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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)    

 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2020
or


 
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from                  to                  .
Commission file number 001-37427
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 ☒
Non-accelerated filer o
Smaller reporting company ☒
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes  No 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No 
As of August 3, 2020, the number of outstanding shares of the Registrant’s common stock was 25,791,629 shares.



HORIZON GLOBAL CORPORATION
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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.

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PART I. FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements
HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited—dollars in thousands)
June 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents $ 34,230    $ 11,770   
Restricted cash 5,770    —   
Receivables, net 86,500    71,680   
Inventories 116,220    136,650   
Prepaid expenses and other current assets 8,870    8,570   
Total current assets 251,590    228,670   
Property and equipment, net 73,260    75,830   
Operating lease right-of-use assets 44,130    45,770   
Goodwill 3,200    4,350   
Other intangibles, net 56,450    60,120   
Deferred income taxes 490    430   
Other assets 7,680    5,870   
Total assets $ 436,800    $ 421,040   
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and current maturities, long-term debt $ 10,060    $ 4,310   
Accounts payable 85,330    78,450   
Short-term operating lease liabilities 10,270    9,880   
Accrued liabilities 50,890    48,850   
Total current liabilities 156,550    141,490   
Gross long-term debt 265,290    236,550   
Unamortized debt issuance costs and discount (25,330)   (31,500)  
Long-term debt 239,960    205,050   
Deferred income taxes 4,040    4,040   
Long-term operating lease liabilities 46,610    48,070   
Other long-term liabilities 15,780    13,790   
Total liabilities 462,940    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; 26,478,135 shares issued and 25,791,629 outstanding at June 30, 2020, and 26,073,894 shares issued and 25,387,388 outstanding at December 31, 2019
250    250   
Common stock warrants exercisable for 6,443,910 and 6,487,674 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
10,610    10,610   
Paid-in capital 164,550    163,240   
Treasury stock, at cost: 686,506 shares at June 30, 2020 and December 31, 2019
(10,000)   (10,000)  
Accumulated deficit (175,050)   (141,970)  
Accumulated other comprehensive loss (12,090)   (9,790)  
Total Horizon Global shareholders' (deficit) equity (21,730)   12,340   
Noncontrolling interest (4,410)   (3,740)  
Total shareholders' (deficit) equity (26,140)   8,600   
Total liabilities and shareholders' equity $ 436,800    $ 421,040   
The accompanying notes are an integral part of these condensed consolidated financial statements.
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HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited—dollars in thousands, except share and per share data)
  Three Months Ended
June 30,
Six Months Ended
June 30,
  2020 2019 2020 2019
Net sales $ 120,490    $ 192,650    $ 283,740    $ 370,320   
Cost of sales (102,440)   (156,340)   (239,440)   (310,450)  
Gross profit 18,050    36,310    44,300    59,870   
Selling, general and administrative expenses (26,000)   (33,670)   (58,860)   (72,040)  
Net (loss) gain on dispositions of property and equipment (20)   10    (90)   1,450   
Operating (loss) profit (7,970)   2,650    (14,650)   (10,720)  
Other (expense) income, net (450)   500    (2,120)   (4,970)  
Interest expense (8,220)   (15,320)   (16,410)   (26,150)  
Loss from continuing operations before income tax (16,640)   (12,170)   (33,180)   (41,840)  
Income tax (expense) benefit (80)   1,040    (70)   1,310   
Net loss from continuing operations (16,720)   (11,130)   (33,250)   (40,530)  
Income (loss) from discontinued operations, net of tax —    2,990    (500)   6,770   
Net loss (16,720)   (8,140)   (33,750)   (33,760)  
Less: Net loss attributable to noncontrolling interest (380)   (60)   (670)   (580)  
Net loss attributable to Horizon Global $ (16,340)   $ (8,080)   $ (33,080)   $ (33,180)  
Net (loss) income per share attributable to Horizon Global:
Basic:
Continuing operations $ (0.64)   $ (0.44)   $ (1.28)   $ (1.58)  
Discontinued operations —    0.12    (0.02)   0.27   
Total $ (0.64)   $ (0.32)   (1.30)   (1.31)  
Diluted:
Continuing operations $ (0.64)   $ (0.44)   (1.28)   (1.58)  
Discontinued operations —    0.12    (0.02)   0.27   
Total $ (0.64)   $ (0.32)   (1.30)   (1.31)  
Weighted average common shares outstanding:
Basic 25,618,793    25,282,791    25,509,794    25,235,704   
Diluted 25,618,793    25,282,791    25,509,794    25,235,704   


The accompanying notes are an integral part of these condensed consolidated financial statements.
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HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited—dollars in thousands)
Three Months Ended
June 30,
Six Months Ended
June 30,
2020 2019 2020 2019
Net loss $ (16,720)   $ (8,140)   $ (33,750)   $ (33,760)  
Other comprehensive income (loss), net of tax:
Foreign currency translation and other 2,040    80    (2,300)   1,290   
Derivative instruments —    (210)   —    (1,280)  
Total other comprehensive income (loss), net of tax 2,040    (130)   (2,300)   10   
Total comprehensive loss (14,680)   (8,270)   (36,050)   (33,750)  
Less: Comprehensive loss attributable to noncontrolling interest (380)   (60)   (670)   (580)  
Comprehensive loss attributable to Horizon Global $ (14,300)   $ (8,210)   $ (35,380)   $ (33,170)  


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

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HORIZON GLOBAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited—dollars in thousands)
Six Months Ended June 30,
2020 2019
Cash Flows from Operating Activities:
Net loss $ (33,750)   $ (33,760)  
Less: (Loss) income from discontinued operations (500)   6,770   
Net loss from continuing operations (33,250)   (40,530)  
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 90    (1,450)  
Depreciation 7,100    7,390   
Amortization of intangible assets 3,430    3,130   
Amortization of original issuance discount and debt issuance costs 8,100    9,900   
Deferred income taxes 10    260   
Non-cash compensation expense 1,320    940   
Paid-in-kind interest 3,660    4,370   
Increase in receivables (16,780)   (28,510)  
Decrease (increase) in inventories 19,270    (7,820)  
Increase in prepaid expenses and other assets (2,890)   (1,040)  
Increase in accounts payable and accrued liabilities 13,460    4,270   
Other, net 1,380    (13,920)  
Net cash provided by (used for) operating activities for continuing operations 4,900    (63,010)  
Cash Flows from Investing Activities:
Capital expenditures (5,450)   (5,680)  
Net proceeds from sale of business —    4,970   
Net proceeds from disposition of property and equipment 70    1,550   
Net cash (used for) provided by investing activities for continuing operations (5,380)   840   
Cash Flows from Financing Activities:
Proceeds from borrowings on credit facilities 6,290    14,100   
Repayments of borrowings on credit facilities (1,210)   (840)  
Proceeds from Second Lien Term Loan, net of issuance costs —    35,520   
Repayments of borrowings on First Lien Term Loan, inclusive of transaction costs —    (10,090)  
Proceeds from Revolving Credit Facility, net of issuance costs 54,680    —   
Repayments of borrowings on Revolving Credit Facility (19,180)   —   
Proceeds from ABL revolving debt, net of issuance costs 8,000    60,340   
Repayments of borrowings on ABL revolving debt (27,920)   (72,080)  
Proceeds from Paycheck Protection Plan (PPP) Loan 8,670    —   
Proceeds from issuance of Series A Preferred Stock —    5,340   
Proceeds from issuance of Warrants —    5,380   
Other, net (10)   (10)  
Net cash provided by financing activities for continuing operations 29,320    37,660   
Discontinued Operations:
Net cash (used for) provided by discontinued operating activities (500)   14,250   
Net cash used for discontinued investing activities —    (920)  
Net cash provided by discontinued financing activities —    —   
Net cash (used for) provided by discontinued operations (500)   13,330   
Effect of exchange rate changes on cash, cash equivalents and restricted cash (110)   290   
Cash, Cash Equivalents and Restricted Cash:
Increase (decrease) for the period 28,230    (10,890)  
At beginning of period 11,770    27,650   
At end of period $ 40,000    $ 16,760   
Supplemental disclosure of cash flow information:
Cash paid for interest $ 4,370    $ 11,750   
Cash paid for taxes, net of refunds $ 440    $ 910   
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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)  
Net loss —    —    —    —    (16,340)   —    (16,340)   (380)   (16,720)  
Other comprehensive income, net of tax —    —    —    —    —    2,040    2,040    —    2,040   
Shares surrendered upon vesting of employees share based payment awards to cover tax obligations —    —    50    —    —    —    50    —    50   
Non-cash compensation expense —    —    900    —    —    —    900    —    900   
Balances at June 30, 2020 $ 250    $ 10,610    $ 164,550    $ (10,000)   $ (175,050)   $ (12,090)   $ (21,730)   $ (4,410)   $ (26,140)  
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)  
Net Loss —    —    —    —    (8,080)   —    (8,080)   (60)   (8,140)  
Other comprehensive loss, net of tax —    —    —    —    —    (130)   (130)   —    (130)  
Non-cash compensation expense —    —    590    —    —    —    590    —    590   
Issuance of Warrants —    5,340    —    —    —    —    5,340    —    5,340   
Balance at June 30, 2019 250    10,720    161,920    (10,000)   (255,900)   7,770    (85,240)   (3,080)   (88,320)  

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 extent and impact of the coronavirus (“COVID-19”) pandemic remains unknown. 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.
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 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.
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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.
The following table presents the Company’s results from discontinued operations for the three and six months ended June 30, 2019:
  Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
  (dollars in thousands)
Net sales $ 30,540    $ 62,550   
Cost of sales (22,790)   (46,280)  
Selling, general and administrative expenses (3,370)   (6,530)  
Net gain on dispositions of property and equipment (10)   —   
Other expense, net (50)   (190)  
Interest expense (130)   (230)  
Income before income tax expense 4,190    9,320   
Income tax expense (1,200)   (2,550)  
Income from discontinued operations, net of tax $ 2,990    $ 6,770   
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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 and six months ended June 30, 2020 and 2019:
Three Months Ended June 30, 2020
Horizon Americas Horizon Europe-Africa Total
(dollars in thousands)
Net Sales
Automotive OEM $ 9,510    $ 20,620    $ 30,130   
Automotive OES 1,080    7,720    8,800   
Aftermarket 22,280    16,680    38,960   
Retail 22,830    —    22,830   
Industrial 5,040    340    5,380   
E-commerce 13,370    230    13,600   
Other 10    780    790   
Total $ 74,120    $ 46,370    $ 120,490   

Three Months Ended June 30, 2019
Horizon Americas Horizon
Europe-Africa
Total
(dollars in thousands)
Net Sales
Automotive OEM $ 23,680    $ 45,780    $ 69,460   
Automotive OES 1,810    16,040    17,850   
Aftermarket 28,840    20,070    48,910   
Retail 33,200    —    33,200   
Industrial 6,930    860    7,790   
E-commerce 14,470    560    15,030   
Other 20    390    410   
Total $ 108,950    $ 83,700    $ 192,650   
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Six Months Ended June 30, 2020
Horizon Americas Horizon Europe-Africa Total
(dollars in thousands)
Net Sales
Automotive OEM $ 29,870    $ 62,020    $ 91,890   
Automotive OES 2,350    20,180    22,530   
Aftermarket 49,050    32,390    81,440   
Retail 46,400    —    46,400   
Industrial 12,890    660    13,550   
E-commerce 25,880    660    26,540   
Other 50    1,340    1,390   
Total $ 166,490    $ 117,250    $ 283,740   
Six Months Ended June 30, 2019
Horizon Americas Horizon Europe-Africa Total
(dollars in thousands)
Net Sales
Automotive OEM $ 43,920    $ 94,700    $ 138,620   
Automotive OES 3,420    29,330    32,750   
Aftermarket 52,990    36,360    89,350   
Retail 61,630    —    61,630   
Industrial 16,210    1,560    17,770   
E-commerce 26,260    1,090    27,350   
Other 20    2,830    2,850   
Total $ 204,450    $ 165,870    $ 370,320   
During the three and six months ended June 30, 2020 and 2019, adjustments to estimates of variable consideration for previously recognized revenue were immaterial. As of June 30, 2020 and 2019, total opening and closing balances of contract assets and deferred revenue were immaterial.
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5. Goodwill and Other Intangible Assets
During the six months June 30, 2020, the Company experienced a decline in its current and projected future operating and financial performance as well as pressure on its near-term financial forecasts as a result of the 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 had adhered to geographical government shutdowns and operating restrictions for our facilities, which resulted in an adverse impact to our business and financial performance in the first half of 2020, as well as on our near-term projected financial performance. Due to the impact of the COVID-19 pandemic, 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 the COVID-19 pandemic remains uncertain. Future events and changing market conditions, including 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 continues to assess the impact of the COVID-19 pandemic on its business and financial performance and any other indicators of potential impairment. During the three months ended June 30, 2020, our operations began to stabilize in response to customer demand, as the jurisdictions where we conduct operations began to reduce business operating restrictions. However, it is possible that if the jurisdictions where the Company does business, or those of its customers, experience additional or future operating restrictions, a decline in results may become more than temporary, and future indicators of impairment may be identified. This may result in a future interim impairment analysis being 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 six months ended June 30, 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 (1,150)   —    (1,150)  
Balance at June 30, 2020 $ 3,200    $ —    $ 3,200   
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The gross carrying amounts and accumulated amortization of the Company’s other intangible assets are summarized as follows:
As of
June 30, 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)
$ 163,210    $ (131,530)   $ 31,680   
Technology and other (3 – 15 years)
21,740    (17,910)   3,830   
Trademark/Trade names (1 – 8 years)
150    (150)   —   
Total finite-lived intangible assets 185,100    (149,590)   35,510   
Trademark/Trade names, indefinite-lived 20,940    —    20,940   
Total other intangible assets $ 206,040    $ (149,590)   $ 56,450   

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 June 30, Six Months Ended June 30,
2020 2019 2020 2019
(dollars in thousands)
Technology and other, included in cost of sales $ 550    $ 280    $ 670    $ 720   
Customer relationships and Trademark/Trade names, included in selling, general and administrative expenses 1,310    950    2,760    2,410   
Total amortization expense $ 1,860    $ 1,230    $ 3,430    $ 3,130   
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6. Inventories
Inventories consist of the following components:
  June 30,
2020
December 31,
2019
  (dollars in thousands)
Finished goods $ 62,200    $ 82,080   
Work in process 11,970    12,820   
Raw materials 42,050    41,750   
Total inventories $ 116,220    $ 136,650   

7. Property and Equipment, Net
Property and equipment, net consists of the following components:
  June 30,
2020
December 31,
2019
  (dollars in thousands)
Land and land improvements $ 470    $ 470   
Buildings 20,960    21,290   
Machinery and equipment 124,940    121,740   
146,370    143,500   
Accumulated depreciation (73,110)   (67,670)  
Property and equipment, net $ 73,260    $ 75,830   
Depreciation expense included in the accompanying condensed consolidated statements of operations is as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2020 2019 2020 2019
(dollars in thousands)
Depreciation expense, included in cost of sales $ 3,260    $ 3,560    $ 6,410    $ 6,590   
Depreciation expense, included in selling, general and administrative expenses 350    520    690    800   
Total depreciation expense $ 3,610    $ 4,080    $ 7,100    $ 7,390   

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8. Accrued and Other Long-term Liabilities
Accrued liabilities consist of the following components:
June 30,
2020
December 31,
2019
(dollars in thousands)
Customer incentives $ 16,050    $ 14,270   
Accrued compensation 8,920    6,760   
Customer claims 3,990    7,540   
Short-term tax liabilities 3,110    90   
Accrued professional services 2,560    4,790   
Restructuring 1,400    2,340   
Deferred purchase price 580    790   
Other 14,280    12,270   
Total accrued liabilities 50,890    $ 48,850   
Other long-term liabilities consist of the following components:
  June 30,
2020
December 31,
2019
  (dollars in thousands)
Deferred purchase price $ 1,700    $ 2,370   
Restructuring 1,340    1,600   
Long-term tax liabilities 340    340   
Other 12,400    9,480   
Total other long-term liabilities $ 15,780    $ 13,790   
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9. Long-term Debt
The Company’s long-term debt consists of the following:
  June 30,
2020
December 31,
2019
  (dollars in thousands)
Revolving Credit Facility $ 37,810    $ —   
ABL Facility —    20,020   
First Lien Term Loan 25,530    25,210   
Second Lien Term Loan 59,330    56,960   
Convertible Notes 125,000    125,000   
Paycheck Protection Program Loan 8,670    —   
Bank facilities, capital leases and other long-term debt 19,010    13,670   
Gross debt 275,350    240,860   
Less:
Current maturities, long-term debt 10,060    4,310   
Gross long-term debt 265,290    236,550   
Less:
Unamortized debt issuance costs and original issuance discount on First Lien Term Loan 480    700   
Unamortized debt issuance costs and discount on Second Lien Term Loan 10,080    12,730   
Unamortized debt issuance costs and discount on Convertible Notes 14,770    18,070   
Unamortized debt issuance costs and discount 25,330    31,500   
Long-term debt $ 239,960    $ 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. (“Cequent Towing”), 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).
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 six months ended June 30, 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 six months ended June 30, 2020.
The Company recognized no amortization of debt issuance costs and $0.4 million of amortization of debt issuance costs during the three and six months ended June 30, 2020, respectively, and $0.4 million and $0.5 million of amortization of debt issuance costs during the three and six months ended June 30, 2019, respectively, which are included in the accompanying condensed consolidated statements of operations.
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Total letters of credit issued and outstanding under the ABL Facility were $1.2 million and $7.7 million at June 30, 2020 and December 31, 2019, respectively. 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 $1.2 million as of June 30, 2020. The cash collateral will be released either because of expiration or early termination and reissuance of the letters of credit. Certain letters of credit were reissued under the Revolving Credit Facility, as defined below, with a total of $3.5 million issued and outstanding as of June 30, 2020, with no cash collateral requirement. Other letters of credit were reissued under the Revolving Credit Facility, with a cash collateral requirement, with total of $3.7 million as of June 30, 2020. The cash collateral requirement is 105% of the outstanding letters of credit, for a total amount of $4.0 million as of June 30, 2020. The Company presented the cash collateral in restricted cash in the accompanying June 30, 2020 condensed consolidated balance sheet.
Revolving Credit Facility
In March 2020, the Company, as guarantor, entered into a Loan and Security Agreement (the “Loan Agreement”) with Encina Business Credit, LLC (“Encina”), as agent for the lenders party thereto, and HGA and Cequent Towing, as borrowers (the “ABL Borrowers”). 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 ABL Borrowers’ 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 ABL Borrowers, 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. As a result of the 2020 Replacement Term Loan Amendment, as described in Note 20, Subsequent Events, the maturity of all borrowings under the Revolving Credit Facility were effectively extended to fiscal year 2022 and are presented in gross long-term debt in the accompanying condensed consolidated balance sheet as of June 30, 2020. 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 ABL Borrowers.
The Loan Agreement also contains a financial covenant that stipulates the ABL Borrowers and guarantors under the Loan Agreement 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. These debt issuance costs will be amortized into interest expense over the contractual term of the Loan Agreement. The Company recognized $0.5 million and $0.7 million of amortization of debt issuance costs during the three and six months ended June 30, 2020, respectively, which are included in the accompanying condensed consolidated statement of operations. There were $1.6 million of unamortized debt issuance costs included in prepaid expenses and other current assets in the accompanying June 30, 2020 condensed consolidated balance sheet.
There was $37.8 million outstanding under the Revolving Credit Facility as of June 30, 2020 and $20.0 million outstanding under the ABL Facility as of December 31, 2019, with a weighted average interest rate of 5.0% and 5.5%, respectively. The Company had $11.3 million of availability under the Revolving Credit Facility as of June 30, 2020 and $33.1 million of availability under the ABL Facility as of December 31, 2019.
First Lien Term Loan Agreement