease in gross margin as a percentage of CFR in the region is primarily the result of the demobilization of 2 projects in the region with much higher than average gross margins reducing the overall gross margin in the region.  This trend could continue

SG&A Expenses:

SG&A expenses for the next few years.

CFRthree months ended June 30, 2020 decreased $10,586,000, or 6.7%,approximately $550 when compared to $147,993,000the same period in 2019. The decrease was primarily the result of unapplied labor decreasing $1,519, travel and auto expenses decreasing $808 and business development costs decreasing $240 as a result of the COVID-19 stay at home orders issued throughout the world. In addition, there was an approximate $435 decrease in professional fees due to lower fees being charge for certain services. These decreases were partially offset by $649 less in recoveries of bad debts during the third quarterthree months ended June 30, 2020 compared to the same period in 2019. In addition,.the three month period ended June 30, 2019 included a $1,100 reversal of 2016 from $158,579,000 duringcertain non-recurring costs which were not present in the third quartersame period in 2020. SG&A expenses represented approximately 35.5% and 35.6% of 2015. CFR for the Project Management segment decreased $9,673,000 principally due to decreases in the Middle East, where three large projects were completedmonths ended June 30, 2020 and several existing projects have been suspended or have had scope reductions,2019, respectively.


Interest and Latin America, partially offset by increases in the United States.  CFRRelated Financing Fees, net
Interest and related financing fees for the Construction Claims segment decreased by $913,000, or 2.2%, due primarily to decreases in Europe and Asia/Pacific, partially offset by increases in the Middle East.

CFR decreased $11,546,000, or 2.5%, to $457,912,000 during the ninethree months ended SeptemberJune 30, 2016 from $469,458,000 during2020 is $1,296, net of $32 of interest income. Interest and related financing fees for the ninethree months ended SeptemberJune 30, 2015.  CFR2019 are $1,411, net of $123 of interest income. Interest and related financing fees for the Project Management segment decreased $11,549,000 principally duethree months ended June 30, 2020 includes lower interest expenses primarily related to decreases in the Middle East, as noted above,our U.S. dollar-denominated revolving credit facility 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 Kingdomterm loan with Société Générale 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 wasother U.S. Loan Parties (the "U.S. Credit Facilities") due to a lower volume of work and declining margins inweighted-average interest rate throughout 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 outstandingthree months ended June 30, 2020, when 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) during the ninethree months ended SeptemberJune 30, 2016 compared to2019.


Other Loss, net earnings of $8,045,000 during

During the ninethree months ended SeptemberJune 30, 2015.  2020, the Company recognized $4,064 in losses related to the bankruptcy and deconsolidation of our operating subsidiary in Brazil (see Note 15 to the consolidated financial statements filed herein), offset by other non-operating income of $217.

Income Taxes

The decrease was due to a lower volume of work and declining margins ineffective income tax rate for the Middle East as well as increased operating expenses.

Diluted loss per common share was ($0.08) during the ninethree months ended SeptemberJune 30, 2016 based upon 51,704,000 diluted common shares outstanding compared to diluted earnings per common share of $0.16 during2020 and 2019 were (5.6)% and 46.8%, respectively. The change in our effective tax rate for the ninethree months ended SeptemberJune 30, 2015 based upon 51,274,000 diluted common shares outstanding.

Critical Accounting Policies

The Company’s interim financial statements were prepared in accordance2020 was primarily a result of the mix of income among various jurisdictions with United States generally accepted accounting principles, which require management to make subjective decisions, assessments and estimates about the effectdifferent statutory tax rates.

33

Table 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.

Contents

Results of Operations

Three

Six Months Ended SeptemberJune 30, 20162020 Compared to

Three the

Six Months Ended SeptemberJune 30, 2015

2019


Total Revenue by Geographic Region:
 Six Months Ended June 30,Change
 20202019$%
   
United States$95,805  51.0 %$99,438  50.6 %$(3,633) (3.7)%
Latin America1,830  1.0 %4,345  2.2 %(2,515) (57.9)%
Europe25,969  13.8 %21,956  11.1 %4,013  18.3 %
Middle East46,101  24.5 %54,283  27.6 %(8,182) (15.1)%
Africa14,555  7.8 %13,879  7.0 %676  4.9 %
Asia/Pacific3,497  1.9 %3,039  1.5 %458  15.1 %
Total$187,757  100.0 %$196,940  100.0 %$(9,183) (4.7)%


Consulting Fee Revenue (“CFR”) (dollars in thousands)

 

 

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

)%

Revenue:

 Six Months Ended June 30,Change
 20202019$%
   
United States$68,734  45.0 %$66,794  42.8 %$1,940  2.9 %
Latin America1,830  1.2 %4,343  2.8 %(2,513) (57.9)%
Europe21,648  14.2 %21,084  13.5 %564  2.7 %
Middle East45,052  29.4 %48,335  31.0 %(3,283) (6.8)%
Africa13,166  8.6 %12,777  8.2 %389  3.0 %
Asia/Pacific2,480  1.6 %2,702  1.7 %(222) (8.2)%
Total$152,910  100.0 %$156,035  100.0 %$(3,125) (2.0)%

CFR was $152,910 and $156,035 of the total revenue for the six months ended June 30, 2020 and 2019, respectively, which comprised 81.4% and 79.2% of total revenues, respectively.

The decrease in total revenue and the corresponding decrease in CFR for the six months ended compared to the same period in 2019 was primarily due to delayed project starts and project suspensions due to the COVID-19 pandemic.

Gross Profit by Geographic Region:
 Six Months Ended June 30,Change
 20202019$%
   
% of
CFR
% of
CFR
United States$29,107  50.5 %42.3 %$28,043  44.7 %42.0 %$1,064  3.8 %
Latin America634  1.1 %34.6 %1,512  2.4 %34.8 %(878) (58.1)%
Europe8,229  14.3 %38.0 %8,087  12.9 %38.4 %142  1.8 %
Middle East13,044  22.6 %29.0 %18,081  28.8 %37.4 %(5,037) (27.9)%
Africa5,654  9.8 %42.9 %5,805  9.3 %45.4 %(151) (2.6)%
Asia/Pacific1,009  1.7 %40.7 %1,210  1.9 %44.8 %(201) (16.6)%
Total$57,677  100.0 %37.7 %$62,738  100.0 %40.2 %$(5,061) (8.1)%

34

Table of Contents
Consolidated gross margin as a percentage of CFR decreased work inbetween periods primarily due to the following:
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 Managementgross margin as a percentage of 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)

 

 

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

)%

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 expenseregion is primarily due to work on a large project in Qatar which started during the second half of 2019 with lower direct jobthan average margin, increase in expense related expensesto the liquidation of a bond and a reduction in the United Kingdom and the Middle East.

Costrevenue of Services (dollars in thousands)

 

 

Three Months Ended September 30,

 

 

 

 

 

2016

 

2015

 

Change

 

 

 

 

 

 

 

% of
CFR

 

 

 

 

 

% of
CFR

 

 

 

 

 

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

)%

Cost of services consists of labor expenses for time charged directlyan ongoing project related to contracts and non-reimbursable job-related travel and out-of-pocket expenses.  updated cost projections.


Africa

The decrease in Project Management costgross margin as a percentage of servicesCFR in the region is primarily due to decreasesthe 2019 closeout of a high margin project 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. Morocco.

Asia/Pacific

The decrease in gross margin as a percentage of CFR in the Construction Claims cost of servicesregion is primarily due to decreased direct laborthe result of the demobilization of 2 projects in the United Kingdom andregion with much higher than average gross margins reducing the United States in line with lower CFR.

Gross Profit (dollars in thousands)

 

 

Three Months Ended September 30,

 

 

 

 

 

2016

 

2015

 

Change

 

 

 

 

 

 

 

% of
CFR

 

 

 

 

 

% of
CFR

 

 

 

 

 

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

)%

The decrease in Project Managementoverall gross profit included a decrease of $3,931,000 from international operations, primarily as a result of reduced contractual rates and a lower volume of workmargin 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.

region.


SG&A Expenses:

Selling, General and Administrative (“SG&A”) Expenses (dollars in thousands)

 

 

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

%

The increase in selling, general and administrative expenses includedfor 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 relatedsix months ended June 30, 2020 decreased approximately $3,789 when compared to the proxy contest; and

·                  A decreasesame period in amortization expense of $566,000 as certain acquired intangible assets have become fully amortized.

Operating Profit (dollars in thousands)

 

 

Three Months Ended September 30,

 

 

 

 

 

2016

 

2015

 

Change

 

 

 

 

 

% of
CFR

 

 

 

% of
CFR

 

 

 

 

 

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

)%

The 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, net

Net 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.prior year. The decrease was primarily due to interestbad debt expense decreasing by approximately $1,050 as a result of $607,000 paidimproved collection during 2020 and reclassification in 2020 of a prior bad debt provision to a subcontractorreduction in 2015revenue, an approximate $1,400 decrease in professional fees due to lower fees being charged, and an approximate $1,200 decrease in legal expenses in 2020 primarily as a result of a settlement of previously incurred legal settlement.

Income Taxes

Forexpenses. In addition, 2019 had retention bonus expenses of approximately $600 which did not recur in 2020. Partially offsetting these decreases was a $1,600 additional depreciation charge for the three months ended September 30, 2016 and 2015, the Company recognized income tax expensewrite-off of $2,880,000 and $4,210,000, respectively.  The income tax expense in both periods wasleasehold improvements related to the pre-tax income generated from foreign operations adjusted for discrete itemsCompany subletting office space in Philadelphia to a third party during the periodfirst quarter of 2020. SG&A expenses represented approximately 35.9% and without recognizing an income tax benefit related37.6% of CFR for the six months ended June 30, 2020 and 2019, respectively.


Foreign Currency Exchange Loss (Benefit)

Foreign currency exchange losses were approximately $4,300 greater for the six months ended June 30, 2020 compared 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 changesame period in the reserve for uncertain tax positions.2019. 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 2015currency exchange losses 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 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 three months ended September 30, 2016 was ($6,866,000), or ($0.13) per diluted common share, based on 51,753,000 diluted 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 to

Nine Months Ended September 30, 2015

Consulting Fee Revenue (“CFR”) (dollars in thousands)

 

 

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

)%

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)

 

 

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

%

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 offsetcaused 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)

 

 

Nine Months Ended September 30,

 

 

 

 

 

2016

 

2015

 

Change

 

 

 

 

 

 

 

% of
CFR

 

 

 

 

 

% of
CFR

 

 

 

 

 

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

)%

Cost of services consists of labor expenses for time charged directly to contracts and non-reimbursable job-related travel and out-of-pocket expenses.  The 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)

 

 

Nine Months Ended September 30,

 

 

 

 

 

2016

 

2015

 

Change

 

 

 

 

 

 

 

% of
CFR

 

 

 

 

 

% of
CFR

 

 

 

 

 

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

)%

The 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)

 

 

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

%

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 as28.6% weakening of the twelve month measurement date.

Operating Profit (dollars in thousands)

 

 

Nine Months Ended September 30,

 

 

 

 

 

2016

 

2015

 

Change

 

 

 

 

 

% of
CFR

 

 

 

% of
CFR

 

 

 

 

 

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

)

The decrease in Project Management operating profit was due primarily toBrazilian Real against 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 $277,000

Corporate 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.

Euro.


Interest Expense and Related Financing Fees, net

Interest and related financing fees decreased $1,149,000$328 to $10,103,000$2,595, which is net of $78 in interest income, for the six months ended June 30, 2020 as compared with $2,923 for six months ended June 30, 2019, which includes $256 of interest income. This decrease is due to a lower weighted-average interest rate on our U.S. Credit Facilities applicable to the six months ended June 30, 2020, when compared to the weighted -average interest rate charged during the ninesix months ended SeptemberJune 30, 2016 compared2019.

Other Loss, net

During the six months ended June 30, 2020, a loss of $4,064 was recognized due to $11,252,000the bankruptcy filing and deconsolidation of our operating subsidiary in Brazil (see Note 15 to the consolidated financial statements filed herein), net of other non-operating income of $217. An additional $345 of income was recognized during the nine months ended September 30, 2015 primarily duefirst quarter of 2020 related to interestthe cancellation of $607,000 paid to a subcontractor in 2015PDIC Economic Stimulus Program Loan Agreement that the Company made on October 24, 2014 as a result of a legal settlement.

the Company satisfying all obligations in regard to the Loan Agreement.


Income Taxes

For the ninesix months ended SeptemberJune 30, 20162020 and 2015, the Company2019, we recognized an income tax expense of $6,939,000$1,705 and $7,980,000,$2,588, 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 ratesrate for the nine monthssix-month periods ended SeptemberJune 30, 20162020 and 2015 were 222.8%2019 was (25.6)% and 47.8%116.6% , respectively. For both years,The change in the Company’s effective tax rate is significantly higher than it otherwise would befor the six months ended June 30, 2020 was primarily as a result of the mix of income among 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.

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), or ($0.08) per diluted common share, based upon 51,704,000 diluted common shares outstanding, as compared to net earnings for the nine months ended September 30, 2015rates.

35

Table of $8,045,000, or $0.16 per diluted common share, based upon 51,274,000 diluted common shares outstanding.

Non-GAAP Financial Measures

EBITDA, 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 as

Contents

interest 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):

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

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

 


Liquidity and Capital Resources

At September 30, 2016,


Our primary cash obligations are our payroll and our project subcontractors. Our primary 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.

We utilize cash equivalents, of which $19,337,000 was on 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 August 5, 2020, the date of major contracts or further delays in receivable collections, could adversely affectthis report.

At June 30, 2020, our primary sources of liquidity consisted of $23,198 of cash 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 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.  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 Requirements

Our 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$15,852 was on deposit in foreign locations, and charged to earnings for the three and nine months ended September 30, 2016.

Sources of Additional Capital

We have an effective registration statement on Form S-3 on file with the U.S. Securities and Exchange Commission (the “SEC”) to register 20,000,000 shares of our common stock for issuance and sale by us at various times in the future. 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 cannot

predict the amount of proceeds from those future sales, if any, or whether there will be a market for our common stock at the time of any such offering or offerings to the public.

In addition, we have an effective registration statement on Form S-4 on file with the SEC to register 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$4,604 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.

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 SeptemberJune 30, 2016,2020, we had approximately $48,875,000$49,723 of availability under these arrangements.

We Our sources of liquidity under arrangements with foreign banks are available for repatriation as deemed necessary by us, with some restrictions and tax implications.


Please see "Impact of COVID-19 on our Business" above for our discussion about the impact of COVID-19 on liquidity.

Sources of Additional Capital

A significant increase in our current backlog or impacts on our liquidity from the COVID-19 pandemic may require us to obtain additional financing. If additional financing is required in the future due to an increase in backlog, impacts from the COVID-19 pandemic or changes in strategic or operating plans, we cannot provide any assurance that any other sources of financing will be available, or if available, that the financing will be on terms acceptable to us.

We are currently evaluating the recently opened Main Street Lending Programs to determine our eligibility.


Cash Flow Activity Flows
Six Months Ended June 30,
2020Change2019
Net cash (used in) provided by operating activities$(4,554) $(5,990) $1,436  
Net cash used in investing activities(972) 603  (1,575) 
Net cash provided by financing activities13,060  9,126  3,934  
Effect of exchange rate changes on cash, cash equivalents and restricted cash(846) 88  (934) 
Net (decrease) increase in cash, cash equivalents and restricted cash$6,688  $2,861  

Operating activities

During the Nine Months Ended September 30, 2016

For the ninesix months ended SeptemberJune 30, 2016, 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 Activities

Our operations used cash of $5,329,000 for the nine months ended September 30, 2016.  This compares to2020, cash used in operating activities of $3,592,000 for 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 increases in accounts receivable - affiliates related to slower collections as discussed above under Impact of COVID-19 on our business. For the full amortizationsix months ended June 30, 2019, cash provided by operating activities was primarily the result of the shorter-lived intangible assetstiming of companies which we acquired overpayments to vendors and subcontractors and increased collection activity in the last several years offset by amortization of intangibles arising from the acquisitions of CadogansMiddle East and IMS and the increase in property and equipment primarily related to the relocation of our corporate headquarters to Philadelphia.

Africa.


Cash held in restricted accounts is used primarily as collateral for the issuance of performance and advance payment bonds, and letters of credit and escrow. Restricted cash decreased from $9,067 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 compared2019 to 98 days at September 30, 2015 and 111 days$8,463 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 was2020, primarily due to a slowingthe return of collections from our clients in the Middle East, particularly Oman.

Although we continually monitor our accounts receivable, wecollateral on matured bonds.


We manage our operating cash flows by managing 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 consistpayable. 

36

Table of billing

Contents

to our clients for our consulting fees and other job-related costs. Prepaid expenses and other current assets consist of prepayments for various selling, general and administrative costs, such as insurance, rent, maintenance, etc. Accounts payable consist of obligations to third parties relating primarily to costs incurred for specific engagements, including pass-through costs such as subcontractor costs. Deferred revenue consists of payments received from clients in advance of work performed.

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

business.


Investing Activities

Weactivities


During the six months ended June 30, 2020 and 2019, cash was used $2,584,000in investing activities for the purchase of leasehold improvements, computers, office equipment, furniturefixed assets.

Financing activities

During the six months ended June 30, 2020 and fixtures. Of this amount, $1,500,000 was used to implement a database system for our Human Resource department.

Financing Activities

Net2019, cash provided by financing activities was $6,652,000.  We repaid $900,000used to fund the ongoing operating activities.


Effect of exchange rate changes on cash

For the six months ended June 30, 2020, the effects of exchange rate changes on cash was primarily driven by the recognition of balances previously included in accumulated other comprehensive losses into expense due to the bankruptcy and liquidation of our operating subsidiary in Brazil (see Note 15 to the consolidated financial statements filed herein) and a 28.6% weakening of the Brazilian Real against the 2014 Term Loan Facility and $41,000Euro.

For the six months ended June 30, 2019, the effects of exchange rates on cash were primarily driven by the weakening of the Euro (2.6%) against the Philadelphia Industrial Development Corporation loan. We paid $1,531,000 for deferred consideration related to the IMS acquisition.  We had net borrowings of $8,950,000 under our credit facility.  We received $285,000 from purchases under our Employee Stock Purchase Plan and the exercise of stock options. We paid $111,000 as dividends to noncontrolling interests.

Recent Accounting Pronouncements

On May 28, 2014, the 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 principle of the ASU is that an entity should recognize revenue for 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 Fluctuations

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

Dollar.


Backlog

We believe a strong indicator of our future performance is our backlog of uncompleted projects under contract or awarded.

Our backlog represents CFR, which includes management’s estimate of the amount of contracts and awards in handin-hand that we expect to resultrecognize as CFR in future consulting feeperiods as a component of total revenue. Project ManagementBeginning with the year ended December 31, 2019, we excluded new backlog from indefinite delivery/indefinite quantity ("ID/IQ") contracts in circumstances where the work has not yet been approved by the client. ID/IQ contracts require us to deliver an indefinite amount of service over a predetermined period of time. Estimated future CFR from ID/IQ contracts is only included in our total backlog if the work has been approved starting in 2019, whereas prior year backlog included estimated CFR from all ID/IQ contracts. As of June 30, 2020, management has evaluated all backlog existing prior to 2019 for the purpose of reporting this pre-2019 backlog consistent with the methodology above. This resulted in a reduction to backlog of $46,584 at December 31, 2019 and June 30, 2020 and a reduction in the 12-month backlog of $397 at December 31, 2019. Our 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.

Backlog is not a measure defined in U.S. 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.

Although backlog reflects business that we consider to be firm, cancellations or scope adjustments may occur. Further, substantially all of our contracts with our clients may be terminated at will, in which case the client would only be obligated to us for services provided through the termination date. Historically, the impact of terminations and modifications on our realization of revenue from our backlog has not been significant; however, there can be no assurance that such changes will not be significant in the future. Furthermore, reductions of our backlog as a result of contract terminations and modifications may be offset by additions to the backlog.


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

 

 

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

%

CFR.
37

Table of Contents

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

%


The following tables show our backlog by geographic region:
 Total Backlog12-Month Backlog
June 30, 2020    
United States$290,098  44.9 %$100,984  47.7 %
Latin America2,761  0.4 %1,711  0.8 %
Europe89,540  13.8 %36,244  17.1 %
Middle East173,299  26.7 %50,228  23.7 %
Africa75,883  11.7 %17,186  8.1 %
Asia/Pacific16,330  2.5 %5,498  2.6 %
Total$647,911  100.0 %$211,851  100.0 %
December 31, 2019    
United States$324,621  42.5 %$103,106  41.8 %
Latin America16,351  2.1 %5,068  2.1 %
Europe90,134  11.8 %35,000  14.2 %
Middle East229,373  30.1 %74,846  30.4 %
Africa86,203  11.3 %22,574  9.2 %
Asia/Pacific17,995  2.4 %5,563  2.3 %
Total$764,677  100.2 %$246,157  100.0 %

At June 30, 2020, our backlog was $647,911 compared to $764,677 at December 31, 2019, which included re-evaluation and write down of the realizable value of a number of contracts booked before January 1, 2019, some of which were as a result of the impacts of COVID-19. Backlog also declined in during the three months ended June 30, 2020 as the result of other COVID-related cancellations and scope reductions.

Our 2020 year-to-date CFR net bookings of $36,144 equates to a book-to-burn ratio for the six months ended ended June 30, 2020 of 23.6%. CFR net bookings represent the value of new bookings, less any cancellations and other reductions of existing backlog. The amount of our new bookings, before any cancellations or other reductions, was $118,600 and equates to a book-to-burn ratio of 77.6% for the six months ended ended June 30, 2020. Our book-to-burn ratio, a non-GAAP measure, is determined by taking our new CFR bookings and dividing it by CFR for the applicable period. This metric allows management to monitor the Company's business development efforts to ensure we grow our backlog and our business over time and management believes that this measure is useful to investors for the same reason. We estimate that approximately $211,851 or 32.7% of the backlog at June 30, 2020, will be recognized over the next twelve months.

The difference between the remaining performance obligations of $113,418 and the backlog of $647,911 at June 30, 2020 is due to the backlog including the full value of client contracts billed on a time and materials basis, which contracts, are not included as part of the remaining performance obligation. These contracts are excluded from the remaining performance obligation since they are not fixed price contracts and the consideration expected under these contracts is variable as it is based upon hours and costs incurred, which would result in the counter-party only being obligated to the Company for services provided through the termination date.

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

Inflation
Although we are subject to fluctuations in the local currencies of the countries in which we operate, we do not believe that inflation will have a significant effect on our results of operations or our financial position.
38


Critical Accounting Policies
The Company’s interim financial statements were prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP"), 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 these judgments 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 2019 Annual Report on Form 10-K.

NewAccounting Pronouncements

For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 3 to the consolidated financial statements filed herein.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Refer to the Company’s 2015 Annual Report on Form 10-K forRisk.

We are a complete discussionsmaller reporting company as defined by Rule 12b-2 of the Company’s market risk.  There have been no material changesSecurities Exchange Act of 1934 and are not required to
provide the market risk information included in the Company’s 2015 Annual Report.

under this item.

39

Item 4.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures

The management of the Company, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, (asas such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of SeptemberJune 30, 2016.2020. Management concluded that, due to the on-going remediation associated with the material weakness identified in our 20152019 Annual Report on Form 10-K (“20152019 Form 10-K)10-K"), our disclosure controls and procedures were ineffective as of SeptemberJune 30, 20162020 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.


A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the 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.

Exchange Act Rules 13a-15(e) and 15d-15(e) define “disclosure controls and procedures” to mean controls and procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in 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 the 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.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
For a more comprehensive discussion of the material weaknesses in internal control over financial reporting previously identified by management as of December 31, 2019 and the remedial measures undertaken to address these material weaknesses, investors are encouraged to review Item 9A, Disclosure Controls and Procedures, of our 2019 Form 10-K.
Changes in Internal Control overOver Financial Reporting

Our remediation efforts for material weaknesses previously reported were ongoing during the three and six months ended SeptemberJune 30, 2016,2020, and, other than those remediation efforts described in “Management’s Remediation Initiatives” in Item 9A of our 20152019 Annual Report on Form 10-K, there10-K. There were no other material changes in our internal control over financial reporting that occurred during the three and six months ended SeptemberJune 30, 20162020 that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

However, as explained in greater detail under Item 9A

40

Table of our 2015 Form 10-K for the year ended December 31, 2015, we have, or are in the process of, implementing 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, we

Contents

are 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.

For a more comprehensive discussion of the material weaknesses in internal control over financial reporting identified by management as of December 31, 2015, and the remedial measures undertaken to address these material weaknesses, investors are encouraged to review Item 9A, Controls and Procedures, in our 2015 Form 10-K.


Part II — Other Information

OTHER INFORMATION


Item 1.  Legal Proceedings.
Information required by this item is incorporated by reference to Part I, item 1, Note 13 — Commitments and Contingencies, Legal Proceedings

None.

and Part 1, item 1, Note 15, Deconsolidation of Controlling Interest in Subsidisry


Item 1A.Risk Factors

There have been no material changes pertainingFactors.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to risk factors discussed in
provide the Company’s 2015 Annual Report.

information under this item.



Item 2.Unregistered Sales of Equity Securities and Use of Funds

Proceeds.

None.


Item 3.Defaults Upon Senior Securities

Securities.

None.


Item 4.Mine Safety Disclosures.

Not applicable.


Item 5.Other Information

Information.

None.


Item 6.Exhibits

10.1

Employment 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).

10.2

31.1

Settlement Agreement among the Company, Bulldog Investors LLC, and certain directors of the Company, dated September 16, 2016.

31.1

31.2

31.2

32.1

32.1

32.2

32.2

101.INS

101.INS

XBRL Instance Document.

101.SCH

101.SCH

XBRL Taxonomy Extension Schema Document.

101.PRE

101.PRE

XBRL Taxonomy Presentation Linkbase Document.

101.CAL

101.CAL

XBRL Taxonomy Calculation Linkbase Document.

101.LAB

101.LAB

XBRL Taxonomy Label Linkbase Document.

Linkbase.

101.DEF

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

104The cover page of this Quarterly Report on Form 10-Q, formatted in Inline XBRL
41

Table of Contents

Signatures

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant 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, 2016

By:

/s/ David L. Richter

Raouf S. Ghali

David L. Richter

Chief Executive Officer

(Principal Executive Officer)

Dated:

August 5, 2020

Dated: November 14, 2016

By:

/s/ John Fanelli III

Todd Weintraub

John Fanelli III

Todd Weintraub

Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)

Dated: November 14, 2016

By:

/s/Ronald F. Emma

Ronald F. Emma

Senior Vice President and

Chief Financial Officer

Chief Accounting(Principal Financial Officer

( and Principal Accounting Officer)

Dated:August 5, 2020

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