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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
 
For the quarterly period ended September 30, 2019
or
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
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
One Commerce Square
 
 
2005 Market Street, 17th Floor
 
 
Philadelphia
PA
19103
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:  (215) 309-7700

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

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
 
Common Stock, par value $0.0001
HIL
New York Stock Exchange
(NYSE)

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  ý     No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 
Yes  ý     No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act
Large Accelerated Filer
 
Accelerated Filer
ý
Non-Accelerated Filer
 
Smaller Reporting Company
 
 
 
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   No  ý

There were 56,161,783 shares of the Registrant’s Common Stock outstanding at October 30, 2019.
 



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


3


PART I
 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and it is Hill International, Inc.'s (the "Company") intent that any such statements be protected by the safe harbor created thereby. Except for historical information, the matters set forth herein including, but not limited to, any projections of revenues, earnings, margin, profit improvement, cost savings or other financial items; any statements of belief, any statements concerning the Company's plans, strategies and objectives for future operations; and any statements regarding future economic conditions or performance, are forward-looking statements.
 
These forward-looking statements are based on the Company's current expectations, estimates and assumptions and are subject to certain risks and uncertainties. Although the Company believes that the expectations, estimates and assumptions reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any 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 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 the Company's actual results to differ materially from estimates or projections contained in our forward-looking statements include:
 
The risks set forth in Item 1A, “Risk Factors,” in 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 the Company conducts pursuant to joint ventures with other parties; and
The ability to retain and recruit key technical and management personnel.
 
Other factors that may affect the Company's business, financial position or results of operations include:
 
Unexpected delays in collections from clients;
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;
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
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 governments and reimbursement obligations to the government for funds previously received.
 
The Company does not intend, and undertakes no obligation to, update any forward-looking statement. In accordance with the Reform Act, Part II, Item 1A of this Report entitled “Risk Factors” contains cautionary statements that accompany those forward-looking statements. You should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. Those cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this Form 10-Q, in our other filings with the Securities and Exchange Commission ("SEC") or in materials incorporated therein by reference.

4


PART I — FINANCIAL INFORMATION
Item 1.   Financial Statements.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
September 30, 2019
 
December 31, 2018
Assets
 
(Unaudited)
 
 
Cash and cash equivalents
 
$
17,350

 
$
18,711

Cash - restricted
 
5,033

 
2,945

Accounts receivable, less allowance for doubtful accounts of $66,263 and $70,617
 
110,575

 
117,469

Current portion of retainage receivable
 
14,041

 
18,397

Accounts receivable - affiliates
 
25,567

 
19,261

Prepaid expenses and other current assets
 
7,651

 
5,554

Income tax receivable
 
1,458

 
758

Total current assets
 
181,675

 
183,095

Property and equipment, net
 
11,597

 
10,787

Cash - restricted, net of current portion
 
2,777

 
1,451

Operating lease right-of-use assets
 
15,439

 

Retainage receivable
 
8,449

 
5,895

Acquired intangibles, net
 
929

 
1,316

Goodwill
 
47,041

 
48,869

Investments
 
2,665

 
3,015

Deferred income tax assets
 
3,665

 
4,521

Other assets
 
4,728

 
5,820

Total assets
 
$
278,965

 
$
264,769

Liabilities and Stockholders’ Equity
 
 
 
 
Current maturities of notes payable and long-term debt
 
$
3,266

 
$
3,364

Accounts payable and accrued expenses
 
74,160

 
80,036

Income taxes payable
 
7,555

 
8,826

Current portion of deferred revenue
 
10,660

 
11,169

Current portion of operating lease liabilities
 
5,166

 

Other current liabilities
 
5,376

 
5,644

Total current liabilities
 
106,183

 
109,039

Notes payable and long-term debt, net of current maturities
 
48,680

 
44,587

Retainage payable
 
1,551

 
927

Deferred income taxes
 
308

 
418

Deferred revenue
 
3,419

 
5,105

Non-current operating lease liabilities
 
16,271

 

Other liabilities
 
4,671

 
10,248

Total liabilities
 
181,083

 
170,324

Commitments and contingencies
 


 


Stockholders’ equity:
 
 
 
 
Preferred stock, $0.0001 par value; 1,000 shares authorized, none issued
 

 

Common stock, $0.0001 par value; 100,000 shares authorized, 62,705 shares and 62,181 shares issued at September 30, 2019 and December 31, 2018, respectively
 
6

 
6

Additional paid-in capital
 
212,493

 
210,084

Accumulated deficit
 
(83,481
)
 
(85,444
)
Accumulated other comprehensive loss
 
(3,756
)
 
(2,575
)
Less treasury stock of 6,546 and 6,546 at September 30, 2019 and December 31, 2018, respectively
 
(28,231
)
 
(28,231
)
Hill International, Inc. share of equity
 
97,031

 
93,840

Noncontrolling interests
 
851

 
605

Total equity
 
97,882

 
94,445

Total liabilities and stockholders’ equity
 
$
278,965

 
$
264,769


See accompanying notes to consolidated financial statements.

5


HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
Consulting fee revenue
 
$
75,747

 
$
81,231

 
$
231,782

 
$
261,794

Reimbursable expenses
 
19,923

 
20,704

 
60,828

 
66,186

Total revenue
 
$
95,670

 
$
101,935

 
$
292,610

 
$
327,980

Direct expenses
 
64,086

 
65,600

 
198,288

 
222,181

Gross profit
 
$
31,584

 
$
36,335

 
$
94,322

 
$
105,799

Selling, general and administrative expenses
 
29,261

 
44,689

 
87,987

 
116,911

 Plus: Share of profit of equity method affiliates
 
780

 
685

 
1,911

 
2,616

 Less: Loss on performance bond
 

 

 

 
7,938

Operating profit (loss)
 
$
3,103

 
$
(7,669
)
 
$
8,246

 
$
(16,434
)
Interest and related financing fees, net
 
1,485

 
1,275

 
4,408

 
3,855

Other income, net
 
549

 

 
549

 

Income (loss) before income taxes
 
$
2,167

 
$
(8,944
)
 
$
4,387

 
$
(20,289
)
Income tax (benefit) expense
 
(340
)
 
(460
)
 
2,248

 
2,928

Income (loss) from continuing operations
 
$
2,507

 
$
(8,484
)
 
$
2,139

 
$
(23,217
)
Discontinued operations:
 
 
 
 
 
 
 
 
  Loss from discontinued operations, net of tax
 

 

 

 
(863
)
     Total loss from discontinued operations
 
$

 
$

 
$

 
$
(863
)
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
2,507

 
$
(8,484
)
 
$
2,139

 
$
(24,080
)
Less: net earnings - non-controlling interests
 
26

 
60

 
176

 
96

Net income (loss) attributable to Hill International, Inc.
 
$
2,481

 
$
(8,544
)
 
$
1,963

 
$
(24,176
)
 
 
 
 
 
 
 
 
 
Basic Income (loss) per common share from continuing operations
 
$
0.04

 
$
(0.15
)
 
$
0.03

 
$
(0.42
)
Basic loss per common share from discontinued operations
 

 

 

 
(0.02
)
Basic income (loss) per common share - Hill International, Inc.
 
$
0.04

 
$
(0.15
)
 
$
0.03

 
$
(0.44
)
Basic weighted average common shares outstanding
 
56,549

 
55,476

 
56,178

 
54,466

 
 
 
 
 
 
 
 
 
Diluted income (loss) per common share from continuing operations
 
$
0.04

 
$
(0.15
)
 
$
0.03

 
$
(0.42
)
Diluted loss per common share from discontinued operations
 

 

 

 
(0.02
)
Diluted income (loss) per common share - Hill International, Inc.
 
$
0.04

 
$
(0.15
)
 
$
0.03

 
$
(0.44
)
Diluted weighted average common shares outstanding
 
56,549

 
55,476

 
56,178

 
54,466

 
See accompanying notes to consolidated financial statements.

6


HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Net income (loss)
 
$
2,507

 
$
(8,484
)
 
$
2,139

 
$
(24,080
)
Foreign currency translation adjustment, net of tax
 
(237
)
 
673

 
(1,111
)
 
1,280

Comprehensive income (loss)
 
2,270

 
(7,811
)
 
1,028

 
(22,800
)
Less: Comprehensive income (loss) attributable to non-controlling interests
 
32

 
52

 
246

 
(357
)
Comprehensive income (loss) attributable to Hill International, Inc.
 
$
2,238

 
$
(7,863
)
 
$
782

 
$
(22,443
)
 
See accompanying notes to consolidated financial statements.

7


HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands) 
 
 
Common Stock
 
Additional
Paid-in
 
Retained
Earnings
 
Accumulated Other
Comprehensive
 
Treasury Stock
 
Hill Share of Stockholders’
 
Non-controlling
 
Total
Stockholders’
 
 
Shares
 
Amount
 
Capital
 
(Deficit)
 
(Loss)
 
Shares
 
Amount
 
Equity
 
Interests
 
Equity
Balance - December 31, 2018
 
62,181

 
$
6

 
$
210,084

 
$
(85,444
)
 
$
(2,575
)
 
6,546

 
$
(28,231
)
 
$
93,840

 
$
605

 
$
94,445

Net income (loss)
 

 

 

 
(518
)
 

 

 

 
(518
)
 
150

 
(368
)
Other comprehensive income (loss)
 

 

 

 

 
(938
)
 

 

 
(938
)
 
64

 
(874
)
Stock issued to Board of Directors
 
24

 

 

 

 

 

 

 

 

 

Stock-based compensation expense
 

 

 
1,042

 

 

 

 

 
1,042

 

 
1,042

Stock issued under employee stock purchase plan
 
57

 

 
113

 

 

 

 

 
113

 

 
113

Balance - June 30, 2019
 
62,262

 
$
6

 
$
211,239

 
$
(85,962
)
 
$
(3,513
)
 
6,546

 
$
(28,231
)
 
$
93,539

 
$
819

 
$
94,358

Net income (loss)
 

 

 

 
2,481

 

 

 

 
2,481

 
26

 
2,507

Other comprehensive income (loss)
 

 

 

 

 
(243
)
 

 

 
(243
)
 
6

 
(237
)
Stock issued to Board of Directors
 
104

 

 

 

 

 

 

 

 

 

Stock-based compensation expense
 
322

 

 
1,212

 

 

 

 

 
1,212

 

 
1,212

Stock issued under employee stock purchase plan (3)
 
17

 

 
42

 

 

 

 

 
42

 

 
42

Balance - September 30, 2019
 
62,705

 
$
6

 
$
212,493

 
$
(83,481
)
 
$
(3,756
)
 
6,546

 
$
(28,231
)
 
$
97,031

 
$
851

 
$
97,882

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance - December 31, 2017
 
59,389

 
$
6

 
$
197,104

 
$
(53,983
)
 
$
(4,011
)
 
6,977

 
$
(30,041
)
 
$
109,075

 
$
1,595

 
$
110,670

Net income (loss)
 

 

 

 
(15,632
)
 

 

 

 
(15,632
)
 
36

 
(15,596
)
Other comprehensive income (loss)
 

 

 

 

 
1,052

 

 

 
1,052

 
(445
)
 
607

Stock-based compensation expense (2)
 

 

 
223

 

 

 

 

 
223

 

 
223

Stock issued under employee stock purchase plan
 
6

 

 
29

 

 

 

 

 
29

 

 
29

Exercise of stock options
 
2,216

 

 
8,979

 

 

 
(467
)
 
2,012

 
10,991

 

 
10,991

Cashless exercise of stock options
 
70

 

 
202

 

 

 
36

 
(202
)
 

 

 

Reversal of accrual for portion of ESA put option (1)
 

 

 
745

 

 

 

 

 
745

 

 
745

Acquisition of additional interest in subsidiary
 

 

 
(122
)
 

 

 

 

 
(122
)
 
(623
)
 
(745
)
Balance - June 30, 2018
 
61,681

 
$
6

 
$
207,160

 
$
(69,615
)
 
$
(2,959
)
 
6,546

 
$
(28,231
)
 
$
106,361

 
$
563

 
$
106,924

Net income (loss)
 

 

 

 
(8,544
)
 

 

 

 
(8,544
)
 
60

 
(8,484
)
Other comprehensive income (loss)
 

 

 

 

 
681

 

 

 
681

 
(8
)
 
673

Stock-based compensation expense (2)
 

 

 
144

 

 

 

 

 
144

 

 
144

Exercise of stock options
 
159

 

 
699

 

 

 

 

 
699

 

 
699

Cashless exercise of stock options
 

 

 
4

 

 

 

 

 
4

 

 
4

Balance - September 30, 2018
 
61,840

 
$
6

 
$
208,007

 
$
(78,159
)
 
$
(2,278
)
 
6,546

 
$
(28,231
)
 
$
99,345

 
$
615

 
$
99,960

(1) Engineering S.A. ("ESA") now known as Hill International Brasil S.A.
(2) Excluded $399 related to stock-based compensation expense reflected in accrued expenses and were reclassified to equity when the shares were ultimately delivered during the three months ended December 31, 2018 (see Note 10 - Share-Based Compensation).
(3) Included $33 of proceeds related to the Employee Stock Purchase Plan ("ESPP") stock issued during the three months ended December 31, 2018 that were received in the three months ended March 31, 2018, net of $21 of proceeds related to ESPP stock issued during the three months ended September 31, 2019 that were received in the subsequent period.

See accompanying notes to consolidated financial statements.

8


HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Nine Months Ended September 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
2,139

 
$
(24,080
)
Loss from discontinued operations
 

 
863

Income (loss) from continuing operations
 
2,139

 
(23,217
)
Adjustments to reconcile net income (loss) to net cash provided by (used in):
 
 
 
 
Depreciation and amortization
 
2,435

 
3,433

Provision for bad debts
 
(2,946
)
 
(3,304
)
Amortization of deferred loan fees
 
539

 
77

Deferred tax benefit
 
659

 
(181
)
Share-based compensation
 
2,254

 
741

Operating lease right-of-use assets
 
3,936

 

Unrealized foreign exchange gains (losses) on intercompany balances
 
104

 
8,496

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
13,988

 
12,717

Accounts receivable - affiliate
 
(6,306
)
 
(771
)
Prepaid expenses and other current assets
 
(2,136
)
 
1,025

Income taxes receivable
 
(748
)
 
550

Retainage receivable
 
(2,559
)
 
(2,351
)
Other assets
 
920

 
600

Accounts payable and accrued expenses
 
(5,463
)
 
188

Income taxes payable
 
(1,286
)
 
(8,146
)
Deferred revenue
 
(2,235
)
 
2,518

Operating lease liabilities
 
(4,361
)
 

Other current liabilities
 
(264
)
 
876

Retainage payable
 
624

 
116

Other liabilities
 
1,422

 
(6,630
)
Net cash provided by (used in) continuing operations
 
716

 
(13,263
)
Net cash used in discontinued operations
 

 
(863
)
Net cash provided by (used in) operating activities
 
716

 
(14,126
)
Cash flows from investing activities:
 
 
 
 
Purchases of business
 

 
(745
)
Purchase of property and equipment
 
(2,958
)
 
(2,328
)
Net cash used in investing activities
 
(2,958
)
 
(3,073
)
Cash flows from financing activities:
 
 
 
 
Repayment of term loans
 
(795
)
 
(724
)
Proceeds from revolving loans
 
10,070

 
40,075

Repayment of revolving loans
 
(4,977
)
 
(29,849
)
Proceeds from stock issued under employee stock purchase plan
 
167

 
29

Proceeds from exercise of stock options
 

 
11,689

Net cash provided by financing activities
 
4,465

 
21,220

Effect of exchange rate changes on cash
 
(170
)
 
(546
)
Net increase in cash, cash equivalents and restricted cash
 
2,053

 
3,475

Cash, cash equivalents and restricted cash — beginning of period
 
23,107

 
26,920

Cash, cash equivalents and restricted cash — end of period
 
$
25,160

 
$
30,395

 
 
Nine Months Ended September 30,
Supplemental disclosures of cash flow information:
 
2019
 
2018
Interest and related financing fees paid
 
$
4,113

 
$
3,652

Income taxes paid
 
2,484

 
11,435

Increase in additional paid-in capital from issuance of shares of common stock from cashless exercise of stock options
 

 
202

Cash paid for amounts included in the measurement of lease liabilities
 
6,062

 

Right-of-use assets obtained in exchange for operating lease liabilities
 
19,340

 

 See accompanying notes to consolidated financial statements.

9


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 and other consulting services primarily to the buildings, transportation, environmental, energy and industrial markets worldwide. Hill’s clients include the U.S. federal government, U.S. state and local governments, foreign governments and the private sector.

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

Note 2 — Liquidity
 
At September 30, 2019, our principal sources of liquidity consisted of $17,350 of cash and cash equivalents, $209 of available borrowing capacity under the Domestic Revolving Credit Facility, $1,054 of available borrowing capacity under the International Revolving Credit Facility, and $1,076 under other foreign credit agreements. Additional information regarding the Company's credit facilities is set forth in Note 9 - Notes Payable and Long-Term Debt.

The Company believes that it has sufficient liquidity to support the reasonably anticipated cash needs of its operations over the next twelve months from November 6, 2019, the date of this filing. The Company provided cash from operations of $716 during the nine months ended September 30, 2019. The Company's net cash used in operations during 2018 was primarily due to a number of costs related to the financial statement restatement, restructuring and a performance bond that was called. We do not expect these costs to reoccur.

Note 3 — 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, 2018. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles ("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 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.

Construction Claims Group Sale

On December 20, 2016, the Company and its subsidiary Hill International N.V. (“Hill N.V.” and, collectively with the Company, the “Sellers”) entered into a Stock Purchase Agreement (as amended on May 3, 2017, the “Agreement”) with Liberty Mergeco, Inc. (the “US Purchaser”) and Liberty Bidco UK Limited (the “UK Purchaser” and, collectively with the US Purchaser, the “Purchasers”) pursuant to which the Purchasers were to acquire the Construction Claims Group by the US Purchaser’s acquisition of all of the stock of Hill International Consulting, Inc. from the Company and the UK Purchaser’s acquisition of all of the stock of Hill International Consulting B.V. from Hill N.V. The Construction Claims Group sale closed on May 5, 2017. For a detailed description of the transaction, see "Note 5 Discontinued Operations" in the Company's 2018 Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on April 1, 2019.

10



Reclassification

A reclassification was made in the presentation of the consolidated statements of operations for the three and nine months ended September 30, 2018 for $3,211 and $4,788, respectively, related to the Middle East vacation expense. The expense was reclassified from direct expense to selling, general and administrative expenses to conform to current year presentation.

Another reclassification was made in the presentation of the consolidated statements of cash flow for the nine months ended September 30, 2018. Net borrowings on revolving loans previously reported as $10,226 was broken out between repayments of revolving loans and proceeds from revolving loans of $(29,849) and $40,075, respectively, to conform to current year presentation.

Certain back-office expenses and foreign currency translation gains and losses that had previously been included in the individual regions in the operating profit/(loss) table presentation are currently being included within the corporate costs line item on the operating profit/(loss) tables herein. The related 2018 prior period operating profit (loss) by geographic region and corporate costs have been recast to reflect this change. This change only affects the presentation in the operating profit/(loss) tables and has no impact on total operating profit/(loss) reported.

Other Income, net

During the three months ended September 30, 2019, the Company recognized $649 of income in Other Income, net, related to the settlement of a $1,000 grant received from the Pennsylvania Department of Community and Economic Development (the "PADCED") in May 2015 (the "Grant"), net of $100 of expense related to other non-operating activity. The Grant was used as part of the relocation of Hill's corporate headquarters to the city of Philadelphia where partial or full repayment of the Grant is required if specific conditions were not met, which included maintaining a minimum number of employees throughout 2018, among other conditions, with the possibility of extension at the PADCED's discretion. In July 2019, the PADCED concluded that the Company is required to repay $351 of the Grant since the Company failed to meet its employment commitment; however, the PADCED granted a one-year extension for the Company to meet such commitment through June 30, 2020. The repayment amount is included in other current liabilities in the consolidated balance sheets.

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 entitled accumulated other comprehensive loss until the entity is sold or substantially liquidated. Gains or losses arising from foreign currency transactions (transactions denominated in a currency other than the entity’s functional currency), including those resulting from intercompany transactions, are reflected in selling, general and administrative expenses in the consolidated statement of operations. The impact of foreign exchange on long-term intercompany loans, for which repayment has not been scheduled or planned, are recorded in accumulated other comprehensive loss on the consolidated balance sheet.

(b)                                 Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash investments 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, 2019 or 2018.

There was one client in Africa who contributed 10% or more to gross accounts receivable at September 30, 2019 and December 31, 2018, respectively, which represents 19% and 17% of the gross accounts receivable balance at September 30, 2019 and December 31, 2018, respectively.


11


(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, client credit worthiness, 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.

(e)                                 Income Taxes

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


12


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 the statements of cash flows:
 
 
September 30, 2019
 
December 31, 2018
Cash and cash equivalents
 
$
17,350

 
$
18,711

Cash - restricted
 
5,033

 
2,945

Cash - restricted, net of current portion
 
2,777

 
1,451