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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

Form 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020

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 incorporation or organization) (I.R.S. Employer Identification No.)
   
One Commerce Square  
2005 Market Street, 17th Floor  
Philadelphia,PA19103
(Address of principal executive offices) (Zip Code)
 Registrant’s telephone number, including area code:
(215) 309-7700
 
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common stock, par value $0.0001 per shareHILNew York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 
Yes o  No ý
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 
Yes o  No ý
 
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   No 
 
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   No 
 
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 (Check one):
 
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller 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 new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No ý
 
The aggregate market value of shares of common stock held by non-affiliates on June 30, 2020 was approximately $73,602,814. As of March 2, 2021, there were 56,481,189 shares of the Registrant’s Common Stock outstanding.


DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement for its 2021 Annual Meeting of Stockholders ("2021 Proxy Statement") are incorporated by reference in Part III.




HILL INTERNATIONAL, INC. AND SUBSIDIARIES
 
Index to Form 10-K
 
  
   
   
   
   
   
   
   
  
   
   
   
   
   
   
   
   
   
  
   
   
   
   
   
   
  
   
2


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's (collectively referred to as "Hill", "we", "us", "our" and "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, earnings before interest, taxes, depreciation and amortization (“EBITDA”), margin, profit improvement, cost savings or other financial items; any statements of belief, any statements concerning our 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 our current expectations, estimates and assumptions and are subject to certain risks and uncertainties. Although we believe 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.
 
Forward-looking statements may concern, among other things:
 
The markets for our 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 our plans, strategies and objectives for future operations; and
Statements regarding future economic conditions or performance.
 
Important factors that could cause our 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,” herein;
Unfavorable global economic conditions may adversely impact our 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 conduct pursuant to joint ventures with other parties; and
The need to retain and recruit key technical and management personnel.
 
Other factors that may affect our business, financial position or results of operations include:
 
Unexpected delays in collections from clients;
Risks related to the effect of the COVID-19 pandemic on the Company, including its employees and related costs and including any project cancellations, delays and modifications;
Risks related to our ability to obtain debt financing or otherwise raise capital to meet required working capital needs and to support potential future acquisition activities;
Risks related to 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 government and reimbursement obligations to the government for funds previously received.
 
We do not intend, and undertake no obligation, to update any forward-looking statement. In accordance with the Reform Act, 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-K, in our other filings with the Securities and Exchange Commission (the "SEC") or in materials incorporated therein by reference.

3


Item 1. Business
 
General
 
Hill International, Inc., a Delaware corporation organized in 2006, with more than 2,700 professionals in approximately 70 offices worldwide, provides project management, construction management and other consulting services primarily to the building, transportation, environmental, energy and industrial markets.
 
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 would be very difficult 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.

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

Our clients are typically billed a negotiated multiple of the actual direct cost of each professional assigned to a project and we are reimbursed for our out-of-pocket expenses. We believe our fee-based consulting has significant advantages over traditional general contractors. Specifically, because we do not assume project completion risk, our fee-based model eliminates many of the risks typically associated with providing “at risk” construction services.

Amounts throughout the remainder of this document are in thousands unless otherwise noted.
 
Our Strategy
 
Our strategy emphasizes the following key elements:
 
Increase Revenues from Our Existing Clients. We have long-standing relationships with a number of public and private sector entities. Meeting our clients’ diverse needs in managing construction risk and generating repeat business from our clients to expand our project base is one of our key growth strategies. We accomplish this objective by providing a broad range of project management consulting services in a wide range of geographic areas that support our clients during every phase of a project, from concept through completion. We believe that nurturing our existing client relationships expands our project base through repeat business.
Capitalize Upon the Continued Spend in the Markets We Serve. We believe that the demand for project management services will grow with increasing construction and infrastructure spending in the markets we serve. We believe that our reputation and experience combined with our broad platform of service offerings will enable us to capitalize on increases in demand for our services. In addition, we strategically open new offices to expand into new geographic areas and we aggressively hire individuals with significant contacts to accelerate the growth of these new offices and to strengthen our presence in existing markets.
Strengthen Professional Resources. Our biggest asset is the people that work for Hill. We intend to continue spending significant time recruiting and retaining the best and the brightest to improve our competitive position. Our independent status has attracted top project management talent with varied industry experience. We believe maintaining and bolstering our team will enable us to continue to grow our business.  

Reporting Segments
 
The Company operates in a single reporting segment, known as the Project Management Group, which provides fee-based construction management services to our clients.
4



Clients

Our clients consist primarily of the United States federal, state and local governments, other national governments, and the private sector. The following table sets forth our breakdown of revenue attributable to these categories of clients for the years ended December 31, 2020 and 2019:
 
Revenue By Client Type
 20202019
U.S. federal government$17,942 4.9 %$18,967 5.0 %
U.S. state, regional and local governments118,845 32.2 %124,504 33.1 %
Foreign governments99,906 27.1 %91,683 24.4 %
Private sector131,831 35.8 %141,283 37.5 %
Total$368,524 100.0 %$376,437 100.0 %
For the years ended December 31, 2020 and 2019, revenue from U.S. and foreign government contracts represented approximately 64.2% and 62.5% of our total revenue, respectively.

The following table sets forth the percentage of our revenue contributed by each of our five largest clients for the years ended December 31, 2020 and 2019:
 20202019
Largest client4.9 %3.8 %
2nd largest client3.8 %3.6 %
3rd largest client3.1 %3.4 %
4th largest client3.1 %3.1 %
5th largest client3.0 %2.6 %
Top 5 largest clients17.9 %16.5 %
 
Business Development
 
The process for acquiring business from each of our categories of clients is principally the same, by participating in a competitive request-for-proposal (“RFP”) process, with the primary difference among clients being that the process for public sector clients is significantly more formal and complex than for private sector clients as a result of government procurement rules and regulations that govern the public-sector process.
 
Although a significant factor in our business development consists of our standing in our industry, including existing relationships and reputation based on performance on completed projects, our marketing department undertakes a variety of activities in order to expand our exposure to potential new clients. These activities include media relations, advertising, promotions, market sector initiatives and maintaining our website and related web marketing. Media relations include placing articles that feature us and our personnel in trade publications and other media outlets. Our promotions include arranging speaking engagements for our personnel, participation in trade shows and other promotional activities. Market sector initiatives are designed to broaden our exposure to specific sectors of the construction industry by, for example, participating in or organizing industry seminars.
 
Doing business with governments is complex and requires the ability to comply with intricate regulations and satisfy periodic audits. We believe that the ability to understand these requirements and to successfully conduct business with government agencies is a barrier to entry for smaller, less experienced competitors. 
 
We are required from time to time to obtain various permits, licenses and approvals in order to conduct our business in many of the jurisdictions where we operate. Our business of providing project management services is not subject to significant regulation by state, federal or foreign governments.

Contracts

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.
5



The price provisions of our client contracts can be grouped into two broad categories: time and materials and fixed price. 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"). Under fixed price contracts, the Company’s clients pay an agreed upon 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. See Note 4 - Revenue from Contracts with Clients in Part II item 8 "Financial Statements and Supplementary Data," in this Form 10-K for more information.

Consulting Fee Revenue

We believe an important performance measure is consulting fee revenue (“CFR”). The professionals we deploy to execute contracts are occasionally subcontractors. We generally bill our clients the actual cost of these subcontractors and recognize this cost as both revenue and direct expense. CFR refers to our revenue excluding amounts paid or due to subcontractors. We believe CFR is an important measure because it represents the revenue on which we earn gross profit, whereas total revenue includes subcontractors on which we generally pass through the cost and earn minimal or no gross profit.
 
Backlog
 
We believe an important indicator of our future performance is our backlog of uncompleted projects under contract or awarded. Our backlog represents management’s estimate of the amount of contracts and awards in-hand that we expect to recognize as CFR in future periods as a component of total revenue. Beginning with the year ended December 31, 2019, we excluded backlog from indefinite delivery/indefinite quantity ("ID/IQ") contracts in circumstances where the work has not yet been approved by the client. ID/IQ contracts require us to deliver an indefinite amount of service over a pre-determined period of time. Estimated future CFR from ID/IQ contracts is only included in our total backlog if the work has been approved starting in 2019. Management evaluated all backlog existing prior to 2019 for the purpose of reporting this pre-2019 backlog consistent with the methodology above. This resulted in a reduction to backlog of $46,584 at December 31, 2019 and a reduction in the 12-month backlog of $397 at December 31, 2019. Our backlog is evaluated by management on a project-by-project basis and is reported for each period shown based upon the binding nature of the underlying contract, commitment or letter of intent, and other factors, including the economic, financial and regulatory viability of the project and the likelihood of the contract being extended, renewed or canceled.
 
Our backlog is important to us in anticipating and planning for our operational needs. Backlog is not a measure defined in U.S. generally accepted accounting principles ("U.S. GAAP"), and our methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog.
 
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.

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 CFR.
6



The following tables show our backlog by geographic region as of December 31, 2020 and 2019:
 Total Backlog12-Month Backlog
As of 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 %
 Total Backlog12-Month Backlog
As of December 31, 2019    
Americas$340,972 44.6 %108,174 43.9 %
Middle East/Asia/Pacific247,368 32.3 %80,409 32.7 %
Europe90,134 11.8 %35,000 14.2 %
Africa86,203 11.3 %22,574 9.2 %
Total$764,677 100.0 %$246,157 100.0 %

At December 31, 2020, our backlog was $666,714, compared to $764,677 at December 31, 2019, which includes the re-evaluation and write down of the realizable value of a number of contracts booked before January 1, 2019, some of which were a result of the impacts of COVID-19. Additionally, we removed approximately $46 million of backlog from a project as a result of entering into a joint venture and sharing a portion of the work with our partner. This partnership has improved our margins on the project and enhanced our probability of being awarded future opportunities on this multi-phase project. The December 31, 2020 decrease in backlog from the prior year is primarily due to delays in new projects awarded as a result of COVID-19. Of the total backlog at December 31, 2020, we estimate that 35.2% will be recognized as CFR over the next twelve months based on the backlog table above.

The amount of our new bookings, before any cancellations or other reductions, was $360,900 and equates to a book-to-burn ratio of 121.7% for the year ended December 31, 2020. Our book-to-burn ratio, a non-GAAP measure, is determined by taking our new CFR bookings and dividing it by CFR for the applicable period. This metric allows management to monitor the Company's business development efforts to ensure we grow our backlog and our business over time, and management believes that this measure is useful to investors for the same reason.

Our remaining performance obligations represent the aggregate transaction price of executed contracts for projects partially completed or not yet started as of the end of the reporting period. The difference between the remaining performance obligations of $101,800, as described further in Note 4 - Revenue from Contracts with Clients in our consolidated financial statements, and the backlog of $666,714 at December 31, 2020 is due to the backlog including the full value of client contracts billed on a T&M basis, which 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.

Competition
 
The project management industry is highly competitive. We compete for contracts, primarily on the basis of technical capability, with numerous entities, including other construction management companies, design or engineering firms, general contractors, management consulting firms and other entities. Compared to us, many of these competitors are larger, well-established companies that have broader geographic scope and greater financial and other resources. During 2020, some of our largest project management competitors included: AECOM, ARCADIS N.V., Jacobs Engineering Group, Inc., WSP, Turner Construction Co., HNTB, and Dar Group.
 
Insurance
 
We maintain insurance covering general and professional liability, involving bodily injury and property damage. We have historically enjoyed a favorable loss ratio in all lines of insurance and our management considers our present limits of liability, deductibles and reserves to be adequate. We endeavor to reduce or eliminate risk through the use of quality assurance/control, risk management, workplace safety and similar methods to eliminate or reduce the risk of losses on a project.
7



Management

We are led by an experienced management team with significant experience in the construction industry. Additional information about our executive officers follows.

Executive Officers
NameAgePosition
Raouf S. Ghali59 Chief Executive Officer
William H. Dengler, Jr.54 Executive Vice President and Chief Administrative Officer
Todd Weintraub57 Chief Financial Officer
Abdo E. Kardous61 Regional President, Middle East

RAOUF S. GHALI has been a member of our Board of Directors since August 2016 and our Chief Executive Officer since October 2018. Prior to that, he was our Chief Operating Officer from January 2015 to October 2018, President of our Project Management Group (International) from January 2005 to January 2015, Senior Vice President in charge of project management operations in Europe, North Africa and the Middle East from 2001 to 2004, and Vice President from 1993 to 2001. Prior to joining us, he worked for Walt Disney Imagineering from 1988 to 1993. Mr. Ghali earned both a B.S. in business administration and economics and an M.S. in business organizational management from the University of LaVerne.
 
WILLIAM H. DENGLER, JR. has been our Executive Vice President and Chief Administrative Officer since November 2018. Prior to that, he was Executive Vice President and General Counsel from August 2016 to November 2016, Senior Vice President and General Counsel from 2007 to 2016, Vice President and General Counsel from 2002 to 2007, and Corporate Counsel from 2001 to 2002. Mr. Dengler also serves as corporate secretary to Hill and its subsidiaries. Prior to joining Hill, Mr. Dengler served as Assistant Counsel to former New Jersey Governors Donald DiFrancesco and Christine Todd Whitman from 1999 to 2001. Mr. Dengler earned his B.A. in political science from McDaniel College and his J.D. from Rutgers University School of Law at Camden. He is licensed to practice law in New Jersey, as well as before the U.S. Court of Appeals for the Third Circuit and the U.S. Supreme Court.

TODD WEINTRAUB has been our Chief Financial Officer since November 2018. Mr. Weintraub has nearly 30 years of experience, including serving as CFO, Corporate Controller, Director of Accounting and Accounting Manager for six publicly traded companies. In addition, Mr. Weintraub has served on the Board of Directors for multiple companies, including International Matex Tank Terminals, Atlantic Aviation, Macquarie Renewable Energy Holdings, Hawaii Gas and Parking Company of America, where he was Chair. As CFO, Mr. Weintraub has been a key contributor whose companies have produced above market shareholder returns. He has a proven track record of implementing effective financial controls and operational improvements, deploying growth capital, executing mergers and acquisitions, managing a portfolio of operating businesses, optimizing capital structure and performing capital markets activities and investor relations. Mr. Weintraub graduated Magna Cum Laude from Siena College in 1990.
 
ABDO E. KARDOUS assumed the post of Regional President, Middle East in April 2018. Mr. Kardous joined Hill in 1997 as part of the Grand Mosque team, was promoted to Vice President in our Dubai office, and then named SVP Middle East. He was key to establishing Hill’s presence across the Gulf Cooperation Council before serving as Hill’s Senior Vice President and Managing Director for the Asia/Pacific Region. Mr. Kardous is a member of both the Chartered Institute of Building (CIOB) and Association for Project Management (API), and has recently served on the Advisory Board of the Chicago based Council of Tall Buildings and Urban Habitat (CTBUH). He holds a B.S., Magna Cum Laude, in Civil Engineering, from the University of Maryland and an M.S. in Civil Engineering from the University of California, Berkley. Mr. Kardous brings more than 30 years of experience to the Middle East region, with expertise in the design, procurement, construction, and delivery of multi-billion-dollar projects in the residential, hospitality, energy, infrastructure, and marine sectors, among others. He was also named Hill Internationals' Project Manager of the Year in 2001.

Employees
 
At December 31, 2020, we had (in ones) 2,704 professionals. Of these professionals, 2,603 worked in our Project Management Group and 101 worked in our Corporate offices. Our personnel included 2,299 full-time employees, 138 part-time employees, 216 independent external contractors and 50 external contractors provided by third-party agencies. We are not a party to any collective bargaining agreements.
 
8


Access to Company Information
 
We electronically file our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports with the SEC. The SEC maintains an internet site at www.sec.gov that contains periodic reports, proxy statements, information statements and other information regarding issuers that file electronically.
 
We make available, free of charge, through our website or by responding to requests addressed to our Legal Department, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed by us with the SEC pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act, as amended. These reports are available as soon as practicable after such material is filed with or furnished to the SEC. Our primary website is www.hillintl.com. We post the charters for our audit, compensation and governance and nominating committees, corporate governance principles and code of ethics in the “Investors” section of our website. The information contained on our website, or on other websites linked to our website, is not part of this document.

Item 1A. Risk Factors
 
Our business involves a number of risks and uncertainties, some of which are beyond our control. The risks and uncertainties described below could individually or collectively have a material adverse effect on our business, financial condition, results of operations and cash flows. While these are not the only risks and uncertainties we face, we believe that the more significant risks and uncertainties are as follows:
 
Risks Affecting the Business
 
Acts of terrorism, political, governmental and social upheaval and threats of armed conflicts in or around various areas in which we operate could limit or disrupt markets and our operations, including disruptions resulting from the evacuation of personnel, cancellation of contracts or the loss of personnel.

Acts of terrorism, political, governmental and social upheaval and threats of armed conflicts in or around various areas in which we operate could limit or disrupt markets and our operations, including disruptions resulting from the evacuation of personnel, cancellation of contracts or the loss of personnel, and may affect timing and collectability of our accounts receivable. Such events may cause further disruption to financial and commercial markets and may generate greater political and economic instability in some of the geographic areas in which we operate.

We may be unable to collect amounts owed to us, which could have a material adverse effect on our liquidity, results of operations and financial condition.

Accounts receivable represent the largest asset on our balance sheet. While we take steps to evaluate and manage the credit risks relating to our clients, economic downturns or other events can adversely affect the markets we serve and our clients ability to pay, which could reduce our ability to collect all amounts due from clients. If our clients delay in paying or fail to pay us a significant amount of our outstanding receivables, it could have a material adverse effect on our liquidity, results of operations, and financial condition.
 
Our business is sensitive to oil and gas prices, and fluctuations in oil and gas prices may negatively affect our business.
 
Historically, oil and natural gas prices have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control. Significant drops in oil or gas prices have led, and could lead to further slowdowns, in construction in oil and gas producing regions, which has had and could continue to have a material adverse effect on our business, results of operations, financial condition and cash flows.
 
9


Unfavorable global economic conditions could adversely affect our business, liquidity and financial results.
 
The markets that we serve are subject to fluctuation based on general global economic conditions and other factors. Unfavorable global economic conditions could adversely affect our business and results of operations, primarily by limiting our access to credit and disrupting our clients’ businesses. The reduction in financial institutions’ willingness or ability to lend has increased the cost of capital and reduced the availability of credit. Although we currently believe that the financial institutions with which we do business will be able to fulfill their commitments to us, there is no assurance that those institutions will be able or willing to continue to do so, which could have a material adverse impact on our business. Changes in general market conditions in the locations where we work may adversely affect our clients’ level of spending, ability to obtain financing, and ability to make timely payments to us for our services, which could require us to increase our allowance for doubtful accounts, negatively impact our days sales outstanding, results of operations and liquidity.
 
We may be unable to win new contract awards if we cannot provide clients with letters of credit, bonds or other forms of guarantees.
 
In certain international regions, primarily the Middle East, it is industry practice for clients to require letters of credit, bonds, bank guarantees or other forms of guarantees. These letters of credit, bonds or guarantees indemnify our clients if we fail to perform our obligations under our contracts. We currently have relationships with various domestic and international banking institutions to assist us in providing clients with letters of credit or guarantees. In the event there are limitations in worldwide banking capacity, we may find it difficult to find sufficient bonding capacity to meet our future bonding needs. Failure to provide credit enhancements on terms required by a client may result in our inability to compete or win a project.
 
International operations and doing business with foreign governments expose us to legal, political, operational and economic risks in different countries and currency exchange rate fluctuations could adversely affect our financial results.
 
There are risks inherent in doing business internationally, including:
 
Lack of developed legal systems to enforce contractual rights;
Foreign governments may assert sovereign or other immunity if we seek to assert our contractual rights thus depriving us of any ability to seek redress against them;
Greater difficulties in managing and staffing foreign operations;
Differences in employment laws and practices which could expose us to liabilities for payroll taxes, pensions and other expenses;
Inadequate or failed internal controls, processes, people, and systems associated with foreign operations;
Increased logistical complexity;
Increased selling, general and administrative expenses associated with managing a larger and more global business;
Greater risk of uncollectible accounts and longer collection cycles;
Currency exchange rate fluctuations;
Restrictions on the transfer of cash from certain foreign countries;
Imposition of governmental controls;
Political and economic instability;
Changes in U.S. and other national government policies affecting the markets for our services and our ability to do business with certain foreign governments or their political leaders;
Conflict between U.S. and non-U.S. law;
Changes in regulatory practices, tariffs and taxes;
Less established bankruptcy and insolvency procedures;
Potential non-compliance with a wide variety of non-U.S. laws and regulations; and
General economic, political and civil conditions in these foreign markets.
 
Any of these and other factors could have a material adverse effect on our business, results of operations, financial condition or cash flows.
 
10


We operate in many different jurisdictions and we could be adversely affected by any violations of the U.S. Foreign Corrupt Practices Act or similar worldwide and local anti-corruption laws.
 
The U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar worldwide and local anti-corruption laws in other jurisdictions, generally prohibit companies and their intermediaries from making improper payments to officials for the purpose of obtaining or retaining business. Our internal policies mandate compliance with these anti-corruption laws. The policies also are applicable to agents through which we do business in certain non-U.S. jurisdictions. We operate in many parts of the world that have experienced governmental corruption to some degree, and in certain circumstances, strict compliance with anti-corruption laws may conflict with local customs and practices. Despite our training and compliance programs, we cannot assure you that our internal control policies and procedures always will protect us from improper or criminal acts committed by our employees or agents. Our continued expansion outside the U.S., including in developing countries, could increase the risk of such violations in the future. Violations of these laws, or allegations of such violations, could disrupt our business, subject us to fines, penalties and restrictions and otherwise result in a material adverse effect on our results of operations or financial condition. All of our acquired businesses are subject to our internal policies. However, because our internal policies are more restrictive than some local laws or customs where we operate, we may be at an increased risk for violations while we train our new employees to comply with our internal policies and procedures.
 
Our business sometimes requires our employees to travel to and work in high security risk countries, which may result in employee injury, repatriation costs or other unforeseen costs.
 
Many of our employees often travel to and work in high security risk countries around the world that are undergoing or that may undergo political, social and economic upheavals resulting in war, civil unrest, criminal activity or acts of terrorism. For example, we have had and expect to continue to have significant projects in the Middle East and Africa. As a result, we may be subject to costs related to employee injury, repatriation or other unforeseen circumstances. Further, circumstances in these countries could make it difficult or impossible to attract and retain qualified employees, which could have a material adverse effect on our operations.

We depend on government contracts for a significant portion of our revenue. Our inability to win profitable government contracts could harm our operations and adversely affect our net earnings.
 
Our inability to win profitable government contracts could harm our operations and adversely affect our net earnings. Government contracts are typically awarded through a heavily regulated procurement process. Some government contracts are awarded to multiple competitors, causing increases in overall competition and pricing pressure. In turn, the competition and pricing pressure may require us to make sustained post-award efforts to reduce costs under these contracts. If we are not successful in reducing the amount of costs, our profitability on these contracts may be negatively impacted. In addition, some of our federal government contracts require U.S. government security clearances. If we, or certain of our personnel, were to lose these security clearances, our ability to continue performance of these contracts or to win new contracts requiring such clearances may be negatively impacted.
 
We depend on long-term government contracts, many of which are funded on an annual basis. If appropriations are not made in subsequent years of a multiple-year contract, we will not realize all of our potential revenue and profit from that project.
 
Most government contracts are subject to the continuing availability of legislative appropriation. Legislatures typically appropriate funds for a given program on a year-by-year basis, even though contract performance may take more than one year. As a result, at the beginning of a program, the related contract is only partially funded, and additional funding is normally committed only as appropriations are made in each subsequent fiscal year. These appropriations and the timing of payment of appropriated amounts may be influenced by, among other things, the state of the economy, budgetary and other political issues affecting the particular government and its appropriations process, competing priorities for appropriation, the timing and amount of tax receipts and the overall level of government expenditures. If appropriations are not made in subsequent years on government contracts, then we will not realize all of our potential revenue and profit from those contracts.
 
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We depend on contracts that may be terminated by our clients on short notice, which may adversely impact our ability to recognize all of our potential revenue and profit from the projects.
 
Substantially all of our contracts are subject to termination by the client either at its convenience or upon our default. If one of our clients terminates a contract at its convenience, then we typically are able to recover only costs incurred or committed, settlement expenses and profit on work completed prior to termination, which could prevent us from recognizing all of our potential revenue and profit from that contract. If one of our clients terminates the contract due to our default, we could be liable for excess costs incurred by the client in re-procuring services from another source, as well as other costs.
 
Our contracts with governmental agencies are subject to audit, which could result in adjustments to reimbursable contract costs or, if we are charged with wrongdoing, possible temporary or permanent suspension from participating in government programs.
 
Our books and records are subject to audit by the various governmental agencies we serve and by their representatives. These audits can result in adjustments to reimbursable contract costs and allocated overhead. In addition, if as a result of an audit, we or one of our subsidiaries is charged with wrongdoing or the government agency determines that we or one of our subsidiaries is otherwise no longer eligible for federal contracts, then we or, as applicable, that subsidiary, could be temporarily suspended or, in the event of convictions or civil judgments, could be prohibited from bidding on and receiving future government contracts for a period of time. Furthermore, as a United States government contractor, we are subject to increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities, the results of which could have a material adverse effect on our operations.

We submit change orders to our clients for work we perform beyond the scope of some of our contracts. If our clients do not approve these change orders, our net earnings could be adversely impacted.
 
We submit change orders under some of our contracts, typically for payment for work performed beyond the initial contractual requirements. The clients may not approve or may contest these change orders and we cannot assure you that these claims will be approved in whole, in part or at all. If these claims are not approved, our net earnings could be adversely impacted.
 
Our backlog of uncompleted projects under contract or awarded is subject to unexpected adjustments and cancellations, including the amount, if any, of future appropriations by the applicable contracting governmental agency, and it may not be indicative of our future revenue and profits.
 
The inability to obtain financing or governmental approvals, changes in economic or market conditions or other unforeseen events, such as terrorist acts or natural disasters, could lead to us not realizing any revenue under some or all of these contracts. We cannot assure you that the backlog attributed to any of our uncompleted projects under contract will be realized as revenue or, if realized, will result in profits.
 
Many projects may remain in our backlog for an extended period of time because of the size or long-term nature of the contract. In addition, from time to time, projects are scaled back or canceled. These types of backlog reductions adversely affect the revenue and profit that we ultimately receive. A portion of our backlog contains estimated revenue from ID/IQ contracts, in which, we only include backlog for work that has been approved by the client. We cannot provide any assurance that we will, in fact, be awarded the maximum amount of such contracts.
 
Our dependence on subcontractors, partners and specialists could adversely affect our business.
 
We rely on third-party subcontractors as well as third-party strategic partners and specialists to complete our projects. To the extent that we cannot engage such subcontractors, partners or specialists or cannot engage them on a competitive basis, our ability to complete a project in a timely fashion or at a profit may be impaired. If we are unable to engage appropriate strategic partners or specialists in some instances, we could lose the ability to win some contracts. In addition, if a subcontractor or specialist is unable to deliver its services according to the negotiated terms for any reason, including the deterioration of its financial condition or over-commitment of its resources, we may be required to purchase the services from another source at a higher price. This may reduce the profit to be realized or result in a loss on a project for which the services were needed.
 
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If our partners fail to perform their contractual obligations on a project, we could be exposed to legal liability, loss of reputation or reduced profits.
 
We sometimes enter into joint venture agreements and other contractual arrangements with outside partners to jointly bid on and execute a particular project. The success of these joint projects depends on the satisfactory performance of the contractual obligations of both our partners and us. If any of our partners fails to satisfactorily perform its contractual obligations, we may be required to make additional investments and provide additional services to complete the project. If we are unable to adequately address our partner’s performance issues, then our client could terminate the joint project, exposing us to legal liability, loss of reputation or reduced profits.
 
The project management business is highly competitive and, if we fail to compete effectively, we may miss new business opportunities or lose existing clients and our revenues may decline.
 
The project management industry is highly competitive. We compete for contracts, primarily based on technical capability, with numerous entities, including other construction management companies, design or engineering firms, general contractors, management consulting firms and other entities. Compared to us, many of these competitors are larger, well-established companies that have broader geographic scope and greater financial and other resources. If we cannot compete effectively with our competitors, or if the costs of competing, including the costs of retaining and hiring professionals, become too expensive, our revenue growth and financial results may differ materially from our expectations.

We have acquired and may continue to acquire businesses as strategic opportunities arise and may be unable to realize the anticipated benefits of those acquisitions, or if we are unable to take advantage of strategic acquisition situations, our ability to expand our business may be slowed or curtailed.
 
In the past, we have acquired companies related to the project management business and we may continue to expand and diversify our operations with additional acquisitions as strategic opportunities arise. If the competition for acquisitions increases, or if the cost of acquiring businesses or assets becomes too expensive, the number of suitable acquisition opportunities may decline, the cost of making an acquisition may increase or we may be forced to agree to less advantageous acquisition terms for the companies that we are able to acquire. Alternatively, at the time an acquisition opportunity presents itself, internal and external pressures (including, but not limited to, borrowing capacity under our credit facilities or the availability of alternative financing), may cause us to be unable to pursue or complete an acquisition. Our ability to grow our business, particularly through acquisitions, may depend on our ability to raise capital by selling equity or debt securities or obtaining additional debt financing. There can be no assurance that we will be able to obtain financing when we need it or on terms acceptable to us.
 
In addition, managing the growth of our operations will require us to continually increase and improve our operational, financial and human resources management and our internal systems and controls. If we are unable to manage growth effectively or to successfully integrate acquisitions or if we are unable to grow organically, that could have a material adverse effect on our business.

Systems and information technology interruption and breaches in data security could adversely impact our ability to operate and our operating results.
We are heavily reliant on computer, information and communications technology and related systems in order to properly operate. From time to time, we experience system interruptions and delays. In the event we are unable to regularly deploy software and hardware, effectively upgrade our systems and network infrastructure and take other steps to improve the efficiency and effectiveness of our systems, the operation of such systems could be interrupted or delayed, or our data security could be breached. In addition, our computer and communications systems and operations could be damaged or interrupted by natural disasters, power loss, telecommunications failures, acts of war or terrorism, acts of God, computer viruses, physical or electronic security breaches. Any of these or other events could cause system interruptions, delays and loss of critical data including private data. While we have taken steps to address these concerns by implementing sophisticated network security, training and internal control measures, there can be no assurance that a system failure or loss or data security breach will not materially adversely affect our business, financial condition and operating results.

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We are required to provide Performance Guarantees to our clients on some of our projects. If claims are made by our clients on the Performance Guarantees, the result could have a material adverse impact on our business, financial condition, results of operations and cash flows.

We are often required to provide a Performance Guarantee to our clients on projects. The guarantees provide monetary compensation to the client should we fail to perform our obligations under the contract. Some of these Performance Guarantees are unconditional in that the client can request and receive payment at any time, for any reason. Historically, payments have not been unconditionally claimed from our clients. Performance Guarantee claims made by clients could have a material adverse impact on our business, financial condition, results of operations, and cash flows.

Brexit may impact our business in Europe.

The decision made in the British referendum of June 23, 2016 to leave the European Union, commonly referred to as "Brexit," has led to volatility in the financial markets of the United Kingdom and more broadly across Europe and may also lead to weakening in consumer, corporate and financial confidence in such markets. On January 31, 2020, the United Kingdom ceased to be a member state of the European Union. As of that date, the United Kingdom entered a transitional period with the European Union, which is expected to continue through December 31, 2020. During this transitional period, the United Kingdom retains access to the E.U. single market and customs union and the United Kingdom and European Union are expected to attempt to negotiate various aspects of their future relationship following the transitional period, including a free trade deal.

The long-term effects of Brexit will depend on the agreements or arrangements between the United Kingdom and the European Union, and the extent to which the United Kingdom retains access to E.U. markets both during and after the transitional period. The longer term economic, legal, political and social framework to be put in place between the United Kingdom and the European Union is unclear at this stage and is likely to lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European markets for some time. In particular, Brexit caused significant volatility in global stock markets and currency exchange fluctuations. To the extent our accounts receivable are denominated in British Pounds, we may be subject to increased risks related to currency exchange rates.

In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which E.U. laws to replace or replicate. Brexit could also have a destabilizing effect if other E.U. member states were to consider the option of leaving the European Union. For these reasons, the United Kingdom's exit from the European Union could have adverse consequences on our business, financial condition and results of operations.

New legal requirements in connection with climate change could adversely affect our operating results.

Our business and results of operations could be adversely affected by the passage of new climate change, defense, environmental, infrastructure and other laws, policies and regulations. Growing concerns about climate change and greenhouse gases, such as those adopted under the United Nations COP-21 Paris Agreement or the EPA Clean Power Plan, may result in the imposition of additional environmental regulations for our clients' projects in the buildings, transportation, environmental, energy and industrial markets worldwide. For example, legislation, international protocols, regulation or other restrictions on emissions regulations could increase the costs of projects for our clients or, in some cases, prevent a project from going forward, thereby potentially reducing the need for our services. We cannot predict when or whether any of these various proposals may be enacted or what their effect will be on us or on our clients.

The coronavirus outbreak could impact our international operations and results of operations.

Our business and results of operations could be materially and adversely affected by the effects of a widespread outbreak of a contagious disease, including the recent outbreak of the respiratory illness caused by a coronavirus strain first identified in Wuhan, Hubei Province, China, or any other outbreak of contagious diseases, and other adverse public health developments. These effects could include disruptions or restrictions on our employees’ and subcontractors’ ability to travel, as well as temporary closures of the facilities and areas where we perform our work. Any disruption of current projects, including effects on the supply chain on which our projects depend, could adversely impact our business and results of operations which could also lead to a loss of clients, as well as competitive or business harm. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our services, including the award of future projects, and could impact our results of operations.


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Risks Related to Ownership of Our Common Stock
 
We have identified material weaknesses in our internal control over financial reporting and determined that our disclosure controls and procedures were not effective which could, if not remediated, result in additional material misstatements in our financial statements.
 
Our management is responsible for establishing and maintaining adequate disclosure controls and procedures and internal control over our financial reporting, as defined in Rules 13a-15(e) and 13a-15(f), respectively, under the Securities Exchange Act of 1934, as amended. As disclosed in Item 9A of this Annual Report on Form 10-K, management has identified several material weaknesses in our internal control over financial reporting and has determined that our disclosure controls and procedures were not effective. A material weakness is defined as a deficiency, or combination of significant deficiencies, in internal control over financial reporting, such that there is a more than a remote likelihood that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, our management concluded that the Company did not maintain effective disclosure controls and procedures and internal control over financial reporting as of December 31, 2020.

We have developed and have begun to implement a remediation plan designed to address these material weaknesses in internal control over financial reporting and ineffective disclosure controls and procedures. If our remedial measures are insufficient, or if additional material weaknesses or significant deficiencies in our internal controls are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results, which could materially and adversely affect our business and results of operations or financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the weaknesses or deficiencies, subject us to fines, penalties or judgments, harm our reputation or otherwise cause a decline in investor confidence.
 
Future sales of our common and preferred stock may depress the price of our common stock.
 
As of March 2, 2021, there were 56,481 shares of our common stock outstanding. An additional 1,563 shares of our common stock may be issued upon the exercise of options held by employees, management and directors and an additional 2,452 shares of our common stock may be issued upon the vesting of restricted and deferred stock units. We also have the authority, as determined by our Board of Directors, to issue up to 1,000 shares of preferred stock and additional options to purchase 4,015 shares of our common stock without stockholder approval. Future issuances or sales of our preferred stock or common stock could have an adverse effect on the market price of our common stock.
 
Because we have no current plans to pay cash dividends on our common stock, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
 
We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our Board of Directors may deem relevant. In addition, our ability to pay dividends is limited by covenants of our Secured Credit Facilities and may be limited by future indebtedness incurred by our subsidiaries or us. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it.

We are able to issue shares of preferred stock with greater rights than our common stock.
 
Our Board of Directors is authorized to issue one or more series of preferred stock from time to time without any action on the part of our stockholders. Our Board of Directors also has the power, without stockholder approval, to set the terms of any such series of preferred stock that may be issued, including voting rights, dividend rights and preferences over our common stock with respect to dividends and other terms. If we issue preferred stock in the future that has a preference over our common stock with respect to the payment of dividends or other terms, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our common stock or the market price of our common stock could be adversely affected.
 
15


Provisions in our organizational documents and Delaware law could discourage potential acquisition proposals, could delay or prevent a change in control of the Company that our stockholders may consider favorable and could adversely affect the market value of our common stock.
 
Provisions in our organizational documents and Delaware law could discourage potential acquisition proposals, could delay or prevent a change in control of the Company that our stockholders may consider favorable and could adversely affect the market value of our common stock. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:

Our Board of Directors is expressly authorized to make, alter or repeal our bylaws;
Our Board of Directors is divided into three classes of service with staggered three-year terms. This means that only one class of directors will be elected at each annual meeting of stockholders, with the other classes continuing for the remainder of their respective terms;
Our Board of Directors is authorized to issue preferred stock without stockholder approval;
Only our Board of Directors, our Chairman of the Board, our Chief Executive Officer or the holders of not less than 25% of our outstanding common stock and entitled to vote may call a special meeting of stockholders;
Our bylaws require advance notice for stockholder proposals and director nominations;
Our bylaws limit the removal of directors and the filling of director vacancies; and
We will indemnify officers and directors against losses that may incur in connection with investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures.
 
These provisions may make it more difficult for stockholders to take specific corporate actions and could have the effect of delaying or preventing a change in control of the Company.
 
In addition, Section 203 of the Delaware General Corporation Law imposes certain restrictions on mergers and other business combinations between the Company and any holder of 15% or more of our outstanding common stock. This provision is applicable to Hill and may have an anti-takeover effect that may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in the stockholder’s best interest. In general, Section 203 could delay for three years and impose conditions upon “business combinations” between an “interested shareholder” and Hill, unless prior approval by our Board of Directors is given. The term “business combination” is defined broadly to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder. An “interested shareholder,” in general, would be a person who, together with affiliates and associates, owns or within three years did own, 15% or more of a corporation’s voting stock.
 
A small group of stockholders owns a large quantity of our common stock, thereby potentially exerting significant influence over the Company.

This concentration of ownership could significantly influence matters requiring stockholder approval and could delay, deter or prevent a change in control of the Company or other business combinations that might otherwise be beneficial to our other stockholders. Accordingly, this concentration of ownership may impact the market price of our common stock. In addition, the interest of our significant stockholders may not always coincide with the interest of the Company’s other stockholders. In deciding how to vote on such matters, they may be influenced by interests that conflict with our other stockholders.

Item 1B.          Unresolved Staff Comments
 
None.
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Item 2.                   Properties
 
Our executive office is an operating lease currently located at One Commerce Square, 2005 Market Street, 17th Floor, Philadelphia, Pennsylvania 19103. We lease all of our office space and do not own any real property. The telephone number at our executive office is (215) 309-7700. We have approximately 70 operating leases for office facilities throughout the world, including our executive offices.
 
Our principal worldwide office locations and the geographic regions in which we reflect their operations are as follows:
Americas Europe Middle East/Asia/Pacific
Austin, TXAmsterdam, NetherlandsAbu Dhabi, UAE
Boston, MA Athens, Greece Baghdad, Iraq
Cleveland, OH Barcelona, Spain Doha, Qatar
Columbus, OH Belgrade, Serbia Dubai, UAE
East Hartford, CT Bucharest, Romania Jeddah, Saudi Arabia
Fords, NJFrankfurt, GermanyKabul, Afghanistan
Houston, TX Geneva, Switzerland Manama, Bahrain
Irvine, CA Istanbul, Turkey Muscat, Oman
Irving, TX Lisbon, Portugal Riyadh, Saudi Arabia
Jacksonville, FL Madrid, Spain Beijing, China
Miami, FL Nicosia, Cyprus Gurgaon, India
New York, NYNur-Sultan, KazakhstanHong Kong, China
New Orleans, LA Pristina, Kosovo Islamabad, Pakistan
Oakland, CARome, ItalyMumbai, India
Ontario, CA Sarajevo Bosnia and Herzegovina Singapore
Orlando, FL Skopje, North Macedonia 
Philadelphia, PA (Headquarters) Tbilisi, Georgia Africa
Phoenix, AZ Tirana, Albania Algiers, Algeria
Pittsburgh, PA Warsaw, Poland Cairo, Egypt
Plantation, FLWroclaw, PolandCasablanca, Morocco
San Diego, CATripoli, Libya
San Francisco, CA  
San Jose, CA
Seattle, WA  
Spokane, WA  
Toledo, OH  
Uniontown, PA  
Washington, DC  
Mexico City, Mexico

Item 3.                   Legal Proceedings
 
General Litigation
 
From time to time, the Company is a defendant or plaintiff in various legal proceedings which arise in the normal course of business. As such, the Company is required to assess the likelihood of any adverse outcomes to these proceedings 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 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 proceedings will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

17


Knowles Limited (“Knowles”), a subsidiary of the Company, is a party to an arbitration proceeding instituted on July 8, 2014 in which Knowles claimed that it was entitled to payment for services rendered to Celtic Bioenergy Limited (“Celtic”). The arbitrator decided in favor of Knowles. The arbitrator’s award was appealed by Celtic to the U.K. High Court of Justice, Queen’s Bench Division, Technology and Construction Court (“Court”). On March 16, 2017, the Court (1) determined that certain relevant facts had been deliberately withheld from the arbitrator by an employee of Knowles and (2) remitted the challenged parts of the arbitrator’s award back to the arbitrator to consider the award in possession of the full facts. In May 2019, Celtic issued a claim against Knowles for negligent application and a hearing was held in December 2019. The arbitration was concluded in August 2020 in Knowles' favor. Celtic has appealed the arbitrator's decision.

Loss on Performance Bond

The Company is often required to provide a Performance Guarantee to our clients on projects. The guarantees provide monetary compensation to the client should we fail to perform our obligations under the contract. Some of these Performance Guarantees are unconditional in that the client can request and receive payment at any time, for any reason. Historically, payments have not been unconditionally claimed from our clients. Performance Guarantee claims made by clients could have a material adverse impact on our business, financial condition, results of operations, and cash flows.

On February 8, 2018, the Company received notice from the First Abu Dhabi Bank ("FAB", formerly known as the National Bank of Abu Dhabi) that Public Authority of Housing Welfare of Kuwait submitted a claim for payment on a Performance Guarantee issued by the Company for approximately $7,938 for a project located in Kuwait. FAB subsequently issued, on behalf of the Company, such payment on February 15, 2018. The Company is taking legal action to recover the full Performance Guarantee amount. On September 20, 2018 the Kuwait First Instance Court dismissed the Company's case. As a result, the Company fully reserved the performance guarantee payment above in the first quarter of 2018 and it is presented as "Loss on Performance Bond" on the consolidated statements of operations. The Company filed an appeal before the Kuwait Court of Appeals seeking referral of the matter to a panel of experts for determination. On April 21, 2019, the Court of Appeals ruled to refer the matter to the Kuwait Experts Department. Hearings with the Kuwait Experts Department were held during July and September 2019. A final report from the panel of experts 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 judgement to be issued. We filed a pleading before the Kuwait Cassation Court in August 2020 and we are awaiting a decision.

Item 4.       Mine Safety Disclosures
 
Not applicable.

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PART II

Item 5.      Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Information
 
Our common stock trades on the NYSE under the trading symbol “HIL.”
 
Stockholders
 
As of March 2, 2021, there were approximately 67 holders of record of our common stock. However, a single record stockholder account may represent multiple beneficial owners, including owners of shares in street name accounts. As of March 2, 2021, there were approximately 2,822 beneficial owners of our common stock.
 
Dividends
 
We have not paid any dividends on our common stock. The payment of dividends in the future will be contingent upon our earnings, if any, capital requirements and general financial condition of our business. Our Secured Credit Facilities currently limit the payment of dividends.
 
Securities Authorized for Issuance under Equity Compensation Plans
 
The table setting forth this information is included in Part III — Item 12 ("Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters") of this Form 10-K.

Recent Sales of Unregistered Securities
 
None.

Item 6.      Selected Financial Data

Not applicable.

Item 7.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following discussion should be read in conjunction with the other sections of this report, including the Financial Statements and Supplementary Data, contained in Part II, Item 8 of this Annual Report on Form 10-K. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in Part I, “Cautionary Note Regarding Forward-Looking Statements” and Part I, Item 1A.“Risk Factors.” We assume no obligation to update any of these forward-looking statements.

Overview
 
We earn revenue by deploying professionals to provide services to our clients, including project management, construction management 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 most payroll and benefits, except for paid time-off, which is recorded in selling, general and administrative expenses ("SG&A"). We also provide services under fixed price contracts and T&M contracts with a cap.

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Our revenue consists of two components: CFR and reimbursable expenses. The professionals we deploy are occasionally subcontractors. We generally bill the actual cost of these subcontractors and recognize this cost as both revenue (reimbursable expenses) and direct expense. CFR refers to our revenue excluding amounts paid or due to subcontractors. We believe CFR is an important measure because it represents the revenue on which we earn gross profit, whereas total revenue includes the costs for subcontractors on which we generally pass through and earn minimal or no gross profit.

We compete for business based on a variety of factors such as technical capability, global resources, price, reputation and past experience, including client requirements for substantial experience in similar projects. We have developed significant long-standing relationships, which bring us repeat business and would be very difficult 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 expenses consist primarily of personnel costs that are not billable and corporate or regional costs such as sales, business development, proposals, operations, finance, human resources, legal, marketing, management and administration.

The Company operates in a single reporting segment, known as the Project Management Group which provides fee-based project, construction and facilities management services to our clients. Our experienced professionals are capable of managing all phases of the construction process from concept through completion, including cost and budget controls, scheduling, estimating, expediting, inspection, contract administration and management of contractors, subcontractors and suppliers. 

Impact of COVID-19 on our Business

In December 2019, COVID-19 was identified in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a global pandemic as a result of the further spread of the virus into all regions of the world, including those regions where our primary operations occur.
We instituted a work-from-home policy for all offices and employees globally in late March 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 field employees are located in the regions where they deliver their services, so travel restrictions enacted by various government authorities did not impair their ability to continue to perform services for our clients. Employees have been returning to their assigned offices, on a modified basis, as their city, state and country reopens, consistent with the applicable requirements of local law.
Most of the projects to which we provide services have been classified as essential services by the relevant governmental authority and as such have continued despite restrictions on the operation of "non-essential" businesses by certain governmental authorities. The majority of our billable employees have continued to provide billable services to our clients, either on-site or remotely at the same or at a slightly reduced volume as in effect prior to the spread of COVID-19. We estimate that COVID-19 resulted in loss of CFR of approximately $25,000 for the twelve months ended December 31, 2020, inclusive of delayed projects awards and cancellations brought on by the virus.

Nearly all our employees had company laptop computers and the ability to work remotely prior to the institution of our work-at-home policy. The work-at-home policy did not have a significant impact on our employees’ ability to perform their job requirements. Our internal control structure does not generally require physical access to our office locations, and has not to date and is not expected in the future to be adversely impacted by the spread of COVID-19 and the corresponding response by certain governmental authorities. Processes that require physical access to our offices, such as receiving mail (including collections) and processing and mailing manual checks, are being performed by designated individuals at a reduced frequency while certain of our offices remain closed.
The main impacts on our business observed to date other than those discussed above are delays in the procurement processes of a number of our current and potential clients and a temporary slowing of certain collections. 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 duration of the economic slowdown caused by the pandemic.
We also experienced a slightly lower than normal amount of collections during the latter part of March. Collections returned to a more normal level during the second quarter and remained at a more normal level through the remainder of the year. We had unrestricted cash of $34,229 and available borrowing capacity on our credit facilities totaling $11,711 at December 31, 2020.
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Management implemented various actions and policies that resulted in approximately $11,000 in cost reductions to partially offset the expected reduction in CFR. This is higher than the $10,000 estimated previously due to the continuation of cost reductions as COVID-19 has continued to impact the business beyond the time initially contemplated. We expect costs in 2021 to increase modestly in line with an anticipated rebound in activity, as the effects of the COVID-19 pandemic subside and the Company's activity increases. The Company will continue to manage costs and its association with CFR relative to the evolving effects of COVID-19.

The full extent and duration of the impact of COVID-19 on our operations and financial performance is currently unknown, and depends on future developments that are uncertain and unpredictable, including the duration and spread of the pandemic, its impact on capital and financial markets on a macro-scale and any new information that may emerge concerning the severity of the virus, its spread to other regions and the actions to contain the virus or treat its impact, among others.
We will continue to evaluate the potential short-term and long-term implications of COVID-19 on our consolidated financial statements and operations. We believe that the lower backlog reflected in the financial statements at December 31, 2020 was primarily due to the effects of the COVID-19 pandemic. The potential additional future impacts to our consolidated financial statements of operations include, but are not limited to: decreased CFR, lower gross and operating margins, impairment of goodwill and indefinite-lived intangible assets and fair value and collectability of receivables.
Any of these outcomes could have a material adverse impact on our business, financial condition, results of operations and cash flows. Management currently believes that it has adequate liquidity and business plans to continue to operate the business and mitigate the risks associated with COVID-19 for at least the next 12 months from the date of this report.

Critical Accounting Policies and Estimates
 
Our consolidated financial statements contained in this Annual Report on Form 10-K were prepared in accordance with U.S. GAAP. While there are a number of accounting policies, methods and estimates that affect the consolidated financial statements, areas that management considers critical are discussed below. We believe our assumptions are reasonable and appropriate, however, actual results may be materially different than estimated.
 
Revenue Recognition
 
We generate revenue primarily from providing professional services to our clients under various types of contracts. We evaluate contractual arrangements to determine how to recognize revenue. Below is a description of the basic types of contracts from which we may earn revenue:
 
Time and Materials Contracts

Under the T&M arrangements, contract fees are based upon time and materials incurred. The contracts may be structured as basic T&M, 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 a margin contracts.

The majority of our contracts are for consulting projects where we bill the client monthly at hourly billing rates. The hourly billing rates are determined by contractual terms. Under cost plus a margin contracts, we charge our clients for our costs, plus a fixed fee or rate.

Under T&M contracts with a cap value, we charge our clients for time and materials based upon the work performed, subject to a cap or a not to exceed value. There are often instances that a contract is modified to extend the contract value past the cap. As the consideration is variable depending on the outcome of the contract renegotiation, we estimate the total contract price in accordance with the variable consideration guidelines and only include consideration we expect to receive. When we expect to reach the cap value, we generally renegotiate the contract or cease work when the maximum contract value is reached. We continue to work if it is probable that the contract will be extended. We only include consideration on contract renegotiations to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. If we continue to work and are uncertain that a contract change order will be processed, the variable consideration will be constrained until it is probable that the contract will be renegotiated. We are only entitled to consideration for the work we have performed, and the cap value is not a guaranteed contract value.

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Fixed Price Contracts

Under fixed price contracts, our clients pay an agreed amount negotiated in advance for a specified scope of work. We are guaranteed to receive the consideration to the extent that we deliver under the contract. We recognize 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. We assess contracts quarterly and will recognize any expected future loss before actually incurring the loss. When we expect to reach the total consideration under the contract, we begin to negotiate a change order.

Change Orders and Claims

Change orders are modifications of an original contract that effectively change the provisions of the contract without adding new provisions. Either we or our 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 we are having difficulties in renegotiating the change order, we will stop work if possible, record all costs incurred to date, and determine, on a project by project basis, the appropriate final revenue recognition.

Claims are amounts in excess of the agreed contract price that we seek to collect from 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.

 Allowance for Doubtful Accounts
 
We make ongoing estimates relating to the collectability of our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our clients to make required payments.  Estimates used in determining accounts receivable allowances are based on our evaluation of specific client accounts and contracts involved and the financial condition of our clients. The factors we consider in our evaluations include, but are not limited to, client type (U.S. federal and other national governments, state and local governments or private sector), historical contract performance, historical collection and delinquency trends, client credit worthiness, and general economic and political conditions. At December 31, 2020 and 2019, the allowance for doubtful accounts was $53,450 and $59,131, respectively. The allowance for doubtful accounts balance included approximately $33,242 and $32,864 related to our receivables in Libya at December 31, 2020 and 2019, respectively.
 
Contingencies
 
Estimates are inherent in the assessment of our exposure to insurance claims that fall below policy deductibles and to litigation and other legal claims and contingencies, as well as in determining our liabilities for incurred but not reported insurance claims. Significant judgments by us and reliance on third-party experts are utilized in determining probable and/or reasonably estimable amounts to be recorded or disclosed in our financial statements. The results of any changes in accounting estimates are reflected in the financial statements of the period in which the changes are determined. We do not believe that material changes to these estimates are reasonably likely to occur.

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2020 Business Overview

Consolidated Results
(In thousands)
 Years Ended December 31,
 20202019
Income Statement Data:  
Consulting fee revenue$296,615 $308,620 
Reimbursable expenses71,909 67,817 
Total revenue368,524 376,437 
Direct expenses249,173 249,587 
Gross profit119,351 126,850 
Selling, general and administrative expenses109,215 109,746 
Foreign currency exchange loss2,923 1,159 
Plus: Share of profit of equity method affiliates3,286 2,601 
Operating profit10,499 18,546 
Less: Interest and related financing fees, net5,224 5,795 
Plus: Other (loss) income, net(5,711)394 
(Loss) income before income taxes(436)13,145 
Income tax expense (benefit)7,134 (1,109)
Net (loss) income(7,570)14,254 
Less: net income - noncontrolling interests612 170 
Net (loss) income attributable to Hill International, Inc.$(8,182)$14,084 

Results of Operations
 
Year Ended December 31, 2020 Compared to
Year Ended December 31, 2019
  
Total Revenue:
 20202019Change
Americas$192,777 52.4 %$200,142 53.1 %$(7,365)(3.7)%
Middle East/Asia/Pacific92,639 25.1 %104,927 27.9 %(12,288)(11.7)%
Europe53,819 14.6 %43,488 11.6 %10,331 23.8 %
Africa29,289 7.9 %27,880 7.4 %1,409 5.1 %
Total$368,524 100.0 %$376,437 100.0 %$(7,913)(2.1)%
Consulting Fee Revenue:
 20202019Change
Americas$137,247 46.2 %$140,992 45.7 %$(3,745)(2.7)%
Middle East/Asia/Pacific89,037 30.0 %100,751 32.6 %(11,714)(11.6)%
Europe43,769 14.8 %41,305 13.4 %2,464 6.0 %
Africa26,562 9.0 %25,572 8.3 %990 3.9 %
Total$296,615 100.0 %$308,620 100.0 %$(12,005)(3.9)%

Total revenue decreased approximately $7,913 for the twelve months ended December 31, 2020 when compared to the same time period in the prior year. CFR was $296,615 and $308,620 of the total revenue for the twelve months ended December 31, 2020 and 2019, respectively, which was approximately 80.5% and 82.0% of total revenues, respectively.

The decrease in total revenue and the corresponding decrease in CFR for the twelve months ended December 31, 2020 compared to the same period in 2019 was primarily due to delayed project starts and project suspensions due to the COVID-19 pandemic.
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Gross Profit:
 20202019Change
% of CFR% of CFR
Americas$61,228 51.3 %44.6 %$60,980 48.1 %43.3 %$248 0.4 %
Middle East/Asia/Pacific28,553 23.9 %32.1 %38,847 30.6 %38.6 %(10,294)(26.5)%
Europe16,795 14.1 %38.4 %15,928 12.6 %38.6 %867 5.4 %
Africa12,775 10.7 %48.1 %11,095 8.7 %43.4 %1,680 15.1 %
Total$119,351 100.0 %40.2 %$126,850 100.0 %41.1 %$(7,499)(5.9)%

The change in gross margin as a percentage of CFR for the twelve months ended December 31, 2020 compared to the same period in 2019 was primarily due to the following:

Americas:

The increase in gross margin as a percentage of CFR in the region is primarily due to a $1,700 decrease in direct benefit expenses as a result of the suspension of the employers 401(k) match during the second half of 2020. This match has been reinstated for 2021.

Middle East/Asia/Pacific:

The decrease in gross margin as a percentage of CFR in the region is primarily due to work on a large project in Qatar which started during the second half of 2019 with lower than average margin, an increase in expense related to the liquidation of a bond and a reduction in the revenue of an ongoing project related to updated cost projections. A settlement on a project in Kuwait, which terminated during 2020, also contributed to the decrease in gross margin.

Africa:

The increase in gross margin as a percentage of CFR in the region is primarily due to receiving a $1,200 credit from one of our partners.

Selling, General and Administrative Expenses:

Our total selling, general and administrative expenses ("SG&A") was approximately the same amount for the twelve months ended December 31, 2020 and 2019.

During 2020, labor expenses were reduced by approximately $900 and travel expenses were reduced by approximately $2,800, as a result of the COVID-19 stay at home orders issued throughout the world. In addition, legal expenses were lower in 2020 by approximately $2,200 primarily as a result of a settlement and return of previously incurred legal expenses, professional fees were reduced by approximately $1,800 due to lower fees being charged and bad debt expense was reduced by $2,000 as a result of payments received on accounts receivables previously reserved. Offsetting these reductions were a $7,124 net benefit in 2019 from the collection of a fully-reserved receivable and a $1,600 of additional depreciation charge for the write-off of leasehold improvements related to the Company subletting office space in Philadelphia to a third party during the first quarter of 2020, an approximate $350 increase in computer equipment and software costs primarily related to remote working and increases in other indirect expenses.

During 2019, we received a payment of more than $9,400, which netted to $7,124 after payments to subcontractors and other costs, against the approximately $42,000 outstanding accounts receivable that we had been owed from the Organization for the Development of Administrative Centres ("ODAC"), an agency of the Libyan national government, which we had previously fully reserved. Upon receiving payment, the reserve was reversed in the amount received, which decreased the bad debt expense for 2019.

SG&A expenses represented approximately 36.8% and 35.6% of CFR for the twelve months ended December 31, 2020 and 2019, respectively.

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Foreign Currency Exchange Loss

Foreign currency exchange losses were approximately $1,800 greater for the twelve months ended December 31, 2020 compared to the same period in 2019. The currency exchange losses were primarily caused by an 18% weakening of the Brazilian Real against the Euro prior to declaring bankruptcy of our Brazilian subsidiary and a 12% strengthening of the Egyptian pound against the Euro in 2019 compared to a 4% weakening during the same period in 2020.

Interest and related financing fees, net
 
Interest and related financing fees, net, include interest expense of $5,357, net of $133 in interest income, and interest expense of $6,082, net of $287 in interest income for the years ended December 31, 2020 and 2019, respectively, which decreased as a result of higher weighted-average interest rates billed to us on our secured credit facilities with Société Générale throughout the year ended December 31, 2019.

Income Taxes
 
The effective income tax rates for 2020, and 2019 were (1636.2)% and (8.4)% respectively. The Company’s effective tax rate differs from the U.S. federal statutory rate, for the year ended December 31, 2020, primarily due to additional uncertain tax position accruals, as well as the inability to recognize any tax benefit for losses in certain jurisdictions, particularly Brazil.

The Company’s effective tax rate for the year ended December 31, 2019 differs from the U.S. federal statutory rate primarily due to benefits recognized from provision to return adjustments and the reversal of an outstanding tax accrual related to the Claims Construction Group sale. This is partially offset by additional uncertain tax position accruals, as well as additional increases in our valuation allowances.

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that 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 ASC 740, Income Taxes. We consider both positive and negative evidence. In making this determination, management assesses all of the evidence available at the time including recent earnings, internally-prepared income projections, and historical financial performance.

Liquidity and Capital Resources
 
Our primary cash obligations are our payroll and our project subcontractors. Our primary source 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 on hand and our revolving credit facilities to fund the working capital requirement caused by the lag discussed above and other operating needs. We believe our expected cash receipts from clients, together with current cash on hand and revolving credit facilities, are sufficient to support the reasonably anticipated cash needs of our operations over the next twelve months.

At December 31, 2020 and 2019, our primary sources of liquidity consisted of $34,229 and $15,915 in cash and cash equivalents, respectively, of which $28,842 and $15,260 was on deposit in foreign locations, respectively, and $11,711 and $14,735 of available borrowing capacity under our various credit facilities, respectively. 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 December 31, 2020 and 2019, we had approximately $52,236 and $50,779 of availability under these arrangements. Our sources of liquidity under arrangements with foreign banks are available for repatriation as deemed necessary by us with some restrictions and tax implications.

We believe that we have sufficient liquidity to support the reasonably anticipated cash needs of our operations over the next twelve months from the date of this filing.

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Sources of Additional Capital
 
A significant increase in our current backlog may require us to obtain additional financing. If additional financing is required in the future due to an increase in backlog 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 Flows
Years ended December 31,
20202019Change
Net cash provided by operating activities$12,278 $9,979 $2,299 
Net cash used in investing activities(2,893)(3,936)1,043 
Net cash provided by (used in) financing activities6,515 (4,931)11,446 
Effect of foreign exchange rate changes on cash540 763 (223)
Deconsolidated cash— 
Net increase in cash, cash equivalents and restricted cash$16,431 $1,875 $14,556 

Operating Activities
 
The increase in cash from operations during 2020 was primarily due to increased collection activity of our outstanding accounts receivable balances, the deferral of payroll taxes permitted under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the suspension of the 401(k) match by the Company for most of the year and the deferral of certain rent payments.

Cash held in restricted accounts is primarily collateral for the issuance of performance and advance payment bonds, letters of credit and escrow and was $7,184 and $9,067 at December 31, 2020 and 2019, respectively. The decrease is primarily due to the release of cash collateral and reduction of certain performance bonds.

We manage our operating cash flows by managing the working capital accounts in total. The primary elements of our working capital are accounts receivable, prepaid and other current assets, accounts payable and deferred revenue. 
 
From year to year, the components of our working capital accounts may reflect significant changes. The changes are primarily due to the timing of cash receipts and payments with our working capital accounts combined with changes in our receivables and payables relative to the changes in our overall business. 

Investing Activities
 
During 2020 and 2019, cash was used in investing activities primarily for the purchase of fixed assets. In 2020, cash was also used to purchase an engineering license in New York. Fixed asset purchases in 2019 include leasehold improvements at our Philadelphia office to consolidate space and sublease our unused floor.

Financing Activities
 
Net cash provided by financing activities during 2020 was from net borrowings on revolving debt of $5,800 and $1,300 of term loans. Net cash used in financing activities during 2019 was due to the net pay-downs on revolving debt of $4,065 and term loans of $1,060.
 
New Accounting 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 in Item 8, "Financial Statements and Supplementary Data" hereof.
 
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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.
 
Off-Balance Sheet Arrangements
 
The following table provides information with respect to off-balance sheet arrangements with domestic and foreign banks for the issuance of performance bonds, advance payment guarantees and other letters of credit that are scheduled to expire in 2021 and beyond. The total amount of these arrangements in the following table includes amounts issued in various foreign currencies and are based on the foreign currency exchange rates as of December 31, 2020, where applicable.
 
 
Total (1)
20212022-20232024-20252026 and later
Performance bonds (2)(4)
$46,503 $32,914 $6,628 $3,791 $3,170 
Advance payment guarantee (2)
16,475 4,110 6,905 3,329 2,131 
Bid or tender bonds (3)
1,955 1,862 93 — — 
Other (4)
2,449 2,249 200 — — 
 $67,382 $41,135 $13,826 $7,120 $5,301 
(1)At December 31, 2020, the Company had provided cash collateral amounting to $7,184 for certain of these items. That collateral is reflected in restricted cash on the Company's consolidated balance sheets. See Note 14 - Commitments and Contingencies to our consolidated financial statements for further information regarding these arrangements.
(2)Represents guarantee of service performance bonds and advance payments through domestic and international banks required under certain client contracts.
(3)Represents tender and bid bonds issued through international banks as part of the bidding process for new work to assure our client that we will enter into the service contract.
(4)Includes off-balance sheet arrangements with open-ended expiration dates.

Contractual Obligations
 
The following table reflects contractual debt obligations under our notes payable and credit facilities, fees paid on our off-balance sheet arrangements and minimum cash rental payments due for our operating lease obligations over the next five years and thereafter as of December 31, 2020:
 Total20212022-20232024-20252026 and thereafter
Principal and repayment of notes payable and credit facilities (1)
$49,281 $955 $47,659 $579 $88 
Interest expense on notes payable and credit facilities (2) (5)
8,127 4,092 4,014 19 
Fees paid on off-balance sheet arrangements (3) (5)
2,224 942 886 351 45 
Operating lease obligations (4) (5)
21,598 5,772 8,170 4,698 2,958 
Finance lease obligations (4) (5)
265 75 150 40 — 
 $81,495 $11,836 $60,879 $5,687 $3,093 
(1)    Reduced by the amortization of deferred financing costs related to our term loan debt. Balances due partially include amounts payable in various foreign currencies and are reflected based on foreign currency exchange rates as of December 31, 2020, where applicable.
(2)Estimated using the weighted average effective interest rates as of December 31, 2020 on our notes payable and credit facilities. Includes the amortization of deferred financing costs related to our term loan and revolving credit facilities.
(3)Fees paid on our off-balance sheet arrangements are included in interest and related financing fees, net, in our consolidated statements of operations.
(4)Represents future minimum rental commitments under non-cancelable lease terms. Amounts exclude contingent rental payments, where applicable, that may be payable based on lease provisions where annual rent increases are based on certain economic indexes, among other items. We expect to fund these commitments with existing cash and cash flow from operations.
(5)Amounts presented are partially payable in various foreign currencies and are based on the foreign currency rates at December 31, 2020.
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The liability for unrecognized tax benefits is not included in the table above due to the subjective nature of the costs and timing of anticipated payments.

Item 7A.                  Quantitative and Qualitative Disclosures About Market Risk
 
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
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Item 8.         Financial Statements and Supplementary Data


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Hill International, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Hill International, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 16, 2021 expressed an adverse opinion.

Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Estimates-at-Completion

As described further in Note 4 to the financial statements, the Company generally recognizes revenue over a period of time as control transfers to a customer, based on the extent of progress towards satisfaction of the related performance obligation. The selection of the method used to measure progress requires judgment and is dependent on the contract type selected by the customer during contract negotiation and the nature of the services and solutions to be provided. For performance obligations requiring the delivery of a service for a fixed price, the Company uses the ratio of actual costs incurred to total estimated costs, provided that costs incurred (an input model) represents a reasonable measure of progress toward the satisfaction of a performance obligation, in order to estimate the portion of total transaction price earned. We identified the initial development and subsequent updates to estimates-at-completion as a critical audit matter.

The principal considerations for our determination that the development and updating of estimates-at-completion in recognizing revenue is a critical audit matter are the significant management judgments involved in the initial creation and subsequent updates to the Company’s estimates-at-completion and related profit recognized, which required subjective management and auditor judgment in the development and execution of such estimates. Inputs and assumptions requiring significant management judgment included anticipated direct labor, subcontract labor, and other direct costs required to deliver on unfinished performance obligations.

29


Our audit procedures related to this matter included the following, among others:

We evaluated the design and tested the operating effectiveness of controls relating to the development of initial estimates-to-completion and the ongoing updating and monitoring of estimates specific to the estimates-at-completion.

We tested management’s process for developing, revising and applying estimates-at-completion to a sample of contracts. Our testing included evaluating key inputs and assumptions by comparing the estimates to underlying supporting documentation or other corroborating evidence that supports estimated costs. We interviewed project managers of the Company to evaluate progress to date and discuss factors impacting the estimated hours to complete the project.

To assess the Company’s ability to develop reliable estimates, we performed the following analytical analysis:

o We performed analytical procedures of gross margin fluctuations on a contract by contract basis to
corroborate cumulative catch-up adjustments.

o We performed a look-back analysis on a contract by contract basis comparing actual costs incurred during the
year to prior year estimated costs.


/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2019.
Philadelphia, Pennsylvania
March 16, 2021

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Hill International, Inc.

Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Hill International, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, because of the effect of the material weaknesses described in the following paragraphs on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control — Integrated Framework issued by COSO.

A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment.

Revenue Recognition - the Company failed to:

o Consistently ensure there were effective and documented review controls over the set-up and monitoring of
its estimates at completion calculations for long-term fixed fee contracts;

o Design controls to ensure the proper set-up of contract information in the system and over the review and
     approval of manual billings. This contract information and manual billing is used in the revenue recognition
process

Vendor Approval - The Company did not properly design policies, procedures and controls to ensure that vendors were properly reviewed, approved and set-up within the system.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020. The material weaknesses identified above were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2020 consolidated financial statements, and this report does not affect our report dated March 16, 2021 which expressed an unqualified opinion on those financial statements.

Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
March 16, 2021



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HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
 December 31,
 20202019
Assets  
Cash and cash equivalents$34,229 $15,915 
Cash - restricted3,752 4,666 
Accounts receivable, net98,186 103,892 
Accounts receivable - affiliates, net23,285 18,776 
Current portion of retainage receivable11,775 16,459 
Prepaid expenses and other current assets9,378 9,340 
Income taxes receivable2,298 2,256 
Total current assets182,903 171,304 
Property and equipment, net9,443 11,895 
Cash - restricted, net of current portion3,432 4,401 
Operating lease right-of-use assets13,116 17,451 
Financing lease right-of-use assets288  
Retainage receivable6,044 5,695 
Acquired intangibles, net2,253 232 
Goodwill46,397 48,024 
Investments2,805 1,711 
Deferred income tax assets3,698 3,800 
Other assets1,620 5,038 
Total assets$271,999 $269,551 
Liabilities and Stockholders’ Equity
Current maturities of notes payable and long-term debt$987 $1,792 
Accounts payable and accrued expenses67,797 65,172 
Income taxes payable2,219 3,152 
Current portion of deferred revenue3,305 10,773 
Current portion of operating lease liabilities4,797 5,736 
Current portion of financing lease liabilities70  
Other current liabilities5,796 4,876 
Total current liabilities84,971 91,501 
Notes payable and long-term debt, net of current maturities48,294 41,150 
Retainage payable600 1,551 
Deferred income tax liabilities1,210 419 
Deferred revenue7,488 3,041 
Non-current operating lease liabilities13,184 17,030 
Non-current financing lease liabilities186  
Other liabilities6,778 4,631 
Total liabilities162,711 159,323 
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 1,000 shares authorized, none issued
  
Common stock, $0.0001 par value; 100,000 shares authorized, 62,920 and 62,708 shares issued at December 31, 2020 and 2019, respectively6 6 
Additional paid-in capital215,010 212,759 
Accumulated deficit(79,542)(71,360)
Accumulated other comprehensive income (loss)1,318 (3,817)
Treasury stock of 6,807 and 6,546 at December 31, 2020 and 2019, respectively(29,056)(28,231)
Hill International, Inc. share of equity107,736 109,357 
Noncontrolling interests1,552 871 
Total equity109,288 110,228 
Total liabilities and stockholders’ equity$271,999 $269,551 
See accompanying notes to consolidated financial statements.
33


HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 
 Years Ended December 31,
 20202019
Consulting fee revenue$296,615 $308,620 
Reimbursable expenses71,909 67,817 
Total revenue368,524 376,437 
Direct expenses249,173 249,587 
Gross profit119,351 126,850 
Selling, general and administrative expenses109,215 109,746 
Foreign currency exchange loss2,923 1,159 
Plus: Share of profit of equity method affiliates3,286 2,601 
Operating profit10,499 18,546 
Less: Interest and related financing fees, net5,224 5,795 
Plus: Other (loss) income, net(5,711)394 
(Loss) income before income taxes(436)13,145 
Income tax expense (benefit)7,134 (1,109)
Net (loss) income(7,570)14,254 
Less: net income - noncontrolling interests612 170 
Net (loss) income attributable to Hill International, Inc.$(8,182)$14,084 
Basic (loss) income per common share - Hill International, Inc.$(0.14)$0.25 
Basic weighted average common shares outstanding56,603 56,280 
Diluted (loss) income per common share - Hill International, Inc.$(0.14)$0.25 
Diluted weighted average common shares outstanding56,603 56,280 
 
See accompanying notes to consolidated financial statements.
34


HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
 
 Years Ended December 31,
 20202019
Net (loss) income$(7,570)$14,254 
Foreign currency translation adjustments, net of tax5,204 (1,146)
Comprehensive (loss) income(2,366)13,108 
Less: Comprehensive income attributable to noncontrolling interests681 266 
Comprehensive (loss) income attributable to Hill International, Inc.$(3,047)$12,842 
 
See accompanying notes to consolidated financial statements.
35


HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2020 and 2019
(In thousands) 
 Common StockAdditional
Paid-in
Retained
Earnings
Accumulated Other
Comprehensive
Treasury StockHill Share of Stockholders’ EquityNon-controlling InterestsTotal
Stockholders’
Equity
 SharesAmountCapital(Deficit)Income (Loss)SharesAmount
Balance - December 31, 201862,181 $6 $210,084 $(85,444)$(2,575)6,546 $(28,231)$93,840 $605 $94,445 
Net earnings— — — 14,084 — — — 14,084 170 14,254 
Other comprehensive earnings (loss)— — — — (1,242)— — (1,242)96 (1,146)
Shares issued to Board of Directors128 — — — — — — — —  
Share-based compensation expense322 — 2,514 — — — — 2,514 — 2,514 
Shares issued under employee stock purchase plan77 — 161 — — — — 161 — 161 
Balance - December 31, 201962,708 6 212,759 (71,360)(3,817)6,546 (28,231)109,357 871 110,228 
Net (loss) earnings— — — (8,182)— — — (8,182)612 (7,570)
Other comprehensive earnings— — — — 5,135 — — 5,135 69 5,204