10-Q 1 horizon_033120x10q.htm 10-Q 2020 Q1 Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
 
 
x

 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the Quarterly Period Ended March 31, 2020
or

o

 
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 001-37427
HORIZON GLOBAL CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
(State or other jurisdiction of
incorporation or organization)
 
47-3574483
(IRS Employer
Identification No.)
47912 Halyard Drive, Suite 100
Plymouth, Michigan 48170
(Address of principal executive offices, including zip code)
(734) 656-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
HZN
 
New York Stock Exchange
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 x    No o.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x    No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer x
 
Non-accelerated filer o
 
Smaller reporting company o
 
Emerging growth company x
 
 
 
 
 
 
 
 
 
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. Yes x No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x
As of May 12, 2020, the number of outstanding shares of the Registrant’s common stock was 25,472,634 shares.



HORIZON GLOBAL CORPORATION
Index
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1


Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date they are made and give our current expectations or forecasts of future events. These forward-looking statements can be identified by the use of forward-looking words, such as “may,” “could,” “should,” “estimate,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “target,” “plan” or other comparable words, or by discussions of strategy that may involve risks and uncertainties.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties which could materially affect our business, financial condition or future results including, but not limited to, risks and uncertainties with respect to: the impact of the novel coronavirus (COVID-19) pandemic on the Company’s business, results of operations, financial condition and liquidity; the Company’s ability to regain compliance with the New York Stock Exchange’s continued listing standards; the Company’s leverage; liabilities and restrictions imposed by the Company’s debt instruments; market demand; competitive factors; supply constraints; material and energy costs; technology factors; litigation; government and regulatory actions including the impact of any tariffs, quotas, or surcharges; the Company’s accounting policies; future trends; general economic and currency conditions; various conditions specific to the Company’s business and industry; the success of the Company’s action plan, including the actual amount of savings and timing thereof; the success of the Company’s business improvement initiatives in Europe-Africa, including the amount of savings and timing thereof; the Company’s exposure to product liability claims from customers and end users, and the costs associated therewith; the Company’s ability to meet its covenants in the agreements governing its debt; factors affecting the Company’s business that are outside of its control, including natural disasters, pandemics, including the current COVID-19 pandemic, accidents and governmental actions; and other risks that are discussed in Part I, Item 1A, “Risk Factors.” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as well as in Item 1A, “Risk Factors.” of this Quarterly Report on Form 10-Q and in the Company’s other periodic reports filed with the Securities and Exchange Commission . The risks described in the Company’s Annual Report on Form 10-K and other periodic reports are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deemed to be immaterial also may materially adversely affect our business, financial position and results of operations or cash flows.
The cautionary statements set forth above should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We caution readers not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect the Company. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statement to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events, except as otherwise required by law.
We disclose important factors that could cause our actual results to differ materially from our expectations implied by our forward-looking statements under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. These cautionary statements qualify all forward-looking statements attributed to us or persons acting on our behalf. When we indicate that an event, condition or circumstance could or would have an adverse effect on us, we mean to include effects upon our business, financial and other conditions, results of operations, prospects and ability to service our debt.


2


PART I. FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements
HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited—dollars in thousands)

 
March 31,
2020

December 31,
2019
Assets
 

 

Current assets:
 

 

Cash and cash equivalents
 
$
38,670


$
11,770

Restricted cash
 
8,740

 

Receivables, net
 
84,900


71,680

Inventories
 
119,370


136,650

Prepaid expenses and other current assets
 
8,220


8,570

Total current assets
 
259,900

 
228,670

Property and equipment, net
 
74,100


75,830

Operating lease right-of-use assets
 
41,870

 
45,770

Goodwill
 
3,360


4,350

Other intangibles, net
 
57,420


60,120

Deferred income taxes
 
450

 
430

Other assets
 
8,660


5,870

Total assets
 
$
445,760

 
$
421,040

Liabilities and Shareholders' Equity
 

 

Current liabilities:
 

 

Short-term borrowings and current maturities, long-term debt
 
$
61,220


$
4,310

Accounts payable
 
83,380


78,450

Short-term operating lease liabilities
 
9,980

 
9,880

Accrued liabilities
 
50,080


48,850

Total current liabilities
 
204,660

 
141,490

Gross long-term debt
 
216,880

 
236,550

Unamortized debt issuance costs and discount
 
(28,500
)
 
(31,500
)
Long-term debt
 
188,380

 
205,050

Deferred income taxes
 
3,990


4,040

Long-term operating lease liabilities
 
45,570

 
48,070

Other long-term liabilities
 
15,570


13,790

Total liabilities
 
458,170

 
412,440

Contingencies (See Note 13)
 


 


Shareholders' equity:
 
 
 
 
Preferred stock, $0.01 par: Authorized 100,000,000 shares; Issued and outstanding: None
 

 

Common stock, $0.01 par: Authorized 400,000,000 shares; 26,115,238 shares issued and 25,428,732 outstanding at March 31, 2020, and 26,073,894 shares issued and 25,387,388 outstanding at December 31, 2019
 
250

 
250

Common stock warrants exercisable for 6,487,674 shares issued and outstanding at March 31, 2020 and December 31, 2019
 
10,610

 
10,610

Paid-in capital
 
163,600

 
163,240

Treasury stock, at cost: 686,506 shares at March 31, 2020 and December 31, 2019
 
(10,000
)
 
(10,000
)
Accumulated deficit
 
(158,710
)
 
(141,970
)
Accumulated other comprehensive loss
 
(14,130
)
 
(9,790
)
Total Horizon Global shareholders' (deficit) equity
 
(8,380
)
 
12,340

Noncontrolling interest
 
(4,030
)
 
(3,740
)
Total shareholders' (deficit) equity
 
(12,410
)
 
8,600

Total liabilities and shareholders' equity
 
$
445,760

 
$
421,040

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited—dollars in thousands, except share and per share data)

 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Net sales
 
$
163,250

 
$
177,670

Cost of sales
 
(137,000
)
 
(154,110
)
Gross profit
 
26,250

 
23,560

Selling, general and administrative expenses
 
(32,860
)
 
(38,370
)
Net (loss) gain on dispositions of property and equipment
 
(70
)
 
1,440

Operating loss
 
(6,680
)
 
(13,370
)
Other expense, net
 
(1,670
)
 
(5,470
)
Interest expense
 
(8,190
)
 
(10,830
)
Loss from continuing operations before income tax
 
(16,540
)
 
(29,670
)
Income tax benefit
 
10

 
270

Net loss from continuing operations
 
(16,530
)
 
(29,400
)
(Loss) income from discontinued operations, net of tax
 
(500
)
 
3,780

Net loss
 
(17,030
)
 
(25,620
)
Less: Net loss attributable to noncontrolling interest
 
(290
)
 
(520
)
Net loss attributable to Horizon Global
 
$
(16,740
)
 
$
(25,100
)
Net (loss) income per share attributable to Horizon Global:
 
 
 
 
Basic:
 
 
 
 
Continuing operations
 
$
(0.64
)
 
$
(1.15
)
Discontinued operations
 
(0.02
)
 
0.15

Total
 
$
(0.66
)
 
$
(1.00
)
Diluted:
 
 
 
 
Continuing operations
 
$
(0.64
)
 
$
(1.15
)
Discontinued operations
 
(0.02
)
 
0.15

Total
 
$
(0.66
)
 
$
(1.00
)
Weighted average common shares outstanding:
 
 
 
 
Basic
 
25,393,668

 
25,188,094

Diluted
 
25,393,668

 
25,188,094



The accompanying notes are an integral part of these condensed consolidated financial statements.

4


HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited—dollars in thousands)

 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Net loss
 
$
(17,030
)
 
$
(25,620
)
Other comprehensive (loss) income, net of tax:
 
 
 
 
Foreign currency translation and other
 
(4,340
)
 
1,210

Derivative instruments
 

 
(1,070
)
Total other comprehensive (loss) income, net of tax
 
(4,340
)
 
140

Total comprehensive loss
 
(21,370
)
 
(25,480
)
Less: Comprehensive loss attributable to noncontrolling interest
 
(290
)
 
(520
)
Comprehensive loss attributable to Horizon Global
 
$
(21,080
)
 
$
(24,960
)


The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited—dollars in thousands)


Three Months Ended March 31,


2020

2019
Cash Flows from Operating Activities:




Net loss
 
$
(17,030
)
 
$
(25,620
)
Less: (Loss) income from discontinued operations
 
(500
)
 
3,780

Net loss from continuing operations
 
(16,530
)
 
(29,400
)
 
 

 

Adjustments to reconcile net loss from continuing operations to net cash provided by (used for) operating activities:




Net loss (gain) on dispositions of property and equipment

70

 
(1,440
)
Depreciation

3,490

 
3,310

Amortization of intangible assets

1,570

 
1,900

Amortization of original issuance discount and debt issuance costs

4,400

 
5,470

Deferred income taxes

(40
)
 
1,710

Non-cash compensation expense

420

 
350

Paid-in-kind interest

1,570

 

Increase in receivables

(15,610
)
 
(19,200
)
Decrease (increase) in inventories

15,350

 
(6,970
)
Increase in prepaid expenses and other assets

(2,060
)
 
(2,700
)
Increase in accounts payable and accrued liabilities

11,550

 
10,180

Other, net

1,530

 
(12,770
)
Net cash provided by (used for) operating activities for continuing operations
 
5,710

 
(49,560
)
Cash Flows from Investing Activities:
 
 
 
 
Capital expenditures
 
(4,060
)
 
(1,550
)
Net proceeds from sale of business
 

 
4,970

Net proceeds from disposition of property and equipment
 
70

 
1,390

Net cash (used for) provided by investing activities for continuing operations
 
(3,990
)
 
4,810

Cash Flows from Financing Activities:
 
 
 
 
Proceeds from borrowings on credit facilities
 
580

 
13,230

Repayments of borrowings on credit facilities
 
(630
)
 
(830
)
Proceeds from Second Lien Term Loan, net of issuance costs
 

 
35,520

Repayments of borrowings on First Lien Term Loan, inclusive of transaction costs
 

 
(7,480
)
Proceeds from Revolving Credit Facility, net of issuance costs
 
54,680

 

Proceeds from ABL revolving debt, net of issuance costs
 
8,000

 
27,340

Repayments of borrowings on ABL revolving debt
 
(27,920
)
 
(45,260
)
Proceeds from issuance of Series A Preferred Stock
 

 
5,340

Proceeds from issuance of Warrants
 

 
5,380

Other, net
 
(60
)
 
(10
)
Net cash provided by financing activities for continuing operations
 
34,650

 
33,230

Discontinued Operations:
 
 
 
 
Net cash (used for) provided by discontinued operating activities
 
(500
)
 
9,120

Net cash used for discontinued investing activities
 

 
(440
)
Net cash provided by discontinued financing activities
 

 

Net cash (used for) provided by discontinued operations
 
(500
)
 
8,680

Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
(230
)
 
150

Cash, Cash Equivalents and Restricted Cash:
 
 
 
 
Increase (decrease) for the period
 
35,640

 
(2,690
)
At beginning of period
 
11,770

 
27,650

At end of period
 
$
47,410


$
24,960

Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid for interest
 
$
3,150

 
$
6,620

Cash paid for taxes, net of refunds
 
$
200

 
$
30


The accompanying notes are an integral part of these condensed consolidated financial statements.

6


HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited—dollars in thousands)

 
 
Common Stock
 
Common Stock Warrants
 
Paid-in Capital
 
Treasury Stock
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total Horizon Global Shareholders' Equity (Deficit)
 
Noncontrolling Interest
 
Total Shareholders' Equity (Deficit)
Balance at January 1, 2020
 
$
250

 
$
10,610

 
$
163,240

 
$
(10,000
)
 
$
(141,970
)
 
$
(9,790
)
 
$
12,340

 
$
(3,740
)
 
$
8,600

Net loss
 

 

 

 

 
(16,740
)
 

 
(16,740
)
 
(290
)
 
(17,030
)
Other comprehensive loss, net of tax
 

 

 

 

 

 
(4,340
)
 
(4,340
)
 

 
(4,340
)
Shares surrendered upon vesting of employees share based payment awards to cover tax obligations
 

 

 
(60
)
 

 

 

 
(60
)
 

 
(60
)
Non-cash compensation expense
 

 

 
420

 

 

 

 
420

 

 
420

Balances at March 31, 2020
 
$
250


$
10,610


$
163,600


$
(10,000
)

$
(158,710
)

$
(14,130
)

$
(8,380
)

$
(4,030
)

$
(12,410
)
 
 
Common Stock
 
Common Stock Warrants
 
Paid-in Capital
 
Treasury Stock
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total Horizon Global Shareholders' Equity (Deficit)
 
Noncontrolling Interest
 
Total Shareholders' Equity (Deficit)
Balances at January 1, 2019
 
$
250

 
$

 
$
160,990

 
$
(10,000
)
 
$
(222,720
)
 
$
7,760


$
(63,720
)

$
(2,500
)

$
(66,220
)
Net loss
 

 

 

 

 
(25,100
)
 

 
(25,100
)
 
(520
)
 
(25,620
)
Other comprehensive income, net of tax
 

 

 

 

 

 
140

 
140

 

 
140

Shares surrendered upon vesting of employees share based payment awards to cover tax obligations
 

 

 
(10
)
 

 

 

 
(10
)
 

 
(10
)
Non-cash compensation expense
 

 

 
350

 

 

 

 
350

 

 
350

Issuance of Warrants
 

 
5,380

 

 

 

 

 
5,380

 

 
5,380

Balances at March 31, 2019
 
$
250


$
5,380


$
161,330


$
(10,000
)

$
(247,820
)

$
7,900


$
(82,960
)

$
(3,020
)

$
(85,980
)

The accompanying notes are an integral part of these condensed consolidated financial statements.

7




1. Nature of Operations and Basis of Presentation
Horizon Global Corporation and its consolidated subsidiaries (“Horizon,” “Horizon Global,” “we,” or the “Company”) are a global designer, manufacturer and distributor of a wide variety of high quality, custom-engineered towing, trailering, cargo management and other related accessories. These products are designed to support original equipment manufacturers (“OEMs”) and original equipment servicers (“OESs”) (collectively, “OEs”), aftermarket and retail customers within the agricultural, automotive, construction, horse/livestock, industrial, marine, military, recreational, trailer and utility markets. The Company groups its business into operating segments by the region in which sales and manufacturing efforts are focused. As a result of the Company’s sale of its Horizon Asia-Pacific operating segment (“APAC”) in 2019, the Company’s operating segments are Horizon Americas and Horizon Europe-Africa. See Note 17, Segment Information, for further information on each of the Company’s operating segments. Historical information has been retrospectively adjusted to reflect the classification of APAC as discontinued operations. Discontinued operations are further discussed in Note 3, Discontinued Operations.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the US Securities and Exchange Commission (the “SEC”) for interim financial information and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“US GAAP”) for complete financial statements. It is management’s opinion that these financial statements contain all adjustments, including adjustments of a normal and recurring nature, necessary for a fair presentation of financial position and results of operations. Results of operations for interim periods are not necessarily indicative of results for the full year.
US GAAP requires us to make certain estimates, judgments, and assumptions. Management believes that the estimates, judgments, and assumptions made when accounting for items and matters such as, but not limited to, the allowance for doubtful accounts, sales incentives, sales returns, impairment assessments, recoverability of long-lived assets, income taxes (including deferred taxes and uncertain tax positions), share-based compensation, the assessment of lower of cost or net realizable value on inventory, useful lives assigned to long-lived assets, and depreciation and amortization, are reasonable based on information available at the time they are made.

The full impact of the coronavirus (“COVID-19”) pandemic is unknown and cannot be reasonably estimated. However, we have made appropriate accounting estimates based on the facts and circumstances available as of the reporting date. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.

Liquidity Matters

The Revolving Credit Facility, as defined below, matures on March 31, 2021, and as of March 31, 2020, had an outstanding balance of $57.0 million. The Company does not currently have sufficient cash, liquidity or projected future cash flows to repay the Revolving Credit Facility at maturity. The Company’s inability to repay its debt obligations as they become due, would result in an event of default. Such default, if not cured, would allow the lenders to accelerate the maturity of the debt, making it due and payable at that time, which would result in a cross default of our other debt obligations.

The Company has undertaken discussions with its lenders about amending, extending or refinancing its credit agreements, including the Revolving Credit Facility, or accessing additional liquidity, prior to the first quarter of 2021 when the Revolving Credit Facility becomes due. The Company has a history of successfully amending and extending credit agreements with its current lenders and believes it is probable such amendments, extensions or refinancing will be completed.
2. New Accounting Pronouncements
New accounting pronouncements not yet adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides temporary optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The relief provided by this guidance is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform initiatives

8



being undertaken in an effort to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The optional amendments of this guidance are effective for all entities upon adoption. We are currently assessing the impact of this update on the Company’s condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 replaces the current incurred loss model guidance with a new method that reflects expected credit losses. Under this guidance, an entity would recognize an impairment allowance equal to its estimate of expected credit losses on financial assets measured at amortized cost. In November 2019, the FASB extended the effective date of ASU 2016-13 for smaller reporting companies. As a result, ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2022, with early adoption permitted. The standard is not expected to have a significant impact on the Company's condensed consolidated financial statements.
3. Discontinued Operations
On September 19, 2019, the Company completed the sale of its subsidiaries that comprised APAC to Hayman Pacific BidCo Pty Ltd., an affiliate of Pacific Equity Partners, for $209.6 million in net cash proceeds after payment of transaction costs, in a net debt free sale. The sale resulted in the recognition of a gain of $180.5 million, of which $17.3 million was related to the cumulative translation adjustment that was reclassified to earnings, which is reflected within the income from discontinued operations, net of income taxes line of the consolidated statement of operations for the year ended December 31, 2019, refer to Note 4, Discontinued Operations, in our Annual Report on Form 10-K for the year ended December 31, 2019.

In the first quarter of 2020, the remaining post-closing conditions of the sale were completed, including a true up to net cash proceeds, for which we recognized a loss on sale of discontinued operations of $0.5 million for the three months ended March 31, 2020.
The following table presents the Company’s results from discontinued operations for the three months ended March 31, 2019:
 
 
Three Months Ended March 31, 2019
 
 
(dollars in thousands)
Net sales
 
$
32,010

Cost of sales
 
(23,490
)
Selling, general and administrative expenses
 
(3,160
)
Net gain on dispositions of property and equipment
 
10

Other expense, net
 
(140
)
Interest expense
 
(100
)
Income before income tax expense
 
5,130

Income tax expense
 
(1,350
)
Income from discontinued operations, net of tax
 
$
3,780


9



4. Revenues
Revenue Recognition
The Company disaggregates revenue from contracts with customers by major sales channel. The Company determined that disaggregating revenue into these categories best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The automotive OEM channel represents sales to automotive vehicle manufacturers. The automotive OES channel primarily represents sales to automotive vehicle dealerships. The aftermarket channel represents sales to automotive installers and warehouse distributors. The retail channel represents sales to direct-to-consumer retailers. The industrial channel represents sales to non-automotive manufacturers and dealers of agricultural equipment, trailers, and other custom assemblies. The e-commerce channel represents sales to direct-to-consumer retailers who utilize the Internet to purchase the Company’s products. The other channel represents sales that do not fit into a category described above and these sales are considered ancillary to the Company’s core operating activities.
The following tables present the Company’s net sales by segments and disaggregated by major sales channel for the three months ended March 31, 2020 and 2019:
 
 
Three Months Ended March 31, 2020
 
 
Horizon Americas
 
Horizon Europe-Africa
 
Total
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
Automotive OEM
 
$
20,360

 
$
41,400

 
$
61,760

Automotive OES
 
1,270

 
12,460

 
13,730

Aftermarket
 
26,770

 
15,710

 
42,480

Retail
 
23,570

 

 
23,570

Industrial
 
7,850

 
320

 
8,170

E-commerce
 
12,510

 
430

 
12,940

Other
 
40

 
560

 
600

Total
 
$
92,370

 
$
70,880

 
$
163,250

 
 
Three Months Ended March 31, 2019
 
 
Horizon Americas
 
Horizon Europe-Africa
 
Total
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
Automotive OEM
 
$
20,240

 
$
48,920

 
$
69,160

Automotive OES
 
1,610

 
13,290

 
14,900

Aftermarket
 
24,150

 
16,290

 
40,440

Retail
 
28,430

 

 
28,430

Industrial
 
9,280

 
700

 
9,980

E-commerce
 
11,790

 
530

 
12,320

Other
 

 
2,440

 
2,440

Total
 
$
95,500

 
$
82,170

 
$
177,670

During the three months ended March 31, 2020 and 2019, adjustments to estimates of variable consideration for previously recognized revenue were insignificant. As of March 31, 2020 and 2019, total opening and closing balances of contract assets and deferred revenue were not material.

10



5. Goodwill and Other Intangible Assets
During the three months ended March 31, 2020, the Company experienced a decline in its current and projected future operating and financial performance as a result of the coronavirus COVID-19 pandemic and the related wide-ranging actions taken by international, federal, state, and local public health and governmental authorities to combat the pandemic and spread of COVID-19 in regions across the United States and the world. These actions include quarantines, social distancing and “stay-at-home” orders, travel restrictions, mandatory business closures, and other mandates that have substantially restricted individuals’ daily activities and curtailed or ceased many businesses’ normal operations. In response to the pandemic and these actions, we have adhered to geographical government shutdowns and operating restrictions for our facilities, which resulted in an adverse impact to our business and financial performance for the three months ended March 31, 2020, as well as on our near-term projected financial performance. Due to the impact of COVID-19, the Company identified an indicator of impairment on its goodwill and indefinite-lived intangible assets in its Horizon Americas reporting unit and on its indefinite-lived intangible assets in its Horizon Europe-Africa reporting unit in the first quarter of 2020.
As a result of the indicator, the Company performed an interim quantitative impairment assessment of the goodwill recorded for the Horizon Americas reporting unit as of March 31, 2020, by considering the market and income approaches. The results of the quantitative analysis performed indicated the fair value of the reporting unit exceeded the carrying value. Key assumptions used in the analysis were a discount rate of 14.0%, Adjusted EBITDA (as defined below) margin and a terminal growth rate of 3.0%. The primary driver in the reduction of the fair value of the reporting unit was a reduction of expected future cash flows during the remainder of 2020 as the full impact of COVID-19 remains uncertain. Future events and changing market conditions, including the length of time our facilities are impacted by geographical government shutdowns and operating restrictions may, however, lead the Company to re-evaluate the assumptions that have been used to test for goodwill impairment, including key assumptions used in the expected Adjusted EBITDA margins, cash flows and discount rate, as well as other assumptions with respect to matters outside of the Company’s control, such as currency rates and the aforementioned geographical government shutdowns and operating restrictions.
Adjusted EBITDA is defined as net income attributable to Horizon Global before interest expense, income taxes, depreciation and amortization, and before certain items, as applicable, such as severance, restructuring, relocation and related business disruption costs, impairment of goodwill and other intangibles, non-cash stock compensation, certain product liability recall and litigation claims, acquisition and integration costs, gains (losses) on business divestitures and other assets, board transition support and non-cash unrealized foreign currency remeasurement costs.
In addition, as a result of the indicator of impairment identified, the Company performed an interim impairment assessment of its indefinite-lived intangible assets as of March 31, 2020 in the Horizon Americas and Horizon Europe-Africa operating segments. Based on the results of our analyses, the estimated fair values of the trade names exceeded the carrying values. Key assumptions used in the analyses were a discount rate of 14.5% and royalty rates ranging from 0.5% to 1.9%.
The Company will continue to assess the impact of COVID-19 on its business and financial performance and any other indicators of potential impairment. It is possible that if the Company’s decline in results is more than temporary, or if other indicators of impairment are identified, an interim impairment analysis may be necessary, which could result in a future impairment of goodwill, indefinite-lived intangible assets or other long-lived assets.
Changes in the carrying amount of goodwill for the three months ended March 31, 2020 are summarized as follows:
 
 
Horizon Americas
 
Horizon Europe-Africa
 
Total
 
 
(dollars in thousands)
Balance at December 31, 2019
 
$
4,350

 
$

 
$
4,350

Foreign currency translation
 
(990
)
 

 
(990
)
Balance at March 31, 2020
 
$
3,360

 
$

 
$
3,360


11



The gross carrying amounts and accumulated amortization of the Company’s other intangible assets are summarized as follows.
 
 
As of
March 31, 2020
Intangible Category by Useful Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
 
(dollars in thousands)
Finite-lived intangible assets:
 
 
 
 
 
 
Customer relationships (2 – 20 years)
 
$
162,720

 
$
(130,010
)
 
$
32,710

Technology and other (3 – 15 years)
 
21,360

 
(17,610
)
 
3,750

Trademark/Trade names (1 – 8 years)
 
150

 
(150
)
 

Total finite-lived intangible assets
 
184,230

 
(147,770
)
 
36,460

Trademark/Trade names, indefinite-lived
 
20,960

 

 
20,960

Total other intangible assets
 
$
205,190

 
$
(147,770
)
 
$
57,420

 
 
As of
December 31, 2019
Intangible Category by Useful Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
 
(dollars in thousands)
Finite-lived intangible assets:
 
 
 
 
 
 
Customer relationships (2 – 20 years)
 
$
164,150

 
$
(129,310
)
 
$
34,840

Technology and other (3 – 15 years)
 
21,420

 
(17,260
)
 
4,160

Trademark/Trade names (1 – 8 years)
 
150

 
(150
)
 

Total finite-lived intangible assets
 
185,720

 
(146,720
)
 
39,000

Trademark/Trade names, indefinite-lived
 
21,120

 

 
21,120

Total other intangible assets
 
$
206,840

 
$
(146,720
)
 
$
60,120

On March 1, 2019, the Company entered into an agreement of sale of certain business assets in its Europe-Africa operating segment, via a share and asset sale (the “Sale”). Under the terms of the Sale, effective March 1, 2019, the Company disposed of certain non-automotive business assets that operated using the Terwa brand for $5.5 million, which included a $0.5 million note receivable. The Sale resulted in a $3.6 million loss recorded in other expense, net in the condensed consolidated statements of operations, including a $3.0 million reduction of net intangibles related to customer relationships.
Amortization expense related to intangible assets as included in the accompanying condensed consolidated statements of operations is summarized as follows:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
(dollars in thousands)
Technology and other, included in cost of sales
 
$
120

 
$
440

Customer relationships and Trademark/Trade names, included in selling, general and administrative expenses
 
1,450

 
1,460

Total amortization expense
 
$
1,570

 
$
1,900


12



6. Inventories
Inventories consist of the following components:
 
 
March 31,
2020

December 31,
2019
 
 
(dollars in thousands)
Finished goods
 
$
66,980

 
$
82,080

Work in process
 
11,150

 
12,820

Raw materials
 
41,240

 
41,750

Total inventories
 
$
119,370

 
$
136,650



13



7. Property and Equipment, Net
Property and equipment, net consists of the following components:
 
 
March 31,
2020
 
December 31,
2019
 
 
(dollars in thousands)
Land and land improvements
 
$
470

 
$
470

Buildings
 
20,650

 
21,290

Machinery and equipment
 
122,300

 
121,740

 
 
143,420

 
143,500

Accumulated depreciation
 
(69,320
)
 
(67,670
)
Property and equipment, net
 
$
74,100

 
$
75,830

Depreciation expense included in the accompanying condensed consolidated statements of operations is as follows:
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
 
 
(dollars in thousands)
Depreciation expense, included in cost of sales
 
$
3,150

 
$
3,030

Depreciation expense, included in selling, general and administrative expense
 
340

 
280

Total depreciation expense
 
$
3,490

 
$
3,310


8. Accrued and Other Long-term Liabilities
Accrued liabilities consist of the following components:
 
 
March 31,
2020

December 31,
2019
 
 
(dollars in thousands)
Customer incentives
 
$
16,900

 
$
14,270

Accrued compensation
 
9,630

 
6,760

Accrued professional services
 
4,950

 
4,790

Customer claims
 
3,010

 
7,540

Restructuring
 
1,720

 
2,340

Deferred purchase price
 
610

 
790

Short-term tax liabilities
 
530

 
90

Other
 
12,730

 
12,270

Total accrued liabilities
 
$
50,080

 
$
48,850



14



Other long-term liabilities consist of the following components:
 
 
March 31,
2020

December 31,
2019
 
 
(dollars in thousands)
Deferred purchase price
 
$
1,710

 
$
2,370

Restructuring
 
1,470

 
1,600

Long-term tax liabilities
 
340

 
340

Other
 
12,050

 
9,480

Total other long-term liabilities
 
$
15,570

 
$
13,790

9. Long-term Debt
The Company’s long-term debt consists of the following:
 
 
March 31,
2020
 
December 31,
2019
 
 
(dollars in thousands)
Revolving Credit Facility
 
$
56,990

 
$

ABL Facility
 

 
20,020

First Lien Term Loan
 
25,330

 
25,210

Second Lien Term Loan
 
57,400

 
56,960

Convertible Notes
 
125,000

 
125,000

Bank facilities, capital leases and other long-term debt
 
13,380

 
13,670

Gross debt
 
278,100

 
240,860

Less:
 
 
 
 
Current maturities, long-term debt
 
61,220

 
4,310

Gross long-term debt
 
216,880

 
236,550

Less:
 
 
 
 
Unamortized debt issuance costs and original issuance discount on First Lien Term Loan
 
590

 
700

Unamortized debt issuance costs and discount on Second Lien Term Loan
 
11,490

 
12,730

Unamortized debt issuance costs and discount on Convertible Notes
 
16,420

 
18,070

Unamortized debt issuance costs and discount
 
28,500

 
31,500

Long-term debt
 
$
188,380

 
$
205,050

ABL Facility
On December 22, 2015, the Company entered into an Amended and Restated Loan Agreement among the Company, Horizon Global Americas Inc. (“HGA”), Cequent UK Limited, Cequent Towing Products of Canada Ltd., certain other subsidiaries of the Company party thereto as guarantors, the lenders party thereto and Bank of America, N.A., as agent for the lenders (the “ABL Loan Agreement”), under which the lenders party thereto agreed to provide the Company and certain of its subsidiaries with a committed asset-based revolving credit facility (the “ABL Facility”) providing for revolving loans up to an aggregate principal amount of $99.0 million.
The ABL Facility consisted of (i) a US sub-facility, in an aggregate principal amount of up to $85.0 million (subject to availability under a US-specific borrowing base), (ii) a Canadian sub-facility, in an aggregate principal amount of up to $2.0 million (subject to availability under a Canadian-specific borrowing base), and (iii) a UK sub-facility in an aggregate principal amount of up to $3.0 million (subject to availability under a UK-specific borrowing base).

15



In March 2020, the Company paid in full all outstanding debt incurred under the ABL Facility, which the Company accounted for as a debt extinguishment in accordance with guidance in Accounting Standards Codification (“ASC”) 405-20, “Extinguishment of Liabilities”. As a result of the debt extinguishment, the Company recorded $0.8 million of unamortized debt issuance costs in interest expense included in the accompanying condensed consolidated statement of operations during the three months ended March 31, 2020 in accordance with ASC 470-50, “Modifications and Extinguishments” (“ASC 470-50”). In addition, the Company recorded $0.6 million of additional costs in selling, general and administrative expenses included in the accompanying condensed consolidated statement of operations during the three months ended March 31, 2020.
The Company recognized $0.4 million and $0.1 million of amortization of debt issuance costs during the three months ended March 31, 2020, and March 31, 2019, respectively, which are included in the accompanying condensed consolidated statements of operations.
Total letters of credit issued under the ABL Facility were $7.7 million at March 31, 2020 and December 31, 2019. The letters of credit were collateralized with a line block on the ABL Facility. As described below, as the ABL facility was extinguished, the agreement governing the ABL Facility required cash collateral to be held until expiration of outstanding letters of credit arrangement. The cash collateral requirement is 105% of the outstanding letters of credit, for a total amount of $8.1 million, which was deposited in March 2020. The cash collateral will be released either because of expiration or early termination and re-issuance of the letters of credit. The Company presented the cash collateral in restricted cash in the accompanying March 31, 2020 condensed consolidated balance sheet.
Revolving Credit Facility
In March 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina Business Credit, LLC (“Encina”), as agent for the lenders party thereto. The Loan Agreement provides for an asset-based revolving credit facility (the “Revolving Credit Facility”) in the maximum aggregate principal amount of $75.0 million subject to customary borrowing base limitations contained therein, and may be increased at the Company’s request in increments of $5.0 million, up to a maximum of five times over the life of the Revolving Credit Facility, for a total increase of up to $25.0 million.
The interest on the loans under the Loan Agreement will be payable in cash at the interest rate of LIBOR plus 4.00% per annum, subject to a 1.00% LIBOR floor, provided that if for any reason the loans are converted to base rate loans, interest will be paid in cash at the customary base rate plus a margin of 3.00% per annum. All interest, fees, and other monetary obligations due may, in Encina’s discretion but upon prior notice to the Company, be charged to the loan account and thereafter be deemed to be part of the Revolving Credit Facility subject to the same interest rate. There are no amortization payments required under the Loan Agreement. Borrowings under the Loan Agreement mature on the earlier of: (i) March 13, 2023 and (ii) 90 days prior to the maturity of any portion of the debt under the Company’s First Lien Term Loan or Second Lien Term Loan, as may be in effect from time to time, unless earlier terminated. Based on the maturity dates of the Company’s First Lien Term Loan and Second Lien Term Loan, the loans under the Loan Agreement would be due on March 31, 2021; therefore, all borrowings under the Revolving Credit Facility are presented in short-term borrowings and current maturities, long-term debt in the accompanying March 31, 2020 condensed consolidated balance sheet. All of the indebtedness under the Loan Agreement is and will be guaranteed by the Company and certain of the Company’s existing and future North American subsidiaries and is and will be secured by substantially all of the assets of the Company, such other guarantors, and the borrowers under the Loan Agreement.
The Loan Agreement also contains a financial covenant that stipulates the Company will not make Capital Expenditures (as defined in the Loan Agreement) exceeding $30.0 million during any fiscal year.
Debt issuance costs of $2.3 million were incurred in connection with the entry into the Loan Agreement. The $2.3 million of debt issuance costs are capitalized and presented in prepaid expenses and other current assets in the accompanying March 31, 2020 condensed consolidated balance sheet and will be amortized into interest expense over the contractual term of the Loan Agreement. The Company recognized $0.2 million of amortization of debt issuance costs during the three months ended March 31, 2020, which are included in the accompanying condensed consolidated statement of operations.
There was $57.0 million outstanding under the Revolving Credit Facility as of March 31, 2020 and $20.0 million outstanding under the ABL Facility as of December 31, 2019, with a weighted average interest rate of 5.6% and 5.5%, respectively. The Company had $12.1 million of availability under the Revolving Credit Facility as of March 31, 2020 and $33.1 million of availability under the ABL Facility as of December 31, 2019.


16



First Lien Term Loan Agreement
On June 30, 2015, the Company entered into a credit agreement among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A. (the “Term Loan Agreement”) under which the Company borrowed an aggregate of $200.0 million (the “Original Term B Loan”), which matures on June 30, 2021. The Term Loan Agreement has been subsequently amended and restated on several occasions and is collectively referred to as the “First Lien Term Loan Agreement”. The Original Term B Loan has also been subsequently amended on several occasions and is collectively referred to as the “First Lien Term Loan”. In conjunction with the entry into the Revolving Credit Facility referenced above, Cortland Capital Markets Services LLC is now serving as administrative agent and collateral agent for the First Lien Term Loan.
In March 2020, the Company entered into the ninth amendment to credit agreement (the “Ninth Term Amendment”) to amend the First Lien Term Loan Agreement. The Ninth Term Amendment removed the minimum liquidity covenant of $15.0 million, amended the net leverage ratio requirements to remove the December 31, 2020 leverage ratio test and amended the fixed charge coverage ratio covenant to not be below 1.0 to 1.0 beginning with the fiscal quarter ending March 31, 2021.
Pursuant to the Ninth Term Amendment, the prior first lien leverage covenant was eliminated and replaced with the secured net leverage ratio starting with the fiscal quarter ending March 31, 2021 as follows:
March 31, 2021: 6.00 to 1.00
June 30, 2021 and each fiscal quarter ending thereafter: 5.00 to 1.00
The Company recognized $3.0 million of unamortized debt issuance costs in interest expense included in the accompanying condensed consolidated statement of operations during the three months ended March 31, 2019 due to the extinguishment of debt for certain lenders in the loan syndicate in connection with the Sixth, Seventh and Eighth Term Amendments to the First Lien Term Loan Agreement.
The Company recognized $0.1 million and $0.8 million of amortization of debt issuance and discount cost for the three months ended March 31, 2020 and March 31, 2019, respectively, which is included in the accompanying condensed consolidated statements of operations.
The Company recognized $0.2 million of paid-in-kind interest on the First Lien Term Loan for the three months ended March 31, 2020. The Company had an aggregate principal amount outstanding of $25.3 million and $25.2 million as of March 31, 2020 and December 31, 2019, respectively, under the First Lien Term Loan bearing cash interest at 7.6% and 8.1%, respectively. In addition to the cash bearing interest, the First Lien Term loan has 3.0% paid in kind interest.
All of the indebtedness under the First Lien Term Loan is and will be guaranteed by the Company’s existing and future material domestic subsidiaries and is and will be secured by substantially all of the assets of the Company and such guarantors.
Second Lien Term Loan Agreement
In March 2019, the Company entered into a credit agreement (the “Second Lien Term Loan Agreement”) with Cortland Capital Markets Services LLC, as administrative agent and collateral agent, and Corre Partners Management L.L.C., as representative of the lenders, and the lenders party thereto. The Second Lien Term Loan Agreement provides for a term loan facility in the aggregate principal amount of $51.0 million and matures on September 30, 2021. The interest on the Second Lien Term Loan may be paid, at the Company’s election, in cash, at the customary eurocurrency rate plus a margin of 10.50% per annum, or in-kind, at the customary eurocurrency rate plus a margin of 11.50%. The Second Lien Term Loan Agreement is secured by a second lien on substantially the same collateral as the First Lien Term Loan and is subject to various affirmative and negative covenants including a secured net leverage ratio tested quarterly further detailed below.
In March 2020, the Company entered into the second amendment to credit agreement (the “Second Lien Second Amendment”) to amend the Second Lien Term Loan Agreement. The Second Lien Second Amendment amended certain financial covenants as outlined in the above section, First Lien Term Loan.
Debt issuance costs of $3.8 million and original issuance discount of $1.0 million were incurred in connection with entry into the Second Lien Term Loan Agreement for the three months ended March 31, 2019. The debt issuance and original issuance discount costs will be amortized into interest expense over the contractual term of the loan using the effective interest method.

17



The Company recognized $1.2 million of amortization of debt issuance and discount cost for the three months ended March 31, 2020, which is included in the accompanying condensed consolidated statements of operations.
The Company had total unamortized debt issuance and discount costs of $11.5 million all of which are recorded as a reduction of the debt balance on the Company’s accompanying condensed consolidated balance sheet as of March 31, 2020. The Company recognized $1.4 million of paid-in-kind interest on its Second Lien Term Loan for the three months ended March 31, 2020.
Convertible Notes
In February 2017, the Company completed a public offering of 2.75% Convertible Senior Notes (the “Convertible Notes”) in an aggregate principal amount of $125.0 million. Interest is payable on January 1 and July 1 of each year, beginning on July 1, 2017. The Convertible Notes are convertible into 5,005,000 shares of the Company’s common stock, based on an initial conversion price of $24.98 per share. The Convertible Notes will mature on July 1, 2022 unless earlier converted.
During the first quarter of 2020, no conditions allowing holders of the Convertible Notes to convert have been met. Therefore, the Convertible Notes were not convertible during the first quarter of 2020 and are classified as long-term debt. Should conditions allowing holders of the Convertible Notes to convert be met in a future quarter, the Convertible Notes will be convertible at their holders’ option during the immediately following quarter. As of March 31, 2020, the if-converted value of the Convertible Notes did not exceed the principal value of those Convertible Notes.
Upon conversion by the holders, the Company may elect to settle such conversion in shares of its common stock, cash, or a combination thereof. Because the Company may elect to settle conversion in cash, the Company separated the Convertible Notes into their liability and equity components by allocating the issuance proceeds to each of those components in accordance with ASC 470-20, “Debt-Debt with Conversion and Other Options.” The Company first determined the fair value of the liability component by estimating the value of a similar liability that does not have an associated equity component. The Company then deducted that amount from the issuance proceeds to arrive at a residual amount, which represents the equity component. The Company accounted for the equity component as a debt discount (with an offset to paid-in capital in excess of par value). The debt discount created by the equity component is being amortized as additional non-cash interest expense using the effective interest method over the contractual term of the Convertible Notes ending on July 1, 2022.
The Company is in compliance with all of its financial covenants in its debt agreements as of March 31, 2020.
10. Derivative Instruments
Foreign Currency Exchange Rate Risk
The Company uses foreign currency forward contracts to mitigate the risk associated with fluctuations in currency rates impacting cash flows related to certain payments for contract manufacturing in its lower-cost manufacturing facilities. The foreign currency forward contracts hedged currency exposure between the Mexican peso and the US dollar and matured at specified monthly settlement dates through December 2019. At inception, the Company designated the foreign currency forward contracts as cash flow hedges. Upon the performance of contract manufacturing or purchase of certain inventories the Company de-designated the foreign currency forward contracts.
On October 4, 2016, the Company entered into a cross currency swap arrangement to hedge changes in foreign currency exchange rates. The Company used the cross currency swap to mitigate the risk associated with fluctuations in currency rates impacting cash flows related to a non-functional currency intercompany loan of €110.0 million. The cross currency swap hedged currency exposure between the euro and the US dollar and matured on January 3, 2019 with a liability of $2.5 million. The Company entered into forward contracts to settle the cross currency swap, which resulted in a $0.9 million offset to the liability. These settlements resulted in a net realized gain reclassified from accumulated other comprehensive loss (“AOCI”) of $0.6 million. The Company made quarterly principal payments of €1.4 million, plus interest at a fixed rate of 5.4% per annum, in exchange for $1.5 million, plus interest at a fixed rate of 7.2% per annum during the term of the cross currency swap arrangement. At inception, the Company designated the cross currency swap as a cash flow hedge. Changes in the currency rate resulted in reclassification of amounts from AOCI to earnings to offset the re-measurement gain or loss on the non-US denominated intercompany loan.
There were no outstanding derivatives contracts at March 31, 2020 and December 31, 2019.
Financial Statement Presentation

18



The following table summarizes the amounts reclassified from AOCI into earnings:
 
 
Three Months Ended March 31,
 
 
2019
 
 
Cost of sales
 
Interest expense
 
 
(dollars in thousands)
Total Amounts of Expense Line Items Presented in the Statement of Operations in Which the Effects of Cash Flow Hedges are Recorded
 
$
(154,110
)
 
$
(10,830
)
Amount of Gain Reclassified from AOCI into Earnings
 
 
Derivatives classified as cash flow hedges:
 
 
Foreign currency forward contracts
 
$
630

 
$

Cross currency swap
 
$

 
$
900



19



11. Restructuring
The Company’s restructuring activities are undertaken as necessary to execute management’s strategy and streamline operations, consolidate and take advantage of available capacity and resources, and ultimately achieve productivity improvements and net cost reductions. The Company's restructuring charges consist primarily of employee costs (principally severance and/or termination benefits) and facility closure and other costs.
To the extent these programs involve voluntary separations, no liabilities are generally recorded until offers to employees are accepted. If employees are involuntarily terminated, a liability is generally recorded at the communication date. Estimates of restructuring charges are based on information available at the time such charges are recorded. Related charges are recorded in cost of sales and selling, general and administrative expenses.
The following table provides a summary of the Company’s consolidated restructuring liabilities and related activity for each type of exit cost as of and for the three months ended March 31, 2020:
 
 
Employee Costs
 
Facility Closure and Other Costs
 
Total
 
 
(dollars in thousands)
Balance at January 1, 2020
 
$
1,830

 
$
2,110

 
$
3,940

Payments and other(1)
 
(770
)
 
20

 
(750
)
Balance at March 31, 2020
 
$
1,060

 
$
2,130

 
$
3,190

(1)Other consists primarily of changes in the liability balance due to foreign currency translation and finalization of facility closures.

The $3.2 million restructuring liability at March 31, 2020 includes $1.7 million of accrued liabilities and $1.5 million of other long-term liabilities. The $3.9 million restructuring liability at December 31, 2019 includes $2.3 million of accrued liabilities and $1.6 million of other long-term liabilities.

20



12. Leases
On January 1, 2019, the Company adopted the new accounting guidance under ASC 842, “Leases”, as issued by the FASB under ASU 2016-02. Refer to Note 2, New Accounting Pronouncements, in our Annual Report on Form 10-K for the year ended December 31, 2019 for more information.
The Company leases certain facilities, automobiles and equipment under non-cancellable operating leases. Our leases have remaining lease terms of one year to twelve years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheets; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company’s financing leases are immaterial.

Most leases include one or more options to renew. The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in the Company’s right-of-use (“ROU”) assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in the lease term. The Company combines lease and non-lease components which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases.

As most of the Company’s leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The Company has a centrally managed treasury function; therefore, based on the applicable lease terms and the current economic environment, the Company applies a portfolio approach by operating segment for determining the incremental borrowing rate.

The following table provides additional cost and cash flow information for the Company’s leases:

 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
(dollars in thousands)
Operating lease cost
 
$
3,600

 
$
4,550

Operating cash flows from operating leases
 
$
4,010

 
$
4,130

ROU assets obtained in exchange for operating lease obligations
 
$
1,570

 
$
560


The following table provides additional balance sheet information for the Company’s leases:
 
 
As of March 31, 2020
 
As of December 31, 2019
Weighted average remaining lease term (years)
 
6.6

 
6.8

Weighted average discount rate
 
8.7
%
 
8.7
%

13. Contingencies
During the fourth quarter of 2018, the Company was notified by two OEM customers of potential claims related to product sold by Horizon Europe-Africa arising from potentially faulty components provided by a third-party supplier. The claims resulted from the failure of products not functioning to specifications, but the claims did not allege any damage and only sought replacement of the product. The Company performed an assessment of the facts and circumstances for all asserted and unasserted claims and considered all factors including the Company’s recall insurance. Based on this assessment through March 31, 2019, the Company recorded a $4.3 million charge for the three months ended March 31, 2019.
As of December 31, 2019, the Company had $3.9 million recorded in accrued liabilities for the remaining unpaid settlement obligations and an insurance-related asset of $0.4 million recorded in prepaid expenses and other current assets in the accompanying

21



condensed consolidated balance sheets. In the first quarter of 2020, the Company settled its outstanding obligations related to the claim, and no remaining liability or insurance-related asset existed as of March 31, 2020.
On April 29, 2020, the Company agreed to a settlement (the “Settlement”) related to certain intellectual property infringement claims made against one of the Company’s subsidiaries in its Europe-Africa operating segment. The Company settled all historical and future associated claims for $4.4 million to be paid evenly in semi-annual installments on June 30 and December 31 of each year through December 31, 2024. As a result of the Settlement, the Company recorded a $1.5 million charge in cost of sales in the accompanying condensed consolidated statement of operations for the three months ended March 31, 2020. The Company also recorded $2.9 million related to the future royalties to be recognized by the Company over the life of future programs related to the Settlement, of which $0.8 million was recorded in prepaid expenses and other current assets and $2.1 million in other assets in the accompanying condensed consolidated balance sheet. In addition, the Company recorded $0.9 million in accrued liabilities and $3.5 million in other long-term liabilities related to the semi-annual installment payments detailed above, in the accompanying condensed consolidated balance sheet.
14. Earnings (Loss) per Share
Basic earnings (loss) per share is computed using net income (loss) attributable to Horizon Global and the number of weighted average shares outstanding. Diluted earnings (loss) per share is computed using net income (loss) attributable to Horizon Global and the number of weighted average shares outstanding, adjusted to give effect to the assumed exercise of outstanding stock options and warrants, vesting of restricted shares outstanding, and conversion of the Convertible Notes.
The following table sets forth the reconciliation of the numerator and the denominator of basic earnings (loss) per share attributable to Horizon Global and diluted earnings (loss) per share attributable to Horizon Global:
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
 
 
(dollars in thousands, except share and per share data)
Numerator:
 
 
 
 
Net loss from continuing operations
 
$
(16,530
)
 
$
(29,400
)
Add: (Loss) income from discontinued operations, net of tax
 
(500
)
 
3,780

Less: Net loss attributable to noncontrolling interest
 
(290
)
 
(520
)
Net loss attributable to Horizon Global
 
$
(16,740
)
 
$
(25,100
)
Denominator:
 
 
 
 
Weighted average shares outstanding, basic
 
25,393,668

 
25,188,094

Dilutive effect of stock-based awards
 

 

Weighted average shares outstanding, diluted
 
25,393,668

 
25,188,094

 
 
 
 
 
Basic income (loss) per share attributable to Horizon Global
 
 
 
 
Continuing operations
 
$
(0.64
)
 
$
(1.15
)
Discontinued operations
 
(0.02
)
 
0.15

Total
 
$
(0.66
)
 
$
(1.00
)
Diluted income (loss) per share attributable to Horizon Global
 

 

Continuing operations
 
$
(0.64
)
 
$
(1.15
)
Discontinued operations
 
(0.02
)
 
0.15

Total
 
$
(0.66
)
 
$
(1.00
)


22



Due to losses from continuing operations for the three months ended March 31, 2020 and 2019, the effect of certain dilutive securities were excluded from the computation of weighted average diluted shares outstanding as inclusion would have resulted in anti-dilution. A summary of these anti-dilutive common stock equivalents is provided in the table below:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Number of options
 
18,961

 
82,987

Exercise price of options
 
$9.20 - $11.02

 
$9.20 - $11.29

Restricted stock units
 
1,407,984

 
472,627

Convertible Notes
 
5,005,000

 
5,005,000

Convertible Notes warrants
 
5,005,000

 
5,005,000

Second Lien Term Loan warrants
 
6,487,674

 
3,601,902

For purposes of determining diluted earnings (loss) per share, the Company has elected a policy to assume that the principal portion of the Convertible Notes, as described in Note 9, Long-term Debt, is settled in cash and the conversion premium is settled in shares. Therefore, the Company has adopted a policy of calculating the diluted earnings (loss) per share effect of the Convertible Notes using the treasury stock method. As a result, the dilutive effect of the Convertible Notes is limited to the conversion premium, which is reflected in the calculation of diluted loss per share as if it were a freestanding written call option on the Company’s shares. Using the treasury stock method, the Warrants issued in connection with the issuance of the Convertible Notes are considered to be dilutive when they are in the money relative to the Company’s average common stock price during the period. The Convertible Note Hedges purchased in connection with the issuance of the Convertible Notes are always considered to be anti-dilutive and therefore do not impact the Company’s calculation of diluted earnings (loss) per share.
15. Equity Awards
Description of the Plan
Horizon employees and non-employee directors participate in the Horizon Global Corporation 2015 Equity and Incentive Compensation Plan (as amended and restated, the “Horizon 2015 Plan”). The Horizon 2015 Plan authorizes the Compensation Committee of the Horizon Board of Directors to grant stock options (including “incentive stock options” as defined in Section 422 of the US Internal Revenue Code), restricted shares, restricted stock units, performance shares, performance stock units, cash incentive awards, and certain other awards based on or related to our common stock to Horizon employees and non-employee directors. No more than 4.4 million Horizon common shares may be delivered under the Horizon 2015 Plan.
Stock Options
The following table summarizes Horizon stock option activity from December 31, 2019 to March 31, 2020:
 
 
Number of Stock Options
 
Weighted Average Exercise Price
 
Average Remaining Contractual Life (Years)
 
Aggregate Intrinsic Value
Outstanding at December 31, 2019
 
37,737

 
$
10.52

 

 

Granted
 

 

 

 

Exercised
 

 

 

 

Canceled, forfeited
 
(18,776
)
 
10.61

 

 

Expired
 

 

 

 

Outstanding at March 31, 2020
 
18,961

 
$
10.43

 
5.7
 
$



23



As of March 31, 2020, the unrecognized compensation cost related to stock options is immaterial. For the three months ended March 31, 2020 and 2019, the stock-based compensation expense recognized by the Company related to stock options was immaterial. There was no aggregate intrinsic value of the outstanding options at March 31, 2020. Stock-based compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
Restricted Shares
During the three months ended March 31, 2020, the Company granted an aggregate of 1,139,439 restricted stock units and performance stock units to certain key employees. The total grants consisted of: (i) 284,859 time-based restricted stock units vesting on a ratable basis on March 3, 2021, March 3, 2022 and March 3, 2023 and (ii) 854,580 performance stock units that vest on March 3, 2023 (the “2020 PSUs”).
The performance criteria for the 2020 PSUs is based on the Company’s three year cumulative EBITDA. The grant date fair value of the performance stock units were $3.22, which was determined based on the Company’s closing stock price on date of grant.
During 2019, the Company granted an aggregate of 1,950,296 restricted stock units and performance stock units to certain key employees. The total grants consisted of: (i) 353,592 time-based restricted stock units that vest on May 15, 2020; (ii) 27,840 time-based restricted stock units that vest on September 10, 2020; (iii) 245,134 time-based restricted stock units that vest on September 19, 2020; (iv) 25,000 time-based restricted stock units that vest on November 13, 2020; (v) 25,000 time-based restricted stock units that vest on December 9, 2020; (vi) 5,000 time-based restricted stock units that vest on May 15, 2021; (vii) 411,373 time-based restricted stock units that vest on March 19, 2022; (viii) 857,357 market-based performance stock units (the “2019 PSUs”), of which 757,357 vest on March 19, 2022 with the remaining 100,000 vesting on a ratable basis on September 23, 2020, September 23, 2021 and September 23, 2022.
For the 2019 PSUs, the performance criteria for the market-based performance stock units is based on the Company’s total shareholder return (“TSR”) relative to the TSR of the common stock of a pre-defined industry peer group. TSR is measured over a period beginning January 1, 2019 and ending December 31, 2021. TSR is calculated as the Company’s average closing stock price for the 20-trading days at the end of the performance period plus Company dividends, divided by the Company’s average closing stock price for the 20-trading days prior to the start of the performance period. Depending on the performance achieved, the amount of shares earned can vary from 0% of the target award to a maximum of 200% of the target award. The Company estimated the grant-date fair value of the awards subject to a market condition using a Monte Carlo simulation model, using the following weighted-average assumptions: risk-free interest rate of 2.43% and annualized volatility of 84.1%. The grant date fair value of the performance stock units were $3.69.
The grant date fair value of restricted stock units is expensed over the vesting period. Restricted stock unit fair values are based on the closing trading price of the Company’s common stock on the date of grant. Changes in the number of restricted shares outstanding for the period ended March 31, 2020 were as follows:
 
 
Number of Restricted Shares
 
Weighted Average Grant Date Fair Value
Outstanding at December 31, 2019
 
1,393,085

 
$
4.30

Granted
 
1,139,439

 
3.22

Vested
 
(48,784
)
 
4.37

Canceled, forfeited
 
(340,311
)
 
5.35

Outstanding at March 31, 2020
 
2,143,429

 
$
3.56

As of March 31, 2020, there was $5.1 million in unrecognized compensation costs related to unvested restricted stock units that is expected to be recognized over a weighted-average period of 2.5 years.
The Company recognized $0.4 million and $0.4 million of stock-based compensation expense related to restricted shares during the three months ended March 31, 2020 and 2019, respectively. Stock-based compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

24



16. Shareholders’ Equity
Preferred Stock
The Company is authorized to issue 100,000,000 shares of preferred stock, par value of $0.01 per share. There were no preferred shares outstanding as of March 31, 2020 or December 31, 2019.
Common Stock
The Company is authorized to issue 400,000,000 shares of Horizon Global common stock, par value of $0.01 per share. As of March 31, 2020, there were 26,115,238 shares of common stock issued and 25,428,732 shares of common stock outstanding. As of December 31, 2019, there were 26,073,894 shares of common stock issued and 25,387,388 shares of common stock outstanding.
Common Stock Warrants
In connection with the Second Lien Term Loan the Company entered into in March 2019, the Company became obligated to issue detachable warrants to purchase up to 6.25 million shares of its common stock, which can be exercised on a cashless basis over a five year term with an exercise price of $1.50 per share.
The Company also issued 90,667 shares of Series A Preferred Stock in March 2019 in connection with the Second Lien Term Loan that were convertible into additional warrants upon receipt of shareholder approval of the issuance of such additional warrants and the shares of common stock issuable upon exercise thereof. The Series A Preferred Stock was presented as temporary equity in the March 31, 2019 condensed consolidated balance sheet. Upon receipt of such shareholder approval on June 25, 2019, the 90,667 shares of Series A Preferred Stock were converted into warrants to purchase 2,952,248 shares of common stock. See Note 9, Long-term Debt, for additional information. During 2019, warrants were exercised for 66,476 shares of the Company’s common stock with a value of $0.1 million in a non-cash transaction. As of March 31, 2020, warrants to purchase 6,487,674 shares of common stock were issued and remain outstanding.
Accumulated Other Comprehensive Income (Loss) (“AOCI”)
Changes in AOCI by component, net of tax, for the three months ended March 31, 2020 are summarized as follows:
 
 
Derivative Instruments
 
Foreign Currency Translation
 
Total
 
 
(dollars in thousands)
Balances at January 1, 2020
 
$

 
$
(9,790
)
 
$
(9,790
)
Net unrealized losses arising during the period(a)
 

 
(4,340
)
 
(4,340
)
Net current-period change
 

 
(4,340
)
 
(4,340
)
Balances at March 31, 2020
 
$

 
$
(14,130
)
 
$
(14,130
)
Changes in AOCI by component, net of tax, for the three months ended March 31, 2019 are summarized as follows:
 
 
Derivative Instruments
 
Foreign Currency Translation
 
Total
 
 
(dollars in thousands)
Balances at January 1, 2019
 
$
1,960

 
$
5,800

 
$
7,760

Net unrealized gains arising during the period(a)
 
570

 
1,210

 
1,780

Less: Net realized gains reclassified to net loss(a)
 
1,640

 

 
1,640

Net current-period change
 
$
(1,070
)
 
$
1,210

 
$
140

Balances at March 31, 2019
 
$
890

 
$
7,010

 
$
7,900

(a) There was no income tax impact for derivative instruments during the three months ended March 31, 2020 and 2019. See Note 10., Derivative Instruments, for further details.

25



17. Segment Information
The Company groups its business into operating segments by the region in which sales and manufacturing efforts are focused, which are grouped on the basis of similar product, market and operating factors. Each operating segment has discrete financial information evaluated regularly by the Company’s chief operating decision maker in determining resource allocation and assessing performance. The Company reports the results of its business in two operating segments: Horizon Americas and Horizon Europe-Africa. Horizon Americas is comprised of the Company’s North American and South American operations. Horizon Europe-Africa is comprised of the European and South African operations. See below for further information regarding the types of products and services provided within each operating segment.
Previously, the Company had three operating segments. However, as a result of its sale in the third quarter of 2019, we have removed APAC as a separate operating segment and its results are presented as a discontinued operation in the accompanying condensed consolidated financial statements. Historical information has been retrospectively adjusted to reflect these changes. Please see Note 3, Discontinued Operations, for additional information.
Horizon Americas - A market leader in the design, manufacture and distribution of a wide variety of high-quality, custom engineered towing, trailering and cargo management products and related accessories. These products are designed to support OEMs, OESs, aftermarket and retail customers in the agricultural, automotive, construction, industrial, marine, military, recreational vehicle, trailer and utility end markets. Products include brake controllers, cargo management, heavy-duty towing products, jacks and couplers, protection/securing systems, trailer structural and electrical components, tow bars, vehicle roof racks, vehicle trailer hitches and additional accessories.
Horizon Europe‑Africa - With a product offering similar to Horizon Americas, Horizon Europe-Africa focuses its sales and manufacturing efforts in the Europe and Africa regions of the world.
The following table presents the Company’s operating segment activity:
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
 
 
(dollars in thousands)
Net Sales
 
 
 
 
Horizon Americas
 
$
92,370

 
$
95,500

Horizon Europe-Africa
 
70,880

 
82,170

Total
 
$
163,250

 
$
177,670

Operating Profit (Loss)
 
 
 
 
Horizon Americas
 
$
2,730

 
$
(1,500
)
Horizon Europe-Africa
 
(2,510
)
 
(3,190
)
Corporate
 
(6,900
)
 
(8,680
)
Total
 
$
(6,680
)
 
$
(13,370
)
18. Income Taxes
At the end of each interim reporting period, the Company makes an estimate of the annual effective income tax rate. Tax items included in the annual effective income tax rate are pro-rated for the full year and tax items discrete to a specific quarter are included in the effective income tax rate for that quarter. Effective tax rates vary from period to period as separate calculations are performed for those countries where the Company's operations are profitable and whose results continue to be tax-effected and for those countries where full deferred tax valuation allowances exist and are maintained. In determining the estimated annual effective tax rate, the Company analyzes various factors, including but not limited to, forecasts of projected annual earnings, taxing jurisdictions in which the pretax income and/or pretax losses will be generated, available tax planning strategies.
For the three months ended March 31, 2020 and 2019, the effective income tax rate from continuing operations was 0.1% and 0.9%, respectively. The lower effective tax rate compared to the statutory tax rate is attributable to the valuation allowance recorded in the US and several foreign jurisdictions, which resulted in no income tax benefit recognized for jurisdictional pretax losses.

26



The Company evaluates the realizability of its deferred tax assets on a quarterly basis. In completing this evaluation, the Company considers all available evidence in order to determine whether, based on the weight of the evidence, a valuation allowance is necessary. Full valuation allowances that are recorded for deferred tax assets in the US and certain foreign jurisdictions will be maintained until sufficient positive evidence exists to reduce or eliminate them. The factors considered by management in its determination of the probability of the realization of the deferred tax assets include, but are not limited to, recent historical financial results, historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences, tax planning strategies. If, based upon the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded. The Company has recently experienced pre-tax losses. As of March 31, 2020, the Company believes that it is more likely than not that the recorded deferred tax assets will be realized.
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief and Economic Security (“CARES”) Act to provide certain relief as a result of the COVID-19 pandemic outbreak. The Company is currently evaluating how the CARES Act provisions will impact our consolidated financial statements, but is not currently projecting significant impacts on its income tax provision based on its domestic valuation allowance and historical operating performance.

27



19. Other Expense, Net

Other expense, net consists of the following components:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
(dollars in thousands)
Foreign currency loss
 
$
(1,530
)
 
$
(1,340
)
Customer pay discounts
 
(270
)
 
(510
)
Accretion arising from lease recovery
 
(30
)
 
(40
)
Loss on sale of business
 

 
(3,630
)
Other
 
160

 
50

Total
 
$
(1,670
)
 
$
(5,470
)

20. Subsequent Events
Payroll Protection Program Loan
On April 21, 2020, Horizon Global Company LLC (the “US Borrower”), a direct US-based subsidiary of Horizon Global Corporation, received a loan from PNC Bank, National Association for $8.7 million, pursuant to the Paycheck Protection Program (“the PPP Loan”) under Division A, Title I of the CARES Act. The PPP Loan, which is in the form of a Note dated April 18, 2020 issued by the US Borrower, matures on April 18, 2022. The PPP Loan bears interest at 1.0% per annum and is payable monthly commencing on November 15, 2020. Funds from the PPP Loan may be used for payroll, costs used to continue group health care benefits, rent and utilities. Under the terms of the PPP Loan, certain amounts may be forgiven if they are used for qualifying expenses as described in the CARES Act.
The Company submitted its PPP Loan application in good faith in accordance with the CARES Act and the guidance issued by the Small Business Administration (the “SBA”), including the SBA’s Paycheck Protection Program Loans Frequently Asked Questions (the “FAQs”).  Subsequent to the Company’s application and receipt of the PPP Loan proceeds, the SBA issued guidance that provided uncertainty regarding the Company’s eligibility to receive the PPP Loan. We have sought clarification from the United States Department of the Treasury (the “US Treasury”) regarding our eligibility. In the meantime, we will continue to assess the FAQs and other new guidance issued by the SBA. Absent clarity from the US Treasury, the FAQs or other new guidance issued by the SBA regarding our eligibility, we expect to return the PPP Loan.  If the Company retains the PPP Loan, we will continue to use the PPP Loan proceeds on qualifying expenses; however, there is no guarantee that any portion of the PPP Loan proceeds will be forgiven.
The French Loan
On April 17, 2020, S.I.A.R.R. SAS (the “French Borrower”), an indirect subsidiary of Horizon Global Corporation, received a loan from BNP Paribas (the “French Loan”) for $5.5 million. The French Loan, issued pursuant to an agreement dated April 9, 2020, between the French Borrower and BNP Paribas, matures on April 8, 2021. The French Loan bears interest at a rate of 0.5% per annum. The French Borrower, at its election, may repay the French Loan in full on April 16, 2021 or in monthly installments for a period of five years from the date of election.
Loan Agreement and Term Loan Waivers and Consents
On May 15, 2020, the Company obtained waivers and consents in connection with its Loan Agreement and the First Lien Term Loan Agreement and the Second Lien Term Loan Agreement that, among other things, consented to the Company’s applying for, obtaining and incurring the PPP Loan and French Loan. Additionally, the waivers and consents in connection with the First Lien Term Loan Agreement and the Second Lien Term Loan Agreement amended the secured net leverage ratio requirements under the agreements to remove the March 31, 2021 leverage ratio test and provide that the secured net leverage ratio requirement will begin with the fiscal quarter ending June 30, 2021 as follows:
June 30, 2021: 6.00 to 1.00

28



September 30, 2021 and each fiscal quarter ending thereafter: 5.00 to 1.00
The waivers and consents to the First Lien Term Loan Agreement and Second Lien Term Loan Agreement also amended the fixed charge coverage ratio covenant under the agreements to not be below 1.0 to 1.0 beginning with the fiscal quarter ending June 30, 2021.

29



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition contains forward-looking statements regarding industry outlook and our expectations regarding the performance of our business. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under the heading “Forward-Looking Statements,” at the beginning of this Quarterly Report on Form 10-Q. Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the Company’s reports on file with the Securities and Exchange Commission, as well as our Annual Report on Form 10-K for the year ended December 31, 2019 (See Item 1A. Risk Factors).
Overview
Headquartered in Plymouth, Michigan, Horizon Global Corporation and its consolidated subsidiaries (“Horizon,” “Horizon Global,” “we,” or the “Company”) are a leading designer, manufacturer and distributor of a wide variety of high-quality, custom-engineered towing, trailering, cargo management and other related accessory products on a global basis, primarily servicing the aftermarket, retail and e-commerce and original equipment manufacturers (“OEMs”) and original equipment servicers (“OESs”) (collectively, “OEs”) channels, supporting our customers through a regional service and delivery model.
Critical factors affecting our ability to succeed include:
Our ability to realize the expected future economic benefits resulting from the changes made to our manufacturing operations, distribution footprint and management team during 2017 through 2019, including the operational improvement initiatives implemented in 2019;
Our ability to continue to manage our liquidity, including continuing to deleverage our balance sheet and service our debt obligations;
Our ability to quickly and cost-effectively introduce new products to our customers and end-user market with a resulting streamlined customer service model and improved operating margins;
Our ability to continue to successfully launch new products and customer programs to expand our geographic coverage or distribution channels and realize desired operating efficiencies;
Our ability to manage our cost structure more efficiently via global supply base management, internal sourcing and/or purchasing of materials, selective outsourcing and/or purchasing of support functions, working capital management and a global approach to leverage of our administrative functions; and
Our ability to manage the business disruption and the operational and financial impacts, including temporary facility closures, liquidity and other economic and business uncertainties related to the COVID-19 pandemic as further detailed below.
If we are unable to do any of the foregoing successfully, our financial condition and results of operations could be materially and adversely impacted.
In December 2019, a novel coronavirus (“COVID-19”) outbreak occurred in China and has since spread to other parts of the world and been declared a pandemic. In connection with the COVID-19 pandemic, we have been adhering to mandates and other guidance from local governments and health authorities, as well as the World Health Organization and the Centers for Disease Control. As a result of the pandemic, we have experienced, and may continue to experience, decreases in demand and customer orders for our products in all sales channels, as well as temporary disruptions and closures of some of our facilities due to decreased demand and government mandates. COVID-19 has also impacted various aspects of the supply chain as our suppliers experience similar business disruptions due to operating restrictions from government mandates. We continue to monitor procurement of raw materials and components used in the manufacturing, distribution and sale of our products, but continued disruptions in the supply chain due to COVID-19 may cause difficulty in sourcing materials or unexpected shortages or delays in delivery of raw materials and components, and may result in increased costs in our supply chain. The extent to which we or our customers may successfully mitigate the impact of COVID-19, if at all, is unclear. The extent and duration of the impact of COVID-19 and resulting effect on the Company’s operations continues to evolve and remains uncertain. However, we expect that our results of operations in future periods will be adversely impacted by the COVID-19 outbreak and its negative effects on global economic conditions. See Part II, Item 1A, “Risk Factors,” for additional risks relating to the COVID-19 pandemic.

30



Horizon Global reports its business in two operating segments: Horizon Americas and Horizon Europe-Africa. See Note 17, Segment Information, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this Quarterly Report on Form 10-Q for further description of the Company’s operating segments.
We report shipping and handling expenses associated with Horizon Americas’ distribution network as an element of selling, general and administrative expenses in our condensed consolidated statements of operations. As such, gross margins for Horizon Americas may not be comparable to those of Horizon Europe-Africa, which primarily relies on third-party distributors, for which all costs are included in cost of sales.
Supplemental Analysis and Segment Information
Non-GAAP Financial Measures

The Company’s management utilizes Adjusted EBITDA as the key measure of company and segment performance and for planning and forecasting purposes, as management believes this measure is most reflective of the operational profitability or loss of the Company and its operating segments and provides management and investors with information to evaluate the operating performance of its business and is representative of its performance used to measure certain of its financial covenants, further discussed in the Liquidity and Capital Resources section below. Adjusted EBITDA should not be considered a substitute for results prepared in accordance with US GAAP and should not be considered an alternative to net income attributable to Horizon Global, which is the most directly comparable financial measure to Adjusted EBITDA that is prepared in accordance with US GAAP. Adjusted EBITDA, as determined and measured by Horizon Global, should also not be compared to similarly titled measures reported by other companies. The Company also uses operating income (loss) to measure stand-alone segment performance.

Adjusted EBITDA is defined as net income attributable to Horizon Global before interest expense, income taxes, depreciation and amortization, and before certain items, as applicable, such as severance, restructuring, relocation and related business disruption costs, impairment of goodwill and other intangibles, non-cash stock compensation, certain product liability recall and litigation claims, acquisition and integration costs, gains (losses) on business divestitures and other assets, board transition support and non-cash unrealized foreign currency remeasurement costs.



























31



The following table summarizes Adjusted EBITDA for our operating segments for the three months ended March 31, 2020 (“1Q20”):
 
 
Three Months Ended
March 31, 2020
 
 
Horizon Americas
 
Horizon Europe-Africa
 
Corporate
 
Consolidated
 
 
(dollars in thousands)
Net loss attributable to Horizon Global
 
 
 
 
 
 
 
$
(16,740
)
Net loss attributable to noncontrolling interest
 
 
 
 
 
 
 
(290
)
Net loss
 
 
 
 
 
 
 
$
(17,030
)
Interest expense
 
 
 
 
 
 
 
8,190

Income tax benefit
 
 
 
 
 
 
 
(10
)
Depreciation and amortization
 
 
 
 
 
 
 
5,060

EBITDA
 
$
4,940

 
$
(1,090
)
 
$
(7,640
)
 
$
(3,790
)
Net loss attributable to noncontrolling interest
 

 
290

 

 
290

Loss from discontinued operations, net of tax
 

 

 
500

 
500

Severance
 
530

 
20

 
(10
)
 
540

Restructuring, relocation and related business disruption costs
 
890

 

 
110

 
1,000

Non-cash stock compensation
 

 

 
420

 
420

Loss (gain) on business divestitures and other assets
 
360

 
(180
)
 

 
180

Product liability and litigation claims
 

 
1,510

 

 
1,510

Debt issuance costs
 

 

 
750

 
750

Unrealized foreign currency remeasurement costs
 
(600
)
 
1,750

 
380

 
1,530

Adjusted EBITDA
 
$
6,120

 
$
2,300

 
$
(5,490
)
 
$
2,930



















32



The following table summarizes Adjusted EBITDA for our operating segments for the three months ended March 31, 2019 (“1Q19”):

 
 
Three Months Ended
March 31, 2019
 
 
Horizon Americas
 
Horizon Europe-Africa
 
Corporate
 
Consolidated
 
 
(dollars in thousands)
Net loss attributable to Horizon Global
 
 
 
 
 
 
 
$
(25,100
)
Net loss attributable to noncontrolling interest
 
 
 
 
 
 
 
(520
)
Net loss
 
 
 
 
 
 
 
$
(25,620
)
Interest expense
 
 
 
 
 
 
 
10,830

Income tax benefit
 
 
 
 
 
 
 
(270
)
Depreciation and amortization
 
 
 
 
 
 
 
5,210

EBITDA
 
$
30

 
$
(4,640
)
 
$
(5,240
)
 
$
(9,850
)
Net loss attributable to noncontrolling interest
 

 
520

 

 
520

Income from discontinued operations, net of tax
 

 

 
(3,780
)
 
(3,780
)
Severance
 
80

 
(20
)
 

 
60

Restructuring, relocation and related business disruption costs
 
770

 
(1,400
)