Horizon Global Corp - Quarter Report: 2021 June (Form 10-Q)

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, 2021
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 o

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any 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 July 30, 2021, the number of outstanding shares of the Registrant’s common stock was 27,286,647 shares.

HORIZON GLOBAL CORPORATION

Index

Part I.

Financial Information

Forward-Looking Statements

Item 1.

Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2021 and 2020

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020

Notes to Condensed Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

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 COVID-19 pandemic on the Company’s business, results of operations, financial condition and liquidity, including, without limitation, supply chain and logistics issues; liabilities and restrictions imposed by the Company’s debt instruments, including the Company’s ability to comply with the applicable financial covenants related thereto; market demand; competitive factors; supply constraints and shipping disruptions; material, logistics and energy costs, including the increased material costs resulting from the COVID-19 pandemic; 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; 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 twelve months ended December 31, 2020. The risks described in the Company’s Annual Report on Form 10-K 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 twelve months ended December 31, 2020. 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.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

HORIZON GLOBAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited—dollars in thousands)


	June 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	24,680	$	44,970
Restricted cash	5,510		5,720
Receivables, net	116,240		87,420
Inventories	144,360		115,320
Prepaid expenses and other current assets	12,100		11,510
Total current assets	302,890		264,940
Property and equipment, net	73,520		74,090
Operating lease right-of-use assets	40,400		47,310
Goodwill	—		3,360
Other intangibles, net	54,890		58,230
Deferred income taxes	1,280		1,280
Other assets	6,410		7,280
Total assets	$	479,390	$	456,490
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and current maturities, long-term debt	$	11,990	$	14,120
Accounts payable	111,940		99,520
Short-term operating lease liabilities	11,130		12,180
Accrued liabilities	59,750		59,100
Total current liabilities	194,810		184,920
Gross long-term debt	284,040		251,960
Unamortized debt issuance costs and discount	(31,460)		(20,570)
Long-term debt	252,580		231,390
Deferred income taxes	4,080		3,130
Long-term operating lease liabilities	39,410		46,340
Other long-term liabilities	11,000		14,560
Total liabilities	501,880		480,340
Contingencies (See Note 10)
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; 27,970,998 shares issued and 27,284,492 outstanding at June 30, 2021, and 27,089,673 shares issued and 26,403,167 outstanding at December 31, 2020	270		260
Common stock warrants issued, outstanding and exercisable for 9,231,146 and 5,815,039 shares of common stock at June 30, 2021 and December 31, 2020, respectively	25,010		9,510
Paid-in capital	169,070		166,610
Treasury stock, at cost: 686,506 shares at June 30, 2021 and December 31, 2020	(10,000)		(10,000)
Accumulated deficit	(192,050)		(178,530)
Accumulated other comprehensive loss	(8,960)		(6,540)
Total Horizon Global shareholders' deficit	(16,660)		(18,690)
Noncontrolling interest	(5,830)		(5,160)
Total shareholders' deficit	(22,490)		(23,850)
Total liabilities and shareholders' equity	$	479,390	$	456,490

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

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,
	2021		2020		2021		2020
Net sales	$	222,120	$	120,490	$	421,310	$	283,740
Cost of sales	(174,830)		(102,440)		(333,460)		(239,440)
Gross profit	47,290		18,050		87,850		44,300
Selling, general and administrative expenses	(35,960)		(26,020)		(69,740)		(58,950)
Operating profit (loss)	11,330		(7,970)		18,110		(14,650)
Other expense, net	(1,990)		(450)		(4,220)		(2,120)
Loss on debt extinguishment	—		—		(11,650)		—
Interest expense	(6,980)		(8,220)		(14,030)		(16,410)
Income (loss) from continuing operations before income tax	2,360		(16,640)		(11,790)		(33,180)
Income tax expense	(1,400)		(80)		(2,400)		(70)
Net income (loss) from continuing operations	960		(16,720)		(14,190)		(33,250)
Loss from discontinued operations, net of income tax	—		—		—		(500)
Net income (loss)	960		(16,720)		(14,190)		(33,750)
Less: Net loss attributable to noncontrolling interest	(330)		(380)		(670)		(670)
Net income (loss) attributable to Horizon Global	$	1,290	$	(16,340)	$	(13,520)	$	(33,080)
Net income (loss) per share attributable to Horizon Global:
Basic:
Continuing operations	$	0.05	$	(0.64)	$	(0.50)	$	(1.28)
Discontinued operations	—		—		—		(0.02)
Total	$	0.05	$	(0.64)	$	(0.50)	$	(1.30)
Diluted:
Continuing operations	$	0.04	$	(0.64)	$	(0.50)	$	(1.28)
Discontinued operations	—		—		—		(0.02)
Total	$	0.04	$	(0.64)	$	(0.50)	$	(1.30)
Weighted average common shares outstanding:
Basic	27,022,652		25,618,793		26,883,818		25,509,794
Diluted	32,747,203		25,618,793		26,883,818		25,509,794

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

HORIZON GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited—dollars in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income (loss)	$	960	$	(16,720)	$	(14,190)	$	(33,750)
Other comprehensive (loss) income, net of tax:
Foreign currency translation and other	(130)		2,040		(2,420)		(2,300)
Total other comprehensive (loss) income, net of tax	(130)		2,040		(2,420)		(2,300)
Total comprehensive income (loss)	830		(14,680)		(16,610)		(36,050)
Less: Comprehensive loss attributable to noncontrolling interest	(330)		(380)		(670)		(670)
Comprehensive income (loss) attributable to Horizon Global	$	1,160	$	(14,300)	$	(15,940)	$	(35,380)

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

HORIZON GLOBAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited—dollars in thousands)


	Six Months Ended June 30,
	2021		2020
Cash Flows from Operating Activities:
Net loss	$	(14,190)	$	(33,750)
Less: Net loss from discontinued operations	—		(500)
Net loss from continuing operations	(14,190)		(33,250)

Adjustments to reconcile net loss from continuing operations to net cash (used for) provided by operating activities:
Depreciation	7,750		7,100
Amortization of intangible assets	2,970		3,430
Loss on debt extinguishment	11,650		—
Amortization of original issuance discount and debt issuance costs	5,400		8,100
Deferred income taxes	1,120		10
Non-cash compensation expense	1,710		1,320
Paid-in-kind interest	650		3,660
Increase in receivables	(30,630)		(16,780)
(Increase) decrease in inventories	(31,350)		19,270
Increase in prepaid expenses and other assets	(440)		(2,890)
Increase in accounts payable and accrued liabilities	15,960		13,460
Other, net	1,780		1,470
Net cash (used for) provided by operating activities for continuing operations	(27,620)		4,900
Cash Flows from Investing Activities:
Capital expenditures	(9,940)		(5,450)
Other, net	10		70
Net cash used for investing activities for continuing operations	(9,930)		(5,380)
Cash Flows from Financing Activities:
Proceeds from borrowings on credit facilities	2,190		6,290
Repayments of borrowings on credit facilities	(1,300)		(1,210)
Proceeds from Senior Term Loan, net of issuance costs	75,300		—
Repayments of borrowings on Replacement Term Loan, including transaction fees	(94,940)		—
Proceeds from Revolving Credit Facility, net of issuance costs	20,000		54,680
Repayments of borrowings on Revolving Credit Facility	—		(19,180)
Proceeds from ABL revolving debt, net of issuance costs	—		8,000
Repayments of borrowings on ABL revolving debt	—		(27,920)
Proceeds from Paycheck Protection Program Loan	—		8,670
Proceeds from issuance of common stock warrants	16,300		—
Proceeds from exercise of common stock warrants	420		—
Other, net	(640)		(10)
Net cash provided by financing activities for continuing operations	17,330		29,320
Discontinued Operations:
Net cash used for discontinued operations	—		(500)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(280)		(110)
Cash, Cash Equivalents and Restricted Cash:
(Decrease) increase for the period	(20,500)		28,230
At beginning of period	50,690		11,770
At end of period	$	30,190	$	40,000
Supplemental disclosure of cash flow information:
Cash paid for interest	$	10,860	$	4,370
Cash paid for taxes, net of refunds	$	1,430	$	440

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

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 (Loss)		Total Horizon Global Shareholders' Equity (Deficit)		Noncontrolling Interest		Total Shareholders' Equity (Deficit)
Balances at January 1, 2021	$	260	$	9,510	$	166,610	$	(10,000)	$	(178,530)	$	(6,540)	$	(18,690)	$	(5,160)	$	(23,850)
Net loss	—		—		—		—		(14,810)		—		(14,810)		(340)		(15,150)
Other comprehensive loss, net of tax	—		—		—		—		—		(2,290)		(2,290)		—		(2,290)
Shares surrendered upon vesting of employees share based payment awards to cover tax obligations	—		—		(650)		—		—		—		(650)		—		(650)
Non-cash compensation expense	—		—		960		—		—		—		960		—		960
Issuance of common stock warrants	—		16,300		—		—		—		—		16,300		—		16,300
Exercise of common stock warrants	10		(800)		1,210		—		—		—		420		—		420
Balances at March 31, 2021	270		25,010		168,130		(10,000)		(193,340)		(8,830)		(18,760)		(5,500)		(24,260)
Net income (loss)	—		—		—		—		1,290		—		1,290		(330)		960
Other comprehensive loss, net of tax	—		—		—		—		—		(130)		(130)		—		(130)
Shares surrendered upon vesting of employees share based payment awards to cover tax obligations	—		—		10		—		—		—		10		—		10
Non-cash compensation expense	—		—		930		—		—		—		930		—		930
Balances at June 30, 2021	$	270	$	25,010	$	169,070	$	(10,000)	$	(192,050)	$	(8,960)	$	(16,660)	$	(5,830)	$	(22,490)


	Common Stock		Common Stock Warrants		Paid-in Capital		Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Total Horizon Global Shareholders' Equity (Deficit)		Noncontrolling Interest		Total Shareholders' Equity (Deficit)
Balances 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)

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

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operations and Basis of Presentation

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, primarily in the North American, European and African markets. These products are designed to support aftermarket, automotive original equipment manufacturers (“automotive OEMs”) and automotive original equipment servicers (“automotive OESs”) (collectively, “OEs”), retail, e-commerce and industrial customers within the agricultural, automotive, construction, horse/livestock, industrial, marine, military, recreational, trailer and utility markets. The Company groups its business into operating segments generally by the region in which sales and manufacturing efforts are focused. The Company’s operating segments are Horizon Americas and Horizon Europe-Africa. See Note 14, Segment Information, for further information on each of the Company’s operating segments.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. 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 twelve months ended December 31, 2020. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete financial statements. It is management’s opinion that these condensed consolidated 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.

U.S. GAAP requires the Company 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 assessment of indefinite-lived intangible assets, 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. To the extent there are differences between these estimates and actual results, our consolidated financial statements may be materially affected.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. New Accounting Pronouncements

New accounting pronouncements not yet adopted

In May 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-04, “Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2021-04”). ASU 2021-04 provides guidance on modifications or exchanges of a freestanding equity-classified written call option that is not within the scope of other accounting standards. Under this guidance, an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument. ASU 2021-04 provides further guidance on measuring the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. ASU 2021-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2021, with early adoption permitted. We are currently assessing the impact of this update on the Company’s condensed consolidated financial statements. The standard is not expected to have a significant impact on the Company's condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible instruments by removing certain separation models in Accounting Standards Codification (“ASC”) 470-20, “Debt—Debt with Conversion and Other Options,” (“ASC 470-20”) for convertible instruments. Under ASU 2020-06, the embedded conversion features no longer are separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under ASC 815, “Derivatives and Hedging,” or that do not result in substantial premiums accounted for as paid-in capital. For smaller reporting companies, ASU 2020-06 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2023, with early adoption permitted for fiscal years beginning after December 15, 2020. We are currently assessing the impact of this update on the Company’s condensed consolidated financial statements.

In March 2020, the FASB issued 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 recognize 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 allowance for credit losses 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.

Accounting pronouncements recently adopted

There were no new accounting pronouncements adopted during the six months ended June 30, 2021.

3. Revenues

The Company disaggregates net sales from contracts with customers by major sales channel. The Company determined that disaggregating its net sales 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 e-commerce channel represents sales to retailers whose customers utilize the Internet to purchase the Company’s products. The industrial channel represents sales to non-automotive manufacturers and dealers of agricultural equipment, trailers, and other custom assemblies. 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.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company’s net sales by segment and disaggregated by major sales channel are as follows:


	Three Months Ended June 30, 2021
	Horizon Americas		Horizon Europe-Africa		Total
	(dollars in thousands)
Net Sales
Aftermarket	$	40,560	$	26,130	$	66,690
Automotive OEM	22,650		44,190		66,840
Automotive OES	4,240		19,970		24,210
Retail	32,610		—		32,610
E-commerce	19,730		1,960		21,690
Industrial	8,590		630		9,220
Other	—		860		860
Total	$	128,380	$	93,740	$	222,120


	Three Months Ended June 30, 2020
	Horizon Americas		Horizon Europe-Africa		Total
	(dollars in thousands)
Net Sales
Aftermarket	$	22,280	$	16,680	$	38,960
Automotive OEM	9,510		20,620		30,130
Automotive OES	1,080		7,720		8,800
Retail	22,830		—		22,830
E-commerce	13,370		230		13,600
Industrial	5,040		340		5,380
Other	10		780		790
Total	$	74,120	$	46,370	$	120,490


	Six Months Ended June 30, 2021
	Horizon Americas		Horizon Europe-Africa		Total
	(dollars in thousands)
Net Sales
Aftermarket	$	72,250	$	48,550	$	120,800
Automotive OEM	50,170		92,750		142,920
Automotive OES	8,100		36,030		44,130
Retail	55,190		—		55,190
E-commerce	34,250		3,390		37,640
Industrial	18,250		1,180		19,430
Other	—		1,200		1,200
Total	$	238,210	$	183,100	$	421,310

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Six Months Ended June 30, 2020
	Horizon Americas		Horizon Europe-Africa		Total
	(dollars in thousands)
Net Sales
Aftermarket	$	49,050	$	32,390	$	81,440
Automotive OEM	29,870		62,020		91,890
Automotive OES	2,350		20,180		22,530
Retail	46,400		—		46,400
E-commerce	25,880		660		26,540
Industrial	12,890		660		13,550
Other	50		1,340		1,390
Total	$	166,490	$	117,250	$	283,740

4. Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill are as follows:


	Horizon Americas		Horizon Europe-Africa		Total
	(dollars in thousands)
Balance at January 1, 2021	$	3,360	$	—	$	3,360
Divestiture of business	(3,340)		—		(3,340)
Foreign currency translation	(20)		—		(20)
Balance at June 30, 2021	$	—	$	—	$	—

Brazil Sale

On June 8, 2021, the Company divested its Brazil business via a share sale (the “Brazil Sale”). Under the terms of the Brazil Sale, the Company disposed all assets and liabilities of its Brazil business, including $3.3 million of goodwill within the Horizon Americas operating segment, for nominal consideration. As a result of the Brazil Sale, the Company recorded a $2.2 million loss in other expense, net in the accompanying condensed consolidated statements of operations.

The gross carrying amounts and accumulated amortization of the Company’s other intangible assets are as follows:


	June 30, 2021
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)	$	163,860	$	(135,960)	$	27,900
Technology and other (3 – 15 years)	23,000		(17,300)		5,700
Trademark/Trade names (1 – 8 years)	150		(150)		—
Sub-total	187,010		(153,410)		33,600
Trademark/Trade names, indefinite-lived	21,290		—		21,290
Total	$	208,300	$	(153,410)	$	54,890

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	December 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)	$	166,420	$	(135,140)	$	31,280
Technology and other (3 – 15 years)	22,250		(16,710)		5,540
Trademark/Trade names (1 – 8 years)	150		(150)		—
Sub-total	188,820		(152,000)		36,820
Trademark/Trade names, indefinite-lived	21,410		—		21,410
Total	$	210,230	$	(152,000)	$	58,230

Amortization expense related to other intangible assets is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
Technology and other, included in cost of sales	$	580	$	550	$	780	$	670
Customer relationships, included in selling, general and administrative expenses	1,090		1,310		2,190		2,760
Total	$	1,670	$	1,860	$	2,970	$	3,430

5. Inventories

Inventories consist of the following components:


	June 30, 2021		December 31, 2020
	(dollars in thousands)
Finished goods	$	72,680	$	58,600
Work in process	16,170		13,070
Raw materials	55,510		43,650
Total	$	144,360	$	115,320

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Property and Equipment, Net

Property and equipment, net consists of the following components:


	June 30, 2021		December 31, 2020
	(dollars in thousands)
Land and land improvements	$	500	$	520
Buildings	23,010		23,040
Machinery and equipment	140,110		134,750
Gross property and equipment	163,620		158,310
Accumulated depreciation	(90,100)		(84,220)
Total	$	73,520	$	74,090

Depreciation expense is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
Depreciation expense, included in cost of sales	$	3,270	$	3,260	$	7,130	$	6,410
Depreciation expense, included in selling, general and administrative expenses	280		350		620		690
Total	$	3,550	$	3,610	$	7,750	$	7,100

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Accrued and Other Long-term Liabilities

Accrued liabilities consist of the following components:


	June 30, 2021		December 31, 2020
	(dollars in thousands)
Customer incentives	$	17,140	$	15,870
Accrued compensation	12,370		12,130
Short-term tax liabilities	6,640		5,570
Customer claims	3,680		6,520
Accrued professional services	2,070		1,510
Litigation settlements	1,100		1,600
Restructuring	120		650
Deferred purchase price	—		1,370
Other	16,630		13,880
Total	$	59,750	$	59,100

Other long-term liabilities consist of the following components:


	June 30, 2021		December 31, 2020
	(dollars in thousands)
Litigation settlements	$	2,370	$	2,930
Long-term tax liabilities	380		130
Deferred purchase price	—		1,650
Restructuring	—		1,070
Other	8,250		8,780
Total	$	11,000	$	14,560

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Long-term Debt

The Company’s long-term debt consists of the following components:


	June 30, 2021		December 31, 2020
	(dollars in thousands)
Revolving Credit Facility	$	44,230	$	24,230
Senior Term Loan	100,000		—
Replacement Term Loan	—		90,210
Convertible Notes	125,000		125,000
Paycheck Protection Program Loan	8,670		8,670
Bank facilities, capital leases and other long-term debt	18,130		17,970
Gross debt	296,030		266,080
Less:
Short-term borrowings and current maturities, long-term debt	11,990		14,120
Gross long-term debt	284,040		251,960
Less:
Unamortized debt issuance costs and original issuance discount on Senior Term Loan	23,550		—
Unamortized debt issuance costs and original issuance discount on Replacement Term Loan	—		9,100
Unamortized debt issuance costs and discount on Convertible Notes	7,910		11,470
Unamortized debt issuance costs and discount	31,460		20,570
Total	$	252,580	$	231,390

ABL Facility

In December 2015, the Company entered into an Amended and Restated Loan Agreement with certain subsidiaries of the Company party thereto as guarantors, the lenders party thereto and Bank of America, N.A., as agent for the lenders, 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. The Amended and Restated Loan Agreement was subsequently amended on several occasions and as a result, the effective facility size was $80.0 million.

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 ASC 405-20, “Extinguishment of Liabilities”. As a result of the debt extinguishment, during the six months ended June 30, 2020, the Company recognized $0.8 million of unamortized debt issuance costs in interest expense and $0.6 million of additional costs in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations, in accordance with ASC 470-50, “Modifications and Extinguishments” (“ASC 470-50”).

During the three and six months ended June 30, 2021, the Company recognized no amortization of debt issuance costs and during the three and six months ended June 30, 2020, the Company recognized no amortization of debt issuance costs and $0.4 million amortization of debt issuance costs, respectively, in the accompanying condensed consolidated statements of operations.

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 Horizon Global Americas Inc. and Cequent Towing Products of Canada Ltd., 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.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In May 2020, the Company entered into amendments, limited waivers and consents in connection with the Loan Agreement, with an effective date of April 1, 2020, that, among other things, consented to the Company’s applying for, obtaining and incurring the PPP Loan and French Loan, each as defined and described below.

In February 2021, the Company entered into a limited consent of the Loan Agreement, that among other modifications, consented to the Company’s entering into the Senior Term Loan Credit Agreement, as defined and described below.

On April 19, 2021, the Company entered into an amendment to the Loan Agreement, that among other modifications, increased the maximum amount of credit available under the Revolving Credit Facility from $75.0 million to $85.0 million. The amendment also increased sub-limits relating to the Company’s ability to borrow against in-transit inventory as well as inventory located in the Company’s Mexico facilities.

The interest on the loans under the Loan Agreement is 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, at 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. All outstanding borrowings under the Loan Agreement mature on March 13, 2023.

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 exceeding $30.0 million during any fiscal year.

Debt issuance costs of $2.3 million were incurred in connection with the Loan Agreement. These debt issuance costs will be amortized into interest expense over the contractual term of the Loan Agreement.

During the three and six months ended June 30, 2021, the Company recognized $0.1 million and $0.3 million of amortization of debt issuance costs, respectively, and during the three and six months ended June 30, 2020, the Company recognized $0.5 million and $0.7 million of amortization of debt issuance costs, respectively, in the accompanying condensed consolidated statements of operations.

As of June 30, 2021 and December 31, 2020, there was $1.0 million and $1.1 million, respectively, of unamortized debt issuance costs included in other assets in the accompanying condensed consolidated balance sheets.

As of June 30, 2021 and December 31, 2020, there was $44.2 million and $24.2 million outstanding, respectively, under the Revolving Credit Facility with a weighted average interest rate of 5.3% and 5.0%, respectively. As of June 30, 2021 and December 31, 2020, the Company had $37.3 million and $38.4 million of availability, respectively, under the Revolving Credit Facility.

As of June 30, 2021 and December 31, 2020, the Company had $1.8 million and $3.1 million, respectively, of letters of credit issued and outstanding, under the Revolving Credit Facility with no cash collateral requirement. As of June 30, 2021 and December 31, 2020, respectively, the Company also had $4.4 million and $4.9 million of other letters of credit issued and outstanding, under the Revolving Credit Facility with a cash collateral requirement. The cash collateral requirement is 105% of the outstanding letters of credit. As of June 30, 2021 and December 31, 2020, the Company had cash collateral, of $4.9 million and $5.1 million, respectively. Cash collateral is presented in restricted cash in the accompanying condensed consolidated balance sheets.

First Lien Term Loan Agreement

In June 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”). The Term Loan Agreement was subsequently amended and restated on several occasions and is collectively referred to as the “First Lien Term Loan Agreement”. The Original Term B Loan was also subsequently amended on several occasions and is collectively referred to as the “First Lien Term Loan”.

In May 2020, the Company entered into an amendment, limited waiver and consent to credit agreement with an effective date of April 1, 2020, to amend the First Lien Term Loan Agreement and to consent to the Company’s entering into, among other things, the PPP Loan and French Loan, each as defined and described below.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As a result of the Replacement Term Loan Amendment, as defined and described below, the outstanding balance and any accrued interest was replaced by the Replacement Term Loan, as defined and described below.

During the three and six months ended June 30, 2021, the Company recognized no amortization of debt issuance costs and during the three and six months ended June 30, 2020, the Company recognized $0.1 million and $0.2 million amortization of debt issuance costs, respectively, in the accompanying condensed consolidated statements of operations.

During the three and six months ended June 30, 2021, the Company recognized no paid-in-kind (“PIK”) interest and during the three and six months ended June 30, 2020, the Company recognized $0.2 million and $0.4 million of PIK interest, respectively, in the accompanying condensed consolidated statements of operations.

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 provided for a term loan facility in the aggregate principal amount of $51.0 million.

In May 2020, the Company entered into an amendment, limited waiver and consent to credit agreement with an effective date of April 1, 2020, to amend the Second Lien Term Loan Agreement and to consent to the Company’s entering into, among other things, the PPP Loan and French Loan, each as defined and described below.

During the three and six months ended June 30, 2021, the Company recognized no amortization of debt issuance costs and during the three and six months ended June 30, 2020, the Company recognized $1.4 million and $2.7 million amortization of debt issuance costs, respectively, in the accompanying condensed consolidated statements of operations.

During the three and six months ended June 30, 2021, the Company recognized no PIK interest and during the three and six months ended June 30, 2020, the Company recognized $1.9 million and $3.3 million of PIK interest, respectively, in the accompanying condensed consolidated statements of operations.

Replacement Term Loan

In July 2020, the Company entered into the Replacement Term Loan Amendment (the “Eleventh Term Amendment”) to amend the Term Loan Agreement. The Eleventh Term Amendment provided replacement term loans (the “Replacement Term Loan”) that refinanced and replaced the outstanding balances under the First Lien Term Loan Agreement and Second Lien Term Loan Agreement, plus any accrued interest thereon.

The interest on the Replacement Term Loan was LIBOR plus 10.75% per annum, subject to a 1.00% LIBOR floor, of which 4.00% was payable in cash and the remainder of which was PIK interest (provided that the Company may elect on not more than one occasion to pay all interest as PIK interest). The Eleventh Amendment provided for a 1.00% PIK closing fee, which was added to the principal amount of the Replacement Term Loan on the closing date and provided for a prepayment penalty on the entire principal amount of the Replacement Term Loan in an amount equal to 3.0% of the aggregate principal amount prepaid prior to December 31, 2021.

In February 2021, the Company entered into the Senior Term Loan Credit Agreement, as defined and described below. The proceeds received from the initial borrowings under the Senior Term Loan Credit Agreement were used to repay in full all outstanding debt and accrued interest on the Company’s Replacement Term Loan. As a result of the repayment, the Term Loan Agreement was terminated and is no longer in effect. During the six months ended June 30, 2021, the Company recognized $11.7 million as loss on debt extinguishment in the accompanying condensed consolidated statements of operations, in accordance with ASC 470-50. Included in the loss was $8.9 million of unamortized debt issuance and others costs and a $2.8 million prepayment penalty.

During the three and six months ended June 30, 2021, the Company recognized no amortization of debt issuance costs and $0.4 million amortization of debt issuance costs, respectively, and during the three and six months ended June 30, 2020, the Company recognized no amortization of debt issuance costs in the accompanying condensed consolidated statements of operations.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of December 31, 2020, the Company had total unamortized debt issuance and discount costs of $9.1 million, all of which were recorded as a reduction of long-term debt in the accompanying condensed consolidated balance sheets.

During the three and six months ended June 30, 2021, the Company recognized no PIK interest and $0.7 million of PIK interest, respectively, and during the three and six months ended June 30, 2020, the Company recognized no PIK interest in the accompanying condensed consolidated statements of operations.

As of December 31, 2020, the Company had $90.2 million of aggregate principal outstanding.

Senior Term Loan Credit Agreement

On February 2, 2021, the Company entered into a credit agreement (the “Senior Term Loan Credit Agreement”) with Atlantic Park Strategic Capital Fund, L.P. (“Atlantic Park”), as administrative agent and collateral agent, and the lenders party thereto (collectively, the “Lenders”). The Senior Term Loan Credit Agreement provides for an initial term loan facility in the aggregate principal amount of $100.0 million, all of which has been borrowed by the Company and was used to repay the Replacement Term Loan, as described above, and a delayed draw term loan facility in the aggregate principal amount of up to $125.0 million, which may be drawn by the Company in up to three separate borrowings through June 30, 2022. A ticking fee of 25 basis points per annum will accrue on the undrawn portion of the delayed draw term loan facility.

Interest on the Senior Term Loan Credit Agreement is payable in cash on a quarterly basis at the interest rate of LIBOR plus 7.50% per annum, subject to a 1.00% LIBOR floor. The Senior Term Loan Credit Agreement includes customary affirmative and negative covenants, including a maximum total net leverage ratio requirement tested quarterly, commencing with the fiscal quarter ending March 31, 2023, not to exceed: 6.50 to 1.00. The Senior Term Loan Credit Agreement also contains a financial covenant that stipulates the Company will not make capital expenditures exceeding $27.5 million during any fiscal year. To the extent that the amount of capital expenditures is less than $27.5 million in any fiscal year, up to 50% of the difference may be carried forward and used for capital expenditures in the immediately succeeding fiscal year.

Following a one-year no-call period, the Senior Term Loan Credit Agreement provides for a 2.5% call premium for years two through five and no premium thereafter. All outstanding borrowings under the Senior Term Loan Credit Agreement mature on February 2, 2027.

All of the indebtedness under the Senior Term Loan Credit Agreement is and will be guaranteed by the Company’s existing and future United States, Canadian and Mexican subsidiaries and certain other foreign subsidiaries and is and will be secured by substantially all of the assets of the Company and such guarantors.

Pursuant to the Senior Term Loan Credit Agreement, the Company issued warrants (the “Senior Term Loan Warrants”) to Atlantic Park to purchase in the aggregate up to 3,905,486 shares of the Company’s common stock, with an exercise price of $9.00 per share, subject to adjustment as provided in the Senior Term Loan Warrants. The Senior Term Loan Warrants are exercisable at any time prior to February 2, 2026.

In accordance with guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging”, the Senior Term Loan Credit Agreement and the Senior Term Loan Warrants are each freestanding instruments and proceeds were allocated to each instrument on a relative fair value basis of $82.4 million and $17.6 million, respectively.

The Senior Term Loan Warrants are not within the scope of ASC 480 and do not meet the criteria for liability classification. However, the Senior Term Loan Warrants are determined to be indexed to the Company’s common stock and meet the requirements for equity classification pursuant to ASC 815-40, “Derivatives and Hedging - Contracts in Entity’s Own Equity”. The $17.6 million allocated to the Senior Term Loan Warrants was determined using an option pricing method and is recorded in common stock warrants in the accompanying condensed consolidated balance sheets.

Debt issuance costs of $5.4 million and original issue discount of $3.0 million were incurred in connection with entry into the Senior Term Loan Credit Agreement. The total costs of $8.4 million were allocated to each instrument on a relative fair value basis. The $7.1 million allocated to the Senior Term Loan Credit Agreement will be amortized into interest expense over the contractual term of the loan using the effective interest method and the $1.3 million allocated to the Senior Term Loan Warrants was recorded as a reduction of equity.

The Company determined the fair value of the Senior Term Loan Credit Agreement using a discount rate build up approach. The debt discount of $17.6 million created by the relative fair value allocation of the equity component is being amortized as additional non-cash interest expense using the effective interest method over the contractual term of the loan. The debt discount is recorded as a reduction of long-term debt in the accompanying condensed consolidated balance sheets.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the three and six months ended June 30, 2021, the Company recognized $0.7 million and $1.1 million, respectively, of amortization of debt issuance and discount costs in the accompanying condensed consolidated statements of operations.

As of June 30, 2021, the Company had total unamortized debt issuance and discount costs of $23.6 million, all of which were recorded as a reduction of long-term debt in the accompanying condensed consolidated balance sheets.

As of June 30, 2021, the Company had $100.0 million aggregate principal outstanding.

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. In connection with the issuance of the Convertible Notes, the Company entered into convertible note hedge transactions (the “Convertible Note Hedges”) in privately negotiated transactions with certain of the underwriters or their affiliates (in this capacity, the “option counterparties”). The Convertible Note Hedges provide the Company with the option to acquire, on a net settlement basis, 5,005,000 shares of its common stock, which is equal to the number of shares of common stock that notionally underlie the Convertible Notes, at a strike price of $24.98, which corresponds to the conversion price of the Convertible Notes. The Convertible Note Hedges have an expiration date that is the same as the maturity date of the Convertible Notes, subject to earlier exercise. The Convertible Note Hedges have customary anti-dilution provisions similar to the Convertible Notes.

During the second quarter of 2021, no conditions allowing holders of the Convertible Notes to convert have been met. Therefore, the Convertible Notes were not convertible during the second quarter of 2021 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 June 30, 2021, 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. 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.

During the three and six months ended June 30, 2021, the Company recognized total interest expense of $2.7 million and $5.3 million and during the three and six months ended June 30, 2020, the Company recognized total interest expense of $2.5 million and $5.1 million, respectively, in the accompanying condensed consolidated statements of operations. The interest expense recognized consists of contractual interest coupon, amortization of debt discount and amortization of debt issuance costs on the Convertible Notes, and is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
Contractual interest coupon on convertible debt	$	860	$	870	$	1,720	$	1,740
Amortization of debt issuance costs	140		140		270		270
Amortization of "equity discount" related to debt	1,650		1,520		3,300		3,040
Total	$	2,650	$	2,530	$	5,290	$	5,050

As of June 30, 2021 and December 31, 2020, the Company had total unamortized debt issuance and discount costs of $7.9 million and $11.5 million, respectively, all of which were recorded as a reduction of long-term debt in the accompanying condensed consolidated balance sheets.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of June 30, 2021 and December 31, 2020, the Company had $125.0 million and $125.0 million, respectively, of aggregate principal outstanding.

Paycheck Protection Program Loan

In April 2020, Horizon Global Company LLC (the “U.S. Borrower”), a direct U.S.-based subsidiary of the Company, received a loan from PNC Bank, National Association (“PNC”) for $8.7 million, pursuant to the Paycheck Protection Program (the “PPP Loan”) under Division A, Title I of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The PPP Loan, which is in the form of a note dated April 18, 2020 issued by the U.S. Borrower, matures on April 18, 2022. 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’s Frequently Asked Questions. During 2020, the Company, in accordance with the final guidance issued by the United States Department of the Treasury (the “Treasury”), met the need and sized based criteria of the program.

As of June 30, 2021, the Company has filed its application of loan forgiveness with PNC and the SBA for forgiveness of $8.0 million of the $8.7 million of funds originally received. The potential loan forgiveness is determined, subject to limitations, based on the use of loan proceeds for payment of qualifying expenses over the 24 weeks after the loan proceeds were disbursed. The unforgiven portion of the loan has an interest rate of 1.0% per annum, and in July 2021, the note was amended to make the unforgiven portion payable over five years on a monthly basis. The Company has deferred interest payments until the Company’s application for forgiveness is completed in accordance with the guidance issued by the SBA and Treasury and the terms of the Company’s PPP Loan. While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of our PPP Loan, there can be no assurance that forgiveness for any portion of the PPP Loan will be obtained.

The French Loan

In April 2020, S.I.A.R.R. SAS (the “French Borrower”), an indirect subsidiary of the Company, received a loan from BNP Paribas (the “French Loan”) for $5.5 million. On February 17, 2021, the French Borrower entered into an amendment to the French Loan. Under the terms of the amendment, the repayment of the loan was modified to monthly repayments of principal and interest beginning April 2022 through April 2026, from the original maturity of April 9, 2021. In addition, the interest rate on the French Loan was amended to a rate of 1.0% per annum and interest is payable monthly beginning April 2021.

Covenant and Liquidity Matters

The Company is in compliance with all of its financial covenants as of June 30, 2021.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Leases

The Company leases certain facilities, automobiles and equipment under non-cancellable operating leases. Our leases have remaining lease terms of one to eight 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.

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. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Refer to Note 3, Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the twelve months ended December 31, 2020, for more information.

Supplemental information for the Company’s leases is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
Operating lease cost	$	3,760	$	3,600	$	7,630	$	7,200


	Six Months Ended June 30,
	2021		2020
Operating cash flows from operating leases	$	6,120	$	8,110
ROU assets obtained in exchange for operating lease obligations	$	540	$	2,580


	June 30, 2021		December 31, 2020
Weighted average remaining lease term (years)	5.4		6.0
Weighted average discount rate	8.4	%	8.4	%

10. Contingencies

In April 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 Horizon 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 during the first quarter of 2020 in cost of sales of the accompanying condensed consolidated statements of operations. During the three and six months ended June 30, 2021, the Company recorded $0.1 million and $0.2 million of royalties, respectively, and during the three and six months ended June 30, 2020, the Company recorded $0.2 million of royalties, all of which were recorded in cost of sales in the accompanying condensed consolidated statements of operations.

As of June 30, 2021 and December 31, 2020, the Company had recorded $0.9 million and $0.9 million, respectively, in prepaid expenses and other current assets and $1.4 million and $1.8 million, respectively, in other assets, in the accompanying condensed consolidated balance sheets related to the royalties to be recognized by the Company over the life of future programs connected to the Settlement. In addition, as of June 30, 2021 and December 31, 2020, the Company had $0.9 million and $1.0 million, respectively, in accrued liabilities and $2.4 million and $2.9 million, respectively, in other long-term liabilities, in the accompanying condensed consolidated balance sheets related to the remaining semi-annual installment payments.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. 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, where dilutive to earnings per share.

A reconciliation of the numerator and the denominator of basic income (loss) per share attributable to Horizon Global and diluted income (loss) per share attributable to Horizon Global is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands, except for per share amounts)
Numerator:
Net income (loss) from continuing operations	$	960	$	(16,720)	$	(14,190)	$	(33,250)
Add: Loss from discontinued operations, net of tax	—		—		—		(500)
Less: Net loss attributable to noncontrolling interest	(330)		(380)		(670)		(670)
Net income (loss) attributable to Horizon Global	$	1,290	$	(16,340)	$	(13,520)	$	(33,080)
Denominator:
Weighted average shares outstanding, basic	27,022,652		25,618,793		26,883,818		25,509,794
Dilutive effect of common stock equivalents	5,724,551		—		—		—
Weighted average shares outstanding, diluted	32,747,203		25,618,793		26,883,818		25,509,794

Basic income (loss) per share attributable to Horizon Global
Continuing operations	$	0.05	$	(0.64)	$	(0.50)	$	(1.28)
Discontinued operations	—		—		—		(0.02)
Total	$	0.05	$	(0.64)	$	(0.50)	$	(1.30)
Diluted income (loss) per share attributable to Horizon Global
Continuing operations	$	0.04	$	(0.64)	$	(0.50)	$	(1.28)
Discontinued operations	—		—		—		(0.02)
Total	$	0.04	$	(0.64)	$	(0.50)	$	(1.30)

As a result of the net loss from continuing operations for the three months ended June 30, 2020 and six months ended June 30, 2021 and 2020, the effect of certain dilutive securities was 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 are as follows:

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Number of options	18,961	18,961	18,961	18,961
Exercise price of options	$9.20 - $11.02	$9.20 - $11.02	$9.20 - $11.02	$9.20 - $11.02
Restricted stock units	—	2,011,211	1,915,451	1,709,598
Convertible Notes	5,005,000	5,005,000	5,005,000	5,005,000
Convertible Notes warrants	5,005,000	5,005,000	5,005,000	5,005,000
Common stock warrants	3,905,486	6,443,910	8,596,184	6,443,910

For purposes of determining diluted loss per share, the Company has elected a policy to assume that the principal portion of the Convertible Notes, as described in Note 8, 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 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 loss per share.

12. Equity Awards

Description of the Plans

In June 2020, the shareholders approved the Horizon Global Corporation 2020 Equity and Incentive Compensation Plan (the “Horizon 2020 Plan”). Horizon employees, non-employee directors and certain consultants participate in the Horizon 2020 Plan. The Horizon 2020 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 U.S. Internal Revenue Code), appreciation rights, restricted shares, restricted stock units, performance shares, performance stock units, cash incentive awards, dividend equivalents and certain other awards based upon terms and conditions described in the Horizon 2020 Plan. No more than 4.1 million Horizon common shares may be delivered under the Horizon 2020 Plan, plus (A) the total number of shares remaining available for awards under the Horizon 2015 Plan, as defined and described below, as of June 19, 2020, plus (B) the shares that are subject to awards granted under the Horizon 2020 Plan or the Horizon 2015 Plan that are added (or added back, as applicable) to the aggregate number of shares available under the Horizon 2020 Plan pursuant to the share counting rules of the Horizon 2020 Plan. These shares may be shares of original issuance or treasury shares, or a combination of both.

Prior to the Horizon 2020 Plan, employees and non-employee directors participated in the Horizon Global Corporation 2015 Equity and Incentive Compensation Plan (as amended and restated, the “Horizon 2015 Plan”). The Horizon 2015 Plan authorized the Compensation Committee of the Horizon Board of Directors to grant stock options (including “incentive stock options” as defined in Section 422 of the U.S. 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.

Stock Options

Horizon’s stock option activity is as follows:

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Number of Stock Options	Weighted Average Exercise Price		Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2020	18,961	$	10.43
Granted	—	—
Exercised	—	—
Canceled, forfeited	—	—
Expired	—	—
Outstanding at June 30, 2021	18,961	$	10.43	4.5	$	—

As of June 30, 2021, there was no unrecognized compensation cost related to stock options. During the three and six months ended June 30, 2021 and 2020, there was no stock-based compensation expense recognized by the Company related to stock options. As of June 30, 2021, the aggregate intrinsic value of outstanding stock options was immaterial. Stock-based compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

Restricted Stock Units

During the six months ended June 30, 2021, the Company granted an aggregate of 524,711 restricted stock units (“RSUs”) and performance stock units (“PSUs”) to certain key employees and non-employee directors. The total grants consisted of: (i) 83,482 RSUs that vested during the period, (ii) 153,563 time-based RSUs vesting on a ratable basis on March 1, 2022, March 1, 2023 and March 1, 2024, (iii) 230,350 PSUs vesting on April 1, 2024 and (iv) 57,316 time-based RSUs vesting on May 28, 2022.

During 2020, the Company granted an aggregate of 1,502,072 RSUs and PSUs to certain key employees and non-employee directors. The total grants consisted of: (i) 284,859 time-based RSUs vesting on a ratable basis on March 3, 2021, March 3, 2022 and March 3, 2023; (ii) 277,228 time-based RSUs vesting on June 24, 2021; (iii) 21,351 time-based RSUs vesting on a ratable basis on April 2, 2021, March 3, 2022 and March 3, 2023 and (iv) 918,634 PSUs vesting on March 3, 2023.

The performance criteria for the PSUs granted is based on the Company’s three-year cumulative EBITDA. The grant date fair values for the PSUs and RSUs are based on the closing trading price of the Company’s common stock on the date of grant.

The grant date fair value of RSUs is expensed over the vesting period. Changes in the number of RSUs outstanding for the six months ended June 30, 2021 are as follows:


	Number of Restricted Stock Units(a)	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2020	1,800,682	$	3.14
Granted	524,711	8.96
Vested	(496,565)	2.63
Canceled, forfeited	(71,669)	5.21
Outstanding at June 30, 2021	1,757,159	$	4.94

(a)Includes PSUs at 100% attainment.

As of June 30, 2021, there was $5.7 million in unrecognized compensation costs related to unvested RSUs that is expected to be recognized over a weighted-average period of 2.2 years.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the three and six months ended June 30, 2021, the Company recognized $0.9 million and $1.7 million, respectively, of stock-based compensation expense related to RSUs, and during the three and six months ended June 30, 2020, the Company recognized $0.9 million and $1.3 million, respectively, of stock-based compensation expense related to RSUs. Stock-based compensation expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Shareholders’ Equity

Preferred Stock

The Company is authorized to issue 100,000,000 shares of preferred stock, par value of $0.01 per share. As of June 30, 2021 and December 31, 2020, there were no preferred shares outstanding.

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 June 30, 2021, there were 27,970,998 shares of common stock issued and 27,284,492 shares of common stock outstanding. As of December 31, 2020, there were 27,089,673 shares of common stock issued and 26,403,167 shares of common stock outstanding.

Common Stock Warrants

In March 2019, in connection with the Second Lien Term Loan, the Company became obligated to issue detachable warrants to purchase up to 6.25 million shares of the Company’s common stock, which can be exercised on a cashless basis over a five year term with an exercise price of $1.50 per share.

In February 2021, in connection with the Senior Term Loan Credit Agreement, the Company issued the Senior Term Loan Warrants to purchase up to 3,905,486 shares of the Company’s common stock, which can be exercised on a cashless basis over a five year term with an exercise price of $9.00 per share. See Note 8, Long-term Debt, for additional information.

As of June 30, 2021, warrants to purchase 1,228,490 shares of the Company’s common stock have been exercised, resulting in the issuance of 972,924 shares of the Company’s common stock. As of June 30, 2021, warrants to purchase 9,231,146 shares of the Company’s common stock were issued and remain outstanding. During the six months ended June 30, 2021, a related-party entity, JKI Holdings, LLC, an entity owned by the chair of our board of directors, exercised in full the warrants that it originally received in connection with the March 2019 issuance described above, and paid the exercise price in cash and received 278,283 shares of common stock. During the six months ended June 30, 2021, the Company recognized $0.3 million of non-cash transactions in connection with warrants exercised.

Accumulated Other Comprehensive Income (Loss) (“AOCI”)

The change in AOCI attributable to Horizon Global by component, net of tax, for the six months ended June 30, 2021 is as follows:


	Foreign Currency Translation and Other
	(dollars in thousands)
Balance at January 1, 2021	$	(6,540)
Net unrealized losses arising during the period	(2,420)
Net change	(2,420)
Balance at June 30, 2021	$	(8,960)

The change in AOCI attributable to Horizon Global by component, net of tax, for the six months ended June 30, 2020 is as follows:


	Foreign Currency Translation and Other
	(dollars in thousands)
Balance at January 1, 2020	$	(9,790)
Net unrealized losses arising during the period	(2,300)
Net change	(2,300)
Balance at June 30, 2020	$	(12,090)

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Segment Information

The Company groups its business into operating segments generally 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 operations, and prior to the Brazil Sale also included the Company’s South American operations. Horizon Europe-Africa is comprised of the Company’s European and South African operations. See below for further information regarding the types of products and services provided within each operating segment.

The Company previously had a third operating segment, Horizon Asia-Pacific (“APAC”); however, the APAC segment was sold on September 19, 2019, and is presented as a discontinued operation in the accompanying condensed consolidated financial statements. During the first quarter of 2020, the remaining post-closing conditions of the sale were completed, resulting in a true up to net cash proceeds, which were recognized as a loss on sale of discontinued operations of $0.5 million in accordance with Accounting Standards Codification 205, “Discontinued Operations”.

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 automotive OEMs, automotive 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 Company’s operating segment activity is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
Net Sales
Horizon Americas	$	128,380	$	74,120	$	238,210	$	166,490
Horizon Europe-Africa	93,740		46,370		183,100		117,250
Total	$	222,120	$	120,490	$	421,310	$	283,740
Operating Profit (Loss)
Horizon Americas	$	16,760	$	3,430	$	28,600	$	6,160
Horizon Europe-Africa	1,240		(5,970)		2,700		(8,480)
Corporate	(6,670)		(5,430)		(13,190)		(12,330)
Total	$	11,330	$	(7,970)	$	18,110	$	(14,650)

HORIZON GLOBAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. 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.

During the three and six months ended June 30, 2021, the effective income tax rate was 59.3% and (20.4)%, respectively. During the three and six months ended June 30, 2020, the effective income tax rate was (0.5)% and (0.2)%, respectively. The differences in the effective tax rate compared to the statutory tax rate is attributable to the valuation allowance recorded in the U.S. and several foreign jurisdictions, which resulted in no income tax benefit recognized for jurisdictional pretax losses, and therefore, are excluded from the estimated effective tax rate.

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 U.S. 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 June 30, 2021, the Company believes that it is more likely than not that the recorded deferred tax assets will be realized.

16. Other Expense, Net

Other expense, net consists of the following components:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(dollars in thousands)
Loss on sale of business	$	(2,230)	$	—	$	(2,230)	$	—
Foreign currency gain (loss)	460		(220)		(1,650)		(1,750)
Customer pay discounts	(260)		(270)		(500)		(540)
Other, net	40		40		160		170
Total	$	(1,990)	$	(450)	$	(4,220)	$	(2,120)

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 twelve months ended December 31, 2020 (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 primarily in the North American, European and African markets, primarily servicing the aftermarket, automotive original equipment manufacturers (“automotive OEMs”) and automotive original equipment servicers (“automotive OESs”) (collectively, “OEs”), retail, e-commerce and industrial channels, supporting our customers generally 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 in recent years, including the operational improvement initiatives implemented in 2019-2020, which are continuously ongoing to support margin expansion;

•Our ability to continue to manage our liquidity, including continuing to service our debt obligations and comply with the applicable financial covenants thereto, especially given our recent debt refinancing and capital structure alignment to support business growth and the Company’s long-term strategic plan;

•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 or realign our geographic coverage or distribution channels and realize desired operating efficiencies and product line or customer content penetration;

•Our ability to manage our cost structure more efficiently via global supply base management, internal sourcing and/or purchasing of materials, freight and logistics management, selective outsourcing of support functions, working capital management and a global approach to leverage our administrative functions; and

•Our ability to manage liquidity and other economic and business uncertainties related to the COVID-19 pandemic that may result in future business disruption, including any mandated operating restrictions such as temporary facility closures.

If we are unable to do any of the foregoing successfully, our financial condition and results of operations could be materially and adversely impacted.

Horizon Global reports its business in two operating segments: Horizon Americas and Horizon Europe-Africa. See Note 14, 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.

Shipping and handling costs associated with outbound freight are accounted for as a fulfillment cost and are included in cost of sales in our condensed consolidated statements of operations. Other shipping and handling expenses, which primarily relate to Horizon Americas’ distribution network, are included in selling, general and administrative expenses in our condensed consolidated statements of operations.

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 U.S. 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 U.S. 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 profit (loss) to measure stand-alone segment performance.

Adjusted EBITDA is defined as net income (loss) 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, gains (losses) on debt extinguishment, impairment of goodwill and other intangibles, non-cash stock compensation, certain product liability and litigation claims, acquisition and integration costs, gains (losses) on business divestitures and other assets, debt issuance costs, board transition support and non-cash unrealized foreign currency remeasurement costs.

The following table summarizes Adjusted EBITDA for our operating segments for the three months ended June 30, 2021:


	Three Months Ended June 30, 2021
	Horizon Americas		Horizon Europe-Africa		Corporate		Consolidated
	(dollars in thousands)
Net income attributable to Horizon Global							$	1,290
Net loss attributable to noncontrolling interest							(330)
Net income							$	960
Interest expense							6,980
Income tax expense							1,400
Depreciation and amortization							5,220
EBITDA	$	15,980	$	5,040	$	(6,460)	$	14,560
Net loss attributable to noncontrolling interest	—		330		—		330
Restructuring, relocation and related business disruption costs	20		90		(40)		70
Non-cash stock compensation	—		—		850		850
Loss (gain) on business divestitures and other assets	2,480		(10)		—		2,470
Debt issuance costs	—		—		190		190
Unrealized foreign currency remeasurement costs	—		(340)		(110)		(450)
Adjusted EBITDA	$	18,480	$	5,110	$	(5,570)	$	18,020

The following table summarizes Adjusted EBITDA for our operating segments for the three months ended June 30, 2020:


	Three Months Ended June 30, 2020
	Horizon Americas		Horizon Europe-Africa		Corporate		Consolidated
	(dollars in thousands)
Net loss attributable to Horizon Global							$	(16,340)
Net loss attributable to noncontrolling interest							(380)
Net loss							$	(16,720)
Interest expense							8,220
Income tax expense							80
Depreciation and amortization							5,470
EBITDA	$	5,350	$	(3,250)	$	(5,050)	$	(2,950)
Net loss attributable to noncontrolling interest	—		380		—		380
Restructuring, relocation and related business disruption costs	410		30		210		650
Non-cash stock compensation	—		—		900		900
Loss on business divestitures and other assets	240		—		40		280
Debt issuance costs	—		—		560		560
Unrealized foreign currency remeasurement costs	(100)		690		(370)		220
Adjusted EBITDA	$	5,900	$	(2,150)	$	(3,710)	$	40

Segment Information

Financial information for our operating segments for the three months ended June 30, 2021 and 2020 is as follows:


	Three Months Ended June 30,								Change				Constant Currency Change
	2021		As a Percentage of Net Sales		2020		As a Percentage of Net Sales		$		%		$		%
	(dollars in thousands)
Net Sales
Horizon Americas	$	128,380	57.8	%	$	74,120	61.5	%	$	54,260	73.2	%	$	54,270	73.2	%
Horizon Europe-Africa	93,740		42.2	%	46,370		38.5	%	47,370		102.2	%	39,480		85.1	%
Total	$	222,120	100.0	%	$	120,490	100.0	%	$	101,630	84.3	%	$	93,750	77.8	%
Gross Profit
Horizon Americas	$	35,080	27.3	%	$	18,140	24.5	%	$	16,940	93.4	%	$	16,700	92.1	%
Horizon Europe-Africa	12,210		13.0	%	(90)		(0.2)	%	12,300		13,666.7	%	11,390		12,655.6	%
Total	$	47,290	21.3	%	$	18,050	15.0	%	$	29,240	162.0	%	$	28,090	155.6	%
Selling, General and Administrative Expenses
Horizon Americas	$	18,320	14.3	%	$	14,730	19.9	%	$	3,590	24.4	%	$	3,480	23.6	%
Horizon Europe-Africa	10,970		11.7	%	5,870		12.7	%	5,100		86.9	%	4,140		70.5	%
Corporate	6,670		N/A		5,420		N/A		1,250		23.1	%	1,250		23.1	%
Total	$	35,960	16.2	%	$	26,020	21.6	%	$	9,940	38.2	%	$	8,870	34.1	%
Operating Profit (Loss)
Horizon Americas	$	16,760	13.1	%	$	3,430	4.6	%	$	13,330	388.6	%	$	13,210	385.1	%
Horizon Europe-Africa	1,240		1.3	%	(5,970)		(12.9)	%	7,210		120.8	%	7,240		121.3	%
Corporate	(6,670)		N/A		(5,430)		N/A		(1,240)		(22.8	%)	(1,240)		(22.8	%)
Total	$	11,330	5.1	%	$	(7,970)	(6.6)	%	$	19,300	242.2	%	$	19,210	241.0	%
Capital Expenditures
Horizon Americas	$	2,880	2.2	%	$	900	1.2	%	$	1,980	220.0	%	$	1,970	218.9	%
Horizon Europe-Africa	3,700		3.9	%	490		1.1	%	3,210		655.1	%	3,170		646.9	%
Corporate	—		N/A		—		N/A		—		—	%	—		—	%
Total	$	6,580	3.0	%	$	1,390	1.2	%	$	5,190	373.4	%	$	5,140	369.8	%
Depreciation of Property and Equipment and Amortization of Intangibles
Horizon Americas	$	1,780	1.4	%	$	2,040	2.8	%	$	(260)	(12.7	%)	$	(280)	(13.7	%)
Horizon Europe-Africa	3,390		3.6	%	3,370		7.3	%	20		0.6	%	(260)		(7.7	%)
Corporate	50		N/A		60		N/A		(10)		(16.7	%)	(10)		(16.7	%)
Total	$	5,220	2.4	%	$	5,470	4.5	%	$	(250)	(4.6	%)	$	(550)	(10.1	%)
Adjusted EBITDA
Horizon Americas	$	18,480	14.4	%	$	5,900	8.0	%	$	12,580	213.2	%	N/A		N/A
Horizon Europe-Africa	5,110		5.5	%	(2,150)		(4.6)	%	7,260		337.7	%	N/A		N/A
Corporate	(5,570)		N/A		(3,710)		N/A		(1,860)		(50.1	%)	N/A		N/A
Total	$	18,020	8.1	%	$	40	—	%	$	17,980	44,950.0	%	N/A		N/A

Results of Operations

Three Months Ended June 30, 2021 Compared with Three Months Ended June 30, 2020

Consolidated net sales increased $101.6 million, or 84.3%, to $222.1 million during the three months ended June 30, 2021, as compared to $120.5 million during the three months ended June 30, 2020. The impact was driven by an increase in net sales in Horizon Americas and Horizon Europe-Africa primarily as a result of the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that significantly impacted the Company in the second quarter of 2020. Net sales for Horizon Americas increased $54.3 million, driven primarily by increases in sales volumes in the aftermarket, automotive OEM and retail sales channels, as well as pricing recovery initiatives driven by commodity and input cost price increases. Net sales for Horizon Europe-Africa increased $47.3 million, driven primarily by increases in sales volumes in the automotive OEM, automotive OES and aftermarket sales channels, as well as $7.9 million of favorable currency translation.

Gross profit margin (gross profit as a percentage of net sales) was 21.3% and 15.0% during the three months ended June 30, 2021 and 2020, respectively. The improved gross profit margin is primarily due to higher net sales in Horizon Americas and Horizon Europe-Africa as detailed above, coupled with favorable net sales channel mix, as well as improved operating efficiency during the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, as a result of the impacts of the COVID-19 pandemic experienced in the second quarter of 2020.

Selling, general and administrative (“SG&A”) expenses increased $9.9 million, primarily attributable to $4.9 million higher personnel and other variable compensation costs combined across the Company, driven by temporary salary reductions in the U.S. and participation in certain payroll reimbursement programs in Horizon Europe-Africa in the second quarter of 2020 in response to the impacts of the COVID-19 pandemic. Unfavorable currency translation in Horizon Europe-Africa of $1.0 million also contributed to the increase.

Operating margin (operating profit (loss) as a percentage of net sales) was 5.1% and (6.6)% during the three months ended June 30, 2021 and 2020, respectively. Operating profit improved $19.3 million to an operating profit of $11.3 million during the three months ended June 30, 2021, from an operating loss of $(8.0) million during the three months ended June 30, 2020. Improved operating profit and operating margin were primarily due to the operational results detailed above.

Other expense, net increased $1.5 million to $2.0 million during the three months ended June 30, 2021, as compared to $0.5 million during the three months ended June 30, 2020, primarily attributable to the $2.2 million loss on the sale of the Company’s Brazil business during the three months ended June 30, 2021. Refer to Note 4, Goodwill and Other Intangible Assets, in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this Quarterly Report on Form 10-Q for additional information of the sale of the Company’s Brazil business.

Interest expense decreased $1.2 million to $7.0 million during the three months ended June 30, 2021, as compared to $8.2 million during the three months ended June 30, 2020, primarily as a result of the Company’s February 2021 refinancing, which resulted in a new term loan agreement and replaced the Company’s existing term loan agreement. The new term loan included a lower interest rate and removed paid-in-kind interest, resulting in lower interest expense for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020. Refer to Note 8, Long-term Debt, in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this Quarterly Report on Form 10-Q for additional information of the Company’s February 2021 refinancing.

The effective income tax rate for the three months ended June 30, 2021 and 2020 was 59.3% and (0.5)%, respectively. The increase in tax expense and related impacts on the effective income tax rate for the three months ended June 30, 2021 is attributable to projected jurisdictional income mix in jurisdictions not in a valuation allowance, coupled with utilization limitations on usage of U.S. tax attributes. The difference in the effective tax rate compared to the statutory tax rate for both periods is attributable to the valuation allowance recorded in the U.S. and several foreign jurisdictions, which resulted in no income tax benefit recognized for jurisdictional pretax losses, and therefore, are excluded from the estimated effective tax rate.

Net income from continuing operations increased $17.7 million to $1.0 million during the three months ended June 30, 2021, compared to a net loss from continuing operations of $(16.7) million during the three months ended June 30, 2020. The improvement was attributable to the operational results detailed above.

See below for a discussion of operating results by segment.

Horizon Americas

Net sales by sales channel, in thousands, for Horizon Americas are as follows:


	Three Months Ended June 30,				Change
	2021		2020		$		%
Net Sales
Aftermarket	$	40,560	$	22,280	$	18,280	82.0	%
Automotive OEM	22,650		9,510		13,140		138.2	%
Automotive OES	4,240		1,080		3,160		292.6	%
Retail	32,610		22,830		9,780		42.8	%
E-commerce	19,730		13,370		6,360		47.6	%
Industrial	8,590		5,040		3,550		70.4	%
Other	—		10		(10)		(100.0)	%
Total	$	128,380	$	74,120	$	54,260	73.2	%

Net sales increased $54.3 million, or 73.2%, to $128.4 million during the three months ended June 30, 2021, as compared to $74.1 million during the three months ended June 30, 2020, primarily attributable to higher sales volumes in all sales channels. The increased volumes compared to the three months ended June 30, 2020, are attributable to the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that impacted the Company in the second quarter of 2020. Net sales also increased by $10.3 million in 2021 due to pricing increases, which were implemented to recover increased material and input costs. The increase was partially offset by a $5.0 million increase in sales returns and allowances during the three months ended June 30, 2021, as compared with the three months ended June 30, 2020, primarily as a result of the higher sales volumes experienced.

Horizon Americas’ gross profit increased $17.0 million, or 93.4%, to $35.1 million, or 27.3% of net sales, during the three months ended June 30, 2021, as compared to $18.1 million, or 24.5% of net sales, during the three months ended June 30, 2020. The increase in gross profit and gross profit margin reflects the changes in sales detailed above. Additionally, gross profit was impacted by the following:

–$0.9 million of favorable tariff recoveries;

–$5.2 million unfavorable manufacturing input costs, such as material costs due to increasing commodity and raw material market prices, coupled with other input costs; and

–$2.3 million unfavorable outbound freight costs driven by higher sales volumes discussed above.

SG&A increased $3.6 million to $18.3 million, or 14.3% of net sales, during the three months ended June 30, 2021, as compared to $14.7 million, or 19.9% of net sales, during the three months ended June 30, 2020. The increase in SG&A was primarily attributable to the cost saving initiatives implemented by the Company and corresponding savings realized during the second quarter of 2020 in response to the impacts of the COVID-19 pandemic. As a result, the increase in SG&A is attributable to the following:

–$2.3 million higher personnel and other variable compensation costs, primarily as a result of temporary salary reductions in the U.S. and other compensation and benefit cost reductions in the second quarter of 2020 in response to the impacts of the COVID-19 pandemic; and

–$0.9 million higher outside professional fees and other administrative costs.

Horizon Americas’ operating profit increased $13.4 million to $16.8 million, or 13.1% of net sales, during the three months ended June 30, 2021, as compared to $3.4 million, or 4.6% of net sales, during the three months ended June 30, 2020. Improved operating profit and operating margin were primarily due to the operational results detailed above.

Horizon Americas’ Adjusted EBITDA increased $12.6 million to $18.5 million during the three months ended June 30, 2021, as compared to Adjusted EBITDA of $5.9 million during the three months ended June 30, 2020. Adjusted EBITDA improved primarily due to the operational results detailed above.

Horizon Europe-Africa

Net sales by sales channel, in thousands, for Horizon Europe-Africa are as follows:


	Three Months Ended June 30,				Change
	2021		2020		$		%
Net Sales
Aftermarket	$	26,130	$	16,680	$	9,450	56.7	%
Automotive OEM	44,190		20,620		23,570		114.3	%
Automotive OES	19,970		7,720		12,250		158.7	%
E-commerce	1,960		230		1,730		752.2	%
Industrial	630		340		290		85.3	%
Other	860		780		80		10.3	%
Total	$	93,740	$	46,370	$	47,370	102.2	%

Net sales increased $47.3 million, or 102.2%, to $93.7 million during the three months ended June 30, 2021, as compared to $46.4 million, during the three months ended June 30, 2020, primarily attributable to higher sales volumes in the automotive OEM, automotive OES and aftermarket sales channels. The increased volumes are attributable to the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that impacted the Company in the second quarter of 2020. The increase was also due to $7.9 million of favorable currency translation.

Horizon Europe-Africa’s gross profit increased $12.3 million, or 13,666.7%, to $12.2 million, or 13.0% of net sales, during the three months ended June 30, 2021, from $(0.1) million, or (0.2)% of net sales, during the three months ended June 30, 2020. The increase in gross profit and gross profit margin reflects the changes in sales detailed above. Additionally, gross profit was impacted by the following:

–$2.5 million higher labor costs, primarily as a result of payroll costs reimbursed in the prior year under terms of certain government payroll reimbursement programs;

–$1.1 million unfavorable outbound freight costs driven by higher sales volumes discussed above; and

–$0.8 million unfavorable manufacturing input costs, such as material costs due to increasing commodity and raw material market prices, coupled with other input costs.

SG&A increased $5.1 million to $11.0 million, or 11.7% of net sales, during the three months ended June 30, 2021, as compared to $5.9 million, or 12.7% of net sales, during the three months ended June 30, 2020. The increase in SG&A was primarily attributable to the cost saving initiatives implemented by the Company and corresponding savings realized during the second quarter of 2020 in response to the impacts of the COVID-19 pandemic. As a result, the increase in SG&A is attributable to the following:

–$1.3 million of higher personnel and other variable compensation cost, partially as a result of payroll costs reimbursed in the prior year under terms of certain government payroll reimbursement programs;

–$1.3 million of higher outside professional fees and other administrative costs; and

–$1.0 million of unfavorable currency translation.

Horizon Europe-Africa’s operating profit increased $7.2 million to an operating profit of $1.2 million, or 1.3% of net sales, during the three months ended June 30, 2021, as compared to an operating loss of $(6.0) million, or (12.9)% of net sales, during the three months ended June 30, 2020. Improved operating profit and operating margin were primarily due to the operational results detailed above.

Horizon Europe-Africa’s Adjusted EBITDA increased $7.3 million to $5.1 million during the three months ended June 30, 2021, as compared to Adjusted EBITDA of $(2.2) million during the three months ended June 30, 2020. Adjusted EBITDA improved primarily due to the operational results detailed above.

Corporate Expenses

Corporate expenses included in operating profit increased $1.3 million to $6.7 million during the three months ended June 30, 2021, as compared to $5.4 million during the three months ended June 30, 2020. The increase was primarily attributable to the following:

–$1.3 million higher personnel and other variable compensation costs, primarily as a result of temporary salary reductions in the U.S. and other compensation and benefit cost reductions in the second quarter of 2020 in response to the impacts of the COVID-19 pandemic.

Corporate Adjusted EBITDA was $(5.6) million during the three months ended June 30, 2021, as compared to Adjusted EBITDA of $(3.7) million during the three months ended June 30, 2020. The change in Adjusted EBITDA was primarily due to the operational results detailed above.

The following table summarizes Adjusted EBITDA for our operating segments for the six months ended June 30, 2021:


	Six Months Ended June 30, 2021
	Horizon Americas		Horizon Europe-Africa		Corporate		Consolidated
	(dollars in thousands)
Net loss attributable to Horizon Global							$	(13,520)
Net loss attributable to noncontrolling interest							(670)
Net loss							$	(14,190)
Interest expense							14,030
Income tax expense							2,400
Depreciation and amortization							10,720
EBITDA	$	29,180	$	8,830	$	(25,050)	$	12,960
Net loss attributable to noncontrolling interest	—		670		—		670
Restructuring, relocation and related business disruption costs	(840)		20		(40)		(860)
Loss on debt extinguishment	—		—		11,650		11,650
Non-cash stock compensation	—		—		1,710		1,710
Loss (gain) on business divestitures and other assets	2,720		(10)		—		2,710
Debt issuance costs	—		—		190		190
Unrealized foreign currency remeasurement costs	270		950		420		1,640
Adjusted EBITDA	$	31,330	$	10,460	$	(11,120)	$	30,670

The following table summarizes Adjusted EBITDA for our operating segments for the six months ended June 30, 2020:


	Six Months Ended June 30, 2020
	Horizon Americas		Horizon Europe-Africa		Corporate		Consolidated
	(dollars in thousands)
Net loss attributable to Horizon Global							$	(33,080)
Net loss attributable to noncontrolling interest							(670)
Net loss							$	(33,750)
Interest expense							16,410
Income tax expense							70
Depreciation and amortization							10,530
EBITDA	$	10,290	$	(4,340)	$	(12,690)	$	(6,740)
Net loss attributable to noncontrolling interest	—		670		—		670
Loss from discontinued operations, net of tax	—		—		500		500
Severance	530		20		(10)		540
Restructuring, relocation and related business disruption costs	1,300		30		320		1,650
Non-cash stock compensation	—		—		1,320		1,320
Loss (gain) on business divestitures and other assets	600		(180)		40		460
Product liability and litigation claims	—		1,510		—		1,510
Debt issuance costs	—		—		1,310		1,310
Unrealized foreign currency remeasurement costs	(700)		2,440		10		1,750
Adjusted EBITDA	$	12,020	$	150	$	(9,200)	$	2,970

The following table summarizes financial information for our operating segments for the six months ended June 30, 2021 and 2020:


	Six Months Ended June 30,								Change				Constant Currency Change
	2021		As a Percentage of Net Sales		2020		As a Percentage of Net Sales		$		%		$		%
	(dollars in thousands)
Net Sales
Horizon Americas	$	238,210	56.5	%	$	166,490	58.7	%	$	71,720	43.1	%	$	72,160	43.3	%
Horizon Europe-Africa	183,100		43.5	%	117,250		41.3	%	65,850		56.2	%	51,020		43.5	%
Total	$	421,310	100.0	%	$	283,740	100.0	%	$	137,570	48.5	%	$	123,180	43.4	%
Gross Profit
Horizon Americas	$	64,350	27.0	%	$	37,760	22.7	%	$	26,590	70.4	%	$	26,450	70.0	%
Horizon Europe-Africa	23,500		12.8	%	6,540		5.6	%	16,960		259.3	%	15,180		232.1	%
Total	$	87,850	20.9	%	$	44,300	15.6	%	$	43,550	98.3	%	$	41,630	94.0	%
Selling, General and Administrative Expenses
Horizon Americas	$	35,750	15.0	%	$	31,620	19.0	%	$	4,130	13.1	%	$	4,120	13.0	%
Horizon Europe-Africa	20,800		11.4	%	15,020		12.8	%	5,780		38.5	%	4,070		27.1	%
Corporate	13,190		N/A		12,310		N/A		880		7.1	%	880		7.1	%
Total	$	69,740	16.6	%	$	58,950	20.8	%	$	10,790	18.3	%	$	9,070	15.4	%
Operating Profit (Loss)
Horizon Americas	$	28,600	12.0	%	$	6,160	3.7	%	$	22,440	364.3	%	$	22,320	362.3	%
Horizon Europe-Africa	2,700		1.5	%	(8,480)		(7.2)	%	11,180		131.8	%	11,090		130.8	%
Corporate	(13,190)		N/A		(12,330)		N/A		(860)		(7.0)	%	(860)		(7.0)	%
Total	$	18,110	4.3	%	$	(14,650)	(5.2)	%	$	32,760	223.6	%	$	32,550	222.2	%
Capital Expenditures
Horizon Americas	$	4,380	1.8	%	$	1,470	0.9	%	$	2,910	198.0	%	$	2,900	197.3	%
Horizon Europe-Africa	5,560		3.0	%	3,980		3.4	%	1,580		39.7	%	1,060		26.6	%
Corporate	—		N/A		—		N/A		—		—	%	—		—	%
Total	$	9,940	2.4	%	$	5,450	1.9	%	$	4,490	82.4	%	$	3,960	72.7	%
Depreciation of Property and Equipment and Amortization of Intangibles
Horizon Americas	$	3,690	1.5	%	$	4,200	2.5	%	$	(510)	(12.1)	%	$	(500)	(11.9)	%
Horizon Europe-Africa	6,930		3.8	%	6,220		5.3	%	710		11.4	%	160		2.6	%
Corporate	100		N/A		110		N/A		(10)		(9.1)	%	(10)		(9.1)	%
Total	$	10,720	2.5	%	$	10,530	3.7	%	$	190	1.8	%	$	(350)	(3.3)	%
Adjusted EBITDA
Horizon Americas	$	31,330	13.2	%	$	12,020	7.2	%	$	19,310	160.6	%	N/A		N/A
Horizon Europe-Africa	10,460		5.7	%	150		0.1	%	10,310		6,873.3	%	N/A		N/A
Corporate	(11,120)		N/A		(9,200)		N/A		(1,920)		(20.9)	%	N/A		N/A
Total	$	30,670	7.3	%	$	2,970	1.0	%	$	27,700	932.7	%	N/A		N/A

Results of Operations

Six Months Ended June 30, 2021 Compared with Six Months Ended June 30, 2020

Consolidated net sales increased $137.6 million, or 48.5%, to $421.3 million during the six months ended June 30, 2021, as compared to $283.7 million during the six months ended June 30, 2020. The impact was driven by an increase in net sales in Horizon Americas and Horizon Europe-Africa primarily as a result of the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that began to impact the Company near the end of the first quarter of 2020, and significantly impacted the Company during the second quarter of 2020. Net sales for Horizon Americas increased $71.7 million, driven primarily by increases in sales volumes in the aftermarket, automotive OEM, retail and e-commerce sales channels, as well as pricing recovery initiatives driven by commodity and input cost price increases. Net sales for Horizon Europe-Africa increased $65.9 million, driven primarily by increases in sales volumes in the automotive OEM, automotive OES and aftermarket sales channels, as well as $14.8 million of favorable currency translation.

Gross profit margin was 20.9% and 15.6% during the six months ended June 30, 2021 and 2020, respectively. The improved gross profit margin is primarily due to higher net sales in Horizon Americas and Horizon Europe-Africa as detailed above, coupled with favorable net sales channel mix, as well as improved operating efficiency during the six months ended June 30, 2021, as compared to six months ended June 30, 2020, as a result of the impacts of the COVID-19 pandemic experienced during the six months ended June 30, 2020.

SG&A increased $10.8 million primarily attributable to $7.9 million higher personnel and other variable compensation costs combined across the Company, driven primarily by temporary salary reductions in the U.S. and the Company’s participation in certain payroll reimbursement programs in the second quarter of 2020 in response to the impacts of the COVID-19 pandemic. Unfavorable currency translation in Horizon Europe-Africa of $1.7 million also contributed to the increase.

Operating margin was 4.3% and (5.2)% during the six months ended June 30, 2021 and 2020, respectively. Operating profit improved $32.8 million to an operating profit of $18.1 million during the six months ended June 30, 2021, from an operating loss of $(14.7) million during the six months ended June 30, 2020. Improved operating profit and operating margin were primarily due to the operational results detailed above.

Other expense, net increased $2.1 million to $4.2 million during the six months ended June 30, 2021, as compared to $2.1 million during the six months ended June 30, 2020, primarily attributable to the $2.2 million loss on the sale of the Company’s Brazil business completed during the second quarter of 2021. Refer to Note 4, Goodwill and Other Intangible Assets, in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this Quarterly Report on Form 10-Q for additional information of the sale of the Company’s Brazil business.

Interest expense decreased $2.4 million to $14.0 million during the six months ended June 30, 2021, as compared to $16.4 million during the six months ended June 30, 2020, primarily as a result of the Company’s February 2021 refinancing, which resulted in a new term loan agreement and replaced the Company’s existing term loan agreement. The new term loan included a lower interest rate and removed paid-in-kind interest, resulting in lower interest expense for the six months ended June 30, 2021. Additionally, as a result of the refinancing, the Company incurred an $11.7 million loss on debt extinguishment related to the termination of the existing term loan agreement. Refer to Note 8, Long-term Debt, in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this Quarterly Report on Form 10-Q for additional information.

The effective income tax rate for the six months ended June 30, 2021 and 2020 was (20.4)% and (0.2)%, respectively. The increase in tax expense and related impacts on the effective income tax rate for the six months ended June 30, 2021 is attributable to projected jurisdictional income mix in jurisdictions not in a valuation allowance, coupled with utilization limitations on usage of U.S. tax attributes. The difference in the effective tax rate compared to the statutory tax rate for both periods is attributable to the valuation allowance recorded in the U.S. and several foreign jurisdictions, which resulted in no income tax benefit recognized for jurisdictional pretax losses, and therefore, are excluded from the estimated effective tax rate.

Net loss from continuing operations improved $19.1 million, to a net loss of $(14.2) million for the six months ended June 30, 2021, compared to a net loss from continuing operations of $(33.3) million for the six months ended June 30, 2020. The improvement was attributable to the operational results detailed above.

Loss from discontinued operations, net of tax is attributable to the sale of the Company’s former APAC operating segment, which was sold in September 2019. During the six months ended June 30, 2020, the remaining post-closing conditions of the sale were completed, including a true up to net cash proceeds, which resulted in a loss on sale of discontinued operations of $0.5 million, in accordance with Accounting Standards Codification 205-20, “Discontinued Operations”.

See below for a discussion of operating results by segment.

Horizon Americas

Net sales by sales channel, in thousands, for Horizon Americas are as follows:


	Six Months Ended June 30,				Change
	2021		2020		$		%
Net Sales
Aftermarket	$	72,250	$	49,050	$	23,200	47.3	%
Automotive OEM	50,170		29,870		20,300		68.0	%
Automotive OES	8,100		2,350		5,750		244.7	%
Retail	55,190		46,400		8,790		18.9	%
E-commerce	34,250		25,880		8,370		32.3	%
Industrial	18,250		12,890		5,360		41.6	%
Other	—		50		(50)		N/A
Total	$	238,210	$	166,490	$	71,720	43.1	%

Net sales increased $71.7 million, or 43.1%, to $238.2 million during the six months ended June 30, 2021, as compared to $166.5 million during the six months ended June 30, 2020, primarily attributable to higher sales volumes in all sales channels. The increased volumes compared to the six months ended June 30, 2020, are attributable to the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that began to impact the Company near the end of the first quarter of 2020, and significantly impacted the Company during the second quarter of 2020. Net sales also increased by $13.1 million in 2021 due to pricing increases, which were implemented to recover increased material and input costs. The increase was partially offset by a $3.7 million increase in sales returns and allowances during the six months ended June 30, 2021, as compared with the six months ended June 30, 2020, primarily as a result of the higher sales volumes experienced.

Horizon Americas’ gross profit increased $26.6 million, or 70.4%, to $64.4 million, or 27.0% of net sales, during the six months ended June 30, 2021, as compared to $37.8 million, or 22.7% of net sales, during the six months ended June 30, 2020. The increase in gross profit and gross profit margin reflects the changes in sales detailed above. Additionally, gross profit was impacted by the following:

–$2.1 million of favorable tariff recoveries;

–$4.0 million unfavorable outbound freight costs driven by higher sales volumes discussed above; and

–$3.7 million unfavorable manufacturing input costs, such as material costs due to increasing commodity and raw material market prices, coupled with other input costs.

SG&A increased $4.2 million to $35.8 million, or 15.0% of net sales during the six months ended June 30, 2021, as compared to $31.6 million, or 19.0% of net sales, during the six months ended June 30, 2020. The increase in SG&A was primarily attributable to the cost saving initiatives implemented by the Company and corresponding savings realized during the second quarter of 2020 in response to the impacts of the COVID-19 pandemic. As a result, the increase in SG&A is attributable to the following:

–$3.8 million higher personnel and other variable compensation costs, primarily as a result of temporary salary reductions in the U.S. and other compensation and benefit cost reductions in the second quarter of 2020 in response to the impacts of the COVID-19 pandemic;

–$1.5 million higher distribution center lease and variable operating and other support costs; partially offset by:

–$0.8 million lower depreciation and amortization.

Horizon Americas’ operating profit increased $22.4 million to $28.6 million, or 12.0% of net sales, during the six months ended June 30, 2021, as compared to $6.2 million, or 3.7% of net sales, during the six months ended June 30, 2020. Improved operating profit and operating margin were primarily due to the operational results detailed above.

Horizon Americas’ Adjusted EBITDA increased $19.3 million to $31.3 million during the six months ended June 30, 2021, as compared to Adjusted EBITDA of $12.0 million during the six months ended June 30, 2020. Adjusted EBITDA improved primarily due to operational results detailed above.

Horizon Europe-Africa

Net sales by sales channel, in thousands, for Horizon Europe-Africa are as follows:


	Six Months Ended June 30,				Change
	2021		2020		$		%
Net Sales
Aftermarket	$	48,550	$	32,390	$	16,160	49.9	%
Automotive OEM	92,750		62,020		30,730		49.5	%
Automotive OES	36,030		20,180		15,850		78.5	%
E-commerce	3,390		660		2,730		413.6	%
Industrial	1,180		660		520		78.8	%
Other	1,200		1,340		(140)		(10.4)	%
Total	$	183,100	$	117,250	$	65,850	56.2	%

Net sales increased $65.9 million, or 56.2%, to $183.1 million during the six months ended June 30, 2021, as compared to $117.3 million during the six months ended June 30, 2020, primarily attributable to higher sales volumes in the automotive OEM, automotive OES and aftermarket sales channels. The increased volumes are attributable to the impacts of economic uncertainty and business disruptions of the COVID-19 pandemic that began to impact the Company near the end of the first quarter of 2020, and significantly impacted the Company during the second quarter of 2020. The increase was also due to $14.8 million of favorable currency translation.

Horizon Europe-Africa’s gross profit increased $17.0 million, or 259.3%, to $23.5 million, or 12.8% of net sales, during the six months ended June 30, 2021, from $6.5 million, or 5.6% of net sales, during the six months ended June 30, 2020. The increase in gross profit margin reflects the changes in sales detailed above. Additionally, gross profit was impacted by the following:

–$3.7 million favorable manufacturing costs driven by improved operating efficiency and partially offset by unfavorable manufacturing input costs, such as material costs due to increasing commodity and raw material market prices, coupled with other input costs;

–$1.5 million favorable litigation settlement costs related to the charge incurred in the prior year for settlement of intellectual property infringement claims, see Note 10, Contingencies, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements” for more information;

–$3.9 million higher labor costs, primarily as a result of payroll costs reimbursed in the prior year under terms of certain government payroll reimbursement programs; and

–$1.3 million unfavorable outbound freight costs driven by higher sales volumes discussed above.

SG&A increased $5.8 million to $20.8 million, or 11.4% of net sales during the six months ended June 30, 2021, as compared to $15.0 million, or 12.8% of net sales, during the six months ended June 30, 2020. The increase in SG&A was primarily attributable to the cost saving initiatives implemented by the Company and corresponding savings realized during the second quarter of 2020 in response to the impacts of the COVID-19 pandemic. As a result, the increase in SG&A is attributable to the following:

–$1.8 million higher personnel and other variable compensation cost, partially as a result of payroll costs reimbursed in the prior year under terms of certain government payroll reimbursement programs;

–$1.2 million of higher outside professional fees and other administrative costs; and

–$1.7 million of unfavorable currency translation.

Horizon Europe-Africa’s operating profit increased $11.2 million to an operating profit of $2.7 million, or 1.5% of net sales during the six months ended June 30, 2021, as compared to an operating loss of $(8.5) million, or (7.2)% of net sales, during the six months ended June 30, 2020. Improved operating profit and operating margin were primarily due to the operational results described above.

Horizon Europe-Africa’s Adjusted EBITDA increased $10.3 million to $10.5 million during the six months ended June 30, 2021, as compared to Adjusted EBITDA of $0.2 million during the six months ended June 30, 2020. Adjusted EBITDA improved primarily due to operational results detailed above.

Corporate Expenses

Corporate expenses included in operating profit increased $0.9 million to $13.2 million during the six months ended June 30, 2021, as compared to $12.3 million during the six months ended June 30, 2020. The increase was primarily attributable to the following:

–$2.3 million higher personnel and other variable compensation costs primarily as a result of temporary salary reductions in the U.S. and other compensation and benefit cost reductions in the second quarter of 2020 in response to the impacts of the COVID-19 pandemic; partially offset by:

–$1.1 million lower costs incurred related to professional service fees and other costs associated with new debt issuance, amendments, and modifications and related structure changes.

Corporate Adjusted EBITDA was $(11.1) million during the six months ended June 30, 2021, as compared to Adjusted EBITDA of $(9.2) million during the six months ended June 30, 2020. The change in Adjusted EBITDA was primarily due to the higher personnel and compensation costs described above.

Liquidity and Capital Resources

Our capital and working capital requirements are funded through a combination of cash on hand, cash flows from operations, and various borrowings and factoring arrangements described below, including our asset-based Revolving Credit Facility (as defined below). As of June 30, 2021, and December 31, 2020, we had $12.9 million and $18.2 million, respectively, of cash and cash equivalents held at foreign subsidiaries. There may be country specific regulations, which may restrict or result in increased costs in the repatriation of these funds.

As of June 30, 2021 and December 31, 2020, total cash and availability was $62.0 million and $83.4 million, respectively. The Company defines cash and availability as cash and cash equivalents and amounts of cash accessible but undrawn from credit facilities.

During 2020, in response to the initial uncertain economic environment caused in part from the COVID-19 pandemic, the Company pursued funding from available government programs and other sources of liquidity designed to strengthen its balance sheet and enhance financial flexibility. These sources included short-term loans, some of which are forgivable if certain conditions are met as well as entering into or modifying other arrangements. A summary of these actions is described below.

As of June 30, 2021, the Company has filed its application of loan forgiveness with PNC and the SBA for forgiveness of $8.0 million of $8.7 million of funds originally received. The potential loan forgiveness is determined, subject to limitations, based on the use of loan proceeds for payment of qualifying expenses over the 24 weeks after the loan proceeds were disbursed. The unforgiven portion of the loan has an interest rate of 1.0% per annum, and in July 2021, the note was amended to make the unforgiven portion payable over five years on a monthly basis. The Company has deferred interest payments until the Company’s application for forgiveness is completed in accordance with the guidance issued by the SBA and Treasury and the terms of the Company’s PPP Loan. While we currently believe that our use of the loan proceeds will meet the conditions for forgiveness of our PPP Loan, there can be no assurance that forgiveness for any portion of the PPP Loan will be obtained.

In April 2020, S.I.A.R.R. SAS (the “French Borrower”), an indirect subsidiary of the Company, received a loan from BNP Paribas (the “French Loan”) for $5.5 million. On February 17, 2021, the French Borrower entered into an amendment to the French Loan, which under the terms of the amendment, the repayment of the loan was modified to monthly repayments of principal and interest beginning April 2022 through April 2026, from the original maturity of April 9, 2021. In addition, the interest rate on the French Loan was amended to a rate of 1.0% per annum and interest is payable monthly beginning April 2021.

In March 2020, Westfalia-Automotive GmbH (“Westfalia”), an indirect subsidiary of the Company, was approved for a government payroll reimbursement program in Germany under the Kurzarbeitergeld (the “KUG”). The KUG is designed to reimburse employers for payroll costs incurred and paid to employees affected by the business disruption and government mandated operating restrictions in place due to the COVID-19 pandemic for the period March 1, 2020 through August 31, 2020. Westfalia was approved to receive reimbursement of certain costs for the period March 19, 2020 through August 31, 2020. The Company was reimbursed $3.3 million for qualifying payroll costs under terms of the KUG for the twelve months ended December 31, 2020.

We believe the combination of these sources, as well as the changes to our capital structure following our recent refinancing activities, as fully summarized below, will enable us to meet our working capital, capital expenditures and other funding requirements. Our ability to fund our working capital needs, debt payments and other obligations, and to comply with financial covenants, including borrowing base limitations under our Revolving Credit Facility, depends on our future operating performance and cash flow and many factors outside of our control, including the costs of raw materials, the state of the automotive accessories market, financial and economic conditions and the extent and duration of the impact of the COVID-19 pandemic.

Cash Flows - Operating Activities

Net cash used for and provided by operating activities during the six months ended June 30, 2021 and 2020 was $(27.6) million and $4.9 million, respectively.

During the six months ended June 30, 2021, the Company generated $18.8 million in cash flows, based on the reported net loss of $(14.2) million and after considering the effects of non-cash items related to depreciation, amortization of intangible assets, loss on debt extinguishment, amortization of original issuance discount and debt issuance costs, deferred income taxes, non-cash compensation expense, paid-in-kind interest, and other, net. During the six months ended June 30, 2020, the Company used $(8.2) million in cash flows, based on the reported net loss of $(33.3) million and after considering the effects of similar non-cash items previously described.

Changes in operating assets and liabilities used $(46.5) million and sourced $13.1 million of cash during the six months ended June 30, 2021 and 2020, respectively.

Changes in accounts receivable resulted in a net use of cash of $(30.6) million and $(16.8) million during the six months ended June 30, 2021 and 2020, respectively. The increase in accounts receivable is higher in the six months ended June 30, 2021 as compared with the six months ended June 30, 2020 as a result of higher net sales activity in the second quarter of 2021 as compared with the second quarter of 2020 driven by the impacts of the COVID-19 pandemic that began to impact the Company near the end of the first quarter of 2020, and significantly impacted the Company during the second quarter of 2020.

Changes in inventory resulted in a use of cash of $(31.4) million during the six months ended June 30, 2021 and source of cash of $19.3 million during the six months ended June 30, 2020. The increase in inventory during the six months ended June 30, 2021 was due in part to recent macroeconomic factors, such as rising costs of raw materials, constraints on shipping container availability and port congestion leading to higher inventory costs and levels of in-transit inventory as well as seasonal inventory build in order to meet the demand of the Company’s traditional peak selling season. The decrease in inventory during the six months ended June 30, 2020 was due to improved inventory management coupled with the COVID-19 business disruptions that impacted the Company during the six months ended June 30, 2020.

Changes in accounts payable and accrued liabilities resulted in a source of cash of $16.0 million and $13.5 million during the six months ended June 30, 2021 and 2020, respectively. The higher source of cash for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 is primarily due to the working capital build during the six months ended June 30, 2021 for the Company’s peak selling season coupled with the mix of payments to suppliers and vendors and related terms.

Cash Flows - Investing Activities

Net cash used for investing activities during the six months ended June 30, 2021 and 2020 was $(9.9) million and $(5.4) million, respectively.

During the six months ended June 30, 2021 and 2020, capital expenditures were $(9.9) million and $(5.5) million, respectively, and related to growth, capacity and productivity-related projects within Horizon Americas and Horizon Europe-Africa. The increase in capital expenditures is primarily due to the Company’s curtailment or retiming of certain projects during the six months ended June 30, 2020, in response to the impacts and business disruptions of the COVID-19 pandemic.

Cash Flows - Financing Activities

Net cash provided by financing activities was $17.3 million and $29.3 million during the six months ended June 30, 2021 and 2020, respectively.

During the six months ended June 30, 2021 and 2020, net proceeds from the Revolving Credit Facility, net of issuance costs, were $20.0 million and $35.5 million, respectively. During the six months ended June 30, 2020, net repayments on the Company’s former asset based lending facility totaled $(19.9) million.

During the six months ended June 30, 2021, proceeds from the Company’s new term loan, net of issuance costs and related issuance of common stock warrants were $75.3 million and $16.3 million, respectively. During the six months ended June 30, 2021, repayments of borrowings on Replacement Term Loan, including transaction fees were $(94.9) million.

Additionally, during the six months ended June 30, 2020, proceeds from the PPP Loan were $8.7 million.

Factoring Arrangements

The Company has factoring arrangements with financial institutions to sell certain accounts receivable. During the six months ended June 30, 2021 and 2020, total receivables sold under certain non-recourse factoring arrangements was $158.2 million and $94.6 million, respectively. We utilize factoring arrangements as part of our working capital needs. The costs of participating in these arrangements are immaterial to our results. Refer to Note 3, Summary of Significant Accounting Policies, in Item 8, “Financial Statements and Supplementary Data,” included within our Annual Report on Form 10-K for the twelve months ended December 31, 2020, for additional information.

Our Debt and Other Commitments

We and certain of our subsidiaries are party to the asset-based Revolving Credit Facility, as defined and described above. The Revolving Credit Facility provides for $75.0 million of funding on a revolving basis, subject to borrowing base availability, and matures on March 13, 2023. As of June 30, 2021, there was $44.2 million outstanding on the Revolving Credit Facility bearing interest at a weighted average rate of 5.3%.

In February 2021, the Company entered into a limited consent to the Loan Agreement governing its Revolving Credit Facility, that among other modifications, consented to the Company’s entering into the Senior Term Loan Credit Agreement, as defined and described below.

On April 19, 2021, the Company entered into an amendment to the Loan Agreement governing its Revolving Credit Facility, that among other modifications, increased the maximum amount of credit available under the Revolving Credit Facility from $75.0 million to $85.0 million. The amendment also increased sub-limits relating to the Company’s ability to borrow against in-transit inventory as well as inventory located in the Company’s Mexico facilities.

In addition, the Company and certain of its subsidiaries, have been or are parties to other long-term credit agreements, including the Senior Term Loan Credit Agreement, as defined and described below. As of June 30, 2021, there was $100.0 million outstanding on the Senior Term Loan Credit Agreement bearing cash interest at 7.50%.

In February 2017, the Company completed a public offering of 2.75% Convertible Senior Notes due 2022 (the “Convertible Notes”) in an aggregate principal amount of $125.0 million. Interest is payable on January 1 and July 1 of each year.

First Lien Term Loan Agreement and Second Lien Term Loan Agreement

In March 2019, the Company amended and restated the existing term loan agreement (the “First Lien Term Loan Agreement”) to permit the Company to, among other things, enter into the Second Lien Term Loan Agreement, as defined and described below.

In May 2020, the Company entered into amendments, limited waivers and consents in connection with the Loan Agreement governing its Revolving Credit Facility, the First Lien Term Loan Agreement, and the Second Lien Term Loan Agreement, each with an effective date of April 1, 2020, that, among other things, consented to the Company’s applying for, obtaining and incurring the PPP Loan and French Loan, each as defined and described above.

As a result of the Replacement Term Loan Amendment, as defined and described below, the outstanding balance and any accrued interest under the First Lien Term Loan Agreement and Second Lien Term Loan Agreement was replaced by the Replacement Term Loan, as defined and described below.

Replacement Term Loan

In July 2020, the Company entered into a limited consent to the Loan Agreement governing its Revolving Credit Facility and the Replacement Term Loan Amendment (the “Eleventh Term Amendment”) to amend the First Lien Term Loan Agreement and Second Lien Term Loan Agreement. The Eleventh Term Amendment provided replacement term loans (the “Replacement Term Loan”) that refinanced and replaced the outstanding balances under the First Lien Term Loan Agreement and Second Lien Term Loan Agreement, plus any accrued interest thereon.

Senior Term Loan Credit Agreement

On February 2, 2021, the Company entered into a credit agreement (the “Senior Term Loan Credit Agreement”) with Atlantic Park Strategic Capital Fund, L.P. (“Atlantic Park”), as administrative agent and collateral agent, and the lenders party thereto (collectively, the “Lenders”). The Senior Term Loan Credit Agreement provides for an initial term loan facility in the aggregate principal amount of $100.0 million, all of which has been borrowed by the Company and used to repay the Replacement Term Loan, as described above, and a delayed draw term loan facility in the aggregate principal amount of up to $125.0 million, which may be drawn by the Company in up to three separate borrowings through June 30, 2022. A ticking fee of 25 basis points per annum will accrue on the undrawn portion of the delayed draw term loan facility.

Covenant and Liquidity Matters

The Loan Agreement governing our Revolving Credit Facility contains various negative and affirmative covenants and other requirements affecting us and our subsidiaries, including restrictions on incurrence of debt, liens, mergers, investments, loans, advances, guarantee obligations, acquisitions, asset dispositions, sale-leaseback transactions, hedging agreements, dividends and other restricted payments, transactions with affiliates, restrictive agreements and amendments to charters, bylaws, and other material documents. The Revolving Credit Facility does not include any financial maintenance covenants other than a financial covenant that stipulates the Company will not make capital expenditures exceeding $30.0 million during any fiscal year.

We are subject to variable interest rates on our Senior Term Loan Credit Agreement and Revolving Credit Facility. At June 30, 2021, 1-Month LIBOR and 3-Month LIBOR approximated 0.10% and 0.15%, respectively.

The Company is in compliance with all of its financial covenants as of June 30, 2021.

In addition to our long-term debt, we have other cash commitments related to leases. We account for these lease transactions as operating leases and rent expense related thereto for the six months ended June 30, 2021 and 2020 was $7.6 million and $7.2 million, respectively. We expect to continue to utilize leasing as a financing strategy in the future to meet capital expenditure needs and to reduce debt levels.

Refer to Note 8, Long-term Debt, and Note 9, Leases, in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” included within this Quarterly Report on Form 10-Q for additional information.

Consolidated EBITDA

Consolidated EBITDA (defined as “Consolidated EBITDA” in our Senior Term Loan Agreement) is a comparable measure to how the Company assesses performance. As discussed further in the Segment Information and Supplemental Analysis section above, we use certain non-GAAP financial measures to assess performance and measure our covenant compliance in accordance with the Senior Term Loan Agreement, which includes Adjusted EBITDA at the operating segment level. For the measurement of our Senior Term Loan Agreement financial covenants, the definition of Consolidated EBITDA limits the amount of non-recurring expenses or costs including restructuring, moving and severance that can be excluded to $10 million in any cumulative four fiscal quarter period. Similarly, the definition limits the amount of fees, costs and expenses incurred in connection with any proposed asset sale, offering of equity interests or any indebtedness, lender agent fees, and fees in connection with the maintenance and/or forgiveness of the PPP Loan, in aggregate, that can be excluded to $8 million in any cumulative four fiscal quarter period.

The reconciliations of net income (loss) attributable to Horizon Global to EBITDA, EBITDA to Adjusted EBITDA and Adjusted EBITDA to Consolidated EBITDA are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Last Twelve Months Ended June 30,
	2021		2020		Change		2021		2020		Change		2021		2020		Change
	(dollars in thousands)						(dollars in thousands)						(dollars in thousands)
Net income (loss) attributable to Horizon Global	$	1,290	$	(16,340)	$	17,630	$	(13,520)	$	(33,080)	$	19,560	$	(17,000)	$	80,720	$	(97,720)
Net loss attributable to noncontrolling interest	(330)		(380)		50		(670)		(670)		—		(1,420)		(1,320)		(100)
Net income (loss)	$	960	$	(16,720)	$	17,680	$	(14,190)	$	(33,750)	$	19,560	$	(18,420)	$	79,400	$	(97,820)
Interest expense	6,980		8,220		(1,240)		14,030		16,410		(2,380)		29,300		48,530		(19,230)
Income tax expense (benefit)	1,400		80		1,320		2,400		70		2,330		750		(9,320)		10,070
Depreciation and amortization	5,220		5,470		(250)		10,720		10,530		190		23,100		21,680		1,420
EBITDA	$	14,560	$	(2,950)	$	17,510	$	12,960	$	(6,740)	$	19,700	$	34,730	$	140,290	$	(105,560)
Net loss attributable to noncontrolling interest	330		380		(50)		670		670		—		1,420		1,320		100
Loss (income) from discontinued operations, net of tax	—		—		—		—		500		(500)		—		(182,240)		182,240
EBITDA from continuing operations	$	14,890	$	(2,570)	$	17,460	$	13,630	$	(5,570)	$	19,200	$	36,150	$	(40,630)	$	76,780
Adjustments pursuant to Senior Term Loan Agreement:
Losses on sale of receivables	270		250		20		500		540		(40)		1,370		1,170		200
Debt extinguishment losses	—		—		—		11,650		—		11,650		11,650		—		11,650
Non-cash equity grant expenses	850		900		(50)		1,710		1,320		390		3,390		2,500		890
Other non-cash expenses or losses	1,790		220		1,570		3,920		1,750		2,170		1,360		1,210		150
Term Loans related fees, costs and expenses	—		—		—		—		—		—		—		(120)		120

Lender agent related professional fees, costs, and expenses(a)	90		270		(180)		100		380		(280)		100		320		(220)
Non-recurring expenses or costs(b)	130		970		(840)		(820)		4,480		(5,300)		110		17,080		(16,970)

Non-cash losses on asset sales	10		20		(10)		10		90		(80)		10		1,240		(1,230)



Other	(10)		(20)		10		(30)		(20)		(10)		(30)		660		(690)
Adjusted EBITDA	$	18,020	$	40	$	17,980	$	30,670	$	2,970	$	27,700	$	54,110	$	(16,570)	$	70,680
Non-recurring expense limitation(a)(b)	N/A		N/A		N/A		N/A		N/A		N/A		N/A		(7,080)		7,080
Other	10		20		(10)		30		20		10		30		(660)		690
Consolidated EBITDA	$	18,030	$	60	$	17,970	$	30,700	$	2,990	$	27,710	$	54,140	$	(24,310)	$	78,450

(a) Fees, costs and expenses incurred in connection with any proposed asset sale, offering of equity interests or any indebtedness, lender agent fees, and fees in connection with the maintenance and/or forgiveness of the PPP Loan are not to, in aggregate, exceed $8 million in adjustments in determining Consolidated EBITDA in any four fiscal quarter period.

(b) Non-recurring expenses or costs including restructuring, moving and severance are not to, in aggregate, exceed $10 million in adjustments in determining Consolidated EBITDA in any four fiscal quarter period.

Credit Rating

The Company’s debt agreements do not require that we maintain a credit rating.

Outlook

Our business remains susceptible to economic conditions that could adversely affect our results, including potential negative impacts of the COVID-19 pandemic. The trend of customer orders in the economies that most significantly affect our demand has been strong, including the United States and Europe. However, we have experienced rising pricing to certain raw materials, including steel, and while the Company endeavors to recover incremental input costs through pricing actions, the recoveries generally occur over time and are not guaranteed. In addition, recent macroeconomic factors, such as constraints on shipping container availability, port congestion and the global microchip shortage have resulted in a delay of receiving raw materials by the Company or some of our OE customers, which has resulted in retiming some customer orders to future periods. We continue to monitor these supply constraints and remain committed to fulfilling and delivering our customers’ orders driven by the strong product demand we have experienced.

We also remain focused on maintaining liquidity to fund our operations, while considering future maturities in our capital structure, which have been addressed and will continue to be addressed as the Company continues to execute upon its business plan and operational improvement initiatives in 2021. These initiatives were put in place to streamline and simplify its operations and provide a roadmap to achieve our strategic priorities of margin expansion, liquidity management and organic business growth.

We believe the unique strategic footprint we enjoy in our market space will benefit us as our OE customers continue to demonstrate a preference for stronger relationships with few suppliers. We believe that our strong brand positions, portfolio of product offerings, and existing customer relationships present a long-term opportunity for us and provide leverage to see balanced growth in OE, aftermarket and retail businesses. That position and brand recognition allows us flexibility to bring our products to market in various channels that we believe provide us the ability to leverage our current operational footprint to meet or exceed our customer demands.

Impact of New Accounting Standards

See Note 2, New Accounting Pronouncements, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this Quarterly Report on Form 10-Q.

Critical Accounting Policies

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates that affect both the amounts and timing of the recording of assets, liabilities, net sales and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, our evaluation of business and macroeconomic trends, and information from other outside sources, as appropriate.

There were no material changes to the items that we disclosed as our critical accounting policies in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the twelve months ended December 31, 2020.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Evaluation of disclosure controls and procedures

As of June 30, 2021, an evaluation was carried out by management, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) pursuant to Rule 13a-15 of the Exchange Act. The Company’s disclosure controls and procedures are designed only to provide reasonable assurance that they will meet their objectives. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2021, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that they would meet their objectives.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended June 30, 2021, that have materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to claims and litigation in the ordinary course of business, but we do not believe that any such claim or litigation is likely to have a material adverse effect on our financial position, results of operations, or cash flows. For additional information regarding legal proceedings, refer to Note 10, Contingencies, included in Part I, Item 1, “Notes to Condensed Consolidated Financial Statements,” within this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

A discussion of our risk factors, which could materially affect our business, financial condition or future results, can be found in the section entitled “Risk Factors,” in our Annual Report on Form 10-K for the twelve months ended December 31, 2020. There have been no significant changes in our risk factors disclosed in our 2020 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits.

Exhibits Index:


3.1(b)			Amended and Restated Certificate of Incorporation of Horizon Global Corporation, as amended.
3.2(a)			Amended and Restated By-laws of Horizon Global Corporation.
10.1*			Fourth Amendment to Loan and Security Agreement dated April 19, 2021, by and among Horizon Global Americas Inc. and Cequent Towing Products of Canada Ltd., as borrowers, Horizon Global Corporation, Horizon Global Company LLC, Cequent Electrical Products de Mexico, S. de R.L. de C.V., and Cequent Sales Company de Mexico, S. de R.L. de C.V., as guarantors, the lenders party thereto and Encina Business Credit, LLC, as agent for the Lenders.
31.1			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			Inline XBRL Instance Document. (not part of filing)
101.SCH			Inline XBRL Taxonomy Extension Schema Document.
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104			Cover Page Interactive Data File (embedded within the Inline XBRL document).


(a)						Incorporated by reference to the Exhibit filed with our Current Report on Form 8-K filed on February 20, 2019 (File No. 001-37427).
(b)						Incorporated by reference to the Exhibit filed with our Quarterly Report on Form 10-Q filed on August 8, 2019 (File No. 001-37427).

* Certain exhibits and schedules are omitted pursuant to Item 601(a)(5) of Regulation S-K, and the Company agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted exhibits and schedules upon request.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HORIZON GLOBAL CORPORATION (Registrant)

/s/ DENNIS E. RICHARDVILLE

Date:

August 3, 2021

By:

Dennis E. Richardville

Chief Financial Officer