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 September 30, 2016

2021

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, PA

19103
(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 51,767,11456,677,873 shares of the Registrant’s Common Stock outstanding at November 1, 2016.

October 28, 2021.




Table of Contents



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





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 (the "Reform Act"), 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 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 statements.

statement other than as required by law. 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.

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)

 September 30, 2021December 31, 2020
Assets(Unaudited)
Cash and cash equivalents$26,293 $34,229 
Cash - restricted3,811 3,752 
Accounts receivable, net115,049 98,186 
Current portion of retainage receivable11,813 11,775 
Accounts receivable - affiliates29,013 23,285 
Prepaid expenses and other current assets13,494 9,378 
Income tax receivable1,026 2,298 
Total current assets200,499 182,903 
Property and equipment, net8,816 9,443 
Cash - restricted, net of current portion3,069 3,432 
Operating lease right-of-use assets17,908 13,116 
Financing lease right-of-use assets692 288 
Retainage receivable6,988 6,044 
Acquired intangibles, net2,767 2,253 
Goodwill44,903 46,397 
Investments2,511 2,805 
Deferred income tax assets3,880 3,698 
Other assets2,268 1,620 
Total assets$294,301 $271,999 
Liabilities and Stockholders’ Equity
Current maturities of notes payable and long-term debt$22,780 $987 
Accounts payable and accrued expenses80,230 67,797 
Income taxes payable1,021 2,219 
Current portion of deferred revenue4,339 3,305 
Current portion of operating lease liabilities4,937 4,797 
Current portion of financing lease liabilities202 70 
Other current liabilities9,264 5,796 
Total current liabilities122,773 84,971 
Notes payable and long-term debt, net of current maturities29,442 48,294 
Retainage payable285 600 
Deferred income taxes1,299 1,210 
Deferred revenue7,527 7,488 
Non-current operating lease liabilities18,393 13,184 
Non-current financing lease liabilities502 186 
Other liabilities7,253 6,778 
Total liabilities187,474 162,711 
Commitments and contingencies00
Stockholders’ equity:
Preferred stock, $0.0001 par value; 1,000 shares authorized, none issued— — 
Common stock, $0.0001 par value; 100,000 shares authorized, 63,249 shares and 62,920 shares issued at September 30, 2021 and December 31, 2020, respectively
Additional paid-in capital216,942 215,010 
Accumulated deficit(81,467)(79,542)
Accumulated other comprehensive (loss) income(66)1,318 
Less treasury stock of 6,807 at September 30, 2021 and December 31, 2020(29,056)(29,056)
Hill International, Inc. share of equity106,359 107,736 
Noncontrolling interests468 1,552 
Total equity106,827 109,288 
Total liabilities and stockholders’ equity$294,301 $271,999 
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
September 30,
Nine Months Ended
September 30,
2021202020212020
Consulting fee revenue$77,061 $71,543 $227,158 $224,453 
Reimbursable expenses19,543 17,109 58,079 51,956 
Total revenue$96,604 $88,652 $285,237 $276,409 
Direct expenses64,196 59,998 194,314 190,078 
Gross profit$32,408 $28,654 $90,923 $86,331 
Selling, general and administrative expenses28,121 25,588 82,906 80,543 
Foreign currency exchange loss (benefit)511 (694)2,751 3,622 
 Plus: Share of profit of equity method affiliates551 983 1,805 2,021 
Operating profit$4,327 $4,743 $7,071 $4,187 
Less: Interest and related financing fees, net1,226 1,275 4,077 3,870 
Less: Other loss, net— 152 — 3,654 
Earnings (loss) before income taxes$3,101 $3,316 $2,994 $(3,337)
Income tax expense1,784 1,071 4,653 2,776 
Net earnings (loss)$1,317 $2,245 $(1,659)$(6,113)
Less: net earnings - noncontrolling interests58 131 265 308 
Net earnings (loss) attributable to Hill International, Inc.$1,259 $2,114 $(1,924)$(6,421)
Basic earnings (loss) per common share - Hill International, Inc.$0.02 $0.04 $(0.03)$(0.11)
Basic weighted average common shares outstanding57,245 56,702 57,102 56,551 
Diluted earnings (loss) per common share - Hill International, Inc.$0.02 $0.04 $(0.03)$(0.11)
Diluted weighted average common shares outstanding57,245 56,702 57,102 56,551 
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 September 30,Nine Months Ended September 30,
 2021202020212020
Net earnings (loss)$1,317 $2,245 $(1,659)$(6,113)
Foreign currency translation adjustment, net of tax(1,177)639 (2,733)5,385 
Comprehensive earnings (loss)140 2,884 (4,392)(728)
Less: Comprehensive (loss) earnings attributable to noncontrolling interests(32)376 (1,084)203 
Comprehensive earnings (loss) attributable to Hill International, Inc.$172 $2,508 $(3,308)$(931)
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, 202062,920 $$215,010 $(79,542)$1,318 6,807 $(29,056)$107,736 $1,552 $109,288 
Net earnings (loss)— — — (3,184)— — — (3,184)207 (2,977)
Other comprehensive loss— — — — (297)— — (297)(1,259)(1,556)
Share-based compensation expense270 — 1,371 — — — — 1,371 — 1,371 
Shares issued under employee stock purchase plan44 — 95 — — — — 95 — 95 
Balance - June 30, 202163,234 $$216,476 $(82,726)$1,021 6,807 $(29,056)$105,721 $500 $106,221 
Net earnings— — — 1,259 — — — 1,259 58 1,317 
Other comprehensive loss— — — — (1,087)— — (1,087)(90)(1,177)
Share-based compensation expense— 443 — — — — 443 — 443 
Shares issued under employee stock purchase plan12 — 23 — — — — 23 — 23 
Balance - September 30, 202163,249 $$216,942 $(81,467)$(66)6,807 $(29,056)$106,359 $468 $106,827 
Balance - December 31, 201962,708 $$212,759 $(71,360)$(3,817)6,546 $(28,231)$109,357 $871 $110,228 
Net earnings (loss)— — — (8,535)— — — (8,535)177 (8,358)
Other comprehensive income (loss)— — — — 5,096 — — 5,096 (350)4,746 
Share-based compensation expense— — 1,201 — — — — 1,201 — 1,201 
Shares issued under employee stock purchase plan162 — 201 — — — — 201 — 201 
Transfer of shares pledged as collateral (1)
(261)— — — — 261 (825)(825)— (825)
Balance - June 30, 202062,609 $$214,161 $(79,895)$1,279 6,807 $(29,056)$106,495 $698 $107,193 
Net earnings— — — 2,114 — — — 2,114 131 2,245 
Other comprehensive income— — — — 394 — — 394 245 639 
Share-based compensation expense— — 415 — — — — 415 — 415 
Shares issued under employee stock purchase plan16 — 20 — — — — 20 — 20 
Balance - September 30, 202062,916 $$214,596 $(77,781)$1,673 6,807 $(29,056)$109,438 $1,074 $110,512 

(1) 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)
 Nine Months Ended September 30,
 20212020
Cash flows from operating activities:
Net loss$(1,659)$(6,113)
Adjustments to reconcile net loss to net cash provided by (used in):
Depreciation and amortization1,856 3,380 
Recovery of bad debts(2,794)(1,306)
Amortization of deferred loan fees568 521 
Deferred tax expense(120)500 
Share-based compensation1,814 1,616 
Operating lease right-of-use assets3,306 3,163 
Loss on liquidation of subsidiary— 4,064 
Foreign currency remeasurement losses2,510 3,622 
Deferred payroll tax payments— 2,711 
Changes in operating assets and liabilities:
Accounts receivable(15,521)4,686 
Accounts receivable - affiliate(5,728)(6,294)
Prepaid expenses and other current assets(3,951)(2,418)
Income taxes receivable1,232 39 
Retainage receivable(953)(416)
Other assets(1,926)(2,643)
Accounts payable and accrued expenses13,181 1,641 
Income taxes payable(1,202)(1,161)
Deferred revenue1,482 (2,451)
Operating lease liabilities(2,698)(3,259)
Other current liabilities3,432 3,426 
Retainage payable(314)(730)
Other liabilities492 688 
Net cash (used in) provided by operating activities(6,993)3,266 
Cash flows from investing activities:
Purchase of NEYO Group(681)— 
Purchase of property and equipment(1,197)(1,101)
Net cash used in investing activities(1,878)(1,101)
Cash flows from financing activities:
Proceeds from term loans— 1,291 
Repayment of term loans(802)(666)
Proceeds from revolving loans29,785 38,486 
Repayment of revolving loans(25,816)(24,268)
Proceeds from stock issued under employee stock purchase plan118 221 
Net cash provided by financing activities3,285 15,064 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(2,654)(97)
Deconsolidated cash— 
Net (decrease) increase in cash, cash equivalents and restricted cash(8,240)17,123 
Cash, cash equivalents and restricted cash — beginning of period41,413 24,982 
Cash, cash equivalents and restricted cash — end of period$33,173 $42,105 
 Nine Months Ended September 30,
Supplemental disclosures of cash flow information:20212020
Interest and related financing fees paid$3,520 $2,722 
Income taxes paid3,830 2,018 
Transfer of proceeds from shares pledged as collateral to treasury stock— 825 
Cash paid for amounts included in the measurement of lease liabilities4,897 5,914 
Right-of-use assets obtained in exchange for operating lease liabilities8,568 288 
Right-of-use assets obtained in exchange for finance lease liabilities538 475 

 See accompanying notes to Consolidated Financial Statementsconsolidated 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, unless otherwise indicated, except per share data.

Note 2 — Liquidity
At September 30, 2021 and December 31, 2020, the Company's principal sources of liquidity consisted of $26,293 and $34,229 of cash and cash equivalents, respectively, $4,591 and $7,495 of available borrowing capacity under the Domestic Revolving Credit Facility, respectively, $1,614 and $1,085 of available borrowing capacity under the International Revolving Credit Facility, respectively, and $6,131 and $3,131 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 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. Variants of the virus continue to emerge in various region and countries worldwide. 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 believes that it has adequate liquidity and business plans to continue to operate the Construction Claims Group.

business and mitigate the risks associated with COVID-19 for the next 12 months from November 8, 2021, the date of this filing. Additional disclosure on the impact of COVID-19 on the Company is included in Part I. Item 2 Management's Discussion and Analysis 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, 2015.2020. Accordingly, theythe accompanying unaudited interim consolidated financial statements 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.


NEYO Group Acquisition

On June 30, 2021, the Company acquired all of the equity interests of NEYO Group, a 120-person firm specializing in cost management and estimating support and also providing project management, project monitoring, and other services. NEYO maintains offices in Bangalore, Chennai, Delhi, and Mumbai, as well as project offices in Hyderabad, Pune, and Kolkata.
10

Reclassification

Certain geographic regions have been combined in tables throughout the document including in Note 3 — Liquidity

4 - Revenue from Contract with Clients and Note 12 - Segment and Related Information. In the current year, Americas includes United States and Latin America and Middle East/Asia/Pacific includes Middle East and Asia/Pacific. The related presentation for the three and nine months ended September 30, 2020 has been recast to conform to current year presentation.


Other Loss, net

During the nine months ended September 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 $65. 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 such 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 income (loss) until the entity is sold or substantially liquidated. Gains or losses arising from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency), including those resulting from intercompany transactions, are reflected in 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 income (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 nine months ended September 30, 2021 or 2020.

There was one client in Africa who represents 10% or more to gross accounts receivable at September 30, 2021 and December 31, 2020, respectively, which represents 14% and 16% of the gross accounts receivable balance at September 30, 2021 and December 31, 2020, respectively. These amounts were fully reserved for at September 30, 2021 and December 31, 2020.

(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.

(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.
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(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 income tax assets 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:
September 30, 2021December 31, 2020
Cash and cash equivalents$26,293 $34,229 
Cash - restricted3,811 3,752 
Cash - restricted, net of current portion3,069 3,432 
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows$33,173 $41,413 
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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 firstperiod. Diluted earnings (loss) per common share incorporates the incremental shares issuable upon the assumed exercise of stock options and 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 1,353 shares and 1,589 shares at September 30, 2021 and 2020, respectively. In addition, the Company had 1,038 and 715 restricted and deferred stock units outstanding at September 30, 2021 and 2020, respectively. These awards were excluded from the calculation of diluted loss per share for the three and nine months ended September 30, 2021 and 2020 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 September 30,Nine Months Ended September 30,
2021202020212020
Net earnings (loss)$1,317 $2,245 $(1,659)$(6,113)
Less: net earnings - noncontrolling interests58 131 265 308 
Net earnings (loss) attributable to Hill International, Inc.$1,259 $2,114 $(1,924)$(6,421)
Basic weighted average common shares outstanding57,245 56,702 57,102 56,551 
Effect of dilutive securities:
Stock options— — — — 
Unvested share-based compensation units— — — — 
Diluted weighted average common shares outstanding57,245 56,702 57,102 56,551 
Basic and diluted earnings (loss) per common share - Hill International, Inc.$0.02 $0.04 $(0.03)$(0.11)

(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, 2020 filed with the SEC on March 16, 2021. See update below.

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Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles in ASC 740 and improves how certain income tax-related guidance is applied. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption was permitted. The amendments in this update were applied prospectively. The Company adopted the new standard as of January 1, 2021. The standard did not have a material impact on the Company’s consolidated financial position or results of operations upon adoption.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments (Topic 326) - Credit Losses: Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement of credit losses on financial instruments.  The new guidance replaces the incurred loss impairment methodology in the current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. This ASU will be effective for the Company commencing January 1, 2023. The Company is in the process of assessing the impact of this ASU on our consolidated financial statements and disclosures.

Note 4 — Revenue from Contracts with Clients

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

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

Time and Materials Contracts

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

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Change Orders and Claims

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

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 hadaccounted for such costs in a manner inconsistent with the requirements of the FAR or Cost Accounting Standards and recommend that its U.S. government corporate administrative contracting officer disallow such costs. Historically, the Company has not incurred significant disallowed costs because of such audits. However, the Company can provide no assurance that the DCAA audits will not result in material disallowances of incurred costs in the future.

Disaggregation of Revenues
The Company has 1 operating segment, the Project Management Group, which reflects how the Company is being managed. Additional information related to rely heavily on debtthe Company’s operating segment is provided in Note 12 - Segment and equity transactionsRelated Information. The Project Management Group provides extensive construction and project management services to fundconstruction 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 operations.  See Note 4revenues. 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 further discussionfixed price. The contract type will determine the level of issuesrisk in the contract related to our liquidity.

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.


15

The components of the Company’s revenue by contract type and geographic region for the three and nine months ended September 30, 2021 and 2020 are as follows:

Three Months Ended September 30, 2021Three Months Ended September 30, 2020
Fixed PriceT&MTotalPercent of Total RevenueFixed PriceT&MTotalPercent of Total Revenue
Americas$5,398 $45,964 $51,362 53.1 %$5,046 $43,149 $48,195 54.4 %
Middle East/Asia/Pacific773 20,848 21,621 22.4 %7,655 15,074 22,729 25.6 %
Europe10,898 2,999 13,897 14.4 %7,387 4,078 11,465 12.9 %
Africa1,125 8,599 9,724 10.1 %(75)6,338 6,263 7.1 %
Total$18,194 $78,410 $96,604 100.0 %$20,013 $68,639 $88,652 100.0 %
Nine Months Ended September 30, 2021Nine Months Ended September 30, 2020
Fixed PriceT&MTotalPercent of Total RevenueFixed PriceT&MTotalPercent of Total Revenue
Americas$14,778 $132,923 $147,701 51.7 %$15,736 $130,094 $145,830 52.8 %
Middle East/Asia/Pacific7,000 56,320 63,320 22.2 %16,481 55,846 72,327 26.2 %
Europe25,247 19,695 44,942 15.8 %25,566 11,868 37,434 13.5 %
Africa2,027 27,247 29,274 10.3 %201 20,617 20,818 7.5 %
   Total$49,052 $236,185 $285,237 100.0 %$57,984 $218,425 $276,409 100.0 %

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

For basic and cost-plus T&M contracts and T&M with a cap, not expected to exceed the cap, contracts, the Company recognizes revenue over time using the output method which measures progress toward complete satisfaction of the performance obligation based upon actual costs incurred, using the right to invoice practical expedient.

16

Accounts Receivable

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

Contract Assets and Liabilities

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

The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing of the Company’s performance and client payments. The amount of revenue recognized during the three months ended September 30, 2021 and 2020 that was included in the deferred revenue balance at the beginning of the periods was $456 and $579, respectively. The amount of revenue recognized during the nine months ended September 30, 2021 and 2020 that was included in the deferred revenue balance at the beginning of the periods was $4,051 and $571, 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 September 30, 2021 and December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $92,155 and $101,800, respectively. During the following 12 months, approximately 58.8% of the remaining performance obligations are expected to be recognized as revenue with the remaining balance recognized over 1 to 6 years.

Note 45 — 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 ReceivableSeptember 30, 2021December 31, 2020
Billed (1)
$104,228 $113,021 
Unbilled (2)
51,719 37,960 
 155,947 150,981 
Allowance for doubtful accounts (1)
(40,898)(52,795)
Accounts receivable, net$115,049 $98,186 
Accounts Receivable - Affiliates
Billed (3)
$14,776 $15,560 
Unbilled (2)
14,938 8,380 
$29,714 $23,940 
Allowance for doubtful accounts(701)(655)
Accounts receivable - affiliates, net$29,013 $23,285 
(1) Includes $24,025 and unbilled accounts receivable are $14,926,000 and $4,827,000, respectively,$33,242 related to change orders, claimsamounts due from a client in Libya as of September 30, 2021 and disputesDecember 31, 2020, respectively, which where both fully reserved for in the allowance for doubtful accounts. The decrease in the balance at September 30, 2016.

In 2012,2021 from December 31, 2020 is primarily due to the Company commenced operations on the Muscat International Airport (the “Oman Airport”) project with the Ministry of Transportation and Communications (the “MOTC”) in Oman. The original contract term expired in November 2014.  In October 2014, the Company applied for a twelve-month extension of time amendment (the “first extension”) which was subsequently approved in March 2016 and the Company continued to work on the Oman Airport project.  The Company began to experience some delays in payment during the second quarter of 2015 when MOTC commenced its formal review and certificationdevaluation of the Company’s invoices. In December 2015, the Company began discussions with the MOTC on a second extensionLibyan Dinar.

(2) Amounts are net of time amendment (the “second extension”)unbilled reserves.
17

(3) Includes $1,568 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$1,303 of retainage receivables due from affiliates as of September 30, 2016, accounts receivable from Oman totaled approximately $29,500,000.  After receipt of the October2021 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.

December 31, 2020, respectively.


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 relatedassets:

 September 30, 2021December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
 
Engineering license$2,653 $— $2,100 $— 
Client relationships509 395 509 356 
Total$3,162 $395 $2,609 $356 
Intangible assets, net$2,767 $2,253 

During the year ended December 31, 2020, the Company acquired a Grandfathered Engineering Corporation license which was determined to have an indefinite useful life and therefore it is not amortized.

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

 

$13 for the three months ended September 30, 2021 and 2020 and $38 and $67 for the nine months ended September 30, 2021 and 2020, 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,
2021 (remaining 3 months)$13 
202251 
202351 
2024— 
2025— 

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 nine months ended September 30, 2021:

Balance, December 31, 2020$46,397 
Additions (1)
162 
Translation adjustments (2)
(1,656)
Balance, September 30, 2021$44,903 
(1) Refer to Note 73 - Basis of Presentation, NEYO Group Acquisition subsection.
(2) The translation adjustment was calculated based on the foreign currency exchange rates as of September 30, 2021.

The Company performed its 2021 annual impairment test effective July 1, 2021 and noted no impairment. Based on the valuation as of July 1, 2021, 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.

18

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.

Note 8 — Accounts Payable and Accrued Expenses

Below are the components of accounts payable and accrued expenses:
 September 30, 2021December 31, 2020
 
Accounts payable$33,852 $20,953 
Accrued payroll and related expenses*24,824 28,508 
Accrued subcontractor fees11,669 8,711 
Accrued agency fees4,450 4,239 
Accrued legal and professional fees1,435 2,894 
Other accrued expenses*4,000 2,492 
 $80,230 $67,797 
 * $1,818 in costs related to the Company's end of service benefit plan at December 31, 2020 that were previously included in other accrued 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

 

and are now reflected in accrued payroll and related expenses.


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 TypeSeptember 30,
2021
December 31, 2020September 30,
2021
December 31, 2020
Secured Credit Facilities
Hill International, Inc. - Société Générale 2017 Term Loan Facility06/20/2023Variable7.54%7.67%$28,725 $28,950 
Hill International, Inc. - Société Générale Domestic Revolving Credit Facility (2)
05/04/2022Variable5.16%5.50%17,400 14,400 
Hill International N.V.. - Société Générale International Revolving Credit Facility (3)
05/04/2022Variable4.07%4.11%4,747 4,035 
Unsecured Credit Facilities
Hill International, Inc. - First Abu Dhabi Bank ("FAB") PJSC Overdraft Credit Facility (4)
04/18/2022Variable5.71%5.65%— — 
Hill International (North Africa) Ltd - Arab Bank PLC ("Arab Bank") Payroll Overdraft Facility (5)
07/16/2022VariableN/AN/A— N/A
Hill International (North Africa) Ltd - Arab Bank General Simple Assignment of Contracts Overdraft Facility (5)
07/16/2022VariableN/AN/A— N/A
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%139 581 
Philadelphia Industrial Development Corporation Loan04/01/2027Fixed2.79%2.79%373 421 
Hill International Spain S.A. - Bankinter S.A. 2020 Term Loan (5)(6)
05/04/2024Variable2.23%2.23%267 357 
Hill International Spain S.A. - Banco Santander, S.A. Term Loan (5)(6)
05/30/2025Fixed3.91%3.91%320 367 
Hill International Spain S.A. - BBVA, S.A. P.P. Term Loan (5)(6)
06/19/2025Variable2.28%2.28%327 367 
Hill International Spain S.A. - Bankia. S.A. 2020 Term Loan (5)(6)
06/05/2025Variable2.54%2.54%270 303 
Total notes payable and long-term debt, gross$52,568 $49,781 
Less: unamortized discount and deferred financing costs related to Société Générale 2017 Term Loan Facility(346)(500)
Notes payable and long-term debt$52,222 $49,281 
Current portion of notes payable22,979 1,171 
Current portion of unamortized debt discount and deferred financing costs(199)(184)
Current maturities of notes payable and long-term debt$22,780 $987 
Notes payable and long-term debt, net of current maturities$29,442 $48,294 
19

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 September 30, 2021 since the loan origination or modification date.

(2) As of September 30, 2021 and December 31, 2020, the Company had $6,509 and $6,605 of outstanding letters of credit, respectively, in addition to the balances outstanding above, which resulted in $4,591 and $7,495 of available borrowing capacity under the Domestic Revolving Credit Facility, respectively. The amounts available were based on the maximum borrowing capacity of $28,500 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 September 30, 2021 and December 31, 2020. See 'Secured Credit Facilities' section below for further information.


(3) As of September 30, 2021 and December 31, 2020, the Company had $558 and $2,189 of outstanding letters of credit, respectively, in addition to the balances outstanding above, which resulted in $1,614 and $1,085 of available borrowing capacity under the International Revolving Credit Facility, respectively. The amounts available were based on the Company's borrowing capacity of $6,919 and $7,309 as of September 30, 2021 and December 31, 2020, 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 facility is subject to be reviewed annually in April by FAB, or at any other time as determined by FAB. Therefore, the amount outstanding is reflected within the current maturities of notes payable and long-term debt. Balances outstanding are reflected in U.S. dollars based on the conversion rates from AED as of September 30, 2021 and December 31, 2020. The Company had $3,131 of availability under the credit facility as of September 30, 2021 and December 31, 2020.

(5) In July 2021, the Company, through one of its subsidiaries, entered into two overdraft facilities with Arab Bank. There is no stated maturity date however, the facilities are subject to be reviewed annually in July by Arab Bank. Amounts may be drawn in either Egyptian Pounds or in the U.S. Dollar. Interest rates are equal to 1.0%, plus the Central Bank of Egypt ("CBE") corridor rate. No amounts have been drawn on as of September 30, 2021. The Company had $3,000 of availability under the credit facilities as of September 30, 2021.

(6) Balances outstanding are reflected in U.S. dollars based on the conversion rates from Euros as of September 30, 2021 and December 31, 2020.

(7) Includes loan agreements, through a subsidiary Hill International N.V. (the “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 partiessubject to either semi-annual or annual review by the respective lenders thereof and the respective interest rates in respect thereof are determined based on the European Inter-Bank Offered Rate, or “EURIBOR,” for the relevant interest period (or at a substitute rate to be determined to the extent EURIBOR is not available), plus a margin, as set by the respective lender.

Secured Credit Facilities

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%. AtThe Company was in compliance with this financial covenant at September 30, 2016,2021.


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 under the International Revolving Credit Facility by €3,179 (approximately $3,500 at closing) from €9,156 (approximately $10,000) to increase€5,977 (approximately $6,536 at closing).


The aggregate unamortized debt issuance costs under 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 SecuredDomestic Revolving 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.  AtFacility and International Revolving Credit Facility were $403 and $755 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 default2021 and the contractual 2% increaseDecember 31, 2020, respectively, and were included in the interest rate.  In connection with the waiver, the Company incurred a consent fee amounting to approximately $168,000 which will be charged to interest expense in the fourth quarter of 2016.

The U.S. Credit Facilities are guaranteed by certain U.S. subsidiaries of the Company,prepaid expenses and the International Revolver is guaranteed by the Companyother current assets and certain of the Company’s U.S. and non-U.S. subsidiaries.

Term Loan Facility

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 interest under the Secured Credit Facilities may increase by 2.0%.  The LIBOR on the Term Loan Facilities (including when determining the Base Rate) shall in no event be less than 1.0% per annum.

At September 30, 2016, the interest rate on the Term Loan was 7.75%.

The Company has the right to prepay the Term Loan Facility in full or in part at any time without premium or penalty.  The Company is required to make mandatory prepayments of the Term Loan Facility, without premium or penalty, (i) with net proceeds of any issuance or incurrence of indebtedness (other than that permitted under the Term Loan Facility) by the Company, (ii) with net proceeds from certain asset sales outside the ordinary course of business, and (iii) with 50% of the excess cash flow (as defined in the agreement) for each fiscal year of the Borrowers (which percentage would be reduced to 25% if the Consolidated Net Leverage Ratio is equal to or less than 2.25 to 1.00 or reduced to 0% if the Consolidated Net Leverage Ratio is equal to or less than 1.50 to 1.00).

The Term Loan Facility is generally secured by a first-priority security interest in substantially allother assets of the Company and certain of the Company’s U.S. subsidiaries other than accounts receivable, cash proceeds thereof and certain bank accounts, as to which the Term Loan Facility is secured by a second-priority security interest.

The Term Loan Facility has a term of six years, requires repayment of 0.25% of the original principal amount on a quarterly basis through September 30, 2020, the maturity date.  Any amounts repaid on the Term Loan Facility will not be available to be re-borrowed.

The Company incurred fees and expenses related to the Term Loan Facility aggregating $7,066,000 which have been deferred.  The deferred fees are being amortized on a straight-line basis, which approximates the effective interest method, to interest and related financing fees, net over a six-year period which ends on September 30, 2020.  Unamortized balances of $4,710,000 and $5,594,000 are included as an offset against the Term Loan balances in the consolidated balance sheets at September 30, 2016 and December 31, 2015, respectively.

Revolving Credit 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


20

Table of Contents
Commitment fees are paid quarterly and 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 Domestic 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.


The Company is in discussions with both existing lenders and potential new lenders to refinance the Secured Credit Facilities prior to their maturity in May 2022 for the Domestic and International Revolving Credit Facilities haveand June 2023 for the 2017 Term Loan Facility.

Other Financing Arrangements

On May 1, 2021, subsequent to the maturity of the Company's previous commercial premium financing arrangement in April 30, 2021 with AFCO Premium Credit LLC ("AFCO"), the Company entered into a termnew financing agreement for the renewal of five years and requireits corporate insurance policies with AFCO for $3,350. The terms of the arrangement include a $503 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 timemade over a ten-month period at a 2.88% interest rate through expiration onMarch 31, 2022.

At September 30, 2019.

The Company incurred fees and expenses related to the Revolving Credit Facilities aggregating $3,000,000 which has been deferred. The deferred fees are being amortized on a straight-line basis, which approximates the effective interest method, to interest expense and related financing fees, net over a five-year period which ends on September 30, 2019.  Unamortized balances of $1,800,000 and $2,250,000 are included in other assets in the consolidated balance sheet at September 30, 20162021 and December 31, 2015,2020, balances payable to AFCO of $1,717 and $872 were reflected in other current liabilities on the Company's consolidated balance sheets, respectively.

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

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 $443 and $899,000$415 for the three months ended September 30, 20162021 and 2015,2020, respectively, and $1,838,000$1,814 and $2,360,000$1,616 for the nine months ended September 30, 20162021 and 2015,2020, respectively.

Note 12 — Stockholders’ The Company's related share-based compensation is comprised of the following:


Restricted Stock Units

During the nine months ended September 30, 2021 and 2020, the Company granted certain employees and executive officers equity awards in the form of restricted stock units ("RSU") that are subject to a combination of time and performance-based conditions under the 2017 Equity

Compensation Plan (the "2017 Plan"), totaling 414 and 723 RSUs, respectively. No RSUs were granted during the three months ended September 30, 2021 and 2020. Each RSU entitles the grantee to 1 unit of the Company's common stock. The following table summarizestime-based RSUs vest annually over a three-year period on the changes in stockholders’ equityanniversary 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 nine months ended September 30, 2021 and 2020, the related compensation expense was recorded based on a weighted average price per share of $2.36 and $3.28, 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 will be assessed on an annual basis for the years ended December 31, 2021, 2022 and 2023 for the RSUs granted during the nine months ended September 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 through2021 and for the years ended December 31, 2020, 2021 and 2022 for the RSUs granted during the nine months ended September 30, 2020. If the Company meets the performance metrics for any one of the measurement periods, such units will vest on a cashless basis.  Thethe 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 withheld 215,158 shares as payment for the options and placed those shares in treasury.  The officers received a total of 112,331 shares from this transaction.

prior to its vesting date. During the nine months ended September 30, 2016,2021 and 2020, the Company received $220,000 in cashdetermined 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.


21

Table of Contents
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 exerciseCompany. The compensation expense related to these units was determined based on the stock price of the Company's common stock options.

Note 13 — Income Taxes

The effective tax rates foron the grant date of the DSUs. Unvested DSUs are subject to forfeiture if the grantee separates from the Company prior to its vesting date.


During the three months ended September 30, 20162021 and 20152020, 5 and 39 DSUs were (74.3)%granted at a weighted average price of $2.57 and 55.8%, respectively, and 222.8% and 47.8% for$1.58, respectively. During the nine months ended September 30, 20162021 and 2015,2020, 780 and 334 DSUs were granted at a weighted average price of $2.42 and $1.70, respectively. DSUs granted partially include units awarded to the Company's board of directors (the "Board") as part of their annual service retainer. DSUs were also granted to executive officers that are subject to a combination of time and performance based conditions that vest over a three-year period.

Stock Options

At September 30, 2021 and 2020, the Company had approximately 1,353 and 1,589 stock options outstanding, respectively, with a weighted average exercise price of $3.87 and $4.02, respectively. No stock options were granted during the nine months ended September 30, 2021 and 2020. During the nine months ended September 30, 2021 and 2020, options lapsed for approximately 211 and 281 shares, respectively, with a weighted average exercise price of $4.95 and $3.71, 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 57.5% and 32.3% for the three months ended September 30, 20162021 and 2015.  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 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 2015,2020, respectively, and $535,000155.4% and ($37,000)(83.2)% for the nine months ended September 30, 20162021 and 2015,2020, respectively. The interim tax calculation prescribed under ASC 740-270 can yield unconventional results as seen in the effective tax rate for the nine months ended September 30, 2021, which is impacted by discrete tax items such as uncertain tax positions and certain withholding taxes in relation to the mix of pretax earnings in certain jurisdictions in which no loss benefit is recognized.

The change in the Company’s effective tax rate in both years is higher than it otherwise would befor the nine months ended September 30, 2021 from the nine months ended September 30, 2020 was primarily as a result of not recording an income tax benefit relateddue to the U.S. net operating loss and various foreignmix of pretax earnings in jurisdictions with different jurisdictional tax rates, as well as certain withholding taxes.

The components of earnings (loss) before income taxes and the related incomeuncertain tax expense by United States and foreign 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

 

positions recorded in 2021.


The reserve for uncertain tax positions amounted to $ 939,000$7,740 and $1,220,000$6,328 at September 30, 20162021 and December 31, 2015, respectively, and is included in “Other liabilities” in the consolidated balance sheets at those dates.

2020, 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 for any tax-related interest and penalties related to uncertain tax positions amounted to $500,000of $39 and was included in$70 for the balance above.

three months ended September 30, 2021 and 2020, respectively, and $500 and $68 for the nine months ended September 30, 2021 and 2020, 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 Segment Information

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


On March 11, 2021 the American Rescue Plan Act was signed into law. The Company bases these decisionsis currently evaluating the impact this legislation may have on its consolidated financial results, however the typeCompany does not feel there will be a significant impact.



22

Table of services provided (Project ManagementContents
Note 12 —Segment and Construction Claims) and secondarily by their geography (U.S./Canada, Latin America, Europe,Related Information
The Company operates as 1 reporting segment which reflects how 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 September 30,Nine Months Ended September 30,
 2021202020212020
 
Americas$51,362 53.1 %$48,195 54.4 %$147,701 51.7 %$145,830 52.8 %
Middle East/Asia/Pacific21,621 22.4 %22,729 25.6 %63,320 22.2 %72,327 26.2 %
Europe13,897 14.4 %11,465 12.9 %44,942 15.8 %37,434 13.5 %
Africa9,724 10.1 %6,263 7.1 %29,274 10.3 %20,818 7.5 %
Total$96,604 100.0 %$88,652 100.0 %$285,237 100.0 %$276,409 100.0 %

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 September 30,Nine Months Ended September 30,
 2021202020212020
 
Americas$34,510 44.8 %$33,697 47.2 %$100,996 44.5 %$104,261 46.5 %
Middle East/Asia/Pacific21,345 27.7 %21,709 30.3 %62,100 27.3 %69,241 30.8 %
Europe12,328 16.0 %10,549 14.7 %36,968 16.3 %32,197 14.3 %
Africa8,878 11.5 %5,588 7.8 %27,094 11.9 %18,754 8.4 %
Total$77,061 100.0 %$71,543 100.0 %$227,158 100.0 %$224,453 100.0 %

For the three months ended September 30, 2021, the United States was the only country to account for 10% or more of total revenue. For the nine months ended September 30, 2021, the United States and the United Arab Emirates were the only countries to account for 10% or more of total revenue. For the three and nine months ended September 30, 2020, the United States and the United Arab Emirates were the only countries to account for 10% or more of total revenue.

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
September 30,
Nine Months Ended
September 30,
 2021202020212020
 
Americas (1)
$8,139 $8,884 $20,879 $25,210 
Middle East/Asia/Pacific (1)
2,872 1,457 6,054 3,939 
Europe (1)
2,623 1,520 6,517 4,355 
Africa1,032 485 5,117 1,763 
Corporate (2)
(10,339)(7,603)(31,496)(31,080)
Total$4,327 $4,743 $7,071 $4,187 
    (1) includes Hill's share of loss (profit) of equity method affiliates on the Consolidated Statements of Operations.
(2) includes foreign exchange losses (benefit) of $511 and $(694) for the three months ended September 30, 2021 and 2020, respectively and $2,751 and $3,622 for the nine months ended September 30, 2021 and 2020, respectively.


23

Table of Contents

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
September 30,
Nine Months Ended
September 30,
 2021202020212020
Project Management$$341 $769 $1,009 
Corporate (1)
561 364 1,087 2,371 
Total$567 $705 $1,856 $3,380 
(1) includes $1,582 additional depreciation charge for the write-off of leasehold improvements related to the Company subletting office space in Philadelphia to a third quarterparty for the nine months ended September 30, 2016, consulting fee revenue for the United Arab Emirates amounted to $25,016,000 representing 16.9% of the total. No other country other than the United States accounted for 10% or more of consolidated consulting fee revenue.

During the third quarter ended September 30, 2015, consulting fee revenue for the United Arab Emirates amounted to $29,642,000 representing 18.7% of the total. No other country other than the United States accounted for 10% or more of consolidated consulting fee revenue.

2020.


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 the third quarter ended September 30, 2016, total revenue for the United Arab Emirates amounted to $26,359,000 representing 15.7% of the total. No other country except for the United States accounted for 10% or more of consolidated total revenue.

During the third quarter ended September 30, 2015, total revenue for the United Arab Emirates amounted to $30,910,000 representing 17.3% of the total. No other country except for the United States accounted for 10% or more of consolidated total revenue.

Consulting Fee Revenue By Client Type:

 

 

Three Months Ended September 30,

 

 

 

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

%

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 September 30,Nine Months Ended September 30,
 2021202020212020
 
U.S. federal government$3,506 3.6 %$4,552 5.1 %$11,636 4.1 %$13,084 4.7 %
U.S. state, regional and local governments30,648 31.7 %29,652 33.4 %90,934 31.9 %90,552 32.8 %
Foreign governments23,401 24.2 %23,149 26.1 %75,137 26.3 %74,118 26.8 %
Private sector39,049 40.5 %31,299 35.4 %107,530 37.7 %98,655 35.7 %
Total$96,604 100.0 %$88,652 100.0 %$285,237 100.0 %$276,409 100.0 %

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

%

 September 30, 2021December 31, 2020
 
Americas$7,250 $7,741 
Middle East/Asia/Pacific704 917 
Europe492 544 
Africa370 241 
Total$8,816 $9,443 

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

24

Loss on Performance Bond

On February 8, 2018, the Company received notice from the First Abu Dhabi Bank ("FAB", S.A. (“Hill Spain”), owned an indirect 91% interest in Engineering S.A. (“ESA”),formerly known as the National Bank of Abu Dhabi) that Public Authority of Housing Welfare of Kuwait submitted a firmclaim 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. 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 filed a pleading before the Kuwait Cassation Court in August 2020. Hill's challenges are still pending before the Kuwait Cassation Court and a hearing has not yet been scheduled.
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 $334, 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 September 30, 2016.

Two2021.


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 2019lease 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 greater than £396,000 ($513,000).  Based upon preliminary results, it appearsreasonably certain that the two shareholdersCompany will receiveexercise such options. As most of the Company's leases do not provide an earnout amountingimplicit 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 £100,000 ($130,000)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 £92,000 ($120,000) has been accruedare recognized as incurred.

Total rent expense of $1,950 and charged to earnings$1,875 for the three months ended September 30, 2021 and 2020, respectively, and $6,193 and $6,038 for the nine months ended September 30, 2016.

In connection with the acquisition of IMS Proje Yonetimi ve Danismanlik A.S. (“IMS”) on April 15, 2015, the Company had accrued approximately TRY 1,700,000 for a potential earn out which would be payable if earnings before interest, income taxes, depreciation2021 and amortization for the twelve month period subsequent to the closing date (“EBITDA”) exceeded TRY 3,500,000.  A lesser amount would have been payable if EBITDA was between TRY 3,200,000 and TRY 3,500,000.  IMS’s EBITDA through the one-year anniversary of the acquisition date was not sufficient to earn any of the Additional Purchase Price and the liability was eliminated by a credit of approximately $673,000 to2020 is included in selling, general and administrative and direct expenses in the consolidated statements of operations. Total rent expense for the nine month periodmonths ended September 30, 2016.

2021 and 2020 included $1,631 and $1,488, 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.

The Company subleases certain real estate to third parties. The sublease income recognized for the three months ended September 30, 2021 and 2020, was $396 and $390, respectively. The sublease income recognized for the nine months ended September 30, 2021 and 2020 was $1,190 and $946, respectively.

25

Table of Contents

The following is a schedule of maturities of lease liabilities by year as of September 30, 2021:
Total Operating Lease PaymentsTotal Finance Lease Payments
2021 (excluding the nine months ended September 30, 2021)$1,923 $56 
20225,988 216 
20235,212 216 
20244,271 181 
20253,471 65 
Thereafter7,194 — 
Total minimum lease payments (1)
28,059 734 
Less amount representing imputed interest4,729 30 
Present value of lease obligations$23,330 $704 
Weighted average remaining lease term (years)5.623.46
Weighted average discount rate6.71 %2.40 %
(1) Partially includes rent expense amounts payable in various foreign currencies and are based on the foreign currency exchange spot rates as of September 30, 2021, where applicable.

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 Bankruptcy Court of 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 June 15, 2020 to oversee the settlement of liabilities and close the entity. The Company lost 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 of $9, Accounts receivable of $1,380, Property, Plant & Equipment of $295 and other assets of $217. At June 12, 2020, Hill Brazil's liabilities totaled $3,538 and consisted of Accounts payable and accrued expenses of $1,800, debt of $365, deferred revenue of $132 and other liabilities of $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 $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 of $1,180 to Hill Brazil from Brazil Consolidated was written off against the income/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 deconsolidation which was recorded on the consolidated statements of operations under Other loss (income), net.

On December 29, 2020, Brazil Consolidated filed for bankruptcy and liquidation with the Bankruptcy Court of Sao Paulo Brazil. Brazil Consolidated was a consolidated subsidiary of Hill International, N.V. The Company lost control of Brazil Consolidated on the date of the bankruptcy filing and, as a result, deconsolidated Brazil Consolidated at that time which resulted in an additional net loss of $1,437 being recorded on the consolidated statements of operations under other loss (income), net for the year ended December 31, 2020. The balance sheet of Brazil Consolidated primarily consisted of intercompany payables. The corresponding intercompany receivables were written off on the respective entity's balance sheets in conjunction with the liquidation and deconsolidation of Brazil Consolidated resulting in no net consolidated income/loss impact. The net loss is primarily comprised of the deconsolidation of $1,350 of net assets, and $313 of accumulated other comprehensive losses related to foreign currency adjustments taken into expense which were offset by $226 of eliminated capital.


26

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, 2020 filed with the Securities and Exchange Commission (the "SEC") on March 16, 2021, 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 other than as required by law.

Overview


We earn revenue by deploying professionals to provide services to our clients, including project management, construction management, facilities 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 expenses ("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 reflected in equaloccasionally 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 in bothpaid 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 total direct expenses.  Because these pass-through revenue/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 subjectnot 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 significant fluctuationour 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 yearconcept 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 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. Variants of the virus continue to year, we measure the performance of manyemerge in various regions and countries worldwide.

We instituted a work-from-home policy for all offices and employees globally in late March 2020, 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 key operating metricsfield employees were already located in the regions where they deliver their services, so the travel restrictions that have been enacted by various government authorities have not materially impaired our ability to continue to perform services for our clients. Employees are returning to their assigned offices, on a modified basis, as their city, state and country reopens, consistent with the applicable requirements of local law.

27

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 percentageslightly reduced volume as in effect prior to the pandemic.

Nearly all our employees had company laptop computers and the ability to work remotely prior to the institution of CFR, as we believe that this isour work-at-home policy. The work-at-home policy did not have a better and more consistent measure of operating performance than total revenue.

The recent drop in global oil prices has had a negativesignificant impact on the construction industry, particularlyour 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 Middle East, where existing projects have been suspended or have had scope reductions.  Also, political upheavalfuture, to be adversely impacted by the pandemic and civil unrest have negatively affectedthe 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 continue to operate on a limited basis.


The main impacts on our business observed to date other than those discussed above are delays in the region.  This trend could continueprocurement processes of a number of our current and potential clients. We expect these delays in the procurement process to adversely impact the timing of our new bookings, resulting in lower bookings, CFR and backlog for the next few years.

CFR decreased $10,586,000, or 6.7%,duration of the economic slowdown caused by the pandemic.


Management implemented various actions and policies that resulted in approximately $11,000 in cost reductions to $147,993,000 duringpartially offset the third quarter of 2016 from $158,579,000 during the third quarter of 2015.reduction in CFR for the Project Management segment decreased $9,673,000 principally dueyear ended December 31, 2020. We expect costs in 2021 to decreasesincrease modestly in line with an anticipated rebound in activity, as the Middle East, where three large projects were completed and several existing projects have been suspended or have had scope reductions, and Latin America, partially offset by increases ineffects of the United States.  CFR 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 nine months ended September 30, 2016 from $469,458,000 during the nine months ended September 30, 2015.  CFR for the Project Management segment decreased $11,549,000 principally due to decreases in the Middle East, as noted above, and Latin America, partially offset by increases in the United States. CFR for the Construction Claims segment was essentially flat due primarily to increases in the United KingdomCOVID-19 pandemic subside and the Middle East, offset by decreases inCompany's activity increases. We will continue to manage costs and their association with CFR relative to the United States.

Net loss attributable to Hill was ($6,866,000) duringcontinuing effects of the third quarterpandemic on our activities.


The full extent and duration of 2016 compared to net earningsthe impact of $2,948,000 during the third quarter of 2015.  The decrease was due to a lower volume of workpandemic on our operations and declining margins in the Middle East as well as increased operating expenses.

Diluted loss per common share was ($0.13) during the third quarter of 2016 based upon 51,753,000 diluted common shares outstanding compared to diluted earnings per common share of $0.06 during the third quarter of 2015 based upon 51,803,000 diluted common shares outstanding.

Net loss attributable to Hill was ($3,926,000) during the nine months ended September 30, 2016 compared to net earnings of $8,045,000 during the nine months ended September 30, 2015.  The decrease was due to a lower volume of workfinancial performance is currently unknown, and declining margins in the Middle East as well as increased operating expenses.

Diluted loss per common share was ($0.08) during the nine months ended September 30, 2016 based upon 51,704,000 diluted common shares outstanding compared to diluted earnings per common share of $0.16 during the nine months ended September 30, 2015 based upon 51,274,000 diluted common shares outstanding.

Critical Accounting Policies

The Company’s interim financial statements were prepared in accordance with United States generally accepted accounting principles, which require management to make subjective decisions, assessments and estimates about the effect of mattersdepends on future developments that are inherently uncertain.  Asuncertain and unpredictable, including the numberinstitution of variablesnew lockdowns by certain government authorities, the duration and assumptions affectingspread of the judgment increases such judgments become even more subjective.  While managementpandemic, 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.


Management currently believes its assumptions are reasonablethat it has adequate liquidity and appropriate, actual results may be materially different than estimated.  The critical accounting estimatesbusiness plans to continue to operate the business and assumptions have not materially changedmitigate the continuing risks associated with the COVID-19 pandemic for at least the next 12 months from those identified in the Company’s 2015 Annual Report.

date of this report.
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Results of Operations


Consolidated Results
(In thousands)
 Three Months Ended September 30,ChangeNine Months Ended September 30,Change
 20212020$%20212020$%
Income Statement Data:   
Consulting fee revenue$77,061 $71,543 $5,518 7.7 %$227,158 $224,453 $2,705 1.2 %
Reimbursable expenses19,543 17,109 2,434 14.2 %58,079 51,956 6,123 11.8 %
Total revenue$96,604 $88,652 $7,952 9.0 %$285,237 $276,409 $8,828 3.2 %
Direct expenses64,196 59,998 4,198 7.0 %194,314 190,078 4,236 2.2 %
Gross profit$32,408 $28,654 $3,754 13.1 %$90,923 $86,331 $4,592 5.3 %
Selling, general and administrative expenses28,121 25,588 2,533 9.9 %82,906 80,543 2,363 2.9 %
Foreign currency exchange loss (benefit)511 (694)1,205 (173.6)%2,751 3,622 (871)(24.0)%
Plus: Share of profit of equity method affiliates551 983 (432)(43.9)%1,805 2,021 (216)(10.7)%
Operating profit$4,327 $4,743 $(416)(8.8)%$7,071 $4,187 $2,884 68.9 %
Interest and related financing fees, net1,226 1,275 (49)(3.8)%4,077 3,870 207 5.3 %
Less: Other loss, net— 152 (152)(100.0)%— 3,654 (3,654)(100.0)%
Earnings (loss) before income taxes$3,101 $3,316 $(215)(6.5)%$2,994 $(3,337)$6,331 (189.7)%
Income tax expense1,784 1,071 713 66.6 %4,653 2,776 1,877 67.6 %
Net earnings (loss)$1,317 $2,245 $(928)(41.3)%$(1,659)$(6,113)$4,454 (72.9)%
Less: net earnings - noncontrolling interests58 131 (73)(55.7)%265 308 (43)(14.0)%
Net earnings (loss) attributable to Hill International, Inc.$1,259 $2,114 $(855)(40.4)%$(1,924)$(6,421)$4,497 (70.0)%
29


Three Months Ended September 30, 20162021 Compared to

the

Three Months Ended September 30, 2015

2020


Total Revenue by Geographic Region:
 Three Months Ended September 30,Change
 20212020$%
   
Americas$51,362 53.1 %$48,195 54.4 %$3,167 6.6 %
Middle East/Asia/Pacific21,621 22.4 %22,729 25.6 %(1,108)(4.9)%
Europe13,897 14.4 %11,465 12.9 %2,432 21.2 %
Africa9,724 10.1 %6,263 7.1 %3,461 55.3 %
Total$96,604 100.0 %$88,652 100.0 %$7,952 9.0 %

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

)%

The decrease in by Geographic Region:

 Three Months Ended September 30,Change
 20212020$%
   
Americas$34,510 44.8 %$33,697 47.2 %$813 2.4 %
Middle East/Asia/Pacific21,345 27.7 %21,709 30.3 %(364)(1.7)%
Europe12,328 16.0 %10,549 14.7 %1,779 16.9 %
Africa8,878 11.5 %5,588 7.8 %3,290 58.9 %
Total$77,061 100.0 %$71,543 100.0 %$5,518 7.7 %
CFR was primarily due to decreased work in the Middle East where the recent drop in oil prices has had a negative effect on funding$77,061 and $71,543 for construction projects, some of which have been suspended or have had scope reductions.  Also, political upheaval and civil unrest has generally had a negative effect on business in the region.  This trend could continue for the next few years.

The decrease in Project Management CFR included a $13,880,000 decrease in international projects and an increase of $4,207,000 in domestic projects.   The decrease in international Project Management CFR was due primarily to decreases throughout the Middle East and Brazil.  The increase in domestic Project Management CFR included increases primarily in the Northeast and Southern Regions.

The decrease in Construction Claims CFR was primarily due to decreases in the United Kingdom, the United States and Asia/Pacific, partially offset by increases in the Middle East.

Reimbursable Expenses (dollars in thousands)

 

 

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 expense is primarily due to lower direct job related expenses in the United Kingdom and the Middle East.

Cost 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 directly to contracts and non-reimbursable job-related travel and out-of-pocket expenses.  The decrease in Project Management cost of services is primarily due to decreases in the Middle East due to staffing reductions in line with lower CFR, partially offset by increases in the United States in support of increased work. The decrease in the Construction Claims cost of services is primarily due to decreased direct labor in the United Kingdom and the United States in line with lower CFR.

Gross Profit (dollars in thousands)

 

 

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 Management 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 work in the Middle East and a volume decrease in Latin America.  This was partially offset by an increase of $1,392,000 in domestic operations primarily the Northeast and Southern regions.

The Construction Claims gross profit was essentially flat with increases in the Middle East partially offset by decreases in the United Kingdom and Asia/Pacific.

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

 

 

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 included the following:

·                  An increase of $7,983,000 in bad debt expense primarily for increased reserves for certain accounts receivable in the Middle East and Asia/Pacific;

·                  A increase in legal fees of $2,567,000 due primarily to costs related to the proxy contest; and

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

Operating Profit (dollars in thousands)

 

 

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, 20162021 and 2020, respectively, which comprised 79.8% and 80.7% of total revenues, respectively. The increase in CFR and total revenue in 2021 compared to the prior year period is primarily driven by activity continuing to return to pre-COVID levels, including returns to full staffing on certain existing projects and mobilizations on certain newly awarded projects.


Gross Profit by Geographic Region:
 Three Months Ended September 30,Change
 20212020$%
   
% of
CFR
% of
CFR
Americas$15,358 47.3 %44.5 %$14,204 49.6 %42.2 %$1,154 8.1 %
Middle East/Asia/Pacific8,086 25.0 %37.9 %7,559 26.4 %34.8 %527 7.0 %
Europe5,299 16.4 %43.0 %4,196 14.6 %39.8 %1,103 26.3 %
Africa3,665 11.3 %41.3 %2,695 9.4 %48.2 %970 36.0 %
Total$32,408 100.0 %42.1 %$28,654 100.0 %40.1 %$3,754 13.1 %


Gross profit (margin) as compared with $4,147,000 ina percentage of CFR increased 2.0% for the three months ended September 30, 2015.2021 compared to the same period in the 2020. In all regions except Africa, gross profit as a percentage of CFR increased as a percentage of CFR due to generally higher project margins. These increases were partially off-set by a decrease in gross profit as a percentage of CFR in Africa as a result of the start of a large project with a lower margin.

30

Table of Contents
SG&A Expenses

SG&A expenses for the three months ended September 30, 2021 increased approximately $2,533 when compared to the same period in 2020. The decreaseincrease was primarily due to interestthe reinstatement of $607,000 paidthe Company's 401(k) match, higher labor costs associated with the expected achievement of certain bonus metrics in the current year and increased travel costs due to the lifting of COVID-19 stay-at-home orders that were in place during the same period in 2020. SG&A expenses represented approximately 36.5% and 35.8% of CFR for the three months ended September 30, 2021 and 2020, respectively.

Foreign Currency Exchange Loss

There was a subcontractor in 2015 as aforeign currency exchange loss (benefit) of $511 and $(694) for the three months ended September 30, 2021 and 2020, respectively. The currency exchange loss for three months ended September 30, 2021 was primarily the result of a legal settlement.

2% weakening of the Euro against the US Dollar and currencies pegged to the US Dollar. The foreign currency exchange benefit in 2020 was primarily the result of a 6% strengthening of the Euro against the US Dollar and currencies pegged to the US Dollar, partially offset by a 3% change in the Libyan Dinar.


Interest and Related Financing Fees, net
Interest and related financing fees for the three months ended September 30, 2021 were $1,226, compared to interest and related financing fees for the three months ended September 30, 2020 of $1,275, net of $17 of interest income.

Other Loss, net

During the three months ended September 30, 2020, the Company recognized other non-operating loss of $152. There was no such loss for the three months ended September 30, 2021.

Income Taxes


For the three months ended September 30, 20162021 and 2015, the Company2020, we recognized income tax expense of $2,880,000$1,784 and $4,210,000,$1,071, respectively.

The effective income tax expense in both periods was related to the pre-tax income generated from foreign operations adjusted for discrete items during the period and without recognizing an income tax benefit related to the U.S. net operating loss which management believes the Company will not be able to utilize. For the three months ended September 30, 2016, there was no change in the reserve for uncertain tax positions.  The Company recognized an income tax benefitrate 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, 20162021 and 20152020 were (74.3%)57.5% and 55.8%32.3%, respectively. For both years, the Company’sThe change in our 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, 20162021 was ($6,866,000), or ($0.13) per diluted common share, based on 51,753,000 diluted common shares outstanding,primarily a result of the mix of income among various jurisdictions with different statutory tax rates, as compared to net earnings for the three months ended September 30, 2015well as certain withholding taxes and uncertain tax positions recorded in 2021.

31

Table of $2,948,000, or $0.06 per diluted common share, based upon 51,803,000 diluted common shares outstanding.

Contents

Nine Months Ended September 30, 20162021 Compared to

the

Nine Months Ended September 30, 2015

2020


Total Revenue by Geographic Region:
 Nine Months Ended September 30,Change
 20212020$%
   
Americas$147,701 51.7 %$145,830 52.8 %$1,871 1.3 %
Middle East/Asia/Pacific63,320 22.2 %72,327 26.2 %(9,007)(12.5)%
Europe44,942 15.8 %37,434 13.5 %7,508 20.1 %
Africa29,274 10.3 %20,818 7.5 %8,456 40.6 %
Total$285,237 100.0 %$276,409 100.0 %$8,828 3.2 %


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 Revenue:

 Nine Months Ended September 30,Change
 20212020$%
   
Americas$100,996 44.5 %$104,261 46.5 %$(3,265)(3.1)%
Middle East/Asia/Pacific62,100 27.3 %69,241 30.8 %(7,141)(10.3)%
Europe36,968 16.3 %32,197 14.3 %4,771 14.8 %
Africa27,094 11.9 %18,754 8.4 %8,340 44.5 %
Total$227,158 100.0 %$224,453 100.0 %$2,705 1.2 %

CFR was due primarily to decreases in the Middle East$227,158 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 offset by a decrease in subcontractors in the Northeast region.  The decrease in Construction Claims reimbursable expense is primarily due to decreases in the United Kingdom and the Middle East.

Cost of Services (dollars in thousands)

 

 

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$224,453 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 as 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 to the increase of $9,061,000 of bad debts expense primarily in the Middle East coupled with a decline in CFR throughout the Middle East partially offset by an increase in the United States.

The decrease in Construction Claims operating profit was primarily due to CFR decreases in the United Kingdom, Asia/Pacific and the United States and to higher bad debt expense of $277,000

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, 20162021 and 2020, respectively, which comprised 79.6% and 81.2% of total revenues, respectively. The increase in CFR in 2021 compared to 5.7% duringthe prior year period is primarily driven by activity continuing to return to pre-COVID levels, including returns to full staffing on certain existing projects and mobilizations on certain newly awarded projects.


The increase in total revenue for the nine months ended September 30, 2015.

Interest Expense2021 compared to the same period in 2020 was primarily due to revenue during 2020 being reduced as a result of delayed project starts and Related Financing Fees, net

Interest and related financing fees decreased $1,149,000project suspensions due to $10,103,000 duringthe COVID-19 pandemic. The current year increase includes a higher mix of sub-contractor work.


Gross Profit by Geographic Region:
 Nine Months Ended September 30,Change
 20212020$%
   
% of
CFR
% of
CFR
Americas$43,622 47.9 %43.2 %$43,946 50.9 %42.1 %$(324)(0.7)%
Middle East/Asia/Pacific21,781 24.0 %35.1 %21,611 25.0 %31.2 %170 0.8 %
Europe14,743 16.2 %39.9 %12,425 14.4 %38.6 %2,318 18.7 %
Africa10,777 11.9 %39.8 %8,349 9.7 %44.5 %2,428 29.1 %
Total$90,923 100.0 %40.0 %$86,331 100.0 %38.5 %$4,592 5.3 %

32

Table of Contents
Gross profit (margin) as a percentage of CFR increased 1.5% for the nine months ended September 30, 20162021 compared to $11,252,000 duringthe same period in the 2020. In the Americas, gross profit as a percentage of CFR increased as a result of generally higher project margins. In the Middle East/Asia/Pacific region, gross profit as a percentage of CFR increased primarily due to increased billing rates on projects in Asia. In Europe, gross profit as a percentage of CFR increased due to higher margin mix of projects.
The increases above were partially off-set by a decrease in gross profit as a percentage of CFR in Africa as a result of the start of a large project with a lower margin.

SG&A Expenses

SG&A expenses for the nine months ended September 30, 20152021 increased by approximately $2,363 when compared to the same period in the prior year. The increase was primarily due to interesta $5,900 increase in labor costs due to the lifting of $607,000 paidCOVID-19 stay at home orders and the ramping up of projects, the expected achievement of certain bonuses in the current year and the reinstatement of the company 401(k) match. In addition, legal fees increased by $700 due to a subcontractorsettlement of previously incurred legal expenses in 2015the prior year which did not reoccur in 2021. Partially offsetting these increases was a $1,500 decrease in bad debt expense as a result of the Company receiving payments against previously reserved receivables. In addition, there was a legal settlement.

Income Taxes

$1,600 additional depreciation charge in the first quarter of 2020 for the write-off of leasehold improvements related to the Company subletting office space in Philadelphia to a third party, which did not reoccur in 2021. SG&A expenses represented approximately 36.5% and 35.9% of CFR for the nine months ended September 30, 2021 and 2020, respectively.


Foreign Currency Exchange Loss

There were foreign currency exchange losses of $2,751 and $3,622 for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 20162021, the foreign currency exchange losses were primarily caused by the strengthening of the Euro against the US Dollar and 2015, the Company recognized an income tax expense of $6,939,000 and $7,980,000, respectively.  The income tax expense in both periods was relatedcurrencies pegged to the pre-tax income generated from foreign operations adjusted for discrete items duringUS Dollar by 5%, partially offset by a 70% weakening of the periodLibyan Dinar against the Euro and without recognizing an income tax benefit related to4% weakening of the U.S. net operating loss which management believesEgyptian pound against the Company will not be able to utilize.Euro. For the nine months ended September 30, 20162020, the foreign currency exchange losses were primarily caused by a 21.6% weakening of the Brazilian Real against the Euro prior to declaring bankruptcy of our Brazilian subsidiary.

Interest and 2015, the Company recognized an income tax (benefit) expenseRelated Financing Fees, net
Interest and related financing fees increased $207 to an increase in the reserve for uncertain tax positions totaling $(14,000) and $245,000, respectively, primarily due to tax positions taken in foreign jurisdictions.  The Company also recognized an income tax expense (benefit) resulting from adjustments to agree the prior year’s book amounts to the actual amounts per the tax returns totaling $535,000 and $(37,000) in the nine months ended September 30, 2016 and 2015, respectively.

The effective income tax rates for the nine months ended September 30, 2016 and 2015 were 222.8% and 47.8%, respectively.  For both years, the Company’s effective tax rate is significantly higher than it otherwise would be primarily as a result of various foreign withholding taxes and not being able to record an income tax benefit related to the U.S. net operating loss.

Net (Loss) Earnings Attributable to Hill International, Inc.

Net loss attributable to Hill International, Inc.$4,077 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,2021 as compared with $3,870 for nine months ended September 30, 2020, which includes $94 of interest income.


Other Loss, net

During the nine months ended September 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 to the consolidated financial statements filed herein), net earningsof other non-operating income of $65. An additional $345 of income was recognized during the first quarter of 2020 related to the cancellation of a PDIC Economic Stimulus Program Loan Agreement that the Company made on October 24, 2014 as a result of the Company satisfying all obligations in regard to the Loan Agreement.

There was no such loss for the nine months ended September 30, 2015 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,2021.


Income Taxes
For the nine months ended September 30, 2021 and 2020, we recognized income tax expense of $4,653 and depreciation$2,776, respectively.

The effective income tax rate for the nine-month periods ended September 30, 2021 and amortization, as shown2020 was 155.4% and (83.2)%, respectively. The change 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 availableCompany’s effective tax rate 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

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. Asnine months ended September 30, 2021 was primarily a result of these exclusions from EBITDA, any measure that excludes interest expense, depreciationthe mix of income among various foreign jurisdictions with different statutory tax rates, as well as certain withholding taxes 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 earningsuncertain tax positions recorded in each period, so as to allow for the comparison2021.

33

Table 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

 

Contents


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 November 8, 2021, the date of major contracts or further delays in receivable collections, could adversely affect our liquidity and results of operations.  If market opportunities exist, we may choose to undertake financing actions to further enhance our liquidity, which could include borrowing additional funds under our credit agreements, obtaining new bank debt, raising funds through capital market transactions, or other strategic initiatives.  See “Sources of Additional Capital” for further information.

In 2012, we commenced operations on the Oman Airport project with the Ministry of Transportation and Communications (“MOTC”).  The original contract term was to expire in November 2014.  In October 2014, we applied for a twelve-month extension of time amendment (“first extension”) (which was subsequently approved in March 2016) and we continued to work on the Oman Airport project.  We began to experience some delays in payment during the second quarter of 2015 when MOTC commenced its formal review and certification of our invoices. In December 2015, we began discussions with the MOTC on a second extension of time amendment and have since commenced additional work, which we expect to last approximately 18 months.  When the MOTC resumed payments in 2016, we received approximately $15,000,000 in March, approximately $1,800,000 in April, approximately $14,100,000 in June, approximately $3,200,000 in October

and approximately $7,900,000 in November.  this report.


At September 30, 2016, accounts receivable from Oman totaled approximately $29,500,000.  After receipt2021, our primary sources of the Octoberliquidity consisted of $26,293 of cash and November payments, approximately $7,900,000 was past due based on contractual terms.  Although MOTC has not made payments under the contractual terms of the first extension and second extension amendments, we have received full payment under the first extension and believe that the same will hold true for the second extension as there is no evidence to the contrary.  In fact, there are multiple indicators that we will receive payment:  Oman is a wealthy, stable and solvent country which recently raised funds in the capital markets to help finance its 2016 budget, the MOTC has certified the past due invoices, MOTC is committed to paying its obligations to us including consideration of a payment plan, and we have received significant payments totaling $11,100,000 during the past two months and a total of approximately $42,000,000 in 2016.

The amount of CFR attributable to operations in the Middle East and Africa has grown from approximately 32% in 2011 to approximately 49% of total consolidated CFR in the first nine months of 2016. We have recently experienced a slowdown in collections from our clients in the Middle East primarily due to the recent drop in oil prices. This has put a considerable strain on our liquidity. As a result, we have had to rely heavily on debt and equity transactions to fund our operations and we may continue our reliance on debt and equity transactions for our liquidity needs over the next 18 months.

Additional Capital 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$26,111 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$12,336 of available borrowing capacity under our various foreign credit agreements.  On September 30, 2016, we werefacilities. The Company is in default ofdiscussion with both existing lenders and potential new lenders to refinance our Consolidated Net Leverage Ratio covenant.  On November 1, 2016, we received a waiver ofsecured credit facilities with Société Générale prior to their maturities in May 2022 for the default fromDomestic and International Revolving Credit Facilities and June 2023 for 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.

2017 Term Loan Facility.


We also have relationships with other foreign banks for the issuance of letters of credit, letters of guarantee and performance bonds in a variety of foreign currencies. At September 30, 2016,2021, we had approximately $48,875,000$63,573 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.


Cash Flow Activity Flows
Nine Months Ended September 30,
2021Change2020
Net cash (used in) provided by operating activities$(6,993)$(10,259)$3,266 
Net cash used in investing activities(1,878)(777)(1,101)
Net cash provided by financing activities3,285 (11,779)15,064 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(2,654)(2,557)(97)
Deconsolidated cash— (9)
Net (decrease) increase in cash, cash equivalents and restricted cash$(8,240)$17,123 

Operating activities

During the Nine Months Ended September 30, 2016

For the nine months ended September 30, 2016, our cash and cash equivalents decreased by $2,870,000 to $21,219,000.  Cash used in operations was $5,329,000,2021, cash used in investingoperating activities was $2,584,000primarily due to increases in accounts receivable and cash providedprepaid expenses, partially offset by financing activities was $6,652,000.  We also experienced a decreasean increase in cashaccounts payable related to the timing of $1,609,000 from the effect of foreign currency exchange rate fluctuations.

Operating Activities

Our operations used cash of $5,329,000 forpayments to vendors and subcontractors and an increase in other current liabilities. During the nine months ended September 30, 2016.  This compares to2020, cash used inprovided by 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 the full amortizationdeferral of payroll tax payments as part of the shorter-lived intangible assetsUS government's COVID relief program, rent concessions from certain lessors primarily in the form of companies which we acquired over the last several years offset by amortization of intangibles arising from the acquisitions of Cadogans and IMSrent payment deferrals, and the increase in propertytiming of payments to vendors. The rent payment deferrals and equipment primarily related tohalf of the relocationpayroll tax deferrals are being paid during 2021. The remainder of our corporate headquarters to Philadelphia.

the payroll tax deferral will be paid during 2022.


34

Table of Contents
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 $7,184 at December 31, 2020 to $6,880 at September 30, 2016 and December 31, 2015 were $4,886,000 and $4,694,000, respectively.

Average days sales outstanding (“DSO”) at September 30, 2016 was 118 days compared to 98 days at September 30, 2015 and 111 days at June 30, 2016.  DSO is a measure of our ability to collect our accounts receivable and is calculated by dividing the total of the period-end billed accounts receivable balance by average daily revenue (i.e., revenue for the quarter divided by 90 days).  Generally, the age of our receivables is adversely affected by the timing of payments from our clients in Europe and Africa, which have historically been slower than payments from clients in other geographic regions of the Company’s operations.  The increase in DSO in 2016 from 2015 was due to a slowing of collections from our clients in the Middle East, particularly Oman.

Although we continually monitor our accounts receivable, we2021.


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 consist of billing

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

payable. 


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 nine months ended September 30, 2021 cash was used $2,584,000in investing activities for the purchase of leasehold improvements, computers, office equipment, furniturea business and fixtures. Of this amount, $1,500,000for fixed asset purchases. During the nine months ended September 30, 2020, cash was used to implement a database systemin investing activities for our Human Resource department.

the purchase of fixed assets.


Financing Activities

Netactivities


During the nine months ended September 30, 2021 and 2020, 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 nine months ended September 30, 2021, the effects of exchange rate changes on cash was primarily driven by the weakening of the Libyan Dinar (70.5%) and Euro (5.3%) against the 2014 Term Loan FacilityU.S. Dollar.

For the nine months ended September 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 $41,000liquidation of our operating subsidiary in Brazil (see Note 15 to the consolidated financial statements filed herein) and a 31.7% weakening of the Brazilian Real 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 PlanEuro 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 principlea 4% weakening of the ASU is that an entity should recognize revenue forEuro against the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changesU.S. dollar 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.

2020.


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 ManagementOur backlog is evaluated by management, on a project-by-project basis, and is reported for each period shown based upon the binding nature of the underlying contract, commitment or letter of intent, and other factors, including the economic, financial and regulatory viability of the project and the likelihood of the contract being extended, renewed or cancelled. Construction Claims backlog is based largely on management’s estimates of future revenue based on known construction claims assignments and historical results for new work. Because a significant number of construction claims may be awarded and completed within the same period, our actual construction claims revenue has historically exceeded backlog by a significant amount.

Our backlog is important to us in anticipating and planning for our operational needs. canceled.

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.
35

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
September 30, 2021    
Americas$283,317 42.8 %$103,197 41.7 %
Middle East/Asia/Pacific156,600 23.7 %72,961 29.5 %
Europe106,823 16.2 %38,664 15.6 %
Africa113,980 17.3 %32,738 13.2 %
Total$660,720 100.0 %$247,560 100.0 %
December 31, 2020    
Americas$276,752 41.6 %$105,721 45.2 %
Middle East/Asia/Pacific160,211 24.0 %66,407 28.3 %
Europe105,478 15.8 %37,062 15.8 %
Africa124,273 18.6 %25,187 10.7 %
Total$666,714 100.0 %$234,377 100.0 %

At September 30, 2021, our backlog was $660,720 compared to $666,714 at December 31, 2020. We estimate that approximately $247,560 or 37.5% of the backlog at September 30, 2021, will be recognized over the next twelve months.

The amount of our new bookings, before any cancellations or other reductions, was $274,500 and equates to a book-to-burn ratio of 120.8% for the nine months ended September 30, 2021. 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.

The difference between the remaining performance obligations of $92,155 and the backlog of $660,720 at September 30, 2021 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. Such contracts are excluded from the remaining performance obligation because they are not fixed price contracts and the consideration expected under such contracts is variable as it is based upon hours and costs incurred, which results in the counter-party only being obligated to the Company for services provided through the completion or 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.

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 2020 Annual Report on Form 10-K.
36

Table of Contents

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.
37

Table of Contents

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 September 30, 2016.2021. Management concluded that, due to the on-going remediation associated with the material weakness identified in our 20152020 Annual Report on Form 10-K (“20152020 Form 10-K)10-K"), our disclosure controls and procedures were ineffective as of September 30, 20162021 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.

Changes

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 Internal Control over Financial Reporting

Our remediation efforts were ongoing during the three months ended September 30, 2016,reports that it files or submits under the Exchange Act is recorded, processed, summarized and other than those remediation efforts describedreported, within the time periods specified in “Management’s Remediation Initiatives”the SEC’s rules and forms. The definition further states that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by a company in Item 9Athe reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

A material weakness is a deficiency, or a combination of our 2015 Form 10-K, there were no other material changesdeficiencies, in our internal control over financial reporting, such that occurred duringthere is a reasonable possibility that a material misstatement of the three months ended September 30, 2016 that materially affected,annual or that are reasonably likely to materially affect, our internal control overinterim financial reporting.

However, as explained in greater detail under Item 9A of our 2015 Form 10-K for the year ended December 31, 2015, we have,statements will not be prevented or are in the process of, implementingdetected on a broad range of remedial procedures to address the material weaknesses in our internal control over financial reporting identified in our 2015 Form 10-K. Our efforts to improve our internal controls are ongoing and focused on:

·                  Enhancing existing procedures and controls to more thoroughly assess unusual significant items. While we have completed our testing of these new controls and have concluded they are in place and operating as designed, we

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.

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, 2015,2020 and the remedial measures undertaken to address these material weaknesses, investors are encouraged to review Item 9A, Disclosure Controls and Procedures, of our 2020 Form 10-K.
Changes in Internal Control Over Financial Reporting
Our remediation efforts for material weaknesses previously reported were ongoing during the nine months ended September 30, 2021, as described in Item 9A of our 2020 Annual Report on Form 10-K. There were no other material changes in our 2015 Form 10-K.

internal control over financial reporting that occurred during the nine months ended September 30, 2021 that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
38

Table of Contents


Part II — Other Information

OTHER INFORMATION

Item 1.Legal Proceedings

None.

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

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 inprovide 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

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
39

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:

November 8, 2021

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:November 8, 2021

40